Hello, and welcome to Verallia 2021 full year analyst call. My name is Rhian, and I'll be your coordinator for today's event. Please note for the duration of the call, your lines will be on listen only. However, you will have opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, please press star zero and you'll be connected to an operator. Present on the call today, we have Michel Giannuzzi, CEO, Patrice Lucas, Deputy CEO, Nathalie Delbreuve, CFO, Alexandra Baubigeat Boucheron, Head of IR. For now, I'll hand you over to your host, Michel Giannuzzi, to begin today's conference. Thank you.
Thank you. Good morning, everyone, and thank you very much for joining this call. We're gonna present to you this morning the financial results of last year, 2021. I will start, as usual, very quickly to remind you the presentation, the general presentation about the company and the fact that we are today a global leader in the glass packaging industry. As you well know, we are the leader in Europe, and Europe last year represented 89% of our sales. We are number two in Latin America. That represented 11% of our sales, and we are the third largest company in this industry worldwide. On the left-hand side of this chart, you see that we have a balanced end market portfolio.
We address all the segments of the market with a strong presence in the wine, sparkling wine and spirits businesses. For historical reasons, we are very present in the three largest wine producing countries in the world, namely Italy, France and Spain. This is showing through the end markets strong market share in our segments portfolio. When you look at our company profile, we employ 10,000 people in the world. We have 32 glass plants with 58 furnaces. We also have nine cullet treatment centers and three decoration plants. All together, we produce 16 billion bottles and jars every year. Moving on now to the highlights of the year.
The first thing, which I think you all know about, which is important to recap, is the evolution of the capital structure during the year. We know there have been a lot of activity from our former shareholder, Apollo, that has sold down blocks of shares during the year. At the end of the year, in December, you see on the chart that Apollo is no longer present as a shareholder of this company. We have still BWSA as the number one shareholder with 26.6% shares of the company. BWSA, I remind you, is a family office fund. The number two shareholder is Bpifrance Participations with 7.5% of the capital share.
The third largest group of shareholders are the employees through the FCP or directly, and they own 3.5% of our shares. You remember also maybe that we have during the year participated to some blocks sold by Apollo, and we bought back for EUR 221 million worth of shares, and that is the 4.5% of treasury shares that we currently hold. We announced also in December the evolution of the governance. We will dissociate the chairmanship and the general management position of the company after the AGM of May 11th.
I will remain Executive Chairman of the company and Patrice Lucas, who joined us in the first of February, will become CEO of the company after the AGM of May 11th. We propose to the AGM to vote for a new independent board member, Didier Debrosse, that will replace José Arozamena, who has decided, sorry, to resign from the company. If we look also on the CSR front, I think a lot has been achieved during the year. First of all, if you remember, we started one year ago in January 2021 by setting quite an ambitious objective of CO2 reduction.
We revisited this objective after the IPCC report in August to make it even higher with a 46% CO2 emissions reductions by 2030 compared to 2019. This is what allows us to limit global warming to 1.5 degrees C. We are currently waiting for the final confirmation of the SBTi in terms of target calculation. This is just an increased ambition in order to reduce our CO2 emissions even further. I'll remind you that we are also providing material mix, and in this shift, of course, we are looking at raw material that are, if possible, without carbon atoms in it.
The first and best raw material which without carbon atom in it is the cullet, the used glass that we recycle in our furnaces. This is why it's very important for us to keep increasing the share of the cullet that we use in our furnaces. I'm very pleased to report to you that we made a significant improvement last year by increasing by 3.6 points, 3.4 points, sorry, the share of cullet in our furnaces. That represents today 55% of our external cullet that we use in our furnaces. That's, I think a great achievement on this side. The second pillar is to reduce, of course, the energy consumptions in our operations and mostly in our furnaces.
In this respect, we have also announced in January this year that we will build two electrical furnaces in our Cognac plant in France. This will enable us to basically almost halve the CO2 emissions coming from the furnaces by using some low carbon electricity that we have in France for especially flint bottles that we produce in this Cognac plant. The third lever that we also use to decarbonize our industry is to increase, of course, the share of the green energy. We are very pleased to report that at the end of the year, we had, during 2021, 10 of our plants that are using 100% renewable electricity. It's mostly in Iberia and in Brazil.
This was, I think, also quite a strong year in terms of CSR achievements. Now, moving more deeply into the technical matters related to the electrical furnaces. Here you see that the announcement that we made in December, I'm sorry, in December of 2021 in Cognac regarding this electrical furnace. The first furnace will start at the end of 2023, so end of next year. It's pretty ambitious, I would say, target in terms of R&D development. This is a technology that is known and used in the small glass packaging industry for cosmetics or glass wool manufacturing, but not yet for bottles and jars. That requires much bigger and larger furnaces. We're gonna try to leverage the existing technology in a much bigger scale.
This is, unfortunately, technically speaking, restricted to non-colored glass for technical reasons, but this is quite already a significant amount of our business, which is about 1/3 of our production, all together at the group level. We'll reduce these CO2 emissions by around 60% from the furnace every year. Of course, if it works well, and depending on, of course, the ability to source low carbon electricity in other countries, we'll look at further deployment in other countries afterwards. The second thing, which I think is quite important, is we were part of the European consortium to develop a hybrid furnace.
This was a consortium that involved 19 glass-making companies, and we have applied to access European funds to finance this consortium and this R&D development. Although it was a very good file that was presented, and we were in the second round preselected for the final allocation of the funds. This project, this SPV organization that applied for the fund, did not receive the funds, and therefore, the members have decided not to continue in this organization. We have decided at Verallia to keep this project alive at Verallia only. By the way, it will probably allow us to go faster because it will be faster to be fully in charge of this project.
We are aiming at starting the production of this hybrid furnace in 2024. Again, this is quite an ambitious target, and this will allow us to reduce also our CO2 emissions by around 50% versus the conventional furnace. A lot of projects are currently ongoing in line with our strong commitment to reduce our CO2 emissions. Another good news is we received at the end of the year the platinum rating from EcoVadis in terms of sustainability. This is looking at environment, but also labor and human rights, ethics and responsible purchasing. We got a good score of 75 out of 100. We're improving by eight points versus the prior year.
This puts Verallia in the top 1% companies that have been evaluated by EcoVadis out of a total of 65,000 companies. I think we are very proud about, again, this recognition of all the things we are doing in terms of sustainability. Last but not least, in terms of social responsibility, this is a short summary of all the things we are doing that you will be able to look in more detail in a few weeks when you will look at our extra-financial performance report. Basically, we are, on the social side, promoting diversity and inclusion. We are increasing the share of employees with disabilities. Of course, our policy is a zero accident policy in our company.
We are, as you know, very well engaged in development of the company. Now, let's move. I know you are very keen on now moving to numbers, so let's look at the financial results. First of all, the full year in terms of revenue, we have the pleasure to report a 5.4% revenue increase to EUR 2.624 billion. And organic growth was 6.8%, so quite a very strong growth.
As you have seen, this has accelerated quite strong in Q4, because in Q4 we had reported 10.2% organic growth, compared to the prior Q4 of 2020. We also have the pleasure to report a good improvement in our adjusted EBITDA performance, in line with the EUR 675 million forecast that we communicated earlier in the year in 2021. We've achieved EUR 678 million of the adjusted EBITDA in the year, which is an 8.4% improvement versus 2020. Margin wise, our margin has improved by 68 basis points at 25.4% versus 24.7% the year before.
This translated quite nicely in a strong net income improvement at EUR 249 million at the end of 2021, which is a 19% net income increase compared to 2020. The earnings per share is EUR 2.01 for 2021, and this is even EUR 2.37 if we exclude the customer relationship amortization that, you know, is a purely technical matter. The net debt has been reduced to 1.9x last 12 month adjusted EBITDA versus the 2x of December 2020. This is a strong improvement given the fact that we paid EUR 114 million of dividends during the year, and we also bought back shares for EUR 221 million.
Without the share buybacks, the leverage would have been 1.54, which is also showing a very strong leveraging capability from the item. As I already mentioned, the extra financial indicators that are tracked and most important ones that are tracked for our sustainability-linked bonds that we have issued last year are CO2 emissions, which nicely were reduced by 3.6% last year for Scope 1 and 2. As I mentioned before, the rate of external cullet usage has been increased by 3.4 points to 55% last year. Altogether, I think a very strong year, a very successful year in a very challenging environment, as you all know, especially in certain parts of the year last year.
This being said, I will now hand over to Nathalie, who will go through the financial results in more details.
Thank you, Michel, and good morning to everyone. So let me lead you through our usual bridges on sales and EBITDA and then on the debt figures. The organic growth indeed has been really strong in 2021, +6.8%. We have had especially a strong Q4 with organic growth up to 10.2%. A strong end of the year. We've seen growing volumes and as expected, we are really exactly back to 2019 levels, meaning back to pre-COVID levels. In terms of price and mix, they have contributed, as you can see on this page, up to EUR 103.8 million to the sales, to the top line.
Sales price important to separate Europe from Latin America. In Europe, sales prices have been flat and, you know, we have annual price evolution in Europe mostly. When in Latin America, we are compensating for inflation throughout the year, so there you have sales price increases throughout the year. The mix has been contributing positively as well throughout the year in the four quarters. The foreign exchange is negatively impacting the top line by EUR 33.3 million. This is all stemming from the first half of the year from H1. Some comments by product category. We've seen all products up except for non-alcoholic beverages and food jars.
Both these categories have been growing in the fourth quarter. Just to remind that food jars had been especially boosted in 2020 by the several lockdowns and with people cooking more at home. This is more like coming back to normal levels. Sparkling wines and spirits have sharply rebounded with extremely successful years in both segments. Now, moving to geography, South and West Europe, we've seen a recovery in most categories. We have here +5% sales increase, and we benefit fully from new production capacities in the second half of the year. You know, we have two new plants in 2021, one in Spain and one in Italy.
All product categories here as well have been growing except for the food jars that I already commented. The still wine have been also growing strongly, spirits as well. Sparkling wines especially strong. This is, I mean, 2021 is really a record year in Champagne. Prosecco in Italy is continuing growth and very popular and exporting very well. In beer, we've seen also a good recovery and dynamic sales that we benefit from. As mentioned, in Europe, Southwest Europe, prices are overall stable.
Now, moving to North and Eastern Europe, we've seen an improving trend in the second half with positive organic growth. In the first half of the year, we have seen decrease in volumes in H1. Just also to remind, we are always comparing, of course, with previous year. In 2020, North and Eastern Europe countries had been hit by COVID and restrictions later than South and Western Europe. So the comparative basis is more difficult for any in the first half. In the second half, we are back to positive growth with +0.21%. We've seen a nice recovery in sparkling wines and spirits. Here, as well, sales prices are overall flat, so not contributing to the top line.
We have negative impact 1.2 points from the Russian ruble and also the hryvnia in Ukraine. Latin America continues with a very strong growth, as you can read on the chart. At constant exchange rates, +39.3%. We here as well contribute from 2020 additional capacities, also from an outstanding production performance, and we fully benefit from the new capacities. Revenue increased in all product categories, except here as well food jars. In this region, we have increasing in selling prices, including Argentina, especially to cope with local hyperinflation, but not only. In the three countries we follow the inflation to ensure positive spread.
The negative Forex impact is mainly stemming from the first half of the year. Now if we move to the adjusted EBITDA, we have enjoyed growth in euro and in percentage, moving from EUR 626 million up to EUR 678 million and 24.7% margin up to 25.4% margin, which is a very nice growth. The activity, as you can see on this bridge, has contributed positively up to EUR 29.2 million. We benefited from positive volume impact. Even if inventories are still low at the end of the year, I come back to that, and lower than we expected, we have had less destocking than previous year.
This spread you can see is positive, but slightly positive. Here we have had several things to comment. First, the mix has been positively contributing throughout the year and even in the second half and in Q4 as well. For Q4 and H2, we had a very sharp increase in our costs, and this led to a negative inflation spread in Q4. Especially, we have also a low comparison basis in 2020, but we had also an increase in all the costs. The inflation-price spread is negative in Europe and positive in Latin America, with, as expected, as explained already, the continuous pass-through of inflation in Latin America, which you don't have yet in Europe.
In the end, the spread ends at EUR 4.1 million, still positive. The PAP pillar, you can see, is contributing very significantly with EUR 40.4 million, an outstanding performance at 2.4% cash production cost reduction, and in all geographies. You can see it contributes significantly in euro and in incremental percentages in margin. Then the last two pillars, foreign exchange rates, minus EUR 11.22 million , negative, but mainly from H1. In the other, we have minus EUR 10.1 million here with several impacts as always.
Mainly to comment, we had, you know, in September, a fire in Argentina that is impacting negatively our EBITDA by a bit more than EUR 5 million, and also hyperinflation in Argentina for EUR 8 million negative. Looking at this margin, EBITDA and margin by geography. South and West Europe is moving from EUR 419 million up to EUR 453 million. That is an 8% increase in adjusted EBITDA. If you look on the top right corner, you will see the adjusted EBITDA margin percentages. Moving from 24% up to 24.7%, so also an improvement here.
The activity has benefited positively impacted the EBITDA, strong demand and also, as already mentioned, the two new furnaces that we started in Italy and in Spain, allowing us to benefit from this positive activity and strong demand. The inflation spread turned negative in the second half as already mentioned. This is due to the sharp rise in costs. The positive product mix in several countries and good industrial performance, this is the PAP I'm referring to, despite difficulties in France in Q1 linked to the completion of the transformation plan. Now, North and Eastern Europe is decreasing in euro and also in percentage. To comment here, we commented the.
Discussed the volumes and the activity. Here we see a recovery in H2 after a slight decline in H1. The spread is negative in Northern Eastern Europe as well. Same pattern as for South and West, I mean, rising costs and flat prices. What's important to mention that industrial performance is in line with the cost reduction objective, and so contributing to the EBITDA here. Now moving to Latin America, you can see the significant margin expansion. We moved from 33.8% in 2020 up to 35.6% in 2021. In euros, the adjusted EBITDA moved from EUR 80 million up to EUR 108 million.
If you take out the exchange rate negative impact, would've been EUR 118 million. Really an outstanding performance in 2021 for Latin America. Here our three pillars fully deliver, meaning we enjoy strong growth in sales volume. The market is dynamic and we have the effect of the 2020 capacity extension as well. Positive inflation spread throughout the year and outstanding industrial performance. Also to mention that in H1 we benefited from a specific measure of ICMS tax credit that is EUR 7 million. On the other side, in a negative part, we have the fire impact in Argentina in Q3. Moving to CapEx and cash now.
You know, we are very keen into having a smart CapEx policy. You can see here our total booked CapEx as percentage of sales are 9.6% for 2021. This, you know, we want to stay into an envelope of around 10%, so we are absolutely in our objective. This includes EUR 50 million for our new furnace in Jacutinga in Brazil. Also we start to have investments for our CapEx roadmap in order to reach our CO2 emission reduction objectives. This CapEx includes EUR 13 million of this CapEx. Now, cash flow generation has been very strong this year again.
You can see here the operating cash flow reconciliation, and also the free cash flow now. It starts with growth in adjusted EBITDA in the first line, of course in euros contributing. Then we have a high level of cash conversion 62.2% in 2021 with the CapEx well under control. We have had significant positive change in operating working capital with EUR 80.5 million. Here we have had in fact stock variation. You know, our stock, we didn't succeed into rebuilding our stock as high as we would like. We have a negative variation of stock, but not so significant, only minus EUR 17 million.
For receivables and payables, they have been contributing very positively to our working capital. Overdues are important to mention that they are very well managed, have been stable and at a very low level in 2021 in all the countries, with this year again. Operating cash flow ends at EUR 500 million-EUR 502.3 million, improving versus 2020. To move to free cash flow, we have other operating impacts that include IFRS 16 impact that is overall stable every year between EUR 18 million and EUR 20 million. This is EUR 20 million minus EUR 18 million in 2021.
Several impacts that are not in the adjusted EBITDA, but have a cash effect, such as the cash out for transformation plan in France and the phase III settlement for CO2. That leads to other operating impact of minus EUR 39.8 million. We have interest paid and other financing costs minus EUR 41.8 million, increasing a little bit versus 2020 due to some Forex and also costs linked to the two sustainability linked that we raised in 2021. Cash tax minus EUR 91.4 million.
Here we have a normalized effective tax rate of 26.6%, not around. In 2020, we had positive impact of patent box in Italy for EUR 10 million. Plus, I mean, the increase in value is also linked to the increase in the results, just basically. This ends with a free cash flow at EUR 329.3 million, so very strong and high conversion of our operating adjusted EBITDA into free cash flow. Leverage is below 2 times. Important to note, it's after dividends payment. You remember in 2020, part only of the dividends had been paid, the other had been converted into shares.
In 2021, the full dividends has been cashed out for EUR 114 million. We've performed several share buybacks for a total of EUR 221 million. As you mentioned, Michel, excluding the share buybacks, the leverage would have been 1.54 times. A deleveraging of 0.5 turns since 2020. The fact that we are below 2 times allows us to benefit from 25 basis points lower interest in our TLA and RCF. That is a positive impact in our financing cash out. Now to finish with this picture of our funding.
You know, 2021 has been a very busy year for us into diversification and lengthening the maturities of our fundings. When we had one significant term loan A with EUR 1.5 billion, as you can see on this chart, we are now very well-balanced between bonds. Two sustainability-linked bonds have been issued this year. We have now a maturity between 2028, 2021, 2024, when we all had in 2024. The liquidity is very comfortable at EUR 844 million.
Well, thank you very much, Nathalie. As a summary, I think we are really pleased with the strong performance of last year, especially given the huge surge of energy costs that started in September, October last year, with a very significant impact on our Q4, of course, EBITDA. And despite this, we've maintained a very strong performance in all respects, in top line growth in EBITDA, in line with the guidance that we gave you at the middle of last year, and also in the extra-financial indicators. The two, I repeat, main KPIs that are being used in the sustainability-linked bonds that are Scope emissions and external cullet usage rates have also very nicely improved last year compared to the year before.
As a consequence, we are going to propose to the annual general shareholder assembly to pay a dividend of EUR 1.05 per share to all shareholders, which is a 10% increase versus the prior year, which was EUR 0.95. This is in line with the guidance that we provided during the Capital Markets Day of October last year. Now let's move to the very interesting outlook of 2022. Before I am able to forecast all these curves going forward, I just wanted to maybe put things in perspective. We've gone back on those four main energy components, the Brent, natural gas, electricity, and indirectly linked to energy, the CO2 quota prices.
I went back to 2007, so over a 14-year period, you can see the evolutions of these curves. The Brent has been up and down, but you know, we use very little, directly, very little Brent or gas or fuel-related energy. It's mostly through, indirectly through our transporters that we see the impact of this Brent increase. However, you know very well that our industry is quite energy intensive, and the two main energies we use are natural gas and electricity. When you look at the spikes that we've seen in Q4 last year, both for natural gas and electricity, and consequently for the CO2 quota prices, this is just unbelievable. I mean, this is an never seen increase in such a short period of time, of energy costs and indirectly of CO2 quota.
I mean, CO2 quota has been almost reached, which has almost reached, sorry, last week, 100 EUR per ton, coming from around EUR 18-EUR 20 per ton not so long ago. On top of this high and unprecedented inflation factors, you can see that there is also a huge volatility. That's why I think it's important to see that not only it's a huge surge in those costs, but there is also still a lot of volatility in what's going on there in the marketplace. Now, you know very well that we are hedged for 85% of our needs for next year, or sorry, for 2022, for this year. We still have 15%, which is not hedged.
Now, this 15% not hedged are exposed to those short-term energy prices variations. It's not just a question of demand and supply, this is also very much driven also by some geopolitical considerations. Therefore, the outlook that we are going to provide to you today is first of all based on a few assumptions. The three assumptions that we have taken is the fact that we seem to be exiting the hard lockdowns linked to the COVID-19 pandemic, and it seems that things are normalizing step by step, and therefore we don't expect another wave of, I mean, a Greek letter impacting the people's health, and therefore that's one assumption we make. We make the assumption that the inflation costs and geopolitical context do not deteriorate further.
You all know every day in the last few days this has been extremely tense in terms of what is going to happen, especially in Eastern part of Europe. This is of course creating some volatility as you all know in the markets. Based on those three assumptions, we're gonna have a strong growth of annual revenue, given the fact that we're gonna increase our prices around 10%, as we mentioned before, and double- digits. This is needed to, of course, mitigate the strong impact of production costs increase, mostly coming from energy, with the aim at some point to achieve a net spread, a zero spread. This is of course still to be seen depending on how the energy prices evolve in the future months.
As a consequence, we are aiming at having at least EUR 700 million of EBITDA in 2022. Of course, going forward in the next quarters, we'll be probably able to be more precise, to give you a more precise guidance, when we see things stabilizing at some point in time, especially on the geopolitical side. We hope that at some point in time, things will get clearer and less volatile. Last point I would like to highlight is the fact that mathematically, the strong increase in revenue due to the strong price increase to offset the cost inflation, is going to be dilutive on the EBITDA margin.
Just mathematically speaking, and this is, I think, in the appendix, you see that, all things being equal, if you want to increase a 10% increase in cost, if you want to offset it by a recurrent price increase, this has mathematically a dilutive impact of 180 basis points on the margin, of the EBITDA margin. This is something, of course, that has got to be understood, which is highlighted here. On the top of this, we will keep working very hard to implement our roadmap related to ESG and more precisely around environmental performance KPI, like, CO2 emission reductions, and like the correct external cullet usage rate.
As you've seen, we are committed to keep improving on these two KPIs as committed to during the SLB, the sustainability bonds that we announced last year. That's it for the presentation. I would like to maybe open your discussions on the Q&A session.
If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypads. For now, we have our first question from Matthias Pfeifenberger from Deutsche Bank. You are now unmuted. Please go ahead.
Yes, good morning, ladies and gents. Thanks for taking my questions. Firstly, on pricing, and on the price cost spread, I mean, it has been neutral, negative in the second half in most parts of Europe. Are you not a bit underwhelmed by that? Not really satisfied? What are you making? How are you making sure that the price cost spread is a bit richer this year? You just alluded to that. Probably you're gonna go for a positive price cost spread towards the later end of the year. Why is that the case? I mean, is that just philosophically, you're not trying to overburden your customers and you're working on the EBITDA improvements on the self-help side, and that's enough?
Because it seems like you're holding a lot of cards when it comes to pricing, like everybody's sold out, record champagne volumes, probably more efficient hedging than some of your peers. Why is now the price cost spread guidance more moving towards neutral rather than tangibly positive like you had it before?
Well, good morning, Matthias, and thank you for all these questions. First of all, there were a lot of comments and questions, so I'll try to answer them all, and if not, just don't hesitate to ask again. First of all, regarding last year, in Europe, when the huge surge of energy took place in Q4, you know very well that in Europe, the prices are fixed for the full year in most cases. Only few customers, only with few customers and distributors, we've been able to immediately react and increase prices in Q4 last year. For most customers, their annual price negotiations takes place, between October and February and are applicable as of January first.
Therefore, Q4, we had the prices that have been set at the beginning of the year and the energy cost, especially for the non-hedged part of it, that was unfortunately hitting the P&L in Q4. All this led to a negative spread in Q4, which was somehow difficult to avoid. I mean, there was no possibility to avoid it. It was too short-term to react. Given, I repeat, the magnitude of this inflation on energy cost. Because even if we are hedged, as you know, for 85% of our volume. If I just take the gas price, it moved from EUR 21 per MWh in Q2 last year to EUR 80 per MWh in Q4.
Am I.
In less than six months, it's times four on 15% non-hedged gas, for example, you can imagine has a significant impact on our cost base. I repeat, it's not the fact that we are holding costs or not willing to go to the customers. We've done it. With many customers, the negotiation was basically to prepare the 1st of January new price. We had very few opportunities to renegotiate Q4 prices. Now regarding.
But, but.
Yes.
This is exactly the point. Now for 2022, you're talking about for it to not be clear at this stage if there will be a positive price cost. The question is quite frankly, why don't you raise prices more?
Okay. I'll come to it. That was. I was answering first part of Q4. To clarify your comment about Q4, which I believe needed some clarification. Now regarding 2022, it's another story. Again, I think we are exactly in line with what we discussed during the capital market day and later on during the presentation of the Q3 results, back in October last year. Our goal, and we started to anticipate the fact that there will be a huge cost increase in 2022. Our goal is to have a neutral spread, which is by itself quite a challenging goal. Because when you look at this kind of inflation, having a positive spread is, I think, quite an achievement. Yes, in the past.
By the way, as it matters, since the IPO, we always said that our goal was to have a positive spread. In reality, we've always been able to do better than this, okay? When you look back in our history, we've always done better than positive. The company, the three pillars of this business model that we set up for Verallia is based on the positive spread. 2022 will be, of course, a lot more challenging to achieve a positive spread given this kind of inflation that we have in front of us. Despite, of course, the hedging that we have in front of us. Now, you could say, and this is your point, "But it's easy, guys, just increase your prices more than 10%. Go for 15%, 20%, 30%." Yeah, fair enough.
Raising at some point in time also a resistance from our customers. There is a competitive dynamics also with the other competitors in this marketplace. Already, I mean, reaching a double-digit price increase, which is what we have told you was our goal, is, I think, already coming from a history of no inflation. In Europe, there has been no inflation for many years. It is already seen as a great achievement and a great, I would say, challenge for our customers. Now, some of our customers will not be able to pass the same amount of price increase to their final clients. Again, I mean, we are here for the long term. It's a negotiation at the end.
Yeah, fair enough. Just to be nagging on this a bit more. Last time you told us you're approaching the clients with the spot curves, but you're hedged at way below spot rates on energy. When I look at Pernod Ricard, for instance, they're guiding for higher margins. It seems like they are well able to digest higher packaging costs, which are only like 3%-10% of the total cost of the beverage anyway. Isn't this a bit, you know, like looking out too much for the clients? But maybe we have talked about this enough. Can I come back to a second topic, which is the margin?
Sorry. Like, can I just make a comment?
Sure.
On this comment, I think your comment is a fair comment, a good comment. Among our customers, we are number one in Europe, okay? As you know very well, we address all end market segments, from the premium customers with the premium products to mass market products. Now, on premium, you are absolutely right. On the premium products, our customers are able to because they have the pricing power, they have the marketing strengths, they are able to pass to their final clients the cost increase, the price increases that they want, and therefore less price sensitivity for the premium customers. Good enough for Verallia, we are pretty well positioned for the premium segment.
I remind you, based on the just capital market day presentation, the premium segments, roughly speaking, represents only 15% of our sales. 85% of our sales are on the mass market segment. Here, the price sensitivity and the ability of our customers when they deal with, for example, the big retailers or the big distribution companies, their ability to pass the price increases is much more limited. Therefore, I mean, it's a mixed bag of different customers.
Yeah. Fair enough. Just two remaining topics. Margins. You alluded previously that the technical dilution could be 100 basis points, something like that, and that you would work against it with self-help and restocking and volumes and probably a bit of price cost. Do you still stand by that? The last question is the hybrid furnace. Why was this canceled? I mean, it's so many companies that have already done press releases about aiming to engage in hybrid furnace concepts, now it's canceled.
Well, the first one on the margin, I will let Nathalie maybe answer this one.
Yes. On the margin, Matthias, hello. I can confirm, yes. We have the adverse impact and really mathematical impact of the dilution. As Michel explained, just mathematically pushing the costs to ensure a positive spread, and raising prices by 10% is dilution of 180 basis points. But you are right on the other, in the positive way, we still have our, of course, our PAP. You've seen that we continue to deliver very strongly on the PAP. The 2021 was again a very strong year. Yes, we expect a positive activity contribution as well.
Could this be 12%-13% top line growth including volume and then maybe, I don't know, 80-90 basis points of margin dilution? Too early to tell.
Yeah. A bit early to.
Probably a bit early. We are only the seventeenth of February, Matthias. This is why we are saying we provide you already a guidance which I think given the volatility and the uncertainty of the market is challenging to size. We provide you a guidance today which of course will be more precise in the coming quarters. I mean, as some elements of volatility and uncertainty disappear, we'll be able to firm up our guidance.
Yeah.
Of course, as soon as we see more clearly the geopolitical context evolving and the prices at some point stabilizing, we'll be able to give you a better guidance. Now regarding the furnace, your question. This was this consortium that was set up at the European level with 19 glass making companies a very strong and very new initiative, very innovative initiative. It was based on the fact that this consortium will get. Not on the fact, but the objective, sorry, that this consortium will get some grants. You know, the European Commission put aside EUR 1 billion of grants for decarbonizing projects, decarbonization projects.
Unfortunately, despite the good work done by the consortium, the consortium didn't receive the grant, and therefore the burden for all members of the consortium to finance this project was considered by many smaller players than the other indeed as too expensive, and therefore people started to, I mean, decided to stop the consortium. Our position is to say, "Okay, we'll carry on this project alone." Basically, we'll develop the R&D alone. This is not at all reducing our ambition in this topic. Just the opposite. I think we'll grow faster by developing the project alone than with the consortium with 19 companies. That is always a bit harder to manage in terms of speed and flexibility.
Okay. Thanks a lot. I get back in line and congrats to the results.
Thank you, Matthias.
Thank you.
Our next question comes from the line of Lars Kjellberg from Credit Suisse. You're now unmuted. Please go ahead.
Thank you. Just continuing on the same theme about furnace for the future. It's kind of difficult to understand. So you were a consortium of companies not finding it any longer financially viable, and you talk about it, some companies thought it was quite expensive. What does that mean when you go alone? What sort of costs are you shouldering to develop this technology, and what sort of risks are associated with that? That's my first question. Also, if you can, share with us how you think about the market outlook for next year in terms of, you've mentioned prices of course, right? If you look at volumes, you essentially now back to pre-pandemic levels, which I assume was about 2% growth in 2021. That means essentially you have two years with zero growth.
How should we think about European growth as some sort of normal trajectory? The final one would be on CapEx for 2022, and how do you think about, you know, the new technologies? Is that an incremental CapEx that you need to spend now versus the sort of 10% you already spoken about?
Thank you, Lars. Good morning also to you. Regarding the first question about the hybrid furnace. No, I think it's pretty clear easy to understand. One company in the consortium was supposed during the consortium project time to develop the furnace. It was an initial project. In this case, it was a project where this furnace would produce bottles that would be sold. The company will have an additional cost of R&D at the initial cost of CapEx and OpEx. The company that will of course develop this furnace will enjoy the revenues and the margin of these products being manufactured in this furnace. All the other 18 companies will only access to the know-how.
They were paying to see the efforts and the R&D results made by this company that took the responsibility to develop the furnace for the future. Therefore it was somehow you can see it as a cost to learn from the company that has developed or was going to develop the electric furnace. For us, the fact that we do it alone, of course will probably bear higher R&D costs to develop it. In terms of CapEx, it's probably more expensive. It is, not probably, it will be more expensive than traditional furnace indeed. We will have, on the other side, the revenues and the margin for these products.
You can count on us to be able to use the fact that these articles, these products that will be produced in this furnace with 50% less CO2 emissions. We are going to of course part of our pricing strategy, value this for our customers because I think that has the value and therefore we expect to get even a higher price to reflect the higher cost that we will enjoy with this new technology. We will take care of the R&D with our own R&D team. By the way, we are one of the few companies that have in-house design teams for furnaces.
We have the capability and experts that know how to design furnaces, so we don't even need to subcontract this activity, this R&D activity to a third party. We will get the nice revenue stream and profit from these new furnaces, which was not the case in the previous consortium situation.
Can I follow-up question, if I may, on that?
Sure.
The technology itself, what you've seen from, I guess, Ardagh building this thing, is that a functioning technology that's proven, or do you need to develop the technology before you get cracking on actually building the furnace?
It's a bit like the Cognac furnace to some extent in a different situation, but we are at the limits of what we've ever done. In other words, the technology, the issue is very industrial. It's technically speaking, we think it's feasible. Of course, we have great confidence that we'll find a solution, but it has never been done before. Therefore, we will probably encounter some challenges, some technical challenges that our teams will have to, of course, face and solve. But it's beyond the limits that we've currently applied in our design expertise, if you want, furnace design expertise.
It's not something that is otherwise we'd of course be less confident and would probably not communicate on something that we don't think we can do. That's something that we believe we'll be able to, of course, set up and run in a mass production environment in two years.
All right. Thank you.
Regarding your second question, the market outlook. No, I mean, we've had, you've seen that from the, again, I refer to the Investors Day, the Capital Market Day back in October. This European market has been growing steady at more than 2% per annum in volume. Right now I have to say, and that something also that somehow Matthias alluded, we are sold out, as you know, since last year. Actually since middle of 2020, we've been sold out, so we are producing as much as we can to deliver to our customers. The market is still very strong in Europe. It's buoyant in Latin America, as you well know, and that's where we're gonna put two new furnaces in the next two years in Latin America.
We're gonna put a third furnace in 2024 in Italy, because we believe that this market is still growing at least at 2% volume per annum. Our goal is really to enjoy this market growth in the coming years and especially in 2022. Back to the numbers, I mean, we are going to get a double-digit revenue increase because of the 10%-ish price increases and also some volume increase, which we expect to be around 2% in Europe.
Regarding the CapEx.
I will let Nathalie answer the question about the CapEx.
Yes. Thank you, Michel. Regarding the CapEx for 2022, we aim at keeping around 10% of sales for total CapEx, as we guided. We're looking to stay around 10%. This includes, in fact, the CO2 CapEx roadmap, which we communicated in January 2021, with a roadmap of EUR 180 million for the next 10 years. It is, you know, an envelope between EUR 15 million and EUR 20 million per year. This also includes the end of Jacutinga. It's all included. Around 10% again.
There's no consideration to the surge in revenues that would come slightly below 10%, or is it just that things are more expensive now, so it's still gonna be around 10%?
Will be around 10%, probably a bit more than last year. We were below 10%, 9.6%. We probably be a bit higher than 10%, but it's between 10% and 11%, I would say, not more.
This is all included.
Thank you.
Our next question comes from the line of Guillaume Muros from Société Générale. You're now unmuted, please go ahead.
Hello. Many thanks for the presentation. I have two questions. First one will be on the general situation for other European players on this, inflation context. Are you seeing financial situation deterioration at other players that cannot possibly, pass on the same price increases as you are? And would you be keen to benefit, from, let's say, external growth opportunities, given your solid cash position? That's the first one. The second one, more on ESG, are you planning, your new CO2 reduction targets, to link them as well to your capital structure through ESG-linked bonds?
Okay. Good morning, Guillaume. Thanks for the questions. Regarding the financial situation of our competitors, it's too early to know exactly what is the financial impact on our competitors. I remind you that we can only easily access the listed competitors. There are many competitors in Europe that are family-owned and privately-owned, and that are not necessarily publishing their financial results. One thing for sure is that many competitors are suffering. Just give some examples that are public information. One of our German competitors decided not to start one of its furnaces, a brand-new furnace that he has built, because he thought that the cost of energy was so high that it would not be a profitable thing for him to start.
We've seen some similar situations in other countries where people decided to slow down, especially in Eastern Europe, production because of the high cost of energy. It is certainly hurting everyone. This huge surge of energy cost is hurting everyone. As we said, we believe that we are well-positioned to take opportunity of acquisitions in the case these companies will, at some point, be open to discuss and sell their businesses. We are of course going to be very, I would say, close to the market in order to understand what opportunities this could create. Regarding the second question, I will let Nathalie answer.
Yes. Our two sustainability-linked bonds, indeed they are aligned on already the trajectory that we communicated in January 2021. Using you know an intermediary target of 2025, that is already corresponding for CO2 emissions to 15% decrease versus 2019, and with a target of cullet rate up to 59%, so by 2025. We are already fully aligned in that respect.
In terms of financing, as you could see, I have shown, I believe we are now pretty well-balanced between the debt market with EUR 1 billion two bonds of EUR 500 million and bank financing and other sourcing. Not sure we will run for another SLB in the short term. On top of that, I mean, we are very pleased that we did these two SLB. The timing for us was good, a good decision, looking at the curves of the interest rates currently.
Perfect. Very clear. Many thanks.
Thank you.
Our next question comes from the line of Francisco Ruiz from BNP Paribas. You're now unmuted, please go ahead.
Hello, good morning. I have three questions. The first one is again on inflation. Keeping the current situation in terms of energy, could you give us an idea of what would be your current inflation, your cost inflation for 2022 if everything remains as it is right now? I mean, I don't know if the inflation that we have seen in Q4, I mean, something like around EUR 65 million in the quarter could be a good indicator, or at least for the first three quarters of the year. The second question is on the working capital, which has performed especially well last year, with inventories which stayed at low levels, but a very good improvement in receivables and payment dates.
Could you explain us a little bit what was the reason, and if you could give us the detail on balance sheet factoring at the end of 2021? The third question is on the electric furnaces in Cognac. Could you comment if this will imply an extra CapEx or you are mainly linked to this 10% that you have recently mentioned? If there is an additional capacity or this will substitute existing furnaces. Thank you.
Good morning, Francisco. Thank you very much for your questions. I will start with the last question. Regarding the new furnace in Cognac, the idea is to replace a furnace which will come to the end of its life in 2023, beginning of 2024. Why did we say two electrical furnaces is because the production capacity of two electrical furnaces corresponds, equalizes the existing conventional furnace capacity. Therefore, it will be a substitution, and to make it clear. It's not additional capacity, it's a substitution. In terms of CapEx, this is factored in the 10% each CapEx on sales ratio that Nathalie mentioned just a few minutes ago, so it's all included into this ratio.
I would think.
Could you give us an idea of vis-à-vis the CapEx of electric furnaces or replacing with electric furnaces or normal furnaces, how it compares?
It's a bit early, to be honest with you, because our engineers are still working on the precise design of the CapEx. We know for sure it's gonna be more expensive, but how much more expensive it is, I don't know. Given the fact that we spend around EUR 250 million of CapEx every year, I mean, if you look at the extra CapEx that it represents, it will not be materially impactful in terms of total CapEx spent by the company. It's more expensive than a traditional furnace. If you take the traditional furnace, it's around EUR 10 million-EUR 15 million investment. This will be probably north of EUR 20 million, but I don't know exactly yet how much it will cost. Okay.
Regarding your first question, it's harder to give you an answer on the cost inflation, first because you know very well we don't want to disclose at which price we have hedged the energy costs. You know, we have a very automatic hedging policy, which is non-speculative, but we don't want to disclose this information for competitive reasons. We are not going to be able to answer this question, unfortunately. I will let Nathalie answer on the working capital question.
The working capital, to comment first on the variation in 2021, for you, Francisco, the inventory in volume kept low at the end of the year compared to 2020. In fact, we have a slightly negative impact in the variation this year, but it's EUR 17 million. It's limited, and it's mostly due to higher inflation in the production cost. Receivables have been really strong. The balances were really strong at the end of the year. Again, I mentioned that we had a very dynamic Q4, especially compared to December 2020.
Here we have better sales, so the balance of receivables at the end of the year is higher. We had partially some price increases if you think of Latin America, but also a little bit in Europe, and a good mix. The balances were quite good. You asked about factoring of this receivable here. We are in the same programs as before. You will see in the notes to our financial statements the non-recourse balance that we factor was in 2020 EUR 302 million. It's EUR 335 million at the end of 2021.
The increase here again is more linked to the increase of the balance of the receivable, the position that we had at the December. No change in our programs or policy. Eventually the payables, the suppliers, went significantly up due to inflation at the end of the year. The variation here is very positive for us. For 2022, again, our targets, especially on inventory, is to rebuild inventories. Here, we picture a negative impact if we succeed in rebuilding these inventories. We have room in our free cash flow generation to do that.
Great. Yeah, can I do a follow-up on inflation? I understand that you are not disclosing the energy cost or inflation, but could you give us an idea of this EUR 65 million per quarter of cost inflation, which is something like around 12% overall, not only in energy cost inflation for the year, it's reasonable or not?
Well, no, I'm sorry, Francisco, I will not be able to give you more precise information. As you can understand, it's very sensitive information that we don't want to disclose. Because that will give you the information about, well, you know, we are hedged, but, as we said always, this is not something that we want to disclose to our competitors. We already disclose a lot about our hedging policy. We don't want to disclose the level at which we are hedged to. Unfortunately, you will have to make your own assumptions on this one.
Based on the fact that we'll be above EUR 300 million EBITDA, based on the fact that we have a little bit of growth and a little bit of PAP also, not a little bit, but the PAP at EUR 35 million, I'm sure you can find out what will be the impact. Having in mind that we are always with this EUR 300 million of floor, if you want.
Seven.
Sorry, EUR 700 million of floor EBITDA, we are always a bit cautious on the exchange rates. You know that every year, the last four years, every year, we had a negative headwind on the exchange rate side. This year, there will be elections in Brazil. We don't know what the exchange rate will in fact gonna be. In Eastern Europe, with what's been going on in Russia and Ukraine, we might see some volatility on the currency side too. Therefore, one of the reasons why we start the year with quite a floor in terms of guidance is because we have also to bear in mind that we could have a negative impact on exchange rate, and that is included in our guidance.
Okay. Okay. Thank you.
Thank you, Michel.
Our next question comes from the line of Jean-François Granjon from Oddo BHF. You're now unmuted. Please go ahead.
Yes, good morning. Four questions on my mind, please. The first one, could you comment on the mix positive effect you mentioned in 2021? Could you give us more color about the positive mix effect in 2021, and what do you expect for the mix effect in 2022? My second question concerns the trend for the EBITDA margin in 2022. If I want to understand, could we expect an EBITDA margin between 23%-24%? Do you think this is a wide magnitude for the EBIT margin in 2022, which will impact the mechanical impact of the price increases for the sales?
My third question, regarding the PAP plan, do you expect the same magnitude, I would say, EUR 35 million positive impact from the PAP program, compared to EUR 40 million last year? My last question, due to the pressure on the EBITDA margin, do you confirm or are you comfortable with the long-term target for 2024? You mentioned during the Capital Market Day to expect between 28%-30% for the EBITDA margin. Thank you.
All right. Hello. Thank you for your questions. I will answer the three first. Your first question is on mix. Indeed, mix effect has been positive throughout 2021 and in all quarters, and again, quite good and strong in Q4. I mean, we have seen a rebound as we commented in some segments that they are more premium products like sparkling wines and spirits, and also some premium still wines. Also one important point to have in mind is part of this mix is linked to the shortage that we have and the difficulties we have to serve all the demands of our customers.
We do some selection in the production and try to serve the highest margin and the better mix to improve our mix voluntarily on this one. For 2022, what we featured is a more neutral mix because this has limits and we believe it will come back to more normal mix for 2022. Second question on the trend of EBITDA margin. Here again, we said there are adverse impacts, the dilution of pricing, passing inflation, positive offset by our PAP. You were mentioning 23%-24%. I would say more around 24% on this one.
Your third question about the PAP. You know, we explain always, but we do in fact deliver steady improvement in the PAP. Yes, the answer is yes. You can count at least EUR 35 million of PAP improvement. Indeed, we did even deliver more than EUR 40 million in 2021. We will try to deliver as much as possible, but the EUR 35 million for us is a minimum.
I would take the last question, Jean-François. The long-term target of 28%-30% EBITDA margin is clearly maintained. Although, as you understood, we didn't anticipate the first year, which is 2022, to have so many headwinds and especially the mathematical impacts of the strong price increase impacting negatively the margin. But we are still eager to achieve these kind of levels by 2024.
Okay. Thank you.
Our next question comes from the line of Peter Testa from One Investments. You're now unmuted. Please go ahead.
Hi. Thanks for taking the questions. I'd like to just try to understand a few things on the timing factors around price and hedging. Can you give a sense, please, just on the hedging, whether there's a particular degree of that 15% that's open that's different H1 and H2? And then on pricing, you mentioned, you know, obviously you try to get the prices to start from January first, but should we regard that as, you know, all of the pricing is coming through January first, or will it phase through the period?
On hedging, in fact, we have really a systematic approach quarter per quarter. To answer your question, no, there is not specifically a big discrepancy between H1 and H2 , to answer your question.
Okay.
Okay. Sorry.
Please. Yeah, please.
Regarding your question on price increases, Peter, most, and I repeat, it's Europe and Latin America, we increase prices anytime during the year. In Europe, most contracts are annual based contracts, where price increases in most cases are applicable January 1st. It's not always the case. Sometimes it's March, could be April, but I would say the bulk of it, I don't have a precise number, but I would say more than 80% of them are applicable as of January. However, let's be clear, because we are in an extraordinary situation today, should we see an additional extraordinary situation going forward, we might, and we've already told our customers, we might come back to them again middle of the year.
Depending on how things evolve going forward, we might go back to our customers during the year this year, which has not been done in the past, if we need to. The bulk of the contracts will be applicable from January 1st, I would say roughly speaking more than 80%, and about 20% of the contracts will be spread out during the next months, I would say, not during the year, but during the next months.
Okay. When you make an assumption on for the year on the unhedged part, are you using the current prices for those three key inputs or something different for the full year?
Yes. We are assuming more or less the current level of energy prices. Yes.
Absolutely.
Right. Then I had a question just on understanding volume impact. You obviously had a good volume Q4, probably, you know, people, you know, not letting you build inventory, holding on ahead of the price increase maybe. Last year you also had the furnace rebuild loaded impact in H1, particularly Q1 and some in Q2. I was wondering whether if you look at the volume impact as you start the year with the timing of the furnace rebuild, whether we should think about something different in terms of phasing or volume impact net-net with the rebuild.
No, this year we have a more normal split of the furnace repairs throughout the year. You should not see, last year was very different compared to 2019. You know, it was complete swing of furnace repairs between 2019 and 2020, therefore it made the difference quite big from one semester to the other. This is no longer the case this year. This year we go back to something much more balanced between H1 and H2. You shouldn't see big variations due to furnace repairs.
Yeah. Okay. No, thank you very much. Thanks for the answers.
Our next question comes from the line of Jordan [Megan] from BNP Paribas. You're now unmuted. Please go ahead.
Hi. Morning, all, and thanks for taking my questions. I have got two. Firstly, on the close to EUR 300 million free cash flow this year, you are targeting another EUR 600 million in the next two years to get to your cumulative target. We had some one-off buybacks from Apollo share sale. I think even if you increase the dividend by 10%, there is still a decent chunk of excess free cash flow left there if that materializes. My question really is how do you plan to allocate that? My second question, connected to that slightly, slide 23, you noted you are on an investment-grade trajectory. I am just sort of wondering how important is that to the company as a target?
Good morning, Jordan. For the first one regarding the cash flow, clearly, I mean this year, we are going to, of course, as usual, generate quite a lot of cash. Although as Nathalie mentioned, this year we will have probably to rebuild inventories, so therefore we won't have as nice and strong contribution of inventory decrease that we had yeah, last year and the year before. They said that we still generate quite a lot of cash. This cash will be used, first of all, to finance our CapEx, as we said before, and it will be probably a bit higher than 10% this year. It was a bit lower than 10% last year. It will be a bit higher than 10% this year.
Secondly, as we mentioned before, we will look at acquisitions, so we hope to be able to make some acquisitions, and that will be the best use of our cash because we believe we can create a lot of value to our shareholders going through acquisitions. This is of course after having paid the EUR 1.05 per share dividend in May. So that's. And if we still have excess cash on hand, we might consider share buybacks, but first beginning with all the share buybacks we did last year, probably that will not be a short-term necessity or short-term need, if you want. Regarding the commitment we took is to.
It's not a commitment, the fact that we want to be on an investment-grade trajectory is not a commitment per se, just the fact that mathematically speaking again, with all the cash we generate, we should leverage this company in a way that should please our debt providers.
Okay. That's very clear. Thanks.
Our next question comes from the line again of Matthias Pfeifenberger from Deutsche Bank. You are now unmuted. Please go ahead.
Yes, thanks. Two additional ones. Firstly, can you maybe comment on Russia, Ukraine, any exposures? Then maybe on the separation of the chairman and CEO function. Michel, do you wanna comment at all? Maybe give us some background in terms of your commitment to the company, maybe also with regards to some increased capacity to look at strategic things like M&A. Is that part of the consideration? Thanks a lot.
Okay, Matthias, I'll take the first one. You know, in Russia, we have two plants. The sales are below EUR 100 million. It's around EUR 87 million and EUR 90 million sales in that we have in Russia with a positive EBITDA. This is the exposure. In Ukraine, we have one plant that is not on the politically exposed region, so.
It is on the worst part of Ukraine.
Right.
Close to the Polish border, so it's very far from Kyiv.
Absolutely. The sales
It's less than 1%.
Right. It's less than 1% of activity. It's our. The total sales are above EUR 50 million.
50?
Yes.
Thanks. Regarding the separation of responsibilities at the board level, as I communicated, I will stay close to the company. I'm not going to take another CEO position in another company. My main primary focus, of course, beyond the fact that we need to, of course, there's quite a lot of work to do to manage the board, given all the, I would say, regulations that the board has got to face. My main, I would say, priority would be to work on strategic topics, and especially on the M&A side. As we mentioned before, it requires time to get close to the company that potentially could be interested to buy.
I will work together with the company to, of course, see if we can accelerate our acquisitions as we would like to.
Perfect. Thanks a lot.
So we have no further questions in the queue. So as a final reminder, if you would like to ask a question, please press star one. Hosts, we have no further questions in the queue, so I'll hand back over to yourselves.
Okay, thank you very much. I think we have question on internet, but most of them have been already answered. I will read them very quickly, and I think it will be pretty fast. First question on profit margin. EBITDA margin in Latam seems structurally higher versus Europe. Is this caused mainly by the fact that prices are negotiated more often and with more flexibility in Latam than Europe?
For Latin America, as I explained, we have really fully benefiting from our three pillars. There, the market is really strong, the demand is strong, and the market is short of glass. We benefit from that fully. The activity, the operating leverage is good. The performance in the plants is very good. Indeed, we pass through the inflation to sustain the margin. That's the explanation about the strong performance.
Thank you very much, Nathalie. One that has not been covered and it's important, please let us know how your contracts are structured. Immediate pass-through or with annual or quarterly negotiated. You said on very.
Just to remind everyone, again, we exclude Latin America, where we renegotiate prices as often as needed. In Europe, more than 80% of our contracts are repeat business, annual-based contracts, where once a year usually, and rarely more, we negotiate volume and prices with one customer, and that is locked for the year. Now, there are less than 20% of our contracts in Europe where we have long-term agreements. Usually, it's a three-year agreement where we have formulas or pre-agreed price increases. When we have formulas, they are based on indexes, and these indexes are revisited once a year to take into account inflation factors, and that makes the prices being adjusted only once a year.
I know it's quite different, for example, in North America, where they have quarterly adjustments, but in Europe, the practice is usually to have an annual adjustment on price.
Thank you very much. The last one may be, what is your feeling on 2022 consensus of EBITDA, around EUR 730 million? Is that completely out of reach or is that feasible?
Well, I don't like so much commenting the consensus, but I think the main takeaway on this topic is the fact that we provide a floor at EUR 700. Given the fact that there is still quite a lot of uncertainty and volatility in the marketplace, of course, we will do our best to do as usual, as much as possible, and we will be able to provide a more precise guidance in the quarters to come. The next rendezvous, the next time we'll talk about it will be in April when we'll close the Q1 results. Then usually by mid-year, by July, we are able to give you a pretty good guidance, and hence what we did last year. If you remember last year in July, we provided you the.
We upgraded the guidance from 650 to 675, and we ended up very close to 678. Hopefully things will normalize and stabilize a little bit going forward, and we should be able to give you more precise figures in the coming months. This being said, I think I would like to thank you all for your participation to this call this morning, and I look forward to talking to you again in the near future. Thank you very much.
Thank you.
Have a good day.