SIG Group AG (SIGN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q2 2020 results conference call and live webcast. I am Alice, the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Ingrid McMahon, Director IR. Please go ahead, madam.

Thank you, and good morning, and thank you for joining us. I'm Ingrid McMahon, Director Investor Relations. And with me today hosting the call are 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 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.

Thank you very much, Ingrid. Good morning, everybody. I'm pleased to report a strong business performance in the first half and this despite the volatile environment. Organic growth was robust, especially when compared with an exceptional first half of 2021. Price increases were implemented across all regions. And in the second quarter, the top line contribution offset the impact of higher raw material costs. We completed the acquisition of Scholle IPN on the 1st of June, and Evergreen Asia is on track to close in the third quarter. These acquisitions expand our platform and cement to position as a leading solutions provider for sustainable liquid food and beverage packaging. Long-term financing for both acquisitions is in place, including an equity issuance in May; and Schuldschein, our German private debt placement at the end of June. As in earlier borrowings, the Schuldschein is sustainability linked with targets relating to our EcoVadis score. We continue to drive sustainability throughout our operations. Our sleeves production has been carbon neutral since 2018, and we are now actively increasing the proportion of on-site renewable energy. We are already sourcing real-time renewable energy from wind turbines in Germany. And this year, we are installing our largest-ever solar array at our Wittenburg plant, with another installation planned at Linnich site. Energy production from solar panels already in operation at other sites more than doubled in 2021. In Austria, we are taking steps to reduce our natural gas consumption and recently installed a heat recovery system at our Saalfelden plant. This will reduce our use of natural gas at the plant by 45% a year. Turning now to the key figures for the first half. Revenue at constant currency grew by 12.4%. This includes the contribution of Scholle IPN for the month of June. With Scholle consolidated for the full second half, we are on track to achieve our full year growth guidance of 22% to 24% at constant currency. Organic revenue growth at 7.5% constant currency refers to the SIG aseptic carton business, which continues to perform very well. We delivered strong adjusted EBITDA of EUR 281 million. The adjusted EBITDA margin was lower at 24.6% and compares with an exceptional first half in 2021 when we benefited from a significant raw material tailwind. This year, we are expecting a more normal seasonality with the margin more heavily weighted towards the second half. In addition, there is an increasing contribution from price in the second half. Adjusted net income increased and adjusted earnings per share were maintained. Free cash flow, which is structurally low in the first half was below last year, primarily due to working capital movements. We expect the group to be highly cash generative in the second half, in line with its normal seasonal pattern. In Q2, we saw an acceleration of growth, with organic revenue up 8.8% at constant currency. This reflected both robust volumes and pricing momentum driving an increase in adjusted EBITDA margin compared with Q1 2022. Adjusted net income increased and free cash flow turned positive in the quarter. I'm very pleased with the significant momentum behind our aseptic carton business. Some of the elements are illustrated on this slide. Sustainability is a key driver, with continued adoption of SIGNATURE packaging in Europe and our first SIGNATURE win in foodservice in North America, a sign that U.S. customers and consumers are focusing more on environmentally friendly options. The launch of SIGNATURE EVO earlier this year expands the offer of aluminum-free packaging across categories. We will accelerate our progress on our aluminum-free journey, leveraging Scholle IPN's barrier film technology, as we shared at our Capital Markets Day in June. Our packaging innovations can generate growth for many years. combismile, launched in China in 2017, continues to build momentum in the rest of the world, including in Europe where it is expanding our footprint for the on-the-go consumption. We also deployed our first combismile line in India for the popular Lassi drink, which is part of the iconic Amul brand. Our most recent platform launch, SIG Neo, next-generation filling machines with combivita cartons, will be adopted by Hochwald for the fast-growing plant-based milk category. Service is a key component of our solutions, and we are expanding our digital offering with the launch of mySIG portal. This is a unique platform that offers customers visibility on stock availability and workflows with 24/7 fast mobile access. It also facilitates the collaboration between the customers' employees and our engineers, further strengthening the relationship we have with our customers. Let's now look at how all the regions contributed positively to our revenue growth. In Europe, revenue growth accelerated in the second quarter as price increases came into effect. We are seeing an increasing contribution from on-the-go consumption of noncarbonated soft drinks, as demonstrated by the combismile launches I just mentioned. Our strategic push into plant-based dairy alternatives is also proving very successful. In the second half, we will see an impact on European revenues as sales of sleeves to Russia are discontinued. On the other hand, new fillers placed with Hochwald are continuing their ramp-up as the new plant comes on stream. European customers have been at the forefront of adopting our most sustainable packaging materials. In addition, we see benefits as customers continue to switch from PET into carton with Volvic now using cartons for still water, following its launch of flavored water with our cartons in 2021. Commodity prices are driving a new conversion opportunity in the high-margin food segment, with increasing interest from customers in switching from can to carton. Middle East and Africa saw very strong -- saw a very strong first half year performance across all categories. Market dynamics were favorable with a strong post-COVID recovery across the region compared to last year and school closures and other restrictions impacted our business. The liquid dairy business in South Africa rebounded compared with the first half of 2021 when our business was affected by the drought there. In addition to price increases, we also saw a strong contribution from new filers -- new filler placements and the ramp-up of fillers placed over the last 12 months. Across the region, we continue to expand our presence in liquid dairy positioning us to fully exploit the potential for growth in per capita milk consumption. This is a great performance by the Middle East and Africa region, but it does include an element of prebuying in the context of longer lead times due to logistics constraints. We, therefore, expect a bit of slower growth in the second half. Growth in Asia Pacific was driven by Southeast Asia and India as markets recovered from COVID. Revenue in China was affected by the COVID lockdown restrictions, although the white milk segment was stable due to the recognized health benefits of milk. As restrictions eased in June, customers tended to build safety stocks to counter further possible logistic disruptions. Southeast Asia saw continued volume momentum from recent filler placements as well as a good contribution from price. Diversification into liter format is bearing fruit and continues to drive new business. We are particularly proud of the multiple filler wins achieved in India, including with a major dairy and NCSD players. Overall, the flexibility of our system and portfolio is proving its value to customers faced with the need to reduce pack size to ensure affordability of their products. Filler flexibility has also been a key driver for the high number of new filler placements over the last couple of years in the Americas, notably in Brazil. We have a combined key customers as they have grown their share of the market. We have also continued to expand in the neighboring countries to Brazil. The consolidation of Scholle IPN for 1 month has the most noticeable impact in the Americas. Bag-in-box sales performed well in the North America in the second quarter. The construction of our new sleeves plants in Mexico is on track and commercial production is expected to commence in the first quarter of 2023. This will enable us to supply our U.S. customers faster and more efficiently, and will sustainably reduce our exposure to supply chain disruptions. In conclusion, a strong contribution from all regions. Frank, now over to you for the details on the financials.

Well, thank you, Samuel. Good morning, and also a warm welcome from my side. We delivered a strong performance in Q2 of 2022, and I'll now give you some more details. Let me start with the EBITDA and highlight some of the trends between the quarters, especially the expansion of the EBITDA margin in Q2 compared to Q1 as well as the absolute EBITDA increase, as you can see on the slide. After a number of years of negative impacts, FX made a positive contribution in the first half with the weakness of the euro against most of the currencies. The contribution from the top line increased significantly, including both volume and price benefits and it compensated the headwinds from raw material costs in Q2. The raw material impact in the second half will depend on the evolution of spot prices for the unhedged volumes of our raw materials. We've seen these prices come down in recent months from their peak levels in early spring. As already mentioned, the contribution of pricing will continue to increase as negotiations conclude with customers in the course of the year. In the second quarter, we saw a significant negative impact under the heading of production efficiencies. This includes higher freight and energy costs with freight particularly affected due to the cost of supplying the North American market, given well-known port congestion issues and the need to make one-off use of air freight. We do not expect these costs to recur to the same extent in the second half. The EBITDA contribution from acquisitions in the second quarter was EUR 11 million, entirely due to the 1 month consolidation of Scholle IPN. The contribution from acquisitions in the first half included, in addition to Scholle IPN, 2 extra months from the Middle East Africa business compared to the first half of 2021. This positive amount under other occurred mainly in the first quarter and is a result of not having the negative contribution from the Whakatane paper mill, which was sold last June, historic warranty claims and a number of other smaller items. Let's now move to look at the regions. It's clear that most regions have been affected by increasing sourcing and freight costs with a negative impact on their margins, as you can see on the slide. But as you saw from our Q2 EBITDA waterfall in the previous slide, we're increasingly offsetting these costs with higher top line contribution leading to quarter-on-quarter expansion of our EBITDA margin. I'll detail a few specific points on the regions. For example, Europe, disproportionately bears the higher cost of sourcing given it is a global production hub supplying other regions. And of course, the war in Ukraine had an impact on energy prices in this region. In contrast, Asia Pacific saw strong top line drop-through and benefited from relatively lower raw material cost increases due to its localized sourcing strategy. Also, its margin benefited from the elimination of the losses during 2021 from the Whakatane paper mill, which we divested in June of last year. Middle East Africa and the Americas experienced particularly high logistics costs in addition to raw material inflation. The Americas region also was impacted by some costs related to the new sleeves plant in Mexico. In all regions, we have been successfully pushing through price increases, which will increasingly benefit margins in the second half. Also, keep in mind that the seasonality of our business with higher volumes in the second half of the year will lead to higher cost absorption. This, together with the realization of production efficiencies, is expected to drive EBITDA margin expansion. Let's take a look at cash flows. Our free cash flow is structurally weighted towards the second half of the year. Comparing the first half of 2022 with 2021, we've seen an increase in net working capital, leading to a reduction in net cash from operating activities. This reflects elevated customer bonus payouts due to the strong prior year performance and some inventory buildup to address logistics constraints and extended lead times. The absolute increase in net working capital is also -- also as a percentage of revenue was driven primarily by the first-time consolidation of Scholle IPN and also the increase in inventories. Scholle IPN has historically had higher net working capital, and we've identified opportunities to reduce this. Moving now to take a look at CapEx. Expenditure on property, plant and equipment increased year-on-year as we continue to invest in our operations, primarily with the construction of our new sleeves plant in Mexico. Our level of gross filler CapEx continued at a good pace, reflecting the placement of new fillers as a basis for future revenue growth. As a percentage of sales, net CapEx was 3%, reflecting the high level of upfront cash received from a European customer on a major project. We still maintain CapEx as a percentage of revenue within our guided range of 7% to 9% for the full year. Let me now turn to leverage and financing. Net debt at the end of June totaled EUR 2.1 billion, while leverage was, as expected, slightly higher at 3.1x. This, of course, reflects the financing of the acquisitions during the first half of the year. Our midterm guidance remains to reduce leverage towards 2x with a milestone of approximately 2.5x by the end of 2024. We are pleased to have successfully secured the long-term financing of our acquisitions with 3 components to implement our balanced financing strategy in attractive terms. In May, we issued new shares with proceeds of EUR 200 million. In June, we successfully placed a sustainability link Schuldschein, or German market private debt placement, for EUR 650 million which diversifies our funding base beyond bond and bank debt. Finally, in July, we arranged a term loan for USD 270 million. These long-term financings will repay or cancel the bridge loans that were arranged at the time of the acquisitions. The elevated cash position on June 30 is available for the Evergreen Asia acquisition. Following the completion of our financings, our average cost of debt is around 2%, and our maturity profile is extended to 2029. This financing was achieved in a challenging macroeconomic and capital markets environment, demonstrating that investors value the resilience and cash generation of our business. This confidence is also reflected with S&P and Moody's confirming our ratings following the acquisitions. We now turn to our guidance for the full year, which remains unchanged. With regard to revenue, Scholle IPN will be consolidated over 7 months rather than 6 as foreseen when the guidance was set at the beginning of March. Evergreen Asia, on the other hand, will be consolidated for fewer than 6 months. In addition, the sanctions against Russia are expected to reduce full year growth by approximately 125 basis points. Taking this into account, we remain confident that we can achieve full year growth of 22% to 24% at constant currency. We expect to continue to face higher sourcing costs in the second half compared to last year. But these increased costs should be increasingly offset by customer price increases, and we have seen initial reductions in prices for aluminum and polymers in recent months. We continue to expect to achieve an adjusted EBITDA margin for the full year of around 26%. We also confirm our guidance for net CapEx as a percentage of revenue between 7% and 9% for 2022. Our dividend policy remains unchanged, with progressive growth of our absolute dividend per share and a payout ratio of at least 50% to 60% of adjusted net income. So in summary, our business is proving its strength and ongoing growth potential as well as its defensive nature. We are present in resilient food and beverage markets. We benefit from multiyear contracts for liquid paperboard, our primary raw material, and have proved our ability to raise prices. Thank you for your attention, and this concludes our presentation for today. Samuel and I would now be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Christian Arnold with Stifel.

Yes, can you hear me?

Very well.

A couple of questions from my side. You mentioned back, when you presented your full year figures, was an organic growth guidance of some 7% to 9%, so based on some 15% external growth. You have not mentioned that today, I think also not with the Q1 numbers. But is that still the figure we should look at, the underlying organic growth excluding all external effects and FX?

Absolutely. I mean you're absolutely right. We said our carton business, which normally is expected to grow in the range of 4% to 6% given the price impact we see this year, is expected rather in a higher range of the 7% to 9%. We haven't repeated this because, obviously, our headline guidance is around 22% to 24%. And now given that we maintain our 22% to 24% guidance -- and remember, 85% of the business is the aseptic carton business, I think that implies that we remain very confident also in the aseptic carton business. And you see in the first quarter, the second quarter, with the acceleration of growth, that we indeed also trail on a very good trajectory.

Okay. And is it a fair assumption to think that half of that 7% to 9% is maybe price driven and the rest is volume driven?

We said at the beginning of the year, the price effect is going to be 3% to 4%. And we also said already in the Q1 call with the visibility of what we knew on the price effects are going to come, they're going to become effective over the course of the year that we meet our expectations. So 3% to 4% is the range to think of.

Okay. On MEA, Middle East, Africa, strong performance. Do you expect any impact from the upcoming football world championship? Or have you already experienced some positive impact, stock building also on the back of that, thinking of the Qatar World Championship?

Yes. I mean, we saw that with other large events that there was Olympics or championships, they can have an impact in local markets, but I don't think that they become relevant for an entire region, needless to say, the group. So from that perspective, we expect positive momentum, but not really material impact on the top line.

Okay. Maybe last thing on Scholle IPN. I mean, you -- if I calculate it correctly, you have a positive impact of some EUR 45 million, EUR 47 million sales, and talking about EUR 11 million EBITDA contribution that implies EBITDA margin of 23.5 percentage points, something like that. Is that a figure we should also look for second half? Or do you also have here some seasonality?

I think if you do the math, I think it's about EUR 50 million revenue and the EUR 11 million that you referred to, EBITDA gets you to a margin of, give or take, 22.5%. That's a single month. I wouldn't read too much in that. I think they were very strong. They had a good month, but I wouldn't assume that is the new normal. So obviously, we've maintained the guidance for the combined business with around 26%, which includes also the 7 months for Scholle IPN.

So you're saying the 22.5% has very strong month. So for 7 months of this year, it will be rather below that.

Yes. I think it's a strong month. It's a strong month also from a margin perspective.

The next question comes from the line of Alessandro Foletti with Octavian.

Yes. Also a couple of questions. Coming back to the Scholle question, I was also surprised about the strong month. But this EUR 50 million, can you say how much it was, so to speak, the growth for Scholle in organic terms?

I mean on the growth, we haven't really provided an update on monthly growth rates there. You see the first month, and I wouldn't also read too much, as we just discussed with Christian, into the performance of a single month. We remain confident that Scholle IPN is going to deliver growth along the lines of what we anticipated. As you can imagine, there is an element of pricing as they have also this pass-through clauses, but also through underlying volume growth as a function of new customer wins where they go through a ramp-up. So very pleased to see that. And all that is encompassed in our -- embedded in our 22% to 24% growth guidance that we maintain.

Okay. But is there any reason why June is specifically a strong one?

No. I mean a single month, I would really not read too much into it.

I understand that the single month is not, but it's much more than the run rate of [ 474 ] divided 12 that I could calculate, right?

That's the point, right? I think it is a very strong single month, and you shouldn't assume that, that is the run rate, right, going forward. And obviously, as you run a business, there can be many reasons why a month can be stronger than the other, and it has to do with incoterms, and higher revenue recognition happens and whether the vessel leaves the port on time or not. All these things come together, and it led to a very strong month of June.

All right. Okay. And another question is on the input cost. Can you give -- maybe you cannot give the numbers, but an indication of how strong was the effect from energy, raw materials and logistics, because you also said that logistics obviously were particularly heavy for you in some areas?

Yes. Let me take this. I think it's no secret in Europe, energy prices are going up. Bearing in mind that if you look at the '21 figures, energy overall for the group is only 1% of revenue. So we're not such an energy-intensive business if you compare us with other aluminum-based business, smeltering, whatever. So that, I think, is to put this into perspective. Obviously, within Europe, energy prices, electricity, gas, all went up quite significantly, but it obviously impacts Europe. That's also what we saw in the Europe margin. But I think overall, we don't like it, but we're not as substantially affected as other businesses and industries and companies. On freight, U.S. port congestion, I think, is a well-known topic, lead times extended. Our customers do need to have products at certain points in time to fill up their milk or juices or milk alternatives. And so we did have to resort to some air freighting. We don't like this because it's expensive. But we have a promise to our customer and we fulfill our customer promises. And we've taken certain actions also increasing safety stocks, et cetera, that we expect that, that shouldn't reoccur. Obviously, we don't -- can't foresee what the port situation in North America is going to be. I think those are kind of some questions that you had. Also, if we look at raw materials, I think it's interesting to see that in Asia over the last 18 months raw material prices haven't moved as much as they have in Europe, when you look at polymers, they went -- they started more or less at the same level at the beginning of '21. And then European prices went up quite a lot, then kind of peaked in March, as I said, whereas Asian prices and Chinese prices didn't go up that much. So that's also where you see those effects of raw material and polymers in particular, being concentrated in Europe.

Okay. So if I look at the bridge, EUR 69 million is raw material, that's only raw materials and then I imagine the energy and -- which is more and freight is within production efficiency?

That's right. Yes.

[Operator Instructions] The next question comes from the line of George Borrows with BNP Paribas.

I just want to ask about your main production hub in Linnich in Germany, please? Given the sort of energy crisis in Europe at the moment, what is your exposure to natural gas there? And what kind of contingency plans have you put in place there?

I mean, a number of thoughts on that. As Frank alluded before, we are not an energy-intense player. If you look to the overall energy consumption that we have globally, there is -- the majority of it is electricity. There are some production steps here where we still use gas. We are also in the process to further reduce that. There are some where we just don't get out in short term, but work on midterm solutions. So if you look to give you a bit of a perspective to the total cost of 100 bps globally that we pay on energy, it is around, give or take, 17 bps that we sourced energy last -- gas last year of that, and we have the potential to reduce that a bit further, but there's a remaining portion that we need to buy. I think while there are midterm solutions to get away from natural gas, I think that's the time horizon of kind of, give or take, 2-plus years. I think there is also the fact that we have considered essential industry in those countries where we operate. In some countries, even got that in writing confirmed by the government as we are an integral part of the value chain to provide basic food products to people from that perspective. Even if you think in a scenario of rationalization of rationing, the gas product, I think we are confident that we can keep operations up.

Very interesting. And then on a different topic, I also wanted to ask more specifically about China, please, and challenges of the zero COVID policy there. Could you just elaborate on the kind of disruption that your business faced in Q2 and maybe now how things -- as things stand today, as we go into the first month of Q3, please?

Sure. I mean the lockdown from our perspective included more people than what we saw last year. Last year, you could literally say the country was locked down, but within the country was easier to move. Obviously that's normal, but not as difficult as it was now in the second quarter as so many people were under lockdown. What it meant for our customers was that distribution became very difficult because transportation from one province to the other was very difficult, because truck drivers didn't know where to take the test and what test they need to have, and that did have a major disruption on distribution of our customers and their end products or distribution to the end consumers. We also saw that one of the other customer had to stop production in April, May. What it meant to us specifically, we kept our operations running throughout the entire Q2, and we also were able to generally get our shipments to the customers. So where they get stuck was kind of finished products from customers to end consumers. But what we saw with the opening then and the relief of the lockdown is that people kind of did build up safety stocks and pulled more in the second quarter towards the end of the second quarter. And that's why I think, overall, we look at a very solid number. And obviously, if we speak now to our customers in China, they still signal to us that they want to meet overall full year commitments. And so that's also what we assume from talking to them.

The next question comes from the line of Jorn Iffert with UBS.

The first one would be, please, on the EBITDA bridge. It seems that the EBITDA growth is driven by FX and others in Q2. I know it's not always fair to just point at 1 quarter. But I was wondering why there were no more benefits from the price increases already in the margin development, for example. Is there any specific reason why the path on rising costs have some delays? And also, if I look on the pricing increase magnitude, assuming that it's maybe 3%, 4% for Q2, this is what you also mentioned in the full year guidance, but you're also saying at the same time, your price increase will further improve the margin in the second half. So is it still staying with the 3% to 4% for the full year, or it could be even a little bit higher? I would take the questions one by one, maybe starting with this one, if I may.

That makes it easy for us too. From a pricing perspective, we talked about already in Q1. And what we saw is that, obviously, customers experience price increase for basically any product and service they buy. So price increases went through in line with expectations. That's a 3% to 4%. We didn't break it down to a quarterly level, but on a full year basis, we expect this 3% to 4%. But we did see that, obviously, some of the price increases, even if agreed in Q1 became only effective in Q2. And we also had one of the other surcharge now that we kind of initiated also in the second quarter, which become effective in the second half year. So I think from that perspective, you can assume that pricing is going to help us to improve margin in the second half year. And the 3% to 4% is still the right range to think about for the full year.

Okay. Second question on the full year guidance. You're guiding for businesses like Evergreen, which you do not own right now. Scholle IPN you now own for 2 months. What is your conviction level and confident level that these 2 companies, in particular also Evergreen can really deal successfully with inflation environment, passing on the cost, having all the good executions continuing? Yes, what is giving you the conviction here as Evergreen, for example, is not under your control?

It's correct. Evergreen is not under our control, Scholle is since the 1st of June, but with both businesses, we did engage in integration planning to the degree that it was allowed. And obviously, we did our due diligence. So I think we understand the drivers of the business well. And from that perspective, we are confident to maintain the guidance for the full year, both on the top line as well as on a margin level.

Okay. And then maybe the last question, if I may on the -- just let me check here, on the cross-selling with Scholle IPN. I mean you only owned it for 2 months. I know it's a short time period, but you also mentioned something on your CMD. But do you have some more incremental color if cross-selling can already contribute materially to your top line in 2023 from Scholle IPN?

Yes. I mean what we went through by now, we concluded that exercises, we had workshops in all regions where we operate between our legacy team and the Scholle team, and we did joint account planning for cross-selling opportunities. So I think all the teams, even in those markets where Scholle historically didn't have a presence have now kind of a target and know what the route to market is. I think that was the first step. And as you rightfully say, on the CMD, we had one customer from South Africa that announced that he's going to buy a bag-in-box line, and think we're in talks even for a second line right now. We have other cross-generation leads already in Southeast Asia. So we are really pleased with the progress there. It's a good start. And we think over time, they will become more and more material. And I think we're going to see first numbers also in our 2023 fiscal year numbers of cross-selling efforts.

[Operator Instructions] We have a follow-up from Mr. Borrows with BNP Paribas.

I noticed in the presentation, you were calling out shrinkflation, which I presume to mean when your customers kind of shrink the format to keep the prices the same. I just wanted to wonder -- I just wanted to ask about what you're seeing from your customers in terms of them passing on the inflation across the value chain. Is it -- is shrinkflation kind of becoming more and more important? Are they still pricing aggressively and passing on all the inflation that they're seeing? And how do you think the consumer is positioned as we go into the second half of the year, particularly in some emerging market economies with the inflation that they are facing?

I think we see 2 trends, George. You see in the more mature markets that our customers pass the changed input cost on to the end consumer. So retail prices go up while quantities are maintained. That's also why CPI goes up in many mature markets. CPI goes also up in emerging markets, but especially for our product in emerging markets like India, like Thailand, where traditionally, price points are very important to maintain because people associate brands with certain price points. There we see that our customers' response to deal with the higher input cost is what we call shrinkflation, means reducing the pack size. And that's exactly where SIG is strong. And you're familiar with the fact that we have volume flexibility, which allows our customers to reduce the pack size within less than 10 minutes on the filling machine so they can cater to these price points. I think that's what we see more in the emerging markets. Your question -- the second part of your question is related to price elasticity, right? And I think it's worth to remember that we operate in this entry level of processed and packaged food, right, and that is basic products. And when we look back to other economics -- periods of economic slowdown, we haven't seen significant reduction in consumption as a function of slowdown GDP growth. Even, you may remember when Brazil went through this economic challenges post the impeachment of Dilma Rousseff, I mean, our business kept growing, admittedly at lower rates but we kept growing. So that's kind of the proof point that we have besides multiple orders in the Middle East and also during the great financial crisis that our business has its resilience also in an environment like the current one.

The next question comes from the line of Daniel Koenig with Mirabaud Securities.

Yes. Can you hear me?

Very well.

I had 2 smaller questions. First, on Middle East Africa, that is quite a region, which is characterized by oil-producing countries. And I was wondering what is your expectation for the full year? I guess the economies in the Middle East must be extremely strong. And then the second question would be on China. I just had a simple question. Did the Chinese market -- what kind of growth did they produce in Q2? And then I was wondering if you can give an update on the new plant, on that ramp-up? That's it.

Sure. Thanks, Daniel. I think in the Middle East, absolutely, I mean, many of those economies are linked to the oil industry, and whether they do well or not is a function of the oil price. And we do see that also in consumption there for our products. But again, that said, price elasticity is rather limited for the products we pack. These are products of basic consumption of basic needs at the entry level of processed and packaged food and that's why those economies are linked to the oil price. We don't see a very strong correlation with the consumption of our product. I mean as I said it before, during the call already, we are very pleased with the recovery that we see in the Middle East. They had obviously, the headwinds last year from COVID but also from the drought in South Africa, and they clearly demonstrated that they can come back strong. I don't think the rate that you see now is the rate for the full year. We're also familiar with the fact that we don't provide guidance for segment levels, but we are absolutely pleased with the recovery in the region.

Okay. And on China?

I don't have a specific growth rate for the overall market for Q2 yet, because it's a bit difficult as there was a major shift in the market, a major shift between offline and online. During lockdown, a lot of our products -- we already have a high share in online, but a lot of our products were shifted to the online channel as people just simply weren't allowed to go out. Also, the data providers struggled because there was a lot of community buying. People organize themselves and bought bulk orders for entire houses -- house complexes and then distributed it amongst themselves, so it's a bit patchy there. What we clearly see is that the consumption of white milk continues to do well as it did earlier during COVID. And I think we also see the benefit from that in our numbers. And your last question was on the plant that we have underway. I think you referred to Mexico. If I got that right, otherwise, please interrupt me.

No, no. The China plant, the second -- this huge second plant you were ramping up or building or...

Got it. Got it. No, that came onstream as planned, is fully operational and is working right now. There was no implication from lockdown. It's also in the city of Suzhou, close to Shanghai, where we were able to operate also throughout the lockdown. And so that's performed in line with expectations.

[Operator Instructions] There are no more questions at this time. Back to you for any closing remarks.

Thank you very much. So as there are no more questions, let me conclude the presentation of today. And in conclusion, I'd like to say, these strong results continue. SIG's track record of profitable market growth, and we talked about that at the Capital Markets Day. We have a strong pipeline of filler wins, demonstrating that our customers value our technology and flexibility. We talked about translation and our volume flexibility. And across our recently expanded portfolio, the markets where we operate are resilient and growing. We also touched on that. The acquisition of Scholle IPN has made a great start, and we are already addressing the many commercial and technological opportunities which it opens up. We talked about cross-selling, but it's also on the barrier film side. And we are maintaining our best-in-class ESG profile, with a focus on circularity and providing the lowest impact packaging across substrates and categories. With these closing remarks, I would like to thank you for participating in today's call, and I wish all of you a great summer break, and see you after the summer. Thank you very much, everybody.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.