SIG Group AG (SIGN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for joining us. I'm Ingrid McMahon of Investor Relations. And with me today hosting the call are Samuel Sigrist, CEO; and Ann Erkens, CFO. The slides for the call are available for download on our investor website. This presentation may contain forward-looking statement statements involving risks and uncertainties that may cause results to differ materially from those statements. All 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 hand you over to Samuel.

Thank you, Ingrid, and welcome, everybody. Starting with the business summary of the half year, the performance of cartons, both aseptic and chilled has been above our expectations. Growth accelerated strongly in the quarter, resulting in constant currency growth of 6.7% for the first half. bag-in-box and starter pouch performance has clearly been below our own expectations, although there was a lower rate of decline in quarter 2 compared to quarter 1. Revenue for the first half of the year was down 12%. Bag-in-Box has been mainly impacted by 2 factors: soft consumer demand in North America for out-of-home dining and production challenges due to a plant relocation from Canada to the U.S., which took longer to ramp up than expected. This led to capacity constraints, delayed shipments and eventually lower profitability. Remedial action is underway to resolve these challenges. And going forward, we expect performance in bag-in-box to improve on a quarter-by-quarter basis. Due to the performance of bag-in-box in the first half of the year, we have updated our guidance accordingly. Our expectation for revenue growth is now around 4%, broadly in line with our previous guidance, which was at the low end of the 4% to 6% range. For the adjusted EBITDA margin, our updated guidance is at the lower end of a 24% to 25% range compared with the lower half of a 25% to 26% range previously. Aseptic carton continues to perform strongly, and its growth rate is clearly benefiting from the recent filler placements. We are seeing ongoing demand for new fillers spread across all geographies and categories and expect to place 75 or more fillers by the end of this year. As you know, this is a positive leading indicator for future growth. Lastly, we have refinanced a significant portion of our debt in the first half of the year, extending our debt maturity profile to beyond 2030 at competitive rates. Turning now to the key figures of the first half. Revenue at constant currency grew by 3%. The resin escalator for bag-in-Box and spouted pouch did not have much impact at the group level with revenue growth on a constant currency and constant resin basis, up by 2.9%. Adjusted EBITDA was EUR 369 million. The decline compared to prior year was mainly attributable to foreign currency headwinds and under-absorption of production costs in the bag-in-box operations. These factors were partially mitigated by lower raw material costs and a positive top line contribution in Q2, driven by accelerating volume growth. The strong improvement in free cash flow compared with the first half of 2023 reflects lower net working capital and lower capital expenditure. Net working capital improvements were driven by better inventory management and a decrease in volume incentives paid to customers. As expected, capital expenditure has declined in line with the completion of key property, plant and equipment projects, for example, our new plant in Mexico. At our Q1 results, we said that we expected a sequential improvement in the second quarter, and this was the case. Group revenue on a constant currency basis increased by 5.7% compared to a flat Q1. The adjusted EBITDA margin increased by 360 basis points quarter-on-quarter to 25.1%. The Q2 adjusted EBITDA of EUR 214 million was significantly above Q1 and above prior year. Adjusted net income was in line with prior year, reflecting higher adjusted EBITDA, offset by increased interest costs. Q2 free cash flow improved significantly to a positive EUR 24 million compared to a negative EUR 118 million in Q2, ‘23. As you know, free cash flow is structurally lower in the first half of the year, which is compensated for by cash generation in the second half, in line with our normal seasonality. Turning now to the performance by region. Europe delivered strong second quarter growth of 7% at constant currency and 6.4% for the half year. The performance was driven by aseptic carton volumes in the dairy sector as previous filler placements ramped up together with an increase in milk supply for aseptic processing due to favorable weather conditions. Europe continues to win new filler contracts and expect to place more fills in '24 than in 2023. Revenue from bag-in-box and spouted pouch declined against the strong prior year comparison, which included one-off equipment sales that were not repeated in this half year. Europe's adjusted EBITDA margin was in the first half, 27.4%, 50 basis points below prior year due to foreign currency headwinds related to raw materials purchased by our Swiss franc entity. In India, Middle East and Africa, the region delivered a strong performance in the second quarter with growth of over 25%, this following a 5% decline in Q1. This brought the half year growth rate to 11%. Demand in India remained at the high level. The increase in the second quarter performance was driven by improvements in outbound logistics in the Red Sea, allowing for increased deliveries into North Africa. Given that the situation in the region remains uncertain, we believe that there was also an element of customer stock building in the quarter. The group's first aseptic carton sleeves plant in India is on schedule to commence production by the end of 2024. This plant will have an initial production capacity of 4 billion sleeves. Overall, the region has secured a high number of new filler contracts during the first half year, including 6 cross-selling wins for system solutions for bag-in-box and spouted pouch in the Middle East and Africa. The adjusted EBITDA margin declined by 50 basis points to 27.3%. This reflects higher freight costs driven by the Red Sea disruptions. Growth in Asia Pacific was 2.7% for the first half. A quarter 2 revenue decline of 1.2% reflected a strong second quarter last year and some current market softness in China. Chilled carton growth was ahead of aseptic. In both aseptic and chilled carton, SIG continues to gain market share. In aseptic carton, we are utilizing our flexible filling technology to work with customers to reduce pack sizes. This enables them to offer consumers more affordable products. In chilled carton, growth is being driven by product innovation and enhanced customer service under our ownership. The volume recovery in Indonesia and Vietnam, which began in March, continued into the second quarter. Growth in Malaysia was driven by newly installed fillers. The region saw strong demand for new filling lines during the period. The Asia Pacific margin was 27.8% for the period compared with 29.6% in H1 2023. It was principally impacted by the devaluation of the Thai baht against the euro as well as ramp-up costs from the new chilled plant in China. In the first half of the year, revenue for the Americas region declined by 4.1% on a constant currency basis. The region did though return to growth in the second quarter with an increase of 2.3%. This was led by aseptic carton volumes, which gained momentum after a slower start to the year. Bag-in-box showed a sequential improvement in the second quarter, however, growth remained negative as consumer demand has not yet recovered, particularly in foodservice. Quick service restaurants have recently introduced promotional activities aimed at attracting consumers back to their outlets. The situation was exacerbated by the capacity constraints at our U.S. bag-in-box facilities, as mentioned earlier. Remedial action to address these operational challenges is underway and improvement is expected. The adjusted EBITDA margin for the first half year period was impacted by the under absorption of fixed costs due to these operational issues and the soft top line performance. This brings me to the end of this part of the presentation, and I will shortly hand over to Anne. To summarize, as expected, the second quarter showed a sequential improvement over the first quarter. In the second half, against the backdrop of muted end markets in some regions, we are focused on delivering a further acceleration in revenue growth and profitability. Now, Anne, please go ahead.

Thank you, Samuel, and good morning, everyone. Let's start by looking at the adjusted EBITDA bridge. Adjusted EBITDA for the first half was EUR 369 million compared to EUR 384 million a year ago. Performance was impacted by unfavorable currency effects, which reduced the margin by 60 basis points. The second quarter saw positive top line contribution following a soft quarter 1 as revenue growth gained momentum and contributed to the EBITDA. Raw material costs continue to be a benefit for the half year period due to lower hedge prices for polymers and aluminum. Production costs for the half year reflected the under absorption of fixed costs in the bag-in-box operations, while higher SG&A expenses reflected investments in growth, research and development and wage inflation. The next slide details the reconciliation from EBITDA to adjusted EBITDA. Compared with the adjusted number, reported EBITDA is higher by EUR 25 million and primarily reflects, number one, the usual net movement in noncash unrealized commodity and foreign currency hedging positions. The movement in the half year was positive compared to prior year. Number two, restructuring cost and impairment losses of EUR 19 million pretax, mainly related to the closure of the chilled carton plant in Shanghai, as discussed in quarter 1. The impairment was mostly due to the decline in the Chinese real estate market as we intend to sell the land. And thirdly, a decline in the fair value of the contingent consideration of EUR 38 million, reflecting the lower growth outlook for the bag-in-box and spouted pouch business. The next slide details the reconciliation from profit for the period to adjusted net income. Other than the adjustments I just described on the EBITDA bridge, the largest adjustment to net income is, as usual, the Onex PPA depreciation and amortization. This arose from the acquisition accounting when the group was acquired by Onex in 2015, and this amortization will cease after the first quarter of 2025. Net capital expenditure decreased by EUR 69 million to EUR 103 million for the half year period. PP&E capital expenditure included investments in the group's new aseptic carton plant in India and the chilled carton plant in China, while net filler CapEx reflected lower capital expenditure for new filling machines and higher upfront cash payments from customers. We are focused on optimizing the assembly cycle of filling machines, which has contributed to the lower net CapEx in the first half. We continue to see strong demand for fillers in '24 and expect to place over 75 fillers for the year. Net capital expenditure is forecasted to be within the lower half of the 7% to 9% of revenues for the full year. The improvement in free cash flow generation in the first half of the year compared with the first half of '23, was primarily driven by lower net working capital and lower capital expenditures. The reduction in net working capital reflected better inventory management and decreased incentive payments to customers due to volume performance in 2023. During the period, there was a slight increase in [ lease ] payments to EUR 26 million due to the ramp-up of the group's [indiscernible] production in Europe and the new chilled plant in China. While CapEx as a percentage of revenue was at the lower end of our range in the second quarter, we expect a slightly higher outflow in the second half, driven by the finalization of the construction activities in India. In 2024, the seasonality of our cash flow is expected to be in line with historic patterns, although slightly less pronounced than last year. As previously indicated, we expect free cash flow for the year to be above the 2023 levels. Turning now to net leverage and financing. Our leverage at the end of June was 3.2x, below the 3.4x reported a year ago. Compared to the end of '23, our leverage reflects the cash seasonality of the group. For the full year, we are targeting a reduction to around 2.5x. We have successfully refinanced a significant portion of the business in the first half of the year. We placed the EUR 450 million Schuldschein, which attracted a high level of demand from a wide range of investors and agreed a new EUR 50 million term loan. The proceeds from the Schuldschein and the new term loan, together with available cash, were used to prepay without premium or penalty, the group's EUR 550 million term loan that was due in June 2025. We also agreed a new EUR 300 million revolving credit facility and an additional stand by EUR 200 million RCF with our relationship banks. These transactions have extended our debt maturity profile, and we're close with competitive prices well ahead of scheduled maturities. I will hand over to Samuel, who will go through the bag-in-box [indiscernible].

Thank you, Anne. I wanted to take a step back with a brief overview of the acquisitions SIG has made since 2019. The purpose of the acquisitions was to enable the group to expand its geographic category and channel presence. This includes acquiring a license in Australia and New Zealand, buying out our joint venture partner in the Middle East and Africa, acquiring the chilled carton operations in China and of course, the bag-in-box and spouted pouch acquisition located primarily in the U.S. You can see from the pie chart at the bottom of the slide that in 2019, our geographic exposure to Europe has reduced from 44% to 30%, while our presence in Asia Pacific, the Americas and India, Middle East and Africa has increased. This places the business in a much better position to weather any volatility in one particular region. The Scholle IPN acquisition has given SIG access to food service channels and despite the pouch markets and significantly expanded our business in the U.S. It has enhanced our reach with customers through new packaging substrates, all while maintaining our credentials as a low CO2 packaging alternative. Bag-in-box and spouted pouch enhanced SIG's position as a leader in sustainable packaging, and we continue to confirm our hypothesis for future value creation. Bag-in-box is the preferred substrate for solutions in foodservice, which is projected to grow faster than retail. Bag-in-box is well established in mature markets with exciting potential for expansion into emerging markets. Spouted pouch is well positioned to consolidate its offering into a systems solutions model comprising equipment and associated packaging. It is a relatively new substrate with copper expansion in both mature and emerging markets. Importantly, we have the opportunity to further develop its environmental profile by introducing mono-material pouches, which are fully recyclable. This is already underway. Ultimately, we aim to introduce a fiber into the structure of the pouch as part of the shift from plastic to paper. Since the completion of the acquisition, we have been focused on transforming the business in line with SIG's business model. Historically, bag-in-box and spouted pouch have grown at the low single-digit rate per annum. Over the last 2 years, growth has been somewhat volatile. Following the end of COVID restrictions, we saw growth in the high teens. It subsequently normalized and was then further impacted by soft consumer demand in the U.S. Innovation and geographic expansion are key to ensuring resilient and consistent growth going forward. We are encouraged by our pipeline of cross-selling wins, which is gaining momentum as we develop our innovative offering and grow geographically. Expansion of bag-in-box and spouted pouch onto our emerging markets platform is progressing and emerging markets currently represents over 40% of the pipeline. We aim to broaden the revenue base by developing a geographic footprint comparable to the aseptic carton, although North America will likely remain the largest region. When we acquired the business, a clear objective was to move it away from transactional sales to a value-based system solution. To date, all cross-selling wins have been on this basis. Currently, 2/3 of our global pipeline represents system sales, while a growing portion is for aseptic technology. This is possible because we are delivering on our innovation road map. For example, in spouted pouch, our aseptic technology know-how and our filling capabilities mean we can develop the market with the next generation of high-speed aseptic lines. Our second-generation machine has already been launched, benefiting from cartons in line aseptic sterilization technology. The third generation with faster output is underway and is expected to significantly lower the total cost of ownership for our customers. We remain convinced that bag-in-box and spouted pouch will accelerate our growth in the midterm and enable the group to deliver growth in the upper half of our midterm guidance. For ‘25, we expect the substrates to return to positive growth on an annual basis. Now I would like to hand back to Anne for the guidance update.

Thank you, Samuel. Although the rate of decline in bag-in-box slowed in the second quarter and growth for carton picked up considerably, we have updated our full year guidance to reflect the first half performance of bag-in-box. We are updating our revenue growth outlook to around 4%, plus or minus 50 basis points from the low end of 4% to 6%. And we have revised guidance for adjusted EBITDA margin from the lower half of 25% to 26% to the lower end of 24% to 25%. Net capital expenditure is expected to be within the lower half of 7% to 9% of revenues for the full year. The rest of the group's 2024 guidance remains unchanged. The guidance is, of course, subject to input costs and forex volatility. We have confirmed our midterm guidance. This includes revenue growth in the upper half of our 4% to 6% range and an adjusted EBITDA margin above 27%. Net capital expenditure is forecast to be within the range of 7% to 9% of revenue, and the dividend payout ratio is expected to be 50% to 60% of adjusted net income. That concludes our presentation, and we are now happy to take your questions.

[Operator Instructions] Our first question comes from Jörn Iffert from UBS.

I will take them one by one, if it's okay. The first one would be, please, on the drop-through. For example, in the first half, you had around EUR 37 million more sales. But as you show in the EBITDA bridge, it's a EUR 6 million contribution to EBITDA, which is a drop-through of around 15%. Your group margin, of course, is much higher than we would expect and that incremental margins are even above group margins. So, can you help us to understand, is it only the volatile utilization at Scholle or anything happening in mix?

And I think that's what it is mainly what you just mentioned. There is obviously the under-absorption element and the mix comes on top of that. You also recall that the margin in Q2 last year was very strong. So that's a strong comp on margin from a mix perspective. So, the mix last year was very strong in Q2. So that's also a strong basis into the Q2 this year. But other than that, it's the under-absorption topic also from the bag-in-box and spouted pouch. There's no change or change in trend of margin mix.

And the second question would be, please, related also to margins going to the second half. Raw mats recently came down again. You never hedged 100%. But do you see this as an incremental support you have baked in your margin guidance already for the second half that aluminum, for example, polymers were coming down recently? Or was this something would be incremental for your thoughts for the margins for the second half and after this.

I would say we have built our model now that led to this updated guidance on the information that is available now. And we also saw, for example, in aluminum, there was a shorter drop, but let's see what's really going to happen with that over time, but we have made our assumptions around that. We always thought we expect '˜24 to be a year, probably rather back-end loaded with consumer demand accelerating into the second half. And we also said after the softer or weak start into the year after the Q1 that we need to see half year where we stand. And we do see now we have more visibility also on the second half. We do see that the end markets are not as strongly coming back as we expected them. And we also have more clarity on the turnaround required for bag-in-box and spouted pouch. We see better what the input cost is going to do in the second half on all of that led to this adjustment of the guidance where we stay broadly in line on the top-line with the 4% and give or take, 100 bps lower on the margin, reflecting just the lower absorption or the under-absorption that we have seen in the first half and also the other factors.

And the last question, if I may, deflation. Deflation, I mean, we saw a couple of stable companies recently showing lower pricing contributions. How do you think about your average selling prices for the sleeves for the next 12 to 18 months? So not for the next 3 to 4 months, but really for the next 12 to 18 months? How do you think about it?

Yes. I mean we always said we were trailing behind on the way up, and we're going to take our time on the way down. I would say, to some degree, the way down may already underway, but this year, as we discussed earlier, we see that our prices are broadly flat. And what our growth line reflects is basically volume growth. It's too early to tell what's going to happen in '25, but I think there's going to be maybe slight pressure on pricing, but we're going to see. But I think the other aspect that comes to mind with deflation is we saw that with shrinkflation, deflation is the other way around. There is an opportunity for our system flexibility because we can now scale up the volume again on the filling formats, and some customers already started to do that.

The next question comes from Charlie Muir-Sands from BNP Paribas.

Firstly, I wondered if you could give us any indication about whether the run rate seen in Q2 has been continuing into Q3 so far in July, whether the -- I mean, in particular, maybe in IMEA, there was sort of a bit of a one-time catch up? Any color on current trading you could give?

I mean we managed the year to deliver performance over the full year and over time. And we said it also in earlier quarter call, we don't manage the business for quarterly performance. We have a couple of hundred customers and there maybe a couple of thousand shipments in a given region in month a quarter. And so that's why the cutoff date for one vessel that leaves the harbor or not can make a difference in a certain quarter. Now for IMEA specifically, we have seen that, that is a region that is a bit more volatile comes at very decent margins. But it is a bit more volatile, and that's why I wouldn't be surprised if you see now a bit more muted growth in the third quarter. But I'm sure on the full year basis, we're going to see a very nice growth rate for the full region in the full year. Does that answer your question?

Yes. And the second question, just related to the reduction in margin guidance, you mentioned that's about the absorption of the fixed costs but you haven't really significantly changed the full year group level organic guidance. I just wonder how much of that lowering of margin expectations we should be thinking about carrying forward into next year as opposed to whether it's any particular one-off remediation costs you've been incurring this year that you would expect to reverse back out?

No, I look at this cost that we now carry throughout this year or rather as a one-off for '24. So obviously, we have remediation on the way, as I said earlier, and those are going to kick in now in Q3, Q4. Now that said, obviously, the '25 guidance is something we have time to think about. There are going to be many more factors than only this under-absorption or the cost of production. We're going to see where raw materials lie, we're going to see the pricing lies, where the overall consumer sentiment lies. But our aspiration to continue to deliver margin improvement hasn't changed. And...

Yes. And just finally, on the interest costs, I think previously, you had anticipated flat, but they have risen. What's your view on the full year?

The conference will resume shortly. The connection with the speaker has been resumed. Please you may proceed.

So, Charlie, I don't know when I lost you on your question. You were asking about the margin outlook for '25 and I said, look, maybe I'll repeat briefly and you interrupt if you have heard everything before. But I said, I look at this under-absorption cost more as a one-time event for 2024 and don't expect that to repeat for next year. But I mean, it's a bit too early to discuss 2025 margin guidance. We have time to form an opinion there. It's only going to be a function also where raw materially is, what pricing is going to do, how strongly growth is going to come back, which delivers operating leverage and obviously, we still have wage inflation and FX that we need to consider. So, all of that will lead to a more informed view that we're going to share with all of you early '25, but what I can say, I still have the ambition, and we have a clear mandate also with our midterm guidance to continuously improve our margin. And so, we're clearly also going to put that in our ambition for next year.

And one final brief question, just on the interest costs. I think previously, you had the aspiration to sort of hold those stable on the refinancing, but they've actually risen a bit year-on-year. Do you think that H1 is indicative of the run rate costs of your servicing your debt now?

So first, let's take a step back. Gross debt is below or has decreased by EUR 20 million and net debt by EUR 100 million. And as indicated earlier, the current refinancing exercise got us really attractive terms. However, what needs to be taken into consideration that the finance expenses in H1 '24 compared to baseline, which reflected more favorable terms for loans that were due and also repaid in June 2023. So obviously, that's why we see an increase now in the half year compared to previous year. And when we think about the second half of the year, probably I wouldn't be as pessimistic to just extrapolate the half year, but considering the cash flow generation towards second half, that's probably slightly going to be a bit less.

Next question comes to from Ravi Ephrem from Citigroup.

Firstly, in terms of your guidance for the full year, can you give some color on the implied growth rate in cartons versus bag-in-box and spouted pouches -- this is in context of the first half revenue for cartons being up 6% and bag-in-box and spouted pouches being down 13%.

Obviously, you're familiar with the fact that we don't guide by substrates, but I think, obviously, in the current environment, I understand the question. No, we were very pleased to see the aseptic carton and chilled carton growing at these rates, which clearly means that we outgrow the market. It is that we are rewarded for the fillers placed in earlier year. So, I don't expect that necessarily to change materially in the second half, yet I probably also don't expect an acceleration there. So really, I think what needs to come back to a growth is on a quarter-by-quarter basis, the bag-in-box and spouted pouches business. That's what we work on. So, we're going to see where we close the year for bag-in-box and spouted pouch, obviously, all hands-on deck, and the team is very focused to remediate the operational issues. But I mean, to some degree, we also hinge on the consumer sentiment in the U.S. and that's difficult to predict at this stage. So, I would say for the second half, not necessarily an acceleration in the aseptic carton, but an improvement in bag-in-box and spouted pouch.

On the 75 fillers that you're looking to place this year, again, can you give a split of carton and bag-in-box and spouted pouches? You mentioned 6 in the Middle East? And since you're calling out India for a very strong placement, can you give a sense as to how many of those 75 are in India?

I mean the 75 only refers to aseptic carton lines. You're right, I also referred to a number of systems placed or which we did win for bag-in-box and spouted pouches in system sales and cross-sell wins, but the 75-plus that I referred to is for the aseptic carton only. Now the good thing is it is really across the globe. I wouldn't single out one specific market other than maybe that I would say, in China, we placed right now a bit less capacity as the market has sufficient capacity given the muted growth. But other than that, replacing fillers and we are winning fillers across the globe, and that is very encouraging.

mean I was looking at the chart of your transition in bag-in-box and spouted pouch. And if you look at the geographic expansion prior to acquisition in 2027 and 40% of the pipeline deals from emerging markets, I mean, the big changes in APAC, would it be fair to say that almost all the change or the new projects are predominantly in APAC for that kind of mix or geographic mix shift to happen?

I'm not sure that I fully understand the question. So, you're asking what emerging markets geography is going to deliver most growth for bag-in-box spouted pouch going forward. Can you rephrase your question?

Yes. So, if I look at the Page 21 of the presentation in which you have -- yes, so, if you -- from the left to the right, the big changes in APAC being almost 1/4 of the mix in 2027 from [indiscernible] prior to the acquisition. So, I was wondering, is the pipeline predominant -- when you say 40% of the pipeline deals from emerging markets, is it predominantly APAC emerging markets?

Yes. I mean, first, the fact why we chose to show quarters here, we wanted to show that this is more indicatively, right? So, we haven't yet -- we haven't disclosed with this quarter where is the exact forecast, right? That's number one. Number two, I think your conclusion is still the right one because if you just simply look at the market size in the emerging markets, Asia Pacific is the biggest market and followed by Latin America, followed by Middle East, Africa. And I think from that perspective, yes, we expect that Asia Pacific is going to contribute most to the growth for these new substrates when we move them to the emerging markets platform.

The next question comes from Patrick Mann from Bank of America.

I know you said you're not keen to guide by substrates but just thinking about it sort of strategically or longer term with the 4% to 6% revenue growth target, how should we think about sort of aseptic versus bag-in-box and spouted pouch? Are they broadly similar? Or is it -- obviously, from this set of results, it looks like aseptic growing much quicker. And I know bag-in-box is a more developed market at the moment, substrate. So, should we think about it as a sort of lower growth aspect of the business? Or generally speaking, are they -- should we expect both substrates or all of the substrates to grow at a similar level over time? And this is your midterm guidance.

No, I understand. It's a good question. Obviously, we stick to what we always said since the acquisition that we believe that moving those substrates to the emerging markets platform will allow us to grow in the upper half of our guidance range of 4% to 6%. And I mean, let's start with the end market. The end market for growth for aseptic carton, if you look into a 5-year CAGR, and for the aseptic carton, let's say, it's 3% on a 5-year CAGR view, obviously, not taking into account the current softness. So, bag-in-box simply because it relates to food service, food service is going to outgrow retail, basically in all geographies where we operate. And then if you put on top, the end market growth for spouted pouch, assuming that we deliver aseptic solution that will open up completely new applications that can grow in the high single digit as a market. And I think that is a good proxy also of how we're going to see the composition of our growth rate going forward. Obviously, still aseptic carton grows from the stronger space and you're going to see rates as we have seen them in the past. Bag-in-box, maybe there's a bit of a push by us moving into the emerging markets platform, but as a substrate, it's more established. So, it's a good proxy also. If you look at maybe the 4% end market growth as we disclosed them earlier and spouted pouch is probably then once we come with the third generation, faster output machine has the opportunity to grow fastest, but obviously on the smallest basis. Does that answer the question?

Yes, that's really interesting and helpful. And then maybe just one more, if I may. How much of an impact does the ramp of the new sleeves plant in India have? I mean, how should we think about it? Does it unlock further volume growth by putting it kind of closer to your customers? Or does it -- is it more of a kind of cost benefit in that you're not shipping sleeves that far, or is a bit of both. I mean, I'm just trying to think how impactful the ramp of this facility is going to be on the results.

Yes, I would say on a shorter-term view, last year, we had the ramp-up cost of Mexico, which we don't have this year. This year, we have the ramp-up cost of India, which we will not have next year. But more -- that's, I think, the character of your question, more strategically, I think India for us is per se a growth investment because the market offers fantastic growth rates. But naturally, it comes along with localizing production that you have also an opportunity to optimize cost to serve. So, it's part of our India business case that we bring production locally in order to deliver the returns that we aim for. And that also includes, at one point, also fully local production, including extrusion, which is then allowing us to solve also the raw materials locally. And that is the same playbook that we have followed in all other parts of the world as well.

The next question comes from Pallav Mittal from Barclays.

Sir, firstly, you have mentioned this pipeline of cross-selling wins, especially in emerging markets, benefiting the bag-in-box and spouted pouch business. Can you please quantify the impact on volumes in the longer term?

Yes. And we have done that since basically acquisition because it was important to us and we also felt to all of you that we talk about it and that we provided as a proof of concept that there is indeed top-line synergy. And the top-line synergy of this acquisition is, on the one hand side, obviously, these cross-sell wins, but then also to drive the share of aseptic upbring through innovation to system-based solutions forward and bring it to the emerging markets platform, which offer attractive price points. So, there are a number of top line synergies for the lack of a better word, that will not only deliver value on the top-line in form of growth, but also our margin enhancing. We have abstained from disclosing a number on that. And the only thing that we're going to do going forward on a half year basis, we're going to show the growth by substrate. And already in the current 12% down, there is obviously a positive contribution from earlier closed deals in fillers that are placed, so, it's kicking in. And as I said earlier, also on the call, we aim to deliver growth on a full year basis for bag-in-box and spouted pouch for '25. And also, that is going to include the benefits of the lines that we placed this year. So, from that perspective, the cross-sell wins are materializing.

And just a follow-up on the new filler addition. So earlier, you were expecting 60 to 80 fillers, so say, 70 at the midpoint and now you are expecting 75 fillers. So where is this incremental growth coming from?

Yes, you're right. I mean we went through 2 years of elevated filler placements with over 90 fillers, and we always said, don't get used to that level. That's really now an expansion that we see also on the back of people really moving to the aseptic carton and in particular, to the SIG system. And I said, normally, I would be happy with any number between 60 to 80 that can fluctuate a bit. We do see that we expect now a number with 75-plus fillers that is close to the upper end of that range. I think that's a very positive one. I don't think there is one specific case to single out where they come from. As I said earlier, we really ensure that we get rewarded for filler wins across the geographies and across the categories.

The next question comes from Christian Arnold from Stifel Schweiz.

First, you have adjusted your production footprint with some negative impact on results this year, be it the chilled carton production in China or the relocation of [indiscernible] operations from Canada to USA. Are there more production sites adjustments to be expected going forward? Or have you reached now the production footprint you want to have, of course, excluding expansion investments?

Indeed, I mean, we have done now 2 rationalization projects. And the one in Asia, I would say, is absolutely going in line with plan, that's very well executed. You have normally, in such a transition a bit of extra costs, but they are in line with plan. Now in the U.S. and Canada, we need to self-critically say that was not that well executed. So, as we didn't ramp-up the equipment that we move from Canada to the U.S. up in the speed that we wanted. But yes, the U.S. was also a further expansion of capacity. So, I think that's where we need to do a better job. Now going forward, we have, at this stage, no initiated projects to further rationalize our footprint. But as in any business, there is a continuum that we look into that also, especially in more established markets. And from that perspective, I wouldn't exclude it but at this stage, there's nothing that we have planned that is material.

And the second question would be on the EBITDA reconciliation. The change in fair value of contingent and consideration, I mean, is it fair to assume that with this EUR 37 million in the first half that you actually have wiped out any earn-outs for the current year? So, no additional change in fair value to be expected for the rest of the year. And am I right that you -- there's no 1 year left, right, with a potential earn-out?

So, with the minus 12% that we have now for the first half, I think it's pretty logical to think about 2024 earn out probably not reaching the plus 6% threshold anymore. So, absolutely correct conclusion from your side. And then for 2025, as Samuel has said, of course, we target to bring the business back to growth, but the current assumption is really at the border line of whether that would pay an earnout by '25 or not but of course, we will see how that develops going forward.