SIG Group AG
SIX:SIGN
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SIG Group AG
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Ladies and gentlemen, welcome to the Q3 2021 trading statement conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time it's my pleasure to hand over to Jennifer Gough, Head of IR. Please go ahead, madam.
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.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 2 of the presentation, which participants are encouraged to read carefully.And with that, let me hand you over to Samuel.
Thank you, Jennifer. And welcome everybody.Let me start with the highlights of the third quarter. Revenue growth in the quarter was solid. Although, as expected, the growth rate slowed compared with an exceptional first half. COVID-19 effects continue to be felt albeit to a lesser extent in all our regions, with the impact in the third quarter broadly positive in Europe and the Americas, and still somewhat negative in APAC and the Middle East and Africa.Overall, our geographic diversity continues to underpin our performance. While supply chain and logistics challenges have been well-managed across the globe, we are now starting to feel the impact of higher input costs. In this environment we are initiating price increases for the next year to offset the effects of cost inflation.Cash generation was strong in the third quarter and has been a consistent feature of our business. It is one aspect of our financial performance which led Moody's in September to upgrade our credit rating to Ba1 which also recognizes the resilience and track record we have demonstrated since the IPO in 2018. S&P have already assigned us an investment-grade rating of BBB-.Let's look now at the key figures for the quarter. Core revenue on a like-for-like basis was up 4.2% year-over-year at constant currency. As a reminder, like-for-like growth is calculated by adjusting the 2020 base for the inclusion of Middle East and Africa revenue from the end of February. Without the 2020 adjustment, core revenue was up 14.7% at constant currency.The adjusted EBITDA margin of 27.1% was below the exceptionally high Q3 2020 level. This reflects the reversal that's expected of the raw material and SG&A tailwinds which we saw in the first half of the year. Frank will talk about this later in the presentation.Adjusted net income was lower, reflecting the nonrecurrence of foreign exchange gains. Free cash flow, as already mentioned, was strong in the quarter.For the first 9 months of the year we achieved like-for-like revenue growth at constant currency of 7.1%. This included a very strong first quarter with restocking effects and a low base of comparison in the Americas. Taking account of the strong year-to-date performance, we expect a relatively weak fourth quarter and are maintaining our full year growth guidance or 4% to 6%, with the possibility of growth in the upper half of this range.The adjusted EBITDA margin for the first 9 months was higher at 27.2%, reflecting the strong top line contribution. Adjusted net income and free cash flow are also ahead of the same period last year.Turning now to our performance by region. In Europe, at-home consumption remains relatively high, benefiting our business, which is in this region predominantly liter pack. While the level of at-home consumption may diminish somewhat if people are able to return to office, it seems to be remaining above pre-COVID levels.Moreover, we continue to win new customers and to increase our share of votes with existing customers. The new fillers for Hochwald in Germany are currently being assembled and installed and will, as you know, come on-stream in 2022.In the Middle East and Africa, lower sales in the third quarter were mainly due to the nonrepetition of some large orders received from certain customers in the third quarter 2020. In addition, consumption over the summer continued to be affected by COVID-19. Although a number of countries are now starting to recover.The year-to-date performance has also been affected by a drought in South Africa, which reduced milk production. We expect a rebound in growth in the fourth quarter though. Asia Pacific has performed well year-to-date. The growth is around 10%, both in Q3 and for the first 9 months. In China, demand remains solid, notably for white milk. Although the ambient yogurt market has not yet returned to pre-COVID levels.In the rest of Asia, we saw good growth in Q3 despite ongoing COVID-19 effects, which are likely to continue for the rest of the year. To some extent it was due to customers building safety stocks in light of current logistics challenges. However, we also saw a positive contribution from new fillers ramping up in Korea and Taiwan. We expect year-end rally in the region again to be subdued given the uncertain environment and the impact of COVID-19 crisis on purchasing power.The Americas continued their exceptional performance with third quarter growth sustained at the Q2 level. High at-home consumption continued in Brazil and Mexico during the quarter, but is now starting to fade as people return to work. In the U.S., the recovery in food service continues as restaurants restock after reopening.The base of comparison will be more difficult in Q4 as the new fillers placed in Brazil last year were mostly in operation by the fourth quarter of 2020. Given the strong performance year-to-date in the Americas, we also expect a reduced year-end rally as many customers have reached the levels needed to qualify for rebates. The year-end rally has historically been very pronounced in this region. And we are therefore seeing a more balanced pattern emerge in terms of absolute quarterly revenues.Before handing you over to Frank for a more detailed discussion of the financials, let me say a few words about some of the recent sustainability highlights. We saw the first launch in Eastern Europe of signature packaging using plant-based polymers. Euromilk in Slovakia has adopted these cartons for its plain and flavored milk under the Kukkonia brand. Notably, this is a switch out of PET into cartons, which the company has made in response to the preferences of young environmentally conscious consumers.In Japan, a nascent market for us, which we are accessing through our joint venture with DNP, Cosmo Foods has taken the decision to launch combismile. The filler will be equipped with drinksplus technology, enabling the production of drinks with fruit and vegetable pieces. Cosmo Foods is a copacker of beverages which until now has used plastic packaging, but which has decided to add cartons to its portfolio because of their excellent environmental profile.Our cartons are designed for recycling. And in Europe, where the infrastructure is most advanced, over 50% of cartons are indeed recycled. We are involved in many initiatives to improve collection and infrastructure outside Europe, and have just announced our participation in a new facility in Australia, which will turn beverage cartons into high performance building materials.This is an industry initiative with funding from the state of New South Wales and from the federal government. A good example of linking the private and public sectors in order to achieve greater impact. Collection is key to increasing recycling rates. And in Indonesia, we have pioneered a number of initiatives at schools, waste banks and supermarkets.We have just announced a partnership with a waste management company called Duitin whereby we encourage families to sort cartons at home. The cartons are then collected for recycling by Duitin. And the families are eligible to win prices.With that, let me hand you over to Frank.
Well, thank you, Samuel. And a warm welcome from my side as well.I'll now give you more details on our solid financial performance in Q3. Let's start with the evolution of adjusted EBITDA for the first 9 months and for Q3.For the first 9 months, shown on the left-hand chart, there was an increase in adjusted EBITDA driven mainly by the top line and by the net positive contribution of the Middle East and Africa business. Note that for the first 9 months raw materials were still marginally positive, reflecting the benefits of last year's hedging in the first half of this year. Overall, we saw the adjusted EBITDA margin increase by 40 basis points.If you look at the Q3 chart on the right, you can see that top line and the net contribution from the MEA businesses were the major drivers of absolute adjusted EBITDA increase to EUR 137 million. As anticipated, raw materials had a negative impact. And the bridge for the quarter is the hedge rates increased and spot prices for aluminum and polymers remain high. We still expect the impact of raw materials on a full year basis to be broadly neutral.In addition, we saw a negative contribution from production efficiencies with varying contributing factors, including higher freight costs. Given the recent escalation in -- these cost production efficiencies are likely to remain negative in the fourth quarter, but less so than in Q3.SG&A expenses, as anticipated, were higher and included spending on major R&D projects, a resumption of growth investments which were put on hold during the COVID-19 crisis in 2020, and the phasing out of some COVID-related cost saving measures. What is clear from this picture is that the traditional seasonality of our margin, which historically has been high in the second half of the year is less marked in 2021. This is due both to the cost elements just described and to the timing of sales with a lower rate of growth in the second half of the year, and hence a more balanced distribution of revenues during the course of the year.Let's look now at how we managed in the current environment of cost inflation and supply chain bottlenecks. We have been able to maintain production, thanks to our well-diversified and localized supplier base and the ability of our plants to switch between suppliers. Effective logistics management has also meant that deliveries to our customers have been on schedule. With regards to raw material cost, we have multiyear contracts with our suppliers of liquid paperboard, which in 2020 represented more than half of our raw material purchases or about 20% of revenue.These contracts not only ensure supply but also protect us from cost inflation. For aluminum and polymers, we have a consistent hedging program but are now starting to see the impact of higher costs as we saw in the previous slide. As the International Monetary Fund noted recently, inflationary developments are more persistent than expected a few months ago. We'll seek to compensate for those cost increases in the upcoming price negotiations with our customers. If inflation persists, we plan to implement further stage price moves rather than a single step to offset inflationary pressures.The price negotiations will, as usual, also take account of the value we're delivering to the individual customer and the competitive environment. Adjusted net income increased by 8% to EUR 170 million in the first 9 month of the year. The both reported and adjusted net income include the PPA depreciation and amortization relating to the joint venture acquisition, which for the full year will be around EUR 15 million.Adjustments to EBITDA and to net income include the deduction of a net positive effect of EUR 38 million relating to the valuation of our share in the Middle East joint venture at fair values as part of the IFRS acquisition accounting. The adjustments to EBITDA also include restructuring costs relating primarily to the sale of the Whakatane paper mill in New Zealand and to the closure of the plant in Australia.The unrealized gains on derivatives, which is deducted from EBITDA arises mostly from our raw material hedges. The adjusted effective tax rate decreased from 25.5% to 24%.The next slide shows our evolution of capital expenditure in the first 9 months of the year. PP&E investment was similar to the comparable period last year as we began to construct our new plant in Mexico. Gross filler CapEx increased significantly, which reflects the strong demand for new fillers. Upfront cash was also significantly higher, resulting in a reduction in net filler CapEx. This, in turn, brought the percentage of net CapEx to sales below the guided range for the full year of 8% to 10%.Now turning to leverage. The net debt at the end of September totaled EUR 1.55 billion. In the third quarter we repaid EUR 50 million of the EUR 100 million unsecured credit facility, which was used to refinance the debt of the Middle East joint venture. The increase in lease liability is mainly due to the lease relating to our new plant in Asia Pacific, which started in December 2020. Leverage is unchanged compared to the same time a year ago and with year-end 2020. This steady leverage is after financing the MEA acquisition in February, and it testifies to the strong cash generation of our business and the ability to reduce leverage from our operating business, in line with our conservative financial policy and the medium-term leverage target of towards 2x.Turning now to our guidance for the full year. Our expectation for the full year like-for-like core revenue growth at constant currency remains 4% to 6%. Over the last 18 months we have seen that COVID-19 effects have led to greater-than-usual variations between quarters. And the fourth quarter is expected to be relatively weak. This takes account of reduced year-end rallies in both Asia Pacific and the Americas as well as tougher base of comparison in Brazil.However, the robust revenue performance in the first 9 months of the year means that growth in the upper half of the 4% to 6% range remains a possibility. The adjusted EBITDA margin is expected to be within the 27% to 28% range despite higher raw material costs in the second half as well as increased growth investments. Net CapEx is expected to be within or slightly below the guided range, with full-year free cash flow comfortably above EUR 200 million.2021 will be another year in which SIG has demonstrated its ability to grow while maintaining a high level of profitability and expanding its footprint for the future. We are focused on continuing this track record and on delivering industry-leading innovation and sustainability. We look forward to telling you more about our progress in these areas in the months to come. So thank you for your attention. And that concludes our presentation. Samuel and I are now happy to take your questions.
[Operator Instructions] The first question comes from Sandeep Peety from Morgan Stanley.
I have 2 questions. So firstly, we appreciate the fact that you don't provide fiscal year '22 guidance during Q3's results. But could you talk about core revenue growth directionally? Should we be thinking in the range of midterm guidance of 4% to 6%? That's my first question.
Thanks for your question, Sandeep. I mean, as you say, we will provide the guidance of 2022 when we present the financials for the current year. And then we also will obviously update on the outlook and the guidance for the top line.
Okay. So can you talk about directionally what should we think about it compared to, let's say, 2021 year?
We will provide guidance, Sandeep, early next year, for the fiscal year 2022, and obviously provide then more color around it. I believe you have a second question, right?
Okay. Yes, yes. Okay. No worries. Then just to check with you on EBITDA margin. You have achieved 27.2% for 9 months, and you're guiding between the range of 27% to 28%. So is there a reason to believe that the EBITDA margin guidance would be at the upper end or the middle end of the range just assuming that core revenue growth in Q4 is expected to be weak.
Sandeep, thank you for your question. I think with our margin guidance, we're comfortable to be in that range. And I think there the puts and takes that I mentioned when I talked about the EBITDA development and clearly there are some headwinds that are now starting to come through with the raw material costs, but we're still benefiting this year from our hedging strategy. So raw materials will be broadly neutral, which we're very pleased about. Top line growth obviously was concentrated in the earlier quarters of this year, as we outlined. And so we're overall comfortable with our guidance that we have for the margin for this year.
Appreciate your understanding, Sandeep, on question one. I mean we will come back with guidance, but I mean, you can assume also for the midterm we stick to our 4% to 6% growth guidance. So thanks for your question today.
The next question comes from Jörn Iffert from UBS.
The first one would be, please, on hedging. I assume it is quite difficult to find the right timing of hedging, but can you give us some more details, what your policy is. I mean, are you hedging on the current aluminum prices, for example, for 2022, or are you saying, look, we expect some relaxation for aluminum in the next 3 months and [indiscernible] just to have a little more clarity here on your actual policy would be definitely helpful. The second question would be, please, on the Middle East. You said there will be some recovery in Q4. And Q3 was maybe a tick light. Is there anything happening on the customer side? Have some customers disappeared? Is there any structural happening, which was against your expectations 6 to 12 months ago? And the last question, please, on pricing. I mean, many companies, industries were pretty vocal about the price increases, even bakery and industry with no pricing power is increasing price by 5% to 10% in the next 12 to 18 months. We have seen similar ranges from the big consumer companies. Is this something which you also should think of for SIG for 2022 price increases between 5% and 10%?
Yes, thank you, Jörn. Let me take the first question about hedging. I think we've always spoken in the past and that doesn't change that we have that strategy that we're hedging during the current year for the next year. So that buys us time to adjust to change the raw material prices and that relates specifically to aluminum and to polymers. Your question specifically on aluminum, it's probably worth bearing in mind, aluminum makes about 3% of our revenues in terms of the cost. That's the metal part of aluminum. And we hedge that relative to the aluminum prices because that's the global benchmark for aluminum. And we're obviously -- the forward and the hedge markets follow and correlate with the spot markets that as you sure are aware of. So our hedging will follow those prices roughly that we're seeing in the spot market, and we're obviously building up over time the hedge positions that we will have then for the following year. So that's the strategy that we continue to follow. And it helps us to get visibility and planning certainty going forward. So we'll pursue that -- continue to pursue that strategy.
Let me continue with your second question, Jörn. Obviously, the Middle East we see that in this region there are some lumpy [indiscernible] and we always said, it comes with a bit of volatility, but also it provides very attractive returns. So our belief in the -- obviously the upsides of the region and the future prospects remain intact, and we really like the region in its growth outlook. But I think if you look very closely to Q3 last year, there were a number of larger orders which we took in and were able to sell, and that just didn't reoccur in the same quarter #3 this year. But that said, we expect a rebound in growth in Q4 and also expect [indiscernible] to deliver growth again in the fourth quarter. With regard to pricing, I think, obviously, you said many companies become more vocal. I would say the same is true for us, right? I mean we historically didn't talk a lot about pricing, we just explained the general theme, which is along the lines that we first and foremost price for the value we create. But definitely we also consider the input cost changes, which is obviously our raw material. It can also be currency at one point. But also we do that in the context of the competitive environment. Now we always were very clear about that principle. And I think the same principle holds true. But yes, that said, I think we obviously faced, as any other business, with price pressure on the raw material side, and we're absolutely clear that if inflation persists we have to continue to increase prices. And you're familiar with our annual price negotiations [indiscernible] we don't have throughput costs. We never wanted that. But we negotiated our customers' prices for the subsequent year, and that has started now in the fourth quarter, it's ramping up. So we initiated that and will continue into the first quarter next year.I wouldn't go as far to give you a guidance or a range of what the order of magnitude of those price increases is, but it's crystal clear the prices go up. We live in an inflationary environment. And it is also true for the beverage carton. I mean if you look to the other packaging substrates, many of those have pass-through clauses there. That is already a reality. And our customers, they're also increasing shelf price. So again, we live in an inflationary environment. And also we are initiating other price increases.
Next question comes from Lars Kjellberg from Credit Suisse.
Just a follow up first on the pricing. You talked about the stage pricing initiative. I'm not sure exactly what that means, if you can comment on that. But also if you can elaborate a bit on the competitive environment that you alluded to, how we should think about that in the context of the prices. And then, if you can provide any sort of base that we should be looking at for the MEA business on a like-for-like basis. And the same thing then for the European division as it is today. That would be helpful. And the final point then on gross filler CapEx, of course that's very encouraging to see those big numbers. Just wanted to check how much of that would be Hochwald and how much is other gains? And if you can elaborate a bit on what regions are you seeing that heightened activity?
Sure. Thanks for your question, Lars. So stage pricing means that in an -- if inflation persists, we have to continue to go up with prices. I mean, that is the function of obviously our input cost changes. And that's what we mean by that. And in that respect we're also addressing now the current price increase that we are initiating. When we refer to competitive environment, that's generally speaking about the broader packaging substrates. And we were always very clear, as I just said before to Jörn's question. We have basically 3 items that we considered in our annual pricing rounds. That's the value we create. What we mean by that is obviously our technology offers certain features that are unique to our technology and whenever customers use that. So we also price for the value we create for the customers. And this year probably more important than [indiscernible] the inflationary environment we live in and the changes in the input cost. And so we definitely take that into account. And third, and I think that's a general statement, we obviously have to do that against the backdrop of the competitive environment. But we do see prices moving into one direction only in the broader packaging market. And I think that's the reality also for our customers.
So just a quick follow-up, if I may, just before we get into the balance of the questions. When you talked about staged, I appreciate and understand that, but how is that different from pass-through of raw material cost?
There's no automatism if you so want, right? I mean it's -- we discuss that with our customers. It's about the negotiation. It's also about obviously that we show them what the input cost [ too ] and but we -- and you remember that [indiscernible] happy to pass through costs because that also requires a much higher transparency in terms of the cost structure. And we also always felt we are better off by moving that into the mix of the negotiation together with the other factors and that is still our view.
Okay. Lars, let me take the other question, the second question about growth in EMEA and in Europe. I think very clearly, we're -- that's part of our growth guidance and that those regions would also grow on a stand-alone basis. Yes, last year we gave you the guidance or help that if it had been on a like-for-like basis, the incremental revenue last year would have been about EUR 150 million. Clearly that incremental revenue will be exceeded this year. So that is, I think, your question on MEA. I, yes, get it, Q3, yes, was not a growth quarter. But as Samuel said earlier, there are good reasons for it, and we expect growth to rebound in Q4 in MEA. And then your third question on gross filler CapEx. Hochwald is an important part of it, but we also have a lot of filler projects with customers. We're replacing 1 or 2 fillers. And that's a nice portfolio effect that we have that really supports the growth going forward. So that's really across the regions, across the types of customers that we have. And we mentioned a few of those where we also are placing fillers that have our more advanced substrates with that to be in line with our sustainability strategy where we see in the market that customers are really looking for the flexibility our technology offers as well as the sustainable features of our substrates. So overall, very happy with lots of cross filler CapEx, especially if we're also now having the ability to work with customers to get higher upfront payments or increase the external financing through leasing arrangements. So overall, very pleased with the net filler CapEx.
Quick follow-up. Can you at all provide the actual base for EMEA and the current European so we -- for modeling purposes, so we know what we should be growing from for Q4 specifically in terms of revenues?
I think we're looking at this one on a full-year basis, that when we look at our guidance and we're looking at the overall business that we'll give the guidance on.
The next question comes from Alessandro Foletti from Octavian.
I have 3 questions if possible. Maybe I start on the raw material prices again. Can you remind me when it's going to be the next negotiation for the pulp and paper basically?
That was the first question. You said you had 2, but I can take that first question.
I go to one by one because…
Okay. Good. No, we have multiyear contracts here with a range of suppliers. So those -- that really gives us a lot of visibility on our costs for what is the largest, by far the largest raw material, around about 20% of revenues. So that is something that is helpful to us, but it's also helpful to them because we provide them a very stable base load on their large fixed assets of these big paper mills, and that is important to them. And that's really the basis for those long-term multiyear agreements that we have with them. And they're integrated suppliers. So it's not volatile to pulp and paper prices that you may see otherwise in the market. So that's again a good basis for us. What was your second question?
Yes, I understand -- just a follow up on this one. I understand that, but if I'm not mistaken, just after the IPO there was a discussion that you had the renegotiation just to be renegotiate a big portion of this pulp and paper supplies. And if I remember correctly from the price, these multiyear contracts that you have are generally over 3 years. So '18, '19, '20, '21. I'm just wondering if there is now some extraordinary bulk of amount of pulp and paper that you have to negotiate now in the coming months?
I understand your question. Now obviously, as you state, back to the IPO, you're absolutely right, back then we did as a onetime event disclosed the renewal of a large contract with our largest supplier and we also wanted to price the necessary transparency. But since then there were renewals, will continue to be in multiyear. As you say, it's obviously always kind of a function of what suppliers and we deem as the right time horizon. But I think on the other hand you also can assume there is not such a thing now like a cliff ahead of us where we have to renew all our paper. That's not the case. So we staggered them and we have them well-managed.
Okay. Second question would be on aluminum again. There has been some talks in the industry, mainly in the German industry, and I know it's mostly for the automotive industry because they're exposed to that missing magnesium from China. And I wonder if this has an effect, may have an effect on the suppliers of the aluminum that you buy. And I was really surprised to hear that Alcoa was complaining, although they have some magnesium production in the U.S., about that. And some guys are really making the case that if this magnesium stocks which are going down and then aluminum production has to stop. Is there any type of potential exposure to you for that? Or you are confident to have the amount that you need…
No, thank you for that question. Obviously, I can't speak to the grade and type of aluminum that goes into cars. So that's -- I can't really comment on. For us, security and certainty of supply is important, and we have good supplies that allow us to continue production. And we've been able to deliver to our customers because that is important. They have a continuous dairy production that needs to be continuously supplied with packaging material. And so for us, at least as far as I can see, I am not aware of magnesium crisis in our aluminum supply.
And my last question is really very technical. I don't know who of you 2 will answer, is on the purchasing price allocation amortizations that I see in the adjustments to your EBITDA, it was EUR 78 million, that I'm referring specifically to the Onex part of it, not the Middle East joint venture. This is going down. It's been going down very strongly, continuously now, not only this year. So I wonder if you can provide some sort of guidance where it's going and how fast. And if it's mostly the depreciation part of it or if it's both depreciation and amortization part of it?
Yes. No, thank you for this question. So last year it was EUR 125 million. This year it has stepped down to around about EUR 100 million, and will stay at that level to 2024 roughly when it will step down again to around about $25 million because it's when the amortization depreciation periods for those assets come to an end. So that's the usual or not unusual pattern for those types of noncash charges, and that's obviously related to the Onex acquisition, which has nothing to do with our operating business. It's really just the technical effect of once upon a time, it hasn't been owned by private equity.
Does it entail both intangible and tangible assets or…
Yes, it entails both. But it's -- I mean from a P&L perspective, yes, it doesn't make much of a difference. It's a noncash charge.
The next question comes from Miro Zuzak from JMS.
I have a couple of them. I suggest to take them one by one. The first one is about your guidance. You maintained the 4% to 6%. It's quite a wide range now given that there are just 2 months left of the year. I have 2 questions relating to this. First of all, I'm not clear from the wording that you gave after Q2 and now after Q3 whether you're actually more convinced or less convinced that you can reach the upper end of the guidance. So it sounded quite positively after Q2. You referred to the very strong H1 that you have -- that you had. But now actually you say it remains or it basically remains a possibility. Does it mean that incrementally basically you -- there is -- the risk is higher that you don't reach the upper end of the guidance? Or do you state this positively that you say, hey, it's still -- it's a possibility to -- in a positive sense. That's the first part of this question. The second part is basically you mentioned in the call that you don't expect a strong recovery in Q4 or like this year end relative to Q4. What are the drivers then whether you reach at the upper half or not, as you're not expecting the year-end rally? I hope you understood my question.
I think you tell us in a minute whether we did. Thanks for your question, Miro. So I wouldn't read too much into this guidance because if you look and compare to the H1, it's exactly the same language we use. And I wouldn't say that we have given it a spin in either or direction. We just wanted to refer back to the H1 statement where we talked about the possibility to get into the upper half. Now I think what we want to prepare expectations is that it is going to be a weaker quarter because just as a function of the head start into the year that we saw this year. We talked a lot about the seasonality in our business. And yet obviously this year seasonality is not completely reversed, but it looks a bit different. And we're not going to see the strongly pronounced Q4 as we did normally in the years pre-COVID. And I think that's really what we intend to do here to manage expectations, that even in order to get at the very upper end of our range a growth rate below the Q3 growth rate will do. And I think that's what we aim to flag here. I mean, if you think about the different regions and the performance there, you do see that Americas and APAC did very well in the first 9 months. And that means also that customers track very well versus the year-end bonus targets. So there's little incentive for them to step up. I mean Europe last year, or EMEA, I should say, had a very strong fourth quarter also as a function of increased at-home consumption. That has come down a bit, although I mean we still see elevated at-home consumption, but not to the degree as it was last year. I mean fair that Middle East and Africa will rebound in growth, but that will not do -- compensate the full effect there. And then on the other hand, you also remember that in Brazil we had the deployment of the filling machine last year, and they were all up and running, Shefa, LĂder and NestlĂ©. So all 3 larger accounts where we did place these fillers and they were fully embedded. They are now fully embedded in the baseline. So that's all the considerations that why we want to manage the expectations for a softer or weaker Q4.
Just one clarification question. You mentioned before and during the presentation that you don't expect the strong year-end rally because the volume targets have already been reached. You mentioned it, I think, in the context of the region Asia Pacific. Is it the same for Americas that you are basically have the same dynamics that the customers have already reached the volume targets in order to qualify for the discounts? Or is it different between the 2 regions?
No, I think that's a fair assumption. That the same is true also for the Americas. We see it the same way, yes.
One further question regarding Hochwald. Could you please remind us roughly the pace of the step up now in 2022 versus 2021 in terms of revenues and the incremental revenues from Hochwald…
As you -- sure. As you recall, we did with this win double our shareholders. So there are 2 plants that are collecting, 2 new greenfield plants. Fillers are now assembled and installed as we speak. And we expect those revenues, those fillers to come on stream in 2022. And that will be a gradual ramp-up. And obviously how fast it's going to ramp up is a function also about consumption in Europe. It's a function of retail listings for Hochwald, but we are very pleased obviously with this deal, and we see that there is a great opportunity to demonstrate our technology in a new flagship project in Europe, which is a greenfield plant, state-of-the-art and almost exclusively equipped with SIG equipment.
And is it then done after 2022, or is the ramp-up also exceeding into the further years?
Obviously you're familiar with our ramp-up curves in those fillers. That also is a function of end market demand and -- retail listing wins of the customer. So that is definitely -- if we start to ramp up next year, there will be an effect where you have at least full run rate into the year after.
And just one last one, sorry. You mentioned the production inefficiencies which cost you EUR 5 million in Q3. Could you please remind again what that was basically and whether it's going to persist in the upcoming quarters? It was the last question.
No, thank you. Yes, no, thank you for that question. Yes, there are a number of aspects to it, a wide range. Freight is part of production cost. So there's obviously a little bit increase in freight. We did have some impact on our production from the floods in Germany. Remember, our big plant in Linnich is near that area that was so badly affected and with material losses, but it was -- certain things had to -- schedule had to change, so there are inefficiencies from that area. And -- there's also, yes, a little impact. But it's all small things adding together, that the ramp up of production in the new [ AP3 ] plant. So all of these little things kind of add up, and that's why we have the negative contribution in Q3, but we don't expect that in that magnitude in Q4.
The next question comes from Geroge Barrows from Exane BNP Paribas.
Two questions from me. First on MEA profitability, please. I think the business did EUR 78 million of EBITDA last year. And at 7 months, I mean, it's lagging a bit behind that in terms of profitability contribution. So is there anything other than the top line full that's going on in the margin there, please? And then the second question is on Europe's medium-term growth outlook. I think you mentioned that there's been some change in habits, that you've also potentially gained a bit of market share. How should we think about a division that you previously flagged as a mature market for maybe the next sort of 3 to 5 years in terms of growth rates, please?
Sure. Thanks for the question, Geroge. I think on Middle East and Africa we're very pleased with the margin also under the current circumstances. And on Europe, I mean, we always talked about it as a mature market, that's indeed right. But we also already at the point of time of the IPO presented a schedule with refilling machine wins that we had and where we knew that they're going to come on stream. And so we already 3 years back said that we expect all our reporting segments to positively contribute to top line growth. And it's with hindsight that also happened. We did see Europe consistently growing as a function of the share gains, which went -- or were a result of the filler placements. And again, when we talked about that in the H1 call, we do see that in all regions, not only Europe, in all regions, we have a strong pipeline of filling machines, both deals that we did already win that will lead to a placement, but also prospects that we can win so we remain positive and also with the outlook in Europe.
The next question comes from Daniel Koenig from Mirabaud Securities.
This is Daniel from Mirabaud Securities. I have a question on this multiyear liquid paperboard contract, normally paper prices go down. I was wondering how these liquid paperboard contracts have developed over, let's say, the last 3 months because I have really these expectations that paperboard goes down or is flat.
Yes. Thank you for this question. Let me take that. I mean, it's really for us a steady basis in our cost structure. And these multiyear agreements, as I said, provide for the paper mills and the producers from us a steady base load, and that's attractive to them. And the paper -- cardboard producers we're working with are integrated. So they have -- from tree to cardboard is an integrated production process. So that allows us to have with them multiyear agreements that give a base load for the large fixed cost base. And that's the arrangements we have. I think it's also worth noting that our liquid paperboard, because it's being used for food purposes, has very certain specifications that are important. And that's also the basis for these multiyear agreements. And that gives us a good visibility on prices, not just only on a 3-month period that you're referring to, but really over an extended period of time. And I think that is important for anchoring our cost base.
The next question comes from Alexander Thiel from Jefferies.
Two quick ones from my side. First one is a follow up in terms of year-end rally. Could you provide more color on what you're seeing right now with your cost estimates? I mean you already gave some reasons, but if I remember correctly, last year, Q4 was also rather weak in terms of comps and already reached volume targets to make customers look for discounts, right? Just that you can clarify the mechanics of the year-end again. And my second one would be on your visibility for raw material impact on profitability for the first half of 2022 with the hedging program in place and your estimated price increases. How much of the potential headwind is taken out based on your current visibility? And should we expect a stronger impact in the second half of 2022?
Thanks for your question, Alexander. So maybe I'll start with the first and Frank can continue with the second. You're absolutely right. We already talked about a similar pattern last year already. I wouldn't go as far as say that's the new kind of pattern that you're going to see also going forward. But I mean, for the same reason as last year, with kind of customers tracking well in certain geographies towards the volume targets, their annual volume targets. And we see it the same now after first 9 months. We do expect especially in the Americas but also Asia Pacific softer year-end rally. Especially also in the Americas you saw that more pronounced in the past years.But keep in mind, we had this filler ramp-ups, and these were a number of fillers, I mean, LĂder and Shefa were 10, and plus on top of that the NestlĂ© fillers. And they all went through a ramp-up curve starting in the second half year last year continuing into the first year this year. And now they're embedded in the base, and that's another reason why you should expect a softer Q4. And I think you could even go as far to say that also in Europe where you have a very decent year-to-date growth rate that also their customers track relatively well versus their volume targets. So all things considered is why we kind of manage expectations here for a bit of a different pattern and a different seasonality that we -- pre-COVID as we have seen and where -- where it's too early to tell whether that's a new pattern, but I would also expect that we go slowly, but slowly back to the established seasonality that you're familiar with.
Thank you, Samuel. Let me take your second question about kind of the balance between raw material costs on the one hand and pricing on the other hand with regards to the margin in the first half of next year. As we said, we are executing our hedge program, and that is an ongoing program. We'll complete it as the year progresses. At the same time, we've initiated the price increases and Samuel explained how those are the price negotiations that take place in Q4 and Q1. So those are really the 2 elements of that equation and balance here. So that's where I think we will provide guidance for the full year when we present our '21 financials in March and then really look at how we see this on the full year picture because I think that's how we look at our business on a full year basis. So we'll come back to you then in early March when we have the full year financials.
The next question comes from Christian Arnold from Stifel Schweiz AG.
Again a question on the pricing. You were saying that you are initiating price increases to offset higher costs and negotiation will take place in Q4. So that means that the price increase actually is valid from beginning of next year, is that correct?
Thanks for your question, Christian. That's correct. We normally agree with our customers' prices for a calendar year. That may deviate from one to the other customer. But as a general theme, that's absolutely correct.
Okay. And you were also saying that usually SIG does not talk a lot about prices. So this time it's quite different, I believe, also in terms of the magnitude of price increase. And I wonder from your experience in the past, and it happened that we see some prebuying effects now in Q4 on the back of this increased prices next year. So the customers are not chasing volume rebates, but actually want to secure still some packaging on the back of the oil prices?
Yes, I think that's an interesting thought. The way how we look at it for our customers basically, almost everything they buy, it's going to be more expensive, is already now or is going to become more expensive. And I think in such an environment it's difficult for customers to make prebuying decisions. So hence we don't really expect big impact from prebuying.
Gentlemen, so there are no more questions.
Then I would say thank you so much for all your questions today and your participation. Let me remind you that since our IPO in 2018 SIG has consistently increased revenue while maintaining a high level of profitability, and we have weathered the depreciation of the emerging market currencies and also the challenges of COVID-19. And we are now, as you are confronted with the inflationary environment and the current supply chain and logistic challenges, confident that we will again prove our resilience and also the attractiveness of our business model. With this thought, I would leave you and thank you very much for joining the call today. Have a good day. Goodbye.
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