SIG Group AG
SIX:SIGN
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SIG Group AG
Earnings Call Analysis
Q3-2024 Analysis
SIG Group AG
The company's performance in the third quarter showcased a solid growth momentum, achieving a 5.1% increase in constant currency. This growth is a testament to the company’s resilience despite facing economic challenges characterized by demand softness. Revenue performance continues to improve, particularly in carton sales, driven by strategic filler placements and market share advancements. As an investor, it's promising to see such growth even in a generally subdued market.
The regional analysis reveals significant variability in performance. Europe experienced continued growth, leveraging its established market position aided by a ramp-up of filler placements. However, expectations suggest a normalization of this growth in Q4 due to reduced excess milk supply. In contrast, India, the Middle East, and Africa reported robust growth of 20%, indicating robust demand and a proactive market strategy. Meanwhile, the Asia Pacific region showed a challenge, with a slight decline due to a high comparative base and subdued demand in China.
Adjustment in operational strategies has contributed to a noticeable decrease in net capital expenditures, dropping by EUR 101 million to EUR 129 million over the nine-month period. The management emphasized improvements in operational efficiencies, particularly in North American bag-in-box facilities. This focus on cost management and efficiency not only reflects positively on operational cash flows but also aids in enhancing overall margins.
Looking forward, management has provided clear guidance indicating an expectation for total revenue growth at constant currency of around 4%, with a margin between adjusted EBITDA of 24% and 25%. This guidance is conservative, as it acknowledges potential input cost fluctuations and foreign currency volatility. Free cash flow generation is projected to be strong, especially as the company sees benefits from better working capital management and previous successful operational efficiencies.
The company's commitment to sustainability initiatives is noteworthy, with ongoing projects aimed at sustainable forest management covering significant land areas. This not only positions the company as a responsible corporate entity but also aligns with modern investor values towards environmental responsibility. Additionally, strategic investments in expansion, such as the approval of the new extrusion line in India set to commence operations in 2026, further bolster growth prospects.
The company showcased an improvement in net leverage, decreasing to 3x from 3.2x year-over-year. This reduction in leverage is backed by a substantial EUR 70 million decline in net debt, positioning the company for enhanced financial health. Investors typically view improving leverage ratios favorably as it indicates a stronger balance sheet and potential for future growth and returns.
Despite positive signals, management acknowledged that challenges, especially in the foodservice sector, persist. They noted a gradual recovery in demand but not yet a full return to pre-pandemic levels. The cautious approach of retailers and brand owners in pricing strategy will continue to influence market dynamics. The management remains optimistic about their adaptive strategies to address volume needs and manage pricing efficiently moving forward.
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Ladies and gentlemen, welcome to the SIG Q3 2024 Results Conference Call and Live Webcast. I'm Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ingrid McMahon, Director of IR. Please go ahead, madam.
Thank you. Good morning, ladies and gentlemen, and thank you for joining us. I'm Ingrid McMahon, Head of Investor Relations. And with me today hosting the call are Samuel Sigrist, CEO; and Ann Erkens, 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, Ingrid, and welcome, everybody. Starting with the key messages for the third quarter. In the third quarter, the group continued its solid growth momentum, highlighting its resilience in an economic environment still characterized by demand softness. Carton had another strong quarter, with revenue growth at similar levels to the first half of the year, it's thriving on the back of previous filler placements and share gains. The bag-in-box and spouted pouch operations experienced a notable improvement in revenue performance during the quarter, and we anticipate further progress in the final quarter of the year. The resin escalator, which is a pass-through directly to customers in the bag-in-box and spouted pouch business had a positive effect on the top line, adding 50 basis points in Q3. This reflects higher polymer prices.
Turning to the recovery in bag-in-box and spouted pouch. In the foodservice sector, demand has not yet fully recovered. Promotional activities by restaurant chains are helping to bring customers back into outlet stores. And I would expect also this to keep gaining momentum. We continue to see this area in the market as the most resilient in the out-of-home dining space. Capacity constraints at our facilities in the U.S. are easing as we address the production challenges and resolve bottlenecks leading to improved operating efficiencies.
We are pleased to see further synergy wins across all regions, all deals are on a system solutions basis with recurring revenue in line with our strategy. We are on track for the completion of our aseptic sleeves plant in India by the end of the year. Given the ongoing strong revenue growth in the country, the group has signed off on the second phase of its local expansion with the approval of an extrusion line. The cost of the line is included in our 7% to 9% of revenue CapEx guidance. We expect this extrusion line to start up in 2026 and it will enable us to natural hedge driven by the local sourcing.
Turning to sustainability. I'm pleased to report the commencement of our second project with WWF, Switzerland following on from our first project in Mexico. This project is to sustainably manage 170,000 hectares. These projects form part of our Forest+ initiative to create, restore, protect and improve sustainable forestry management of an additional 650,000 hectares of forest by 2030. This is in addition to the areas used for our own demand of sustainably managed fiber, which is, as you know, FSC-certified. Lastly, as SIG announced last week, the Board of Directors has nominated Ola Rollén for election as the new chair at the AGM 2025. As previously announced, Andreas Umbach, who has chaired the company since the IPO, decided to not stand for reelection.
Turning now to the key figures for quarter 3. Constant currency growth for the group was 5.1% or 4.6% in constant currency and constant resin. The adjusted EBITDA margin of 25% is in line with our expectations for the quarter. Adjusted EBITDA was EUR 206 million for the period. Adjusted net income was in line with the prior year, reflecting higher adjusted EBITDA, offset by increased depreciation, tax expense and interest costs. Net CapEx decreased significantly as our property, plant and equipment expenditure reduced, while net filler CapEx reflected lower capital expenditure for new filling machines and higher upfront cash from customers. As we previously stated, we expect to place 75 or more fillers by the end of the year, which is a solid performance and above our historical leverage and comes after 2 years of over 90 filler placements each year. Q3 cash flow amounted to EUR 78 million.
Looking at the 9-month figures. Revenue growth at constant currency comes in at 3.7% or at 3.5% at constant currency and resin. Adjusted EBITDA of EUR 575 million translates into a 24% margin, which places us in our guidance corridor. Adjusted net income of EUR 198 million reflects higher net finance expense and depreciation compared to the prior year. Free cash flow generation increased significantly compared with an outflow in the prior year, this reflects higher operating cash flow and lower capital expenditure. The free cash flow generation, lower gross debt and higher adjusted EBITDA over the last 12 months has led to an improvement in net leverage to 3x compared with 3.2x a year ago.
Turning now to the performance by region. Europe has been able to sustain its high growth rate in the third quarter, in line with the first half of the year. Continued excellent carton volume growth largely reflects the ramp-up of our filler placements as well as an increase in milk supply for aseptic processing. However, the exit rate in quarter 3 indicates that the excess supply of milk has reduced, and we will see a normalization of growth in the fourth quarter. Revenue growth from bag-in-box and spouted pouch was driven by a low base effect and new business during the quarter. We also won share of wallet with a large spouted pouch customer who had requirements for mono material structure, including the pouch and fitment, which we are able to supply. This project will ramp up in the fourth quarter.
In India, Middle East and Africa, the team delivered another strong performance with growth of 20% at constant currency in the quarter, bringing the 9-month growth to just under 14%. In the Middle East and Africa, our customers in Egypt and Saudi Arabia performed strongly in Q3 as they gained market share. For the first 9 months of the year, revenue growth for Asia Pacific was 1.2% in constant currency, while revenue declined by 1.3% in the third quarter. The decline in Q3 was largely driven by the high base of double-digit growth in the prior year and lower demand for carton in China, impacted by a subdued economic environment. We, however, continue to gain share due to our ability to adapt packaging sizes to meet affordable price points for consumers.
Indonesia and Vietnam benefited during the period from the ramp-up of new fillers in carton. In the Americas, while for the first 9 months of the year, revenue declined by 1.2% at constant currency, there was a return to growth in Q2 and a further improvement in Q3, which saw growth at 4.3%. This included an improvement in revenue performance for bag-in-box and spouted pouch. In carton, there was strong demand in dairy in Mexico and in food products for at-home consumption in the U.S. We were also delighted to sign our first aseptic carton customer in Colombia, and we further expand our customer base in Chile. Debottlenecking the North American bag-in-box operations has helped these capacity constraints during the quarter and improved operating efficiency.
This brings me to the end of my part of the presentation. In summary, the growth rates we have reported today demonstrate the resilience of our business through a global footprint, the strength of our product categories and our ability to drive share gains through our differentiated technology. We will remain positioned to outpace the market growth. And I will now hand over to Ann.
Thank you, Samuel, and good morning, everyone. Let's start with the adjusted EBITDA bridge. With a margin of 25% in the third quarter, we continue to move in the right direction. The adjusted EBITDA margin of 24% for the first 9 months of the year was impacted by unfavorable currency movements which especially impacted Q1 and reduced the margin by approximately 50 basis points for the 9-month period. Top line volume growth contribution continued to gain momentum during the period, and raw material costs further benefited from lower hedged prices for polymers and aluminum. Production costs for the first 9 months of the year primarily reflected operational challenges in the bag-in-box facilities in North America, while higher SG&A expenses were driven by investments in growth, wage inflation and phasing of project-related costs.
On the EBITDA reconciliation. Compared with the adjusted number, reported EBITDA is higher by EUR 24 million and primarily reflects the following items: the usual net movement in noncash unrealized commodity and foreign currency hedging position. The movement for the 9 months was more positive compared to the prior year. Restructuring costs and impairment losses of EUR 19 million, pretax mainly related to the closure of the chilled carton plant in Shanghai, as discussed in quarter 1. The impairment was mostly due to the decline in the Chinese real estate market as we intend to sell the land. And thirdly, the decline in the fair value of the contingent consideration of EUR 38 million, reflecting the lower growth outlook for the bag-in-box and spouted pouch businesses. The change in Q3 related to currency impacts only.
This slide details the reconciliation from profit for the period to adjusted net income. Other than the adjustments I just described on the EBITDA bridge, the largest amount -- the largest adjustment to net income is, as usual, the Onex PPA depreciation and amortization. This arose from the acquisition accounting when the group was acquired by Onex in 2015. The amortization will cease after the first quarter of 2025. Net capital expenditure decreased by EUR 101 million to EUR 129 million for the 9-month period. This includes a comparatively low Q3 spend, which is expected to increase in Q4. The year-to-date reduction reflects the near completion of a significant investment period for the group. Net filler CapEx reflects lower capital expenditure for new filling machines and higher upfront cash payments from customers, which have come through earlier this year. We have also worked on optimizing the assembly cycle of filling machines, which has contributed to the lower net CapEx in the first 9 months of the year.
Free cash flow for the first 9 months of the year increased by EUR 81 million compared with the prior year period. This reflects operating cash flow -- higher operating cash flow and the lower capital expenditure. As discussed during the half year call, we will see the usual seasonality of cash generation weighted towards the second half of the year, however, slightly less pronounced than last year as we managed to run the business with lower average working capital throughout the summer. Turning to leverage. You can see the improvement in net leverage to 3x compared to 3.2x at the end of September last year. This improvement includes a EUR 70 million reduction in net debt. We continue to target a reduction in net leverage to around 2.5 by the end of the year.
Finally, let's turn to guidance. We confirm that we expect total revenue growth at constant currency to be around 4%, plus or minus 50 basis points for the year. The resin escalator is not included in the guidance. The adjusted EBITDA margin is expected to be at the lower end of the 24% to 25% range. This is subject to input costs and foreign currency volatility. Net capital expenditure is expected to be within the lower half of 7% to 9% of revenues for the full year. The adjusted effective rate is forecast to be between 26% and 28%, and the dividend payout is expected to be within a range of 50% to 60% of adjusted net income. That concludes our presentation, and we are now happy to take your questions.
[Operator Instructions] Our first question comes from Ephrem Ravi from Citigroup.
That your sales rate and exposure in bag-in-box was kind of improving. Obviously, your sales in the first half was down over 12%. Can you put that in numbers in terms of what you are expecting for the second half? Are you expecting it to actually grow year-on-year in the second half? Or is it just a slower rate of decline in the second half?
Thanks for your question, Ravi. Yes, indeed, that's our ambition. We want to bring bag-in-box and spouted pouch back on a growth basis for H2 over H2, and if I look at Q3, I think there is progress, as we said before. And I would say, we see -- we look at now a rather flattish numbers, but the ambition remains to be on a growth basis for H2 over H2.
And a quick follow-up on the CapEx outlook. Obviously, this year, your CapEx is lower because your big growth programs and investments are done. But in terms of looking forward to 2025, should we assume the lower end of the 7% to 9%, which is pretty much what you're running at right now?
Yes. Correct. So our guidance remains unchanged of 7% to 9% of net CapEx, and we would probably be comfortable to operate in the lower half of the guidance going forward. Unless we run again into a major investment cycle, but we don't expect that to happen next year.
The next question comes from Jörn Iffert from UBS.
I would have 2 to 3 questions, please. I will take them one by one, if okay. The first one is, I mean, you're clearly benefiting from your regional diversification. But how do you see the trends going forward over the next 2 to 3 quarters? I mean, IMEA, Middle East, is this really sustainable? Also Europe, the growth is moderating somewhat. Can China catch up? Will Scholle compensate for this? Yes, maybe what is your view on the regional outlook for the next 1 to 3 quarters, please?
Thanks for the question, Jörn. And I think you put it out very nicely. In a way, also, we see it, we have now in an environment where everyone is on the chase for volume and where disposable incomes haven't adjusted yet fully to the newly established price points. Hence, there is a subdued demand. We have seen very strong growth. And this is on the back, obviously, of share gains, but also because some of the geographies, you just referred to like IMEA and also Europe, deliver a very solid growth in this environment. And I see a bit similar, I think while the European growth rates on the back of share gains and the elevated milk output for aseptic processing is probably not going to be a growth rate we can sustain. .
And also in India, over time, naturally, growth rate is going to slow as obviously, we started to grow from a very small base. I think you put it out the right way, bag-in-box and spouted pouch and also the Chinese market will kick in again. Obviously, the question remains when as also '25 is probably rather a traditional year. And if I think of China, I just have been to China, I mean, also our conversations show that probably it's rather bit of an H2 topic for markets to resume fully, but that has to be seen.
Okay. The second question is, please, on the margins for the next 1 to 3 quarters. I mean, shall we assume a similar bridge like we have seen for Q3? Or will there things change in terms of raw mat benefits, volume contributions, FX, et cetera?
Yes, I mean, you know that we don't guide margins now on quarterly basis. But directionally, I mean, as we landed now in the corridor for what we guided for the full year, obviously, Ann, just said it before, we confirm the guidance also for the full year in this corridor. And raw material, we always said in the second half of this year, is a bit more of a tailwind than in the first, but into next year, it's really too early to tell. We obviously get and start to get some visibility on the input costs, on the raw material. We also know on some wage inflation topics, pricing, it's too early to tell. I can't tell you yet because it's going to be a market where everyone is on the chase for volume. So we will obviously provide a good guidance then at the year-end results where we have more visibility on all those ingredients.
Yes, fair. The last question, a very quick one, then I'll go back in the queue. You mentioned filler placements pretty solid 75 units plus for this year. Is this relatively diversified on the regional basis? Or is there any cluster you would point out?
No. That's really across the globe. It's very satisfying.
Next question comes from Charlie Muir-Sands from BNP Paribas.
Just got a couple of follow-ups on the same topics, please. Firstly, on IMEA, I think in Q2, you attributed it to a catch-up on a weak Q1 as some of the shipping delays were resolved, but you didn't really see much moderation in growth in Q3. How much of that strength in Q3 would you attribute to still inventory build or rebuild versus the underlying demand rates based upon what you can monitor of the machine performances of your customers?
Yes, thanks for the question, Charlie. I would say in the Middle East and Africa, so I singled out before Saudi, but also Egypt, it comes down really to 2 customers doing very well in their markets. And on the back of that, obviously, we're benefiting too, I would say, that is a very relevant factor for the growth rate you saw now in Q3.
And on China, there were some articles maybe about a month ago talking about how the milk market might benefit from some government-related stimulus efforts. I wondered if you'd seen or heard more details at this stage and whether you thought that there was actually going to be a significant improvement in demand. I know you mentioned perhaps the second half of next year, you might see a pickup. I don't know if that government-related initiative might be thinking -- part of your thinking?
Obviously, we follow that closely. We also heard about this stimulus that was announced. I think it was on the 12th of October, if I'm not mistaken where more details on the form and shape of the stimulus were expected, but they didn't really come. So it's too early for us to judge what parts of the economy is going to benefit from that. But what I have seen now, the stimulus really has also boosted a bit of confidence. Now let's see how that translates then into real effects. But I don't know yet whether there is direct impact or direct benefit for the dairy industry.
The next question comes from Patrick Mann from Bank of America.
I just wanted to ask a little bit more on the operational bottlenecks. You've mentioned in North America a couple of times in bag-in-box. I mean when do you think these will -- or you said you've got positive momentum into the fourth quarter sort of do you think that resolves it now? Are you close to getting it resolved? And then if you could maybe give us some idea of how much of a drag has that been? And so how much of a tailwind does that give you going into 2025, if any?
Thank you, Patrick. Yes, I would say, in the third quarter, we were able to bring supply and demand more and more into balance again and by end year, we will have fully addressed all those bottlenecks and as a function of that and the lower comps in this year, I think that will give us a good basis for growth into next year. But what that specifically means, I mean, we're going to entail it in the group guidance that we come out then in February. But yes, we have addressed most of the operational issues. And by end of the year, we will have them resolved.
The next question comes from Pallav Mittal from Barclays.
Three questions, please. Firstly, where do you see the foodservice demand versus first half of the year? We have seen some peers report some recovery in the third quarter. What are your expectations going into Q4 and next year on the foodservice side of things?
Yes, thanks for the question, Pallav. I mean, obviously, very difficult to give an outlook also we follow the announcements of our customers, as you probably also have seen them. We saw indeed an improvement in the third quarter, but our view is that the market is not yet fully back to normal, but we do see a very determined response of all the players in that market to get frequency back, to get the consumers back into their stores. And that has shown first positive signs, and I'm sure they're going to get it back because we still believe that if you look at the out-of-home dining space, the quick service restaurants are the resilient part of that. So we remain positive also into Q4 and next year.
Sure. On the resin escalator, so Q3 saw a positive impact of 50 basis points. And we know that you have contracts with customers, and these costs are passed on with a lag of up to 6 to 9 months probably, so how should we think about that benefit in Q4? Do we expect a similar benefit from the resin cost?
Yes. I mean, on purpose, we exclude the resin escalator from the guidance, right? So that's why we don't want to also give a quarterly forecast. But probably the direction is not going to change very much in the fourth quarter also.
Sure. And lastly, on the free cash flow, so it is lower than -- in the third quarter, it is lower than the third quarter of last year despite some earlier phasing of upfront cash. So can you please help us understand what is driving that lower cash flow in the third quarter? And if you could also quantify how much you have pulled forward from the upfront payment from Q4 into Q3?
Yes. Thank you for that question because that's an important one. So the third quarter looks lower than third quarter last year because that's very much linked to also the second quarter performance that we have discussed at the half year results. Remember, the second quarter performance was significantly better than the year before, and that is mainly attributable to, as I mentioned before, much better working capital management over the summer. So we managed to build up significantly lower inventories and so on. And in consequence, also, that means that we don't have to build down so much inventories, for example, anymore in the second half of the year.
That's why the phasing that our free cash flow generation is more phased towards the second half of the year remains the same also this year, but it's going to be less pronounced than in the year before, simply because Q2 was already better. And I also wouldn't call it that we have advanced upfront cash into the second -- sorry, into -- yes, into in the first half of the year. It's just we have been more rigorous on collections and have been in much closer contact with the customers so that we also got the money in when it was due. So I would just say that's better execution than last year.
The next question comes from James Perry from Citi.
I was just wondering, would you be able to comment on pricing at all? You've obviously managed quite resilient pricing so far, but foodservice demand is still quite soft as you mentioned, and we've seen growing pricing pressure in other packaging grades. So should we expect any negative pricing into 2025?
Yes, thanks for the question, James. I mean you know that this year, pricing is basically neutral. That means the growth rate you're talking about, they are driven by volume. Into next year, as I briefly mentioned before, it's too early to tell. We know a number of input costs that go up. We need to see also once we get closer to next year into price negotiations, where we believe spot market is going to be, as you're familiar with that we have not 100% of the raw material hedged and then it's a bit of a market also that we want to see how volumes evolve and also how end market demand picks up. So at this point, I really can't give you much more than that we're observing the situation and forming an opinion what's the right thing. But I don't think it's going to be in either direction, a very significant contribution.
The next question comes from Alessandro Foletti from Octavian.
Yes. Maybe on the Scholle again. You said that Q3 was flat. Is that -- did I understand correctly?
Yes, that's what I said. Q3 more flattish and for H2 over H2, the ambition to get back into growth territory.
And that means because you obviously wrote that Europe was growing. So America was still down but less than before?
I mean you remember the big part of this business is the U.S., and that's where we had the capacity constraints so everything that basically determines the substrate growth has to a large degree to do with what happens in the U.S.
Okay. And you mentioned cross-selling. Can you quantify how much that can be, can become?
No, we haven't quantified that, but we have very consistently reported on the wins, just to give people comfort that this cross-sell win synergy is really there and that we cater to, for example, our large dairy customers also the opportunities for bag-in-box and further access to the foodservice sector, but also then with spouted pouching to more differentiated consumer products. And that is really what we see happening a lot on the dairy side, but also in other categories like food, like tomato passata and other high viscose products where we see progress. And we're going to entail all of that also into our growth guidance for year then.
Okay. Maybe just as my input, then it would be very useful if at some point, when these cross-selling synergies are large enough, if you're able to quantify a little bit just as an impact. It's a privilege to ask, it's a privilege to answer. My last question on the fourth quarter. Basically, if I read overall your statement, it seems like Q4 will be weaker than a normal Q4, very often, your Q4 has the highest margin, the strongest growth, et cetera, this year doesn't seem to be the case. Can you explain why?
Yes. I mean our intention was not really to give you so much color as you probably have taken out of our work on Q4 as you don't guide naturally on a single quarter. But what we are comfortable with is obviously with our full year guidance. And I mean it goes without saying, look at our growth rate after 9 months, that we need to continue to deliver solid growth into Q4 in order to also be comfortably within the guided range. So I wouldn't say that we are now less convicted about Q4.
But the margin is going down. I mean, just purely arithmetically.
I'm not sure where you would take that from Alessandro because after 9 months, we are at 24%, and we guide for the lower end of 24% to 25% so that means that Q4 still needs to be pretty accretive.
Absolutely.
The next question comes from Manuel Lang from Vontobel.
Just a quick follow-up on free cash flow. I'm wondering if this earlier phasing is a pattern we can assume to continue going forward? Or is this simply a one-off measure that was done this summer?
No, thanks for the question. I believe it's always difficult to guide for the quarter. That's why also we don't do it, and we don't want to do this in the future. So our free cash flow projections, if we discuss it would always just relate to the full year. But the overall pattern, of course, will not change that the generation in the second half is stronger than in the first half, that comes naturally with the business model.
Okay. And then maybe second one on filler placements. I mean you mentioned that the net CapEx probably will be in the lower half of 7% to 9% of sales. So I think we can assume similar numbers of fillers next year as in 2024. Is that correct?
Yes, we always said any number between 60 to 80 is a good number for us. And if I look now at the filler pipelines means deals that we can win over the next weeks and months to come, I look at very solid pipeline. So we have enough leads to work on, and that's why we remain positive also in the future placement of fillers.
The next question comes from Christian Arnold from Stifel Schweiz.
Question on the EBITDA bridge. On the production here, you quantified a negative impact of EUR 12 million, which is actually the same as what we have seen in H1 when we are talking about the operational challenges you had in bag-in-box moving from Canada to the U.S. So I wonder has this negative impact not occurred anymore in Q3? Or has that been compensated by positive things in the production field? Or yes, is this problem now completely solved? Yes, a little bit these kind of questions I have.
Yes, Christian, thank you very much. And that's very much correct that the burden that we saw from production in the third quarter has been significantly lower to 0 compared to what we have seen in the first half. And of course, an improvement in the situation in the operations in North America has contributed to that, but also production efficiencies that we realized across the globe.
Okay. And the problem now is completely solved? Or you're still working on the challenge you have?
So we said, Christian, that we will have this resolved by end of the year, and we are positive on that. So the biggest chunk is done, but there is a bit of work to do for us also in the fourth quarter, but we brought back demand and supply much more in balance. So -- but by end of the year, we want to be done.
The next question comes from Cole Hathorn from Jefferies.
I'd just like to focus on the U.S. Foodservice business. I mean, we've seen repositioning of price points by the foodservice sector to drive volumes. And we've also seen unfortunately, E. coli at McDonald's and issues at Starbucks. I'm just wondering, have you seen any impact on that -- on your business or have you sailed through fairly okay because you are -- got the order backlog in bag-in-box, so we should think about no real kind of impact on the foodservice? Just some color there would be helpful.
Yes, I mean we also depend on the foodservice market, right? You recall maybe the half year when we were 12% down, we said that comes down to 3 reasons why we are down. Number one, obviously, we had strong comps on the basis '23. Number two, we had our operational constraints in the U.S.; and number three, it was the softer end markets, the foodservice end markets. And we said all 3 reasons kind of account equal or is more or less equal for this 12% decline in the first half year. And now in the third quarter, we did see an improvement in the foodservice categories that we cater to. But we clearly don't see them get back to what I would consider a normal growth rate. But we do see that all these players now put a lot of measures in place, as you said, to bring traffic up in their stores, and that's something we're going to continue to benefit from.
And then how do you think about -- I mean, we've seen consumer staples businesses all reevaluating kind of their medium-term growth algorithms and deciding how to price versus volumes. When I think about SIG, I think about it as an underlying volume-driven business, does that repositioning by retailers and various brand owners serve you quite well to help support your volume growth, which is what you need? How do you think about that maybe on a regional basis or overall group would be helpful. And then just 2 quick follow-ups that are technical just one on, do you have any color you can give on the interest rate guidance for 2024 just so we've got an idea.
Yes. Maybe I'll take the first one and the second. The way we look at the growth rate also going forward, we would agree with you that 2025 it's probably another more transitional year where end markets are not yet back at their old strength and everyone is on the chase for volume. And I think what serves us very well in this environment, and you see that also in the year-to-date numbers is, number one, our geographic footprint, we are very balanced with our presence now across the globe, emerging and mature markets, the Americas, Europe and Asia and obviously then the faster-growing IMEA and I think that serves us really well. One market a bit softer, and 2 more to compensate and the portfolio effect of different end markets, geographic end markets serves us well. And I believe it will also help us going forward.
And the other factor is that we continue to see share gains basically in all geographies where we operate on the back of our differentiated technology that allows our customers to provide differentiation. And I do think we benefit from the fact that all our customers are on the chase for volume because they don't do that necessarily with only putting existing products on promotion, but there is a lot that they also do with product reengineering, recipe reformulation where we can help. They do the downsizing where we can help. They look into new channel opportunities where we can help in bag-in-box and so we have lately a lot of innovation workshops with our customers where they try to adapt their portfolio to the new reality in these end markets where the consumer remains very price conscious. And I think that is a benefit to us because it can play out our strength of the very versatile technology that we offer. Maybe to the interest rate.
Yes, to the interest rate, I think no change to what we discussed already at the half year, probably the half year number times 2, and slightly less is a good outlook for the interest expenses for the year.
Samuel, and then maybe just following up on that last point about the promotional. So you mentioned flexibility of your fillers being able to hit the right pack sizes and price points and mix is always important. Do you get better profitability in the smaller pack sizes at all? Or am I mistaken on that?
The way I would put it is we price for the value we create, right? And if customers use our flexibility and by that we create more value for them, we also see that reflected in our margins.
[Operator Instructions] The next question comes from Miro Zuzak from JMS.
I have just one, which is basically a follow-up on Alessandro's question regarding the seasonality of margins. In the past, up to 2022, basically, your Q4 margin was always much higher than the average margin you posted between Q1 and Q3, reason for that being, I don't know, volume discounts and stuff like that, people trying to fill up inventory before year-end to get the discounts. And since 2022, it seems to be different. So last 2 years, we couldn't see this behavior, this seasonality. Is this related to the acquisitions that you have made, like Scholle or are there other reasons why you don't seem to see the seasonality anymore?
Well, that's a good question, Miro, and we also indeed commented on the seasonality of our margins, right? And as you said, '22, that was the pattern that we have seen also in the years prior to '22 with a very strong exit margin of the year, with Q4 being a very strong quarter from a top line and also margin perspective and not only due to operating average. And then last year, '23, we said, that has shifted. Now we don't see such a pronounced seasonality anymore on the margin. And yet, when we entered to this year, we guided again for a bit more of a seasonality. And this year, I think the seasonality was also driven as we expected more of the raw material benefit in the second half and also had softer comps.
So it was a more particular and a one-off reason, a set of reasons why we saw again a bit more seasonality. The way I think about it more structurally or more fundamentally is, yes, the acquired business has a different margin profile. I would say their's more -- naturally more stronger quarters are the second and third quarters. And the other reason is India, where we have also now a seasonality, especially for the beverages, for the drinks that goes before the monsoon season, and that peaks basically in Q1, Q2 and from that perspective, we have a bit of a different margin profile going forward. So I would say in a nutshell, I expect the margin seasonality to be less pronounced than before.
Ladies and gentlemen, that was the last question. I would like to turn the conference back over to the management for any closing remarks.
Excellent. Thank you very much for your time today and your interest, and I look forward to seeing you either on the road or latest then on the results call for the full year. Thanks for your time, and have a very good day.
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