SIG Group AG: Resilient third quarter revenue growth and margin performance
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Third quarter and nine months 2023 trading updateResilient third quarter revenue growth and margin performance
- Q3 2023 Group revenue growth at constant currency of 7.7%
- Q3 2023 organic revenue growth[1] at constant currency of 8.1%
- Q3 2023 adjusted EBITDA margin of 24.8% (Q3 2022: 23.2%)
- Q3 2023 free cash flow generation of €133 million (Q3 2022: €101 million)
- Full year guidance maintained
Key performance indicators: Q3 2023
|
|
Three monthsended Sept. 30, 2023 |
Three monthsended Sept. 30, 2022 |
|
(In € million or %) |
||
|
Total revenue |
799.3 |
770.8 |
|
Adjusted EBITDA |
198.0 |
178.8 |
|
Adjusted EBITDA margin |
24.8% |
23.2% |
|
EBITDA |
236.5 |
124.6 |
|
Adjusted net income |
79.0 |
78.2 |
|
Net income |
84.3 |
9.3 |
|
Free cash flow |
133.0 |
101.5 |
Key performance indicators: nine months 2023
|
|
Nine monthsended Sept. 30, 2023 |
Nine monthsended Sept. 30, 2022 |
|
(In € million or %) |
||
|
Total revenue |
2,339.3 |
1,913.4 |
|
Adjusted EBITDA |
581.7 |
459.3 |
|
Adjusted EBITDA margin |
24.9% |
24.0% |
|
EBITDA |
586.6 |
362.6 |
|
Adjusted net income |
223.4 |
202.7 |
|
Net income |
136.9 |
75.9 |
|
Free cash flow |
(80.2) |
92.1 |
Revenue by region: Q3 2023
|
|
Three monthsended Sept. 30, 2023 |
Three monthsended Sept. 30, 2022 |
Change |
Organicgrowth1 |
|
|
(In € million or %) |
Reportedcurrency |
Constantcurrency |
Constantcurrency |
||
|
Europe |
246.1 |
229.7 |
7.2% |
7.5% |
11.1% |
|
MEA |
79.6 |
78.1 |
1.9% |
6.7% |
6.7% |
|
APAC |
239.7 |
229.9 |
4.3% |
14.4% |
10.4% |
|
Americas |
233.5 |
232.8 |
0.3% |
1.9% |
1.4% |
|
Group Functions |
0.4 |
0.3 |
|
|
|
|
Total revenue |
779.3 |
770.8 |
3.7% |
7.7% |
8.1% |
Revenue by region: nine months 2023
|
|
Nine monthsended Sept. 30, 2023 |
Nine monthsended Sept. 30, 2022 |
Change |
Organicgrowth1 |
|
|
(In € million or %) |
Reportedcurrency |
Constantcurrency |
Constantcurrency |
||
|
Europe |
737.5 |
605.9 |
21.7% |
21.9% |
10.7% |
|
MEA |
242.3 |
233.5 |
3.7% |
5.0% |
5.0% |
|
APAC |
690.0 |
597.3 |
15.5% |
21.8% |
2.8% |
|
Americas |
668.8 |
475.9 |
40.6% |
39.5% |
9.4% |
|
Group Functions |
0.7 |
0.8 |
|
|
|
|
Total revenue |
2,339.3 |
1,913.4 |
22.3% |
24.3% |
7.1% |
1 Organic growth represents aseptic carton and excludes the acquisitions of the bag-in-box, spouted pouch and chilled carton businesses
Third quarter regional revenue highlights
Europe
Third quarter organic revenue growth in Europe, on a constant currency basis, was 11.1% compared with the third quarter of 2022. Including the consolidation of bag-in-box and spouted pouch, revenue increased by 7.5% at constant currency. Performance of the organic aseptic carton business was driven by price increases to recover cost inflation which, particularly in 2022, included higher raw material, energy and freight costs. In aseptic carton the region continues to gain share of the aseptic carton market due to new filler installations. This includes expansion in Finland and Romania.
The European revenue contribution from bag-in-box and spouted pouch was €34.8 million for the three months ended September 30, 2023.
Middle East and Africa
In the Middle East and Africa, revenue saw a strong recovery after a weaker second quarter, increasing by 6.7% in the third quarter on a constant currency basis. Price increases offset prior year cost inflation while volume improved compared to Q2. This included a ramp-up of volume for new filling lines in South Africa and Saudi Arabia as well as an increase in demand in Algeria.
Asia Pacific
In Asia Pacific revenue growth at constant currency, including bag-in-box, spouted pouch and chilled carton, was 14.4% in the third quarter compared with the prior year. On an aseptic carton organic basis, revenue at constant currency increased 10.4% for the quarter continuing its recovery following a slow quarter one.
Southeast Asia saw increasing aseptic carton volume growth throughout the period particularly in India and Vietnam. In the rest of Asia, chilled carton performed well and there was continued strong volume recovery for aseptic carton in China following a slow first quarter. SIG DomeMini, the single serve carton that has a bottle shape, was commercially launched with a customer in China and the Group’s alu-free packaging was rolled out with two of its largest customers in the country.
The Asia Pacific revenue contribution from chilled carton, spouted pouch and bag-in-box was €52.0 million for the three months ended September 30, 2023.
Americas
Revenue growth at constant currency in the Americas was 1.9% for the third quarter including the contribution from bag-in-box and spouted pouch. Organic revenue growth of aseptic carton, on a constant currency basis, was 1.4% for the quarter, partially reflecting a strong prior year base. However, in Brazil, after softer demand in July and August, retail price reductions increased demand in September.
A cross selling win was secured for a spouted pouch systems solution with an existing large aseptic carton customer in Brazil.
Mexico reported a strong performance in liquid dairy for aseptic carton, gaining share of wallet with its largest customer.
The Americas revenue contribution from bag-in-box and spouted pouch was €104.8 million for the three months ended September 30, 2023. Revenue growth for bag-in-box and spouted pouch was above the market growth rate, as the business continued to gain market share, but lower than Q3 2022. Growth in 2022 was particularly strong due market share gains and elevated demand post the Covid-19 pandemic.
Adjusted EBITDA for nine months ended September 30, 2023
Adjusted EBITDA increased by 26.7% to €581.7 million for the nine months ended September 30, 2023 (9M 2022: €459.3 million), this included consolidation of the bag-in-box, spouted pouch and chilled carton businesses for the full nine-month period. The adjusted EBITDA margin was 24.9% compared with 24.0% for 9M 2022 despite dilution from acquisitions. A higher revenue contribution, driven by price in the first nine months, more than offset higher SG&A, raw material and production costs.
Reported EBITDA increased by €224.0 million to €586.6 million for the nine months ended September 30, 2023. In addition to the increase in adjusted EBITDA described above, the increase in reported EBITDA was primarily due to movements in unrealized hedging, the reduction of acquisition related expenses that occurred in 2022 and the reversal of an acquisition related provision.
Adjusted net income for nine months ended September 30, 2023
Adjusted net income increased from €202.7 million to €223.4 million for the nine months ended September 30, 2023. The growth was driven by higher EBITDA, partially offset by higher interest, tax and depreciation expenses.
Reported net income increased by €61.0 million to €136.9 million for the nine months ended September 30, 2023. The improvement was primarily due to movements in EBITDA, offset by additional depreciation and amortization, tax and interest expense.
Net capital expenditure for nine months ended September 30, 2023
|
(In € million) |
|
|
Nine monthsended Sept. 30, 2023 |
Nine months ended Sept. 30,20221 |
|
PP&E and intangible assets (net of sales) |
|
|
129.9 |
53.8 |
|
Filling lines and other related equipment |
|
|
178.3 |
122.3 |
|
Capital expenditure |
|
|
308.2 |
176.1 |
|
Upfront cash |
|
|
(77.8) |
(107.5) |
|
Net capital expenditure |
|
|
230.4 |
68.6 |
1 The comparative amounts for net capital expenditure have been aligned to the December 31, 2022 definition, for further information please refer to note 11 of the consolidated financial statements 2022.
Net capital expenditure for the nine months ended September 30, 2023 was €230.4 million or 9.8% of revenue. Upfront cash from customers for filling lines in the first nine months of the year was proportionately lower than the prior year period. A higher portion of upfront cash is expected in the fourth quarter of the year.
The year-to-date increase in gross capital expenditure reflects further expansion into growth markets, including the Group’s first sites in Mexico and India to produce aseptic carton sleeves, footprint rationalization and capacity expansion for bag-in-box and spouted pouch in North America as well as expansion of these substrates into emerging markets. In addition, a high level of activity at filling machine assembly plants reflects strong customer demand for SIG systems.
For the full year, net capital expenditure is expected to remain within the guided range of 7% to 9% of revenue.
Free cash flow for nine months ended September 30, 2023
|
(In € million) |
|
|
Nine monthsended Sept. 30, 2023 |
Nine monthsended Sept. 30, 2022 |
|
Net cash from operating activities |
|
|
263.9 |
293.1 |
|
Acquisition of PP&E and intangible assets (net of sales) |
|
|
(308.2) |
(176.1) |
|
Payment of lease liabilities |
|
|
(35.9) |
(24.9) |
|
Free cash flow |
|
|
(80.2) |
92.1 |
Free cash flow in the nine months ended September 30, 2023 primarily reflected the increase in net capital expenditure of €161.8 million compared to the prior year. Higher net working capital, which includes the payment of customer incentives during the period, and higher interest payments also impacted cash flow generation. Historically the Group has generated strong cash flow in the fourth quarter.
Leverage as of September 30, 2023
|
(In € million) |
As of |
As of |
As of |
|
Sept. 30, |
June, 30, |
Dec. 31, |
|
|
2023 |
20231 |
20222 |
|
|
Gross debt |
2,817.0 |
2,794.4 |
2,684.1 |
|
Cash and cash equivalents |
345.7 |
211.6 |
503.8 |
|
Net debt |
2,471.3 |
2,582.8 |
2,180.3 |
|
Net leverage ratio (last twelve months proforma) |
3.2x |
3.4x |
3.1x |
1 In the calculation of the net leverage ratio as of June 30, 2023, adjusted EBITDA includes the adjusted EBITDA of chilled carton business from July 1, 2022.
2 In the calculation of the net leverage ratio as of December 31, 2022, adjusted EBITDA includes the adjusted EBITDA of bag-in-box, spouted pouch and chilled carton businesses from January 1, 2022.
Net debt as of September 30, 2023 was broadly in line with June 30, 2023 while cash and cash equivalents increased by €134 million over the three-month period. As in prior years, cash generation is weighted to the second half of the year. A strong adjusted EBITDA performance over the last twelve months positively contributed to the net leverage ratio, which was 3.2x as of September 30, 2023, compared to 3.4x as of June 30, 2023.
In the first half of 2023, the Company repaid €450 million of unsecured notes partially funded by a bridge loan facility of €350 million.
The Group is committed to reducing gross debt by year end 2023. It expects the net leverage ratio to be below 3.0x by the end of the year, which is consistent with its target to achieve net leverage of 2.5x by the end of 2024.
Outlook
Guidance for 2023 remains unchanged. The Company expects revenue growth of 20-22% at constant currency. Bag-in-box and spouted pouch are being consolidated for an additional five months and chilled carton for an additional seven months respectively compared with 2022. Pass through resin escalators for the bag-in-box and spouted pouch businesses are excluded from the guidance. Organic constant currency revenue growth for the aseptic carton business is expected to be 7-9%. Price increases in the carton business are expected to continue to contribute to top-line growth. 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 following table reconciles profit for the period to EBITDA and adjusted EBITDA.
|
(In € million) |
|
Nine monthsended Sept. 30, 2023 |
Nine monthsended Sept. 30, 2022 |
|
Profit for the period |
|
136.9 |
75.9 |
|
Net finance expense/(income) |
|
86.3 |
(16.9) |
|
Income tax expense |
|
59.0 |
32.8 |
|
Depreciation and amortization |
|
304.4 |
270.8 |
|
EBITDA |
|
586.6 |
362.6 |
|
Adjustments to EBITDA: |
|
|
|
|
Unrealized (gain)/loss on operating derivatives |
|
(3.6) |
48.2 |
|
Restructuring costs, net of reversals |
|
3.1 |
4.2 |
|
Transaction- and acquisition-related costs |
|
0.7 |
23.1 |
|
Integration costs |
|
9.4 |
9.2 |
|
Realized gain on settlement of deal contingent derivative |
|
– |
(16.6) |
|
Fair value adjustment on inventories |
|
– |
20.4 |
|
Change in fair value of contingent consideration |
|
(5.6) |
– |
|
Impairment losses |
|
4.5 |
3.9 |
|
Other |
|
(13.4) |
4.3 |
|
Adjusted EBITDA |
|
581.7 |
459.3 |
The table below is a summary of the reconciliation of profit for the period to adjusted net income.
|
(In € million) |
|
Nine monthsended Sept. 30, 2023 |
Nine monthsended Sept. 30, 2022 |
|
|
Profit for the period |
|
136.9 |
75.9 |
|
|
Non-cash foreign exchange impact of non-functional currency loans and realized foreign exchange impact due to refinancing |
(1.3) |
(26.3) |
|
|
|
Amortization of transaction costs |
|
3.5 |
5.9 |
|
|
Net change in fair value of financing-related derivatives |
|
(1.7) |
(7.4) |
|
|
Realized gain on settlement of deal-contingent derivative |
|
|
|
|
|
(relating to repayment of loan) |
|
– |
(15.5) |
|
|
PPA depreciation and amortization – Onex acquisition |
|
77.4 |
77.5 |
|
|
PPA amortization – Other acquisitions |
|
35.5 |
22.0 |
|
|
Net effect of early repayment of loan |
|
– |
1.0 |
|
|
Adjustments to EBITDA1 |
|
(4.9) |
96.7 |
|
|
Tax effect on above items |
|
(22.0) |
(27.1) |
|
|
Adjusted net income2 |
|
223.4 |
202.7 |
|
1 For the different adjustments to EBITDA, refer to the adjusted EBITDA table above.
2 The comparative adjusted net income number has been increased by €19.0 million to reflect a refinement of the definition of adjusted net income that was made in the year ended December 31, 2022. For further details, see note 9 of the consolidated financial statements for the year ended December 31, 2022.