Earnings Call: H2 2020

Feb 23, 2021

Good morning and thank you for joining us. Today's call is hosted by Samuel Sigrist, CEO and Frank Herzog, CFO. The slides for the call are available for download on our investor website. The presentation may contain forward looking statements involving risks and uncertainties that may cause results to differ materially from those statements. A full cautionary statement and disclaimer can be found on slide 2 of the presentation, which participants are encouraged to read carefully. And with that, let me now hand you over to Samuel to begin the presentation. Good morning, and I hope everyone is safe and healthy at this time. I would like to start with the key points on 2020, a year which the SIG proved It's business resilience. And we did grow the top line, increased profitability and generated strong free cash flow. Crucial in this respect is our role in supplying food and beverages for which demand remain robust. To be clear, overall, Royal COVID-nineteen was a headwind for us due to lower than expected growth in Asia Pacific and a negative earnings impact caused by currency volatility, particularly in the early months of the year. However, we continue to benefit from the geographic diversification, which has been a pillar of our strategy over the last And more. Generally, in recent years, growth has been driven by markets outside Europe. But in 2020, very strong performances in Europe as well as the Americas offset. I continue in our overview. Generally, in recent years, growth has been driven by markets outside Europe. But in 2020, very Enabling us to achieve a slight reduction in leverage, while continuing to invest notably in the new plant in China for the Asia Pacific region. As a further illustration of the ongoing expansion of our footprint, we announced in November the planned acquisition of the remaining 50% of our Middle East An Africa joint venture. I'm happy to say that the COVID-nineteen crisis has not led to any interruption of the focus on sustainability generally And at SIG, in particular. We continue to blaze a trail in this respect, and it's Playing an increasingly important role in our relationships with customers and all our other stakeholders. Today, it is my pleasure to speak to you for the first time as the CEO of SIG. There have been 2 other within the Group Executive Board in 2021. Jose Matt Heizer has joined us as President and General Manager Europe, taking over from Martin Herrenberg. Jose brings to the role valuable experience with food and beverage companies, including a major customer. And with me today is Frank Herzog, who took over as Chief Financial Officer from the beginning of the year. Frank has extensive finance and management experience at major international corporates And in Investment Banking. You will be hearing from him in a few moments, and I hope it will not be too long before he can introduce himself to you in person. Turning now to the financial highlights of 2020. Core revenue rose by 5.5% at constant currency to €1,800,000,000 There was a significant headwind from the depreciation of major currencies against the euro, which reduced reported growth to 1.7%. Despite the currency headwind, adjusted EBITDA reached a record level, And the adjusted EBITDA margin increased compared with 2019. Free cash flow of EUR 233,000,000 While somewhat below the exceptional level of 2019, it was robust and indeed ahead of our expectations. Adjusted net income increased by 7% to €232,000,000 and we are proposing an increase in the dividend of more than 10% to NOK 42 per share. The number of shares for which this dividend will be paid will increase by just over 5% following the completion of the Middle East Joint Venture Transaction. The payout ratio at end 2020 exchange rates will be around the midpoint Of our targeted range of the 50% to 60% of adjusted net income. Return on capital employed showed a substantial increase to 29.5%. As an evidence of our ongoing focus on sustainability, we can point to a number of milestones reached In 2020, aluminum stewardship initiative certified aluminum is now available to customers in all regions. And in Europe, it has become the standard. More customers adopted our recyclable paper stores, Including, for example, Nestle in Brazil. We are already proud of the environmental profile of our cartons, but we always strive for more. Together with Nestle and other industry partners, we are funding a chair at the EPFL in Lausanne to support Breakthrough research on sustainable materials. External validation of our achievements is important to us. With Ecovaris, we have currently ranked in the top 1% of companies. And I'm pleased to report that we have just been recognized by the Carbon Disclosure Project for our work in engaging with our suppliers to tackle climate change. In 2020, we made strong progress towards our science based targets initiative approved 1.5% climate targets, Which includes a 60% reduction in Scope 1 and 2 emissions by 2,030. Both our carbon emission targets and our EcoVadis score are included as performance metrics for the coupon on the term loan for which which formed part of our debt financing in June. Key to our ability to Keep operating during the COVID-nineteen crisis was the early implementation of a pandemic preparedness plan, starting in China. We learned from the experiences of our Chinese team and then implemented rigorous precautionary measures at all our plants globally, With the result that they were able to continue operating throughout the year. The crisis highlighted the resilience of our localized supply chains in each region, and we were able to maintain a high level of customer service. We received many letters of appreciation from our customers. And I would say that, if anything, this crisis has further strengthened our customer relationships As we worked in partnerships to deliver essential nutrition to consumers across the globe. This was a great effort by all our teams worldwide, and I'm truly grateful to all our employees in our factories and elsewhere who met the challenges head on and with such success. During the year, we have seen the importance of category diversification as well as of geographic diversification. By this, I mean our ability to offer packs that cater to different consumption occasions. So in Europe and America, for example, we could step up production of liter packs for liquid dairy and of cartons to food, Both of which were in high demand during the pandemic. Looking to the future, it's encouraging to See that in 2020, we continue to win new customers and to increase share of wallet with existing customers. We also found our customers to be ready and willing to invest in new fillers, which, of course, is a positive sign for growth in the years ahead. I'd now like to go through the main top line drivers in each of our regions. In Europe, a large part of our business is in liter packs Suited for at home consumption. As a result, we saw a significant step up in demand, notably in the second quarter, As customers and retailers restocked following the hoarding by consumers at the onset of the COVID-nineteen crisis. Consumption of liquid dairy remained at the relatively high level, reflecting the change in consumption habits. With the 2nd wave of lockdown starting towards the end of the year, we saw strong 4th quarter growth against the tough base of comparison. To be clear, our business in Europe would have grown last year even without COVID-nineteen, continuing the track record of market outperformance since 2018. This reflects our ability to keep winning new filler contracts. In 2020, new contract wins Included a mega deal with Horwalt in Germany for 15 fillers, which is scheduled to come on stream in 2022. We also continued our expansion into new categories such as, for example, plant based milk. Asia Pacific was a rather different story with a clear headwind arising from the impact of the lockdowns on the on the go consumption. For the full year, the region did show modest growth at constant exchange rates, but this was thanks to the full year consideration of Wizzie Cartons, which contributed €44,000,000 Even in China, where the pandemic came under control quite early on, It was September before consumption patterns began to return to more normal levels and the recovery has been well known. In Southeast Asia, where lockdown started later and lasted longer, the effects continued throughout the year. With consumption remaining depressed, customers destocked in the Q3. And as we had anticipated, They were not ready to undertake the usual year end rally in the Q4. However, as in Europe, our teams continue to drive the business forward, Winning new business with a key customer in Thailand and further expanding our dairy footprint in India. The Americas was an extraordinary success story in 2020. The Q1 admittedly is measured against a low base of comparison in Q1 2019 When sales were constrained by late deliveries from our plant in Germany. Subsequent quarters, however, clearly benefited from positive COVID 19 effects in Brazil and Mexico. Lockdowns favored higher at home consumption of milk and food. And in Brazil, there was a further benefit from increased welfare payments to low income households. In this context, basic products saw strong demand, but we were also able to serve a flourishing premium market, providing a variety However, our growth was not only driven by the market. The accelerated placement of Philips with Schafer and Liber Elementos, 2 new customers in Brazil and the successful ramping up of field fillers made a big contribution, particularly in the Q3. This great performance in Brazil and Mexico easily offset a relatively subdued U. S. Market. Although here, too, At home consumption of food was strong, compensating for a decline in foodservice sales. And now let me hand you over to Frank for a review of the financials. Frank? Well, thank you, Samuel, and Also a warm welcome from my side. I'm excited to have joined SIG and I'm delighted to share these solid results with you today less 2 months into my tenure. These results are strong evidence of the attractive business model and financial profile They convinced me to join SIG. So now let's look at the numbers in more detail. If we look at the sales evolution, There isn't that much to add to the full year numbers based on what Samuel already said. What stands out on this chart It's the significant impact from currency already mentioned before. This is apparent in the difference between the constant The Brazilian real is the most important effect here and the impact on reported Revenue is therefore greatest for the Americas. On a constant currency basis though, it is impressive to see the size of the Americas contribution Given that it is our smallest region. As Samuel mentioned, the APAC region benefited from the full year consolidation of Visi Cartons. At group level, Wizzi added 260 basis points at constant currency growth. Now let me have a quick look at the Q4 As anticipated, the Q4 was already was relatively weak in Growth at constant currency of 1.4%. Let me recap the reasons for this. EMEA growth continued to be robust. APAC declined due to a significant reduction in the year end rally compared to prior years. Customers In this region had little appetite to rebuild stocks after a period of significant destocking and they preferred To conserve cash rather than chase volume rebates. In the Americas, growth continued in the Q4, but at a lower rate. After very strong 1st 9 months, Many customers had already reached volume levels that qualified them for rebates. So they too had little incentive to build up stocks. Reported revenue in Q4 was also negatively impacted by significant FX effects compared to 2019 as key Looking at the Q4 adjusted EBITDA bridge, this negative impact From currencies was a major headwind that was only partially compensated by the operating performance. Lower raw material and SG and A costs And the higher JV dividend more than offset small negative impacts from top line and from production efficiencies. The letter is due to the fixed cost relating to the new APAC plan as it reached completions. Let's come back to the full year and the EBITDA bridge. In 2020, we were able to achieve a record level of adjusted EBITDA despite the large And exceptional currency headwinds, which I'll come back to in a moment. At constant currency, the adjusted EBITDA margin reached 28.7% was essentially in line with our medium term guidance. We saw a substantial top line contribution And a strong benefit from lower raw material costs, which exceeded our initial expectations due to the impact of the COVID-nineteen crisis on spot prices. While prices did pick up towards the end of the year, the benefit of lower hedge cost and our ability to negotiate prices with selected suppliers more than The continued implementation of operational excellence programs and the high levels of capacity utilization And our European plants resulted in production efficiencies of €5,000,000 The negative contribution of SG and A costs Reflect growth projects realized in the first half of the year. The timing of such project tends to be lumpy and In addition, the second half benefited from some of the savings measures we put in place in response to the crisis. Let's take a closer look at the currency impact. I said now the currency impact in 2020 was exceptional. In the pie chart on the left of the slide, you can see that the large part of the impact was due to the Brazilian real and the tie VAT. The impact included realized revaluation effects incurred in the first half of the year as a result of the sharp depreciation of these currencies in the last 2 weeks of March. Transaction impacts were partially offset by our hedging program, which hedges currency risk on a 12 month rolling basis using a layered approach. The hedging program Our strategy of natural hedging through the localization of production. There was some improvement in exchange rates in the 4th quarter. Yes, the average exchange rate for the year was more favorable, however, than the levels that we're currently seeing in 2021. Looking at the adjusted EBITDA margin by region, Europe increased its margin by 2 percentage points To 34% as the strong top line growth also fed through into production efficiencies. In addition, sourcing costs declined And the dividend from the Middle East joint venture, which until we consolidate this business is recognized in the EMEA segment was €2,000,000 higher than in the previous year. The margin in APAC at 32% held up well, Down just 1 percentage point in the face of difficult operating environment and negative impact from currency. In the Americas, the depreciation of the Brazilian real was a significant impact as it has done The previous years driving down the margin by 3 percentage points to 23%. This masks the underlying attractive profitability of this region and the excellent growth achieved in 2020. On this occasion, it is worth looking at the differences between reported and adjusted EBITDA. The main difference between these two metrics in 2020 is the add back of impairment losses, Mainly relating to the production assets of our Wakatani paper mill in New Zealand, we'll be coming back for the reasons for this. The unrealized gain in derivatives, which in 2020 is a deduction in respect to adjusted EBITDA relates to our commodity hedging Now moving on to adjusted net income. The increase in adjusted EBITDA was the primary driver The significant FX movements on intercompany loans Had non cash impacts on this that is adjusted. The same applies to the FX effects Associated with our refinancing and the costs relating to the early repayment of our debt financing. Let's now take a Look at our strong cash flows. Strong free cash flow generation in 2020 was a key indicator for the resilience of our business. Net cash from operating activities was positively impacted by the adjusted EBITDA growth and lower net working capital. These positive inflows were offset by debt refinancing cost and additional tax payments, primarily driven by payments of 2019 liabilities in 2020. Total CapEx was slightly higher in 2020 And also lease liabilities with their related payments increased as our plant in China came on stream. Looking at more closely at cash from operating activities, working capital was well controlled in a challenging environment. While we did build up safety stocks at our factories during the year, by year end, the level of inventory in euro terms Was virtually unchanged compared to 2019. Trade receivables declined sharply, partially due to FX changes And the lower year end rallies in the Americas. As a result, the ratio of net working capital to revenue fell sharply to 6% Within our medium term target range of 5% to 7%. Total operating working capital is negative as It includes accruals for volume bonuses to customers. As a final part of our cash flow, let's have a closer look at our capital expenditures. As already mentioned, the increase in PPE spending related to production equipment at our new plant in China. The land and buildings for this plan were being financed through leases. Ross Villa CapEx was basically unchanged Compared to 2019. At the beginning of the COVID crisis, we were expecting customers to rein back or postpone investments Given the uncertain environment, this proved not to be the case as food and beverage demand remains to be robust. We placed 59 fillers in the field in 2020. This is a very strong performance. It's such a challenging Yes, the strong sign of the resilience of our business. Total CapEx of 8% of revenues Was right at the low end of our target range of 8% to 10%. And this in the year when we financed a major expansion project And saw a lower level of upfront cash. Finally, a quick look at our leverage and financing. In 2020, we saw a slight reduction in net leverage Our strong cash flow generation is reflected in the cash balance of over €350,000,000 The debt refinancing, which we carried out in June, enabled us to move to an unsecured structure on typical investment grade terms And extended the overall maturity profile. Our cost of debt at year end was 1.6%. To sum it up, these solid results are testimony to SIG's attractive business model and financial profile It combines growth and resilience with strong margins and cash flows. As I said at the beginning, in light of these results, I'm excited to be part of the SIG team and to contribute to this business and its future growth. I look forward to meeting you in person and To fruitful discussions, just as soon as we're able to do so. And with that, let me hand back to Samuel. Thank you very much, Frank. As you have heard, the construction of our new Asia Pacific plant proceeded as planned in 2020, and the plant is now in operation. Production will be ramping up in the course of this year. The plant is situated in Suzhou, China and will benefit from operational and overhead synergies With our existing factory and from its proximity to our regional tech center. It will serve the entire Asia Pacific region As well as supplying combismile packs globally. It represents an increase of approximately 70% In our China capacity and 35% in Asia Pacific capacity, enabling us to meet the needs Of a region with strong medium and longer term growth prospects. Let me now give you the background on our decision To close, our Whakatani paper mill in New Zealand after due assessment of the strategic alternatives and the required consultation with employees. The mill was acquired in 2010 from the New Zealand based Rent Group, which was also the owner of SRT at that time. Since then, it has been gradually converted from producing folding box boards to producing liquid paperboard for our plants in Asia Pacific and the Middle East. While ownership of the mill has given us valuable insights into the LPB market, we have never regarded it as core to our business. The mill is now more than 40 years old and would require significant investments to keep it viable. Given that we now have expanded sourcing opportunities with our external suppliers, we intend to stop production at the mill in the Q2 of this year. The final closure of the site is expected to take place in 2022. A pretax impairment charge of €38,000,000 has been recognized in the 2020 financial statements. Decommissioning and redundancy costs of around €30,000,000 are expected in the first half of twenty twenty one. These will be part of the adjustments to EBITDA. Approximately half of the cash flow impact is expected to be offset Through the sale of equipment and net working capital assets. In 2021, the cash flow impact Should be around €10,000,000 The acquisition of the remaining 50% of our Middle East and Africa joint Venture is on track and is expected to close in the coming days. We are excited At the prospect of fully integrating this business, which gives us direct access to high growth region with a well invested footprint In terms of both sleeves production and fillers at our customers. Looking at the JV's operating performance in 2020, Sales to third parties were €266,000,000 3% below the previous year's level at constant currency. This reflected the impact of lockdowns on consumption of non carbonated soft drinks and a weaker 4th quarter as Customers were cautious and did not pursue the normal year end rally. In addition, some central banks in key markets imposed capital controls in the 4th quarter. More broadly though, sales of liquid dairy, which has been the focus of our recent expansion initiatives, Performed well during the year. Let me remind you of the reporting impact once the transaction is completed. We will consolidate the 3rd party sales in the region, net of what used to be sales by SIG to the JV. These sales will become intercompany and will be eliminated. For the period March to December 2020, Which will form the base of comparison, net third party sales were around €150,000,000 Dividend income will be replaced by the consolidation of EBITDA from the business. The acquisition is expected And it's underpinned by our filler placement model, where we have strict return criteria for each machine that we place. In the interest of comparability, we use a 30% tax rate for the calculation. But using the actual tax rate in 2020, We had a ROCE of over 30%. The increase in adjusted EBITDA and the reduction in operating net working capital They're the main drivers of the improvement, supplemented by a reduction in the asset base due to the impairments. Overall, this is a very positive development. Let me turn now to our guidance for the full year. As I mentioned just now, we expect to consolidate revenues in the Middle East and Africa From the beginning of March, subject to final completion of the transaction. The combined business is expected to achieve Core revenue growth at constant currency in the 4% to 6% range on a like for like basis. In other words, compared with the 2020 baseline adjusted for 10 months sales to third parties in the Middle East and Africa. Taking account of the ongoing restrictions in Southeast Asia affecting on the go consumption, We would rather expect growth to be in the lower half of the range. This, however, still represents a significant acceleration in growth compared with the 2020 growth rate excluding the Wizzi impact. Assuming no major deterioration in exchange rates, the adjusted EBITDA margin is expected to be in the 27% to 28% range, including the consolidation of the Middle East business. Given the recent spike in commodity prices, we now expect Raw material costs to be broadly neutral with higher spot prices offsetting lower hedged costs. SG and A spend is expected to increase as we continue to drive growth investments. Net capital expenditure It's expected to be around the midpoint of the targeted 8% to 10% of revenue range in 2021. Given the good outcome in both 2019 2020, we have slightly lowered our tax rate guidance for 2021 and for the medium term. Otherwise, our guidance for the medium term is unchanged. This This includes an adjusted EBITDA margin of around 29%, which we are maintaining despite the major currency headwind Experienced since the target was set and despite no longer having the benefit of rising dividend income from the Middle East joint venture. To conclude our call today. Our top line performance in 2020 demonstrates the resilience of our business. We continued to achieve best in class profitability and strong return on capital employed. Our installed base of our 12 60 fillers in field is a strong platform for future growth, augmented by our investments in new fillers And in production assets as well as by the expansion of our geographic footprint, our business fundamentals remain strong and are underpinned By the attractive environmental profile of our PAGS and by our company's broad focus on responsibility. That concludes our presentation for today. I should now like to open up the call for questions. Operator? The first question comes from Alexander Bergelon from Bank of America. Please go ahead. Thank you very much, and good morning, everyone. I have a bit of follow-up questions on your Comments on raw material and the raw material inflation. And if I got it correctly, given the hedging that you have been doing, we don't see any kind Major change on your raw material bill into 2021. But if we now indeed are in a more of a kind of inflationary raw I just wonder if you could talk a little bit about the dig process of recovering Potentially higher raw material costs going forward, like how do you do that through your contracts, etcetera? And if I remember correct, You don't have any real kind of pass through mechanisms in place. So just if you can give a bit of color on that? And then I have a follow-up question on Hannay, if that's okay. Sure, absolutely. Thanks for your questions, Alexander. I mean to start with your raw material question. If you look at our COGS, 50% of that approximately is related to our A Materials, which is the paperboard, the polymers and aluminum. And about 50% of the total raw material spend is related to the paperboard. And we discussed that in earlier calls, but we look at the paperboard as a rather stable input cost. If you look back many years, I mean, we have also seen that if there are price adjustments, it tracks maximum European inflation. And As we secure our supply of paperboard through multiyear arrangement with our suppliers, that statement remains also true. If you then move on to the polymers and aluminum, there are obviously commodities that track global commodity prices. And we counted that with our hedging strategy, where on a 12 month rolling basis, we hedge 80% of our purchases, which leaves, Give or take 20% exposed to the spot price movements. And if you look at Spot prices for aluminum as well as polymers of the recent weeks that really has spiked. And given that situation, Now all the hedging benefits that we have and have are offset by these increased price levels. Now I think it's important to understand that if you take, for example, aluminum, the metal part is about half of total aluminum spend, obviously, that depends on where the raw material price sits. But the other half, our conversion costs, where normal Supply demand mechanism play and where our procurement teams can also create alternatives. Now the way how we look at these Changes in input costs and how we tackle them in our pricing. I mean, pricing, we discussed that earlier. You're absolutely right. We don't have Automatic pass through mechanisms, we never wanted them because that always requires also at least to some degree to disclose the cost Structure. But we discussed pricing for our packaging material with our customers on an annual basis. And we factor into those price discussions Different aspects, and we factor into those discussions the value that we create, what are the filling capabilities the customers make use of. But also we factor into those discussions the changes in the input cost, which include those changes on commodities. That's how we handled that in the past and I also intend to handle that going forward. I hope that answers your first question, but I think you have one on Wakatane. Yes, yes. Thanks for that. Just on Wakatane, can you just remind us How much of your current liquid paperboard needs that you source or have been sourcing now internally from Waqatane? And now if you increase your 3rd party purchases, will this trigger any new pricing negotiations for those Additional tonnes that you will require? Or are those kind of linked to kind of contracts that you already have negotiated with your suppliers? And also, does this mean that you need to source your LTV from further distances? Does that have any impact on your financials? Yes, I understand. Fakatani had a capacity to supply up to 20%, 25% of our demand. And Obviously, it was always a choice between the mix, between internal and external and obviously the price levels to what degree we tapped into this potential. I don't comment on individual specific arrangements with our suppliers, but we look at Fakertani and the closure related to cost As a case that delivers a payback, and that obviously also includes our arrangements for the continued supply Now exclusively through third parties of LPB. If you look at the past couple of years, I mean, there has been consistently more capacity in the market. And I think against that backdrop and the backdrop, obviously, that we are able to deliver a positive return on this closing cost. We felt It is the right point in time to close the operations in Whakatani. From a supply cost perspective, that will not have Any impact really. I mean, Faketani is also not just around the corner and from that perspective, we consider that rather to be neutral. Okay. Thank you very much. That's very clear. Thanks, Alexander. The next question comes from Sandeep Piti from Morgan Stanley. Please go ahead. Good morning. Thank you for taking my questions. Just the first one is on cotton wheat recycling rate. I appreciate you don't provide any Target is there. But if you can give us a roadmap and the thinking behind how you intend to increase that rate, your competitor Reported at 26%. That's the global rate. So some sense there will be helpful. So the question was on forgive me for that, Sandy. On recycling rates, can you please remind me what KPI you were referring to? So I'm referring to the carton recycling rate. The carton recycling rate. Obviously, It depends ultimately on the infrastructure in the given jurisdictions what the collection rates are, and collection rates would determine the Potential of what is ultimately recycled. And when you call it the carton recycling rate, I presume you mean the recycling rate For the entire beverage carton, which is a compound structure consisting of the cardboard, of the polymer and the aluminum layer. If you look into Europe, The broader category of the beverage cartons, so that's not related to SIG, but just across all players, the recycling rate is close to 50 And that varies again really from jurisdiction to jurisdiction as a function of how collection systems are in place, which is Often a governmentally organized infrastructure question. We engaged in projects beyond Europe also In order to drive recycling, together with customers, together with NGOs, we have a number of projects in Brazil, but also on the way To establish one in Thailand, where we also made other progress, but obviously, naturally, collection rates are much lower there. There's Limited reliable data on that, but we're definitely determined to keep driving this collection and ultimately recycling rate up. Okay. That's very clear. And then second question is on the EBITDA margin. So you have mentioned that Excluding the currency impact, you achieved 28.7% in 2020. So what is resulting in expectation of margin to be lower in Thank you, Sandeep. It's Frank here. Let me take That question on margin. I think with regards to X, we have to realize that the Average rate for 2020 is obviously lower than the year end rate and also the exchange rates we currently see. So that is what is the basis for the headwind that can be anticipated In 2021, if current exchange rates persist and obviously, I don't want to venture any guess on how exchange rates are moving, but at least from the current point in time, this is just how the numbers set up, yes? I mean Sandeep, you referred to lower margin. We didn't cite that. I think we expect to be well in the range of 27% to 28%. I mean, Frank just Based on the expected currency slight currency headwind, but I think we also expect clearly a positive contribution from the of the business in the Middle East is, give or take, 50 bps. But we also have to continue to invest into SG and A because that It's how we drive innovation and geographic expansion. And you probably remember that we did put some austerity measures in place last year, which to some degree, we have To swing back, and that's what we're going to expect to happen with SG and A. So but overall, that's how we look at it. 50% should be positive contribution from the business in the Middle East. Raw materials, given what we just discussed earlier, based on Alexander's question, rather probably neutral. SG and A, again, a bit of more of an investment and maybe a slight currency headwind as currency stands now, But we expect again to be well in the range of the 27% to 28%. Yes, understood. Thank you very much. Thank you, Sandeep. The next question comes from Lars Kjellberg from Credit Suisse. Please go ahead. Mr. Kildeg, your line is open. Maybe you are on mute, sir. Let's take the next question from Jern Efert from UBS. Please go ahead. Good morning and thanks for taking my questions. The first one would be please on APAC. Can you give us a rough idea of what was roughly the difference in terms of growth rates of China versus Southeast Asia? Was China growing positively in Q4? 2nd question would be, please, we saw a couple of announcements In the last couple of months, some companies like Coca Cola, they are evaluating paper based bottles. Is this something where you can support And then the last question would be please momentum looking into 2021. I mean, comps are not Easy. In the first half, would you say that the risk you have negative organic sales growth in Q1, Q2? Many thanks. Thanks for your question, Jern. If you look into Q4 in Asia Pacific and your question is specifically on China, And I think we discussed also on the Q3 call that we did see the business in China Coming back in September after rather subdued July August, and we kind of saw that it took more than 6 to 9 months for China To get through this COVID crisis. But what we have seen also in the Q4, China was, I should say broadly flat. The reason for that is that we did see healthy growth rates in the plain white milk segment. It's a segment where we are less present as we offer with our solutions for ambient yogurt drinks with the particulate in Products that are consumed on the go. And we did see that also in the Q4, while you have seen that I guess that The Economy reported good growth that category of this On the Go products still was broadly flat. And think it's also related to the fact while probably there that there are less lockdowns and we see that with our teams. For example, students remain studying from And there were just less people on the go. That's with regard to China in the Q4. Then your point on the paper based bottles, Yes, we saw these press releases, but we also see them as Part of a series of releases that happened to come out since years by now. There was A big beer producer who announced that a couple of years back that they're going to go into paper based bottles. I mean, From our perspective, the products that our customers pack in our containers, these are products That require barrier that require barrier to protect their product. These are barriers like light barriers, like oxygen barriers. And all these paper based bottles, I mean, that's an appealing concept because obviously, the shape freedom that comes with it. But from our perspective, there is no viable solution out there in order to provide also those barriers. And I mean, the other point is, I mean, there is no solution out there really at scale. That's how I would put it on Paper based bottles and the momentum on Q1, I mean, I would refer to the pattern that we saw evolving as a function of COVID 'nineteen, what it meant to our business, which means that lockdowns kind of are decisive for Our sales and growth rates and lockdowns in Europe mean a tailwind, and the same is true for the Americas, if I'm more precise for the Latin Americas as we have, Especially in the U. S, a sizable foodservice business. And on the other hand, for the Asia Pacific region, it is a headwind as we are Those too much more on the go consumption since more than 90% of what we sell is single serve and estimate 60% plus is really consumed on the go. And while China, if you look at these numbers also on the right of the incident numbers, case numbers, looks very Solid. I mean, Southeast Asia and many countries there remained until the end of the year and still today, At least in partial lockdowns, which also includes schools and related to that, all the school milk programs. So I think that's a bit the pattern that we see across the globe. The next question comes from Alessandro Foletti from Octavian. Please go ahead. Yes. Good morning. Thank you for taking my questions. I have a couple. 1 on the EBITDA margin in Americas, It has been suffering a little bit over the last couple of years, and I believe Main driver of that is really foreign exchange transaction. What can you do to turn that around? And my first question, I have a couple of others. Yes, Samuel, thank you for that question. Clearly, EBITDA margin is important for us to drive in all our regions. And as you pointed out, The Brazil has a big burden in terms of the devaluation of the real, which Yes, it has been going on for years, but last year was particularly pronounced. And We're obviously trying to protect ourselves as much as we can through localizing production, Yes, particularly sourcing the liquid paperboard locally, but this is a very specific resources. I'm also I have learned even in my less than 2 months here, that is not so fungible as aluminum. So that is a major part that we're doing. Obviously, we're hedging and having a rolling 12 months Forward hedging program so that we can defer the impacts of FX movements, but ultimately You can't hedge forever and smooth you can smooth it out. So that is what we're doing. We're obviously also got hit particularly Hard in this very short, very sharp change of exchange rates at the end of March last year, which led to the revaluations. That steepness and the change in the curve hopefully is exceptional. So I think those are the things that we're doing as much as we can to protect ourselves. Yes, translation risk is always there. So That's something where we're trying to work to improve our position there in that region. Did you have a second question? Yes. Maybe first a follow-up on this one. I don't hear you speaking about prices. I mean, Alessandro, you're familiar with the way how we think about prices and how we handle prices and pricing with our customers. And I think ultimately, a devaluation of a currency, as we see it also happening with the real, Which also is at least when we look 2, 3 years back also a lasting one. I mean, 2, 3 years back, the real was at €4.50 per euro now, it's above €6,000,000 I think we also consider that a change in input cost and Equally to changes in commodity pricing, factor that into our price discussions with our customers. And That's also true in this case. But we're not going to disclose really on the top line, as you know, what is the price impact, Volume impact is fundamentally what drives our top line, globally speaking, is the volume growth. Fine. Thank you. Maybe as a second follow-up. The price discussions that you have, are they Sort of spread out across the whole year or more concentrated in Q1, etcetera? Can you remind me that? No, that's normally in the first half of the year, most of them in Q1, but normally in the first half. And this across the world? Yes. One question on the net filler installation. You have So on the 1200 sealers that you have, it's about 3%, 2.5% growth. Can you translate that in terms of cargo volumes, The capacity that you're adding, am I correct assuming that maybe much more than this 2.5%? I think that's the right conclusion. What we retire are fillers that are Of lower speed and what we place are fillers of higher speed. And that's why we internally also look much More to the number of fillers placed to the additions because that's for us the leading indicator that we keep growing our installed base, that we keep winning Share of wallet with existing customers, respectively, make our ways into new accounts. And just to picture that a bit, If you retire a lead to machine, there can be a lead to machine with the speed of 6,000 packs per hour. And the single serve, which is the other extreme that we place is a machine that has 24 1,000 packs per hour, just to put that in perspective. And then in addition, you can also imagine that filler that we place a new one In order for us and for the customer for the investment case to work, that needs to be a filler that is fully sweat, fully loaded, so that has a high utilization rate, Whereas the ones that we retire are often the ones the fillers that were providing spare capacity and had much lower utilization. And that's why On one hand, what we place is more capacity than what we retire, and this is amplified by the utilization in those respective lines. Okay. Thank you. Thank you, Alessandro. The next question comes from Alessandro Christian from Stifel. Please go ahead. Yes. Good morning to everybody. It's actually Christian Arnott. Follow-up on the Finders question. I mean, very impressive, this 33 net fillers placed here. Could you give us a little bit information about where you have these fillers placed? I mean, in the Last 1, 2 years, I think we had a very positive impact there in the Americas from the new fillers. Where have these fillers now been placed? Sure. Thanks for your question, Christian. Obviously, we are pleased with The number of fillers that we placed last year, you might remember that early in the year, we said, if you look back to other Moments of uncertainty and definitely the great financial crisis was one of those. We did see that our customers did trim Their capital budgets and hence projects, co investment opportunities became fewer or got postponed. And now what we do see is that looking back on 2020, that hasn't really If you look our gross filler CapEx and even the number of fillers placed is a very decent number, and we're very happy about that. We continue to win fillers across the board, And we continue to place FILIS in the Americas. You remember in the Q3 call, we talked about the accelerated ramp up that Vin I had the pleasure to see there and the filler wins that he had in Latin America, and that continues to be a very attractive market for us, But also Europe, I mean, we talked about, although that's not given the numbers of fillers placed, but it was an important win. We did 15 fillers at Horhalt, Also in Europe, and you might remember earlier calls, we said we have a pipeline of fillers that will come on stream that we did in earlier periods and that we are now placed and were deployed And started commercial production. And the same, obviously, is very encouraging also continued in Southeast Asia, obviously, while Sleep sales for the reasons discussed slowed down. We kept our discussions For projects ongoing with our customers and not only in the new geographies like India, where we were Able to conclude deals with the largest dairy Amul, but also smaller players, but also across Southeast Asia into more Markets like Thailand, where we did win in a period where the teams could meet the customer, just met them virtually, we did win An expansion, a share of wallet gain in one of the leading tight areas, which was obviously very positive. So I would say it's across the board, but It's predominantly in the sector of what we define liquid dairy, but remember that also includes all the cow milk alternatives, so this Plant based milks, which becomes obviously more and more an important relevant category for us. Okay. And in the light of the joint venture in the EMEA and maybe some catch up Would you expect that this net filler figure would even increase in 2021? I mean, given that we looked at now at the filler placements, excluding the JV, obviously, the absolute number of fillers Going forward, increase is a function of us adding another segment to the business. But we The filler footprint in Middle East is well invested, and we kept placing fillers over the past couple of years in line also with the other regions. And we also the numbers that we referred to, which is 1260 by now includes the installed base In the Middle East. So we always looked at that as SIG fillers globally as they are the cash generating units that we have out there in the field. Thank you. Thank you, Christi. The next question comes from James Rose from Barclays. Please go ahead. Hi there, good morning. I've got 3, please, if I may. The first is on R and D spend. Could you talk more about what Specifically, you're working on in your R and D programs. What do you think at Cotton could look like by 2,030? 2nd is on extended producer responsibilities. Do you think that over time, you'll have to participate In providing collection and recycling capacity more in your end market. And then 3rd, financial based, And the upfront cash for fillers as a percentage of gross filler CapEx, could you remind us of the long term guidance there? What that ratio should be and how it relates The different contract structures you have with customers. Thank you. Sure. Thanks a lot, James. On R and D and you're familiar with the fact that we spend about 3% of our top line on R and D. I think we can categorize our R and D projects Broadly into 3 categories. I mean, there is number 1, the entire topic of sustainability, which is predominantly a topic of The sandwich structure optimizations in the sandwich structure of our packaging material, and you're familiar with our flagship products Like signature pack, where we switched out aluminum and replaced polymers from finite sources with Polymer is from renewable sources and have by that 100% a pack which is 100% from renewable sources and there are many Subcategories of that buy now product family of the signature pack, and that's where we continue to drive innovation. That also includes, by the way, the closure. For example, you have recycled plastic in the closure and so on and so forth. The second category is everything related to consumer convenience So maybe differentiation on shelf. So that means new shapes. You remember combismile was a differentiated premium shape for the single serve market. Obviously, over time, we will continue to add new packaging formats, not only in the single serve, but also in the lead to space So our offering, and we have features in there, and I think we discussed it earlier with the Heat N Go, which is microwaveable pack, but there are also All the features, opening devices that are provide more convenience, complete perforation, for example, so that you have a food Product where maybe your tomato passata where you can open the entire top of a pack because it's completely perforate And others. So that means there are step change innovation, but also smaller incremental ones to provide consumer benefit. And last is everything related to what I would label improved key COs and filling capabilities for our Customers, so that is more around the engineering piece of our offering, the filler machines, but also the downstream because part of the downstream, We do design and manufacture in house that includes a straw applicator that includes especially our cat applicators For the closures and there we provide innovation that help customers to bring their conversion cost down, their total cost of ownership, But also it helped them to fill products that you can't fill another technology and that and you're familiar with that includes Drinks Plus, which we bring to more packaging formats at SIG, Drinks Plus is our capability to fill chunky products. I think these are the 3 main areas where we spend on R and D. Your question on the extended producer responsibility, I mean, that's one where Final answers are outstanding. Obviously, we monitor legislation change, but at this point, it's difficult to say Who is going to be affected by such legislation to what degree, because there are Some discussions ongoing that obviously, environmentally advantageous packaging scrub states are excluded From that, but again, I think it's too early to say. In terms of upfront cash, Although we went now through periods of elevated upfront cash with over 50%, I think Our midterm our reference point remains at approximately onethree of the total gross CapEx to be Upfront cash, this is largely a function of the mix in terms of how much does the customer pay upfront, Respectively also to mix of what are the S and L sale and lease to 3rd party deals that are part of the deployments. Great. Thanks, James. Thanks. Thank you. The next question comes from Lars Gilbert from Credit Suisse. Please go ahead. Yes, thank you. I had some technical difficulties myself, so apologies if some of my questions have already been answered. Samuel, I was just thinking about your comments on EMEA. You talked about growth excluding COVID-nineteen. How should we think about that and how should we think about the EMEA considering the significant tailwind you had at home consumption And the base for 2020, I. E, we're looking at into 2021. Also curious on the China plant investment, What sort of benefits do you expect from that in 'twenty one and when fully wrapped, 'twenty two, 'twenty three, I guess that is? And Middle East Africa, can you give us a sense of how the currency portfolio will change If it's material that exposure that has been somewhat volatile and if you have the similar, obviously, there's no liquid paperboard in the region there, right? So How do you hedge for those potential volatility? And the final one for me Is your margin guidance 27% to 28%? You were 27.4% last year With a pretty significant negative from FX, if I'm looking into The current year, you have, of course, mentioned neutral in raw materials. Growth should accelerate. Wakatani, I guess, would be a small net positive to margins and Obecan, clearly a positive. So why should we not be exceeding 28% this year? And the final point then, how do we get to 29% just want to hear you talk about that again. Sorry for all those questions. Sure. Thank you very much, Lars. So on your first one, EMEA. I think specifically, your point is on Europe, where we said before that in Europe, We would have seen growth also without the tailwind of COVID. And I think that really goes back to what we discussed very early on At the point of time of the IPO and through all these updates that we provided along the way, that statement that we made at the We believe while we guide for the group only, we said we believe that all our segments are going to positively contribute to this growth. And now looking back, we have also seen that Europe indeed did deliver growth. And this was a function of the visibility we had on Filling machine projects that came on stream. And in Europe, often if it includes the brownfield and more rarely greenfield Those lead times until a filler is really put into the factory because customers have to do some reshuffling In the factories, some civil engineering work. The lead time in Europe might be a little bit longer, but obviously, On the bright side, that gives us the good visibility into longer term visibility. That's why we were comfortable to make this statement. Along these years, we kept winning deals and we kept growing our share in markets where we had the lower share compared to the European average, which That's about 25%. And with obviously the whole deal, which allows us to double our share of wallet with their customer, We continue to make good progress there, and we remain positive also on the European segment. And going forward, obviously, we'll report on a stand alone European segment. Now your second question was on the China plant and what benefits we expect from the China plant. I mean, the Chinese plant is a growth This investment, it is providing the required capacity for both what we call finishing, which you remember includes printing and The actual finishing, we will manufacture the sleeve. But it also, in this case, includes an extruder, which is a bit of a function because that's the biggest equipment in our operations and provides a step up in capacity. But it also It's the equipment that produces any finished material that travels well across the globe and hence we manage this capacity globally. With the Chinese plant now, we're going to Get additional capacity. I mean, the benefit is that we can harbor the growth in Asia Pacific and beyond. And you remember last year Year before last year, end of 2019, when we said we start to get closer to the capacity limits in And we had also to prepone certain orders into the Q3 in order to ultimately accommodate the year end rally. So The benefit is really to continue growth. And on the other side, the ramp up costs that we quantified in the low single digit €1,000,000 amount last year and already said last year, it will be an even smaller amount this year. I mean, that still holds true. And obviously, we're very happy that the Chinese team was To commission the equipment and get the plant now up and running, and it will ramp up over the weeks months to come. With regards to Middle East and Africa, the currency mix, I think you referred to, one of The good things that the partner and we have done, which was our previous But it's that was established back in 2,001. They had one simple principle that they only sold in euro And U. S. Dollar. And we kept that for all these years. And that obviously gets us into these situations where Central banks sometimes make it harder for our customers to place half currency denominated LCs, but it comes with the benefit of lower volatility. I mean, paperboard supply is going to be obviously done through our global network of suppliers and what the commodities are concerned. We will put also the Middle East under the similar hedge policy as we have it in the rest of the world. Yes. So thank you. And I think Lastly, your question about EBITDA margin. As we said previously, There's going to be clearly a tailwind, the pickup of about 50 basis points from the CEBUB transaction over the Middle East joint venture. Bearing in mind, there are 2 offsetting effects. There is the benefit from the consolidation, but we're also losing the JV dividend, which came in with low cost, so at 100% margin, but the net benefit is the 50 basis points that we talked about. But I mean, we do look at the points On the FX side, where you can see where currencies currently are compared to the comparators last year, and we're always looking On a year on year comparison, so that clearly is a headwind. And Yes, there's some benefits and some average drop through that we see from growth. And as Samuel said, Last year, we started certain growth projects in the first half of the year also to pursue our R and D agenda, which is important to We continue to drive the growth. We halted those in the second half, and there are obviously now certain projects and work that We want to do and with that we also believe are important to drive the business. So once you put all of this in the mix and again currency is Certainty, except we can see where the rates are right now. Then you come to that range Of 27% to 28%, and we'll be well within that range. Maybe your last point last on the midterm guidance to 29%. We continue to work on the levers that helped us to get to the today's level, which is Investing into the better return projects and driving the margin improvement through mix. But it's also along the lines of operating leverage that we Continue to expect as a function of the growth and last but not least, the work that we continue to do within our plants to drive operational efficiency. The last question for today's call comes from Alessandro Foletti from Octavian. Please go ahead. Yes. Thank you, gentlemen, for taking my follow-up. Just one quick one on the Middle East. I was not aware that you have also the same The type of rally, year end rally there as you have it in China, for example. So I was surprised to see The declining growth rate, particularly in Q4, what can you say for 2021 for that region? Yes. I mean, our seasonality, if you still want, is a function to a large degree of how we structure the commercial arrangements, right, with this year end rebates and the same structure of commercial arrangements we also have in the Middle East. With regards to 2021, I mean, you're familiar with the fact that we will not provide guidance on the level of Segments in Middle East, Africa will become a standalone segment. But obviously, we are intrigued by the fundamental growth drivers that we see In this region, whether it's population growth, disposable income growth, and hence, we believe that the Middle East and Africa region is a great addition to our Consolidated business. And if you look to the growth rates according to the study that we made public at the point of time of the IPO, The 5 year CAGR there is expected to be in the range of 5.5% to 6%, and our aspiration is clearly also to Continue to gain market share in the Middle East and Africa, a market where we already today own close to 25% of the market. Okay. But did I hear correctly or was mistake of my eardrums That you had again sort of problems with the national banks, some national banks in that region. Yes, that's right. We said that with the 4th quarter was a bit of a decline. And we saw the key markets in the region. I think from my discussions with the team, I saw that at least in 3 different Jurisdictions, central banks made it much tougher for our customers, not to say impossible to place LCs at this Either U. S. Dollar or euro. And hence, obviously, that just even if customer intends to buy, that just prohibits To trade, and I think that's what we saw. But it was not the only reason. We also did see that especially the category of non carbonated soft drink Was soft in the Q4. That is a function of lockdowns, but not only lockdowns because there were not everywhere severe lockdowns in the Middle East. But what we sell in noncombinated soft drinks, the majority of that is single serve hence consumed on the go. And that's definitely the lockdowns, formal lockdowns or even just reduced traffic had a negative impact. But also Schools remain closed in that shop remained closed in the region. And all these juice boxes that the kids That is cool. They were not sold in this instance. But on the positive note, we kept growing in the dairy business Also in the Q4, which was obviously very encouraging to see and it's clearly also a function of the strategy we pursue in that region. Okay. Thank you very much. Thank you, Alessandro. You're welcome. Okay. I think that all That concludes the last question. Excellent. Thank you so much. I hope in today's call, we have been able to show that 2020 was not simply a year in which our business demonstrated resilience Under exceptional circumstances, it was also a year in which we continue to pave the way for future Growth with new filler placements, the expansion of our production footprint, continued investment in new categories and markets and, of course, the Middle East Joint venture acquisition as just discussed. These moves all underpin our objectives to sustained growth. With acceleration in the rate of core revenue growth in 2021 and of further increases in profitability over the time as discussed. I look forward to reporting on our progress in the months ahead, and I thank you very much