SIG Group AG (SIGN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SIG Q3 2025 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [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 madam.

Thank you, Sandra. Good morning, ladies and gentlemen, and thank you for joining us. I'm Ingrid McMahon, Director of Investor Relations. And with me today hosting the call are Anna Erkens, CFO and Interim CEO; as well as Jess Spence, Director of Group Finance and Reporting; and Dmitry Lebedev, Director of Group Finance, FP&A. As I believe most of you are aware, we will be hosting an investor update in 2 days' time in Zurich. At that update, we look forward to discussing the group's strategic direction, including capital allocation and midterm guidance, as was referenced in the company's announcement on the 18th of September. In today's call, we would like to focus on Q3 and the year-to-date financial results and to provide more information about the nonrecurring impairment charges also announced on the 18th of September. The slides for this 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. And with that, let me hand you over to Anna.

Thank you, Ingrid, and good morning, everybody. Let's start with the key messages for the third quarter. In line with our announcement on September 18, our revenue growth has reflected the deteriorating consumer environment throughout the year. In Q3, this culminated with softer volume demand across geographies and channels, including in the emerging markets. Given the challenging macroeconomic conditions and deteriorating consumer sentiment, customers have taken steps to optimize their inventory levels. We also saw a softer performance from the parts of the portfolio that will be deprioritized going forward as we focus on the profitable expansion of our core portfolio, including, of course, aseptic system solutions. As announced on the 18th of September, following a strategic review of the group by the Board of Directors and in light of the prevailing soft market conditions, we have recognized nonrecurring charges of EUR 320 million pretax in the quarter. This charge is almost entirely noncash, and it is expected that the remaining part of the charge up to EUR 40 million will be booked in Q4 2025. Associated cash outflows will also occur in 2026, for example, for severances related to adjustments in our structures. We will take a closer look at the composition of the nonrecurring charges in a few slides. Despite the tough market environment, however, we expect to place 60 to 70 fillers in 2025. This demonstrates our strong competitive positioning even in the current market situation. However, these new placements will not be sufficient to offset the currently lower level of capacity utilization across the installed base of over 1,400 fillers. Looking ahead, we were delighted to see the commercial launch of the first products filled in our next-generation aseptic spouted pouch system with ALCA Corp, a leading supplier of tropical fruit ingredients. The product was introduced at the Anuga Trade Show earlier this month in Cologne and received significant interest. This major milestone is a direct result of combining our experience in spouted pouch systems with decades of expertise in aseptic carton filling, utilizing our in-line sterilization technology. Lastly, we have an important update on the development of our 85% paper carton. We are very pleased to report the successful recycling trial, which took place at a paper mill in Indonesia in September. The higher paper content lowered the pulp line to half of a standard beverage carton. And crucially, the carton ran within the existing recycling infrastructure of the paper mill and resulted in an improved overall fiber quality and output. Turning now to the key figures for quarter 3. Constant currency revenue declined by 3.9% or by 4.3% on a constant currency and constant resin basis. Reported revenue was down 6.7%. Adjusted EBITDA for the quarter was EUR 123 million, leading to a margin of 16%. Excluding the nonrecurring charges, adjusted EBITDA was EUR 184 million and the margin was 24%. Adjusted net income was EUR 17 million or EUR 61 million, excluding the nonrecurring charges. Q3 free cash flow amounted to EUR 55 million, which is below the prior year period. This mainly reflects lower business performance, unfavorable phasing of tax payments and lower upfront cash collection, partially offset by better working capital. Looking at the 9 months figures. Revenue at constant currency slightly grew by 0.4% and was stable at constant currency and revenue. Adjusted EBITDA was EUR 495 million, translating into a margin of 21.1%. This includes EUR 61 million of nonrecurring charges. Without these charges, adjusted EBITDA was EUR 556 million with a margin of 23.7%. Adjusted net income was EUR 153 million. Excluding the nonrecurring charges of EUR 44 million after tax, it was EUR 197 million, in line with the prior year level. Free cash flow showed an outflow of EUR 84 million. The lower free cash flow performance reflects the lower adjusted EBITDA, including the unfavorable foreign currency movements and higher customer rebate payments given the strong volume growth in 2024. CapEx, including lease payments, was in line with the prior year period at EUR 169 million. Net leverage increased to 3.3x as of the 30th of September. We will provide further detail on net leverage in the second half of the presentation. Let me put the development of the quarterly growth rates into context on this slide, which shows our initial growth assumptions for 2025 compared to how the year has progressed to date. On the left side, going into the year, we assumed a softer start to the year with neutral to improving consumer sentiment as the year progressed. In addition, we expected the second half of the year to benefit from the contribution of new fillers placed. Moving to the right side, higher-than-expected growth in Q1 of 3% reflected a slightly more optimistic view from customers on end consumer demand. In Q2, however, we saw a slowdown in momentum, although our half year assumption remained intact. The Q2 slowdown initially appears specific to a few markets, such as India and a softer Europe before Q3 saw a more pronounced decline in orders. We believe that this, to some degree, was driven by customers adjusting inventory levels in light of the deteriorating consumer environment. Turning now to the performance by region. In Europe, year-to-date revenue has declined by 2.5% at constant currency compared to strong prior year growth of above 6%. This performance reflects several factors, including lower availability of raw milk for aseptic processing compared to the strong supply conditions in 2024. Also, the region benefited in '24 from the ramp-up of filler placements following wins relating to the European regulation on tethered caps in prior years. In particular, Germany experienced a soft third quarter. On the back of higher milk prices, there was an increased conversion of raw milk into cheese. Export volumes of UHT milk have also been lower. The juice category in the region has also declined, impacted by a weak summer season. In bag-in-box and spouted pouch, there's a good project pipeline in the region. In India, Middle East and Africa, overall revenue development for Q3 '25 was impacted by a strong prior year comparison of 20% growth, leading to a negative 8.2% decline in Q3. For the 9 months of 2025, revenue growth has been slightly positive. The region has seen a slowdown in demand for cartons in the Middle East and Africa in the third quarter. In India, market demand has been lower than expected, particularly impacting the on-the-go noncarbonated soft drinks segment. We have reported this already in the half year. And while the main season is over, the trend is not yet reversing. On the other hand, bag-in-box and spouted pouch revenue performance has been strong, driven by growth in India. Coming to the Asia Pacific region now. On an aggregated level, the performance of the region has been stable for the first 9 months of '25. However, the third quarter reported negative growth of 1.4%. In China, we have continued to focus on offering differentiated pack sizes and new product launches in aseptic carton. This has led to market share gains in a continuously soft market environment. In chilled carton, especially in China, performance has been affected by the competitive market environment and subdued market conditions, while in bag-in-box, there has been good growth in dairy. Elsewhere in the region, market softness in Thailand and Vietnam led to customer destocking, which was partially offset by a recovery in Indonesia. Lastly, in the Americas, revenue declined at constant currency and resin by minus 2.8% for the third quarter, bringing the 9-month growth to 2.6%. Year-to-date, aseptic carton has seen good growth in Mexico, Chile, Argentina and Colombia, especially in dairy. This has been offset by customer destocking in Brazil. In the U.S., bag-in-box experienced a slowdown in Q3 following good growth, especially in syrups and dairy in the run-up to the key 100 days of summer season. The out-of-home dining market has remained soft, reflecting subdued consumer confidence. Bag-in-box has also been impacted by a declining market in the wine category within the retail business and lower volumes of industrial bags. That concludes the regional section. And now let's take a look at the 9-month financials in more detail. Adjusted EBITDA at constant currency and without nonrecurring charges was up by 1.3% versus the prior year period. The appreciation of the euro, particularly against the Brazilian real, Mexican peso, U.S. dollar and Chinese renminbi has reduced the adjusted EBITDA margin by 50 basis points. The drivers behind the improvement to adjusted EBITDA were price increases and a positive product mix as well as lower raw material costs, mostly due to a favorable polymer price environment. Higher production costs reflected unabsorbed fixed costs and lower production efficiencies due to the weaker-than-expected volumes in the third quarter. SG&A costs were impacted by wage inflation and growth investments in the first half of the year, while Q3 saw a slowdown in the rate of increase compared to H1 2025. After the nonrecurring charges of EUR 61 million, the 9 months EBITDA was EUR 495 million. Let me now provide more color on the nonrecurring adjustments. In line with our standard definition, charges included as part of adjusted EBITDA are those where regional management is held accountable for the delivery of returns on customer projects, such as filling line investments or product launches. As you can see from the graph on the right, this portion amounted to approximately EUR 61 million. Charges excluded from adjusted EBITDA include noncash unrealized derivative positions and noncash impairments of intangible assets. In addition, we also take charges below the line that relate to footprint or capacity rationalization as well as rightsizing of the organization. Any such booking below the line needs group approvals and rigorously follows our standard definition. Charges excluded from adjusted EBITDA amounted to approximately EUR 260 million for the period, taking the total nonrecurring charge recognized in Q3 to approximately EUR 320 million. On this slide, you can see the breakdown of the full EUR 320 million. Approximately EUR 100 million is an impairment to the value of the bag-in-box and spouted pouch businesses, reflecting the weak consumer sentiment and business performance. This has affected the recoverability of acquisition-related assets. Around 85% -- EUR 85 million of impairments confirm the value of the chilled carton business. This principally reflects the weak market conditions in China, which has impacted the recoverability of the assets. Approximately EUR 75 million relates to the reassessment of the required operating capacities in aseptic carton within the context of the current weaker market environment. This includes production capacities in India, selected equipment in China and some filling lines across locations. Finally, under the headline innovation, around EUR 55 million is associated with the reassessment of the group's innovation portfolio, including the impairment of equipment that's no longer required and the impairment of capitalized development costs relating to projects that have been stopped following the strategy review. As stated earlier, the total charge of EUR 320 million is almost entirely noncash, and it is expected that the remaining part of the charge up to EUR 40 million will be booked in Q4 2025. On this slide, we show our usual reconciliation between reported EBITDA and adjusted EBITDA. For '25, you can see the impact of the nonrecurring charges on the relevant line items with the right-hand side aligning to our definitions as discussed on Slide 12. Other includes costs for the renewal of the group's IT systems and consulting charges for the strategic review. While under the column for nonrecurring charges, other reflects penalties related to the delay in further expansion of the group's production facilities in India and the charge for the CEO separation. Reflecting the methodology presented on the previous slide, here we show the impact of the nonrecurring items on net income and adjusted net income. Profit for the period without nonrecurring items was EUR 138 million in 2025. As stated before, the Onex PPA amortization, which arose from the acquisition accounting when the group was acquired by Onex in 2015, was fully amortized as of the end of Q1 this year. Net cash flow from operating activities mostly reflected the impact of lower EBITDA, including unfavorable currency movements against the euro as well as an increase in customer incentive payments for strong volume growth in 2024. Net CapEx, including lease payments, was in line with the prior year and remained at around 7% of revenue. Year-to-date, there has been a reduction in PP&E expenditure following the completion of the Indian sleeves plant, while net filler CapEx has increased due to lower upfront cash. In line with the group's usual seasonality, free cash flow generation is expected in the final quarter of the year. Turning to leverage. As you can see from the table, net leverage was 3.3x, with the increase compared to December, reflecting the usual business seasonality. Net debt as of the 30th of September was broadly in line with the prior year period, reflecting a favorable impact from the translation of the U.S. dollar-denominated debt. This was offset by a slight increase in gross debt due to the construction of the Indian plant. The group's debt covenants stipulate a net leverage ratio of no more than 4x reported bi-annually. The calculation is based on net debt to adjusted EBITDA, excluding asset impairments. Based on this methodology, for the last 12 months, the leverage ratio was 3.1x. Concluding with the guidance for the year. We confirm our revised 2025 full year guidance as announced on the 18th of September. This includes slightly negative to flat revenue growth at constant currency and constant resin. Including nonrecurring charges, the adjusted EBITDA margin for '25 is expected to be around 21%. Excluding the nonrecurring charges, the adjusted EBITDA margin is expected to be in a range of 24% to 24.5%. As announced, given the company's increased focus on capital discipline, the Board of Directors proposes to pause the cash dividend for the year 2025. Lastly, as Ingrid mentioned at the beginning of the call, this Thursday, we will host an investor update with our Chair, Ola Rollén, and members of the management team to discuss strategic direction, capital allocation and the midterm guidance. That concludes the presentation, and we are now happy to take your questions on the Q3 financials.

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

So I will limit it to two as advised. The first one would be, please, a quick one on the net filler placements. You said gross filler placements between 50 and 70. What do you expect roughly for the net filler placements for this year? And the second question would be, please, on the equity free cash flow run rate. I mean, can you just -- can I just double check, I mean, what does it mean now for the full year, the clean equity free cash flow? Should it be around EUR 150 million plus/minus? And then also, can you advise, is there anything we need to consider in the bridge for 2026, like, for example, the one-off cash cost? Maybe if you can clarify how much it will be for 2026 falling into this bridge.

Jörn, thank you for the question. So on the net filler placements, I guess what you try to understand is how much of the impairments that we have booked relates to fillers. And I would like to clarify here that the majority of the impairments concerned here relate to fillers that we have on stock, for which we are not confident to place them within still 12 months, which is the role for considering impairments given that the market environment is a little softer. And those that are in market where we have taken a bit of an impairment is, of course, fillers that are significantly underutilized, but which customers would like to keep. And that said, altogether, I believe we should end probably net filler placements for the year, difficult to estimate really, but around 40 probably for the year. And then second question on free cash flow. So you asked where we should consider to land for the year. And I would reiterate the same bridge that we have given already earlier, considering in last year that there was a significant amount of one-timers related to the improvement of filler contracts with earlier upfront cash collection and also building down of filler inventories. Then you need to take into consideration, of course, FX impacts that occurred during the year, and then the very large portion of the customer rebates, and I believe consensus is not sitting too far wrongly at the moment. And looking into 2026, of course, too early to give a guidance. We will give a very first view on '26 in 2 days' time. But special one-timers that you should consider, correct, that is one-off cash outflows for the severance cost of the transformation. And then I think that's the major part that needs to be considered for next year.

And can you quantify these one-off cash costs is around EUR 30 million, EUR 40 million? Is this something I have correct in mind?

Yes. I mean when we did the announcement, we said more than 90% or approximately 90% will be noncash. So with that, I would land at the same number, yes.

And this is a cash out in '26, right?

Yes, mostly.

The next question comes from Ioannis Masvoulas from Morgan Stanley.

My first question is on the chilled carton, where you report a large impairment, this EUR 85 million is nearly 1/3 of the original purchase consideration for the business. And you've also noted the competitive pressure in China. I appreciate the Investor Day is coming up, but just if you can provide some color on whether this business is fully up for sale. And then the second question, looking at your cost base, we've seen aluminum has been fairly strong year-to-date. Can you remind us of your hedge ratio in aluminum and whether you feel confident to pass through the rising costs next year in light of the weak demand backdrop?

Yes. Ioannis, thanks for the question. So on chilled, so it's correct that the EUR 85 million is a sizable amount, of course, and it reflects really the market conditions that we see, especially in China. I would ask for patience until Thursday before we discuss really the portfolio details. But I guess, chilled doesn't really meet the definition of an aseptic solution business. So potentially, the answer -- you will find the answers on Thursday on that one. On the raw material costs for aluminum, so our hedge policy hasn't changed, we always hedge between 50% and 80%. And we have done that also last year, and we will continue to do that next year. And looking again into 2026, we will provide guidance, of course, also first indications for guidance on Thursday and then the detailed guidance as always when we have our full year earnings release, which this time is early March. Against the market backdrop, that is a bit more -- a bit weaker, that's absolutely correct. But we are confident that with our very competitive solutions and innovations, we will also be able to pass on price increases where that is necessary as we have demonstrated also this year.

The next question comes from Lars Kjellberg from Stifel.

Two questions. First one on, you mentioned destocking and customer adjusting their inventory levels. Can you give us any sense what sort of impact that had on the quarter in Q3? And also looking into your guidance, of course, your, I guess, clean sort of revenue numbers were down 4.3% in Q3. Your guidance for the full year remains flat to moderately down, which would suggest actually reasonable performance in Q4. So the question there is being, are you now saying that there will be some year-end sort of purchase rally, which would then also bring the margins to bring it up to your guidance kind of north of 25% in Q4?

So let me start with Q3. I mean it's very difficult to single out what is now concretely a destocking impact versus a normal weaker market development. But I would also look at it not just so much on a Q3 perspective, but more really on a year-to-date perspective, where basically we are flat. Just the seasonality for the year was a bit interesting. That's how I would look at things. And what was built up earlier in the year then was probably contributing to a softer development in the third quarter. Now our guidance for full year, indeed, we have confirmed that we will be slightly negative to stable for the full year growth rate. And with that, I believe we confirm it fully, and that leaves Q4 somewhere also negative, but we expect it might be slightly better than what we have seen in Q4. And talking about year-end really, I mean, as always, the fourth quarter is our strongest quarter that will not change. And yes, that's also what we see for this year. And of course, the last quarter will also drive the margins to a higher level. Yes.

And just to be clear then, as far as your customer contacts would suggest that destocking, we're sort of done with that in Q3, that's -- your guidance would imply that is the case.

Yes. I mean that's difficult again to estimate, but I believe Q3 has seen the major portion of that, yes.

The next question comes from Pallav Mittal from Barclays.

A couple of them. So firstly, in terms of the softness in various markets that you're highlighting, such as India, China, Germany, et cetera, are you seeing any structural changes in terms of the per capita dairy consumption? That's one. And then secondly, can you just confirm that the restructuring charge in adjusted EBITDA is still expected to be EUR 75 million to EUR 100 million for the full year? You have confirmed EUR 61 million for the third quarter. So just wanted to make sure that EUR 75 million to EUR 100 million is what you are still expecting for the full year.

So overall, I would say we don't see really structural changes in the market. What we see right now is a temporary softness, and we will also be discussing our perspective on markets and opportunities on Thursday. Now on the nonrecurring charges, so it's correct that within adjusted EBITDA, we have booked EUR 61 million in the first -- in the third quarter and that we expect further bookings in the fourth quarter, which, of course, will also fall into that bucket. So yes, we would confirm at this moment, the EUR 75 million to EUR 100 million also in that bucket. That said, I think you also mentioned or at least I understood that you mentioned severances. Severances doesn't fall into this bucket, but that would be below the line, as discussed earlier.

The next question comes from Cole Hathorn from Jefferies.

I'd just like to understand a little bit better how you're thinking about 2026. If volumes have been softer and utilization has been lower, do you plan to kind of pull back some of your CapEx or your filler placements into 2026 to improve utilization of your current filler base? So should we be thinking about kind of a lower CapEx number in 2026? And related to that, on the free cash flow side, should we be thinking about lower volume rebates being paid out in 2026? So lower CapEx and lower volume rebates supporting free cash flow in 2026.

Cole, thanks for the questions. And so on 2026, really, I would ask for a bit of patience still. I mean, it's only October. But -- so I think the consideration that probably 2026 is not going to be a year where we hit a record filler placement of above 90% again. I think that is a fair assumption. And thinking about free cash flow, where we have discussed for this year that we have had a significant negative impact for volume rebates payout. I would not expect that something like this repeats to that extent, of course, in 2026. But for full '26, so as discussed, the first guidance, we will provide on Thursday and then all the details we will give as always, when we release the full year earnings.

Understood. And then maybe then just focusing on the 2025 free cash flow, just to help us understand a little bit better the moving parts just because there's always a very big second half weighting of the free cash flow. You mentioned that consensus of around the $140 million to $150 million free cash flow is broadly in the right space. Could you just reiterate some of the benefits that you get into the fourth quarter? I just missed some of that earlier.

I think as always, the fourth quarter, really, that is driven by two factors. Number one, it's a very large quarter. So more sales, of course, also in the end, deliver more profit and with this more free cash flow. Then you should also consider that in the fourth quarter, there's typically no more payments for volume rebates of the year now because that happens largely in the first half, sometimes in the third quarter, but definitely not in the fourth quarter anymore. And always, of course also, don't forget, we have always a bit of an inventory buildup throughout summer autumn for the strong year-end season. And of course, that inventory will also come down and will drive also a higher free cash flow in the fourth quarter. Does that help?

Yes, that was very helpful. And then the last follow-up, I know you're going to give more on your Investor Day. But if we think about the impairment buckets and what has been impacted, if you look at the chilled carton, EUR 85 million, that's around 25% of the value that was paid for the Pactiv Evergreen acquisition in China. I'm just wondering, could you give a little bit more context of what you have done in chilled carton to integrate it with your aseptic? Is it still a separate business? Or how integrated is your chilled carton versus your aseptic business if that is considered noncore for disposal?

I think -- I mean, it's a separate business, and you can run it separately. But of course, I mean, we bought it also back then for the reason that it opens up a new customer base for us also for the aseptic carton, and we have been successful in diversifying the customer base in China over the last couple of years, but we believe that it's really a stand-alone business also still today.

So no footprint like manufacturing overlaps, et cetera? So you're not producing items in the same factories, it's still separate production for chilled?

Exactly. So there's limited overlap. And of course, it's in separate buildings.

The next question comes from Ben Thielmann from Berenberg.

I have two, if I may. The first one would be, if you onboard new clients in 2025, do you have any price erosion year-over-year, let's say, for your cartons or your bag-in-boxes compared to last year? That would be the first question.

I'm not fully sure I understand that. But if the question is, do we have price decreases, I would say the answer is no. To the contrary, we also see it in the EBITDA bridge that in the positive -- well, positive top line contribution, of course, comes from pricing. So no, the answer is no.

Yes, okay. Yes, that was the question. But I was wondering, is this the case for all of the substrates you're selling? Or is there a mix effect that you have it for the cartons, but not...

No, I think that's the same across the different substrates. I mean we always, of course, for the bag-in-box spouted pouch business need to consider the resin portion, and that's why we always call it out, and that's why we published the two growth rates. Because in that business, as you know, basically, you pass on the fluctuations of the resin cost. And that has been also coming -- the resin costs have been coming down, but I wouldn't consider this a price impact as such. That's just a normal fluctuation of the algorithm there.

Okay, perfect. And then maybe one question, which is a follow-up on the question from Jörn regarding the net filler placements or the gross filler placements. Is there any color you could give us how many of those 50 to 70 on a gross basis or the 40 on a net basis? I mean this is only related to the aseptic business, right? But maybe any color on the bag-in-box and the spouted pouch business?

Yes. Also in the bag-in-box and spouted pouch business, we have been continuously placing new fillers and new equipment. And I think we're very happy with the development over there also.

[Operator Instructions] The next question comes from Christian Arnold from ODDO BHF.

Question on the nonrecurring charges, the EUR 75 million market and capacities. Could you just repeat what's behind that and give us here maybe some additional color?

Yes, absolutely. So the majority of this concerns our Indian plant and also China. So in India, we were aligning our capacity investments with the demand outlook in the country. So India has not yet achieved really the expected run rate. And yes, we need to ensure that the group focuses on really profitable projects in line with our focus on higher-margin aseptic system solutions. And then in China, this relates mostly to impairments of production equipment. And then the last portion, that is also fillers. And as I described earlier, fillers that we have in stock, which haven't been sold or redeployed within a 12-month framework and really very limited on fillers that are in the market that customers want to keep, but which don't run at the capacity utilization as they should.

These three baskets, are they kind of similar size? Or what is the largest one, very important one?

No, I would say the Indian basket is the biggest one.

Okay. And the second question would be on the net leverage increase to 3.3x. I mean you also just mentioned the higher cash flow generation you're expecting in Q4 as always. So that should come down by year-end. Maybe still, do we have to fear some higher financial expenses on the back of the higher leverage, some risk premiums you have to pay on the financials?

Yes. So first, correct, of course, the leverage ratio should come down until the end of the year again, as always, the usual seasonality. And talking about interest cost or finance expenses. So in line with that the underlying rates being more favorable, of course, also our finance expenses are developing very decently for the year, and we are overall below last year. If there's any adjustment on -- because of anything a different leverage ratio, that should be really a marginal impact, especially considering the favorable development of the underlying rates.

The next question comes from Alessandro Foletti from Octavian.

Also related on the impairment charges. In a way, I don't really understand where they come from in the balance sheet when I look at your assets in the annual report. Can you give a little bit of an indication how much comes from the fixed assets and how much comes from the intangible assets?

So I'm not fully sure. No, let's put it differently. So all the splits, of course, we will publish with the financials for the full year. And I think it makes sense to give us the time to really also finalize all bookings during Q4. And -- but you can expect, of course, that a very significant portion of the impairments will go to intangibles related to the PPE -- PPA of the acquisitions. And then, of course, there will be also impairments on PP&E. So I think that's basically the two blocks where you would find that in the end.

Okay. And the capitalized R&D, can you give an indication how big that is?

Yes, that is a small double-digit million euro amount that we have there. And probably you remember from the discussions that were held back then on that topic that this very much relates to know-how generated for a new filling platform that was developed over a couple of years, which in the current market environment proves to be probably too complex and too costly for customers to adopt. And that's -- hence, why the decision was taken to stop the project and to not market that equipment further.

Right. And is there more capitalized R&D on the balance sheet or we are talking small amounts at the end of the day?

So after this, basically nothing -- very small amounts are left, yes.

Right. And maybe one last thing. Those fillers that I have now understood, you have some fillers on stock where you have impaired part of it because you cannot deliver them in the next 12 months. Maybe two questions to this. It has nothing to do with this filling platform, you just impaired the R&D on the filling?

So of course, for the fillers that are impaired, of course, there is also equipment relating to this new platform that is not going to begin. The fillers on stock that I had commented before, I mean you know that when fillers are deployed with customers, but then don't reach the utilization that we agreed, we have the opportunity to take them back, which we also do. And then we redeploy them typically with other customers. And for ourselves, we have defined the rule if such a redeployment doesn't happen within 12 months, then this is an indication that the value of the filler has impaired. And of course, in the current market environment, it's more difficult to redeploy fillers. And that's why we have taken a conservative approach and have impaired those fillers that sit on stock and haven't been redeployed within 12 months.

But will be redeployed later on?

Yes. I mean this is not tariff for the group, of course. So if we find an opportunity to redeploy them later, of course, we will do that, absolutely.

The next question comes from Miro Zuzak from JMS.

Just one question. In the last 8 years, you had quite a high increase in installed capacity. So just the net filling machines, the increase, but also given the fact that you install high efficiency fillers and you take back low efficiency fillers, means that your capacity has grown -- the installed capacity has grown much faster than your sales or organic sales growth. A question here. Given the fact that at the moment, there are some changes happening, you ran into some problems, you mentioned the fillers that you had to take back. Is it fair to assume that in the coming couple of years, the expansion in terms of numbers of fillers is probably going to be a bit less compared to the time in the past?

Miro, thanks for the question. So I mean, I don't have now the numbers of the last 8 years perfectly in my head. But if I recall well, filler placements also over the last years and not only the last 2 or 3 years have always been varying between 40 and 90. I believe 91 being the top in '23 that we achieved, I believe. So that there is fluctuations in the number of fillers placed, I think it's very normal. But would I agree that 2026, as I said earlier, is probably not a high number of 90-plus given the current market environment, I would also agree to that. Now the development of the overall fillers in field versus own growth, I mean, we should always also take into consideration that you have a filler with the customer, and then it depends on how much that customer is also growing and develops its business. So there is never a one-to-one correlation between the market growth and the growth on the installed filler base. I think that also needs to be taken into consideration.

We will take now some questions from the web. Back over to Ingrid, please.

Thank you. So we have some questions from Charlie at BNP. He's asking, in total, how much cash onetime outflows do you expect in 2026?

Yes. Thanks for the question. So let's come back to the overall announcement that we made, where we said 90% of the nonrecurring charges is noncash. That leaves you with about 10% on the range of EUR 310 million to EUR 360 million, and I think that's a reasonable assumption. And of course, that is pretax, that number.

His next question is, what share bag-in-box and spouted pouch today is aseptic?

So the share of bag-in-box -- aseptic in bag-in-box and spouted pouch is more than 30% already today and improving year-over-year, especially now with the placements of the spouted pouch fillers Generation 2. We believe that this number will grow significantly over the next couple of years. But also in bag-in-box in the dairy segment, of course, we see increases in aseptic content.

His final question has basically been asked, but I will ask it. What do you estimate to be the destocking effect in Q3? And what gives confidence in the implied sequential improvement in Q4 based on full year guidance?

Yes. And the answer would be the same. So it's difficult to single it out perfectly. But we feel that especially taking into consideration the seasonality throughout the year with a stronger buildup in the first quarter, we believe that the majority of the destocking probably has happened in the third quarter, but potentially a little more ongoing also in the fourth quarter.

Operator, are there any further questions?

Yes, madam. We have a follow-up question from Jörn Iffert from UBS.

It's just a follow-up question, please, on the accruals and the volume discounts you are paying. Can you just remind us what is the volume discount you have paid out in 2025 comparing to 2024, so that we get a feeling what could be the bridge for the equity free cash flow going to 2026?

Yes. So I believe our customer incentive accrual at the year-end 2024 was EUR 400 million approximately. And with the current volume, of course, we believe that this will be lower at the end of this year. And to quantify the impact on the free cash flow this year, I believe you could easily assume a very good double-digit number, so mid-double-digit number in million euros for the year. So I would believe something between EUR 50 million and EUR 80 million is a reasonable assumption for the year.

As a cash outflow linked for the incentives for 2025, is this likely falling away in 2026, given that your volumes are flat to mildly down?

I would -- no, I'm not perfectly sure that you can make that bridge, to be honest. So because also -- I mean, it's always the combination of how much you pay in a year for last year and how much you collect in the year for that year. So it's a bit more complicated, that math. But if you ask me why it was significantly negative hit for this year, it should not be a negative hit definitely next year to even slightly positive. But not fully fair, it will be black and white.

We have another follow-up question from Cole Hathorn from Jefferies.

Just an administrative point. For your Investor Day on Thursday, are we expecting a release in the morning or after market just so that we can get some context of how you're going to put it out on today?

Cole, yes, it's usual to have a release on the day summarizing the contents of the investor update. So we will put that out in the morning together with the presentation.

We have another follow-up question from Miro Zuzak from JMS.

One question regarding also, again, the number of filling machines and the impact on your free cash flow and CapEx number. So if you look into the past years with this record high installments of new fillers, '22 and '23, and also the elevated levels around these 2 years, we could see that the upfront cash number, liability in the balance sheet has also gone up quite significantly. Now if you install less fillers, there are two opposing effects, I believe. One is, obviously, you have lower CapEx, but you also have lower upfront cash and then you also probably have to run down or to deliver the goods, which are now basically stated in your balance sheet number. Now the bottom line from these three opposing numbers, is it positive or negative? So if you take all the three numbers into consideration and you assume that you have less gross filler CapEx going forward, is it positive or negative for your free cash flow?

Yes. So I wouldn't look at the gross filler CapEx in that respect, but always at net filler CapEx. And that is, I think, important to bear in mind because -- so over the last couple of years, I believe the team has done a very good job in improving the procedures and our contract framework also on how we place fillers to the market, and we have managed to drive the ratio of upfront cash up quite a bit. And if I recall well, in last year, the filler CapEx or net CapEx of fillers in percent of revenue was only a little more than 1%. So that's significantly less than what you have seen in earlier years. So that said, I think it also makes sense to, of course, also consider a ramp-up time of fillers that it always takes up to, I don't know, 12 to 24 months to ramp up the fillers if you want to model what it means if you have a lower placement rate. But again, and I think we have said that for quite a while, any number between 60 and 80 is a good number. And while we have been at 80 or higher a couple of years now, probably the next year, it is rather in the lower end of that range. But overall, the impact of net CapEx related to filler placements is not a big one anymore as it used to be because of the improved go-to-market model here.

And sorry to follow up or to ask again, so the bottom line would then be positive or negative if you grow less quickly?

Yes. So if you -- of course, I mean, if you grow less quickly and consider that you don't have a super big investment anymore these days, right, of course, it will have a negative implication for the free cash flow. That's, I think, clear because lower growth probably means also then lower profits.

We have another follow-up question from Pallav Mittal from Barclays.

So you did comment on aluminum and the cost being high over the last few months, and you will clearly give more clarity in a couple of days. But any indications in terms of your liquid paperboard because those are slightly longer contracts and you do negotiate in Q4. So any indication on how we should think about the paperboard costs for next year?

Yes, I think no change compared to the usual answer on liquid paperboard. We have a number of multiyear contract arrangements with our suppliers, and there is fixed mechanisms in there, which typically results in a low single-digit price adjustment. So I wouldn't see any reason why that should be different next year because those contracts are in place and will be executed accordingly.

This was the last question from the phone. Back over to you for some other written questions.

Thank you. So we have a question from Torsten at Kepler. Can you provide an update with respect to the litigation? Any changes in context of what has happened in summer? Any updates on the time line?

Yes. Torsten, thank you for the question. And we don't have an update on the arbitration processes compared to what we have discussed in summer.

There's a further question from Mr. Massimiliano at Stifel about the dividend, and we'd ask for your patience to wait for the investor update, please, in 2 days' time. Yes. I think those are all the questions that have been asked. If there are no further questions, then we will end the call.

Thank you very much, everybody, for dialing in, and thank you for your questions, and then we look forward to welcoming you on Thursday in Zurich.

Thank you.

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.