SIG: Robust growth in a volatile environment

Samuel Sigrist, CEO of SIG Group, said: “Our business performed strongly in the first half of the year despite the volatile environment. Organic growth, including both volume and price increases, was robust and accelerated in Q2, especially when compared with an exceptional first half of 2021. Price increases were implemented across all regions, and in the second quarter revenue growth offset the impact of higher raw material costs.

We completed the acquisition of Scholle IPN on 1 June and I am very pleased to extend a warm welcome to all our new employees. Evergreen Asia is on track to close in the third quarter. These acquisitions expand our platform and cement our position as a leading solutions provider for sustainable liquid food and beverage packaging. The integration of Scholle IPN is well underway and our teams are working together to realise the many commercial and technology opportunities which have opened up.

The aseptic carton business continues to successfully address multiple avenues of growth. These include expansion in new categories and geographies, filler flexibility and format innovation, best-in-class service and a continuous drive to offer the most sustainable packaging.

Sustainability is at the forefront of all our operations and is a key reason for our high levels of employee motivation and engagement. Our sleeves production has been carbon neutral since 2018 and we are now actively increasing the proportion of on-site renewable energy. In Germany, we are already sourcing real-time renewable energy from wind turbines and this year we are installing our largest ever solar array at our Wittenberg plant with another installation planned at Linnich. Energy production from solar panels already in operation at our other sites more than doubled in 2021.”

H1 regional revenue summary

Revenue in Europe in the first half of 2022 was 3.5% higher at constant currency, excluding the effects of the first-time consolidation of the previous MEA joint venture and the one-month contribution from Scholle IPN. The one-month consolidation of Scholle IPN contributed €12.5 million to revenue in the region.

Revenue growth accelerated in the second quarter of the year with a growing contribution from price increases. Drivers of volume growth included higher on-the-go consumption of non-carbonated soft drinks and continuing expansion into plant-based dairy alternatives. The new fillers placed with Hochwald in Germany are continuing their ramp-up as this customer’s new plant is coming on stream.

In the Middle East and Africa, excluding the effect of the first-time consolidation of the former MEA joint venture, revenue grew by 16.8% at constant currency in the first half with even stronger growth in Q2.

Market dynamics were favourable, with a strong post-COVID recovery across the region. The non-recurrence of drought in South Africa benefitted liquid dairy sales. Growth also reflected price increases and new filler placements.

In Asia Pacific, revenue increased in the first six months by 7.6% at constant currency, excluding the impact of the Whakatane paper mill divestment and the one-month contribution from Scholle IPN. Revenue in China was affected by the COVID-19 lockdown restrictions, with some recovery in June. Revenue growth outside China was due to both volume growth, particularly in India and Indonesia, and price increases with accelerating growth in Q2. A record number of net filler wins in the first half demonstrated the competitive strength of SIG’s offering with its flexible fillers.

Revenue growth in the Americas was 7.7% at constant currency in the first half excluding the effects of the Scholle IPN acquisition. The increase was driven by strong price increases and by ongoing volume momentum especially in Brazil. This reflected the high level of filler placements in previous quarters and ongoing expansion of the business in countries neighboring Brazil. The construction of a new sleeves plant in Mexico is on schedule to begin commercial production in Q1 2023.

The one-month consolidation of Scholle IPN contributed €31.3 million to revenue in the region.

EBITDA and adjusted EBITDA

Adjusted EBITDA increased to €280.5 million in the first half of 2022 (H1 2021: €264.1 million) including an initial contribution from Scholle IPN in June. The adjusted EBITDA margin was 24.6% (H1 2021: 27.3%) reflecting higher raw material and freight costs. In the second quarter, higher revenues driven by volume and price increases largely offset higher raw material costs and price momentum is expected to continue in the second half of the year.

EBITDA was €238.0 million (H1 2021: €283.5 million). The decline was largely due to acquisition and integration costs and to the impact from derivatives that are part of the hedging strategy for currencies and commodities.

Net income and adjusted net income

Adjusted net income was €115.0 million compared with €109.6 million in H1 2021. The increase was primarily due to the increase in adjusted EBITDA.

Net income was €66.6 million in H1 2022 compared with €92.0 million in H1 2021, reflecting the movements in EBITDA.

Capital expenditure

Gross capital expenditure was €106.2 million in the first half of 2022 (H1 2021: €113.0 million). Investments in property plant and equipment was slightly higher due to the construction of a new plant in Mexico. Gross filler investment was lower but continued at a good pace. Net capital expenditure, after deduction of upfront cash received from customers, was €34.8 million (H1 2021: €68.0 million) reflecting the receipt of upfront cash for new fillers placed with a European customer.

Free cash flow

The Group’s cash generation is weighted towards the second half of the year due to the seasonality of the business. In H1 2022, net cash from operating activities was lower due to net working capital movements. This included inventory build-up, necessary to manage logistics delays, and higher customer rebate payments driven by the strong 2021 performance.

Leverage

Leverage increased compared with the end of 2021 due to the Scholle IPN acquisition. The issuing of €204 million of new shares in May, a Schuldschein placement for €650 million in June and the arrangement of a bank 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 elevated cash position on 30 June 2022 includes funds available for the acquisition of Evergreen Asia upon closing.

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

Acquisitions

On 1 June 2022, the Group acquired 100% of the shares of Clean Flexible Packaging Holding B.V. (together with the acquired subsidiaries, “Scholle IPN”) from CLIL Holding B.V. (“CLIL”). CLIL is controlled by Laurens Last. Scholle IPN is a leading innovator of sustainable packaging systems and solutions for food and beverages.

The Group paid €415.5 million in cash (subject to customary closing adjustments) and transferred 33.75 million newly issued SIG shares with a fair value of €686.8 million at the time of the closing to CLIL as part of the consideration for Scholle IPN. The Group has retained an amount of €18.7 million that is payable upon the finalisation of the completion accounts and related adjustments. In addition, there is contingent consideration of a maximum of $300 million. The Group also repaid the external loans of Scholle IPN at the closing.

The Group announced on 5 January 2022 that it has entered into an agreement to acquire Evergreen’s fresh carton business in Asia Pacific (“Evergreen Asia”). The consideration will be based on an enterprise value of $335 million (subject to customary closing adjustments). The acquisition is expected to complete in Q3 2022.

Dividend

The Annual General Meeting (AGM) held on 7 April 2022 approved a dividend payment of CHF 0.45 per share for the year ended 31 December 2021, payable out of the capital contribution reserve (additional paid-in capital). The dividend payment was made on 14 April 2022 and totalled CHF 151.9 million (€147.9 million). For the year ended 31 December 2020, the shareholders were paid a dividend of CHF 0.42 per share (CHF 141.8 million or €128.1 million).

The pay-out ratio at 59% was within the targeted range of 50-60% of full year adjusted net income. The Company intends to continue its policy of progressive dividend per share growth following consummation of the acquisitions mentioned above.

2022 outlook

For the full year, the Company maintains its guidance provided on 1 March 2022. It expects revenue growth of 22-24% at constant currency. The adjusted EBITDA margin for the enlarged Group is expected to be around 26%, subject to no further major movements in input costs and foreign exchange rates. The effective tax rate is expected to be in a range of 26-28%. Net capital expenditure is forecast to be within a range of 7-9% of revenue and the dividend pay-out ratio is expected to be within, or slightly above, a range of 50-60% of adjusted net income.