Hello, and welcome to Viralia Financial Results for Q3 2020. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask session. At any point, please press star 0 and you'll be connected to an operator.
I'll now hand you over to your host, Michelle Genuzzi, CEO to begin today's Thank you.
Thank you very much. Good evening, everyone, and thank you very much for attending this call meeting about the 9 more results of the RIA Group. I will be very pleased to share my presentation with Difontaine the current group CFO. And, please be aware that also Natalie Delbrecht, who will be succeeding to DGA as a Chief Financial Officer as of November 2nd next week, we'll also be, attending the meeting. So we're very pleased that both of them are able to participate to this meeting And, without any further ado, I will start my presentation with the first slide, page 4 which is, in the financial highlights of the quarter and of the 9 months.
But please, I would like first of all, to draw your attention to the VERIA profile on the left part of the slide, to explain a little more in details why this profile has enabled us to be so resilient during the year 2020, which has been a challenging year for every industry indeed. And the first thing I would like to highlight is the fact that as you can see on the dollar, we have a very diversified and balanced end market exposure, which has been very useful to especially grasp the growth in some segments of the market that have been extremely growing extremely fast during the lockdown or during the recession especially in second quarter. And even after that, And I mean by this, the food glass packaging. And also, if you see below the fact that we are leaders in Europe, as, of course, as an interpretation, the fact that we are not only exposed to the premium segment, where, as you know, very well, as you recall from the IPO presentations, we are quite strong in this premium segment, but you can't be a leader in Europe with only premium products, which means that, of course, indeed, we are also competing in all other segments of the market, including the entry level or midstream mid market segments, which of course have been probably more resilient during this year than the premium market that has suffered a bit more.
And the last thing I would like to say is that the combination of both diversified and market segments and the many countries we are present in, the 11 industrial countries where we are present is giving us the opportunity to balance and follow, the market trends that can be different from one market together with, kind of, much more resilient factor than maybe pure players in one country or one segment of the market. Let me give you a concrete example. According to National Statistics in Italy, Italy is the largest wine producer in the world and wine still wine, especially is our largest segment. If you, consider the Italian statistics the winemakers in Italy have been exporting in the first half of this year 3% less in volume in headquarters and 4% less in value compared to the previous year While at the same time, the French one producers have seen their exports going down by 10% in volume and 21% in value during the first half of the year. In other words, the French one producers that are exporting have lost market share at export Again, the Italians knowing that for the top 11 exporting countries in the world, the drop of volume has been 6% for the first half of the year.
So Italy has been gaining share. 1 of the countries where It has been in chair at export is indeed United States, where you know that the Italian 1 reserve were exempted from the U. S. Tax that were imposed a year ago, which was not the case of the French one producers and the Spanish one producers, the 2 other largest one exporters in the world. So This exposure that Delia has in the 3 biggest one markets, for example, in the world, to 2, 3, because one exported market in the world, France, Italy, and Spain.
And the fact that some market are gaining share of exports versus houses, has enabled Delia to take advantage of this diversification that I was mentioning before. The second thing that, I would like to draw your attention to when you look at this split of end market. And, the fact that food is a quite important segment for Viralia is that even though we estimated during, the 1st semester that about 1 third of our customers sales are made on trade, which means on the hotel capital versions, we've seen during the confinement that some reached some shifts from on trade to off trade. Some volumes were shifted from on trade to off trade. And John is a very good example of that shift that we have seen.
And this also is an explanation for the things, the strong performance of the company in the 1st 9 months. Last but not least, I mentioned the fact that we were strong in the premium segment, but if you recall what I said during the presentation a year ago, the fact that we are quite strong in this premium segment is not so much the leaders of the capacity we have to make very nice products, very customized product for our customers, but more the fact that we have equipments, facilities, plants that are flexible enough to make short production runs because you know very well that in the premium segments, you don't have such long runs as in the mass market segment. And we have taken advantage of our capacity to change over our production lines fast to adapt to the new customer demand trends. 2, of course, grasp any opportunity to grow our business during this year. This flexibility has been evidenced, for example, by our capacity to shift very quickly some lines of production that we're producing bottles into lines of production that are now producing jars, for example, to follow the strong demand in jars.
And also, this activity is being used every day as we speak to follow very unpredictable customer demand. I mean, let me on it. Our customer's forecast right now are very hard and very difficult to follow because they are very volatile. And the fact that we have this flexibility has probably given us some kind of advantage to, that you can, you can use to expand, we can use to expand the very strong performance of the 1st 9 months. So this interaction being done and this is evident by the left hand part of the slide.
Let's look at the queue numbers now. First of all, we are very pleased to report that over 9 months, the reported sales are only 1% down versus the 1st 9 months of last year. And more importantly, the organic growth for the 1st 9 months are of 2.3%. And even if you exclude Argentina that is a boost to our value growth, as you know, it's still a very nice 0.9 percent organic growth for the 1st 9 months year on year. And this has been extremely boosted by the first quarter, where we reported a 5.3% revenue growth.
And 8.9% organic growth during the first quarter. This strong performance on the top line has enabled us to maintain an adjusted EBITDA at almost the same level of that year at 174,000,000 for the 1st 9 months. Last year, I remember, mind you, we worked 1,000,000. And with a slight improvement of EBITDA margin by 10 basis points up to 24.3 percent of net revenue. You know very well that we are very focused on managing also the balance sheet very tightly and very carefully.
And we've continued to deleverage the company bringing the ratio of debt, net debt to last 12 months adjusted EBITDA from 2.7 times a year ago to 2.2 times at the end of September of this year. And both very strong results of the 1st 9 months of the year have made us very, I would say, have encouraged to revise our guidance for the year. France and other countries regarding the most severe measures taken against COVID, the confidence to upgrade our guidance to the numbers that I would provide to you in a few minutes. So this was, this was the first highlight for the quarter. If you move to the next page, you will read here that we've also worked in the last 9 months together with 1500 employees customers, suppliers, investors, and also other local community members we work together to define the Zaria purpose, which we are very pleased, we were very pleased to announce a week ago our purpose is to reimagine glass for a sustainable future.
Clearly, this purpose is already fully integrated in our strategy is, leveraging our company values that are more almost 200 years old. And, clearly, with a strong focus and a clear focus on to secular economy that we want to promote, and of course, improving the carbon emissions to avoid the global growing or to maintain the temperature increased below well below 2 degrees. So this is, something that we have announced a week ago will be in the coming weeks, communicating a lot more about the concrete measures and objectives that we are taking in this respect. But we are very proud to communicate to you that we have made this very important work during the first time most of this year, and we are pleased to report that to you today. Moving into a more recent news regarding innovation and product launches, you have here 2 interesting examples of Eco Design Innovation, especially in the perspective of leveraging reuse concept, which, you know very well about the recycled content, the fact that the glass is infinitely recyclable, But, we also work on reuse.
And here, you have 2 examples of, reuse, bottles that have been developed, by Viralia recently. The first one is the gobi indoor, water bottle. Which, Gobi has sourced 100% in France and, through a life cycle analysis, has been able to demonstrate with by using this water bottle during 3 months, that will compensate the carbon emissions that PC bottles and plastic cups are generating during the same period. On the right hand side, it's another innovation, which the soda stream that, I'm sure you know very well. The soda stream machine today is either dedicated to glass or to PET.
And, SodaStream has developed a new machine that can be versatile, can be used either with a glass container our IT container, and we are very proud that we've co developed this nice glass bottle that will be able to resist to carbonated liquid. And, of course, in a reasonable way, in other words, you can push it, put it in your dish washing machine. And it will, of course, remain as efficient as well in the first day. So we got 2 examples of innovation, product innovations that are interesting because it shows that we are not only focusing on recycling. We've talked a lot about recycling the fact that we're also, trying to contribute on some reuse solutions for that are, of course, very good for the enrollment.
And, and we are pleased to report that to you. Now moving to the next page, We are also pleased to give you some, the interesting work that we've done on the R and D side developing augmented or intelligence. I prefer this word rather than artificial intelligence. And, that has been recognized with an enterprise trophy given by LGM Group, and Vivaya was, thrived, if you want, for, in a very traditional industry, like the glass making industry, being able to use such innovative solutions either, for example, to control our policies and to improve the efficiency of our policies is to improve the inspection at the end of the line inspection in the quality machines that we have or, to also improve the process control on the foaming machines that we have in APAC These were three examples where we use augmented intelligence at Viralia. And again, not only will work on the innovative designs and products, but we also work on strong innovation, especially on the process side.
And more will come I'm sure in the next quarters. So this being said, now I will hand over to Didier who will go for you with you, sorry, through the financial results.
Thank you, Michelle, and thank you very much, for for you to join. This call. As usual, I will cover the financial matters in three parts. Firstly, we will start by reviewing the review numbers at group level. I will then move on, to profitability, right, the review of the adjusted EBITDA, and then we conclude on our cash performance and our updated capital structure.
So let's move to page 9. Administrative at the beginning of the call, Volumes in 3rd quarter have been, better than expected. Actually, volumes have been growing by 4.2%. This is the 3rd quarter last year leading to a strong 8.9% organic growth. As you remember, volumes were down 7.9% in Q2 And during our F One review in July, we're indicating that two numbers were much better than the April I made it once, and the trend has continued in Q3.
As a consequence of that, the sales posted the very solid 8.9 percent organic growth in Q3. This is a minus 5% 5.4% in Q2. Just two seconds of a of a number that says the number that would have to come back to what we should say introduction about our project or portfolio diversification. The man is 5.4%. Indeed, it's a negative number But even though it was negative, it was probably the best number among our peers in Europe in Q2.
Therefore, to showing the benefit of our product portfolio and original span as well. So over the 1st 9 months, the group achieved a revenue of 1.956 €1,000,000 to be compared to €1,976,000,000 in the first 9 months of 2019. This corresponds to slide 1% decrease in reported figures. However, almost recovering from the tough q 2. On an organic basis, if we exclude the correction impact, revenue grew by 2.3% foreign and 0.9% if US Food Argentina.
If we go by geography, The moment improvement over to 3 is basically mostly due. On the one hand, to the very shift recovery and the very dynamic environment in Latin America, especially in Brazil. Where despite the difficult political and sanitary context, the market is pulling a lot today. We mentioned Italy. Italy has been posting very strong volumes increase.
We'll be delivering a good part of our customer's export. War in Iberia, police have been picked up, picking up nicely as well. If we move from geography to a product family, we mentioned non alcohol beverages and especially food jobs. Food jobs have been the product categories that have done extremely well during the crisis and I think very well oriented, and we believe this is a trend. And the silver one where I'd eventually retire in term of terms for compared to last year.
It's actually coming from and from Spain. In addition, in the 3rd quarter, a top line and enjoy your positiveness and continue to benefit from the contribution of the price increases that have been carried out at the start of the year. And lastly, I would say, as usual, I mean, most importantly, we are has been penalized by the exchange rate variation, which has been high given the current center in economical terminals. The impact was strongly negative reaching 3.3 percent of sales over the 9 1st month, representing overall rate of 1,000,000, driven mostly by the currency appreciation in Latin America, and this is Shane Brazil. If you look at Brazil between the closing rate of September 19 and the closing rate of September 20, the real loss 45%.
And giving the giving that Brazilian real represent no almost 50% of that negative heat. Now we have covered revenue. Let's move on to the adjusted EBITDA on slide 10. Actually, the middle of the first nine mark is back to last last year's level, which is I think a very good and solid news despite the heavy negative impact from the COVID 19 and the Forex transactional impact reaching €474,000,000. Organically, if we remove the ForEx It increased by 3.9% despite all what we had since the beginning of the year.
This performance, I'm going to repeat it again, but I think it's always good to repeat the same good stuff. This performance has been driven by the drawing out of our 3 peers. And if you allow me, I will highlight some key points about 3 peers that happened on the third quarter so that we will help you better understand the bridge yet to wait. ITT remained negative over the 9 months, and I've been negative in Q3. However, in Q3, we benefited from a positive operational leverage that partly offset the anticipated negative impacts of the destocking resulting mainly from our plan and extended furnace repairs.
We reduced the level of inventories between the end of June the end of September by almost 10%. Our second pillar that was, again, very strong in q3, I supported by the improvement over the product mix is a positive price mix cost spread. Very good performance in Q3, contributing and reinforcing a good pricemix spread over the 9 months. Finally, the 3rd pillar, I. E.
Or capability to reduce our cost base by our productivity actions, this appeal has continued to deliver. Keep in mind, we have a 2% graduation target, net cash cost base, production cash cost base, the personalization plan led to net reduction in cash production costs for the 9 months, representing 2.3 percent of production cash cost, I 28,000,000. To complete to complete the picture, the other colon, Include mainly the COVID 19 direct extra cost for 4,000,000. By the way, the total cost for the year or year to date, COVID, has been 40,000,000 for the company so far. 10,000,000 is recorded in Azure CIBDA.
There are 4,000,000 users that are partly PPE and donation. I record it below the line. And out of this 10,000,000 booked in adjusted EBITDA, majority of that is linked to under activity and is recorded under the pillar activity, a negative impact for activity, and the rest is booked is booked in the other column. As a conclusion, in spite of those headwinds, Viralia has been has been posting a very solid EBITDA margin at 23 point 24.3 percent. Over the 1st 9 months of the year, which is higher than Michelle was saying.
8 basis points, but higher than the 20 4.2% over the 1st 9 months of 2019. Moving once again, the resilience of our business model. Now, now that we cover, revenue and profitability. Let's look at reality, which is cash, with your cash flow performance. Improvement in our leverage and our capital structure.
Let's move to slide 12. All debt, which 1,359,000,000 at the end of September. This is 1,000,006 100 and €22, 1 year ago. This net debt would present 2.2 times adjusted for the last 12 months. It was, by the way, 1,591,001,000,000 at the end of 19, which represents a reduction of almost 15% a 230,000,000 reduction in value over the 1st 9 months of the year.
All that put together those number compares very, very favorably in the past. 2.7 time live rate at the end of September 2019. 2.5 times leverage at the end of June 2020. This is confirming, again, our capability to reduce leverage from 0 point 4 to 12 to term per year at the after dividend. And this is confirming as well the capabilities of this company to generate a very robust free cash flow to equity via not only the result, but the control and the master of his balance sheet is working cap, and Via is discipline a smart investment policy.
And just for the sake of clarification in case of some of you have found out, the leverage ratio remains well below The maximum leverage ratio set out, you know, financial loan documentation, which is at 5 time adjusted EBITDA. Clearly, you understand that's not something that should keep us awake at night. Now if you're moving to the slide 13, and I've mentioned, the beginning of this presentation, Viralia has a strong balance sheet that underpins resilience in this critical time. By the way, between June September, nothing much in the structure per se had changed. Except the fact that on September 30th, we are fully repaid from our cash balance of 200,000,000 RCF drawn made in mid H1 since the commercial paper has been reopening up.
Surprisingly in those 4 more days. He can put small but cash in bank and to grow from the same bank. Therefore, we use our cash to repay our own balance. Interesting to note, as well as I was saying, your opening of the commercial people's market, we remain very cautious. We have seen the crisis that told us that, being, double b minus the market can close very quickly.
We have been able to draw and find another 120,000,000. We have no push. We could have done much bigger today, we're much more focusing on pricing and duration with capability to go up to 12 months. In addition, to the good cash performance, the decrease of the leverage below 2.5 times, last 12 months adjusted EBITDA, as of June 30th, allowed us to lower by 20 bps, or TLA and RCF 1 margin. The change in the margin is effective as of August 3 2020.
And this is gonna represent a yearly setting for the company of €4,000,000 cash in financial charges. I think you will join me to say that, the liquidity remains very solid. I told you at the end of June, I was frustrated that we are shy of the €900,000,000 by 3,000,000. We reached 8797. This time, we beat the 1,000,000,000 euro liquidity at the end of September, which speaks by itself and should continue to build up.
Well, on my side, this is it. And that was my last, financial presentation that the CFO, Verallia. The company has been very honored to work for over the past few years. My last one is to say that I'm leaving the group with solid fundamental prospects, and a solid and very dedicated financial team, starting with in Italy, to whom am I handing over with confidence after this call. Thank you all for having me, sir.
And now I give the floor back to Michel.
So finally, to conclude and to wrap up this presentation. First of all, as you understood from this call, we've had a very solid Q3 after a very resilient H1. The volume increase in Q3 has led us to report 8.9 percent organic growth in Q3. After a 5.4% organic decline in Q2, and a 4% increase in Q1. So quite a very nice recovery in the 3rd quarter.
To be frank with you, quite unexpected as well. So that puts the full year 1st 9 months, sorry, of the year. At 2.3% organic growth, at the end of September. The adjusted EBITDA margin has been maintained more or less at the same level with a 24.3 percent margin over the 1st 9 months. And, we've kept deleveraging this company after a turn year on year And, at the end of September, we are pleased to report a leverage of 2.2x that will not adjusted EBITDA after the 1,000,000 of cash out for the dividend payments.
So based on these very strong results of the first quarter and including taking into account, the latest developments and announcements related to COVID 19, of course, providing that the pandemic does not significantly deteriorated further by the end of the year. We are pleased to upgrade our guidance for 2020 The volume for the year should be slightly below 2019. I remind you, we said in July to be around minus 5 percent here, which will be a low single digit down in the year 2020 compared to 2019. We expect a slightly positive organic growth for the full year. We revised upward our adjusted EBITDA guidance, which will be now around EUR 590,000,000.
If you remember, we mentioned 543 at the end of July. So it's quite a significant, I would say, improvement in the EBITDA guidance. We'll keep generating cash in Q4, and therefore, the cash flow will still be very strong and solid. In order to maintain the leverage between 2 to 2.3 times and 2.3 times lateral mobility. And of course, indeed, we confirm and repeat the guidance that we the midterm guidance that we mentioned in July on most of the midterm objectives, excluding all objectives, excluding organic sales growth, which we'll be probably waiting for the kind of, economic and, COVID-nineteen stabilization to give you a better guidance on the midterm of any growth.
But you understood from this 1st 9 months that we are a company that is eager to keep growing in a profitable manner, improving both the top line and the bottom line at the same time. So that was it for our presentation tonight. And we are very, pleased now to, answer your questions.
Alternatively, you may submit your questions via the webcast. The first question comes from the line of Matthias Pfeifenberg from Deutsche Bank. Please go ahead.
Yes. Good evening, ladies and gentlemen. I hope you're all well and safe. Thanks for taking my questions and congrats to these very strong results. The first one is clearly on the section wave.
Can you can you share share some thinking on that? Actually, did you have a higher fiscal EBITDA target maybe a week ago and just trimmed it a bit because of what's happening in the last week? And also, you said the guidance is is under this the the condition that it's not deteriorating significantly, but that what's happening in the market. So the question is, how safe are you with regards to this implied -15, 16% on EBITDA? Thanks.
Thank you, Majas, for your question. Indeed, we've been monitoring the global situation on a daily basis almost hour by hour the last 24 hours. And, this guidance is the latest revision, if you want. That we've made available today. This includes everything we know so far, which basically summarizes or sums up to, more drastic measures in the lockdown of hotels, cafe, and restaurants in many countries, something by France, Iberia, Italy, maybe Germany, But as you've seen in Q2, we've seen that even when there was a significant, it captured in Q2, it was a commode full closure for 2 months of hotels, cafe and restaurants, there has been some slight offset of slight compensation made in the retail chain, and therefore, the impact you remember for Q2, for the higher was not the mathematical calculation.
If you take into account that around 30% of our customers, sales are made in the hotels, caffeine restaurant in Q2. In Q2, our volume dropped single digit, high single digit, though, but still single digit in volume. And therefore, we don't expect, of course, to see such a sharp drop in Q4. The second thing is Q4 is a small quarter I remind you, this is the, I would say, lowest quarter of the year for us. And therefore, Again, we factored into our forecast, the fact that, Q4 will be quite less impacted if you want, if anything happens, than the other quarters.
And the third thing that you need to have into that you have in mind, sorry, that makes us confident about our guidance is the fact that because we've been surprised by the strong sales in Q3, we've ended up the quarter with very low level of inventory actually, to be honest with you, too low level to satisfy our customer's needs. And therefore, if anything, if the sales are softening in Q4 more than what we expect. It will be an opportunity for us to rebalance our inventory and we build some inventory to better serve our customers.
Okay. Great. I've got a question. Maybe you wanna comment on the valuation discount some of your peers. I mean, you had the best performance in the second quarter.
Now these set of results continue that track record, but still you earn a substantial discount And related to this, can you share some light on your UK exposure? Also, with respect to some of your peers, are you your probably not among the market leaders there?
No. As you know, we have no operations in the UK. UK is not one of the countries where the area is present. Having said that, some of our customers are exporting to the UK. For example, we know very well that some one customers in Italy are strong spotters to UK.
We also have some customers that are buying directly from plants, French plants, some bottles. But it's a very marginal business for us. So we are not so much, I would say concerned about what can go on with Brexit.
And the the last 2 are basically housekeeping. I mean, is it fair to say that if we exclude the price increases from Argentina, the price cost spread is quite narrow And, obviously, that's that's not needed because we we don't have a lot of cost inflation, I guess. And then also, did you see some ramp up effect from the new furnaces already in the third quarter or what do you expect in the fourth quarter?
We exclude, good afternoon, Matias. So if we exclude Argentina, the price remains reasonable, I mean, because I don't forget Argentina is not a major conflict for us. It's a big number that we saw you ago. Globally, the price increases have been have been, correct everywhere all across all across the board or across the, the, very And relating to the new furnaces, I think in Brazil, not to be able to engage with an extremely good job. And that's the reason why we think the market was putting a lot.
Thank you.
Thank you. The next question comes from the line of Alexander Berenglund from Bank of America. Please go ahead.
Thank you very much. Good evening. Well, first of all, congratulations on a good result in these uncertain times. I would have to follow-up, on materials we're talking about on on kind of disability, etcetera, here. And I think it has been a question, you know, from from the investor base as well because there's been surprises, for rally, I mean, positive ones.
So it's just kind of, do you feel that your, you know, your sense of kind of what happens for the business, you know, in this environment has, has increased, that your kind of predictability has increased. And more specifically also kind of in your conversations with your customers, do you have a sense that your customers have a better understanding know, what end demand, etcetera, will be or could be in different scenarios. So that's my first question. And then secondly, do you comment anything on supply and supply discipline in the market generally if we continue to see quite good supply discipline. Thanks.
Thank you, Alexander, for your questions. Regarding the visibility and the ability of our customers to read the market outlook. Frankly speaking, it's extremely volatile. I would have told you maybe 2 months ago that, we were on a recovering path regarding visibility and regarding forecastability of our customers. But the last few weeks, I've shown the opposite, actually, it seems that our customers have a very difficult time to figure out what they're going to sell, when and where.
And that is creating to all the suppliers a huge challenge to be able to meet very volatile demand. And in this environment, That's what I was mentioning before. Our flexibility that we have built over years in this company has enabled us to react, probably much better than some of our competitors to be able to follow what our customers were asking. But I'm not confident at all that the visibility is improving in the coming weeks. I think we will have to live and to learn to live with a lot of uncertainty going forward, at least probably until beginning of next year.
Regarding your second question on the supply discipline, clearly, I think, as we mentioned a year ago, during the roaches of the IPO, I think this is a, an industry where everybody is, I would say rational in the way that, if the market is down, I mean, you need to adjust your own capacity to a lower level of demand if you want to maintain your business in a good shape. And this is what we've done Of course, during the second quarter, it has been quite extreme because the slowdown has been very, I would say, important. But even after the second quarter, we've seen some projects of new furnaces, constructions being delayed, we ourselves have decided not to reveal one furnace in France. Because the French market is not as dynamic as at the other markets. And therefore, it's even slightly down And therefore, we decided not to reconstruct one furnace in our plant in cognac in order to, I would say, eliminate on a news and unnecessary capacity from the market.
And this is what we've seen so far.
Thank you very much.
The next question comes from the line of Lars Gilbert from Credit Suisse. Please go ahead.
Thank you. Just coming back a bit to your discussion going into to the second half of that. Obviously, pushing all of your furnace rebuilds into the co famous repairs into the second half. I think you mentioned 5 or 5. I was gonna go down for rebills in H2.
The question is, how many have you not done? The other question, I guess, relates to, working capital because he's to point you reduced inventory by 10% from a relatively elevated level after H2, I'm sorry, after second quarter. Understand that it depends, of course, how strong demand is. And if you will find an opportunity to rebuild or not, But in terms of your production, how do you see that faring, 1st and foremost, how did it fare in Q3 year on year and how do you expect that to fare in Q4 on a year on year basis based on your plan? And also, finally, if you can just to confirm what sort of CapEx levels you're looking for in the current year and how we should think about that in 2021?
Okay. So I I will I will need 2021 from Shell because I, I don't think I should comment on that, but I will take the first report. What we have said, we have said that we were planning to do 7th semester in the year, 2020, one one of each been, one of them has been performed in Q1 2020. We have done, I would say, 3 months, because, you know, you you don't close the 30th September. So we have done we have done, we have done more than half in Q in Q3.
And as expected, on time, we have decided, do you remember, well, to extend a little bit as well? Now from a from a working cap management, you know, a working cap, you're right. The inventory I've been, I've been, a big contributor. It was a contributor last year as well. And we're talking about variances or variances.
Last year, the inventories have been reduced between January December the same in September the same year more. Kelly, we are 100,000 tons below at the end of September 10% than we were last year, September 19. However, over dues are fully in control. I mean, in terms of percentage of sales in the order, despite the fact, and we're improving our working capital. We've got to be recorded more when we call factoring that we are 4 percent less than we cost back during than last year.
So I think the balance sheet is pretty well under control. Regarding the production, I think exactly we should have been saying, we have a lot. We have flexibility. We have flexibility in the market. It's not there.
To increase a little bit selectively the level of, level of production and unless global advantages is extremely high. There's no reason why we should not be able to do so. So we have the flexibility or production tool to address So address that if the the sales are not are not aligned. As we get the CapEx, I will mention cash because, you know, we have completed the 2 brownfield. In term of cash, we are going to spend around €250,145,000,000 cash, which is €15 more in cash than last year.
So that was expected. If you remember well, what we said when we started the year, we said, okay, listen, the bulk of the CapEx
is due the middle of
the year. So the payment terms make payable during the year. So we are going to have probably factually value the same book CapEx, but with negative impact on the payables. That's exactly what happens. So you are we are finished more than the the last year it can be out.
I leave it to Michelle for 2021, but I don't think there's any any surprises given of seen and are redundant.
So for 2021, last, our goal and target has not changed it's the midterm guidance that we gave you, and reef and reinforced in July, which is that we are going to spend 8% of our turnover in recurring CapEx. So our turnover being around 2,500,000,000, it's, around 1,000,000 plus or minus a few 1,000,000 that we're going to, we're going to spend every year on cap, on recurring CapEx.
And and in terms of strategic CapEx for next year is because is there anything planned for next year because some projects were pushed as opposed maybe into 2021, or was that
what you're
trying to
do? We we didn't we didn't announced any other strategic CapEx in the past that the 2 that have been completed this year, which is the brownfield in, Vila Poma in Italy and the brownfield in Azuqueca in Spain, those 2 brownfield strategic CapEx will be started major, before midyear next year. So first half of the year next year. And, and that's it for the time being. Now, should any opportunity either from an M and A or from another reason the found, of course, we'll communicate in due time, about both strategy CapEx.
But for the time being, that's what we have.
And the cash on those brownfield has been largely spent year to date.
Right. And you you've just to in total then, you're looking at a CapEx cash spend of, you said, 245,000,000.
This is more or less. That that, you know, for 2020, that's the target we're having for the year. Yes.
Very good. And just finally, so I, as many misunderstanding from my side, your inventory is, of course, tight as you mentioned, but in theory then, to reach your 590 number that you're talking about, or in better than that guidance? Is that production in line broadly speaking with shipments, or do you have any meaningful deviation between the two?
No. There's so many food. This is no meaningful deviation. There's no no. This should be a line.
Got it. Thank you.
Just to be very precise on this question, we are not planning to significantly increase sorry, to increase inventory significantly differently than last year. Q4 is always a quarter away at the end of the year because it's a low quarter in terms of sales, but you know that our factories are running 300 and 65 days a year and put 4 hours a day. So the production output on factory is very constant throughout the year. But December is a low sales move. Therefore, every year, we increase a little bit inventory in December, but we are not planning to increase it much differently than in the previous year.
If I may, just back to me one more question. You called when you spoke in July, you talk about extended downtime, from then what the expecting was relative to due demand. I would assume that extended downtown didn't happen this year. I just can't confirm that. And then how should we take yeah.
Sorry.
No, absolutely. I mean, of course, we were planning some extended downtime, especially linked to the furnace repairs. Which, of course, we've not done because, we were short of inventory.
Great. And and furnace, like, rebuild activity next year at that Is that going to be voted the same as this year, 6.7? Absolutely.
Absolutely. No, we have a more or less regular flow of finance to rebuild every, every year, 6, 7 for the same year.
Thank you. I'm well done again today in the quarter.
Thank you a lot.
Thank you. The next question comes from the line of Francisco Reese from Exane. Please go ahead.
Hi. Good afternoon. Congratulations for the figures, and and good luck to, Didier in his new, challenge I have four questions. 4 questions, if I may. Yeah.
The first one is, if you could give us some light on the the current price negotiations for next year. The second question is, if you could give us what's the current situation of hedging both in raw materials and energy? And it could give us, what is the delta versus the cost on 2020? The third question is if you could get update on the restructuring in France. And the 41 it's, what's the current situation of the new furnaces in Villa Palma and in Azukeka?
Are they opening? Are they running at full capacity? What the current situation.
Thank you. Thank you, Francisco. I will take the first question. I will let Didi answer the second one. And I would take the following question number 3 and 4.
So, regarding the price negotiation, of course, we start the price negotiation season. As you know, in Europe, in Latin America, it's everyday personalization or almost in Argentina, for example, but it's much more dynamic. But in Europe, as you know, we usually, most of our customers negotiate, between October February. Few customers have a different fiscal year. They negotiate midyear, but most of the acquisitions are currently happening right now.
So, without going too much into details, which, of course, for confidentiality reasons, I will not be able to give you the price negotiations are are led by the in many reason, in many countries by led by the inflation of cost factors. This inflation especially on the energy side can be different from one country to the other. Therefore, we don't have a general price increase in all countries, which is the same, as you know very well. So it's very much tailored to each country. Now more than 80% of our negotiations which are linked to long term agreements where we have some we are most of the cases of price formula.
So when we have a price formula, those price formulas show that, in some countries, the pricing would be neutral or slightly down depending on the energy mix and energy cost of the country. And for the other, customers that don't have a price formula, it would be Armstrong's negotiation. But remind you, the purpose for Deralia is to be able to be a goal and the goal for our sales teams to cover the inflation of cost factors. In other words, to end up with a positive spread. So if the there is a deflation in one country, therefore, if in one country the costs are going down, what we want is our prices to go down less than the cost.
Okay. But as of today, you will say that there is or it's likely not to see a big price decline as New York?
We don't see a big price decline. Overall. I think, I repeat, some countries might have a slight price decline because their energy costs are going down much more than others. But in other countries, there is still opportunity to have price increases. So, overall, I don't have the numbers yet.
We'll see at the end of the negotiation where we'll end up with, but, I would say overall, it should be more or less flat.
Okay.
Thank you.
Now regarding aging, I would like to see yeah.
Good afternoon. You know, hedging, you know, our strategy on hedging. Yeah. We don't speculate. We don't give positions upon.
Clearly, we, the this has a cost of opportunity. I mean, this year. If you remember this year, it's a TS, gas price. It was at 5 in July this year, 5. Now it's back over 15.
So the one we are was, the 13 and speculate and keep books upon benefited from a lot of advantages. That was not the case. We were at, you know, that's our strategy when we go negotiation with the customer. We are agents. Today, we are at a point where we are beginning of, beginning of October, beginning of November.
We are going to be free etching the coming in the coming weeks. We see the the price of the TTF of the gas in producing significantly. So we need a cost of opportunity, but I said that again. I think you prefer comparing like us, we should think we're missing an opportunity, then it's taking his take a bit because he's been speculating. So going forward, I have a different view a little bit that's what was media media related the price for going down.
Now the price are picking up. I think that we're seeing you more than €15,000,000, the TTF 1 week ago so that the price continue to continue to increase. As regard raw material, I think we have, we have complete from the soda ash. We have diversified our sources of, of, supply. And we are diversified between short term and medium term.
So we don't foresee a price increase next year on the raw material either.
Okay. Regarding restructuring, so as you know, we've started a transformation plan in France. To adjust our capacity in our French market to lower level by not rebuilding 1 of the 3 furnaces of cognac factory. This is linked to the fact that the French market is not growing a lot. And what I told you at the beginning of this call is even showing that the French one makers, for example, are even losing market share at export.
So this, has led us to consider that we didn't need so many furnaces in France. And therefore, the furnace in cognac that was due for reconstruction next year will not be reconstructed. Having said that, we are currently reconstructing 1 of the other 2 furnaces. So we were still investing in this region and especially in cognac area, for that reason. The purpose of the transformation plan, just to remind you, everyone, was, of course, to eliminate this extra capacity from the French market, which has a direct impact on 80 jobs in cognac factory.
And there was also a change in the organization in the other factories, the other 6 factories in order to make them organize the same way as we have in the rest of the group, which is a much more empowerment and much more responsibleization for the shop for people. And this was going to lead to additional 7 jobs being eliminated in the other 6 factories. The Viralia being a very responsible company, every effort has been put to, negotiate with our union representatives, conditions that will favor, early retirement or, measures to help people to set up their own businesses. And in any case, try to avoid as much as possible, forcing people to leave the company. In other words, planning measures that will make, that will favor, if you want, voluntary, departures.
So we've gone through all the negotiations, all the discussions with our partners, social partners, and those negotiations have ended up at the beginning of October. We have now completed all the files that have been now submitted to the French administration for approval of our plan. And that was done on time, which I think is quite remarkable. When you know the way the, usually the road matters are dealt with in France, And, we expect an answer from the administration, next month. And hopefully, should this answer be as expected positive by getting our plan.
This plan should be put in place by the end of the year, beginning of next year. So that's where we are. So we are perfectly in line with our timing, with our planning. And also in terms of cost, you remind you that we took 1,000,000 provision in the 1st semester to cover for this, all this plan, including some a few asset impairments or it's not just social costs. So to summarize, we are well on track on this project of transforming the French organization and making it, at the right level of capacity and also more efficient Regarding our last month, the 2 new brownfield policies in Italy and Spain.
As you know, we postponed the, the startup of those 2 furnaces, to next year. I mentioned that we'll start them in the first half of next year. When we think we need them. And these, I remind you that these are totally dedicated for their domestic market. In other words, we are not conversely to what some journalists could have said.
These are not furnaces that are have been built to export to France to compensate for the closure and the non reconstruction of the the cognac domains, but these are furnaces that are dedicated to the domestic market in Spain and Italy, respectively. So we are already to fire up, to fire them up next year. Of course, based on the assumption that next year, economy will be, steadily recovering
Our last question for today comes from the line of Paul Bradley from Citi. Please go ahead.
Hello. Good evening. Firstly, I have my congratulations on this great set of results. Well done. I've got a couple of questions, but first, I just want to make sure I understand the the pricing and and cost commentary you've given.
Overall, you expect to see prices at the moment with more or less flat into next year. And from a raw materials point of view, also more or less flat into next year. So I've just confirmed I understood that correctly. Looking Yeah. All all all in all in all in that
the right assumption right now, all in, I mean, if you mix the 11 countries in which we are, if you look at all the cost factors, some cost factors are in some countries down, but, others are up. You know, for example, Didi mentioned that, for example, soda ash was probably stable or down in some countries, but the labor costs is sometimes up in other countries. So all in and including all the countries we are in, it's going to be around the inflation and around your price increase. What we want is to be slightly end up with a slightly positive spread. Perfect.
Thank you. And on your performance action program, again, still very good performance in the 9 months at 2.3%. It was 2.6% at the half year, I think. What should we expect for the full year? We used to be running at about 2.3 or so or will the fourth quarter sort of tail off as the 3rd quarter has?
And what should we be thinking about in terms of next year's performance on the from this action plan? Should be looking at sort of 2% or is it looking again to over deliver?
So on this one, clearly, for the full year, as of also for next as also for next year, the goal is more than 2%. Now, of course, it varies slowdown during the year, you have to incur more industrial variances because the 2% is net of initial variances. So if you if you look at the bridge that Didi has presented, actually, the gross PAT is higher is 1,000,000 And the net is CHF 28,000,000. So we've got CHF 8,000,000 of initial advances. A big part of it is linked to COVID where we have inefficiencies due to COVID in especially in second quarter.
But altogether, we are aiming at more than 2% net net productivity for the full year of this year and same thing next year.
And just finally, on on the business itself, you've highlighted a couple of innovations you've made. What are you seeing in terms of customer appetite this year for new product, new innovation, particularly driven by sustainability considerations? I know it's been a funny year, and a lot of things probably went on hold in the second quarter. I just wonder if the appetite for new sustainable products or new sustainable angle has come back at all in the third quarter?
Well, I think it's a very interesting question. Thank you very much for asking it. We have 10,000 customers. And let's do this. We have some very small customers that are struggling and frankly speaking, are nothing about innovation.
They are spreading for life. So the small vineyards that are, that we're exporting, for example, to the U. S. In France and that are no longer exporting so much or some of them are and difficulty is beginning, innovation is not on the top of the agenda. On the opposite, we have some especially large customers, that are still very committed to improving their environmental footprint, improving their CSR performance, and that are strongly interested in any kind of innovation, especially when it's echo design or echo innovation that helps them meet their own CSR objectives.
And I've given you some examples here, but we've got plenty of examples with other very large companies, big names, big brands that are, have not closed this year despite COVID on innovation related to, carbon footprint and the CO2 emissions. So it's a mixed bag. I mean, but with 10,000 customers, you can imagine, we have all kinds of situations. But clearly, the trend that we mentioned several times in favor of glass is reinforced day after day. I mean, I gave you today, two examples where PT is being substituted duty, sorry, by glass, we just have received some interesting statistics from Germany, for example, where the share of reusable glass for mineral water in Germany has increased in 2020 versus 2019 by 5 points from 30% to 35%.
Of the of the containers being used for mineral water. So this is in 1 year, I think with significant shift Now clearly, the German consumers are probably more eco conscious than other countries in the world, but this is something we can see in many other countries as well. Probably not to the same extent, but certainly the trend is there.
Great. Thank you. And good luck to you today. Your new ventures
Thank you very much.
Thank you. There are no further questions in the queue. So I'll hand the call back to our speakers to conclude today's conference. Thank you.
Well, thank you very much all of you for attending this call and for pulling up Veraya. On behalf of the company, in front of you, because you've been working, and interacting a lot with DDA during those years. I would like to thank Diego for his great contribution to these outstanding results and also welcome Nathalie that has been very well groomed by Didi, as I mentioned before. And I'm sure you'll be very pleased to meet Natalie in person as soon as we would be able to physically meet, but I'm sure in the short term, you will see her easier through video conferences or in calls. Thank you very much.
And I wish you all to stay safe, healthy, and I look forward to talking to you again in a few weeks. Thank you.
Thank you for joining today's call. You may now disconnect Please stay on the line and wait for the instruction.