SigmaRoc plc Interim Results

SigmaRoc plc/ EPIC: SRC / Market: AIM / Sector: Mining

13 September 2017

SigmaRoc plc ('SigmaRoc' or the 'Company')

Interim Results

SigmaRoc plc, the AIM listed buy-and-build construction materials group, announces its unaudited interim results for the six months ended 30 June 2017.  

Highlights:

* Operational results are stated before holding company costs, acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items. Operational results are presented as the closest comparable on a like-for-like basis with Ronez in 2016. References to an operational profit measure throughout this announcement are defined on this basis.

Acquisitions:

·      Successful acquisition of Ronez Limited ('Ronez'), the Channel Island construction materials producer in January for £45m;

·      Successful acquisition of a dry bulk carrier ship and the creation of SigmaGsy Limited ('SigmaGsy') shipping division in April 2017;

·      Santander Term facility of £18m secured in addition to £2m revolving credit facility;

·      Strong pipeline of target companies having reviewed 12 targets to date;

·      Several targets currently between exclusivity and early analysis;

Integration & operations:

·      Successful creation of back office infrastructure significantly ahead of time and budget;

·      Delivery of key operational improvements in H1 2017, leading to a 52.6% operational EBITDA increase versus H1 2016 on a like-for-like basis;

·      Successful launch of the Gold Card initiative for Safety and Operational reporting;

·      Creation of share save scheme for colleagues at Ronez and SigmaGsy;

David Barrett, Executive Chairman, commented:

"I am pleased to report a strong first half of 2017, with solid performances by both Ronez and SigmaGsy. This performance is all the more significant, given the challenges created by an ownership change, creation of a new back office and the addition of a new shipping division.

"I am also very pleased to see how our colleagues at Ronez have embraced their independence and helped us deliver these results. Ronez is, as we knew, a high quality business and an excellent example of SigmaRoc's operating model in practice; buying a local business and improving its ability to perform in highly localised markets.

"Looking ahead, to the rest of the year and beyond, the Company's prospects are positive. Demand for building materials in the Channel Islands, driven by several major projects, is expected to remain steady, while our efforts to find, acquire and improve local businesses has gained further momentum, now we have successfully integrated Ronez."

Max Vermorken, CEO, commented:

"The acquisition of Ronez and integration of our first business was a defining moment in our journey. The first half of this year was not without challenges, but the results to date show we are on track with the delivery of our strategy. As a team and as a business we are in a solid position to build on this first step and deliver further shareholder value, through future acquisitions and further operational improvement."

John Bowater, CFO and Deputy CEO of Aggregate Industries, commented:

"We are pleased to see that following the sale of Ronez to SigmaRoc, the transition of ownership has been smooth and successful. This is a real testimony to the ability of the team at SigmaRoc under the guidance of its Chairman and Chief Executive."

SigmaRoc will host a meeting for invited analysts at 9.00 a.m. today and there will be a simultaneous conference call. The slides for the conference call are available for download on the company's website.  Please contact Ed Orlebar at Temple Bar Advisory for dial-in details.

Enquiries:

CHAIRMAN'S STATEMENT

I would like to start by thanking all those shareholders who supported us in the acquisition of our first company in January of this year, whereby SigmaRoc was transformed from a cash shell into a new player in the European construction materials space. Through the acquisition of Ronez, the Channel Islands subsidiary of Aggregate Industries Limited ('AIL'), we have created a solid platform for a buy and build strategy in the construction materials sector.

I am pleased to report that we have completed a successful first half of the year and that we expect progress to continue in the second half of 2017. We made significant progress in setting SigmaRoc up for future success and several key milestones needed to be achieved in order to deliver the strong trading performance we have recorded in the first half of the year.

Key milestones:

With Ronez, we acquired a good business with strong staff and management but without its own back office, bulk materials trading capabilities, or a sustained focus on operational excellence. Therefore, the first six months of operations had to be focused on the following five key areas:

-     Reinforcing the highest health and safety standards throughout the company;

-     Motivating the staff and management at Ronez to operate as a standalone business;

-     Building the required back office infrastructure and front office processes;

-     Creating the right bulk trading and shipping capabilities; and

-     Ensuring all business improvement efforts were made to drive performance.

I am pleased to report that all five milestones have been achieved. Health and safety policies were successfully reinforced and the business continues to have an excellent safety record. Both staff and management have enthusiastically embraced the new reality of being an independent business with a strong local identity. An employee share save scheme has now been created, giving all of our colleagues the opportunity to share in the success of the business.

However, the most challenging hurdle we faced in the first half of this year was the creation of a complete new back office infrastructure. Prior to completion of the acquisition of Ronez, all of its back-office functions were managed centrally at AIL's headquarters. In less than six months, our CEO, Max Vermorken, and his teams at both SigmaRoc and Ronez, led the selection, design and implementation of a complete back office infrastructure, without disruption to the business, or impact on customers and suppliers. This is a significant achievement, which has quickly and efficiently mitigated what was a considerable potential risk to the business following the acquisition of Ronez.

Simultaneously, we created a new division and company, specifically dedicated to the bulk trading and shipping of cement and related powders around Northern European waters. The division serves both our own needs, as well as the powder requirements of several partners. The creation of this division also allowed us to take a fresh look at our performance and start the implementation of several improvement programmes, which are already showing benefits.

Business performance:

The performance of the business in the first half has been good. Demand in Jersey remained in line with expectations, with some improvement in trading, seen towards the end of last year, continuing into 2017. The roadworks programme, planned for the first half of the year, drove volumes in asphalt and aggregates. Housebuilding was also in line with expectations, underpinning volumes in ready-mixed concrete, while the concrete blocks market has been weaker. On balance, however, the Jersey market appears to have retained its momentum. 

In Guernsey, demand remained well below historical levels. A slowdown in road maintenance works over the past years has had a knock-on effect through lower asphalt and aggregate demand. Delays in several major projects have led to lower ready-mixed concrete volumes than had been anticipated. The demand for concrete blocks remained below historical levels, similar to the conditions observed in Jersey.

Despite the slow market in Guernsey, Ronez, and our bulk shipping and trading arm, SigmaGsy, both recorded a strong performance, reaching, in aggregate, £13.1m in revenue and £2.9m operational EBITDA in H1 2017. This improvement is clear testimony of our ability to capitalise on slightly improved trading conditions, drive operational improvements and seize opportunities in shipping and trading to complement our business.  

Outlook for the Channel Islands in the second half of 2017:

The second half of the year looks to continue the trends set in the first half on both islands. Several projects which have been in the planning stage for an extended period in Jersey are now expected to proceed. Whilst the exact timetable still remains to be confirmed, such projects are in general, good news for the business, whether they commence this year or next. The road works programme is expected to slow down in H2 2017. However, the Department for Infrastructure of Jersey has indicated further work on Jersey's roads will commence in 2018.

The picture of the past two years in Guernsey seems to be improving. The long-planned waste transfer station will now be built, and further investment in the road network next year should lead to increased demand for asphalt and road stone. The improved pipeline from the Guernsey Housing Association as well as projects such as Oatlands will help drive demand for building products in Guernsey to levels closer to the historic norm.

This backdrop of cautious optimism should also have positive effects on the performance of SigmaGsy. The acquired bulk carrier ship continues to perform well and has been active in northern European waters. The forecast for the second half is good. As long as the current expected pipeline and delivery timeframes remain on schedule, we should see this translate into positive results for the business. All these elements give us comfort regarding the performance of the business.

Outlook for SigmaRoc for 2017 and beyond:

The remainder of 2017 and into 2018 looks positive for both SigmaRoc and the businesses it has acquired. SigmaRoc is also well advanced with a solid pipeline of potential acquisitions. Our criteria are well defined, ensuring the businesses we acquire have those characteristics that will allow us to deliver shareholder value. In 2017 to date we have reviewed 12 companies, a number of which are in various stages of due diligence varying between exclusivity and initial analysis.

To conclude, SigmaRoc is in a strong position, underpinned by solid, cash generative businesses and an AIM quoted platform. The Board and management team are presently leveraging their knowledge of the construction materials industry to further deliver on their buy and build strategy. As the year progresses, we will continue to keep the market informed of our advancements. Acquisitions remain challenging processes with many variables. We believe SigmaRoc will become a unique success story and our progress to date strongly supports that belief.

David Barrett

Executive Chairman

12 September 2017

CEO'S STATEMENT

We started SigmaRoc just over a year ago, with the ambition to derive value from a simple observation; construction materials are a local product, delivered to local markets and its producers should therefore be run like local businesses. I would like to echo David's gratitude to all investors who backed this vision, and I believe the results posted today demonstrate that the vision we have set out can indeed lead to success both from a strategic and an operational perspective. 

Overview of the business:

To date, our business has been focussed around two markets. Firstly, the Channel Islands of Jersey and Guernsey, where we operate two aggregates quarries, two ready-mixed concrete plants, two asphalt plants, two concrete products factories and two contracting divisions. Secondly, we operate in the market of bulk cement shipping, around the Northern European waters, utilising our dry bulk powder carrier effectively. Both these markets are highly localised and require specialist focus and knowledge.

Ultimately, that focus and knowledge resides with our people, and we have been fortunate to attract significant talent to the SigmaRoc team and to find a driven and motivated workforce at both of the businesses we currently operate. The management team in place has effectively taken up the challenge of operating on a standalone basis, without the assistance of a large corporate, delivering excellent business performance, while dealing with significant distractions from hand-over projects.

Safety first:

Unfortunately, the broader construction industry continues to experience accidents and SigmaRoc's first priority is the safety of its employees. As a team, we have focused on embedding the highest safety standards to ensure all our colleagues return home safely every night. Our safety record continues to be excellent, driven by the resolve of our colleagues to follow safety protocol.

As part of this continued focus on safety, we have introduced a simple new tool, the Gold Card. All members of staff now carry Gold Cards, which allow them to communicate issues, ideas, solutions and improvements that they feel the business should consider. Consequently, not only are we actively and constantly seeking to improve the Group's performance, it has also dramatically increased the number of safety discussions and our awareness of possible risks. One person in particular, Mark de Carteret, at Ronez, deserves specific mention for driving this initiative and turning it into a real success.

Transitional Service Agreements:

We faced a significant set of challenges in decoupling the business from its former parent, AIL. Whilst administrative in nature, this was not a trivial task, as Ronez was fully integrated within AIL's back office operating structure. However, the integration was not simply in respect of the back office, which I comment on specifically below, but also sourcing, procurement, financing facilities and bank mandates, which were all managed and coordinated from the AIL headquarters.

Under the leadership of our Technical Director, Charles Trigg, and our CFO, Garth Palmer, the required structures and systems were put in place efficiently and smoothly to ensure the continuity of the business. The success and speed of this complex transition was significant and impressive.

Back office integration:

A key achievement in the first half of the year has been the establishment of the required back office infrastructure to run, not only Ronez, but also SigmaGsy, and we are now in the position to quickly integrate further acquisitions by SigmaRoc, as and when appropriate. The process involved the decoupling of the Ronez business from AIL, which had been supplying all back-office functions including IT, payroll, credit control, HR, legal and many more.

Under the guidance of Charles Trigg, the Ronez team selected, designed, built and implemented all back-office functionalities in less than six months. The transfer was smooth; not interrupting the business or impacting our customers. The resilience of the team at Ronez, in particular Tim Le Cras and Chris Collins, was outstanding and the business presently runs as a stand-alone and self-sufficient entity under the capable local leadership of Mike Osborne (Managing Director of Ronez) and Steve Roussel (General Manager of Ronez in Guernsey).

Business performance:

Even while the SigmaRoc and Ronez management teams were significantly preoccupied with fully integrating the new business, the acquisition of the dry bulk carrier, the creation of a trading division and the entire back-office infrastructure, the business itself performed well operationally and commercially. In H1 2017, the Group generated £13.1m in revenue and an operational EBITDA of £2.9m, which are excellent results in general and in particular when compared with H1 2016.

Several drivers explain the progress made and the improvement in profitability we have been able to achieve following completion of the acquisition of Ronez. It is clear that we have seen some increase in local demand, helping to secure higher volumes for the business. Jersey's road maintenance programme was active in the first half of this year and is expected to pick up again in 2018. House building and major projects are also showing positive signs with long awaited projects, such as the new hospital, now on track to be commenced in 2019. This helps us to secure a positive pipeline of business in the near future.

Guernsey has had a number of slower years recently, leading to lagging volumes compared to expected or historical trends. The commercial and infrastructure developments have been less extensive than in the past, as have the housebuilding and major project programmes. In a volume dependent business like ours, such a slowdown in demand does impact EBITDA negatively.

However, we have received some encouraging signals for the remainder of 2017 and into 2018. Some long awaited projects are now starting and further projects are expected to be coming on stream, leading to a positive outlook for the remainder of this year and into next year. Clearly, the major variable which will impact the full year 2017 results will be the timing of these anticipated projects and, if they proceed, whether they fall within this calendar year or within the next.

The first half of this year has also been characterised by a focus on the operational performance of the business and improvements that could be made. In parallel to the creation of the required back office infrastructure, an overhaul of the front office and selling processes has helped us deliver results. Better sourcing and procurement, a review of the reporting load as well as further operational excellence initiatives have been implemented to underpin future performance.

Employee share save scheme:

Since the start of our journey we have emphasised to local management that they are now in charge of their own destiny. Unlike global majors with a global agenda, we have a local agenda focused on local markets. We therefore want to give our colleagues at Ronez and SigmaGsy the opportunity to be part of the financial success of the business through a share ownership programme.

Those colleagues who have elected to participate in the scheme will be able to benefit from improved efficiencies and other acquisitions by the Company and take part in any uplift in the share price while becoming co-owners of the business they work in. We were pleased to see that a significant proportion of our colleagues have decided to take part in this initiative. The scheme will, in the future, be extended to other member companies of SigmaRoc.

Outlook:

The first six months of this year were, in many ways, a test of our ability, our strategy and also of our team. The results to date are testimony to the success of all three. The remainder of this year we will continue to focus on delivering further shareholder value from solid operational performance and the addition of value accretive businesses.

Looking to SigmaGsy and Ronez, the project pipelines in both islands show signs of improvement and we have received indications that several infrastructure projects that are key to demand for construction materials on the Channel Islands will materialise. The stable market background provides a good base from which operational improvement initiatives can continue to be implemented.

At Group level, the quick and efficient integration of Ronez has been a success. We have sufficient management expertise and capacity to review multiple targets in a relatively short space of time. We are currently in advanced stages of review of several further value accretive targets, ranging from exclusivity to initial stages of analysis. The timing of acquisitions is typically decided by the vendor but we believe we have positioned ourselves well to uncover and, where necessary, compete for opportunities as they become available. We look forward to updating the market at the appropriate time when any of these initiatives move forward.

Max Vermorken

CEO

12 September 2017

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