Sigmaroc (LSE:SRC) — Trading Update

0:01 Good morning, ladies and gentlemen, and welcome to the SIGMAROC PLC Trading Update Investor Presentation. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review your questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm the company would be most grateful. And I'd like to hand over to

0:33 David Barratt, chairman. Good morning. Good morning, Mark. Thank you, and good morning, everybody on the call. So it's been three years since we last presented on Investor Meets company, and we intend to use this platform for more regular updates going forward. I think it's useful if we summarize what's been achieved since the last presentation and indeed in the first five years of SIGMAROC. The business now has 1,600,000,000 tonnes of reserves, which gives us strong market positions, good pricing power, and which was demonstrated well in the inflationary environment over the last twelve months. We have a broad market exposure, not just in construction, but also metals and mining, pulp and paper, agriculture, chemical, industrial, and environmental.

1:24 We have a decentralized model which keeps the business closer to the customer, which is very important, and we also have a flat management structure. The business has good margins and a strong cash generation, giving you an excess of a 100,000,000 EBITDA and 54,000,000 free cash flow. We have a very strong focus on ESG with a clear roadmap to net zero. Now I'm gonna hand you over to Max who will give you a more detailed presentation.

1:54 Thanks, Eric. Good morning, everyone. It's a real pleasure to be back here and to present a few slides to you. There's essentially three sections that we'll follow now. The strategy as a as a whole, how that gets implemented, what that's led to financially, there was a track record between base fields and forwarders represented here, and a bit of an outlook and an update on the first quarter. So the strategy as it stands, there's really three questions to answer is where are we operating What are we doing there, essentially? And and how are we how are we going about it? The where has always been a very fixed point for us. It's always been, as you can see on the map here, North Europe, around the North Sea and around the Baltic Sea. And there's a number of reasons for this. First and foremost, the density of infrastructure population ports, you can see those in the darker shaved areas. There's lots of activity, which means lots of industry, lots of people, lots of requirement for all the products that we that we make. Secondly, as the economy evolves and the net zero aspect comes more and more to the fore, we can see that this Northern area of Europe is going to be more and more central, both in terms of carbon capture, in terms of import energy, export c o two, and the various the various strands of our of our business. And therefore, again, this is a great anchor point for us. And then thirdly, it's got a a fantastic setup in terms of legal system and then availability of quarries.

3:25 Quarries are hard to find. They're difficult to purchase. And then once you have them, they're really the center point of the strategy that we're implementing. And that means that we know our competitive market. We know who is competing with us where, and that gives us lots of visibility. If you look at what we now do in this area, the anchor point we have right across North Europe is the mining operations, the quarrying operation. We've got 80 sites, eight 1,600,000,000 ton of reserve. And these quarries essentially give us a rather wide spectrum of of different products. The very basic product is construction aggregate, the construction stone, which ends up essentially in roadworks and concrete and house building.

4:11 The logical the the things that you would you would see around you when you walk across a city. In most cases, in our quarries, that same stone also has an industrial application, which is where we take the stone and then grind it to a powder of various sizes. The chemical composition of our stone allows this, especially in The Nordics, especially in Finland and Sweden and in in Poland, and to a degree also in The UK and in Belgium. And this allows us to be exposed to other markets than there does construction. And those other markets are make making of paper pulp or metals, environmental application, agricultural applications. It starts from the same mining operation, and we take it through a lot a slightly larger set of of production processes to address a vast arranged array of array of markets in the end.

5:02 And if you then look at what we what what markets and specifically we address there, you can sort of group them into three broad buckets. Niches, which have a growth aspect to them. And by this, we mean, if you take, for instance, currently agricultural applications, environmental applications of limestone, we burn a lot more coal because of the energy crisis. We've got less fertilizer available because of supply chain disruptions. And these small size and from the volume applications of stone create fantastic margins and growth opportunities for us. That's the first bracket. The second bracket is scale markets. These are the logical end markets in infrastructure construction. Large volumes of stone used for fairly standard applications.

5:47 They involve with macro trends, demographics, energy infrastructure these days. And then lastly, horizontal integration, which primarily means we have a fixed set of products or qualities out of our quarry. Can we try to transform that product a bit and integrate more markets into our scope horizontally? Go out and find new applications for the product that we already produce as the horizontal integration piece. And then when we see then the question is how do we do this? And David alluded to this already a little bit. The quarry is the centerpiece at the start. It's a cash generative, unique asset. It gives us pricing power, and it gives us diversity in terms of end markets. Buying those and owning those is the starting point. We've called this over the past invest.

6:37 Secondly, we need to make sure that we have cost control and agility. So we need to have a flat structure. We need to make sure that the people that run these quarries are really in charge of what they do locally. And that to make sure that these quarries run faster, run better, cost control. We call that improve. Thirdly, as soon as you have both the quarry established and the cost control in place, we need to start looking at how do we generate better margins and more cash. That's the horizontal integration piece also. It's going after niche markets. That's the integrated piece. Let's see what else we can do with that little setup. And then fourth, we are not a huge business, 500,000,000 in turnover. So we need to have a competitive edge, and that we deal with through the innovate aspect, which is both on products and on on ESG.

7:24 Now if you take those four aspects and you start to say, well, how do we implement this? There's a few slides on on on the sort of the the practical aspects of what we've done so far. If you look at our footprint to date, it's nice to hear about the the area that I highlighted earlier. We have three main operating regions, which is The UK, Western Europe, and then the North. They're called the Northwest platform, the Western Platform, and the Northeast. Inside these, we have 10 operating hubs, 10 operating platforms. We've grouped them in these three regions so that it's easier to follow where we are active, what the global GDP data looks like, what local activity looks like. So that's the current operating setup. And in these 10 niche 10 platforms, we address quite a large number of of end markets.

8:15 Five key markets from a country perspective, Finland and The UK being the largest one if you combine it with these Channel Islands, and the Benelux Finland, and sort of Sweden and Poland, and a few smaller markets in there, which are, for instance, the Baltics and a little bit of Germany. And the very nice diversity in terms of end market exposure. When you look at them where we sell our products, half roughly goes into various types of construction, infrastructure being the largest, residential being the second one. And then the other half is industrial applications of the same stone. Pulp and paper, obviously, the North, very important. Metals and mining, important again in the North in Poland and in Germany. And then agriculture, chemical, environmental, That's pretty much across the spectrum.

9:00 Individual countries represent only very small proportions of the individual segments. So real estate, residential real estate, the largest exposure would be in The UK, which is 7% of group turnover. And so we have very small exposures to any any individual markets. And then when you translate that into end product, as I said, you can take our stock and then transform it in different ways. It's the last pie chart you see on the right with the various types of end product, quicklime, limestone powders, aggregates, and so on. The key point here is the end markets are huge diverse, and we can shift the product from one area into the other as demand evolves across the various end markets. Now the various platforms from a operational perspective also require an enormous amount of attention, and it's also something that we are quite good at. On the horizontal, you see the various platforms by region, and on the vertical, you see the various operational improvement programs that we have driven through.

10:03 There isn't a single standard process. We could we do do not buy a platform of businesses or a business and say, well, we have a recipe here. We're going to address all these points. We do rather the opposite. We go and first we learn. We try to understand best we can how that business was successful enough for us to be interested in buying. And then as we have done that, we spent a lot a lot of time with local management on-site to figure out where we can make that business better. Very often, we address all of the points you see on the on the vertical, which is how do we grow revenue, how do we diversify it, how do we improve the operations or from a plant use, from plant efficiency, and the specking of the right type of machinery, from investment that we can make locally, and if we can then bolt on some businesses.

10:48 And that's led to the track record we have to date. And then, obviously, every platform established, we try to expand. We try to make sure that we have a bigger market share, that we are the choice supplier in that area, that we improve our synergies, that we prep our synergies by being the largest a larger operator. We did this on across 2022. At the very start, early January, Johnson came into the group and then two smaller businesses, right, Castle and Arironga over the over the course of 2022.

11:20 And then in 2023, we launched a large pipeline of small bolt on acquisitions. Three have been done so far, and the remainder of about six six or seven are are ongoing current. You can see we always target the three different aspects in terms of a bolt on. It needs to either address a niche market that we're not exposed to. It needs to help us penetrate the geography more, which basically means market share, or it needs to give us another product. And very often, the the the bolt ons we purchase tick multiple of these boxes. The pipeline we started in q one twenty twenty three was a large collection of transactions at very low multiples. We effectively worked all across 2022, a year when a lot of people were frightened by the energy crisis, by what the Ukraine war would would generate.

12:10 And as a result, we have a number of deals which are strategically very relevant at prices which you wouldn't normally see for those types of transactions. Is a a key example, a fantastic corporate business in in Belgium. This is real good market share. In in in Finland is another example, exposes our business to the middle of Finland where we are not much present and gives us dolomitic limestone, something that we do not have at all in the group in the group, essential for agricultural applications. And then retaining UK, which has just come in, you may know that through our power drill business, we have a market leading range of retaining wall systems, very important for big infrastructure jobs, for safety barriers around sensitive sites for flooding defense.

13:05 And this is a type of walling system we don't have in our portfolio, made by a business further north in the country, so it gives us both geography and product again. And similar deals you'll see come through over the next quarter as we go through the next several of this pipeline. And the other thing that I mentioned earlier was innovation and leadership from that perspective. Now currently, ESG is something that is very, very key for investors, especially institutional investors, but also our end customers. A lot of them say, what are you doing to lower your environmental impact? What are you doing to be more socially responsible? And when we started to look at the whole ESG agenda and what we could do as a smallest size business versus the the the big industrial groups of this world, we said, we're probably agile, more agile than most. We're probably quicker than most. So we can probably turn the whole ESG aspect into a competitive advantage and not just do what's right, but also secure a strategic advantage.

14:12 And that's what we're currently implementing. The JV with ArcelorMittal is a key example. Aqualung, the c o two capturing system is another example, and I'll come back to that one in particular. We've obviously signed up to WestBTI, and then we have GreenBlock, the product that we launched in 2020 and '21, which is now starting to become a real success in The UK. And then from a digital aspect, HiVis, a tool that we've developed in in internally, which is essentially an auditing tool for safety, for plant efficiency, for breakdowns, which is effectively implemented everywhere and gives us real time data on all operational aspects and safety aspects. And then obviously from a governance perspective, we constantly improve our our oversight, our our board independence and quality of policies.

15:02 Now from a timeline perspective, and this is important today because we've published our second ESG report, you'll find this road map in the report. It's a net zero road map getting us to net zero by 2040. We've indicated already that we think we can get there nearly a decade earlier depending on how our implementation of of the Aqualon solutions goes. There's a specific slide on that in the last section of this presentation, so I'll come back to that point later.

15:31 The map that we have already committed to is industry leading. Essentially, how we built this map is we took the most aggressive targets of all our peers and said, well, we'll do better than than those, and that became our target line. And you can question, is this realistic? Well, we think it really is. Same thing. Again, we think we'll get there a decade earlier than what this suggests. And then green block, we mentioned it a few times. It was launched in 2020. We got all the certification done, which was a lengthy process, very complicated to get those certifications in. Because all the way from the production method, the product, and the sourcing of the product, all of it gets tested and and and vetted and audited. But then those things through the end of twenty twenty and into '21, and we then started to properly sell it. And if you look at what we now currently do in terms of trading volume on a green block technology in The UK, maybe half our infrastructure projects in 2022 had green bulb technology in them. It represented a quarter of all our sales in PPG or PLC group in The UK, and that number is growing steadily.

16:40 It was an an enormous jump from '21 to '22, 23 times more sales in this product. It tells you two things. It tells you, a, that the product we have is indeed market leading. And secondly, that the search for an ultra low or a lower CO2 product in the concrete space is now clearly relevant. And as a market leader from this perspective, we think we can do quite a lot more. So now to look forward both in terms of financial performance and also look backwards in terms of what we've already achieved, I'll hand you over to to Dean Macefield, our deputy CFO, who will take you through through a few slides on on the track record essentially since inception.

17:25 Thank you, Max. Good morning, everybody. So on this first slide, this is this is the evolution of the group from from the beginning, from day one. If if you look across the top the top of the slide, you'll see a large number of acquisitions where, at very attractive multiples. So since since inception of the group, we've we've integrated all those acquisitions into the group and delivered the results as you can see on the right. So revenue with a compound annual growth rate of more than 80%. EBITDA, again, more than 80%. And if we look at the EPS, more than a 170% growth. And in particular, another part of this slide, which is interesting, we're very pleased we've delivered these results.

18:13 If you look across the bottom, you'll see we've delivered the results whilst keeping the leverage ratio generally below two times. So we haven't heavily geared. We've, kept that leverage ratio below two. As you can see at the end of twenty two, it's 1.77 times whilst delivering that impressive growth rate. If we now look at, business improvements, the businesses acquired pre Nordcalc, we've improved the EBITDA on those businesses by 40%. And and the effect that has, you can see on the bottom, the acquisition multiple at an average of 6.9 times. The effect of that EBITDA improvement brings that multiple effectively down to 4.9 times. If we look at Nord Calc only, which we acquired relatively recently, there's already an 8% increase in EBITDA, and that's that's starting to to trend higher as well. Again, reducing the acquisition multiple 6.9 times down to 6.4.

19:12 In total, across the group, a 20% increase. So it greatly reduces the acquisition multiple down, you can see, to 5.9 times. So we're very pleased with those improvements in EBITDA.

19:27 If we look at our medium term targets, our five year targets that were set originally in '21, like for like on revenue in '22, we grew 19%. Revenue at 538,000,000 for the for the year '22. Our EBITDA margin at 19%. Now it's it's important to notice that the next box there, the net margin. So, basically, that adjusts our EBITDA margin for some contractual pass throughs that we have, particularly higher in in 2022 with energy costs, etcetera. So our net margin, if we, sort of weigh the contractor pass through cost, is 22%,

20:05 against our target of 20%. EPS, we targeted, in the in the medium term target, 8p. We're pleased to have already reached that in '22 at 8.03p. Cash conversion ratio, targeting 95%, we reached 87%. So we're we're on the pathway to to the right results. Likewise, free cash flow of 54,000,000. We've got a return on invested capital of 11%. I'll talk a little bit more about that on a a slot a later slide where you'll see the pathway to that target of 15%. And, as mentioned on the previous slide, all of that whilst maintaining a leverage below two times, in fact, just below 1.8 times at the end of twenty two. Looking a bit further at revenue, the revenue bridge, you can see from '21 to '22, a 98% revenue growth.

20:59 And that's made up of organic growth of 32%, 6% in the Northwest, 5% in the West, 21% in the Northeast. And that's driven by higher volumes. We were up 1% like for like, more than that, and pricing power. In the Northeast, part of that, growth revenue is the contractual pass throughs as well as dynamic pricing. We have M and A, in the year of plus 66%. In the Northwest, 6%, that was the acquisition of Johnson Quarry Group, Wrightcast in the PPG platform. In the West, it's a full year of Bmix. And in the Northeast, it's the full year of Nordcal because obviously that was acquired in in the second half of twenty twenty one. So 98% revenue growth driven by acquisitions and effective management from the organic growth perspective.

21:48 If we then look at the EBITDA evolution in 2021, we've gone up 106% to GBP 102,000,000 EBITDA for 2022. Organic growth, 22%. Again, to reiterate, that's driven by volumes, pricing power, operational improvements, effective hedging, cost saving initiatives.

22:11 And there was in the Northeast, there was a big focus on North Celt with it being the full year, the first full year since acquisition. So drove the organic growth there. M and A, 85%. As as mentioned in the Northwest, that's with the acquisition of Johnston Quarry Group and Whitecast. In the West, there's a a small increase with the full year of Bmix, and in the Northeast with the full year of Nordcalc.

22:36 Again, organic improvements, M and A driving the EBITDA to 102,000,000 for the full year 2022. Quick slide on the evolution of net debt. We commenced at the beginning of the year with GBP 164,000,000 net debt, closed at GBP 177,000,000 net debt, which is represented by the EBITDA, working capital movements, tax paid. The net CapEx of 41,000,000, I'll talk about the I think it's on the next slide. But you'll see at the end, we've strong cash generation, but whilst maintaining that leverage below two times. If we exclude the IFRS 16 liabilities, you'll see we ended the year at 1.77 times leverage ratio.

23:23 CapEx. So we had net CapEx of 41,000,000. So how that evolves, you'll see the maintenance CapEx on the left there at 26,000,000 is, we target our maintenance CapEx to be about 85% of D and A. So we're broadly in line 87%. Now maintenance CapEx means just preserving our fleet, repairing, restoring, looking after, keeping our plant in good order, replacing existing plant property equipment when necessary. The next piece, the 6,000,000 resource extensions, that's, where we've extended resources predominantly in Channel Islands, Finland, Belgium. And that expenditure has added thirteen years approximately production to the group.

24:11 We then look at growth CapEx. Now this is CapEx that's, spent that adds to the earnings of the group on a a top line basis or, you know, reducing costs. And the excuse me. And on the pie chart on the top right, you'll see a a better breakdown or detailed breakdown of the growth CapEx. The land purchases, the largest part of that was in BMX where they exercised an option to acquire the land, the site they operate on. What that does, it gives, obviously, the the operational site reduces the overheads and also derisks any any problem of having an operation site. Alongside that, we also divested some of that land. You'll see below the divestments.

24:57 So we acquired 11 hectares and divested five or six hectares for small profit. So then in the plant capacity increases in the growth CapEx, you'll see 4,000,000 that was predominantly spend spent in, Nordcalc to support the cement majors. We internalized haulage within the PPG platform. So that derisks our reliance on third party contractors as well as reducing our costs there. We'll turn to fuel conversions in the Nordkalkin in Poland, whereby we're trying to reduce our reliance on gas both from a to excuse me. I'm following my throat. Both to reduce our, CO two footprint and and also reduce our reliance on gas.

25:49 Then in the divestments of CapEx, as I mentioned, we sold a disused quarry, small disused quarry in in Belgium, but the the majority of that is the sale of part of the land in the B mix option. Then plant and vehicles is just disposal of things such as tippers and excavators, mainly in The UK and in Belgium. So I mentioned earlier about return on invested capital and our pathway to the 15% target we set. So on the left, you'll see we've got margins. Our our net margins are strong. Our cash conversion ratio is good as well as our free cash flow of 54,000,000. Now in that, graph in the middle, if we did nothing with the, free cash flow other than use it to degear, no reinvestment, you can see how it goes against the debt. But more importantly, on the graph on the right, you will see how that would, relate and translate to the return on invested capital.

26:54 And you can see it reaching the 15% within the target and and upwards. Obviously, we believe it's it makes sense to reinvest. We can we can do better than than just purely degearing, like as as demonstrated with our acquisitions in '22, Johnston, White Castle, Belonga, and also our developments and acquisitions in the first quarter of this year. So I'd like to hand you back to Max for trading and outlook. Thank you. Alright. So, thanks, Nick. Some some a few slides on on our trading currently to date in q one this year and then and then outlook as as the year goes goes on. And we closed the the first quarter with with really solid solid performance, a £137,000,000 worth of turnover, volumes like for like up for a percent in the first quarter, EBITDA up 3% roughly for that first quarter as well. So we're well ahead of our own expectations. We're ahead of budget, we're performing in line with what we would hope for this first quarter. It wasn't an obvious quarter.

28:07 A lot of people expected, a lot of industries expected that in Q1, there would be enormous spikes in energy because of the cold winter, therefore, shutdowns of capacity. And that leads to all sorts of effects, People over purchasing, over stocking in the last latter parts of last year, now destocking. So as a result of that, you get over the numbers in in performance. If you look at these specifically more specifically into the into the end markets, First and foremost, the performance of q one shows shows us, I believe, that the strategy we've put in place to be able to take advantage of the size of the group, the scale of the group, to deliver organic growth is really there. And we have an the diversity of end markets is large, which means that if you have fluctuations and outperformance in one, that will compensate for underperformance in others. We remain very vigilant to see what is happening in these end markets to see if there's structural trends there or whether it's just short term effects like I just

29:06 mentioned, plant breakdowns plant shutdowns, maintenance stops. We have this those very frequently. Destocking effects, we have those very frequently as well. Take them all in aggregate, we have a 1% increase in volumes over Q1, driven primarily by better than expected performance in metals, better than expected performance in chemicals and environmental applications and agriculture remains remain strong. Some lower and weaker performance in UK residential and RMI spend, some weaker performance in Swedish and Finnish residential construction. But then again, Polish and Baltic construction was very strong. Belgium construction was was was was good. So that gives you a a nice mix. And it also tells you that diversity in end markets that we've managed to build, a, geography and, b, end industry really helps us when when the the demand outlook is less clear.

30:04 We've also got a very robust pipeline of projects we're working on. They're obviously organic, which is there for the types of plant we're installing and their acquisition investment types. So m and a work, bolt on m and a work with a smaller scale primarily. That's ongoing. These businesses are a very, very relevant strategy wise for us. And secondly, they're they're we are able to currently purchase them at very low multiples, which is always a very good idea. Now we've I've referred to the Aqualum project a few times, and I'd like to to to to take a minute or two to really tell you a bit more about this. You may remember that we launched this the Aqualon project at the end of last year. What you see on the left of the image is a membrane, an Aqualon membrane. It's basically a long tube with many, many, many fibers in them. These fibers are effectively hollow tubes where of which the wall of that fiber is permeable to certain gases and not to others. As a result, with this system, you can separate c o two from all the other exhaust gases that a plant gives you.

31:16 And therefore, you can purify the exhaust gases, have pure c o two there to a degree of 99.9%, at which point that c o two becomes usable or storable. It needs to be this pure. Now this technology is simple. It's modular. It's small in scale. It's cheap to run. If its energy the energy intensity is very low. And that's why we went for this particular setup. Our first module lands in the next few days in Scandinavia, will be installed at our first kiln and with commissioning starting the week of seven men. That's the target. The commissioning will mean that we first pump pure oxygen through it just to see that all the seals work, the whole thing works fine. We then start to pump through the membrane, set up smaller amounts of gases intermittently, again, to test if all of the equipment works and is all set up correctly.

32:14 And then towards the end of May, we will hook it up properly and start to fill our first bottle of c o two of that first kiln. It should capture about five to 6% of the output of that first kiln. If all of this runs smoothly as we expected it will, we will then start to increase the capacity of this first module, take it from seven 6% to about 20, and then we'll add more modules to to capture all of the c o two produced by this first operation. All that goes as smoothly as we we think it will. We'll we will be in a position to say that we have a first net zero kiln probably in the world, certainly in Europe, and that we will equip our other four kilns, five kilns in the North with with similar technology over the years that follow. This is a very, very exciting step for us. It will mean that we are well ahead of anybody else in terms of capturing c o two. It means that we're well ahead in terms of most industries in terms of doing something about our c o two footprint.

33:19 And it hopefully means that we are, from a competitive advantage perspective, the go to supplier of quicklime because we're the only ones that produce green quicklime. So that completes the slides we have for this morning. We're most happy to take some questions from the Q and A panel. That's great, Max, Dean, David, thank you very much indeed for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen, but just while the company just takes a few moments to review your questions submitted already. I'd just like to remind you that the recording of this presentation, along with a copy of the slides and the published q and a, can be accessed via your investor meeting company dashboard.

34:04 Firstly, thank you to everybody for your engagement this morning and for submitting your questions. If I may just hand back to Alyssa. If I could ask you please just to read out the questions, and then I'll pick up from you at the end. Sure. Thank you. We've got one question from James Sage who's asking, what is the current debt leverage looking like? Are you still able are you still at below two times? What is the length of debt generally, and how exposed are you to increase interest rates? Okay. So debt levels are currently, again, similar levels as they were before, so about two times. The debt structure we have in place is a five year package that we put in the group at the acquisition of Nordalk.

34:50 That's a syndicated facility with bank debt with a lead bank, which is something there, and then about 10 banks across that syndicate across North Europe. The debt structure works as a margin of over base rate. Most of it is euro, and a little bit is pound sterling. That margin evolves with the leverage gearing. The leverage ratio we have are about 2.2% margin over base rate currently. Again, in the in the expect or exposed to to euro. So we have a fixed setup, which will run for another three years with head governance at three point two point five times and and a minimum interest cover about four four times as well. Alright. Another question from Chris T.

35:40 Having made a number of acquisitions like Redcast, etcetera, do you see making further ones in the near future, and how would these be funded? Yeah. So we have there's probably a point to make on cash flow. The group generates 50,000,000 in free cash flow. Most of that goes through the second half of of the year. The reason it does go through the second half of the year is because of phasing and seasonality. Winter months are slower, less activity in the in in construction. There's obviously the expenses that this incur business incurs in terms of Social Security, all the rest keep going. And so we were flat into the cash generation in the first half, and we generate most of our cash in the second half. That 50,000,000 is what we need to expand the group from a from an m and a perspective, and we're perfectly happy with that. So we will not in the future. We've now hit this point, which we always hope to hit, where we can expand the business and be proactive from an m and a perspective without using equity for bolt on transactions.

36:41 Obviously, we'll say you did a small raise at the beginning of the year. That's not the same. Yeah. That's a correct that's a fair statement. We spent the 50,000,000 free cash flow we generated last year on Johnston, Lebanon, and a number of other projects. So we found ourselves in this window in the first half of twenty twenty three where we had many good deals at extremely low multiples. For instance, retaining The UK, which is close at 2.9 times, which are these are not multiples you would see in our industry normally. With the question, do we let these 10 or so transactions go? And that might be strategically a harmful thing. Or do we say, no. No. We'll ask our shareholders to support us on this large pipeline.

37:27 We we advance the business strategically in many jurisdictions, and we take advantage of these very, very cheap transactions. It's the same as when you have something that is that is not expensive. Sometimes you need to just go forward and and purchase it. And the important point also is and this is another consideration we have there. I was we're in a starting point of 2023. We hope there's a bit more optimism. We are on the on the front foot strategically. And so we go ahead and we continue to build our our company. So long winded answer to say bolt on transactions, development of the group as it stands will no longer need equity raises. If we do more significant things, then perhaps yes. But for the bolt on bypass, we have no.

38:18 Maybe answers the next question. If you could just scroll up, please, please. So a question from Steven p. You said that there would come a point when internal cash flow would fund m and a rather than equity insurance issuance. Sorry. How far are you along this path? Yeah. As David just mentioned, we are we have not reached that point. It was always sort of the case. We said this in slides in twenty seventeen, nineteen, that our target was to go from basically not much, $56,000,000 EBITDA to about 100 across North Europe. And that that number wasn't because the 100 sounds nice. It's also because by the time you've reached the size of 100 and they already got tax expenses and debt repayments or whatever, you have about 50 odd million in free cash that you can use to expand the group.

39:11 But if you have a group that is like ours acquiring quarries in various locations where mass and synergies and density and market share are key, and where these opportunities only come along ever so often. We need to really be careful and buy the right ones when they are available. We always wanted to hit that sort of 100,000,000 mark because that allows us to do all these things, both maintain our debt or build it down, expand the group strategically, invest organically, these three things, which ultimately then translate into higher EPS and a higher ROIC number. Next question. Is asking, would it always be your intention to maintain leverage for the two times? What are the debt covenants?

39:56 Yeah. So on that point, yes, our our ceiling on debt has always been two times since since the beginning, since day one in 2017. We said two times is a good number. Our covenants are always three to 4.25 or 3.5. It gives us a full turn or turn and a half away from the ceiling, which is, again, the safety we like to have. Especially when interest rates were lower, it made a lot of sense to have more debt in the business because it was cheaper way of funding. Obviously, now trending slightly lower and and gearing as we go along. So but, yeah, below two times, probably closer to one and a half these days than we were in the past, but around that number. And then Karen g again asked, what is your hedging policy for energy? Hedging policy for energy is a is a phased setup, so by year.

40:53 We try the the point of hedges is that we take out the major swings. And so we have, in year one, fifty, 60% of our energy hedged, and then year two, forty, and then year three twenty if you go out. And then we review as we as we go along the the year whether we should increase that 40 up to 60 or not to effectively reduce the portfolio price of energy that we have. We cannot hedge everything that we use. Some products are not edgeable or difficult to edgeable. Fuel oils, for instance, certain types of fuels for kilns and other things, certain countries because the energy structure there is different. But generally speaking, we try to keep a a good level of hedging in there so that we don't find ourselves exposed to a major swing.

41:43 Alright. Next question is from Harry D. Do you see competitors making as much progress on c o two reduction in line? Could this be a benefit in time if market pricing is pushed up by c o two cost, but SIGMAROC doesn't need to purchase as many c o two credits? Yep. Very so very good question from Harry on many things. One, we do not see any line players doing the same sort of thing as us. We were sort of a bit bold and went, okay. There's three types of technology for c o two capture. Two are very complicated and energy intensive, and one is simple, which is the membrane. We knew that the membrane technology would work because it's effectively used in airlines and spacecraft, and that's what you would take up there if you need to filter CO2 out of the air.

42:32 So we went sort of more courageously in in a certain direction. Nobody is so so far following us, which is great. If we manage to get all of this set up at a decent scale, not only do we not need to purchase c o two credits, the ETS system, the credit system gives us credits for free, gives everybody credits for free for a certain proportion of your production. So not only do we not need to purchase the credits, we still have credits extra that we can sell. So in an ideal scenario where everything works as we hoped it would, we have pricing, which is just the same pricing as our competition, which includes the cost of c o two. We don't need to purchase the credits, and the credits that we get given for free, we can sell and make money on. That would be a a real, real benefit, and that's what we're trying to trying to rush towards us.

43:24 Andrew L is asking, are you selling the carbon dioxide? We yeah. The the the carbon dioxide we the best use of that would be to sell it. And it's sometimes unknown to sort of the wider public, but carbon dioxide is a key gas in many industrial applications. All the greenhouses in Holland, for instance, fill them up with carbon dioxide to increase the amount of nutrients in the air for the plants and grow tomatoes and so on quite more quickly. It's used as an industrial gas in, obviously, in water to create spizzy drinks. So it goes into many industries, and the the best thing would be to capture it and then use it. Alright. Next question from Harry G again.

44:11 Given the easier competitive competitive in the Northeast due to customer strikes in q one of twenty twenty two, would it be fair to say like for like EBITDA growth came mainly from here in q one, or was like for like profit growth more widespread? No. It's a mix of all of the above. We had a as the EBITDA started to drop in in in Q1 last year because of the strike in in the in the the central paper sector in Finland, we immediately went on to major cost reduction program to mitigate the importance there. So, yes, we lost several million pounds worth of of EBITDA because of the paper strike, but we also fund several million pounds worth of savings across that first first quarter.

44:59 And so the the the the the increase in EBITDA comes from a mix of things. Good a bit of volume of of of percent increase there, bit of pricing, and a bit of a bit of just general cost reductions and recovery from what we didn't lose versus last year. So it's a mix of all three. Next question from Kiran G. What are your biggest area of cost inflation? What are you seeing in terms of labor availability and wage inflation in the markets you operate in? Yeah. Biggest inflation pressure we had last year was was energy, without a doubt. Number two would have been other inputs, cement purchases we have, other products that we have that we that we input into our production process.

45:48 Labor was actually fairly alright. We have unions in certain parts. Unions in Scandinavia, by and large, went for three, four, 6% increases in wages over two years. UK was 6% on average. The Channel Islands, similar. Belgium is an index system, and therefore, it was closer to the actual inflation level. But that's fine to get back into other Social Security benefits. So the labor was actually versus versus the amount of inflationary pressure, most of the past with the prices that we could apply wasn't the main source of concern. Labor labor availability is generally okay. We have the luck that we operate localized businesses in local communities where we are usually a big employer.

46:38 And so we also have good loyalty that we tend to keep the name above the door of the business as it was. So same name for a hundred and fifty years, hundred years. It's an established it's an established route for for people locally. So when we this is a great business to work for. We don't work there. So from our perspective, labor is is is still okay. Two more questions from Steven P. The first one is, at what point would dividends be considered? And Yep. Dividend is is an inactive consideration. As you would have seen currently in our AGM, which happened this afternoon, we have a number of resolutions which help clean up certain items in the balance sheets.

47:23 Dean can elaborate on those, but they are technical technical perspective, which will allow us to do two things, buy back shares and also pay dividends. And so we are starting to get to a point now where we have the cash flow generation that will allow us the different payments. So the next thing on the agenda for the board over the next the rest of this year is to really start looking at investment pipeline over the next two eighteen months, two years, cash generation, likely with cash generation over the next two years, and then see at what point in time we can commit to paying the dividend. But it's it's firmly on the agenda. And then the second question was, as to large acquisitions, could you give some examples of what type of profile you would consider? When when we say large, it's typically well, you'd need to think think multiple hundreds of millions, which whatever the cash flow we have, we'll probably fundable on the internally.

48:17 That's large. Largest and a good example is the North Cal business. It was a market leader across North Europe. It was something that we always wanted to be exposed to in North Europe. In an area like Northern Europe more generally, not just Scandinavia, if you find a business that has strong market position, fantastic clients, good reserves, a brand name that's been there for a hundred fifty years, And if you can buy those at a good at a good price, like, Northbound was 6.9 times effective presynergies, and then they make an enormous amount of sense. And you basically look back, our EPS in 2021, just before we bought Northbound was 4.5p. That was our run rate, and we would obviously grown it a bit.

49:03 But in eight in fifteen months, we nearly doubled that number by the inclusion of NordCap. So that's the sort of thing we think about when we think large. That's great. Max, Dean, David, I think you've taken all the questions from investors. So thank you once again to everybody for your engagement this morning. Max, I know investor feedback will be important to you, David and Dean, and I'll shortly redirect to investors on the call to give you their thoughts and expectations. But I wonder before doing so, if I may, Max, just come back to you just for a few closing comments, after which I'll send investors for their feedback. Yeah. Well, first and foremost, to you, Mark, thanks for organizing this. It's a it's a pleasure to be back on on on your platform. We think that we've done a number of things over the years, which we're really proud of.

49:50 We dug up a presentation from from 2017 a few weeks back. And that said, we'd like to build a North Europe based business exposed to niche markets with a 100,000,000 EBITDA within the next five years. And we're now we're here five years later with a Northern European business, niche market exposure with with north of a 100,000,000 EBITDA. And to be able to say that five years on and stick to that plan with COVID, with Ukraine, with all all the other disruptions that we've had is is something that we're extremely proud of. We've also managed to get the EPS to grow from nearly nothing, which was about zero or what, 0.5 or whatever it was in '17 to eight over that that period of time, a 170% cumulative growth in that five year time frame. Now, obviously, we, as a management team, as shareholders ourselves, we hope that this translates in strong share price growth. We saw that happening after Nordcal. We saw that the the share price went up to 114p in recognition of, I think, the scale, the capability, the potential of the group that we were now constructing. Obviously, 2022 was a tough year.

51:02 We had three of our largest shareholders, top five, top six shareholders at funds closures, had had them selling all of our shares in a market which had no buyers because everybody was panicked. And large amounts of volume of shares is coming available, 40,000,000 old shares in one day, for instance, they've picked up on tier ones. Those things are, for smaller business like ours, are hard to to to deal with in a down market. But we're we're we're we're working hard to to to to rectify that, to get our share price back to a true reflection of the value of the business, true reflection of the the quality of the companies, reflection of the people that work in it. And so thank you all for your continued support, your interest in in our presentation today, and we're sure that we we will get that share price back to them.

51:53 That's great. Max, Dean, David, thank you once again for updating investors this morning. Please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of SIGMAROC PLC, I'd like to thank you for attending this morning's presentation. Good morning to you all.