SigmaRoc plc (SRC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the SigmaRoc interim results presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the presentation. However, the company will review all questions submitted today and publish responses where appropriate. These will be available via your Investor Meet Company dashboard. Finally, we would like to remind you that this presentation is being recorded. I would now like to hand you over to Chairman, David Barrett; Chief Executive, Max Vermorken; and Chief Financial Officer, Garth Palmer. Gentlemen?

Good morning, everyone. Thank you very much for taking the time to join us again at Investor Meet Company. We have a series of slides to present to you where you can also find these online. I'll take you through a few highlights and then Gareth will take you through the financial section, and I will speak a bit about strategy and operations [Technical Difficulty]. To start with some financial highlights. The first half of this year was tricky, of course, because trading was always going to be a less stable environment coming out of 2022, but the business performed very, very solidly across the first half, GBP 290 million turnover, GBP 55 million underlying EBITDA and 4p EPS -- underlying EPS. All of these nicely up against the same period last year, 17% up for revenue, 15% up for the EBITDA and 11% up for the EPS. We present to you on that same slide as well a number of pie charts where you can see our exposure in terms of country, in terms of market and in terms of products. If we go to the next slide, we have a bit more context on that on the resilience of these end markets and the diversification in particular. Construction is 55%, 56% of our end turnover, which splits down into 37% infrastructure and then 20% residential. Infrastructure and residential are split again, if you look at it by country right across Northern Europe. And so we have only single-digit exposure to any particular country for these 2 segments. We also noticed that the residential exposure has become smaller over time than versus the infrastructure exposure. That's by design. As the infrastructure markets continue to be very resilient, very strong with lots of projects on [Technical Difficulty] both launched [ and go ], we then subsequently launched in the energy infrastructure transition. More work is available there, and we obviously gear our business towards that. And then the other side is industrial minerals, and that's about 43% of our total turnover split down into 3 broad groups: paper, pulp and board; metals and mining; and then environment, food and chemical. Again, 3 industries which have very different dynamics, very different end markets, very different timings. And if you combine those various segments together, you get a very stable and resilient business in terms of its trading, which is something that we are very proud of. If you look at our strategic highlights on the next page, we've made progress against all the various priorities that we have as a business. Firstly, we decided to start this year and to be opportunistic, to take advantage of a whole pipeline of very attractive transactions that we had lined up at the end of 2022, and which we knew we could execute upon at a very low effective EBITDA multiple. Average number is 3.9x, which is well below our historic average at 6.9x. And generally speaking, for our industry, a low number given the asset backing and the quality of the businesses that we bought. And so that pipeline was executed to path completely. It's -- it finished up somewhere in July with some regulatory approvals for some transactions being taken -- taking up -- taken up at the moment. Contribution of about GBP 8 million annualized EBITDA once they're fully integrated, and then we'll start to work on performance improvements and synergies, which then will improve that number further. We also worked on organic growth initiatives to the tune of about GBP 2 million EBITDA contribution on a full year basis, and that has an effective EBITDA multiple of 3.3x. Again, lower than the organic -- the inorganic acquisition multiple, which is somehow expected for organic work, but generally speaking, a very low number altogether. And we'd like to contrast that with the next section, which is the divestment program we've undertaken. We obviously want to rationalize our footprint in our group as much as we possibly can. And what we certainly want to put forward is noncore assets and noncore businesses, we do sell. And if we sell them, we sell them well, and we generated an average multiple of 12.9x EBITDA for those holdings, those land holdings and businesses as we sold them. So you should certainly compare acquired multiple versus divested multiple as an indication of how we allocate capital and how we are able to both buy and sell. And then lastly, there's the innovation piece. Innovation has become more and more a priority for us when it comes to setting up our business for the future, but also delivering further ideas in terms of top line growth, new products, new initiatives, new markets. We certainly have made further progress there. Aqualung is up and running in Sweden, which is our carbon capture facility. We continue to make good progress on Greenbloc, our ultra-low carbon concrete product line. And in that same market, we have signed up a partnership with Materials Evolution, a supplier of -- an inventor of grinding technology to come up with the next generation of ultra-low carbon cement replacers as we focus on that segment of our products as well. And so to summarize the sort of highlights in the first section, we always want to invest, improve and integrate the various businesses that we buy. That's certainly been the case in the first half. And then we innovate directly to add some extra spice and some extra flavor to it all, and that works out very nicely as well. So I'll hand you over now to Garth for the finance and regional review sections.

Thank you, Max, and good morning, everyone. Pleased to report an excellent first half '23 for the group with revenue of GBP 290 million, up 17% year-on-year and 13% on a like-for-like basis. EBITDA of GBP 55 million, up 15% year-on-year and 12% like-for-like. EBITDA margin was maintained at 19%, with net margin improving by 70 basis points to just below 22%. And EPS, pleasingly to 4.01p, up 11% year-on-year, and that's despite of finance costs doubling in the period and also the impact after the fundraise where we don't get the full benefit of the earnings until next year. On the cash flow side, we had strong cash generation in May and June that helping translate into an adjusted leverage ratio, which includes IFRS 16 leases of 1.69x, well below our 2x target. So in summary, it really demonstrates the effectiveness of our invest, improve and integrate program. Taking a closer look at revenue. So revenue growth was 17% year-on-year, 11% of that is organic. Maybe we just need the next slide. 11% is organic. Spot volumes declining 3%, and we benefit from dynamic pricing and effective management actions taken in the prior year and also during the half. The West is flat, and that's due to GduH. That's under a take-or-pay arrangement. So that will resolve itself in the second half. And then the M&A of 3% is due to the integration of Goijens, Retaining and also Juuan Dolomitik. And then there was a bit of an uptick from ForEx. On the next slide, just looking at EBITDA. So 15% EBITDA growth for the period. Organic growth of 12%, that's driven primarily by efficiency gains and also margin improvement on the back of dynamic pricing. Northwest is flat, and that's a function of the residential exposure in the PPG Group. And then on the M&A side, as we touched on with revenue, it's the same contributions from Retaining, Goijens and Juuan Dolomitik. And then on the next slide, looking at the consolidated income statement for the group. We've restructured this slightly so that admin expenses now form part of the profit from operations, where we have a 22% year-on-year improvement. On the right, we've got sort of our mix of cost of sales as a percentage of revenues. You can see the evolution year-on-year from the full year '22. Key point here really is as a percentage of our total cost base, 30% of that is what we considered fixed. The rest is variable and very much tied to production. Looking below profit from operations and operating profit, net finance cost doubled, as I mentioned previously, from GBP 3.3 million to GBP 6.6 million. That's just a function of base rate hikes over the period. Other net gains related to ForEx and share of earnings from associates. Income tax at GBP 5 million is about 14% of profit before tax. That's a little bit lower as a function of capital allowances, some utilization of carryforward tax losses and deferred tax adjustments. That all translates into an underlying profit of GBP 27 million. Adjusting for outside equity interest gives us an EPS of 4.01p, an 11% improvement year-on-year, as we mentioned. Taking a look at the balance sheet on the next slide and CapEx in particular. We spent just over GBP 11 million on maintenance CapEx. That's 75% of D&A in the period. That's lower than our sort of stated 85% sort of target, and that's really just due to quite extensive resource extension activity in the [indiscernible] periods. So that's sort of come down as a function of that. GBP 3.2 million of growth CapEx included sort of the new asphalt plant, wash plant and a crusher. And then also there's continued spend in terms of providing alternative fuel uses across the Nordic businesses. And then balancing that out, we had GBP 1 million of divestments that will sort of carry on from the program at the end of last year. In terms of net debt, we started the year at GBP 194 million, 1.9x leverage ratio. We generated GBP 55 million of underlying EBITDA. We absorbed GBP 27 million in working capital, which is consistent with expectations and mostly due to the seasonal fluctuations and the added impact of CO2, which deficits get dealt with in March and April. We paid GBP 4 million in taxes, GBP 14 million of net CapEx outflows, as we just mentioned, and that translates into an underlying free cash flow for the period of GBP 10 million. We then obviously had the fundraise in February, GBP 29 million net. Half of that was deployed on acquisitions. That's being Goijens, Retaining, Juuan Dolomitik, and that's net of EUR 2 million sale of the Goijens road maintenance business. We then paid GBP 10 million in finance costs, which is [Technical Difficulty] we paid the Q4 '22 interest cost, both fell into H1. And then the final GBP 3 million of outflow is just related to underlying costs, mostly M&A related and some financial derivatives. So that all translates into GBP 183 million of closing net debt, including IFRS 16, and that's a 1.7x leverage ratio. So just moving on and looking at regions. We obviously introduced regional basis for the group last year. We organized into 3 areas with platforms below those, and that's really to support future growth scale. Each region traded really well, improved revenue and EBITDA year-on-year and also each integrated a new business during the period. Looking at Northwest, reporting revenue of GBP 74 million, that's up 11%, and EBITDA of GBP 15 million, up 4%. Softening demand in CCP and Allen, which are exposed to residential construction, was offset by stronger demand in infrastructure for Poundfield and RightCast and also bolstered by the integration of Retaining. We also restructured CCP and Allen, which had that residential exposure to scale their cost base with the softer volume profile and maintain profitability. Harries traded well. Johnston volumes weren't quite as strong as we had hoped, but revenue and EBITDA were improved. And the Channel Islands was broadly in line year-on-year. Looking at the West, where we reported revenues of EUR 59 million, that's up 15% and EBITDA of EUR 15 million, up 23%. We benefited from strong pricing and good cost control of dimension stone, improving EBITDA by 11%, slightly softer volumes are expected. Benelux had a strong first half with EBITDA up 19%, and that's largely thanks to strong contributions from the ready-mix businesses, including the integration of Goijens. Granulats had weaker volumes, as we mentioned, but that's under a contractual take-or-pay arrangement, and that will correct in the second half. And then just rounding out in the Northeast, EUR 188 million in revenue, up 15% year-on-year and EUR 38 million EBITDA, up 16%. Margin improved as pricing remained stable and costs were tightly controlled. We had strong quicklime and also Polish infrastructure, helping offset softness in the Nordics construction and pulp, paper and board markets. Nordic construction was impacted by weaker volumes in the cement majors, particularly in Finland. These are under sort of legacy long-term supply agreements, where essentially, we just partly operate the quarries and pass through costs, reductions in volumes don't really impact our profitability. So that sort of rounds out the regional overview. I'll hand you back to Max for the strategy and operations.

Thank you very much. Good. A high-level review of our strategy and operations, please if you could go to the next slide. As a generalized reminder of our business and what it does and what it specializes in, for those who are newer to the story and newer to our operations. So we're a North European business. We are -- we have by design chosen to be located around North Sea and the Baltic Sea. If you look at the map from space, you'll see that the density of infrastructure, the density of population, the density of ports and rail and roads industry, it's all very high and all very concentrated around this region. These are the natural consumers of the products that we make. The products we make are broadly split into 2 big brackets, industrial stone and construction stone. And in that space, we focus on quarries and lime plants. These are the 2 main production assets for those types of material because, one, they're hard to come by, and 2, they have usually very high barriers to entry and pricing power therefore. As a result of that, we can typically run a price strategy or the volume strategy, which is what we prefer. Our market exposure is a multi-market exposure. It's opposed to both large-scale volume markets for construction work primarily, but also a whole lot of growth niches, smaller niches, smaller operations, smaller niches which drive profitability and margin. In that, we run a decentralized operating model. The reason for this is that we wish to be agile. We wish to be able to react quickly to changes in markets, changes in dynamics, changes in demand and because our product doesn't travel very far, and it stays fairly close to the operations they have been produced at. That decentralized model works very effectively. As we grow, we grow by infill and by larger M&A, and that's very targeted as well as organic projects. And so as we've shown you in the first half of this year, we've done a number of bolt-on transactions, which improve our local footprint. And then from time to time, a larger transaction comes through to make the next leap forward as a business. And lastly, in order to keep a competitive edge ahead of our competitors, obviously, we have focused more and more on innovation, and that's called innovation on the digital front in terms of systems, in terms of data, data collection, but also on an ESG -- from ESG perspective, and that has to do with our environmental and social impact as a business and in particular, the emissions of CO2 and the embodiment of carbon in our products. And as a result of that, we're very happy that we can still deliver strong numbers against targets that we set in 2021. We achieved most of those already. Good organic revenue growth, strong margins, EBITDA margins, net margins ahead -- well ahead of the 20% mark. Very strong cash flows with over GBP 50 million of free cash flow at the end of last year, ROIC that's growing towards the 15% -- that 15% target and leverage ratios are well below 2x and [ degearing ] further. If you want to put more context to that on the next page, you can actually have a look at the various end products and markets we supply. On the left-hand side, the 80 operations of 1.6 -- 1.7 billion tonnes of mineral reserves we have. And out of that one type of quarry operations, we can then produce broadly 5 types of product, which ends up in very -- in a whole array of end markets. And all these end markets have their own dynamics. Looking at these markets in more detail on the next page, going by -- along the slide there. Metals and mining, firstly, very interesting market to be supplying into. The production of steel is impossible without lime and limestone, and that's the case today with blast furnaces, but it's also the case of the future when blast furnaces get partially phased out and replaced by electric arc or DRI production methods, which you still use large volumes of quicklime and limestone in their production. So the fundamental trends, especially also in our geographic region where the higher quality steel is produced by the big steelmakers, the ArcelorMittal, SSAB and so forth is fundamentally positive. Secondly, paper, pulp and board. What we see and have continued to see is a shift towards board away from plastic as a wrapping and packaging product. And that supports the industry in the north where forestry, the production of pulp and then subsequently board and paper is a very large industry. That's in Finland, Sweden and in Poland. And the fundamental trend there remains positive. Environment, obviously, the cleaning of flue gas from various industrial applications, but also the cleaning up of rivers, the cleaning up of drinking water and the control of pH in agricultural applications. The production of -- wrapped into this and into the next segment, various food production aspects such as liming of land and agriculture, production of sugar, production of eggshells, all of that depends on limestone and lime, which we continue to see with -- underpinned by very strong and solid trends going forward. And then lastly, construction split out into infrastructure and residential. So the secret at residential construction in the whole of Europe, and particular, in the U.K. and a bit in Finland and Sweden, so that's new build is experiencing lower volumes than for instance in '21 and '22. That said, our business is able to shift from residential to infrastructure fairly easily and we have done. And there, the fundamental demand currently is very strong with many infrastructure projects. And as interest rates start to stabilize and perhaps come down, residential construction should pick up again, and we'll see a growth in the residential segments, too. What remains the case is that housing is short. The number of houses available is low. That's the case in the U.K., but also elsewhere. And so longer term, the fundamental trends there are positive, too. And in order for us to then be well exposed and well positioned to service all these markets, we continue to develop our group through a whole number of acquisitions and other growth initiatives. And we've listed them here on Slide 23. The 3 that we announced in the first half and the 3 that closed fairly soon after the end of the half: CuBe Beton on the border of Belgium and France; Lithuanian quarries to expand our footprint in the Baltic states; and then Bjorka Mineral in Sweden, a fantastic company that brings in high-grade dolomitic limestone powders and other limestone products in our Finnish and our Swedish business. The multiples paid for these various operations are low, very low, a function of some fear in the market at the end of last year and some opportune timing that we took advantage of. And we were, therefore, able to bring in an attractive amount of EBITDA at a very low price. And obviously, organic initiatives and divestments on the next page are also key on the forefront of our mind. We're progressing well with the new asphalt plant along the M4 corridor in the U.K. That should be online at the end of this year. We continue to develop our alternative fuel supply setup, that's key to decarbonize our lime kilns, but also to help us with our input costs in terms of CO2 credits. Aqualung is up and running in Sweden. We bottled our first bottles of CO2 earlier in this year in June and are now calibrating that unit to produce CO2 that can have industrial applications. We'll have more updates on that later in the year. And we obviously signed a partnership with Materials Evolution. And at the same time, we divest and recycle capital very effectively by selling noncore land, a grinding plant in Poland, a road maintenance business in Belgium, and the effective multiples there as you can see at the bottom of the page are very attractive. And then next to this, we develop our business from an ESG perspective, each time keeping in mind the strategic developments of all the initiatives we take. ArcelorMittal is going forward nicely with our JV. The Aqualung and Materials Evolution projects we've spoken about, and then other projects at the bottom of that list, you will have seen before. Greenbloc is evolving more and more with taking larger and larger share of our production in the U.K. High Vizz is being rolled out further into the group with great safety statistic improvements. And then board oversight continues to be improved as well with further personnel and staff added and processes added there. And so if you then switch to outlook for '23, we should really focus on, first, the catalyst for continued growth. And we have the 4 pillars of our operating strategy, which are invest, improve, integrate and innovate. We certainly invest and we're continuing to do so with 10 projects completed in the first half, and we're looking now at what next very actively and there's quite a few attractive ideas there. We continue to improve our EBITDA growth since our acquisition is strong. And in particular, Nordkalk made a 13-plus percent improvement since closing that transaction, which we're very pleased with. It's a great business. It has further potential -- untapped potential, which we're now working on with a good team in place and motivated staff across its -- across the group. We continue to integrate the businesses that we buy, both new ones and existing ones, and extending our product offering in our resource base, which is critical for a minerals-based business. And then we innovate and we innovate more and more, and there's quite some exciting news on that to come also down H2 and then next year. And so as a result of that, we feel we have delivered a lot of priorities -- strategic priorities for the first half and are now working hard at the second half. And the second half starts as well from a trading perspective. We had a good trading -- overall trading in H1, and that continued into the early months of H2. That needs to be taken into whole. There's obviously markets that are better and there's markets that are worse. But the strength we have here is the diversity of our end products, diversity of our exposure, the diversity of our geography. And all those put together means that we are much more capable of dealing with trends in various submarkets as we can blend them out and diversify away from them across the piece. We will see further benefit of the recent acquisitions. They've only really come in at the end of the first half and into the second half. So they will start to come through as we integrate them and then drive further synergies there. Cash flow will be good. It's always second half biased, that's as operational reasons. And also lumpy expenses in the first half, social security payments, CO2 credits and all those sorts of things, hedges that are all paid for in the first half, and that skews the cash flow picture, which means that in the second half, we'll generate further cash, we will -- we can use and will use for further development of the business. And as a result of that, the long-term potential of the group remains really exciting. There's more to come. We've done 6 to 7 years of growing this business from a blank sheet of paper to what it is today. And we are certainly motivated to keep that trajectory going as we have done so far. So this completes the presentation we have -- we shared with you on screen and on our website. We're happy to take any questions.

Super. Thank you, David, Max, Garth. Now if we can turn to the questions, we have a number of questions that were submitted ahead of the presentation. However, please do continue to submit your questions using the Q&A tab situated on the top right-hand corner of your screen. And additionally, your feedback is important to the company. So immediately, half of the presentation has ended, you will be redirected for the opportunity to provide feedback. Max, maybe I could start with you. And we have one advanced question here, which was submitted, which was related to the recent acquisitions. Can you update on the integration of the recent acquisitions and possibly maybe just broaden that out with a little color on the acquisition strategy more generally?

Yes, that's fine. So we did 6 fewer M&A projects in the first half. And the nice thing is that they came in one after the other. So we've been able to get on with the integration of each quite effectively. Goijens in Belgium is the starting point, a concrete business in the Northeast. We thought we could build a real -- really nice network of concrete plants in the Northeast of Belgium by having 1 extra in a setup of 2 that we already bought earlier. And that chose to be true. We have network effects there. We share fleets. We can share -- we share projects. We share sales teams. So that integration is effectively complete and delivering the synergies that we hoped already. Secondly, is the Juuan Dolomiittiikalkki quarries in Finland -- in the middle of Finland. 2 reasons for the purchase of that business: one, geography, further north; and secondly, product, it's dolomitic limestone for agricultural use. There, again, integration complete. The team that was running the business has remained with us and is helping us now to run some of our other mid-Finland-based sites and making them more effective. So from an integration perspective, more product into a different area and then effectiveness in terms of sharing knowledge and capability up in the north. So that's 2 great success stories. Then the third one in the first half was Retaining UK, a business which is exposed -- which produces precast retaining wall solutions, primarily exposed to infrastructure and the timing of that was, again, opportune. As the U.K. has gone through a sort of a softer first half in terms of residential -- new build in residential construction, the fact that we are currently more exposed to infrastructure and have another product, another solution for infrastructure work through Retaining UK has helped us a lot, and we see that deliver more than expected already in terms of its EBITDA contribution. So that's a great -- it was a great purchase, too. And then the second half, we're now busy with the integration of CuBe concrete business in -- on the Belgium border with France, 4 concrete plants and they're located very nice because they're located not far away to the 20 kilometers -- 20 miles away from our largest aggregate supply in Belgium. And so we'll integrate the supply of stone into those concrete plants [indiscernible] integrated volume there and also gives a concrete footprint in the Benelux area, up from 3 plants to now 7. So we start to get some critical mass and then we start to get some weight in these various local markets. So that's very good. And that's ongoing. Secondly, the various quarries in Lithuania, integration process is ongoing as we speak. We created a Lithuanian business with management team on the basis of a very light asset base earlier this year and end of last year. And this now means that there's actually some quarries and some operations in Lithuania added to that platform. So that's very helpful. And then lastly, our most recent acquisition then is Bjorka Mineral, which is in Sweden. In Sweden -- Mainland Sweden, our operations were fairly light. Our footprint is fairly light. And to be able to integrate 3 quarries in the heart of Sweden with 3 minerals types that we didn't really produce to that quality, dolomitic limestone, high-grade limestone powders and obviously, further limestone is very, very helpful. The network effects between those 3 quarries and our operations will clearly benefit the profitability out of Sweden in the future. So again, the right business to purchase at the right time. Acquisition strategy going forward, it's always been the same sort of process. We turn through 6, 7, 8 different projects at any point in time. A lot of them don't come through because of various reasons. They're in varying sizes. They can be ultra-small, they can be enormously large. We looked all of them. What matters to us is that we can build our business and our footprint into something that becomes a really valuable integrated group with network effects with good exposure to residential, infrastructure and industrial minerals, where we are a key supplier to large offtakers -- large industrial offtakers where the network effect and the redundancy in plant capacity is really important, but that we're also a key supplier to infrastructure and residential construction, where the trends are in the midterm, very solid. So that when infrastructure projects come up and local house building comes up, we are a supplier of choice locally. And so that combination is what we look at, which means bolt-on deals, organic projects and when the right larger deals come up, we certainly look at those as we did with Nordkalk.

Great. So I think you've answered Stephen's question there as well, which was what is your view on the acquisition opportunities for both larger deals and smaller bolt-ons. So that's helpful. One thing you can touch on there and Matt has asked a question here, could you add more detail regarding your ability to switch from residential to construction end markets? Is there any skills of that?

No. And that's the beauty of the company we've got. So if you look at the quarry, which is on screen now, does that say quarry in Eastern Finland? Essentially, that product, to a large extent, can go out the gate to the left into industrial applications to the right into construction applications. There's a bit more skill to it than that, obviously. There's some high purity mineral there that goes to very specific applications. Generally speaking, one quarry gives you many different products and you can shift between end markets. And that's something that's perhaps not understood enough that the ability to shift, the ability to change as markets are better or worse in terms of end markets. And that's what you can see in the numbers. If you take our pie charts last year, you would have seen that infrastructure was a smaller proportion of overall construction, and it's now grown and obviously residential has shrunk a bit. And that will probably reverse again as soon as interest rates start to stabilize or come down and residential construction coming back.

Just to add to that. You need the right mineral quality, the chemical composition in the first place. Very often a limestone quality will not have that minimum [Technical Difficulty].

Okay. Super. Thank you. And [Gideon ] asked on the life span of the quarries. Are quarries something that is very long term like 50-plus years or something shorter term than that?

Most of our quarries are very long term and tend to reserve, and there are some that have shorter life spans. But that's the natural -- that's the reality of quarrying. What you typically find is that opening a new quarry is near next to impossible and that city councils work with existing quarries to extend their life span as they get towards the end of reserves. And we see that in various places that we are operating, U.K., Belgium, Finland, and so on. We're constantly in discussions with councils to extend planning permission for the reserves. So it's a bit of both. As a general rule, we are nearly 30 years on average everywhere and in some cases, 100, 200, 300 [ years ].

Okay. Super. And Colin asked, could you please expand on the alternative fuel technologies you are using or considering?

Yes. The -- what we're trying to achieve is our lime kilns obviously burn fuels to create quicklime out of limestone. What you want is to have a setup where you can use different types of fuel and you can mix and blend as these fuel types are available. And so you can go back to gas, for instance, natural gas when that's cheap or then switch to biofuels, biomass with pellets, sewage, and so on as that becomes available or is cheaper. To do that, you need to obviously change the type of burners, change the input infrastructure, and that's what we're currently going through. And then the key target is to be able to use biomass as a default to most of the fuel consumption of every kiln. And if we could, in some cases, and that depends on the kiln type, use fuels which are slightly more difficult to burn in other setups like, for instance, sewage, like, for instance, waste, mattresses and shoes and that sort of thing. And that can be done, but it needs specific fuel burners. Those sorts of fuels typically carry a gate fee, which means that the waste recycling businesses would pay us to dispose of them through our kilns. And that's a real win-win. So that's also what we're looking at this.

Great. Super. And on the theme of innovation, Richard has asked, how do you see the evolution of Aqualung?

Aqualung is -- the point was we wanted to be the first in Europe to have a working CO2 capturing system, which is also a modular, small, easy to install and fairly key to install. And that we squarely achieved. And it sort of takes the myth away that capturing carbon or CO2 is difficult. It can be done through membrane technology and Aqualung units. So that's step one. Step 2 is the Holy Grail of CO2 is when you can actually capture the CO2 and then actually use it for something rather than store it underground. And that's what we're currently going through with the Aqualung unit in Sweden. We're looking at the very -- CO2, the concentration, the form we need to produce it into. Is that a gas? Is it a filtered gas? Is it the compressed gas? Is it the liquefied gas? And then where do we take it from there? CO2 gets used in many different applications, fizzy drinks, for instance, in the food industry, also in industrial applications. And so the type and the form it comes in is quite important. So that, we're calibrated currently. And if -- and as and when that then -- that approach is defined and finished up, we can then continue to expand the Aqualung setup and then add further units and then go on the road of decarbonization of our lime kilns.

Great. Okay. Thank you. And Garth, got a couple of questions for you here. First one is, what steps are you able to take to control your cost base in this inflationary environment?

Yes. Well, one key point, obviously, is the variability of our cost base. So as I touched on in the presentation, 30% approximately is fixed, the rest is variable in scales of production. And we've also demonstrated strong ability to pass through cost inflation, as you can see with our revenue growth of 17% year-on-year in the half, 19% last year as well. So we've got -- we can manage our cost base. We can scale it with volume. We can take other initiatives. We're constantly working to improve the efficiency of the group anywhere and also, we've demonstrated the ability to deal with that through pricing.

Okay. And a balance sheet question. Do you expect further debt reduction over the next 12 months?

Yes. In short, yes, absent obviously further significant investment. But all other things equal, we're amortizing approximately GBP 25 million of our debt this year. I think that jumps to the circa GBP 30 million next year. And with the cash we generate, particularly in the second half, we're looking at closing our adjusted leverage ratio, including IFRS 16, below 1.6x, probably sort of 1.55x from 1.7x obviously at the half.

Great. Super. Thank you. And question on Nordkalk. Any update on the Swedish state Nordkalk dispute?

That's just running its course. The Swedish state appeals, as you would expect, so did we, they appealed on the principle we build the quantum. And as a result of that, it's now going to the next courts. And I suspect that it will go all the way through the court system in Sweden until a final decision at the Supreme Court there. So we will update you as soon as we hear more. We're now waiting for next court dates and the next courts that it goes through. And then subsequent to that, we'll update you on the decision and where we go next with it.

Super. Thank you. And John asked what lay behind the softness at Johnston? Are you taking up the further quarry assets?

So yes, yes, that's all done. So the various quarry assets that we announced when we did the deal earlier in the year, they've been integrated and acquired. They're smaller operations. They add more revenue with some -- more and more reserves and more products. Johnston supplies essentially 2 markets for 3, agricultural lime and then the wet season, wet summer has played a bit with that. So that's starting slightly slower and later. That's one effect. Second effects have been slowness in residential construction in U.K., so new builds. So that's an effect. But then infrastructure is picking up a bit. As far as a result of that, we've got a mix there. That said, operationally, we're running that business very well. We've done a lot of work to integrate it into our entire U.K. setup and its profitability is very good. So we're very happy with it.

Great. And one question which is slightly topical from Richard and lots of media coverage here in the U.K. about [indiscernible] and I maybe wonder if your concrete block sales come with any possible future liabilities?

That's one for you, David.

No, the business is -- have never produced that type of concrete. In fact, it hasn't been produced for a number of years now. There is no liabilities there.

Great. Great. Thank you. And we've got a number of questions. I'll aggregate them because they are all to do with valuation of the business and in essence. And the question is, given the progress you're -- are you surprised that the market doesn't reflect this in the company valuation?

Yes, we are. But obviously, every management team would say that whatever the share price is, we certainly are. What I think is perhaps not understood or perhaps we haven't said it enough, but business as it's currently set up is extremely diversified in terms of its end markets and geography. And so when there's a lot of nervousness in the U.K. about residential construction, for instance, or big house builders put out softer numbers, yes, it does have an impact on our U.K. exposure, but generally across the group, that's a fairly small amount of our total turnover or a small impact on the group as a whole. And so that diversity gives us resilience and that steadiness of trading that we have shown for the last years. And I would expect that, that would generate better value. Again, that's predictability. But again, [indiscernible] stock market.

Yes. It's also worth pointing out that management of the business are holders of -- shareholders of the company. And that investment hasn't come through. Shares that have been gifted are [Technical Difficulty], which will come out as fast cash.

Super. Thank you. So some questions that are more forward looking. Can you discuss a bit more about the 5- to 10-year trends affecting your business?

Yes. That's a great question. Essentially, the main product that we make is limestone. That's how I'd say, it's a stone that you would see in buildings around you, if you look at the various sort of marbles and used in great monuments. It's also a stone that gets used in standard construction in concrete and it's a stone gets used in all these industrial applications, metals, ceramics, paper, you name it. Essentially, everything that you touch on a daily basis is based on limestone somewhere. It's an ingredient that's essential to the production method. And so far, nobody has found a better ingredient than limestone to deal with these production challenges. Very often, it's a purification agent. So if you make steel, you want to purify out the various impurities, you deal with that with limestone. It's a filler. It's a pigment. So in every case, it's quite essential in the production setup. As we go forward and as we deal with more environmental challenges in the various production assets that we have, limestone seems to become more and more important. So sometimes people talk about electrification of the economy and car batteries. If you want to make a ton of lithium hydroxide for car battery, you need 0.8 of a tonne, so 80% of that volume in quicklime. And if you want to make steel in a more clean production methods, an electric arc furnace, for instance, you need more quicklime. So limestone in those applications seems to have a trend up. If you look at water purification, if you look at cleaning up of rivers, riverbeds, oceans, again, there, limestone and lime is critical, is key. Managing the pH of waterways, pH of lands, limestone and lime is a key. Into food production, limestone is key. And so take a look at that and then project forward and you see that the base volumes for our products are trending up. Look backwards and you look at the pricing dynamics that limestone has had over the last 50, 60 years, and that's always outpaced inflation. And if you take long-term volume sustained by these various trends and historically good pricing and you match that together and you quantify that, then you have a very positive outlook for what this business could deliver in the years to come. And so we are looking at that fundamental trend, very optimistic about what we can do.

Super. Thank you. A couple of final questions. One which is ESG focused. Any chance of installing wind power turbines at any of your U.K. sites?

We are looking at that, but there's currently 2 planning applications going through, that's in Belgium for the big site in Belgium that we've got. We already have 30% of our power there from solar. If we get the 2 wind turbines up, then pretty much all the power we use in that site, which has 450 people employed, will be renewable. There will be a wind turbine installed at one of our concrete plants in the North of Belgium. Again, that will run the entirety of that plant, plus more from that wind turbine. And then we're looking at the various sites in the U.K. The sites in the U.K. are, in terms of scale, not so enormous. And so you need obviously the space and everything else to be able to put them. But it's actively considered across the group. And then there are similar projects in Scandinavia, where we're looking at solar panels on ponds and other water storage that we have, things like this. So as they come through, we'll certainly put some images in the various reports and talk about it.

Super. Thank you. Great. All right. Well, this is a good question to finish off with and to wrap up, if you might, Max. But Chris says, do you see the positive start to the second half continuing given the difficult trading environment? And maybe you could just wrap that around a closing statement.

Yes, we certainly think so. The end markets -- the variety of end markets that [indiscernible]. The variety of end markets is great, and that means that there's all sorts of trends going on. But all together, we get a fairly smooth picture, and that's also what we saw in the first half of this year. So we're very, very -- we're optimistic enough about the trends of the business for the second half.

Yes. And as I touched on the Granulats, the take-or-pay, that will correct in H2. So there's upside there, pulp, paper and board, the destocking, it's been worked through. So there are positive trends.

And so maybe as a closing statement, and that also comes back to the question 5- to 10-year outlook for the business. The short-term outlook is good, and that's diversity of end markets. The midterm outlook is good because there's sustained demand in all the various segments we supply to. And then the long-term outlook is good because of all the trends, the longer-term trends, sustainability trends that you can see. And so put all those one after the other, and you've got a fairly positive for the short, the mid and the long term.

Great. Super. All right. Well, thank you, David. Thank you, Max. Thank you, Garth. Could I ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback? If anyone has further questions or would like additional information on SigmaRoc, please do get in touch by [email protected]. Many thanks for attending today's presentation, and we look forward to updating you again soon.