REG - SigmaRoc PLC - Trading Update

SigmarocAnnouncement

24/07/2023 07:00

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RNS Number : 8754G  SigmaRoc PLC  24 July 2023

24 July 2023

 

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

 

SIGMAROC PLC

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

 

Trading update

 

Sustained trading momentum and further strategic progress

 

SigmaRoc plc, the specialist quarried materials group, is pleased to provide
an update on trading for the six months ended 30 June 2023 ('H1' or the
'Period'). The Group expects to announce its interim results in September
2023.

 

 

Highlights

 

·      Strong H1, further demonstrating the resilience of the Group's
diversified model;

·      Revenue of £290m (H1 2022: £247m), up 17% YoY and 13% LFL;

·      Underlying EBITDA of £55m (H1 2022: £48m), up 15% YoY and 12%
LFL;

·      Underlying EPS of 4.0p (H1 2022: 3.6p), up 11% YoY;

·      Good cash generation, with cash of £63m (2022: £46m) and
adjusted leverage ratio of 1.7x (2022: 2.2x) at Period end;

·      Acquisition and investment programme launched in February 2023
now fully committed, with acquisitions expected to contribute c.£8m
annualised EBITDA at an effective multiple of 3.9 times;

·      Organic growth investments expected to contribute a further
c.£2m once fully operational, at an effective multiple of 3.3 times;

·      Divestment of four non-core assets generating £11m at an
effective multiple of 12.9 times (includes land holdings with no earnings
impact);

·      Continued success in market leading sustainability initiatives
including the Aqualung carbon capture project, and partnership with Materials
Evolution for low carbon cement;

·      Diversified market profile positions the Group to deliver full
year expectations*.

 

 

Trading summary

 

The Group delivered a strong first half trading performance, with continued
underlying earnings growth despite challenging conditions in some markets.
Dynamic pricing has continued to support growth, with Group revenues in the
period up 17% YoY at £290m, with robust demand in infrastructure and
quicklime markets. As previously announced, in FY22 the Group introduced a
regional structure to support further growth and will report on a regional
basis going forward. Revenue for the Period was £74m (2022: £66m) in the
North West, €59m (2022: €51m) in the West and €188m (2022: €164m) in
the North East.

 

Group LFL volumes were 3% lower in the Period with the weakest demand
conditions in residential construction segments, primarily in the UK and
Nordics, where the Group has relatively low exposure. Pleasingly, H1 margins
were maintained at 19% with inflationary cost pressures well managed and
further productivity gains realised across the network. As a result,
underlying EBITDA increased 15% YoY to £55m, with underlying EPS of 4p, up
11% YoY.

 

The Group's diversified business model and end market exposure continues to
provide resilience with several markets outperforming expectations.

 

·      Industrial minerals - 43% of Group revenue for the Period derived
from industrial mineral markets which have seen demand in line with budget,
supported by structural drivers:

 

-       Environmental, Agriculture and Chemical (19% of Group revenue):
The Group saw overall demand in this segment remain positive in H1 supported
by the environmental and chemical segments.

 

-       Pulp, Paper & Board (13% of Group revenue): Paper had a slow
start to the year as a result of inventory corrections in the value chain
leading to lower demand for high grade and pigment grade limestone. Board and
pulp demand remained robust, supported by the continued transition away from
plastic packaging.

 

-       Metals (11% of Group revenue): Order books and demand remained
strong, with the recovery experienced in 4Q22 continuing into H1.

 

·      Construction - 57% of Group revenue for the Period derived from
construction markets, which have seen good demand from infrastructure segments
and a recovery in RMI, balancing out localised slowing in new build
residential demand:

 

-       Infrastructure (37% of Group revenue): Infrastructure markets
have continued to be strong in H1. Further projects have been launched in the
Group's key territories and increasingly in the energy transition sector,
which has provided sustained demand for our aggregates, dimension stone and
downstream products.

 

-       Residential (20% of Group revenue): European residential
construction markets have seen a clear softening in new build demand, leading
to reduced housing starts, particularly in the UK, Finland, and Sweden.
Partially offsetting this has been more resilient demand in Poland and Baltic
markets, as well as a more fragmented construction backdrop in Belgium. In
Jersey there has been a slight slowing, primarily related to the bankruptcy of
a major developer, but the pipeline of projects remains full. Renovation and
RMI spend has seen a recovery in most markets sequentially through the Period.

 

Acquisition and development pipeline update

 

The Company's acquisition strategy is focused on driving scale, synergies and
margins, as operations are integrated, invested in and de-risked.

 

In February 2023, the Group raised £30m to accelerate execution on a pipeline
of acquisitions, disposals, and investment projects across the Group, which
had been assembled over the previous 12 months. The Directors are pleased to
update the market that this programme consisting of 14 projects (including
acquisitions, disposals, and organic investments) has been successfully
executed upon, subject to final completion steps.

 

The acquisitions were made on an average EV/EBITDA multiple of 3.9 times, and
are expected to contribute an additional c. £8m of annualised EBITDA. The
organic investment projects were made on an average EV/EBITDA multiple of 3.3
times and will contribute an expected additional EBITDA of £2m once fully
operational.

 

As part of the development pipeline, the Group also committed to divest of
certain non-core assets, all of which have either been completed or are signed
subject to regulatory approval, and collectively have, or will, return to the
Group approximately £11m in proceeds.

 

See Appendix for further information on the pipeline of acquisitions,
disposals and investment projects.

 

Outlook

Entering the second half of FY23, the Board is mindful that trading conditions
are likely to remain challenging in a number of the Group's markets. Against
this backdrop, however, we expect that our diversified end market exposure,
geographic spread, and decentralised operating model will continue to deliver
a resilient performance. As such, the Board's expectations for the full year
remain unchanged.

 

The full impact of the acquisition programme will manifest over the course of
H2, strengthening the Group's competitive position in several local markets,
while adding to our geographic diversification in others. Many of these end
markets are underpinned by longer term structural growth dynamics, including
infrastructure investment, sustainability, energy transition and the
increasing use of limestone in various industrial production processes which
should enable the Group to accelerate its growth momentum as conditions
improve.

 

The Group continues to be cash generative and, with cash flow also typically
seasonally weighted to the second half, leverage is expected to continue to
decline absent further acquisition and/or development work.

 

Max Vermorken, CEO of SigmaRoc, commented:

"The first half of 2023 has been a further validation of the Group's model. A
number of the Group's end markets have performed ahead of expectations, and we
have been able to move swiftly to implement targeted commercial and
operational initiatives in response to destocking and slower demand in some
product areas and regions, which has contributed to a very resilient
performance in the Period.

 

In parallel we were very active on the M&A front, seizing a number of
opportunities to strengthen the Group's footprint through transactions at
highly attractive multiples. The Group is integrating those which have already
closed and is preparing to welcome others in H2. Competitively, strategically,
and financially the Group has taken a firm step forward.

 

Looking further ahead we need to respond to the challenges of more volatile
end markets and adapt accordingly. We continue to focus our efforts on
operational, safety and governance improvements to build a leading Group in
quarrying, limestone and industrial materials."

 

*Consensus expectations for SigmaRoc, being the average of forecasts for the
year ending 31 December 2023 provided by Analysts covering the Company, are
revenue of £597.0m and underlying EBITDA of £108.7m.

 

Video Interview

 

Watch Max Vermorken's interview for more information about this trading
update:

https://www.brrmedia.co.uk/broadcasts/64b9244b5643da433398fbb8/sigmaroc-results-highlights
(https://www.brrmedia.co.uk/broadcasts/64b9244b5643da433398fbb8/sigmaroc-results-highlights)

 

 

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

 

For further information, please contact:

 

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

 Max Vermorken (Chief Executive Officer)

 Garth Palmer (Chief Financial Officer)     ir@sigmaroc.com (mailto:ir@sigmaroc.com)

 Tom Jenkins (Head of Investor Relations)

 Liberum Capital (Co-Broker)                Tel: +44 (0) 203 100 2000

 Dru Danford / Jamie Richards / Ben Cryer

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

 Mike Bell / Ed Allsopp

 Walbrook PR Ltd (Public Relations)         Tel:+44 (0) 20 7933 8780

 Tom Cooper / Nick Rome

                                            SigmaRoc@walbrookpr.com (mailto:SigmaRoc@walbrookpr.com)

                                            Mob: 07971 221972 / 07748 325 236

 

About SigmaRoc plc

 

SigmaRoc is an innovative quarrying and construction materials group with
sites in the UK and Northern Europe.

 

SigmaRoc's vision is to become the leading European quarried materials group,
seeking to create value by purchasing assets in fragmented materials markets
and extracting efficiencies through active management and forming the assets
into larger groups. In addition, through the development of new products and
services, the Group aims to meet the challenges of providing customers with
innovative and sustainable solutions for the future.

 

SigmaRoc has a strong balance sheet and a growth strategy driven by both
acquisitive and organic growth initiatives.

 

The Group listed on AIM in 2017, has made over 15 acquisitions, and now
employs over 2,000 staff in more than 80 sites across the UK and Europe.

 

 

APPENDIX

 

Acquisition and development pipeline update:

 

Acquisition of Goijens Beton, Belgium:

The acquisition of Goijens, a leading supplier of ready-mixed concrete and
pumping solutions, was closed at an effective multiple of 5 times recurring
average EBITDA for the years 2020 to 2022. As with other acquisitions the
Group has made, we expect synergies and operational improvements to reduce the
effective multiple paid.

 

Acquisition of Juuan Dolomiitiikalkki, Finland:

The Group completed the acquisition of Juuan Dolomiittikalkki ('JD') for an
effective multiple of 2.6 times recurring average EBITDA for the years 2020 to
2022, pre-synergies and operational improvements. JD is a specialist supplier
of high-quality dolomitic limestone, used in the agricultural and
environmental sectors to improve regulation of soil pH and water retention.
JD's operations are located close to the Group's existing Finnish business and
represent a valuable extension into dolomitic limestone.

 

JD adds approximately 1.5m tonnes of reserves, equating to roughly 30 years of
operating life, and €1.5m of revenues to the Group. The existing management
team will continue to operate and grow JD as it is integrated into Nordkalk's
Nordics platform.

 

Acquisition of Retaining Holding Limited, UK:

The Group closed the acquisition of Retaining Holding Limited ('RHL'), a
leading manufacturer of specialty retaining wall systems, for an effective
multiple of 2.9 times recurring average EBITDA for the years 2020 to 2022,
before expected synergies and operational improvements. This business fits
well with the PPG precast platform, both expanding its range of walling
solutions, which already includes the patented Alfabloc, as well as extending
PPG's reach into the north of the UK.

 

Acquisition of Björka Mineral, Sweden:

Terms have been agreed to acquire Björka Mineral AB ('Björka Mineral'), a
subsidiary of Swiss industrials materials group Omya, for an undisclosed sum.

 

Björka Mineral is a leading supplier of high-grade limestone and dolomite
powders. It operates three quarries that are synergistic to the Group's
existing operations in Sweden. The transaction is scheduled to complete first
week in August, subject to finalisation of transitional services agreement,
and no delay is presently expected.

 

Acquisition of Cube Beton, Belgium/France border:

SigmaRoc has acquired Cube Beton, a subsidiary of leading limestone producer
Groupe CB, for an initial consideration of 3.5 times recuring EBITDA for the
year 2022. The acquisition brings into the Group four concrete plants located
on the Belgian border with France which will be fed from the Group's
aggregates operation in Belgium, thereby securing a proportion of its output.
The transaction is expected to complete in September following the required
local regulatory steps. No delay or challenge is presently expected.

 

Acquisition of ST Investicija, Lithuania:

The Group is pleased to announce it has acquired aggregates supplier ST
Investicija UAB and its subsidiaries, which operate three quarries in
Lithuania. The acquisition materially strengthens the aggregates business of
our Baltics platform, bolstering the mineral position and quarrying assets of
the Group in this region.

 

Strategic initiatives:

 

We are pleased to report that a number of strategic initiatives have been made
in the Period, allowing us to enhance our existing facilities, along with some
exciting and market leading achievements in green technology. These include:

 

Development of Asphalt plant:

The Group has commenced its onsite civils program allowing for the delivery,
installation and commissioning of a new asphalt plant in September 2023. The
plant will be able to supply up to 150 tonnes per hour of both hot and cold
asphalt, as well as the production of sustainable asphalt using proven
nappy-cycle and recycled asphalt. The site will allow the Group to expand is
product and service offerings along the M4 corridor to existing and new
customers including local communities, SWTRA and large infrastructure
projects.

 

Development of Biofuels:

The Group continues to develop the use of its alternative fuels program,
including biofuels, across its kiln network. The project has achieved
successful continual testing of 100% substitution of biofuels whilst
maintaining at least 35% biofuels in other kilns as the Group continues its
development program.

 

Installation of Aqualung, first phase:

As already announced, the Group successfully installed its first carbon
capture unit at Nordkalk's site in Köping in Sweden. The fully scalable
carbon capture system, utilising Aqualung's innovative membrane technology, is
the first-ever implementation of its kind in the industry. For further
information see our announcement of 22(nd) June.

 

Strategic partnership with Materials Evolution:

Earlier in July SigmaRoc announced that it has entered a strategic partnership
with Material Evolution, an advanced materials company producing low carbon
cement from industrial waste streams, to develop a range of low carbon
concrete products. Trials for product development have already commenced at
CCP. Further information is available in the announcement of 3(rd) July.

 

Divestments:

 

As part of the development pipeline, the Group also committed to divest of
certain non-core assets, all of which have either been completed or are signed
subject to regulatory approval, and collectively have, or will, return to the
Group approximately £11m in proceeds. These are:

 

Disposal of industrial land, Belgium:

The Group disposed of nearly 6 hectares of industrial land in Belgium as well
as a disused quarry, which was turned into a deep-water diving centre. Neither
land holding was operationally nor strategically core to the Group.

 

Disposal of grinding plant, Poland:

The Group has disposed of a grinding plant at an effective multiple of 7.2
times recurring EBITDA. The installation is no-longer core to the Group's
operations and located at a significant distance from any of the Group's
mineral resources. The transaction is expected to complete in September
following the required local regulatory steps which take several months. No
delay or challenge is presently expected.

 

Disposal of road maintenance business Belgium:

The Group successfully disposed of a road maintenance business acquired with
one of its recent acquisitions. The disposal consisted of goodwill, staff, and
a few machines, and was closed at an effective multiple of 5.3 times recurring
average EBITDA for the year 2022.

 

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