Verallia Société Anonyme ($VRLA)

Ladies and gentlemen, welcome to the Verallia 2026 Q1 Results Analyst Call. The call will be structured in 2 parts. First, a presentation by the Verallia Group management team represented by Patrice Lucas, CEO; and Cristina Riesgo, CFO. Afterwards, there will be a Q&A session. [Operator Instructions]. I will now hand over to the management team. Please go ahead.

Good morning, everyone, and thank you for joining us. Welcome to our Q1 2026 financial results call. I'm pleased to have with me today Cristina Riesgo, our new CFO. As usual, we will go through our presentation, and then we'll have the Q&A session. And after a quick introduction, we will go directly to our numbers with Cristina, and I will be back with our outlook for 2026. As an introduction, just to remind you, as usual, 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 ID card. You have on the left the 2025 split of our sales by segment. One of our strong assets is our customer base and the diversified and balanced end market in which we operate. We operate in 12 countries with 35 glass plants and 67 furnaces, serving 11,000 customers and producing about 18 billion bottles and jars a year. Please note also that we are running 19 cullet recycling centers, allowing us to control about 50% of our need for external cullet. Before moving to our numbers, I would like to share an update on our industrial adaptation footprint, which was announced in mid-February. As a reminder, we decided to adapt and reduce our installed capacity to align with the reality of current demand and to address overcapacity in the European market. Our 3 projects are progressing as planned and in line with local processes. In Germany, in Essen, the plant was shut down at the end of March. Negotiations regarding the social plan should be concluded in the coming weeks and are expected to involve around 300 terminations. In France, this concerns the closure of one furnace at our Châteaubernard plant. This furnace has reached the end of its life and will not be rebuilt. In this case, the social process to finalize the voluntary redundancy plan is underway, and the furnace is expected to be shut down by the end of H1. And in the U.K., the closure of 1 of the 2 furnaces at Knottingley plant is scheduled for the end of the month. Overall, these 3 projects are progressing as planned with the full impact expected in H2. I let -- sorry, before letting the floor to Cristina, a quick comment about our financial numbers. So our Q1 numbers are showing profitability up year-on-year and marking a first stage in the recovery of Verallia's performance. Q1 revenue is down by minus 2.4% year-over-year to EUR 798 million with organic growth at minus 1.2% year-over-year with total volume being flat. Q1 adjusted EBITDA is EUR 159 million, plus 8.3% versus last year and with a margin at 19.9%, which is plus 197 bps versus Q1 last year. And about our net debt, our leverage is stable versus last December at 2.7x. So now I let the floor to Cristina for more details.

Thank you, Patrice. So let's start with looking at the revenue bridge based on the numbers that Patrice just gave, okay? So revenue came in at EUR 798 million, down 2.4% year-on-year, which is a minus 1.2% organic growth. So looking specifically at volumes, trends in Q1 were overall stable and fully in line actually with our expectations. So volumes were slightly down year-on-year at 0.4% where we saw growth in food jars and spirits that actually offset the declines experienced in nonalcoholic beverage and sparkling wines. In Europe, the demand is broadly stable. As expected, volumes in Germany are down by double digits, but this is fully aligned with our industrial footprint adaptation. But excluding Germany, European volumes were growing at a low single-digit rate, and this is driven by the momentum in Southern and Western Europe. And then in Latin America, volumes are overall flat. And we saw low single-digit growth in Brazil, stable volumes in Argentina and a high single-digit decline in Chile. Spirits actually continued to perform very well and confirm the positive momentum already observed end of last year, particularly in Brazil and which is supported by our Campo Bom format. And then beer and wine trends remain mixed across the region. Now if we turn into pricing and mix, the impact was negative by around EUR 60 million, almost 2%, okay? This is what is reflected on the bridge and is coming from the carryover effect from '25 and some initial prices that we had to negotiate at the beginning of the year in a very different cost environment, okay, from what we've seen today. Importantly is that this price/mix impact is much less pronounced than in previous quarters. And actually, we are confirming that we are moving into a normalized environment. And finally, foreign exchange had a slight negative impact outside Argentina, and it was mainly related to the U.K. and Ukraine. And there is no positive -- there is no perimeter effect during the quarter. If we turn now to the EBITDA bridge. What we see is higher profitability and clearly fueled by slightly positive spread and net productivity gains. So adjusted EBITDA reached EUR 159 million in the quarter, which is up 8.3% compared to Q1 versus last year, which translates into a margin of 19.9%, almost 200 basis points higher year-on-year. The improvement is driven by 3 key factors. First, activity and operating leverage that were broadly neutral and reflecting stable volumes overall. Second, after 2 years of a strong negative spread, the price/mix cost spread turned slightly positive in Q1, which is reflecting a normalization effect, right, that helped in particular with -- by lower energy costs following the end of the very expensive 2022 hedges. Third, productivity delivered very strong this quarter and net productivity reached 2.1% net of cash production costs, and that represents EUR 12 million. And this is actually the result of continued discipline and operational initiatives and performance action plans across the group. And finally, SG&A was very well controlled and all the teams push for reductions that were more than offsetting some one-off items that we saw. And FX was essentially neutral, excluding Argentina. So overall, this confirms that profitability is structurally improving even in a still challenging commercial environment. So if we look at the net debt evolution and leverage. As of March 31, '26, net debt stood at EUR 1.9 billion, including EUR 64 million of right-of-use assets. So leverage remains stable at 2.7x over the last 12 months adjusted EBITDA, which is unchanged versus the December 2025. So it's important to remark that they increased -- I mean, the EBITDA increased versus the year-end and moved back above the EUR 700 million for the first time in several quarters, right? I would just mention a quick thing that actually net debt increased versus December 2025, but that was driven by normal Q1 seasonality, minority dividends that we paid in the Canary Islands and then some fair value movements on financial instruments, okay? But that doesn't change our leverage position, which keeps stable. And then finally, if we move to our financial structure and liquidity, I will just mention a few words. Our financial liquidity remains very strong and has a very good maturity profile, as you can see, with the first maturity in 2028, okay? We have -- the majority of our debt is actually long dated and a significant portion is on our floating rate exposure is hedged to interest rate caps, which actually protects us from short-term market volatility. So our financial structure remains robust and very flexible and resilient, right, which gives us confident visibility to execute our strategy and 2026 objectives.

Thanks a lot, Cristina, for your comments. And let's move to the '26 outlook. So for full year '26, we do confirm our objectives in an economic environment marked by continued soft consumption and increased, obviously, geopolitical uncertainty. But subject to the absence of a significant deterioration of the situation in the Middle East, we aim to generate an adjusted EBITDA of around EUR 700 million and a free cash flow of around EUR 220 million, excluding the restructuring cash out plan in relation to the group industrial footprint optimization project. So we confirm our objective to confirm our guidance, and we remain focused on strengthening our competitiveness, cash generation and deleveraging by: one, implementing our capacity adaptation plan; two, delivering enhanced PAT savings; and three, keeping CapEx under strict control around 8% of our sales as we presented during the full year '25 results. So thanks a lot for your attention. And now let's open the Q&A session.

[Operator Instructions]. The next question comes from Francisco Ruiz from BNP Paribas.

So I have 2 questions. The first one is related to pricing. If you could give some -- I know that you don't give flat numbers on pricing, but if you could give us an idea of how prices are in the different geographies. And in this environment of high energy costs, taking into account that you and some of your very close competitors are fully hedged for the year, but not the small players in the industry. If you are seeing from those players [ on movement trying to move ] to the current levels in order to offset the energy cost. The second question is you have booked around EUR 53 million provisions this quarter in your P&L. I was wondering how much of this is cash? And also if this is the total amount that you expect from the restructuring plan to happen or we could expect something more in the future?

Thanks a lot Francisco, for your 2 questions. I will take the first one about pricing and cost and Cristina will take the second one. So about pricing, so you have seen that in Q1 results number, we are around 2%. As volume is being flat, we have a 2% low single-digit price reduction. By geography, obviously, this is a mix of Europe and LatAm. In LatAm, we are much more in an inflation situation. So we have some slight price increase, but the weight of LatAm in our business, I think we can do that. But still low single-digit price decrease to make it simple in Europe with 80% of -- more than 80% of the negotiation already done and behind us, which is putting us in a situation we were expecting, which is a normalization of the spread of the price mix versus cost. About -- so you're right, you know that we are hedged on energy of [indiscernible] and we are benefiting from that and being in a kind of cautious situation versus what is coming, especially with this Middle East situation. I do -- I cannot comment about competition and what competition is doing, obviously, as I do not have any information except what is publicly communicated, but we do not communicate ourselves on that. So no more to say about that on my side, Francisco. For the EUR 53 million...

So yes, Francisco, as you were mentioning, we booked in Q1 a EUR 53 million restructuring provision, and that reflects our best estimate as of today of the one-off cost that we plan to have, right, on the restructuring programs. So as Patrice mentioned, our -- I mean, the program is proceeding as planned, and it's fully in line with the road map that we communicated, okay? So the measures are primarily people related and focused on removing structural costs in geographies where capacity utilization and demand dynamics no longer justify the current footprint. So these costs are actually largely cash-based and will be mostly absorbed in 2016 -- 2026, with a little reminder in '27. So thinking of the cash impact of Q1, I can say that it's -- I mean, it's just a few millions, okay, less than EUR 10 million in Q1. The plans are still [indiscernible] and we'll see the structural savings coming towards the rest of the year, which means permanent reduction in fixed personnel costs.

Okay. And could we have an update of the savings? I don't know if you have commented already this, if it's going to be long one to the provision or a payback of 1 year or something like that? Or could you give us more details on the savings?

So on the savings, so what we have is we are expecting, let's say, a net run rate EBITDA gain of around EUR 20 million. And we expect to get that -- obviously, as we expect full impact in H2, it's going to be in '26, 50% of that. This is what we have in our plan.

And it's included in the EUR 700 million that you mentioned on the guidance?

Yes.

Yes.

The next question comes from Jean-Francois Granjon from ODDO BHF.

Three questions from my side. The first one, could you come back on the volume? So we saw stabilization for the Q1. Do you expect an improvement or not for the volume in the coming months and coming quarters? Second question is regarding the spread impact. So we -- there is a negative impact for the top line, but a neutral impact for the EBITDA during this fourth quarter. Do you expect an improvement or a neutral impact for the full year despite the decrease of the pricing? And the last question concerns the capacity in the European market. There is lots of close reduction capacity with some closure of furnaces. Do you consider that currently the market is well balanced or remain with some overcapacity?

Okay. Thanks a lot, Jean-Francois. So about volume for Q1. So as we said in Q1, we have flat volume zero minus, but as we said that it will be considered flat with a strong growth in food jars and spirits, which is offsetting a decline in non-alcoholic beverage and sparkling wines. We have a low performance, decline performance, I would say, in Germany, which was expecting and in line as it has been said by Cristina and in line with the adaptation plan we have put in place. In Latin America, overall, we are flat as well, but with, let's say, a low single-digit growth in Brazil, flat in Argentina and high single digit down in Chile. And in LatAm, spirits are performing very well and confirm the momentum -- the positive momentum we had last year, especially in Brazil, while we see beyond wine more mix in terms of evolution. For the rest of the year, we stick to what we said during full year. So we expect to be in a flattish situation, no plus/minus. So no big expectation on the volumes compared to last year for us to go. We are very cautious about that and especially cautious in the current environment with the Middle East and to understand if inflation is back, is there any demand impact to come or whatsoever. So we are really vigilant on that. So no big change for this topic. On spread, we are exactly where we said we would be, which is you remember that after 2 big positive year '22, '23, two strong negative year '24 and '25, we said that spread will normalize. This is exactly what we see and we do expect that for the full year. So no change there. And about capacity, what I can say that I do believe that we have still some overcapacity as a market and not well balanced between demand and capacity in Northeast Europe. But we do consider that we have done our part of the job there, moving from -- if you do remember, we used to add at the end of '23, 10 furnaces in Germany. And with the plan we have now, which is underway, we are going to move from 10 to 6 furnaces. So we do believe that we have done our job on our side and that we are quite comfortable, I would say, we have now footprint in Germany with 3 plants, 6 furnaces to do good business. For the rest of Europe, we see the demand and capacity much more balanced. So in our view, on our side, no need to go for much more adaptation.

The next question comes from Saul Casadio from M&G plc.

I have a couple. The first one is on the price cost spread. Do you expect that to remain positive over the year? You mentioned normalization, but wondering whether that could be a positive contributor to the EBITDA bridge for this year.

Again, this is what we said. We stick to what we commented in February. We see the spread. So price mix versus cost normalizing, which is, again, if you take the latest '22, '23, '24, '25, we had big positive and negative swing. Here, we are saying that it's normalizing. And this is what Q1 is demonstrating. And this is why we say we stick to that for the full year. So it means it's going to be 0 plus, 0 minus. You know that in price mix versus cost, there is a mix, which is quite complicated to predict and depend on the demand, so we'll see. But we clearly have the demonstration that compared to the past 4 years, there is a clear normalization and we are back to our standard business model, which is a slight growth in activity, neutral spread, I would say, and then an improvement in profitability coming from self-help measure, mainly delivering more than 2% cash cost saving. So we are back to something which is much more...

Okay. Thanks for clarifying this part. And in terms of your volume performance, I just want to double check, you said minus 0.4% for the volumes in the quarter overall. Just want to check that. And also if you can give us a sense of the market performance if you were in line with market, above, below, just want to get sense of the market overall.

So I do confirm on the volume side for Q1, this is what you said. So it's flat. And again, it's flat in Europe with Germany being strongly negative, but I mean, expected and in line with our plan. So it means that on some of the regions, we have much more positive development in Europe. LatAm as well is again flat with Brazil slightly up and Argentina flat and Chile down. So this is what we see. And compared to market, it's always complicated to position as we speak because we do not have really, as we speak, the market, and we cannot speak about market share or category share or whatsoever. What is a positive news for us is that we are aligned with what we said and planned at the beginning of the year.

Okay. Okay. So roughly in line with market. Last one, if I can, is just a clarification in terms of the cost and savings associated with the closures of the 3 furnaces. You mentioned EUR 20 million as cost savings that you expect to see. You already mentioned the cash cost, but I just want to clarify what the number is. The cash cost on...

It is what we announced in February. It's between EUR 40 million to EUR 50 million.

Sorry, I just want to repeat that.

The next question comes from Manuel Lorente from Santander.

Welcome Christina to our small community. My first question probably it's on hedging, energy hedging. You commented that you are fully hedged for 2026. And my question is more related to 2027, whether you have made some proactive actions given the current backdrop or whether you can give us initial thoughts of the amount of hedge that you have for next year?

Okay, Manuel. And just to correct, we are not fully hedged for '26. We are hedged around slightly above 80% just to correct and this is aligned with our hedging policy, which is for year plus 1 at the end of the year. For the year plus 1, I want to be covered by 80%, for the year plus 2, 40% and for the year plus 3, 20%, and this is a rolling policy. So we are fully aligned with that. So we have about 20% of our energy cost for '26, which are following the spot price, just to clarify. Two, about '27. So we are in a situation to apply our hedging policy, but since March, to be clear, due to the uncertainty and the volatility, we have admitted pause for '27, waiting for a better understanding of where the energy is going to land, especially on the gas side. So for '27, we have already taken some hedging position, but taken from '26 and taken from beginning of the year, Jan and Feb and no more since March. We are in a kind of pause mode as we speak. I hope it clarifies.

Okay. So maybe a follow-up on this. Can you remind us, Patrice, please, what is the amount of price pass-through or direct pass-through mechanism on your contracts as a percentage of sales or whatever number you can provide us?

It's about 15% to 20% of our business, which is managed under [indiscernible].

Okay. Great. Excellent. So my second question then is I believe that Cristina mentioned the EUR 11 million net productivity gain on this year. My perception, and correct me if I'm wrong, is that the EUR 20 million delta of new savings for the revamping of the European business are not included in those EUR 11 million. So it's just to confirm to double check that this EUR 20 million expected savings are something that we are going to see in coming quarters.

Yes. Manuel, I confirm. So we -- as we were mentioning, we are still closing negotiations. So [indiscernible].

Manuel, the EUR 20 million is the full...

Yes, Manuel. Could you hear me?

Yes. Now, yes.

Okay. So I was just mentioning that I confirm the EUR 11 million doesn't include any benefit from the rest.

Okay. And then...

Sorry go ahead.

So then my final question then. Since we expect an acceleration or a solidifying of the benefits from the cost-cutting plan, we have seen a very nice 8% EBITDA improvement year-on-year. However, the guidance imply a flattish performance for the full year. So this is because, I mean, you want to be conservative at this point in time because to some extent, Q1 results has been benefiting from some easier comps from Q1 last year. So I wanted to double check with you at this point in time, why with a meaningful close to double-digit EBITDA improvement guidance is still pointing to a flattish performance year-on-year.

So first of all, we guide on a full year basis. We are not guiding by quarter, and it's already a nice exercise, one. Two, obviously, we have a solid performance, and we are quite satisfied with Q1, which is in line with what we expect for the full year shape, but it's just one quarter. And this quarter, you're right, we have a positive comparison base compared to last year. So let's see how it's going to develop. But as we speak, we are in line with what we committed on. Our plans are underway. And we will see how Q2 is confirming our plans or not, and we will be back in H1 or in July for H1 results, and we'll see if we have to update on that. But based on the uncertainty volatility, what is in front of us, sticking to our full year guidance is our stance today. Let's see, it's just 1 quarter on, 3 quarters to go.

There are no more oral questions at this time. So I hand the conference back to the speakers for the written questions.

Okay. Thanks a lot, and good morning all. David Placet, I'm the Head of IR. We have a few written questions that I'll share with you now. The first one comes from Antoine Laurent questioning, if I remember well, your expectations for '26 for price was towards 0 for the full year and mix was still a question mark. I'm wondering if this Q1 price/mix cost spread, so slightly positive was expected. It would be -- it looks like it would be some unexpected upside so far. So basically, expectations for the full year price/mix cost spread.

So the answer is yes, it was expected. Again, keep in mind that what we said, we expect in '26 spread -- normalization of the spread. Again, look at what was the result of our spread in '22, '23, '24, '25 with big swing up and down. Here, we are speaking about a normalization. So what we have in Q1 is what was expected, sorry. And -- but again, we are not managing on a quarterly basis. We are managing on a full year basis. And what we said is still valid for the full year, with the caveat of the mix, again, that we do not control. This is why we are saying normalizing.

Great. Thanks, Patrice. Another question from Samir Shah. Can you talk about industry level capacity closures for this year or planned for this year? I guess, planned probably we can't. But I mean, I guess maybe we can have a quick update on what -- on the recent announcements.

Yes. So plan, I don't know, we'll see. What we know is with the latest announcement and especially the one, which came last week or the week before, I don't remember with [indiscernible] in Germany. Since 2023, since the end of 2023, we are up to 25 furnaces closed, still to come in '26, the final date, but 25 announcements made, which is at the end, an equivalent of 2.2 million tonnes of glass, which is about 10% of the total production gas in Europe. So this is quite significant.

Thank you, Patrice. And then a final set of questions from [ Andre Giuseppe Fray ] 4 of them. The first one relates to energy prices. Question is, what are your scenarios for energy prices? And how confident are you to keep full year EBITDA guidance given significantly higher energy prices? How do you mitigate the impact? That's the first question.

So about energy impact, again, thanks to our hedge policy, we are exposed about 20% of our energy cost, which is -- so we can make many simulations, but with what I would consider as a central scenario, the impact on energy cost is not so material, I would say, compared to a full year impact. We are speaking about something which will be below double-digit million euro for us. But again, this is according to what we have as a view today. Obviously, what is much more complicated for us to simulate is what is everything related to logistics and cost and all of that. And it could be somewhere something similar worst case. So this is what we have. And in terms of pricing, we are monitoring all of that. So far, no pricing adjustments related to this Middle East situation. But obviously, if it will last, we'll have to move and make a kind of surcharges at a point of time. But so far, nothing done, nothing planned, waiting and observing the situation.

Thank you. The second question, I guess you've just answered it actually relates to pricing. So how do you expect pricing to develop in '26. But I guess that's been -- this is what you've just comment. And the last 2 questions relate to leverage and rating. The first question is where do you expect net leverage to end up by the end of '26 is around 2.5x a fair assumption?

So look, I will not comment on a different or new guidance. So I will refrain to the earnings -- I mean, at the first half of the year, okay? But what I can say is that definitely our capital allocation priorities remain unchanged, right? We have had a strong quarter in terms of cash generation with the disciplined CapEx, and we keep targeting to deleverage by the end of the year, right? So there are no changes to the dividend mechanics. There will be no buybacks and no capacity projects, right? And in the Capital Markets Day in Q3, we will have the appropriate forum to address any medium-term capital allocation. Okay? And then on -- as I was mentioning, the first quarter follows typically a seasonal pattern with a bit of working capital absorption, but we've managed to contain our cash outflows. And for the full year, we expect cash generation to be weighted towards the second half. And with this, liquidity remains strong. I mean -- and the leverage will obviously doing the math, it will hopefully go down, right? So we have significant headroom, right, across our financing structure. And definitely, our goal is, as we said in the press release, is to return to investment grade, but that's something that we don't control, and we remain focused on execution, right, rather than agency decision.

Great. Thanks, Cristina. And that leads us to the last question, which actually you've just partly answered, which was how confident are you that you can keep Moody's IG rating, i.e., how much time you have to improve credit metrics, et cetera. So I mean, again, we're working towards that. We're doing the job, and I think that's it. So that is it from me. Thanks, Christina. Thanks, Patrice.

[Operator Instructions]. The next question comes from Saul Casadio from M&G plc.

It's very similar to the question that's just been asked. So it's on your rating on the -- sorry, on the Fitch side -- sorry, on the S&P side. Sorry, I don't remember if it was -- yes, on the S&P side. And basically, you mentioned in your release that you plan to return to investment grade, I guess, also to regain IG status with S&P. Would you be able to put a time frame in your plan to get back to IG by -- on the S&P side?

No. Unfortunately, not. As I was mentioning, I mean, we are focusing on operational execution, deleveraging and cash generation. And we are in contact with S&P, and they also look at -- they not only look at 1 quarter, right? So unfortunately, I mean, I cannot give you a time frame. But what I can give you is that deleveraging and cash generation is definitely is a priority and one of my main focus.

The next question comes from Manuel Lorente from Santander.

Yes. Sorry, just a quick housekeeping related type of question. Correct me if I'm wrong, but neither in the presentation nor in the press release, I have seen any comment regarding the new dates of the Capital Market Day. So I don't know what is your latest thoughts about this event?

We are on it, Manuel. We stick to Q3. So we should come back to a precise date. We'll fix that for sure for our next release, working on that and trying to -- yes, to work on that, obviously.

Okay. And Manuel, I would like to just clarify one additional point on the prior question on S&P. The fact that we were downgraded, it didn't trigger any coupon step-up, okay, put option on an acceleration clause. So there is no immediate or mechanical impact on the cash interest payments for us with the downgrade, just to clarify.

The next question comes from Fraser Donlon from Berenberg.

Cristina, Fraser here from Berenberg. I just had one question. I was wondering if you've seen any change in behavior of your customers as a result of the war in Iran, especially reading about kind of higher aluminum pricing, force majeure and smelters in the Middle East. I was wondering if there's any kind of increased interest you start to see in glass as a substrate or not yet.

Thanks a lot, Fraser, for your question. It's a good one, and we are monitoring that, obviously, interacting with our customers. To be clear, so far, no change. I think for our customers, the biggest impact could be supply chain disruption and obviously, presenting them to bottle and to sell. But so far, to be honest and clear, no change, no major change. I have not observed that. It's a little bit early to see that. Okay. So I believe that we have no more questions. So again, so thanks a lot for your attention. So as you have seen, we have quite a solid Q1, but it's just one quarter. You know, as I know, all the uncertainty and from one day to the other, the geopolitical situation could trigger some impact on our business. But we remain confident according to the guidance we committed on early this year. And you have understood that we are really focused on self-help measures strengthening our competitiveness, cash generation and deleveraging. So let's see. Thanks a lot again, and let's meet in July for a full H1 review. Thanks a lot. Take care. Bye-bye.

Thank you.