SIG Group AG (SIGN) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. Today's live stream is hosted by Samuel Sigrist, CEO; and Frank Herzog, CFO. The slides for the call are available for download on our investor website. This presentation may contain forward-looking statements involving risks and uncertainties that may cause results to differ materially from those statements. A full cautionary statements 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.

Thank you, Ingrid, and welcome, everybody. I'm pleased to report a solid start into 2022. In the first quarter of the year, our sales grew by 6% at constant currency with all regions contributing to growth. This strong performance against the backdrop of exceptional growth in Q1 2021 of 13.4% at constant currency, again, demonstrates SIG's resilience. During the quarter, price increases were implemented, which have partially offset higher raw material costs. We expect the full benefit of these price increases to materialize over the coming quarters as ongoing price negotiations with customers are concluded. We are continuing to invest in our global manufacturing presence. The construction of a new plant in Mexico to serve North America market is progressing well with a planned opening in Q1 2023. India is one of the fastest-growing markets in the world, and we are experiencing strong growth there with a broad range of customers. We believe that the Indian market is ready for the next stage of development and now considering further investments with the construction of its lease plant. We first entered the market 4 years ago and currently have a base of 19 filling machines across the country and an experienced local team. Our investments in innovation are ongoing, and it's a driver for our business. A few months ago, we announced the opening of a third tech center, this time in Middle East and Africa, which is already seeing very strong demand from our customers. Our ability to offer the most sustainable formats continue to win us new business globally, with more customers choosing our signature or SIGNATURE packaging in the first quarter. Lastly, preparation for the completion and integration of the Evergreen Asia and Scholle IPN acquisitions is progressing as planned. We are doing extensive preparatory work to implement the integration of both businesses, led by specific task forces for each transaction. We currently expect both acquisitions to complete around the middle of this year. Turning now to the key figures for Q1. We experienced a currency tailwind with a 10.1% increase in reported revenue. Constant currency growth was 6%, as just mentioned. Adjusted EBITDA of EUR 119 million was in line with an exceptional Q1 2021, which was a good achievement in the context of higher raw material costs. These higher costs were offset by price increases for foreign exchange benefits and by an additional 2-month contribution from the Middle East and Africa. The adjusted EBITDA margin of 23.9% is consistent with the historical pattern for the first quarter of the year. Adjusted net income was around EUR 41 million with the decline compared to Q1 2021, primarily due to the incremental depreciation and amortization. Leverage of 2.5x shows a reduction from Q1 2021, in line with our track record of continuous deleveraging. Let me take a few moments to review the recent strategic evolution of SIG and also highlight the key effects on our financial reporting in 2022. SIG is evolving by expanding its leadership in sustainable packaging solutions, this means strengthening our presence in fast-growing markets, entry into new categories, access to advanced barrier technologies and expansion into new sustainable substrates. In line with this strategy in 2021, we acquired the remaining 50% of our joint venture in the Middle East and Africa, increasing our exposure to the high-growth rates in the region. We are engaged in a number of growth initiatives to maximize this potential. We also sold the paper mill in New Zealand last year, which was not a core business and which will have required significant CapEx. Over the course of 2022, the impact on revenue from these 2 transactions executed in 2021 will broadly offset each other at the group level, while the effects on segment growth will look more pronounced, particularly in Q1. In the first quarter of this year, we announced the acquisitions of the fresh business of Evergreen Asia in order to expand into this attractive and fast-growing category in the region. And of course, we announced the purchase of Scholle IPN, which expands our business into bag-in-box and spouted pouches and increases our expertise in barrier film technologies to replace aluminum in our own carton packs. Both the Evergreen Asia and Scholle IPN transactions are expected to close around the middle of this year once they received regulatory approval. Turning now to the performance by region. Europe continued to perform well despite strong base of comparison and a return to office working, which reduces at home consumption. On a comparable basis, without the effects of the first-time consolidation of the previous joint venture, revenue grew by 1%. The placement of new fillers with Hochwald in Germany continued during the quarter. Ramp-up is expected to be completed in the second and third quarters. In the Middle East and Africa, the business continues to recover from the negative impact of COVID-19 restrictions, especially following the reopening of schools that were closed in Q1 of last year. The favorable trajectory also reflects the contribution of new filler placements in the region. Assuming consolidation of the Middle East JV from January 2021 instead of March 2021, the region grew at 8.8% year-on-year. In Asia Pacific, strong growth momentum is being maintained, especially in Indonesia, in Thailand, but also in India. In China, consumption benefited from a rebound in Chinese New Year activities and the ramp-up of new fillers placed over the last 12 months. This more than offset an initial impact of COVID-19 restrictions that we saw in March. Excluding the impact of the paper mill divestment, APAC showed strong growth in the quarter at 6.5%. Growth momentum in the Americas has continued at 5.5%, following an exceptionally strong Q1 2021. Strong growth in Brazil was underpinned by the placement of new fillers with existing customers. We were also pleased to sign our first filler agreement in Colombia as part of our strategy to expand in South America beyond Brazil. In North America, there was a continuing recovery in food service demand. This is an area where we will significantly expand our footprint following the acquisition of Scholle IPN. I will now hand you over to Frank for a review of the financials.

Thank you, Samuel, and Good morning, everyone. As Samuel has outlined, we have had a strong start to the year, particularly against a very strong Q1 2021 comparison. I'll now take you through the numbers in more detail. The revenue bridge reflects what Samuel has already said in terms of regional performance and growth. Overall, revenue grew by 6% in constant currency. There was a EUR 17 million positive currency effect, largely due to the appreciation of the Brazilian real and the renminbi against the euro. Regional revenue growth at constant currency comparing the full 3 months of Q1 2022 and 2021, which you can see towards the bottom of the slide reflects a very solid performance against an exceptional prior year period. The contribution of the MEA region reflects the consolidation for the full quarter compared with only 1 month in Q1 2021. Other include the effect of the divestment of the Whakatane paper mill, which was completed in June 2021. While these effects are particularly pronounced in the first quarter, they are expected to largely be neutral for the full year. Hence, our full year revenue guidance does not adjust for these effects, and we have discontinued the reporting of core and non-core revenues. Turning to the adjusted EBITDA bridge. Price increases significantly contributed to the EUR 18 million top line benefit. We expect the full benefit of customer price increases to materialize during the course of the year. This will further help to offset cost inflation. Raw material headwinds of EUR 32 million can be split into 2 categories. 2/3 of the raw material cost increases relate to input costs that are fixed through hedging or other contracts. The remaining 1/3 of the increase reflects exposure to higher spot prices. In line with our hedging strategy, which we have followed for many years, we hedged in 2021, approximately 60% of our polymer and aluminum requirements for 2022. Aluminum polymers compose about 13% of our raw material cost as a percentage of revenue, which equates to an exposure to spot prices of circa 5% of 2021 revenues. As we said in March, our performance remains subject to no major changes in input costs and FX rates. As you know, raw material and energy costs remain volatile in the current global environment. Production efficiency largely offset increased freight, energy and labor costs. This demonstrates our resilience in the current environment of challenging logistics as well as high and volatile energy prices, especially in Europe. Overall, the adjusted EBITDA margin of 23.9% is in line with our historic pattern after an exceptionally strong Q1 2021. The free cash flow for Q1 2021 is in line with the expected seasonal pattern. In the first quarter of each year, cash flow is reduced as volume rebates accrued in the previous year are paid out, while the fourth quarter has historically been the strongest quarter in terms of free cash flow generation. Net working capital movements increased in Q1 2022 compared with prior year due to a buildup of inventory, which also reflect the higher raw material prices as well as higher volume rebate payments reflecting the strong performance in 2021. Our net leverage ratio as of 31st March was reduced by 20 basis points compared to a year ago. As our cash generation is weighted towards the second half of the year, and we pay our group dividend in quarter 2, our leverage ratio peaks as of June 30 before then falling again. We've consistently reduced our net leverage ratio since the IPO even while acquiring the remaining 50% of our former joint venture in MEA and our former licensee in Australia. After the acquisition of Scholle IPN and Evergreen Asia, we remain committed to continue this track record of deleveraging towards 2x in the medium term, with an interim milestone of 2.5x at the end of 2024. Against the background of our deleveraging track record, we've arranged an acquisition bridge facility for 18 months. This gives us broad flexibility to arrange the long-term financing of those transactions. We maintain our full year guidance considering the resilience that our business has demonstrated. However, we note increasing risks and uncertainties in the global economy since we announced our 2021 full year results on March 1. We currently expect revenue growth of 22% to 24% at constant currency. The effect of the latest tightening of sanctions against Russia, however, is expected to impact our growth rate in 2022 by 100 basis points to 150 basis points. For the enlarged group, the adjusted EBITDA margin is expected to be around 26%. As previously stated, our revenue and margin guidance assumes no major changes in input costs and to FX rates from current levels. Also, the guidance for the adjusted effective tax rate, net CapEx as a percentage of revenue and dividend payout ratio is maintained. In summary, SIG had a pleasing start to the year in an uncertain global environment and against strong Q1 2021 comparables. Samuel and I would now be happy to take your questions.

Jorn from UBS has a question.

The first one would be please on China. Can you elaborate to what extent the recent lockdowns have impacted your business in March? And what do you roughly expect in the run rate in March, what could be the negative impact in Q2 coming from China in the lockdown? The second question please, can you give us an update how Scholle and Evergreen have started the year and also how you manage their raw material exposure to try to avoid negative surprises? And the last question, if I may, just technical one, the EUR 6 million others, the positive contribution in EBITDA, can you just give us a couple of points what exactly this was?

Thanks for your question, Jorn. Let me kick it off, and then I hand it over to you, Frank. China, so in China, we do obviously all follow the situation with -- in our media coverage, most prominently covered the lockdown in Shanghai. So what is our understanding of the challenge of the businesses is less the lockdown, but it's the implications for the distribution. So far, we were able to, as we did during the entire COVID time, produce all our plants, in all our plants. And also, we were able to distribute and ship finished products to our customers. Our customers, however, they see some challenges to bring their finished products to the distribution points and then finally to the end consumer. And we saw that, that happened in late March, and we saw it continuing throughout April. Now we are in close contact with our customers and what we hear from them that they are committed to catch up for these effects in the remainder of the year. So that's why we don't expect at this stage an implication for the business in China. Your question on Scholle IPN, obviously, we can't comment yet on the Scholle IPN business performance. I think the preparation of the integration is set before is well underway. And the raw material exposure will ultimately be handled according to our hedge policy. But I hand it over here to you, Frank.

Okay. Thank you. I think your question on the EUR 6 million other in the EBITDA bridge, there are a lot of puts and takes in there. I think important to note is that there is a non-occurrence of the negative EBITDA contribution from the Whakatane mill last year that, obviously, after the sale, we don't have it this year anymore. And also, we had some warranty claims against some customers that have come in there. So there are a number of the usual things that occurred during the course of running our business.

Our next question is from Alessandro at Octavian.

Are you mute Alessandro? Is that may be the challenge? We can't hear you.

Can you hear me now?

Now we can hear you.

All right. Just one on the raw materials pricing, if I may. 2/3 of the raw material effect you said was related to the cost of a fixed through hedge. Can you say more or less when you close those hedging?

Do you want to take that?

Yes, take that. So I mean we have our hedging strategy where during the course of the current year, we hedge for the following year. And every month in the current year, we buy a portion of the hedges for the following year. And so the hedges then build up. So those hedges that we took were built up during the course of last year.

Right? So am I correct in assuming that this EUR 32 million, it's already quite a good chunk because probably it includes some levels that were taken very early in the year last year and then building up towards the end of the year. So you already have a big impact. But I believe in the second half or in the next quarter, this impact will continue to be there. Do you have an idea what's the relevance of this impact cumulating towards the end of the year?

Thank you for the question. I think the way the hedging strategy is designed is the average during the course of the current year for the following year. So that's built in to avoid the fluctuations and give us some foundation for our business here. And so we will have this 20 -- roughly 2/3, so call it, EUR 21 million, if you do the math roughly, we have that as a basis recurring in each of the quarters. And then the remainder is depending on how spot prices develop.

Right. Let's forget about spot prices, which we cannot control. But do you think that at least this hedging base effect can then be sort of compensated to your pricing movements towards the rest of the year? Because so far, you compensated about less than half, right, with prices? So in order to compensate the full impact, you have to, at some point, make towards the end of the year over compensate.

I mean that's exactly the ambition, Alessandro. What you see today is a price impact of those price agreements where we have concluded the negotiations with the customers. Naturally, some of those negotiations drag into the second quarter. That also happened this year. And those effects we will then see coming through in the second quarter. That's why we said the price impact will be progressively increasing over the course of the year. And absolutely, we aim to forward the changes in the input cost, the absolute one, so that's why we're going to see a margin impact, and we guided for that, but that's exactly the ambition.

All right. And then I have a question on the Middle East. The 8.8% is it, so to speak, an organic growth that you would have had if you had the whole business for the full quarter. Is that the way everyone should understand?

Sure, it is. That's exactly the way.

Right. Last year, you consolidated EUR 29 million, which was only March. So how do I have to understand this year? Was this year also growing in March? Or was it just growing in January, February over last year and then March was -- because this EUR 29 million only for March is half than what you consolidated this year. So it's kind of big. Or is it normal in terms of the progress for the quarter?

Yes, for that region really to look at a quarter because it depends on shipments, if you look at individual months, so really a quarterly view to look over 3-month period is the right way. And that's why we gave that comparison of 3 months this year versus 3 months last year. So you can really see the development.

But I also would say, it was a very strong March last year. So --

All right. My last question on the Indian plant that you just mentioned, can you give some information about it? How big will it be -- what is -- this is a lamination plant? Did I understand correctly? Or is it a finishing plant?

This will be a finishing plant. It will be a plant that produces the sleeves. And this shouldn't be a novelty factor for you. We discussed it with our investors in many instances. It just happened to be that we traveled to India 2 weeks ago and also came out with the press release in the trade media and the local media in order to make sure that we consistently communicated also to the investor base. I mean what we announced there publicly is that we have, as we said also in the investor calls, India on the radar for the next plant that we're starting location scouting now and that we are committed to the market. And obviously, we expect that will help to further grow the business and place further fillers. And it is our ambition. It is a market that shows attractive growth, and it is a market that we can serve better and with shorter lead times, if you have a finishing plant locally. And we will follow there the normal blueprint where you're very familiar with where we first started printing finishing. And over time, if volumes permit, will then also start lamination. And we talked there normally in -- or the magnitude of the CapEx of the finishing phase of EUR 40 million to EUR 60 million.

Are there any other questions?

Hello?

Not from Alessandro and there's one more here.

Yes.

The next question is from Daniel at Mirabaud.

Do you hear me?

Now we hear you, Daniel.

I have 2 questions. First, I started the annual report, Page 187 and I studied these swaps and premium swaps. And I was wondering if your stance on hedging has changed even before because I saw there were less swaps in '21. So I was wondering if that view has changed a little bit before. And then the second question would be, in the last conference call, you mentioned that price increases could be 3% to 4% in that ballpark. Is that still true? Or has this changed upwards?

Thanks for your question, Daniel. Do you want to take the first?

Yes, let me take the question about hedging. We have had a hedging strategy for many years even predating the IPO where, as I said, in the current year, we hedged for the following year, averaging out over the 12 months of the current year. And we have a policy where we've tried to avoid hedging into price spikes. So if prices rise, we reduce or suspend the hedging in a given month. And that leads to a hedging ratio where we said it's always the majority of the requirements up to 80%. But in the application of the hedging strategy that we have followed for many years. Last year, we arrived at a 60% hedge ratio. So that is really a consistent approach that we've been pursuing.

And on your second question, the 3% to 4%, it's still the number we work with. It's the number that we implement right now, and that also has left its mark in terms of positive benefits to the EBITDA bridge in the first quarter, but we expect it to be progressively ramping up over the course of the year. And that allows us to pass on a big chunk of the raw material, input have changed and has obviously, as a consequence of that and also margin impact that we guided for. But so far, no changes in that.

The next question is from Christian at Stifel.

Can you hear me?

Very well.

2 questions from my side. I mean you confirmed your growth guidance of 22% to 24%. At the same time, you are now quantifying the potential negative impact from the sanctions of 100 basis points to 150 basis points. So what does it mean? So we now more look at the lower end of this guidance as a realistic growth target for you or even below the 22%? How should I read that? That was my first question. The second question is on the inflation. I believe, especially when it comes to emerging markets, you have now food price inflation there as well. Have you already felt something in your business? Your customers are looking for, let's say, smaller packaging instead of larger packaging to scope with this partially dramatic price increases for food in the emerging markets? And what does it mean for your business?

Thanks for your question, Christian. Yes, we maintain the guidance of the 22% to 24%. The reason why we quantify it now Russia is because it's a recent development. It's a recent development that our products that we produce and most of you remember that we shipped from Western Europe into Russia when it comes to sleeves, basically everything we ship from Western Europe. So we have now sanctions in place that permit that we can produce in Western Europe for the Russian market. And by that, our business comes to a hold for now. We can fulfill orders up and until the 9th of April that were placed prior to that date, but then we need to pause this business for now. And we wanted to quantify that as also in earlier calls, we talked about that the combined business Ukraine, Russia. And there again, the major part is Russia is give or take 2% of our revenue. And now obviously, with the 3 quarters of the year, give or take, now impacted by the sanctions, we wanted to quantify the 100 bps to 150 bps range as an impact from not doing business anymore with Russia. But we maintain the guidance from 22% to 24% for a number of reasons. It's early in the year, there are a lot of compensating factors and hence, we maintained the guidance. Now on your second question, it's a very interesting one. Obviously, we do see food inflation all over the place. And I think that's also something that is not new. I mean, in Western Europe in our part of the world, the sensitivity, the awareness of inflation has come back, but that has never gone away in other parts of the world. In Brazil, in India, people are used to deal with inflation. And to some degree, we benefit from that in that respect that we have solutions that cater very well to this challenge for our customers. Take India, but the same is true also for other parts in other markets, emerging markets. But in India, the price point of the INR10 is very crucial. It's a INR10 trade that has to take place, and that has happened since the last couple of years, and that's the ambition of our customers to maintain the price point. The way how they handle the inflation, inflation can be manifold. It can be the raw milk that goes up, it can be the wages. It can be, obviously, the packaging material cost. But the way how they handle it is by downsizing and that caters very well to the strength of the SIG system. I'm sure you recall, we talked about that, that we have this volume flexibility that we can very easily reduce the volume from 150 milliliters to 125 milliliter to 100 milliliters and that in less than 10 minutes on our machine, whereas on the competitive system, it takes you shifts, multiple shifts in order to change the machine. And that caters very well to our strength. And that's why we sell a lot of our what we call the CB12 packaging, which is a bit of a taller one. We had a shelf appearance, while it's downsized in volume, the shelf appearance looks like the pack before, and that is something that our customers, especially in India, but also in other emerging markets use in order to counter these inflationary trends.

The next question is from George at BNP Paribas.

Do you hear me okay?

We hear you well.

Great. I just wanted to go back to India. So 19 fillers, I guess that's about 1.5% of the filling line base, probably slightly more as a percentage of revenue given their new fill lines. It seems like it should be a country that's really in the sweet spot demographically for very fast sort of packaged food consumption growth. So can you just give some kind of elaboration in terms of what kind of growth rates you're seeing there and what the demand factor like this?

Well, absolutely. I think it's a super attractive market. I mean the number of fillers in India in percent of the total installed base, I don't think that's so meaningful because the ones that we placed in India were just recently placed and are fully loaded, whereas the average utilization of the installed base is obviously lower. So I think these are highly loaded fillers and especially as those customers that we work with, these are the top tier players that operate plants with high output. These are on the juice side, the Dabur, the Coke, Pepsi bottlers. But on the milk side, it's Amul, which is one of the largest player in the world, if not the largest, and definitely the largest in India or Mother Dairy are also local players. Now we do see growth in the low double-digit area in India for both juice, but also for dairy products. And we also see now in this period, post-COVID a strong demand. And the juice business is a bit more seasonal, the milk business is a bit more steady there and especially this season, this hot season, which is happening right now. There is a big demand, and we see that our customers are challenged to really cater to this demand. That's why we have now many projects in discussion. I think the timing with our announcement that we move forward that we want to look for the right location now to put our own manufacturing in place came really at the right time. We have now more and more high-level access to customers there. And I'm sure we're going to continue to see this number going up. And by that critic -- building the critical mass of volume in the country to fully load also a plant locally.

We have another question from Daniel at Mirabaud.

Yes, I have 2 additional questions. First, I was maybe not attentive enough. Can you explain why you eliminated the total and core revenue category? That's the first question. And then the second question is on the pricing coming back to that because I've heard that Nestle is increasing prices by 5% and inflation and wholesale inflation all over the world is more than 3% to 4%. Can you elaborate on why you continue to have that level of price increase because inflation everywhere is almost much higher than 3% to 4%.

Maybe I'll start with the second and then hand it over for you for the first one, Frank. I think on inflation, you need to look at the cost structure of our products, and that it compares differently than kind of a food product, where admittedly, obviously, the inflation for food ingredients went through the roof. There are certain ingredients that are kind of selling at a much higher price point than in the prior period. And I think also you see that with us on the aluminum and the polymer side, but keep in mind, I mean, the combined effect of what is kind of exposed to this world market price fluctuations is give or take 12%, 13% of revenue. All the other input costs are rather stable. Energy is 1% of revenue, for example. And the paperboard, you're familiar with that, we saw some over with multi-year agreements and we look at it rather as a stable input cost over time. Now this 12% -- 12% to 13%, again, 2/3 of that is hedged. So from that perspective, we have good visibility. And I think that's the main difference while we continue to work with the 3% to 4% compared to other businesses, including food businesses that have obviously a number of different commodities in their product that is exposed to the fluctuations of world market prices. And maybe core and non-core, Frank?

Yes. Well, thank you. As you remember, we sold the Whakatane paper mill in New Zealand, and the revenue for the folding boxboard that was produced there was the non-core revenue. And since that is gone, we decided to also seize that differentiation in revenues because all our revenues are core now. And we -- on the other side, we have 2 additional months in Middle East. And on -- for our growth rate, those 2 effects roughly balance out. So that's why our guidance for the full year in terms of growth rates also doesn't make the distinction anymore.

We have another question from Alessandro at Octavian.

Yes. If I can go back to pricing, looking at Q1 for the group. And then obviously, the question is similar for all regions, if you want to comment. But for the group, you have a 6% local currency growth, give or take, 3% pricing means that your volumes are about up 3%. Is there anything that sort of should worry me, us or you in the different regions? Because if I apply the 3% everywhere, it means Europe was negative, it means Americas was barely positive. It means maybe even Asia and we understand the situation in China, but it means Asia was -- the only one that had a really kind of a solid mid -- low-mid -- the mid-single-digit level was Middle East?

So the answer Alessandro is no, you shouldn't be worried because keep in mind the growth rate of the first quarter last year, where we showed growth of [ 13.4% ] on a group level. Europe or the Europe combined Middle East back then, 4.4%, APAC, 13.6%, the Americas first quarter last year, 41.6%. So I refer to the published core revenue at constant currency growth rates. So I think you may remember that last year, we saw a complete difference seasonality that we are used to see. Normally, our seasonality is more back-end H2 loaded. And last year, we saw the opposite. We had a head start into the year, a very strong start. Also margin as a function of operating leverage were much higher. And what you see this year, and that's what we already said at the full year presentation when we came out with the guidance, we expect the seasonality much more in line with the historical pattern where we are a bit more back-end-loaded H2 loaded. And from that perspective, I don't think there should be anything that concerns us in this development or in the start into the year.

Does that mean that then for the next quarter, the volume growth for the group can come back to more of a sort of normalized level? Or do you still have a basis effect through the year before you can sort of catch up to, I don't know, maybe the, let's say, the 4% -- 4%, 5% volume growth that --

No, absolutely. I mean we always have obviously a comparison effect and we remember that H1 was strong, so Q1 and Q2. But that said, that's why we guided for the 22% to 24% for the combined group, respectively the 7% to 9% for the stand-alone core business. So there is a clear expectation that the growth rate goes up now over the remainder of the year over the quarters to come absolutely.

Right. And then one last one, if I may. On the juice and milk, so to speak, game, is there any indication that maybe juices also due to the inflation and maybe the consumer being a little bit under strain and maybe has to cut on some discretionary expenditure that the juices may then sort of have at some point, difficulties in growing -- and if yes, in which market maybe could we expect that effect?

I mean you're referring to kind of the price elasticity of our products, right, respectively, the final product that is packed in our packaging. I mean we often talked about our markets. We operate at this entry level of process and packaged food, and that's why we also see the resilience in the business that we see today and that we have demonstrated over the past couple of years. We rather have these non-discretionary spend items. And you know the reference that I made before to India with this INR10 price point. So producers are really focused on making sure that they keep hitting the price point. So it means it's downsizing, there is less volume pack. But for us, obviously, there is not such a big difference whether we sell 150-milliliter or 125 milliliter pack. And so from that perspective, we don't expect a change in basically the structure of our business or the resilience in our end markets as a function of the current environment.

The next question is from Mengxian at Deutsche Bank.

So 2 questions from my side. The first one is on Hochwald, and the second one is a follow-up question to Russian impact. Could you provide us a ballpark quantitative revenue figures for the Hochwald contributions that you expected for the next quarter? And the second question is that you mentioned there are some compensation factor to support your 22% to 24% gross guidance despite the 100 bps negative impact from Russia. Is that mainly helped by the pricing increase? Or are there any other factors supporting it?

Sure. I mean we didn't quantify the Hochwald effect fully, but I think you can expect for the 15 filling machines that we have that they ramp up over the course of the year and that they will contribute to the growth in the European segment and that we're going to see that in more pronounced growth rates in the second and the third quarter this year. On the Russia impact, I mean, as I said before, we don't expect that the guidance is a [ pact ] that we maintain guidance, so to speak. It's early in the year, this 100 basis points to 150 basis points are not going to move from a today's perspective, our guidance of the 22% to 24%. There are other compensating measures. Price obviously is one, but there are others also volume upsides that we can consider there. And from that perspective, we maintain the guidance of the 22% to 24%.

We have a follow-up question from Jorn at UBS.

It's just on the mechanism of the price increases. Usually, as far as you mentioned, you negotiate prices in Q4 and Q1 for a 12-month period. Is this now becoming more flexible in this environment that you sit down with customers every 3 to 6 months, like we have seen in other industries like bakery, for example?

Well, that's a good question. You're absolutely right that normally, we set prices for a full calendar year. And we do that while starting in the fourth quarter. The major part of this discussion is taking place in the first quarter. And then we have some like this year that drag into the second quarter. You can imagine for our customers, it's a difficult environment to operate in. We heard it before. It's not only the packaging material that goes up in cost, but it's also all the other food ingredients that go up in cost. Now from that perspective, our approach is not significantly different this year than in other years. We just obviously sit down with our customers, we discuss prices, and that's exactly what's happening. So we see those discussions well underway. We also see that there are more customer agreements that are closed in the second quarter, we see that coming through. They are also mainly focused on full year agreements. I wouldn't exclude that we go shorter in one or the other instance. I definitely also, as we earlier said, we believe if the inflation is here to stay, we're also going to continue to raise prices, but normally, we try to operate with this 12-month window because it gives visibility to the customers and us, and that's what we kind of tried to maintain. But obviously, nothing is carved in stone these days and the adaptive circumstances require.

Are there any further questions?

If not, then I just wanted to remind everyone on the call that we have a Capital Markets Day coming up on the 16th of June. It's going to be a hybrid event. We're going to meet in Zurich, but we're also going to broadcast this for those of you that can't travel on that date. But we definitely appreciate if you're taking the time to see us in Zurich. So it's the 16th of June, so please put that into your calendar. With this, we will conclude today's video call. Thank you very much for your time and your questions, and have a wonderful day, everybody. We look forward to see you soon.