Letter from the Chairman and the Chief Executive Officer
As we look back on the unexpected events of 2020, we can be proud of what SIG has achieved. The early implementation of a global pandemic preparedness plan, starting in China, enabled our factories to keep running throughout the COVID-19 crisis. This in turn meant that we were able to keep delivering to our customers and accommodate shifts in demand caused by the crisis. It would be inaccurate, however, to attribute this continuity simply to good management and processes. It is in large part due to the dedication and flexibility of our employees – most notably those in our factories, who continued coming to work without interruption and adapted to a tightening of our already rigorous health and safety practices. This ensured that our factories remained fully operational. To all our employees, who performed at a high level despite the many constraints, we extend our heartfelt thanks. We also want to thank our customers for their close collaboration in our joint efforts to continue delivering essential nutrition to consumers.
Increased demand for liquid dairy in Europe and the Americas
The year was proof of the robustness of our business model and the resilience of our end markets. This was notably the case for liquid dairy, which accounts for around 70% of our revenue and, in addition to plain milk, includes a wide variety of products such as plant-based milks, creamers and nutritional drinks. Sales of these products benefited from increased demand in Europe and the Americas, as households consumed more during lockdowns. The need to prepare more meals at home also boosted food sales in categories such as soups and sauces. Our aseptic cartons enable food and beverages to be kept for up to 12 months while retaining all their nutritional benefits – an ideal solution when people are shopping less frequently or ordering online. In Asia Pacific, on the other hand, lockdowns had a negative impact on our business, which is geared towards the on-the-go consumption habits typical of the lifestyles in the region.
Ongoing investment and strong free cash flow generation
The fact that we were still able to grow our global core revenue by 5.5% at constant exchange rates is testimony to the portfolio effect created by the deliberate geographic diversification of our business over many years. The sustained top-line growth was accompanied by a slight improvement in the adjusted EBITDA margin. A negative impact from exchange rates, resulting from the impact of the COVID-19 crisis on emerging market currencies, was more than offset by operational leverage, lower raw material costs and production efficiencies. Adjusted net income increased to €232 million. Net capital expenditure as a percentage of revenue was within the target range of 8–10% and included investments relating to the construction of a new plant in China, which is now in operation. Free cash flow generation nevertheless remained strong and we are proposing a dividend of CHF 0.42 per share, compared with CHF 0.38 per share for 2019.
Maintaining service excellence and winning new business
Our business plays a vital role in the food value chain. Many of our customers have expressed their appreciation at the continuity of our supply and service during the crisis. Our service engineers overcame many challenges in terms of travel and logistics in order to keep filling machines running, helped by a variety of remote service options. We continued to place new filling machines and to enter into new contracts, including a record win in Europe with the German dairy company Hochwald. Whether we win a new customer or increase our presence with an existing one, the flexibility of our system and its low waste rates consistently prove their worth.
Focus on environmental, social and governance issues
We also help our customers meet the growing societal demand for environmental stewardship. We do not simply rely on the fact that our carton packs all have a more favourable environmental profile than other forms of packaging. We have taken sustainability to the next level; and in this report, you can read about innovations in the composition of our cartons which increase renewable content and further reduce the carbon footprint. The progress in our technology is not confined to our packs. We are also making advances in our filling machines which, for example, reduce energy and water use. More broadly, as a company we continue to drive systemic change to become a net positive business that gives more to people and the planet than it takes out. We were one of the first companies in our industry to set a climate target that is approved by the Science Based Targets Initiative (SBTi) and is in line with the goal of limiting global warming to 1.5° above pre-industrial levels. And we measure our progress against a raft of additional metrics which you will find detailed in our Corporate Responsibility Report to be published in March 2021.
Environmental, social and governance (ESG) issues are an increasingly important part of our ongoing dialogue with investors. In 2020, we published our ESG policies for the first time, in order to give more visibility to our objectives and to demonstrate the level of attention we have given to these topics over many years. However, we recognise that we can always do more, as demonstrated by our current initiatives to promote diversity and inclusion (see Our team). And we listen to feedback from our shareholders: We have made changes to our executive compensation programme as from 2021 in response to feedback received after the 2020 Annual General Meeting (see Compensation Report).
One of the consequences of the COVID-19 crisis was that the 2020 Annual General Meeting had to be held digitally and without the physical presence of shareholders. Unfortunately, this will also be the case for the 2021 Annual General Meeting. We greatly regret the loss of the opportunity to meet with you, our shareholders, in person and would like to thank you for your ongoing support.
Further expanding our geographic footprint
The geographic diversification which stood us in good stead in 2020 will be further strengthened by the planned acquisition, announced in November, of the 50 percent not already owned of our Middle East and Africa joint venture. The transaction, which we expect to close in the first quarter of 2021, enhances our geographic presence in a region with attractive growth prospects. Aseptic carton, which can be transported and stored without refrigeration, is ideally suited to countries with a hot climate. We will have the opportunity to move closer to customers and consumers in the region, in order to create value through our consumer-centric innovation and the delivery of sustainable and affordable food packaging solutions. The joint venture business has an attractive financial profile as well as a well-invested footprint. The transaction will be financed through a combination of cash and shares, leaving the leverage of the combined business broadly unchanged. As a consequence, the Obeikan Investment Group (OIG), our joint venture partner, will hold approximately five percent of the SIG share capital. Abdallah al Obeikan, the CEO of OIG, will be proposed for election to our Board of Directors at the Annual General Meeting on 21 April 2021. This will ensure that we continue to benefit from his expertise, industry experience and knowledge of the Middle East and Africa region.
Changes to the Group Executive Board
After 12 years as CEO, Rolf Stangl took the decision to leave the Company at the end of 2020. Rolf played a key role in expanding the business and in making SIG a leader in sustainability. Most recently, he led the Company through the successful IPO in 2018 and steered it safely through the challenges of the COVID-19 crisis. We would like to thank Rolf on behalf of the Board of Directors and the entire Company and wish him all the best for the future.
The Board has always devoted close attention to succession planning and this has enabled a seamless transition of the CEO role. We are pleased to welcome two new members to the Group Executive Board: Frank Herzog succeeds Samuel Sigrist as Chief Financial Officer and José Matthijsse joins as President & General Manager Europe. Both bring diverse experience and a broad range of skills which ideally equip them for their new roles. We look forward to working together to continue SIG’s successful track record. The Company continues to invest and innovate and is well positioned for the future in an attractive industry. We will maintain our focus on delivering value to our shareholders while pursuing our ambitious environmental and societal objectives.
Chief Executive Officer