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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Q4 2022 results conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]At this time, it's my pleasure to hand over to Ingrid McMahon, Director of IR. Please go ahead, madam.
Thank you. Good morning, everybody, and thank you for joining us. I'm Ingrid McMahon, Director, Investor Relations. And with me today hosting the call is Samuel Sigrist, CEO. 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.
Good morning, everybody. I'm pleased to be here in the room today with my colleagues, Jess Spence and Dmitry Lebedev, who together are currently leading the finance function.Let me start with some of the business highlights. 2022 was an eventful year in which we advanced in our ambition to be the global leader in sustainable packaging solutions for liquid food and beverages. This is with the acquisitions of Scholle IPN and Evergreen Asia. Scholle IPN takes us into new substrates and into new channels, and I'm pleased to report strong growth in bag-in-box and spouted pouch since the business was consolidated in June. The integration of both companies is progressing well with initial revenue synergies already coming through.In 2022, we saw growth in all regions with volume growth and related share gains supplemented by price increases. Pricing momentum is offsetting cost inflation and further increases are underway for 2023. The placement of 91 aseptic carton filling lines during the year, well above prior years, is a leading indicator for future growth. We continue to see strong demand for opportunities to place fillers also into 2023.We are maintaining our investment in our global manufacturing presence. Our first aseptic carton plant in Mexico started commercial production earlier this month. This plant will supply our North America business, enabling shorter lead times to service customers and support growth in the region.And today we have announced that we have chosen the site for our first aseptic carton plant in India, which I will come on to later.Innovation continues to be a key growth driver and the range of opportunities has expanded with the enlargement of the group. We are already working on some exciting developments. I'm delighted to announce that Gavin Steiner, most recently Vice President, Global R&D for Packaging and Technology at Nestle will be joining the group in April as Chief Technology Officer. Ian Wood, our previous CTO, will take on the role as Chief Supply Chain Officer, responsible for global supply chain, procurement and production of SIG's entire expanded product offering. I'm looking forward to working with both Gavin and Ian.We are proud of our sustainability leadership, and we continue our best-in-class ESG performance and disclosure. As a result, in 2022, SIG included -- was included for the first time in the FTSE4Good Index, and we maintained our Platinum rating for EcoVadis.We have been focusing on delivering the lowest carbon packaging solutions for over 2 decades. In line with our climate positive commitments, we are convinced that our low-carbon packaging can play an important role towards decarbonization of the fast-moving consumer goods industry.Based on our life cycle assessments, we are confident that 100% of our aseptic carton business is eligible for the EU taxonomy related to climate change. We are aiming to obtain alignment from an independent third party in 2023. This is a voluntary disclosure as it is not required for Swiss company, and it emphasizes our commitment to combat climate change. For the recently acquired businesses, we are currently conducting an eligibility assessment.Our sustainability strategy extends across our entire operations and supply chain. We are integrating the acquired businesses into our strategy, and we have set ambitious new targets to reduce Scope 1, 2 and 3 emissions across the enlarged group by 52% per liter packed by 2030 and get to net zero by 2050 in line with climate science. We have currently passed approval on our near-term target for 2030, and we are now expecting approval for our longer-term 2050 goal.Turning now to the financial highlights of 2022. Revenue growth of over 27% at constant currency exceeded our initial expectations. Revenue includes the consolidation of Scholle IPN from June and of Evergreen Asia from August. Organic revenue growth at constant currency for the aseptic carton business was 8%, a combination of volume and price.Adjusted EBITDA increased to EUR 652 million, with an adjusted EBITDA margin of 23.5%. The margin reflects 3 factors: Number 1, the consolidation of the acquisitions, which was as foreseen dilutive. Number 2, the dilutive impact of price increases on margin. And number 3, the impact of higher input costs to the extent that these have not yet been offset by price increases. I shall come back to this later in this presentation.Free cash flow increased to EUR 263 million. Adjusted net income was also higher, and adjusted earnings per share were stable despite an increase in the number of weighted shares issued. We are proposing an increase in the dividend to CHF 0.47 from CHF 0.45 per share in the prior year.I'll now show how each of our regions contributed to the strong revenue growth in 2022. Price increases made a significant contribution in all regions, so I will focus on the volume drivers.In Europe, the 15 fillers placed with Hochwald Dairy in Germany continued to ramp up in Q3. We look forward to further expanding our partnership with Hochwald in 2023 with the deployment of our next-generation SIG NEO filler. This will be used to fill plant-based dairy alternatives.The rollout of combismile in Europe continues and broadens our presence in noncarbonated soft drinks for the on-the-go consumption. We also saw market share gains in Spain for liquid dairy and in Poland for juice. Overall the European business is benefiting from a good mix between private label and premium brands, which protects revenues even during times of economic uncertainty.Europe was affected by the loss of sales to Russia, which reduced the European growth rate by more than 300 basis points for the year. In light of this, organic growth of 4.4% for the year was a strong performance.In terms of the adjusted EBITDA margin, in addition to the impact from higher raw material and freight costs, Europe was more affected than other regions by higher energy costs and includes a large part of the group's raw material hedging outcomes.In the Middle East and Africa, we saw a rebound of portion packs for noncarbonated soft drinks as schools reopened post COVID. In liquid dairy, we gained share in Saudi Arabia, in Egypt and South Africa, where the market improved following the drought in 2021.Awareness of sustainability issues is growing in Middle East and Africa. And in Egypt, we have launched Recycle for Good. This is an initiative with -- that is innovative and enables direct households and food service industry collection of used aseptic carton packs via a mobile app.In 2023, we will place our first filler in Pakistan, which is part of our longer-term strategy to enter that market with selected customers and categories.In Asia Pacific, the China business saw a robust growth in a market that was affected by COVID-19 restrictions in place for much of the year. A particularly strong Q4 performance reflected restocking by customers as the restrictions were lifted and ahead of preparations for Chinese New Year, which took place in January 2023.We saw good growth in soy milk across the region as well as expansion into other plant-based milks. There was a record number of filler wins in the region, notably in India, where we now supply all leading dairies and noncarbonated soft drink players.The business in India has now reached the scale, which warrants the construction of an aseptic carton plant. And we have today announced that we have selected a site in Ahmedabad in the state of Gujarat for our new aseptic carton plant.The first phase of construction will commence this year and completion is expected in 2024. The plant will carry out the printing and finishing of carton packs for the rapidly expanding filler base in India with an initial capacity of 4 billion packs.We will invest EUR 60 million, most of this amount to be spent in '23 and '24. The land and buildings will be financed through a lease with an estimated net present value of approximately EUR 30 million.Turning now to the Americas, where we achieved double-digit organic growth with share gains in liquid dairy in Mexico and Brazil. Bag-in-box benefited from buoyant foodservice demand in the U.S. and market share gains with major customers.Our first aseptic carton plant in Mexico commenced commercial production earlier this month. We see many new opportunities coming through this year across the region, including, for example, single-serve cartons for school milk in the U.S. as the market is transitioning from chilled to aseptic packs.This brief regional summary show that while integrating the acquisitions, we have continued to generate robust growth in the aseptic carton business with multiple opportunities ahead for further growth.The strong revenue growth across the regions, a combination of volume and price, generated topline contribution of EUR 130 million, which largely offsets the negative impact of higher raw material costs. At 4.5%, the level of price increase achieved for the year was above our original target of 3% to 4%. The price increase is aimed to compensate for higher freight, energy and raw material costs, although this occurs with a lag.Hence there is an element of cost inflation, which has not yet been offset fully. Further price increases are therefore underway for 2023 and are enabling us to catch up with inflation.The consolidation of the acquisitions had a positive impact on adjusted EBITDA, but was dilutive to margin, as shown on the next slide. In addition to the 100 basis points margin dilution from the acquisitions, we saw 130 basis points mathematical dilution from price increases. The portion of cost inflation, not yet covered by pricing, led to 190 basis points dilution. These combined headwinds resulted in a margin below the previous year's level at 23.5%.The elements leading to margin dilution were more pronounced in Q4 than we were anticipating when we spoke in October. There are a number of reasons for this. Bag-in-box and spouted pouch performed better than expected; however, increasing the dilution from acquisitions. Price increases in Q4 were above 6%, also leading to greater dilution.There was a negative mix effect in the aseptic carton business, primarily reflecting higher volumes in Europe, the region most impacted by cost inflation. And finally, input costs, including raw material, energy and freight remained at elevated level.Overall, the business has shown resilience in a volatile environment, demonstrated by our ability to continue to place fillers, grow volumes and raise prices.Turning now to free cash flow. Net cash from operating activities increased to EUR 578 million. This includes a positive contribution from acquisitions, offset by acquisition-related costs. Net working capital was impacted by higher net working capital intensity in the bag-in-box, spouted pouch and chilled carton businesses. Operating net working capital includes volume rebates, which are a function of our strong revenue growth.Free cash flow off of higher CapEx was slightly above the previous year's level at EUR 263 million. The higher gross CapEx was due to investments in both property, plant and equipment and filling lines. PP&E CapEx included growth investments for aseptic carton, such as the new plant in Mexico and the consolidation of bag-in-box, spouted pouch and chilled carton.Net capital expenditure came in below our guided range of 7% to 9% of revenue due to a high level of upfront cash. As I said earlier, demand for fillers was strong with 91 fillers placed and a well-filled order book for '23.Gross debt increased due to the financing of the acquisitions. Leverage of 3.1x at year-end is in line with expectations, and we have a clear path to reaching a level of towards 2x by midterm with a milestone of 2.5x by end of '24.We have already secured a bridge facility to cover our Eurobond maturing in June '23. This gives us flexibility to optimize the terms of a preferably partial refinancing. We're also targeting to reduce gross debt outstanding over the course of the year.Our return on capital employed over 27% remains strong following the acquisition. The aseptic carton business achieved outstanding ROCE of 33% based on a tax rate of 30%. At the adjusted effective tax rate of 23.7%, group ROCE for the year was 29.7%. We expect ROCE to increase over midterm as a function of margin improvement and asset efficiency.Now let's turn to the financial guidance. For 2023, we expect constant currency revenue growth of 20% to 22%, including the consolidation of bag-in-box and spouted pouch for an additional 5 months and chilled carton for an additional 7 months.For the aseptic carton business, we expect price increases to be of similar order of magnitude to 2022. The resin escalator for the bag-in-box and spouted pouch business, which passes on increases in resin costs directly to customers is not included in the guidance. The resin escalator may affect revenue growth, but does not have an impact on absolute EBITDA.We expect an increase in the adjusted EBITDA margin of between 50 and 150 basis points compared with 2022. This takes into account further dilution from the acquisitions as they annualize, additional dilution from pricing and further cost increases in 2023, such as wage inflation. The improvement in margin will be driven by price increases coming through in 2023 as well as operating leverage from volume growth across all substrates. The guidance remains subject to input costs and foreign exchange volatility.The adjusted effective tax rate is expected to be between 26% and 28%. We are guiding for a net CapEx equivalent to 7% to 9% of revenue. This includes payments for construction of the aseptic carton plant in India. The dividend payout ratio is expected to be 50% to 60% of adjusted net income.Our midterm financial guidance is unchanged. Historically, for the aseptic carton business, we guided for constant currency growth of 4% to 6%. The inclusion of the bag-in-box, spouted pouch and chilled carton businesses should enable us to grow in the upper half of this range.We aim to achieve a best-in-class adjusted EBITDA margin of above 27% for the combined business. Key drivers of our adjusted EBITDA margin improvement include revenue growth at higher price points, driven by an increasing share of aseptic business in bag-in-box and spouted pouch, growth in emerging markets where margins are above average and the launch of innovative packaging formats.On the cost side, margin improvement drivers include scale effects in cost of goods and overheads, production efficiencies and the realization of M&A synergies, mainly in sourcing and manufacturing.This guidance reflects the enhanced growth platform for our business and its potential for margin expansion. The business is strongly cash generative, enabling us to continue to invest into the multiple growth opportunities while delivering progressive increases in dividend per share and reducing our net leverage.This concludes today's presentation. We are now happy to take your questions.
[Operator Instructions] The first question comes from Lars Kjellberg from Credit Suisse.
Just coming back a bit to Q4. And of course, you called out the reasons for the margin coming in well below your expectations. But the one factor that I'm slightly curious about is the input cost you're talking about because some -- most other companies would have seen some degree of deflation on the cost, certainly, freight, energy, some of the resin and metal costs, et cetera. So if you can phrase out a bit what sort of cost items did you actually see moving up in the quarter that had that negative impact?If we then transition into '23, considering all the moving parts that we saw in Q4 and mix, et cetera, how should we think about absolute EBITDA because this is all about that absolute EBITDA number that you're trying to protect by various price movements, et cetera? So if you want to go there to talk us what you really think about absolute EBITDA, given all the moving parts, including the potential escalators?And then if I may, just turn into the volume component. You talked -- you said you were going to talk about volumes. I don't think you actually mentioned any volume numbers. But is there any chance you can walk us through the volumes by region? And I guess, for '23, you're looking volume growth in the range of 3% to 4% to come to that organic growth guidance? Is that the right number? And why wouldn't it be higher considering we had sort of slow growth -- relatively slow growth in '22 and a big step up in net fillers? Those were my questions.
Thanks for your questions, Lars. So to start with your Q4 question. I mean we also saw, broadly speaking, an element of deflation in the broader indices of our raw materials. I mean one aspect to point out for Q4, and we said that before, is the mix effect, the negative mix effect. And that left its mark also on the Q4 margin. The Q4 margin negative mix was basically 4x what we saw for the full year.And we had this discussion in earlier calls. We don't manage the mix for one single quarter, but we kind of drive mix is also ultimately an enhancement to margin over longer term. But in Q4, it left its mark. So there is an element, obviously, of continued elevated higher input costs despite also us seeing the deflation in the indices. But really I would also point to the mix, a part of which is from pricing with above 6% that was highly dilutive and M&A, they grow faster.Now I think your 2023 question is a good one because, ultimately, that's exactly what we aim to protect, the absolute EBITDA. And I mean, the ingredients for the absolute EBITDA, they are kind of alongside what we have seen this year, we're going to continue to expect the dilution from M&A. And we're going to continue to expect some dilution from pricing. But at the same time, the price increase we are executing right now is coming through and it's going to help us to recover the margins. And that is the reason why we guide for this 50 to 150 basis points margin improvement, which if you use our growth guidance of 20% to 22% and use the 24% to 25% gets you to the absolute EBITDA number we aim to protect and to deliver in this year.We always talked a lot about our relative margin. We continue to take pride from that. And we have a clear path in order to get to the above 27% for the combined group in midterm, but I think it's also the right moment now in this inflationary environment to keep focusing on protecting absolute and delivering absolute EBITDA.Now your third question was about revenue growth, especially the volume growth and how we generated that. I think if you look into the various regions, we did see share gains, and that was one of the main drivers. Also, what we see, and we discussed that in earlier sessions, we definitely like to be a partner to the global multinationals, the Nestles and the Unilevers of this world, but also we like to be a strong partner to the regional champions.We did see that regional food companies, especially in emerging markets, were in a position to much faster respond to inflationary pressure in terms of downsizing. And you remember, shrinkflation is something that caters to our strength. And the other aspect is also new product development, the cycles, time to market for new recipes, we see that they are very strong there. So we enjoy our strong position with these regional champions that aim -- that we're able also to deliver volume growth in the current environment, that also translates into volume growth for us. And that is really something we saw across all emerging markets. And in Europe, we did benefit from share gains, not only in Germany with Hochwald, but also Spain and Poland.Into 2023, I mean, we guide again for 7% to 9% top line growth for the organic business. And we said all the magnitude price increase being the same of, give or take, 4.5%. So that leaves you with kind of what you suggested as the volume growth. I hope with that I did answer all your questions.
Just one follow-up, if I may, just on the cost side. Some of your suppliers have really called out significant need for price increases for board and like sort of sympathize with that given the significance of wood cost increases, especially in the Nordic region. Are you still calling out for a modest sort of index base, call it, low single digits increase for that liquid paperboard? Is that the way we should think about it?
Yes. So our supply structure for liquid paperboard has not changed. So we continue to source that from multiple suppliers through multiyear arrangements. And as we talked about that also in earlier periods, there are also over multiyear agreements, there are certain annual price adjustments, but they remained moderate in the range you mentioned.
The next question comes from Jorn Iffert from UBS.
The first one, would be pleased with your price increases of another 4.5% for 2023. Has this materialized already from beginning of 2023, so you will come on top on the cost curve already in Q1? This would be the first question. The second question, please, I mean, there was also maybe some shortfall, not only on margins, but maybe also total EBITDA in Q4. So we understand that mix had a benefit. But also may I ask, are there things to improve on budgeting after Frank left the company? If you can share some insights here would also be appreciated. And then number three, an important KPI, of course, the net new fillers being installed, which was strong for 2022. Do you expect a similar strong number for 2023?
Thanks for your question, Jorn. The price increase for 2023, where we referred to all the magnitude, similar number, like the 4.5% for 2022, I do indeed expect that to coming through more evenly distributed throughout the year. You'll recall, in 2022, we had kind of a bit of a ramp up there, peaking in above 6% in Q4. And yes, I do believe that comes in much more evenly distributed across the quarters. Whether that allows us now to already catch up with inflation fully in Q1 has to be seen, but that's definitely the ambition for the full year.Now Q4, I mean, I talked about this mix effect. And we had that, I recall in earlier quarterly update calls where we said there can be a number of reasons how mix is negatively impacted. That's obviously a function of, in this case, Europe and Europe even amplified by the hit that they took on the cost side, but also in order of geographies that it came together. So I think it would be too easy to kind of pin it to budgeting and visibility topics. I mean I think I still like to believe that we operate the business with kind of a decent amount of visibility in an environment that is more difficult than ever before to predict.And there are always learning and there are learnings we're going to debrief with the team. But I think, overall, we aim to manage the business not for a quarterly performance, but for the longer term. And that's also how we have put the budget together for 2023.Your last point is on filler placed, 91 is indeed a very -- a number we are very pleased with for the last year, which I think is a testimony not only to the beverage carton as a substrate, which is in demand, most likely because of its sustainability credentials, but also because it offers attractive TCOs to the customers, and it allows then in combination with SIG's technology, also the flexibility. And I think that speaks to our technology.We look forward to 2023, and we have good visibility on filler placement opportunities. And I would expect for the full year a similar number also for 2023, given the strong demand we are facing.
The next question comes from Christian Arnold from Stifel Schweiz.
I have a question on your adjustments, on EBITDA, adjusted EBITDA level, which increased a lot from 9 months to the full year, and that is mainly driven by the change in fair value of the contingent conservation of IPN Scholle. I'm aware of that. Do we have to expect further adjustments here concerning Scholle IPN? That would be my first question.And the second question would be having everything kind of stable in terms of FX, in terms of material costs, et cetera, et cetera. What could we expect for the adjustments made on EBITDA level for '23?
Jess, do you want to take the first question?
Yes, I'll take the third question, Christian. Thank you. We don't expect any significant adjustments coming through in 2023 related to the Scholle IPN acquisition. Movements in any changes in the contingent consideration in future periods will be an adjustment to adjusted EBITDA, but we don't expect significant fluctuations there.
And then the second question, Christian, was on adjustments related to everything being equal in the FX and raw material side, knowing that, that is really the case. But as you know, our hedging approach, we already obviously throughout last year have hedged for the majority of our demand for this year. And that obviously is going to -- what we're going to get in our adjustments as a net debt or especially if we want to be hedged already is going to realize is going to be in our adjusted EBITDA and what we're going to lock in this year and which is not yet realized within the period we're going to adjust out. So I mean it will be mere speculation if we now to estimate what will be the adjustment going forward. But I also think that adjusting out non-realized gains and losses from raw material and FX hedging is by now a well-accepted practice. Does that answer your question, Christian?
Partially. Yes. Maybe on the transaction acquisition-related costs and those integration costs here, I mean, is this done by now? Or do we have to expect some further acquisition-related costs or integration costs for '23?
Yes. There is an expectation of additional integration costs in 2023, but not to the same extent.
So the overall total impact from your acquisitions of roughly EUR 41 million in '22 will be significantly lower in '23?
Correct.
The next question comes from James Rose from Barclays.
I'd just like to ask a bit more on the margin bridge, so going from 23.5% to the guided range. First of all, could you give us a bit more color on the size of M&A dilution left to come in 2023, and maybe your targets with synergies within FY '23 as well? And then coming back to how you deliver core margin expansion in FY '23, are you saying that you can deliver price increases in and above your own cost inflation? I don't think you achieved that in FY '22. And if that's the case, how does that square with you saying that there's still a price dilution effect left to happen in 2023, i.e., you're not passing on price above cost, which is still dilutive to margins?
Thanks for your question, James. You recall how we explained the margin dilution in the charts that we showed before. And I would say that's maybe a good way to think about also into 2023. So we indeed expect another dilution from M&A. It's going to be less in 2023. We would estimate that probably all the magnitude around 50 bps. We do indeed expect a further dilution from price increase, which is simply the mathematical impact of it, which I would say is probably around 100 bps, give or take. That means we expect all other elements to add to a positive contribution of, let's say, 200 to 300 basis points. And that obviously is, to a large degree, the price increases offsetting inflation, but also other efficiency gains. And as mentioned before, the operating leverage that we have in a growing business or business that grows all across all 3 substrates. Does that put more perspective around it?
Yes. And then if I can tug one on the end as well, the liquid packaging board contracts. Could you remind us when those are up for negotiation, please?
You might recall, I think there was one renewal process that we had just shortly after the IPO, where we had more volume from one single supplier. By now that's more diversified, and we have stopped commenting on the duration of these multiyear agreements. But we have a well-balanced structure there in place in that respect that we have renewals underway in a way that there is continuity in the supply.
The next question comes from Alessandro Foletti from Octavian.
I also have a couple, just very quickly to understand and then one maybe more strategic. On the new fillers, did I get it right, this 91 were all Combibloc's, you don't have any Scholle or Evergreen inside there?
Correct.
Next question, on the resin escalator, you mentioned in your bridges, like for the full year, that the acquisition had a 100 basis point dilution. Is that including the resin escalator effect?
Yes. That is including the resin escalator effect for 2022.
And that means now, for '23, the 50 basis points that you have mentioned means resin escalator remaining flat?
That's correct. We have said that as part of our guidance, there is no impact from resin escalator, as it has no impact on absolute EBITDA. And next post, we're going to talk about what the resin escalator is.
And on Europe, maybe, the margin that you have shown for the full year, was it affected by the exit from Russia?
Yes. I think exit from Russia is more a top line topic, but I think what really hurt also there, Europe, was the fact that and you recall that we bundle hedging activities in Europe. And so they got a double hit. They got also, obviously, the negative hedging impacts that were related to other regions.
And in the margin in Americas, was there an FX effect or not?
No. I think the margin in the Americas is a function of a number of things. There's obviously costs. There is also freight that we saw there, and there's also FX in there.
Also some FX. Why -- because the FX in America is really direct transaction effect and then you have the hedging in Europe? Or how should I understand that?
I think the hedging in Europe obviously is bundled mainly for raw materials, right? And in the Americas, what also did impact the margin last year was to some degree mix.
And presumably also the acquisitions because they have a bigger effect in America?
Yes.
And then on India and the factory, et cetera, you said that many of these fillers that you have installed come from Asia Pacific and emerging India. I remember some form of guidance that your Indian -- Head of Indian operations mentioned at the Capital Market Day, what you said today about fillers installation in 2023. I have the impression somehow that India might deliver in the coming years, a similar effect as we have seen when you entered Brazil? Or is this an unfair comparison?
No, I think if you look at the size of the opportunity, India has not yet a cotton market size of the size of Brazil. But yet, I mean, it's the largest milk market in the world, and there is a fast conversion from loose milk to processed and packaged milk. So we are definitely very positive on the outlook of India. And we do see that now, obviously, and you referred to that when we talked early last year, it was 10 fillers towards midyear when we had the Capital Markets Day, we had 10 fillers operating in India. And Angela, back then our President of Asia Pacific South said, she expects end of 2023, at least 30 fillers operating, and we are well on track to deliver that. That's also why we are excited to move now on with the plant and localized sleeve production. We definitely see a number of different opportunities to grow in India.It's the [indiscernible] is also a big market for juice and noncarbonated soft drinks. And by now we have established ourselves with all the leading milk producers, the [indiscernible] milk brands, but also the juice producers. And I was there last year, I'm due to go there. And I think if you feel the spirit in the market, people are so keen to launch new SKUs, new products and there's a shortage in supply from -- of capacity for packaging. So I think there's really a lot of momentum that we see there. So we remain very positive. I guess that's in nutshell what I want to say.
And if I may add here, it seems to be, this is like real growth and not sort of gaining market share away from some of your well-known competitors?
I mean it's also market share gains, right? But it's definitely not a flat market where we just take from our competitor. There is upside for both, if you saw on, right, because it's a fast-growing market, absolutely.
The next question comes from Sun Mengxian from Deutsche Bank.
Also a couple of questions from my side. So the first one is, I apologize if I didn't get the question, if you answer it because I missed the call. So the first question is, can you give us the organic growth for Scholle business in the last quarter as well as for the full year 2022? And the second question is that if I look at the revenue in America region that in absolute terms that in Q4 was a little bit lower than Q3. Are there any weakness that you observed there? And the last question is regarding to the growth guidance for 2023 that if we've taken the 4.5% for the price increase, that means the volume growth would be around about 2.5% to 4.5%, that's on the rather conservative and lower than your midterm guidance. Can you give us a little bit color on that of your thoughts?
Sure. Thank you for your questions. So I mean, the Scholle growth and Evergreen growth, we all have that baked into the overall growth rate for the group with above 27%. To give you a sense for maybe the period under our ownership for the Scholle growth that was, I would say, in the lower teens. So we're obviously very pleased with the growth at the bag-in-box, especially the bag-in-box business had in the U.S., also including share gains there.I wouldn't read to your point on the Q4 growth rate for Americas. I wouldn't read any weakness in there. I think they had a strong Q3. We don't manage the business on a quarterly basis, but to deliver value over time.Now with regards to 2023, the growth outlook, that's a discussion we had also with Lars. You're right, we guide for all the magnitude similar price effect of 4.5%. We have a total growth guidance at constant currency for the aseptic carton business for 7% to 9%, that would leave you, obviously, with the remainder of volume growth. I mean, our midterm guidance, you referred to the 4% to 6%, keep in mind that was not only a pure volume growth guidance. We always said, we operate in parts of the world where inflation has always been a reality. We always said the 4% to 6% is mainly volume driven. And that's why I think it's also fitting back to the 7% to 9%, where we have now upgraded our guidance as a function of a higher inflationary environment, but still with underlying -- strong underlying volume growth. Does that answer your questions?
Yes.
The next question comes from Benjamin Thielmann from Berenberg.
Actually most of my questions were already answered. So I just have one single question left. Maybe we can speak a little bit about wage increases that we can expect in 2023. We have seen that in Germany, labor unions, fixed wage increases of 5.5% from mid-2023 to 2024. Could you maybe give us a rough estimate of what you expect on a group level?
Yes. We have definitely factored that in our costing and in our budget for 2023, and obviously also into the price increases we are currently executing. And by doing that, we have kind of done that against the backdrop of the distribution of our workforce. So we don't comment at this stage on wage inflation assumptions because, as you can imagine, in multiple parts of the world, we are currently in either CBA negotiation or involved in tariff negotiations. So we would prefer to not comment in details, and then we'll come back to that later. But we have definitely made these assumptions and factored them into the price increase.
The next question comes from Michael [indiscernible].
I have a follow-up on the volume growth guidance you gave. We can derive now is 2.5% to 4.5%, I guess, for 2023. But what do you say that this growth is on your normal volume growth trajectory path? Or is it under this path? What's your normal volume growth, I want to ask? And also perhaps you mentioned you had the midterm guidance is not just volume growth, but the most part is because you can talk about a little bit of on your normalized price increases you have in general?
Sure. Yes, I mean, I think what you said is right. If you take the 7.9%, you left with 2.5% to 4.5%. And I think that also the 4.5% gets you definitely into the range that we would say is part of the normal volume growth also that we have put into the 4% to 6% growth guidance. Price, that was not -- there's not the one reference I can give to you because it is a function of how inflation was, especially in Brazil, in Mexico, also to some degree in Southeast Asia, mainly in those markets, obviously, where we also did price in local currency. That's only there where we also have local operations. And as such, I don't think there is kind of a normalized volume growth.We always said the 4% to 6% is predominantly mainly driven by volume growth. It's a function of end market growth as a function of disposable income growth and population growth, and that remains true. And currently, I think, the 2.5% to 4.5% that you get to give you a sense for how we see 2023, also in light of price increases. I mean, we operate at this entry level of process in packaged food. And I think there is, in general, a low elasticity. But there might be at one point, also an implication there. But I still think the 2.5% at the lower end of kind of the indicated volume growth shows you that we can very well grow and deliver volume growth also in an inflationary environment.And what definitely helps us there is our ability to support customers with shrinkflation, where maybe the customer has the lower price [indiscernible], but we have an opportunity to sell together with our customers' product. And I think that's what also helps us to go through the current environment. And I think it's a reason of the increased number of filler placements that you saw, especially in the emerging markets.
Sorry, I have a follow-up on your answer now. So that means that the 2.5% and 4.5% growth is a little bit depressed on your normal growth trajectory, I'd say, from the volume growth? So perhaps you can give us a little bit sense why the market environment is not in a good shape at the moment?
So I'm not saying the market is not in a good shape. I said the 2.5% is maybe rather below what we normally would see. I think the 4.5% gets you into the territory where we kind of normally also would expect to be with the 4% to 6%. But I think you look at 2022, a year where we had an unprecedented inflation, we did increase prices 4.5%, and yet we did deliver volume growth that was substantial. We delivered volume growth, our total growth at 8%. If you want to give us the credit and add back the Russian impact or the impact from the Russian business, that's about 120 basis points on group level. So we showed a growth rate of 9.2%. And I think that clearly shows that we can deliver volume growth also in the current environment.
[Operator Instructions] We have a follow-up question from Lars Kjellberg from Credit Suisse.
I just want to come back a bit to Scholle and Evergreen Asia. At the time, of course, you called out synergies, I think has been referred to earlier today as well in terms of the potential impact that would have on margins. But if you can talk us through a bit where you are on the synergy that you called out around those 2 transactions? And also you mentioned, Samuel, cross-selling is coming through and how is that adding to your revenue growth and what -- because that was not part of the original synergies that you called out? So any color there would be helpful.
Sure. I think the 2022 top line synergy wins that were, to some degree, also proof of concept, right? And we reported on that on earlier earnings call this year, and we are very pleased to see them. And we're also pleased to see them basically in all the markets where we operate. So that is important for the confidence of the sales team that there is indeed cross-selling opportunities, cross-lead generation opportunities, and that has materialized. Obviously those systems need to be placed now. They need to generate revenue. So for 2022, there was not a big number of our growth that is related to the top line synergies. But the important thing was that we delivered the proof-of-concept.I mean the whole combination is all about top line synergies. We did quantify the cost synergies and they are relevant, and we do see that they come through. It's a combination mainly of procurement savings, where we did see in line with expectations the procurement savings coming through. And the other one is footprint rationalizations where we have projects ongoing within the Scholle network in the U.S., but also especially with Evergreen in Asia, where we have network rationalization opportunities in China, but also other parts, and those we are executing in line with our initial time plan. So that's underway.So from that perspective, I would say, early proof-of-concept, we remain very positive on the top line synergies as a function of delivering to get innovation, having access to each other's customers to complement the offering there and to bring the Scholle offering bag-in-box and spouted pouch to our emerging markets platform and at the same time, to work on the cost side. And that is also baked into our guidance for 2023.
You called out a very strong sort of low-teen growth in Scholle this year. And of course you recall from your -- the transaction was announced, you talked about earnouts in the range from about 6% to 12%, if I recall correctly. Should we expect any incremental payments as part of earnouts that we should think about? And how do you feature that into your guidance? And I guess that's going to be presented as a investment cash flow as opposed to any PLM impact, if you just want to clarify?
I think you're right. Obviously we talked about the earnouts payment becoming due once we deliver above market growth, above our kind of guided growth to 6%. And as such, as you heard Jess explained that before, we did increase there also the provision for this contingent consideration. I don't think that our view on the business has fundamentally changed. Obviously, as I said, we had good proof points in the year '22 that show us that we can get there. But all of those factors, including payments, contingent consideration payments, they are embedded in our guidance for cash generation and also for our leverage. So from that perspective, we have put it all into this consideration if that makes sense.
We have another follow-up question from Mr. Christian Arnold from Stifel Schweiz.
On Americas, you were referring also to higher freight costs on EBITDA margin. Now with the new production plant commissioned in Mexico, do we have here a meaningful positive impact on margin already in '23? And if so, yes, to what extent do you expect a positive impact? And what does it mean on the level?
Well, that's a good question, Christian, because we always thought of our facility in Mexico mainly as a facilitator for growth in North America. The main benefit we saw, obviously, apart from creating capacity for the group to grow and was also to shorten lead time. Now I would say, after the experience of last year, I would say there is probably also a bit of a cost upside. I wouldn't quantify that. I wouldn't say it's kind of turning now the business case into kind of a cost saving case. It remains a growth facilitator. But given that we went through a period of elevated cost, I think there should be also a benefit from that perspective. But keep in mind, we still need to ship the laminated board into Mexico.
We have another follow-up question from Jorn Iffert from UBS.
It's really a quick one on the equity free cash flow for 2023. Also considering the rising interest costs, do you looking for an equity free cash flow growth in 2023? And could net working capital inflow due to the prepayments you are likely getting offset the earnout that even including the earnout, the cash flow would improve? Just to double check this, please.
Yes. I mean, the interest cost definitely obviously also affected us. I don't think that that kind of limits our ability to, first and foremost, to continue to invest into the business. You heard about our expansion in India, the fillers that we're going to place. And I also think that we're going to continue to be an attractive dividend payer, which, as you know, comes through our contribution reserves. And thirdly, we want to not only pay interest. We also want to reduce gross debt. And that is a topic also throughout this year. And we said that before, we have secured the bridge financing to retire the bonds, but also need to make up our mind now over the weeks to come, how much gross debt reduction, we feel we can do this year. And definitely it's the ambition to also reduce gross debt over time now, not only to bring leverage down as a function of EBITDA growth.As you know, we don't explicitly guide for free cash flow. There is definitely a kind of a non-repeat of transaction costs that already shall help us to deliver cash. I think net working capital is something we're constantly on working and improving. And from that perspective, we believe that the highly cash generative nature of our business has proven again to deliver strong cash flow last year, and so we intend to do for this year. And again, if you just add also then the acquisition impact, non-repeat of the transaction cost, we would expect there kind of a decent cash flow also into 2023.
And then just on this one. I mean with the refinancing on the senior note, I think it is -- I mean, is the capital increase something you would consider?
Well, I think at this stage, we don't consider a capital increase. At this stage, we continue to kind of generate cash and reduce gross debt. I think we are well on track with our deleveraging path with towards 2x midterm with the 2.5x we're going to be at the end of 2024. But we also want to show to our shareholders, it's not only about the leverage we focus on, it's also healthy for our management team to focus on gross debt reduction. And I think that's why we are considering now not to fully refinance the senior notes that become due this summer.
We have another follow-up question from Mr. Alessandro Foletti from Octavian.
It's also a quick one. On the pricing escalator that I assume you applied in 2022, was this part of the 4.5% pricing growth?
No. You mean the escalator from the acquired businesses?
Yes.
No. That is organic aseptic carton.
So the pricing escalation was more into the double-digit growth of Scholle?
That's correct.
And when we go into -- okay, next year, you already said.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks.
Thank you very much for your time this morning. We appreciate that you follow us in a busy season. I hope you are able to share our excitement about the growth perspectives going forward. And I look forward to catch up with all of you latest in the Q1 call. Thank you very much, everybody. Have a good day.
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