Good morning, ladies and gentlemen. Welcome to the SigmaRoc plc trading update investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted any time using the Q&A tab just on the right-hand corner of your screen. 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. The company will review all questions submitted today and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. If you give that your kind attention, I am sure the company will be most grateful. I'd now like to hand over to David Barrett, Chairman. Good morning.
Good morning, Mark. Thank you. Good morning, everybody on the call. It's been three years since we last presented on Investor Meet Company, 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 1.6 billion tons of reserves, which gives us strong market positions, good pricing power, which was demonstrated well in an inflationary environment of the last 12 months. We have a broad market exposure, not just in construction, but also metals and mining, pulp and paper, agriculture, chemical, industrial, and environmental. We have a decentralized model which keeps the business closer to the customer, which is very important, we also have a flat management structure.
The business has good margins and strong cash generation, giving it excess of GBP 100 million EBITDA and GBP 54 million 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'll give you a more detailed presentation.
Thanks, David. Good morning, everyone. It's a real pleasure to be back here, to present a few slides to you. There's essentially three sections that we'll follow now. The strategy as a whole, how that gets implemented, what that's led to financially in terms of track record, which the team in Bassevelde and Thomas will present to you, and then a bit of an outlook and an update on the first quarter. The strategy as it stands, there's really three questions we're answering. Where are we operating? What are we doing there, essentially, 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.
There's a number of reasons for this. First and foremost, the density of infrastructure, population, ports. You can see those in the darker shaded areas. There's lots of activity, which means lots of industry, lots of people, lots of requirement for all the products 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 of energy, export of CO2, the various strands of our, of our business. Therefore, again, this is a great anchor point for us. Then thirdly, it's got a fantastic set up in terms of legal system and then availability of quarries.
Quarries are hard to find. They're difficult to purchase. If once you have them, they're really the center point of the strategy that we're implementing. 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, 1.6 billion tons of reserve. These quarries essentially could give us a rather wide spectrum of different products. The very basic product is construction aggregate, the construction stone, which ends up essentially in roadworks, in concrete, in house building.
The logical, the things that 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 Poland, and to a degree also in the U.K. and in Belgium. This allows us to be exposed to other markets than just construction. Those other markets are making of paper and pulp, metals, environmental application, agricultural applications. It starts from the same mining operation, and we take it through a slightly larger set of production processes to address a vast range, array of markets in the end.
If you then look at what markets in specifically we address there, we can sort of group them into three broad buckets. Niches, which have a growth aspect to them. 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. These smaller size in terms of 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. They evolve with macro trends, demographics, energy infrastructure these days.
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. Integrate more markets into our scope horizontally. Go out and find new applications for the product that we already produce. That's the horizontal integration piece. Obviously, then the question is, how do we do this? 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. 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. That to make sure that these quarries run faster and better, cost control. We call that Improve. 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 Integrate piece. Let's see what else we can do with that little setup. Fourth, we are not a huge business, half a billion in turnover, so we need to have a competitive edge. That we deal with through the Innovate aspect, which is both on products and on ESG.
If you take those four aspects and you start to say, "Well, how do we implement this?" There's a few slides on the sort of the practical aspects of what we've done so far. If you look at our footprint to date, it's right nicely around the area that I highlighted earlier. We have three main operating regions, which is the U.K., 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 local GDP data looks like, what the local activity looks like. That's the current operating setup.
In these 10 platforms, we address quite a large number of end markets. Five key markets from a country perspective, Finland and the U.K. being the largest one, if you combine it with the Channel Islands and the Benelux, Finland, Sweden and Poland and a few smaller markets in there, which are, for instance, the Baltics, a little bit of Germany. A very nice diversity in terms of end market exposure. When you look at then where we sell our products, half roughly goes into various types of construction, infrastructure being the largest, residential being the second one. The other half is industrial applications of the same stone. Pulp and paper, obviously in the North, very important. Metals and mining, important again in the North and Poland and in Germany. Agriculture, chemical, environmental.
That's pretty much across the spectrum. Individual countries represent only very small proportions of the individual segments. Real estate, residential real estate, the largest e-exposure would be in the U.K., which is 7% of group turnover. We have very small exposures to any individual market. When you translate that into end product, as I said, you can take our stone 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, asphalt and so on. The key point here is the end markets are hugely diverse, and we can shift the products from one area into the other as demand evolves across the various end markets.
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 and improvement programs that we have driven through. There isn't a single standard process. We do not buy a platform of businesses or any 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 as best as we can how that business was successful enough for us to be interested in buying it. As we have done that, we spend 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 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, from the spacing of the right type of machinery, from investment that we can make locally, and if we can then bolt on some businesses. That's led to the track record we have to date. 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 grab more synergies by being a larger operator. We did this on across 2022.
At the very start, early January, Johnston Quarry Group came into the group and then two smaller businesses, right, Cassel and Argétrans over the course of 2022. In 2023, we launched a large pipeline of small bolt-on acquisitions. Three have been done so far, and the remainder five, six or seve n are ongoing currently. 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. Very often the bolt-ons we purchase tick multiple of these boxes. The pipeline we started in Q1 2023 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 generate. 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. Goijens is a key example, a fantastic concrete business in Belgium, gives us real good market share. Juuan Dolomiitti 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. Essential for agricultural applications. Retaining U.K., which has just come in.
You may know that through our Palo Alto 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. 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. Similar deals you'll see come through over the next quarter as we go through the next separate this pipeline. The other thing that I mentioned earlier was innovation and leadership from that perspective. 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?" When we started to look at the whole ESG agenda and what we could do, as a smallest size business versus the, the big industrial groups of this world, we said, "We're probably agile, more agile than most. We're probably quicker than most. 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." That's what we're currently, implementing. The JV with ArcelorMittal is a key example. Aqualung, the CO2 capturing system, is another example, and I'll come back to that one in particular. We've obviously signed up to SBTi, and then we have Greenbloc, the product that we launched in 2020 and 2021, which is now starting to become a real success in the U.K.
From a digital aspect, Hyvis, a tool that we developed 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. Obviously from a governance perspective, we constantly improve our oversight, our board independence and quality, our policies. From a timeline perspective, this is important today because we've published our second ESG report. You'll find this roadmap in the report. It's a net zero roadmap, 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 these Aqualung solutions goes.
There's a specific slide on that in the last section of this presentation. I'll come back to that point later. The amount 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 that, than those," and that became our target line. Now you can question, is this realistic? Well, we think it really is. Again, we think we'll get there a decade earlier than what this suggests. Greenbloc. 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.
'Cause all the way from the production method, the product and the sourcing of the product, all of it gets tested and vetted and audited. Those came through the end of 2022 and into 2021, and we then started to properly sell it. If you look at what we now currently do in terms of trading volume on a Greenbloc technology in the U.K., nearly half our infrastructure projects in 2022 had Greenbloc technology in them. It represented a quarter of all our sales in PPG, our precast group in the U.K. That number is growing steadily. It was an enormous jump from 2021 to 2022, 23 x more sales in this product. It tells you two things. It tells you, A, that the product we have is indeed market-leading.
Secondly, that the search for an ultra-low or a lower CO2 product in the concrete space is now clearly relevant. As a market leader from this perspective, we think we can do quite a lot more. 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 Dean Masefield, our Deputy CFO, who will take you through a few slides on the track record, essentially since inception.
Thank you, Max. Good morning, everybody. On this first slide, this is the evolution of the group from the beginning, from day one. If you look across at the top of the slide, you'll see a large number of acquisitions at very attractive multiples. Since inception of the group, we've integrated all those acquisitions into the group and delivered the results as you can see on the right. Revenue with a compound annual growth rate of more than 80%. EBITDA, again, more than 80%. If we look at the EPS, more than 170% growth.
In particular, another part of this slide which is interesting that we're very pleased that we've delivered these results. If you look across the bottom, you'll see we've delivered the results whilst keeping the leverage ratio generally below 2 x. We haven't heavily geared. We've kept that leverage ratio below two, as you can see at the end of 2022, it's 1.77 x, whilst delivering that impressive growth rate. If we now look at business improvements, the businesses acquired pre Nordkalk, we've improved the EBITDA on those businesses by 40%. The effect that has, you can see on the bottom, the acquisition multiple at an average of 6.9 x. The effect of that EBITDA improvement brings that multiple effectively down to 4.9 x.
We look at Nordkalk only, which we acquired relatively recently, there's already an 8% increase in EBITDA, and that's starting to trend higher as well. Reducing the acquisition multiple 6.9x down to 6.4x. In total across the group, a 20% increase. It greatly reduces the acquisition multiple down, you can see to 5.9x. We're very pleased with those improvements in the EBITDA. We look at our medium term targets, our five-year targets that were set originally in 2021. Like for like on revenue in 2022, we grew 19% revenue at EUR 538 million for the year 2022. Our EBITDA margin at 19%.
It's important to notice that the next box there, the net margin, basically that adjusts our EBITDA margin for some contractual pass-throughs that we have, particularly higher in 2022 with energy costs, et cetera. Our net margin, if we sort of weigh the contractual pass-through cost is 22% against our target of 20%. EPS, we targeted in the medium term target GBP 0.08. We're pleased to have already reached that in 2022 at GBP 0.0803. Cash conversion ratio targeting 95%, we reached 87%, so we're on the pathway to the right results. Likewise, free cash flow of GBP 54 million. We've got a return on invested capital of 11%.
I'll talk a little bit more about that on a later slide, where you'll see the pathway to that target of 15%. Again, as mentioned on the previous slide, all of that whilst maintaining a leverage below 2 x, and in fact just below 1.8 x at the end of 2022. Looking a bit further at revenue, the revenue bridge you can see from 2021 to 2022, a 98% revenue growth. That's made up of organic growth of 32%, 6% in the Northwest, 5% in the West, 21% in the Northeast. That's driven by higher volumes. We were up 1% like to like. More than that, pricing power. In the Northeast, part of that growth revenue is the contractual pass-throughs as well as dynamic pricing.
We have M&A in the year of +66%. In the Northwest, 6%. That was the acquisition of Johnston Quarry Group, RightCast in the PPG platform. In the West, it's a full year of B-Mix. In the Northeast, it's the full year of Nordkalk, 'cause obviously, that was acquired in the second half of 2021. 98% revenue growth driven by acquisitions and effective management from the organic growth perspective. We then look at the EBITDA evolution. In 21, we've gone up 106% to EUR 102 million EBITDA for 22. Organic growth, 22%. Again, to reiterate, that's driven by volumes, pricing power, operational improvements, effective hedging, cost saving initiatives, and those in the Northeast.
There was a big focus on Nordkalk with it being the full year, the first full year since acquisition. M&A, 85%. As mentioned in the Northwest, that's with the acquisition of Johnston Quarry Group and RightCast. In the West, there's a small increase with the full year of B-Mix. In the Northeast, with the full year of Nordkalk. Again, organic improvements, M&A driving the EBITDA to GBP 102 million for the full year 2022. Quick slide on the evolution of net debt. We commenced the beginning of the year with GBP 164 million net debt, closed at GBP 177 million net debt, which is represented by the EBITDA working capital movements, tax paid. The net CapEx of GBP 41 million. I'll talk about on the...
I think it's on the next slide. You'll see at the end, with strong cash generation, while maintaining that leverage below 2 x. If we exclude the IFRS 16 liabilities, you'll see we ended the year at 1.77 x leverage ratio. CapEx. We had net CapEx of GBP 41 million. How that evolves, you'll see the maintenance CapEx on the left there at GBP 26 million is, we target our maintenance CapEx to be about 85% of D&A. 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 where necessary.
The next piece, the EUR 6 million resource extensions, that's where we've extended resources, predominantly in Netherlands, Finland, Belgium, and that expenditure has added 13 years, approximately production to the group. We then look at growth CapEx. Now, this is CapEx that's spent that adds to the earnings of the group on a top line basis or You know, reducing costs. Excuse me, and on the pie chart on the top right, you'll see a better breakdown or a detailed breakdown of the growth CapEx. The land purchases, the largest part of that was in B-Mix, where they exercised an option to acquire the land, the site they operate on. What that does, it gives obviously the this operation site, reduces the overheads, and also de-risks any problem of having an operation site.
Alongside that, we also divested some of that land, you'll see below in the divestments. We acquired 11 hectares and divested five or six hectares for small profit. In the plant capacity increases in the growth CapEx, you'll see GBP 4 million that was predominantly spent in Nordkalk to support the cement majors. We internalized haulage within the PPG platform, so that de-risked our reliance on third party contractors as well as reducing our costs there. Alternative fuel conversions in Nordkalk and in Poland, whereby we're trying to reduce our reliance on gas, both to reduce our CO2 footprint and also reduce our reliance on gas.
In the divestment of CapEx, as I mentioned, we sold a disused quarry, small disused quarry in Belgium, the majority of that is the sale of part of the land in the B-Mix option. Plant and vehicles is just disposal of things such as tippers and excavators, mainly in the U.K. and in Belgium. I mentioned earlier about return on invested capital and our pathway to the 15 cent target we set. On the left you'll see we've got margins. Our net margins are strong. Our cash conversion ratio is good, as well as our free cash flow of EUR 54 million. Now, in that graph in the middle, if we did nothing with the free cash flow other than use it to de-gear, no reinvestment, you can see how it goes against the debt.
More importantly, on the graph on the right, you will see how that would relate and translate to the return on invested capital. You can see it reaching the 15% within the target and on, and upwards. Obviously we believe it makes sense to reinvest. We can do better than just purely de-gearing, like as demonstrated with our acquisitions in 2022, Johnston, RightCast, La Bolonga, and also our developments and acquisitions in the first quarter of this year. I'd like to hand you back to Max for trading and outlook. Thank you.
All right. Thanks, Dean. A few slides on our trading currently to date in Q1 this year, then outlook as the year goes on. We closed the first quarter with a solid performance. GBP 137 million worth of turnover. Volumes like up 4% in the first quarter. EBITDA up 3% roughly for that first quarter as well. We're well ahead of our own expectations. We're ahead of budget, and we're performing in line with what we would hope for this first quarter. It wasn't an obvious quarter.
A lot of people expected, a lot of industries expected that in Q1 there would be enormous spikes in energy because of a cold winter, therefore shutdowns of capacity. That leads to all sorts of effects. People over-purchasing, over-stocking in the last part of last year, now de-stocking. As a result of that, you get upwards of numbers in performance. If you look at these specifically, more specifically into the into these end markets, first and foremost, the performance of Q1 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.
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 mentioned, plant breakdowns, plant shutdowns, maintenance stops. We have those very frequently. De-stocking 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 other environmental applications, and agriculture remains strong. Some lower and weaker performance in U.K. residential and RMI spend. Some weaker performance in Swedish and Finnish residential construction.
Polish and Baltic construction was very strong. Belgian construction was good. That gives you a nice mix. It also tells you that the diversity in the markets that we managed to build, A, geography, and B, end industry, really helps us when the demand outlook is less clear. We've also got a very robust pipeline of projects we're working on. They're obviously organic, which is going through types of plant we're installing, and there are acquisition investment types. M&A work, both on M&A work and for smaller scale primarily. That's ongoing. These business are a very, very relevant strategy-wise for us. Secondly, we are able to currently purchase them at very low multiples, which is always a very good idea.
I've referred to the Aqualung project a few times. I'd like to take a minute or two to really tell you a bit more about this. You may remember that we launched this, the Aqualung project, at the end of last year. What you see on the left of the image is a membrane, an Aqualung membrane. It's basically a long tube with 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 CO2 from all the other exhaust gases that a plant gives you. Therefore, you can purify the exhaust gases, have pure CO2 there to a degree of 99.9%, at which point that CO2 becomes usable or storable. It needs to be this pure. This technology is simple. It's modular, it's small in scale, it's cheap to run, and its energy, the energy intensity is very low. 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 7th May. That's the target.
The commissioning will mean that we first pump pure oxygen through it, just to see that all the seals work, that the whole thing works fine. We then start to pump through the membrane, set up smaller amounts of gases intermittently, again, to test that all of the equipment works and is all set up correctly. Towards the end of May, we will hook it up properly and start to fill our first bottle of CO2 of that first kiln. It should capture about 5%-6% of the output of that first kiln.
If all of this runs smoothly as we expect it will, we will then start to increase the capacity of this first module, take it from 7, 5, 6%, to about 20, and then we'll add more modules to capture all of the CO2 produced by this first operation. All that goes as smoothly as we think it will. We will be in a position to say that we have a first net zero kiln, probably in the world, certainly in Europe, and then we will equip our other 4 kilns, 5 kilns in the North, with similar technology over the years that follow. This is a very exciting step for us. It will mean that we are well ahead of anybody else in terms of capturing CO2.
It means that we're well ahead in terms of most industries, in terms of doing something about our CO2 footprint. 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. That completes the slides we have for this morning. We're most happy to take some questions from the Q&A panel.
Yeah, 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&A tab situated on the right-hand corner of your screen. Just while the company takes a few moments to review your questions submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet Company dashboard. Firstly, thank you to everybody for your engagement this morning and for submitting your questions. If I may just hand back to Elisa. If I could ask you please just to read out the questions, I'll pick up from you at the end.
Sure. Thank you. We've got one question from James H. who is asking: What is the current debt leverage looking like? Are you still at below 2 x? What is the length of debt generally, and how exposed are you to increased interest rates?
Debt levels are currently, again, similar levels as they were before, about 2 x. The debt structure we have in place is a five-year package that we put in the group at the acquisition of Nordkalk. That's a syndicated facility with bank debt, with a lead bank, which is Sabadell there, and then about 10 banks across that syndicate across North Europe. The debt structure works as a margin over our base rate. Most of it is euro, a little bit is pound sterling. That margin evolves with the leverage gearing, the leverage ratio we have, about 2.2% margin over the base rate currently. Again, in the exposed to euro. We have a fixed setup, which will run for another three years, with head covenants at three.
2.5x and a minimum interest cover about at 4x as well.
All right. Another question from Chris T., having made a number of acquisitions like RightCast, et cetera, do you see making further ones in the near future, and how would these be funded?
There's probably a point to make on cash flow. The group generates GBP 50 million in free cash flow. Most of that goes through the second half 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. There's less activity in construction. There's obviously the expenses the business incurs in terms of social security, all the rest keep going. We're flat in terms of cash generation in the first half, and we generate most of our cash in the second half. That GBP 50 million is what we need to expand the group from an M&A perspective, and we're perfectly happy with that. We will look in the future.
We've now hit this point, which we always hoped to hit, where we can expand the business and be proactive from an M&A perspective without using equity for bolt-on transactions. Obviously, you will say you did a small raise at the beginning of the year. That's not the same. Yeah, that's a fair statement. We spent the GBP 50 million free cash flow we generated last year on Johnston, on RightCast, La Boverie , and a number of other projects. We found ourselves in this window in the first half of 2023, where we had many big deals at extremely low multiples. For instance, Retaining U.K., which is close to 2.9x, these are not multiples you would see in our industry normally. With the question, do we let these 10 or so transactions go?
That might be strategically a harmful thing. Do we say, "No, no, we'll ask our shareholders to support us on this large pipeline." 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 not expensive, sometimes you need to just go forward and purchase it. The important point also is, and this is another consideration we have there, was we're in a starting point of 2023. We hope there's a bit more optimism. We are on the front foot strategically, we go ahead, and we continue to build our company. A 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. For the bolt-on pipeline, we have enough. It maybe answers the next question. If you would just scroll up please, Lisa.
A question from, Stephen P.
Sure.
You said that there would come a point when internal cash flow would fund M&A rather than equity insurance. Issuance, sorry. How far are you along this path?
Yeah. As David just mentioned, we have now reached that point. It was always sort of the case. We said this in slides in 2017, 2018, that our target was to go from basically not much, GBP 5 million-6 million EBITDA, to about GBP 100 million across North Europe. That number wasn't because GBP 100 million sounds nice. It's also because by the time you've reached the size of GBP 100 million and you obviously have got tax expenses and debt repayments or whatever, you have about GBP 50 odd million in free cash that you can use to expand the group.
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 every so often, you need to really be careful and buy the right ones when they are available. We always wanted to hit that sort of EUR 100 million mark because that allows us to do all these things, both maintain our debt or build it down, expand the group strategically and invest organically. These three things, which ultimately then translate into higher EPS and a higher ROIC number.
Next question. Kiara Ng is asking, "Will it always be your intention to maintain leverage below 2 x? What are the debt covenants?
On that point, yes, our ceiling on debt has always been 2 x. It's since the beginning, since day one in 2017, we said 2 x is a good number. Our covenants are always 3-4.25 or 3.5, gives us a full turn or a 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 a cheaper way of funding. More we see now trending slightly lower and gearing as we go along. Yeah, below 2 x, probably closer to 1.5 these days than we were in the past, but around that number.
Chiara Kielty again asks, "What is your hedging policy for energy?
Hedging policy for energy is a phased setup, by year. The point of hedges is that we take out the major swings. We have in year one, 50%-60% of our energy hedged. In year two, 40%. In year three, 20%, if you go out. We review as we go along 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 hedgeable or difficultly hedgeable. Fuel oils, for instance, certain types of fuels for kilns and other things. Certain countries, because the energy structure there is different.
Generally speaking, we try to keep a good level of hedging in there so that we don't find ourselves exposed to a major swing.
All right. Next question is from Harry D. "Do you see competitors making as much progress on CO2 reduction in line? Could this be a benefit in time if market pricing is pushed up by CO2 costs, but SigmaRoc doesn't need to purchase as many CO2 credits?
Yeah, very. A 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 CO2 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. Try to walk courageously in a certain direction. Nobody has stopped us from following us, which is great.
If we manage to get all this set up at a decent scale, not only do we not need to purchase CO2 credits, the ETS system, the credit system, gives us credits for free, gives everybody credits for free for a certain proportion of your production. Not only do we not need to purchase the credits, we should have credits extra that we can sell. In an ideal scenario, where everything works as we hoped it would, we have pricing which is just same pricing as our competition, which includes the cost of CO2. 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 real benefit, and that's what we're trying to rush towards as fast as we can.
Ainsley L . is asking, are you selling the carbon dioxide?
Yeah. The carbon dioxide we capture, the best use of that would be to sell it. It's sometimes unknown to sort of the wider public, but carbon dioxide is a key gas in many industrial applications. All greenhouses in Holland, for instance, fill them up with carbon dioxide to increase the amount of nutrients effectively in the air for the plants to grow tomatoes and so on quick, more quickly. It's used as an industrial gas in and obviously in water to create fizzy drinks. It goes into many industries. The best thing would be to capture it and then use it.
All right. Next question from Harry D. again. Given the easier comparative in the Northeast due to customer strikes in Q1 of 2022, would it be fair to say, like-for-like EBITDA growth came mainly from here in Q1, or was like-for-like profit growth more widespread?
No, it's a mix of all of the above. As the EBITDA started to drop in Q1 last year because of the strike in the essential paper sector in Finland, we immediately went on to a major cost reduction program to mitigate the importance there. Yes, we lost several million GBP worth of EBITDA because of the paper strike, but we also found several million GBP worth of savings across that first quarter. The increase in EBITDA comes from a mix of things. A bit of volume. We've got a % increase there.
A bit of pricing, and a bit of, a bit of just generally, cost reductions and recovery from what we did lose versus last year. It's a mix of all three.
Next question from Karen 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?
Biggest inflation pressure we had last year was energy, without a doubt. Number two would have been other inputs. Cement purchases we have, other products that we have that we input into our production process. Labor was actually fairly all right. We have unions in certain parts. Unions in Scandinavia, by and large, went for 3%, 4%, 5%, 6% increases in wages over two years. U.K. was 6% on average. The Channel Islands, similar. Belgium is an index system. It was closer to the actual inflation rate. That's fine, because we get it back into other social security benefits. The labor was actually versus the amount of inflationary pressure, and also faster than any 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. We also have good loyalty. We tend to keep the name above the door of the business as it was. It's the same name for 150 years, 100 years. It's an established conference, an established route for people locally to say, "This is a great business to work for. We wanna work there." From our perspective, labor is still okay.
Two more questions from Stephen P. The first one is, at what point would dividends be considered?
Yeah. Dividend is an active consideration. As you will have seen, currently, in our AGM, which happens this afternoon, we have a number of resolutions which help clean up certain items in the balance sheet. Dean can elaborate on those, but they are technical perspective, which will allow us to do two things: buy back shares and also pay dividends. We are starting to get to a point now where we have the cash flow generation that would allow us the dividend payment.
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 18 months to years, cash generation, likelihood of cash generation over the next two years, and then see at what point in time we can commit to paying a dividend. It's firmly on the agenda.
The second question was, as to large acquisitions, could you give some examples of what type of profile you would consider?
Well, when we say large, it's typically where you'd need to think multiple hundreds of millions, which, whatever the cash flow we have, it'll be fundable only internally. That's large. Large is. A good example is the Nordkalk 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 quarries. Good reserves, a brand name that's been there for 150 years. If you can buy those as a good price, like Nordkalk was 6.9 x effective pre-synergies, they make an enormous amount of sense.
You basically look back, our EPS in 2021, just before we bought Nordkalk, was GBP 0.045. That was our run rate, and we would obviously grow it a bit. In 15 months, we nearly doubled that number by the inclusion of Nordkalk. That's the sort of thing we think about where we think large.
That's great. Max, Dean, David, I think you've taken all the questions from investors, so thank you once again, 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. I wonder, before doing so, if I may, Max, just come back to you 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 pleasure to be back on your platform. We think that we've done a number of things over the years which we're really proud of. We dug up a presentation from 2017 a few weeks back, and that said, "We'd like to build a North Europe-based business exposed to niche markets with EUR 100 million EBITDA within the next five years." We're now here five years later with a Northern European business with niche market exposure, with north of EUR 100 million in EBITDA.
To be able to say that five years on and stick to that plan with COVID, with Ukraine, with all the other disruptions that we've had is something that we're extremely proud of. We've also managed to get the EPS to grow from nearly nothing. It was about zero or o ne , 0.5 or whatever it was in 2017 to eight over that period of time. 170% cumulative growth in that five-year timeframe. Obviously, we, as a management team, as shareholders ourselves, we hope that this translates in strong share price growth. We saw that happening after Nordkalk. We saw that the share price went up to GBP 1.14 in recognition of, I think, the scale, the capability, the potential of the group that we're now constructing.
Obviously, 2022 was a tough year. We had three of our largest shareholders, top five, top six shareholders, at finance closures, had them selling all of our shares in a market which had no buyers because everybody was panicked. Large amounts of volume of shares becoming available. 40 million odd shares in one day, for instance, which they picked up on tier ones. Those things are, for a smaller business like ours, are hard to deal with in a down market. We're working hard to rectify that, to get our share price back to a true reflection of the value of the business, true reflection of the quality of the companies, reflection of the people that work in it.
Thank you all for your continued support, your interest in our presentation today. We're sure that we will get that share price back to where we think that it belongs.
That's great. Max, Dean, David, thank you once again for updating investors this morning. I'll 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 at SigmaRoc plc, we'd like to thank you for attending this morning's presentation. Good morning to you all.