Recorded. And for the duration of the call, your lines will be on listen only. However, there will be an opportunity to ask questions towards the end of the call. I will now hand you over to your host, Michelle Janusi, CEO of Viralia, to begin today's conference. Thank you.
Well, thank you very much, and good afternoon, everyone, and welcome to our call for the first half of the year results. I do hope that you and your families are doing well and that you are not too severely hit by the COVID 19 pandemic. I will share the presentation tonight with Didier Fontaine, their IR Group CFO. And, I'm very pleased to report a strong performance in H1 that shows the resilience of the group in the context of the COVID-nineteen pandemic
revenue,
as they are reported, stands at 1,000,002,75,000,000, which is down 4.1% versus last year, first half of the year. But the organic decline in the first half of each year is only 0.9%. And even if we exclude Argentina, which you know is a hyperinflation country, the organic decline is only 2.7% versus the first half of last year. So quite a strong top line performance in the context of the pandemic. Our Q2 reported revenue were down 9.6 percent, to EUR 630,000,000.
And on an organic basis, It's only 5.4% drop in Q2 this year compared to q2 last year after a good Q1 as you remember. When we talk about, the profitability and the adjusted EBITDA performance, are EBITDA was down to EUR 299,000,000, in line with the revenue decline and the margin basically dropped 10 basis points at 23.4 percent for the first half of the year compared to 23.5 percent last year. We've kept deleveraging the company during the semester, and our net debt leverage ratio is down to 2.5 times adjusted EBITDA for the last 12 months compared to 2.6 times at the end of December last year and 2.9 times, a year ago. We did pay a dividend to 87 percent of our shares in the in the way of, a share dividend. And the treasury impact for the shareholders that have opted for the cash payment will be only EUR 30,000,000 or has been only EUR 30,000,000 in July.
And last but not least, we've announced during the quarter, second quarter, the implementation of the transformation plan in France to adapt our organization to the market changes. And to improve the competitiveness of our purchasing front. So moving to the next slide, what are we doing during the COVID Mandenix. We've kept managing the business continuity plans, very tightly with all our factories being operational throughout the semester. No factory was shut down, which kept, serving our customers whose role is essential throughout the food industry supply chain.
Since the end of the lockdown in many countries, we progressively returning to the office, we still have good share of employees, having home office work And we've constantly constantly, sorry, updated our health protocols to make sure that the health and safety of our employees is always, protected as best as we can. And we are quite pleased to report that so far we've been able to ensure a good level of hygiene and health measures in all our factories and home office and work offices. The second thing on Page 5 is about, the initiatives that were taken throughout, the organization led by our people on the, on the floor, in the countries, where since the beginning of the pandemic has been a huge solidarity move from all our employees And not only, as you remember, we've given some personal production equipments some, we bought some, hydraulic solutions for the hospitals. We provided also some medical equipments to some hospitals by buying them, even in some cases, in some countries, we provided some transportation to the hospital personnel, on the top of this, we've made also some donations, to, to some NGOs that have been supporting, people that were in distress or difficulty during the period.
And you have here a free example that we are quite proud of to report. The first one is Maisons. They are all coming from from from what has been done in France recently. Lamizondes family in France in Saint Denis, where we, have a we are supporting this organization that is helping women in difficulty and the teams of violence. And during the COVID-nineteen, unfortunately, there has been a surge of violence at home, in some cases.
We've also supported COVID on which has been a home monitoring platform to help, and jam the hospitals from the people that were, having some symptoms of COVID. And the, I've been able to set up in a record time This platform is 2500 volunteers, which has been a great, solidarity move from a lot of medical professionals. And last but not least, we are also supporting the Secours public who's, helping, jobless or homeless people to not only sometimes find a shelter, but also provide food to them. And this has been done with an association with the core communities in the areas where factories are implemented. So these are three examples coming from France, but we have plenty of examples in all the in all the countries.
And altogether, the funds provided by the executive management team and myself, was set up at 1,000,000 has been or will be completely donated, in a couple of days to help those initiatives. So this has been a strong solidarity and very impactful move inside the company, which I'm very pleased to report on behalf of the 10,000 employees of Euralia. Now another great success during the second quarter is despite the turmoil linked to the pandemic, we've maintained our decision to offer almost all our employees, not shareholder ownership program, that was, I would say, discussed at the time of the IPO last year. And with 2 things, first of all, This is the 5th time we offer such an employee ownership program to employees, but in the past, it was limited to a smaller number of countries. So we expanded to 8 countries nowadays, including some big countries like Italy that in the past, for technical reasons, couldn't join.
So we have now extend it to the maximum number of countries where it makes sense and it's possible technically to offer employee ownership programs The second thing, we've boosted the matching contribution from the company up to per employee. Which is in addition of a 20% discount for the share price, providing an attractive investment for many employees that have decided to invest in only. So as a result of this, program, we got a 42% participation rate most all eligible employees worldwide, which is quite a significant participation rate. In France, the fluctuation rate was 77%, which is even higher, but there has been more more, I would say, use or more knowledge about this program in France than maybe in other countries. You can see that in Spain, it was 50%.
And in the country there of Italy and Brazil, where it was the first time we had such a program, we had even up to 30% subscription rate. Now, this means that at the end of this, employee ownership plan that was, done during the quarter, the employees now hold 3.3% of Eiragas share capital. Moving to next slide on Page 7. You have here and other, I think, strong information, important information, sorry, about the dividend payment that took place, in the 1st half of the year, where, 87% of our shareholders I've opted for, share dividends rather than a cash dividend. Our main shareholders, Apollo, Brazil Warren, and Ms.
Caso, Defense says, BPI transportation, and the employee of the ship from FTP, Bellaria, have all opted for the share based payment of the dividend which means that the capital has been increased as of July 9, up to 1223,272,819 shares. And, you can see on this, split on this doughnut the speed of the main shareholder base post dividend payment and this is an estimated speed indeed since this could have changed slightly during during during the period. So, the last, information that the last highlight, if you want, of the semester is ready to France. You will see from the VGS comment that France has been more impacted than other countries, due to the pandemic. However, we were already before COVID-nineteen, facing some slight overcapacity in France.
And, also, we had the plan to improve the competitiveness of our operations in France before 2019. Of course, the sharp decrease of the French market, has not helped just the opposite. It has just reinforced the need to transform our setup and our operation prompts and the decision has been taken not to not rebuild, one of the free furnaces of the cognac plant, which is, will reach its end of life at the end of this year. And this will basically eliminate some excess capacity we have in our French operations. And of course, better load all the other plants in France.
And the second thing we've announced with this plan is also the change in the production organizations in all the plants in France. All the glass making plants in France. We have 7 of them, where we will implement the same process flow organization as the one we have in all other factories from the world, which, has been a key, key element in the success of our improvements in our operations everywhere in the world and which was a little behind in France. So this will believe make the French operations more competitive going forward. We, as a responsible company, will favor voluntary departures, like early decisions of activity, like early retirements, helping people maybe to set up their own businesses for those of them that would like to do so.
And altogether, it concerns 150 jobs and positions that should be made redundant at the end of the year. So these highlights being mentioned. Now I will hand over to Didier who is going to go through the financial results of this semester.
Yes. Thank you, Michelle, and thank you very much to all of you for joining this call. I'm a structural representation in three parts. So as you know, by the way, first reviewing the revenue numbers at group, level and then by segment, then move on profitability with the same breakdown and finally conclude with our cash performance for CapEx results and capital structure review. So now let's move to Slide 10.
So first of all, what we can see that despite the COVID-nineteen, the area has showed a lot of resilience. And as a consequence, has been able to deliver revenue, which is only slightly declining H1 20 versus H1 2019 on organic basis. For H1 'twenty, variable reached revenue 1,000,000. To be compared with 1,359,000,000 in the first half of twenty nineteen. This, as Michel highlighted, that this represents a drop in reported sales of 4.1%.
Nevertheless, if we exclude the negative ForEx impact, which by the way has been sizable, especially on the second quarter. As we have no scope impact, I. E. On an organic basis, the sales drop is limited to a slight organic contraction of 0.9%. And if we exclude Argentina, And you know, the rational sales are supported by, yeah, the high level inflation is -2.7%.
However, beyond the big picture of the South, we have seen 2 different trends between Q1 and Q2. And if we go into more details, the first element I would like to draw your attention upon is the bucket volumes, the red one on the left hand side. This is all negative on the bridge at minus EUR 56,000,000. And that's where the the breakdown between Q1 and Q2 was important. Because if in the first quarter, as you remember, for our last call, volumes were cycle positive and we were showing a 4% positive organic growth.
The picture in Q2 has been And we are allowed to do at the time and we anticipated it. The picture I said has been different in Q2. The drop in volumes reached 7.9% in the 2nd quarter leading to a minus 5.4% organic sales decline with a drop happening essentially in April and May. P and L during which the COVID crisis fully materialize, comparatively June was much better. The second point, in addition to the drop, experiencing volume, the mix deteriorated over the first half of the year, mainly driven by the France performance.
Actually, we say mix of 2 natures. Number 1, product mix and second 1, the country mix. The result of that being lower volumes sold in sparkling wine and efficient spirits. And this has been associated to a shift by customers, especially in France and Spain toward less premium products, meaning cheaper products. The green bucket price mix, we increased globally everywhere, but at a different level, and still, been boosted for Argentina, which represent a good portion of this increase, boosted by inflation is still a challenge in Argentina when inflation is significant and we're fighting for price increases is not an option.
To conclude on that bridge and in line with the recent past semesters, will also have been penalized, especially in Q2, by exchange rates by Asian coming almost as usual from Latin America. The impact was solely negative $42,100,000, representing minus 3.2% of sales. Primarily due to, I would say, the usual suspect, Argentina. We should see that as in hyperinflation mode, but as well, more surprisingly, from the Brazilian real, we lost an average between S1 2019 and S1 20 25% of its value, whereas it has been mostly stable over the past years. Now let's move to the page 11 and to see more information in that segment.
So we're going to start by SWE Southern And Western Europe, as you remember, Iberia, Italy and France. Revenue in SWE dropped by minus 5.2% on the reported and organic basis, reaching 1,000,000. Actually have quite a nice performance in the first quarter in Iberia and Italy, revenue declines in all the countries in the second quarter. We're highlighting that since the beginning, but the most notable drop at in France where volumes started to decrease already in the first quarter as we explained on publication end of April. And this is where the in this in this country, where the exposure to premium products parking wine and spirits is the highest.
Speaking about product, and if you look by product category, The evolution in Q2 is a good issue in what we said and we saw in the Q1, namely a strong dynamism in food jobs in the in those inevitably as well in the rest of the group, while the sparkling and their special spirits So for the most at, they are penalized by the shutdown or the very low activity or the hotel restaurants and coffee, cafe, sorry, sector. Consequently, and Michel highlighted that in the previous slide, we have launched a transformation plan in France to adapt the organization to the market changes and to improve this competitiveness. Now, if we move to page 12 for Northern And Eastern Europe, which comparatively performed well. With reported revenue, which increased by 3.1 percent amounting to 1,000,000 foreign exchange had only material negative impact essentially coming from the Polish strategy and the Russian ruble. The robust performance has been driven by the combination of a good segment mix.
We discussed but as well, non alcoholic beverage, especially in the water, which, as I said, did globally pretty well at group level, but here, I've been a driving factor of the continued dynamism of NE in Q2 after not really some Q1. Mix was good especially in German beer, and sales price increases especially in Eastern Europe catching up with the weaker first half twenty nineteen. Now, the 3rd segment, focusing on Latin America, Page 13, factually reported revenue drop by 12.2%, especially in future gains, strongly penalized by the unfavorable evolution of the local currency. This represents a 1,000,000 negative price impact again, unusual suspect Argentine Peso. But the Brazilian real, which I pointed out earlier, has been uncommon over the past years.
I will come back that later on on the EBITDA. But going forward, I mean, there is no reason to be more optimistic on the evolution of those 2 currency for next semester. But if we exclude this negative impact, the sale increased by 20.8%. And if you remove the boost from inflation in Argentina. This is still, plus 5% which is still sizable This is a result of what, this is a result of 1st volume increasing in wine, in Argentina and Chile, still wine.
Offsetting the softening bridging market. We have seen that softening in the 2nd part of the month of March. April and May, especially on the beer side, but the country has been showing some positive signs of recovery over the past 2 months. As regards to the sales price increases, this continue to contribute positively everywhere in the region, particularly in Argentina, where I said it's not optional if you want to continue business. Where the pricing policy is still very active.
And I want to highlight, as I am highlighting that every quarter, but I want to highlight the quality of
the job that our team
is doing over there in an environment that remains highly fashionary and put it such economics. You know, there's a big discussion about the action team that's coming up August 1st. Which is averment, which is very fluid, English way of food. Now that we have covered the top line, let's move on to review the adjusted EBITDA. And we're going to move by the group on the slide 14.
As introduced by Michel, the adjusted EBITDA decreased by 4.5 percent in the first half of the year, reaching 1,000,000. If we exclude the Forex conversion impact, it remained flat in value. This good performance is driven by number 1, our ability to contain volume decreases. And on top of that, June was a good month. Second one is still a positive pricing cost spread.
Confirming the point of our pillar and we should link to our dynamic processing policy. And finally, our 3rd pillar which is our capability to pursue our productivity plan and therefore reduce them on a permanent basis on a structural basis our cost base and by being more efficient. The Perfomycin plan path led to net reduction in cash production costs of $19,000,000 in the first half of twenty twenty. Remember, our target is a net reduction on a yearly basis of 2%. This represents a 2.3% improvement.
Back to the bridge analysis, If we go to the activity bucket of the bridge, we see this is strongly negative. The $26,000,000 actually negative correspond to 1st, the weaker sales volume, compared to H1 2019 and mainly the drop in volumes sold by 7.9% in Q2 This was partially offset by comparatively a lower destocking over the same period H1 their 19 versus H1 20. This reduced decreased inventories is mechanically almost due to a planned furnaces repair scheduled for 2019 That was this is a different schedule. Nothing really linked to the COVID. This is planned well in advance.
The plant is covering more or less the same number of furnaces per year, but with a different quarterly timing. In H1 20, it happened in Q1, only one furnace shutdown for repairs was scheduled and happened compared to 5 furnaces repair in H1 2019. The consequence of that is that in H1 2019, especially in Q2. We sold our products for inventory reduction, not via production increase. This is very important because the the plan for our furnace repair exists, and Michelle said that every time he said between 5 to 7 furnaces a year, Then on the contrary, in H220, fixed furnaces shutdown for repairs will take place compared to none in H2 2019.
To be exactly the reverse effect, it will trigger an eventual reduction in H220 compared to the same period in 2019. We will cover that trend later on. As you can say, exchange rate was significantly negative. Again, the vast majority of the impact happened in Q2 was driven by the real depreciation as well as the continued evaluation of the piezo. The other category include the COVID-nineteen direct extra cost for 3,500,000 I will stop by there just to give you what is the way we perceive.
We measure the COVID impact for the first half of 2020. We consider the way we measure it for the company was around 1,000,000 in cost $11,000,000 was were recorded in adjusted EBITDA. $3,000,000 basically the donation and the extra equipment we're recording as non recurring. So the 299,000,000 includes 11,000,000 of COVID impact in, basically, free buckets. The K number 1 in activity Under activity, you know, we have specific rules when the activity of plant goes beyond a certain level, the under activity is it is not being booked on the product, but we call it full P and L.
So this is in our bucket activity. The number 2 has been over hedging, you know, because your policy to edge is to edge the full year in advance, almost So clearly, given the low activity we have been at 3H, we took it, in line with the averaging. And the number 3 is what you have there in order, which are the extra direct cost for $3,500,000, which are basically logistic and delayed or increased startup costs on the 2 brownfield projects, which we are targeting to start in April May and we are not started yet. So back to the promoter, you asked for the direct COVID cost plus some positive one off that happened in 2019 such as insurance refund in Portugal or some claims with customers. And anticipated maintenance in 2020 to prepare for the shutdown of the second half.
So despite those impacts, the adjusted EBITDA margin decreased only very marginally to 23.4% compared to 23.5% in H1 2019. On the quarterly basis, the margin was maintained at 23% in Q220 to quick to be compared with 23.5 percent in Q1, twenty twenty four point five percent in Q2, twenty nineteen. Just a word before exiting the corporate side on the net income. The net income, which reached a plus $79,000,000, which is by the way higher than the same net income, last year. I wanted to say to us on it is better despite a decrease in operating income, as you know, as you know, and the restructuring charge we took a restructuring charge linked to the transformation plan of 19,000,001 9,000,000 booked in Q1.
And into the sorry, in Q2 and linked to the transformation plan in France. But this performance on the net income is coming essentially from the significant improvement in the net financial income following our debt reduction in value and the improvement reached on the interest spread as well. Now let's move to the size 15 and reviewing the performance in SWE. In HWA, we reported an adjusted EBITDA of 1,000,000 down 10.9% compared to the same period last year. This decrease is mainly due to France, where as we discussed on the top line, we expanded the sharpest drop in sales, the highest level of under activity booked in the activity bucket, and the strongest product mix degradation.
I want to repeat that this is in particularly the consequence of the decline in sales of premium product in Sparkling and in spirits. I discussed that when I reviewed the top line with you. On the other hand, Spain Portugal in Italy show good resilience with a stable adjusted EBITDA in the first half. In terms of margin, as the margin went down to 22.2 percent versus 23.7% in H1 2019. This is again vastly coming from the France results.
I will not repeat it again. But I mean, it seems that's the reason why we are launching a transformation plan in France for that organization again and improve the competitiveness.
Now if we move
to the slide 16 on NEE performance, on the back, of a good top line. The adjusted EBITDA amounted to 1,000,000 in H1 20 which compare a very favorably to the 1,000,000 in H1 2019. Which is a 15.1% increase. In addition to that, in turbo margin, it reached a good, very strong 20.4 percent, 20.3% compared to 21.8 percent in H1 2019. The 3 pillars worked very well in this BU and this business unit in H1.
Top line, good product mix, of setting a softer sales in Q2, strong contribution from the food job and the soft drinks sector. Selling price increase implemented, especially to catch up in Eastern Europe, catch up with a weaker H1 2019, as I mentioned, when we review the top line and an improvement and the catching up in this short performance, thanks to the continuation of the past plan. And we keep the best for the end, the performance in Latin America on Page 17. The HTS EBITDA grew by 2.5% on a reported basis despite a significant currency depreciation. But at constant exchange rate, It will have significantly decreased by 42.3 percent, supported by the urgent care top line and, following the inflation recovery.
And here as well, the full deployment and the full impact of our fee pillars. Volume growth in Argentina in Chile had described when we commented the same performance on the region. Positive inspiration spread and it's a no brainer. It's not an option, as I said. You need to go and fight to increase our pricing in a very fluid environment.
Thanks to still very dynamic pricing policy, not only in Argentina, but all across the region, each country showing a positive spread. And I say a special Argentina will remain a very highly infectious environment. And the 3rd pillar, I think Latin America is doing very well in the continuous rollout of our performance action plan. And this is leading in noached country in a strong improvement in the operation in the region. The margin is following the same direction, reaching 30.6% from 26.2 percent in H1 2019, representing a rise of 4 40 basis points.
As you notice it, the ForEx conversion impact had been sizable, and I want to say it again. But we're not optimistic for the remaining part of the year, given the political and economic uncertainties of the region. Especially the unexpected struggle that Brazil is going through at the time. However, the conclusion of Latin America, I want to say that we are very pleased with the way of 3 pillars are being rolled out in the region and by the quality of fundamentals over there. We cover the top line.
We cover the results. And you know, cash is relative. Let's move on the cash performance. Starting by the CapEx, I like to repeat it systematically, As an introduction, we have set up a very disciplined process for CapEx monitoring. And I think in a period of uncertainties, and volatility is more than ever important.
And given the current circumstances, can tell you that all investment remain more than ever under tight control from both an execution and a cash outflow perspective. When you look at the graph, in H1 20, the total book, this is book CapEx, amounted to 1,000,000, number which is slightly lower that the same number on the right hand side and $97,400,000, which happened in H1 2019. Number similar insight, but they defectually put a breakdown. Nothing knew how it is something we already highlighted at the end of the year and in Q1. We have lower recurring CapEx in H1 20.
It's linked essentially to the different timing of Furnace Innovation. I said 6 sorry, 5 in H1 2019 only 1 in H1 26 in H2 20. Please, I'd like to remember that, but let me remind you the key concept driving our CapEx management. Discipline. We are committed to meet our target of recurring CapEx at a maximum of 3% of sales.
The second difference on the breakdown is clearly the strategic investment in H1 20. They are much higher as planned And they are essentially in relation with the 2 brownfield investment in Spain, Italy, which Originally, we're supposed to start up in, end of Q2 and all that have been delayed given the current situation
and they will
be starting up depending on market needs. After CapEx, they took out the cash flow The cash flow from your patience for the period amounted to 138,000,000 and a 2 way to look at that. The first way is to see the bottle, Alfanti, and think that is 1,000,000 below last year. And the second one is to see the bottle, I think this is a damn good result given the pressure on Q2 on the top line, the EBITDA, the stock management, the customer management, and the supply management. So to go back to the 1,000,000 decline, first of all, as this is explained by the decrease in adjusted EBITDA by almost EUR 14,000,000.
The number 2 is we expect that we'll send that to you at the beginning. We were expecting, and this is happening, a much higher, cash disbursement on CapEx in H1 compared to 20 compared to H1 2019, given the profile, especially of the spendings on our brownfield. This is 35,000,000 additional cash out there. And if you look at the bottom, we highlighted line called CapEx Working Capital. You see how we spend, in addition to the book, 11,000,000 in 2019, EUR 15,000,000 in H1 20.
Again, no surprise. We anticipated we manage it Nevertheless, when you look at that, if you take 1,000,000, you could be saying, okay, that's empty. Now when we look at the working capital requirements, we manage pretty well. There has been a 7 days decline in sales day despite significant reduction in our balance sheet factoring. One of our capital focus has been customer collection follow-up, which has been better in value and in percentage of sales compared to H1 2019.
Please note as well that we have given a special attention to a supplier base. Number 1, by playing the world to be corporation, ensuring that payments were done, were done on time. But secondly, by making sure that we were not creating difficulties or supply chain, we're not putting difficulties.
Lastly,
we delivered a cash correction level of 69% which is a very robust number. Now if you move to the last slide, sorry, to the slide 21, not the last one. You'll have to stand with me on the other side after that. We share pointed out we continue to leverage, despite a drop in, adjusted EBITDA, We continue to break. We had 2.9 last year, if we exclude the shareholder loan, we had 2.6 times at the end of December, and we are 2.5 times at theendofJune.
Essentially, through the cash generation. Now the last one. Just update on the financial structure, capital structure, given change over the last quarter. The only, item that had changed is the commercial paper. If you remember, we were almost at $200,000,000 at year end.
We were almost at $200,000,000 at Q1. And we are now at $39,000,000, at the end of H1. Actually, on our program is doing well, but there is a very little appetite during the COVID crisis for non investment grade company. However, we benefit from, Tamara 5 year maturity. RCF1, by the way, we drew on it to compensate the commercial paper drop.
And we set up in April a new RCF reformaturity of 12 +6 months 18 months. And at the end of the day, the conclusion is that this is bringing us with a very solid liquidity, almost EUR 900,000,000, shy EUR 800,000,000. That's a shame. And, you could see a repeat being calculated as a cash in hand, the undrawn revolving credit facility minus the outstanding commercial paper. Therefore, a good liquidity, a comfort liquidity, but backed by a very close monitoring of the cash element of our businesses.
I would like to thank you all for listening and I'll give the floor back to Michelle.
Thank you very much, Digir. Let's move now to the conclusion and the outlook for 2020. So if we actually have very carefully, the presentation from Didier, you can really, I think, take away the fact that this COVID crisis has enabled the rally, to leverage its strength and demonstrate it's resilient. Just to remind you that until Q1 and if you go back to Q1 report and press release, We were enjoying another growth quarter with a 4% organic growth in Q1. And another quarter of continuous EBITDA margin improvement by more than 100 basis points.
Unfortunately, like everybody else, we were taken by surprise with COVID-nineteen in Q2. But despite this, the performance of each one is very solid. And as I said, we limited the decrease of revenue to 4.1% on a reported basis, but only 0.9% organically. Our adjusted EBITDA margin has been more or less stable, just dropping by 10 basis points, 9 basis points to be precise. In each one.
And as he mentioned, that was very strongly linked to the French market performance and depromimization, if you want, which is, I think, only a short term issue, because the long, long term mega trend premiumization, I don't think is at stake here, but in the short term, when people are not going to celebrate parties, in hotels or restaurants or cafes that are closed and are locked down at home, and not having any party at home either can even understand that spirits and champagne are probably less consumed than in any other year. But this will come back. We are very confident about that, but it has heat from quite strongly during the quarter. We kept generating strong cash flows, diverging the company. And we've taken very sharp and immediate actions to reorganize our French operation in line with the market conditions and strengthen the connectivity, completely necessary of our French operations.
So it's been a very resilient first half of the year. If we look, you remember in April, we withdrew our annual guidance for this year in terms of financial guidance. Now based on the, and I mentioned at that time that we thought that Q2 will be the lowest quarter of the year, and we should see some progressive recovery going forward in Q3 and Q4. We are still in this mindset and in this mood And based on the strong performance of H1, we are going to provide the guidance for 2020 outlook. Of course, this is based on the assumption.
There will be no there won't be another huge wave of lockdown a second wave of lockdown in H2. But the things will keep normalizing as a normalize right now. We're still a little bit of uncertainty. So it's a difficult exercise to forecast, but as I said, Q2 should be a low point in terms of volume drop. The full year 2020, we believe will materialize with the volume drop of around 5%.
We expect to have an adjusted EBITDA for 2020, slightly above the 1 of 2018 2 years ago. That amounted to 1,000,000. Bearing in mind that we have, as Didi mentioned, a lot more repairs of furnaces, rebuild of furnaces in H2, that will take place this year in H2 compared to last year, we didn't have any. And the fact that we want to keep managing our working capital especially our inventory very tightly, not within unused unused and in accessory inventory, in Australia for the year. So therefore, we'll keep, tightening our inventory and controlling our inventory on the proactive We will also in H2 implement our transformation plan in France.
We are on track in terms of timing, and we expect to have gone through the process by the end of the year this year. No. Just reminding you that, the restructuring provision has already been taken in each one, so we don't expect any new provision to be needed in H2. So this is for 2020 outlook. If you remember, we also provided that time of the IPO and mid term guidance.
And I would like to come back to this guidance that we provided, now 9 months ago. The first item on the guidance was the organic sales growth, where we were expecting at that time a 3% to 5% CAGR growth rate during the pay of the 2020, 2022. More or less half of that come was supposed to come from volume increase in line with the market growth that we've seen the 4 years prior to the IPO. Last year. And half of that would have come from price increase, which should have ensured a positive spread above inflation.
Now Given the fact that COVID-nineteen severely hurts the market consumption, this year, And given the fact that we are entering in a much more moderate inflation rate in our industry this year and probably next year as well, we clearly believe that this objective of organic sales growth between 3% 5% is not on the right. Now, we are not going yet to propose another objective until we see more clearly, how the major economies will recover, next year the years after. So in due time, we will probably come back to this objective, but right now, this will be of organic growth is more of a valid. However, the other 4 objectives that we mentioned and we took the time of IPO are still very valid in our mind. 1st of all, achieving at least a 25% EBITDA margin by 2022 is still a good target that we confirm.
The recurring CapEx on sales ratio at around 8% per annum is also, as you understood from the hold and will be maintained. We will keep proposing to the annual shoulder assembly to pay a dividend of at least 1,000,000 and probably with a payout ratio above 40%. And, the leverage of the company, as you've seen, is below 3 times. And we believe that it should be in the coming years between 2 and 3 times of the annualized EBITDA, adjusted EBITDA, the company. So we are maintaining 4 out of the 5 midterm objectives and we'll come back in due time when we have more visibility on the market recovery and the macroeconomic situation to confirm maybe a top line group objective.
So this is the end of our presentation. Now we are open to answer your questions. You very much for your attendance.
Star 1 on your telephone keypad. Please ensure your phone is unmuted locally so that I may announce your name and advise when to ask your question. Again, that is star one on your telephone keypad if you wish to ask a question. And we do have some colors coming in. The first question will come from Matthias Fifeenberger calling from Deutsche Bank.
Matthias, when you are ready, please go ahead. Your line is open.
Yeah. Good evening, Chance. Congrats to the resilient results. 3 questions from hi. 3 questions from my side.
So the first is basically Can you give us any color on June July run rates for organic revenue growth? And is there actually a risk in the LatAm business that there is a lag because obviously the the virus has taken some time to spread there. Is there some risk for the for the third quarter in light of the very positive development in the second quarter.
Okay. Thank you very much, Majas, for your question. I will give you some precise number because we've seen that some companies are reporting more precise numbers more by month as did you mention, the worst months were in Q2 with, most of, April, which was down 14% and I'm talking about the reported revenue altogether. 14% versus the prior year, April. The month for me was, the lowest the trough at minus 18% versus prior year.
And we were supposedly We are surprised, sorry, we're positively surprised by some good performance in June with even a 4% increase versus the prior year in June. So as you remember during Q1 results presentations, we thought that we would end up the the quarter Q2 with double digit drop in sales. Actually, it's slightly below 10%, thanks to a strong June. And July is not completed yet, but it will be more or less at par with last year. So quite a nice trend in last 2 months.
However, 1 month or 2 months doesn't make a summer. And, to be very frank with you, when we talk with our customers, we are not clear about whether there's some restocking in the supply chain So it's just a restocking effect because after the lockdown or hotels, Kathy, and Restaurants, you remember that represent 30% of our customers' business more or less. There could be some restocking in the supply chain. Of course, we are helped by the fact that Hotel, Kathleen restaurants are reopened and, consumers are continuing again. So These are precise numbers about the the the month by month recovery, if I can say so.
Yep. So there is still very much unknown about, especially on West Europe. Which are big countries for tourism, Iberia, Italy and also France, where this year because of the, of course, difficulties of travel, we expect a lot less risks than the years before, and this could have an impact on the of course, domestic consumption in those countries during the summer. So this is why we are a bit cautious on the outlook, in those, especially in those regions. Those countries.
Regarding the LATAM lag, it's clear that LATAM is still struggling regarding the pandemic, with, some start and go start stop and start to read in terms of lockdowns in depending on the countries and even depending on the cities in the countries. We have not a lot of visibility again in the coming months, but we think that, at some point, LatAm with some delay, maybe, will also be able to release some constraints in the slowdown in the business. So
Maybe did you want to add anything? I think on LatAm performance, we need to be always cautious about the bottom line. Just give you one number on the real. Might as you understand, the average appraisal values for S1 and not us, everyone, is at the rate of EUR 1,000,000 for EUR 5.4,000,000. Today, we are today at 6.1,6.2.
So the ForEx, the conversion will impact, I mean, at the end of the day, the EBITDA will be by the collection impact much more in the 2nd part of the year than in the 1st part of the year. And honestly, it's a matter of time for, for Argentina to see the same stuff. The blue dollar is today at 80% above the current dollar in Argentina. So mechanically, the Forex will take care in those regions. That's independent of the top line.
But the bottom line, did you see some correlation impact the second that that gets a bit? I mean, maybe I'm too negative, but I'm expecting that to be severe.
Okay. But my my question was more on the organic sales, but but fair enough. Maybe some add on maybe on the pricing, what has been the like for like pricing in the 2nd quarter ex Argentina? And then related to that, We've seen some news flow selectively on colored costs increasing. Have you faced some of this in terms of the collection rates being basically, collection being shut down and then locked down.
Is that is that an ongoing concern, or is that easing already?
So regarding pricing, first of all, we don't report our our pricing, as such, in a in a detailed way. It's usually price and mix together. And as you've seen, we've been hit with a negative, mix. In fact, the pricing was, as Didi mentioned, very different depending on the countries, the dynamics of the countries, But at the end of the semester, at the end of the day, what is important is we handed up with a positive spread. And, as you know, we negotiate prices, in our, in our business, except in Latin America, where negotiations can are taking place, much more regularly than once a year.
In the Europe, we usually negotiate once a year and negotiations are behind us. So we are pretty, I would say, confident that what we see in what we saw in H1 in terms of processing will will stand firm for H2. Regarding your second question on credit, it's true that in some areas, but very limited regional areas, during the lockdown, some companies have difficulty to collect collect, and therefore, there could have been some areas, some tension. We, from speaking, we didn't feel this pressure of extension on the credit market. And, as such right now, if there had been maybe some tensions somewhere in some areas, we don't see them anymore.
So we personally, I mean, the idea we don't see a lot of pressure on the credit side.
Okay. Thanks a lot. Can I just come back on the pricing? Because at the IPO, there was a lot of distrust in your ability to price up in times of week volumes. And now today, you mentioned actually a positive spread.
You mentioned positive pricing in Eastern Europe. And you also mentioned negative mix because of France. So Can we assume that like for like was still positive on the pricing side in the second quarter?
Yes. Absolutely.
Okay.
Thank you.
And the next caller in the queue will be Charles Scoti calling from Kepler Charles, when you are ready, please go ahead with your question.
Yes. It'll, good evening, everyone. I've got a few questions. The first one, can you quantify the impact on EBITDA in each one of lower, disputing? And, this booking is gonna be much higher in H2.
Can you also give us a guidance on what should we expect in terms of, EBITDA impact The second topic, can you clarify a little bit, if the the COVID related impact has been booked in the the adjusted EBITDA of the company. And can you tell us if you have benefited and also the from a state backed, Maria, regarding your partial unemployment. And my last question is on raw materials, tailwinds. As you are focused on small clients that are probably less strict and aggressive on prices. Should we expect simply counter, Roan, Calvaryte, in H2 and especially in 2021.
Okay, Charles. On the low destocking, it just fixed costs absorption. That's an up preference, so I want to keep the numbers because it would be what my fixed cost by returns are. But, the impact, the impact is is of more than 10,000,000 impact, one way or the other. Okay.
On regarding the COVID impact, as I said, the estimated again by the company and followed by the company, it's 14,000,000 dollars, $14,000,000. 3 of the $14,000,000 is outside the adjusted EBITDA and non recurring. As I said, it's donation and specific equipment PP, 11,000,000 of that is a 18 G EBITDA Okay. As regards, specific measures and short term employment, very, very, very, very limited.
We've acted very, hello, Charles. We have acted very responsibly as a company. Forcing first, people to use the bank towers. In some countries, we have a system where people are flexing the hours with the bank power system. So first of all, people were asked to empty their accounts on back hours.
Secondly, we've also, push people to take holidays as much as possible or activity in France. And only in some factories that are had a much bigger drop in activity than others where that was not sufficient we asked for a small, partial unemployment and state aid unemployment system. But this was very marginal for the company. Now regarding raw material,
Roma tell you, I think we, on H2, we are benefiting. I mean, first, we have We have short term and long term contracts, on term contracts are locked to index short term contractor. So we are seeing a raw material flat for the coming second half of the year. We don't expect raw material. I mean, not energy raw material.
We don't expect a surge in raw material in the second half. More we're trying to push it down, to push it down going forward.
Sorry. My mistake, ma'am. The the question was rather on the on energy cost, actually.
In Agi, I mean, you know, in Agi, we have a very, transparent and very structured policy, in Agi, we are hedging it So, clearly, we are today. You know, the numbers, as I know, you are clearly missing the opportunity of not being edge the one with speculative and not hedging today's benefiting from a very low energy cost. This is not the purpose of the co panel. And I say several times, that you win 1. And when you lose, you lose big time.
And that's I don't think a shareholders will invest the company with expected position. Having said that, you're right, the cost of energy is lower than our hedge cost. And it will probably go further down next year and probably we will probably be a little bit higher than the market but honestly nobody knows nobody knows what will be the spot next year because if you look at the price of gas today, and the future next year, there is still several euros of difference by TTF. So you can speculate and remain open and expecting the spot not to increase or that's what we are doing. But the average cost of energy next year should be probably lower than this year.
And the on pricing and that's what Michel was saying when he said is difficult for us to project an organic growth, including sales price increases higher because we expect on price because we are covering costs. We don't expect price increase to be as high to cover energy, which is flat or going down. And I would like to add one thing on the inventory destocking because destocking can be, I can say is related to the is related to the shutdown of the furnace, but it's very we are doing that as well very creatively. Because we want to have that company slimmer with the right inventories and the right quality of services. It's good for the liquidities, good for the balance sheet, And when you're having the right inventory and the market resume, your full full is much higher.
Thank you very much. Just just one final question. It could be my last question. But considering the the strong beat, in H1, the €545,000,000 EBITDA guidance for the year seems a little bit conservative, I would say. Have you taken voluntarily, cautious volume assumption for the rest of
the year, or is it
does it just reflect the the the upcoming FX headwinds? Thank you.
No, shall we, I think it's the best guess we have today on volume So volume, there is no cautiousness here. I think, around 5% drop in volume is, neither bullish or bearish, expedition is what we we see going forward, although I repeat the result of uncertainty and our customers are not hitting us a lot in forecasting to be frank with you. Now, so so the top line is very difficult to forecast, but on the EBITDA side, first of all, I remind you that, we say a slightly above 543. So this is basically like a floor. And this includes 2 big unknown, for H2, not unknown, but one which we know and the other one which we don't know, The one we know is the destocking that the dimension several times that is huge, for H2 compared to, like, what happened later.
So we are talking about variance of irons, in terms of inventory valuation. And as you understood, since we're gonna stop 5, 6 releases, right, in H2 this year. There will be a lot of destocking. The second thing is the change, the exchange rate, that, this one is completely unknown, and we don't, you know, this is only transaction impact. It's not the transaction impact.
Therefore, it's not edged. And therefore, it's the only thing we know at DDA was very clear about it. Is that it can only be worse than what we've seen in terms of impact in H1. So we expect much bigger hit on the exchange rate side, then the €30,000,000 hit we took on the EBITDA in H1. So that's the so that's the reason why, you can't take.
And I remind you also that we also have a stronger H1 and H2 in terms of both sales and EBITDA. This is more the seasonality of the business.
Okay. Very clear. Thank you very much.
And the next caller will be Lars Kjellberg calling from Credit Suisse. Lars, when you are ready, please go ahead with your question.
Yeah, thank you. I just wanted to continue a bit on the guidance. Hi, maybe I missed this, but I do think you called out almost an 8% drop in volumes sold in the fur in the second quarter, what was it in the first half? And the question really that I'm trying to get an get an understanding with that on is when you talk about 5% down for the full year, it seems as if you kind of the math works out, you're not expecting any volume recovery in H2 versus what you experienced in H1, even with the COVID significant impact in in Q2. And also on the previous questions about, I guess, the delta significant and destocking versus stock building, you did last year.
But also, can you call out what is, you know, your view on the actual costs bringing down the furnaces and bringing them up again. I mean, 6 furnaces in the in the second office are 0 in itself can, I guess, lead to significant higher costs just related to the furnace rebuild stop and start?
Well, regarding the numbers, you put it, I mean, the Q2, sales dropped by 9 points 6% or 97%. So you got the numbers right and there's no difference in this one. And now, the recovery we see in Q3 and Q4, is compared to Q2, which RFP is close to 10% add on, where you make the average, basically, you're expecting something like more around 5% drop in H2 with, still I repeat quite a lot of the loan about Q3 in South And West Europe because of the tourism impact. And Q4 is, traditionally always a small quarter. But this is the scenario of the business.
So, we expect sequentially some progress recovery but, not the business or the economy bouncing back to the same level as the one we had last year. This is our assumption to for for the age for the sooner for the year. Now regarding sorry.
I was
gonna say the same goes for mix, I suppose. So we still have an adverse mix for the same reason.
Abs absolutely. Mean, there have been a lot of articles in France, for example, recently, but the champagne, region being very strongly hit by, the fact that, people are not, again, partying and consuming champagne as they used to. And there will be, and there will be, a strong hit this year, and and probably also next year on the shopping side. Probably, of course, less than Q2, but still significant. Regarding your second question about the furnace, let me let me explain more in detail what does it mean?
After 12 or 13 years of, production life, the furnace is worn out and, has to be stopped to either don't replace it. It's what we do. It's one of the furnaces in cognac or to be revealed. So, basically, you knock it down and you re and you completely rebuild the brand new furnace. So this is something that we if you look at our track record, we we we record it.
We, repaired and we did 5 or 6 policies a year, every year. We have
this is very steady. I mean, this
is an ongoing and, repair. Now in the past, until last year, just to have the 2 for you to avail, because we're sold out and we are short of capacity, the goal was to try to repair and reconstruct the policies in the shortest period of time as possible. And during that time, I mean, the people are are are either maintenance people are working because they do other maintenance activities on the on the on the side. So we do some very big maintenance activities. Everything is being planned.
Of course, in advance, and, some approach and people are taking off, vacation or what we put on the on the manpower systems and so on. So this is the the way we do it. What is going to change this year compared to what we used to do in the prior years is we are going to expand the shutdown of the furnace is rather than trying to speed up the furnace repair in the shortest possible time. It's your colleagues. We're gonna take more time.
In order to adjust for the lower level of, demand in the market. So we are adjusting in other words, the capacity that we have to the level of demand in the market. So and this will have of course some costs because, we are not going to absorb those fixed costs of the people that are basically not, producing, in some pieces. Or because we don't absorb the, volume that we use to absorb in terms of fixed cost absorption.
Sure.
But this is something that we we we clearly mentioned that this this is our way and the most efficient way, by the way, to adjust the capacity. Of course, we've already taken the decision not to start the 2 brown furnaces, the brownfield furnaces in, the La Poma, Italy, and and Uzbekistan, until we see the demand of the market, back to to a higher level. But, beyond all these first immediate decision we took, in Q2, the best way for us to adjust for capacity, down, budget down for capacity. On capacity is to excel the stoppage periods of the financial yields.
Got it. Just one final question for me. The flow based organization that you're talking about, you're now putting into place in in France, Appreciate 150 jobs will be lost in the process, aside from that saving itself, what sort of benefits does does it give you? And And if you can put that in some sort of monetary terms, what you're now doing in France for
the group?
Well, the 1,000,000 jobs per addition that will be eliminated, 80 of them are related to the non rebuild of the furnace in cognac. So 80 of them is basically linked to the downsizing of the capacity in cognac. The remaining 70 spread over the other 6 plants. Okay. So you see 70 divided by 6.
You're talking about 10, 15 jobs per plant. Are basically optimization of the work organization. And the main concept basically is to having flow organization where, you had under the same responsibility. The people, looking for production and quality from the furnace down to the warehouse. Where today, front is still organized by process, which means that you have an organization for the furnace and organization for the hotend, workshop and the end organization for the cool and workshop.
And this is, of course, not, the best in terms of responsibilities and apartments of our people. And we have changed this organization, already more than 2 years ago in the other factories. And we've seen, of course, a much more responsive organization, much more, empower this organization, And that has led, of course, to improvements in quality in, adding a better quality because people react faster. And they feel more responsible from the whole production process about the quality. And of course, in terms of yield improvement and in terms of, machine efficiency and production efficiency.
So we are not going to really give you precise numbers. Beyond the, just the job that are going to be eliminated, which is pure productivity, but it is beyond just the cost aspect that you can calculate There is a clear side benefit in, operating your plant at a much better variable and have a much better, overall efficiency level.
And the next question will come from Francisco Ruiz calling from Exane. Francisco, when you are ready, please go ahead.
Hello. Good afternoon. I have two questions. The first one is is, again, I'm sorry to insist from from the BTA guidance for the for the full year. So so assuming this 543,000,000,000 or slightly above for the 543,000,000,000, that imply, dropping in margin if I have a correct level of sales of more than 300 basis points in in H2 and and compared to last year, almost a 150, basic points.
Am I correct incorrect or probably on doing something wrong here?
No, I actually, it's a drug that is a drug versus H1 of around 200 basis points.
Okay. Okay. Good. The second question is on on working capital and factoring. So it could give you you could give us the the day count factory on on this semester.
And how do you expect the the working capital to evolve, with the furnaces store, etcetera, in nature?
Nonrecourse factoring dropped by 8% in Michelin in flows, essentially because where it dropped mainly is where the the country's drop in activity essentially France. So going forward, it will it should resume with increase level of activity. However, and let's keep in mind that in front of us, we still have customers that are weak. A wall of liquidity with PG, with social charges. So we need to be very careful at the insurance credit that are covering the nonrecourse factoring program.
Are pretty cold feet today and they are not increasing the exposure. They are more reducing their increasing. So basically, we don't expect a catch up on the nonrecourse factoring. I think we're going to still be below last year in coverage, in value and in percent of coverage. Again, now on the working capital, if you exclude that, as I said, that's very important for us.
We are expecting we did much better working capital in the first half than last year. And in second half, we've been talking mechanically, because a lot of furnace repair will happen in Q3. We'll have a full cash impact in the 4th quarter. So we do expect working capital to be an improvement compared to last year. Yes.
And we are by the And we are we're still foreseeing a free cash flow to equity, which is a, which is about 3 digit term.
Which means that we'll keep diverging the sorry, deraging and reducing the debt of the company.
Okay. And just a follow-up on the French plan, Could you give us an idea of the payback of the 1,000,000?
I will pass on this question for obvious reasons. We are in the process of, discussing with the union representatives as we speak. And, until, those negotiations are completed if you allow me to scroll, we'll not answer your questions.
But the €19,000,000 is the cost of the full plan?
Or No, there are many there are many cost associated. It's not just it is not just the labor related cost. There are also some reorganization costs on the site. So it's it's a package. But, for obvious reasons, I just mentioned I'm not able to comment more in details right now as the negotiations are still ongoing.
Sorry about that.
Okay. No, no, thank you very much.
And just another reminder, ladies and gentlemen, if you wish to submit a question, you can press star 1 on your telephone keypad now. Again, that is star 1, but the next caller will be James Rose calling from Barclays. James, when you are ready, your line is open. Please go ahead.
Hi there. Just after a a comment on the situation in in France, really. I mean, why why have you taken the decision to close there versus in in other furnaces? You've just taken the decision to take take longer to rebuild them. And I guess related to that, could you comment on the sort of broader supply demand balance you're seeing in France and elsewhere in Europe where the volume pressures and and what the actions of your competitors are also.
Thank you.
Well, I mean, I repeat that one more time. I mean, in France, this is the market that was already, growing the the the the least, if you want, compared to the other countries, we were already, close to having excess capacity and this, this COVID impact has clearly highlighted the fact that we will have a lot of excess capacity And we have 2 furnaces out of the 3 in cognac that were up for repair. One will be repaired in Q3 this year. It's one of the 6 furnaces that Didi mentioned that will go for repair. But the second one, which was planned to be repaired at the beginning of nature, will not be repaired.
So so, And again, because, this furnace was dedicated to, the wine segment, I would say the standard wine bottles, that are, the that are clearly not performing as as well as probably as the segments of the market. So it is the reason why this was the one referral that was chosen. It was not a coincidence. It was the right the furnace at the right time to be chosen for, unfortunately, restructuring. I'm not sure I understood your second question, James.
Can can you repeat it, please? Because on our side of commission was not Thank you.
Just relating to what reactions are you seeing from competitors? Or are the are competitors taking capacity out as well? And what's their response been on pricing in end markets?
Well, I mean, at least at least it completed. I've already report 2 of them have already reported by numbers, so you can ask them directly the question. What we see right now is that in the marketplace, everyone, that seems to be adjusting the capacity to the new level of demand. So and and I repeat, given the fact that the prices are I've been negotiating most of them before COVID. I mean, there is no big changes in pricing in the marketplace right now.
So on the capacity side, everyone is either doing like we do extending furnace topages for repair or not revealing, or extending capacity as probably we could have done or they were thinking of doing last year when the market was sold out. And on the pricing side, since prices have been negotiated before, it's been quite stable.
Okay. Thanks very much.
And I have no further colors in queue at this time. Just one more reminder, ladies and gentlemen, if you wish to submit a question, you can press star 1 on your telephone keypad now. We'll allow one more moment for questions. If anyone to come in. And it appears that's all we'll have for caller questions today.
So I will return the call to your host.
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