SigmaRoc plc (SRC) Earnings Call Transcript & Summary

Max, thanks for joining us this morning. Please talk us through the highlights of the trading update you've released today.

So perhaps a few numbers to start. We closed the first half of 2023 really strongly. GBP 290 million of turnover. That's like-for-like an increase of 13% versus obviously last year. GBP 55 million in EBITDA, 12% up like-for-like. Earnings per share at 4p, 11% up, all of which demonstrates the -- in my view, the resilience of the group that we've got. These numbers are well ahead of what we have ourselves expected, but certainly what the market in terms of consensus had out there and so a very strong first half. Another number that is obviously quite a key is leverage ratio. We ended last year at 1.9x EBITDA. And we indicated that the group would continue to de-gear by virtue of the trading and the cash generation. So at the first half, we are at 1.7x, just shy of that, which again demonstrates that, that effect is indeed true, and that the group will continue to de-gear with the same sort of cash generation and trading as it has done so far.

And what else can you tell us about trading performance in the first half?

Perhaps you should cast our minds back to December 2022. I think the general feeling back then was a feeling of nervousness and uncertainty. -- inflation, energy, energy prices, which were sky high. How was 2023 going to pan out was the general question. The first half has not been a smooth ride by all means, by any means. Yet the business we have is sort of geared towards sustaining or doing well in difficult environments. The reason that is the case is because of 3 primary factors: first and foremost, we're in coring business for minerals business, but we sell those minerals to various different outlets. Roughly half is construction, but again, half of that is infrastructure. The other half is industrial applications, metals, paper, environmental applications, chemicals like fillers. And all of these industries in different locations across North Europe. So every single subindustry can have its weaknesses or it's strength in certain periods of time. And if you average out across all of these, you've got different trends going on at the same time, but they smooth out across the region and across our business. As a result of that, we can post really good and solid numbers even if the environment and the backdrop is less secure and less strong. Secondly, we buy companies systematically because that's sort of the growth model we have been running on since 2016 and integrate them into our group and then improve them, systematically improve them in a very decentralized and flat operating structure. We need such a flat operating structure because we want to be as close as possible to our end customer. So between myself or the management team here and the end customers are only really 1 layer, the MD of the platform. It allows us when the backdrop is uncertain and certain trends happen, to go and zoom in very quickly where the problem is and trying to solve the problem immediately. So that's the second point. Thirdly, as a management team between obviously buying businesses, we try to make sure that they run more optimally. So we spend a lot of time on site locally with management there with various teams to see what can we do, what machinery do we need, different machines, while operating structure could we use here? Are we making the right products? Are we selling them for the right -- in the right markets? All of those aspects are being looked at constantly. And that gives us a business which is very reactive, very quick to jump to a different operating method if the markets change with increasing better performance, increasing better performance as time goes by.

And you've been accelerating your pipeline execution. So how has that been going?

In February 23, so this earlier this year, we announced a fairly ambitious program about a dozen different initiatives, acquisitions, most of them -- some organic projects and then some disposals. That program has now effectively closed. We've executed on everything that -- pretty much everything that we announced. There's quite a bit of detail actually in the news release for those interested. The acquisition work is particularly good because it's -- we bought a large number of bolt-on transactions in various parts of Europe at very attractive multiples. And that was one of the thesis that we had back when we launched this is that we can -- if we execute now, we can get a number of businesses at very good prices. So we have an average multiple paid of about 3.9x EBITDA, which we feel is very, very good. There's obviously a number of organic projects that we also undertook, has, again, more detail in the news release. There's 2 perhaps that are interesting to highlight: firstly, is the Aqualung project. We launched in June, the first unit in Sweden. That's now running. It's absorbing CO2 from our kiln there, exactly as expected. So that makes us very, very happy. We're now calibrating the unit to make sure that the CO2 that we absorb is pure enough to be used in actual applications, and we will then scale it up to -- for that unit to take up or to absorb roughly 1/3 of the CO2 emitted by that production unit. And that would be, I think, very unique in Europe, especially since it's a modular unit, and it's fairly small in scale. So it actually demonstrates that it can be done. The second initiative that we're quite happy with is we partnered up with a startup company called Mevo, Materials Evolution. They produce through different blending and grinding techniques, a new type of cementitious material, which is ultra low carbon. And that complements very nicely our own green block blends, which we already launched last -- year before last in terms of our steps towards ultra low-carbon concrete products here in the U.K. We partnered up with them to help them develop the technology further, to help them commercialize their product. They've obviously been very successful so far. The technology is really robust. They've raised a lot of money themselves. So we're very happy that we partner with them to then help that journey along in our own journey in terms of decarbonization further on as well. And then we divested a number of noncore businesses and assets. I mentioned that because it's quite interesting that we managed to sell these businesses in these units at 12.9x EBITDA effective. If you -- just as a comparison, we buy businesses at sort of very low multiples currently, but our history is below 7%, and we sell it above 12%. And in terms of capital allocation and being wise investors and having the ability to sell well, I think that demonstrates that quite nicely. And so as a conclusion, really, great first half, the business has done very well. All our colleagues that have done so much work. I need a real pat on the back for that. And the execution of the pipeline is done. So we're well set up for the next half.

And in terms of that second half, what can you tell us about the outlook?

Well, the outlook is sort of the same as it was in the first half of this year or -- or even the second half of last year, which is lots of headwinds and also some tailwinds -- also in terms of tailwinds, how we see inflation starting to come down. Well, that's good. If that means that interest rates can stabilize or come down, construction will start to pick up again, new build in particular. We've had some destocking effects in the paper segment where lots of people stocked up because of fears of high energy costs, that effect is now gone, should be a tailwind again for the band for our paper segment. We hope that the structure of the business, and we believe that the structure of the business will be able to do the same as it did the first half and second half last year, which is lots of trends, lots of headwinds, lots of tailwinds, a very dynamic business, which is able to deal with all of those things head on. And then hopefully, post a second half, which looks a bit like the first half, outperforming what everybody expects us to do.

Max, thanks very much for joining us today.

Thank you very much.