breedon group · 2020-05-05 · 2 esg investor presentation • may 2020 executive summary and...

ASHWOOD DALE QUARRY, BUXTON

ESG INVESTOR PRESENTATION BREEDON GROUP

May 2020

2 ESG INVESTOR PRESENTATION • MAY 2020

Executive summary and priorities[slide 3]

Introduction to BreedonOur purpose and approach to sustainability [slides 4-7]

GovernanceThe QCA code, Breedon’s Board and committees [slides 8-14]

SocialHealth & safety of employees and maintaining a motivated workforce [slides 15-17]

EnvironmentalManaging reserves & resources and minimising our footprint [slides 18-20]

Appendix[slides 21-24]

Agenda


Committed to developing a sustainable business model that creates value for all stakeholders

Newly defined purpose and values determine the culture of the business and support Breedon’s strategic delivery

Focused on delivering industry best practice standards of sustainability through GCCA membership

Strong, diverse and experienced Board with robust governance processes in place

Encouraging progress on social and environmental initiatives, maintaining our licence to operate

Key priorities:‒ Embed purpose and values throughout the business‒ Continue to pursue best practice principles of corporate governance‒ Progress compliance with GCCA Sustainability Charter, including setting targets for the five

Charter pillars‒ Review non-financial KPIs

Executive summary and priorities


Largest independent construction materials business in Great Britain‒ Growing position on Island of Ireland

Broad reach with a national footprint ‒ More than 3,000 employees across c.280 facilities‒ Two cement plants; national network of quarries, ready-mixed concrete and

asphalt plants; specialist building products businesses ‒ Acquisition of CEMEX UK assets will add 100 active operations and over 650

employees to the Group

Vertically integrated, bringing value-enhancing routes to market‒ Offering spans raw materials, value-added products and contracting services

Nimble operator with local sales and distribution model‒ Focused on delivering best-in-class customer service

Consistent track record of growth, both organic and via acquisition‒ Strong cash generation provides investment for future growth

Ongoing success dependent on pursuing a sustainable business model‒ Committed to building trust and reputation amongst all stakeholders

A leading construction materials group

GB61%

Cement19%

Ireland20%

UNDERLYINGEBIT

£116.6m2019

GB50%Cement

29%

Ireland21%

GROUPREVENUE

£929.6m2019


Breedon is an inherently local business with a wide range of stakeholders

The Group seeks to benefit all of these groups, from the communities in which it operates and the customers it serves through to its employees, suppliers and shareholders

To promote a common culture across the organisation, Breedon defined in 2019 a clear purpose and set of values that will support the successful delivery of the Breedon strategy

Led by the Board and Executive Committee (ExCom), the Group is embedding the purpose and values within the organisation to create a work place where its people feel safe, proud and motivated to do their best

This will drive the performance of the business, motivating and engaging employees, building customer loyalty and strengthening our relationship with local communities

A clear purpose and values at the heart of our business

Breedon’s PurposeTo make a material difference to the lives of our colleagues, customers and communities

Breedon’s ValuesKeep it simpleShow you careMake it happenStrive to improve


Breedon’s national network of local relationships is a key competitive advantage

Developing and sustaining good relationships with local authorities, landowners and communities is central to the success of our business and maintaining our licence to operate

We support the communities in which we operate in a variety of ways, including:

‒ Funding and donation of building materials to local projects‒ Engagement with, and support of, local schools‒ Quarry open days and other community events‒ Charity fundraising by employees

The strength of Breedon’s local relationships is particularly evident in the Peak District National Park, where the Group in 20181:

‒ Contributed £61m to the Peak Park economy‒ Accounted for 7.0% of the Park’s total economic output‒ Supported more than 270 jobs (1.8% of total employment)

Strong community relations central to maintaining licence to operate

1 Economic Impact Assessment report commissioned from Mott MacDonald, 2020


Playing an important role in the economic development of the UK and Ireland, Breedonworks continuously to reduce the impact of its operations on people and the environment

The Group became a full member of the Global Concrete and Cement Association (GCCA) in 2018, which drives responsibility in the manufacture and use of cement and concrete

As a full member, Breedon will comply with the GCCA Sustainability Charter. To do so, the Group will be required to:‒ Develop KPIs and set targets for the five pillars of the Charter‒ Publish company level sustainability performance‒ Report standardised plant level sustainability data to the GCCA through an

external service provider‒ Encourage the implementation of the pillars of the Charter across the value chain

The GCCA requirements relate only to cement and concrete. Breedon intends to set targets and collect data on all product groups

Breedon recently appointed a Head of Sustainability, who will report directly into ExCom

Committed to industry best practice standards of sustainability

GCCA Sustainability Charter Pillars and Reporting1

1 Full Charter included in Appendix

HEALTHAND SAFETY

CLIMATE CHANGEAND ENERGY

CIRCULARECONOMY

ENVIRONMENT & NATURE

SOCIALRESPONSIBILITY


Governance


Breedon recognises the importance of sound corporate governance

The Group is fully compliant with the QCA Corporate Governance Code and seeks to align with best practice wherever possible

Where reasonable and proportionate to do so, Breedon will also seek to comply with the FRC Code

Breedon has placed particular emphasis on refreshing and improving the independence of the Board, with the appointment in 2019 of a non-executive chairman and the recent appointment of three new independent non-executive directors (including new Chairs for the Audit and Remuneration Committees)

In light of recent changes to both the QCA and FRC Codes, Breedon is also taking steps to improve communication with all stakeholders, including broadening its understanding of the company’s purpose and culture

Fully compliant with the QCA Corporate Governance Code

QCA CORPORATE GOVERNANCE CODE PRINCIPLES

Principle 1: Establish a strategy and business model which promotes long-term value for shareholders

Principle 2: Seek to understand and meet shareholder needs and expectations

Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success

Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation

Principle 5: Maintain the Board as a well-functioning, balanced team led by the chair

Principle 6: Ensure that, between them, the directors have the necessary up-to-date experience, skills and capabilities

Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

Principle 8: Promote a corporate culture that is based on ethical values and behaviours

Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

Principle 10: Communicate how the company is governed and is performing by maintaining dialogue with shareholders and other relevant stakeholders


The Breedon Board has been significantly refreshed in recent years, bringing greater independence, diversity and relevant corporate experience

Strong, experienced and diverse Board

A – Audit Committee R – Remuneration Committee N – Nomination Committee S – Senior Independ Director * - Chair

Amit BhatiaNon-executive Chairman

Appointed to Board: 2016 (Chairman since 2019)Committees: N*

Background Founder and CEO of Swordfish Investments, a private equity fund, and Chairman of the Global Relief Initiative, a philanthropic trust, and Chairman of Queens Park Rangers Football Club. Also a Partner of SummixCapital and serves on the Advisory Board of Metro Bank.

Background Prior to Breedon, spent 20 years at Aggregate Industries, working in Europe and the US. Appointed CEO of Aggregate Industries’ European business in April 2014.

Pat WardGroup Chief Executive

Appointed to Board: 2016

Committees: n/a

Background Formerly Group Financial Controller at Drax Group. Previously spent 15 years in international building materials industry, holding senior finance roles at Hanson PLC in the UK, Europe and Australia.

Rob WoodGroup Finance Director


Committees: n/a

Background Former Partner at Olswang LLP, COO of Aistemos Limited, and senior positions held with Dewey Ballantine LLP and Simmons & Simmons.Currently SID and Chair of Remuneration at Investec Bank PLC, NED and Chair of Remuneration at Polypipe and Deputy Chair of Barnardo’s.

Moni ManningsNon-executive Director


Committees: A, R*, N

Background Group Finance Director of Spectris PLC, retiring in March 2019 after 13 years. Currently NED and Chair of Audit and Risk Committee at discoverIE, and Chair of Risk Management and Audit Committee at Kier Group plc. Previously served as NED of Spirax-Sarco Engineering, including as Chair of the Audit Committee and SID.

Clive WatsonNon-executive Director


Committees: A*, R, N, S

Background Senior positions held in oil and gas, logistics and infrastructure companies, corporate finance lawyer at Slaughter and May. Currently Chief of Staff, General Counsel and Board director at Heathrow Airport Limited. Also Chair of Robert Walters Plc, and NED and Audit and Risk Committee of the British Tourist Authority.

Carol HuiNon-executive Director


Committees: A, R, N


Key duties:

Regularly review the structure, size and composition of the Board and make recommendations with regard to any changes Succession plan for directors and other senior executives, taking into account the challenges and opportunities facing the

company, and the skills and expertise needed in the future Keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the

continued ability of the organisation to compete effectively Stay fully informed about strategic issues and commercial changes affecting the company and its markets Identify and nominate for the approval of the Board, candidates to fill Board vacancies as and when they arise

2019 achievements:

Recommended the appointment of Amit Bhatia as Non-executive Chairman, replacing the previous Executive Chairman Recommended the appointment of Clive Watson and Moni Mannings as independent1 Non-executive Directors, replacing two

long-serving directors (followed, in 2020, by a recommendation to appoint Carol Hui as a further independent Non-executive Director)

Considered the latest succession plans for senior management, which were substantially updated following the April 2018 acquisition of Lagan

Committee priorities:

Monitor the size and composition of the Board and, if appropriate, make recommendations on possible changes Keep succession plans for senior management under review

Nomination CommitteeFocused on maintaining a strong and effective leadership team

1 According to the definition of the QCA code

Members

Amit BhatiaChair

Carol Hui

Moni Mannings

Clive Watson


Key duties:

Monitor the integrity of the Financial Statements and ensure that the interests of shareholders are properly protected in relation to financial reporting and internal control

Monitor and review effectiveness of internal financial controls, the internal control and risk management systems and the compliance environment operating within the Group

Make recommendations to the Board in respect of the external auditor, review and monitor their independence and objectivity and approve their remuneration

Consult with the external auditor on the scope of their work and review all major points arising from the audit Review reports on whistleblowing notifications and ensure arrangements in place for proportionate and independent

investigation

External Auditor:

KPMG originally appointed in 2008. Reappointed following tender process in 2019 New lead audit partner from 2018, with rotation every five years

Committee priorities:

Continue to ensure that the Group’s financial statements meet all relevant accounting standards Keep requirement for internal audit function under review

Audit CommitteeFocused on ensuring high standards of financial governance

Members

Clive WatsonChair

Carol Hui

Moni Mannings


Risk appetite set by the Board, and reviewed annually, with a clear risk management framework

Clear actions and processes developed to mitigate all material existing and emerging risks

Additional risk added in 2019 in relation to environment and climate change

Clear and robust risk management framework

Audit CommitteeReviews the sustainability and effectiveness of risk management processes and internal controls on behalf of the Board

Group Finance DirectorProvides a twice-yearly update to the Board on the key risks and controls within the Group, highlighting the roles and responsibilities of key management in managing those risks

Group Controls ManagerWorks with the businesses to identify and assess the key risks and controls and reports them to the Group Finance Director. In addition, facilitates the embedding and monitoring of the Board’s agreed risk management process within the business under the direction of the Group Finance Director

Risk-owners / Senior Management TeamEnsures that the risk management framework is implemented effectively within their business areas. Their key responsibilities include ensuring an effective risk culture is in place, with risk management embedded in the business

Principal risk Appetite Impact LikelihoodNet risk rating

Movement from prior year

Acquisitions Medium / High High Possible High

Competition & margins Very low High Probable High

Environment & climate change Very low Medium Possible Medium N/A

Financing, liquidity & currency Very low Medium Possible Medium

Health and safety Very low Medium Possible Medium

IT and cyber security Very low High Possible High

Legal & regulatory Very low Low Possible Low

Market conditions Medium / High High Probable High

People Low Medium Possible Medium

Risk Heat Table (2019)BoardResponsible for the Group’s systems of risk management and internal controls and for reviewing their effectiveness


Key duties:

Determine and agree with the Board the broad policy for the remuneration of the Group Board Executive Directors, the Chairman and any other members of the Group’s senior executive management

Set individual remuneration arrangements for this same group of individuals Recommend and monitor the level and structure of remuneration for senior management Review and agree the overall market positioning of the remuneration package and the ongoing appropriateness and

relevance of the remuneration policy Determine the policy for, and scope of, pension arrangements for each executive director and other senior executives The design of all share incentive plans for approval by the Board and shareholders (if required) Approve the service contracts of each executive director, including termination arrangements

2019 achievements: Appointed Moni Mannings as new independent Chair of the Remuneration Committee, replacing David Williams

Committee priorities: Plans to conduct a thorough review of Group policies and practices in 2020 Long-term incentive plan to be revised during 2020, with shareholder consultation ahead of 2021 AGM

Remuneration CommitteeCommitted to incentives that are competitive and consistent with Breedon’s ambitions

Members

Moni ManningsChair

Carol Hui

Clive Watson


Social


Prioritising the health and safety of our employees

Health and safety is our absolute priority and the first item on every Board and Executive Committee meeting agenda. It is a critical element of our licence to operate and a prime focus for our businesses – our safest sites tend to be our most profitable.

OVERALL OBJECTIVES:

Targeting Zero Harm to our employees and contractors

Providing good health and wellbeing programmes

Continuing to develop and maintain a competent trained workforce

INITIATIVES AND METRICS:

Measure and monitor LTIFR (Lost Time Injury Frequency Rate) and TIFR (Total Injury Frequency Rate) to employees and contractors

Encourage more Safety Observations

Management engagement with the workforce through Visible Felt Leadership (VFL) programme

Employee H&S and development programmes

PROGRESS:

61% decrease in LTIFR over the last five years

Bi-monthly health & wellbeing newsletter launched across the business

Training held throughout the business to improve the quality of incident investigations and establish root causes

Lagan, Alpha landfill site and Kinnegad Works achieved accreditation to the new ISO 45001 H&S management standard

Numerous safety awards won by colleagues around the businessPRIORITIES AND TARGETS:

Target further improvement in Employee LTIFR for 2020

Launch new Group H&S Procedures manuals, including revised Group H&S Standards

Renew focus on pedestrian and vehicle segregation; rollout of MPA guidelines

Integrate Group statutory inspection programmes to enhance good practice and allow easier management decision-making on priority areas for improvement

Extend occupational health screening X-ray service into prevention of exposure to RCS and complete all remaining medical assessments

Increase number of mental health first-aiders, as part of health and wellbeing programme

Roll out Occupational Road Risk Policies and training


Attracting, retaining and motivating our workforce

It is vital that Breedon continues to attract new and diverse talent in to the business, and develop the knowledge, skills and behaviours of our people to ensure they reach their full potential. Failure to recruit, develop and retain the right people could have an adverse impact on our ability to meet our strategic objectives.

OVERALL OBJECTIVES:

Ensure we are an attractive business for the industry’s top talent

Retain a high quality workforce

Motivate our workforce to provide outstanding customer service and industry leading health and safety


Breedon purpose and values developed in 2019 to support our vision

Inaugural employee engagement survey conducted in 2019

Apprenticeship, graduate and learning & development programmes

Staff turnover monitored as an indicator of engagement

Gender pay gap

PROGRESS:

Carried out first employee engagement survey with c.50% response rate

2018 median gender pay gap: Men 0.5% higher than women

Comprehensive apprenticeship, commercial and management programmes underway 1

One third of employees participating in SAYE schemes

PRIORITIES AND TARGETS:

Expand reach and content of BMDP in to Ireland and roll out BCDP across the Group in 2020

Launch new Apprenticeship Academies

Embed new purpose and values across the Group

Increase response rate and sentiment scores of employee survey

Encourage women into senior management roles and attract them into apprenticeship and graduate schemes

1 Full detail of programmes in the Appendix


Environmental


Managing reserves and resources sustainably

Our mineral reserves and resources are the bedrock of our business. New consents are granted sparingly and with stringent conditions attached, so we must husband our reserves carefully and maximise the value of every tonne we quarry, whilst minimising our impact on the communities we serve.

OVERALL OBJECTIVES:

Maximise yield and minimise waste

Maximise economic viability of quarries through innovative design

Maintain efficient plants

Ensure positive relations with local planning authorities, communities and stakeholders


Total reserves and resources

Yield performance of aggregates quarried

Cement plant reliability levels

Tonnes recycled

PROGRESS:

Extension of BREEDON EcoTM range of eco-friendly concretes for drives, shed bases, foundations and agricultural applications

Design and deployment of specialist high-strength self-compacting concrete mixes for a robust barrier and dock ‘wet gate’ against tidal flooding

Relationships continue with communities through financial support, liaison meetings and volunteering

Continued with a strong focus on restoration projects and habitat creation, encouraging biodiversity and public access


Continue to husband our assets by converting existing mineral resources into reserves

Maximise economic viability and minimise environmental impact through innovative quarry designs

Continue to create educational opportunities in geodiversity and improve awareness of our industry through our employee STEM (Science, Technology, Engineering and Mathematics) ambassadors


Minimising our environmental footprint

Minimising the environmental impact of our operations is critical to our business, with increasing scrutiny and pressure on natural resources. We have a responsibility to use as few resources as possible, continuously recycle products and reduce ourwaste and emissions.

OVERALL OBJECTIVES:

Comply at minimum with SECR / ESOS and GCCA guidelines

Minimise energy and water usage

Minimise greenhouse gas emissions

Maintain compliance with ISO 14001

Minimise environmental impacts on local communities


Percentage of alternative fuels used in cement plants

Annual electricity consumption and water usage

Renewable energy generation (Naunton, Blinkbonny and Breedon)

Annual fuel consumption of all types

Carbon emissions and intensity

Increased product recycling and reduction in waste streams

PROGRESS:

Established a new centralised data capture process which will enable us to better monitor energy consumption and improve granularity of reporting

Utilised new, low-drag, filter bag technology in Kinnegad cement plant resulting in a significant reduction in energy consumption and waste generated

Improved lighting and air-conditioning systems, and pumps and conveyor motors replaced with more efficient equipment

100 per cent of the electricity purchased is from renewable sources


Increase the rate of recycling of on-site waste and internally-produced product

Implement a strategy to reduce fuel consumption in our transport fleets

Continue to introduce more sustainable, green energy substitutes into our business and reduce reliance on fossil fuels and their derivatives

Ensure that all our managers are trained in sustainability principles, with the support of the Institute of Environmental Management and Assessment

Standardise energy and carbon reporting systems across the Group


Appendix


Breedon’s remuneration frameworkKey elements Operation Maximum opportunity Performance conditions

Base salaryTo provide a competitive base salary reflective of the particular skills and experience of an individual

• Reviewed annually or on a significant change of responsibilities

• Salaries determined by reference to the skills and personal performance of the individual

• External market data and pay and employment conditions elsewhere in the Group also taken in to account

• No maximum salary• Increases will normally be broadly in line with the

range of salary increases awarded to the wider workforce

• Increases above this level may be awarded to take into account individual circumstances, such as a change in the scope or responsibilities of the role

• None

Annual cash bonusTo incentivise the delivery of annual financial, strategic and safety objectives

• EBIT performance measures and targets are set at the start of the financial year or later if appropriate

• Based on performance, bonuses are paid in cash shortly after the completion of the audit of the annual results

• For executive directors, the maximum opportunity is 125 per cent of salary, reflecting a desire to retain a high proportion of variable remuneration

• Bonuses are not pensionable

• Assessed against financial targets• Increased or decreased based on

average capital employed against targets, subject to overall limit

• May be reduced or eliminated if safety performance reaches unacceptable levels

Performance share plansTo drive superior performance and delivery of long-term objectives, aid retention and align director and shareholder interests

• Annual share-based awards with a three-year performance period

• Rolling annual awards• Award limit is 250% of base salary

• Typically measured over a period of at least three years

• Conditions and weighting reviewed annually

• Current performance measure is EPS

PensionTo aid recruitment and retention by providing for long-term retirement benefits

• A salary supplement equivalent to the contribution that would otherwise be made to a defined contribution pension plan

• Group Chief Executive and Finance Director receive a salary supplement of 17.5% of their base salary in lieu of a pension contribution

• None


GCCA Sustainability Charter Pillars and Reporting

HEALTHAND SAFETY

CLIMATE CHANGEAND ENERGY

SOCIALRESPONSIBILITY

ENVIRONMENT & NATURE

CIRCULARECONOMY

a) Apply the good safety practice guidelines of the GCCA b) Promote the sharing of good health practices c) Report annually to the GCCA employee safety data in line with guidelines

a) Develop a climate change mitigation strategy, and publish targets/progress b) Report annually to the GCCA climate change data in line with the guidelines

a) Publish a Code of Conduct incorporating the principles of internationally proclaimed human rights b) Apply the Social Impact Assessment guidelines c) Establish a systematic dialogue process with stakeholders

a) Apply the Environment and Nature guidelines b) Set emission targets and report publicly on progress c) Report annually to the GCCA on emissions, biodiversity and water in line with the guidelines

a) Promote the principles of circular economy across the value chain b) Apply the guidelines developed for fuel and raw material use in cement production c) Report annually to the GCCA circular economy data in line with guidelines


37 new enrolments and 20 completions in 2019

132 completions in 2019, taking the total to 201

piloted in 2019 with 14 participants

Breedon’s development, commercial and management programmes

Apprenticeships Higher Education Programme

Breedon Management Development Programme (BMDP)

Breedon Commercial Development Programme (BCDP)

25 appointed in 2019, taking the total to 54 since April 2017

started in 2019 with 17participants

LGV Driver Apprenticeship and Trainee Manager Programmes

breedon group · 2020-05-05 · 2 esg investor presentation • may 2020 executive summary and...

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