Sheffield Insulations Group

Good morning, ladies and gentlemen, and thank you for joining us for this full year 2025 earnings release of SIG Group. My name is Anna Erken, CFO of the company, and until two days ago, also interim CEO. I will discuss the results with you today, and it is a big pleasure to have our new CEO, Mikko Keto, with me on the call today, who joined the company on March 1st. As always, the slides for this call are available for download on our investor website. This presentation may contain forward-looking statements involving risks and uncertainties that may cause results to differ materially from those statements. A full cautionary statement and disclaimer can be found on slide two of the presentation, which participants are encouraged to read carefully. And with that, Nico, welcome on board officially. Do you want to say a couple of words as a first introduction?

Thank you, Anne, and I would like to congratulate you and the SIG team for the strong fourth quarter. And that fourth quarter gives a solid foundation to start the work for 2026. And I began my onboarding a while ago, firstly looking at outside-in, the company and the performance, And now I have pleasure to do onboarding in the company looking at inside out. And there are some really strong points in the company when I look at it. For example, solid foundation through innovation, customer partnerships, and delivering value both to our customers and shareholders. One key aspect of the business also is customer retention. I can see that the customer retention is high. We have a long-term relationship with most of our customers. It means that the lifetime value of the customer is high. I will continue my journey in the beginning to understand the business in more detail, now being inside the company, and I'm looking forward to working with you all in the coming months and years to deliver value to the shareholders and the SIG organization as a whole. And thank you for your trust and support and looking forward to working with you all. Anne, back to you.

Thank you, Mikko. Let's start with the key messages for the fourth quarter. In line with our announcement on September 18th, our revenue growth has reflected the substitute consumer environment throughout the year. However, we were pleased to see that we saw a sequential improvement in the fourth quarter, resulting in a positive 0.5% growth for Q4. This brought full-year revenue growth to plus 0.1% at constant currency and constant resin, so to the upper end of our expectations communicated in September. On a substrate level, the septic carton grew by 1.2%. It was especially strong in the Americas, which is one of the reasons why we expand the capacity of our production plant in Mexico. The chilled cotton business declined by 5.3%, impacted by the competitive environment, especially in China. It is noteworthy, though, that the situation was improving in the fourth quarter. The bag and box and spouted pouch business was negative 3.4%, reflecting the higher comms in the second half of the year. As announced in September, following a strategic review of the group by the Board of Directors, and in light of the prevailing soft market conditions, we have recognized non-recurring charges of €351 million pre-tax in 2025. All charges relating to this review have been booked now. In the fourth quarter, these amounted to 31 million, with the largest item being restructuring charges relating to the elimination of positions as discussed at the investor update. All conversations with the affected employees have been completed in 2025, and the corresponding savings are ramping up throughout the first half of 2026. Also, during the fourth quarter, we could complete two asset disposals with land sales in China, the retired Schildkarten plant in Shanghai, and in Germany. These two divestments contributed approximately 17 million euros as a positive one-time impact to the 2025 free cash flow. Now moving to filler placements. We placed 68 new fillers in the year 2025 across all geographies and well within our aspired range of 60 to 80 placements in a year. The incremental growth of fillers in field was 14, as 54 fillers were returned or scrapped at customer sites. The average age of these old fillers was more than 15 years. Total book value was around 1 million. This was normal course of business and has been reflected in the financials as such. As discussed in the Q3 call, as part of the strategic review, we have also assessed the utilization and corresponding cash generation of fillers in field. This led to €21 million of filler impairments within the non-recurring items for underutilized fillers at customer size, respectively for fillers on stock. Please note, this does not mean that there was a reduction of available capacity in the field. For 2026, we have an attractive pipeline and expect to place a similar number as in 2025. On the innovation side, the second machine of our new NEO line has been placed in Saudi Arabia. Next to higher speed and output, this machine is also characterized by a very low waste rate of below 0.5%. The NEO line is of course also capable of processing the new aloe-free full barrier sleeves, where our roll-out continues in Europe and also in Southeast Asia. Terra aloe-free full barrier from SIG is the first aseptic carton that is recognized as recyclable under Korean regulations. In the other direction, from east to west, we see the expansion of the dome mini-formant, which was first introduced in Asia and is now coming to Europe. It is expected on shelves in Europe in the first half of 2026. And finally, we were very proud that we received for the seventh time the Ecovalis Platinum status with a record score of 99 out of 100. Now let's take a look at how our business has evolved on the revenue side. We closed the year 2025 with a revenue of 3.25 billion euros. In reported terms, this is 2.4% below the prior year due to the stronger euro. At constant currency, revenue growth was 0.4%, and at constant currency and constant revenue prices, it was up by 0.1%. The revenue share by segment, which is the region, is almost unchanged versus the prior year. Europe with a 32% share remains the largest region. Asia-Pacific and the Americas each have 27% share and EMEA is 14%. For SIG, the largest countries in the EMEA region are Saudi Arabia, Egypt, North Africa and India. By business line, Esceptic Carton is 79% of our sales. Schildkarten is 4% and the Bag-in-Box Pouted Pouch business is 17% of our revenues. unchanged to the previous year. By product, 87% of our revenue is packaging materials and service contributes 7% was last year 6% and equipment 6% was last year 7%. Moving to the results of 2025 on profit, cash flow and returns. Adjusted EBITDA amounted to 718 million euros with a margin of 22.1%. Excluding the non-recurring charges related to the strategic review, adjusted EBITDA was 788 million euros with a margin of 24.2%. This compares to 24.6% in the prior year. The adjusted EBIT was 442 million euros with a margin of 13.6%. If we exclude the non-recurring charges, adjusted EBIT was 500 million euros at a margin of 15.7%. On adjusted net income level, we recorded 231 million or 285 million without the non-recurring charges. EPS declined from 81 cents to 75 cents. Pre-cash flow landed at 191 million euros for the year 2025 after 290 million in 2024. As the non-recurring charges in 25 were almost exclusively non-cash, there is no need to discuss a number without non-recurring items here. Lastly, return on capital employed, ROSI, calculated at a 30% tax rate, was 25%, and 29% excluding the impact of the non-recurring charges. Capital employed is here defined as PP&E, right of use assets, capitalized development and IT costs, networking capital, and the non-current deferred revenues. Looking at the Q4 figures, revenue at constant currency slightly grew by 0.6% and by 0.5% at constant currency and resin. Adjusted EBITDA was €223 million, translating into a margin of 24.7%. This includes €8.4 million of non-recurring charges. Without these charges, adjusted EBITDA was 231 in the fourth quarter, with a margin of 25.7%. Adjusted EBIT was 156 million, translating into a margin of 17.4%, and also including 8.4 million euros of non-recurring charges. Without these, adjusted EBIT was 165 in the fourth quarter, with a margin of 18.3%. Adjusted net income was 78 million euros, excluding the non-recurring charges. It was 88. Free cash flow in the fourth quarter was 275 million, close to previous year's levels. Turning now to the performance by region. In Europe, full year revenue has declined by 0.8% at constant currency compared to strong prior year growth of about 6%. We were delighted to see the region showing a growth of 4% in the final quarter of the year. This performance reflects several factors, including lower availability of raw milk for aseptic processing compared to the strong supply conditions in 2024, especially in the second and the third quarter of the year. In the fourth quarter, the industry observed lower raw milk prices and correspondingly more milk going into aseptic cartons. Also, the region benefited in 2024 from the ramp-up of filler placements following wins related to EU regulations on TZ caps in prior years. Throughout the year, export volumes of UHT milk has been lower, and the juice category in the region has also declined, impacted by a weak summer season. Excluding non-recurring charges, both adjusted absolute EBITDA and EBIT increased in Europe. Also, margins extended by more than 200 basis points. The margin was positively impacted by price and by a favorable customer mix due to the lower export volumes. In India, the Middle East, and Africa, overall revenue development for 2025 was impacted by a strong prior year comparison of 13% growth, leading to a slight growth of 0.4% for 2025. In the last quarter of 2025, revenue growth has been slightly positive too. Carton volumes have been impacted by lower consumer demand across the region, as well as by higher competition and the monsoon season in India. Back in Boston, spouted pouch revenue growth has been strong in the region, including in India. The EBITDA margin without non-recurring charges came in at 26.8%. slightly ahead of the previous year. Ethics hit wins in the region were more than offset by pricing. The EBIT margin was slightly below the prior year, as it was impacted by additional depreciation of the India plant following its startup. For the financial year 2025, revenue for Asia-Pacific declined by 1.7%, both on a constant currency basis and on a constant currency and constant resin basis. Continued market softness in the region and the competitive environment in Schildkarten impacted our revenue performance last year. Also, the later occurrence of the Chinese New Year in 2026 had an impact on volumes in China, particularly during the fourth quarter, making Asia the only region that did not record the positive volume growth in Q4. Still, we were able to continue to outperform the market in China with product innovation and flexibility. Southeast Asia, Japan, and Korea continued their growth momentum despite the market downturn. We recorded strong filler sales and also have a good pipeline for 2026. The adjusted EBITDA margin without non-recurring charges was negatively impacted by product mix and SG&A costs. The adjusted EBIT margin was additionally impacted by the annualization of the depreciation of the new chip plant in China. The Americas were the region that recorded the highest growth in 2025, with 4.4% at constant currency and 3% at constant currency and constant risen. Deceptic carton growth was especially impacted positively by liquid dairy in Mexico. Also, we saw price increases in Brazil, and a higher service revenue. In the back-in-box business, share gains achieved in the U.S. in dairy and in syrup could mostly offset declines in wine, the retail business, and non-systems businesses. In this segment, the margin both on an adjusted EBITDA or EBIT level was impacted by unfavorable foreign currency movements, investments necessary to enhance capabilities, and wage inflations. On this slide, we have summarized the breakdown of the full 351 million euros non-recurring charges that were recorded in 2025 in connection with the strategic review and the market softness. After the 320 million recorded by the end of the third quarter, the fourth quarter saw an additional 31 million euros. The total of 351 million euros is well within the guidance range of pre-tax 310 to 360 million euros which we provided in September. We also indicated that around 90% of this amount will be non-cash with the cash outflow mostly occurring during 2026. We expect the 26 cash impact to be approximately 25 million euros. The split by bucket of the non-recurring charges is as follows. 107 million is an impairment to the value of the bag and box and spouted pouch businesses reflecting weak consumer sentiment and business performance. This has affected the recoverability of acquisition-related assets. 86 million of impairment concern the value of the chilled carton business. This principally reflects the weak market conditions in China, which has impacted the recoverability of the assets. 82 million relate to the reassessment of the required operating capacities in aseptic cotton within the context of the current weaker market environment. This includes production capacities in India, selected equipment in China, and some filling lines across locations where, as discussed on the first slide, impairments related to low-capacity utilizations. Under the headline innovation, around 62 million is associated with the reassessment of the group's innovation portfolio, including the impairment of equipment that is no longer required and the impairment of capitalized development costs relating to projects that have been stopped following the strategy review. Finally, a charge of 14 million euros mostly covers the restructuring costs related to the elimination of a low three-digit number of positions in SG&A and R&D. Our annual report summarizes all relevant information in node 4 of the financial review and additional details are presented in the nodes 7, 9 and 12 to 14. Let me now remind you about what we discussed in Q3 on the presentation of the non-recurring adjustments. In line with our standard definition, Charges included as part of adjusted EBITDA are those where regional management is held accountable for the delivery of returns on customer projects, such as filling line investments or product launches. As you can see from the graph on the right, this portion amounted to 69 million. Charges excluded from adjusted EBITDA include non-cash unrealized derivative positions and non-cash impairments of intangible assets. In addition, we also take charges below the line that relate to footprint or capacity rationalization, as well as rightsizing of the organization. Any such booking below the line needs group approval and regularly follows our standard definition. Charges excluded from adjusted EBITDA amounted to approximately $281 million for the period, taking the total non-recurring charge recognized in 2025 to $351 million. Next, let's take a look at the EBITDA bridge for 2025. EBITDA was affected by a negative 44 million euros relating to the currency impact, which reduced the EBITDA margin by 60 basis points. Excluding FX, the adjusted EBITDA without the non-recurring charges increased by 12 million. This improvement of 12 million was mostly supported by 42 million contributions from top lines. which reflects price increases and favorable mix impacts. In addition, raw material costs were overall lower by 9 million in 2025 compared to the prior year. This was mostly due to the polymer category. On the other hand, production was negative 10 million, as the lower volumes in the second half led to unabsorbed fixed costs and lower efficiency. In addition, SG&A was up 17 million euros in 2025. This included wage inflation and growth investments in the first half of the year, which we have reduced in the second half due to the softening of the market. Turning now to adjusted EBIT. As of 2026, we will report our business performance on an EBIT level, as introduced during the investor update in October. We believe this enhances transparency and relevance, and at the same time will support our management teams around the world to take better capital allocation decisions. In the backup of the presentation for this earnings call, you can find a summary of 2024 and 2025 EBITDA, adjusted depreciation and amortization, and presiding EBIT by region. The adjusted EBIT margin 25 without non-recurring charges amounted to 15.7%, below the prior year number of 16.5%. Naturally, also here, there was a negative impact of FX on the margin 70 basis points. In absolute terms, adjusted EBIT without non-recurring charges was €511 million, with the improvements in EBITDA discussed before being offset by additional depreciation of €12 million. driven by the PPE capex in India and China, as well as by the filler placement. In this slide, we show our usual reconciliation between reported EBITDA and adjusted EBITDA. For 25, you can see the impact of the non-recurring charges on the relevant line items, with the right-hand side aligning to our definitions, as discussed on Flight 30. Same as in Q3, other includes costs for the renewal of the group's IT systems and consulting charges for the strategic review. Under the column for non-recurring charges, other reflects penalties related to the delay in the further expansion of the group's production facilities in India and the charge for the CEO separation. The gain on sale of PP&E and other assets of 5 million euros primarily relates to the asset sales in China and Germany. Following the methodology presented on the previous slide, here we show the impact of the non-recurring items on net income and adjusted net income. Profit for the period without non-recurring charges was 208 million. In 2025, including all non-recurring charges, the group recorded a loss of 87 million for the year. On adjusted net income, as stated in the last quarter, the ONIX PPA amortization, which arose from the acquisition accounting when the group was acquired by ONIX in 2015, was fully amortized as of the end of Q1 2025. As such, this line will be zero going forward. We have added for your reference a slide to the backup of this presentation that summarizes the amount of the ONIX PPA and all other PPA by year and also shows the impact on gross margin SG&A and EBIT. Please note that also all other PPA is expected to be lower in 26 following the impairments in 25. As a disclaimer, the 26 estimate is of course subject to FX fluctuations throughout the year. In summary, the data between the reported and adjusted KPIs will be smaller going forward. Net capex, including lead payments in 2025, amounted to €200 million, or 6.1% of revenue. While capex for the plant in India following the completion of the first phase was lower, we continued to invest into the expansion of our Mexican aseptic carton factory, given the strong growth that we have seen in the region America Northwest. Please also note that the cash inflow from the sale of land and buildings in China and Germany of 16.9 million per the group's definition is included in net capex. For the 68 filler placements, 173 million capex were spent. The upfront cash ratio has been slightly lower at 71% in 2025, but still at a good level. Net filler capex as a percentage of revenue was 1.5% after 1.1% in the previous year. Free cash flow amounted to 191 million euros in 2025 after 290 million in the year before. This was driven by the lower adjusted EBITDA versus prior year, which included a significant FX headwind of 44 million as discussed before. The other significant negative impact lied in the higher payments for customer volume incentives in 2025, which were a result of the very strong volume growth of 6% in 2024. As an approximation, in the balance sheet, the provision for customer volume incentives decreased by 39 million in 2025. On the positive side, tax payments were lower by 11 million in the period. Additionally, two favorable impacts that were of a one-off nature supported the cash flow. One, the already discussed 17 million for the asset disposals in China and Germany. And two, lower interest payments as for the new bond of 2025, interest payments only occur once per year. Overall, interest payments were lower by 27 billion euros. Net working capital as a percentage of revenue improved by 100 basis points as accounts receivable were lower. This was offset in the operating working capital by the lower liability for various customer incentive programs. Turning to debt and leverage. Net debt at the end of 2025 was €2,144,000,000. The stronger euro helped to reduce the reported net debt by €43,000,000. However, the free cash flow earned in 25 was lower than the dividends paid in 25. Our interest expense was lower by 15 million euros versus previous year. This was driven by more favorable underlying market rates and an on average lower utilization of the revolver, partially offset by the higher coupon of the new bond. The net leverage ratio at year-end stood at three times after 2.6 times in the prior year. The net leverage ratio was influenced by the lower adjusted EBITDA and also by the non-recurring charges. As per the determination rules of our debt agreement, which, for example, excludes the impact of impairments, the net leverage ratio stood at 2.8 times. In line with the initial guidance that we had provided at the investor update in October, we expect a similar market environment as in 2025, resulting in an outlook for revenue growth on a constant currency and constant resin basis of flat to 2% for the year 2026. We feel encouraged by the sequential improvement and return to growth in the fourth quarter. We said in October that we would see the 26 EBIT margin improve versus the 25 margin, excluding non-recurring charges. And we expect to land in a range of 15.7% and 16.2% this year. In line with our usual seasonality, adjusted EBIT margins and free cash flow will be higher in the second half of the year. As always, our guidance is subject to input cost changes and foreign currency volatility. The guidance for the adjusted effective tax rate is 26% to 28%, and net capex, including lease payments, is projected in the corridor of 6% to 8% of revenue. On the dividend, as highlighted in our communication of September, the Board will propose to the AGM to pause the payout in 26 for the year 2015. Our midterm financial guidance is laid out as follows. Revenue guidance for constant currency, constant revenue growth is in the 3% to 5% range, reflecting a normalization of market dynamics in the midterm. The EBIT margin will reach a level of above 16.5%. Guidance for net capex, including lease payments, remains at 6% to 8% of revenue, and there is no change to tax expectations. We will focus on cash flow generation and deleveraging to improve our balance sheet. In the midterm, the group targets a net leverage ratio of around two times, and we have set ourselves an important milestone of achieving 2.5 times by the end of 2027. The company remains committed to returning cash to shareholders and expect to reinstate dividend payments in a corridor of 30 to 50% of adjusted net income in the coming year. In summary, SIG has a clear path forward for value creation. With our strong business model and innovation capabilities, we can build on multiple growth drivers. We have executed the cost adjustment program that we described in October, and there are plans in place to further improve our best-in-class margins. Rigorous capital allocation discipline will improve our balance sheet and return profile and foster a robust cash generation. This concludes the presentation. 2025 has been a challenging year for SIG, but a year that ended on a more positive note. We would like to thank our customers for their trust in our systems and solutions, and our shareholders for their continued support for the company. And finally, a heartfelt thank you to the SIG teams around the world for their hard work, dedication, and commitment. And we are now happy to take your questions.