Sigmaroc (LSE:SRC) — Interim results

0:03 Good morning ladies and gentlemen and welcome to the SIGMAROC Interim Results Presentation. Before we begin, we would like to submit the following poll which you will see on your screens. Throughout this presentation, investors will be in listen only mode. However, questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen or if anyone has dialed in via SIGMAROC warbrookpr.com. The company may not be in a position to answer every question it receives during the presentation. However, the company will review all questions

0:35 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, Maxima Morquin and Chief Financial Officer Garth Palmer. Gentlemen. Good morning everyone, thank you very much for taking the time to join us again at Investor Meets Company. We have a series of slides presented to you where you can also find these online. I'll take you through a few highlights, and Yigarh will take you through the financial section. I will speak a bit about strategy and operations after that. To start with some financial highlights, the first half of this of this year was tricky, of course, because trading was always going to be a less stable environment coming out of 2022.

1:31 But the business performed very, very solidly across the first half. 290,000,000 turnover, 55,000,000 underlying EBITDA, and 4p EPS, underlying EPS. All of these nicely up against the same period last year, 17% up for the year, 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 mark, in terms of product. 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 50 five-fifty 6% of our end turnover, which splits down into 37% infrastructure and then 20% residential.

2:23 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 two segments. You also notice that the residential exposure has become smaller over time than versus the infrastructure exposure. And that's by design. As the infrastructure markets continue to be very resilient, very strong with lots of projects on on stream or live, both launched in COVID and subsequently launched in the energy infrastructure transition. More work is available there, and we obviously gear our business towards that. Then the other side is industrial minerals, and that's about 43% of our total turnover, split down into three broad groups, paper pulp and board, metals and mining, and then environmental food and chemical.

3:15 Again, three 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 the strategic highlights on the next page, we've made progress again 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 we had lined up at the end of twenty twenty two, and which we knew we could execute upon at a very low effective EBITDA multiple.

4:02 Average number is 3.9 times, which is well below our historic average at 6.9. And generally speaking for our industry, a low number given the asset backing and the quality of the businesses that we bought. So that pipeline was executed to both completely. It's finished up somewhere in July, with some regulatory approvals for some transactions being taken taking up taken up at the moment. Contribution of about 8,000,000 annualized EBITDA once they've been 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 2,000,000 EBITDA contribution on a full year basis.

4:47 And that had an effective EBITDA multiple of 3.3 times, again lower than the organic

4:54 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 programme we've undertaken. We obviously want to rationalize our footprint and our group as much as we possibly can. And what we certainly want to put forward is non core assets and non core businesses we do sell. And if we sell them, we sell them well. And we generated an average multiple of two, what, 12.9 times 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.

5:43 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 GreenBlock, 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 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 direct to add some extra spice and some extra some extra flavor to it all, and that works out very nicely as well.

6:54 So I'll hand you over now to to Garth for the finance and regional review sections. Thank you, Max, and good morning, everyone. Pleased to report an excellent first half twenty twenty three for the group with revenue of $290,000,000 up 17% year on year and 13% on a like for like basis. EBITDA of $55,000,000 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 in spite of finance costs doubling in the period and also the impact of the fundraise where we don't get the full benefit of the earnings until next year.

7:40 On the cash flow side, we had strong cash generation in May and June that helped translate into an adjusted leverage ratio, which includes IFRS 16 leases of 1.69 times, well below our two times 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 despite volumes declining 3% and we benefited 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.

8:28 That's under a take or pay arrangement so that will resolve itself in the second half. And then the M and A of 3% was due to the integrations of Goianz Rotaining and also Joao Dolomiti. 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 12%, that's driven primarily by efficiency gains and also margin improvement on the back of dynamic pricing. Northwest was flat and that's a function of the residential exposure in the PPG group. And then on the M and A side as we touched on with revenue it's the same contributions from retaining Gwynes and John Dolomiti. And then on the next slide looking at the consolidated income statement for the group.

9:17 We've restructured this slightly so the admin expenses now form part of 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. 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 would consider fixed. The rest is variable and very much tied to production. Looking below profit from operations and operating profit, net finance costs doubled as I mentioned previously from 3,300,000 to 6,600,000. That's just a function of base rate hikes over the period.

9:57 Other net gains relate to forex and share of earnings from associates. Income tax at 5,000,000 is about 14% of profit before tax. That's a little bit lower as a function of capital allowances, some utilization of carry forward tax losses and deferred tax adjustments. That all translates into an underlying profit of 27,000,000 and adjusting for outside equity interests gives us an EPS of 4.01p and 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 11,000,000 on maintenance CapEx. That's 75% of D and A in the period. That's lower than our stated 85% target and that's really just due to quite extensive resource extension activity in periods.

10:48 So that's sort of come down as a function of that. Dollars 3,200,000 of growth CapEx includes a new asphalt plant, wash plant and a crusher. And then also there was continued spend in terms of providing alternative fuel uses across the Nordic businesses. And then balancing that out, we had a million of divestments that was carry on from the program at the end of last year. Terms of net debt, we started the year at 194,000,000, 1.9 times leverage ratio. We generated 55,000,000 of underlying EBITDA. We absorbed 27,000,000 in working capital, which is consistent with expectations and mostly due to seasonal fluctuations and the added impact of CO2, which deficits get dealt with in March and April.

11:36 We paid 4,000,000 in taxes, 14,000,000 of net CapEx outflows, as we just mentioned. And that translates into an underlying free cash flow for the period of £10,000,000 We then also had the fundraise in February, twenty nine million net. Half of that was deployed on acquisitions. That's been Gwaiens retaining, Trondolomiti and that's net of 2,000,000 Euro sale of the Gwaiens road maintenance business. We then paid 10,000,000 finance costs with some carryover. We paid the Q4 twenty twenty two interest costs fell into H1. And then the final $3,000,000 of outflows is just relating to non underlying costs, mostly M and A related and some financial derivatives. So that all translates into $183,000,000 of closing net debt, including IFRS 16 and that's a 1.7 times leverage ratio.

12:28 So just moving on and looking at regions, we obviously introduced regional basis for the group last year. We organized into three 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 £74,000,000 that's up 11% and EBITDA of 15,000,000 up 4%. Softening demand at CCP and Allen which are exposed to residential construction was offset by stronger demand in infrastructure for pound good and right cast and also bolstered by the integration of retaining. We also restructured CCP and Allen, which have that residential exposure to scale their cost base with the softer volume profile and maintain profitability.

13:21 Harwich traded well, Johnston volumes weren't quite as strong as we'd 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 59,000,000 Euro, that's up 15% and EBITDA of 15,000,000 Euro up 23%. We benefited from strong pricing and good cost control at Dimension Stone, improving EBITDA by 11%, slightly softer volumes than expected. Benelux had a strong first half with EBITDA up 19%. That's largely thanks to strong contributions from the ready mix businesses, including the integration of Goins. Granulets had weaker volumes as we mentioned, but that's under a contractual take or pay arrangement and that we'll correct in the second half.

14:08 And then just rounding out in the Northeast, 188,000,000 in revenue, up 15% year on year and 38,000,000,000 EBITDA up 16%. Margin improved as pricing remained stable and costs were tightly controlled. We had strong quicklime and also polished 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 part we 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 it back to Max for the strategy and operations. Thank you very much.

14:56 Good. A high level review of our strategy and operations. Please, we could go to the next slide. As a generalized reminder of our business and what it does and what it specialises in, for those who are newer to the story and newer to our to our operations. So we're a North European business. We are we have by design chosen to be located around our sea and the Baltic Sea. If you look at the map from space, you'll see that the density of infrastructure, density of population, the density of ports and rail and roads, industry, it's all very high and all very concentrated around this this region. These are the natural consumers of the products that we make.

15:38 The products we make are broadly split into two big brackets: industrial stone and construction stone. And in that space, we focus on quarries and lime plants. These are the two main production assets for those types of material. Because one, they're hard to come by and two, they have usually very high barriers to entry and pricing power therefore. As a result of that, can typically run a price strategy rather than a volume strategy, which is what we prefer. Our market exposure is a multi market exposure. It's supposed 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.

16:30 In that, run a decentralised operating model. The reason for this is that we wish to be agile. We wish to be able to react quickly. React quickly to changes in markets, changes in dynamics, changes in demand. And because our product doesn't travel very far and it stays very 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 and A, and that's very targeted, as well as organic projects. 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.

17:20 Lastly, in order to keep a competitive edge ahead of our our competitors, obviously, we have focused more and more on innovation, and that's called innovation on the digital front in terms of systems, terms of data collection, but also on an 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've achieved most of those already good organic revenue growth, strong margins, EBITDA margins, net margins well ahead of the 20% mark. Very strong cash flows with 50 over billion free cash flow at the end of last year.

18:16 A ROIC that's growing towards the 50 that 50% target and leverage ratios of of well below two times and the gearing further. If want you to put more context to that on the next page, can actually have a look at the various end products and markets we supply. On the left hand side, the 80 operations, 1.6, 1,700,000,000 tons of mineral reserves we have, and out of that one type of quarry operations, we can then produce broadly five types of product, which end up 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 along the slide there, metals and mining firstly.

19:03 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 in the future when blast furnaces get partially phased out and replaced by electric arc or DRI production methods, you still use large volumes of quicklime and limestone in their production. So the fundamental trend, especially also in our geographic region, where the higher quality steel is produced by the big steelmakers, the ArcelorMutels, SSABs and so forth,

19:38 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 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, the control of pH in agricultural applications, the production of wrapped into this and into the next segment various food production

20:30 aspects such as liming of land in agriculture, production of sugar, production of eggshells. All of that depends on limestone and lime, which we continue to see underpinned by very strong and solid trends going forward. And then lastly, construction split out into infrastructure and residential. It's not a secret that residential construction in the whole of Europe, in particular in The UK and a bit in Finland and Sweden, so that's a 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, as we have done, and there the fundamental demand currently is very strong with many infrastructure projects.

21:21 And as interest rates start to stabilise 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

21:31 is short, the number of houses available is low. That's the case in The UK, 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 three that we announced in the first half and the three that closed fairly soon after end of the half. Cube, Petun on the border of Belgium and France, Lithuanian quarries to expand their footprint in the Baltic States. And then Bureka Minerals in Sweden, a fantastic company that brings in high grade dolomitic livestock, limestone powders and other livestock products in our Swedish business.

22:24 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.

22:36 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 at the forefront of our mind. We're progressing well with a new asphalt plant along the Iron 4 Corridor in The UK. 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

23:06 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 non core 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 relevance of all the initiatives we take. ArcelorMittal is going forward nicely with our JV, The aquiline and materials evolution projects we've spoken about, and then the other projects at the bottom of that list you will have seen before. Greenblock is evolving more and more with taking a larger and larger share of our production in The UK.

24:16 High vis is being rolled out further into the group with great safety statistic improvements. And then board oversight continues to be improved as well with with further personnel and staff added and processes out of there. And so if you then switch to outlook for '23, we should really focus on firstly catalysts for continued growth. We have the four pillars of our operating strategy, which are invest, improve, integrate and innovate. We certainly invest and we continue to do so. Have 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.

24:57 We continue to improve our EBITDA growth since acquisition is strong, in particular in Northgalk, we've now made 13 plus percent improvement since closing that transaction, which we're very pleased with. It's a great business. It has further untapped potential, we're now working on with a good team in place and motivated staff across the group. We continue to integrate the businesses that we buy, both

25:26 new ones and existing ones, and extending our product offering and 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 the H2 and the 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 started 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 hold. There's obviously markets that are better, 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.

26:14 And all those put together means that we are much more capable of dealing with trends in various sub markets as we can blend them out and diversify away from them across the piece. We will see further benefit of the restock positions. 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 from there. Cash flow will be good. It's always second half biased. That has operational reasons, and also lumpy expenses in the first half, social security payments, CO2 credits and all those sorts of things, hedges, they 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 can use and will use for further development of the business.

27:08 And as a result of that, the long term potential of the group remains really exciting. There's more to come. We've done six to seven 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 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 could 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 and A tab situated on the top right hand corner of your screen.

27:54 Additionally, your feedback is important to the company. So immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback. Max, maybe I could start with you. 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 six pure M and 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. Goyens in Belgium is the starting point, a concrete business in the Northeast. We thought we could build a really nice network of concrete plants in the Northeast Of Belgium by having one extra in a setup of two that we already bought earlier. And that shows to be true. We have network effects there, we share fleets, we can share projects, we share sales teams. So that integration is effectively complete and delivering the synergies that we hoped already.

29:02 Secondly is the Joani Dolomiti quarries in Finland, in the Middle Of Finland. Two reasons for the purchase of that business. One geography for the 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 run some of our other Bitfinement 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 capability up in the North. So that's two great success stories. Then the third one in the first half was retaining UK, a business which is exposed, which produces precast retains all solutions, primarily exposed to infrastructure and the timing of that was again opportune.

29:59 As The UK has gone through a sort of a softer first half in terms of residential new build, 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 purchase too. And then the second half, we're now busy with the integration of Cube concrete business in on the Belgian border with France. Four concrete plants, and they're located very nicely because they're located not far away, so 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 and integrate volume there.

30:50 And also gives a concrete footprint in the Benelux area up from three plants to now seven. So we start to get some critical mass there. We start to get some weight in these various local markets. So that's very good, and that's ongoing. Secondly, 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 ended 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 Minerals, which is in Sweden.

31:40 In Sweden, Mainland Sweden, our operations were fairly light. Our footprint was fairly light. And to be able to integrate three quarries in the heart of Sweden with three minuteeral types that we didn't really produce to that quality, dolomitic limestone, high grade limestone powders and obviously further limestone is very, very helpful. And with the network effects between those three 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 churn through six, seven, eight different projects at any point in time. A lot of them don't come through because of various reasons.

32:28 They're in varying sizes. They can be ultra small and they can be enormously large. We looked at 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 effects 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 midterms 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 North Calc.

33:30 Great. Super. I think you've answered Steven'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 to 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 the screen now, because that's a quarry in Eastern Finland, essentially that product to a large extent can go out the gate to the left into industrial applications or to the right into construction applications. There's a bit more skill to it than that, obviously. There's some high purity mineral in there that goes to very specific applications.

34:15 But then 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 that that ability to shift, that ability to change as markets are better or worse in terms of end demand. 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 portion of overall construction and is 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 come back. Just to add to that, need the right mineral quality, the chemical composition to do that in the first place. Yeah. Very often, a limestone quality would not have that that mineral quality.

35:07 But our quarries do. Great. Okay. Super. Thank you. Gideon asked on the life's lifespan of of the quarries. A quarry is something that is very long term like fifty plus years or something shorter term than that? Most of our quarries are very long term in terms of reserve, and there's some that have shorter lifespans, 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 lifespan as they get towards the end of reserves. And we see that in various places that we are operating UK, Belgium, Finland, so on. We're constantly in discussions with councils to extend planning permission for the reserves.

35:56 So it's a bit of both. As a general rule, we are thirty, eighty, thirty years on average everywhere, and in some cases one hundred, two hundred, three hundred years. Okay, super. Colin asked, could you please expand on the alternative fuel technologies you are using or considering? Yeah, the the what we're trying to achieve is our lime kilns obviously burn fuels to create quick lime out of limestone. And 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 more cheap, or then switch to biofuels, biomass, wood pellets, sewage and so on, as that becomes available or is cheaper.

36:55 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, like 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.

37:41 And that's a real, real win win. So that's also why we're looking. Great, super. And on the theme of innovation, Richard has asked, how do you see the evolution of Aqualung? Aqualung, the point was we wanted to be the first in Europe to have a working CO2 capturing system, is also modular small, easy to install, and fairly cheap to install, and that we should be 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 the akrolung units. So that's step one. Step two 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.

38:33 And that's what we're currently going through with the aqueoling unit in Sweden. We're looking at the various the 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 a 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 calibrating currently. And if and as and when that then approach is defined and finished up, we can then continue to expand the aquiline setup and add further units and then go on the road of decarbonization of our lime kilns.

39:24 Great, okay thank you. 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? Yep, 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 and scales with 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 ability to deal with that through pricing.

40:16 Okay and the balance sheet question. Do you expect further debt reduction over the next twelve months? Yeah in short yes, absent you know obviously further significant investment but all other things equal we're amortizing approximately $25,000,000 of our debt this year. I think that jumps to circa 30 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 1.6, it's probably sort of 1.55 from 1.7 obviously at the half. Yeah. Great. Super. Thank you. And quick question on Nordcalc. Any updates on the Swedish state Nordcalc dispute? That's just running its course.

41:04 The Swedish state appealed, as you would expect, so did we. They appealed on the principle. We appealed with Quantum. And as a result of that, it's now going to the to the the next courts. And I suspect that it will go all the way through the the court system in Sweden till a 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 in 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. Thank you. John asked what lay behind the softness at Johnstown's? Are you taking up the further quarry assets? So, yeah, yeah, 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, so more reserves and more products.

42:02 Johnston supplies essentially two two markets, well, three agricultural lime, and then the wet season, the 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 in The UK, so new builds. So that's an effect. But then infrastructure is is picking up a bit. As far as a result of that, you'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 UK setup. And its profitability is very good. So we're very happy with it. Great.

42:49 One question which is slightly topical from Richard. Lots of media coverage here in The UK about rack and it made me wonder if your concrete block sales come with any possible future liabilities? That's one for you David. No the businesses we own 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. We've got a number of questions and I'll aggregate them because they're all to do with valuation of the business. And in essence, the question is, given the progress you're surprised, are you surprised that the market doesn't reflect this in the company valuation?

43:35 Yeah, are, but obviously every management team would say that whatever the share price, we certainly are. What I think is perhaps not, I do not understood or perhaps I 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 UK about residential construction for instance, or big house builders put out softer numbers, yes it does have an impact on our UK exposure, but generally across the group, that's a fairly small amount of our total turnover, 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.

44:25 And I would expect that that would generate better value and better predictability. But again, it's one for the stock market. Yeah it's also worth pointing out that management of the business are holders of shareholders of company and that investment hasn't come through. Shares that have been gifted by way of employment, it's all come out of hard cash. Thank you. So some questions that are more forward looking. Can you discuss a bit more about the five to ten year trends affecting your business? Yeah, that's a great question. Essentially, the main product that we make is limestone.

45:14 So it's a stone that you would see in buildings around you, you look at the various sort of marbles and used in great monuments. It's also a stone that gets used to standard construction in concrete, and it's a stone that 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's found a better ingredient than limestone to deal with these potential challenges. Very often, it's a purification agent. So if you make steel, you want to purify out various impurities, you deal with that with limestone. It's a filler, it's a pigment.

46:03 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 methods 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 tonne of lithium hydroxide for a car battery, you need 0.8 of a ton, so 80% of that volume in quicklime. 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 then look at water purification, if you look at cleaning of rivers, liming of riverbeds and oceans, again there limestone and lime is critical, is key. Managing the pH of waterways, pH of land, limestone and lime is 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 fifty, sixty years, and that's always outpaced inflation.

47:21 And if you take long term volume sustained by these various trends, and historically good pricing, and you match those together and you multiply 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 could do. Super, thank you. Right, a couple of final questions. One which is ESG focused. Any chance of installing wind power turbines at any of your UK sites? We are looking at that, but there's there's currently two planning applications going through. That's in Belgium for the big sites in Belgium that we've got. We already have 30% of our power there from solar.

48:08 If we get the two wind turbines up, then pretty much all the power we use in that site, which has four fifty 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 UK. The sites in The UK are in terms of scale, not so enormous. 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's 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 them.

48:58 Super, thank you. Great, alright, well look 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? Maybe you can just wrap that around a closing statement. Yeah, we certainly think so. End markets, the variety of end markets in GovJip in if want, 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. Yeah and as I touched on the granulates the take or pay that will correct in H2 so there's upside there. Pulp paper and board the destocking has been worked through so there are positive trends. And so if maybe as a closing statement, and that also comes back to the question of five to ten year outlook for the business.

49:59 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. So put all those one after the other, and you've got something that looks fairly positive for the short, the mid and the long term. Great. So far. 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 sigmarocwarbrookpr dot com. Many thanks for attending today's presentation and we look forward to updating you again soon.