Verallia : Transcript de la présentation des résultats du premier semestre 2023

H1 2023 Results

Wednesday, 26th July 2023

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Verallia H1 2023 Results

Wednesday, 26th July 2023

H1 2023 Results

Operator: Hello and welcome to the Verallia H1 2023 financial results analyst call. My name is Caroline 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 one 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 over the call to your host, Patrice Lucas, to begin today's conference. Thank you.

Patrice Lucas: Good morning, everyone and welcome to our H1 2023 results. As usual, it is a pleasure for Nathalie and me to have this privileged moment with you for a nice exchange. We will go as usual with some key highlights and then Nathalie will present in detail our H1 results. Then we will be back to the guidance and then we will move forward with our Q&A session.

Key Highlights

Patrick Lucas: Moving to the first chapter with the key highlights, as usual a reminder of who we are. Verallia is a global leader in glass packaging. We are number one in Europe, number two in Latin America and number three worldwide. We have strong assets with a diversified customer base and with diversified end markets. Here you have the snapshot of the sales split at the end of 2022 being present in still wine at 35%, sparkling wine, spirits, beer at less than 15%, soft drink and food. Who are we? We do operate in 12 countries with 34 glass plants, 12 cullet recycling centres and five decoration plants, all with 10,000 employees. We are producing more than 17 billion bottles and jars.

About our capital structure, here this is a picture at the end of June so no major change with BWSA at around 28%, Bpifrance at 7.5% and the free floating close to 56%. The key highlight of H1 is again the success of our eighth employee shareholding offer. We offered our employees an amount of 0.5% of share capital with a 20% discount. This was eligible to nine countries, including notably for the first time the UK. More than 3,600 employees invested in Verallia which is more than 40% of our eligible headcount. The good news is that thanks to this eighth employee shareholding offer, now we have more than 48% of employees as shareholders of Verallia. It is to be noticed that in France it is 88% leading to now 4.2% of Verallia share capital owned by employees. This is totally in line with the announced objective to be at 5% by 2025. This is an important topic for us. This is part of our DNA, to make sure that we are sharing values with our employees.

Next is an update on ESG. You know that ESG is at the core of our strategy and we are keeping on moving forward implementing our decarbonisation roadmap with some key topics. The first one is our new furnace technologies. We have two new technologies that we are developing which will allow us to reduce our CO2 emissions moving forward. The first one is the electrical furnace which will be launching in Cognac at the beginning of next year. The pilot is on track. I do remind you that is going to be a world premiere in the sector. We are on track to be ready for next year. The second technology is the hybrid furnace. Here again this project is on track. It will be located in Zaragoza in Spain and start of production is scheduled for 2024. These are the two key new technologies.

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Verallia H1 2023 Results

Wednesday, 26th July 2023

However, this is not just about that. Implementing our decarbonisation roadmap is also about being creative and being able to look at all the different solutions. Here you have two solutions. Bio heating oil, which is an alternative to natural gas and will support the reduction of CO2 emissions. Since 2022 we have been running in Zaragoza with bio heating, meaning that we are replacing 20% of the natural gas with bio heating which is allowing us to reduce CO2 emissions by 10%. This was a first pilot and this will be implemented as well in all the divisions within Verallia. The second project is what we call batch preheaters. It is about use of fumes energy to heat raw materials before introduction into the furnace, which is making melting easier and less energy intensive. We had the first application in Bad Wurzach in Germany at the beginning of 2023. We have two more to come, one in Portugal and one in Italy this year. This is again a nice solution which makes sense, allowing us to reduce our CO2 emissions by 12%.

Then, as you know, we are working on some additional capacity to fill market growth. We have right now two ongoing brownfield projects, one in Brazil in Campo Bom and the second one in Pescia in Italy. They are progressing according to plan and startup is expected to be done in the first semester of 2024. Both projects obviously would be opportunities as well to reduce CO2 emissions with the oxy-combustion technology.

Reuse is a strong social trend and will certainly be pushed by regulations. We want to be a frontrunner on this matter. As a matter of fact, we have taken initiatives in H1. Here you have three initiatives taken in H1. The first one is a partnership with Bout à Bout which is a French startup which has 220 point of sale collections. They collected 700,000 bottles in 2022 and they are targeting to go up to 16 million bottles as a capacity. We are partnering with them moving forward to understand the business model. The second initiative is a partnership we have signed in France with CITEO. CITEO is reporting to the French Ministry of Ecology. This is the organisation which is managing all the collections in particular. Here again we have signed a partnership where we are going to develop reusable standards for large scale operation by 2025. Lastly is a specific opportunity we see in Germany to develop reuse in the wine market. We have signed a first agreement with Riegel, a German customer. Here we plan to fully operate the supply chain, the logistics, the washing and this will be live first semester next year. For us it is all about the test and learn phase to understand the business model for something which is going to come and something which is a strong social trend which we have to cope with.

As usual, you know that we are not just delivering bottles. In our mind we want to create value, supporting our customers so here every year we have what we call the Verallia Design Awards. These ones took place in France and in Iberia. You see that we are using the creativity of young talented people. If I take just the example of France, 130 schools participated in this contest with more than 600 students and we are delighted with the different proposals. Again, this is creativity we are able to offer to our customers and mainly focusing on premiumisation.

Last but not least and before leaving the floor to Nathalie, I would like to tell you that I am very glad and privileged to announce our excellent half-year results. This is the opportunity for me to warmly thank our teams for the agility and the adaptation they have demonstrated. About our revenues, we see a growth of +30.7% leading to more than €2.1 billion which is an organic growth of 28.6%. Our adjusted EBITDA closed at €659 million, +54.9% compared to H1 2022, leading to a margin of 30.8%. About our net debt, we maintained our leverage at 1.3x and our

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Verallia H1 2023 Results

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net income is showing a nice value of €311 million. Again, I am very pleased with these results and they are very positive for the company and very positive moving forward. I will leave the floor to Nathalie for the results.

H1 2023 Financial Results

Nathalie Delbreuve: Thank you Patrice and good morning to everyone. Let me present to you these strong results for the first half. You see here the bridge to[?] the sales or revenue. We moved from €1,639 million up to €2,143 million which is an organic growth of 28.6%. You see in the bridge the different elements as usual, volumes, price/mix, foreign exchange and perimeter. As for the volumes, we have seen soft volumes in H1, even though we see a better trend in Q2 than in Q1. In Europe we have seen a decrease in beer volumes mainly and also to a lesser extent in still wine. Latin America, as commented already at the end of Q1, we have lower activity in Chile and here we start to see slight recovery at the end of the quarter. However, the full semester was down. Overall we believe there is destocking down the chain that is impacting those softer volumes.

As for sparkling wine, we see continued growth, so positive volume growth and a good resilience in non-alcoholic beverages and food jars. Again, our diversified portfolio allows us to mitigate some stronger decreases like beer. Price and mix we have the carryover from last year's selling price increases and we increased as usual the prices in early 2023. We have now started to do some moderate and selective price reductions in Europe as the cost inflation is softer than we anticipated. The contribution from mix is still positive to the topline and you will see as well to the EBITDA which is a very positive point. The FX is mainly from Argentinian peso and in the perimeter effect you see the Allied Glass contribution that will be shown as perimeter at the full year and up to 8th November. It is contributing to the growth in sales and also the EBITDA of the company, €114.3 million for the top line and mainly high premium spirits.

Moving to the regions, the geographic segments. In Southern & Western Europe we have reported revenues growing +23.6%. We see here volumes down year-on-year but the decrease again is slowing down in the second quarter, mainly in beer, as I commented already, for the Group. We have softer volumes in still wine but we see really good resilience in Italy and Iberia. We have a strong positive price impact in this topline and again here the mix is significantly positive, remains positive and mainly coming from Italy.

If we move to Northern & Eastern Europe you have here a combination of organic growth and scope. We have the contribution of Allied Glass that is now Verallia UK. There is a volume decline, mainly in Germany which is impacted by beer. Germany is more exposed to beer. However, this is partly offset by Ukraine where we restarted the second furnace of Zorya earlier than planned, which is very good news. If we look at non-alcoholic beverage and food jar contributions we see indeed a positive contribution here. We have a strongly positive price impact and the negative forex impact is coming from the Ukrainian hryvnia. You have the Allied Glass impact for €114 million.

Now moving to Latin America. We see here broadly flat sales volumes. We have growth in Brazil but again offset by lower volumes mainly in Chile. We see a continued growth in the Brazilian beer and spirits volumes and Chile is again impacted down mainly by of course wine where the whole volumes on the market of Chile were down. Distributors were destocking and there were lower exports. Again here a slight improvement at the end of the half year. We

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Verallia H1 2023 Results

Wednesday, 26th July 2023

have, and this is usual for LATAM, a strong increase in selling prices to cover inflation and local hyperinflation in Argentina. Just to remind you, we successfully launched the second furnace of Jacutinga, a new furnace in Brazil which started to produce good glass at the end of last year. The foreign exchange impact here is negative due to the Argentinian peso.

Moving now to the EBITDA bridge, the adjusted EBITDA bridge. We have significantly increased our EBITDA moving from €425 million to €659 million. You can see on the top-right that it means that our margin moved from 26% up to 30.8%. Looking at the different pillars and the usual pillars that are our strategy, you can see that the activity/operating leverage pillar is slightly negative. This is directly linked to the comment I made on volume, even if partially offset by inventory rebuild. The softer volume in H1 allows us to rebuild inventories that were low. If you remember, one year ago we were struggling very strongly with inventory levels.

The price-mix/cost spread is significantly positive, €231.1 million. This is a combination again of the carryover of different price increases throughout the year in 2022 and the price increase of 2023. Also, mix contributed positively to this pillar which is also very important.

It is good to see that the net positivity is on track with €26.7 million delivered in the half year. We have here a steady performance of our net PAP programme, reducing cash production cost by 2%, exactly in line with our target. FX is contributing negatively. Again, mainly Argentinian peso and also some hryvnia effect. In other as usual you have several pluses and minuses but in the end, if you look at the €21.4 million it is mainly the contribution from Allied Glass to our EBITDA after some IFRS 3 impact that is a negative impact in the first quarter which we do not have anymore. It was €4.6 million.

Looking at the adjusted EBITDA by geography, in Southern & Western Europe, we have moved from 25.2% margin up to 31.1% adjusted EBITDA margin, improving the adjusted EBITDA by 52.6%. Here you have the pillars contributing as you have just seen in the Group one; the positive price cost spread and positive mix from Italy, as I said, and the PAP delivering in line with our cost reduction objective.

Moving to Northern & Eastern Europe, here we have moved our margin from 19.5% to 27.5% and increased the absolute value from €60 million up to €142 million. Here we have in Northern

• Eastern Europe the contribution of Allied, so we have some perimeter and scope impact here. We have the spread impact. Also it is important to note a strong industrial performance and cost reduction ahead of the objective in perimeter. Here you have the Ukraine EBITDA as well. Thanks to a very strong and impressive commitment and performance of the local team we restarted our second furnace and we increased the adjusted EBITDA from Ukraine from one year to the other, which is of course very good to see. The negative FX impact is from Ukraine.

Latin America adjusted EBITDA evolution, here we have a slight increase in the absolute value of the adjusted EBITDA, €79 million moving up to €81 million. If you look at it excluding FX, you have of course a stronger increase as FX is impacting negatively. When we look at the contribution of the pillars, we have a strong organic growth on the activity and price/cost spread. Again, we reported that we have a lower activity in Chile. You see on the top-right that the margin is slightly decreasing. It was 40.8% and is still very strong at 36.3%. The 40% was really strong and we have the impact of the lower activity in Chile with fixed cost absorption. Remember we have also the second furnace of Jacutinga that is ramping up with additional fixed costs. However, still the overall margin is strong and [inaudible].

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