SigmaRoc plc (SRC) Earnings Call Transcript & Summary

Good afternoon, and welcome to the SigmaRoc plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd like to hand you over to the management team. Max, good afternoon, sir.

Good afternoon. I hope everybody can hear us well. Thank you very much for joining SigmaRoc's first half 2026 results presentation. You've got slides for you on the screen. You can download those slides also on our website as well as more materials. Short presentation of half an hour with the 4 usual chapter headings from the next page, an overview of the group's performance, finance review by Jan to my right, subsequently strategic delivery and then outlook at the end, and we're happy to take any questions you might have. If we go to the first part then, group performance for the first half. Fantastic first half of 2026. Strong results, EBITDA up 11.3%, EPS, up 12.2%. Margins, EBITDA margins of 25.1% and evolution of 200 basis points. All of that pointing to a great first half in terms of trading volumes, evolution of our business. It didn't start smooth. There were some headwinds at the start with the weather, but that was recovered very nicely in Q2. balance sheet strengthened further 1.66x leverage at the end of the first half, very nicely at the bottom end of our target range and return on invested capital on an LTM basis, nearly 12%, again, 0.5% up from the last plan. And therefore, confidence in the full year outlook. And strategic delivery was also solid operational excellence, as you can see from the margins, continue to be driven through synergies program has delivered, and there's more self-help to come. We've done a phenomenal acquisition with the help of our teams. I'll come back to that point in a minute. In dolomitic limestone, dolomites. The Belgium aggregates production setup, new acute plant is mining there to be launched on time, on budget for a fantastic 2 million tonnes of production capacity in Belgium. We've extended our quarries in Klinthagen on the island of Gotland in Sweden with high-quality mineral and then we keep focusing on the quality of our business through the rating, the MSCI rating at AAA at this point in time. We move on to the news of the day, which is the Dolomitas acquisition in Lithuania. To give you a bit of a background for other slides on this deal at the end of the slide deck but some quick points, 3.5 million tonnes of dolomitic limestone dolomite per year. It's a high-quality lifestyle product that we sell -- we will sell into the Lithuanian market. 45 years preserve and resource, planned permitted and further to come. And then beyond that, of course, as well EUR 70 million turnover, 25.7% margin for an EBITDA of EUR 18 million. We paid EUR 110 million for this business, which equates to a 6x multiple, a very, very attractive multiple. Therefore, immediately earnings enhancing and that is pre synergies and very interesting as well as the sellers requested to be paid in part in shares at a very attractive prices up when this deal was done. Again, all those points, I will come back to in the further sections of this presentation. If we move on to the performance of the first half. First half was solid, as I said. On Slide 6, an overview for the group and then by geography. For revenue, EBITDA and EBITDA margin. Every single region performed very nicely. Two little points to note, the 2 red arrows that you can see, 1% year-on-year revenue drop in the U.K. and Ireland. That's a mix question in terms of residential construction. Same point, in fact, in the region West where we sold more aggregates like a lower margin, slightly less dimensional strong. But these are timely changes versus the fantastic performance of the group put in on every other metric. And you can see some attractive double-digit growth figures in EBITDA at a very attractive increases in margin as well. All of that is very positive regional performance. If we look at the same performance numbers, but now split differently, split now by segment on Page 7. Revenue up in industrial and environmental applications and quite solid increases there. Industrial, predominantly driven by the steel sector. As you may have read the steel sector received some support from the European Union in the form of quotas as tariffs, and that has made indigenous steel in Europe, quite a much more attractive proposition for the local steel producers, and that translates for us into more volume and better sales. The other segments, both the paper chemicals, mining and so forth, were good, stable, steady year-on-year. Looking at the Environmental segment, second segment where we apply our products, again, as a pure fire to waterways to flue gas as an agent in agriculture. Again, very nice revenue increased 7% year-on-year, and that's driven again water treatment is one. And then secondly, the performance in the flu gas treatment segment. And then the last sector, construction, 42% of group revenues, softness obviously there. Residential construction in Europe has been weak for years. It has shown some tendencies of recovery, but those tenancies have not yet translated in a full recovery of volumes and pricing, and that's what you see in that last bucket. The signal there is clearly that when this will recover, there's quite a bit of upside to be had in the construction segment. And then lastly, 1/3 sort of the cut of the same results, but then now by product type and volumes. 1% core volume increase, and that is a first in many years. The volumes have decreased over the last year, predominantly because of weakness in European industrial and construction markets. but now we see a core volume increase. If you take all volumes combined, there's a discontinuation in certain businesses, and that translates into some reduction in high-grade volume. That's where we stopped certain contracts server production, to sell volume into higher-end applications when those become more available. And that's what you see there. All in all, a very attractive performance also from a volume perspective. So I hope that gives you a flavor for the business' performance in the first half. And now with some detail on the financials, I'll hand you to Jan on my right.

Thank you. Let's move to Page 10, where you see the metrics, how we track them to assess the performance of the group financially. A couple of them have already mentioned in the intro, all green arrows here, except for free cash flow at the bottom end there. We'll get to that in a minute. Very nice progress over time, very good growth year-on-year in the right direction, that down business-related metrics up and very nice increase percentage as well year-on-year. So we're doing very well on that with a range of leverage where we wanted to be at 1.66x of leverage, which is nicely in the band that we like to be in. The only thing that is read here is on the free cash flow side, which is the pre-growth part, which we usually show. If you look at including growth, you'll see later on, we went actually up from 45% last year to 46%. So it's still a very nice cash generation for the group when we make operational results. which we use then to -- partly to fund the acquisitions when we have an opportunity to do it. This is a status moment though. What I like is the set of graphs on the next page, Slide 11, where you see the same metrics for trade over time. all developing very nicely in the right direction. The CAGR values are very solid. ROIC is very solid over time. You see there in the middle block at the bottom part, there's a slight dip in '23, but that was because of a lot of acquisitions that we did in that year. So the rest is performing really well over time, where you see from '26 to '25, 0.5% increase that was listed on the front page. EBITDA, EBITDA percent very well and a leverage to see how we operate within that band of 1.5 to 2-ish. So all metrics in a good shape. If you look at the next page, I'm going fairly quick here as the metrics are showing good numbers. Revenue on the left side and the EBITDA rate's on the right side by region. U.K. and Ireland somewhat down year-on-year in revenue side, which is the construction industry, primarily in all the regions very well upwards nice growth there and then some help on foreign exchange rate as well as the euro strengthened over time. We see the same thing on the right where EBITDA is listed, all regions up, including Ukranian Ireland. Part of that is because of a change in contract structure of our haulage fleet that we changed now is one of the leases where the cost base is now ending up in the depreciation line. If you take it out, there was a 4.8% in that bar, there's still 2 left, which is 97% growth in EBITDA year-on-year in that region. So well done with the team on the ground in a difficult market. Same applies for West where construction is also difficult. And in particular, residential is still fairly weak across the European landscape. So showing and delivering these numbers is a good performance on the team on the ground, saying in Nordics and in particular, on the central block where pricing was actively picked up and delivering. So all in all, growth on the top line, even more growth, relatively on the bottom line on EBITDA. So a very good check there by region. The next page has it by component, the driver. From [ EUR 178 ] to [ EUR 132 ]. As you can see, volumes slightly negative. Overall, volumes were down 3%. Now this is the effect of that on the bottom line. But all other items are positive in particular, pricing in a difficult market, so very well done by the team, very well managed commercially. And then we continue to work on our synergies and self-help projects is delivering, as you can see, we're not fully done yet. There's more to come as we execute the whole list of projects that we have listed. So it's favorably delivering. It is nice. And then we have a reclass on the haulage, which we've separated out here to be transparent what it triggers to EBITDA. So it is a help there, but not an EBIT, but it's here, it's to help and then we have a few others. That leads to our P&L on the next page, Slide 14, where there's a lot of detail. You see the top line growing from EUR 510 million to EUR 523 million. Operating profit of EUR 81.4 million to EUR 81.7 million. And then we have done quite a bit of work on the items below operations, finance costs have gone down with the refinancing. So a significant help on the cost side there. Last year, we had a few other gains positive at that time. They don't repeat typically. So we have a few left, which is the CO2 results. So we still have an expert center that drives volumes there and benefits, but the others are missing. And then we have tax expense is going up. We got to improve profits, which is a good thing. On a percentage basis, it reflects roughly 20% of profit before tax, which is somewhat lower or lower than what we typically guided, which is at 22%. So we had few refunds from previous years, which were favorable for us. So we'll take it and underlying profit in good shape. Now EPS, up as a consequence as well, 12% plus in a market that's still not helping. We're proud of it. If you look at the chart on the right. That's an area where we get some questions, in particular around the variable cost splits and C5 be there and in particular around energy, fuel and carbon which represents around 26%, 27% of total cost of sales. We have mentioned it a couple of times in communications we deal with it in our way that is on the next slide. So how do we do that? One, we do it in the first bucket there at the top. We do it quite successfully because during the times of these energy prices manifest themselves. We were able to increase margins in both cases. This is a reflection of the Ukraine crisis at the bottom there, the 10 basis point. And then the second now, where we're in the middle of the Iranian, the Middle East crisis, and we were able to push prices up -- push margins up, sorry, with over 200 basis points. So the prices in the market of energy are clearly going up. They are visible, but not so much for us though. And why not? That is because we have put hedges in place where we basically secure pricing from a certain point before it happened this year, and we're paying those, not the market prices. So we're -- we've taken action on the cost side. That's one. And then secondly, we've put them into the contract with customers, and we pushed the prices that we have to pay pushing through basically securing us from negative margin impact. Now there are a few other things that we do to minimize the fuel expenses trying to make our kilns much more efficient and what they already are. So working on programs there on efficiency itself and then biomass conversion because they don't track CO2 credits. Now if you look at what we do versus what others have as a statistic, we've said -- we've included 2 charts on the right. The less of the 2 is the indication of our company with an intensity of energy in gigawatts per million pound of EBITDA. That is about 15, 16 points. Other peers in Alberta Materials Group are actually substantially higher. In this case, it's 40% almost based on their intensity versus ours. So we're not overly exposed to energy versus what others have. So we're actually not in a bad place at all. If you look at this intensity picture. And then combine it with the actions we can take and we have taken on the left, we're in good shape. Same applies for common. We're dealing with it as we should. And if you look at our carbon intensity relative to others, were lower, less lower than energy but still substantially lower in over 30%. So overall, if you talk about exposure to energy and other relevant costs, it's mitigated. It's actually less than others in our peer group, and we're managing it really well. And you see it on the facts, which is the margins that we were able to deliver. Now if you look at it over time, which is always in a good position. These are -- 2 charts on the next slide that represents first on the left side, margins over time from 2008 of the line business. So that is the portion of what we have today, but that is aligned. Now as you can see, it hovers around 20% plus every year, and there were prices in those periods. So it's a steady business. has diversified end markets. It has a diversified customer profile. Regional split is helping. So it's very stable and delivering good results. Now after 2020, we were able to purchase line and combine it with the rest of the group, which is more aggregate based. So if you combine it, the average margin has come down to 18% as a start. And that's where we were able to move it upwards up to 25.3% this year, 25%, and we're at that point more or less again midyear. 720 basis points up, not in easy years, nowhere near your grain prices when they're in the current position in Iran is this business. And very nice trajectory. So we're able to do good deliveries on the margins and absolute amount. So we're dealt with it as we should. Moving on to the last part of finance, which is helping Max in his third case, we're generating very healthy cash flows in our retour business. from an EBITDA perspective, around 50% to 46%, if you take all cash flows that we have to pay. Of course, we have sometimes an investment in working capital next quarter can be a contribution, which is always going a little bit back and forth. We pay our taxes and CapEx. Maintenance is about 20, and we have the cost of financial funding that we have to pay. And then we have a few cash outflows on leases that were previously in EBITDA now part of EBIT. So overall, free cash flow conversion, pre-growth CapEx, over 50%. And then if you take growth CapEx in ground, it's a particular spend on a large project in Belgium for an aggregate pressure, you take that into account 46, and this metric was 45 mid-tier last year. So good progress there. Very healthy CapEx, which then feeds our acquisition trajectory. And the last part here is that we do that with big gearing in the back of a hat, and we're carefully managing both. So far, we're in a very nice range moving from 1.8x at the beginning of the year to 1.66. And you see the buildup of that, there are some catch outflows. But overall, we're very controlled very manageable towards managing cash in both from a funding perspective and a performance perspective.

Thank you very much, Jan. That was a good summary. We are now moving on to Section 3 on to Slide 20. The strategic delivery of the business. We'd like to take you back to the Capital Markets Day we did in May 2025, when the team -- when on stage is set out a series of objectives, and these objectives were, first and foremost, deliver the synergies program that we've launched and to keep improving our business from there on. results today show you that, that program was successful and successfully implemented with a fantastic evolution of our margins. The second thing that we said is that we would invest in our assets and make sure that the assets stay in good shape. And that is clearly successfully implemented to date with 64 million tonnes of high-grade mineral added to the Gotland operations in Sweden, and additional crushing aggregates plant back in Belgium, which is on budget being launched as we speak pretty much. The third thing we said is that we would continue to develop our footprint through very attractive M&A. And the attractive M&A clearly today is the first step into that direction again with the Dolomites transaction, which I'll come to in a minute. Further aspects we set out, we're keeping our balance sheet healthy, refinancing very attractive terms, keeping it go deliver leverage going down to 1.66x. And then the overall quality of the group, emission, safety, relations with our neighbors. And there again, we invest time and resources to make sure our business is well set up for the future and a AAA rating with MSCI, gives you that confidence. Now if you look at the M&A piece, which is the news of this morning, we have a good track record of M&A. We've done a lot of work in the sector. Plenty of deals all the way between the start of the group and then 2023. Then we did a very large transaction, the CRH deal where we bought line and limestone assets right across Europe. We implemented the synergies and integration program, streamlined the portfolio with some divestments at very attractive multiples in '25. And then now in '26 have gone back on the M&A trail. And that is with a deal of size, the Dolomitas group and the details of that are on Page 22. So we're talking here the Lithuania. We're talking in Lithuania, which is a country you can see with all the dots on the map. It's one of the 3 Baltic states. We have a very attractive and well set up Baltic business already, and this business will fit right into that mix. The group is -- the Baltic group is run and managed by our Head of the Baltic states who have an intimate knowledge of the business we've just bought. He ran that business for many years before joining us. and kept a very good relationship with its prior owners, to gentlemen who have sold us the Dolomitas group. Now what is the Dolomitas group. It's the largest quarry group in Lithuania. It's the largest limestone-based group. It's the largest dolo line, dolomitic line, dolomite group in Lithuania. It sells predominantly into various infrastructure, industrial and environmental applications. One of those which it doesn't sell to yet would be green steel. Dolo line, which is line made from dolomitic limestone or Dolomite is an essential ingredient in electric arc furnace-based steel. It's essential because it protects a refractory brick aligning in that electric arc furnace from degradation as we produce steel. And this particular product is high-quality limestone, subgroup of limestone is an essential ingredient in exactly that production. And if you look at the business in detail, the one that we have agreed to purchase this morning, was set up in the 1960s has 40 different types of lifestyle products and dolomitic labor products and grades that it sells in the various end markets. Sales were about EUR 70 million in terms of turnover generated in 2025, EUR 18 million in EBITDA. Reserve light is solid, 25 to 30 years existing reserve under permitted provision and ownership and a further 15 to 20 where permits are required, which we will obviously obtain over the years to come. 3.5 million tonnes of production per year, the capacity to do more at 25.7% EBITDA margins. We expect this to complete at the end of Q3 and into Q4 as the regulatory filings are going through. Obviously, the management team is very solid, and we have into knowledge of the business through our staff member who ran the company for a long time. The 2 owners, we're very pleased with the fact that they requested to take shares and have taken those shares at a clear premium to the price of which this was agreed, [ 29p ] per share. And then in particular here, I know that some are on the phone here as well with you. This transaction was entirely run and managed by the team's internal to Sigma, a fantastic effort fantastic process, well run, well executed. And that shows the capabilities we are developing internally. And obviously, other side of the sellers, they did a fantastic job, too. Now a few slides dolomitic limestone, [indiscernible] versus line. Again, the critical difference is the magnesium oxide content in that particular product, and that helps with steel production helps with feeding soils, behave control, and it also helps just as a hard stone limestone variant for construction. Dololime itself is on the next page, a fantastic material to be part of. It is scarce when you look at the European footprint. There's not many pockets of this material available, and we now start to be part of that club that produces this product. It's a subgroup, dololime that is which is in demand and growth in the volumes are clear. When you see the predictions on the slide, 4% per annum, which is quite nice. And I think outpaces this usual 1%, 1.5% volume growth that we have flagged in the past, and that is all because of the trend towards electric arc furnaces. And we've given you a slide on 25 where those electric arc furnaces are placed. Where we have the various domestic line production and where we obviously now are placed ourselves with the inclusion of do meters. Plenty of our electric arc furnaces already up and running and plenty more coming. The last point that is important is with the Dolomites group, we also purchased a large section plot of land in the economic free zone of the ports in the Lithuania, which will allow us to do both import and export of product into the region. All in all, a phenomenal acquisition, a fantastic synergistic acquisition, which fits perfectly within the remit and the objectives that we set for our group. And that leads us to the last few minutes of this presentation for questions, the outlook. While the outlook is a positive one, we have a fantastic business, great staff, great resources scarce resources, inflation proof in some, say, resources right across Europe. We have a fantastic customer base we serve with both product and additional services. The business is predictable through cycle. And the reason for that is that we don't have just one sector we sell to. We sell to pretty much every sector of the economy. And those sectors evolve with their own cycles, and that makes this business so predictable and so smooth. And then we are very well placed there for Europe's industrialization and the tailwinds that come from additional infrastructure. And as a result, second half, which is typically a stronger half than the first has started well ahead of last year. We're obviously watchful. The Middle East crisis, which we hoped would end in the summer is obviously still continuing, and we are keeping an eye on how that impacts end demand. And the reason for this is if interest rates go up because of inflation fears, does that impact the housing demand, those sorts of things we keep an eye on. So far, we're trending very nicely as you can see from those results. The CMD priorities for last year are nicely being executed. And as a result, the Board's view in our view here is that we're on track for another solid performance as a group. And now with the additional benefit of M&A, the synergies that will bring in the earnings enhancement fantastic deals like the Dolomites deal we have announced this morning. And on the back of that, I'd be happy to hand it over to you for any questions you might have.

[Operator Instructions] As you said, we have received a number of questions during today's presentation. So if I could just hand back to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you very much. Yes. Melissa will take us through those questions.

So first question is from Henrik. Please explain the corporate cost and the chart on Slide 21. Does it only relate to Dolomitas for cumulative M&A?

The corporate costs are just Slide 21. That's a different slide. But generally speaking, corporate costs in the waterfall that we have and expand is just all the central functions that the group has. So you have a buildup of very EBITDA components and then the corporate cost by division, by region and then the corporate cost area.

Great. Stephen P., could you expand on the courtship of Dolomitas and were you in competition?

No, this was a very nice transaction as the ideal scenario, 2 fantastic sellers who were happy to consider what the next -- the best next step would be for their business, a business they've been running for decades, their family has been owned for decades. They obviously knew our CEO, Baltics from his previous tenure with that business. And so it was a direct relationship there. And there, I would say that both the seller and our M&A teams have done a stellar job. We did all the diligence with some support, obviously, on legal and finance from outside counsel. But all the other work streams were in-house, and it was a very good well-executed deal.

Another question from Stephen P. You have not declared any synergy ambitions regarding Dolomitas? What areas are the most promising?

We have a sort of a blanket synergy ambition for any deal we do, and that's not new. It's been there for about 10 years, which is to say that we always hope to achieve about 25% EBITDA increase on any deal that we do and that we then hope to outpace that increase in the years following transaction. So that's the guidance that you can take. And you can look at the deals we've done in the past, and that's always where we've ended up, even much higher. And what's the ambition or what's the main source. Again, prior deals has always been a combination of operational market presence, integration into the wider structure. It's never a recipe that is exactly the same. So it depends on every time on the local context. And again, here, that will be the same. But take those numbers as a guidance.

Question from Peter D. You state that the synergy program has delivered EUR 45 million of EBITDA improvements to date. How much was incremental in H1 2026? How much remains? And when will the program be substantially complete?

Yes. I can take the first one. The incremental part was on one of the slides on the bridge was EUR 5 million for the first half. We've said on the full program of synergies that we have delivered the minimum that we said we would. We lifted the minimum twice from EUR 30 million to EUR 40 million. So we've done that last year, year-end. This is another EUR 5 million on top. But we continue to work because they're still not fully finalized yet. And we said we will do our best to get to the EUR 60 million, which means that there's EUR 50 million more to go after.

And the 60 -- by the way, to complete Jan's point, EUR 60 million in synergies on the CRH deal would be near enough 50% EBITDA uplift from the acquired EBITDA. So we are well in our target range already, but obviously, the target is to get to the full EUR 60 million.

A question from Mason S. Today, this acquisition is very exciting, give you a comment on the strength of the pipeline for further acquisitions and the likelihood of closing another deal in the next 12 months.

So next 12 months, no doubt. Yes, there's no debate. The pipeline is always full. What you want to do as a business of our type is you want to buy the best companies at the best value. Dolomitas this morning is an example. I mean the valuation is attractive. The quality of the group is exceptional. The deal process was fantastic. The sellers took equity and fully subscribed to all of us and what we are all trying to do here and the confidence in the limestone and lime sector in Europe. You want to do those deals. You could obviously buy anything and everything that comes around the corner, but then you don't build a quality business, and that's not what we're after.

A question from Carl P. Could you give us a bit more color on the GBP 8.2 million other FX contribution in the H1 revenue bridge? How much of it is FX? How much is other? And what is included in the other component?

Other and FX is GBP 8.2 million. The bulk is foreign exchange. Others is, for instance, if we charge some revenues to customers that is not related to volume, which is incidental and you put it there, but the majority is foreign exchange.

All right. question from Vishal B. You spent EUR 27 million of CapEx in H1. This includes growth. What is the annualized run rate of the group here over the medium term, please?

Annualized number based on the current size of the group, which is around -- the actual leases is around 65-ish dependent on growth. With the new acquisition added will go up slightly because they have CapEx needs as well. But that's, I think, 10% plus is realistic. So you preleases 65, 70-ish is a good number.

Question from Conor M. When do your energy hedges mature? And have you modeled what kind of an impact this will have on earnings when you need to put on new hedges given current prices?

Yes. Well, look at that, actually right now, this is the period where we normally would look at it, following the budget process for next year. The hedges that we have put in place very in terms of expiration date and they vary also by country because every country has a different energy profile and those you need to do that on a country basis. Today, what we don't want to do is lock ourselves in at prices that are at current levels. So we'll be a little bit more -- have a different approach now towards hedging more layer-based than at a moment in time. So we'll be active -- we'll be acting cautiously on the hedging, just for the sake of being mindful of cost developments, that's one. But on the other hand, the prices will be going up with it because of the contract structure that we have. So there's not an exposure per se for us, but we are still mindful managing the cost base. because if we can avoid pushing it through customers that is well received by them. So it's a bit of both.

Another question from Vishal B. You invested EUR 14 million in working capital in H1. And you will now also integrate Dolomitas Group. Should we expect you to continue to invest in working capital this year and over the medium term as well?

No, it's an investment now. Last year, it was an investment of half the size. There will be a benefit at some point. So working capital is working capital. It's not always going negative. And if you add, of course, the company, then you have just the balance sheet that comes along and then you'll go up. But it's not an endless in that sense. So we're managing it from an operations standpoint where we have an eye on the typical receivable days and the like and payment days. So -- but overall, if you look at what it reflects, it's 5% to 10% of revenue, which is a steady, which is very manageable, I would say.

Just to add one point. We own our resource. And if you compare a business like ours to a business that doesn't own its resource where it has to buy its own input. We have major working capital swings in absorption. And obviously, this is the working capital but it's EUR 10 million or not, it's effectively a nonevent in that context. It's a very manageable point. We also ramped up and ramped down stock. We ramp up things depending on what we see in terms of demand. So those sorts where you position the business to take better advantage of certain fluctuations in certain end markets. And those things sometimes come along in that working capital figure. But all in all, it remains a nonevent, as Jan said, 5% to 10% is revenue.

Okay. Other question from Vishal B. On the [ 129p ] agreed for the share component of the acquisition. Can you please give any transparency as to the process to arrive at this price, Dolomitas shareholders were willing to accept. Does this also become a blueprint for future bolt-ons? If there is a share component, it's a direct issue to target company?