FROM OUR
CHAIRMAN

TO OUR SHAREHOLDERS & FRIENDS,

In an extraordinary and challenging year for our country and the world, the underlying strengths of our business, our people and our culture translated into a strong year for our Company. I am especially proud of the resilience, compassion and capabilities demonstrated by our Vulcan family in 2020. Our people quickly adapted to the rapidly changing conditions of the COVID-19 pandemic while staying focused on keeping our teams safe and healthy, serving our customers and executing on our operating disciplines.

Even as aggregates shipment volume decreased 3% year-over-year largely due to the economic impact of the pandemic, the Company delivered on its goals and captured impressive margin expansion. We achieved a 4% increase in Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) over 2019, driven by improved performance in the aggregates, asphalt and concrete segments. We also finished the year with a 14% return on invested capital. Operating cash flows were $1.1 billion, up 9% versus the previous year. We delivered on our commitment to drive value for shareholders, returning $206 million through dividends and share repurchases. Our balance sheet remained strong. We ended 2020 with a net debt-to-Adjusted EBITDA ratio of 1.6 times and ample liquidity to support the continued long-term growth of the business.

FOUR STRATEGIC DISCIPLINES STRENGTHEN OUR BUSINESS

Underpinning Vulcan’s success has been our ongoing focus on controlling what we can control. This approach is embodied in our Four Strategic Disciplines: Operational Excellence, Commercial Excellence, Logistics Innovation and Strategic Sourcing.

Our focus on these disciplines enhanced our ability to meet the specific challenges of 2020 while also achieving strong results across the board. Our commitment to these disciplines will drive continued success as the economy recovers from the pandemic, and for years to come.

Operational Excellence

We strive to be the best operator in the business, living up to the expectations of our customers and our own people. Superior performance, driven by safety and efficiency, allows us to achieve the maximum value from our assets.

The most important measure of our Operational Excellence is our safety performance. In 2020, we achieved a record overall OSHA/MSHA safety record of 0.88, which was both industry-leading and world-class. Notwithstanding this record, we deeply regret that three Vulcan employees lost their lives on the job in 2020. These tragic deaths are a permanent reminder and challenge for all of us as we work hard throughout our company to achieve our goal of zero accidents. We know it is achievable. 92% of our facilities finished the year with no lost-time injuries, and 279 of our facilities achieved “Triple Zero Plant” status, meaning zero injuries, zero safety citations and zero environmental violations. This recognition is earned through exceptional teamwork and attention to detail, meticulously following correct safety and environmental procedures,
identifying and controlling hazards and looking out for one another and the environment. Of particular note,
our Sac Tun operation in Playa del Carmen, Mexico, has just reached a remarkable 5.25 million work hours without a lost-time injury.

We have drawn upon more than 60 years of collective industry knowledge, learnings and data to maximize our operating efficiency. We support our operations teams by making sure they have the best tools and training to achieve their full potential. In 2020, this included accelerated deployment of a virtual learning platform for our robust employee training program to ensure we could continue building knowledge and skills while also protecting our people. Operating efficiency has enabled us to achieve ongoing unit profit margin improvements, even during the pandemic and extreme weather events, while continuing to generate increasing returns on invested capital.

Commercial Excellence

Our focus on commercial excellence helps drive our top-line revenue growth and expand our superior unit cash margins. We have reimagined the way we sell our products to place greater emphasis on the unique characteristics of each geographic market, and we have repositioned how we interact with our customers accordingly. In addition, by leveraging our coast-to-coast presence and sharing best practices and real-time,
forward-looking metrics, our sales teams spend less time on non-selling activities and more time responding to our customers and tailoring our efforts to meet their needs.

We have implemented our updated commercial sales approach across the Company over the last three years, including creating and refining our virtual interface capability. This capability has served us well during the pandemic. Our sales teams quickly adjusted to conducting the majority of their work virtually. They continued interacting with customers with minimal disruption, while also demonstrating the value of prior investments in mobile and remote capabilities.

Logistics Innovation

Our industry-leading logistics team manages the shipment of over half of our products. Over the last three years, we have built capabilities to address the operational challenges our customers deal with daily. Most importantly, our logistics systems give us the real-time information needed to make faster and better decisions, whether material is being moved by truck, rail, barge or ship. These systems also provide customers the important real-time information they need to better manage budgets, equipment and workforce. All of this further strengthens our customer partnerships, as we continue to increase the value we provide to them.

Strategic Sourcing

We are focused on value preservation and creation in our sourcing, which means going far beyond simply procuring items quickly and at the best price. We are leveraging our scale to save money across the organization, while ensuring that our plant managers and frontline operating teams have the right supplies and equipment they need to be efficient and safe. We have been able to standardize and adopt best practices thanks to our dedicated sourcing team, which focuses wholly on procurement, thus freeing our plant managers to focus on what they do best: serve our customers.

I am proud of our strength and efficiency in sourcing. This was vividly demonstrated in 2020 when our team secured personal protective equipment to protect our people and customers across our entire footprint while meeting our “essential business” responsibilities. We were able to accomplish this quickly given our mobile procurement platform and our extensive and well-established relationships with key suppliers across the country.

DOING THE RIGHT THING THE RIGHT WAY: OUR PEOPLE AND OUR CULTURE

In our more than 60 years as a publicly-traded company, our long-term success has been built on a culture of doing the right thing, the right way, at the right time for our stakeholders, including shareholders, communities and the people we serve, both in and outside the company.

2020 was a difficult year for all of our stakeholders. Our Company’s commitments to our health and safety, our people, our communities and the environment guided us as we addressed both new and ongoing challenges. Deemed an “essential business” early in the pandemic, we took steps to ensure there were minimal interruptions to the work we do — supplying vital materials for much-needed infrastructure and private construction projects that have employed tens of thousands of Americans during this challenging period.

Responding to COVID-19

Across the Vulcan family, we have supported each other in ways that truly define our Company’s unique and invaluable culture.

Since the beginning of the pandemic, our focus has been on protecting our people, our customers and our communities. Our Safety & Health teams worked quickly and tirelessly to develop new protocols to keep our people safe. Our procurement teams secured the personal protective equipment and supplies that they needed. We made a decision early in the pandemic, before federal action was taken, to provide a minimum of 80 hours of COVID-19 paid leave for people who were diagnosed with the virus or exposed and needing to quarantine, and to those taking care of a loved one with the illness.

We stepped up communications. We established a web portal to keep our stakeholders informed on the business, and also introduced a new digital customer platform that limited the need for person-to-person contact. We hosted regular employee virtual town halls and invited families to participate; provided updates throughout our organization so that employees were hearing regularly from the Company’s senior leadership, business unit leaders and their own supervisors; and we mailed communications and information on support resources directly to employee homes.

We also took action to help our communities. We supplied meals to healthcare workers while supporting local restaurants. Through the Vulcan Materials Company Foundation, we donated generously with a focus on helping food banks, charitable organizations and community foundations provide for the basic needs of our communities. I am particularly proud of Vulcan’s continued commitment to assist children in our local communities. Our Company has a long history of supporting education in the communities we serve. In 2020 we continued this practice in new and innovative ways alongside our traditional means of local education support. During the year, nearly every child in the country was required to continue their education through distanced learning. We helped in a number of ways, including contributions to support Wi-Fi and hotspot access to thousands of students in need across the country — in many cases we’re enabling connectivity for students not just in 2020, but through the 2021 school year. We’ve also procured hundreds of laptop computers for remote students.

Supporting Diversity & Inclusion

2020 provided tragic reminders of the intolerance and racism that persist in our society. At Vulcan, we know that these have no place in the world, and we are committed to fighting them in all their forms and supporting social justice in our communities.

I’m proud of how our employees came together to listen to one another, learn from and support one another during such unsettling times.

Vulcan is committed to justice, fairness, and equality for all. In 2015, we created Vulcan’s first Diversity & Inclusion Council, made of employees from across our footprint. An early project was the rollout of the Diversity & Inclusion Awareness Training across the Company. In 2019, I signed the CEO Action for Diversity & Inclusion™ pledge, and Vulcan forged a long-term partnership with select Historically Black Colleges and Universities (HBCUs) to support the future leaders of our communities and our team. Through our partnership with HBCUs, students have had the opportunity to participate in pitch competitions built around the theme of infrastructure, innovation and inclusion. Winners receive scholarships and internship opportunities. These competitions serve as important touchpoints for Vulcan management to increase students’ exposure to the Company and develop a pipeline of potential future Vulcan employees. This year, our divisions have begun to form their own Diversity & Inclusion councils to further drive employee ownership, and we launched the next iteration of our employee training, the Inclusion Leadership Briefing, to help our people be consciously and deliberately inclusive while we work.

Ultimately, we believe that in sharing and exploring our different knowledge, skills, styles and ideas, we become a stronger and better company. Having a diverse and inclusive workplace creates a positive work environment and a strong, healthy culture that enables us to attract, grow and retain the best talent, further enriching and developing our company and our people.

Protecting the Environment

Sustainability and environmental stewardship are key to Vulcan’s long-term success. In 2020, we maintained a citation-free environmental inspection rate of over 98%, transitioned approximately 40% of our off-road fleet into more efficient Tier IV engine technology and decreased Scope 1 and Scope 2 greenhouse gas emissions by 3.3% from 20191.

We continued essential partnerships with environmental organizations and non-governmental organizations (NGOs) in the U.S. and Mexico that strengthen our position as a sustainable business. Examples include our 30-year partnership with the Cahaba River Society, which works to restore and protect the longest freeflowing river in Alabama and is the primary drinking water source for one-fifth of the state’s population. Vulcan also maintained our Cajon Creek and Colton Dunes Conservation Banks in California, which we set up to provide permanent protection of natural area and habitats. We are also currently working with the Sierra Foothill Conservancy to establish the Fenston Mitigation Bank in Madera County, California, which will provide thousands of acres of mitigation for impacts to the habitats of several endangered species in the San Joaquin Valley. Our Sac Tun operation near Playa del Carmen, Mexico is implementing a long-term environmental vision and strategy that has been praised by local government authorities and NGOs as a model for other businesses and industries in Mexico.

A BRIGHT FUTURE

I am deeply proud of how we responded to the challenges and upheavals of 2020, and I look forward to continuing our mission of building sustainable, long-term value for our stakeholders.

Vulcan thrives because we are highly focused on the elements of our business that we can control, while maintaining the flexibility and creativity to respond to a rapidly changing environment. We are never done improving, and our people view the pursuit of excellence as a continuous process. This is a central part of our culture. This culture of excellence and the continuing emphasis on our Four Strategic Disciplines contributed significantly to our strong results in 2020 and they are equally vital for our future.

As we move forward in 2021, we are building on a strong platform. We all await with great anticipation the end of the global pandemic and the full recovery of the U.S. economy. We also look forward to significant progress towards a new long-term federal highway bill and other infrastructure investments, to growing strength in key Vulcan markets across the United States, to further important progress in our sustainability initiatives, and to ongoing improvements in our industryleading unit margin performance.

Finally, we were very pleased to welcome George Willis to our Board of Directors in March 2020. George retired as the President of U.S. Operations for the United Parcel Service in August. His extensive logistics experience has already proven highly valuable to our Company, especially as we navigated the challenges of pandemic lockdowns.

Our achievements in 2020 would have been impossible without the outstanding hard work, creativity, flexibility, dedication and perseverance of our Vulcan team members. I would like to extend to each one of them my immense gratitude and congratulations on a job well done. I also wish to thank all of our shareholders for their continued trust and support. We appreciate your continuing confidence in Vulcan Materials Company.

 

Tom Hill
Chairman, President and Chief Executive Officer

 

1 Vulcan’s greenhouse gas emission estimates do not include transportation related emissions.