Verallia Société Anonyme (VRLA) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Verallia's Capital Markets Day. I am Alexandra Baubigeat Boucheron , Head of Investor Relations. We would have loved to see you today in person. But due to the circumstances, we have moved into the virtual world. In today's presentation, we will share Verallia's strategic road map for the next 3 years. We remind participants that some of the comments made today include forward-looking statements, which are based on our best estimates. These outcomes may change and are subject to the risks detailed in this disclaimer. Today's presenters will be Michel Giannuzzi, our Chairman and CEO; Nathalie Delbreuve, our CFO; Romain Barral, our Director of Operations; as well as our general managers for Southern and Western Europe, Northern and Eastern Europe and Latin America. Opening our session today, Michel will present to you our key achievements since our IPO in 2019, our market dynamics and our strategic priority over the 2022-2024 period. Right after that, Romain Barral will talk about our environmental road map with an ambition that has been upgraded. All our general managers will then share key achievements and initiatives through case studies from their regions. Before Michel concludes today's presentation, Nathalie will provide an overview of our financials and outline the new midterm guidance that we have defined within the framework of our strategic plan for the next 3 years. A Q&A session will end today's presentation. [Operator Instructions] Please note that due to current constraints, not all speakers will be able to appear on stage at the same time. So your questions will be taken in the same order as the presentation. Please note that Michel and Nathalie will be on stage during the entire Q&A session. Consequently, we would be grateful if you could send us your questions by sorting them by theme or speaker to ease the Q&A session process. Many thanks for your understanding. I will now let you discover and picture how impressive and beautiful, I must say, our production process is. [Presentation]

Good afternoon, everyone, and thank you very much for joining this Capital Market Day. It is a pleasure for me to be in front of you today, though still virtually, and to present to you the strategic priorities for the next 3 years. But let's start with Verallia ID card. As you can see on this part, we see our #1 in Europe, and Europe represented last year 90% of our sales. We are #2 in Latin America, which represented last year 10% of our sales. And we are #3 in the world. On the left-hand side, you can see that we address all end market segments, and they are very diversified and balanced in our portfolio. We operate altogether 32 glass plants with 58 furnaces. We operate also 9 cullet recycling centers and 3 decoration plants. All together, we employ 10,000 employees in 11 different countries, and we produced last year 16 billion sales. Last but not least, this year's sales will be around EUR 2.6 billion, and our adjusted EBITDA would be around EUR 675 million. Now during the pandemic last year, we interviewed about 1,500 employees, customers, suppliers, investors, members of our communities to help us define what is our corporate purpose. And we came up with this very simple sentence, but very powerful sentence: reimagine glass for a sustainable future. This is summarizing our ambition, what we stand for, and it tells very clearly that ESG is clearly at the heart of our purpose and our strategy, as you will see in the coming slides. Of course, this is leveraging our current 4 values: care for the customer; respect for people, laws and the environment; empowerment and accountability; and teamwork. But very important is what we believe in. Our credo is the following: we strongly believe in our corporate purpose. This is driving our strategy, the way we do business, and it takes into account our social and environmental responsibility very seriously. We strongly believe in sustainable and profitable growth that benefits to all our customers, our employees, our shareholders. We strongly believe in our business model, which is lean, agile, decentralized, close to our customers, empowering our teams to best serve our customers. We strongly believe in operational excellence, and value creation is more important than the shape (sic) [ size ] -- and this shapes our strategy and -- straightforward and focused strategy. We strongly believe that alignment and coherence of all stakeholders is a key success factor. And as a consequence, we invest in this company as a long-term owner, and excess cash is returned to shareholders via dividend increase or share buybacks. Now let's look at the key achievements of Verallia since its IPO 2 years ago. As someone says, sales is vanity, profit is sanity, cash is reality. So let's look at our company's performance since it has been spun off from the Saint-Gobain Group. Starting with sales. We've enjoyed a 2.6% compounded average growth rate during that period 2016-2020, thanks to a growing glass market, thanks to our leading positions in high-growth segments of the market and thanks to our value-based pricing strategy. Profitability has increased even further. It has increased 7.6% per annum during the period, thanks to the operating leverage, thanks to the positive price/cost spread and thanks to our own Performance Action Plan. And cash has grown 16.7% per annum during the period. With a very well-invested asset base and strategic CapEx, it has been showing strong cash growth, which is, at the end of the day, a reality. To summarize, this business and this company has been growing a lot, has been generating a lot of cash and has been very resilient during the pandemic. If you remember, exactly 2 years ago in October 2019, we provided you with some guidance. The short-term guidance we achieved at the end of 2019 and the midterm guidance for 2022, we are going to achieve this year, 1 year earlier. And this is the reason why we have this Capital Market Day today, except maybe the organic sales growth where the jury is still out in order to understand whether at the end of the year, we will be at the objective that we set up 2 years ago. Now let's all look also what happened to our capital structure during the last 2 years. As you remember, this company was co-owned by Horizon Investments Holding, an affiliate of Apollo Firm and Bpifrance. Now Apollo, through Horizon Investments Holding, has been selling down regularly shares since the IPO, and they still own today 16.3% of the shares of the company. And we know that at some point in time, we will fully exit the company. On the opposite, Bpifrance has never bought or sold any shares during that time, and they today enjoy 7.5% of the capital of the company. In the meantime, we have welcomed a new investor, a Brazilian fund, BWSA, that owns 26.6% of our shares and has become today -- as of today, the first shareholder of the company. Interestingly, our employees also have become shareholders. Every year since 2016, we've proposed to our employees a share ownership program. And the last one, which was launched this year, at the end of the day, enabled the employees to own 3.5% of the shares of the company. And we are very proud about it. Last but not least, this year in May -- in March, sorry, and May, we bought shares from the market and from Apollo at the end for EUR 109 million, which about 3% of our capital, and we canceled 1.6 million shares in June. Derived from our corporate purpose, we've announced in January our ESG road map, which is aligned with the COP21 objectives and which is focusing on 3 main pillars. The first one is to enhance the circularity of glass packaging. The second one is to significantly reduce our CO2 emissions across our operations, and the third one is to provide a safe and inclusive place of work to all our employees. You have a very detailed presentation of this road map on our website, and I encourage you to have a look at it. It will provide you with a lot of information. But with a special focus being put on the CO2 emissions reduction, I would like to come back to January '21 ambition. We gave ourselves at the time the ambition to reduce limit -- to limit, sorry, the global warming well below 2 degrees C, which was translated in a target validated by Science Based Target Initiative of CO2 emissions reduction of 27.5% by 2030 versus 2019. And I'm talking about Scope 1 and Scope 2 emissions. This target has been clearly cascaded in ambition -- in action plans in 3 main areas. The first lever is to shift the raw material mix. The second lever is to reduce our energy consumption through process improvements, and the third lever is to increase the use of green energy. All 3 levers are enabling us to reduce by about 1/3 of the reduction that was targeted by 2030. But it's not enough. The last report on the [ GEAC ] this summer shows that we need to do more and faster. So I'm very proud today to tell you that we are taking another and a new ambition to limit global warming to only 1.5 degrees C. This new ambition translate in new objectives. We will reduce our CO2 emissions, Scope 1 and Scope 2, by 46% in 2030 compared to 2019. We are going to reduce also our Scope 3 emissions so that they remain below 40% of total emissions of Verallia Group. And more long term, we aim at becoming a neutral company in terms of CO2 emissions by 2050. We are very dedicated to this new ambition. And as Romain Barral will present to you in a few minutes, we have started already to work on this new target in order to identify how to achieve it. It's knowing that the first target of well below 2 degree is very well on track, as Romain will explain to you in a minute. Now let's move to market dynamics and our strategic priorities. McKinsey Company made a very interesting survey in many countries in December last year, asking consumers what they thought about sustainability of packaging. Very interestingly, in most of our markets, if not all of our markets in Europe, glass packaging is seen as the most sustainable packaging. This is very encouraging. And more interestingly, from this report, you can read that the consumers are even prepared to pay more for a sustainable packaging. Still looking at consumers, another study made last year by the European federations of glass industry asked the consumers, about 10,000 consumers in Europe, what was their preference in packaging. And you can see that, again, glass is the preferred packaging material and for 2 reasons, only 2 reasons: Health and environment. Health because glass is inert. There's no chemical products leaching into the product. And therefore, there is no impact of glass on health. It's a safe packaging. On the environmental side, consumers know that glass is recycling -- recyclable, sorry, and forever recyclable. You can do infinitely recycling glass. And on the top of this, the littering of glass is not as damaging the environment as other packaging materials. Those 2 strong arguments are playing in favor of glass and are showing on the right-hand side that even though glass is well represented in spirits, in wine, in beer, there is a lot of opportunity for glass to grow the market share in nonalcoholic beverages and in food segments. When you look at the European market in the last few years, you can see that from 2015 to 2020, even though there was a pandemic impact last year reducing the market by 1.5% in volume, this glass packaging market has grown 2.1% per annum on average. This is a steady growth of the market. And if you just take into account that it's a 21 million tons market, 2% growth rate represents about 420,000 tons, which means about 4 new furnaces to be built every year to keep in line with the demand growth. In parallel, when you look at what happened in this market in Europe over the last 15 to 20 years, the market has been consolidated quite significantly, where 15, 20 years ago, the top 5 players in the market had less than 50% of the market share, where today, the top 5 players of the market represents about 70% of the market. This has brought -- this consolidation has brought some more discipline in terms of capacity expansion and, of course, pricing. When you look forward, based on the available information that we have been able to capture, you can see that this market will stay balanced in the coming years, where the growth of the market will barely be satisfied by the existing or announced capacity increases. This is the reason why I'm very pleased to announce to you today that in Europe, we will build a new furnace in Italy by 2024 in order to support our growth and the growth of the market. Now let's move to our 4 strategic priorities. There is little change compared to what we announced 2 years ago during the IPO because we don't change a winning strategy. We will keep focusing on our disciplined growth, including strategic investments and acquisitions. We will increase our operational excellence. We will keep investing wisely for a sustainable future. And we will anchor a strong entrepreneurial culture in the company, all this in order to achieve a profitable, inclusive and durable growth. So if we look at the disciplined growth. This will be based on, first of all, customer experience that we want to keep growing. We will keep deploying our value-based pricing strategy, and we will consider acquisitions or greenfield and brownfield like the Italian new furnace that I have just been announcing. Regarding the operational excellence. First of all, we will keep improving safety in our company, aiming at 0 accidents by targeting unsafe behaviors that are the main sources of accidents. We will keep, of course, benefiting from Performance Action Plans that is enabling us to reduce our cost by EUR 45 million per annum. And we will deploy and keep deploying our Verallia Industrial Management system, VIM 2.0. In terms of investments, we will invest in improving the working conditions in our factories, health, safety and ergonomics. We will invest in the CO2 emissions reductions by improving our processes, and we will invest also in the processes to improve through data analytics and artificial intelligence our process control. Last but not least, because at the end of the day, people make a difference, we'll reinforce our organization, and we'll reinforce the purpose and values and accountability in our organization, the speed and agility that we have. We will keep developing learning ability through our root cause analysis methodology, and we will reinforce our talent pool and increase our diversity. As you understood, we are enjoying a very supportive market dynamics with a growing demand in the glass packaging environment, with some substitution from plastics, with some premiumization that is benefiting to our company and with potential market consolidation. But we will, more importantly, play on our strengths and opportunity. Our own strengths are leadership positions in key markets and geographies, our focus on services and customer experience, our large and wide product portfolio that is enabling us to address the premium and personalized requests of the market with a very diversified customer base. We will use, of course, all the assets that we have in a very flexible way, and this is a very important and differentiating factor that we have in our company. Unique experience and methodology in Performance Action Plan in order to reduce our costs every year in a significant and methodological way. We will keep investing with smart and sustainable CapEx policy to achieve our ESG road map and reduce our CO2 emissions. And last but not least, and I will let Olivier Rousseau present to you what we are doing in France to keep improving our operations and keep benefiting for potential further improvements in our industrial performance. If we start with the first point, our leadership positions in our own market and geographies. Our biggest segment is Southern and Western Europe. In this segment, we are clearly #1 with 20 plants that are addressing all segments of the market. But the biggest segments of the market in this area are still wine and sparkling wine. Why? Because we are historically present in the 3 largest wine-producing countries in the world, namely Italy, France and Spain. We are also benefiting from the very premium customers that we have in these countries, and this is pushing our sales of sparkling wine and spirits to more premium offers that we can deliver to our customers. The second segment, Northern and Eastern Europe, represented last year 22% of our sales. In this segment, we have 7 factories. And we address, of course, still wine, food, beverages, nonalcoholic beverages. And beer is a big part of the segment as well. Last but not least, Latin America represented last year 9% of our sales. And here, we are very strong in 2 wine-producing countries, Argentina and Chile, and focusing only on 1 in those 2 countries. And we are addressing all segments of the market, including the fast-growing beer segments in Brazil. Now the second part of our strategy is really to leverage our strong initiatives around customer service and customer experience. As you can see, over time, Verallia has moved away from being a commodity supplier to providing more services and experiences to our customers. This is not only the job of our 300 local salespeople. It's the whole organization that is really customer-centric. And focusing on direct sales that are representing more than 90% of our sales, we are proposing to our customers added value services and a better experience. This is, of course, measured through Net Promoter Score more and more in our company around very specific times in the customer interaction. And of course, we have also deployed inside our company value-based pricing, making sure that we price our products to the right value that represents the services -- that are representing the services and the experience that we provide to the customers. We are also able, with our very large and diversified customer base, to capture the growth of the market and especially the premiumization of the market. As you can see, our large customer base, first of all, on the right-hand side of the chart, is coming from the fact that being historically present in the 3 largest producing -- wine-producing countries in the world, we have a very diversified customer base because this segment of the market, wine and sparkling wine, is barely concentrated. This is the reason why the top 10 customers of Verallia represented last year only 17% of our sales, which is probably half of what they represent for our competitors. And the #1 customer is only 4% of our sales. And of course, with this very large product portfolio, we are able to serve all customer needs in all the segments, including the premiumization trend that we see growing and growing. Let me explain to you with a very simple business case why our customers are moving to more and more premium products. You see on the left-hand side of this chart the example of a vodka case study. The standard vodka bottle is produced at -- and sold at around EUR 3 per bottle. And for this bottle, we sell the glass packaging around EUR 0.25. We estimate that the producer will make EUR 1.1 of profit. Moving premium on the right-hand side, the customer -- our customer is able to sell this bottle probably EUR 17. Even though we've increased the price of the bottle by EUR 1 to EUR 1.25, at the end of the day, we estimate the profit that we will make will be EUR 7.2 more than a standard bottle. This explains why all our customers in the spirit segments, but not just spirits, in other segments as well like wine, are moving premium, wine or beer are moving premium, because going premium and packaging is part of the 4 Ps of marketing, enables them to achieve better profits and more higher profits. And you can see on the right-hand side, this is confirmed by the growth rates expected in the super premium and premium segments that are much higher than the growth rates that we see in standard and value segments. For this objective, we have developed over time a product range called Selective Line. This is our premium range that represented last year 14% our turnover. On average, we achieved 12 points of additional margins versus the rest of the range. And this very high-end premium range Selective Line is also supported by additional services like decoration in our decoration plants. We also, every year, in many countries have a competition and award ceremony asking students to propose to us design awards -- designs, sorry, new designs for our bottles, and we will give them awards. And some of these designs are even translated into best hits on the commercial side, and you can see some examples here. So for Verallia, the focus on premium look and feel and customer experience is clearly a differentiating factor, even though we are also #1 in Europe and, therefore, able to address all segments of the market, including the commodity market. But it's not just enough to have the wide product range. You need to be able to serve all the customers with this very wide product range. And you know this process is not very flexible. Therefore, we have developed over time some expertise in flexibility in our plants. But more important, our organization, which is very local, close to our customers, enables our teams to understand better the customer needs, to understand better the trends of the market, to be able to provide a better service to them, being very close to them, and at the end of the day, to provide a better experience to them. At global level, we leverage, of course, on the procurement side the international and global categories of purchasing, in the raw materials side, on the CapEx side, and we are a big CapEx spender, more than EUR 200 million, EUR 250 million of CapEx every year. We also share globally the best practices, the innovation, the R&D efforts. And of course, we have a coordinated approach with our global customers. So this is our business model, which is really glocal, global -- leveraging globally our -- some strengths but being very local, close to our customers to provide a better customer experience. A unique differentiating feature of Verallia is probably the Performance Action Plan methodology. Having worked more than 20 years in the automotive sector, I've readapted the lean manufacturing principles of the automotive sector to Verallia and our industry. And conversely to what many companies do when they reduce their costs, they usually have a very strong brainstorming exercise or using consultants to find a way to reduce cost. And after 2 or 3 years of implementation, it's back to normal, and there is no more cost reduction. This is not at all our approach. Our approach is based on the 7 steps you see on the left-hand side, which is very methodological, very thorough and which is about identifying all the costs and losses -- waste and losses in the company in order to fill a reservoir of potential reduction of savings of 20% or 30% of costs. And from that reservoir, we want to generate every year 2% cost reductions. We are not talking about 1 or 2 or 3 big projects of millions of euros of savings. We are talking about more than 500 initiatives that each of them is about 30 -- from EUR 30,000 to EUR 500,000. All these initiatives are led at shop-floor level by shop floor people. We have more than 250 project leaders. The initiatives -- these initiatives are very fast and short cycle. They last usually between 3 months to 9 months. And it is very dynamic, which means that 2 times a year, we review in details all the cost of the factory in order to fill the reservoir. And as soon as the project is completed, we take a new project to start. And this, at the end of the day, brings more than EUR 35 million of savings. And at my level, it's very easy. I've got this scorecard that you can see on the left-hand side, which I review every month. And it's only 2 colors. Green, it means that factory is online, and they are going to achieve their 2% cost reduction. Red, there is a problem, and there are only 2 reasons for the problem. Either they have not found enough ideas to reduce costs, and therefore, they have not applied the methodology properly. And therefore, we send them a corporate expert to go there and teach them again the methodology. Or they have the ideas, they have the projects, but they have not implemented them on time or quickly enough. And therefore, it's a project management issue. And again, we send them somebody to coach them and train them on better project management. And being very rigorous every month doing this routine exercise of reviewing all the initiatives inside the company has enabled us every year to reduce our costs by more than EUR 35 million, which is more than 2% of our cash costs. And this will continue, of course, going forward. Now in terms of CapEx, we have refocused on CapEx, first of all, on the recurring CapEx that are enabling us to maintain a very well-invested asset base. As you can see on the left-hand side, over the period from 2016 to 2020, we've been investing between 9.5% and 10% of sales every year. Every year, around 9.5% to 10% of our sales have been spent in this company, which means that we have a very solid, modern, well-invested asset base to support our growth and to support our ambition. And on the top of this, on the right-hand side, we have committed for the next 10 years to spend around EUR 220 million for the transition away from CO2 to less CO2 in order to reduce our CO2 emissions. This will be spread over the next 10 years, and this is exactly in line with our ESG commitment that I've just mentioned a few minutes ago. So this will be presented in great details by our VP of Operations, Romain Barral, in the next presentation. And before I move to the next presentation, I will invite you to watch this video about our corporate purpose. [Presentation]

Good afternoon. I'm Romain Barral, the Vice President of Operations for Verallia, and I will present you our environmental road map. As Michel explained to you, it is at the heart of the Verallia's strategy and purpose. First of all, a quick reminder on the classification of CO2 emissions. We have 3 scopes. The first one, Scope 1, is linked to the CO2 emission coming from our activities or our factories, in the case of Verallia. Scope 2 emissions are linked with the CO2 emission linked to the electricity we consume in our factories again, and Scope 3 are linked to all the material and elements we buy into a factory as well as all the action and events which are happening to our product after we sell them and we ship them to our customers. So in January this year, we presented our plan for the first time in order to reduce our CO2 emissions. This plan was developed in order to limit global warming well below 2 degrees C and was translated into a target reduction of 27.5% of Scope 1 and 2 emission in 2030 versus 2019. This had been validated by Science Based Target Initiative and was the baseline for our activity this year to reduce CO2. As Michel presented, we worked on 3 levers on -- to be able to achieve this reduction, and all 3 levers are on track -- all action are not on track. I will explain you that right now. So first of all, a quick word and reminder on circularity, because circularity is really at the heart of Verallia model. So that's the big advantage of working with glass, which is recyclable infinitely during its age and utilization. So quick reminder also on vocabulary. Recycled glass is called cullet. You will hear a lot about cullet in my presentation. And when we increase by 10 points the level of cullet in our glass in our furnaces, we are able to get a 5% reduction of the CO2 emissions. So of course, increasing cullet rate is a big element in order to reduce our CO2 emissions. So the first lever is on raw material mix and that mainly around increasing usage of cullets. So in order to do that, we've been working on several projects mainly around collection and treatment. And you will see several examples presented by typically Marco in Italy and Hugues for Germany about the way we've been increasing cullet utilization in our plants. This year already, we are seeing a significant step as we are expecting to finish 2021 with a cullet usage rate of 55%, which is 4 points more than what we did in 2020 and which is already halfway through our commitment of 59% by 2025. The second lever to achieve our CO2 emission reduction target is to work on the energy we consume. And basically, in our furnaces, we utilize energy in 2 different ways. 80% of the energy we use is consumed in the furnace in order to melt the glass, okay? And in order to reduce this consumption in the furnace, we are working on the technology of the current furnace that we have in our factories to be able to make them more efficient. So it's mainly working on the batch itself, like with batch preheater typically, also to change a little bit the mix with increasing electricity with the current technology we have in the furnace. And this is what we are testing in 2 of our factories with what we call super-boosted furnaces. In addition, we know also that, of course, replacing natural gas by renewable combustible is a way to reduce further our CO2 emission, and we have integrated several trials around this possibility. 20% of the energy we use in our factory is used for nonmelting activities, which is all the things which are outside of the furnaces. And basically, in order to reduce this consumption, we've been deploying a specific road map and monitoring tools in order, in each of our plant, to achieve an optimum in the nonmelting energy utilization. You will see a great example of that in our plant of Sevilla presented by Paulo later on. The last pillar of our strategy is increased use of green energy, obviously. So first of all, we focus on electricity. And we've been able to achieve specific contracts with several in -- of our countries in order to get electricity 100% 0 -- with 0 carbon content. And as of today, we already have for 2021 9 plants, which will -- are using, as I speak, 100% green electricity. As I told you before, we also start to work on sourcing of biogas or biofuels. Keeping in mind that it's one thing to source them, but the big and important challenge for us will be the sustainability of the source of energy. And we are working a lot into that regard. Last point, we also started a project to increase -- to generate our own electricity through solar panel installation. And Paulo will explain you and give you an update on what he's doing in Spain and Portugal on this, knowing that the first project in Portugal will start at the beginning of next year. So now as Michel presented you, based on that plan, we are now adjusting our target, and we are very proud to now put ourselves in -- on the way to limit global warming to only 1.5 degrees C. And in order to do that, this mean that the reduction of CO2 will be -- the targeted reduction of CO2 will be increased from 27.5% to 46% still in 2030 for our Scope 1 and Scope 2 emissions. We also add, for the first time, a Scope 3 emission target, which would be to maintain our Scope 3 below 40% of our total emissions. And based on those, let's say, milestone in 2030, we aim at becoming net 0 in term of CO2 emission in 2050 for Scope 1 and 2. So why do we do that? So first of all, we do that because we believe our plan, the plan that we presented at the beginning of the year, is going very well. It's very robust, and we have -- we are in a very positive dynamic to be able to continue to go beyond this initial target. Furthermore, we know and we've learned this summer that, in fact, a plan limiting global warming to well below 2 degree is not enough. And that was pushed by the sixth report of the IPCC but also by the Fit for 55 strategy of the European Union. We just have to adjust also our target at Verallia. Before I move to the technology, one key point I want to insist on in term of methodology. Our plan is very robust today because basically, we are leveraging the core of operational excellence at Verallia, which is what Michel explained before. First, glocal, you will see a lot of examples, and I cited already some of them, which are done in the countries, in the factories, which are aiming at reducing CO2 emissions. And the other point, we are also leveraging the PAP methodology in order to drive the project but also to go into that logic of eliminating losses, eliminating waste and thus, reducing our CO2 emissions. So back to how do we do this additional reduction? Basically, our current plan was mainly based on existing and well-known technologies that we were improving to some extent. To be able to go beyond, we will now introduce innovation and new technology, mainly through electrification of the furnaces, also faster replacement of natural gas with alternative energy and starting to develop carbon capture solutions to reduce further our CO2 emissions. However, the 3 levers that we have for the plan, we believe they are still the right ones. So we will continue to follow and track our actions according to those 3 levers. Concerning raw material, I won't speak again about cullet, but there is one important point that you have to keep in mind, which is that we will work also on increasing the collection, especially in the countries where collection is not very important today, which for us will be typically Lat Am or Eastern Europe. And Quintin will present you a very new initiative that we are taking in Brazil to increase collection. We'll also work at improving the cullet treatment, and we want also to introduce at industrial scale, meaning really with a continuous and long-term plan, alternatives to our carbonated raw materials, typically like limestone, which are releasing CO2 when we melt them. By replacing them with decarbonated material, we are able to reduce further our Scope 1 emissions. Concerning energy consumption, we will focus on the change of technology, which means that introducing a higher level of electrification. And we will rely on that on the hybrid furnace, which is a new technology being developed by the consortium of glassmakers led by FEVE and which will allow us to reduce CO2 emission by 50%. In addition, as I said several times, we'll work on renewable alternatives to natural gas, including hydrogen, and I will give you some details on that just after. And last item, we'll work also on carbon capture solution, especially carbon capture usage type of solution to reduce further our CO2 emissions. Concerning green energy. So we are working on longer-term low carbon electricity contracts, and we will have to implement that in most of the country where we operate. And we'll focus on the renewable combustible but mainly, again, on the sustainability in order to really have a long-term alternative to natural gas. Back to hydrogen. So hydrogen is on the road map of all the industries in order to reduce CO2 emissions. However, we need to understand how this affects our current facilities. And in order to do that, we need to be able to do a real industrial full-scale test. And to do that at Verallia, we are working with suppliers to be able to connect the plant with a sustainable source of hydrogen, which, in fact, it's a coke oven gas, which is able to contain up to 60% of hydrogen. And that will allow us to integrate high level of hydrogen into our furnaces in that plant. And based on that, we will be able, over a long period of time, because we aim to have this operation for 5 years, we will be able to fully test the utilization of hydrogen as a combustible in our plant. We believe this is the best way to prepare ourselves to replace natural gas by hydrogen later on once the infrastructure will be there to process hydrogen. Let's talk a bit about Scope 3. So our objective is to maintain our Scope 3 below 40% of our total emission in 2030. As you can see in the top left corner, today, in 2019, our Scope 3 emission were representing roughly 37% of our total emissions. And as you can see on the graph in the bottom left corner, we have 3 main contributors to the Scope 3 emission. First of all, the good and services we buy, into which raw materials are a critical clinical element, okay? And by raw material, we mean the raw material we use when we don't use cullet, okay? And basically, we will be able to reduce those Scope 3 emission coming from raw material through 2 actions. One will be to increase cullet, as I already explained, and the other one will be to work with our suppliers on their emission in order to be able to reduce our own CO2 Scope 3. The second big item in term of goods and services is around packaging, and it's basically through maximizing reuse that we will be able to limit the Scope 3 emissions. You will see a very good example in Iberia presented by Paulo later on. Energy is the second big driver of -- for our Scope 3. So here, we will mainly benefit from the fact that we will reduce the energy losses that I explained to you before in our factories, and that will reduce our Scope 3 linked to energy. And the third item is around freight, where today, we have 80% of our freight, which, in fact, is done with trucks and which is the way of moving material, which is the most emitting in term of CO2. So we will work on 2 direction with our freight provider. First of all will be to work with -- to replace the fleet with trucks using renewables, combustible, of course. And the second one will be to develop more and more alternative to trucks, typically train, for example. And you will see a very good example in Italy presented by Marco later on. Last point, of course, we are now integrating the Scope 3 as a key driver in our sourcing process, and we will work in strong partnership with our main supplier to be able to support them in the reduction of their CO2 emissions, which will benefit to our Scope 3. As a conclusion, I presented you our initial plan, which was to maintain global warming well below 2 degree, translating into a target of reduction of Scope 1 and 2 emission for Verallia of 27.5% by 2030. Thanks to the work done in all the company and the dynamics and momentum we are having on this plan, we are now taking a new ambition, which will be to limit the global warming to only 1.5 degrees C, which will translate in an additional target of 46% reduction versus 2019 of our Scope 1 and 2 CO2 emissions. This is how we are reimagining glass for a sustainable future at Verallia. And I will now transition and hand over to Michel, who will present you the Southwestern Europe segment.

So we are back to Southern and Western Europe segment overview. And very quickly, as you can see on the left-hand side, this is the largest segment of Verallia, represented last year 69% of our sales and 67% of our EBITDA. You can see that we are, as I mentioned before, present in 4 countries, France, Italy, Spain and Portugal, with 20 glass plants in this region and a strong focus in this region due to the fact that Spain, France and Italy are the 3 largest countries producing wine in the world with a strong presence in still wine, sparkling wine and spirits due to the fact that we have very high-end customers in the spirits industry, especially in France and Italy in this region. We also have, in the region, our own recycling centers, and we have 7 of them that are supplying our plants with cullets. Now before I hand over to Olivier Rousseau that will present to you France, you will see a video that really illustrates our talent in co-designing high-end bottles for our customers, namely Torres brandy. [Presentation]

Good afternoon to all of you. I am Olivier Rousseau, Head of the French business of Verallia. I'll discuss some achievements we wanted to highlight regarding France. I'll start with a brief overview of the French market for those of you who are not familiar with it. On the top left corner of the slide, the graph shows the split of the glass market by end market. Verallia France is specifically focused on wine, both still and sparkling, spirits and jar for the food market. These segments are the most profitable of the French market, and we are particularly strong in the most profitable subsegment in this end market, for example, champagne within sparkling wine, premium spirit like cognac within the spirit category. On the other hand, we are underrepresented within the beer market as our industrial footprint is more efficient for our high-end craft beer than for mass-market products. Moving now to the right corner. As you know, the French domestic consumption of wine has been decreasing over the last years. So the growth in the wine segment is mostly coming from export by French producers. Even if, as you can see on the graph, the trend was negatively impacted by the COVID-19 pandemic, the recovery is now there, driven mainly by sales growth in the U.S.A. as well as China. You can see also on the far right graph that the price of French exported wine is significantly higher than for other large countries producing and exporting wine. The French wines, both still and sparkling, are more premium, and this is driving the need for more premium bottles, our strength at Verallia. By the way, this trend for wine is also true for spirit. Let's go to the bottom part of the slide. We expect a very low harvest in 2021 after severe frost during spring in multiple regions of France. But despite a lower harvest, we expect a limited impact in 2022 on wine bottling as there is a quite high inventory of bulk wine still available and as bottling is first driven by end consumption. We had similar experience in 2018 after a weak 2017 harvest, and this is why we expect a limited impact next year. We will also compensate with growth from other markets. To summarize, the French market is clearly premium, and the growth opportunities are driven by export of high-end products. Our strategy is focused on these premium products. And so I'll now show you 2 examples with cognac and rosé wine of what we do to capture growth in profitable segments and how we work with our customers in these segments. Let's start with the cognac market. There is no doubt it's growing, and growth will continue for the coming years in the U.S., Asia and Europe. For the cognac, almost the whole production is exported. We work together with our customers in cognac to help them grow sales of high-end products thanks to our high-end bottles. Our plants in cognac in Albi have the expertise to produce these complex, high-quality bottles. There is joint work with our customers on bottle design and bottle decoration specifically for limited edition, and you can see an example of Hennessy V.S.O.P bottle on the slide. We also work together on the whole supply chain to get to the best possible service level and just-in-time delivery, and this is key for our customers. And what makes us strong is our ability to work across the entire value chain with our customers. Doing so, we are able to leverage the growing demand for our high-end spirits across the world. Let's continue with rosé wine. On the top right corner, you can see that rosé wine is a growing segment globally and growing faster than other wine colors, specifically red. The attractiveness of this product is that we serve it with many specialty bottles of flint or extra-flint colors, which means white and extra-white. These are high-end bottles as rosé wine producers are looking for differentiation and premiumness and as it has become quite recently a very popular product. At the time of Verallia's IPO, I presented what we did with our customer, Gérard Bertrand, with the Soirée à Rosé bottle. Let me provide you with an update today 2 years later. This bottle, the Soirée à Rosé, was created by a design student during the Verallia Design Award, now a very popular design contest. And the idea to have the bottom of the bottle picturing a rose got our customer really excited. We developed the product in our Chalon design center, together with the student designer and the customer and industrialized it in our cognac plant. Let me tell you, it was not an easy job given the complexity of the design. But we can now say it's a big commercial success for our customer as it's selling more than 10 million of these roses across the world and with a good margin. Today, we produce this bottle in different size and leverage our industrial flexibility to do so across our -- 4 of our factories. The second bottle presented on the bottom right of the page, the Serac, is a similar success. And here, too, the very innovative design came from a student during the Verallia Design Award contest. These 2 examples show how we add value for our customers on the high-end fast-growing segment. We help them with customized bottles, getting a premium margin for their products. After talking to you about our market and the way we bring value to our customers, let me move on now to what we are doing about our industrial footprint to improve our competitiveness. As you can see on the top right of the slide, glass imported in France by foreign producers increased regularly over the past years and represents close to 40% of the market today. The attractiveness of the French market we just discussed explains this growth, and the only way for us to reverse the trend is to improve our competitiveness. In June 2020, we announced a transformation plan to eliminate excess capacity in France and improve our competitiveness. We removed 150 position, and we found an internal solution for about 130 people, thanks to the success of our early retirement and voluntary departure schemes. We had to lay off close to 20 people, all in Cognac, and this is where we decided not to rebuild the furnace. As of today, and as we found jobs for many dismissed employees, only 5 of them haven't yet found a solution, and I committed publicly to work until 100% of our employees have found a new job. This transformation plan allowed us to implement an organization by Autonomous Production Unit, like the one we already implemented in other Verallia countries and which proved successful. For each furnace, this organization followed the glass flows from the furnace to the hot end, the cold end, and last, the palletizer in order to get all the member of the Autonomous Production Unit working as a team to improve its performance. The transformation plan has been finalized in the first quarter of 2021 and right after we negotiated a competitiveness plan with our union. The deal is simple. As long as the industrial performance improves for the French factory, we guarantee CapEx to rebuild furnaces, and we guarantee spending power for our employees. We organized a referendum on this competitiveness plan, and it was approved by a majority of our employees. Thanks to this agreement, we'll improve productivity and the financial performance of the French business. Today, the country generates an EBITDA margin above 20%, and we are working to bridge the gap France has with other European countries. Moving to the next slide. I'll now conclude my comments with a focus on our employee shareholding ownership program, a part of our strategy for an inclusive place to work. Since 2016, we organized 6 offers to encourage our employees to become shareholders of the company. The 2021 offer was a great success. And today, employees own 3.5% of Verallia share capital. In France, participation in the 2021 program was 75%, a similar level to what happened in prior years and higher than 4 other countries. In France, the employees who decided to invest their profit sharing of the last 6 years, an average of EUR 22,000, have an investment worth more than EUR 100,000 today, a pretty successful plan, illustrating employee support to the group strategy. We will continue to encourage employee shareholding ownership, and we aim to reach 5% by 2025. To wrap up, let me summarize the key messages. We have seen that France is an attractive market with growth opportunities driven by export. In this market, we are working closely with our customers to add value across the whole value chain, and we are focused on the premium segment. We are also working hard on our industrial competitiveness to improve our financial performance. And last, our employees voted in favor of our competitiveness plan. Before I hand over to Marco, you will see a video about premium codesign concerning the current Italian flagship, the Prosecco. [Presentation]

Good afternoon, everyone. My name is Marco Ravasi. I am the General Manager for Verallia Italy. I really like the video you have just seen because it's putting together the 2 key factors for the Italian style and life with our design and food and beverage. I will talk to you about some achievement made by my team during the last year, and I will talk also a bit about Prosecco. It is one of the main growing segment in glass packaging in Italy. But before, just few word about the Italian glass packaging business. I would say that this is a market that is very resilient because last year, we had just a drop of 4.3% in the critical period that you well know. And it's very dynamic, too, because if I take some segment to make you some example, in beer, the growth over the last 3 years was around 10% in terms of per capita consumption. In water, we are the second player worldwide after France and the third consumer worldwide after Mexico and Taiwan. Oil also is a very important segment, where we are the second producer after Spain. In average, we have a harvest around 300,000 tons. Tomato sauce is a very important segment. You think that 1 liter each 4 produce of tomato is made in Italy. And I left out the last one, wine, because since several here, we are the worldwide leader in terms of wine production. In 2021, the last harvest, we expect to produce 19% of total worldwide wine production. And we are the third consumer in absolute term after U.S.A., that is the leader, and France, very close to France. But in sparkling, and to be closer to Prosecco world, we are also the leader worldwide. That's fact to Prosecco. If you look at the graph in the top left, you see great number in terms of CAGR. There was a growth in the last 10 year that was, in average, 13%. And in average, 1 bottle each 5 is consumed in Italy, in the domestic market, when a big part of it is in export activity. Big consumer are in U.K. You see that the average export price in the middle of the slide is around EUR 3. So it's very close to beer. So the growth was gaining share to beer. And U.S.A. is well developed in the big town when all the countries are listed to be developed. So there is really a great future, great expectation for the coming year. On top, we have also a newcomer, which is Prosecco rosé. Our customer following the trend is still wine, have developed this new product. And the expectation -- we just launched in October during the pandemic period. And we have a good expectation for the end of this year with a rolling of 80 million pieces, 13% of the total Prosecco sales. And why I'm talking to you about Prosecco. Finally, because Verallia Italy is the leader in terms of production, 4 bottle each 10 are produced by Verallia Italy. And this is a segment where added value is also present. Why we are so strong in this segment? Because we have proximity with our customer because we have a full range, very complex product available for them, and the qualities were recognized. These are, as I said in export activity, bottle shipped 1,000 kilometers far. In terms of pressure, it's very important to have quality of bottle. So we take away for this slide, we are well present and leader in a segment that is the fastest grower in Italy with added value. Now let's move on another case history. It's flexibility and service in a period where you well know the [ significance ] for our customers to make forecast and a correct one. Well, in the last 4 years, if you look at the graph in the top right, we have realized several activity. We have specialized our plant. We have externalized some SKUs, some family of product. And we have reorganized our warehouses, closing some and open some other very close to our customer. Also internally, we merged the customer service with the planning department to be able to give a quicker answer to them. We have a new arrive. It's a new furnace, as you well know, in Villa Poma that started just this year. So in total, we were able to increase by 20% the job changes, the flexibility. And at the same time, very good for working capital and cash flow. We have reduced our stock by 24% and the cost of our warehouses because having lower stock, we closed some of them. But the most important factor in this slide is the graph in the bottom right. You see that our capacity to deliver in full in time for our customer is at 98%. So it's a very best-in-class level. And also during the COVID period, in Q3 2020, the minimum level was 94%, a very good number. So we take away here in a critical context that is still not ended, our customers know very well that we are a very flexible company, we can support them. Now let's move to what I call a commercial ground field. This is a commercial project. What does it mean? Distribution. Distribution in Italy, the big glass producer. We sell to the big billion customer, and they delegate all the small customers to distributor. It means something around 70,000 customers in all the Italian perimeter. Well, here is where you can have really added value. You can sell personalized bottle to a small customer where you could sell the single pallet. So our idea here is to grow. We make a pilot test in 2017 in Tuscany, that's a quite complex area in terms of wine production, just to understand what was the need for this small customer. And now we have deployed it. We started this year, and our expectation is in 3 years' time to become one of the 5 leader at national level, covering all the perimeter with around 30 agent. So the takeaway for this slide is we want to improve our mix of product and family, having added value and better margin, thanks to a new -- completely new distribution sales network. Now let's move to PAP and environmental impact reduction, as already mentioned by Michel and Romain. This is about logistics. So we are talking about scope 3. We have developed and worked in the upstream and downstream supply chain. In the upstream, we work because normally, we bring the sand for our plant from the northwest of Italy to the northeast. Well, we move all this transport from truck to train, having a significant reduction of CO2 emission, 1,500 tons per year. And thanks to that, we won an award from the national logistics association. On the downstream level, we are continuing making synergy with our main customer, with the example of Campari, with one of the biggest. But we also continue to change and to improve the CO2 from the liquid natural gas utilization. We have also separated the loop, just bringing back a final product with the same train that was bringing sand on the other side and also moving to train some shipments from north of Italy to south of Italy. So the takeaway here, we can have PAP in logistics, improving your cost footprint and also reducing the CO2 emission. And finally, I want to close with a very important project, very innovative one in our Verallia Italy. Well, there were already people making the difference. But we have 2 plants, one close to the other, where in one, we make the treatment of cullet to recover and to close the recycled flow of glass; and very close, another plant where we put back in the furnace the cullet and we produce bottle and jars. Well, 2 young group of engineers, they were studying some productivity improvement. But we need a lot more because you see the mountain in the middle of the slide. This mountain was the waste from the treatment facility that we were not able to recover for quality reasons. That's a very fine glass. Well, this team, working together, find a way to treat it in a completely new way, so that's a knowledge for Verallia, and to recover. You see that we already hit half of the mountain in the following picture. So big result from the economical point of view, EUR 850,000 reduction, but also CO2 emission, as I said, sustainability, 1,000 ton per year CO2 reduction. But on top of that, I'd like to mention that we have improved also yield by 2.5% and claim by 11%. That's a very innovative and important project. We take away that the industrial cost footprint reduction and environmental benefit can work together. Before I hand over to Paulo Pinto, I leave you to see a very nice video showing a new partnership we have built in Spain with a customer in Mahou San Miguel. The principle behind it is a way to reduce, and working together, the CO2 emission and the energy impact. Thank you very much. [Presentation]

Thanks, Marco. Good afternoon, everyone. My name is Paulo Pinto. I'm the General Manager for Iberia, Spain and Portugal. And it's a pleasure to share with you some clear realizations that we do in the region, starting from this one that you saw in the video, which is one-of-a-kind partnership that we have done with one of our customers, Mahou San Miguel. So to make it simple, so we take advantage of the energy that we generate. We transform it into steam, and we send it to the brewery to replace the natural gas. So the results, you saw it already in the video. So they are 60% reduction in customer CO2 emission, which is almost 5,000 tons of CO2 per year. And for Verallia, it's 40% reduction in the temperature of the glass melting process. So this is an example of a customer partnership to reduce CO2 emissions together. Another example of PAP is pallets. So in Portugal and for export, we are obliged to treat the pallets with the phytosanitary treatment. So each time we have to buy new pallets with a cost of EUR 9.20 per unit. So finally, we have achieved an agreement with our supplier to treat the recovered pallets, which allow us to lower this price from to EUR 9.20 to EUR 4.50, which is a saving of EUR 4.70 per pallet, which is equivalent to EUR 200,000 per year. So -- and also, a reduction of new pallet needs and 1,400 pine trees saved with equivalent to 5 tons (sic) [ 15 tons ] of CO2 absorption. So it's a combination of CO2 emission reduction and the PAP saving. Another example, it's on Sevilla. So on the benchmark, we see that on the non-melting energy, we have room to improve. So we identified the opportunity in the water circuit, which is a very high electrical consumption. So we put in place a project management with some actions. And the objective was to reduce from almost 14 kilowatts per ton to 8 kilowatts per ton. So we have already achieved more than this. And only in the first 5 months of the year, we have achieved EUR 75,000 of savings, which is a 10% reduction in water consumption in the very dry region, as it is the south of Spain. So electricity and water consumption reduction combined with the PAP saving. Another project that we have in Iberia is the photovoltaic installation. So we have just started this year with the installation of the photovoltaic panels in our plant in Portugal. And we aim to be, in 2024, all 7 sites with the photovoltaic panel. So this means that in 2025, all our electricity will be green. 18% will be self-generated by the photovoltaic panels, and the other 82% will be green-certified electricity. So leveraging the sun in Iberia to drive lower CO2 emissions. Some projects that we have also. So on design, every year, we do a contest, which is not only in Iberia. It's in all Verallia world and in which we invite students from different universities to create some new designs. So at the end, we award the best realizations. Also, taking advantage of the digitalization and as we cannot be in the physical fairs during the lockdown, so we have -- make 2 digital ones, one on wine and spirits and the other one on olive oil exhibition, and 2 of them were very participated. Also, to maintain the contact with customers and also with our employees, we have also made some contest on Facebook on the photo contests. So digitalization to improve customer experience. We are not B2B company, but we try to engage end consumers to the virtues of the glass, like the circular economy, the recycle, the reuse, the preservation of taste and flavor. So we use some influencers and some digital tools like YouTube, Instagram and TikTok to reach these consumers and to influencers. So promote glass benefits to end consumers is the aim of these campaigns. On circular economy, this is a good example. So on the north of Spain, on the Basque country, cider is a very popular drink. Every year, 12 million liters of Basque cider are consumed, and 90% of them are packed in reusable glass bottles. So there's a distributor who collect the bottles, wash the bottles and put them again in the market. So this is a very good example of a market -- a local market using the same bottle and a good example of circular economy. So contributing to the circular economy by supporting reuse where it makes sense like this case. And now before I hand to Dirk and Hugues, you will see a video illustrating a long partnership with a customer namely [ Brauerei Germany ]. [Presentation]

Good afternoon. I'm Dirk Bissel, and I will succeed Hugues as the Head of the Northern and Eastern Europe region. I'm a mechanical engineer, and I have made my career in the automotive industry, the steel and the energy industry and various management routes. I have joined Verallia since the 1st of October, so I'm rather new to the company. And I'm excited and looking forward to this new mission. Let me briefly introduce our region to you with some key figures. We have reached in 2020 a revenue of EUR 554 million and an adjusted EBITDA of EUR 127 million, which equals an EBITDA margin of 23%. Our region has provided 22% of Verallia's total sales and 20% of the total EBITDA of the group. Concerning our footprint, we cover a rather large territory of various European markets. We are represented with 4 plants in Germany. We run 2 glass mills in Russia, 1 in the Ukraine and a specialized plant in Poland to provide high-end decoration for a large range of premium products. Furthermore, we operate 2 glass recycling centers in a joint venture with a specialist for glass recycling processes. The joint venture is a key source for a sustainable supply chain of cutlet (sic) [ cullet]. Hugues will come back to the strategic setup for our region. Concerning the product range, I would like to highlight the remarkable range of markets and customers which we serve with various glass products. We supply to the nonalcoholic beverage market, for example, mineral water bottles, while we support major players in the food industry with various types of jars. No surprise, there is a huge range of beer producers in our region. While we still manufacture significant volumes for spirit and wine, the latter is maybe less known for North and East Europe. This diversified market and our product range gives us several opportunities to answer to the needs of a broad range of clients. Customer service and growth opportunities. Let me give you 2 examples to demonstrate how we put clients into the center of our strategy. First, our one-stop shop operations in Poland and in the Ukraine is a very good example how we meet the expectation of our clients through a unique service offer. We provide premium finishing and decoration in Poland for bottles manufactured in the Ukraine. Such product offer reduces the lead time for the customer and makes the order process simple and straight. Like this, it is easy for our customers to do business with us. Secondly, beyond the simplified service, thanks to our one-stop shop, we have recently invested into the decoration plant in Poland in order to benefit from the premium trend in the spirit industry. We are able to produce a large range of decorations nowadays based on highly automized equipment industrialized in 2020 in Poland. Like this, we will improve our efficiency and support the expected strong market growth, shown in the little table on the right-hand side of the chart. Hugues will continue to present to you several cases demonstrating how we turn customer needs and market trends into sustainable growth in our region.

Thank you, Dirk. Good afternoon. Well, let's go back to Germany, and let me show you another way for Verallia to create value this time in the wine segment. Wine is important in Germany. In fact, we have one plant dedicated to wine right in the middle of the wine region. And as a leader of this segment, we have offered extra value with lightweight bottles. It is our Ecova product range, the same quality but less material consumed, less energy consumed, less cost and, of course, less CO2 emissions. Since 2015, that's about 40,000 tons of CO2 saved. Now 2 things to remember. It's a very significant effect we're talking about here. So chart on the right shows that we have saved already 10% of weight since 2015, and we will still decrease 4% in the next 3 years. The second point, it is not only middle-value wine. There are also high-priced wine in Germany such as the Mosel Valley for the wine connoisseur. And we are recently contacted by the [ Ground Crew Association ] with one simple mission, make the bottle lighter and keep it just as attractive as before. Another example of sustainability and value, Verallia Germany is very active on the returnable, also called reuse market. It's a strong and promising market for Verallia. But before I go into what Verallia is doing on this market, I must give you a little background. First, the returnable packaging market is historical, well established, with very high level of shares in segments such as beer and mineral water in Germany. So it's a part of the past. But it's also a part of the future. The customer demand because of awareness for sustainability and the federal regulation are asking for a higher share of this returnable packaging. And of course, glass is the best material for reusable packaging. It's healthy. It is durable. It is chemically inert. For the glass industry, the returnable market offers a large potential in 2 ways. First, it allows to compete with other packaging materials in segments where glass one way does not. And second, every product, every segment, every customer moves to a returnable packaging needs to create a large amount, what we call a pool of bottle to fill the logistic chain. It's all these projects that goes into the filling line, the distribution network to collect the empties, the cleaning process and back to the filling. So that's exactly what Verallia does. We help the customer upfront from the very start of their new projects before the production of these new pools. And we have identified for that 4 trends that are leading to more creation of these new pools of returnable bottles. The first trend is retro. You see this bottle on the bottom left with the traditional ceramic closing. While that's a very old style closing but that we put on new products. That's -- we make new bottles that look older. The second trend is just the opposite. We make old bottles look new. It's iconic bottles who need to be replaced with new bottles of the same shape but a slightly modernized design. There is other trends like standardization. Four very large breweries in Germany have decided to replace their individual bottles with one unique standard model shared in command pools to be produced. And then we have new segments, like, for instance, with the work we are doing right now on yogurt in returnable jars. One point to finish is to stress how large can be the needs. If you see the bottle on the bottom right, it's a fruit juice bottle in glass, a very long partnership between the juice producers and the glass makers. And our plant is about to record a video to celebrate the production of the billionth bottle, and the production goes on. And after that, then the recycling. As every company in the group Verallia, we set ambitious targets of cullet in our products. And to achieve that, we develop sustainable access to these cullets. What we already did, a joint venture with REMONDIS, leader of glass recycling in Germany. We secure 50% of our needs through this joint venture, and we grow together according to a plan already defined. What are we doing now? While you can see this chart below, the increase has already been 10%, and it keeps going. And especially, and I will present it in a minute, we are increasing the capacity in our plant of the joint venture in the South region. What are we going to do for the future? Next capacity increase in the North is under study. And a very interesting idea is how could we close the loop of the full circular economy of the cullet by involving our customers directly in partnership with us. So now besides the collection, we need to increase our usage. The limitation of the cullet is often the quality achieved, not because of glass that can be recycled forever, but because of contamination in the collection. And if you see what will be a traditional line on the chart for every 100 tons collected, 13 tons are lost through the process of cleaning and preparing the cullets. Now our answer to that, we are building and innovating a line with 2 separate streams: one for what we call the gravel cullet, bigger size, and one for a smaller size we transform in glass sand. It allows to maximize the quality. It allows to increase the quantity, and it allows to reduce the waste. So you can see the numbers below, 50% more quantity, 50% less waste. Now you can see through this example that we have found many ways to innovate and to improve, to create sustainable value. We do it upstream, we do it downstream, with our customers and with our suppliers because we are in a circular economy. Before I hand over to Quintin, you will see a nice video showing the collaborative work that has been done in Argentina with a local client, Trivento, to develop a brand-new bottle of Malbec, the iconic Argentinian wine. [Presentation]

Good afternoon. The video was a very good introduction for Latin America. My name is Quintin Testa, Head of Verallia in LatAm. Let's start with the overview of our businesses. At the end of 2020, we have EUR 337 million (sic) [ EUR 237 million ] sales with EUR 80 million adjusted EBITDA that represent 34% of ratio of margin. LatAm is contributing for 10% of Verallia worldwide sales and 13% for adjusted EBITDA. We operate in Brazil, Chile and Argentina with 5 manufacturing plants, 6 furnaces, with circa of 655 kilotons sold in 2020, with a headquarter in Sao Paulo, Brazil. We are present in all the end markets but mainly with wine and beer with global and local customers. As you could see, Verallia in LatAm has a solid and profitable footprint. As you know, the LatAm region is always exposed to some local constraints like in Brazil with up and downs in GDP, Argentina with a strong fluctuation on exchange rates and also in Chile with social stress on top of the global crisis like the COVID one. And despite that, Verallia LatAm is growing in volumes year after year, reaching the point that we are sold out since 2020 despite the capacity increases that we did in 2019. And at the same time, we are delivering the committed EBITDA, above 30%, with a significant 37% CAGR EBITDA growth from 2015 to 2020 without the impact of ForEx. All that is thanks to the application of our business fundamental: first of all, with a strong and experienced local team always supported by the group; operating in the right end markets, with a strong presence with local and global customers, keeping very strong intimacy to have a healthy commercial spread; and the last but not the least, operating with excellence in terms of quality, safety, efficiency and deliveries; and the last but not the least, delivering all the time the productivity action plan above 3% of cash costs year after year. Then LatAm region is reaching excellence in almost all the aspects of the business criteria despite the very challenging local environment. Our market -- please have a look at the right top graph. It's about 3.1 million tons. Briefly, 1/3 is wine, 1/3 is beer, 14% is spirit and others. Each country has different dynamics. For instance, in the case of Argentina and Chile, wine market growth is driven by sustained export and local consumption despite difficult macroeconomic situation. Just to illustrate that, in terms of wine in Argentina has growth the per capita consumption in the last 2 years almost 3%, gaining market from beer. In the case of Chile, it's growing 6% in between '21 to '24, thanks to export not only to Asia but also to North America. The case of Brazil is also very dynamic. Beer and wine are the largest contributor to the market growth. Beer end market is following the trend of one way and localization trends, localization meaning that beers that were produced outside Brazil now are produced and bottled in Brazil, as the case of Corona. And in the case of wine, we are increasing in Brazil the consumption per capita almost 28% in the last 2 years. As a conclusion, then we focus on wine end market in Argentina and Chile with a strong leadership position, offering quality innovation and delivery, and in Brazil for all the segments with a strong focus on the fast-growing beer and wine end markets. Now let me introduce 3 business cases on which we are very proud of. As you know, in the industry, to create the conditions to work safely is fundamental. And in our business, it's not different. A safe place to work is our priority in LatAm. As you can see in the left side graph, the accidents and the rate of frequency per million hours worked. You can see a very nice improvement and almost achieving perfection. It means -- meaning 12 months with no accidents. This improvement is thanks to the implementation of our safety road map, eradicating safety, risky conditions. In the last 3 years, we have eradicated more than 30,000 different risks identified by our collaborators, also training and implementing all the rules and the standard from Verallia Group. Then 0 accidents is achievable, and we have reached this level in LatAm. The second example is also about diversity. As our purpose say, reimagining the glass for a sustainable future, Verallia LatAm created a program called Diversos to have an environment that offers opportunities to all people. We perfectly understand that our gender diversity index in LatAm needs to be improved. This is why Diversos will support to create an inclusive workplace to work. Our strategy is to act in 3 pillars: first of all, education, diagnosis and processes. We started with actions in 2020, working on the career paths, career accelerations. In example, we have implemented a program called [ Training ] on which we are hiring new talents focalized on women; hiring also specialized on external support to identify position that can be offered to people with disabilities, providing awareness to all of us with lectures and sharing experiences; and the last but not the least, looking for our internal processes to adjust things that we do daily. We know that there is a long way to go, but we started. Diversity is more than a word. It is an attitude. The last but not the least, very linked also with the circular economy is the external cullet utilization. Considering that this cullet collection is important for us, we explored a way to increase this collection. Just to brief you on the picture in Brazil, 75% of the glass goes to the landfill. This is why our main focus is to work in collection of cullet, working with beer distributors, with some customers using the logistics chain, implementing some reversed logistics to get back this glass to our facilities. The second is also the implementation of the program called 1,000 Collection Boxes with target to collect from this program by 2025 almost 24,000 tons of cullet. The last but not the least is support environmental education with authorities. As you could see, we focuses on increasing the cullet collection as it is the current bottleneck in our region. The last but not the least, it's about the strategic investment in Brazil. As already announced, we are in the middle of the brownfield project, adding a second furnace in Jacutinga, Minas Gerais that will provide 120 kilotons capacity addition, mainly for beer end market, mainly also for one way. This investment will account for almost EUR 60 million. And let me inform you today that this project is running as per the plan, meaning that we'll start production in December 2022. And also, I have the pleasure today to announce a new capacity increase in Brazil for 120 kilotons capacity addition to grow across the wine and spirit end markets, for green in spirits, for the south of Brazil with an investment of approximately EUR 80 million starting production in December 2023. As you could see, we are investing on the fastest-growing segment of the dynamic Brazilian market. As a matter of conclusion, LatAm is a region performing well despite the local conditions. We sustain our results, thanks to the disciplined implementation of the strategy. And we are ready to grow, thanks to the strategic investment already announced. Many thanks for your attention. You will now discover the last video concerning the booming Brazil and the successful building of our plant in Jacutinga in 2019. You will see how efficient the team has been, which only bodes well for further investment. [Presentation]

Thanks a lot for your attention until now. You are more than 100 connected. I have already received questions, but please do not hesitate to keep on sending them until the Q&A session starts. It is now time for a short break, and we will resume with Nathalie, who will walk you through the financial part before Michel concludes. Let's be back online in 5 minutes.

Good afternoon, everyone. I am Nathalie Delbreuve, the group CFO. I will lead you through the financial performance of Verallia before presenting to you our new midterm guidance. So let me start my presentation with some historical figures. The story of Verallia is one of sustained growth and improved profitability. You can see on this page on the left the net sales of Verallia from 2016 to 2020, reaching EUR 2.5 billion at the end of 2020. This is a story of sustained organic sales growth, plus 7.4% per annum over the period, and despite the COVID period. On the right, you have adjusted EBITDA, growing steadily over the years, plus 7.6% per annum over the period, and EBITDA margin reaching 24.7% at the end of 2020 for EUR 626 million. This performance comes from 3 key financial improvement drivers. The first one is sustained volume growth. Our market is expected to grow out of 2020 at a rate at least equal to the past 5 years, that is plus 2.1%. The volume growth is supported by increasing customer concerns about packaging sustainability, and glass is gaining shares, as Michel has presented to you. And we have the additional contribution of new furnace openings. Second, positive price/cost spread. We have a continuous, very strict policy of preserving a positive price/cost spread across all our segments. Our prices benefit from value-based pricing initiatives, and we have a continued purchasing and hedging policy that I will present to you later. And third, very important, operational excellence deployments that Michel presented to you extensively. We continue to focus on this pillar with a target from our Performance Action Plan to reduce at least by 2% our cash production cost every year. This is a key pillar of our adjusted EBITDA growth and to continue. So now let's look in more details about the period 2018 to 2020 and the first semester 2021. So you can read here the bridges of our adjusted EBITDA on the top for the full year from 2018 to 2020 and on the bottom for the first half of 2021 compared to 2020. So from left to the right, we have, first, the activity pillar that is the result of the organic growth that I commented to you further, and that has been strong over that period. You have here a negative number that is due to the important destocking that has been necessary to address that growth, and we do not expect that destocking to go beyond 2021. The second pillar is the spread, positive price mix/cost spread, as explained. And here, our prices increased more than cost inflation, you can see, delivering significant high number to the EBITDA. The third pillar is the net PAP. So operational excellence, delivering more than EUR 35 million per year in average, even in 2020 when we had the COVID impact. And this is even EUR 21 million in the first half 2021. So more than 2% production cash cost reduction. Then the last 2 pillars, other and mainly exchange rate, negative as we have exposure to Latin American currency mainly. But you can see that this adverse effects are more than offset by the organic adjusted EBITDA performance. So all in all, we reached at the end of June an EBITDA of 26% -- an EBITDA margin of 26%. This is why we say our IPO guidance on adjusted EBITDA margin, that is go above 25%, is achieved 1 year in advance. Now on the next 2 slides, let me focus on our cost structure and the cost -- and the policy on hedging and purchasing to limit the volatility of these costs. So first, we have a disciplined and dynamic risk hedging policy on energy, CO2 and exchange rates. We have for energy and CO2 a hedging horizon of 3 years, and we progressively hedged during the year N in order to reach in October of the year N for energy, 100% of the target of the year N+1, 50% for the year N+2 and 25% for the year N+3. And for CO2, very similar but with higher percentages for N+2, 75%; and N+3, 50%, as the volatility is even higher. As per today, for the Phase 3 -- Phase 4, we have EUR 55 million already carbon quotas purchases in order to address these needs. Exchange rates, very limited transactional foreign exchange risks for Verallia as we have very local business. But still a strict hedging policy of 100% of our firm commitments. Now here, you can see the cost breakdown of our cost structure and with 3 main categories that are around 20%: production labor, raw materials and energy. In the breakdown of the raw materials, you can see that external cullet share is now exceeding the total of the other raw material volumes. And this really reflects our commitment to ESG and our target to increase the share of cullet in our raw material. For energy, I already commented to you the hedging policy that we have. And for the other purchases, we will favor long-term partnerships, mainly for minerals and chemical. We will have multiyear supply for CapEx and more opportunistic purchase approach for molds and equipment with low-cost countries. Our procurement process is very efficient with a matrix organization and professional purchases. And very important, our practices are responsible for purchasing, and they are now deployed in all the countries, covering CSR risks and for CO2 Scope 3 aspects as well. So all that in order to gain visibility and to contain the volatility of our cost base. Now here, let me lead you from adjusted EBITDA down to net income. You have here the years 2018, '19 and '20. And on the right, the first year -- first half year 2021 compared to 2020. So you can see the adjusted EBITDA and the lines below leading to net income. In the depreciation and amortization line, that is about EUR 280 million per year, you have around EUR 60 million that is linked to the customer relationship recorded in 2015 at the Saint-Gobain spinoff. And this is amortized over 12 years. That's the EUR 60 million. Now in the adjusted -- in the adjustments -- sorry, to EBITDA, that you have the full breakdown below, you can see that the amount is reducing year-over-year with a very low amount in H1 2021. In 2020 restructuring costs mainly related to the transformation plan in France. And in the years before, you will find costs related to the IPO that, of course, we do not have any more. Financial income and expenses have been reducing strongly as well were impacted by IPO refinancing costs. And now we enjoy, as I will show you, a low in financing cost for our debt. Income tax. We have an effective tax rate of around 27%. That has gone down as it was 30% in 2019. And we benefit from specific measures, for example, in Italy, in patent box in 2020. So as you can see, a steady improvement in net income and our EPS, excluding the PPA impact that I commented to you, is superior to EUR 2 in 2020. Now let's talk about cash. As Michel's put it, cash is reality. So the key drivers for the cash flow generation at Verallia, and it is very strong as I will illustrate, we have 3 drivers as well. Adjusted EBITDA, strong adjusted EBITDA, as I just commented. So high level and improving. Smart CapEx, overall, 10% of sales invested every year with recurring CapEx maintained at 8% of sales. And targeted strategic investments, additional capacity in growing markets and specific investments to reduce our CO2 emissions in line with our ESG road map. So the cash conversion is around 60% that is a very comfortable level. And after that, a very disciplined working capital management, supply chain actions to optimize inventory level and the quality and tight overdue management also supported by a large customer base that is mitigating the risk. Now this leads to very strong cash flow generation, as you can read on this slide. You have here operating cash flow and free cash flow for the years 2019 and 2020. So operating cash flow is -- has been above EUR 400 million, reaching EUR 442.1 million in 2020. And you can see after operating cash flow, other operating impact, mainly including IFRS 16 for EUR 18 million, and the adjustments to the EBITDA that have a cash impact, for example, the COVID costs in 2020. Interest paid and other financing costs have been reducing significantly, as explained for the P&L. And the cash tax is now -- has been EUR 60 million and is now with an effective tax rate of 27% ongoing. So a high conversion of operating cash flow into free cash flow. Verallia benefits from a robust balance sheet. You can read on the left, a simplified balance sheet structure at the end of June 2021. We have a high-quality tangible asset base, representing around 40% of the total assets. Steady investment. Average CapEx around 9.8% of sales for the past 5 years and a new furnace being currently built in our Jacutinga plant in Brazil, with a start of production end of 2022. Our capital structure post IPO is enhanced. We have an equity of EUR 595.4 million. And you can see that it was EUR 50 million in 2018. And the net gearing is 2.2x in 2020. Our ROCE after tax is above 20%. And here, in the calculation, we exclude the goodwill and asset step-ups from the 2015 Saint-Gobain spinoff. The ROCE has been regularly increasing with a mix of rising adjusted EBITDA that we've seen and capital employed very well under control. So our business model is supported by high-quality asset base and robust balance sheet. We've been continuously deleveraging the company since the IPO. You can see on the left, the net debt levels and the leverage that is now at the end of June, below 2 at 1.9x. And this after EUR 109 million of share buybacks in the first half of 2021. We have a high comfortable liquidity level, close to EUR 850 million. And as a consequence, you can see on the right, we have enjoyed multiple credit rating upgrades since April 2019. We are currently BB+ stable with S&P and BA2 stable with Moody's. We believe our trajectory is towards further credit rating upgrades. We have been working as well on the diversification of funding and the lengthening of our debt maturities. You can see on the right, the detail of sources of our funding. And very proud of the first line that is our first inaugural stability-linked bond that we issued in May for EUR 500 million. And that has pushed the maturity of this EUR 500 million to May 2028. This bond is also fully aligned with our ESG road map and strategy as the 2 KPIs are CO2 emission reduction and external cullet usage that are 2 key pillars of our strategy in ESG. So lessening of debt maturity, and all that with a high competitive cost of financing that is kept below 2%, all including. So what are the key financial takeaways? So first of all, we have a proven financial performance since the IPO. Positive organic growth despite the pandemic and IPO midterm targets met 1 year in advance. Second, our business model is straightforward and relying primarily upon self-help initiatives, positive spread, strict discipline and PAP, reducing -- reduction of more than 2% of our production cash cost basis every year. Both very well under control. Third, sustained cash flow generation. As I illustrated to you, cash conversion is very strong. And all of that with financing our ambitious ESG plan and also pursuing the deleveraging of the group. Fourth, solid and efficient balance sheet. As you have seen, low leverage, diversified financing sourcing and rating upgrades and also a high ROCE. And last but not least, we have, and we believe our -- the environment is supportive for this new midterm guidance for '24 that I will now share with you. The demand environment is supportive. Our pillars are delivering and especially our self-help measures. So now our new midterm financial guidance from 2022 to 2024. Organic sales growth. We believe a CAGR plus 4% to 6%, half from volume and half from price mix. And with the assumption that the inflation will be moderate after 2022. Adjusted EBITDA margin reaching 28% to 30% in 2024, and here, based on spread and net PAP continuously delivering. Cumulative free cash flow. That should reach circa EUR 900 million over the 3 years. And this, including, as explained, recurring strategy -- and strategic CapEx around 10% of sales, our CO2 related CapEx and 3 new furnaces by 2024, 2 in Latin America, as explained to you by Quintin, and 1 in Italy. Earnings per share, excluding PPA, should reach circa EUR 3 in 2024. And shareholder return policy, dividend per share growth superior to 10% per annum and accretive share buybacks. So thank you all for your attention. And now, let me hand over to Michel for the conclusion after this intense afternoon.

Thank you very much, Nathalie. Now it's time to conclude. You've seen during today's presentation our winning strategy for profitable, inclusive and durable growth. It is based on the 4 pillars: Pursue disciplined growth, including strategic investments, and this will contribute to 4% to 6% per annum organic sales growth; Then we'll keep increasing operational excellence, improving our margin, EBITDA margin, to 28% to 30% by 2024; Third, we will invest wisely for a stable future, and cumulative cash flow -- free cash flow expected during the period will be EUR 900 million over the next 3 years; Fourth, because everything is based on our people, we keep anchoring a strong entrepreneurial culture. And we'll deliver earnings per share around EUR 3 per share by 2024, excluding PPA. And our dividend per share will grow more than 10% per annum. So thank you very much for your attention. Let's reimagine glass for a sustainable future together. And now, we'll take your questions.

So we have the first question for Romain from Paco. Could you please explain if the 9 plants that work 100% with 0 emission includes also the melting process? How do you do it?

Okay. So maybe I will clarify a little bit that point. Those 9 plants are, in fact, having a specific contract to get green electricity. So it's only the electrical part of the energy we consume in those plants which is carbon free. And as a reminder, the electricity today in our plants represents between 15% and 20% of the overall energy we consume. So a portion of it is used in the melting energy. A portion of it is used in the non-melting. But overall, this green or carbon-free power is only for electricity, so roughly 15% to 20% of those plants.

Thank you, Romain. Another question, how Fit for 55 could impact in volumes given the import tariff to glass from outside Europe?

Okay. So the expectation -- so first of all, we don't have all the details around the -- some of the elements of Fit for 55. And in particular, the carbon border adjustment mechanism, which if it's implemented and if it's implemented in a fair way, in fact, should have a limited impact on the import because that will allow us in Europe to play on a level ground when it comes to CO2 cost.

Last questions for you, Romain. What steps can you take to secure more cullet supply? I am considering that many players are trying to secure more cullet. Other than just paying more for cullet, can Verallia differentiate by vertical integration or similar here?

So in fact, as I explained in the presentation, you've seen already some examples. There are 2 ways for us to continue to increase the cullet that we can use in our plant. The first one is to work with current cullet suppliers and to work on the long term. So through long-term agreements or joint venture as we have did in Germany with Remondis. That's the first item. The second one, especially on the low cullet country that, yes, we will start to work more on the collection, being actively and directly involved into the collection in the -- working with people who are collecting, but also local administration to be able to do that. You've seen the first example in the presentation on Brazil by Quintin.

It was the last question for Romain. So question for Olivier Rousseau. What are you expecting from the competitive agreements? And where are you today on that?

Yes. So the transformation plan is behind us, and we had a majority of our employees so basically agreeing to our competitiveness agreement. So the heavy-lifting is behind us. And today, we are clearly focused on improving our industrial performance in order to improve our competitiveness and our financial performance. So the goal for me is very simple is that I want France to reach the level of other Verallia countries in Europe. That's what we are after.

Thank you, Olivier. A question for Marco. Can you explain the competitive landscape and if there is any acquisition opportunity in Italy?

So the particularity of Italy that is a very fragmented market. You have to keep in mind that it's the only case in Europe where you are really 10 players, 10 glass producer. And anyway, we have also to say that is also quite good growing market because from 2014 to 2019 till the COVID, it was a CAGR of 3.5%. That was bringing to lack of glass. That's still an issue anyway. And it's the reason because in the future landscape in the coming year, there are 3 new installations expected to be made by 3 different players in the plant. And at the moment, it's also growing the import because import roughly is around 20% in the plan. So the fact that everyone is looking to put capacity because the market is very dynamic -- fragmented, but the dynamic, is also the answer to, unfortunately, the second point. Because we are looking around about possibility to make acquisition, but the situation is quite good for all the payer because the market is good. And so we have to wait probably another time. We are looking around, but this is not the right moment to make acquisition in Italy.

And this is the reason why the Italian teams have proposed to invest in a brownfield project, that will start in 2024. Since we cannot find decent acquisitions, we'll grow organically faster. And this project will enable us to capture the growth of the market.

Paulo, can you give us more examples on what you are doing to promote glass towards end customers?

Okay. As I have presented you have in the Slide 64. So what we do is through our Glass National Association (sic) [ National Glass Association ] in Portugal and in Spain and with the help of FEVE, Friends of Glass is to use the platforms like YouTube, Instagram and TikTok and using influencers to engage end consumers to the qualities of glass. In the right side of the slide, for instance, you have a popular band that have made a song highlighting the qualities of the glass and using bottles as instruments. So this is one of the things that we do in the region to promote the glass and to reach the end consumers.

Thank you very much. The next question will be for Northern and Eastern Europe, actually. Okay. So a question regarding returnable glass bottles. When high a volumes returnable glass bottle system is put in place on a dedicated product, say, for mineral water, for example, is Verallia selected as exclusive producer or can customers source standardized products from different glass producers? And if exclusive, how is the glass producers selected?

Well, in fact, we have different models. It really depends on the customer. It depends on the situation, and we're flexible to the segment we need to serve. But if you remember the slide on the returnable, there was one little picture about 2 bottles in the retro mode. This is typical of an example where we are the exclusive producer of a bottle that goes to several customers in the beer market, okay? But -- and then you go a little bit to the right of this slide, you find the 4 breweries that redesign a pool of bottle -- not only a pool a family of bottle, in this case, we will be one of the supplier among others. What is important, the key to success is to be early in the process, in the cooperation, the collaboration with the customer in the design of these new articles.

Thank you very much, Hugues. Now I have a question for Quintin, actually. So Quintin, why is EBITDA margin in LatAm way above the rest of the group? Good question.

That's right. Despite the local situation and the specificities of our region, I believe the implementation of the strategy is done with a very disciplined manner. First of all, we have a very strong and dedicated team supported by the global activities also. We are well aligned with the market working with local customers but also with global customers with a huge intimacy to try to keep always a very positive spread. And last but not the least, our operations are achieving the level of excellence First of all, working on quality, working on safety, improving the efficiency, the service rate. And the last point, a very important one, is we are reducing our cash cost through the productivity action plan, 3% year-on-year.

Thank you, Quintin. I'm sorry, but I'm receiving other questions live. So I have a question -- another question on Northern and Eastern Europe. What is achievable in Northern and Eastern Europe in terms of margin, given the less attractive mix, i.e., less wine, et cetera? Because actually, it's a question from Fraser who was asking also if we could give color on the target margins per region implied by the guidance. So it's an online question.

Okay. In fact, in Northern Europe, there is a very interesting segment. It may not be driven always by the nicest design that we see in other regions such as France, but there is also a differentiation on performance through the functions. The industrial customer, they want very high performance and they're very selective on the performance of their suppliers. So that's also a differentiation and that's also a value driver. We also know that the diversity of segment is interesting. And wine is one, sparkling -- I was going to say sect, sorry. Sparkling is another segment. There is a lot of pockets of value in the region, and we are driving a strategy on each of the segment that we want to develop.

Thanks, Hugues. And regarding the margin by region, I think Michel, you can answer that.

So we don't give specific targets by region. As you can see from the segments reporting, Northeast Europe is also a region that has probably a lot of potential for further improvements to close the gap with, for example, South and West Europe and the rest of the group. And most of the improvements will come -- as Nathalie explained, one pillar will be the growth and very selective growth in the most value-added segments, as Hugues just said. The second pillar will be a positive spread. Again, in this segment, especially in the countries where the currency can change a lot, like Ukraine or Russia, we always aim at providing a positive spread year-on-year. And the third pillar, which is applicable to all divisions is clearly the PAP. And here again, we have great opportunities in this region to improve the performance of our plants and to reduce our cash cost with the performance action plans. So not -- the study is not very different from the rest of the group. There's probably a bit more upside in this region than, of course, in Latin America, which is already the guess -- the star, if you want, in our company in terms of performance on all matters.

Okay. Well, thank you very much to Hugues, Dirk and Quintin. I think now we will move on to the group and the financial questions for Michel and Nathalie. So if I may start with the questions around pricing. So when you're talking about 4% to 6% percent annual growth, is management not concerned that it will have to give it back -- or to give back some of the large price increases needed in 2022? i.e., what gives you confidence that prices can be kept at that level?

We are not so much focusing on price. We are focusing on spread, which is, I think, very important. Spread is the difference between price increase and cost increase. And our goal, clearly explained by Nathalie, is to, every year, achieve a positive spread. I remind you that this year, in many countries in Europe, the prices have been reduced. But we've been able to reduce our prices less than the deflation of cost that we've seen in Europe. So altogether, if you remember this year, in the first semester, when we announced and presented our results to you, we were talking about a flat price in average in Europe, with some countries or some product segments a little increase, a little decrease, overall flat. In -- and what is important is not really the price increase or price decrease. What is important is the difference between pricing and cost. Going forward, and we know very well that today is a really hot topic, if I can say so, in terms of energy cost inflation, we're going to have to go for a very high price increases in the coming days, weeks and months with our customers. But if you look at the forward prices of electricity or gas, for example, you see that there is a huge hump next year in 2022. But prices start to go down again in 2023, which means that, of course, if we have a decrease of prices of energy in 2023 and 2024, we will reduce our prices in order to give back to the customers the inflation of cost that we will see in that year. Adding up, of course, what we need to want -- what we want and what we need to achieve is always end up with a positive spread. So price is, for us, less an issue than spread. What we want is in the 3 pillars that Nathalie has explained to you, that will make our business model work and deliver the results that we've been delivering, we need to have a positive spread. Whether the price is positive or prices negative, which means we decrease prices.

Thank you, Michel. A question from Jamie. Verallia, can you please break out pricing assumptions by region in this guidance?

Same thing. I mean, basically, you know very well, and it has not changed this year, we have basically 2 big regions. We have Europe, 90% of our sales, and I will then separate from Latin America, which is 10% of our sales. Latin America, the prices are very specific to the countries. Countries like Argentina, which are in hyperinflation. We had 45% inflation last year in Argentina, and we increased our prices in Argentina, more than 45% in order gain to end up with a positive spread. Inflation is a bit less in Chile and in Brazil. But these countries, in any case, are used to negotiate prices several times a year as and when needed. Europe is a bit different. I remind you that in Europe, usually, prices are fixed once a year, negotiated once a year, very often starting January 1 to December. And we negotiate those prices based, of course, on the inflation that we see -- or that we measure at the time of the negotiation. This is why, for us, it's very important that when we enter a negation which is starting now, basically in October, in October, we hedge most of the costs of the following year, especially energy cost. If we don't hedge raw material prices, we at least have long-term agreements, which provide us some visibility on our cost base. And this is the starting point for us to understand what kind of price increase we need to get in order to end up with a positive spread. So we will not disclose country by country or segment by segment because this is, of course, a very sensitive topic. But for sure -- if you remember in terms of price increase, we mentioned that in -- at the end of July that we were looking in 2022 to price increases mid-single-digit increase. That was the end of July. You've seen energy costs increasing a lot during summer. So beginning of September, a month ago, we were talking more high single digit. And as of today, if I were to tell you what will -- what kind of price increase you need to get to end up with a positive spread, we are talking clearly about a double-digit price increase. So it's going to be unprecedented. At least in the recent years or the last 10 years, we've never seen such price increases. But this is the kind of price increase our salespeople will have to go and negotiate with our customers in order to end up with a positive spread.

Thank you, Michel. I think you've answered to most of the questions regarding pricing. Any guidance on 2022 EBITDA margin linked to the pricing that you -- the selling price increases that you will have to pass in this year?

It's clear that we have -- like the rest of the industry, a tough challenge to get our price increases go through the approval of our customers, okay? For sure, it's going to be an interesting time in the coming weeks and months for our salespeople. We are, as we speak, preparing our budgets for next year. The assumption we are taking is that we end up with a positive spread. Positive means just 0. We don't need a lot more than 0, but just 0. And we will provide -- once we've completed our budget process by the end of the year, we'll provide to all of you a guidance for 2022 EBITDA margin and EBITDA, probably when we announce our full year results at the end of February next year.

Thank you, Michel. I think we will now go to questions regarding capacities. So what about capacity addition of Ciner Glass in Belgium -- U.K., and Sisecam in Nigeria. Surely, these volumes will impact the balance of supply.

Yes and no. I mean, certainly not in the short term because those 2 projects will probably not come to the market before the end of the 3-years horizon that we presented to you today. So these additional capacities, if and when they come, are probably not going to impact the market before 2025. So that's why the -- it was not included in our capacity increase, knowing that in the meantime, the market keeps growing. So by 2025, the market will need more capacity anyway just to support its growth. So at this point in time, it's not impacting our 2024 objectives.

Thank you. Then regarding operating performance, could you highlight the expected average capacity utilization of the group in 2021 versus 2016? Also, the average age of furnace now and in 2016.

Well, capacity usage is a very, I would say, not a commonly defined measure. Every company is defending their capacity use differently. So it's not really, I think, very relevant to speak about it. One thing for sure, and I think I mentioned it at the time of the IPO 2 years ago, when I joined 4 years ago, we had some factories that could produce more if we were able to debottleneck some specific areas. And we've been investing in those factories from 2017 to 2020 to debottleneck in a methodical way those areas in order to -- with very small investments, with very marginal investments to increase our capacity. So not only we, of course, are improving our yield and our efficiencies in our plants, which means that we are able to produce more with the same plants and the same capacity. But on the top of this, during the period, 2016 to '20 -- end of 2019 before the pandemic, we've also invested in debottlenecking some areas in many plants we had in Europe. Now regarding the second question on the furnace, you know very well that we repair, we rebuild every year, 6 to 7 furnaces, which is a very regular rhythm or pace of reconstruction, which means that we have no pent-up investments to come. We have a regular and ongoing refurbishment program. That means that on average, the average lifetime of a -- lifespan of furnace, being 12 years, it means on average, I would say, our 58 furnaces on average are 6 years or 6.5 years old. And every year, I mean, you have 1 year -- 1 furnace, which reaches 12-year-old and then we destroy and rebuild. And then you have a new -- the same year, you have a new furnace with 1 year or less than 1 year aging. So on average, we are very stable, and you've seen it in our, for example, CapEx expenditures. We've been investing always between -- around -- between 9.8% -- sorry, at 9.8% on average in the last 5 years of our sales in our factories, just to, of course, keep our assets at the best state of art, if you want, and modern state and efficient state -- most efficient state as possible. And this has been ongoing. So there is no real change in the last few years, and we don't expect any change going forward. What we change is, if you add new furnaces, the new furnaces will slightly reduce the average age. But 1 furnace out of 58 will not change dramatically average --the average age, sorry.

Thank you, Michel. Last question on prices, sorry, that just arrived and is Francisco. So I'm asking it. If you have a better cost base than the industry, do you expect lower price increase than peers to reach 0 price gap? Or you expect peers to have a negative gap?

Well, that's a tough question. At the end of day, your question is about aging, indirectly, because the cost base -- the cost structure of this industry is about the same for everyone. Now of course, you have some slight labor cost differences between countries, okay? France being more expensive than, for example, Italy or Spain. But the cost structure of the industry is pretty much the same everywhere. Now the aging that we have is not aimed at speculating. And some years, we have a positive impact due to aging. Some years, we have a negative impact of aging. Last year was a negative impact of aging because we aged 2020 in October 29 before the pandemic at a much higher energy costs than what we saw last year. So we will -- we are forgetting aging when we talk to our salespeople. Aging has nothing to do with salespeople. It's purely financial. Our salespeople have to justify every year their price increases, or sometimes price decreases, based on external indexes, external cost drivers that our customers can measure, can validate. And in that case, we are aiming at passing the inflation that we see in the market. Now I will not comment about our competitors. I don't know what they will do and what is their strategy. But for us, it's very clear. We are going to ask our customers to get the price increase that is basically a pass-through of our cost increase. At the same way, I repeat, this year, many customers had a price decrease because price -- energy prices have decreased last year.

Thank you, Michel. A question regarding share buyback. How much of cash will you spend on share buyback? Is there any limitations about the share you can purchase from Apollo? Can you buy more shares from Apollo in order to make their exit smoother?

Well, regarding, first of all, Apollo shares. I mean you've seen that 2x this year. We participated to the ABB of Apollo by buying back 2x shares from Apollo. This was, I think, very smart from -- to point of view. First of all, because it didn't impact the liquidity, so it didn't reduce the liquidity of the market. So we bought directly from Apollo. So no impact on the liquidity, which I think is important. And as you hinted in your question, it has also reduced the overhang -- sorry, associated to these divestitures of Apollo shares. Going forward, depending, of course, on the prices -- we are not going to commit to anything today, but because our share buyback policy will be opportunistic very clearly. We have the cash, if we find at some point in time that there is an opportunity to create value for all shareholders by buying back shares, we will do it. And of course, if Apollo sells some blocks going forward, we will consider, as we did it this year, buying back some shares without having an impact again on the liquidity. So we'll be very opportunistic in terms of share buyback policy. We have the means and the resources to do so when it makes sense. And we will decide with the Board when to do so. Regarding the amount of money that we are dedicated or we will dedicate to share buybacks, it really depends on whether we have strategic projects, whether we will make acquisitions, what the level of debt will be going forward. We don't want it to go too low. But at the same time, again, we'll stay very flexible, agile and opportunistic when deciding about share buybacks.

Thank you, Michel. Going back to hedging. So how do you manage the energy costs? Which impact on the P&L for 2022 and beyond from inflation? And what are your hedge level?

This one is for you.

Yes. This is for me. So as I shared with you, energy costs represent around 20% of our cost base. And Page 87 have the detail of our hedging policy. And it is a disciplined policy. And as Michel explained, we are not speculating. The target is to average the evolution and the peaks of the prices on the market and to give us visibility before we have to start the price negotiations with our customers. So our hedging policy is with a 3-year horizon. So it means that we started hedging our energy needs for 2022 in 2019. And then steadily, we increased up our hedging to reach 100% of 85% of our needs now in October. And again, I cannot share with you the details of this hedging.

Thank you, Nathalie. Could you please explain the sensitivity of 2022 EBITDA margin as a function of natural gas prices? What happens to your guidance if gas remains elevated in 2022? I think we are talking about midterm guidance.

Right. I think we are back to the comment on hedging that I just explained. I just explained that we, today, have ended up the hedging for 2022 as per our strict policy. So our midterm guidance is including this situation already.

Thank you. Regarding EBITDA margin, any idea of the path of improvement towards your 28%, 30% EBITDA -- adjusted EBITDA margin target?

Right. I think let's go back to the strategy and to our performance pillars, financial performance pillars that we explained. So the first one being sustained volume growth in the markets that will support our performance. Then the second one is a positive price/cost mix spread, which Michel explained lately also. And the third one is very important, is our operational excellence. So performance action plan. That is delivering around EUR 35 million per annum. So that is already close to 1 point. And really, this is the delivery of the 3 pillars that will help us reach this level of margin.

Thanks, Nathalie. So now if we go to CapEx. Have many questions on CapEx. Can you share more details on the 3 planned new furnaces, phasing of construction and ramp-up location? How many additional volumes will they bring? Did you want to close down furnaces throughout this 2022, 2024 plan? And -- but I can -- maybe we can stop there because I have others.

Okay. So let's start with the capacity and impact on CapEx. So we explained that we plan to have 3 furnaces opening in this guidance, so from -- until 2024. So the first one is -- we announced already earlier this year is the Jacutinga 2 plant in Brazil that is going to start producing end of 2022. And then an additional one that should start end of '23 in Brazil as well. And one in Italy for mid- or second half of 2024. So this is the additional capacity. And each of these furnaces should produce around 120,000 tons per annum. So this will help us fuel the -- I mean, address the organic growth that we see on the market and so sustain our guidance on the sales.

Very much, Nathalie. Another question, will any...

Second part of the question.

Sorry. Wait, sorry -- yes, you're right. Any additional comments, yes.

The answer is no. We are not planning to shut down any additional furnace. You know that the only area that could be concerned potentially by not reconstructing furnace is France. At this stage, we have no reason to believe that the competitiveness plan that has been agreed with our employees in France will not be executed as per the commitment that we have taken and as per the commitment that our employees have taken, and therefore, we should rebuild our furnaces in France. So the question -- it's very clear, we are not planning any furnace shutdown in the coming years.

Yes. Thank you. Will any of the new furnaces be able to utilize new technology?

Yes, I will take this one. In the road map that Romain has presented to you, we have internal innovations that are very interesting. They are included in this plan, okay? And they will help us achieve our 27.5% CO2 reductions as per the communication we made in January. Now when we talk about really breakthrough innovations like hydrogen, like carbon capture, like many other things that are still in the air right now and in the process of being developed right now, we have not -- any of those included in this plan for the next 3 years. The reason is because the technology is not ready yet. So if it happens, and we hope it will happen -- and this is what gives us hope that it will happen before 2030, and therefore, this is why we've increased our ambition for 2030 because we believe that in the second part of the decade after 2025, we will have these new technologies available for us in order to accelerate our -- decarbonation of our company. And the best example is the hybrid furnace that we are currently developing with a consortium of glass makers in Europe, which is the Hybrid Furnace of the Future (sic) [ Furnace for the Future ] in Europe, which will aim at switching or swapping the ratio of gas and electricity from 80% gas, 20% electricity today to 80% electricity -- green electricity, 20% gas tomorrow. And by doing so, we'll reduce by 50%, by half, the emissions of the furnace -- the CO2 emissions of the furnace. So this was not included in the first plan that we presented in January. Is now included to some extent, beyond 2026 in our plan for the new ambition that we have, which is to be at 1.5 degree Celsius temperature increase and not more.

Thanks, Michel. A very related question. Are the new emission targets implies further CapEx?

Yes. But again, beyond 2026 -- beyond '24, sorry, because for the next few years, these are the things that we plan. This important CapEx, and especially when you're talking about a new processes, new innovations, if you aren't in the process, this is something you don't decide today for tomorrow. You have at least 2 or 3 years visibility on what you do. So it will not impact the next 3 years. So no additional CapEx as beyond the one we gave you as a guidance, which is basically around 10% of CapEx for the next 3 years -- around 10% of CapEx in the next few years. All included, including the strategic CapEx, which means including the 3 furnaces that Nathalie has just mentioned.

Thank you. Then if we move to CO2 emissions. In order to help us quantify the impact of rising CO2 prices, can you disclose the yearly expenses for CO2 contracts every year in euro terms or at least your net short position at group level? At what path you allocated CO2 contracts will decline in the coming years? Considering your CO2 savings trajectory, do you expect overall CO2 costs to grow in the future? And last question, sorry. Which policy for CO2 quotes for Phase 4 and the cost for the company, such as provisions and stuff like that?

All right. So I'll try to answer everything, but if you see I miss appoint, please, come back to it, Alexandra. So first, we have on CO2, and I explained as well a hedging policy. And I cannot give you and I will not give you details on our CO2 amounts in euro and CO2 hedging impact. I can just remind the hedging policy that is also very strict and exactly like for energy, no speculation, hedging step by step with a 3-year horizon in order to be hedged at around October or at the end of this year, for 100% of the year to come, 75% for the year after and 50% for the year, so the third year. So -- and we are rolling that every year. Now what I can tell you is that we have approximately 500,000 tonnes CO2 deficit every year. As per today, we don't have actually the final definitive figure this year -- deficits as Europe is quite late in the process. And yes, it is -- I mean, the way it works in Europe is that you take the benchmark and then the quota allocations are decreasing every year to challenge the sector. So around 1% a year. But as we have shared -- I mean, we are also working on decreasing significantly our CO2 emissions on a faster pace. So we are, anyway, working also on the number of CO2 that we emit.

So maybe to complement the answer. As you know, we are short today and we have to buy today a bit less than 500,000 tons of CO2 quota on the market. As Nathalie said, it's been already anticipated. Going forward, we -- even with the new Fit for 55, I would say, expected impact on the CO2 quota and the tightening of the CO2 market, the ambition that we have taken to reduce by 4% to 6% our emissions by 2030 should put us in a position where we will not have to buy a lot more quota than what we have -- we are buying currently. So it should be more or less within the same area. Probably a little bit better because if we -- depending on the timing of our implementations -- of our savings implementation, sorry, we can be a little bit better or a little bit late. But altogether, it's not very different from the shortfall of about 500,000 of CO2 quota that we are today.

Thank you, Michel. Now I have a question regarding PAP, so performance action plan. What are the key drivers of 2% per annum decrease in production costs? That seem like -- that seems like a very aggressive target.

Well, I will take this one because that's the same question I heard during the IPO 2 years ago. More or less, day by day 2 years ago. So at that time, we've been already 2 years in the company. I was showing the good trajectory of PAP reductions we had made in 2017, '18, and it was part of '19. And the question was the same, "Say, how are you going to do it in the next 3 years?" And the answer is -- I explained, if you go back to my presentation, it's not a one-off project. It's not a few million-euro project. It's an ongoing methodology and an ongoing work of all the teams to go after the costs 2 times a year in very great details to identify waste and losses, to define projects, to implement projects and very fast -- as soon as the project is finished and completed and we have the savings, we moved to another project. I'm sorry to say that I've seen that for 20 years in the automotive and it worked for many years, so we're not -- I'm not committing for 20 years, but certainly for the next few years.

Okay, thank you. Now regarding competition. Which region market -- in which region or market is there more risk that the competition authorities could step in because of the oligopolistic nature of the industry? Is the risk medium or low?

Well, when we do our risk map, let's be clear that we report and it's part of our annual report. The risk map, clearly, this is a risk that is -- we have clearly in mind. This is a very competitive market. And even if in some regions, the consolidation has led to a few players. This industry is very strict at complying with the competitive laws. And certainly, at Verallia, we've implemented and we are doing every year training to all our employees about those laws like any other laws. By the way, like the other laws that we have to comply with. So we take every possible measure to make sure that we obey by the rule. And the fact that it's a concentrated market,is making this topic even more, I would say, accurate or important for any player. And we are clearly -- we have this risk in mind. We are taking all possible measures to make this risk as little as possible.

Thank you, Michel. This is the last question -- or set of questions regarding M&A. Could you discuss M&A ambitions, regions which the group could target without having concentration issues with the authorities? Would the group become more vertical, either into raw materials, closures, alternative substrates?

Well, two questions. Regarding the geographies, of course, there are a few countries where, when you only have 3 producers, it's hard to believe that you can go to 2. So both countries by definition, will not be -- the opportunities for further acquisitions. But on the other side, you have many countries where you still have a lot of players and still -- opportunities like Italy. And Marco spoke about 10 players in Italy. In Central Europe, you have quite a few players still. And we are very keen on, of course, studying any potential opportunity. Regarding the vertical integration, this is more Marco Ravasi's decision. Basically, if we are vertically integrated, either uphill or downhill, in other words, with our raw materials. We are already partially doing it with cullet because we have already integrated the cullet treatment activities. For half of the cullet we use today is being treated in our own plants. So we are also -- we are already partially integrated upward with the cullet treatment plant. We don't see really opportunity to keep, I would say, vertical integration upward. But it's really a Marco Ravasi's decision. We don't know. Today, we don't see it. It's not obvious. And down the supply chain is the same. We are very business-oriented. We are pragmatic. We have no region, if I can say so, and as such. And another good example is what Marco presented to you. We are currently being integrated -- or we are currently integrating some distribution activities in Italy because we believe we can better serve directly our customers with more added-value products and services by controlling some of the distribution. And therefore, we invest in the distribution. So it's really depending on the countries and the business cases. We have no real firm commitment. Now the third question is diversification. So far, we have not seen any diversification. We are a glass producer. We provide services around glass like decoration, like bottling activities. We have a small bottling activities for very high-end wines in France. Not such a big city, but it's a service that we render to our customers. We could expand these kind of services that are linked to our business. But going very far away from our business needs to make sense from a business point of view and also from a value-creation point of view. So why not? If we have some good opportunities to do it, we'll look at them. But as we speak today, we have nothing concrete to speak about.

Okay. Thank you very much, Nathalie and Michel. I think I'm done with my questions. Thank you very much.

Okay. Well, thank you very much, Alexandra. Thank you very much all of you for listening to our investors presentation today. I know it's been a long 3-hours presentation. Thank you for your supporting Verallia and following what we are doing. You clearly see that we have a very strong ambition in terms of implementing a winning strategy that is both profitable and inclusive. And last but not least, sustainability is really at the heart of everything we do. And today, for us, is an important day since we commit today on working towards a 1.5-degree C global warming target, which, of course, for us, is giving a lot of sense given our purpose which is reimagining glass for a sustainable future. Thank you very much, all of you, and have a good day.