SIG Group AG ($SIGN)

Ladies and gentlemen, welcome to the SIG Q1 2026 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Christoph Wegener, Director of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Good morning, everyone, and welcome to SIG's Q1 Trading Update Conference Call. My name is Christoph Wegener, when I joined SIG in April as Head of Investor Relations. With me today, hosting the call is our CEO, Mikko Keto and our CFO, Ann Erkens. In today's conference call, we refer to the presentation that is available for download on our website. As always, I would like to draw your attention to the disclaimer and cautionary statement on Slide #2. The call may contain forward-looking statements containing risks and uncertainties. A -- these statements are subject to change based on known or unknown risks and various other factors, which could cause the actual results or performance to differ materially from the statements made in the call. Having said that, let me now turn it over to Mikko.

Good morning also from my side. We have a lovely morning here in Newhouse and Sanish signing. I'm pleased to walk you through our performance in the first quarter. All in all, we had a very solid start of the year. despite a difficult market environment and strong comparisons from last year, our revenue at constant currency was stable year-on-year. And more importantly, we delivered clear improvement in profitability and cash flow. Results are also positively impacted by the actions we announced last September and October, and those, of course, are bearing fruit now in this year. And the focus is cost discipline, execution and strategic priorities. Looking at quarter 1 in more detail. revenue at constant currency and constant resin was stable year-on-year. Aseptic carton grew by 1%, supported but good performance in Asia and EMEA. And on the volume side, JulCarton had a positive growth of 0.8%. The pack in the box and so pulp business declined percentage, which is, of course, reflecting continued weakness in out-of-home consumption in mature markets. On profitability, adjusted EBIT margin increased to 13.4%, up from 12.8% last year. Also improvement in cash flow compared to last year. Strategically, our focus remains firmly on aseptic System Solutions and restructuring program that we announced last year and is progressing exactly as planned and of course, ramping up in the first half of this year. We maintain our full year guidance, having initiated targeted actions to mitigate potential impact of the Middle East conflict. Then we briefly discussed the Middle East situation on this slide. The EMEA at represents around 14%, 14% of group revenue for the Egypt and Saudi Arabia being the largest countries for North Africa and India. As we are aware, -- the conflict and the closure was strait of hormuz has driven prices up for oil and gas and also having impact on energy, transport and logistics. Importantly, we have not seen disruption on now planned in Riyadh, and we managed to supply challenges effectively. I'm actually very proud of our team in Saudi Arabia and logistics team who managed the situation well. The financial impact of the conflict in Q1 was limited. But we are seeing raw materials and cost for freight increase, and we therefore have initiated mitigation measures, including discussions around traces to protect our bottom line going forward. Then if you look at the quarter 1 financial summary in more detail. Reported revenue declined due to foreign expense effects, while revenue at constant currency remained stable. Adjusted EBITDA margin improved slightly and adjusted EBIT, which is now our main measure for the profitability increased to EUR 96 million. translating to 13.4% margin as I mentioned before. Adjusted net income rose to EUR 48 million, and free cash flow, so a clear improvement, reflecting lower capital expenditure and disciplined working capital management. In Europe, revenue declined 4.6% at constant currency. This reflects softer demand in core aseptic carton categories, such as milk and us and also that we had a very high comparison from the year before. Back in the box and spotted pulp performed well in the region, but that also benefited from lower comparison from the year before. Positive news is that India, Middle East, Africa revenue grew at constant currency. On top of strong Q1 the year before. We think that these numbers also reflect a smaller impact from some customer stocking in the region. -- because of the current conflict in the region. -- aseptic carton growth remained strong. despite the sale of political situation, while pack in the box or spotted pulp was down due to high comparisons. Asia Pacific delivered strong performance revenue growth of 7.8% at cost of currency. Growth was supported by channel expansion increased market coverage through innovative products and the favorable timing of Chinese New Year for this quarter. Chinese New Year, of course, every year will impact final numbers and Asia numbers a lot. We're also seeing continued good development in Indonesia because of the new school milk program in the area. In the Americas, revenue declined by 2.5% at constant currency and constant resin. Growth in aseptic cotton -- in particular, in Brazil, was offset by continued softness in the pack in the box and put parts in the U.S. Now I will hand over to Ann, who will take you through the financial performance in more detail.

Thank you, Mike, and good morning, everyone. During the next couple of minutes, I will take you through our financial performance for the first quarter, focusing on profitability, cash flow and leverage. Starting with the adjusted EBIT bridge. Our adjusted EBIT for Q1 2026 was EUR 96 million, broadly stable year-on-year, while the margin increased by 60 basis points to 13.4%. In this, it has to be considered that foreign exchange rates continued to be a headwind in the first quarter. At constant currency rates, this will be -- sorry, at constant current rates, this will become more neutral as the year progresses. However, we were able to more than offset this by several positive drivers. Raw material sourcing contributed positively in the first quarter, supported by favorable tender outcomes for polymers. Note that Q1 did not include meaningful unfavorable impacts from the Middle East conflict. Production efficiencies also improved, reflecting operational discipline as well as lower depreciation and amortization following the impairments recorded in 2025. In the first quarter, we have completed also the transfer of the back and box operations from Chile to our Brazilian site without any disruptions and also closed the oil plant. SG&A benefited from phasing effects and the improvement measures initiated in the second half of last year. More than 90% of the targeted positions have been eliminated by now. The rest of the savings will ramp up within the second quarter. Overall, the impact of lower depreciation for the quarter across all buckets was EUR 4.6 million. We think that Q1 has delivered a significant margin improvement in constant currencies, which confirms the effectiveness of our cost and efficiency. Turning to the reconciliation from EBIT to adjusted EBIT. Reported EBIT increased significantly year-on-year to EUR 190 million, driven primarily by unrealized gains on operating derivatives related to our hedging activities for mostly polymer derivatives and aluminum in the amount of EUR 34 million. And also the succession of the PPA depreciation and amortization of the OnX acquisition, that still weighed on last year's EBIT was EUR 21 million. After adjusting for these and other effects, adjusted EBIT amounted to the EUR 96 million, broadly in line with the prior year. The usual net income reconciliation can be found in the appendix. Let me briefly comment on the key input costs for our business on the next slide. Liquid packaging board sourcing is largely secured through multiyear contracts, as you know, providing decent visibility for 2026. For resin and aluminum, around 70% of the expected annual volumes are hedged for the year. In addition, BackBox and outer pouch benefits from a resin pass-through mechanism, which is contractually fixed and leads to a full pass-through within typically 3 months. Freight costs remain more exposed to higher fuel prices and container rates, while our overall energy exposure is limited. As Mikko said before, we have initiated the implementation of surcharges to mitigate cost pressure. Moving to free cash flow. Cash flow in Q1 was minus EUR 64 million, an improvement of EUR 26 million compared to the prior year. Net cash from operating activities improved supported by lower customer incentive payments following the lower volume growth in aseptic carton in '25. Capital expenditure decreased to EUR 58 million, reflecting the completion of the Indian plant and lower investments overall compared to last year. Net CapEx, including lease payments, amounted to EUR 44 million, equivalent to 6% of revenue compared to 8% in Q1. Q1 cash flow also included an EUR 18 million headwind from interest payments driven by the timing of Cuban payments following last year's refinancing with the Euro. Turning to leverage on the next slide. Net debt at the end of March stood at EUR 2.2 billion. Net leverage was 3.1x compared to 3x at year-end, reflecting the normal seasonality of our business. For our debt agreements, bank leverage was 2.9x comfortably within our limits. Also in April, we successfully completed the issuance of a EUR 500 million bond with a 4% coupon, further strengthening our maturity profile. With that, back to you, Mikko, for the outlook.

Thank you, Ann. And let me close with a few words on the outlook. We maintain our full year 2026 guidance. We continue to expect revenue growth at constant currency and constant price in the range of 0% to 2%. In and an adjusted EBIT margin between 15.7% and 16.2%. As usual, we expect a stronger performance in the second half of the year, reflecting seasonality and continued ramp-up of our restructuring and efficiency measures. After a solid start of the year for the Q1, we anticipate Q2 to be probably more challenging, while uncertainty around input costs, foreign exchange rates and the Middle East situation remain, we are taking targeted actions to mitigate this. Strategically, our focus remains unchallenged -- unchanged aseptic system solutions, disciplined cost management and leveraging our strong customer relationships and balanced retail footprint. And finally, I would like to invite you to Capital Market Day on October 27 this year in the [ Jerry area. ] There, we will give more details about our future plans and focus areas. And also that I would like to take this opportunity to thank Ann for the talk well done. -- and onboarding me to SIG over the last few weeks, very big thanks for that one. And then we go back to the operator for the Q&A session.

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

The first 1 would be please on the raw material price situation. How confident are you that you can pass it on? Have you spoken to all your customers already, did they agree to the surcharges? Or is there still a bulk of negotiations to come in Q2? And then we have to see what is the outcome for the second half. So second clarity here. And the second question, if I may, on Europe. The comps, it was, I think, 0.5% growth last year, the year before you had higher growth. But minus -- close to minus 5% organically is quite a bit. And what extent do you think is driving? Is this just really lower consumption per capita? Is it also higher filler retirements? Is this anything else you need to consider here? And do you expect things to improve in the next 2 to 3 quarters? .

Thank you for the question. So regarding customer decorations, we are in the middle of those and we expect that to be more clear about the outcome of those negotiations during second quarter. We try to get most of the cost increase is covered but realistic expectation is that it's probably not 100%. So we do 2 types of measures. -- customer negotiations regarding surcharges. And then we continue cost discipline and probably further cost out in the second half of the year. to compensate that. And I think, Ann, you could comment the European situation.

Yes. So on Europe, indeed, so last year's comps were positive and now we're negative this year. And I would first, come back to overall, Europe for us is, in general, not a growth region. So we always said this is a region where we believe 0 to 2 is reasonable assumption in a normal market environment. Now we are faced with, first, lower consumer confidence and not a normal market environment. And then second, as we have discussed last year quite a lot, I mean, milk prices have been fluctuating quite a lot over the last months and quarters. And also the allocation of raw milk into different processing types. And this quarter, we have seen more milk going into powder actually, which has also impacted our results. But overall, I would always point back to the long-term or midterm outlook on Europe. I would always anticipate flat to 2 is what we should look at in January.

The next question comes from Manuel Lang from Vontobel.

I have 2 questions as well. First, on the substrates, will aseptic looks much more solid versus the others. But could you help us understand if this is driven by nature of carton in general? Or do you see similar trends in aseptic technology in the other substrates such as back in box and spouted pouch -- and then the second 1 on the EMEA region. There, you mentioned the growth of 1.9%. This reflects already preorders to secure supply -- so where would you see, let's say, an underlying or normalized growth in the region in Q1 let's say, if you put that effect aside? And also on that topic, how big is the Middle East region, so Egypt, Saudi Arabia together as a stand-alone? Could you quantify that?

So maybe I will start with the substrate comment. As you saw from the results, the aseptic carton is very strong, and that's, of course, 80% of the business. And in -- in other business, Packinox pole ports in the spot pulps, the aseptic technology is still not a volume business for us. So we have developed fillers that can do aseptic pulps, but it's more business development area rather than volume as of today. So we continue to develop technology, meaning the kind of a different size of pillars for that business, which are septic because that was reason for the acquisition that we can actually bring that aseptic solutions and systems to that market. So it's still not a volume business for us, but that's the idea. .

Yes. And so if I take the questions on the EMEA region, yes, we mentioned preorders or slight upstocking just to be complete. But if I should spell out how much this was. This is a very low single-digit million number. So if you deduct this from the EMEA growth rate probably then we would have been slightly more than flat in the region on top of a very strong first quarter in the year before. So -- but again, just for reasons of completeness, we wanted to also mention this one. And then how big Saudi and Egypt are together, I would say it's around 40% of the total region, something like that. And again, business is ongoing without significant disruptions in the region.

The next question comes from Gabi Simos from Goldman Sachs.

So first 1 on the guidance. So you basically maintained the guidance for the year in terms of growth. I would like to understand the breakdown you expect in terms of the region in that guidance and the impact that you see from the concept in the Middle East and how much of that is baked into your estimates for the year? -- and the impact you would expect not only in the region but also for the other regions as a conflict basically spread out in terms of the higher costs and then demand? And the second question would be on the resin side. So I understand you have a pass-through call on your contracts, but I'd like to understand how that feeds into your margins, right? So as a portion of your exposure is already hedged. So in other words, my question is that you've asked through only the portion that's unhedged in your contract, and that's already taken into account or if you're passing through the full impact? And then actually, that's positive to your margins.

Thank you for the question. So on the guidance growth outlook, I mean, we don't give a guidance now by region. But as Mikko said, I think we had a very, very solid start in Asia, so that's great. We also see the Americas actually not too bad developing right now. So overall, I think probably also considering that there will be some surcharges on the growth guidance, we will probably feel very comfortable with what we have out right now, and we're reassessing that. Our potential secondary impacts on volume development in that environment. At this moment, we don't see any changes to our assumptions. But of course, this also needs to be money to it. And then when we think about the surcharges, of course, we try to pass on as much as possible and also to protect the margins and not just the absolute amount. But as Mikko also said before, I think this -- we're well prepared if we also complement this with additional cost-out measures. And then how does 1 more time the mechanism work in the bag-in-box and spotter pouch business? I mean, that is contractually fixed that within a certain time lag, we always have updates of the price list, reflecting the latest indices. That's why I said, with an average of 3 months delay. We passed this absolutely through. Hope that helped.

The next question comes from Cole Hathorn from Jefferies.

I'd just like to ask on free cash flow considerations considering polymer aluminum, costs are going a little bit high. Just wondering if you're giving any working capital guidance or any particular kind of raw material product that we should think about where it's not just price, but you've got a shortage of raw materials. I don't imagine so, but just to ask the question. And then other -- any other free cash flow items that we should think about that is impacting you in 2026 beyond the working capital? .

Yes. I think we have discussed -- sorry, good morning, free cash flow quite a bit also during the full year call a couple of weeks ago. yes, all of these are elements that you have mentioned. And of course, there is moving parts as the year progresses. But at this moment, I wouldn't see that we need to discuss any new items that we need to take into consideration. I think up to now, the equation works as we had anticipated.

And then maybe just using the opportunity as a follow-up then on some kind of prebuying or kind of safety stock. Have you seen this progress through the second quarter? And is this across different regions? Or is it particular to the EMEA region? .

So prebuying on the customer side, really that was, I believe, a pretty limited impact even in March, to be honest, when the situation started to evolve, I would say, at this moment, we more or less see really normal developments as we had anticipated also. And prebuying on our side to build additional inventories, we don't think is necessary at this moment. supply chains are a little challenging, but manageable at this moment.

The next question comes from Alessandro Foletti from Octavian.

Yes. Also 2 of them, maybe 1 on the CapEx. You are trending slightly -- on the net CapEx, you're trending slightly below last year. I was wondering if you can give an indication if this is -- will be driven by lower growth CapEx or higher upfront cash.

Good morning, Alessandro. Thanks for that question. So I would say already looking at the first quarter number would be too early to judge because there's always fluctuations when projects are happening within the year. So we don't see any reason to adjust the outlook for the full year on that front. So that said, -- of course, we carefully look at all CapEx into own PP&E as we also discussed that we want to be more efficient on that front. When we think about growth CapEx to be invested into new filler placements. The first quarter has developed according to our plans, and we don't see, at this moment, a trend change that we wouldn't lend in the normal range of 60% to 80%, probably lower half, as we also indicated in the full year call. So no change actually there to be seen.

Okay. And my second question, I would like to go back on aseptic non-aseptic Obviously, in the shale business, our tagging-bx started patch, has less non-aseptic business. So if you are transitioning away from non-aseptic towards more aseptic, I wonder if you can give an indication how many millions, so to speak, you have to substitute I have a number in my head, certainly a triple-digit million number and how long it will take to make that transition until then the bagging box spotted part business start growing again in line with the aseptic trends. .

Yes. Maybe I can take that and clarify. So I mean, the back and box in started pouch business has aseptic components in it and options. And as we also discussed in the October investor update. And also within the non-aseptic part, there is businesses that are attractive and that we want to continue to do. For simple reasons such as also plant utilization and so on. And so for example, the 0 business that ends in carbonated soft drinks in the in food service outlets mean that is a nice business that is growing, that has decent margins, and that gives a very good capacity utilization for our plants also -- so no reason to ever think of not doing this. I think this transition part from non-aseptic into aseptic is much more a topic for the spouted pouch business. And also here, we have shown, I think, was a very telling bubble sizes where we stand right now in the portfolio in the October update. So the vast majority of that business at this moment is still non-aseptic but for all the benefits that we have discussed in the last, I don't know, couple of quarters or years even. I mean, aseptic outopouch gives you a product that still looks like the product that you have put in. It gives you a product that still has all the nutrients in. It doesn't need preservatives or sugar. And it doesn't need a cold chain. So there's lots of arguments. But as we also said, this is a totally new market that needs to be built. We just see customer traction or customer interest there because, I mean, it represents really an interesting opportunity, both on different fronts, as discussed for toddler foods, especially, but then also for health food for sports people and also even for food for elderly people. And putting this into context, until this aseptic spouted pouch will become a triple-digit million euro number that probably will still take some time because we start off a very low base. But of course, the growth rates are interesting, and the market is building as we speak. But it still takes time.

Okay. Can I just add a quick add on the in the bag-in-box party pouch business, the weakness that we have seen this quarter and maybe also last quarter, et cetera, and it's more driven by the end consumer market than by that transition .

Absolutely. Yes, absolutely. And this quarter, we looked at a weaker business in the Americas specifically. -- where the baseline was also to be very fair to the team a little stronger. But overall, consumer confidence and traffic is not yet where it should be for also very clearly. It was a bit better in Europe, but in the other are the smaller regions, I think, decent nothing needs to be discussed on that front, but really the U.S. in the first quarter. wasn't living fully up to the expectation. And I mean you can also probably attribute it to some degree to the cold weather that we have seen there. So ice cream premixes haven't been too much in demand and stuff like that. But I would say, no structural change in the U.S.

[Operator Instructions] Next question comes from Pallav Mittal from Barclays.

So following up on Europe, excepted, clearly, you said was impacted by raw make allocation and also tough firms, but bag-in-boxes counted out was strong -- so what is leading to that? And as a percentage of your European segment, how big is bag-in-box and ported power? So that's the first one.

Yes. So we always said that overall, Europe accounts for around 20% of the back and box business, our began and spouted pouch business, and that also hasn't changed a lot. So what helped the development in Europe in the first quarter was as mentioned, on the 1 hand, weaker comps. But then also, we had a couple of customer wins and equipment in place in the first quarter. So I would say this shows the team did a decent job there.

Sure. And then just on the cash flow, the free cash flow, so how much of the lower customer incentives on a Y-o-Y basis or the benefit? And then also, I see there were some cash inflow from the sale of land in China. So how much of a benefit was that in Q1 on the cash?

Yes. So we discussed at full year that the customer incentive impact was around EUR 40 million last year. And if you consider that a good part of this falls into the first that gives you approximately the magnitude of the benefit. Then there was EUR 2 more million coming out of the land sale in China approximately. Those are the positives. And then on the negative, as I mentioned earlier in the script also, there was the upon payment, which was a temporarily higher impact on the interest expenses in the magnitude of EUR 15 million or EUR 80 million. And that's basically the bridge that you need to take into consideration.

Sure. And then finally, can I just check if there is any update on the litigation case with Laurence?

Yes. Yes. There is no update. The progress -- the process is progressing as it was laid out in the beginning, and we don't have any new considerations or any new information at this moment in time.

The next question comes from Christian Arnold from ODDO BHF

I have 2. You mentioned that you have a positive impact of EUR 4.6 million lower depreciation after the valuation of assets in '25. I mean is that the run rate we can take, so roughly EUR 20 million for the full year? That would be my first question. And the second question I don't know if you can comment, but the EUR 34 million unrealized gain on operating derivatives. I mean, on the backlog you note today, your hedging positions, spot prices. To what extent can we expect a similar impact in the quarters or how fast will that impact phase out?

Christian, I would say, I mean, that's the reason why this is adjusted out because it's not realized at this moment. And that means, I mean, it's subject to market fluctuations. -- a little difficult to give a forecast there. And that's why I would also refrain from trying to give forecast on that one. And thinking about the depreciation, so 4.6 without currency impacts in the first quarter. I think it would be a bit too much to just multiply this by 4 because you need to consider that we already started adjusting the asset values in September last year. So I think maximum 3 quarters, even a little less needs to be considered for the full year.

The next question comes from Ioannis Masvoulas from Morgan Stanley.

Just a couple of clarification questions left from my side. First, on the cost development. How should we think about the unhedged polymer and aluminum exposure for the second quarter? Could you potentially provide a cost impact either versus Q1 or year-over-year. I would assume that by now, you should have good visibility given the typical P&L lags. And I'll stop here for the first one.

Yes. Jane, I think it's a little challenging to give already now a good outlook for the second quarter. But what definitely we should anticipate is that we see an increase overall when it comes to also surcharges of freight costs that we see. The underlying, as discussed, is hedged by 70% for the month for every month, basically. So -- but I would refrain at this moment to give you a concrete number, but definitely, it will be higher than what we have seen now in the bridge for the first quarter.

And also that there's no direct correlations for the oil price of a day to some of our cost items like logistics higher oil and gas prices, of course, will impact a little bit of everything, but it's not a straight line that we can see so that some of the cost items, we see the development then in the second quarter. .

Okay. Understood. And going back to the topic of surcharges, just to understand a little bit better, is it a focus here or the discussions around transport and logistics costs related to diesel price, for example? Or are you looking at passing through some of the other cost elements as well?

So we have a model that we estimated cost impact for the -- of this kind of all cash price logistics driven inflation. -- and we are sharing that estimate with our customers and try to cover that for the surround. So we have a model that we are using. And...

And of course, that model looks at all different cost items, not just isolated smaller topics.

And of course, then it should cover most of the inflation, and our target is to cover the inflation impact. And how big part of the inflation impact, it will cover, we don't know yet because typical annual negotiations there end of the year -- start of the year, but these out of ordinary negotiation cycle. So we don't know the outcome. We have estimated the outcome during the second quarter. And then, of course, as we discussed earlier, that we are looking to take some further cost measures to mitigate also the impact of input inflation.

Ladies and gentlemen, so far, there are no further questions. I would like to hand the conference back over to Christoph Wegener for the written questions from

One question from the webcast from Mark Witter from a I think it's already answered to some extent, any news regarding the pending medicate that we said there's new news and at Mico, have you already talked to Lawrence last or met him. So as a part of the AGM, I was speaking to a family member of the company and -- but it was more mid and greed, but no detailed discussions. And I think, of course, -- we have ongoing litigation case so that we cannot discuss about that. But then, of course, they are still important shareholder of SIG, so we can discuss about the performance of the company, but not not actually the litigation. .

And in general, the litigation process, I think I answered earlier, no new news process is going according to plan. What?

No further questions? .

Thank you very much for the call and then welcome to the Capital Markets Day on October.

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.