Verallia,Courbevoie

Hello and welcome to the Viralia Q3 2024 Financial Results Analyst Call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Patrice Lucas, the CEO, to begin today's conference. Thank you.

Good morning, everyone, and welcome to our Q3 24 financial result call. As usual, Nathalie and I will go through our presentation and we'll share and we'll have a Q&A session at the end. I will share with you some key highlights. Natalie will present in details our numbers, and then I will be back on our guidance. Just to start with, just to remind you that Zeralia is a global leader in glass packaging. We are number one in Europe, number two in Latin America, and number three worldwide. On this chart, you have our ID card. You have on the left the 2023 split of our sales by segment. One of our strong assets is our customer base, more than 10,000 customers, and the diversified and balanced market in which we operate. We do operate in 12 countries, and as of today, we operate with 35 plants, with 64 furnaces, including the acquisition of Vidrala Italy. completed early July, and the closing of one of our furnace at Essen in Germany. Please note as well that we are running 19 collect recycling centers, allowing us to control about 50% of our needs for external collect. Let's move now to the key highlights of the quarter. The two first key highlights are illustrating our move toward decarbonization. First one is about Veralia Air Range to implement a breakthrough offer with the lightest product on the market. You know already the Bordelaise Air 300 gram launched at the end of last year. And I'm satisfied to share with you that close to 900 million units have already been sold and that this product is getting a strong customer and industry recognition with many awards in France in UK and other countries. Our objective is to keep on developing this breakthrough offer with new products for other segments. And lately we have launched our Air Jar offer with 7 jars from 37cl to 265cl. This offer is an opportunity to supply to our customers the best packaging in terms of sustainability and modern design, with a weight and CO2 emission reduction between 10% to 27%, depending obviously on the size. The second key highlight is our world premiere with our electrical furnace. It is a strong move. towards the implementation of our ambitious decarbonization roadmap. The furnace is running with a pool of 180 tons per day, producing about 300,000 bottles per day. And what is much more important, being operational now, running at full speed, we are confirming the minus 60% CO2 emission reduction. Next step will be the launch of our second technology brick, with the hybrid furnace at Zaragoza in Spain, replacing a traditional import furnace. This launch is scheduled for H2 next year. And I'm sure it will be, again, a success as the one we have just launched in Cognac, the electrical one. Next, I want to share some market information. The market environment is still soft. Conception in Europe The poor summer weather and on-trend performance have impacted the Q3 selling out performance. We see the day stocking coming to an end in the faster moving segments, but still underway in the more premium and export-oriented segments. We also see cautious customer strength and adverse geopolitical environment. On the opposite, we have a good market momentum in Latin America, and in Q3, we had a significant double digit growth. As expected, our Q3 volumes are up compared to last year. Our current trading and outlook for the year end is consistent to the low end of our last July 24 revised assumptions. And we do expect the full year volume to be, as commented last July, slightly negative compared to 2023. Good news is that despite the slow market recovery in Q3, we are returning to organic volume growth and delivering a solid profitability. Q3 revenue are minus 6.6% year over year, with a minus 4.7% organic growth. EBITDA is 210 million euros, with a margin of 24.1%, minus 336 bps versus last year. This is giving a nine-month revenue variation at minus 14.3% year over year, We have an organic growth at minus 8.7%. For the nine-month EBITDA, the result is 641 million euros for a margin of 24.3%, minus 543 BIPs versus 2024. And finally, about our net debt at the end of September, leverage is at 2.3 compared to 1.9 end of June and 1.2 end of last year. Now I'm leaving the floor to Nathalie for the detailed presentation of our results.

Thank you, Patrice. So let me lead you through the quarter results and the nine-month results as a consequence. So in this presentation, you will find two changes. So first, we did highlight the Q3. And second, in the bridges, We have separated Argentina as a whole. If you remember, due to the strong devaluation that occurred last year, it was disturbing to keep Argentina in all the pillars of our bridges. So now, as you can see on the screen, you have one separate pillar for Argentina. And you can see that on the Q3 sales, for example, the variation is a positive plus 1.6 million euros. So for our Q3 revenue variance, We move from sales of 932 million euros in Q3 2023 to 871 million euros in Q3 2024. Organic growth for the quarter is minus 4.7% and this is minus 9.7% excluding Argentina. The volumes are up year on year organically, so this is the good news of the quarter. We are back to a positive organic growth on volumes, and this growth is combined with the contribution of newly acquired Vidrala Italy operations. We closed the acquisition in July, so we consolidate this activity in the full third quarter. In Europe, we have a positive volume growth led by beer and, to a lesser extent, food. And in Latin America, we see a strong year-on-year increase in volume here as well, led by beer and also non-alcoholic beverages. As Patrick mentioned, Latin America is more dynamic. Price and Meek, growth-based price decline with the full impact of H1 price negotiations now running in the third quarter. We have a slight negative price impact, minus 92 million euros, but with a positive contribution from MIX from South and West Europe. In the quarter, we see MIX step by step going to a more neutral effect after a stronger negative one in H1. And the ethics impact that you have here is mainly from the Brazilian real. And you can see in the perimeter column the contribution of mainly vidrala glass business in Italy. And to a lesser extent, some of the colored treatment centers acquired in Iberia last year. So if we move to the nine months, You can see that the volumes here are back to a negative number, minus 185 million euros. This is mostly from H1, as just explained. For the full nine months, the organic growth is minus 8.7%, and it's minus 15.3%, excluding Argentina. So, lower volumes down mid-single-digit despite the year-on-year increase for NQ3 that I just In Europe, overall, for the nine months, the volumes are down mostly in spirits, non-alcoholic beverages, and impacted, if we remember, by a strong comparative basis in H1. In Q3, we still have quite a strong comparative basis as well for spirits. If you remember, last year, spirits started to slow down. in Q4, so after the other segment. In Latin America, we have a strong positive year-on-year volume evolution again. The price mix is strongly negative with a contribution driven by lower selling prices, and this is mainly in Europe. In Latin America, we continue to follow inflation. And the contribution of the mix, as I commented, is negative, but with a better trend in Q3. The foreign exchange impact, again, mainly from Brazilian real, and the perimeter effect coming from acquisition and collect treatment centers in Iberia. That's why the amount is very close to the Q3, of course. And you can see that the full impact in Argentina variation is only 1.1 million euros. So how does this translate into consolidated adjusted APV8? So we moved in the third quarter from an adjusted EBITDA last year of €256 million to €210 million this year. You can see on the top right the margins. So we maintain a margin of both 24 percent in the quarter, so 24.1 percent to be compared to 27.5% last year. So how do we go from 256 to 210? You see in the bridges we have an activity pillar that is negative with minus 35.4 million euros. So in the quarter despite the positive volume impact we have here. This is entirely due to the inventory variation Last year, in the third quarter, we had a significant increase in our inventory due to the, I would say, the surprise of the lower volume came after the summer, and we started to slow down our inventory for the year end. So we have this negative impact as a comparison in the third quarter. This is a very specific one. We see a minus 33.7 million euros, so same drivers and lower selling prices, not really offset by a lower cost, even if we have deflation in our costs. And the mixed contribution, mainly in South and West Europe, is neutral to meet two positives, which is a good news. We can see that the net productivity continues to deliver and strongly 2.9% of cash production cost reduction. You know that our target is to deliver a minimum of 2%. So we are above that. That brings 14.8 million euros to the party. And this is, of course, very important. We push our NETVAP contribution to offset the adverse trends on sales. In the other, you have 9.2 million euros. This includes the perimeter impact, if you remember. So a large part is coming from Vidrala Italy acquisition. But we also have a nice reduction in LCNA costs that we also had in H1 in the nine months. And that is as well as steadily contributing to our APDA. The forex is negative by minus 3 million euros and this is again mainly linked to Brazilian real and the Argentina EPD variation is plus 1.9 million euros in the quarter. So for the nine months, you have here the summary. So the main negative pillar remains the activity one. So sales volume down year on year, especially in H1. And we have here, as I explained from Q3, the negative on the inventory variation. We were restocking at the end of September 23. And since then, we keep, you know that we keep our inventory very much under control by adjusting our capacity to the current volume level. The price mix cost spread is negative by minus 136.7 million euros, driven by the lower selling prices and negative mix, despite, again, the deflation in cost. For the nine months, the net PAP is 44.6 million euros positive, and that's a 2.7% cash production cost reduction. The forex for the nine months is a minus 6.3 million euros, and the total valuation that it gives for the nine months of Argentina is minus 6 million, as you can read here. For the leverage, so as you can see here, our leverage is 2.3 times at the end of September. The variation between June and September in the debt is mainly driven by the acquisition of Vidrala's Italian business in July. We financed it by 250 million euro debt. So this is the main variation of the debt. We did have a positive free cash flow in Q3 and then some adverse effects on the debt also in the quarter if we want to bridge the two debt levels. And, of course, as a reminder, we did pay our dividends for 252 million euros, and that was in May, so already incorporated into the June data. And our long-term credit ratings have been confirmed by Moody's and S&P. Now if we look at our financial structure and liquidity as usual, so here the new line is for the acquisition of our new Italian activity. from Vidrala in Italy. We have a total of borrowings of €2,388.7 billion and the total available liquidity which is €649.2 million euro at the end of September. As you have read in our press release, we are contemplating a bond issue that would help us again re-diversify funding sources and extend debt maturities.