SIG Group AG

Welcome to the SIG Q1 2026 results conference call and live webcast. I am Sandra, the course call operator. I would like to remind you that all participants are in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Webcast viewers may submit their questions in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Christoph Ladner, Director of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Good morning, everyone, and welcome to SIG's Q1 training update conference call. My name is Christoph Ladner, and I joined SIG in April as Head of Investor Relations. With me today, hosting the call, is our CEO, Nico Geco and our CFO, Arne Erkens. In today's conference call, we refer to the presentation that is available for download on our website. As always, I would like to draw your attention to the disclaimer and cautionary statement on slide number two. The call may contain forward-looking statements containing risks and uncertainties. These statements are subject to change based on known or unknown risks and various other factors which could cause the actual results or performance to differ materially from the statements made in the court. Having said that, let me now hand over to Mikko.

Good morning also from my side. We have a lovely morning here in Neuhausen. The sun is shining. I'm pleased to walk you through our performance in the first quarter. All in all, we had a very solid start of the year. Despite a difficult market environment and strong comparisons from last year, our revenue at constant currency was stable year on year. And more importantly, we delivered clear improvement in profitability and cash flow. Results are positive. Also positively impacted by the actions we announced last September and October, and those, of course, are bearing fruit now in this year. And the focus is cost discipline, execution, and strategic priorities. Looking at quarter one in more detail, revenue at constant currency and constant raising was stable year on year. And Septic Carton grew by 1%, supported by good performance in Asia and India. And on the volume side, Jill Carton had a positive growth of 0.8%. The back of the box and spark pouch business declined 5.7%, which was also reflecting a continued weakness in out-of-home consumption in material markets. On profitability, adjusted EBIT margin increased to 13.4 up from 12.8 last year. Also, improvement in cash flow compared to last year. Strategically, our focus remains firmly on aseptic system solutions. and restructuring program that we announced last year, and it's progressing exactly as planned, and of course ramping up in the first half of this year. We maintain our full year guidance, having initiated targeting actions to mitigate potential impact of the Middle East conflict. Then we briefly discuss the Middle East situation on this slide. The Limea region represents around 40% of the one-fourth of the group revenue, with Egypt and Saudi Arabia being the largest countries, followed by North Africa and India. As we are aware, the conflict and the closure of the Strait of Hormuz has driven prices up for oil and gas, and also having impact on energy, transport, and logistics. Importantly, we have not seen disruption on our plant in Riyadh, and we managed to supply chain challenges effectively. I'm actually very proud of our team in Saudi Arabia and logistics team who managed the situation well. The financial impact of the conflict in Q1 was limited, but we are seeing raw materials and costs for freight increase and we therefore have initiated mitigation measures including discussions around around search charges to protect our bottom line going forward then if you look at the quarter one financial summary in in more detail reported revenue declined you do the foreign exchange effects while revenue at constant currency remained stable. Adjusted EBITDA margin improved slightly, and adjusted EBIT, which is now our main measure for the profitability, increased to 96 million, translating to 13.4 margin, as I mentioned before. Adjusted net income rose to 48 million, And the free cash flow saw the clear improvement, reflecting low capital expenditure and disciplined working capital management. In Europe, revenue declined 4.6% at constant currency. This reflects off the demand in core aseptic carbon categories, such as milk and sauce, and also that we had a very high comparison from the year before. Back-in-the-box and spouted bouts performed well in the region, but that also benefited from low comparison from the year before. Positive news is that India, Middle East, Africa, revenue grew at constant currency, on top of a very strong Q1 the year before. We think that these numbers also reflect a small impact from some customer stocking in the region, and because of the current conflict in the region. Aseptic carton growth remains strong, despite the sale of portica situation, while back-in-the-box and spouted pouts goes down due to high comparisons. Asia-Pacific delivers strong performance with revenue growth of 7.8% at cost of currency. Growth was supported by channel expansion, increased market coverage through innovative products, and the favorable timing of Chinese New Year for this quarter. Chinese New Year, of course, every year will impact China numbers and Asia numbers a lot. We are also seeing continued good development in Indonesia because of the new school milk program in the area. In the Americas, revenue declined by 2.5% at constant currency and constant pricing. Growth in aseptic cotton, in particular in Brazil, was offset by continued softness in the back of the box as part of parts in the U.S. Now I will hand over to Anne, who will take you through the financial performance in more detail.

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

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

Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume of the webcast while asking a question. Webcast viewers may submit their questions in writing by the relative field. In the interest of time, please limit yourself to two questions. Anyone with a question may press star and 1 at this time. Our first question comes from Jörn Efert from UBS. Please go ahead.

Good morning and thank you for taking my questions. The first one would be please on the raw material price situation. How confident are you that you can pass it on? Have you spoken to all your customers already? Did they agree to the surcharges? Also, if there's still a bulk of negotiations to come in Q2, then we have to see what is the outcome for the second half, so checking clarity here. And the second question, if I may, on Europe, the comms, it was, I think, 0.5% growth last year, the year before you had higher growth, but close to minus 5% organically is quite a bit. What expect do you think is driving this? It's just really...

lower consumption per capita is it also higher filler retirement um is this anything else we need to consider here and do you expect things to improve in the next two to three quarters thanks a lot uh thank you for the for the question so regarding customer negotiations we are in the middle of those and we expect to be more clear about outcome of those negotiations during second quarter We try to get most of the cost increases covered, but realistic expectation is that it's probably not 100%. So we do two types of measures. customer negotiations regarding surcharges, and then we continue cross-discipline and probably further cost out in the second half of the year to compensate that. And I think, Anna, you could comment on the European situation.

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

Thank you.

You're welcome.

The next question comes from Manuel Lang from Fontobel. Please go ahead.

Good morning, everyone. I have two questions as well. First, on the substrates, well, aseptic looks much more solid versus the others, but could you help us understand if this is driven by nature of carton in general, or do you see similar trends in aseptic technology in the other substrates, such as bagging box and spouted pouch? And then the second one on the IMEA region, there you mentioned the growth of 1.9. This reflects already pre-orders to secure supply. So where would you see, let's say, an underlying or normalized growth in the region in Q1, let's say, if you put that effect aside? And also on that topic, how big is the Middle East region, so Egypt, Saudi Arabia together as a standalone? Could you quantify that? Thanks.

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

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

The next question comes from Davia Simois from Goldman Sachs. Please go ahead.

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

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

All right. Thank you for your time. Thanks, Kevin.

The next question comes from Cole Hawthorne from Jefferies. Please go ahead.

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

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

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

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

Thank you. The next question comes from Alessandro Folletti from Octavian. Please, go ahead.

Yes, Sarah, good morning. Thank you for taking my questions. Also, two of them, maybe one on the CapEx. You are trending slightly on the net CapEx. You are trending slightly below last year. I was wondering if you can give an indication if this will be driven by lower growth CapEx or higher upfront cash.

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

Okay, thank you. My second question would like to go back on aseptic, non-aseptic. Obviously, in the shoulder business or bagging box started patch, there's less non-aseptic business. So if you are transitioning away from non-aseptic towards more aseptic. I wonder if you can give an indication how many millions, so to speak, you have to substitute. I have a number in my head, certainly a triple-digit million number, and how long it will take to make that transition until then, you know, the bag-in-box, spot-in-patch business starts growing again in line with the aseptic trends.

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

Okay, thank you very much. Can I just add a quick add-on then? In the bagging box started punch business, the weakness that we have seen this quarter, maybe also last quarter, etc., then it's more driven by the end consumer market than by the transition? Yes, absolutely. From non-athletics as well?

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

All right. Thank you very much.

Thank you. As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Pallav Mittal from Barclays. Please go ahead.

Hi, good morning. Thanks for taking my questions. So, following up on Europe, the sector you said was impacted by raw milk allocation and also tough firms, but bag-in-box and spouted pouch was strong. So, what is leading to that? And as a percentage of your European segment, how big is bag-in-box and spouted pouch? So, that's the first one.

Yeah, so we always said that overall Europe accounts for around 20% of the bag-in-box business or bag-in-box and spouted pouch business, and that also hasn't changed a lot. So what helped the development in Europe in the first quarter was, as mentioned, on the one hand, weaker comps, but then also we had a couple of customer wins and equipment placed in the first quarter. So I would say this shows the team did a decent job there.

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

Yeah. So we discussed at full here that the customer incentive impact was around 40 million last year. And if you Consider that a good part of this falls into the first quarter. That gives you approximately the magnitude of the benefit. Then there was two more million coming out of the land sale in China, approximately. Those are the positives. And then on the negatives, as I mentioned earlier in the script also, there was the Cuban payment, which was a temporarily higher impact on the interest expenses in the magnitude of 15 or 18 million. And that's basically the bridge that you need to take into consideration.

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

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

Okay. Thank you.

Thank you, Palav.

The next question comes from Christian Arnold from OdoBHF. Please go ahead.

Yes, good morning, all. Thank you for taking my question. I have two. You mentioned that you have a positive impact to 4.6 million lower depreciation after the valuation of assets in 25. I mean, is that the run rate we can take? So roughly... 20 million for the full year, that would be my first question. And the second question, I don't know if you can comment, but the 34 million unrealized gain on operating derivatives. I mean, on the back what you know today, be it your hedging positions, spot prices, To what extent can we expect a similar impact in the quarters, or how fast will that impact fade out? Thank you.

Good morning, Christian. So I would say, I mean, that's the reason why this is adjusted out, because it's non-realized at this moment, and that means, I mean, it's subject to market fluctuations, so a little difficult to give a forecast there. And that's why I would also refrain from trying to give a forecast on that one. And thinking about the depreciation, so 4.6 without currency impact in the first quarter, I think it would be a bit too much to just multiply this by four, because you need to consider that we already started adjusting the asset values in September last year. So I think maximum three quarters, even a little less, needs to be considered for the full year.

Okay. Thank you very much.

Welcome.

The next question comes from from Morgan Stanley. Please go ahead.

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

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

And also that there's no direct correlations for the oil price of a day to some of our cost items, like logistics. high oil price oil and gas prices of course will impact a little bit of everything but it's not a straight line that we can see so that some of the cost items we see the development then then in the second quarter okay understood thank you for that and going back to the topic of surcharges just to understand that a bit better is the focus here or the discussions around

transport and logistics costs related to diesel price, for example, or are you looking at passing through some of the other cost elements as well?

So we have a model that we estimated cost impact of this kind of OLEC cash price logistics driven inflation. And we are sharing that estimate with our customers and try to cover that with a search chart. So we have a model that we are using.

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

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

Understood. So it's clear. Thanks so much. Thank you.

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

Yes, we have one question from the webcast from Mark Wigler from Nelbesia. I think it's already answered to some extent. Any news regarding the pending LIDI case? There is no news. And Nico, have you already talked to Lawrence Last or met him?

As a part of the HCM, I was speaking to family members of the company, but it was more meet and greet, but no detailed discussions. And I think, of course, we have ongoing litigation case, so that we cannot discuss about that. But then, of course, they are still involved as shareholders of SIG, so we can discuss about the performance of the company, but not actually the litigation.

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

I don't know further questions.

Thank you very much for the call, and then welcome to the Capital Market Day in October.