Morning, all. Thank you for joining SigmaRoc's Q3 trading update presentation. Today, we have our CEO, Max Vermorken, and CFO, Garth Palmer. They will present the Q3 results today. Max will present the results overview. Garth will present the financial, and Max will then present the conclusion.
Afterwards, there will be an opportunity for a Q&A session. If you do have any questions, please feel free to use the Zoom Q&A facility and simply raise your hand. We will be answering as many questions as we can. I now hand over to Max to present the results highlights.
Good morning, everyone. Thank you very much for taking the time for this Q3 update. We've got about 10 slides to go through very quickly. Q3 and the year as a whole, year-to-date, the nine months so far have been, by any standards, quite a challenge, as everybody knows from everything that we had to deal with from inflation, from energy, uncertainties around.
Generally speaking, we come out with a very strong and positive message here today. GBP 394 million in turnover, GBP 77 million in underlying EBITDA, which represents a like-for-like increase of 19% on the revenue and 5% on EBITDA for the same period in 2021. Volumes across the board are up by 2%.
If you look at what the various drivers were for the performance year-to-date, first and foremost, the platforms we've got, six platforms in total, have all performed exactly like we hoped, both in terms of volumes, in terms of pricing, in terms of dealing with the cost inflations and other uncertainties. That shows the resilience of this group.
Secondly, volumes are ahead year-on-year on a like-for-like basis, which we're very pleased with. A lot of work has been done in terms of addressing new markets, testing new products, and all that has been successful and is coming through.
Thirdly, that's quite an important point, which sometimes is missed, our group is not a one geography, one product group. It has a very diversified end market. It does both high-grade limestone, low-grade limestone, products that we make out of the various types of stone that we produce and sell. That allows us to be resilient and flexible, and probably be more resilient against adversity than most other groups of our size.
As a result, we've been able to effectively manage inflation and cost pressures. Obviously, there's quite a few questions on leverage, and we're actively managing the leverage down, both in terms of cash generation, discipline on M&A and on CapEx. All that through the standard way of operating that we've always had to drive profitability and margins.
If you look at what that really means, and what we've achieved over the last five or so years with this group, I thought it'd be good to present this slide to you. We did a calculation comparing the acquired EBITDA as announced in various RNSs and then the broker consensus forecast for 2022.
If you take all the businesses pre-Nordkalk, because we wanted to isolate the Nordkalk group, given its large and recent, we were able to improve the EBITDA generated by this business by about 40%, from acquisition. That's from everything from Ronez to the PPG Group to the Belgian businesses, which we're very, very pleased with.
If you look at Nordkalk only so far, we're already 80% ahead of the acquired EBITDA numbers last year, again, on a like-for-like basis. That's good progress for such a large business in such a short time. Group it all together, obviously, the two graphs combined, we're at nearly 20%, like for like, and obviously trending, all things equal towards the higher numbers with the programs that we've got in place.
Very pleased with this and very pleased that in the nine months to date, we've been able to continue exactly this trend. To give you a bit more context on what the year has looked like and also what the quarter has looked like, we present you here a fairly detailed slide on the demand outlook.
On the left, a bar chart which combines up to 100% of our sales, and then on the right, a table with a breakdown per end-user segment and also the countries to give you the geography feel of where these sales have mostly gone. The first three brackets, chemical, environmental, and agricultural applications, all have evolved with the same underlying trend, and that there's effectively two aspects.
On the one hand, we've got the conflict in the Ukraine, which has meant that Russian imports, Belarusian imports into the various eastern markets, Finland, have now completely ceased. That's an opportunity for us, and that will be a long-term trend overall, as far as we can see at this point in time.
What it means is that we can sell more product into the chemical industry, into the agricultural industry, where fertilizer is short and limestone products are an alternative. We're also burning a lot more coal these days, and that means flue gas treatment is important, and that is the environmental application of our products. All these three segments really present an opportunity for us, in particular in the Baltic markets, where we have really not had much of a presence to date, and which presents an opportunity for us to grow. The metal segment, 10% of our turnover at a group level, is a mixed bag, when you look at the entirety of Europe. It's fairly all right in the northern markets.
There's obviously, as you can read in the press. Various large steel makers announce or indicate that they might shut down some blast furnaces on the various sites. We see fairly stable outlook for in terms of volumes. We haven't had any significant changes in demand outlook or any significant changes in volume outlook for the metals producers. That is usually typically the case for Northern European metals producers because of the higher-end applications of the steel they make, and the markets they service. From that perspective, a neutral outlook from a demand perspective for us. Paper, pulp, and board, 13%.
You may remember that we had a strike at the beginning of the year, which basically shut down our main source of supply into that industry in Finland for four months. That industry is very, very bullish at the moment, with good demand, order books building as they should, and even indications of running over Christmas, which is not usual for that industry at all. The demand obviously comes primarily from the pulp and the board side of things, and also the high-end paper which we supply into as well. Now, that represents a bit over 40% of our turnover in, as you can see, primarily the Nordkalk markets and then England and Wales. If you look at construction, 57% of turnover for this calendar year, this year so far, 35% is infrastructure.
Now the demand there is robust. Everywhere we have good infrastructure pipelines. There's more coming in terms of infrastructure supply when we're looking at wind farms, when we're looking at LNG terminals, when we're looking at solar panels that are being put in for the infrastructure for energy generation. The rest of that 57 is the various types of housing we supply.
Most of that housing is really spread across all of the jurisdictions we have. Largest single market is the U.K. with 7.5%, and Belgium follows with about 5.5%, and then low single digits elsewhere. Look at the U.K. exposure that we have. Half of that, more than half of that is effectively high-end housing. These are homes, high value, where we supply dimension stone in the Cotswolds primarily. From a resilience perspective of that type of housing, again, when you have question marks around mortgages, interest rates, and so on, we feel a lot more secure and happy about the demand outlook there. From a general perspective, our construction outlook seems still positive, with perhaps a question mark on housing, but again, the indication of our low exposure to any single housing market. Obviously a lot of points on costs. I'll hand you over to Garth to go through those.
Thanks, Max. Yeah, two things we just wanna focus on, the financial aspect. The first being cost control and also how we deal with inflation. Key thing to note overall is 65% of our cost base is variable. If that scales with production, if we don't extract it out of the ground, that we don't pay that portion.
That's further supported by the fact we have a statutory furlough scheme in Belgium, where we have over a quarter of the staff across the group. In terms of how we deal with inflation, we've got effective energy and CO2 hedging in place. On the energy front, we're pretty comfortable where we're hedged out for the remainder of the year. Then into 2023, we're at the upper limit of our electricity hedging mandate. Now, that's obviously on average higher price overall than 2022, but we're comfortable that can be managed by fairly modest price adjustments next year. We're in a good state there. Further on inflation, we also benefit from dynamic pricing and contractual pass-through arrangements with some of our larger, more energy-intensive customers, particularly in the Nordic region.
That's sort of supported by the results to date, you know, with that top line revenue growth and then the relative EBITDA. We managed to pass through those extra costs. At a slightly more granular level, we're running night and weekend shifts across the group to take advantage of lower electricity prices. In the Nordics, we're even monitoring daily the next day price and engaging production accordingly.
We have ongoing operational efficiency improvement programs and cost reduction initiatives across the group. As we pointed out in the RNS, that's expected to net us about GBP 5 million in EBITDA savings this year. We expect that to be recurring through. Lastly, we have a very flat management structure, close proximity to our customers, and that makes us nimble and quick to react and ability to pull these various levers. Which then sort of ties into some historic statistics across the group. For Nordkalk, its lowest EBITDA margin on an annual basis since 2005 is 14%. That's obviously coming out of the global financial crisis. For SigmaRoc, on a monthly basis, seasonally adjusted, our lowest EBITDA margin was in April of 2020 at 13%. You obviously all know what happened there.
The group's able to deal with sort of adverse market dynamics. Moving on to net debt and leverage. We have four years remaining in our facility, GBP 405 million, of which about GBP 173 million is still available. GBP 73 million of that's a revolving credit facility. The covenants on that are 3.25 leverage and 4 x interest cover. We've had good cash generation through the period and focus for the remainder of the year is on de-gearing, building up cash. Just as a point to note on our ability to de-lever, we've spent GBP 56 million year to date on growth-related investment. That's acquisitions, so like Johnston, RightCast, but also organic expansion, various investments to improve our resource base.
If we hadn't spent that money, our leverage ratio currently at 2x excluding IFRS 16, would have been worked down to 1.5. Just lastly to close out, we're particularly for the Q4, we're really focused on reviewing. We're always doing this, but particularly Q4, reviewing our fixed asset base, looking for anything non-core and building up cash. I'll hand back to Max to close out.
Thanks, Garth. Looking forward and in terms of building the group and continuing to be sort of assertive and aggressive where we can, obviously, noting what Garth just said on de-gearing and caution, there's still a lot that we're actually doing in the background. They don't necessarily require any specific investments. These are programs that we run constantly. We made a list here quickly so that you have a brief idea. In the Channel Islands, most recently, and this is a major step forward for us, we've received planning approval for the new quarry in Guernsey. This was something that when we acquired the Channel Islands business back in 2017 was a key point in the various presentations.
To have now that step is fantastic news. That gives us the next 20 years of reserves, which we'll start to produce from, in the next five or so years when the existing operations run out. PPG, the precast business in the U.K., constantly working on the various improvements there. The Barnfield site is continually growing. We're now about 14 acres. We started the business with seven acres, doubled the capacity and the size. We've made it a really stunning outfit. Very good for the supply of infrastructure related and large technical precast elements. That journey keeps going and keeps being successful. Then from a Greenbloc perspective, there again, good progress.
We're starting to now supply really major infrastructure projects, major large scale precast elements, which is great because it's exactly where we wanted to go from a starting point, very modestly with concrete breeze blocks in a green mix to now large scale structural elements. It's exactly where we wanted this to go. Look at England and Wales, Harries and then Johnston, we secured the Sutro South Wales Trunk Road Agent contract. That means that we are now supplying all the trunk roads in South Wales in our sector. Again, something that the group wasn't able to do in the last five years, so well before we bought the Harries business.
That's a major win and a testament of the restructuring efforts we've done there to get the contracting business up and running and properly delivering. From a Johnston perspective, obviously just recently acquired at the beginning of the year, but we're optimizing quite aggressively the Bath Stone business and the various other aspects of that group to deliver more. Belgium CDH, the next phase of the extraction is starting to be open.
We've moved the road. That's being finalized now. Gives us access to new reserves, large volumes of Belgian Bluestone. We're working actively on that. From a Nordkalk perspective, one of the most recent large deals, we've created effectively four divisions where there were only two before.
That's an important change for two reasons. One, we have a Quicklime division with lots of kilns. That needs focus. It's a particular business. It's technical. It sells volumes more widely across North Europe, and it needs focus. That's what we have created with both commercial and technical skill for that business. There's a Baltic division that's now been created, which didn't exist before. Again, for in fact, the demand outlook and the various changes that we've had there. We now can take advantage of the Baltic markets. There's a big railroad project coming through the three Baltic States. We want to participate in that too. The other business is Poland, and the carbonates in the north are fantastic as they already were.
Having specific management focus on that to continue to drive improvement and cost savings is now more possible than before. As a result, the Nordics businesses, the Nordkalk business will be more agile, more dynamic than it was to date. If we really sort of summarize this presentation with a few key takeaways and a sort of tailwinds and headwinds slide, give you a few bullet points to take away.
At this moment in time, the tailwinds outweigh the headwinds. The headwinds are strong, and the headwinds are from all over the place. The tailwinds are the ones that we generate internally, and we're able to find new ideas to both streamline the business and make it more agile and flexible. Demand outlook is still encouraging.
We remain vigilant to see where that changes or if it changes, but currently, as you saw on the other slide, it looks encouraging. As Garth highlighted, there's multiple cost levers that we can pull. There's CapEx reductions that we put in place and that we can do on short notice.
We continue as we have been in short in the medium term with all the various initiatives to be agile, quick, and then improve where we can. Obviously, the macro outlook is uncertain, and it remains uncertain. Energy, everybody's looking at, especially for the November to sort of February months. There we need to obviously flag and highlight dynamic pricing works, but there's always a lag effect to dynamic pricing.
We'll be on that as much as we can, depending on how energy evolves with hedging in place, with very active management of that as well. Then the interest rates and mortgages, something that in the U.K., in particular, is causing some concern in recent weeks. Again, our exposure to housing in any single market is fairly limited. Our exposure to housing as compared to the entire group is effectively also modest. As a result of that, we think that even these swings and changes, we are able to manage either directly in the housing sector or by changing and shifting product away from housing to other end users.
Again, to come back to the first point of this slide, currently, tailwinds outweigh headwinds, and we continue to drive this group as fast and as hard as we can. That concludes a few slides. Happy now to hand back over to Lisa for the management of the Q&A and any questions you might have.
We don't have any questions at the moment, but if you do have any, please feel free to use the Q&A facility now or raise your hand and we'll try to answer as many questions as we can.
Harry is pressed up.
Hi, Harry.
Hi there. Hi, guys. Can you hear me?
Yes.
Brilliant. Well, obviously, thanks for taking the time. I've got a couple of questions. Maybe I'll do them one by one, if that's okay.
Sure.
Yeah, they are all really great results, I think, on my side. First one, just kind of around the volume picture. I think the 2%, if I'm right, refers to the nine months, sort of up to for the nine months. I think I've got in my notes somewhere that maybe the first half was sort of up 4%, 5%, 6%, but maybe I'm wrong on that. Maybe you can correct me there. Obviously, if that was the case, then up 2% in the nine months maybe implies sort of flat to slightly down in the 3Q. I don't know if that's correct. Maybe if that is correct, then the pricing was up quite a lot, sort of, you know, in the sort of 20%-ish.
I guess first of all, maybe just a bit of color around where H1 fits with 3Q and sort of the movement sequentially as we've gone through, if that's okay.
Yeah. Okay. I'm happy to take you through that. Statements we made in the past on volumes as they've evolved have always been low single digits. We haven't actually been very specific on the number to date. It's always been low single digits. The two number is relatively in line with the rest of the year. You need to also remember that we had breakdowns and various other effects in the first half. That swings, and then we always correct for the impact of those. That's one. Secondly, the pricing point that you've raised is actually a very good one.
We are very active on pricing, and therefore pricing and increasing price have been good to be able to take or deal with the inflation that we see from energy, from wages, from other things. From a balance perspective, I think we've managed that point well. Now to come back to the actual volumes of 2% there, that's obviously an average across all products we make, across all markets we service. You'll have positives and you'll have minuses as you would have at any point in time. These positives and minuses also need to be corrected for summer months.
Obviously, if you look at the Belgian platforms, they would have fairly slow summer months, but that's because of statutory shutdowns of the construction industry in the Benelux and in Holland across July, across August. You have these swings. To answer your question, corrected for shutdowns, corrected for those sorts of things, the first half would have been a bit lot stronger than the second, than the last quarter, correcting again for shutdowns in the various places.
Okay. Brilliant. No, they're very clear. On that pricing point, and you kind of mentioned it across various products, I don't know if not numbers, but sort of just in an order, what would be sort of the products that have carrying the highest pricing? I'm assuming it's probably things like lime that have some of the highest energy content, but I don't know. Just a general color around what products are carrying the most pricing and what's sort of at the other end.
Yeah. It's the higher value products have received the higher portion of increases, and lime's obviously one of those.
Okay. Brilliant. On the sort of EBITDA again, you know, I think strong, pretty strong performance at 5%. Obviously for Q3, I think that implies a margin of just over 20% versus, what was it, 19.3, I think it was for the first half. Do you see the sort of margin sequentially improving through Q4 as well? Maybe just what that sort of makes us feel for what's gonna happen sort of for the full year and where we land around sort of margin and EBITDA.
Yeah. No, we're trailing into some slower months obviously, particularly December, right?
Yeah.
That will trend down a little bit, and we'll have the knock-on of further, you know, the dynamic pricing rolling through from Q3. Don't expect that to trend up.
Okay.
Steady or slightly down.
Okay. Brilliant. Just a final one. Just on financing costs. I think last time I looked sort of in the annual report from last year, a lot of that facility you mentioned earlier, I think is on a floating rate above SONIA. I think it was about 2.3% above SONIA. Obviously SONIA was basically zero for this year and last. Last time I checked, it's sort of more around the 2.2% now. I guess should we be expecting a higher finance charge sort of going into next year?
Yeah.
You know, sort of more in the 4%-4.5% interest cost range.
Yeah. It depends on your view of the world, obviously.
Yeah.
Yeah, we've done some internal modeling and we're actively looking at that, and that's something I wanna pick up with you. Yeah, it's a tricky one to call, but we're gonna, yeah, obviously gonna trend up a little bit this year, and that's probably gonna continue into next year. I think just one thing to point out there, though, is about GBP 50 million of our debt is pounds, the rest is euro. It's a touch over EUR 200 euro. There are, again, slightly different base rates to play with there.
Okay. Brilliant. Then just actually very quickly, just follow up on that. There isn't, I think, and this didn't say in that report, but there's no sort of swaps or anything that convert any of that floating to fixed at the moment. So it's all.
No.
Okay. Great. Thank you very much.
Thank you, Harry. I think Charlie Campbell has a question as well now.
Hi, Charlie.
Thanks very much. Hi, good morning, everyone. I had a couple of questions, actually. You talked about hedging, and you've explained that you're at the upper end of your mandate. I just wonder what that looks like in terms of months, if that's the right way of looking at it, or I suppose sort of percentage of energy requirements.
It's not month specific, Charlie. It's an average price for the year. That's with the new group we've engaged to manage our portfolio. Certainly across the mix, I should be clear. It's the price we all work to for the full year.
Okay. Effectively, that's all of the energy you require for next year's bought at a forward price. Is that right?
Yep. Exactly.
Yeah. Oh, wow. Okay. That's, yeah, bigger than I thought. Okay. Very good. Secondly, just the list of projects you've given very kindly on page nine of the presentation. Well, should we think of those as kind of incremental to normal CapEx, or are you just sort of helping us to see the sorts of things you could do within, you know, the normal run rate for CapEx, just to kinda get an idea of that? Also just to sort of looking at that list, I guess, you know, you've talked about one or two things on the list, and actually the payback can be really pretty short.
Just wondered if you had any idea in your mind about what the payback is across those page nine projects, really, just to give us an idea about kind of what you get for the investment you put in.
Yep. Okay. The list on page nine is primarily focused on things which are effectively just coming through our standard maintenance CapEx or CapEx, which is a sort of a guided as, sort of a proportion of depreciation and amortization.
You can see that within the standard bracket of money that we would spend to maintain the business in its current form, most of that is included. It's a mix. It's a mix of reserve extensions, which means that the duration and the life of the business in these locations is now secured. Thank you to currency. Currency is an important one. Another one is Belgium. It's a mix of, let's add some land into production capacity so that we can generate more turnover and more revenue. PPG one is a clear example of that. When we're talking about reserve extensions, those are just maintaining the business' life and going forward.
When you talk about extension of production capacity, whether that's CCP or PPG, whether that's Bath Stone and so on, because it's organic, because it's self-funded, because it's extension of production, it is always very low multiples if that's the comparator here.
Yeah.
1x-3x EBITDA versus what you would typically pay for an acquired business, six , seven, five, six, seven, eights. That's why we put the focus on those currently and also the focus on those if we are trying to de-gear, because we can still increase our EBITDA and our profit generation regardless of any M&A work.
Ties back into that historic improvement in the businesses we bought, right?
Correct. That flags back to the second slide we showed you with the 40% increase in EBITDA from what we've acquired to date. That's effectively those sorts of activities.
Yeah. Sure thing. Okay. Yeah, very helpful. Thank you.
All right. Thank you, Charlie. Sam Cullen has a question as well. Hi, Sam.
Hi. Morning, everyone. Can you hear me?
Yep.
Yeah, great. Just one, actually. Just, I think you both mentioned the strength of the order book. Could you add a bit more color in terms of A, the length that they typically are, and B, whether they're kind of lengthening or contracting? That would be helpful.
We've had the table in the slides there with the pluses and the neutrals and the question marks and the minuses to maybe give you an indication of how they evolve. You need to really sort of break that down into three types. There's the long multi-year contracts, which are not always, but most of the time not guaranteed forward buys, but they are strong in volume indications or take-or-pay based on a portion of the contract. How you then look at those contracts is whether or not the forecasts that we get from these bigger customers, paper mills, steel makers, for the next three, six, nine months volume are in line with what they asked in the beginning of the year.
When we say a plus on those sorts of customers means that they are indeed just sticking to the volumes that they indicated 12 months ago in most cases. You'll. That's a yearly rolling affair. Currently where we sit, they've maintained the volumes throughout the year and into next year. When you look at businesses that have just forward purchasing and forward orders, for instance, the dimension stone business, the infrastructure supplies, there it's very much on what the volume of orders in the books are in terms of pound notes or projects that we will be able to supply. In Belgium, the CDH business, we're still running at sort of EUR 10 million-EUR 11 million, which is on a EUR 50 million turnover businesses, you can sort of calculate what that means.
Then when you look at the concrete business and the infrastructure suppliers, there we mostly look at how many big projects we see having received planning approval and will come up for or have started construction and will come up for supply in the next three months. Again, there we see the next three months at least looking very solid and into next year as well. Precast, for instance, structural elements, if we stop taking orders today, we would still be busy supplying what we've already got in the books well into Q1 2023. There is obviously a portion of the business which is absolutely no order book possible because it's just, you know, you roll up to the quarry and you pick up a load.
There we see that we still are low on stock, that we have the volume, daily volumes coming out. We have indications of people calling in for weeks ahead, months ahead in terms of volumes and asking pricing. There again, we gauge it on that basis. Overall, the picture is effectively the same as it has been the whole year. The one thing that has probably changed it to the upside is agriculture, flue gas treatment in the chemical industry. The effect there is the agricultural side of things, farmers would have and big agricultural production companies would have taken fertilizer to fertilize the land. That's obviously not available or very expensive.
With the high energy prices and everything else, they slowed a little bit what they would have normally taken over the year. That's now coming back in with the mounting seasons. You see that they're more confident and buying more volume than they were before. That's very good. That has to do with fuel prices. That has to do with confidence in the outlook there as well.
Great. Thank you.
Any other questions? I think that's it. Thank you everyone for joining. A recording of the call will be made available on the website, shortly.