Financial review

Resilient business model delivering strong revenue growth

The aseptic carton business delivered robust organic growth of 8% for the year, a combination of volume and price, with share gains in multiple markets. Our customers continue to invest in new filling machines even in an uncertain economic environment, and this will underpin our growth for many years to come.

Key events in 2022 impacting the performance of the Group

Acquisition of Scholle IPN

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 and has subsequently been renamed Clean Holding B.V. Scholle IPN provides packaging solutions for beverage, food and non-food products.

The cash consideration for Scholle IPN amounted to €424.3 million. The Group also transferred 33.75 million newly issued SIG shares with a fair value of €686.8 million to CLIL as part of the consideration. In addition, there is contingent consideration of a maximum of $300 million (with an estimated fair value of €113.2 million as of 31 December 2022). The Group also repaid the external loans of Scholle IPN at the closing. The goodwill from the acquisition accounting is estimated at approximately €930 million as of 31 December 2022. For additional information about the acquisition, see note 27 of the consolidated financial statements.

The operating performance presented below includes the consolidation of Scholle IPN for seven months.

Acquisition of Evergreen’s chilled carton business in Asia Pacific (“Evergreen Asia”)

On 2 August 2022, the Group acquired Evergreen Asia from Evergreen Packaging International LLC (“Evergreen”). Evergreen Asia offers chilled carton packaging solutions in Asia.

The Group paid €329.5 million in cash (subject to customary closing adjustments) at the time of the closing as consideration for Evergreen Asia. The goodwill from the acquisition accounting is estimated at approximately €130 million as of 31 December 2022. For additional information about the acquisition, see note 27 of the consolidated financial statements.

The operating performance presented below includes the consolidation of Evergreen Asia for five months.

Financing of the acquisitions

The initial cash portion of the consideration for Scholle IPN and the repayment of the external loans of Scholle IPN were initially financed by proceeds from an unsecured bridge loan facility. A large portion of this unsecured bridge loan facility was repaid on 30 June 2022 using proceeds from an unsecured Schuldscheindarlehen (“SSD”, a private German debt placement). The remaining proceeds from the unsecured SSD, together with proceeds received from a placement of newly issued SIG shares, were used to finance the consideration for Evergreen Asia. On 28 July 2022, the Group entered into a US Dollar-denominated term loan. The major part of the proceeds from the term loan was used to repay the remaining portion of the unsecured bridge loan facility.

The impact on the Group’s financial position of these financing transactions, including the SIG shares issued and transferred to CLIL as part of the consideration for Scholle IPN, is described in more detail in notes 22 and 24 of the consolidated financial statements.

Financial performance

Revenue

Total revenue increased by 27.4% on a constant currency basis (34.8% as reported) to reach €2,779.9 million (2021: €2,061.8 million). The organic revenue growth was 8.0% at constant currency, approximately 4.5% of price increases, and 120 basis points negative impact from the loss of aseptic carton sales to Russia. Organic growth of the Group represents SIG revenue growth excluding the impacts of the acquisitions of Scholle IPN and Evergreen Asia in 2022.

Scholle IPN contributed €362.6 million of incremental revenue to the Group in 2022, while Evergreen Asia contributed €60.2 million (total contributions of €422.8 million).

Revenue growth in the segments

Revenue 3rd 2022

by segment

Revenue by product 2022

Carton vs bag-in-box and spouted pouch

In Europe, the ramp-up of 15 filling machines recently placed at a large German customer, together with market share gains in Spain, drove liquid dairy sales. Growth of non-carbonated soft drinks was driven by the launch of formats for on-the-go consumption. Overall, Europe was impacted by the loss of sales to Russia which reduced the European growth rate by approximately 300 basis points for the year. Customer market share gains in Poland drove volume improvements through the launch of new products. The contribution from price increases accelerated during the year. The acquisition of Scholle IPN contributed €87.7 million to the European constant currency revenue growth of 15.9% in 2022. Organic growth, excluding the impacts of the Scholle IPN acquisition and adjusting for the impacts of the consolidation of the former Middle East joint ventures, was 4.4% at constant currency.

The Middle East and Africa (“MEA”) saw strong growth compared with 2021, which was adversely impacted by COVID-19 and by drought in South Africa. A strategic push to increase SIG’s presence in liquid dairy packaging has been very successful, with share gains in South Africa and Saudi Arabia as well as new business in Egypt. SIG is also leading sustainability in the region with the launch of Recycle for Good in Egypt, the first such initiative in this country. For the year ended 31 December 2022, revenue growth for MEA was 22.6% at constant currency and 12.1% adjusting for the impacts of the consolidation of the former Middle East joint ventures.

In Asia Pacific (“APAC”), the aseptic carton business in China was resilient in a market affected by COVID-19 lockdown measures. Sales of soy milk contributed to revenue growth and there were launches of new plant-based milk alternatives. In 2022, there were 42 filling machine wins in APAC, which included further gains in India, where SIG now serves all the leading customers for dairy and non-carbonated soft drinks. The acquisitions of Scholle IPN and Evergreen Asia contributed €105.2 million to the revenue growth in APAC in 2022. For the year ended 31 December 2022, revenue growth for APAC was 19.1% at constant currency. Organic growth, excluding the impacts of the Scholle IPN and Evergreen Asia acquisitions and the paper mill divestment, was 7.8% at constant currency.

Strong organic revenue growth in the Americas was driven by price increases and ongoing volume momentum, especially for liquid dairy in Brazil and Mexico. In the USA and Canada, there was high demand for broths in aseptic carton, and bag-in-box gained market share in a buoyant food service market. The acquisition of Scholle IPN contributed €229.9 million to the revenue growth in the Americas in 2022. Scholle IPN achieved strong revenue growth in the Americas, reflecting bag-in-box market share gains in food service and processed fruit as well as price pass-throughs to offset higher polymer costs. For the year ended 31 December 2022, revenue growth for the Americas was 66.4% at constant currency. Organic growth, excluding the impacts of the acquisition of Scholle IPN, was 11.5% at constant currency.

Revenue split 2022

Seasonality

The Group’s aseptic carton business experiences moderate seasonal fluctuations, primarily due to seasonal consumption patterns and performance incentive programmes relating to sleeves that generally end in the fourth quarter. Customers tend to purchase additional sleeves prior to the end of the year to meet seasonal demand and to avail themselves of annual volume rebates, typically resulting in higher sales during the fourth quarter. Historically, this has resulted in relatively low sales in the first quarter. The chilled carton and the bag-in-box and spouted pouch businesses are not significantly exposed to seasonality.

Adjusted EBITDA 2022

by segment

Net capex 2022

by segment

SIG aseptic filling machines 2022

by segment

EBITDA

Adjusted EBITDA margin¹

Adjusted EBITDA increased by €81.6 million, from €570.6 million in 2021 to €652.2 million in 2022. The increase was mainly driven by top-line contribution of €130.4 million. Adjusted EBITDA includes initial contributions from acquisitions (€83.1 million) and foreign currency tailwinds (€52.8 million). These positive impacts were partially offset by year-on-year increases in raw material-related (€147.9 million) and production-related costs, including energy and freight, of €50.1 million. Excluding the impacts of the acquisitions and foreign currency movements, SG&A costs reduced by a marginal amount and as a percentage of revenue decreased to 11.2% in 2022 compared with 13.2% in 2021.

EBITDA decreased by €80.9 million to €481.5 million (2021: €562.4 million). The decrease was largely due to changes in the unrealised hedging positions (€47.3 million), negative year-on-year movements in acquisition- and divestiture-related costs (€31.4 million) as well as an incremental expense in the fourth quarter related to an increase of €74.0 million in the fair value of the contingent consideration for Scholle IPN (see further note 33 of the consolidated financial statements).

The adjusted EBITDA margin was 23.5% (2021: 27.7%) reflecting higher raw material, energy and freight costs as well as the consolidation of Scholle IPN and Evergreen Asia. The successful implementation of price increases to compensate for the higher absolute input costs also had a dilutive effect on the margin.

The adjusted EBITDA margin in Europe was positively impacted by top-line contribution. These impacts were more than offset by higher Input costs and, to a lesser extent, by the acquisition of Scholle IPN. In 2021, the Europe adjusted EBITDA margin included positive hedging results in the procurement entity, relating to other segments of the business, which did not recur in 2022. The MEA adjusted EBITDA margin had strong contributions from top-line and foreign currencies, which were more than offset by higher input costs. The Americas adjusted EBITDA margin was impacted by higher input costs (notably freight) and by dilution from the acquisition of Scholle IPN, which has a large presence in the Americas. These were only partially offset by positive top-line contribution and foreign currency tailwinds. APAC benefited from positive top-line contribution, offset by the contribution from the acquisitions of Scholle IPN and Evergreen Asia and raw material cost inflation. Raw material cost inflation was less pronounced in the segment due to more localised sourcing. The APAC margin in the prior year was also negatively impacted when hedging benefits relating to the segment were included in the Europe segment.

Net income

Adjusted net income in 2022 was €286.8 million compared with €265.7 million in 2021. The increase of €21.1 million was primarily due to higher adjusted EBITDA, partly offset by incremental depreciation and higher interest expense.

Net income was €37.8 million in 2022 compared with €172.1 million in 2021. The decrease of €134.3 million was mainly due to the movements in EBITDA described above, notably the expense recognised relating to the contingent consideration for Scholle IPN, and to incremental depreciation and amortisation.

The effective tax rate increased from around 23% in 2021 to around 57% in 2022. The increase is primarily related to the contingent consideration expense recognised in the fourth quarter. The adjusted effective tax rate increased slightly from around 23% in 2021 to around 24% in 2022; the acquisitions of Scholle IPN and Evergreen Asia had a minor negative impact on the effective tax rate. The effective tax rate is impacted by the relative mix of profits and losses taxed at varying tax rates in the jurisdictions where we operate.

Return on capital employed

Post-tax ROCE, computed at an unchanged reference tax rate of 30%, decreased by 370 basis points in 2022 to 27.3% (31.0% in 2021). At the adjusted effective tax rate of 23.7% in 2022, ROCE was 29.7% (34.0% in 2021). The decrease is primarily attributable to higher PP&E in 2022 due to higher capital expenditure and consolidation of the acquired businesses.

Capital expenditure¹

Net capital expenditure was €144.0 million in 2022 (2021: €142.7 million), representing 5.2% of revenue (6.9% in 2021). Investments in property, plant and equipment (“PP&E”) included the ramp-up of our first aseptic carton plant in Mexico, which started commercial production in February 2023. This was offset by the sale of a production-related building as part of a footprint rationalisation in the Americas. Capital expenditure also included investments by the acquired companies and innovation-related development costs. High upfront cash payments from customers in the period reduced the level of net capital expenditure.

We placed 91 aseptic carton filling machines in the field in 2022. Taking account of withdrawals, the number of SIG aseptic carton filling machines globally reached 1,359, a net increase of 64.

1 For the year ended 31 December 2022, the Group also considers proceeds from sales in its calculation of capital expenditure for PP&E (excluding filling lines and other related equipment) and intangible assets. See note 11 of the consolidated financial statements.

Net capex 2022

Cash flows

Our strong cash flow generation continued in 2022, with net operating cash inflows of €578.2 million (€47.3 million higher than in 2021) and free cash flow² of €263.1 million (€4.8 million higher than in 2021).

Net cash from operating activities was positively impacted by contributions from Scholle IPN and Evergreen Asia. These positive contributions were offset by acquisition-related costs, including higher interest due to the acquisition financing. Strong upfront cash collection in the period and net working capital movements, including an expansion of our securitisation programme, led to an increase in operating cash inflows.

Cash used in investing activities increased in 2022 due to the acquisitions of Scholle IPN and Evergreen Asia (cash outflow of €700.4 million, net of cash acquired). This increase was partially offset by the cash inflow resulting from the settlement of deal-contingent derivatives that were entered into to manage the foreign currency exposure on the acquisitions. The cash inflows of €76.6 million from these derivatives have been presented in investing (€61.1 million) and financing (€15.5 million) cash flows. See note 27 of the consolidated financial statements for further information on these deal-contingent derivatives.

Gross capital expenditure increased with the consolidation of Scholle IPN and Evergreen Asia, innovation-related development costs (primarily relating to the ongoing development of the next-generation SIG NEO VITA aseptic carton packaging filling line) and our investments in filling lines and other related equipment. This increase was offset by the cash inflows from the sale of a production-related building in the Americas.

Net cash from financing activities increased in 2022. This increase reflects impacts from the acquisition financing (net cash inflow of €521.0 million), gross proceeds from the issue and placement of shares (€203.5 million) and the settlement of a deal-contingent derivative as described above. This was partially offset by an increased dividend payment in 2022 and the purchase of treasury shares to settle obligations under equity-settled employee share-based payment plans.

2 For the year ended 31 December 2022, the Group also considers proceeds from sales of PP&E, other than filling lines and other related equipment, and intangible assets in its calculation of free cash flow. See note 11 of the consolidated financial statements.

Net debt and leverage

Leverage increased compared with 31 December 2021 due to the financing of the Scholle IPN and Evergreen Asia acquisitions. The issue of the SSD totalling €650 million in June 2022 and the term loan for $270 million agreed in July 2022, together with higher lease liabilities, have resulted in an increase of the Group’s net debt and net leverage ratio.

The new borrowings, together with the proceeds of €204 million from the placement of new shares in May 2022, secured the long-term financing of the acquisitions and enabled the repayment or cancellation of the acquisition bridge loan facilities.

The Group signed a €400 million unsecured bridge loan facility agreement on 9 January 2023. The facility may be accessed in June 2023, when €450 million of the Group’s senior unsecured notes are due for repayment.

Debt rating

Other

Dividend

To allow our shareholders to participate in the cash-generative nature of our business, we have set a dividend pay-out target of 50–60% of adjusted net income.

At the Annual General Meeting to be held on 20 April 2023, the Board of Directors will propose a dividend of CHF 0.47 per share (2021: CHF 0.45 per share), totalling CHF 179.7 million (equivalent to €182.5 million as per the exchange rate as of 31 December 2022). This represents a dividend pay-out ratio of 64% of adjusted net income. If approved by the shareholders, the dividend will be paid from the foreign capital contribution reserve.

The first aseptic carton production plant in India

The Group announced in February 2023 that it will construct its first aseptic carton production plant in India. Operations are planned to start in 2024. SIG will invest around €60 million to reach a production capacity of up to four billion packs. In addition, land and buildings will be financed through a long-term lease with a net present value of approximately €30 million.

Foreign currencies

We operate internationally and transact business in a range of currencies. Whilst our reporting currency is the Euro, we generate a significant portion of our revenue and costs in currencies other than the Euro. Increases or decreases in the value of the Euro against other currencies in countries where we operate can affect our results of operations and the value of balance sheet items denominated in foreign currencies. Our strategy is to reduce this exposure through the natural hedging that arises from the localisation of our operations. In addition, we systematically hedge all key currencies against the Euro using a twelve-month rolling layered approach.

We supply semi-finished and finished goods to certain of our non-European operations in Euros, and a number of our key raw material suppliers charge us for raw materials in Euros or US Dollars. As a result, a greater portion of our costs is denominated in Euros and, to a lesser extent, US Dollars compared with the related revenue generated in those currencies. Accordingly, changes in the exchange rates of the Euro and the US Dollar compared with the currencies in which we sell our products could adversely affect the results of operations. We expect to mitigate some of these cost mismatches through the opening and expansion of local production facilities in certain markets, ongoing efforts to qualify local suppliers and by using foreign currency derivatives.

Outlook

For 2023, the Company expects revenue growth of 20–22% at constant currency. Scholle IPN and Evergreen Asia will be consolidated for an additional five months and seven months respectively. Organic revenue growth is expected to be 7–9%. Price increases in the carton business are expected to continue to contribute to top-line growth (resin escalators for the bag-in-box and the spouted pouch businesses are not included in the guidance).

The adjusted EBITDA margin is expected to increase by 50–150 basis points, implying a range of 24–25%. The expected improvement compared with 2022 is subject to input cost and foreign currency volatility.

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 a range of 50–60% of adjusted net income.

The Company maintains its mid-term revenue growth guidance of 4–6% at constant currency, with the two acquisitions expected to enable resilient growth in the upper half of this range across an expanded platform. For the enlarged Group, the adjusted EBITDA margin is expected to be above 27% in the mid-term, driven by continued margin expansion in the aseptic carton business and the acquired businesses as well as the realisation of synergies from the acquisitions. 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 a range of 50–60% of adjusted net income. SIG’s business is expected to continue to be strongly cash-generative, and the Company maintains its mid-term leverage guidance of towards 2x with a milestone of around 2.5x at the end of 2024.

Share information

For the year ended 31 December 2022

Alternative performance measures

Additional information about alternative performance measures used by management (including reconciliations to measures defined in IFRS and the refined definitions of adjusted net income, free cash flow and net capital expenditure) is included in the consolidated financial statements for the year ended 31 December 2022.

Definitions of the Group’s alternative performance measures can be found via the following link: https://www.sig.biz/investors/en/performance/definitions