SigmaRoc plc (SRC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the SigmaRoc plc trading update investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to David Barrett, Chairman. Good morning.

Good morning, Ross. Thank you, and good morning everybody on this call. So it's been 3 years since we last presented on investor [indiscernible] and we'll maintain to use this platform for more regular updates going forward. I think it's useful if we summarize what's been achieved since the last presentation and indeed in the first 5 years of SigmaRoc. The business now has 1.6 billion tonnes of reserves, which gives us strong market positions, good pricing power which was demonstrated well in the inflationary environment over the last 12 months. We have a broad market exposure, not just in construction but also metals and mining, pulp and paper, agriculture, chemical, industrial and environmental. We have a decentralized model, which keeps the business closer to the customer, which is very important. And we also have a flat management structure. The business has good margins and strong cash generation, giving in excess of GBP 100 million EBITDA and GBP 54 million free cash flow. We have a very strong focus on ESG with a clear road map to net zero. Now I'm going to hand you over to Max, who could give you a more detailed presentation.

Thanks, David. Good morning, everyone. It's a real pleasure to be back here to present a few slides to you. There's essentially 3 sections that we'll follow now. The strategy as a whole, how that gets implemented, that's led to financially in terms of track record which Dean Masefield will look forward to represent to you; and a bit of an outlook and an update on the first quarter. So the strategy as it stands, really 3 questions we're answering: Where are we operating; what are we doing there essentially; and how are we going about it. The where has always been a very fixed point for us. It's always been, as you can see on the map here in North Europe, around the North Sea and around the Baltic Sea. And there's a number of reasons for this. First and foremost, density of infrastructure, population that [indiscernible]. You can see those in the darker shaded areas. There's lots of activity, which means lots of industry, lots of people, lots of requirements for all the products that we make. Secondly, as the economy evolves and the net zero aspect comes more and more to the fore, we can see that this northern area of Europe is going to be more and more central, both in terms of carbon capture, in terms of import, energy, export of CO2 and various strands of our business. And therefore, again, this is a great anchor point for us. And then thirdly, it's probably a fantastic setup in terms of legal system and availability of quarries. Quarries are hard to find. They're difficult to purchase. And once you have them, they're really the central point of the strategy that we're implementing. And that means that we know our competitive market. We know who's competing with us where, and that gives us lots of visibility. If you look at what we now do in this area, the anchor points we have right across North Europe is the mining operations, the quarrying operation. We've got 80 sites, 1.6 billion tonnes of reserve. And these quarries essentially could give us a rather wide spectrum of different products. The very basic product is construction aggregate, the construction stone, which ends up essentially in roadworks and concrete and house building. The logical -- the things that you would see around you when you walk across the city. In most cases, in our quarries, that same stone also has an industrial application, which is where we take the stone and we grind it to a power of various sizes. The chemical composition of our stone allows this, especially in the Nordics, especially in Finland and Sweden and in Poland, and to a degree also in the U.K. and Belgium. And this allows us to be exposed to other markets who does construction. And those other markets are: [indiscernible] paper and pulp, metals, environmental application, agricultural applications. It comes from the same mining operation, and we take it through a slightly larger set of production processes to address a vast range -- array of markets in the end. And if you then look at what we -- what markets and specifically, we addressed there, we can sort of group them into 3 broad buckets: Niches, which have a growth aspect to them. And by this, we mean, if you take, for instance, currently agricultural applications, environmental applications of limestone. We burn a lot more coal because of the energy crisis. We've got less fertilizer available because of supply chain disruptions. And these smaller size in terms of volume applications of stone create fantastic margins and growth opportunities for us. So that's the first bracket. The second bracket is scale markets. These are the logical end markets in infrastructure construction, large volumes of stones used for fairly standard applications. They involved macro trends, demographics, energy infrastructure, these days. And then lastly, horizontal integration, which primarily means we have a fixed set of product qualities out of our quarry. Can we try to transform that product a bit and integrate more markets into our scope horizontally, go out and find new applications for the product that we already produce as the horizontal integration piece? And then obviously then the question is how do we do this, and David alluded to this already a little bit. The quarry is the center piece at the start. It's a cash-generative unique asset. It gives us pricing power and it gives us diversity in terms of end markets. Buying those and owning those is the starting point. We've called this over the past, invest. Secondly, we need to make sure that we have cost control and agility. So we need to have a flat structure. We need to make sure that the people that run these quarries are really in charge of what they do run, and that's to make sure that these quarries run faster and have better cost control, we got that improved. Thirdly, as soon as you have both the quarry established and the cost control in place, we need to start looking at how do we generate better margins and more cash. That's the horizontal integration piece also. It's going up for niche markets. That's the integrated piece. Let's see what else we can do with that little setup. And then fourth, we are not a huge business, GBP 0.5 billion in turnover, so we need to have a competitive edge. And that we deal with through the innovate aspect, which is both on products and on the ESG. And if you take those 4 aspects and you start to say, well, how do we implement this? There's a few slides on the sort of the practical aspects of what we've done so far. If you look at our footprint to date, it's nicely around being the area that I highlighted. We have 3 main operating regions; the U.K., Western Europe and then the north, they call the Northwest part from the rest of the platform in the Northeast. Inside these we have 10 operating hubs, 10 operating platforms. We group them into these 3 regions so that it's easier to follow where we are active, what the global GDP data looks like, what local activity looks like. So that's the current operating setup. And in these 10 niche -- 10 platforms, we address quite a large number of end markets, 5 key markets from a country perspective, Finland and the U.K. being the largest one. If you combine it with Channel Islands and the Benelux, Finland -- sorry Sweden and Poland and a few smaller markets in there, which are Baltics and a little bit of Germany. And the very nice diversity in terms of end market exposure. When you look at then where we sell our products, half roughly goes into very start of construction, infrastructure being the largest, residential being the second one. And then the other half was industrial applications of the same stone. Pulp and paper, obviously, they're north, very important; metals and mining, [indiscernible] again in the north in Poland and in Germany; and then agricultural, chemical, environmental, that's pretty much across the spectrum. Individual countries represent only very small proportions of the individual segments. So real estate, residential real estate, the largest exposure would be in the U.K., which is [ 7% ] of group turnover. So we have very small exposures to any individual market. And then when you translate that into end products, as I said, you can take our stone and then transform it in different ways. It's the last pie chart you see on the right with the various types of end product, quicklime, limestone powders, aggregates, asphalt, so on. The key point here is the end markets are huge and diverse, and we can shift the product from one area into the other as demand evolves across the various end markets. Now the various platforms from an operational perspective, also required an enormous amount of attention. And it's also something that we are quite good at. On the horizontal, we see the various platforms by region and on the vertical, you see the various operational improvement programs that we have driven through. There isn't a single standard process. We do not buy a platform of businesses or any business and say, well, we have a recipe here, we're going to address all these points. We do a lot of the opposite. We go and first, we learn. We try to understand as best we can, how that business was successful enough for us to be interested in buying. And then as we have done that, we spend a lot of time with local management on-site to figure out where we can make that business better. Very often, we address all of the points you see on the growth, which is how do we grow revenue, how do we diversify it, how do we improve the operations from a plant use, from plant efficiency and stacking at the right type of machinery, from investors that we can make locally and if we can bolt-on some businesses. And that's led to the track record we have to date. And then obviously, every platform established, we try to expand. We try to make sure that we have a bigger market share, that we are the choice supplier in that area, that we improve our synergies and we grab more synergies by being a larger operator. We did this on -- across 2022. At the very start in early January, Johnson came into the group. And then 2 smaller business, RightCast and La Belonga over the course of 2022. And then in 2023, we launched a large pipeline of small bolt-on acquisitions. Three has been done so far and the remainder 6 or 7 are ongoing and current. You can see we always target the 3 different aspects in terms of a bolt-on. It means either we address a niche market that we're not exposed to, at least to help us penetrate the geography more, which basically means market share. Or it needs to give us another product. And very often, the graph that the bolt-ons we purchased tick multiple of these boxes. The pipeline we started in Q1 2023 was a large collection of transactions at very low multiples. We effectively worked all across 2022, a year when a lot of people were frightened by the energy crisis, by what the Ukraine war would regenerate. And as a result, we have a number of deals which are strategically very relevant at prices which you wouldn't normally see for those types of transactions. Going into a key example, a fantastic coffee business in Belgium. This is really good market share. Juuan Dolomiittiikalkki in Finland is another example, exposes our business to the middle of Finland, where we are not much present and gives us Dolomiittiikalkki limestone, something that we do not have at all in the group, essential for agricultural applications. And then Retaining U.K., which has just come in. You may know that for our [indiscernible] business, we have a market-leading range of retaining wall systems, very important for big infrastructure jobs, for safety barriers, around sort of sensitive sites for flooding defense. And this is a type of walling system we don't have in our portfolio, made by a business further north in the country that gives us both geography and product again. And similar deals you'll see come through over the next quarter as we go through the next separate pipeline. Now the other thing that I mentioned earlier was the innovation and leadership from that perspective. Now currently, ESG is something that is very, very key for investors, especially institutional investors, but also our end customers. A lot of them say, what are you doing to lower your environmental impact? What are you doing to be more socially responsible? And when we started to look at the whole ESG agenda and what we could do, as a smaller-sized business versus the big industrial groups of this world, we said we're probably agile, more agile than most. We're probably quicker than most. So we can probably turn the whole ESG aspect into a competitive advantage and not just do what's right, but also secure our strategic advantage. And that's where we're currently implementing. The JV with ArcelorMittal is a key example. Aqualung, the CO2 capturing system is another example, and I'll come back to that one in particular. We've obviously signed up the SBTI. And then we have Greenbloc, the product that we launched in 2020/'21, which is now starting to become a real success in the UK. And then from a digital aspect, High Vizz, a tool that we developed internally, which is essentially an auditing tool for safety, for plant efficiency, breakdowns, which effectively implemented everywhere and gives us real-time data on all operational aspects and safety aspects. And then obviously, from a governance perspective, we constantly improve our oversight, our Board's independence and quality, our policies. Now from a time line perspective, and this is important to take as we've published our second ESG report, you'll find this road map in the report. It's a net zero roadmap -- getting us to net zero by 2040. We've indicated already that we think we can get there nearly a decade earlier, depending on how our implementation of the Aqualung solution goes. There's a specific slide on that in the last section of this presentation, so I'll come back to that point later. The market we have already committed to is industry-leading. Essentially how we built this market when we took the most aggressive targets of all our peers and said, oh, we'll do better than those, and that became our target line. And you can question, is this realistic? Well we think it really is simply, again, we think we'll get there a decade earlier than what this suggests. And then Greenbloc, we mentioned it a few times. It was launched in 2020. We got all the certification done, which was a lengthy process, very complicated to get those certifications in, because all the way from the production method of product and the sourcing of the product, all of it gets tested and vetted and audited. Again those came through the end of 2020 and into '21. And we then started a properly sell it. And if you look at what we know currently do in terms of trading volume on a Greenbloc technology in the U.K., half of our infrastructure projects in 2022 had Greenbloc technology in them. That represented 1/4 of all sales in PPG or precast group in the U.K. and that number is growing steadily. It was an enormous jump from '21 to '22, 23x more sales in this product. And it tells you 2 things. It tells you: A, that the product we have is indeed market leading; and secondly, that the search for an ultra low or a lower CO2 product in the concrete space is now clearly relevant. And as a market leader from this perspective, we think we can do quite a lot more. So now to look forward, both in terms of financial performance and also look backwards in terms of what we've already achieved, I'll hand you over to Dean Masefield, our Deputy CFO, who will take you to sort of few slides on the track record essentially since inception.

Thank you, Max. Good morning, everybody. So on this first slide, this is the evolution of the group from the beginning from day 1. If you look across the top of the slide, you'll see a large number of acquisitions were at very attractive multiples. So since the inception of the group, we've integrated all those acquisitions into the group and delivered the results, as you can see on the right. So revenue with a compound annual growth rate of more than 80% EBITDA -- again, more than 80%. And if we look at the EPS, more than 170% growth. And in particular, another part of this slide, which is interesting, we're very pleased that we've delivered these results. If you look across the bottom, you'll see we delivered the results whilst keeping the leverage ratio generally below 2x. So we haven't heavily geared. We've kept that leverage ratio below 2. As you can see at the end of '22 to 1.77x whilst delivering that impressive growth rate. If we now look at business improvements, the businesses acquired pre-Nordkalk, we've improved the EBITDA on those businesses by 40%. And the effect that has, you can see on the bottom, the acquisition multiple, an average of 6.9x. The effect of that EBITDA improvement brings that multiple effectively down to 4.9x. If we look at Nordkalk only, which we acquired relatively recently, there's already an 8% increase in EBITDA, and that's starting to trend higher as well. Again, reducing the acquisition multiple 6.9x, down to 6.4. In total, across the group, a 20% increase. So it greatly reduces the acquisition multiple down, you can see it to 5.9x. So we're very pleased with those improvements in the EBITDA. If we look at our medium-term targets, our 5-year targets that were set originally in '21. Like-for-like on revenue in '22, we grew 19% revenue of GBP 538 million for the year '22. Our EBITDA margin at 19%. Now it's important to notice that the next box there, the net margin, so basically that adjusts our EBITDA margin for some contractual pass-throughs that we have to be higher in 2022 with energy costs, et cetera. So our net margin, if we -- sort of where the contractual pass-through cost is 22% against our target of 20%. EPS, we targeted in the medium-term target, 8p. We're pleased to have already reached that from '22 at 8.03p. Cash conversion ratio targeting 95%, we reached 87%. So we're on the pathway to the right results. Likewise, free cash flow of GBP 54 million. We've got a return on invested capital of 11%. I'll talk a little bit more about that on a later slide where you'll see the pathway to that time target of 15%. And again, as mentioned on the previous slide, all of that whilst maintaining a leverage below 2x, and in fact, just below 1.8x at the end of '22. Looking for further revenue, revenue bridge, you can see from '21 to '22 a 98% revenue growth, and that's made up of organic growth of 32%; 6% in the Northwest, 5% in the West, 21% in the Northeast. And that's driven by higher volumes. We were up 1% like-for-like, more than that, a pricing power. In the Northeast part of that growth in revenues of contractual pass-throughs as well as dynamic pricing. We have M&A in the year of plus 66%. In the Northwest, 6%. That was the acquisition of Johnston Quarry Group, RightCast in the PPG platform. In the West, it's a full year of B-MIX. And in the Northeast, it's the full year of Nordkalk, because obviously, that was acquired in the second half of 2021. So 98% revenue growth driven by acquisitions and effective management from the organic growth perspective. If we then look at the EBITDA evolution. In '21, we've gone up 106% to GBP 102 million EBITDA for '22. Organic growth, 22%. Again, to reiterate, that's driven by volumes, pricing power, operational improvements, effective hedging, cost saving initiatives. And those in the Northeast, there's a big focus on Nordkalk with it being the full year -- first full year since acquisition. So drove the organic growth there. M&A, 85%, as mentioned in the Northwest, that's with the acquisition of Johnson Quarry Group and RightCast. In the West, there's a small increase for the full year of B-MIX, and in the Northeast with a full year of Nordkalk. Again, organic improvements, M&A driving the EBITDA to GBP 102 million for the full year '22. Quick slide on the evolution of net debt. We commenced at the beginning of the year with GBP 164 million of net debt, closed at GBP 177 million net debt, which is represented by the EBITDA, working capital movements, tax paid. The net CapEx of GBP 41 million, I'll talk about -- I think it's on the next slide. But you'll see at the end, with strong cash generation, but whilst maintaining that leverage below 2x. If we exclude the IFRS 16 liabilities, you'll see we ended the year at 1.77x leverage ratio. CapEx. So we had net CapEx of GBP 41 million. So how that evolves, you'll see the maintenance CapEx on the left there, GBP 26 million, is we target our maintenance CapEx to be about 85% of D&A. So we're broadly in line 87%. Now maintenance CapEx means just preserving our fleet, repairing, restoring, looking after keeping our plants in good order, replacing existing plant, property, equipment where necessary. The next piece, the GBP 6 million resource extensions, that's where we've extended resources, predominantly in Channel Islands, Finland, Belgium, and that expenditure is at 13 years approximately production to the group. We then look at growth CapEx. Now this is CapEx that's spent, that adds to the earnings of the group on a top line basis or reducing costs. And on the pie chart on the top right, you'll see a better breakdown or a detailed breakdown of the growth CapEx. The land purchases, the largest part of that was in B-MIX, where they exercised an option to acquire the land site they operate on. What that does is it gives, obviously, the operational site, reduces the overheads and also derisks any problem of having the operations site. Alongside that, we also divested some of that land, you'll see below, the divestments. So we acquired 11 hectares and divested 5 or 6 hectares for a small profit. So then in the plant capacity increases in the growth CapEx, you'll see GBP 4 million that was predominantly spent in Nordkalk to support the cement majors. We internalized haulage within the PPG platform, so that derisks our reliance on third-party contractors as well as reducing our costs there. We'll turn to fuel conversions in the Nordkalk in Poland, whereby we're trying to reduce our reliance on gas, both from a -- both to reduce our CO2 footprint, and also reduce our reliance on gas. Then in the divestment of CapEx, as I mentioned, we sold a disused quarry, small disused quarry in Belgium, the majority of that is the sale of part of the land in the B-MIX option. Then plant and vehicles is just disposal of things, such as tippers and excavators, mainly in the U.K. and in Belgium. So I mentioned earlier about return on invested capital and our pathway to the 15% target we set. So on the left, you'll see we've got margins. Our net margins are strong. Our cash conversion ratio is good, as well as our free cash flow of GBP 54 million. Now in that graph in the middle, if we did nothing with the free cash flow, other than use it to be here, no reinvestment. You can see how it does against the debt. But more importantly, on the graph on the right, you will see how that would relate and translate to the return on invested capital, and you can see it reaching the 15% within the target and upwards. Obviously, we believe it makes sense to reinvest. We can do better than purely de-gearing, like -- as demonstrated with our acquisitions in '22, Johnston, RightCast and La Belonga, and also our developments and acquisitions in the first quarter of this year. So I'd like to hand you back to Max for trading and outlook. Thank you.

All right. So thanks, Dean. A few slides on our trading currently to date in Q1 this year and then an outlook as the year goes on. We closed the first quarter with very solid performance, GBP 137 million worth of turnover, volumes like-for-like up 1% in the first quarter, EBITDA up 3% roughly for that first quarter as well. So we're well ahead of our own expectations, we're at budget, and we're performing in line with what we would hope for this first quarter. It wasn't an obvious quarter. A lot of people expected -- a lot of industries expected that in Q1, there would be enormous spikes in energy. But then a cold winter, therefore shutdowns at [indiscernible], and that meets all sorts of effects. People overpurchasing, overstocking in the latter parts of last year, now destocking. So as a result of that, you can know what the numbers in our performance. If you look at these specifically -- more specifically into the end markets, first and foremost, the performance of Q1 shows us, I believe, that the strategy we've put in place to be able to take advantage of the size of the group, scale of the group, to deliver organic growth, is really there. And we have -- the diversity of end markets is large, which means that if you have fluctuations and outperformance in one, that will compensate for underperformance in others. We remain very vigilant to see what is happening in these end markets, to see if there's structural trends there or whether it's just short-term effects, like I just mentioned, plant breakdowns -- or plant shutdowns, maintenance stops. We have those very frequently. Destocking effects, we have those very frequently as well. Take them all in aggregate, we have a 1% increase in volume in Q1, driven primarily by better-than-expected performance in metals, better-than-expected performance in chemicals and environmental applications and agriculture remains strong. Some lower and weaker performance in U.K. residential and RMI spend, some weaker performance in Swedish and Finnish residential construction. But then again, coalition bolting construction was very strong. Belgium construction was good. So that gives you a nice mix. And it also tells you that the diversity of end markets that we managed to build: A, geography; and B, in the industry, really helps us when the demand outlook is less clear. We've also got a very robust pipeline of projects we're working on. They're obviously organic, which is the production plant we're installing, and our acquisition investment types -- sorry M&A work, both on M&A work at a smaller scale primarily. That's ongoing, and this business are a very, very relevant strategy-wise for us. And secondly, we are able to currently purchase them at very low multiples, which is always a very good idea. Now I've referred to the Aqualung project a few times, and I'd like to take a minute or 2 to really tell a little bit more about this. You may remember that we launched the Aqualung project at the end of last year. What you see on the left in image is a membrane, an Aqualung membrane. It's basically a long tube with many, many fibers in them. These fibers are effectively hollow tubes of which the wall of that fiber is permeable to certain gases and not to others. As a result, with this system, you can separate CO2 from all the other exhaust gases that a plant gives you. And therefore, you can purify the exhaust gases, have purer CO2 there to a degree to 99.9% at which point that CO2 becomes usable or storable that needs to be this pure. Now this technology is simple, it's modular, it's modular, it's small in scale, it's cheap to run, and its energy -- the energy intensity is very low. And that's why we went for this particular setup. Our first module lands in the next few days in Scandinavia, will be installed at our first kiln and with commissioning starting the week of May 7, that's the target. The commissioning will mean that we first pump pure oxygen through it, just to see if all the seals work, the whole thing works fine. We then start to bump through the membrane, set up smaller amounts of gas intermittently again to test if all of the equipment works and is all set up correctly. And then towards the end of May, we will hook it up properly and start to fill our first bottle of CO2 of that first kiln. It should capture about 5% to 6% of the output of that first kiln. All this runs smoothly as we expected, it will, we will then start to increase the capacity of this first module to take it from 5%, 6% to around 20%, and then we'll have more modules to capture all of the CO2 produced by this first operation. All that goes as smoothly as we think it will, we will be in a position to say that we have a first net zero kiln probably in the world, certainly in Europe. And then we would equip our other 4 kilns, 5 kilns in the north with similar technology over the years that follow. This is a very, very exciting step for us. It all means that we are well ahead of anybody else in terms of capturing CO2. It means that we're well ahead in terms of most industries in terms of doing something about our CO2 footprint. And it hopefully means that we are, from a competitive advantage perspective, the go-to supplier of quicklime, because we're the only ones who produce green quicklime. So that completes the slides we have for this morning. We're both happy to take some questions for the Q&A panel.

That's great, Max, Dean and David, thank you very much indeed for updating investors this morning. [Operator Instructions] It takes a few moments to review your questions emitted already. I'd just like to remind you that the recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor meeting company dashboard. Firstly, thank you to everybody for your engagement this morning and for submitting your questions. If I may just hand back to Eliza. If I could ask you, please, just to read out the questions, and then I'll pick up from you at the end.

Sure. Thank you. We've got one question from James Sage, who is asking what is the current debt leverage looking like? Are you still able -- are you still at below 2x? What is the length of that generally? And how exposed are you to increased interest rates?

Okay. So debt levels are currently again similar levels as they were before, [indiscernible] 2x. The debt structure we have in place is a 5-year package that we put in the group ex the acquisition of Nordkalk. That's a syndicated facility. We bank that with a new bank, which [indiscernible] there and then about 10 banks across that syndicate across North Europe. The debt structure works as a margin of overall base rate. Most of it is euro and a little bit is pound sterling. The margin the volumes with the leverage gearing, the leverage ratio we have or about 2.2% margin on the base rate currently. Again in the pounds as opposed to euro. So we have a fixed setup which will run through another 3 years with hair covenants at 3.25x and a minimum interest cover about 4x as well.

All right. Another question from Christy. Having made a number of acquisitions, make great cast, et cetera. Do you see making further ones in the near future? And how will these be funded?

Yes. So we have -- there's probably a point to make on cash flow. The group generates GBP 50 million in free cash flow, most of that goes through the second half of the year. The reason it does go through the second half of the year is because of phasing and seasonality. Winter months are slower, there's less activity in construction. There's obviously, the expense the business incurs in terms of social security and the rest keep going. And so we're flat in the cash duration in the first half, and we generated lots of our cash in the second half. That GBP 50 million is what we need to expand the group from an M&A perspective, and we're perfectly happy with that. So we will not in the future. We now hit this point, but we always hope to it where we can expand the business and be proactive from an M&A perspective without using equity for bolt-on transactions. And obviously, we'll say you did a small raise at the beginning of the year. That's not the same. Yes, that's correct. That's a fair statement. We spent the GBP 50 million free cash flow we generated last year on Johnston or RightCast, let alone a number of other projects. And so we found ourselves in this window, in the first half of 2023, where we had many big deals at extremely low multiples, for instance Retaining UK was close to 2.9x, which -- these are not multiples you would see in our industry normally. With the question, do we let these [indiscernible] transactions go? And that might be strategically a harmful thing. Or do we say no, no, we'll ask our shareholders to support us on this large pipeline, refinance the business strategically in many jurisdictions, and we take advantage of this very great cheap transactions. It's the same as when you have something that is not expensive, sometimes you need to just go forward and purchase it. And the important point also is -- and this is another consideration we have there as -- we're more in a starting point to 2023, but obviously we get more optimism. We are almost on the front foot strategically. And so we go ahead and we continue to build our company. So a long-winded answer to say bolt-on transactions, development of the group as it stands will no longer need equity raises. If we do more significant things, then perhaps, yes. But for the bolt-on pipeline, we have not.

Maybe answers the next question if it just come up, please.

So a question from Stephen P. You said that there would come a point when internal cash flow from M&A rather than equity issuance. How far are you around the stat?

Yes. As David just mentioned. We are -- we have not reached that point. It was always sort of the case. We set this in slides in 2017, '19, that our target was to go from basically not much GBP 5 million, GBP 6 million EBITDA to about 100 across South Europe. And that number wasn't because 100 sounds nice. It's also because by the time you've reached the size of 100 and in order to keep going, you've got tax expenses and debt repayments or whatever, you have about GBP 50-odd million in free cash that you can use to expand the group. But if you have a group that is like ours, acquiring quarries in various locations for mass and synergies in density, and market share key, and where these opportunities only come along ever so often, we need to really be careful and buy the right ones when they are available. We always wanted to hit that sort of GBP 100 million mark because that allows us to do all these things, both maintain our debt to build it down, expand the group's strategically and to invest organic ministry things, which ultimately then translate into higher EPS and a higher ROIC number.

Next question, [indiscernible] is asking, would it always be your intention to maintain leverage for 2x? What are the debt covenants?

Yes. So on that point, yes. Our ceiling on debt has always been 2 times since the beginning. Since day 1 in 2017, we said 2x is a good number. Our covenants are always 3 to 3.25 or 3.5. It gives us a full turn or 1.5 turns away from the ceiling, which is, again, the safety that we would love to have. Especially when interest rates were lower, it made a lot of sense to have more debt in the business because it was a cheaper way of funding. Obviously, that trend is slightly lower and the gearing is to go along. So yes, below 2x, probably closer to 1.5 these days than we were in the past, but around that number.

And then [indiscernible] again asked what is your hedging policy for energy?

Hedging policy for energy is a phased setup, so by year. We try -- the point of hedges is that we take out the major swings. And so we have, in year 1, 50%, 60% of our energy are hedged and then year 2, 40% and then year 3, 20% if you go out. And then we review as we go along with the year, whether we should increase that 40% up to 60% or not, to effectively reduce the portfolio price of energy that we have. So we cannot hedge everything that we use. Some products are not hedge-able or difficult hedge-able fuel oils, for instance, certain types of fuels for kilns and other things. Certain countries because the energy structure there is different. But generally speaking, we try to keep a good level of hedging in there so that we don't find ourselves exposed to a major swing.

All right. Next question is from Harry D. Do you see competitors making as much progress on CO2 reduction in lime? Could this be a benefit in time if market pricing is pushed up by CO2 cost, let's say more of as a need to purchase as many CO2 credits?

Yes. So a very good question for Harry on many things. While we do not see any lime players doing the same sort of thing as us, we were certainly a bit bold and went, okay, there's 3 types of technology for CO2 capture. Two are very complicated and energy-intensive, and one is simple, which is the membrane. We knew that the membrane technology would work because it's effectively used in airlines and spacecraft. That's what you would take up there if you need to filter the CO2 out of the air. And so we went -- trying to work greatly in a certain direction. Nobody is so far following us, which is great. If we manage to get all this set up at a decent scale, not only do we not need to purchase CO2 credits, the ETS system, the credit system, gives us credits for free, give everybody credits for free for a certain proportion of their production. So we only do we not need to purchase the credits, we should have credits extra that we can sell. So in an ideal scenario, where everything works as we hope it would, we have pricing, which is just same pricing as our competition, which includes the cost of CO2. We don't need to purchase the credits. And the credits that we get given for free, we can sell and make money on. That would be a real benefit, and that's what we're trying to rush towards [indiscernible].

Andrew Ellis is asking, are you selling the carbon dioxide?

Yes, the carbon dioxide that we capture, the best use of that would be is to sell it. And it's sometimes unknown sort of the wider public where carbon dioxide is a key gas in many industrial applications. All the greenhouses in Holland, for instance, fill them up with carbon dioxides. So we increased the amount of nutrients in the air for the plants to grow tomatoes and so on, more quickly. It's used as an industrial gas in, obviously, in all those crates, in drinks. So it goes into many industries. And the best thing would be to capture it and then use it.

All right. Next question from Harry D., again. Given the easier comparative in the Northeast due to customer strikes in Q1 of 2022, would it be fair to say like-for-like EBITDA growth came mainly from here in Q1? Or was it like profit growth was more widespread?

No, it's a mix of all of the above. We had a -- as the EBITDA started to drop in Q1 last year because of the strike in essentially the paper sector in Finland, we immediately went on to a major cost reduction program to mitigate the importance there. So yes, we lost several million pounds worth of EBITDA because of the bankers' strike, but we also fund several million pounds of savings across the first quarter. So the increase in EBITDA comes from a mix of things, a bit of volume or 1% decrease there, a bit of pricing and a bit of just generally cost reductions and recovery from what we've [indiscernible] versus last year. So it's a mix of all through.

Next question from [indiscernible]. What are your biggest areas of cost inflation? How are you seeing in terms of labor availability and wage inflation in the markets you operate in?

Yes. Biggest inflation pressure we had last year was in North energy without a doubt. Number two would have been other inputs, cement purchases, we have other products [indiscernible] goes into our production process. Labor was actually friendly in all rights. We have unions in certain parts. We've unions of Scandinavia, by and large, went for 3%, 4%, 5%, 6% increases in wages over 2 years. U.K. was 6% on average. General items, similar. Belgium is an index system, and therefore, it was closer to the actual inflation. But that's fine, we can get it back in terms of other social security benefits. So the labor was actually versus the amount of inflationary pressure much surpassed dynamic prices that we could apply wasn't the main source of concern. Labor availability is generally okay. We have the luck that we operate localized businesses in, local communities where we are usually a big employer. And so we also have good loyalty that we tend to keep the name above the door of the business as it was. So it's the same name for 150 years, 100 years. It's an established [indiscernible], an established routes from people locally. So this is a great business to work for or don't work there. So from our perspective, labor is still okay.

Two more questions from Stephen Pete. And the first one is, at what point would dividends be considered?

Yes. Dividend is in active consideration. As you would have seen currently in our AGM, which happens this afternoon, we have a number of resolutions which helped clean up certain items on the balance sheet. Dean can elaborate on those other technical perspective, which will allow us to do 2 things, buyback shares and also pay dividends. And so we are starting to get to a point now where we have the cash flow generation that would allow us for dividend payments. So the next thing on the agenda for the Board over the next -- the rest of this year is to really start looking at invested product line over the next 18 months, 2 years. Cash generation likely due to castration over the next 2 years and then see at what point in time we can commit, explain the dividend. But it's firmly on the agenda.

And then the second question was as to large acquisitions, could you give some examples of what type of profile you would consider?

When we say large, it's typically -- we need to think multiple hundreds of millions, which whatever the cash flow we have will not be fundable projects, internally, that's large. Large, a good example is the Nordkalk business. It was a market leader across North Europe. It was something that we always wanted to be exposed to in North Europe. In an area like Northern Europe or generally north of Scandinavia, if you find a business that has strong market position, fantastic quarries, good reserves, a brand name that's been there for 150 years. And if you can buy those at a good market -- a good price, growth of 6.9x effective pre-synergies. And then they make an enormous amount of sense. If you basically look back our EPS in 2021, just before we bought Nordkalk was 4.5p. That was our run rate and we would want to grow it a little bit. But in 15 months, we may have doubled that number by the inclusion of Nordkalk. And so that's the sort of thing [indiscernible] large.

That's great. Max, David, I think you've taken all the questions from investors. So thank you once again to everybody for your engagement this morning. Max, I know investor feedback will be important to you, David and Dean, and I'll shortly redirect to the investors on the call due to their thoughts and expectations. But I wondered before doing so, if I may, Max, just come back to you, just for a few closing comments, after which I'll send investors for their feedback.

Yes. Well, first and foremost, to you Mark, thanks for organizing this. It's a pleasure to be back on your platform. We think that we've done a number of things over the years, which we're really proud of. There's a helpful presentation from 2017, [indiscernible]. And that said, we'd like to build a North Europe-based business exposed to niche markets with GBP 100 million EBITDA within the next 5 years. And we're now -- we're here 5 years later, the Northern European business with niche market exposure with north of GBP 900 million EBITDA. And to be able to say that 5 years on and save for that plan with COVID, with Ukraine, with all the other disruptions that we've had is something that we're extremely proud of. We've also managed to get an EPS growth of nearly nothing, which was about zero or what so [indiscernible] in '17 to 8% [indiscernible] cumulative growth in that 5-year time frame. Now obviously, we, as a management team, as shareholders ourselves, we hope that this translates in a strong share price growth. We saw that happening after Nordkalk. We saw that the share price went up to 114p. In recognition of, I think, the scale of the capability, the potential of the group that we're now constructing. Obviously, 2022 was a tough year. We had 3 of our largest shareholders -- top 5, top 6 shareholders [indiscernible] closures had been selling all of our shares in a market, which had no buyers because everybody was panicked and large amounts of volume of shares is coming available, 14 million-odd shares within 1 day, for instance, they picked up on the Tier 1s. Those things are -- where a smaller business like ours are hard to deal with in a down market. But we're working hard to rectify that, to get our share price back to a true reflection of the value of the business, true reflection of the quality of the companies, a reflection of the people that work in it. And so thank you all for your continued support, your interest in our presentation today. And we're sure that we will get that share price back to the [indiscernible].

That's great. Max, Dean, David, thank you once again for updating investors this morning. Let me please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of SigmaRoc plc, I would like to thank you for attending this morning's presentation. Good morning to you all.