REG - SigmaRoc PLC - Q3 Trading Update

SigmarocAnnouncement

20/10/2022 07:00

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RNS Number : 4788D  SigmaRoc PLC  20 October 2022

20 October 2022

 

(EPIC: SRC / Market: AIM / Sector: Construction Materials)

 

SIGMAROC PLC

 ('SigmaRoc', the 'Group' or the 'Company')

 

Q3 Trading Update

 

SigmaRoc (AIM: SRC), the quarried materials group, is pleased to update the
market on its performance for the nine months ended 30 September 2022 (the
'Period'):

 

Financial summary

 

-     Revenue for the Period of £394m, up 19% on a like-for-like basis
over the same period in 2021;

-     Underlying EBITDA for the Period of £77m, up 5% on a like-for-like
basis over 2021;

-     EBITDA margin of 19.5%, ahead of management's expectations, with
effective pricing action and ongoing efficiency initiatives mitigating the
current inflationary environment;

-     Good cash generation for the Period with focus on de-gearing through
to 31 December 2022;

-     The Board is confident in delivering the Group's FY22 expectations
while remaining mindful of current macro-economic uncertainty and the
potential for further unforeseen adverse events.

 

Demand summary

 

-     Year-to-date average volumes up over 2% on a like-for-like basis
over the same period in 2021;

-     Group benefiting from broad diversification across products, end
markets and geography;

-     41% of Group revenues for the Period ('Group Revenues') derived from
industrial mineral markets which have seen resilient demand, supported by
structural drivers:

o  Environmental, Agriculture and Chemical (18% of Group Revenues) have seen
continued good structural demand pull through, with additional, ongoing
substitution by customers of materials previously sourced from Russia

o  Pulp, Paper & Board (13% of Group Revenues) order books continue to
replenish at historically high rates, with underlying demand from pulp
customers increasing as part of the transition in packaging materials away
from plastic and with the Group also benefitting from an increasing switch by
customers to our products

o  Metals (10% of Group Revenues) order intake remains stable, despite lower
European steel production in H2, with the Group able to sell product into a
range of alternative local industrial markets

-     57% of Group revenues derived from construction markets, with over
half of this from infrastructure applications which have continued to see
robust demand

o  Infrastructure (35% of Group Revenues) robust demand across UK and
European platforms, underpinned by customer guided volumes into 2023 as well
as significant project wins

o  Residential (22% of Group Revenues) robust orderbooks in commercial
markets and high specification products, including the Greenbloc range,
offsetting low exposure to softening UK RMI market (total UK residential
exposure is 7.5% of Group Revenues)

 

Operational update

 

Volatility in energy markets continues to present challenges both to our
business and those of our customers. However, a combination of contractual
pass through, dynamic pricing and hedging arrangements continue to offset this
inflationary pressure and have ensured that solid operating margins are being
maintained in all platforms. While only early into the final quarter,
electricity prices in Q4 have been relatively low across the Nordic region,
with the Group taking advantage by maximising production. The Group has good
hedging in place for the remainder of 2022 and through 2023, with hedging
levels for electricity across the Nordics at the upper limit of the Group's
hedging mandate and at prices which, while on average higher than 2022, can be
managed via relatively modest sales pricing adjustments.

 

The Group continues to implement highly effective performance improvement
programmes, in each of its platforms, which have enhanced throughput and
utilisation, improved commercial terms, increased materials reserves, and
extended and de-bottle necked capacity. Initiatives instigated during the
Period are expected to realise EBITDA benefits of £5m in 2022, with
significant further scope for performance enhancement in 2023 and beyond.

 

This ongoing performance enhancement focus represents a key element of
SigmaRoc's strategy, with average underlying EBITDA of the businesses acquired
by the Group being improved by 19% under its ownership.

 

Strategic update

 

During the period the Group has deployed approximately £56m of growth
investment, encompassing both organic expansion and acquisitions ('Growth
Investment'). However, there remain a number of strategic, value enhancement
initiatives which the Board believes will, taken together, generate
significant operational and financial gains in each of the five platforms:

 

·      Continued operational efficiency improvements and cost saving
initiatives at Nordkalk, including conversion of rotary kilns to biofuels

·      New Baltics aggregates division at Nordkalk to take advantage of
market dynamics

·      Expanding product offering at Nordkalk for the steel and paper
industries

·      Further mining and extraction efficiencies at Soignies

·      Finalisation of Poundfield yard extension with 14 full acres of
production capacity up from 7

·      Greenbloc application in major infrastructure and development
projects

·      Harries secured SWTRA contract after successfully restructuring
the contracting division

·      Management restructure at Johnston to optimise profitability and
maximise contribution from Bath Stone

·      Reserve extensions at Channel Islands extending life of mines by
approximately 20 years each

 

Group cash flows are expected to be more than sufficient to support the
investment required to deliver these programmes. The Group has an excellent
track record in identifying, acquiring and integrating businesses that have
enhanced the operational footprint of the Group and extended its reach into
new geographies, products and end markets. The Board reviews a number of
acquisition opportunities, but remains strictly driven by the economics of any
deal, only looking for highly value-accretive opportunities that it is
uniquely placed to execute and from which it can generate increased value.

 

New Organisational Structure at Nordkalk

 

In Q3 the Group implemented a new organisational structure at Nordkalk, with a
separate quicklime division and two new geographical regions in Northern
Europe. The new organisational structure will enable Nordkalk to be more agile
in the face of a volatile market backdrop, take advantage of opportunities
within its footprint, such as the Baltics markets, and place more focus on its
carbonates business.

 

Ronez planning approval

 

The Group is pleased to report that planning application to develop a
greenfield quarry at Chouet Headland in Guernsey was unanimously approved by
the Guernsey Development & Planning Authority on 17 October 2022. With
current reserves providing a further 7-8 years of production, this approval
secures the supply of Ronez value added product streams and the external
construction market in Guernsey for the next 20 years.

 

Balance sheet

 

The Group's £405m finance facility, of which approximately £73m revolving
credit and £100m accordion remains available, has 4 years remaining with head
covenants of <3.25x adjusted leverage and >4x interest cover ratios. As
previously mentioned, the Group has spent £56m on Growth Investment. As
demonstration of the Group's ability to de-gear, had it not committed to
Growth Investment during the Period, then leverage ratio, excluding IFRS 16
lease adjustments, would be 1.5x.

 

Max Vermorken, CEO of SigmaRoc, commented:

 

"Every quarter this year has been challenging and Q3 was no different.
However, the Group's unique structure, decentralised operating model and
diversified end markets have allowed it to be agile in the face of these
challenges. As a result, we remain on track to deliver our expectations for
this year and retain solid and broadly based order books across the Group.

 

In these more challenging conditions, the Group's ability to drive continued
performance enhancement, efficiency and cost saving benefits is a real
competitive differentiator. This not only underpins our near term trading
outlook, but is also enabling the platforms to take advantage of commercial
and strategic opportunities in their local markets. We have identified
programmes that we expect to deliver further significant financial benefits
and that can be self-funded. This will enable us to maintain our strong
momentum, whilst we continue to assess acquisition opportunities on a highly
disciplined basis."

 

 

Information on the Company is available on its website, www.sigmaroc.com
(http://www.sigmaroc.com) .

 

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014, which forms part of United Kingdom domestic law by
virtue of the European (Withdrawal) Act 2018.

 

 

 SigmaRoc plc                                       Tel: +44 (0) 207 002 1080

 Max Vermorken / Garth Palmer

 Liberum Capital (Nominated and Financial Adviser)  Tel: +44 (0) 203 100 2000

 Neil Patel / Jamie Richards / Ben Cryer

 Peel Hunt (Co-Broker)                              Tel: +44 (0) 20 7418 8900

 Mike Bell / Ed Allsopp

 Investor Relations                                 Tel: +44 (0) 207 002 1080

 Dean Masefield / Elisa Frenay                      ir@sigmaroc.com

 

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