Page 20 - Sigmaroc Annual-Report 2023

SIGMAROC ANNUAL REPORT 2023
CEO’s strategic report
This statement aims to provide additional context on the year that just closed, the steps taken, and how these steps now set the Group up for chapter two of its journey. We are now poised to focus on integrating our diverse operations into a synergistic whole, a compounding value creator, a driver of innovation, a leader in the sector, and hopefully the envy of the industrial minerals space.
FINANCIAL PERFORMANCE
The Group again delivered a strong performance against very challenging market conditions in 2023, a testament to the diversification and quality of the business, as well as the skill in execution of our team. Group revenue increased to £580m, a 2% LFL increase. Underlying EBITDA increased to £117m, an increase of 10% LFL.
Underlying profit after tax increased to £58.8m, translating into underlying EPS of 8.12p, representing a 1% increase YoY. This evolution is very pleasing as the senior debt finance costs more than doubled between 2022 and 2023, reflecting rising interest rates. Tax expense increased also, from 15% to 17% of profit before tax, as some carry forward losses were used up in prior periods. The ability of the Group to deliver another year of underlying EPS growth is an enormous testament to the hard work of so many, in particular those seldomly mentioned in our annual report, our machine and plant operators, quarry staff and sales representatives who all look for ideas to improve the performance of the Group.
Considering this performance on a more granular level, the Group performed particularly well given some of the local trading conditions. Overall volumes were down, as was to be expected, but by only 4% LFL, a modest drop when considering an average European construction output slowdown of 1.7% with 1.6% in the UK.1 The largest impact on volumes was therefore within the construction segment, particularly newbuild housing, where much action was taken early in the year.
Industrial performance was overall in line with our expectations, for a year without volume growth on the back of overstocking in the paper segment, and a reduction in demand for some chemical applications. These lower volumes were compensated for by robust continued demand in steel, environmental and infrastructure projects.
Considering these trends on a regional basis, our North West Region, comprising mostly construction materials businesses including more commodity-like products, had several challenging months to endure as they actively shifted focus from residential to infrastructure projects. Much progress was made to upscale the precast products. The integrated businesses in Wales and the Channel Islands delivered a strong year, despite several contractor bankruptcies in Jersey created disruption in this market. As a result, the North West Region recorded a LFL decrease in revenues of 1%, against a LFL decline in volumes of 8% and LFL underlying EBITDA improvement of 1%.
The West Region also delivered a solid performance across its two platforms, Dimension Stone and Benelux. Initiatives taken in 2022, commercially and within production, helped
STRATEGIC REPORT
1.Global consulting firm
Dimension Stone trade successfully through a challenging market, assisted by additional infrastructure work and overseas sales. The aggregates and concrete businesses both had good years, despite increased monthly volume volatility. West Region volumes decreased by 8% LFL, delivering overall revenues of €114m, a LFL decrease of 7%. In spite of the difficult trading conditions, the West Region was able effectively to manage its cost base and increase underlying EBITDA by 15% LFL, achieving a 473bps improvement in underlying EBITDA margin in the process. The new businesses in the Limburg Region and on the southern border of Belgium performed well, delivering more than expected in their first partial year of ownership.
Our North East Region had a great year delivering on all strategic and financial priorities. The restructure announced at the end of 2022 helped deliver a more agile organisation, able to capture more value via commercial and operational initiatives. Revenues increased to €390m, a 3% LFL increase, on volumes down 3% LFL, driven mainly by weaker residential construction demand in the Nordics which has relatively low impact on profitability. The Lime, Poland and the Baltic businesses performed strongly, translating into a 12% LFL increase in underlying EBITDA and a 179bps improvement in underlying EBITDA margin.
STRATEGIC DEVELOPMENT
2023 marked an exceptionally dynamic year in our Group’s history. At the end of 2022 we had identified several acquisition and investment opportunities that were available at depressed valuations, due to macro- economic uncertainty. This pipeline of bolt-on acquisitions consolidated our positions in Sweden, Finland, the Baltic states, Benelux and the UK, expanding our Group in terms of geography and product range in a year where volume growth was likely to be extremely challenging.
As we embarked on integrating these bolt-on acquisitions, our focus shifted to an opportunity that has been a long-held ambition of the Group – the acquisition of CRH’s lime and industrial limestone assets. These very significant assets, known for their operational efficiency and value, presented a complex acquisition proposition, especially in a transaction climate that appeared less favourable.
Notwithstanding the backdrop, our evaluation of the transaction was very clear and came from two perspectives: firstly, its financial viability, considering immediate and long-term earnings growth and our ability to achieve and maintain target ROIC levels; and secondly, the strategic value in elevating our status, not merely as a participant in the lime and limestone sector, but as a principal producer of these essential materials in Northern Europe.
What followed were months of work by a small but dedicated team to deliver a transaction which if completed in full, would see our Group double in size and establish itself as Europe’s second largest producer by volume of a critical industrial and construction mineral. The project was ambitious and extremely challenging given its scale and structure.
It required a significant scale up in debt facilities which our