SIG Group AG (SIGN) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. Today's call is hosted by Samuel Sigrist, CEO; and Frank Herzog, CFO. The slides for the call are available for download on our investor website. The presentation may contain forward-looking statements involving risks and uncertainties that may cause results to differ materially from those statements. A full cautionary statement and disclaimer can be found on Slide 2 of the presentation, which participants are encouraged to read carefully. And with that, let me now hand you over to Samuel to begin the presentation.

Good morning, and I hope everyone is safe and healthy at this time. I would like to start with the key points on 2020, a year, which the SIG proved its business resilience. And we did grow the top line, increased profitability and generated strong free cash flow. Crucial in this respect is our role in supplying food and beverages for which demand remained robust. To be clear, overall COVID-19 was a headwind for us due to lower-than-expected growth in Asia Pacific and a negative earnings impact caused by currency volatility, particularly in the early months of the year. However, we continue to benefit from the geographic diversification, which has been a pillar of our strategy over the last decade and more. Generally, in recent years, growth has been driven by markets outside Europe, but in 2020, very strong performances in Europe as well as the Americas offset -- I continue in our overview. Generally, in recent years, growth has been driven by markets outside Europe. But in 2020, very strong performance is also in Europe as well as the Americas offset the temporary weakness in Asia Pacific. This was a year of strong cash generation, enabling us to achieve a slight reduction in leverage while continuing to invest, notably in the new plants in China for the Asia Pacific region. As a further illustration of the ongoing expansion of our footprint, we announced in November the planned acquisition of the remaining 50% of our Middle East and Africa joint venture. I'm happy to say that the COVID-19 crisis has not led to any interruption of the focus on sustainability generally, and at SIG, in particular. We continue to blaze a trail in this respect, and it's playing an increasingly important role in our relationships with customers and all our other stakeholders. Today, it is my pleasure to speak to you for the first time as the CEO of SIG. There have been 2 other changes within the group Executive Board in 2021. José Matthijsse has joined us as President and General Manager Europe, taking over from Martin Herrenbrück. José brings to the role valuable experience with food and beverage companies, including a major customer. And with me today is Frank Herzog to cover as Chief Financial Officer from the beginning of the year. Frank has extensive finance and management experience at major international corporates and in investment banking. You will be hearing from him in a few moments, and I hope it will not be too long before he can introduce himself to you in person. Turning now to the financial highlights of 2020. Core revenue rose by 5.5% at constant currency to EUR 1.8 billion. There was a significant headwind from the depreciation of major currencies against the euro, which reduced reported growth to 1.7%. Despite the currency headwind, adjusted EBITDA reached a record level and the adjusted EBITDA margin increased compared with 2019. Free cash flow of EUR 233 million was somewhat below the exceptional level of 2019, was robust and indeed ahead of our expectations. Adjusted net income increased by 7% to EUR 232 million, and we are proposing an increase in the dividend of more than 10% to CHF 0.42 per share. The number of shares for which this dividend will be paid will increase by just over 5%, following the completion of the Middle East joint venture transaction. The payout ratio at end 2020 exchange rates will be around the midpoint of our targeted range of the 50% to 60% of adjusted net income. Return on capital employed showed a substantial increase to 29.5%. As an evidence of our ongoing focus on sustainability, we can point to a number of milestones reached in 2020. Aluminum Stewardship Initiative certified aluminum is now available to customers in all regions. And in Europe, it has become the standard. More customers adopted our recyclable paper straws, including, for example, Nestlé in Brazil. We are already proud of the environmental profile of our cartons, but we always strive for more. Together with Nestlé and other industry partners, we are funding a chair at the EPFL in Lausanne to support breakthrough research on sustainable materials. External validation of our achievements is important to us. With EcoVadis, we have currently ranked in the top 1% of companies. I'm pleased to report that we have just been recognized by the Carbon Disclosure Project for our work in engaging with our suppliers to tackle climate change. In 2020, we made strong progress towards our science-based target initiative approved 1.5% climate targets, which include a 60% reduction in Scope 1 and 2 emissions by 2030. Both our carbon emission targets and our EcoVadis core are included as performance metrics for the coupon on the term loan for which -- which forms part of our debt financing in June. Key to our ability to keep operating during the COVID-19 crisis was the early implementation of a pandemic preparedness plan starting in China. We learned from the experiences of our Chinese team and then implemented rigorous precautionary measures at all our plants globally, with the result that they were able to continue operating throughout the year. The crisis highlighted the resilience of our localized supply chain in each region, and we were able to maintain a high level of customer service. We received many letters of appreciation from our customers. And I would say that, if anything, this crisis has further strengthened our customer relationships as we worked in partnerships to deliver essential nutrition to consumers across the globe. This was a great effort by all our teams worldwide, and I'm truly grateful to all our employees, in our factories and elsewhere, who met the challenges head on and with such success. During the year, we have seen the importance of category diversification as well as of geographic diversification. By this, I mean, our ability to offer packs that cater for different consumption occasions. So in Europe and America, for example, we could step up production of liter packs for liquid dairy and of cartons to food, both of which were in high demand during the pandemic. Looking to the future, it's encouraging to see that in 2020, we continued to win new customers and to increase share of wallet with existing customers. We also found our customers to be ready and willing to invest in new fillers, which, of course, is a positive sign for growth in the years ahead. I'd now like to go through the main top line drivers in each of our regions. In Europe, a large part of our business is in liter packs suited for at-home consumption. As a result, we saw a significant step-up in demand, notably in the second quarter. As customers and retailers restocked following the hoarding by consumers at the onset of the COVID-19 crisis. Consumption of liquid dairy remained at the relatively high level, reflecting the change in consumption heavy. With the second wave of lockdown starting towards the end of the year, we saw strong fourth quarter growth against the top base of comparison. To be clear, our business in Europe would have grown last year even without COVID-19, continuing the track record of market outperformance since 2018. This reflects our ability to keep winning new filler contracts. In 2020, new contract wins included a megadeal with Hochwald in Germany for 15 fillers, which is scheduled to come on stream in 2022. We also continued our expansion into new categories, such as, for example, plant-based milks. Asia Pacific was a rather different story with a clear headwind arising from the impact of the lockdown on the on-the-go consumption. For the full year, the region did show modest growth at constant exchange rates, but this was, thanks to the full year consideration of Visy Cartons, which contributed EUR 44 million. Even in China, where the pandemic came under control quite early on, it was September before consumption patterns began to return to more normal levels, and the recovery has been gradual. In Southeast Asia, where lockdown started later and lasted longer, the effects continued throughout the year. With consumption remaining depressed, customers destocked in the third quarter. And as we had anticipated, they were not ready to undertake the usual year-end rally in the fourth quarter. However, as in Europe, our teams continued to drive the business forward, winning new business with a key customer in Thailand and further expanding our dairy footprint in India. The Americas was an extraordinary success story in 2020. The first quarter admittedly is measured against a low base of comparison in Q1 2019 when sales were constrained by late deliveries from our plants in Germany. Subsequent quarters, however, clearly benefited from positive COVID-19 effects in Brazil and Mexico. Lockdowns favored higher at-home consumption of milk and food. And in Brazil, there was a further benefit from increased welfare payments to low-income households. In this context, basic products saw strong demand, but we were also able to serve a flourishing premium market, providing a variety of sizes for indulgence purchases. However, our growth was not only driven by the market, the accelerated placement of fillers with Shefa and Líder Alimentos, 2 new customers in Brazil, and the successful ramping up of SIG fillers made a big contribution, particularly in the third quarter. This great performance in Brazil and Mexico easily offset a relatively subdued U.S. market. Although here, too, at-home consumption of food was strong, compensating for a decline in foodservice sales. And now let me hand you over to Frank for a review of the financials. Frank?

Well, thank you, Samuel, and also welcome from my side. I'm excited to have joined SIG, and I'm delighted to share these solid results with you today less than 2 months into my tenure. These results are strong evidence of the attractive business model and financial profile that convinced me to join SIG. So now let's look at the numbers in more detail. If we look at the sales evolution, there isn't that much to add to the full year numbers based on what Samuel already said. What stands out on this chart is the significant impact from currency already mentioned before. This is apparent in the difference between the constant currency growth rate and the growth rate of reported revenues. The Brazilian real is the most important effect here. The impact on reported revenue is therefore greatest for the Americas. On a constant currency basis, though, it is impressive to see the size of the Americas contribution, given that it is our smallest region. As Samuel mentioned, the APAC region benefited from the full year consolidation of Visy Cartons. At group level, Visy added 260 basis points at constant currency growth. Now let me have a quick look at the Q4 financials. As anticipated, the fourth quarter was already -- was relatively weak in growth at constant currency of 1.4%. Let me recap the reasons for this. EMEA growth continued to be robust. APAC declined due to a significant reduction in the year-end rally compared to prior years. Customers in this region had a little appetite to rebuild stocks after a period of significant destocking, and they preferred to conserve cash rather than chase volume rebates. In the Americas, growth continued in the fourth quarter, but at a lower rate. After very strong first 9 months, many customers had already reached volume levels that qualified them for rebates. So they too had little incentive to build up stocks. Reported revenue in Q4 was also negatively impacted by significant FX effects compared to 2019 as key currencies remained weak against the euro. Looking at the Q4 adjusted EBITDA bridge. This negative impact from currencies was a major headwind, that was only partially compensated by the operating performance. Lower raw material and SG&A costs and the higher JV dividend more than offset small negative impacts from top line and from production efficiencies. The latter is due to the fixed costs relating to the new APAC plan as it reached completions. Let's come back to the full year and the EBITDA bridge. In 2020, we were able to achieve a record level of adjusted EBITDA despite the large and exceptional currency headwinds, which I'll come back to in a moment. At constant currency, the adjusted EBITDA margin reached 28.7%, was essentially in line with our medium-term guidance. We saw a substantial top line contribution and a strong benefit from lower raw material cost, which exceeded our initial expectations due to the impact of the COVID-19 crisis on spot prices. While prices did pick up towards the end of the year, the benefit of lower hedge cost and our ability to negotiate prices with selected suppliers more than offset this. The continued implementation of operational excellence programs and the high levels of capacity utilization at our European plants resulted in production efficiencies of EUR 5 million. The negative contribution of SG&A costs reflect growth projects realized in the first half of the year. The timing of such project tends to be lumpy. And in addition, the second half benefited from some of the savings measures we put in place in response to the crisis. Let's take a closer look at the currency impact. I said -- now the currency impact in 2020 was exceptional. In the pie chart on the left of the slide, you can see that the large part of the impact was due to the Brazilian real and the Thai baht. The impact included realized revaluation effects incurred in the first half of the year as a result of the sharp depreciation of these currencies in the last 2 weeks of March. Transaction impacts were partially offset by our hedging program, which hedges currency risk on a 12-month rolling basis using a layered approach. The hedging program complements our strategy of natural hedging through the localization of production. There was some improvement in exchange rates in the fourth quarter. The average exchange rate for the year was more favorable, however, than the levels that were currently seeing in 2021. Looking at the adjusted EBITDA margin by region, Europe increased its margin by 2 percentage points to 34% as the strong top line growth also fed through into production efficiencies. In addition, sourcing costs declined and the dividend from the Middle East joint venture, which until we consolidate this business, is recognized in the EMEA segment, was EUR 2 million higher than in the previous year. The margin in APAC at 32% held up well, down just 1 percentage point in the face of difficult operating environment and negative impact from currency. In the Americas, the depreciation of the Brazilian real was a significant impact, as it has done in previous years, driving down the margin by 3 percentage points to 23%. This maps the underlying attractive profitability of this region and the excellent growth achieved in 2020. On this occasion, it is worth looking at the differences between reported and adjusted EBITDA. The main difference between these 2 metrics in 2020 is the add-back of impairment losses, mainly relating to the production assets of our Whakatane paper mill in New Zealand. Yes, we'll be coming back for the reasons for this. The unrealized gain in derivatives, which in 2020, is a deduction in respect to adjusted EBITDA relates to our commodity hedging contracts. Now moving on to adjusted net income. The increase in adjusted EBITDA was the primary driver of the 70 -- 7% increase in adjusted net income. The significant FX movements on intercompany loans had a noncash impact on this that is adjusted. The same applies to the FX effects associated with our refinancing and the costs relating to the early repayment of our debt financing. Let's now take a look at our strong cash flows. Strong free cash flow generation in 2020 was a key indicator for the resilience of our business. Net cash from operating activities was positively impacted by the adjusted EBITDA growth and lower net working capital. These positive inflows were offset by debt refinancing costs and additional tax payments, primarily driven by payments of 2019 liabilities in 2020. Total CapEx was slightly higher in 2020, and also lease liabilities with their related payments increased as our plant in China came on stream. Looking at more closely at cash from operating activities, working capital was well controlled in a challenging environment. While we did build up safety stocks at our factories during the year, by year-end, the level of inventory in euro terms was virtually unchanged compared to 2019. Trade receivables declined sharply, partially due to FX changes and the lower year-end rallies in the Americas. As a result, the ratio of net working capital to revenue fell sharply to 6% within our medium-term target range of 5% to 7%. Total operating working capital is negative as it includes accruals for volume bonuses to customers. There's a final part of our cash flow, let's have a closer look at our capital expenditures. As already mentioned, the increase in PPE spending related to production equipment at our new plant in China. The land and buildings for this plant were being financed through leases. Gross filler CapEx was basically unchanged compared to 2019. At the beginning of the COVID crisis, we were expecting customers to rein back or postpone investments given the uncertain environment. This proved not to be the case as food and beverage demand remains to be robust. We placed 59 fillers in the field in 2020. This is a very strong performance in such a challenging year, a strong sign of the resilience of our business. Total CapEx of 8% of revenues was right at the low end of our target range of 8% to 10%. And this in a year when we financed a major expansion project and saw a lower level of upfront cash. Finally, a quick look at our leverage and financing. In 2020, we saw a slight reduction in net leverage to 2.7x, despite an increase in lease liabilities relating to the new APAC plant. Our strong cash flow generation is reflected in the cash balance of over EUR 350 million. The debt refinancing, which we carried out in June, enabled us to move to an unsecured structure on typical investment-grade terms and extended the overall maturity profile. Our cost of debt at year-end was 1.6%. To sum it up, these solid results, a testimony to SIG's attractive business model and financial profile that combines growth and resilience with strong margins and cash flows. As I said at the beginning, in light of these results, I'm excited to be part of the SIG team and to contribute to this business and its future growth. I look forward to meeting you in person and to fruitful discussions just as soon as we're able to do so. And with that, let me hand back to Samuel.

Thank you very much, Frank. As you have heard, the construction of our new Asia Pacific plant proceeded as planned in 2020, and the plant is now in operation. Production will be ramping up in the course of this year. The plant is situated in Suzhou, China, and will benefit from operational and overhead synergies with our existing factory and from its proximity to our regional tech center. It will serve the entire Asia Pacific region as well as supplying combismile packs globally. It represents an increase of approximately 70% in our China capacity, and 35% in Asia Pacific capacity, enabling us to meet the needs of a region with strong medium and longer-term growth prospects. Let me now give you the background on our decision to close our Whakatane paper mill in New Zealand after due assessment of the strategic alternatives and the required consultation with employees. The mill was acquired in 2010 from the New Zealand-based Rank group, which was also the owner of SIG at that time. Since then, it has been gradually converted from producing folding box boards to producing liquid paperboard for our plants in Asia Pacific and the Middle East. While ownership of the mill has given us valuable insights into the LPB market, we have never regarded it as core to our business. The mill is now more than 40 years old and would require significant investment to keep it viable. Given that we now have expanded sourcing opportunities with our external suppliers, we intend to stop production at the mill in the second quarter of this year. The final closure of the site is expected to take place in 2022. A pretax impairment charge of EUR 38 million has been recognized in the 2020 financial statements. Decommissioning and redundancy costs of around EUR 30 million are expected in the first half of 2021. These will be part of the adjustments to EBITDA. Approximately half of the cash flow impact is expected to be offset through the sale of equipment and net working capital assets. In 2021, the cash flow impact should be around EUR 10 million. The acquisition of the remaining 50% of our Middle East and Africa joint venture is on track and is expected to close in the coming days. We are excited at the prospect of fully integrating this business, which gives us direct access to high-growth region with a well-invested footprint in terms of both sleeves production and fillers and our customers. Looking at the JV's operating performance in 2020, sales to third parties were EUR 266 million, 3% below the previous year's level at constant currency. This reflected the impact of lockdowns on consumption of noncarbonated soft drinks and a weaker fourth quarter as customers were cautious and did not pursue the normal year-end rally. In addition, some central banks in key markets imposed capital controls in the fourth quarter. More broadly, though, sales of liquid dairy, which has been the focus of our recent expansion initiatives, performed well during the year. Let me remind you of the reporting impact once the transaction is completed. We will consolidate the third-party sales in the region, net of what used to be sales by SIG to the JV. These sales will become intercompany and will be eliminated. For the period March to December 2020, which will form the base of comparison, net third-party sales were around EUR 150 million. Dividend income will be replaced by the consolidation of EBITDA from the business. The acquisition is expected to be accretive to both earnings and cash flow per share. Return on capital employed is a key metric for us and is underpinned by our filler placement model, where we have strict return criteria for each machine that we place. In the interest of comparability, we use a 30% tax rate for the calculation. But using the actual tax rate in 2020, we had a ROCE of over 30%. The increase in adjusted EBITDA and the reduction in operating net working capital were the main drivers of the improvement, supplemented by a reduction in the asset base due to the impairment. Overall, this is a very positive development. Let me turn now to our guidance for the full year. As I mentioned just now, we expect to consolidate revenues in the Middle East and Africa from the beginning of March, subject to final completion of the transaction. The combined business is expected to achieve core revenue growth at constant currency in the 4% to 6% range on a like-for-like basis. In other words, compared with the 2020 baseline adjusted for 10 months sales to third parties in the Middle East and Africa. Taking account of the ongoing restrictions in Southeast Asia, affecting on-the-go consumption, we would rather expect growth to be in the lower half of the range. This, however, still represents a significant acceleration in growth compared with the 2020 growth rate, excluding the Visy impact. Assuming no major deterioration in exchange rates, the adjusted EBITDA margin is expected to be in the 27% to 28% range, including the consolidation of the Middle East business. Given the recent spike in commodity prices, we now expect raw material costs to be broadly neutral with higher spot prices offsetting lower hedged costs. SG&A spend is expected to increase as we continue to drive growth investments. Net capital expenditure is expected to be around the midpoint of the targeted 8% to 10% of revenue range in 2021. Given the good outcome in both 2019 and 2020, we have slightly lowered our tax rate guidance for 2021 and for the medium term. Otherwise, our guidance for the medium-term is unchanged. This includes an adjusted EBITDA margin of around 29%, which we are maintaining despite the major currency headwind experienced since the target was set, and despite no longer having the benefit of rising dividend income from the Middle East joint venture. To conclude our call today, our top line performance in 2020 demonstrates the resilience of our business. We continued to achieve best-in-class profitability and strong return on capital employed. Our installed base of over 1,260 fillers in field is a strong platform for future growth, augmented by our investments in new fillers and in production assets, as well as by the expansion of our geographic footprint. Our business fundamentals remain strong and are underpinned by the attractive environmental profile of our packs and by our company's broad focus on responsibility. That concludes our presentation for today. I should now like to open up the call for questions. Operator?

The first question comes from Alexander Berglund from Bank of America.

I have a bit of follow-up questions on your comments on raw material and the raw material inflation. And if I got it correctly, given the hedging that you have been doing, we don't see any kind of major change on your raw material bill into '21. But if we now indeed are in more of a kind of inflationary raw material environment, I was wondering if you could talk a little bit about the SIG process of recovering potentially higher raw material costs going forward? Like how do you do that through your contracts, et cetera? And because if I remember correctly, you don't have any real kind of pass-through mechanisms in play. So just can you give a bit of color on that? And then I have a follow-up question on Whakatane, if that's okay.

Sure, absolutely. Thanks for your questions, Alexander. I mean, to start with your raw material question. If you look at our COGS, 50% of that approximately is related to our A materials, which is the paperboard, the polymers and aluminum. And about 50% of the total raw material spend is related to the paperboard. And we discussed that in earlier calls, but we look at the paperboard as a rather stable input cost. And if you look back many years, I mean, we have also seen that if there are price adjustment, it tracks maximum European inflation. And as we secure our supply of paperboard through multiyear arrangements with our suppliers, that statement remains also true. If you then move on to the polymers and aluminum, there obviously are commodities that track global commodity prices. And we counter that with our hedging strategy, where on a 12-month rolling basis, we hedge 80% of our purchases, which leaves, give or take, 20% exposed to the spot price movements. And if you look at spot prices for aluminum as well as polymers of the recent weeks, that really has spiked. And given that situation, now all the hedging benefits that we had and have are offset by this increased price levels. Now I think it's important to understand that if you take, for example, aluminum, the metal part is about half of the total aluminum spend. Obviously, that depends on where the raw material price is. But the other half are conversion costs, where normal supply demand mechanism play and where our procurement teams can also create alternatives. Now the way how we look at these changes in input costs and how we tackle them in our pricing. I mean, pricing, we discussed it earlier. You're absolutely right, we don't have automatic pass-through mechanisms. We never wanted them because that always requires also, at least, to some degree, to disclose the cost structure. But we discuss pricing for our packaging material with our customers on annual basis. And we factor into those price discussions different aspects and we factor into those discussions the value that we create, what are the filling capabilities the customers make use of. But also we factor into those discussions the changes in the input costs, which include those changes on the commodities. That's how we handled that in the past and also intend to handle that going forward. I hope that answers your first question, but I think you have another one on Whakatane.

Yes. Yes. Also on Whakatane, can you just remind us how much of your current liquid paperboard needs that you source or have been sourcing now internally from Whakatane? And now if you increase your third-party purchases, will this trigger any new pricing negotiations for those additional tons that you will require? Or are those kind of linked to kind of contracts that you already have negotiated with your suppliers? And also, does this mean that you need to source your LPB from further distance? Does that have any impact on your financials?

Yes. I understand. Whakatane had a capacity to supply up to 20%, 25% of our demand. And obviously, it was always a choice between the mix between internal and external and, obviously, the price levels to what degree we tapped into this potential. I don't comment on individual specific arrangements with our suppliers. But we look at Whakatane and the closure related to cost as a case that delivers a payback. And that obviously also includes our arrangements for the continued supply now exclusively through third parties of LPB. If you look at the past couple of years, I mean, there has been consistently more capacity in the market. And I think against that backdrop and the backdrop, obviously, that we are able to deliver a positive return on these closing costs, we felt it is the right point in time to close the operations in Whakatane. From a supply cost perspective, that will not have an impact really. I mean Whakatane is also not just around the corner. And from that perspective, we consider that rather to be neutral.

The next question comes from Sandeep Peety from Morgan Stanley.

Just the first one is on carton recycling rate. I appreciate you don't provide any targets there. But if you can give us a road map and your thinking behind how you intend to increase that rate. Now your competitor reported at 26%. That's the global rate. So some sense there would be helpful.

So the question was on -- forgive me, Sandeep, on recycling rate. Can you please remind me what KPI you were referring to?

So I'm referring to the carton recycling rate.

The carton recycling rate. Obviously, it depends ultimately on the infrastructure in the given jurisdictions what the collection rates are, and collection rates obviously determine the potential of what is ultimately recycled. And then you call it the carton recycling rate, I presume you mean the recycling rate for the entire beverage carton, which is a compound structure consisting of the cardboard, of the polymer and the aluminum layer. If you look into Europe, the broader category of the beverage carton, so this was related to SIG, but just across all players, the recycling rate is close to 50%. And that varies, again, really from jurisdiction to jurisdiction, a function of how collection systems are in place, which is often a governmentally organized infrastructure question. We engaged in projects beyond Europe also in order to drive recycling. Together with customers, together with NGOs, we have a number of projects in Brazil, but also underway to establish one in Thailand, where we also made other progress. But obviously, naturally, collection rates are much lower there, and there is limited, reliable data on that. But we're definitely determined to keep driving this collection and ultimately recycling rate up.

Okay. That's very clear. And then second question is on the EBITDA margin. So you have mentioned that excluding the currency impact, you achieved 28.7% in 2020. So what is resulting in expectation of margin to be lower in 2021?

Yes. Thank you, Sandeep. It's Frank. Yes, let me take that question on margin. I think with regards to FX, we have to realize that the average rate for 2020 is obviously lower than the year-end rate and also the exchange rates we currently see. So that is what is the basis for the headwinds that can be anticipated in 2021 if current exchange rates consist -- persist. And, obviously, I don't want to venture any guess on how exchange rates are moving, but at least from the current point in time, this is just how the numbers set up, yes.

I mean, Sandeep, you referred to lower margin. We didn't cite that, I think we expect to be well in the range of 27% to 28%. I mean, Frank just elaborated on the expected currency, a slight currency headwind. But I think we also expect clearly a positive contribution from the consolidation of the business in the Middle East, give or take, 50 bps. But we also have to continue to invest into SG&A because that is how we drive innovation and geographic expansion. And you probably remember that we did put some austerity measures in place last year, which, to some degree, we have to swing back, and that's what we're going to expect to happen with SG&A. So -- but overall, that's how we look at it. 50% should be positive contribution from the business. In the Middle East, raw materials, given what we just discussed earlier, based on Alexander's question, rather probably neutral. SG&A, again, a bit of more of an investment and maybe a slight currency headwind as currency stands now, but we expect again to be well in the range of the 27% to 28%.

The next question is from Lars Kjellberg from Credit Suisse. Let's take the next question from Jörn Iffert from UBS.

The first on would be, please, on APAC. Can you give us a rough idea what was roughly the difference in terms of growth rates of China versus Southeast Asia, was China growing positively in Q4? Second question would be, please, we saw a couple of announcements in the last couple of months from companies like Coca-Cola, they are evaluating paper-based bottles. Is this something where you can support them where you can have a program with them? And then the last question would be, please, momentum looking into '21. I mean, comps are not easy in the first half. Would you say that the risk you have negative organic sales growth in Q1, Q2?

Thanks for your question, Jörn. If you look into Q4 in Asia Pacific, and your question is specifically on China. And I think we discussed also on the Q3 call that we did see the business in China coming back in September after rather subdued July and August. And we kind of thought that it took more than 6 to 9 months for China to get through this COVID crisis. But what we have seen also in the fourth quarter, China was, I should say, broadly flat. The reason for that is that we did see healthy growth rates in the plain white milk segment. It's a segment where we are less present as we offer with our solutions with [indiscernible] drinks with the particular in products that are consumed on-the-go. And we did see that also in the fourth quarter, while you have seen it, I guess the economy reported good growth, that category of this on-the-go products still was broadly flat. And I think it's also related to the fact while probably there are less lockdown and we see that with our teams, for example, students remain studying from home and there were just less people on-the-go. That's with regard to China in the fourth quarter. Then your point on the paper-based bottles, yes, we saw these press releases, but we also see them as part of a series of releases. That happened to come out since years by now. There was a big beer producer who announced that a couple of years back that they're going to go into paper-based bottles. I mean from our perspective, the products that our customers pack in our containers, these are products that require barrier, that require barrier to protect their product. These are barriers like light barriers, like oxygen barriers. And all these paper-based bottles, I mean that's an appealing concept because, obviously, the shape freedom that comes with it. But from our perspective, there is no viable solution out there in order to provide also those barriers. And I mean, the other point is, I mean, there is no solution out there really at scale. That's how I will put it on the paper-based bottles. And the momentum on Q1, I mean, I would refer to the pattern that we saw evolving as a function of COVID-19, what it meant to our business, which means that lockdowns kind of are decisive for our sales and growth rates. And lockdowns in Europe mean a tailwind and the same is true for the Americas. If I'm more precise for the Latin Americas as we have, especially in the U.S., a sizable foodservice business. And on the other hand, for the Asia Pacific region, it is a headwind as we are exposed to much more on-the-go consumption. Since more than 90% of what we sell is single-serve and estimate 60% plus is really consumed on-the-go. And while China, if you look at these numbers also on -- the incident numbers, case numbers looks very solid. I mean, Southeast Asia and many countries there remained until the end of the year and still today, at least, in partial lockdowns, which also includes schools and related to that all the school milk programs. So I think that's a bit the pattern that we see across the globe.

The next question comes from Alessandro Foletti from Octavian.

I have a couple. One, on the EBITDA margin in Americas. It has been suffering a little bit over the last couple of years. And I believe main driver of that is really foreign exchange transaction. What can you do to turn that around, is my first question. And I have a couple of others.

Yes, Alessandro, thank you for that question. Clearly, EBITDA margin is important for us to drive in all our regions. And as you pointed out, the -- Brazil has a big burden in terms of the devaluation of the real, which has been going on for years, but last year was particularly pronounced. And we're obviously trying to protect ourselves as much as we can through localizing production, particularly sourcing the liquid paperboard locally, but this is a very specific resources. I'm also -- have learned, even in my less than 2 months here, that is not so fungible as aluminum. So that is a major part that we're doing. Obviously, we're hedging and having a rolling 12 months forward hedging program, so that we can defer the impacts of FX movements. But ultimately, you can't hedge forever and smooth -- you can smooth it out. So that is what we're doing. We're obviously also -- yes, got hit particularly hard in this very short, very sharp change of exchange rates at the end of March last year, which led to the revaluations. That steepness in the change in the curve, hopefully, is exceptional. So I think those are the things that we'll -- we're doing as much as we can to protect ourselves. Yes, translation risk is always there. So that's something where we're trying to work to improve our position in that region. Did you have a second question?

Yes. Maybe first to follow-up on this one. I don't see you speaking about prices?

I mean, Alessandro, you're familiar with the way how we think about prices and how we handle prices, and pricing with our customers. And I think, ultimately, a devaluation of a currency, as we see it also happening with the real, which also is at least when we look 2, 3 years back also and lasting one, I mean, 2, 3 years back, the real was at EUR 4.50 per EUR, now it's above EUR 6. I think we also consider that a change in input cost. And equally to changes in commodity pricing, factor that into our price discussions with our customers. And that's also true in this case. But we're not going to disclose really on the top line, as you know, what is the price impact, mix impact, volume impact. As fundamentally what drives our top line, globally speaking, is the volume growth.

Fine. So maybe as a second follow-up. The price discussions that you have, are they sort of spread out across the whole year or more concentrated in Q1, can you remind me that?