Welcome. Today it is my pleasure to present the Scholle IPN acquisition to you. Before I do that, I would like to say a few words about SIG and our strategy. SIG's system-based business model delivers high quality aseptic packaging solutions, and we are at the heart of our customers' operations. We enjoy a high degree of customer loyalty, which is further underpinned by our focus on innovation and sustainability. This has put us at the forefront in developing the most sustainable packaging solutions. Since our IPO, we have successfully grown sales and profits. 2021 has confirmed the trajectory, as you can see from the strong preliminary results we announced this morning. Like- for- like core revenue growth was up 6.6% throughout the year at constant exchange rates. This is above our guidance range of 4%-6%.
Our adjusted EBITDA margin expanded to 27.7% from 27.4%. These results testify not just to our resilience, but also to the momentum of the business, despite the pandemic and despite raw material price increases. Today, we are adding Scholle IPN to our growth platform. The acquisition is in line with our strategy of geographic and category expansion, and further diversifies our exposure to growing and resilient end markets. Scholle IPN is the global number one in bag-in-box and the number two in spouted pouches. In fact, they invented the bag-in-box and have maintained the leading position through innovation and by offering superior total cost of ownership to their customers. The company has a strong track record in designing sustainable packaging solutions with a focus on light-weighting and recyclability.
To give you some context around the acquisition, we started talking to Scholle IPN last year as we were interested in technology collaborations in a number of areas. In the course of these discussions, we identified additional areas of collaboration and joint opportunities. This led to the conviction that combining the many similarities and attractive complementarities between the two businesses is highly compelling. The combined business will become a leader in sustainable aseptic packaging for liquids and to deliver value to consumers, customers, the environment, and our shareholders. This is why I'm very excited about the opportunity that we will create by adding Scholle IPN to the SIG family. Let us take you through it. I will give you a high-level overview of the transaction and explain the strategic rationale of the deal.
Scholle IPN's CEO, Ross Bushnell, will continue to manage the business and will join SIG's group executive board on completion. He will give you some insights into their offering and their customers. Frank will then share with you the compelling financial case for the transaction, give an overview on the strong performance we delivered in 2021, and our updated midterm guidance. Frank and I will then take your questions. First, a brief overview of the transaction. The enterprise value of Scholle IPN is EUR 1.36 billion, with the equity value to be funded through a mix of cash and shares. The EBITDA multiple is 12.2x, including runway cost synergies of EUR 17 million. There is an earn-out for growth in the Scholle IPN business above our midterm growth guidance of 4%-6%.
The earn-out rewards annual growth between 6%-11.5% for the three years 2023-2025. Laurens Last, as well as becoming our largest shareholder following the transaction, will be nominated for election to the board of directors at the upcoming AGM in April. This, together with the appointment of Ross to the group executive board, will further strengthen our team and bring us outstanding industry knowledge and expertise. Laurens becoming our largest shareholder further demonstrates his conviction and commitment to the benefits of this combination, but you will hear this from him directly in a few minutes as we have a short video message from him. As you know, SIG is one of the leading systems and solutions provider for aseptic carton packaging globally, while Scholle IPN is the global number one systems provider for bag-in-box and the global number two in spouted pouches.
It is worth noting that bag-in-box, which represents over 70% of Scholle IPN's revenue, is very similar in makeup to our own substrate, the carton, as both are primarily composed of paperboard with a bag to preserve liquid product it contains. Pro forma 2021 revenue numbers show that the combined group would have a total revenue of EUR 2.7 billion, of which carton represents 82%, bag-in-box 13%, and spouted pouch is 5%. This includes the Evergreen Asia acquisition. Perhaps most importantly, all three of these products serve resilient and non-discretionary end markets. Their growth is driven by favorable consumer demographics and the trends toward convenience and urbanization. For the food and beverage industry, food safety and an attractive total cost of ownership have long been key in the choice of packaging.
Today, sustainability is also front of mind, with a particular focus on renewability, recyclability, and carbon footprint. Both bag-in-box and pouch have business models that are well-aligned with these priorities, with systems offerings that provide best-in-class total cost of ownership and the highest quality. As a result, we each have a portfolio of well-regarded blue chip customers and are deeply embedded in their value chains. Our excitement is also reflected in the financial rationale for the deal, which will be accretive to cash flow and adjusted earnings per share from the first year after completion. By broadening our end market exposure, we are creating a stronger and more resilient business. We will also have a better offer for our customers with innovation and a portfolio that offers the substrate of choice for many applications. During the pandemic, we have seen the importance of diversification in sustaining growth and profitability.
This acquisition strengthens our regional mix and increases the number of categories where we are present. It means we can maintain our strong financial profile while growing on a broader base. We will also have best-in-class margins with expansion potential across the entire business. Operational leverage, innovation, and synergies will help us to deliver an EBITDA margin of above 27% midterm. Our expanded growth platform will deliver value through the economic cycle with resilient recurring cash flows. We have outlined five key drivers which will provide the basis for the larger business to prosper. The complementary nature of our systems and product solutions will expand our range and the scope of our offering. Our presence in complementary categories with attractive growth potential will increase. Our respective geographic strengths will enhance the platform for growth for each business.
With a reinforced U.S. presence for SIG and access to emerging markets for Scholle IPN, we will capitalize on each other's technical capabilities and see significant cross-selling opportunities, particularly with large diversified FMCG groups. Finally, we are both leading innovators, and the combined group will be able to deliver the most sustainable packaging solutions across categories and substrates. The SIG of today is present in retail segment for on-the-go and at-home consumption of dairy, non-carbonated soft drinks, food, and more recently, water. The SIG of tomorrow will have offerings in the institutional sector for beverage concentrates and dairy, which is largely food service, and in the industrial sector, which is bulk, largely for processed fruit and vegetables. Scholle IPN already offers equipment and services as part of its business model.
We will further develop their solutions offering in order to become a full systems provider for this comprehensive range of packaging solutions. SIG's core carton offering today ranges from 125 milliliters to 2 liters. The combined group will be able to offer packaging solutions ranging from 50 milliliters to 1,500 liters. With this acquisition, we'll have multiple touch points with consumers and customers, ranging from on-the-go packs to bulk supplies for the food industry. Around 70% of the Scholle IPN range is for food and beverage, and by broadening our category exposure within this industry, we will increase the resilience of our business. There is a considerable potential in the areas where we overlap.
For example, we can further expand Scholle IPN's dairy business through our strong global footprint, while they bring us larger exposure to liquid food in the industrial segment. Beverage concentrates are a new category for us and represent significant and predictable revenues with long and established customer relationships. We will also be entering into wine and non-food, such as home care products. Growth in these categories is being driven by the switch from rigid to flexible packaging with increasing momentum from emerging markets where demand for food service is growing. On a pro forma basis, our revenue by geography will show a significant increase in the Americas from 14% on a stand-alone SIG basis to 24%. This reflects a greater presence in the U.S., where our revenues will almost quadruple.
We will have greater access to key accounts in the region, and we'll significantly expand our food service presence. Increasing our exposure to the U.S. dollar will also help to balance the impact of emerging market currency fluctuations for the group. SIG has a strong and established presence in Asia-Pacific, Latin America, and Middle East and Africa, where Scholle IPN's presence is currently small. In these regions, we will accelerate the growth of pouches and also bag-in-box, especially with aseptic offerings. We will also be able to benefit from Scholle IPN's manufacturing presence in India to augment our already strong growth there. Our expertise in high-speed aseptic technology, together with our local sales capability and our network of field engineers, will help us to accelerate the rollout of bag-in-box and pouches into new markets.
Innovation will be an important part of the combined offer with SIG's leading aseptic technology and Scholle IPN's experience in barrier films. A combined service network and manufacturing base will benefit customers while driving the expansion of our footprint. Cost synergies will be mainly in the areas of procurement, operational excellence, and corporate functions. In manufacturing, we see an opportunity to improve the speed and efficiency of Scholle IPN's machines, building on the advances we have made in our own factories. Scholle IPN has an entrepreneurial approach and a lean structure. Culturally, it fits well with SIG, and we are confident that the integration process will be smooth. We are committed to ensuring that the Scholle IPN business meets the high ESG standards already achieved by SIG.
Our two companies are already aligned in their approach to sustainability, and by joining forces, we can accelerate our Way Beyond Good journey. Our combined R&D capabilities and IP know-how will enhance the pace of innovation for sustainable packaging solutions. Together, we will have a greater scale and outreach to work with regulators and to promote investment in infrastructure for the collection and recycling of packaging. Our companies each have best-in-class sustainability options in our respective substrates. You are probably familiar with our signature packaging based on fully renewable resources. Scholle IPN is driving the shift from rigid to flexible packaging, and is creating further advantage through light-weighting of both packs and closures. Both of us lead in designing for recycling, and Scholle IPN has recently developed a mono-material solution, shown in the picture on the right. Mono-materials enable much easier recycling without the need for separation.
They also require a systems approach in order to perfectly align the consumables and the machinery, which is something we can build on. Looking ahead, we can progress our aluminum-free journey by building on Scholle IPN's expertise in high-barrier films, and we can work towards a fiber-based pouch. These are just examples of our vision, a vision which is at the heart of this transaction. Now, I would like you to see a video of Laurens Last giving his perspective on the future of our two businesses. This will be followed by Ross telling you more about Scholle IPN.
I see demand for integrated solutions growing with the need for higher output and for more sustainable packaging. SIG and Scholle IPN will be able to leverage their system-based business models to create value for customers. The two companies share a focus on innovation and sustainability. Scholle IPN was the first company to bring aseptic technology to bag-in-box, and more recently, to pouches. By building on SIG's aseptic expertise, we can expand the use of aseptic in the fast-growing spouted pouch segment and introduce features such as in-line sterilization, which are already a proven part of the SIG system. We have been removing aluminum from packaging, and today, our range is largely aluminum-free. Scholle IPN has a great expertise in barrier films, which we can now deploy to accelerate the development of SIG's aluminum-free cartons.
Furthermore, we crack the code on mono-materials for pouches, which offers big advantages for recycling to become fully circular. Together, we will make even faster progress on sustainability, offering customers the best solutions across the different substrates. The global footprint of the two businesses is very complementary. I'm excited at the prospect of bringing the Scholle IPN portfolio to more markets in Asia-Pacific, Latin America, Middle East, and Africa. I also see that we can leverage our presence in India to help SIG expand faster. This combination is compelling for our customers, who will benefit from our capabilities and expertise in the liquid packaging industry. I'm excited about the future of the combined business, and I look forward to our joint innovation. SIG can further develop packaging substrates that are at the forefront of sustainability, and I'm very pleased to be part of this journey.
I am incredibly excited about joining forces with SIG because the combination of our businesses will significantly enhance the growth of our global bag-in-box business and our spouted pouches. That is especially true given the combined benefits of geographic expansion, operational excellence, and product innovation. By innovation, I mean the development of a truly sustainable product portfolio that improves and enables the recyclability of our products, and that drives total cost of ownership down for our customers and theirs. Scholle IPN is a leading packaging system and solutions partner with a 70-year history of innovation. We invented the bag-in-box, and we're the number 1 player in this category globally. We're also the number two in spouted pouches globally. Our retail offerings include both bag-in-box and pouches across categories including kids' food, wine, and dairy. Our products succeed thanks to their technical performance and product design.
In addition, we sell products into the institutional sector, primarily food service, and have been a trusted partner to Coca-Cola for over 45 years as we help them to improve the sustainability of their offerings from rigid metal to our bag-in-box. Finally, we also sell into the industrial sector, which supplies bag-in-box solutions for some of the largest fruit and vegetable processors around the world. Our customers have a desire to move away from rigid plastic, metal, and glass substrates to our more sustainable offerings. We're also able to leverage our capabilities in development and production of specialty films, fitments, and equipment as we work with our key accounts to develop proprietary solutions for their packaging needs. Finally, we're able to draw upon a half-century of experience in the aseptic packaging arena to ensure the safe delivery of our customers' products to their consumers.
Not surprisingly, we are very proud to be a leader in sustainability. Our products offer the lowest carbon footprint when compared to other substrates such as rigid plastics, glass, steel, and aluminum in the markets we serve. Ultimately, by focusing our R&D efforts on light-weighting our portfolio and designing mono-material solutions for our customers, we've been successful in positioning our business as an industry leader in sustainable packaging offerings. Our packaging solutions reduce materials necessary for the job, mitigate waste, and reduce energy consumption. Also, given the flexible nature of our products, our packages can be more efficiently packed and transported. We have a significant global presence, which will be enhanced with SIG's footprint. In total, we employ over 2,100 people.
We have 16 manufacturing locations in 11 countries, including equipment manufacturing in Spain, India, and the United States. Our largest presence is in North America, where we look forward to having a positive impact on SIG's position in that core market. At the same time, we have significant untapped potential in emerging markets where we see huge synergies by working with SIG. There will obviously be operational benefits as well, including opportunities to leverage SIG's printing capabilities globally. We'll be able to use SIG's tech centers to exhibit our products and equipment and to demonstrate the benefits of our products to local customers. We can take advantage of our injection molding positions in China and Europe, and I see tremendous opportunities to explore assembly of our equipment in China. As I mentioned, we're very successful in the retail space with our differentiated offering.
Our largest retail categories include kids' food, wine, and dairy. Pouches provide us an opportunity to capture an outsized share in a global high-growth market. We were the first to introduce low-acid aseptic pouches to the marketplace, and we've doubled down in this space by developing proprietary films, fitments, and equipment that deliver differentiated product performance for our customers while optimizing their total cost of ownership. Scholle IPN introduced bag-in-box packaging for the wine market over 40 years ago, and we have been a category leader ever since. As many wine aficionados know, oxygen transmission is the enemy of wine. Our DuraShield film and our ergonomic FlexTap wine tap are both proprietary technologies that minimize oxygen transmission and when combined with our modified atmosphere filling option, deliver superior product performance. Finally, drinking water has become an exciting and emerging category for us.
Our bag-in-box for water offers a mono-material combination, both film and dispenser, and we can also offer our 2Pure water film technology, a film innovation that ensures that the water remains taint and odor-free. We are the global leader in beverage concentrate packaging, and we see further opportunities to gain share. Our technical expertise has enabled us to capture a tremendous share of the soft drink syrup market around the world. Our bag-in-box package offers a dramatic improvement in terms of carbon footprint when compared to the rigid steel cylinders that previously housed our customers' proprietary syrup recipes. We developed proprietary mono-material fitments that lock into our customers' dispensing systems. The incredibly large installed base of those dispensing systems within retail outlets creates substantial loyalty and barriers to entry that benefit both them and us.
We've been manufacturing high-acid aseptic bags since 1968, and that capability has allowed us to create a leading position in the processed fruit packaging market. As an example, The Morning Star Company is the largest tomato producer in the world and has been our partner for 45 years. We work with them and many other growers in this space to ensure they have a safe, high-quality package that protects their valuable crops. In dairy, we've been providing aseptic solutions for our low-acid customers since 1984. Much of our product offering is used to deliver ice cream and other dairy items for food service companies, including McDonald's, Burger King, and Chick-fil-A. We've developed proprietary Sentry fitments to service the market broadly, and as with the soft drink dispensing market, our dairy products are dispensed through a tremendous installed base of chillers in the retail outlets.
Finally, our filling machines have proven core to our dairy customers. With an installed base of some 300 machines today, we've retained nearly 100% of the consumable packaging since installation, some dating back over 20 years. In non-food, we've seen significant growth in motor oils due to our high film strength and the fact that our bag-in-box solution offers far superior sustainability characteristics. We benefit from a diversified client base with some of the largest and most recognized brands in the world. We have incredibly high customer loyalty and long-term relationships. In fact, the average tenure of our top 10 customer relationship is now at 30 years. We work with our customers to develop integrated solutions around standard platforms designed to meet demanding performance goals.
We achieve that by providing proprietary technologies, global presence and support, state-of-the-art operations, and a portfolio of sustainable total system solutions for their packaging needs. All of us at Scholle IPN are incredibly excited about the future potential of our pouch and bag-in-box offering. This excitement is amplified when we consider how we can benefit from joining forces with our colleagues at SIG. Together, we will be able to serve our customers with better solutions through a global network of world-class manufacturing, sales, and technical support to achieve our growth objectives. With SIG's reach and presence, particularly in developing markets, we can more readily expand the penetration of our pouch and bag-in-box offerings and quickly grow our business. With that, I will hand you over to Frank, who will go over the financials of the transaction.
Thank you, Ross. It is my pleasure to share with you the strong financial rationale for our acquisition of Scholle IPN. We're making this acquisition from a position of strength as the preliminary results will show. I will also give you an update on our midterm guidance. From a financial perspective, this is an acquisition of a high-quality asset at an attractive multiple. The enterprise value of EUR 1.36 billion implies a headline EV/EBITDA multiple of 14.5x. Once run rate synergies of EUR 70 million are included, the multiple falls to about 12.2x, which is in line with comparable multiples for high-quality assets in this space. The transaction is expected to be accretive to cash flows and adjusted earnings per share from the first full year after closing.
The enterprise value will be funded through a combination of shares and cash, as well as the refinancing of its existing debt at closing. Deducting net debt of EUR 310 million results in an equity value of EUR 1.05 billion. About two-thirds of the equity value will be paid through the issuance of 34 million shares from our authorized capital. The issue of equity to pay in shares also supports our solid balance sheet. The remaining third will be paid in cash subject to typical closing adjustments. The earn-out payments for growth ranging from 6%-11.5% are subject to pre-agreed ratchets, which will increase with the degree of over-performance. A maximum amount of $100 million or EUR 89 million is payable per annum for each of the three years from 2023 through 2025.
We have arranged a fully underwritten bridge facility to finance the cash consideration and the existing debt of Scholle IPN. This bridge facility, together with the one for the Evergreen Asia transaction, will be refinanced with small capital increase and long-term debt instruments. This slide shows the strong key financial metrics of the combined group pro forma for 2021, including also the details and effects of Scholle IPN and Evergreen Asia. The combined group will continue to have a best-in-class financial profile with resilient growth, attractive and expanding margins, and strong cash generation. SIG represents the driving force of the group's financial performance. Scholle IPN contributes revenue of EUR 474 million. That is 18% of the combined group. The adjusted EBITDA margin of 19% for Scholle IPN shows solid profitability for packaging business and underlines the quality of the company.
The pro forma 2021 adjusted EBITDA for the combined group is EUR 684 million with a strong margin of 25.6%, which remains best in class. As previously discussed, we see many opportunities to improve the margin of the acquired businesses as additional drivers for continued margin expansion. Scholle IPN, like Evergreen Asia, has a less CapEx intensive business model with CapEx to revenue of only about 4%. This lowers the overall ratio for 2021 to about 6%. The combined business has strong cash generation of more than half a billion EUR of EBITDA, less CapEx as a proxy for cash flow. This drives up cash conversion to 76% for the benefit of our shareholders. With these acquisitions, SIG will continue its track record of resilient growth, attractive and expanding margins, and strong cash flow generation.
We remain committed to continue our track record since the IPO to reduce leverage towards 2x, also following this acquisition and the Evergreen Asia transaction. The significant equity component in the transaction supports the strength of our balance sheet. SIG's net debt at the end of 2021 was EUR 1.4 billion, implying leverage of 2.5x. Our leverage has been steadily reduced from 3.25x at the IPO due to the strong cash generation and EBITDA growth, while we also purchased the stake of our joint venture partner in the Middle East last year and acquired the Visy business in 2020. This demonstrates the strong cash generation capacity of our business. On a pro forma basis for both acquisitions, our net debt increases to about EUR 2.4 billion before the additional equity raise.
A small capital increase of EUR 200 million-EUR 250 million is planned to allow us to reduce our pro forma leverage at the end of 2021 to around 3.25x, in line with the level at the time of the IPO. The combined business will have greater cash generation capacity, and we expect to reduce leverage to approximately 2.5x by the end of 2024 as a milestone on the path to reducing leverage towards 2x in the medium term. SIG is undertaking this transaction from a position of strength on the back of a very successful year, 2021, as you can see from our preliminary key financials that we have announced today.
Core revenue increased to well over EUR 2 billion, reflecting like-for-like growth on a constant currency basis of 6.6% for the year, exceeding our 4%-6% growth target range. Adjusted EBITDA increased by EUR 73 million or 15% to EUR 571 million in 2021. The margin increased to 27.7%. This improvement of 30 basis points highlights the continuing path of margin expansion and the very attractive profitability of our business. SIG continued to demonstrate an impressive cash conversion rate of 75% to report free cash flow of EUR 258 million.
This strong cash generation is the basis for the reduction of leverage that SIG has delivered since the IPO to now 2.5x at the end of 2021, even after last year's joint venture acquisition in the Middle East. We're pleased to announce that the board of directors has proposed a dividend of CHF 0.45 for 2021 that represents a 7% increase. SIG will continue to deliver best-in-class financial performance, which is reflected in our mid-term guidance, taking into account the recent acquisitions. Please note that our guidance specifically for 2022 will be provided when we announce our full-year results on March 1. We are maintaining our target for mid-term revenue growth at constant currency of 4%-6%. Scholle IPN will further improve the resilience of this target to grow well in excess of GDP.
On a midterm basis, we expect our adjusted EBITDA margin to continue to improve and reach levels around 27%. The continuation of the margin improvement in our carton business will be at the center of this expansion. The margin increase will also be supported by the cost synergies that we've outlined for both acquisitions as well as the combined revenue opportunities. Scholle IPN and Evergreen Asia are less capital-intensive businesses. Together with the improved capital efficiency of our carton business, we're lowering the net CapEx guidance as a percentage of revenue by one percentage point from 8%-10% to now 7%-9%. We remain committed to our attractive dividend policy with progressive growth of our dividend, and we reconfirm our payout ratio in the range of 50%-60% of adjusted net income.
In conclusion, this is a very attractive acquisition also from a financial perspective. We have acquired Scholle IPN as a high quality business at an attractive multiple. The group will continue to deliver best in class financial performance with resilient growth, attractive and expanding margin and strong cash generation. This will also support the deleveraging towards two times while we maintain our attractive dividend policy. With that, I'll hand you back to Samuel for the conclusion.
Thank you, Frank. I hope that you now share our excitement on why this combination makes perfect sense. The transaction increases the resilience of our business and strengthens our sustainability platform. It enables us to pursue a growth trajectory across a broader base while delivering best in class margins and cash generation. By delivering clear benefits for consumers, customers and the environment, we will drive value for shareholders. Thank you. Frank and I will now take your questions.
If you would like to ask a question, please raise your hand using the on-screen signal. Our first question comes from Joern Iffert at UBS.
Hello, Samuel. Hello, Frank. Can you hear me?
Hello, good morning.
Thanks. Thanks for taking my question. The first one would be, please, can we learn a little bit more about Scholle regarding the organic sales growth in the last five to 10 years, about the margin range we have seen here, and if there was any operational hiccup the company was facing maybe in the last five to 10 years? Also, if you could share with us how big is the aseptic share at Scholle? The second question would be, please, regarding the ESG angle. I mean, Scholle is using a lot of plastic. How can you tackle this? How environmentally friendly is really the packaging? The last question, just a clarification, please. I mean, you mentioned the capital increase for bridge financing to €150 million.
Is this coming on top to the 33.75 million shares you want to issue or is this included? Thank you.
Thank you for your questions, Joern. Why don't I start with the first three, and Frank, you can build on the fourth one. The Scholle IPN business is a high quality packaging asset. They're number one in bag-in-box and number two in spouted pouch. We are super excited that we can add it to our platform because we believe it makes SIG first and foremost, stronger. It is an expansion into a geography, but also into categories. If you look at the U.S. business, which is today about 55% of the Scholle IPN business revenue, it will quadruple our presence there in North America. On the other hand, we're gonna add our emerging markets platform to it, which is gonna help us to grow there. Your question was about the organic sales of Scholle IPN.
They have outgrown their markets, where they were present, where they had a strong foothold in Europe, but also obviously in the U.S. We are consistently outgrowing those markets and delivering superior returns. They weathered the storm of the past pandemic very well as they have similar to us, exposure to non-discretionary end markets. That's why we are super excited and believe that the combination is gonna make our business more resilient and stronger, and it adds this growth feature to it that we can bring the bag-in-box and the spouted pouch to the emerging market platform that we have. In terms of the aseptic share, yeah, indeed. We are not only the inventors of the bag-in-box, but they also are the pioneer when it comes to aseptic.
About one-third, give or take, is aseptic, but a lot of it is still ambient, so they don't need cold chains to transport. Because as I know you're familiar with the fact, aseptic is also a function of what you fill. They definitely have these dairy products where they use aseptic, but they also have solutions where they don't necessarily need aseptic, but where an ambient filling or a hot fill process is sufficient. It also to protect the product, and they still benefit from distribution channels that don't need cold chain and hence obviously come with the lower carbon footprint. The ESG angle is a very important one. We are obviously the leaders in ESG when it comes to packaging for food and beverages, and we are that with our substrate, the carton.
I'm sure you are familiar with the fact that we define ESG-friendly packaging along three dimensions. It's number one, the recyclability, and 100% of what we offer today is designed for recycling. Over 50% recycling rate for the beverage carton in Europe. It's about renewability. 70%-80% of every single pack comes from renewable sources. We have a pack which is 100% linked to the forest. We stripped out as the first and only ones in the industry, the aluminum foil, and replaced the polymers with polymers from biomass-based sources from the forest. The third one is obviously the CO2 footprint, where the beverage carton is the best performing container. Now, the beverage carton has its application range, and that application range is from 200 ml to 2 L, mainly through retail.
Retail that ends up in at-home consumption or on the go. Now, what we are adding today is the most sustainable solution in order to extend that range. We do that twofold. On the one hand side, we add, on the smaller packaging sizes, the spouted pouch with mono-material, a solution that is 100% designed for recycling and comes obviously also with the feature of no need for a cooling chain if it is filled or hot fill or aseptic. On the other hand side, we do add the substrate of bag-in-box. This is the majority of the sales of Scholle IPN today. bag-in-box is just that bag is a substrate that consists of a carton box, obviously the renewable component, and the bag, which is the barrier film.
It comes also with a range extension now from, give or take, 2-5 liters for retail application and above 5 liters to up to 1,500 liters for institutional, but also for industrial application. It also for industrial and institutional separation and also the recycling process is well established because obviously it's happening there. It all comes down to what happens post-consumption in retail segments. There we are committed to use our expertise, that we have used over the past 20 years to build up recycling infrastructure, to do that also for the solutions that we add now to our platform. I think what is really exciting is that we can help each other to become better. Obviously, SIG is clearly focused on its ESG profile and providing best-in-class solutions in the packaging arena.
The same is true for Scholle IPN, but we have complementary capabilities that help us to innovate more and innovate faster for ESG-friendly solutions. You know that we are the first and the only ones that stripped out aluminum foil. The broad offering of Scholle IPN comes without aluminum, and they are the experts in barrier films. Barrier films is exactly what we use in order to substitute the aluminum foil. There is a field of collaboration. If you think further down the line, I mean, we could also think of a fiber-based pouch in order to bring this renewable component to the pouch segment. There are a number of things why we believe it makes our business stronger, more resilient, and it broadens the platform for growth. Organic growth, as you heard before, is a range of 4%-6%.
You had a specific question on capital increase also.
Yeah, no, thank you. Joern, just to address that point, the capital increase is really part of the balanced capital structure that we're pursuing also with this transaction. It builds really on the track record that we've established since the IPO. You may remember at the time of the IPO, our leverage was about 3.25x. That's also the leverage, you know, pro forma for the transaction at the end of 2021. We, you know, continue to delever from there in line with the track record we've established.
As part of that, starting leverage of 3.25x, there is obviously the equity portion and the purchase price where we issue shares to the seller, and we will also, in addition, add, you know, a small capital increase of CHF 250 million in order to have that balanced capital structure.
Okay, thank you for this. Just to clarify that I understand this correctly. You have the 33.75 million shares for the transaction, and on top you are doing a capital increase of CHF 2 million-CHF 250 million to strengthen the balance sheet immediately.
That's right, yes.
Oh, okay.
You understand that correctly. It's the share consideration of the transaction plus then the small capital increase of, as we said, CHF 200 million-CHF 250 million.
Okay. Thank you.
Thank you, Joern.
Our next question comes from Sandeep Deshpande at JP Morgan.
Good morning, Sandeep. Can you hear us?
Yes, I can hear you loud and clear. I had two questions. One, can you kindly provide us the EBITDA generated by the acquired company, let's say in 2018, 2019 and 2020, for those three years, if possible? And can you classify whether the acquired business benefits from at-home consumption or on the move, or the profile is similar to SIG Combibloc? The third question is more on earn-out. I think the details are clear there, but I wanted one more clarification. The growth rate you have provided is between 6%-11.5%, and the earn-out will depend upon how the acquired company will grow. Can you provide us with more detail?
If the acquired company grows at, let's say, 6.1%, what is the earn-out that's expected to go out in 2023, 2024 and 2025? Every 1% incremental growth would mean how much to the earn-out?
Thanks for your question, Sandeep. Why don't we start with the second one, and then we make our way into the finance, and Frank can take over. You're asking, what is the end market exposure of Scholle IPN? Also along the lines of the consumption occasion. I think we talked about the consumption occasion, especially in the light of the pandemic now, where we did see that FMCG was a beneficiary in those areas where we saw increased at-home consumption. Also we saw, obviously, that on-the-go was muted. We kept growing as a business, and as a matter of fact, you have seen our growth rate for 2021, where we have now shown very strong growth at 6.6%. I think that speaks to the resilience of the business and that the end market exposure provides a well-diversified base of revenues.
We are now adding, and that's a very exciting part. We are now adding two very relevant segments to it. While we are strong in retail with this on-the-go and at-home consumption, we are now adding a very attractive segment of what we call institutional. You could call it food service. We have heard Ross before. Scholle IPN is very strong in this bag-in-box segment that caters to, for example, the concentrates for soft drinks that are embedded in the customer's value chain. There is a system business offering, where you have the bag-in-box, where you have the filling machine, but also you have a connector system that is tied into the fountain systems at the point of consumption.
There are very many similarities, a lot of similarities with our own business model, and I think that also explains probably why they enjoy a customer relationship on average for the top 10 accounts for over 30 years. Your question is on this end market exposure. We are adding this institutional sector where we were underrepresented up to today. You might remember that we had a food service business in the U.S., about 20% of our North American business, but we're gonna increase that exposure there in a positive sense, and that's very exciting. On the other hand, we are also adding the industrial sector. You know, all these use cases for bringing processed fruits and vegetables from the country where the crop has grown to the country where it's further processed.
These are container sizes up to 1,500 liters, which is obviously another end market exposure that adds and will build on the resilience we have. We have shown the EBITDA margin for the business of Scholle IPN for last year. We also talked about the fact that they have strongly performed over the past couple of years and built out their business. Maybe Frank, you wanna refer to that.
No, thank you. I think on the business, you know, you've seen on a like-for-like, same accounting basis, the financials for 2021, which also compares with our financials so that you have a good starting point. It is a strong business, you know, with the strategic benefits and, you know, market position that you're aware of, and that also is reflected in the strong financial profile of the business over the last years. It you know, continues, you know, with its strong market positions. That is also then the basis for the attractive margin that it has. So I think the profile that we showed you on a really comparable basis for 2021 is, you know, a good example also how this business has been performing.
It was a private business, so they are not disclosing financials in detail. That's where you know, we're seeing this really as a starting point to continue our margin expansion on the business that we have. Again, it fits well. It has you know, this best in class financial profile that we're looking for and gives us the basis to start the margin expansion that you know, we've outlined as well. I think the last question you had was on the earn-out. Yeah, the earn-out only kicks in once the growth of Scholle IPN is in excess of 6%, and 6% is the you know, upper end of our midterm guidance range. Really it kicks in when there is overperformance to what we're guiding for in our business.
Then it only gradually, you know, steps up. There is a ratchet mechanism so that the maximum amount is only payable at a growth rate of 11.5%. That is a, you know, continuous, you know, reasonably straight line that you can look at. Also worth noting, it is the growth of 2023 versus 2022, payable in 2024, and the same thing then for each of the following years. That really aligns also the interest that, you know, if there is superior growth, then we benefit from this. It's really contingent on the overperformance.
Does this answer your question, Sandeep?
Yes, it does. Thank you.
Thank you.
Our next question comes from Alessandro Foletti of Octavian.
Good morning, Alessandro. Can you hear us? I think we can hear that you're there, Alessandro, but we can't hear you well.
Yeah. Hi. Can you hear me now?
Now we can hear you.
Thank you.
Excellent.
Thank you for taking my questions. I also have two or three. Can you please give a little bit more information, what end markets, what products you do, and what clients you have in the non-food part of the business? I have understood there is a 30% of sales that is not related to food.
I think the majority of it is related to food. There are certain applications for bag-in-box that you can think of, you know, home care, personal care products. Our packaging is in the bag-in-box segment. First and foremost, it's a player that provides product packaging solutions for food and beverage applications.
Didn't you write in the press release and also said it today that it is 70% of sales in food and beverage?
Yeah. Right.
The rest is 30% non-food.
Opportunity to expand into a segment which we deem attractive too. What we wanna underline is that we remain first and foremost a player for packaging for food and beverage. There is an angle of this non-food that we're gonna enter, which is attractive. Again, along the lines of detergents, lubricants. These are the solutions that we have.
Part of it is also customer care, so I imagine also customer end customers, small packs, and then another part is also there in B2B, or you don't do big transport? Because I heard, I think it was Mr. Ross, and now I forgot his surname, I'm sorry, speaking about motor-
Ross Bushnell? Yes.
Yes. Speaking about motor oil, I was wondering what that is. I mean, it not do big transports of, I don't know, detergents, et cetera. Is it also end consumer?
No, there are two different facets to that. On the one hand side, it is really through retail for end consumer, home care, personal care products. Then there is indeed this element of lubricants where you need to step back and understand what are the ESG trends in the broader packaging space. There's a lot of packaging substitutions that have to do with light-weighting. Obviously the bag and box is a very light-weighted opportunity and option to replace a rigid container which uses more material. So that's where Scholle IPN has found an opportunity to establish themselves in the more institutional sector, so maybe also from business to business, for these lubricants.
All right. Okay. Another question, again, if I may, on the profitability. If I take the 27% target for the whole group after the inclusion of Scholle and after the inclusion of Evergreen, and I make a simple mathematical calculation, I come to the conclusion that Scholle should raise the margin to about 24%, I'm talking EBITDA, for you to be able to make the 27% for the whole group under the assumption that SIG remains at 27.7% where it is now. Otherwise there are too many moving parts. Assuming SIG remains at 27.7%, Scholle should go to 24% more or less. First of all, is that within your ambition, and how do you plan to increase that? What are the levers that you have?
You know, you mentioned EUR 17 million synergies, but there must be more than that, otherwise you won't make it.
Yeah, I think it's a very good question, Alessandro. I think to step back, we deliver today best in class margins, and you cited the margin range where we operate. The combined business is gonna have a margin of around 26%, and we have clearly ambition to grow the margin to above 27%, which we still deem best in class. I think what you said before, there is definitely a margin expansion potential for the businesses that we acquired, but I think it is an assumption that you made in your calculation that SIG stays flat, which we don't share. SIG continues to show margin expansion potential, and we're determined to continue to improve our margin also in the core business. We have already outlined on the Scholle IPN acquisition what the cost synergies are that we envision there with this EUR 17 million.
If you add that gets you a margin north of 22%. There is obviously also a big lever that comes, and I'm speaking now for the combined group again, through operating leverage. That is obviously a function of the bigger group and there are scale effects that you're gonna achieve. What remains important, not only for the carton business, but what also becomes important now is the margin expansion lever for the acquired businesses, for Scholle IPN with the bag and box and the pouch. We're gonna continue to invest into the faster-growing markets that often also come with higher price points where we can deliver superior value, or we deliver superior value through innovation.
The way how we steer the mix, the way how we deliver the growth by bringing Scholle IPN to our emerging markets platform will definitely help to expand the margins. Again, SIG's core business is the carton business, which is gonna remain the biggest part of our business. It's also continued to deliver margin expansion.
Thank you very much. May I ask one last one, then I leave the pipeline. On CapEx, from your presentation, I see that of the three businesses that you have now, SIG remains the most capital intensive on the, let's say, CapEx to sales. I'm wondering on the Scholle side, which is, well, clearly lower than SIG, let's put it like that. Do you need to invest more, i.e., if you want to expand strongly in Asia, you will have to put up capacities for Scholle? Or do they have enough capacity right now to sort of grow? I don't know. Maybe you can tell me an indication how much they can grow without investing more, building new factories.
No, surely IPN is a business that is well invested. I mean, they have 16 manufacturing sites that combines both bag-in-box, spouted pouch, but also the assembly sites for the equipment. There's definitely headroom for them to grow within these plants. There's the element of the geographic proximity that is also need to be considered. They have right now an Indian plant under construction, which is super exciting for us. As you know, it is on our wish list on the very top that we also, at one point, would like to localize manufacturing for our own carton business. We right now have the Mexican plant underway, which is expected to come on stream early next year. I think after that completion, and we were very vocal about that, India is the next one on our list.
I think from that perspective, we can benefit from the fact that they already have a footprint there and already have a plant that is under construction where we will be able to reap synergies. On the other hand, they have a presence in China and also in the same industrial park as we do, in Suzhou Industrial Park. They have a competence center there for injection molding. We were just about to localize this capability because more and more also the single-serve packs in China, they come with a spout, which is a great synergy to use. Then we have a facility in Asia Pacific, in China, that we just opened up early last year, which is now a great opportunity to bring in also manufacturing capability for film extrusion, but also for bag-in-box machines and also for pouch machines.
Last but not least, we have an assembly for equipment in China, which is gonna be a great opportunity to also assemble bag-in-box machines, fillers, and also fillers for the spouted pouch. There are a number of opportunities where we can benefit from each other's presence, which is complementary. Clearly we also need to expand. We need to expand as we deliver growth in this emerging market. We also need to localize production for the bag-in-box and the spouted pouch, and that will require CapEx, but it is again well in the range of the 7%-9% as we announced earlier today.
Thank you.
Thank you, Alessandro.
Our next question comes from George Burroughs at BNP Paribas Exane.
Hi. Good morning, Samuel. Good morning, Frank. Thanks very much for
Good morning, George.
A lot of the characteristics between bag-in-box and aseptic carton seems very similar, you know, similar end markets and customers. There's a machinery element with filling lines, and they're sort of multi-material products, primarily paperboard and help reduce plastic. One of the big attractions in aseptic cartons, though, is the consolidation within the market. I was hoping you'd give some color on the level of consolidation and where sort of Scholle's market share sits within those bag-in-box and maybe the pouches as well, please.
No, absolutely. I think you outlined that very well. I mean, there is a lot of similarity in the two business models. In the business models, they come with the offering of equipment, but also the consumables. If you allow me to make one comment, you know more and more we are moving towards these mono-material solutions on the spouted pouch, but also on the bags and the bag-in-box solution. That requires that the system of business approach is even further tightened. Because in order to run the mono-material, you need equipment that is perfectly designed and tuned to the kind of properties of this consumable. I think that's where we can help. That's where we can help with our fast output machines.
That's where we can help with our aseptic expertise, and that's where we can continue to complete this offering of this system business. Now, Scholle IPN, as we said before, is the global number 1 for bag-in-box. They invented this format also, they're the pioneer on the aseptic side, and they are the number 2 in spouted pouch. I would say, obviously we come from an industry that has, an industry structure you're familiar with, where we're the global number 2. If you look to the bag-in-box segment, depending on whether you're retail, institutional, or industrial, there are some players that offer a subset. But I think it's fair to say that Scholle IPN is the most integrated one in terms of capabilities, manufacturing capabilities, but also in terms of the offering.
I think they have rather a unique market position as a function of that, and obviously that explains the number 1 and the number 2 obviously in the spouted pouch, if that makes sense.
Sure. Thank you very much.
Thank you, George.
Our next question comes from Daniel Koenig, Mirabaud.
Good morning, Daniel. Hello?
Daniel, can you hear us?
It says on his screen that you're probably on mute. Or it's at our end.
I'm going to Miro Zuzak at JMS Invest.
Good morning, Miro. Can you hear us?
Can you hear me?
We can hear you, yes. Good morning.
Excellent. Thank you. Good morning. Two questions from my side. They are related to each other. Can you give an idea about the depreciation number for the acquired business?
I think you can broadly assume that to be in line with CapEx.
I think that is. It's not a very capital-intensive business, so there isn't a significant depreciation on this business. I think if you look at that, you know, that 4% of revenue, which, you know, is the CapEx to revenue, would also be good guidance for the depreciation figures.
Okay. If I take the CHF 20 million, which I was assuming before, I get to an earnings accretion of roughly CHF 51 million, which corresponds to roughly 17.5%, in my calculations, assuming 2022 numbers from you. Now, if I do the share count, and again, I hope it's correct, I get to a 14% increase, assuming a price of 21 CHF, I can do the capital increase. You basically get the 17% accretion for a 40% dilution. I mean, that's probably the reason why I say it's accretive from day one. Now, given that there are significant integration risks, of course, firstly and secondly, it's also basically a broadening of your business. You're also taking in new business.
You're diluting your message with ESG, aseptic, and so on. I mean, the question is, what makes this acquisition really attractive for you? I think it can't be just the numbers, given these numbers.
Yeah, I think there are many more reasons than the numbers. The numbers, they just support the case. We absolutely agree with you. I think why we are so excited about the fact it's because we believe it makes SIG stronger. It makes us stronger and more resilient. I think we have talked about the resilience of our business multiple times also with you. We talked about the resilience that we've proven during the pandemic and in other situations where obviously there was a bit more challenges out in the environment. We have consistently shown that we can continue to grow no matter what. I think that the last year with the numbers is supporting that case.
Now, what brings this resilience is, of course, on the one hand side, the business model that we have and the fact that we are deeply embedded in our customers' operations. The same goes for Scholle IPN, as you heard before. The other element that explains this resilience is the end market exposure to end markets where we cater to non-discretionary food and beverage products. The same goes for Scholle IPN. What is adding the resilience is the diversification of this exposure. We are adding to the retail segment, a very strong presence in the institutional and industrial segment. What we are adding is a geographic exposure, which is complementary to ours. On the one hand side, there is this growth opportunity in the emerging market platform that we are very strong. On the other hand, there is a very strong U.S. presence by this business.
We had many discussions with this, with investors early on when we talked about the SIG's footprint and also in the Americas. We are super excited about the fact that we can now quadruple our presence in North America. All those factors make our business more resilient, protect the core of the carton, and make us stronger. I think the other aspect is that it will support us to deliver financials within these very attractive financials that we also used in the past. We're gonna continue to grow within the 4%-6%. I think, the acquisition is gonna help us to probably even move within this range to the upper end, as we obviously bring their solutions to the emerging markets which are faster-growing.
We're gonna continue to deliver best-in-class margin, admittedly not on the level that a SIG stand-alone does, but it's still, it's a best-in-class margin, and it is a margin expansion potential that comes with it. In addition, there is a highly attractive cash generation profile which allows us, and Frank can elaborate that, on that, to continue to pay an attractive dividend also in absolute terms a growing one. Last but not least, it's a deal that is indeed accretive as your computation shows. Frank, you may wanna build on that.
Yeah. No, thank you. I think. Just one. Sure.
Go ahead.
We can expect basically that your growth is going to be stronger, so we're probably going to upgrade your top line growth guidance at some point in time from the 4%-6% to, I don't know, 5%-7%, something like that. Because the last two years at least.
We feel very comfortable with the 6%, but I think exactly along the lines of what you're saying, we believe that the acquisition of Scholle IPN and bringing those products to the emerging markets will help us also on the top line and help us to drive within this range, probably the growth to the upper end.
Thank you.
Thank you.
Thank you.
We'll try again now to reach Daniel Koenig at Mirabaud.
Yes, good morning. Is it now better?
Much better. Good morning, Daniel.
Good morning. How are you?
Good.
Very well, thank you.
I have two questions. On the market share in bag-in-box, can you tell me in terms of number, what kind of market position that is? Is it 10%-20%, or is it 30%, or is it 50%? I was wondering in pouches, you said that Scholle is number two. Can you tell me who is the number one? That's one question. I was wondering what the raw materials are for Scholle. Are they much different? Can you tell me how these raw materials have developed for Scholle last year?
Thanks.
No, absolutely. Thank you for your question. Obviously, as you said before, Scholle IPN is the number one in the bag-in-box and the number two in the spouted pouches. The thing is, in the bag-in-box, depending on obviously the industrial use, the institutional use, there's maybe other competitors in there, but that also underlines that Scholle IPN is the one with the most complete offering and has obviously the highest degree of integration when it comes to its own value chain. They can really produce the films. They have the machinery as part of the component, and they have also to connect the system and help customers to develop connector systems. That also is proprietary in nature. This is what kind of underpins their strong position in the bag-in-box.
Obviously, market share is always a function of how you look at the global market, including the emerging markets, where they have no presence today at all, but they are the number one in this market and there is a smaller number of players in the industry. The same goes for the spouted pouch. They're the number two there. They're very strong also when it comes to the most sustainable solutions which are related to mono-material. That, I think, is also the segue into your second question, what is the raw material? I mean, they use polymer grades, and they brought solutions to the market that are mono-material. Mono-material is basically the precondition for recycling or eases recycling much more because you don't need to separate components.
That is a very exciting part of their offering because they now have the most sustainable solutions in both bag-in-box and also spouted pouches. It's a polymer resin that is acquired or purchased there, and then it runs over the extruder, a technology we are very well familiar with. We also extrude and laminate our sandwich structure, and they do that in this film extruder. It's a polymer grade that they're gonna buy, and that's also where we see the part of the EUR 17 million cost saving that we announced, that we see synergies in the procurement of those raw materials. They have, on the other hand, pass-through clauses with their customers. That's how they handle that for bag-in-box and pouches, so that there is a clear path through when it comes to raw material cost changes.
Okay, thanks a lot.
Thank you.
Our next question comes from Cole Hathorn at Jefferies.
Good morning, Cole.
Can you hear us?
Morning. Can you hear me? Thanks for taking my question.
Yes.
Follow-up on the revenue model of Scholle. I mean, compared to your business model of kind of razor and razorblade model, can you give a little bit of color how the price increases work with customers? You know, how the equipment sales, how the actual pouch sales work? Then following up on the last question, how do you pass through the raw material prices for polymer, I imagine polypropylene. Thank you.
Thanks for your questions, Cole. The business model has similar characteristics to our old one. Obviously, it's not a razor-razorblade model, but it is one that comes with multiple components, consumables and machinery. If you look to, for example, the institutional bag-in-box, there is the components of the consumable, there's the components of the machine, but there's also the component which is very relevant, which is to connect the system to all the fountain systems that you have, if you look around in the point of sales, at the restaurant, at the quick service restaurants. There's also a solution which is called, for example, Coca-Cola Freestyle solution, which also is a vending machine where the consumer can choose their own kind of composition of the soft drink.
That's also where they provide the bags with the connector system, which is the high concentrate in there. In other words, they are deeply embedded in the customer's value chain. I think that also explains why they have annual agreements or maybe multi-year agreements with one of the other customers. It also explains that they have these long-term customer relationships that we enjoy. We saw this chart before, on average, over 30 years for the top 10 accounts. I think that just is the similarity in the business model. It has this stickiness that we also see on the beverage carton side. Now, the passthrough is kind of a classic passthrough clause in the contract, and it is the one with an alternative, which is based on the indexes for resins.
Okay. With regards to the corrugated side, is that just something you source with them for the actual bag-in-box? Following up on that, would it be the focus of growing the bag-in-box or is it the pouches where you see the most opportunity in the emerging markets? Thank you.
The corrugated part, the box is often bought by the end, by the customer themselves because they wanna have the specific design, and so they source the bags from Scholle IPN and the filler. Now, we do see growth opportunities on both bag-in-box but also the spouted pouch. The spouted pouch, obviously, especially for the emerging markets, has a lot of appeal because if you think about our own offering, which goes down to 200 ml, the regular size is even smaller one. There is a limitation of what we can reach with the carton, with the aseptic carton. I think that's where the attractiveness of the spouted pouch lies, because you can go down to 50-ml packaging units, and that is relevant for emerging markets because it hits the price points.
We discussed that also in the context of the beverage carton. That often, you know, there's the form of flexibility that aseptic offers is used to hit the relevant price points, the INR 10, the THB 10. I think that's where obviously with a very valuable product, if you have a puree, a fruit puree, which is high risk cost, you also need a spouted pouch in order to consume it. I think that's where we see a lot of opportunity, for price point reasons, best performing in terms of TCO. It is a unique, application for certain products, where a spouted pouch is just the way to consume it. Also, obviously it comes with lower carbon footprint and it brings this mono-material solution.
That's why we see a lot of growth opportunities, especially in the emerging markets for the spouted pouch. Bag-in-box, I mean, it's a very attractive substrate, also mature in emerging markets where we aim to continue to deliver growth.
Thank you.
Thank you.
Our next question comes from Daniele Cilinguo.
Good morning. I have three questions. The first one is, you speak about very sustainable products for bag in the box, though it's plastic. So is the recycling process already set up? Are we in a circular economy with these plastic bags, or is that something you need to set up to be completely green, if I may use that expression? That's the first question.
Sure. Why don't we take the first question then? Bag-in-box, obviously, especially when it's used in the industrial and also institutional use, you know, is easy to collect, and I think every recycling starts with collection. It's easy to collect because, obviously, it's in an environment of industrial institutional use, where, obviously, those consumers, for the lack of a better word, the restaurants, the stores, they have waste streams for the respective materials in there. The carton goes into the paper stream, and the bag goes into the polymer stream. What Scholle IPN offers is a mono-material bag, including the connector system. That means that is the precondition for easy recycling. Obviously it comes down to, and you rightly said, as to collection system and then also to recycling infrastructure.
There we depend on the wider setup in the respective markets. There is a function of collection systems that bring it to the recycling infrastructure, and that's where we're gonna continue to be committed to drive that further up. If you look to what we have done on the beverage carton side, we have in Europe above 50% recycling rates, which is outstanding for beverage food and beverage packaging substrates. We have done that over 20 years of consistent work within the industry with partners from governments and NGOs, and we're determined to use this expertise also, not only for the carton outside Europe, but also for these new substrates with bag-in-box and pouch. Again, both bag-in-box and pouch, given that they come now with mono-material, are 100% designed for recycling.
We engage in the Consumer Goods Forum, where the industry unites the big brand producers, retailers, and also some packaging manufacturers. We have defined there the Nine Golden Rules for Design for Recycling, which we're gonna adhere to. That's why it starts with design for recycling. We have the unique opportunity there with these mono materials to make a big step forward. It comes to collection system where, again, the bag-in-box is collected at the point where it's used, and then it goes into the separate waste streams, and then it becomes, obviously, a function of the infrastructure of recycling.
How much of this product is already recycled? Because it's nice, you have the design, and then you throw it into the bin, and it pollutes the Earth anyway.
I mean, I think it's a fair question. It depends what the recycling rate of plastic as a broader category in the respective market is. That's what it comes down to. Important is that it is ready for recycling, which it is 100%, and then it's about making sure that it's collected and indeed recycled. That's where you have the challenge more on the retail side and less on the institutional and on the industrial side. On the retail side, we're gonna use our expertise that we have from the beverage carton to work together with the industry partners to put recycling systems in place. That's definitely a challenge and a to-do for the industry, where the industry can help to make a contribution to a better world and to more sustainable packaging solutions.
Somewhere you have to start, and we have this fantastic offering for the beverage carton, but the beverage carton has its limitation in terms of its adoption fields. We have now the bag-in-box, which is easier to separate, easier to recycle. We have the mono-material spouted pouch, but we need to continue as an industry and as SIG to remain at the forefront of the most sustainable solutions, and that's what we are determined to do.
Okay, thanks. The second question is, your new colleagues on the executive committee spoke about 300 systems that they installed. Are the totality of their products going through their 300 systems? Is it a captive combination of they sell the system, and they use their consumables, or is there flexibility for the client? If yes, what is the percentage of the consumable sales that they do on their own system?
It is not a razor-blade model as you have on the carton side. It is a system that is more open. There is not a captive link between all the consumables they sell and all the installed base they have. There is a big overlap. We didn't quantify that, but there's a big overlap, and it comes obviously also as a function of the long-term customer relationship that they have. They are a function of the fact that, you know, ultimately it becomes an integral part that we offer, and it's a hassle-free solution that Scholle IPN offers to their customers. While it's not a razor-blade system today, there's a strong link. We're determined to continue to build on this system offering. When you think about, for example, the mono-materials for spouted pouch.
Spouted pouch needs a pouch maker, needs a filler. This is something which needs to be tuned to the material. When they eliminate the aluminum layer, they work with the barrier film only. Obviously, those have certain web tension challenges, so you need to be able to produce that on your pouch maker and also then further process it on the filling machine in a stable way, so that you get the lowest possible waste rates and the best TCO. I think that's where we can help. There is a push for more system solutions where packaging material and equipment goes more hand in hand, if that makes sense.
Okay. The more system solutions would require more CapEx from your side?
I mean, that isn't determining it, right? It's not this co-investment model where obviously the supplier of the equipment co-finance. This is normally the equipment is sold with as outright sale with a margin and then you sell the consumable. I mean, obviously we know the system business very well. Maybe there are angles, but everything that we intend to invest is well in the range of the guides at 7%-9%.
Okay. I have a final question, and then I leave my colleagues of the question, is about your midterm targets. You have slides full with fireworks of a combination and synergies and how great this combination is. Yet the midterm growth target is 4%-6% as SIG before without integration risks. The margin guidance is a bit lowered, although no, more than 27% leaves a bit room for creativity. Where is the numeric angle that gets investors excited or should get investors excited if the growth stays where it is? Yes, there is growth synergies, but you don't see it in the midterm guidance and the margin is a bit lower than before.
Oh, I think it's a good question, but I think also, I mean, we look now at relative guidance ultimately down to absolute earnings growth, right? We look at the business that went bigger and yet stays, as a business with similarly financially attractive characteristics. We grow within the 4%-6% also going forward. We talked about the fact before that by adding Scholle IPN to our emerging market platform, we believe that we can even kind of drive it up within this range. That's how we look at it. It's definitely an opportunity to grow faster as a combined business. Plus the fact that it makes us stronger, it makes us more resilient.
It gives us exposure to even further end markets where we're not present today, which is a super exciting topic, and this is supposed to kind of further protect the core while not diluting any of the top line, but rather accelerating growth. When it comes to the margin, as you rightfully said, I mean, the combined business has a lower margin than SIG standalone. It comes with around 26%, but there is a clear aspiration to continue to grow margins to above 27%, which is still the investing class and being the whole package as an attractive financial profile for our business. It also comes with better cash conversions and lower CapEx intensity, which translates into strong cash flows that we wanna also use for dividend payments going forward, which makes us celebrate, Frank.
Yes. No, thank you. I think also as part of the financial profile, we continue with our balanced capital allocation, yet continue to invest in the business and, you know, the organic growth opportunities that we see that, you know, still the carton business is over 80% of the business. We'll drive that core and, we shouldn't, you know, lose sight of that. At the same time, besides, you know, investing into the organic growth and the high returning opportunities we have there, we continue to pay a current, you know, dividend and current return to our shareholders, consistent with what we have also communicated since the IPO, that we're in that payout ratio of 50%-60% and also continue to have absolute dividend growth.
Still unchanged, consistent with deleveraging with the long-term midterm target of 2x. Yeah, we're starting out, as we said earlier, at 3.25x. That is the level at which we were at the time of the IPO. We've shown how quickly we can delever. At year-end 2021, we were at 2.5x, so that's about a quarter turn every year, while at the same time buying out the joint venture partner in the Middle East and also doing the acquisition of Scholle IPN in 2020.
I think also that part of our capital allocation adds to the full picture of, you know, continued solid growth above GDP, margin expansion, that, you know, will continue in the acquired business as well as in the core business. That drives strong cash generation, which is the basis for paying continued dividend as well as deleveraging as we set out and continue on our track record.
Okay. Thanks a lot for your answers.
Thank you.
Our next question comes from James Rose at Barclays.
Good morning, James. James, can you hear us?
Hello?
Unfortunately, we can't get through to James. Are there any more questions? If so, please raise your hand. No more questions.
We will follow up with James then individually.
Yeah.
I guess if there are no more questions, then thank you very much for your time this morning. We are looking forward to meet in the upcoming roadshow, virtually or in person. I'm sure that this will be a good opportunity to further elaborate on the Scholle IPN acquisition that we were able to announce today. Thank you very much for your time today, and stay safe.
Thank you.