SigmaRoc plc Exceed expectations in full year results

SigmaRoc plc (LON:SRC), the AIM listed buy-and-build construction materials group, has today announced its audited results for the year ended 31 December 2017.

1 Underlying results are stated before acquisition related expenses, certain finance costs, share option expense and warranty & indemnity insurance. References to an underlying profit measure throughout this Annual Report are defined on this basis.

Highlights

* Targeted improvements exceeded: 37% EBITDA2 uplift on 11% sales growth

* Platform for growth established: four acquisitions in first year across two clusters

* Solid asset backing confirmed: £41m Ronez asset valuation up from £22m

* Ronez drill results successful: Expected quarry life of 40 years

* Employee engagement strengthened: delivered Lost Time Injury free year

* Overall execution of strategy successful: Group ready for further growth

2 Year on year unaudited operational improvements when comparing Ronez unlevered operational results for 31/12/2016 with unlevered operational results (operational results exclude parent Company) of the Group for 31/12/2017.

David Barrett, Executive Chairman, commented: “I am pleased to report a strong year in 2017 where we were able to exceed our expectations and build a solid platform from which to continue to deliver on our growth strategy.”

“We successfully integrated our Channel Islands cluster. With the launch of the trading business and by applying our operational expertise, we were able to deliver a 37% uplift in EBITDA2 from the cluster compared to the previous year. That highlights the value we are able to create from purchased assets and I look forward to updating the market at the appropriate time on the further development of our acquisition pipeline.”

“I am pleased with the progress of developing our UK specialist concrete business with our two acquisitions late last year. We expect these businesses to contribute to further profit development in 2018. I look forward with confidence and have every expectation of making further substantial progress this year.”

Max Vermorken, SigmaRoc plc CEO, commented: “Our strategy is performing well, having completed the first four months of 2018 with Group sales on target. The upward revaluation of our Channel Islands fixed assets, together with the freehold land in our UK precast cluster, shows the strong asset backing underpinning our business. This provides a strong platform from which to grow and we look forward to further development in 2018.”

SigmaRoc will host a meeting for analysts at 9.30am today at Berenberg, 60 Threadneedle Street London EC2R 8HP. Please email [email protected] to arrange attendance. Conference call dial-in details are available upon request. A recording will also be available on request.

CHAIRMAN’S STATEMENT

Having completed a first full financial year as SigmaRoc plc (the ‘Company’) and its subsidiary undertakings (which together comprise the ‘Group’ or ‘SigmaRoc’), I am proud to present the results achieved for the year ended 31 December 2017, the culmination of significant work by all in the Group. I would like to thank all SigmaRoc shareholders for their valuable support.

During the year, we successfully integrated our first cluster in the Channel Islands and proceeded to exceed the financial targets we had set. SigmaRoc acquired two further businesses, creating a new cluster of activity in the UK and providing a solid base from which to grow further. We are only at the start of this journey and see significant further opportunities to capture and create value for our employees, customers, shareholders and local communities. Health and safety is a priority for the Group and we are pleased to have completed the full year with both an excellent track record in this regard and a culture which we expect to continue.

The highlight of the year was the development of the Channel Islands cluster, integrating Ronez Limited (‘Ronez’) with the newly established shipping division, involving the incorporation of SigmaGsy Limited (‘SigmaGsy’), which acquired highly specific equipment including a dedicated bulk cement carrier (‘MV Ronez’). This was a complex operation, requiring the creation of the full back office infrastructure necessary to manage an integrated materials business.

We have also made significant progress to strengthen the Ronez business for the future. A drill campaign in Guernsey proved the viability of the planned new quarry at Chouet, while the planned quarry extension at Jersey is ongoing. Both schemes ensure that SigmaRoc’s reserves in the Channel Islands are sufficient to last approximately another 40 years at the current levels of demand. We are also in the process of replacing and relocating the Jersey ready mix plant to ensure we can meet an expected increase in demand generated by a series of projects, including the proposed new hospital in Jersey.

Despite positive results for the Channel Islands cluster as a whole, with an 11% year-on-year sales increase, trading conditions across the Channel Islands remained only slightly above historical averages. Yet we are very pleased to report a solid underlying EBITDA performance of £5.5 million on £27.1 million revenue. This marked improvement year-on-year was primarily driven by our practice of operating local businesses as clusters, structured to best serve their local markets, provide a differentiated customer proposition and delivering cost efficiencies and profitability improvements. Furthermore, as management assessed during the purchase process, marking to market of Ronez’s fixed assets resulted in a substantial increase in book valuation and minimal goodwill. This is testament to the good purchase price the Group was able to achieve for its first investment.

I would also like to highlight the solid health and safety performance achieved throughout 2017. We recorded a full year without recording a single Lost Time Injury. This a real testament to the workforce and management across the Group, who have resolutely focused on, and implemented, group safety initiatives. This remains a priority at every level of the Group as we continue to target Zero Harm and ongoing safety improvements.

While delivering improvements in our Channel Islands cluster, we did not forget that significant value creation at SigmaRoc lies with further consolidation of the fundamentally fragmented market of construction materials. We made an opening move in the UK in the second half of 2017 with the acquisition of Allen Concrete in October 2017 and subsequently, Poundfield Products (Group) Limited (‘PPGL’), in December 2017. Both businesses are active in the precast and prestressed concrete sector, which we have identified as a value-added defensible product sector. They complement each other in terms of production location, product portfolio and skillset. Additionally, their combination and possible future expansion presents further opportunities for the Group.

The Group’s overall net debt position only increased to £11.8 million following strong cash generation, allowing us to grow the business significantly and leaving the Group in a good leverage position. We expect the Group as it is today to be nearer its long term targeted net debt to EBITDA ratio of 1x by the end of this year.

The Board therefore believes that the outlook for the Group is very good. The markets in the Channel Islands are performing as expected. Jersey remains on trend with an increase in public expenditure on road networks, sea defences and other infrastructure. In Guernsey, after a number of subdued years, we are seeing volumes slightly up in 2018. The trend remains below some of its historically stronger years and we see potential for continued recovery over time. The shipping division launched last year remains a strong performer and continues to contribute strategically and to the overall performance of the Channel Island cluster.

In mainland UK, work to integrate the precast cluster is ongoing, following a similar path to the Channel Islands business in H1 2017. Strengthening operational and commercial efforts where our Group’s expertise can bring benefits is key, with our industry leading health and safety standards being a priority. Our efforts have already generated tangible improvement, with the cluster delivering a solid revenue performance in the first quarter of 2018.

Looking further ahead it is evident that the value we create for shareholders lies in the identification, acquisition and integration of local businesses into local clusters which run at a high operational standard. The resources and management capacity required to pursue this process and deliver acquisitive growth is in place within the Group and we are pleased with the progress made towards delivering on our acquisition pipeline this year. The number of opportunities both in the UK and in selected European countries is encouraging and we remain disciplined in our selection and appraisal of target companies in line with our strategy.

We have every expectation of making further progress this year.

David Barrett

Executive Chairman

18 May 2018

CEO’S STATEMENT

Some seventeen months ago we launched SigmaRoc plc as a buy-and-build construction materials company, to drive shareholder value by creating clusters of connected and compatible quality businesses focused on their local and regional markets. Our 2017 results show we are delivering on our strategy having met our targets and I see plenty of opportunity ahead to build SigmaRoc into a significant operator in the construction materials sector. The review of 2017 below provides some colour to the achievements in our first full year and to what may lie ahead.

Review of business

On 5 January 2017 SigmaRoc completed its first acquisition, taking ownership of Ronez for approximately £45 million, in conjunction with raising approximately £50 million via the placing of 100 million new ordinary shares of one penny each in the capital of the Company (‘Ordinary Shares’) at a price of 40 pence per share and 10 million convertible loan notes at a price of £1 per note.

Ronez is a fully integrated producer of construction materials and operates two hard rock quarries and multiple associated business lines with production units across Jersey and Guernsey (the ‘Islands’). Ronez provided the Group with a profitable and cash-generative base for the first cluster in the Channel Islands, from which to further execute upon its business plan.

The first half of 2017 was primarily focussed on successfully transitioning ownership, management and administration of Ronez into SigmaRoc and ensuring its continued operational and financial performance. This was a complex process requiring a calve-out from the seller and creation of new back office infrastructure for a fully integrated business, all the while continuing to service our customers and markets seamlessly. SigmaRoc and Ronez worked closely together to implement the change-over as expeditiously as the Board could have hoped and without disruption to the business. The strong financial results we publish today are a testimony to the success of this project.

Locking in synergies was a priority, which was aided by the launch of the SigmaGsy shipping division and acquisition of MV Ronez. The combination of these businesses under one management structure allowed us to deliver on the targeted financial improvement, at the same time as offering new services to the local market and local customers.

A further focus was the ongoing work to secure the long-term future of the Channel Islands business by developing new mineral resources which are of strategic importance to the Channel Islands and investing in capacity of required products. We committed to replace the Ready Mix concrete plant in Jersey and invested in our road contracting divisions.

A drilling programme has been undertaken on the historical quarry located in the Chouet Headland in Guernsey, to confirm the quality of this strategic mineral resource. The exploration involved five cored holes to prove the quality of the deposit, and 10 open holes that have been used to determine the depth of overburden across the proposed development. This assessment of the reserves has confirmed that the quantity of overburden is consistent with previous estimates and that, subject to satisfactory geotechnical conditions during extraction, up to 4.5 million tonnes of diorite and granodiorite aggregate is confirmed for potential extraction during the lifetime of the quarry. The draft development framework document for the future Chouet Quarry is being prepared for consideration by the Development and Planning Authority of the States of Guernsey and, subject to their approval, could be adopted during 2018.

The second half of 2017 was focused on the creation of a second, precast and prestressed concrete product cluster, which currently has operations in East Anglia and South East England. It became evident to us that an opportunity existed in the creation of a cluster focused on precast and prestressed concrete products, targeting the higher margin subset of that market. A first step in that direction was made through the acquisition of Topcrete Limited (‘Topcrete’) on 18 October 2017 for £12.5 million (net of cash acquired and repatriated to the vendors of Topcrete), comprising £9.0 million initial cash consideration and £3.5 million deferred cash consideration. Topcrete, via its wholly owned subsidiary Allen (Concrete) Limited (‘Allen Concrete’), provides specialist wetcast concrete products in London and the Midlands.

In December 2017, the Group acquired PPGL for £10.25 million, comprising £9.5 million initial cash consideration and £0.75 million deferred consideration, payable by the issue of new Ordinary Shares to the vendor of PPGL. The initial cash consideration was funded by was of a placing of 34 million new Ordinary Shares at a price of 41 pence per share, raising in aggregate £13.94 million. PPGL, via its wholly owned subsidiary Poundfield Products Limited (‘Poundfield’), provides specialised patented concrete products and systems within the United Kingdom specialising in complex infrastructure projects and retaining wall systems.

With the acquisition of these two businesses, SigmaRoc is now well positioned in the UK market for precast and prestressed products, targeting the industrial and agricultural sectors, as well as housing and specialist infrastructure projects. Both companies are heavily asset backed with significant land holdings and intellectual property in the form of patents and trademarks, making these businesses an ideal fit within the SigmaRoc business model. This cluster has the potential to be extended further to ensure better regional and/or product coverage, while the SigmaRoc team is focused on the integration of both businesses to drive synergies.

The results and progress delivered to date would not have been possible without the help and dedication of the circa 225 employees in the Group today. Some have been with their respective businesses for nearly 50 years, others joined recently, yet all have shown dedication and commitment to making their business a better place to work. Our safety record to date and the improvements achieved on that front are clear evidence of this.

Trading summary

Last year started positively with renewed confidence in the local markets of Jersey and Guernsey. Several housing and commercial projects commenced and volumes picked up in both Islands. In particular, the contracting division in Jersey was able to put in a stronger performance on the back of various road schemes. Several operational and procurement initiatives also started to take effect leading to a stronger first half in terms of profitability and operational EBITDA.

The second half of the year remained on trend, delivering a performance in line with the Board’s expectations, yet Guernsey continued to perform below long term trends. A major waste management project in Guernsey was started in the year however delays mean a shift into 2018 of key volumes. Overall, the Channel Islands cluster performed well, delivering £26 million in revenue, representing an increase of 11% compared to 2016.

The timing of the Allen Concrete and Poundfield acquisitions in 2017 means their full impact will become apparent in 2018. In 2017, they contributed £1.1 million to revenues.

Group underlying EBITDA performance was strong, delivering £5.5 million, well ahead of Ronez’s performance of 2016, yet incurring for the first time the full overheads attributable to standalone back office functions, as well as the full overhead of a quoted company. Our commitment to ensure shareholder value driven by structural changes to the Channel Islands cluster would at least equate to the overheads required to run a publicly quoted company was achieved.

As a Group we generated a full year underlying net profit after tax of nearly £2.1 million equating to an earnings per share of 2.02p. Total capital expenditure (‘Capex’) was £1.7 million, relatively limited when compared to total depreciation charge. This figure includes the investment in MV Ronez, as well as the mandatory drydock and special survey, which declared the ship to be in good condition with another decade of operating life. Group working capital increased £3.3m mainly as a result of consolidating the full balance sheet value of our UK acquisitions late in the year. Despite these, underlying Group cash flow from operations of £1.4m highlights the cash generating ability of the group.

We were very pleased with the result of the post-acquisition Purchase Price Allocation (‘PPA’) to assess the fair value of the Ronez assets. When acquired, the book value of Ronez’s net assets was approximately £22 million. As management evaluated, the PPA process revalued the Ronez assets upward by £19 million to £41 million, leaving a residual goodwill of only £4 million. This is a real testimony to the quality of the business purchased. When combined with the fact that the freehold land assets in our UK precast cluster were valued at over £6.5 million, we are confident in the solid asset backing of the businesses purchased.

Strategic approach and outlook

We follow a strategy of building clusters of local and complementary businesses to deliver shareholder value from synergies, operational improvement and competitive advantage. We target assets which deliver a value proposition to customers and have local market presence resulting in improved margins which also have hard asset backing. The income stream is diversified and supported by quality assets that produce aggregates, concrete, precast and prestressed concrete and related products and services.

To date, our strategy is performing well, having completed the first four months of 2018 with Group sales on target, we look forward to further expansion across the year. Poor weather in February and March 2018 affected our product mix, however the diversified portfolio and asset base allowed us to maintain sales in both clusters.

Looking further ahead we, were pleased to announce that we closed a partnership with Tarmac Limited (‘Tarmac’), the leading construction materials supplier in the UK for the production of one of our major retaining wall products, the ShuttablocTM system. This partnership will give us exposure to larger scale contracts while freeing us to focus on the core products manufactured at Poundfield.

We are also very pleased with the progress made in delivering on our acquisition pipeline. We continue to see opportunity to expand our operations and footprint through the acquisition, integration and development of high quality local businesses. We see a continued flow of opportunities at attractive prices, which allows us to be selective in determining our next move. We maintain our philosophy that local businesses in our sector are fundamentally better, with strong local branding, that can be built upon as part of a group with management, sales, operational and commercial expertise offering a superior customer proposition.

Overall, we remain optimistic about the future and of achieving further progress in 2018.

Events after the reporting period

A partnership agreement was signed with Tarmac, the UK’s leading construction materials group, for the production and commercialisation of Poundfield’s Shuttabloc retaining wall system. We believe Tarmac has the required installation capacity and resources to ensure the success of the product nationwide.

This report was approved by the Board on 18 May 2018.

Max Vermorken,

CEO