(EPIC: SRC / Market: AIM / Sector: Construction Materials)

27 March 2023

SigmaRoc plc

('SigmaRoc', the 'Company' or the 'Group')

Audited full year results for year ended 31 December 2022

Notice of AGM

SigmaRoc (AIM: SRC), the quarried materials group, is pleased to announce its audited results for the year ended 31 December 2022.

[1] Underlying results are stated before acquisition related expenses, certain finance costs, redundancy and reorganisation costs, impairments, amortisation of acquisition intangibles and share option expense. References to an Underlying profit measure throughout this Annual Report are defined on this basis.

2 Net Margin is EBITDA margin adjusted for impact of inflationary cost pass-throughs, such as energy, materials, and distribution.

3Net debt including IFRS 16 lease liabilities.

4 Leverage Ratio takes Adjusted Leverage Ratio and excludes IFRS 16 related lease liabilities.

5 Free Cash Flow takes net cash flows from operating activities and adjusts for Maintenance CapEx, net interest paid, and net non-underlying expenses paid.

6 Company compiled analyst consensus estimates as of 12 December 2022: revenue of £512m, Underlying EBTIDA of £97m and Underlying EPS of 7p.

Financial highlights:

Record results, earnings enhancing acquisitions underpinned by organic growth

-     Another year of strong delivery, with full year results ahead of original expectations 6

-     Organic LFL revenue grew by 19% and Underlying EBITDA by 9%

-     Underlying EPS increased by 49% YoY

-     Ongoing focus on efficiency, with £5m of annualised EBITDA improvement initiatives delivered across the Group

Increased returns and strong financial position

-     Strong cash generation with £54m Free Cash Flow and 87% Cash Conversion Ratio supporting investment in bolt-on acquisitions and investment for organic growth

-     Adjusted Leverage Ratio comfortably below 2x target, despite continued growth investment

-     ROIC increased 310bps to 10.7%, with clear path to medium term target of 15%

Operational and Strategic highlights:

Divisional structure

-     New divisional structure implemented with regional head coordinating activities of platforms captured within the region

-     The Group's existing platforms are divided between the North West, West and North East and the Group intends to report key financial and performance metrics by region going forward

Growth

-     LFL volume growth of 1%, despite softer demand conditions through the year in certain markets

-     Benefited from broad diversification in both end markets and regions:

o  West region volumes grew 11% LFL and Baltics Platform volumes grew 24% LFL

o  Poundfield Products grew volumes by 8% LFL, helping offset softening elsewhere in the PPG Platform

-     Local focus, responsibility and commercial strategy supported market share gains in all regions

-     Sustainable products saw continued strong demand, with Greenbloc on track to represent c.50% of PPG production by the end of 2023

Investment

-     Successful integration of Nordkalk with synergies representing annualised EBITDA contribution of €5m identified in the year

-     Three acquisitions completed for a net initial cash consideration of £44.6m with average multiple of 7x EBITDA funded from operational cash flow

-     Investment to secure additional 216 million tonnes of high grade and strategic Reserves and Resources, equating to >40 years of production

-     Launch of JV with ArcelorMittal provides framework for expansion of the Group's lime business in Europe and create a new net-zero producer

Execution

-     Continued progress with safety initiatives - Total Incident Frequency Rate (TIFR) and Serious Harm Injury Frequency Rate (SHIFR) improved by 13% and 19%, respectively

-     Aqualung partnership to launch carbon capture facility in the Nordics with objective of de-carbonising all kiln operations

-     Published maiden ESG report with net-zero target set for 2040

Annual General Meeting

SigmaRoc is also pleased to provide notice that its Annual General Meeting ('AGM') will be held on 25 April 2023 at 3.00 p.m. at the Washington Mayfair Hotel, 5 Curzon St, London, W1J 5HE. Copies of the Notice of AGM, together with the Form of Proxy and Annual Report will be posted to shareholders today and are available to view on the Company's website.

Change of Registered Office

SigmaRoc is also pleased to announce that it has changed its registered office to 6 Heddon Street, London, W1B 4BT with immediate effect.

Max Vermorken, CEO, commented:

"2022 was an extremely challenging year from an operational and a commercial standpoint. However, the Group delivered performance well ahead of expectations and made enormous strategic progress, demonstrating the strength of our operational model and management structure. 

This exceptional year has given us the opportunity to get on the front foot strategically at the start of 2023 with a robust pipeline of organic and acquisition investments to support our organic growth and accelerate our strategic goals. 

We remain vigilant towards continued variable conditions across our end markets, but we are confident that the Group can once again demonstrate its resilience and achieve further strategic progress in 2023."

END

The full text of the statement is set out below, together with detailed financial results.

SigmaRoc will host a meeting for invited analysts at 9.00 a.m.

A live webcast of the presentation including Q&A will be held today at 9.00am and will be available via our website at https://www.sigmaroc.com/ or on https://brrmedia.news/SigmaRoc_FY22. This will be available for playback after the event.

The Group has also organised a dedicated results call and Q&A session for private investors at 12.00 p.m. today. To participate in the call, please register by contacting [email protected].

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For further information, please contact:

CHAIRMAN'S STATEMENT

2022 produced many new challenges for SigmaRoc to contend with and I am pleased to report that the Group was able to meet those challenges and in doing so surpassed our expectations for the year. We had to deal with significant disruption to customers as a result of industrial action and plant issues, volatile energy prices, uncertain energy supply dynamics and the effects of the Russian invasion of Ukraine. In response to this, we were able to identify and execute multiple initiatives, across the business, to enhance growth and support returns. Our central team was able to find savings and efficiency gains to compensate for unexpected breakdowns and union strikes. Our commercial teams locally were able to deal with inflationary cost pressures, leveraging the strategic location of our footprint and our customer relationships. Our operators were able to react swiftly to an increasingly challenging energy market, production requirements and customer demand. We are pleased the quality of our operators, the inherent diversification in our model and our strong local market positions have demonstrated their true value in a time of rapid changes and numerous challenges.

Overview

Despite the aforementioned global and local challenges, the Group delivered a strong operating performance in 2022, with volumes on average ahead across the Group YoY by 1% on a LFL basis.

The Group is reporting 2022 revenue of £538.0 million, representing a 98% YoY increase, and Underlying EBITDA of £101.7 million, being an uplift of 106% YoY. Underlying profit before tax was £62.7 million and Underlying EPS was 8.0p representing a 49% improvement YoY. Revenue and Underlying EBITDA have increased primarily due to the inclusion of Nordkalk which was acquired in August 2021, together with the additions of Johnston and RightCast. On a LFL basis, revenue and Underlying EBITDA grew by 19% and 9%, respectively, during the year.

The strong trading performance and continuation of careful and effective cash management strategies have led to a strong year end cash position of £68.6 million. While the Group has continued its investment led growth strategy with the acquisitions of Johnston, RightCast and La Belonga, for a total initial consideration of £44.6 million, the Group's Leverage Ratio at 31 December 2022 reduced to 1.77x, which is comfortably within our long term target range.

Continued focus on safety translated into further progress on safety reporting and management. The Total Injury Frequency Rate (TIFR) recorded dropped by 13%, while the Serious Harm Incidents Frequency Rate (SHIFR) dropped by over 19% versus prior years; including both employees and contractors. Positive reporting, including near hits and hazard and risk identification increased by more than 70%. One positive engagement initiative, set up in Belgium in 2021, has YoY resulted in an increased engagement of nearly 400% for near hits, hazard, and risk identification and a subsequent reduction in SHIFR by 23%.

Governance

In April 2022 the Group published its first ESG report which contains extensive detail on its Environmental, Social and Governance policies and initiatives, as well as a detailed roadmap to net-zero. Further updates to that report and the various initiatives that are underway across the Group are provided in the ESG section of these Accounts.

Outlook

Trading in the early part of FY23 has been encouraging, with overall Group performance for January and February in line with expectations. The Group has made good progress in executing its capital investment pipeline, deploying £12 million of the £30 million equity fundraise completed in February on two businesses across Europe, with work ongoing to deploy the remainder and execute on the pipeline.

I am very optimistic about the Group's prospects for 2023 and expect the Group to deliver further improvement over what was a very successful 2022.

David Barrett

Executive Chairman

25 March 2023

CEO's STRATEGIC REPORT

2022 represented a real validation of our model as SigmaRoc delivered significant financial and strategic progress, despite a volatile and at times extremely challenging backdrop. Financially, the Group delivered significant earnings growth, to over £100m of underlying EBITDA and 8p of Underlying EPS, whilst retaining a strong balance sheet with leverage below 2.0x. Operationally, we have enhanced safety metrics and customer service levels, together with making sector leading progress on sustainability initiatives across the product range and asset base. Strategically, we have managed the successful integration of the transformational Nordkalk business and completed four further, earnings enhancing, transactions and reserve extensions in key locations. These achievements reinforce our belief that the businesses that form this Group and the more than 2,000 people that work for them, are of exceptional quality. This is particularly true of the operational and sales staff who, across the Group, had to contend with a series of acute challenges ranging from rapid cost inflation, energy availability and supply chain disruption. It is also true of the various support teams, who in a complicated year managed to keep the ship on course to deliver on all priorities we set well before 2022 started.

The content of this Annual Report therefore aims to highlight three key aspects of our model. First, that there continues to be significant opportunity to develop the Group, both organically and inorganically, across each of the platforms and that we have evidenced this potential again in a year of significant head winds. Second, that the diversified nature of our geographic footprint, end markets and product base, combined with the ability to implement high impact improvement programmes, has created real resilience in our trading performance. Thirdly, that these characteristics have enabled us to set challenging but attainable mid-term strategic goals, both financial and ESG focussed, which represent significant value creation potential for all our stakeholders. These goals are set out below and the potential of the Group and our confidence in achieving these goals are considered in more detail in the sections that follow.

Strategic development

Following a year of transformational investment in 2021, which included the acquisition of Nordkalk together with B-Mix and the establishment of the Benelux Platform, the Group made further significant strategic development in 2022. In total, the Group deployed c.£44.6m across three acquisitions which brought annualised revenues of c.£24.5m and EBITDA of c.£7.3m. The acquisitions were completed on attractive terms, in line with SigmaRoc's strict financial criteria, which represented an average EBITDA multiple of c.6x. The team expect to realise synergies and productivity gains at each of the acquired businesses which will support increasing returns on the invested capital over time.

Together with financial benefits, the Group's investment activities have further enabled the delivery of its long term growth ambitions through the enhancement of the asset base and commercial infrastructure. In aggregate, investment activities in 2022 added c.216 million tonnes of high quality reserves across the Group. In addition, the establishment of a strategic JV with ArcelorMittal provides a framework to accelerate the growth of the Group's lime business across continental Europe.

At the end of January 2022, the Group acquired Johnston for an initial cash consideration of £35.5 million and deferred consideration of £8.5 million. Johnston is a specialist quarried materials supplier producing construction aggregates and premium quality building stone, as well as agricultural lime for soil improvement. Its aggregate products are typically used in infrastructure projects, with its unique Cotswolds Ironstone and Bath Stone used in specified high end housing and architectural applications. The business operates five active quarries and three mines and two separate processing sites located across the south-west of England, Oxfordshire and Lincolnshire. Johnston has access to 86 million tonnes of freehold and leasehold reserves and resources giving JQG an average life of mine of over 40 years.

For the 12 months to 30 September 2021, Johnston reported revenue of £14.7 million, generating EBITDA of £5.9 million and profit before tax of £3.6 million. The acquisition was funded from the Group's existing resources, including the assumption of approximately £11.0 million in borrowings comprising long term debt and plant hire contracts.

In April 2022, the Group acquired RightCast for an initial cash consideration of £2.5 million with a further £0.5 million deferred consideration payable in 12 months subject to certain conditions. RightCast is a precast concrete producer specialising in the production of concrete stair flights and landings.

For the 12 months ended 31 October 2021, RightCast reported revenue of £3.1 million, generating EBITDA of £0.6 million and profit after tax of £0.5 million. The acquisition was funded from the Group's existing resources and RightCast has been integrated into the PPG platform. RightCast brought with it a strong pipeline of work, well established team and complimentary product offering to PPG.

In September 2022 the Group entered into a strategic JV agreement with ArcelorMittal to create a new net-zero European lime producer. The JV will be located close to Dunkirk's harbour and ArcelorMittal's steelworks, with ArcelorMittal being the main consumer of the lime produced. To reduce CO₂ emissions, the lime production process will use heat recovered from the ArcelorMittal steelworks plant and biofuels rather than natural gas. The location of the operations will allow the JV to be part of the Dunkirk CO₂ hub. The combination of these CO₂ reduction initiatives will enable the JV to offer net-zero lime.

Under the terms of the JV agreement, each of SigmaRoc and ArcelorMittal will take a 47.5% ownership stake. In the first phase of roll out, the new JV company will be responsible for the construction of three new lime kilns in Dunkirk. Initial planning has commenced on permitting and kiln specification for these operations, with final permitting approval expected toward the end of 2023 and commissioning in 2025. Long term supply and offtake agreements will be entered into between the JV partners.

In order to supply the new lime kilns in Dunkirk, in July 2022 La Belonga was acquired. La Belonga is a limestone quarry located in the north of Spain with 60 million tonnes of reserves and resources and potential for a further 120 million tonnes, subject to permitting. La Belonga is strategic to the Group as it is a large reserve of high quality limestone, possessing high calcium oxide and low sulphur content, which is suitable for use in the steel industry, and is located close to the Gijon port providing export opportunities into the Group's European operations.

La Belonga was acquired for an initial consideration of €2.2 million with a further €1.3 million of deferred consideration. For the 12 months ended 31 December 2021, La Belonga reported revenue of €3.5 million, EBITDA of €0.5 million and profit after tax of €0.2 million.

Development of the 2 million tonne quarry extension in Jersey, which was consented in 2021, has progressed well, with sales of product from the extended area already underway. In Guernsey, the planning application to develop a greenfield quarry at Chouet Headland was unanimously approved by the Guernsey Development & Planning Authority in October 2022. With current reserves providing a further 7-8 years of production, this approval secures the supply of Ronez value added product streams and the external construction market in Guernsey for the next 20 years.

In Poland, a new limestone deposit was opened, with planned reserve extensions expected to add a total of 35 million tonnes to the Group's reserves and resources.

In Belgium, quarry extension works are on track at Soignies with construction of the new road around the extension area progressing well, which has enabled excavations of overburden to start.

Operations and trading

Group structure:

Following the substantial expansion and development of SigmaRoc in 2021, with the acquisition of Nordkalk, the Board determined that the Group's platform-based model could be enhanced through the overlay of an overarching regional structure. The platform model has proven effective, ensuring the Group remains locally focussed and agile, with the regional overlay supporting the Group's new expanded footprint and providing a strong foundation for further growth and expansion. This new regional structure will provide the basis for divisional reporting going forward.

Each region has a Managing Director and Financial Director who are responsible and accountable for overseeing performance, steering development, and driving growth. While these roles and responsibilities are new, the people occupying them are not. They are either MDs and FDs of existing platforms within the region, taking on a larger remit but retaining their prior responsibilities, or they are incumbents in the role (but with a new title) and the organisation beneath them has been reorganised, such is the case with Nordkalk.

The new regional structure aligns the Group as follows:

¹ La Belonga was acquired by Nordkalk and currently reports into the North East region, this will be reviewed as the Group develops.

Market dynamics:

The Group benefits from broad diversification across products, end markets and geography.

Approximately 44% of Group Revenue is derived from industrial mineral markets, which have seen resilient demand, supported by the following structural drivers:

-     Environmental, Agriculture and Chemical (20% of Group Revenue): Continued good structural demand pull through, with additional, ongoing substitution by customers of materials previously sourced from Russia.

-     Pulp, Paper & Board (14% of Group Revenue): Order books continue to replenish at historically high rates, with underlying demand from pulp customers increasing as part of the transition in packaging materials away from plastic and with the Group also benefitting from an increasing switch by customers to our products.

-     Metals & Mining (10% of Group Revenue): Order intake remains stable, despite lower European steel production in the second half of the year, with the Group able to sell product into a range of alternative local industrial markets.

The remaining 56% of Group revenues are derived from construction markets, with over half of this from infrastructure applications which have continued to see robust demand:

-     Infrastructure (32% of Group Revenue): Robust demand across the UK and European platforms, underpinned by customer guided volumes into 2023 as well as significant project wins.

-     Residential (25% of Group Revenue): Robust orderbooks in commercial markets and high specification products, including the Greenbloc range, offsetting low exposure to softening UK RMI market (total UK residential exposure is approximately 8% of Group Revenues).

The Group's sustainable product offering has been a contributing factor to the substantial growth in the PPG Platform over the past two years, with Greenbloc helping secure tier 1 building contractors as part of the customer base. From 2020 to 2022, the PPG Platform grew revenue by 48% and Underlying EBITDA by 65%.

Trading performance:

The business overall performed ahead of Board expectations in 2022, which enabled the Group to more than offset c.£5m of profit headwind in Q1 arising from a combination of industrial action and other customer disruption.

North West

In the Channel Islands phasing of significant construction projects created a modest decline in volumes for the year, however this was offset by operational cost improvements derived from productivity gains resulting from investment in plant & machinery and strategic procurement of raw materials, combined with efficient hedging. This enabled the Channel Islands to meet its targets for the year, growing EBITDA by 5%.

PPG continued its strong performance through the year. Demand in the first half was consistent across the platform and cost inflation was effectively passed-on through regular price increases. In the second half, a slight slowing in demand at CCP and Allen was offset by a very busy bespoke projects division at Poundfield and strong trading at RightCast. Poundfield had a record year, increasing revenue by 39% YoY.

At Johnston, construction aggregate demand from the Lincolnshire quarries was subdued as large infrastructure projects were delayed but this was offset by strong demand for agricultural lime. Performance post-acquisition was further improved through the integration process, including a review of operating costs and savings from utilisation of Group supply chains.

Revenue for Harries was strong throughout the period, but margin performance was impacted in January and February as a result of equipment issues which increased maintenance and plant hire costs. This was recovered by improved margins through a combination of premium aggregate product sales and operating cost efficiencies, which translated into an increase in EBITDA of 25% YoY.

West

Dimension Stone had another strong year of trading through 2022, with an exceptionally strong order book translating into high volumes. Inflationary input cost pressure was mitigated by regular price increases, and we further benefitted from very good electricity generation from a new solar panel installation. Commercial highlights for the year included the specification of Bluestone for new offices at Euralille in Lille, development around Penn Station New York, modernisation of Leuven railway and city centres of Charleroi and Gembloux.

Our Benelux platform performed ahead of expectations. B-Mix had a very strong year with volumes ahead of budget translating into strong EBITDA growth. Cuvelier was in line with expectations and while GduH was behind on volumes for much of the year, strong volumes in November and December combined with a contractual take-or-pay adjustment translated into results ahead of expectation.

North East

Nordkalk faced particularly challenging conditions in the early part of the year, including:

·      The Russian invasion of Ukraine displacing three employees and their families;

·      Significant energy cost increases and concern over supply arrangements;

·      Union strike at UPM in Finland which persisted for almost 4 months; and

·      Unexpected plant shutdown at customer, SSAB, in January.

Through active collaboration between SigmaRoc technical teams and the regional teams within Nordkalk, many of the challenges were met head-on. Further savings were found across the Group and Nordkalk's commercial teams were able to manage the inflationary pressure well through a combination of hedging and dynamic pricing. The impact from customer interruptions was successfully mitigated through the implementation of cost saving programmes across the Group combined with catchup demand through the remainder of the year. In response to the Ukraine conflict, Nordkalk staff in Poland were very active in assisting our Ukrainian staff and their families to relocate to safety when possible, with those who had to remain in Ukraine being located near the Polish border. As a result, Nordkalk had a strong 2022 in ways beyond the purely financial.

Financial performance 

The Group delivered an excellent financial performance for the year, which was ahead of both the Board's and market expectations. Reported revenues were £538.0 million, delivering Underlying EBITDA of £101.7 million, with demand and pricing pass through driving significant top line growth which, combined with continued efficiency gains realised across the business, enabled a strong margin performance in what was a challenging backdrop. This performance is a testament to effective local management taking the right decisions to protect their businesses without hesitation, whilst retaining focus on supporting their local markets.

From a balance sheet perspective, as at 31 December 2022, gross assets were £906.1 million, underpinned by over 1.6 billion tonnes of reserves and resources, land, plant and machinery in strategic locations. Net assets were £469.9 million. At year-end the Group had access to a further £173.0 million in RCF and credit facilities which will support the Group's further evolution. We maintain leverage targets at two times Underlying EBITDA with a significant down trend, giving the Group the ability to reinvest generated cashflows as the Group reduces its gearing. At the year-end our Adjusted Leverage Ratio stood at 1.93 with cash at £68.6 million.

ESG, Safety and Innovation

ESG:

In April 2022 the Group published its first ESG report which contains extensive detail on its Environmental, Social and Governance policies and initiatives, as well as a detailed roadmap to net-zero. The report provides further detail on a large number of initiatives already in place across the Group to manage its energy use and sourcing, as well as accelerate its successful track record in innovation to both meet demanding ESG targets and further enhance competitiveness. In summary of the ESG report, we aim to:

·      provide the option for 100% of manufactured products to utilise waste/recycled materials by 2025;

·      utilise 100% of production materials by 2027;

·      be free of fossil fuel use by 2032; and

·      achieve net-zero by 2040.

We are not aware of any other operator in the lime sector having committed to these targets and no other building materials producer is presently able to offer certified products with ultra-low carbon credentials totally free of cement, across the entire range of its products.

More specifically, feasibility studies have been initiated across the Group to further increase green energy sourcing. These include new wind and solar installations and further increases of existing solar capacity on site at Soignies.

In West Wales, Harries contributed to a successful "nappy-enhanced" asphalt trial, whereby 2.4km of roadway was surfaced using asphalt that contained recycled nappies. The fibres from the nappies improve binding of bitumen with aggregate, resulting in a more durable road surface which is expected to remain in situ for up to 20 years while also providing reduced road noise.

As part of our commitment to employees as well as their families and the communities they love and work in, West Wales held a Family Fun Day with over 200 people attending. This was an opportunity for everyone to come together, have fun and relax as well as raise money for local charities with additional support from other local businesses.

Furthering our governance initiatives, Julie Kuenzel was appointed as Company Secretary in September 2022. Julie holds a Bachelor of Commerce Degree, is a Chartered Accountant and working toward membership with the Chartered Governance Institute UK & Ireland. Julie has over 20 years' experience working in a wide range of industries in senior management positions. More recently, Julie has been focussed on providing financial and corporate governance advice to listed companies. Julie replaced Westend Corporate, who remain as the Group's financial accountants. Julie's appointment bolstered the Group's already strong corporate governance function, and she reports to the Board on all compliance related matters.

In April 2022, Axelle Henry joined the Board as an independent NED. Ms Henry brings significant financial skill to the Group given her role as CFO of a major investment fund and also adds fresh perspective to the Board with her knowledge of sectors which are more brand and innovation oriented.

To support both our businesses and our communities, we are continuing to develop our working relationships with the military and military employment charities and are registered with the Career Transition Partnership. We will help facilitate resettlement and transition from military to civilian life as well as support civilian spouses and partners of serving and ex-Forces personnel on their journey into employment.

Across all our platforms, our business model of local business for local communities ensures that we continue to integrate into the areas we work, supporting both other local businesses, projects, and communities.

Safety:

The Group has continued to progress and improve its safety culture in 2022 by focusing on 3 key areas:

1.   Structure & Compliance by ensuring corrective actions are properly closed out and on time;

2.   Proactive Prevention by focusing on each businesses' 3-5 core risks; and

3.   Learn & Improve through thorough investigations and timely communication.

We are pleased to report a 13% YoY reduction in incident frequency rate; 19% reduction in serious harm frequency rate and over 70% YoY increase in near hit, hazard and risk reporting, taking into account all those that work on our sites, employee and contractors alike. With the addition of three new businesses during the year the Group has leveraged its established health & safety tools and procedures, including the internally developed safety management system HighVizz which has helped increase reporting, decrease incidents, and improve safety awareness and culture.

Innovation:

In November 2022 we announced our partnership with Aqualung to construct Europe's first industrial scale carbon capture facility in Scandinavia, with the objective of rolling out across the Group's entire kiln network and capture all kiln process emissions by 2030.

The market reaction to Greenbloc has surpassed our expectations. We have invested significantly in our own manufacturing facilities to keep pace with demand, while the PPG platform has also acquired and developed additional UK sites to facilitate the development and manufacture of ultra-low carbon construction products that go beyond concrete blocks.

From the start of this year every product currently manufactured by SigmaRoc's PPG platform is now available in a cement-free ultra-low carbon option. 2023 will see up to 50% of all products produced across the PPG platform falling under Greenbloc low carbon alternative ranges.

Our strategic collaboration agreement with Marshalls, which was established on the back of our leadership in the market with Greenbloc, accelerated during 2022. We have multiple workstreams focusing on pushing existing technologies to their limits while also developing new manufacturing techniques. Together with Marshalls, we remain committed to improving how concrete is specified within the build environment and reducing its carbon footprint significantly.

In the Channel Islands all ready-mix concrete and concrete products are now offered with a low carbon cement blend option, and the ultra-low carbon offering for ready-mix concrete is gathering traction in the market.

Post period announcements

In February 2023 the Company successfully completed a £30 million fundraise to part fund ten potential near term strategic acquisition opportunities and four organic growth and carbon footprint reduction projects. Collectively, the strategic acquisitions and the organic growth investments are anticipated, should they all complete, to generate, net of proposed divestments, approximately £42 million of revenue, £10 million of EBITDA and profit after tax of £6 million on an annualised basis.

In March 2023 the Company announced completion of the following acquisitions, which form part of the near term strategic acquisition opportunities announced in February 2023, for an aggregate consideration of £12 million:

(a)  Goijens, a leading supplier of ready-mixed concrete and pumping solutions, located in the north east of Belgium. Goijens operates two concrete plants and concrete recycling facilities, as well as pumping and other services. Its footprint, located in the north east of Belgium on c.10 acres of freehold land, is highly complementary to the Benelux Platform, which is expected to enable commercial and operational synergies, as well as a swift integration into the Group; and

(b)  Juuan Dolomitik, a specialist supplier of high quality dolomitic limestone, used in agricultural and environmental sectors to improve regulation of soil pH and water retention. JD's operations are located close to the Group's existing Finnish business and represent a valuable extension into dolomitic limestone, adding approximately 1.5 million tonnes of reserves, equating to roughly 30 years of operating life.

Additionally in March 2023, the Company announced that it had been successful in its claim to seek compensation from the Swedish state in respect of land use restrictions. The verdict, pronounced on 14 March 2023, made an award to Nordkalk in compensation for economic loss, of which a sum of c. SEK 188 million (c. £17 million) that is to be adjusted for inflation and interest until payment is made, is receivable by the Group as its share. The verdict is subject to appeal until 4 April 2023 and receipt of funds remains subject to the outcome of any appeal, if lodged.

Forward look

The Group has started 2023 positively, trading broadly in line with expectations, supporting a cautious level of optimism for the remainder of the year. Whilst the significant reduction in energy prices in the UK and Europe has improved the demand outlook for many of the sectors we supply, we continue to see variable conditions across our end markets, with recovering demand and structural drivers in a number of segments offsetting continued subdued activity in others.

Notably, we have seen stronger than expected demand from European steel customers as a result of more benign energy conditions and our infrastructure construction pipeline remains healthy in all jurisdictions. Set against this, residential construction demand in the UK, and to a lesser extent Sweden and Finland, remains softer, although this represents c.10% of Group revenue.

We have continued to price dynamically, pass through inflationary cost increases and utilise hedging, and operational execution has remained strong, enabling the Group to deliver further efficiency, improvement and cost saving programmes.

The Group's pipeline of organic and acquisition investment opportunities is very robust, with the proceeds of the equity fundraising in February enabling the Group to execute on multiple value accretive projects in 2023 and toward the end of the year the Group will have generated c.£50 million in FCF with headroom to support further capital deployment.

The Group has a clear set of strategic priorities which support sustainable organic growth, robust margins, strong cash generation and expanding ROIC. Our broad footprint, product set and end market representation provides numerous avenues through which to accelerate delivery through further investment and a market leadership position in sustainability.

I am therefore confident in the Group's ability to deliver another exceptional year of growth and development.

This report was approved by the Board on 25 March 2023.

Max Vermorken

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REPORT

I am pleased to report another strong year financially for the Group, where we exceeded expectations despite considerable challenges in the operational and market backdrop. We were able to more than offset these headwinds through a combination of volume outperformance in the less impacted parts of the Group, dynamic pricing, effective hedging, and numerous operational improvement programmes and cost saving initiatives.

For the year ending 31 December 2022, the Group generated revenue of £538.0 million (2021: £272.0 million) and Underlying EBITDA of £101.7 million (2021: £49.3 million). Underlying profit before taxation for the Group was £62.7 million (2021: £26.8 million).

The statutory loss for the Company for the year ended 31 December 2022 before taxation amounts to £24.4 million (2021: loss £26.3 million), which includes £10.2 million of non-underlying expenses primarily pertaining to non-cash share option expense, amortisation of finance costs, and M&A related cash fees.

The Board monitors the activities and performance of the Group on a regular basis and uses financial indicators based on budget versus actual to assess the performance of the Group. The indicators set out below will continue to be used by the Board to assess performance over the period to 31 December 2022.

Cash generated from operations was £87.7 million (2021: £29.5 million) with a net decrease in cash of £4 million (2021 net increase of £42.9 million) after spending £43.3 million on acquisitions net of cash acquired and £40.8 million in net capital expenditure.

Revenue and Underlying EBITDA exceeded expectations and management forecasts.

Capital expenditure relates to purchases of land & minerals, new plant & machinery, and improvements to existing infrastructure across the Group.

PPA

BDO UK LLP undertook the PPA exercise required under IFRS 3 to allocate a fair value to the acquired assets of B-Mix and Nordkalk.

The PPA process resulted in a reduction of goodwill recorded on the Statement of Financial Position of the Group for Nordkalk from £268.8 million to £35 million. The reduction was to transfer the value of goodwill to tangible assets for plant and equipment, land and buildings, land and mineral reserves, intangible assets and deferred tax assets.

Non-underlying items

The Company's loss after taxation for 2022 amounts to £24.4 million, of which £10.2 million relates to non-underlying items, while the Group's non-underlying items totalled £20.0 million for the year, of which £13.1 million, representing over 65%, are non-cash and non-tax deductible. These items relate to nine categories:

1.   £6.7 million amortisation of acquired assets and adjustments to acquired assets, which has increased by £5.0 million resulting from the Nordkalk PPA adjustment.

2.   £4.7 million in share-based payments relating to grants of options, including £0.5 million pertaining to option revaluations resulting from changes to exercise dates.

3.   £3.5 million in exclusivity, introducer, advisor, consulting, legal fees, accounting fees, insurance and other direct costs relating to acquisitions. During the year the Group acquired Johnston, RightCast, La Belonga and entered into the ArcelorMittal joint venture. The Group also undertook extensive due diligence on over 20 other potential transactions, some of which were completed, and others which are expected to complete, post year-end.

4.   £1.8 million legal and restructuring expenses relating to the reorganisation and integration of recently acquired subsidiaries, including costs associated with discontinuing sites and operations, transitional salary costs, redundancies, severance and recruitment fees, and costs associated with financial reporting and system migrations.

5.   £1.1 million on amortisation of finance costs arising from the syndicated 5-year debt facilities established in July 2021.

6.   £0.9 million in stamp duty and other taxes, primarily relating to taxes paid in relation to the acquisition of 11 hectares of land in Belgium.

7.   £0.5 million on expenses relating to innovation and sustainable practices, including continued development of Greenbloc, alternative carbon-free cement solutions, Aqualung carbon capture technology and utilisation of alternative fuels.

8.   £0.4 million on unwinding of discounts on deferred consideration payments for Harries.

9.   £0.4 million in other exceptional costs which primarily relate to non-cash balance sheet adjustments.

Interest and tax

Net finance costs in the year totalled £10.4 million (2021: £7.0 million) including associated interest on bank finance facilities, as well as interest on finance leases (including IFRS 16 adjustments) and hire purchase agreements.

A tax charge of £9.1 million (2021: £4.7 million) was recognised in the year, resulting in a tax charge on profitability generated from mineral extraction in the Channel Islands and profits generated through the Group's UK, Belgium and Nordic based operations.

Earnings per share

Basic EPS for the year was 4.89 pence (2021: loss of 1.89 pence) and Underlying basic EPS (adjusted for the non-underlying items mentioned above) for the year totalled 8.03 pence (2021: 5.37 pence).

Statement of financial position

Net assets at 31 December 2022 were £469.9 million (2021: £411.2 million). Net assets are underpinned by mineral resources, land and buildings and plant and machinery assets of the Group.

Cash flow

Cash generated by operations was £87.7 million (2021: £29.5 million). The Group spent £43.3 million on acquisitions net of cash acquired, £51.0 million on capital projects, raised £9.2 million through the disposal of surplus land holdings, and drew net borrowings of £5.8 million. The net result was a cash outflow for the year of £4 million.

Net debt

Net debt at 31 December 2022 was £193.8 million (2021: £164.0 million), and was refinanced on 15 July 2021.

Bank facilities

In July 2021 the Company entered a new Syndicated Senior Credit Facility of up to £405 million (the 'Debt Facilities') led by Santander UK and including several major UK and European banks. The Debt Facilities, which comprises a £205 million committed term facility, £100 million revolving credit facility and a further £100 million accordion option, provides the Group with further capacity and flexibility to support its ongoing buy-and-build strategy, as well as reducing like-for-like borrowing costs. 

The Group's Debt Facilities have a maturity date of 15 July 2026 and are subject to a variable interest rate based on SONIA/EURIBOR plus a margin depending on Underlying EBITDA. As at 31 December 2022, total undrawn facilities available to the Group via the new Debt Facilities amounted to approximately £173 million.

The Group's Debt Facilities are subject to covenants which are tested monthly and certified quarterly. These covenants are:

·      Group interest cover ratio set at a minimum of 4 times EBITDA; and

·      A maximum adjusted leverage ratio, which is the ratio of total net debt, including further borrowings such as deferred consideration, to adjusted EBITDA, of 3.25x in 2022. As at 31 December 2022, the Group comfortably complied with its bank facility covenants.

Capital Allocation

We prioritise the maintenance of a strong balance sheet and deploy our capital responsibly, allowing us to commit significant organic investment to our business whilst continuing to pursue acquisitions to accelerate our strategic development. This conservative approach to financial management will enable us to continue pursuing capital growth for our shareholders. 

Dividends

Subject to availability of distributable reserves, dividends will be paid to shareholders when the Directors believe it is appropriate and prudent to do so. The focus of the Group at this stage of its development will be on delivering capital growth for shareholders. The Directors therefore do not recommend the payment of a dividend for the year (31 December 2021: nil).

Post Balance Sheet event

Post 2022 close we have conducted a series of activities worthy of mention in this Annual Report.

This report was approved by the Board on 25 March 2023 and signed on its behalf.

Garth Palmer

Chief Financial Officer

ESG REPORT

SigmaRoc has and will always be committed to the principles of ESG. ESG encompasses a company's Environmental, Social and Governance aspects, however there is no global definition with each company and sector potentially having different focus priorities.

Following on from our 2021 annual report and standalone annual 2021 ESG Report, we continue to commit to reporting and disclosure of ESG and sustainability matters through frameworks such as TCFD and SASB. During 2022, we have extended our pledge by committing to Science Base Target Initiatives (SBTi).

1.1.  Frameworks

TCFD & SASB

The Group's ESG report has been guided using the principles of TCFD and SASB. Whilst TCFD recommendations serve as a global foundation for effective climate-related disclosures, in terms of disclosure, the Group has adopted, where possible, the SASB Construction Materials disclosure topics and accounting metrics.

SASB standards represent a clear solution to TCFD implementation having rigorously developed TCFD-aligned reporting tools to promote disclosures in a way that is both cost-effective and useful for all stakeholders.

As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to build on the industry-based SASB Standards and leverage SASB's industry-based approach to standards development and encourages preparers and investors to continue to provide full support for and to use the SASB Standards until IFRS Sustainability Disclosure Standards replace SASB Standards.

ISSB in 2022 published exposure drafts consolidating content from the TCFD, CDSB, SASB, Integrated Reporting, and WEF IBC's stakeholder capitalism metrics into a coherent whole with the intention to become the global standard-setter for sustainability disclosures for the financial markets.

The TCFD standards set out recommended disclosures structured under four core elements of how companies operate:

·      Governance - The organisation's governance around climate-related risks and opportunities;

·      Strategy - The actual and potential impacts of climate-related risks and opportunities for an organisation's businesses, strategy, and financial planning;

·      Risk Management - The processes used by the organisation to identify, assess, and manage climate-related risks; and

·      Metrics and Targets - The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

SBTi

Science-based targets provide a clearly defined pathway for companies to reduce greenhouse gas (GHG) emissions, helping prevent the worst impacts of climate change and future-proof business growth. They show organisations how much and how quickly they need to reduce their greenhouse gas (GHG) emissions.

Through the 2015 Paris Agreement, world governments committed to curbing global temperature rise to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C. In 2018, the Intergovernmental Panel on Climate Change warned that global warming must not exceed 1.5°C to avoid the impacts of climate change. To achieve this, global GHG emissions must halve by 2030 - and drop to net-zero by 2050.

Targets are considered 'science-based' if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement.

As we continue our commitment to net zero, SBTi is a global body enabling businesses to set ambitious emissions reductions targets in line with the latest climate science.

There are 5 stages of SBTi:

1.   Commit: Register online and submit a letter to commit to setting a science-based target, or to have existing targets independently verified.

2.   Develop a target: Develop target(s) in line with SBTi science-based criteria.

3.   Submit target for validation: Review of targets by SBTi team of technical experts to validate it against our science-based criteria.

4.   Announce target and inform stakeholders: SBTi will publish targets on their Companies Taking Action Page.

5.   Disclose progress: Disclose company's emissions annually and monitor progress on reaching target.

1.2.  ESG Road Map and Focus Areas

As a business our overall aim is to ensure sustainable returns to our shareholders. As a Group we are committed to ensuring this can be done in a manner where we minimise risks and seize opportunities so that our business continues to be strong in the years to come.

Our focus on returns to shareholders is through our 4i principles, all of which are underpinned by ESG.

Shareholder returns are an output of our inputs, which are our business model and ESG principles.

1.2.1.    Road Map to Net Zero

1.2.2.    Environment

1.2.3.    Social