SIG Group: Resilient business model delivering strong revenue growth

Q3 regional revenue summary
In Europe, organic revenue growth in the third quarter of 2022 was 6.6% at constant exchange rates compared with Q3 2021 (9M 2022 vs. 9M 2021: +3.9%1. This reflects an increasing contribution from price rises while volume performance was solid, supported by the ramp-up of 15 fillers recently placed at a large Germany dairy. The European business has a strong presence across a wide range of non-discretionary products for daily consumption.

The first full quarter consolidation of Scholle IPN contributed €39 million of revenue to the region during Q3 with a strong presence in bag-in-box for institutional food and beverage.

In the Middle East and Africa, organic sales on a constant currency basis increased 18.1% in the third quarter of 2022 (9M 2022 vs. 9M 2021: +17.1%1). The strong sales growth in the quarter, and year to date, demonstrates a full recovery from 2021 which was adversely impacted by COVID-19 and drought in South Africa. In addition, the business is benefiting from price increases, new fillers in operation and a strategic push to increase its presence in liquid dairy packaging. SIG is also leading sustainability in the region with the launch of Recycle for Good in Egypt. This is a recycling initiative, the first of its kind in Egypt, where consumers can use an app to arrange for the collection of their used cartons.

In Asia Pacific, organic third quarter revenue declined 1.9% at constant currency compared with Q3 2021 (9M 2022 vs. 9M 2021: +4.1%2. Chinese sales volumes were affected by customers drawing down stocks accumulated during the lockdowns earlier in the year. There was also a reduction in gifting around national holidays as travel was reduced due to COVID-19 restrictions.

In Indonesia and Thailand milk supply was impacted by increased feedstock costs for cattle. There have been 32 filler wins year to date in India and South East Asia, reflecting a compelling offer underpinning future growth with new customers.

The consolidation of Scholle IPN and Evergreen Asia contributed €43 million to revenue in the region in Q3. Sales for bag-in-box are primarily in wine, foodservice and water and in retail for spouted pouch.

Following the acquisition of Evergreen Asia, the team has secured its first chilled carton contract in the region with an existing aseptic carton customer.

Organic revenue growth in the Americas was 16.8% at constant currency in Q3 (9M 2022 vs. 9M 2021: +11.0%) excluding the effects of the Scholle IPN acquisition. The increase was driven by substantial price increases and by ongoing volume momentum especially in Brazil. The construction of a new sleeves plant in Mexico is on schedule to begin commercial production in Q1 2023.

The full quarter consolidation of Scholle IPN contributed €105 million to revenue in the region. Scholle IPN achieved strong revenue growth in Q3 2022 compared with Q3 2021. In North America this reflected pricing pass throughs for higher polymer costs as well as bag-in-box market share gains for concentrates in food service and processed fruit.

In Q3 six pouch filling machines were ordered by an existing customer who is expanding its market presence in the Americas.

Scholle IPN and Evergreen Asia contributed €187 million to Group revenue for the three months ended 30 September 2022.

EBITDA and adjusted EBITDA
Adjusted EBITDA increased to €459 million in the first nine months of 2022 (9M 2021: €401 million) including an initial contribution from Scholle IPN from June and Evergreen Asia from August. The adjusted EBITDA margin was 24.0% (9M 2021: 27.2%). This reflected the consolidation of the acquisitions and cost inflation in the aseptic carton business. Cost inflation reached its highest level in the third quarter. Price increases in the aseptic carton business have been successfully implemented over the course of the year and have exceeded expectations. These increases are staged and take some time to catch up with cost inflation. Further price increases have been initiated for 2023. The extent to which the Group has been able to offset inflationary pressures year to date demonstrates the resilience of the business model and the essential nature of the products filled by our customers.

EBITDA was €363 million (9M 2021: €414 million). In addition to the movements in adjusted EBITDA, the decline was largely due to acquisition and integration costs and to unrealised losses from derivatives relating to commodity hedging.

Net income and adjusted net income
Adjusted net income for the nine months ended 30 September 2022 was €184 million compared with €170 million in the 2021 comparative period. The increase was primarily due to higher adjusted EBITDA and positive foreign exchange movements offset by higher depreciation and amortisation.

Net income was €76 million for the nine months ended 30 September 2022 compared with €128 million in the 2021 comparative period. This reflected movements in EBITDA, incremental depreciation and amortisation and positive impacts from finance-related foreign currency movements.

Capital expenditure
For the nine months ended 30 September 2022 net capital expenditure was €88 million compared to €105 million in the comparative period. Investment in property, plant and equipment included the ramp-up of the sleeves plant in Mexico, which is on track for commercial production in Q1 2023, as well as the first-time inclusion of bag-in-box and spouted pouch capex.

Gross filler investment has continued at a good pace while net filler capex reflects high upfront payments for fillers in Europe.

Free cash flow
For the nine months ended 30 September 2022 free cash flow was €92 million (30 September 2021: €142 million). An increase in working capital reflected increased raw material prices and higher levels of inventories to manage ongoing supply chain challenges. Free cash flow also included acquisition-related costs.

Leverage
Net leverage increased compared with the end of 2021 due to the Scholle IPN and Evergreen Asia acquisitions. The issuing of €204 million of new shares in May, a Schuldschein placement for €650 million in June and the arrangement of a term loan for $270 million in July secured the long-term financing of the acquisitions and the repayment or cancellation of the acquisition bridge facilities.

The Company has a mid-term net leverage target of towards 2.0x with an interim milestone of 2.5x at the end of 2024.

2022 outlook
For the full year, the Company expects revenue to grow above the guided range of 22-24% at constant currency. This reflects higher volumes and pricing and includes a strong performance by the acquired Scholle IPN business.

In the second half of the year, the Group is experiencing higher costs compared with the same period in 2021. The contribution of price increases has been accelerating although, as the increases are staged, they offset cost inflation with a lag. The realisation of higher price increases in both the aseptic carton business and at Scholle IPN protects absolute adjusted EBITDA but compresses margin. In view of these factors, the full year margin is expected to be around 25%, rather than around 26%, a strong outcome in the current market context.

The Company confirms its guidance for the adjusted effective tax rate between 26% and 28% and for Capex as a percentage of revenue between 7% and 9% for 2022. The dividend policy remains unchanged with progressive growth of absolute dividend per share and a pay-out ratio of at least 50% to 60% of adjusted net income.