Breedon Group plc (CQB0.F) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us on this call this morning. We've delivered a resilient performance for the first 10 months of 2025 despite sustained market challenges that we have experienced. Our focus on self-help and strategic execution has continued to deliver profitable growth. GB in the U.S. residential demand has been particularly subdued, and that has been compounded by infrastructure delays in GB and Ireland. Nonetheless, we have stayed focused on the integration of Lionmark, which has balanced our end market exposure in the U.S. towards infrastructure where the market remains encouraging, and we've continued with operational and commercial initiatives to maximize self-help.

Turning to the revenue performance that we've seen in the year-to-date. We've obviously on a reported basis, seen a further increase in the 10 months to the end of October. On a like-for-like basis, the revenue performance remains pretty consistent with what we saw in the first half of the year, and that's reflected in both volumes and pricing. So volumes remain broadly in line with where they were to the half year, slightly down with a bigger inflection into ready-mix concrete due to its residential housing exposure. And pricing has probably been a little bit more resilient than we might have expected. It is down year-on-year, but it's down marginally in the very low single digits. If we look across the 3 divisions, the GB performance has really been underpinned by a good deal of self-help and operational and customer initiatives that have gone on within that business. The Irish business has continued to trade robustly, particularly in the context of those significant infrastructure projects having been deferred. And in the U.S., whilst there is a very significant weighting towards the second half of the year, it's slightly behind where we guided to at the half year. So we're going to see a revenue performance more in line with 40-60 and profitability more like 30-70 for the U.S. business over the course of 2025. When you put all of that together, year-on-year, we will deliver yet another year of profitable growth for the group and underlying EBITDA for 2025 in the range of GBP 275 million to GBP 280 million and a reduction in covenant leverage to the year-end as we outlined at the half year. Turning to the outlook. In the medium term, we remain encouraged by the U.K. government's commitment to infrastructure and housebuilding whilst acknowledging that today ahead of the budget, there is considerable economic and fiscal uncertainty. The national development plan in the Republic of Ireland does represent a significant increase in the potential infrastructure investments in the next few years, and we believe we will be well placed to benefit from that. And enabling legislation is also being brought forward in Ireland, in particular, the critical Infrastructure Bill and the emergency powers bill, both owned and fast-tracking strategic projects, which is encouraging for our business there. And in the U.S., there remains considerable opportunity to build out our business, and there will be upside from residential when activity returns. However, in the near term, nonresidential infrastructure markets remain resilient and market growth expectations have moderated in the U.S. In summary, we have an excellent team, 3 leading platforms and a well-invested business. So although there is uncertainty about the timing of the market recovery, particularly in the U.K., we remain well placed to take advantage of it when it comes. Operator, please can we now open the lines and take questions.

[Operator Instructions] We will take our first question from Aynsley Lammin from Investec.

Just 2 for me, please. Just on GB, obviously, you're saying that the trends have kind of continued as they were since the half year. But have things got worse in the GB? Just a bit more color maybe on some of the end markets, resi and infrastructure from what you've seen over recent months. And then as you look in -- I know this is about FY '25, but just some of the comments around U.S. growth moderating. Is that primarily residential? Are you a bit more kind of cautious around the outlook for FY '26 and the trends as we go into next year on the U.S., just underlying general construction activity?

On the GB trends, I mean I think you would have seen the NPA stats for Q3. I mean, if anything, the markets got slightly weaker. And I would say aggregates and asphalt have held up and been fairly resilient, but ready-mix and you would have seen the stats, it's now the lowest in 62 or 63 years. And cement, which is correlated to that, there were some recent stats out, which date back to 2024 because of the competition restrictions on data, but it shows that some domestic use of cement is now at its lowest since 1950. The other information that's come out is probably the latest CPA forecast. Their autumn forecast, which just show that growth has been moderating as well. So if anything, I'd say the biggest challenge at the moment is ready-mix correlated to housebuilding. And given the sort of occurrence of hiatus in advance of the budgets and some of the stats and some of the surveys that have come out from RICS, it's almost halted that market.

I think in terms of the U.S. market, in residential, the expectation coming into this year was that there would be some significant moves from the Fed as we came through the year and that, that might in turn lead to a kick start in residential in the U.S. market. That clearly hasn't happened. There is talk of cuts coming through during the course of '26. which may lead to an increase of activity as we move through the year, but it's definitely shifted out to the right. I would say infrastructure and sort of commercial industrial over in the U.S. remains pretty buoyant. And there is opportunity there, particularly if we have a warmer and less damp winter and spring season moving into 2026.

We are now taking our next question from Rajesh Patki from Barclays.

I've got 2 as well. The first one is on pricing. I think you mentioned pricing was down year-on-year, but if you could provide any incremental color by region and if you have seen any changes in competitive behavior? And the second one, again, going back to '26 outlook. It might be too early to give precise outlook for '26, but any initial thoughts on how you're seeing the shape of the recovery at this point for each of the 3 regions?

Rajesh, in terms of pricing, it won't be a surprise to hear that pricing has been challenging in the GB market, in particular this year. Coming back to what I -- to my earlier remarks though probably a bit more resilient than I would have expected. There has been reasonable pricing in the U.S. and that's consistent with statements from some of the domestic majors that have been made over the course of the year that actually -- the pricing environment remains positive in that market. In Ireland, the way that the market operates is very much a year-to-year tendering process. And this year, the tendering prices were broadly where we expected them to be as we moved into the spring summer servicing season. Looking forward to '26, I think it's quite difficult to call the precise timing of a market recovery in GB at the moment. And certainly, until we're through the budget and into next year, that remains a bit of a moot point. I think for residential in the U.S., whilst I think it is plausible to see some sort of recovery come through as the year moves through. I think, again, it's more likely to be second half weighted than first half weighted. And then in Ireland, it really depends on the timing of when the euros actually get deployed for the national development plan. We are encouraged by the fact that the money is available and there is moves in terms of the legislation to ensure that as projects come to fruition, they can actually start on a reasonable time scale. But we don't yet know exactly how and when those monies will be deployed.

We will take our next question from Ed Prest from Berenberg.

So a couple from me as well. Firstly, you've talked about inquiries not converting into orders in the U.K. Do you have any sense of what's blocking this? Or is it just a case of time and they will come through? And then secondly, in the U.S., it's 40-60 this year in terms of revenue, you guided previously to 35-65 at the half year. Which -- are you expecting FY '26, '27 to revert to a 35- 65? Or is 40-60 looking to be more normal going forward?

So in terms of the inquiries question, Ed, in order to get a sale, you need to have an order. And in order to get an order, you need an inquiry. Not all inquiries convert into orders. They are very much more as much about the logistics of a potential delivery and as they are about pricing, et cetera. We have seen, and we've been saying this consistently now for 15 months or so in GB in particular, a consistent step-up in the level of inquiries. And I think that's one of the things that continues to give us confidence about the medium term in GB. What we need now is the catalyst that will cause those inquiries to convert into those orders and then into sales. And in recent weeks, we have seen some very significant renewables energy inquiries coming through into the GB business. And I think, again, that sort of underpins our medium-term confidence that actually these markets will recover, and we will see when they do some quite significant levels of demand coming through. But at the moment, it's just difficult to call a timing on that. In terms of the split for the U.S., if you've got a long-range weather forecast for me, then I'm very happy to give you a confirmed split half 1, half 2 to 2026. But I think in all seriousness, we will continue to see a greater weighting in the U.S. business towards the second half. That is a function of the fact that the servicing operations that Lionmark in particular conducts, they don't really get going until the late spring and then they run across the summer and into the early part of the autumn. So there will continue to be a significant second half weighting. The other thing just to bear in mind, as you're looking at 2026 numbers is that we will be consolidating Lionmark for a full 12 months rather than the 10 months we have done this year and Lionmark is typically loss-making in the first 3 months of any financial year.

We are now taking our next questions from Christen Hjorth from Deutsche Bank.

Just one question for me. Just on the U.S., Gavin, just to help us maybe unpick the performance there in a little bit more detail. What's -- based on the updated guidance, what is the sort of pro forma movement in profit in that business? And how should we think about that being separated between things like poor weather, which potentially could bounce back next year versus tougher markets? And I suppose anything else that surprised you or not with Lionmark and BMC.