Verallia Société Anonyme (VRLA) Earnings Call Transcript & Summary

Hello, and welcome to the Verallia Financial Results for Financial Year 2024. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Patrice Lucas, to begin to this conference. Please go ahead, sir.

Good morning, everyone, and welcome to our call for our Q4 and full year 2024 financial results. As usual, Nathalie and I will go through our presentation, and we'll have a Q&A session at the end. I will share with you some key highlights, and Nathalie will present in details our numbers. And then I will come back on our guidance. So to start with, just to remind you that Verallia is a global leader in glass packaging. We are #1 in Europe, #2 in Latin America and #3 worldwide. On this chart, you have our IV card. You have on the left the '24 split of our sales by segment. As a reminder as well, one of our strong assets is our customer base, more than 10,000, and the diversified end market in which we are operating. In 2024, still wine represented 32% of our sales and sparkling wine 12%; spirits, 16%; beer, 12%; soft drinks, 11%; and food 17%. We do operate in 12 countries with 35 plants with 64 furnaces after the closing of one furnace in Essen and the acquisition of 2 furnaces in Italy. Please note as well that we are running 19 cullet recycling centers, allowing us to control about 50% of our needs for external cullet. Let's now move to some key highlights of 2024. Despite the market context, we have continued to invest and innovate for 2024. All of that to prepare our future. One, in July, we completed the acquisitions of Vidrala's Italian activity, confirming our strategy of investment in key markets. Integration is going on and as expected we have many synergies already in place. Two, we commissioned the first electric furnace in Cognac dedicated to flint production. This launch is a success. We confirmed the CO2 emission reduction by 60% compared to a traditional furnace. This is a key milestone confirming the robustness of our decarbonation road map. Three, lightweighting is a trend. And in 2024, we launched a new standard of 300 gram for 75-centimeter Bordelaise bottle with our so-called Air range offer. This offer is getting a global recognition, recognition from our customers and from the glass industry. We will keep on pushing the limits with our Air range. Four, people being the most important resource to do our business, we have structured in '24 our employer brand strategy. And it is now a key pillar within our strategy. Finally, 5, we successfully issued a new euro senior bond for a total amount of EUR 600 million, reflecting the confidence in Verallia. And as a result, we have no significant debt maturity before 2028. On the CO2 emission front, we are progressing towards our 2030 target of a reduction of 46% compared to 2019. Scope 1 and 2 are down by 9.4% compared to 2023, meaning that compared to 2019, emissions are down by 23% -- 23.7%. The efficiency of our actions are clearly demonstrated with a reduction of our emissions in intensity, 0.44 ton of CO2 per tons of glass in '24 compared to 0.47, which is a reduction in intensity in '24 compared to '24 -- '23 by 6.4%. Our external cullet usage has reached 56.7% in '24, plus 2.6 points compared to '23. Obviously our acquisition of Ecosan treatment cullet activity in Spain has supported this performance. And finally, our low carbon electricity share went up to 64% in 2024. To make it simple, we are on track with our decarbonation road map implementation. Let's move now with some 2024 business insights. About 2024 market, as we presented and anticipated in July with our H1 results, market conditions in '24 were not as good as the expected one beginning of '24. Consumption in Europe was soft for a year and recovery through destocking much slower than initial assumptions. Destocking was at play for most of the year. In our view, still active in spirits and on some other products significantly exposed to export share. In addition, the growing trade tensions have created and are creating uncertainty impacting export-oriented end markets leading to cautious positions of many customers. In Latin America, on the opposite, market was very supportive. And last but not least, about capacity, we saw some acceleration in capacity shutdown across Europe and North America. Everybody being cautious with capacity management. And if we just take Europe, compiling the official public announcements since end of 2023, we count 11 furnace shutdowns. About our mitigation action plan, a quick update of what we have presented in our latest goals. One, on pricing. We have continued the disciplined pricing policy taking into account the context of demand and available capacity. But we will focus on value-based pricing. Two, we made the appropriate decisions on capacity adjustment. The utilization rate of our installed capacity averaged 90% over the year, leaving 10% of our capacity unused. Another reminder, we closed one furnace in Essen, in Germany, with a voluntary departure plan of 90 people. Three, our productivity and cost control action plan delivered strong results with PAP savings at 2.8% of cash costs and SG&A down compared to 2023. Finally, focus to support cash generation was key, adapting CapEx to the context and keeping working capital under control. Before giving the floor to Nathalie, a quick overview of our Q4 and full year '24 results. So despite the challenging market, we are delivering a robust profitability above 24% and organic volume growth in Q4 is confirmed. Q4 revenue is down by 1% year-over-year. Full year '24 revenue is down by 11.5%. Adjusted EBITDA in Q4 is EUR 201 million, plus 4.3% compared to Q4 '23, with a margin at 24.5%, plus 125 pips versus Q4 '23. And for the full year, adjusted EBITDA is EUR 842 million, minus 24% compared to full year '23, with a margin at 24.4%, minus 401 bps compared to last year's. Net income is EUR 239 million, minus 49.8% versus '23, giving an EPS excluding PPA at EUR 2.38. About net debt, leverage is at 2.1x at the end of December compared to 2.3x at the end of September and compared to 1.2x at the end of '23. And please note that at the next Annual General Shareholder meeting, a dividend of EUR 1.70 per share will be proposed. I do not comment the extra financial indicators as I just did previously. So now let's see the details of our financial numbers with Nathalie.

Thank you, Patrice. Good morning, and good afternoon, everybody. So let me lead you through the usual sales and the EBITDA in cash for the year 2024. So we start with Q4 2024 consolidated revenue bridge. So you see that we moved from EUR 829 million sales in Q4 2023 to EUR 821 million in Q4 2024. So pretty stable numbers with different pillars. So the volume pillar is positive in the fourth quarter. We have volumes that are up organically in Q4, low single-digit growth. And basically the comment here is that we saw in Q4 for volumes a very similar organic growth versus Q3, so in the full H2. And on top of that, we benefited from the positive contribution of the Vidrala Italy operations that we acquired in July 2024. These are to be seen in the perimeter pillar on the bridge. Then the price mix, as you can see, is significantly negative with a minus EUR 94.4 million. We have growth based price declines in Europe and the impact was mainly in H1 for negotiations. So we have the effect of these H1 negotiations in Q4. Mix remains slightly negative across all regions and the negative price mix impact is mainly in the South and Western Europe region. The exchange rate impact is also slightly negative with EUR 11 million. And one very important comment about Argentina in Q4, let's remember that in December 2023, there was a significant devaluation of the IRS in Argentina, 50% devaluation. And then because of the high inflation country, we had to revalue the full sales and EBITDA of the year in December in 2023. So that's why by comparison, you will see both in EBITDA and in sales for Q4 big positive numbers in Argentina. It's more that the Q4 2023 numbers were very low for Argentina, even leading to negative sales for the quarter 3. If we move to the full year, so the revenue bridge is showing that we are moving from EUR 3.904 billion to EUR 3.456 billion. The organic growth, as Patrice mentioned, is minus 11.5% for the full year and this is minus 14% for if we exclude Argentina. We have a volume down in the full year, but again organically, we are up in H2, which is showing signs of recovery. So you can see that the volume pillar here is negative, even if again we have seen that in Q4 it was positive. Volumes are down year-on-year mainly in Europe, so mostly in spirits and wine. And we see positive contribution again in H2. And in Latin America, we have a strong positive contribution with solid year and still wine performance. And if you remember, we have additional capacity, one furnace more in Brazil supporting this trend. The price mix pillar is negative EUR 366.3 million. We have again here negative contributions from the price reductions in Europe, mainly in H1. And we have a slight negative mixed impact over the year. The FX perimeter effect is a negative with a 32 -- minus EUR 32.4 million. You can see the perimeter that is mainly Vidrala Italian glass business, but also our cullet treatment centers in Iberia that were acquired in Q4 2023. And the Argentina has a separate pillar. So moving by regions, you can see that we have -- so this decline in revenue for the regions for SWE and you will see for North and Eastern Europe. So in South and Western Europe, at constant exchange rates and scope, the decrease is minus 12.7%. So we have here a combined effect of what I commented on the volumes and also on the prices with some negative contribution of a mix despite a better H2 here. And in South and Western Europe, of course we have the impact of the acquisition of Vidrala Italy in July 2024 as a scope change. If we move to North and Eastern Europe, this is where we see the most significant decline, minus 21.6% at constant exchange rates and scope. Revenue declined mainly in Germany and in the U.K. So Germany, you know that we adapted capacity on a permanent basis with one furnace in Essen to adapt to the situation. So main impact coming from beer. We have seen though a good pickup, especially in food jars in Q4. And U.K. is mainly -- you know that it is very much focused on spirits, high-end spirits. So that are hurt significantly in the market with destocking still ongoing in the segment. If we look at Latin America, we are back to positive numbers with plus 21.1% at constant exchange rates and scopes. And here again, I already commented that we are enjoying good volumes, especially in Brazil. And we are -- we have the support of our new Jacutinga furnace. Chile is also with a positive momentum, especially in Q4. Then the price and mix effect overall for the region is positive. You know that we are pushing the inflation to our customers in the regions. So how does that convert into adjusted EBITDA? Let's look now at the fourth quarter Q4. So our EBITDA margin first on the top right is 24.5% in the quarter. That is better than Q4 2023 that was 23.3%. If we look to the left, so we moved from EUR 193 million to EUR 201 million EBITDA in the quarter, so a better quarter. And you can see on the pillars that the activity pillar is positive, plus EUR 35.6 million. So we already commented the organic volume effect. And we also have the effect of inventory variation. Again, let's remember that in Q4 2023, we were adapting very significantly our capacities slowing down in order to reduce our inventories, while in 2024, we are more maintaining our inventories. If we look at the spread, we see a negative spread, so minus EUR 63.7 million. This is driven mainly by lower selling prices that are not offset by lower costs. And again, here it's more the effect of the price adaptations that were made throughout H1 that are still running in the fourth quarter. If we look at the net PAP, we have a very strong performance, as commented by Patrice, and this is for the full year. You will see as well we are well above the 2% that are our target with 3.1% cash production cost reduction in the quarter. So very strong performance here. In the other, you have the effect of the perimeter, so the contribution of Vidrala Italy operations, and also some SG&A cost reduction, leading to a positive number of EUR 6.3 million. The negative FX impact is due mainly to Brazilian reals. And then you have Argentina with the comment I already made about the devaluation in Q4 2023. So for the full year, the bridge, we are back to a negative numbers in activity. But again, you have seen the positive momentum for Q4 with minus EUR 165.7 million in activity. For the spread is the main negative driver, minus EUR 200.4 million. So here again same comments, mainly driven by selling prices. And even if we had some deflation in cost in 2024, it was to a lesser extent and some small negative mix impact. The PAP is strongly positive, EUR 61.9 million positive. That is a 2.8% cash production cost reduction. The other, again, includes mainly SG&A reductions and contribution from Vidrala Italy operations. You have the FX mainly driven by Brazil, and Argentina back to more normal numbers for the full year. So by regions, very quick. We have South and West Europe adjusted EBITDA evolution, so down by 24.5%, so leading to EUR 548 million. You can see on the top right that the margin keeps in the group average at 24.1%, of course decreasing versus previous year. And here, as commented, I mean the pillars are exactly as I commented because they are mainly in Europe, and you can see that the industrial performance PAP was strong. And here, of course we have the impact of the perimeter from Vidrala Italia mainly. North and Eastern Europe, we have here a lower contribution with an adjusted EBITDA of EUR 147 million, so declining by 39.7%. And the margin is 19.4% compared to 24.9%. So here, we are accumulating, of course, the lesser news on Germany and the U.K., which I already commented to you. And even if PAP was extremely strong, 3.8% with U.K. joining and fully deploying PAP and Germany doing a very good job, this is of course not sufficient to compensate. Latin America is showing a very nice increase. So adjusted EBITDA of EUR 147 million, increasing by 6.4% and 18.9%, excluding FX impact. And the margin, if you see on the top right, is -- keeps very strong at 34.4%. Moving to cash element. So CapEx has been contained significantly down versus last year and below 10%, so at 9.4%. You have here the split between recurring and strategic. So all in all, in the year 2024, we have maintained a strict control on CapEx and on spend in general, but not renouncing any of the strategic investments. So you can see in the comments, the 2 new furnaces, 1 in Campo Bom in Brazil, 1 in Pescia in Italy are under construction. And of course, Patrice already widely commented the CO2 CapEx that will lead to decarbonation. So Cognac started this year -- in '24, sorry, and Zaragoza hybrid furnace being under construction and coming this year. So the cash flow generation for the full year was ended up positive with EUR 82.6 million. Of course, if we compare to previous year, the main impact here is the gap in the EBITDA that you can see in the first line. We have, again, controlled our CapEx. So this leads to a cash conversion that stays well above 60% at 61.6%. In the operating working capital, we see a negative number and remember that our CapEx this year, especially in Q1, was very negative with high investments in Q4 2023, so minus EUR 65 million. On the other impact, other operating impacts include IFRS 16 adjustments and EBITDA impact without cash effect. Interest paid are very much contained at EUR 80.4 million. And the cash tax is heavy in the year, EUR 148 million, linked to some that we are paying in '24 taxes related to '23. So you've seen the leverage, 2.1x, improving versus September. Both adjusted EBITDA is improving and the net debt is reducing, thanks to the cash flow generation in the quarter. And in the year, let's remember that we paid EUR 252 million dividends and made the acquisition of Corsico for EUR 250 million. Here you have the finance structure and liquidity. So in main comment here since last call is the bond issued in November 2024 that Patrice mentioned, EUR 600 million with a nominal rate of 3.875%. And we have a new revolving credit facility of EUR 250 million that you can see here. So that leads to a comfortable liquidity of EUR 952.7 million at the end of the year.

Okay. Thanks, Nathalie. Before speaking about our guidance, I would like just to step back a few seconds about our performance and our track record since IPO. Obviously, one year ago, we are more ambitious with our initial guidance for '24. We are expecting a much more supportive market in Europe and a stronger recovery with a faster destocking. And we know now the reality of the market and that 2025 will still be a year of normalization with still some uncertainties. So if we consider the market conditions we faced in 2024, a soft end market, available capacity, premiumization being challenged, aging weighing on our cost. So if we put that into perspective, we can admit that our 2024 EBITDA is a robust and a very positive result after the 2 outstanding performance in '22 and '23. Delivering a result in '24 close to '22 under a bearish market with adverse macro conditions in a so-called fixed industry is a clear demonstration of our agility and ability to adapt. It's a clear demonstration of our fundamentals and all of that is very positive for our future. And between 2019 and 2024, finally the company has delivered an EBITDA figure of plus 7%. And at the same time, with our proposal of dividend of EUR 1.70 to the Annual General Shareholders meeting, since IPO the cumulative return to shareholders will be a dividend of EUR 8.1 per share. And including the share buyback done over the period, the cumulative total return amount of more than EUR 1.1 billion, which is, in our view, good value creation for our shareholders. For 2025, we still see a market normalization at play before structural trends and fundamentals taking over again. And as already mentioned, through the last comments of our customers, we see everybody being cautious with 2025. And the key words are demand normalizing, stable consumer environment, uncertainty. Some are even removing their midterm guidance due to lack of predictability. So therefore, for 2025, we expect consumption in glass demand to normalize in most segments, but end demand still soft and potential negative effect impact from tariffs for the export-oriented market. We expect a negative spread variation to weigh on EBITDA due to carryover from 2024 price decrease and that mainly in H1. We expect business to keep running below full capacity. We will keep on adapting production when necessary. But we will launch in Brazil in Q2 a new furnace and a new furnace at Pescia in Italy before the end of the year. This last furnace in Italy will be dedicated to food segment with production of jars. We still expect a positive momentum in Latin America, and we are -- we will still be active in implementing our ESG roadmaps. Our first hybrid furnace will be commissioned in Zaragoza in Spain in the second part of the year. And finally, we will seize any M&A opportunity. And beyond '25, we see construction recovering as fundamentals are still positive. We foresee spread being neutral as inflation normalize and entire price variations and installed capacity being adapted, we expect business to gradually get back to full capacity usage. In other words, solid fundamentals for glass packaging are still on. So for our 2025 guidance, despite uncertain environment with still soft European consumption and carryover effect from '24 price, we aim to achieve an adjusted EBITDA close to the one delivered in '24 and to more than double our free cash flow generation to be around EUR 200 million. This free cash flow generation will be supported by a CapEx level that will normalize around 9% compared to the 10% in the previous period. Focus will be clearly put on free cash flow generation. And finally, we want to inform you that we are planning to present our strategy, our midterm outlook, as well as our capital allocation policy during the Capital Markets Day in September. Thanks a lot for your attention. And now let's move to our Q&A session.

[Operator Instructions] Our first question comes from Louis Wiseur from UBS.

Just wondering 3 questions, please. So the first one is around the guidance for 2025. I was wondering what does that imply for volume -- like-for-like volume and price on the top line, please. The second one is with regards to the price/cost spread for 2025. You mentioned it would be negative. Are you able to quantify a bit more? And the last one is with regards to tariffs. So I understand that it will be hard to quantify, but is there any more comments that you can make around how you think about the potential impact on your business of tariffs from China on Cognac and tariffs from the U.S. on European imports, please?

Thanks a lot, Louise. So for guidance '25 for the volumes, so we do expect a slight pickup in activity compared to '24 as we see consumption being up at very low single digit, let's say. And in terms of volume for us, we see something between low- to mid-single digit growth in volumes. And I'm answering directly the tariff topic because as you said, I mean it's quite very complicated and difficult for us to estimate that. Obviously, we are not -- we do not have a direct impact. The impact is through the export of our customers mainly in spirits and still wine. So much more difficult to look at that. But we are -- to qualify that, we are much more vigilant. We do believe it could be embedded already in what every customer is saying about it and in what we are seeing for our activity being low- to mid-single digit growth in volume.

Regarding the spread, Louise, I can comment a bit more. So we've been saying for a while now that we will have a negative carryover effect from the selling prices having been lowered throughout the year in 2024. So that's why we know for a long time that we have this negative impact entering into 2025. As for the cost, what we see is that inflation in Europe is coming to lower levels everywhere. We -- also we anticipate some still a bit of improvement in some lines like cullets, a bit of deflation. So all in all, we should have a pretty flattish evolution of cost and moving into prices in 2025, maybe some selective price cuts, but everything moderates. So the main impact again is coming from the carryover effect from 2024 entering into 2025.

And sorry, what did you say for the price on the top line? What is your expectation on the price on the top line?

So prices, I said some selective cuts maybe on prices. And then otherwise, you know that our strategy is to ensure a neutral spread entering into the year, meaning we look at cost evolution and this gives us the -- what we need to push or what we can keep with customers. So we try to ensure a neutral spread entering into -- I mean, from January onwards. But again, we anticipate to have to make some selective cuts in prices due to the environment.

We're now taking our next question from Lars Kjellberg from Stifel.

Just coming back to the price/cost spreads. And if you look back a bit on '24, I mean your hedge programs I think you commented it before that was sort of a net negative as you had some higher priced hedges versus where spot markets were. And as we trend moving into '25, you earlier talked to, broadly speaking, a sort of equal energy cost in totality. So what I'm trying to understand now, if you can comment again how you see specifically the energy cost inflation for you. And at the same time, of course, we've seen a significant price increases for natural gas. How do you think that's going to impact overall market prices? And as such, I was a bit surprised to see you still talking about selective price declines. So putting that into context with the surge we've seen in gas prices, any color on that would be helpful.

Thanks a lot, Lars, for your question. So you remember that -- so we have an hedging policy, which is for '25 where we covered ourselves at the end of last year for 80% to 85% of our estimated needs for energy for '25. So it means that you're right, based on our coverage and our hedging, we are well positioned, let's say, compared to '24. But as you mentioned, for the remaining part, which is not covered, which is between 10% to 15%, let's say, of our needs, you see the volatility of the gas. And it's quite amazing the volatility we have seen in the last weeks going up to EUR 58 per megawatt hour and then now down below EUR 50. So this part obviously will impact us. I can guess that it will less impact us than some competitors who do not have some hedging policy. But this is how it's going to weigh or not for this nonhedging part on our cost. About pricing, I mean obviously as it has been mentioned by Nathalie, we want to be disciplined. We'll be disciplined, but we have to consider as well the market reality and this gap between our market and available capacity. So we'll be [indiscernible] let's say, specific and it's not at all the same configuration as the one we had in '22 and '23. So difficult to make a direct prediction and difficult to comment what the others are going to do, but we are going to defend ourselves in a disciplined way.

No, that was perfectly clear. Apology. You sounded like I interrupted you. Were you going to say anything more? Apologies.

No, no, sorry. No, no.

And then when you are now looking into the outlook, I appreciate all the uncertainties that you're seeing. But can you give us any sort of flavor of how much capacity were actually taken out from Europe in '24? You talked about the 11 furnaces. How does that compare to the demand decline when it comes to the supply side?

So you're right. So all of that is obviously the combination of the data we are doing through our business intelligence. And you're right. So since the end of '23, it's 11 furnaces which have been shut down or to come -- in the months to come, let's say. And this 11 furnace does represent about 1 million tonnes, let's say, which is about 5% of the capacity in Europe. So difficult to say what is the remaining overcapacity. But from -- in our case, and this is what I mentioned for '25, we still see us not using 10% of our capacity as an average over the year. So it's participating to the reduction of the gap between the demand and the capacity. We can estimate that it would be half, let's say, of the gap.

Final question from me. Activity was a pillar that was very negative last year. And obviously you built inventory in '23 and you normalized it, I guess, in '24. And you spoke to sort of low- to mid-single digit volumes in your system, which, of course, is then posit for activity. Can you at all anticipate any -- given the guidance on what you think about inventory variance in '25?

Yes. So inventory, I'll take this one. You very well understood the dynamics in '24 for the inventories. And what we see for 2025 is more stable inventories because as you very well reminded, in 2023 we had to rebuild the inventory. Then from now, we are maintaining the inventory at the current level now. So in 2025, the variation coming from inventory should be much smaller. There is always a variation. And there is a bit of seasonality between H1 and H2. But for the full year, we won't have the same changes.

And you would dare comment positive or negative or just neutral, just...

Yes.

Just based on more stable...

[indiscernible]. Yes, within that.

We will take our next question from Francisco Ruiz from BNP Paribas.

I have 3 questions. The first one is on the spread, mainly on the cost side. We have seen costs reducing significantly in the last 2 quarters. And my question is, first, if you could explain what has driven this, if it's just Germany closure or something else? And what should we expect for 2025? And if you could detail some of the initiatives? The second question is on your expectation from production curtail for 2025. I would like to know what's your current situation and where do you expect to be at the end of the year? And finally on Argentina, you mentioned that you have a bid. I understand that you can't disclose the retail buyer. Could you give us an idea of what's the profitability of Argentina, if it's above or below at least Latin American business?

Sorry, Francisco, can you repeat the first question because frankly, we were not sure we understood.

Okay. Sorry. So the first question is on the spread, but more on the cost side and in the price. So there has been a big reduction of cost in Q3 and Q4. So I would like to know what are the reasons for this? Is it just the closure of Germany? And what are your expectations for 2025 and the initiatives that you are taking in order to reduce costs because it's part of your guidance of offsetting part of the negative pricing with the cost initiatives?

All right. Okay. Thank you. So what you have in the spread now, pillar, is the inflation or deflation in costs. When we are having initiatives to reduce the run rate of costs, you will find that in the PAP pillar. So that -- and I commented that our PAP performance in 2024 has been very strong and well above the 2% that we are targeting. So when we present the spread pillar, we are really looking at the unit cost inflation or deflation for cost. So the deflation that we had in 2024 is linked to deflation overall on energy, on raw material that we -- all that we commented throughout the year. And moving into 2025, as I said, what we see is more a flattish inflation because we will have still inflation on, for example, labor cost. You know labor cost is about 20% of our total cost, and we have -- we are following the country inflation. So even if inflation in Europe is lower, there is still some inflation. And in other categories like raw materials, we anticipate a bit of deflation mainly coming from the cullet, the normalization, I would say, or at least the decrease in cullet prices, mainly in South and Western Europe. So the combination of all of that is showing something pretty neutral for 2025, Francisco.

Okay. And Francisco, so for your second question about capacity, so for '25, we see an average at group level of 10% curtailment. This is what we see as an average for the year. Obviously, which will be adapted according to the market conditions.

Sorry to interrupt you. So you do not expect volumes to jump so much and you expect to have 2 furnaces during the year, one in Brazil and curtailments continue to be up 10%?

Yes. What -- so Brazil, it's a totally different story obviously. There is no curtailment topic in Brazil, and we will run at full capacity. So the 10% I'm giving is an average at group level with no impact in -- with no curtailment at all in Brazil. And the furnace in Pescia in Italy, we are planning to build -- to start, sorry, to commission is really at the end of the year. It's really at the end of the year with some business to come and to be ready for '26 impact. Okay? And about Argentina, so as you have seen and as we have mentioned in our PR, so we have received an unsolicited proposal for the acquisition of our 60% stake in the Argentine company. So we are going to -- our duty is to investigate if it makes sense for the company or not to sell. If we have a good value for it, we'll see if we make a decision, a positive decision or not. This is under investigation. And as we speak, we do not reveal the detailed profitability. We have just mentioned that it's a business which is generating EUR 444 million at the condition of pesos, euro at the end of last year. So we are doing our duty investigating this solicitation.

And do you have any timing for this decision?

It's going to take a few months. I mean, as usual in this kind of process. Once we -- once obviously, we'll have more information, and we'll come back to you on that.

We will take our next questions from Philippe Lorrain from Bernstein.

So I would like to come back a little bit on your comment on volumes for the year overall in 2024. Do I understand correctly that throughout the year, volumes were down by only 1% roughly?

Full year, yes. This is what we commented and this was our last guidance, in which volumes globally to be flattish to low-single digit down.

And could you walk us again through the different quarters, what the effect was at global level?

So for Q3, if you remember, we confirm that the first time the volumes were up compared to previous year, mid-single digit. Finally, the Q4 is in the same trend, about the same. So we had an H2 which is up, obviously with the impact of our acquisition of Vidrala. But even organic way, we are up compared to last year. But all of that leading to, again, a flattish to low-single digit down in '24.

And then I have like a couple of questions regarding the other unsolicited offer that you might receive or that shareholders might actually receive, the bid from BWSA or BWGI. I was just wondering because in your statute, you have doubling voting rights for shareholders holding shares nominatively for a period of 2 years. I was wondering whether you could comment on maybe the number of shares that BWSA or BWGI holds now nominatively and since when. Because if I look at the number of voting rights that they have and I compare to the number of shares that they hold, some of them must have doubling voting rights already. And I'm wondering when the rest might actually double. So that's the first question. And the second question also regarding the bid from the Brazilians would be regarding the financing. If I'm not mistaken, the 2 oldest bonds that you have, EUR 500 million each, they have a change of control clause in their prospectus, meaning that if there is a change of control, maybe the noteholders would come back to you and seek repayment, anticipated repayment. What's the plan in case has somebody had thoughts about that, especially on the side of the Brazilian? And maybe you can update us as well on the most recent bonds regarding potential change of control clauses there as well.

Thanks for these 2 questions. To be honest, your first one is very technical. But -- so just to remind that you're right, as we speak, BWGI holds around 28.84% of the company share capital and 27.9% in the voting rights, which is making it Verallia the current shareholder. But just about this project because it's just a -- we just want to remind that it's just a project as we speak. We have not received any formal proposal from BWGI. Everything has been said through the different press release. So we may receive one offer. If this is the case, obviously we'll inform immediately the market if such a tender offer is confirmed. And as a reminder as well, the company Board of Directors has set up an ad hoc committee composed exclusively of independent directors within the meaning of the asset MEDEF code and to monitor the work of the company's Board of Directors in connection with this potential tender offer. So the Board is going -- this independent committee is going to work if it's confirmed submitting a [ NAV ] recommendation to the Board. And the question you are mentioning about financing is obviously one of the questions which will have to be deal with. So nothing really more to say at this stage. And if you just allow me maybe to anticipate some other questions we could have, BWSA/BWGI knows obviously the company. We know them. And what they have mentioned through their PR is that for the business, the key word is continuity. It's continuity of the management, it's continuity of the strategy and supporting everything which has been done so far.

I understand that. I was hoping maybe a slightly more precise answer regarding the shares held nominatively because that's probably going to be decisive in BWGI reaching what they want, which is actually like achieving control on the company. Because doing the math, they would probably need to raise just like high-single digit percentage from their offer and that could be from existing big shareholders or just like on the market, but I guess where you're going to see that. But, yes, I understand that you might not have any precision to give.

No. At this stage and to be honest and to be clear on that matter, the Board is managing that. And myself and the management team is really to be focused on the execution of all our action plans being short term to deliver our numbers and being medium term to prepare the future.

And we can confirm that they have no double voting rights. They are [indiscernible]. So there is no double voting right. So as Patrice said, they are -- they have as per today a 27.9% voting rights.

That's a good precision. And maybe just a quick follow-up as well if you allow me. You're mentioning that for 2025, you will run at utilization rates of roughly 90%. And I think it was what you had as well for more or less for 2024. So what's the historical normal level, so to say? And what's going to be the aim going forward like after 2025?

In normal condition, we are full speed, so full rate, except the maintenance and the total repair we are doing. So it depends on the calendar of them on a regular basis. I mean, it does represent 2% to 3% of our total capacity.

We will take our next question from Manuel Lorente from Santander.

Yes. Just a quick follow-up first on [indiscernible] approach. Whether you can give us a sense of timing through the process, that will be helpful. Regarding the approach of the main shareholders, whether you can give us a reference in terms of timing. You mentioned that there has been an independent Board of Director that has already set up some meetings to analyze the potential deal. So do you -- are we moving to a weeks or months scenario regarding any consideration of the potential deal?

So, first of all again, this timetable and this timing you are referring to -- first, we need to receive the offer again and I do insist on that. And 2, it will depend on the work to be done and it is a Board decision. And the Board and their respective ideas would have to analyze in detail the offer. And at that time, there will be a communication of the timetable of a transaction. Obviously all of that being compliant with the applicable regulations, et cetera. But I mean, I can anticipate and tell you that it's not a question of weeks, but much more a question of month.

And if that is the case, how that might affect your upcoming Capital Market Day? I mean, because I believe that it might be complex to set up a Capital Market Day in September if we are moving to a potential sharp year scenario in term of shareholders in the coming months.

Yes. So we see why we put it in September according to the latest information in this potential project, let's say. And 2, let's keep in mind as well, this is what I mentioned, BWSA is already part of the board. They are supporting the company since day one. So I would say seen from the company, the strategy and what we have to do and all the challenges we have to face it, it's a nobody news. So we are much more in the continuous process. Yes.

And a question probably for Nathalie. Can you be a little bit more precise regarding the impact of the PIP plan for 2025, whether the 2% over cash cost is still valid or you are thinking more to the 2.8% of this year, or even north 3% and it has been the case on the second part of 2024?

Yes. So our target remains to be above 2% for production cash cost, which is already a minimum of EUR 50 million. So between EUR 50 million and EUR 60 million is our target and it is the target for 2025. So you know that for us, this is an ongoing process, recurring process. It's not a one-shot effort. So we have that in 2025, '26, et cetera. Of course, if we can do -- the more we can do, the better for sure. In our forecast, we do not forecast such high numbers as the 3% that was delivered in Q4. But of course, if we can do better, we will do. So let's say that in our guidance, we embed more above 2% to come to the conclusion.

And just my final question on the free cash flow guidance for this year, that the EUR 200 million, that implies a positive delta of roughly EUR 120 million versus 2024 free cash flow. Given the fact that you are going to have the limited benefits from cash revenues in the sense that EBITDA of this year going to be similar to last year. And you mentioned that CapEx over sales will be close to 9% versus the 9.4% this year. So that implies that EUR 20 million, let's say, positive impact in free cash flow. What is the rest of the EUR 100 million coming? It's just pure working capital? It's, let's say, less leakage from the other line that has been dragging down free cash flow this year?

No, it is very good question, of course. So you are right, working capital is a key driver. Remember that first, the VCR on CapEx is very negative in 2024, minus EUR 75 million. And as we plan to keep the same level of CapEx, we'll be very vigilant on this VCR. So that's one driver that we do not anticipate as negative in 2025. On the rest, I mean, on the operating working cap, there is also improvement plant in 2025. And we have one driver that is significant under cash tax as well. As I commented in 2024, we have EUR 148 million cash tax which is heavy for the year, because basically you are paying with one year delay. For next year, we see a significantly lower cash tax. So the combination of these 3 drivers help us mitigate the fact that the EBITDA, as you very well said, is planned to be at best at the same level.

We will take our next question from Jean-Francois Granjon from ODDO BHF.

First question, I will just come back on the pricing. Currently you have some negotiation with your clients, I think. So could you give us some color about what's happened? Can you increase the pricing or not or limited the decrease? What's happened and how -- can you explain or give a small color about the trend of the negotiation you have currently with your main clients?

Jean-Francois, thanks for this question. So a big part of the negotiation is on. Some is already concluded. We are going to conclude all of that, let's say, by the end of Q1 as usual, with still some remaining, but small ones which will be in dry, depending on the different contracts. What we see is that due to the market situation, we have, as an average and obviously you have to go in details country, come by country, it could be different and then even segment by segment. But as we see, and this is what we commented with our spreader in '25, we have to give some low-single digit price reduction compared to what we did in '24. In some cases, we're able to delay '24 to '25. So to make it simple, we have a carryover effect of '24 to '25, and we see an additional low-single digit down. And roughly, we are there, but still a part to be done till the end of Q1.

The second question, so I just want to come back on the spread effect. The spread was quite huge, a negative huge in last year, EUR 200 million. So you confirm a negative spread effect for 2025 and in which magnitude? So compared to the huge level EUR 200 million last year, do you expect a huge decrease regarding this level? Also could you have some more color about the huge impact last year?

We are not willing to give such information at this stage. What is here is that the magnitude of this negative will be not as last year. It has nothing to compare because if you remember in '24, we were comparing to '23 where we had price increase. So it has nothing at all to compare. But it would be negative again because we were still of -- we still have some carryover effect from '24 to '25.

And last 2 question from my side. Regarding the Argentina, so you mentioned the interest for the acquisition of your subsidiaries. But regarding the strategy, what is your position? Do you expect -- do you consider that Argentina will remain an interesting attractive market for you? When we see the huge contribution for the earnings from the Latam, so could we consider that Argentina remain a strategic country for you or not?

Well, I mean, what I can say, I can say that Latam remain the strategic region for us. I mean, as in every company at a point of time, you can make a review of your portfolio or geographic deployment. And then here we have this unsolicited offer. Clearly, we are not willing to sell, but as a duty, we need to do our job and to see if it makes sense at a point of time. And if we have a good financial deal, we may sell the aspects in this Argentina company to do -- I mentioned that we will still be active on M&A if we have nice and good targets creating value. And this will redeploy at the point of time in over geographic zone or consolidating, if it makes sense, in one or other countries we are. So this is all about that. This is the life of a company, reviewing portfolio, reviewing geography and all of that. So it was important for us to mention that. But we have this, which is, again, unsolicited. There is no decision made at this stage. But if we do it, it is because it will create value for the company and our shareholders. This is all about that. And obviously, I may say, obviously we'll consider as well our people in Argentina, and if we do it's because we believe it makes sense as well, and it is not negative impact on our Argentinian people as well.

And my last question concerns the guidance. I'm a little bit surprised by the moderate guidance mentioned for 2025. If we take in account some a little increase for the volume or better volume compared to last year, I understand that we expect some strong PAP impact effect and a more limited negative spread impact. Are you not more -- so more optimistic or, yes, for 2025 regarding the model guidance mentioned for 2025?

I mean, again, the context is quite complex to read with all these uncertainties. We see our customers being cautious. So on the activity pillar, we are making a hypothesis which we believe is realistic. But let's see. So we -- bottom line, we see a slight pickup in activity. We have our PAP, which will deliver as usual, let's say our 2% minimum cash cost reduction, and then as a negative impact, so we'll have this negative spread as we explained, and we still see as well some additional risk on ForEx, especially coming from Brazil. So all of that, when you make the balance, in our view, we are close to 2024 level.

We will take our next questions from Fraser Donlon from Berenberg.

I just had 3 questions. So the first is on Germany. You called out, I think, globally quite positive trends in beer, but seems Germany is still very weak. So could you maybe just help me understand what's kind of, I'd say, structurally going on in Germany? The second question is about you kind of mentioned there's 11 furnaces closed in Europe, and I think you only close 1 in Essen. So quite a low number relative to your market share. So I guess, is there kind of a risk that you might need to take further actions on the asset base this year especially if you open Pescia at the year-end? And then the final question was about the Ukraine. Could you just remind me kind of how your site there is operating and in terms of the number of furnaces which were operational, et cetera?

Thank you, Fraser. So you are right. So Germany is one of the market which is facing more difficulties, let's say. So this is why we decided there to make a structural decision last year, link with some delocalization of bottling from Northern Europe to all the countries, South America, South Africa and all of that. We see that globally as the Germany economy is quite down as well, 2 years of recession. So globally it's a real bearish market there. In our view for '25, we still see the consumption, especially in Germany, being slightly done compared to other countries in Europe what is going to be slightly up. So we do not see Germany recovering in '25. About furnaces closure, you are right. So 11 in Europe, only one for Verallia, the one in SN. And as we have always mentioned if we need to do some additional structural capacity adjustment, we'll do it. As we speak, we are much more on a temporary shutdown because we do believe that it will recover. But if we have to do additional ones, we will do additional ones. This is not what we have in mind, but again, we are vigilant, we are monitoring that on a regular basis based on the market condition and based on the capacity and the products we're using. For Ukraine, as we speak, we have one furnace running and we are making a maintenance operation on the second one and we are planning to restart -- final decision to be made, but we are planning to restart the second one during the year and I guess before the summer. So this is what I can do.

We will take our next questions from Mengxian Sun from Deutsche Bank.

So 3 questions from my side. So the first one is free cash flow guidance. So the EUR 200 million guidance seems somewhat lower to me if we compare the financial performance in 2022, where you generate a similar level of EBITDA. So can you walk through the bridge between EBITDA and to free cash flow for us and what is preventing you to generate the EUR 300 million feet cash flow in next year? And the second question is on the spread contributions for Q4. So if we look at the breakdown on the spread contributions, so in Q4 the spread has a much negative contribution, which is EUR 90 million on the adjusted EBITDA and compared to Q3 which is EUR 21 million. So what are the reasons for that? And the last question is can you give us some colors on the volume development in January and February?

So thank you for your question. So in 2022, when we compare 2025 hopefully with 2022, let's remember that in 2022 we had low inventory. We were reducing inventory with a very strong demand. So the main variation, even if EBITDA are quite comparable, is coming from working capital variation. And also if we go below pure operating free cash flow, we had less cash tax. There is some delay again here in the cash tax. So if you take that, the 2022 free cash flow, we had less below the pure operating free cash flow -- the operating cash flow, sorry. So in the other line, in the interest paid and in the cash tax. So all in all, this is adding to make the difference in the generation of cash. But the VCR was more supportive in 2022. Your second question about the difference in spread in Q4 and Q3, we are always comparing costs. So it's really quarter by quarter. It's more difficult to follow. What I can tell you is that if we take the price elements, we had most of the price decrease done in H1. So sequentially there was not so much more evolution. And on the cost, it can really be impacted in quarters by the energy variation. So Q4 to Q3, it's a bit tough to compare, frankly. Regarding volumes for the beginning of the year, we are pretty much in the same trend as Q4, I would say. So a soft start, but a normal start, I would say. I'm talking here, Europe, and if we go back to Latin America, sorry, maybe it's important to make the comment because in Latin America it's high season. So we have we still, as in Q4, have a very good momentum in Latin America for volume.

We have no further questions in the queue. I will now hand over to the webcast question. Please go ahead.

This is David Placet. Well, good news is we've had many questions over the phone. So I think we only have a few written question that have not been covered. So I'll try and stick to the questions which I believe haven't been addressed already. So one is from Atanas Angelov from BBVA. Question is, can you please give us more color on cash flow generation, specifically on other impact and working CapEx?

So in the other impact, so if we look at the way we present the free cash flow, so you have operating cash flow and then below you have 3 lines of our operating impacts, interest paid and cash tax. So in the other operating impact, basically what you have is elements in the EBITDA that do not have a cash impact because then you need to bridge to cash. So that's why, for example, you have the IFRS 16 element that is a bit below EUR 20 million. Here it is in the EBITDA, but in the end, this is pure accounting, so it has no cash impact. It's a very stable amount every year which we have to deduct it from the EBITDA to reach the free cash flow. If you have, for example, also some variation in accrues that are in the EBITDA and again, non-cash elements, you will see them on this other operating impact. And you also have a bit of unrealized ForEx impact again here to go back to the pure cash that is to be seen on the free cash flow line. Yes.

That's very good. Thank you, Nathalie. Next question and there's a few of them from Inigo Castellanos with Kepler. Four questions, I think -- 5 actually. Well at least 2 have been answered already. One, regarding the Argentina business and unsolicited proposal. The other the BW of perspective offer. So that's done. The 3 more. One is in relation to the impact of Argentina in Q4 EUR 150 million impact from currencies. I guess we've addressed that already, but Nathalie, I don't know if there's anything you want to add to it.

Yes, I can repeat. We had a very specific impact in Q4 last year, so 2023, because there was a 50% devaluation in Argentina and after Mr. Milei was elected. And because Argentina is in hyperinflation, there is a specific accounting. You have to use the last -- the ForEx exchange rate of the last day of the period to value the full period. So when such a devaluation happened in December as it was the case, we had to revalue so to cut or to reduce the full P&L of the year. And this was -- the full impact of that was in Q4. So of course, when we compare Q4 '24 to Q4 '23, we have this as a distortion. If we look at the full year, it's more normal, I would say.

Thanks, Nathalie. Next question relates from Inigo relates to '25 guidance. Three questions there. One is, what can we expect in terms of EBITDA margin? Second is how do you see pricing coming down? And the last is what about volumes? So in '25, is Europe flattish and Latin positive a fair assumption?

So on the last question, yes, it is a fair assumption. We see Europe flattish to slightly up as we said, due to the assumption. And we see that under a year very supportive again. So you are right in your assumption. But EBITDA margin, so we do not guide on this KPI, but we are guiding on this EBITDA in million euro, again close to what we deliver in '24. And on pricing, I think I did answer that already. So again, we're going to get some impact of what we did in price reduction in '24, '25. And then we see a slight down selling price evolution due to market conditions, due to the environment, due to some contracts that we are working on. And all that to be confirmed that this is our assumption as we speak.

Thank you, Patrice. And last question was about so the CapEx in '25. I think we mentioned 9% over the sales and Inigo was also asking whether that would be our mid-term goal?

Yes. Let me. So it depends on what you call mid-term, but obviously so our normalized level in the previous period was we were always said around 10%. And around this 10%, there was obviously part of the current CapEx, part of what we call strategy CapEx, which were to make it simple, CO2 road map implementation plus additional capacities. And obviously due to the market conditions and the way we see it, we have stopped all the additional capacities we are thinking about except the one in Brazil so which we are going to launch in comparable in Q2 and the Pescia one in Italy that is going to be launched at the end of this year. So obviously it means that within our CapEx level compared to previous period, we'll not see any more additional capacity. And this is why we have reduced and made decisions in '24 to reduce our CapEx level. And you have seen that down the year. This is why for next year we see that already also being done compared to '24, let's say. And we see that you are right as a mid-term normalized level, meaning that we're moving from around 10% to around 9%.

Thank you, Patrice. Last 3 questions. One is in relation to the price negotiation, so I think we addressed that already. Another is about glass containers demand in Europe. How much does it amount to in tonnes? That's slightly over 20 million. And the last question, which came in 2 slightly different forms is around share buybacks. One question being did you at some point consider suppressing the dividend to increase the amount of share buyback and another being what are your thoughts around share buyback for '25? That'll be the last question.

So for the dividends, so to answer clearly your question, no our priority was always dividend and plus share buyback if opportunity. And this was our clear capital allocation policy. And by the way, with what we are proposing, we are working the talk of the policy which was in '21 a year-on-year 10% increase of dividend. We are doing better than that. And so share buyback, no, we don't see that for '25. But again, we will come back at the end of the year in September. And within our Capital Market Day, this will be the opportunity to define clearly our capital allocation policy for the mid-term and the period to come.

Great. Thanks Patrice. Thanks, Nathalie. That's it online.

Okay. Thanks a lot to all of you. Have a have a good day. Take care. Bye-bye

Thank you. Bye-bye.

This concludes today's call. Thank you for your participation. You be now disconnect.