SIG Group AG (SIGN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SIG Full Year 2024 Results Conference Call and Live Webcast. I'm Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ingrid McMahon, Director of IR. Please go ahead, madam.

Thank you, Sandra. Good morning, ladies and gentlemen, and thank you for joining us today. I'm Ingrid McMahon, Head 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 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 hand you over to Samuel.

Thank you, Ingrid, and welcome, everybody. Starting with the business highlights of the year. In 2024, we continued to outperform the market and gain share, proving the resilience of our business model and strategy despite the challenging economic environment, particularly for consumers. Carton revenue growth was 6% for the year. This strong performance in a softer market was primarily driven by share gains, which we were pleased to see in all geographies. In 2024, we placed 75 aseptic carton filling machines, which was another strong performance after 2 years of exceptional placements exceeding 90 fillers annually. Bag-in-box and spouted pouch revenue declined by 5% for the year at constant currency and constant resin. As previously discussed, this reflected a weak first half performance given strong prior year comps, soft market conditions, particularly in North America and operational challenges at our U.S. production facilities. The operational challenges were addressed, and we are pleased to report positive revenue growth of 2.5% in the second half of the year. We are in the process of transforming the portfolio of bag-in-box and spouted pouch so that new customer contracts are structured as system solutions, increasingly applying aseptic technology and with a higher share of business in emerging markets. I will come back to this later in the presentation where we discuss the synergies achieved to date. In '24, we continue to expand our global platform and manufacturing capabilities. In China, the construction of our new chilled plant in Suzhou was finalized and commercial production commenced during the year. We also successfully completed construction of our first aseptic sleeves plant in India in December '24. This new plant has a capacity of 4 billion sleeves. As previously announced, the group has approved the second phase of our local expansion in India with the construction of an extrusion line. The cost of the line is included in our 7% to 9% of revenue net CapEx guidance. We expect this extrusion line to commence commercial production by 2027. The expansion will increase our local capabilities, further shorten supply chains and will enable local sourcing of raw materials, which allows for natural hedging. Coming on to innovation. We believe that our innovation strength is the driving force behind our success and gives us a crucial competitive edge with customers. In '24, we launched 4 key innovations, which are driving our customer solutions. This includes new generation's aseptic spouted pouch filling machines, which use the aseptic technology of our established carbon platform to lower the total cost of ownership. During the year, we introduced speed-up kits for single-serve aseptic carton filling machines, enabling a 10% increase in output for existing installations. During the year, we also launched our alu-free barrier aseptic packaging for all product categories and not just for liquid dairy products. As a quick reminder, customers can use alu-free sleeves on their installed SIG base without requiring a new filling machine. In terms of bag-in-box, our recycle-ready offering is expanding, especially in Australia and New Zealand. Besides recyclability, our bags also offer lower overall plastic usage compared to other types of plastic packaging. We are delighted that our sustainability efforts have been recognized with the first-time inclusion in the Dow Jones Sustainability Index. We have also received reconfirmation from EcoVadis that SIG remains amongst the top 1% of all companies assessed for our entire portfolio of packaging substrates. We are also proud to have achieved an improved MSCI ESG rating of an AAA for 2024, which is up from an AA in '23, reinforcing our leadership in sustainability. As announced in March '24, Andreas Umbach decided not to stand for reelection, having chaired the company since the IPO in 2018. The Board has, as previously announced, nominated Ola Rollén for election as Chair at the upcoming AGM. Furthermore, as part of our regular Board succession, Matthias Währen and Wah-Hui Chu, both of whom have also been members of the Board since the IPO, have decided not to stand for reelection. Thomas Dittrich, who joined the Board at the last AGM, is proposed to succeed Matthias Währen as the Chair of the Audit and Risk Committee. In addition, we are excited to announce that the Board has nominated Niren Chaudhary and Urs Riedener for the election to the Board at the upcoming AGM. Having held top leadership positions in some of the most well-known quick-service restaurants globally, such as Krispy Kreme and KFC, we are looking forward to Niren's insights in the food service and hospitality industry, as we continue our bag-in-box expansion in this sector. As many of you know, Urs Riedener, the Chair of Emmi, the largest dairy in Switzerland, having previously led the Emmi Group as CEO for 14 years. Urs brings valuable insights of the FMCG industry to SIG. Clean Holding, which is beneficially owned by Laurens Last, has initiated legal action in arbitration against SIG. The claims of Clean Holding pertain to the contingent consideration under the share purchase agreement entered into in '22 for the acquisition of Scholle IPN. The contingent considerations depend on whether certain agreed revenue targets of the acquired business for the years '23, '24 and '25 have been achieved. SIG has determined that the prerequisites for payment for '23 and '24 were not met. Against the backdrop of legal action, the Board has decided not to nominate Laurens Last for reelection as a director at the upcoming AGM. Turning now to the key figures for the year. We delivered revenue growth of approximately 4% for the year, 3.9% at constant currency and constant resin and 4.3% at constant currency. Adjusted EBITDA increased to EUR 820 million from EUR 803 million in '23. The margin was 24.6%, slightly below last year. Adjusted net income was slightly below the prior year given higher depreciation, interest and tax expense, partially offset by the higher adjusted EBITDA. This was also reflected in the adjusted earnings per share. Turning to net capital expenditure, where we have adjusted our definition to include lease payments. Net CapEx including lease payments is EUR 82 million below prior year and 6.5% of revenue, which is below our 7% to 9% guidance. Lower net CapEx partially reflects a one-off benefit of lower filler CapEx. Ann will explain this in more detail in her section of the presentation. Free cash flow increased over 30% to EUR 290 million. Return on capital employed was in line with 23% and 27%. Net leverage slightly reduced to 2.6x. Finally, given the strong fundamentals of our business, we are proposing an increase in the dividend to CHF 0.49, which is up from CHF 0.48 per share in '23. A brief look at our Q4 KPIs show constant currency and constant resin revenue growth was 5.1%. Adjusted EBITDA margin increased to 26.2% compared with 24.8% in the prior year. The margin improvement benefited from a strong U.S. dollar and lower-than-expected polymer spot prices in the fourth quarter. Turning now to the performance by region. Europe has reported an impressive growth rate of 6.2% for the year. The aseptic carton market was supported by higher raw milk availability while also -- while we also gained market share from the ramp-up of previous filler placements. The region has placed 56 fillers over the last 3 years, of which 23 were placed in the year 2024. Part of the filler replacement cycle was accelerated by customers in response to the implementation of the single-use plastics directive, which mandated tethered caps by the 1st of July '24. We believe we successfully leveraged this event to gain market share thanks to our competitive total cost of ownership, the flexibility of our filling machines, including the ability to use alu-free sleeves and our ability to provide tethered caps without requiring significant overhauls to existing lines. Given this replacement cycle has come to an end, along with lower expected milk supply for aseptic processing, we expect the region's growth rate to normalize to more historic levels in '25. Following high prior year comps in the first half of the year, bag-in-box and spouted pouch reported positive revenue growth in H2. This was supported by the ramp-up of new cross-selling projects in bag-in-box and spouted pouch. These projects are structured as system solutions with recurring packaging revenue. IMEA had an excellent year with double-digit sales growth across the region. In the Middle East and Africa, revenue growth was driven by the ramp-up of carton filler placement across the region, as well as the start of a market recovery in Egypt and the GCC. In India, we experienced high double-digit growth, as we expanded our commercial presence across the country and gained share in a growing packaging market. We were delighted to win 20 cross-selling projects for bag-in-box and spouted pouch fillers in '24 in 9 different countries. This was a direct result of leveraging our SIG brand and customer relationships across the region. Asia Pacific growth for the year was impacted by challenging market conditions in China, while the growth in Southeast Asia was largely driven by the ramp-up of filler placements. Consumer sentiment in China remained weak during the year. However, we were able to gain share by reducing packaging sizes to offer more affordable price points for consumers. We also partnered with customers to launch flavored milk products, which were well received by consumers in the on-the-go market. In Southeast Asia, we gained share across all countries from filler placements. Growth was also supported by innovative product launches. Lastly, we were pleased to win 7 bag-in-box and spouted pouch deals during the year, most of which were for recycle-ready bag-in-box solutions in Australia and New Zealand. As we have previously discussed, the bag-in-box business was impacted by a slowdown in the out-of-home dining market in the United States. We also experienced operational challenges at our bag-in-box facilities in the U.S. Together with the high prior year comps, this exacerbated the sales decline in the first half of the year. We delivered positive growth in the second half of the year, as we addressed the operational challenges. However, recovery of U.S. out-of-home dining is still underway. Despite the challenges in the QSR market, we were pleased to sign 7 new synergy bag-in-box and spouted pouch contracts during the year, of which the majority were in North America. Aseptic carton volumes gained from the ramp-up of fillers in Canada, the United States and Mexico. We continue to see the adoption of aseptic technology across multiple categories and channels in the region. Brazil also saw strong volume growth from filler ramp-ups, mostly in single-serve liquid dairy cartons, while we continued to expand geographically into the surrounding countries. We were pleased to sign our first 2 aseptic carton customers in Colombia, and we further expanded our customer base in Chile with the largest dairy in the region outside Brazil. Now I would like to provide an update on our progress with synergy wins in the bag-in-box, spouted pouch as well as carton. Since 2023, we have won 39 fillers, with 30 of these in '24. Most of the wins have been for spouted pouch, followed closely by bag-in-box, demonstrating the opportunity for substrate expansion at our existing carton customers. On the right-hand side of the slide, you can see that the filler wins represent approximately EUR 50 million of recurring packaging revenue, which is projected to be realized in the second full year after deployment of the fillers. On the next slide, we have outlined the progress we are making to transform the bag-in-box and spouted pouch portfolio into an aseptic systems-based offering, similar to our aseptic carton business model, although a bit less capital intense. Compared to the profile of the business when we acquired it, all the synergy wins are structured as system solutions, which include filler, packaging material and technical service as well as a significantly higher proportion of aseptic packaging technology and a much higher share of future revenue coming from emerging markets. That brings us to the end of my section of the presentation. In summary, we finished 2024 with good growth, notably in carton and especially given the market environment. Briefly looking ahead to '25, we expect to place another 60 to 80 fillers in aseptic carton, and we have an exciting pipeline for bag-in-box and spouted pouch. I will now hand you over to Ann.

Thank you, Samuel, and good morning, everyone. Let's start with the adjusted EBITDA bridge. The adjusted EBITDA margin, excluding current currency fluctuation was stable compared to the prior year. The margin was above our revised guidance of at the lower end of the 24% to 25% range, reflecting lower market prices for polymers and the strong dollar in the fourth quarter. The top line contribution was driven mainly by volume growth in 2024, partially offset by unfavorable product mix. Pricing was stable compared to the prior year. Lower raw material costs positively contributed to the margin by 140 basis points, mostly driven by the lower polymer costs. These positive impacts on EBITDA were offset by higher production costs, mainly due to the operational challenges in the bag-in-box facilities in North America. This was also -- there was also an increase in SG&A expenses, driven by wage inflation and investments in growth. This slide details the reconciliation from EBITDA to adjusted EBITDA. Compared with the adjusted number, reported EBITDA was EUR 24 million higher and mainly reflected the usual net movement in noncash unrealized commodity and foreign currency hedging position. Then restructuring cost and impairment losses primarily 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, the decline in the fair value of the contingent consideration of EUR 51 million, reflecting '23 and '24 actions as well as the '25 growth outlook for the bag-in-box and spouted pouch businesses. This 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. This amortization will cease after the first quarter of 2025. So for the full year '25, this number will decrease from around EUR 100 million to approximately EUR 25 million pretax. The Onex PPA is recorded in the P&L with approximately 60% in cost of goods sold and 40% in SG&A. Please assume around 20% tax rate on this portion in your models. Coming on to CapEx. We have refined our net CapEx KPI definition to include lease payments as some of the group's recent greenfield investment projects were executed by our leases. In 2024, lease payments amounted to EUR 52 million. In 2025, we expect this amount to increase by EUR 10 million to EUR 15 million following the completion of our Indian sleeves plant in December '24 and for our tethered cap production equipment in Europe. Gross capital expenditure decreased by EUR 90 million in '24, reflecting lower investment levels into PP&E. It also included a EUR 30 million one-off benefit from lower fille CapEx. We reduced the filler inventory and refined our upfront cash collection policy, which now aligns cash inflows more closely with capital expenditure. We now have 1,434 aseptic carton fillers in field. Overall, including lease payments, our net CapEx as a percentage of revenue was 6.5% for the year. We continue to expect net CapEx, including lease payments to be within 7% to 9% of revenue going forward. We have reported a strong free cash flow generation of EUR 290 million, up EUR 71 million compared to 2023. Higher adjusted EBITDA and lower CapEx, including the EUR 30 million one-off benefit as discussed, contributed to this strong performance. In addition, increased volumes sold in 2024 led to higher cash balances. As part of our volume incentive agreements with customers, volume rebates will be paid to customers primarily in the first half of the following year. These benefits were partially offset by higher interest and tax payments for the year. Turning to leverage. We slightly reduced that leverage to 2.6x at year-end. The improvement reflects the increase in adjusted EBITDA. The EUR 74 million debt repayment was offset by higher lease liabilities of EUR 71 million. We are committed to reducing net leverage towards 2x in the midterm and anticipate further progress in 2025. In terms of refinancing in 2024, we successfully extended the group's debt maturity profile with competitive pricing and terms and saw a high level of demand from a wide range of investors. In November, we also signed a bridge facility ahead of our EUR 550 million Eurobond redemption in June this year. Let's now turn to 2025 guidance. We expect a similar market environment as in 2024. As such, we are guiding for total revenue growth at constant currency and constant resin to be between 3% and 5%. The adjusted EBITDA margin is expected to be within a range of 24.5% to 25.5%. In line with our usual seasonality, adjusted EBITDA margin and free cash flow will be higher than the second half of the year. As always, our guidance is subject to input cost changes and foreign currency volatility. As I mentioned earlier, net capital expenditure, including lease payments, is projected to be within the 7% to 9% range of revenue. The adjusted effective tax rate is forecast to be between 26% and 28%, and the dividend payout is expected to be within the range of 50% to 60% of adjusted net income. Our midterm financial guidance remains unchanged. Revenue guidance for constant currency growth is in the upper half of our 4% to 6% range. Revenue synergies from the enlarged business remain on track and efficiency improvements in operations and supply chain are progressing. As such, we expect to achieve an adjusted EBITDA margin of above 27% for the enlarged group in the midterm. Guidance for our net CapEx, including lease payments, remains at 7% to 9% of revenue, and there is no change to tax and dividend expectations. With this final slide, let me highlight why we believe we have a superior business model which has developed a solid track record and why we look to the future with optimism. The results we have reported today demonstrate the underlying structural drivers of our markets and our ability to capitalize on end market trends. Our system-based business model delivers recurring revenues together with our leading -- industry-leading innovations, especially in the aseptic space, drive our superior growth, share gains and margins. With our expanded packaging portfolio, we are providing customers with greater go-to-market opportunities in both retail and out-of-home dining channels. Hence, we would also like to take this opportunity to thank our talented and committed teams all around the world who will continue to deliver superior value to shareholders in the years ahead. That concludes our presentation, and we are now happy to take your questions.

[Operator Instructions] The first question comes from Alessandro Foletti from Octavian.

Maybe 2 things. First, this -- how you call it, challenge that you have with Mr. Last and his challenging the payout, basically. Can you indicate what's the process? Because you talk about arbitration. So I imagine at some point, it goes to a court, maybe in Paris, and then, there are 3 charges there, and then, they take 1 decision, and this is final with no appeals. Is that correct?

Thanks for your question. Yes, so we are in arbitration and that follows what you're familiar with the normal procedure of this arbitration rulings. And that's what we can comment on in terms of the process we are in.

Right. And that means -- no, by the end of this year, the story is solved or...

Well, I think it's difficult to get even from a lawyer an answer on how long that's going to take. So I mean we go step by step. I mean, you have seen we disclosed it now in the financial statements. We also could try to get our arms around it, and we haven't understood fully the reasoning. And so we go with this process step by step, but it's difficult to make an indication of the duration.

Right. Okay. I have another question, if I may. On your gross debt basically. I know you always indicated that your leverage comes down mostly because the EBITDA goes up, but I still would like to challenge it. Wouldn't it make sense to focus more on reducing the gross debt really? It is still very high. Most of it is variable. It would be a lot of cash if you could save on the interest expenses. Why don't you focus more on gross debt reduction?

Alessandro, thank you for the question. And of course, that is part of our game plan. And as I just mentioned, we have reduced the debt in the capital markets by more than EUR 70 million last year, but then the leases filled this one up. So, of course, it's part of the game plan, and we will continue also reducing gross debt as we go forward. But as mentioned also before, the main driver for the leverage reduction remains the expansion of the EBITDA.

Your next question comes from Ioannis Masvoulas from Morgan Stanley.

A couple of questions from my side. First, on Scholle IPN, do you expect 2025 revenue growth to outpace the group guidance of 3% to 5% growth for the year? Or could it continue to lag? And also, on the legal case, do you need to take any provisions related to this? Or do you feel confident around your legal position, and hence, there is no need for such provisions?

Yes. Thank you very much for the question. So our outlook for the business for 2025 somehow can -- and we don't guide, of course, on that level, but you can take a conclusion by looking at the provision that we still have for the contingent consideration, which basically indicates that we don't see the growth rate for the business above the 6% range, which would be needed so that the earn-out would kick in for the year 2025.

And obviously, it's a contingent consideration, and it's -- there's no provision right now in the books, right?

Exactly. There's no provision right now in the books, exactly, yes.

Very clear. And just a second question on China. We saw APAC revenue growth was back in positive territory in Q4. How did China perform during the quarter? And what are you seeing for early 2025? Are there any green shoots there? Or is it still a very tough market?

Unfortunately, we haven't seen much of a change in China. What helped in Q4 was the fact that Chinese New Year this year in '25 was earlier in the year so that meant preproduction and filling up of the distribution channel started in Q4. That did also help our sales. Obviously, that will further mute in the Q1 sales. Now, we look forward, as probably many people do, to what comes out of the Congress of the National Party here now in March and whether there are any stimulus programs announced afterwards to help consumer sentiment, but we're still waiting for the rebound of the Chinese market.

The next question comes from Ephrem Ravi from Citigroup.

2 questions. Firstly, on aseptic pouches. Can you give us a sense as to the revenue potential for that in 2025? The -- is it material to the revenue? Or is the profitability in the next couple of years? Or is it really material long term? And the second question is, I mean, can you break down the 75 fillers that you have installed this year by geography? Is there any particular region where there was a sort of a big drop in filler installations compared to the 91 total that you had last year?

Thanks for these questions. I mean, if you think about our substrates, carton, in particular, aseptic carton, bag-in-box and spouted pouch, from an end market perspective, we believe that over time, once we have fully complemented our aseptic system offering for the spouted pouch, that it's the substrate that has potential to be the fastest growing in our group. And bag-in-box, obviously, hinging on the food service market, which normally outpace retail has also the potential given that we want to shift it to the emerging markets to be a faster-growing one. We do see, obviously, on the back of the share gains, and that is what we continue to aim for in the aseptic carton that we can deliver also attractive growth rates in our core business. And from that perspective, we don't provide specifically on the growth rates for the different substrates. Now the 75 fillers, they are and that we're very pleased to see that basically across the geographies. What I would probably single out, what you may not see in the disclosure, is that in China, we still see very, very muted demand for additional capacity. China has sufficient capacity. We also heard from other system suppliers that equipment was returned. So that didn't happen to us. So our installed base didn't decrease. So that means also we did gain share in this current soft market environment. But so far, we don't see yet demand kicking in. Obviously, we have one or the other filler there, including bag-in-box, but also a bit of innovation on the aseptic carton, but nothing really material yet.

The next question comes from Jörn Iffert from UBS.

I will take them one by one. The first one is, what gives you confidence that the growth in the second half, as you just pointed out in the press release, is really better than the first half, to start with this?

Thanks for the question, Jörn. I mean, there are a couple of reasons, right? It's not that we just bet on a rebound of consumer markets in the second half and try to buy some time now throughout the first half. I think it starts also with basically the comps and the number of shifts that we expect in the growth mix, so to speak. I mean, if you look at the first half last year, in particular, Q1, the group didn't grow, but I mean, also, as you recall, that was bit of a reset that we saw. We had other reasons also in the bag-in-box, but also a reset because we had high comps in '23. So the revenue potential came down, as there was a non-repeat of an equipment sale -- one-off equipment sale in '23. So basically, we have a normalized basis for bag-in-box and spouted pouch for Q1 last year. And then we do see, if you recall last year, Europe was growing with over 7%, APAC with over 8%. And we don't think that Europe is going to sustain that, as I said before. We believe it comes down to more historic growth levels that we have experienced before. We expect it to continue to grow. So a number of structural shifts why we believe that H1 growth will be below the full year guidance and H2. Then, on the other hand, has the potential to be again on the -- above the full-year guidance. And from that perspective, China and a recovery in China and end market in general will help. We will further pronounce that. It will help us to land in a higher point in the corridor that we guide for, but it's not that we bet on a second half-year turnaround of end markets.

But this is quite meaningful recovery in the second half. When the first half is below 3%, in the second half, then likely above 5%. Without end market recovering, it's pretty challenging. Or am I wrong here?

I mean what you should keep in mind also, I know you consider that, is also the placements, right? The placements of the fillers, we have good visibility when they come on stream. So we had 75 last year that we kind of placed, and we see the ramp-up curve. And that also is something that we see indication that, that kicks in rather in the second half.

And then the last question, if I may. On the filler placement, the filler pipeline for 2025, how do you see it currently? Also after your comments like China, for example, is facing some overcapacities.

Yes. I mean, we're really pleased to see the pipeline, and we see continued demand across all geographies, apart still from China, not yet where we discussed big expansion deals. There is one or the other innovation deal that we discussed there, which we're looking forward to. And I would also say the demand is still, to a large degree, driven by solutions that bring rather total cost of ownership improvements rather than maybe differentiations in terms of differentiated formats where you fetch higher on-shelf price points. And I think that's a bit of the sentiment that we still see in the end markets, and that's where we have solutions, right, with the flexibility that our fillers offer. And we do see that demand for higher output filler is up, which is another indication that people aim to reduce total cost of ownership. But again, good solid pipeline across the globe, and we're confident to also place between the 60 and 80 fillers that we normally deem a good number in a given year to be placed.

The next question comes from Cole Hathorn from Jefferies.

Could you give a little bit of color on the split between price mix and volume that you expect into 2025? I'm just trying to understand how you feel about the raw material costs, how you're able to negotiate prices on the cartons into 2025. And then I'd like a follow-up on how you're seeing the Americas division, particularly how you're seeing food service. Any color or any positive green shoots you can call out with a lot of the QSR customers doing promotional spending, et cetera?

Yes. Let me start with the growth outlook for 2025 and its decomposition. So as always, our growth very much comes from volume, and we also don't see anything different here for 2025, and that is both market recovery, but then, of course, also the contribution from the recently placed fillers. For 2025, different than for '24, we also expect a smaller contribution from pricing into the positive direction because for '25, we also look at raw materials not being such a tailwind to the P&L, as they have been in '24, but rather to be moderately -- a moderate headwind for 2025. And that, of course, we look to compensate also with pricing.

And on the Americas, I mean, we do see that obviously, there is a strong competition to bring frequency traffic up in all the quick service restaurants. That helps us because with the promotions also people have a drink. I think what, in particular, helps us for -- we always talk about the 100 days of summer. That means that we are now in a position to fully comply with all the orders that we already start to collect and will collect. So that's why we believe in bag-in-box, spouted pouch. We're probably going to see also in terms of relative growth the stronger performance in Q2, Q3 this year.

And then maybe just as a follow-up. You had -- you placed an India production site. I'm just wondering if there's any extra costs or is that already in the base? And just how is the ramp-up of that new site going?

Yes. The ramp-up is underway. And, of course, it also includes a bit of ramp-up costs, but nothing out of the extraordinary that we would need to discuss this on a group level.

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

I just wanted to ask what do we need to see happen from a market backdrop perspective to get to your midterm guidance of the upper end of the 4% to 6% revenue growth range. I mean, it's been a couple of years of below that. You've made the acquisition. Last year, arguably, the 1H was weak, and Europe was strong, but I'm just trying to get some comfort on what has to happen from here to get to the sort of 5% to 6% revenue growth. And then I imagine that, that drives the margin re-rating up to above the 27% guide. But clearly, it's not going to be 2025, at least from where we stand today. So how do we get from here to there?

I mean maybe to understand that we can ask the question first, what got us where we are, right? I mean we used to see for the aseptic beverage carton global end markets, from an end market perspective, really growing with 3-plus percent. And that was driven by population growth, disposable income growth, people having a bit more money in their pocket to buy processed and packaged food. And this ability got significantly impaired with the inflation and the high inflation period we went through and has not yet fully recovered. So consumers across the globe don't have the money to spend money on our products or products packed in our packaging solution in the same frequency and the same quantity, and that impairs demand. So when we were in normal circumstances with a global growth rate proxy of 3-plus percent, we are now rather around 1%, so that gives you a sense how markets do. Obviously, there's a big difference between the regions. On a normalized basis, Asia was always the fastest growing one with 6%, 7%; 5% to 6%, Middle East, Africa; 3% to 4%, the Americas; and a flattish Europe. I mean, China, we discussed that right now, we don't see the growth that we used to see. But that needs to happen that disposable incomes need to adjust to the price levels for the consumers to be able to consume to the same degree, again. And that will be the rebound also of our growth rate or will obviously fuel also our growth rate. I mean, we were in a lucky position in so far that we had with this '22, '23 placements with over 90 fillers and last year 75 fillers, a strong offering that caters to pain points that customers experienced in this period, which was all about volume reduction. So shrinkflation is something we benefited a lot from. Many other facets too, but I think that's one to pin it to. And that allowed us to deliver a growth of 6% last year in the carton space against an end market, as I said, which was rather around 1% and that's what we continue to aim to deliver and compensate end market weakness with market share gains.

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

All really kind of cash flow focused, please. Firstly, for 2025 specifically, I know you've given us obviously a number of the components already. But do you have any specific leverage target in mind to reach at the end of the year in the same way that you gave us a guidance or a target for '24? Secondly, related to your change in the definition of CapEx, I understand you're shifting more to a leasing model a little bit. But given the last couple of years, those leases have been about 1.5% of sales. It kind of implies that you are on a like-for-like basis bringing your CapEx guidance down. I wondered if there was any kind of structural change in the business model or a reflection of the lower growth that you've seen in the last couple of years or if that was -- if there was anything particularly behind that? And lastly, just on the net working capital, it did rise. And I noted a comment on the slides about growing in geographies where you're not able to securitize your receivables. I just wonder, given the focus on emerging markets growth, whether we could, therefore, anticipate structurally that your net working capital will rise over time?

Thank you, Charlie. So let me start with the last one on the working capital. Correct, we have mentioned specifically the receivables and the geography mix behind. And overall, for the next coming years, we wouldn't really expect a structural change from anything. But to the contrary, we will continue to work on our working capital overall to further reduce it down. On the receivables, this year, there's also a certain component of timing, how the working days ended in the year. So I wouldn't be overly worried on this one. Then on net leverage guidance, so we're not going to give a concrete guidance for the year. But, of course, we say for the midterm, we're going to reduce towards 2. And you have seen what step-down in a year can be. So I would leave that up to your modeling here. And on the leases, yes, we have changed the definition because we feel it more accurately, also reflects the most recent decisions that were done. And again, as a reminder, those decisions also very much relate to greenfield investments for which you probably would look at it a bit differently than just a line extension into an existing site. But no change in the policy or in the business model or anything. We just believe we add more transparency, both to the investors and analysts, but also to our team's insights to make just better decisions overall with this KPI.

But to be clear, the last couple of years, the leases have been up 1.5%. So you've tapped 7% to 9%, but it's on a wider perimeter as it were. So effectively, is the rest of the CapEx getting smaller in any way when you say?

Yes. I think we also looked at it already before in a combination, also in our budget and approval processes. And I think Ann has pushed now to combine it also in the external, makes it much more transparent that we don't need to discuss how we finance the CapEx. It's more about what's the capital requirement for the business and that we are comfortable with the 7% to 9%. So it's more a mix change than rather a structural change.

The next question comes from James Perry from Citi.

Thanks for the presentation. Just a couple of quick ones. I'd like to ask about the Americas consumer. You said that U.S. promotional activity has intensified in the second half of 2024. Are you seeing that, that is indeed stimulating demand? And has that continued into early 2025? And secondly, on IMEA, obviously, you had another strong quarter, 12% growth. Do you think the double-digit percentage growth is sustainable in '25, particularly with the new India plant? Or do you expect some kind of normalization?

Yes. I mean, on the U.S., on Americas, maybe you have also followed the results calls of the big quick service restaurants. I mean what my read is and what we also see in our demand is that, yes, all these promotional activities, they do start to kind of deliver an impact or show an impact. So traffic in this quick service restaurant goes up. But yet, it's not yet to the levels that we have seen before. So that's a recovery curve that goes into the right direction. We are on it, but not yet fully recovered. And I think that goes also into Q1 and Q2 this year. When it comes to IMEA, I believe IMEA has the potential to continue to be our fastest growing geography. I mean, India, obviously, naturally, right now becoming more and more sizable, growth rates will slow down from high double digits. But again, I think it is a region where we're going to continue to see a lot of growth in the years to come.

The next question comes from Manuel Lang from Vontobel.

I have another question regarding seasonality. I mean, given the bag-in-box and spouted pouch has a very low comparable basis in H1, can we then assume for a more diversified growth pattern over the year? Or do you consider the usual seasonality to remain in both businesses? And then the second one would be regarding Europe and the growth outlook for 2025. And what do you consider here as a normalized growth rate in numbers? And then it would be also great if you could quickly touch upon the regional growth dynamics for the other regions as well, just on a high level.

I mean, seasonality should theoretically not impact quarterly growth rates, right, only changes in seasonality. And so from a fundamental seasonality, we still believe, obviously, that what we have seen in the past is also going to be the pattern that we're going to see this year. So a strong H2 and a bit of a softer H1, so in terms of absolute revenues. And again -- I mean, only the changes that will have an impact on the growth rate. And as I tried to elaborate before, yes, we believe that given the soft or the bad start last year of bag-in-box and spouted pouch, that eases the cost. But keep in mind, we came from a higher '23, had a non -- where kind of the one-off equipment sales did not repeat itself. So to some degree, the negative last year was also a normalization of the base on which we can now build on. And then we had in Q2, these production challenges also, which we started to address, but I believe this year, we will be in a position to fully comply with orders that come up in the 100 days of summer, so that naturally, we believe H1 is a bit of a softer start also in growth rates, and H2 will also in growth rates be in a bit of the stronger half year. Europe, I mean, if you go back since IPO, we were able to grow this market. Obviously, in the years where we had price, there wasn't the big challenge, but the volume was the challenge, right, because there was, depending on the year, no to very little market growth. And that really came down to our capability to continue to capture share. We believe we can continue to grow in Europe. We believe there is more share for us to grab. But if you look back it was in the lower single-digit growth rate, and I think that's a better number to think about. I mean, in terms of growth dynamics for the remaining regions, we have seen in IMEA that from quarter-to-quarter that the growth rates can fluctuate. That will be the case going forward as the other pattern in especially North Africa, GCC, it can vary from customer to customer. There is in one order a big demand, and that can have an impact on the quarterly growth rate. But overall, as I said before, we believe it can be our fastest-growing region. Asia, I think we discussed, the filler placements, Asia Pacific sales, we were very pleased. China, we all see now -- wait and see now what comes out in March after the Congress, is there any stimulus, what's going to happen in H2. And the Americas, I think we discussed.

The next question comes from Pallav Mittal from Barclays.

Just one question. So could you help us understand the margins on bag-in-box and aseptic carton? So in 2023, you had highlighted that aseptic cartons' EBITDA margins were 28% approximately, which would have implied bag-in-box was around 15%. So how has that changed in 2024? And what are your expectations for 2025?

Yes. Thank you for all the questions. So our expectations, as mentioned all the time, of course, is that all substrates continue to improve the margins going forward. So we also don't see that the aseptic carton is already at the end of what it can deliver. And for 2024, specifically, so we have seen very good margins in the carton business. And then on the bag-in-box, as we have discussed also during the year several times with the highlighting of the negative production impact that arose from the unabsorbed fixed cost in the operations challenges in the U.S., the margin of bag-in-box was declining in 2024 compared to the year before, but we're very confident to bring it up again in 2025.

The next question comes from Benjamin Thielmann from Berenberg.

This is Ben. A couple of questions from my side, if I may. So first of all, on the 3% to 5% topline target for 2025. So if I understand correctly, demand in Europe is a little bit more muted because of lower mix supply, China is a difficult market and Americas depends somewhat on a bag-in-box recovery. So -- and when it's H2-loaded or second-semester loaded as usual, is it fair to say that we're probably going to be more closer to the 3% than to the 5%? Because I tried to get my head around what region specifically could push you towards the 5%. I mean it cannot come solely from India. So I was wondering what we should assume here.

I mean, maybe I'll kick it off, and Ann, you add if there are any facets. The way we think about our growth rate and our ability to deliver growth in normal market conditions and in impaired market conditions, as we just experienced in '24, is the following. I mean last year, you see us, all substrates at around 4%, which, in my mind, is the low end of the 4% to 6% midterm guidance. And that's where we want to be in also on a more reliable basis, right? And you have seen since IPO, we have always delivered within or above this range. And for us, '25, it is a bit more of the same when it comes to the end markets in '24. So mentally, for me, that's also kind of around the 4%, where we want to land, unless there is obviously a market recovery kicking in, in the second half of the year. And that's how we think about our growth rates. And we thought that 3% to 5% is the right range to describe that. Obviously, it's early in the year. We always guided with a range of 200 bps. So we felt that expresses our expectation in the best way.

Okay. Okay. Understood. Maybe second question on bag-in-boxes and spouted pouch revenues. You mentioned that H2 last year was better than H1. So there seems to be a gradual improvement for these 2 substrates types. I know you're not breaking it down, but can you give us some color, particularly on bag-in-boxes? Have you seen a gradual improvement over the last year? Or was the H2 revenue growth of 2.5%, particularly driven by spouted pouches?

So indeed, we don't discuss it usually at that level. But I would say, no, we have seen the improvement also in the bag-in-box. And also overall, don't forget that the spouted pouch is by far smaller part of the Scholle business, so it wouldn't move the needle probably in the combined view anyway.

Okay. Understood. Maybe a final question from my side, a follow-up on the net CapEx topic. So the definition has changed and that is all clear. I was just wondering why is net CapEx by the old definition basically coming down. Is that purely driven because of the lower countercyclical investment phase? Or is there -- did you bake in some potentially higher upfront cash payments as well? Because if I look at upfront cash payments in '24 compared to '23, there seems to be like a little upwards bump in those numbers. And I was wondering whether the lower net CapEx is simply driven by lower expansionary CapEx or if you see, I don't know, a change in your contract, higher cash, upfront payments for the fillers or whatsoever?

Yes. Let me try to come back to the topic because I tried to explain it before already. So the EUR 30 million one-off benefit that I mentioned that we achieved in 2024 from the optimization of the filler CapEx had basically 2 components. Number one, we reduced inventory of fillers, but still, of course, placed a high number of fillers. And then the second one is we also improved the structure of the upfront cash payments time-wise in the new contracts, which is why the upfront cash aligned much better with the overall growth CapEx that we had on the filler side. And basically, this filler impact very much also made the net CapEx land below the 7% to 9% range that you were used to. So it was a one-time impact.

There are no further questions from the phone. Back over to Ingrid McMahon for the written questions over the webcast.

Thank you, Sandra. So we have some written questions from the webcast. The first is from Anders Knudsen at SEB Asset Management. Could you elaborate the progress in the cross-selling synergies with Scholle, please?

Happy to do so. You have seen we talked about, on the call, not only the cross-sell wins in a qualitative way, as we have reported on those basically since the business combination on a quarterly basis, but we also quantified that now for the first time. And you can see that there is good progress in this transformation of the offering of the portfolio and also in terms of where we generate these revenues. And we're very pleased to see that 100% of the deals we did win are indeed really system sales. That means for us, there was a filler involved. And there is also a supply agreement for packaging material, a multiyear supply agreement for packaging material. And there's a technical service agreement. That's what we aim for, the share of aseptic is higher. And obviously, the share of deals coming from the emerging markets is higher, which we always said we want to bring those substrates to the emerging markets platform that SIG has built over the past year. And you see the numbers quantified in the slide deck. That is a number that will obviously unfold over a period that follows from now on because those filler deals are signed now, filler needs to be placed, it needs to go through the ramp-up curve, and it can take normally up to 2 years in order for filler to deliver on the full potential.

And then we have 2 questions from Torsten Sauter at Kepler. Could you please provide some color on request by Clean Holding for arbitration? And why is it deemed necessary to have Mr. Last exit the Board?

Yes, obviously, Clean Holding filed legal action in arbitration against SIG with regard to this contingent consideration. As I said on the call earlier, we have determined that for the years '23, '24, there is no contingent consideration due. You recall the contingent consideration kicks in if there is growth above 6%. And the maximum payment will be due if the business grows at 11.5% in a given year. The period -- performance period is '23, '24, '25. So we are now in the last year of it. And I mean, there was also a reason why we structured it that way, right, with the 6% to 11.5% because we said we only are considering to pay additional -- or to make additional payments if the business clearly outgrows our expectation and end market's performance. To some degree, I must say we don't fully understand it ourselves what the rationale is. But now we are in these proceedings, and we will follow here. And I think that's also the reason why we have informed you and showed it as a contingent liability.

And then last question from Torsten. Given current Eurobond levels and following the refinancing, what should we expect for net financial results in full year 2025, please?

Yes. I would expect more of the same as basically on the 2024 levels because the lower rates that we see on the one hand will be offset on the other hand by the replaced bond that we need to -- that is maturing in June and that we need to replace, which will come at higher ticket. But overall, net-net, neutral between the year.

Great. That's all the questions from -- written on the web link.

Excellent, unless there are more questions, which, operator, doesn't seem to be the case, we thank everybody for your time today. Wish you a good day, and look forward to see you on the following roadshow. Thank you so much for your time. Have a good day, 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.