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213. Bull, Bear & Beyond – SigmaRoc: executive interview
17 Plays1 day ago
In this interview, CEO Max Vermorken provides an overview of SigmaRoc’s activities, products and strategic position within the industrial materials value chain, before exploring the company’s transition from integration to scale. The discussion focuses on recent operational progress, portfolio and plant-network optimisation, margin durability, capital allocation following refinancing, and the key market and policy tailwinds that could support future demand, including infrastructure, steel, defence and European re-industrialisation.
SigmaRoc is a specialised quarried materials group that invests in both new and existing construction material assets in the UK and Northern Europe. The extracted low- and high-grade materials are sold for use in agriculture, construction, environmental and industrial applications.
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Transcript
Introduction and Company Overview
00:00:07
Speaker
Today I'm joined by Max Vermorken, CEO of Sigma Rock. Welcome, Max. Thanks for having us. So for those who don't know Sigma Rock, could you give us a sort of high level overview of what the company's products are and whereabouts you sit in the industrial ecosystem of value chain? Yeah, yeah, absolutely. So we're a minerals business out of Europe.
00:00:25
Speaker
ah The focus of our mineral is limestone. now most people will actually know what limestone is but not realize that they do. So pyramids, big monuments are all built out of limestone. It's a fantastic building product.
00:00:37
Speaker
The feature that it has is if you grind it down or if you heat it up, it becomes a chemical. And then it finds its way into basically everything you touch and do on a daily basis.
Integration and Growth Strategy
00:00:46
Speaker
Steel, metal, ah glass, ceramics, toothpaste, medical medication, tablets. All of that is based on some form of limestone and lime.
00:00:55
Speaker
and we make those products not the products themselves but the fillers the powders that go into that out of 50 plus quarries across europe and then out of another 50 or so production plants in 15 countries um it's an essential product it is really relatively unknown and it's a tiny input into big industrial processes and so sometimes you could say that you need oxygen and water to live you i always say you need to have some limestone to live comfortably The equity story of Sigmarog is kind of split into two separate parts the minute. You've gone through an integration phase which is recently complete and now, you mentioned in the most recent results, the companies are ready to scale.
Asset Acquisition Impact
00:01:35
Speaker
What have you done in the last 12 to 18 months to get through that integration phase and why do you believe the companies are ready to take that next scale of growth? Yeah, yeah. So the big event that happened in 2024, beginning 24, was the acquisition of a whole series of assets out of the CRH Groups, Fantastic Cement Group. and And that allowed us as a small limestone player to basically become one of the larger operators in this sector in Europe. So there's another bigger one than us, Loast, and there's a few smaller ones. We have a really good space there and that integration work was quite ah quite a big job. and It took us the best part of 24 and part of 25 to get all these various components of a billion euro deal, if you take it all together, to function. In extract synergies, 40 million odd of synergies, all that's now complete. So we have now a very well integrated, well set up business that can now take advantage of this platform, of its energy, of its scale, of its people to expand.
Volume Strategy and Market Alignment
00:02:28
Speaker
And that expansion is mostly acquisition work.
00:02:33
Speaker
There's lots of smaller players around the market that we can buy, that we can fit into our group. some organic, organic in terms of volume growth, organic in terms of plant build. So those two facts. So we really made in our results, we said, you know, look backwards and you'll see integration and synergy delivery. Look forwards, you'll see M&A and growth.
00:02:50
Speaker
In the F25 results, you spoke about the fact that a lot of the volume decrease was deliberate. What were some of the reasons behind this? And as sort of markets start to recover, what level of volume would you want to regain or are you kind of happy with the more sort of solid product mix? Yeah. So um we did flag about a million and a half tons of volume reduction and and you you correctly state this was deliberate. um Limestone quarries, they're fairly abundant, but the higher grade quality that we have is also quite rare. And so from our perspective, have a margin strategy. We want to sell that material well. You can only sell it once. you have to extract There's a whole bunch of cost goes into it. You can sell it once.
00:03:33
Speaker
And so some volumes which just made no sense for us at all to sell because you were using a high-grade pristine material as a fill, basement fills in a construction project. Makes no sense. There's that. There's also some plants that were just in the wrong place if you combine two big groups together as we did with the CRH deal. And then it suddenly becomes redundant to have that location still running. So those were shut down and you automatically lose some volume. So that was basically the logic. If you look forward and we did some analysis with a big consulting group on this, we'd be quite happy with a percent and a half volume growth CAGR, that is over the next five or so years. um That would recognize some of the growth, the sort of the comeback of construction. It would recognize now some of the
00:04:16
Speaker
protection that Europe now puts on its own industry, steel and other and other industries, minerals, mining. So if we see that percent and a half over the so over the years to come, we'd be very happy.
Financial Performance and Outlook
00:04:25
Speaker
2025 was a strong profit year for Sigma Rot. You kind of had an EBITDA margin of about 25% or half percent, despite a softer underlying demand.
00:04:34
Speaker
How was your outlook on the durability of these de demandt of these margins, or is the company now just at a higher profit margin? Yeah, so there's ah there's two answers to that. So on the one hand, we did an enormous amount of work on our cost base.
00:04:48
Speaker
um And so the cost base, we took 40 odd million of of cost added up out of the group across the year 25, which is a fairly big number on 250 odd EBITDA. um And so that cost basis obviously meant that the margins go up. Now, as we recover, hopefully with some extra volume growth, the drop through of those new tons will be at a higher margin than our 25%. So you could see just that adding margin further, right? So you will see the margin go further up. Now, there's obviously cost pressures always that we need to manage. manage For example, oil is is clearly more expensive, energy inputs are more expensive, labor typically goes up, there's inflation. So those things we also need to manage through the cost base going forward. We typically do that fairly well. um There's operational efficiency gains that we still can get to. We have done the integration, but one you do the easier bits first and then the more difficult things later. So that's still to come.
00:05:42
Speaker
There's, as I said, the drop through of the additional tons that is coming. So net-net, I would suggest that these margins will continue to move forward by the things that we can do ourselves and hopefully a bit of recovery.
Strategic Capital Allocation
00:05:52
Speaker
Taking step back to your capital allocation moving forward, what are the sort of key things that you think going to help drive the business in Scare? Was it kind of traditional bolt on M&A, is organic growth, is it reinvestment in certain areas? And then how does your sort of balance sheet perspective with the refinancing you've done kind of play into that? Yeah, it's a very good question. So obviously the balance sheet is in great shape with that refi.
00:06:16
Speaker
If you look back, we've had a an average multiple paid for deals of somewhere between six and seven times. And then we have increased the EBTA on those deals by an average of about 40, maybe a bit more, 40%. So you you take that, you go, you buy something for six, you run it at four. right That creates a whole huge amount of value for the group, especially if we trade at sort of these sorts of multiples or higher. So for as long as we're in that space, it makes lot of sense to take the capital that we generate from the activity and then reinvest in acquisition work. Sometimes you try to do this organically, so you build a new plant.
00:06:48
Speaker
The trick with our industry, however, is you do that in the wrong way, you destroy the market for everyone because there's just overcapacity created and nobody makes any money and you just you basically killed your own company. That doesn't make any sense because we need, obviously, the profitability to sustain the reinvestment we do to maintain the plants and so forth.
00:07:05
Speaker
So it's but it's a fin fine balance between mostly M&A and then some some organic work. People ask us, why don't you just buy your own stock back? I mean, this is a great business. This should be worth eight times, 10 times, whatever the numbers they want to put on it. Why don't you just buy your own stock back if you're below that? And the answer to that is yes, that could be an answer too as leverage comes down and as we have more capital available.
Market Drivers and Future Outlook
00:07:26
Speaker
But the story of M&A and integrating and expanding that base and taking value out of those companies, which continuously give you more upside, is very attractive. And so that's probably the first way we are using that capital. And if we then still have excess cash available, then obviously buybacks first and dividends maybe afterwards.
00:07:46
Speaker
Central part of the growth strategy is the policy and tailwinds and how that begins to translate into demand. What are some of the current tailwinds that are already visible and what are some of the other ones that are you're excited for, but a bit further out?
00:08:00
Speaker
Yeah. um There's a few things that obviously we flagged. There's first and foremost German stimulus. Everybody looks at that. um It's an enormous package. It requires time to be put into place and then translated into into actual cash spent.
00:08:16
Speaker
That is going and that's happening um in terms of where we see it from our customers. They start to get inquiries, they start to get projects that are are being funded through these sorts of structures. It hasn't translated in tons out the gate for us yet, but we hear it we hear it in the background. A second effect of that is that people feel more optimistic. They go, okay, well, the government's doing something for the for the economy. We can now move, we can invest, we can go. That started to happen at the end of last year and through last year, that started to happen and get the German economy in a better place. You can see that through the PMI indices in Germany as well.
00:08:49
Speaker
So those are the first the first ones that are clearly flagged, that we see, that aren't there yet. One that is there is, and has already had effect, is the steel tariffs and quotas. and This is critical. and This is europe the European Union starting to recognize that um the world is a global place. We compete with places that have low energy costs, low labor costs, and if you don't protect your industry, it will not survive. um You see this in steel demand. So German steel demand production is up. ah Polish steel production, that has to do with some switch-offs of plants or whatever else, but is there. Scandinavian production is up. So across Europe, where we supply into the steel industry, we have felt that additional demand come through. So that's a clear effect of a policy that's already there. There's also the critical minerals. um policies that come out of the European Union, where it's like okay, there's some minerals that we need to make ourselves through mining.
00:09:43
Speaker
In Finland, for example, we do a lot of mining in the north. So that's another one that we can see already having effect on our end demand. So we're very happy that the the governments in the European Union finally take this seriously and help indigenous industries get through tough batches.
00:10:01
Speaker
Amazing. Thank you very much for being host to here today, Max. Well, thanks for your time.