ASHWOOD DALE QUARRY, BUXTON ESG INVESTOR PRESENTATION BREEDON GROUP May 2020
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
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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
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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
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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
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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
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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
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Governance
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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
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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
Appointed to Board: 2014
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
Appointed to Board: 2019
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
Appointed to Board: 2019
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
Appointed to Board: 2020
Committees: A, R, N
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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
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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
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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
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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
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Social
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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
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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
INITIATIVES AND METRICS:
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
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Environmental
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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
INITIATIVES AND METRICS:
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
PRIORITIES AND TARGETS:
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
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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
INITIATIVES AND METRICS:
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
PRIORITIES AND TARGETS:
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
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Appendix
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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
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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
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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