SIG: Solid third quarter revenue growth

Consolidation of Middle East and Africa business
In Europe, revenue in the third quarter of 2021 was 3% higher than in Q3 2020 at constant exchange rates on a like-for-like basis. While there is a gradual return to office working, in the third quarter the liquid dairy business continued to benefit from relatively high at-home consumption. For the first nine months of the year, revenue was 1.7% higher.

In the Middle East and Africa, sales on a like-for-like constant currency basis were 7.1% lower for the seven months to September 2021 relative to the prior year period. The decline was largely due to the comparison with Q3 2020, when large orders were received from certain customers. In addition, the non-carbonated soft drinks market has been negatively affected by COVID-19, with lower out-of-home consumption, and drought in South Africa temporarily affected the liquid dairy business.

Asia Pacific continued to show a robust performance in the third quarter even though COVID-19 continued to affect on-the-go consumption and impulse purchases, especially in South East Asia. Demand for white milk in China remains strong due to its acknowledged health benefits. Performance outside China benefited from the ramping up of new fillers in South Korea and Taiwan. In addition, some customers have been building safety stocks in view of current supply chain and logistics challenges.

The Americas again showed exceptional growth in the third quarter reflecting the contribution of fillers deployed in Brazil in the course of 2020. At-home consumption continued to drive demand in both Brazil and Mexico but is now slowing as office working has started to resume. Revenue in the USA benefited from the re-opening of restaurants and a re-stocking of foodservice products packed in SIG cartons.

EBITDA and adjusted EBITDA
Adjusted EBITDA increased to €137.1 million in the third quarter of 2021. The adjusted EBITDA margin compared with the third quarter of 2020 was lower at 27.1% (Q3 2020: 30.2%) due in part to higher raw material, freight and energy costs. SG&A expenses also increased reflecting a resumption of growth investments, major R&D projects and the phasing-out of COVID-related cost savings. For the first nine months of the year, adjusted EBITDA increased from €349.3 million in the first nine months of 2020 to €401.2 million and the adjusted EBITDA margin was higher at 27.2% (nine months 2020: 26.8%).

Reported EBITDA increased to €413.7 million from €351.0 million in the first nine months of 2021.

Net income and adjusted net income
Adjusted net income in the third quarter of 2021 was €60.6 million compared with €77.4 million in Q3 2020. The increase in adjusted EBITDA was more than offset by additional depreciation and amortisation as a result of the Middle East and Africa acquisition and the non-recurrence of foreign exchange gains. For the first nine months of 2021, adjusted net income was €170.2 million (first nine months 2020: €157.0 million).

Net income in the first nine months of 2021 was €128.4 million compared with €56.2 million in the first nine months of 2020. The increase reflected the increase in top line contribution and the MEA acquisition; impacts of the acquisition accounting related to the MEA acquisition, which are non-cash; the non-recurrence of foreign exchange losses in 2020; and a positive contribution from the revaluation of commodity derivatives. These were partly offset by restructuring costs related to the sale of the mill in New Zealand and the closure of a plant in Australia.

Strong cash flow generation in the third quarter contributed to free cash flow for the first nine months of 2021 of €141.7 million (nine months 2020: €124.5 million). The increase was achieved despite higher capital expenditure, reflecting strong demand for new fillers.

Net leverage was unchanged at the end of September 2021 compared with year-end and the end of September 2020, after the financing of the Middle East joint venture acquisition (for which the cash component was €167.0 million) that took place in February 2021. A €50 million credit facility used to repay joint venture debt was repaid in September 2021 using cash on the balance sheet.

Moody’s upgrade
In September, Moody’s upgraded its corporate and debt ratings for SIG from Ba2 to Ba1. The upgrade was based on the company’s solid market position and its strong and consistent financial performance.

The company has held a BBB- investment grade rating with S&P since March 2020.

Full year outlook
COVID-19 effects have led to greater than usual variations in growth rates between quarters and the growth rate in the fourth quarter is expected to be relatively weak. For the full year, the Company continues to expect core revenue growth on a like-for-like basis of 4-6% at constant currency. The robust revenue performance in the first nine months of the year means that growth in the upper half of the 4-6% range remains a possibility.

The adjusted EBITDA margin is expected to be within the 27-28% range.