Verallia Société Anonyme (VRLA) Earnings Call Transcript & Summary

Hello, and welcome to the Verallia Financial Results 2020 Presentation. My name is Patrick, and I will be your coordinator for today's event. [Operator Instructions] I'm now handing over to your host, Michel Giannuzzi, CEO, to begin today's conference. Thank you.

Thank you. Good morning, everyone, and thank you very much for attending this call. I will be sharing this presentation today with Nathalie Delbreuve, group CFO, and I'm very pleased to be able to report to you our 2020 financial performance. First of all, I hope that you and your relatives are in good health, and I wish you to stay healthy going forward. So the first part of the agenda is about the highlights of the year. And as a reminder, I just would like to remind you the global positioning of Verallia. Verallia is global glass packaging leader in Europe, and Europe represents about 90% of our sales in 2020. We are #2 in Latin America and Latin America represents 10% of our sales, and we are #3 in the world. If you look on the left-hand side of this chart, you'll see that we have a very diversified end market segment exposure. Of course, Tier 1 is still the #1 product category for Verallia, given our historical strong presence in the 3 largest wine producing countries in the world: Italy, France and Spain. But beyond the wine segment, you see that it's very well spread in the other segments with good exposure to all these markets, which has enabled us to, of course, benefit from some more dynamically oriented markets last year rather than that's suffering from the poorest performance last year. In terms of number of furnaces. As we speak today, this has changed compared to last year. We did have 57 furnaces last year, if you remember. As of today, we are pleased to report to you that we are starting the 2 new furnaces that have been built 2 years ago and were put on hold last year due to the pandemic, 1 in Spain and 1 in Italy. And we have also, as you know, very well, decided not to reconstruct 1 furnace in France due to excess capacity we had in France. And therefore, today, we operate in the company with 58 furnaces in the group. These are still the 32 plants we have. And in addition to these 32 glass plants, we have 3 decoration plants and 8 cullet recycling centers, which are very important for our sustainable strategy. Moving forward, if you look at the shareholder structure as of end of December 2020, you -- just remind you that during December, there has been significant share in the ownership of the company with Horizon Investment Holding owned by Apollo, selling around 10% of the shares to BWSA. And now you've seen the split between the main shareholders of the company with a strong increase of Brasil Warrant Administração de Bens e Empresas, BWSA, our Brazilian investor in the company, who has clearly declared that they are a long-term investor alongside the management in this company. We were also pleased to see that Standard & Poor's upgraded 2 notches the company in December, and we are now rated BB+ by Standard & Poor's Steampot with a stable outlook. And given the -- also the change in the capital structure of the company and the shareholder structure of the company, I would say, the Board has slightly changed also with Apollo leading 1 board membership to BWSA, and we welcomed Marcia Freitas on behalf of BWSA last year. Last but not least, I have to mention that Sylvain Artigau at the beginning of the year, this year, decided to resign from his mandate, and we will be organizing throughout the year and as the election in France to elect the New Employee Representative. So altogether, the Board members are 12 in total with 2 nonvoting observers and 5 independent Board members. And each of the -- in each of the committees, the audit committee, the appointment and nomination committee and a stable committee are all chaired by independent chairwoman. Moving forward, I would like also to remind you that last year was an important year for Verallia because during that year, we defined or redefined our corporate purpose which you can read here. We want to reimagine glass for a sustainable future, and this is really clearly embedded in our strategy and in everything we do in the company. This has led us on the 21st of January to present to you and to all the general audiences, our commitments to the sustainable development goals of the United Nations, which, in our company, we've decided to focus on 3 main pillars. The first one is to enhance the circularity of glass packaging. The second pillar is to significantly reduce our CO2 emissions across our operations. And the third pillar is to provide a safe and inclusive place of work. We have details in the presentation, which is available on the website, a lot more what it means for us in terms of concrete action plans and strategies and targets, but I would just like to highlight a few slides from this presentation. The first one, I'll remind you that glass is a beautiful material. It's a healthy material and infinitely recyclable material, and it's a perfect material for the circular economy because we can recycle it forever. And not only it's good because we avoid depleting the planet from natural and raw resources, but we also, by doing so, can save a lot of energy and also reduce significantly our emissions. Every time we can increase our cullet usage rate, cullet is a name for the used glass, by 10 points, we can reduce our by CO2 emissions by 5% and our energy consumption by 2.5%. So not only is good for the planet, it's also good for the P&L, and therefore, this pillar is very key for us to achieving our long-term sustainable goals, especially in terms of CO2 emissions. Because as you can see on this chart, we have built a very strong road map to achieve a 27.5% CO2 emissions reduction by 2030, which is the target defined by -- or with SBTI, Science Based Target Initiative, in order to comply with the well below 2 degrees temperature increase agreed at the COP21. This means for the Verallia in Scope 1 and 2, a reduction of 850,000 tonnes of CO2 in absolute value between 2019 and 2030. And our road map basically is focusing on 3 main areas. The first area is to improve the emissions of CO2 or to reduce the emissions of CO2 by using more cullet and more less CO2-emmitive raw materials. And this contributes about 1/3 of the improvement. The second pillar is -- the second area is to be more efficient with our processes, you know that the furnace we operate are running at around 1,500 degrees C and therefore, we are doing a lot of things to optimize the energy consumption and therefore, the CO2 emissions reductions for these operations. And the third pillar is to move towards greener energy and we want to move from 20% green energy we have today to 60% by 2030. This is, of course, just a résumé of what we presented on 21st of January. And this will require also some investments we've quantified, and you can see here how at -- how to be split throughout the years, in the next 10 years, this represents an additional EUR 220 million investments to be able to manage and achieve this very ambitious goal of CO2 reduction. Last but not least, on this topic, we are very pleased that not only EcoVadis with a new referential has confirmed our Gold rating, which is putting Verallia in the top 5% companies. But for the first time, because last year was the first time we presented our results to CDP, the carbon disclosure project, and we were rated A-, which I think for first approach is quite a significant achievement. And as I've mentioned before, we also worked with Science Based Targets initiative in order to define our goals for 2030. Last but not least, we partnered also with Ellen MacArthur Foundation in order to work together to promote the circular economy in our industry. And you can see here the other partnerships we had. So this is very important for us to now focus on the deployment of our road maps in the years to come. Moving to just 1 example of what we are trying to do to promote a more inclusive place to work, by our many initiatives about safety, about the work of [ handicapped ] people in the company. But one area which we are very proud of is how we share the benefits and the growth and the profitable growth of this company with our employees. I have to say that over the period 2016, 2009 -- 2020, sorry, over 5 years, we went from 0% employee ownership to 3.2% employee ownership in the company. And last year, like the 4 previous years, we offered to 80% of our employees, the opportunity to invest in the company buying shares. And altogether, we had a 42% participation rate to this program last year. 80% in France, which is quite remarkable. And this means that as of today, 37% of our employees are shareholders of this company, which shows the trust of our employees in our company and in our strategy. And as such, we have been rewarded by the FAS Grand Prix for our practice focusing on developing the employee ownership program. And as we committed to at the IPO time, we will keep proposing in the years to come, the same programs or similar programs to our employees to favor employee ownership and 1 program will be, of course, implemented in the coming months. So all these are important highlights of last year, and I think a lot has happened last year. And this has, of course, translated also into financial results, which we are very proud to mention to you. First of all, the net sales -- reported net sales dropped by 1.9% actually, but at constant exchange rate and scope, the organic growth was 2.1%, which I think you can appreciate, is showing the resilience of our company despite the pandemic. Our EBITDA kept improving at EUR 626 million for the year last year compared to, if you remember, EUR 650 million the year before. This has -- this means an EBITDA margin of 24.7% for 2020 compared to 23.8% in 2019. So again, the 90 basis points improvement in the EBITDA margin despite the pandemic, which I think the team is very pleased to report to you. As such, the net income drastically improved from EUR 125 million in 2019 to EUR 210 million last year. You remember that last year, we had -- sorry, the year before in 2019, we had quite a lot of one-off expenses due to the IPO and the refinancing of the group debt and the fact that also that our debt has significantly been reduced through the year -- debt has reduced our financial expenses. The earnings per share is now EUR 1.67 per share compared to EUR 1 the year before. And this includes a negative impact of EUR 0.37 due to the amortization of the customer relationship that was booked at the time of the acquisition of the Glass Packaging division of Saint-Gobain in 2015, which is a pure accounting, I would say, impact. The net debt last year has also very strongly improved to EUR 1.279 billion at the end of the year, which means that 2x leverage, which is really at the low end of our range, our targeted range. If you remember, it was between 2 and 3x. Thanks to very strong cash flow generation last year that I will let Nathalie comment in a few minutes. As such, we will propose to the shareholders in our assembly in June to pay a dividend of EUR 0.95 per share compared to EUR 0.85 a year before, and it will be proposed to pay this dividend all in cash. Last but not least, given the strong performance last year, we are very confident on the fact that we will be achieving our midterm objectives, not in 2022, as initially planned at IPO time, but as of 2021, including the strong deployment of our ESG road map that was presented months ago. This being said, now I will move to -- I will let the floor to Nathalie Delbreuve, who will go through the financial results presentation.

Thank you, Michel, and thank you very much to all of you for joining this call. It will be my pleasure to walk you through our 2020 financial results. I will split my presentation in 3 parts. We'll be first looking at the revenue numbers, then the EBITDA and profitability per segment, and finally, CapEx and cash performance. So moving to the positive -- the growth slide. You can see that we posted a turnover of EUR 2.536 billion, with a reported growth negative, minus 1.9%, but in fact organic growth has been positive throughout 2020, which is, as Michel mentioned, showing really the resilience of the group. Volumes have been very erratic throughout the year. The second quarter especially was showing a very significantly down volumes due to the first lockdown in the start of the pandemic. But then we've seen a good recovery in the second half of the year, especially in the third quarter, as we already commented with the September results. Throughout the year, in fact, in our product, sparkling wines and spirits have been the 2 categories really suffering, but food jars volumes on the other side has been increasing and steadily throughout the year. Price increases have been supporting the growth of the sales and compensated our cost inflation, as you will -- I will show you later. And talking about the mix, we have seen a negative impact of the pandemic in the first semester, but a recovery in the second half of the year. So overall, throughout the year, it's basically flat. Now the last pillar that you can see on this chart is the foreign exchange rates contributing significantly negatively, minus 4.1%, and it is mainly driven from LATAM currencies. In Brazil, the currency deflected by 40% from the beginning of the year to the end, and we suffered from that, mainly in LATAM. Now moving to geographical segments, South and West Europe has been resisting quite well. So posting a slight decrease in sales, minus 0.5% and slight volume decrease as well. But Italy has been very resilient and could support this segment. So food jars were quite strong throughout the region. In the beer segment, we've seen a stable H1 and then even some good performance in the second half. And talking about wine, in France, we have negative evolution in the wine volumes but it has been good, well compensated in Italy and Iberia. So here, we really benefit from our geographical footprint that is well balanced in Europe and could mitigate the negative impact of France. And in fact, here, in this segment, France is the country affected the most. And here, we have the negative impact of the premium and sparkling and spirits, which I already commented on top of it. In North Europe and Eastern Europe, here, we have a negative impact of the foreign exchange rates, which we didn't see, of course, in the South and West Europe. The Ukraine hryvnia and Russian ruble devaluated also during the year. But except for that, we have also a slightly positive organic growth, plus 0.4%. We could see that volumes were down and in all the countries, but it was well offset by selling price increases and mainly in Eastern Europe. And here in this segment, food jars as well behaved well, not enough to fully compensate the volume drop in sales in other categories. In Latin America. Latin America has shown really strong organic growth throughout the year. Look at this quite impressive number, plus 23.4%. So the market in all the 3 countries has been very dynamic, is still very dynamic. We've seen volume expansions in all the countries. And volume performance has been very good in wine, in spirits as well. We have been able to increase selling price throughout the year. And we mentioned particularly Argentina, as you well know, with the high inflation in the country. It's absolutely key to follow cost inflation in prices. And you will see in our spread, that is what we managed to do in the year. Then, unfortunately, the headwinds from; exchange rates, but still a very good and dynamic market. So now moving to profitability and adjusted EBITDA. You will see in the presentation, in the next slide, we will go through segments. On the top right, you have the adjusted EBITDA margin. And you will see that we improved the margin percentage at group level but also in all the segments, which is a very good achievement. So now if you remember, the bridge, the EBITDA bridge is showing you how our pillars deliver EBITDA. So the first one is the activity one, very negative this year with a minus EUR 51.3 million. Here, we have the full effect of the volume decrease of the market decrease we just commented and also an adverse impact of inventory variation. We've been destocking this year more than last year -- much more than last year. And this has a negative impact that you can see here. The spread and price/mix cost pillar, as you see, has been very positive, very contributive to our profitability. So prices have been increased well throughout the year. We've been benefiting from that all the year. And as I mentioned, the mix, in fact, was negative at the beginning in the first half but recovered well, including improvement in premium segment in the second part of the year. So this is -- this is very positive pillar that you can see here. The third one, the net productivity is very important. You know this is our -- in our strategy to reduce our production cash cost by an average of 2 -- the target is 2% improvement per year. And as you can see here, we've been able to deliver more with 2.2%. This is really an achievement in a year with such disruptions caused due to the pandemic. So we are really proud of this achievement. And you can see how contributive it is to our profitability. So EUR 36 million net contribution. The exchange rates, we -- you can see unfortunately minus EUR 36.5 million, mainly LATAM currencies, but also in Eastern Europe, as I already commented. And to bridge the gap in the other, you can see a small number. It's mainly our COVID-19 direct -- some incremental costs and also some positive impact as a compensation. So this EBITDA performance per segment in South and West Europe, we have -- you can see that we improved the percentage from 23.5% to 24% despite the pandemic. On the positive -- spread has been positive. We have delivered a good industrial performance. I was mentioning our PAP program. But then we had some negative impact in volumes. Here, in this segment, the mix did not fully recover. We have the exposure in France due to quite premium segment. So we've seen improvements that not back to the 0 that we can see at group level. So here mix is still contributing slightly negatively. And then the situation, specifically in France, has been quite difficult in 2020, so the reduction in sales, even if jars managed to compensate slightly. The mix I mentioned, and also social disturbances linked to the transformation plan, that is now carried out and impacting as well industrial performance. In North and Eastern Europe. Here as well, on the right, you can see improvement of our adjusted EBITDA margin by 0.8 points. The margin improvement is due to positive spread and productivity. So really, these pillars are the 2 ones which managed to compensate the activity impact throughout the group last year. And I mentioned already the negative impact that you can see here for the ForEx. So all in all, the improvement in the adjusted EBITDA, excluding that impact, is 4.6%. Moving to Latin America, really outstanding performance. There is no other work. You can see 29.8% margin last -- in 2019, up to 33.8% in 2020, remarkable margin expansion. And really, the 3 levels, our 3 drivers delivered fully. We've seen that the market has been dynamic. We were there to catch the growth. And the price/mix spread, everything has been positive here. We mentioned already the price increases well monitored. And the production action plan is -- performance action plan is really contributing strongly to our EBITDA. Latin America is one of the segments that is overachieving our 2% target. Moving now to CapEx and cash. So investments are quite significant in our business. So very important to show and to prove that we keep them under control. You can see on this chart that recurring CapEx stayed in the 8% of sales range, that is our strategy and our target. So in 2020, it was fully achieved. And we had strategic investments that impact our -- over the 2 years, you have the Villa Poma and Azuqueca investments, capacity investments reach the CapEx roughly to about 2 years. And the start-up of these 2 new furnaces in Italy, one in Italy and one in Spain, has been voluntarily delayed to the first quarter 2021 to adjust our capacity to last year's market. So how did that translate into cash flow generation? On this chart, you can see that adjusted EBITDA overall ended up EUR 10 million above 2019. So contributing positively to our operating cash flow. CapEx kept under control at a stable level. So that means a cash conversion of 60% in 2020. Then change in operating working capital contributed very positively, as you can see, with EUR 67 million. So to comment here, stock levels -- stock has been reduced significantly during this year. I mentioned already the EBITDA impact. It is contributing very positively on our cash. This is quite specific to 2020. We ended the year at extremely low level of stock. So 2021 will not see the same trend here. And important comment on overdues, we managed to keep overdues at a very -- exactly the same level as 2019 in amount and in percentage, so totally kept under control. So operating cash flow ended at EUR 442 million to be compared to EUR 408.4 million in 2019. So all in all, our net debt has been significantly reduced in 2020. Thanks to this operating cash flow we've seen. Thanks to also reduction in some nonoperating cash-outs. As Michel mentioned, we had IPO specific cash-out in 2019. And also, let's not forget that in 2020, the dividends cash out has been EUR 13 million because we allowed -- some dividend has been given as shares. So out of the total of EUR 100 million, only EUR 13 million has been a cash-out in 2020. So the leverage is 2.04, to be very precise. And the de-leveraging of 0.6 so as the conclusion is very good, but with some specific of 2020. And liquidity at the end of the year reached EUR 1.08 billion, which is at a very good level and very comfortable level.

Thank you very much, Nathalie. So let's now conclude and give some perspectives about next year. First of all, as you can understand, we are very pleased to report these numbers to all of you, which have shown the strong resilience of our company last year. First of all, I have to pay -- to recognize and attribute from our teams and engagement from our teams throughout the year, which made it possible. This is also the result of the strong health measures that we took as soon as the pandemic started, to protect our teams and keep improving both health and safety conditions at our plants and operations. We, in a nutshell, are pleased to report a positive organic growth of 2.1% and an increased EBITDA up to the level of 24.7% for the year. The net income also significantly improved to EUR 210 million with an earnings per share at EUR 1.67. And as the conclusion, we will propose to the general shareholder assembly dividend per share of EUR 0.95 in -- all-in cash. If we look forward for this year, 2021, we had a slight volume drop last year, a bit less than 2% drop last year. We will recover this volume this year, therefore, going back to 2019 volume level. And of course, this will lead also to positive organic growth. Although, on the sales side, we expect sales prices to be more or less flat given the fact that the costs inflation of cost in our industry has been more or less flat or slightly negative in some cases last year. The goal for us still is to have a positive contribution of spread to the improvement of EBITDA year after year. We are aiming at EBITDA of around EUR 650 million for the year, which will provide more than 25% EBITDA margin, which was the goal for 2022. So we'll be 1 year ahead of our goal. And as you understood from Nathalie's comments, I mean, we have a very strong market in Latin America and more specifically in Brazil. We are sold out, despite the new factory we built 2 years ago in Jacutinga, we are now sold out in Brazil. And therefore, we've decided to build a second furnace in our Jacutinga factory in Brazil, which will represent a strategic investment of around EUR 60 million to be spread over 2 years between this year and next year. So altogether, we are -- as, of course, the hotels, café and restaurants will progressively reopen in many countries, as people get more and more vaccinated, we are hoping that the worst is behind us. And as you can see for Verallia, last year was not such a worst year. And going forward, we are -- we have a positive outlook on the future growth of the company and the continuous improvement of EBITDA margin of this company allowing Verallia to achieve its mid-term target 1 year ahead of the goal, which means in 2021, we shall reach all our targets, except, of course, the organic growth target that has been abandoned already a year ago. So this being said, now we are very pleased to end up this presentation and take your questions through the Q&A session.

[Operator Instructions] Our first question, via the phone lines, comes from Matthias Pfeifenberger from Deutsche Bank.

Congrats to the results. And the first one is really on the pricing dynamic. Now as I've heard for 2020, you raised prices. That's what Nathalie said. I think you're doing it at the beginning of the year and then the energy costs obviously deflated. And now this year, you're seeing flat prices, but energy prices recovered. Is that just basically saying for you, it hasn't changed, energy prices deflated last year, they are coming back now to these levels and pricing, therefore, can remain stable? Is that how to think about it?

Okay, Matthias, thanks for the question. Clearly, first of all, you remember that we have a very strict hedging policy that was implemented now 3 years ago, which basically covers all energy costs at October period time -- October period, sorry, at October time, we covered the next year energy costs through our hedging policy. Therefore, what happened during last year, which is the fact that the spot price of energy has dropped during the year, frankly speaking, we didn't benefit. And on the opposite side, we have hedged in October 2020, the energy cost for 2021. Therefore, should the energy price keep going up in 2021, we will not suffer from that. So that's first an important reminder for everyone to understand. And this hedging policy that we've implemented 3 years ago is the one that allows us to give precise price increase targets to our salespeople in order to cover for the inflation of costs. The good news last year is in 2020, you know that mostly in Europe, it's not the case in Latin America, where prices are negotiated on a ad-hoc basis, which means very often, up to every month in Argentina, for example. But in Europe, usually, the prices are negotiated once a year. And the good news is that when the pandemic rose last year, price -- most initiatives were completed, and there has been no renegotiations throughout the year. So our customers and our competitors and ourselves, we all stuck to our agreements, and therefore, [ President moved ]. Now moving forward, for 2021, taking your comments, it's true that we have, in some countries, the real deflation of energy costs. And therefore, in some countries, this could even lead to slight price decreases, whilst still maintaining a positive spread. In other countries, is not the case. In other countries, we still have an inflation of cost, and therefore, some price increases will be made. Altogether, we guess that it will be -- prices will be more or less stable in 2021 compared to 2020, even if -- and still maintaining, sorry, positive spread despite stable prices. And this is our goal.

Okay. The second question is specifically on current trading, especially on the premium stuff champagne spirits? And then also whether you stand on FX in terms of year-to-date versus 2020 average?

Okay. So I will answer the question about the premium trend. As you've seen in our comments, or you heard from Nathalie's comments, the mix impact was quite negative in the first half of last year and has recovered in the second half of the year, meaning that the full year, our mix impact was more or less neutral. There has been no -- insignificant throughout the year on a full year basis, change in mix. However, if we look, of course, in more details, what happened last year is the 2 segments that have been the most severely impacted by the drop of volume has been spirits and in sparkling wine. These are the 2 products that you are usually used for celebrating parties and other events. But as last year was not very eventful, unfortunately, they have been less consumed by the market. Therefore -- and these are usually segments in which we have quite a significant share, especially in the spirits segment, significant share of premium products. As you can read from our customers already comments, some of our customers' comments in the spirits industry they see a positive outlook for 2021 with a progressive recovery, starting with China and Asia, which was, if you remember, last year, quite the first country is very strongly impacted by the low consumption of spirits and a progressive recovery in this area. So on the spirit side, we should see some recovery and some improvements. The champagne this year which is a small part of our business, but a very important and profitable part of our business, will still be in a difficult situation, the second year in a row. I'll remind you that last year, champagne dropped by 18%. And this year, we expect champagne to drop high single-digit. But the spirits and the other sparkling wines should recover, and therefore, we don't expect for the full year negative mix impact at company level.

And for the ForEx, I can answer, you had the question. So average, in fact, the main impact is for us is coming from LATAM, as we said, the conversion impact, I would say. And average BRL translation -- conversion rate/foreign exchange rate in 2020 was 6.3% to be compared to 4.5% in 2019. So quite a significant devaluation. In our outlook for 2021, we hope we are cautious on this translation impact. As for today, I would say that the currencies behaving more -- is more stable. And we hope that -- we think that we have been cautious in our 2021 outlook. Then one comment on other foreign exchange exposure. Don't forget that it's pretty limited. We have local flows, in fact. And when we have specific exposure, for example, linked to CapEx, we do hedge to meet this impact. So the foreign exchange is really conversion of our financial statements.

Our next question comes from the line of Francisco Ruiz from Exane.

Congratulation for the great numbers. I have 2 questions. The first one is on the outlook. Mainly if we take into account that the PAP will continue and we could add something like EUR 30 million. And as you have said, I mean, if you do not expect any negative price cost contribution and probably some positive contribution from volumes, I think that this 650, it is conservative, unless you think a very strong headwind in terms of FX. The second question is on the dividend. That, clearly, this is above your -- the target that you mentioned on the IPO to do or 40% or EUR 100 million. But given the good performance of the debt in 2020. Do you expect that this dividend could be increased? I don't know, during the year or even at a higher pace in 2022?

First point, I think you perfectly well understood our position regarding the outlook for 2021, and your math is correct. So therefore, if we do more than EUR 30 million of PAP, which is our goal, as you know, every year to generate more than EUR 30 million of net savings and with, I would say, flat spread or 0 plus spread and a slight growth, we should be above EUR 650 million, indeed. However, as you have mentioned, the last 2 years, we have been hit by negative headwinds coming from the ForEx and it's still very difficult to forecast. But if we look at what the market consensus is about exchange rates, unfortunately, we might still this year face negative headwinds on the FX side. So this is the one thing that we will, of course, monitor very carefully, and you can monitor as well as we do because this is not under our control. So that's the reason why we guide, if you want towards EUR 650 million and not more. Of course, as the ForEx situation clarifies for the year, we will probably be able to maybe adjust our forecast. Now, regarding the Q1 point...

So Michel, could you give us an idea of what's the impact on FX that you are assuming on the outlook?

Well, you know that -- I mean, 10% of our business is in Latin America. And as Nathalie said, it's purely translation impact. It's not a transaction impact. It's a translation impact. Therefore, if -- let's say, together, I mean if the -- all the currencies in Latin America dropped by 10%, that's one point of EBITDA impact for the company. So it's meaningful, it's -- you're talking about EUR 25 million of impact. So -- and 10% shift in exchange rates in those countries is not a big number, by the way, of course, excluding Argentina, which is in hyperinflation, which is more -- if you look at what Brazil currency, the Brazilian real, as diverted last year, we are talking about 33% devaluation last year of the Brazil real. So 10% is as good as anything, I'm not -- I don't have the crystal ball to tell you what would be the exchange rates. But it's plausible, I mean it's -- unfortunately, [ it's possible]. Now of course, if we are -- for the first year, not impacted by the exchange rate, we'll be more than happy to celebrate that. But what I can do is your math is correct and if confirm the PAP target of at least EUR 30 million savings. Regarding the dividend, this is true that with $0.95 per share. This represents a payout ratio close to 55%, above the 40%. But if you remember, when we guided -- take a few times, we said that the 40% was minimum and EUR 100 million of dividend was also minimum to the floor in both cases. So what happened is, given the huge cash flow generation of last year, given the fact that we've reached the low end of our leverage target, which is 2x EBITDA, we thought it was appropriate to start increasing the dividend by EUR 0.10 per share. And going forward, this still leaves us enough and sufficient room for looking for acquisitions. So let's be clear, this has always been -- our strategy is to -- we could increase, of course, a lot more of the dividend to the shareholders. But we want to leave some room for acquisitions, should there be any opportunity during the year. And of course, if at the end of the year, we find that we see that to much cash, we will keep seeing -- keep doing what we've said, which is basically return the cash to the shareholders. But today, it's too early to say what will be in the future in terms of the dividend policy.

Our next question comes from the line of Lars Kjellberg from Crédit Suisse.

Just wanted to focus in a bit on the final quarter performance, which were clearly above something that we had modeled and I guess, market expectations. You had called out accelerated furnace activity and potentially longer stops. But as you alluded to in your prepared remarks, clearly, stocks are very low. So I suspect production exceeded your own expectations, if you want to comment on that? And also, if you can walk us through how you think about furnace rebuild cycles and the activity in 2021? Clearly, you had a bias towards the second half in 2020. So if you can walk us through how that should work through the system? And the last question I have would be on CapEx. Of course, you have your sustainable CapEx, part of which is strategic, you now have your new plant in Jacutinga and then maintenance, I suppose, still around the 8% mark. But if you can share any color on how we should think about CapEx in totality in those various buckets in 2021, please?

Okay. So comments on the quarter 4 and how we explain the over performance. So first, let's remember than when we last published and when we made the outlook for the year, which was in October, and just today, before or after our President announced the second lockdown. So it was, again, quite an uncertain period. If you remember, after a very strong and quite back to normal summer, at least in Europe, we were again in quite uncertain times. So the first comment we can make on the fourth quarter versus our outlook at the time is that we have -- yes, we were better, first in sales, volumes, the market has been better than expected. Also, the mix that we had in our outlook was conservative, still negative. And in fact, as I commented, the mix did recover back to normal overall over to 2019 overall throughout the year, and it was also in Q4. And then one area which contributed much more than expected is LATAM. And Latin America, we did not expect such a dynamic market, good, very high profitability. And also, again, the currencies, the FX impact was less negative. The devaluation we mentioned for the year was less acute in the fourth quarter. So that is in a nutshell what we can comment. And for the furnace rebuilds. So in the second quarter -- in the second half of 2020, we had 6 furnace rebuilds -- shutdowns for rebuilds. And in '20 -- so in 2020, it was basically out of the 7, we have almost every year, 6 were in S2, in the second semester in 2020. And in 2021, we won't have the same pattern as most of the rebuilds will be in S1 and even in Q1. So we will have a very different shape this year.

And still around the 7 furnace rebuild work?

Yes. Totally. Yes, exactly.

We'll have 7 furnaces as last year -- this year. But again, the seasonality is changing every year based on the condition of the furnace also on the suppliers that are intervening to help us repair and rebuild those policies. Last year, there was a strong workload in the second half of the year. This year and the first half of the year will be the most loaded part because we will have 5 furnaces repaired in H1, in first half and 2 in the second half of the year. Now regarding the question of our CapEx. So clearly, the guidance of 8% recurring CapEx is still valid, and as you've seen last year, very well restricted. On the top of this, you have to add strategic CapEx. In the past, the strategic CapEx were Azuqueca and Villa Poma furnaces, the 2 brownfields in Italy and Spain. There is for this year and next year, a new strategic CapEx with the second furnace in Jacutinga for about EUR 60 million over the 2 years period. And you need to add to the strategic CapEx, the CapEx that we presented on the 21st of January, which are related to the transition towards greener company, I would say, with less CO2 emissions. And we've provided a kind of visual split or year-by-year of this CapEx. And you can see that every year, it's around EUR 20 million to EUR 25 million of CapEx. Altogether, it's EUR 220 million over 10 years. So this is what you can look at. And this CO2-related CapEx will be clearly isolated as strategic CapEx as well.

Right. So strategic CapEx is to around EUR 50 million mark then, broadly speaking, is that fair?

Sorry, say it again please, Lars?