Hello, and welcome to Viaria's 1st Quarter 2020 Results Presentation. My name is Judy, and I'll be your operator for today's event. Please note that 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 questions at the end of the call.
Please press star 0 and you'll be connected to an operator. And I will now hand you over to your host to begin today's conference. Your first speaker will be Michelle Giannuzzi followed by Lydia Fontin. Thank you.
Oh, good afternoon, everyone. And thank you very much for joining us for this presentation of the area first quarter 2020 results. Before moving on to the financial highlights, I would like to firstly express my sympathy and solidarity with those particularly hit by the COVID 19 crisis. And convey my gratitude to those risking their own health to respond to this epidemic. So I propose to start with page 3, which is the financial highlights of the quarter.
As you will see from later on presentation from the day, the good we have a very good start of the year with a limited impact from the COVID 19 pandemic. Our reported revenue were at €645,000,000 at 1.9% versus prior year. And the systemic organic the sustained organic growth of 4%. This is q120 19 was quite impressive, in the current environment. Even if we exclude the positive impact of hyperinflation in Argentina, we still enjoyed a 2% organic growth in the quarter.
Our adjusted EBITDA was up 6.5%. At €151,000,000, and this increase was up by 9.6% at constant exchange rate and scope. Versus the prior year. And our adjusted EBITDA margin was at 23.5% for the quarter up 100 and 3 basis points compared to the q 1 2019. As you know, Veraya is a very strong generative company, strong cash generative company, and we continue to deliver the company during the quarter.
Our ratio net debt leverage and ratio of debt to EBITDA, was reduced from 2.6 at the end of December 31. To two point five times last 12 month adjusted EBITDA at the end of March, 2020. We, given the the COVID 19 epidemic, we have a limited visibility on what's going on in the next few months. And therefore, we withdrew, as you know, our 2020 guidance. However, we stood firm on our proposal to pay a dividend of $0.85 per share either in cash or a new shares at shareholders option.
That would be subject, of course, to the shareholders general meeting, which will take place on June 10th. So let's move maybe to the next page, page 4, where, we will see the main impact or the main event of the quarter, which is the COVID 19 and the shortened priorities we took. As we have no operations in Asia and China in particular, the first country that started to be hit by COVID 19 was Italy. For Viralia. And I have to say that, I'm quite impressed by the way our Italian colleagues first reacted to this pandemic.
And, then after we have religiously implemented across this management organization, not just in Italy, but across all, areas with 3 clear immediate priorities, The first priority is obvious. We want to preserve our employees health and safety. The second priority is to ensure the business continuity to continue to serve our customers. And the 3rd priority, short term priority, is to protect our financial strength. On the top of his immediate priorities, I have to say that I'm very proud of the spontaneous reaction of employees that have shown a lot of solidarity with very local initiatives to support the people in their local communities where we live and when they live and work.
By showing by providing some very nice support to those people that were hit by the COVID 19, and we'll see that in a in a few slides. So moving on to the next slide, which is 5 Slide 5, the priority number 1, is to preserve our employees health and safety. So immediately, in all sites, we took measures to guarantee employees health and safety that are stricter than public authority guidelines at the time. We, as immediately I all the support functions, either in offices or in the plants to, as much as possible work from their home office. We, of course, implemented social distancing.
We implemented, very strong hygienic measures, everywhere, including the county and the locker rooms. We've checked employee temperatures at the entrance of the factory gates. We've voided much as possible face to face meetings, opting for calls. We have reorganized our shift handovers in the production slash cities to avoid to have too many people in the local rooms at the same time, and we restricted access to our suppliers and, of course, our customers too during that period. So we got a few examples of what, was done, and I think I'm glad to report that out of the 10,000 employees that the higher, currently employees, we've had to report so far only about 15 people contaminated by COVID 19.
And none of them have been in a very, serious, health situation. If I move to the next slide on page 6, the second priority was to ensure business continuity to better serve our customers. First, I'd like to remind you that, our activity has been considered as essential for the food and beverage chain, and all our sites have been able to continue to produce during the period and still are. Therefore, we have a no we had no factory shutdown at all. And, I'm quite pleased to say that, even though we have tried to slow down some production lines in some areas where the come where the demand was lower.
All the furnaces are continuing to work as as normal. You know, that our business model is global, very decentralized organization to better serve our customers, And this decentralized organization provided us a lot of agility and reactivity in this crisis situation. And the business continuity plans have been very swifty and kindly implemented in all plants, all countries, in a in a very remarkable way. I personally had daily calls with, all the division general managers, to review the situation we had, call with executive committees every other day to review the situation and take appropriate actions. We also have some coordinated efforts at the corporate level sharing the best practices, especially on health and safety, where our group health and safety coordinator and made sure that the the all the knowledge and the experience of our Italian colleagues was 30 fast week designated across the organization to the other divisions, to the other areas.
We even had some examples where, the Italian colleagues had some stock of masks that could be transferred to the Spanish colleague that were masking, lacking, sorry, masks as an example of, of the things that we have done. And the group purchasing also made sure that we managed the efficiency and the rapidly, a good supply of personal protective equipments. And last but not least, the content organization with all the financial community have implemented a very strict daily monitoring of the cash position, the customer payments with the Salesforce, being involved in lead and type follow-up on the supply chain, as well. So these were the immediate measures that we took to ensure business continuity, and I think it has provided us a very strong, thank you from our customers that we have been served very well during that period. As you know, during crisis communication is key.
So we reinforced big time our communication schedules at the area or division level. There were internal video or conference calls, in the regions. To group payroll, I personally had weekly video calls and, written information, cash informations at the group level. And I also, wrote a weekly letter to the board, to update them on the situation. So I think on this one, we we we scored, and we showed the very strong reactivity and agility of of the company.
The 3rd priority, moving to slide number 7 is to protect our financial strength. We have, at the end of March, 2020, a very solid balance sheet and liquidity. As I said before, we have continued to deliver your company to two point five times last 12 months adjusted EBITDA. Which is well below the maximum leverage covenant at five times. At the end of March, we had 528 available liquidity with a very healthy debt maturity profile.
Nevertheless, we also increased our, financial ability by putting a creating, you know, setting up a 250,000,000 new additional revolving credit facility as of Friday last week, which is April 24th. So this is giving us a lot of, strengthening to our, balance sheet and and liquidity situation. Now Moving on to the next slide on page 8, I have to say that, it's during crisis that you see people bringing the best out of out of them. And I've witnessed personally many, many inspiring acts of solidarity, that I would like to share with you and that we are very spontaneous from our people. It started with the loss of local donations for hospitals, medical staff, retirement homes, people in need of homeless people and low income families.
Most of the things were very basic equipment or food or, hygienic, protective clothes or clothing, sorry, that we, gave to those people in need. We also provided some local services, for example, to the truck drivers in Germany and Spain, providing some and building and building some specific restrooms and showers for them. And in Ukraine, where we have our own bus transportation company or services, if you want, We have organized the transportation for the medical teams that are going to the hospital of Zoria where where we are living close by. And as a boost to this local initiative, the executive committee, and myself, I've, renounced on a 15% of the annual compensation for the executive committee and 50% of my annual compensation to create a form of 1,600,000 that would be used for to support these local initiatives. Moving on to the next slide.
Now, maybe, leaving the COVID 19 for 2 minutes. There are other things that happened quite nicely during the first quarter. The first one was, the reconstruction of the furnace in Chile, which started at the end of last year and, restarted the furnace restarted on time on February 20th this year just before the COVID crisis. It's a major investment for the for the region. We invested about $40,000,000 to, not only reconstruct the best in class with the most modern technology firm ace, but we also took advantage of this big job to upgrade the factory and add a new production line in our Rosario site in in Chile.
This will increase our capacity in this country by around 50,000 tons And this if you're a member, this is a market, which is and this is factory, which is mainly addressing the wine market. These new investments will give us more flexibility with more production line producing up to 6 different types of packaging simultaneously. And, we've also upgraded inspection machines to enforce our quality and safety, in the in the factory. Even if Chile is really on the other on the other side of the of the globe, to say that I'm quite impressed by the very good start up of this, big job, into on February 20th, which was really on time. I I scheduled.
That was a very good achievement for for the LatAm team. On a more longer, longer term, there was another initiative on page 10, which I would like to to bring to your attention, which is, again, very interesting it's one of the very important initiative for the industry where, an association of the main European glass packaging producers are set up together, project under the federation, the urban federation sponsor shape, to build a large scale hybrid oxyfuel furnace, which will be running on 80% electricity. Today, most policies run more or less 80%, on gas and 20% on electricity. And the the purpose, which is an R and D project, is to be able to have a large scale furnace. Large scales means the furnace producing further tons of last day, which is a real, a very good sized journey, being able to produce high quality products with electricity as a main energy source.
This is a technical challenge, in the in for our industry. But it's a way to decarbonize our industry. And this is, a project that is, going to start, in the coming months. And with, of course, if you if the if the R and D project is successful, potential deployments, the after the first results, and we see year near 2023. Just as a reminder, this industry has already done a lot to reduce the energy consumption and the emissions of CO2.
In the last 50 years, we reduced the energy consumption by 70%. Reduce the emissions of CO 2 by 50%. And the glass packaging is about 30% lighter than what it was 50 years ago. But this is a a major milestone, a major breakthrough initiative to go, much much further into the carbonization, of our industry. This is also, in line with the other major initiative that we took at European level, which is to increase the glass collection up to 90%.
As you probably remember, every time we can increase by 10 points, the ratio of Collett, which is the used glass, into our furnace, we can reduce the CO2 emissions by 5%. And therefore, today, we collect today in Europe 76% of used glass. And we as an industry with partners, various partners, the retailers, the brands, the local municipalities are a project to increase this collection ratio from 76% to 90% in order to use more recycled glass in office and therefore reduce our steel emissions as well. So with our long term project, but that has been pursuing despite the shortened, hiccups lead to to to the COVID 19. So these were the main highlights of the quarter, for for for the for the for the area and for the industry.
Now I will hand over, next page to to Didier Fontaine who will present the financial results.
Thank you, Michelle. And thank you, very much to all of you for joining the call. My presentation will be structured on the three parts. As usual, number 1, we're gonna start by reviewing the revenue numbers at group level I will then move to profitability as part 2, and I will conclude on the cash performance with a review of our strong financial structure, which is yet to address the current crisis. As you know, liquidity is more than ever point of focus for everyone and for us as well.
Before moving to slide 12 and as mentioned, Michelle mentioned, it earlier. I would just like to highlight that in your terms, despite the first direct impact for the 3 19 epidemic on our March sales. We're reporting a solid quarterly set of results, with with increased sales and improved profitability. I'm moving to slide 12. So overall, we can see that in a good start of the year, we've so far limited impact from the COVID 19 epidemic.
The initial direct impacts have only been felt in March and even second part of March. The group achieved a revenue of €645,000,000 which compared to €633,000,000 in the first quarter of 2019. This is a reported growth of 1.1.9 percent. We should present an organic growth of 4% and that Michelle pulled it out 2% if we exclude Argentina. The first element On which you would like to spend a bit more time is a category quote unquote activity that you see I slightly negative on the bridge.
Tight negative despite volume sold, which are showing a small increase. Actually, the decline in French sales where the selling prices and the sell mix are higher than the group average as, therefore, negatively impacted the activity box. In a nutshell, the French drop has triggered a negative country mix. Now if we're looking back segment in Southern And Western Europe, excluding France. Therefore, basically, Iberia and Italy.
Demand levels remain dynamic. Particularly, food glass, beer, and no water. Italian Iberia posted positive growth over the quarter. I start from. At the beginning of the quarter, activities in France were affected primarily.
By the national strike, we're due to the pension before, associated to a decline in demand from customer spoke into China. This decline became more pronounced from mid March onwards due to the reduced workforce available on-site as a due as a direct impact from COVID 19 that came along with associated confinement. On the Northern Eastern Europe side, all the region has been driven by 4 jars and new water market. Germany, Ukraine, and Russia show all of them positive organic growth in Q1. As far as Latin America is concerned, all the countries reported positive growth for the quarter.
Never delayed the city. Took a downturn from mid March onwards, particularly in Brazil. Which is going through a challenging political and sanitary context. As a summary, There's been a deceleration in organic growth in March. We reached overall 4%.
But end of February, the 4% was 5.9% and only 0.4% in March. Most of the softening, actually, was related to the Android channel. To reach for our next post for 1 third of our activity. As you know, this market encompasses hotels, cafes, and bars, restaurants, which indeed are suffering heavily from a down. In term of pricing policy at group level, you know, it's a it's an important point for us.
Although, and as expected, the sales price increases at the startoftheyear where more moderate than the previous year. They were in line with our expectations. The weight of Argentina, we fill in hyperinflation is noticeable as a price slash, miss impact, represents €11,000,000 over the quarter. Again, we have been impacted by a negative forex heat of 2.1% in the first quarter. Which is a negative 13,000,000.
And this is mainly to the depreciation of the LatAm currency. Were used to, the Argentinian peso going down. 38 was not up in Brazil, and this drop has intensified in March. You know the numbers, but as an illustration, the Brazilian red drop by 19% in average in March 20 versus March 19. April is currently showing in Brazil a further significant drop of the Brazilian real.
Now since we have covered the revenue aspect, we're gonna move to the adjusted EBITDA on slide 13. Address EBITDA grew by 6.5% in the first quarter. Reaching €151,000,000. Organically, it increased by 9.6%. Again, this increase is relying on the 3 pillars.
Again, quote unquote activity, is negative despite more volume sold over the quarter as it has been penalized by the unfavorable country mix that I mentioned in the previous slide. This is essentially linked to the lower health in France. The period number 2, the positive price cost spread, albeit price increase, as I said earlier, has been moderated compared to prior year. Is still very positive. Or performance action plan or capability to reduce your cash cost base via productivity.
The PAP led to net reduction in cash production cost by 8,000,000 in the first quarter of 2020. As you are familiar with it now, I'm gonna present it in 3 different buckets. The pure cash service generated by your hundreds of products in portfolio through the performance action plan. This reached 13,000,000 well in excess of the 2% of production cash cost reduction target of 2%. Those were, however, partly offset by an amount of 5,000,000, inclusive of 1st.
I would say what you call industrial variances. That mainly come with the day to day usage for industrial, set up, and machines, and eventually clean up when when is necessary. But in that case, we need to adopt my limitation in production linked to the March Keeps slow down and associated as well the confinement set up of the workforce, especially in France. Despite those impacts, again, the adjusted EBITDA margin, increased by 103 basis points to reach a robust 23.5%. If I go to page 14, very briefly, I'm going to focus on what on our cash performance and our deleveraging efforts as cash is still especially in those days.
If I'm going to slide 15, during the first quarter of the year, We have continued to leverage our net debt reached 1,000,000,000 €574,000,000 at the act of March 2020, which is a 2.5 times leverage of adjusted EBITDA for the last 12 months. This compares very favorably to the 3.1 times of March 19, the 2.6 time of December 31st 19, and which is confirming or half term per year, the raging ability. For information purposes, this leverage ratio remains well below the maximum leverage ratio set up in Viralia group financing documentation, which she said at 5 times adjusted EBITDA. Now if I'm moving to slide 16. And that I mentioned at the beginning of this presentation, Viralia has a strong financial structure that underpins his resilience in this critical times.
Like Michelle, and together with Michelle, I am with my team monitoring both at central very importantly, at operation level, daily, and accurately, the cash position of the group and we are consist consistently seeking at optimizing our financial structure to the best. This is why on March. A good group €200,000,000 from a €700,000,000 revolving credit facility. For 6 months, ahead of the upcoming maturities of ordinary commercial papers, which, by the way, explained the high level of cash in the balance sheet at the end of March. As you probably know, The commercial paper market is currently closed for non investment grade companies in France.
And, 196,000,000 of, commercial paper at the end of March is today reduced at lower than 150,000,000. Some of liquidity. It amounts to €528,000,000, which compared to our debt is at a very comfortable A reminder of equity, which is simply calculated that the cash Plus the actual portion of the RCA for the revolving credit facility minus the outstanding commercial paper. Lastly, end of last week. We have been revisiting our capital structure to reinforce our liquidity.
And I've decided to reserve the usual level of undrawn credit facilities. I'm pleased to announce that the group has successfully set up on April 24 2020, an additional 250,000,000 revolving line of credit With 1 year maturity, extendable by 6 months adoption of group discretion. The San Diego bank that I want to thank for their support and reactivity is made of 8 call you. And we have on purpose, meter the number of banks partnering. Under current unusual circumstances, it has been a good common effort.
That's conclude my presentation, and I want to thank you for listening. And I did the floor back to Michelle.
Thank you very much, Didier. So I propose to move to the last slide of the presentation on page 18. As a you're gonna suit from DDS Plantation. We've had a very solid Q1 result, financial results. Which we are very pleased and very proud to report about, especially in the given circumstances.
The organic growth was very very, marketable at 4% even including Argentina. It was a strong 2% organic growth. We've continued to improve our adjusted EBITDA margin to 23.5 percent with more than 100 basis points improvement versus the prior year. And as you know, we continue to generate, cash and deleveraging the company to two point five times last 12 months adjusted EBITDA. So that was a very good position to, face and to start entering into the second quarter, which would be a much tougher as we all know.
Given the the fact that we have very limited visibility on the market, and our customers, the others, we've decided on on March, 7th to withdraw the 2020 guidance. And, we, we'll nevertheless continue to take the very strong adaptation measures that, we've taken so far with a lot of discipline and a lot of agility from our teams. The first is to continue to preserve our employees' health and safety The second thing is we will, of course, variable as as much our costs. We will continue to have a very accurate daily monitoring of cash and supply chain. We will, of course, continue to, adjust our CapEx and investments to what we need to do in the future without compromising the future.
So basically, the 2 strategic projects that we've launched will be completed this year, but we will start the new furnaces, the new capacities only when we think we will need them. So we might have a slight delay in the startup. And, last but not least, we have decided to maintain our 2019 dividend at $0.85 per share in cash or in shares. Together with the reinforced liquidity, as Didier mentioned, with this new revolving credit line of 250,000,000 that was signed on Friday last week. So we enter, you know, much tougher second quarter, we believe, but with a strong assets and the strong organization in place to face the the strong weather or the difficult weather.
And we are very confident that beyond the the second quarter, when lockdowns would be released, EBITDA of everywhere, normal life should resume at some point. So thank you very much for listening to this call. I propose now to, move to the question and answer sessions.
Thank you, Michelle. And just a reminder, if you would like to ask a question or make a comment on today's call, The first question comes from the line of Matthias Pefinberger from Dishbank. Matthias, you're now on mute. Let me now ask your question.
Yeah. Good good evening, gents. Couple of questions from my side, if I may. Firstly, trying to see how deep the double digit decline is is gonna be in the second quarter. My my question is to the Southwest European division Is the on trade channel?
They are basically at 0 or is there some base load, going on and what is the compensation via the off trade center.
Thank you for the question, Matias. I mean, as as Didier indicated, we estimate, and this is rough estimate, and it changes it can change from one country to the other quite significantly. But on average for the higher group, the on trade channel represents about 1 third of our business, versus 2 third on the on on the retail side. Off trade channel. On the on trade channel, this is the the the sales of our customers, but our customers are also I would say, having, to manage their own supply chain.
And, even though as you know, all the bars and restaurants and cafes are closed in many countries and will still be closed for a couple of weeks. Some of them in France, for example, have completely stopped bottling, for a few weeks, but I'm now resuming bottling activities. In anticipation for the restart or and the reopening of those, horrific channels. And in other countries, you know, we're also the same. So we've had a a big, slowdown which will continue probably in April May, but I wouldn't say 0.
Otherwise, it would mean just making the math that we lose one third of our sales, which Mhmm.
We said it would be
a double digit drop, but we don't believe at this point in time that it will be a 33 drop in
Yep. Exactly. And and countries like Northern Europe and Sweden, they're still open and maybe a quick feedback from my side here in Austria, because it just came out today, Austria will resume, going to restaurants in the party or 4 from 15th May onwards. So it's basically we're one of the earlier countries, and it's basically resuming as we speak. My next question would be on the drop through.
Now was this double digit decline, obviously, maybe being about whatever, 10, 15%. How can we think about the drop through in light of that you said previously? You can also produce to some degree on stock. You can reduce the utilization a bit on the on the furnace side and there's also cost measures. How do you think about the drop through in light of the high fixed cost shares and these these items.
Okay. I will let, did you maybe handle this answer?
So did you yeah. To fix it?
Yes.
So first, you're right. I think, you know, we are we are, We are repairing furnaces, a manic furnaces on a yearly basis. This is the first line of amortization of, I would say, quote, unquote, under activity. Because, I mean, you know, instead of having, having 2 year, 2 months per page, you might have 3 months per page, and then then you are, you are able to, I can say, offset or mitigate the impact. We we are not looking at, and we are very careful because it's a it's a double edged world.
You can still produce and put that in your in your inventories, but need to make sure those are good products. And that you are going to sell it because it's, it's, is the future programs if those if you are just producing for the sake of putting that in the balance sheet. So we are very careful to, continue to produce, but producing the right product so that there is no future But the first defense clearly is, reducing the number of lines available. When there is downtime, make it a little bit longer, postponing some, some startups where, you know, you're not, you're not, itching of the furnaces. So it's not expensive.
So that's basically what we are doing. And there is a mitigating effect on that. Yes. Mhmm.
Okay. I I've got a couple of smaller questions. Actually, let's say the world goes is being resumed in Europe in the third quarter. Do you expect the catch up effect, maybe in the 4th quarter or is this seasonally too, little in terms of importance? And can you confirm that Q2 is seasonally the strongest quarter?
And then my last one would be, what about the ability to redirect volumes from France, Italy, and Spain, given the limited shipping radius
So regarding the the catch up in the third quarter 4th quarter, I'm not sure. In our industry, there would be a pitch for us. There would be a lot of catch up to be frank. I mean, the the wine or the spirit that people have not drank, I don't I'm not sure they're gonna drink two times more. In the future.
So so so and our customers, as I said before, to some extent, I've also managed my inventory in order to mitigate the very sharp, closing of or or hotel restaurants in Kathy. So we are rather cautious on on what you call the catch up or the rebound effect in this industry. We And that but for vaccine, that's why we don't give guidance anymore because we have a nobody knows that we don't have the crystal ball, but we don't expect the strong rebound, in q 3 or q4, to higher levels than last year. I think it will be a progressive progressive re re recovery if you want of the demand from our customers. Yeah.
The strongest quarter is actually q 3 normally because, that's when people go on holiday and spend more time, at bars, restaurants, and so on. And therefore, uh-uh, but but we also know that it will there will be a consequence on the travels and the way people would spend the whole day this year, probably less travels and less especially in countries like Spain, Italy where a lot of tourism activity, they would probably be suffering a little a little a little more. Now, the third question sorry. Can you remind me the third question? I didn't have time to take note.
I think I've asked enough anyway I put myself back in line and let the others ask some questions. Thanks
a lot. Thank you. Thank you much.
Perfect. And the next question comes from the line of Francisco Ruiz from Exane. Francisco. You're now on mute, and I may now ask your question.
Hello. Good afternoon. And thank you for taking my questions. I have three questions. I made the
the first one is on
the efficiency plan. So remember during the the IPO, you commented that the efficiency plan is not heavily linked to production. So how do you expect this, VIP to evolve in the in the current in the following month? The second one is if you would give us a little bit more detail on the cash flow generation. So maybe what has been the the working capital and the CapEx in the in this quarter.
And, the last question is, if you could give us some detail if you have any facility already stopped, and you could do some selective stoppage of production in the coming month in order to adapt production to to the month. Thank you. Okay.
And maybe I will take the first question on PAP and let, did you talk about the CapEx evolution? And, I will also speak about the status stoppage I'll take number number 13 and and DJ will will speak probably about the CapEx. So regarding the the PEP as did he mention, we had a very, very strong Q1 on PAP with 13,000,000 gross PAP, which is well above the 2% target that that we have. We are not even if it's more difficult, let's be clear because, the people, are very busy fixing the short term, absentee label or customer demand changes, and so on and so forth. We are, more than ever committed to to deliver this strong 2% consolidation on the PEP side.
So So as far as as far as I'm concerned, I mean, this is still a very valid objective. So we are not giving up on this one. And I will take your first question regarding interactive stoppage. I did mention and this I think that was something we covered during the IPO, roadshows. We are refurbishing every year 6 furnaces that are completely knocked down and and rebuild.
And and And on the top of this, we have planned to increase, the capacity before COVID 19 with 2 new furnaces to be started. 1 in Azuqueca in in Spain and 1 in the upper mine in Italy. Obviously, the 2 brownfield projects, the strategic projects, even Google would be, completely this year, would be started only when the demand will be back to to where, it should be. So which means to be probably delayed the startup of those 2 new capacities will deviate. Regarding the existing capacities, we will adjust our capacity to, extend where where that makes sense, the furnace stoppages, to a longer period, Usually, it takes, depending on the furnaces between 7 to 10 weeks to to to rebuild our furnace.
We've we will consider extending in some areas, the furnace stoppages to, of course, reduce our capacity. In order to have the other lines, the other production lines run as efficiently and as a as a at a nominal level as much as possible. So this will be our strategy to adjust the capacity to the market demand by, not starting new capacity, 1st of all, and secondly, by extending the planned factory rebuild tiered, to, more few more weeks by for each of them. So I will now go back to yes.
Yeah. And could you accelerate Sandra Publishing of, planning for next year for
to this year in order to work, do
the same with the same name?
Well, accelerating maybe not, maybe stopping a bit earlier. Yes. But from a cash point of view, we have no interest to spend money upfront for to rebuild furnaces that we won't use immediately afterwards. So so we might consider stopping some, furnaces that were, for example, supposed to start beginning of 2021, which stopped them maybe 1 more further So when I say extended, it's either extending by delaying the restock or extending by anticipating the stoppage by 1 month or or so or 2. So that will be considered as well.
Yes.
Okay. Very clear.
Do do you want to talk CapEx?
Yes. Yes. CapEx and working capital Cisco. Good afternoon. On the working capital, we're going to talk about variances.
Actually, on working capital, first of all, we use we have used less nonrecourse factoring in q120andq119essentially because France, level of self drop and France is a big user of, factoring. Despite that, we have been able to improve the variance. So we burn cash in working capital because normally, there's a growth between Q4 and Q1, but for N -1 and Q1 between 6 7 percent. That was the case. In 2019, the working capital, works on 8,000,000 more than this year.
So we have been able to be better in terms of working capital management despite using less factoring, which is mechanical because we have been better. On the cap on the CapEx, a little bit different. We told you that we are going to expect a cash CapEx much higher this year than last year, especially based on the fact that we have the 2 big, strategic CapEx. And, actually, we spent, we spent 20,000,000 more in cash in CapEx this quarter versus Q1, 19, 77,000,000 cash CapEx of just a 55 the year before the year before some quarter. But that was as expected.
Clearly, going forward, The CapEx table is monitored very carefully, the timing, the phasing, as we should put it up. So we are we are looking at that very carefully. But each one that was as per as per plan. You know, starting to invest and spending a little more cash than the year before. But, overall, if you look at the if you, overall, if you look at the free cash flow of Q1, it has been after taxes and EBITDA and, taxes and, and interest charges.
So it has been positive.
Okay. Maybe I would take I will maybe come back to the question from Mattias regarding the the quarter, the q 2 being a strong quarter. Maybe, I should correct what I said. Actually, last year, Q2 was a stronger quarter than Q3, and it was the strongest quarter of the year. We don't expect this year to be the same.
So that's why I was mentioning Q3 would probably be higher than Q2 because of the short on the big shortfall in q 2 this year. So sorry for the confusion in my chest, but just want to correct what I said. Last year, you were right. Last year, Q2 was was stronger than than Q3. But this year, we because of the double digit drop that we we expect to see in Q3, in Q2, sorry, we think Q3 will be slightly higher.
Sorry for for the misunderstanding for the miscommunication.
Thank you, Francisco, for that question. And the next question comes from the line of Charles Scotty from Kepler. Charles, you're now on mute. I'm a now ask your question.
Yes. It'll good evening. I hope you are you are safe and and healthy. I've got four questions, please. The first one, can you share with us the organic sales trend?
In the second half of March and and the beginning of April. My second question on the French market. We seem to be more affected than, other countries. Is it a production issue, or is it a is it because of the the the demand, is is more impacted. My third question on the a follow-up question on the the drop through Is it fair to assume a 50% 5 you will drop through as you guided during the IPO?
Or or can we expect a lower drop through, because of the, shown at this stage? And the last one, Can we expect the the wine and sparkling wine demand, to be more, resilient because regardless of the demand, the winemakers would have to, to both of it anyway. Thank you.
What I propose is is probably I will I will take the the the question number 2 and 4, and
I will let Harvey give
you the trend on the sales trend in mal and the civil part of March April as well as the the drop through. So regarding the French market, what happened in France is a bit different from what happened on the other countries to be trunk. The the sudden at that that took place in front to to put people on log lockdown. With restricted activities and restricted, moves from the people, was much, much bigger than what we saw in the other countries, like, for example, Italy and Spain. And so, therefore, we added much bigger drop of demand in France than in the other countries, Italy and Spain and India, for example, as the whole countries, And on top of this, I have to say we had a much higher absenteeism from our workforce in France.
Than we assume in the other countries. So the slowdown, or the reduction of sales in France is mostly due to the drop of orders from our customers. But to some extent, we also had have adjusted our production down due not because just of the drop of orders, but also because of the absenteeism that we had in our factories. Now as I said before, the one of the maybe characteristics of the French market, it's probably more premium then add the markets. If I just take example of champagne, the champagne, producers, have, shut down their booking facilities for a couple of weeks.
They'll they'll be stopped in April, but they immediately stopped their their their booking activities because Champagne was very severely impacted by, the closure of hotel restaurants in Kathy, for example, and the fact that when it's not the the time when people want to do jumping at home when when we are in a in a lockdown situation. So, that's we saw about the same, strong impact on the spirits segment in France you know, the French spirit market is quite strong, especially at export. And we believe that our main spirit customers that are especially exporting spirits, to Asia or even the US. Have also, suffered quite a lot from a drop of their markets. So, therefore, think it's fair to say that the French market has probably been more impacted than the other markets because of the product mix and also because of the somehow the strong lockdown measures that have been requested by the government.
Now to answer your 4 quest your question number 4 about wine and sparkling wine, it is true that especially, in the sparkling one, our customers had to empty their barrels and and and in order to prepare for the next harvest, So they that's one one of the reasons why they restarted bottling, for example, and they will, of course, put the the the sparkling one and to some extent, the one as well in, reserves, you know, as a reserve for the future years, So we might see some some, some bottling activity restarting again. But, again, we it's very hard right now to forecast what our customers are are going to do. It's, you know, we have, especially in the one segment, a lot of small customers, This is the the where we have the biggest number of customers and, and they are the quite limited visibility on, on their own sales and then navigate, from one way to the other with, sometimes very changing demands and and others. So the the the good thing about the AI is that we are probably very flexible. So we are I think quite good at following up their demand and adjusting our production line to to the real need.
As did you mentioned before, we don't build stock for the sake of being stock. We build the right stock for them, but, we don't have a lot of visibility on what they're going to do to be frank. Now I will let the now I'll hand over to Didier. We're going to talk about the trends in the monthly calls.
Yes. So let I go I go step back and I come back to what I said during the during the present on the site 12. The the organic growth, if we exclude Argentina, so let's make everybody has been 3.7% in January Feb. As as we said, it has been 0.4% in March. And if we could Argentina, the organic growth has been negative in March.
By 1.1%. So 3.7 percent, Jeremy Fab and, 1.1% negative in March. Going forward, the double digit ad and what has happened is essentially It happened essentially in the second half of March in France and in LatAm, especially in Brazil. Now, April, we're seeing, all the countries being impacted at different level. Depending on the exposure to, that product or that product.
I've heard the the organic group should be negative as well from a top line perspective by double digit, double digit numbers in April, and that's the reason that the place we are seeing today. Okay? Now you have a question about the the for flu or the the the drop flu. Clearly, when we see volume going up, we expect a 50% contribution because we do not expect to put figures in front of that. On the other hand, when volume are going down, we're putting a lot of measures in place, that should enable us to mitigate.
So, no, we are not expecting a 50% negative for full on, from a a self differential into EBITDA differential. It should be much lower than that. It will have an impact, of course, because we are fixed cost business. But, we're working on, the high cost. We're looking about flexibility of labor.
We're looking about stopping furnaces, reducing the fixed cost base of the plants or the lines. So there's a lot of initiatives that we are taking to get flexible to be able to flexibilize our fixed cost base and even our cost base, generally speaking, Therefore, no. It will not be as 50% or fully at 50% or full, lower than that.
Okay. Thank you very much. Just one follow-up question, please, on the on raw materials. I know that you have very strict hedging policy, but, when should we better some some some positive impact on the the decline of raw material prices.
I take it down, Michelle. A raw material, raw material is different. Are you taking energy raw material? Because raw material
Sorry. Sorry. Sorry. My mistake, energy cost.
Okay. But energy cost to be point for you. You know, we age, 2020 based on 2019, in 2019. So, Cali, today, our, our hedge costs, is higher than the the spot
than the spot. Yeah.
And, you know, we have a policy for n plus one to be free edge and plus 2 at 70 to 50% and plus 3 between 50 and 25%. So, unfortunately, this year, we are, we are almost locked with pricing at higher than the spot price. But the spot price on gas, for example, is a is a total insurance. It's a total insurance. It's driven.
It's driven as well, but the fact that there is a there is a very low level of activity. So when are we going to benefit? Probably, probably a very, very limited impact. We have some because we did we kept some flexibility a little bit, but very minor. So, no, we don't expect a positive impact this year.
We are we are losing an opportunity. Monozing an apology, but from a pure at least for pure risk management, I think, we are separate wage the knowledge and the speculative. We are rolling our strategy. The objective is not to, you know, be at the best voice ever. Is to have a good long term view on our cost base.
K. Sure. Thank you very much.
And you remember this this this policy on on on on on the aging has enabled us to give the right targets for price increase to our to our sales course. And this has, you've seen from this presentation has enabled us to have a positive spread. So this is rekey of our strategy and the 3 pillars of the strategy is growth, positive spread, and PAT. And, we've delivered on the 3 pillars, in Q1.
Okay. Thank you.
Thank you, Charles, for that question. And the next question will be coming from the line of John Belanger from Societe Generale. Jania now unmuted. I may now ask your question.
Yeah. Hi. Good evening, Michelle. Good evening, Didier. I had a quick one on M and A.
I know that, of course, this is not at the top of your agenda, but, could you consider that the current situation could lead to some, attractive opportunities in some countries in in Latin America.
Well, thank you, Jean, for for asking the question. As you know, M and A, although it was not the central theme of our equity story at IPO time, is something that we will always say that we will consider if it makes sense for the company. If it makes sense for our customers, for our employees, and for our shareholders, last year, as you can imagine, we were very busy with the appeal, so that was not, the the focus of last year. This year, the start of the year has been quite disturbed by COVID 19. But this, big shock to the global economy might, push some family owned businesses or smaller businesses to consider partnering with, larger and, well managed and very, successful company like the area in the future.
So we, are going to more than ever actively look for for M and A whenever we see opportunities. And despite, the short term severances in Latin America, but for both us that have lived and worked in Latin America for many decades. That's part of the the, I would say volatility of the of the region that we have to to accept. But this is, as you remember, is a good good area to invest in. And, of course, if we see opportunities there, we will look at them very seriously.
Okay. Thanks for that, Michelle.
Perfect. And the next question comes from the line of Lars Killsbroke from Credit Suisse. Lars, you're now on mute. I may now ask your question.
Thank you. A couple of questions from me. I just wanted to better understand the industrial variance we're talking about at the $5,000,000, what those, you know, what's in that number and and how we should view that going forward. Also, of course, China is gradually starting to reopen. Are you are your customers and your business starting to see any light at the end of the tunnel for that, you know, the spirits business, the export business, k to China.
And I may have missed this, but did you specifically talk about the first quarter volumes in Europe? And the final point for me would be on the risk as opposed to pricing given now have a quite a weak environment. Energy is a big tailwind. So as you start negotiations for next year's pricing and given your hedging policy, should we view that as a risk generally to to pricing, because some of your your competitors may not have at the same pricing policies or hedging policies.
Okay. Thank thank you very much, Mark. I mean, I will I will take the question about China and pricing, and and maybe I will let the DDA answer the investor variance and the first quarter, I believe, to to to remind you on the first quarter volume. Regarding China, I mean, uh-uh, as you know, we are not directly exposed to to China or even Asia. But we are directly to our customers that are exploding into this region.
Now, as you well know, I mean, the biggest impact for them has been, the fact that COVID 19 started during the Chinese New Year which is a very, very important time of the year for for our customers setting in China. And therefore, their business has suffered from that. It seems that they are resuming according to what we read. They are resuming sales in in this country. As well as the rest of of Asia.
But, again, I don't think the Chinese will will drink the the spirit that they are not running during Chinese New Year. So it's a progressive recovery, but but it will not catch up, the last, volume of the first quarter. Now regarding pricing for next year, I mean, it's hard to say, and there's still a lot of things that can happen between now and the and next year. Just me let me remind you that, we have in Europe, Latin America has a different, a completely different system where prices are negotiated on the ad hoc basis, which is it could be every day in or every month, let's say, in, in Argentina, for example, or every quarter in Brazil or or or every, month also in Chile. So Latin America is a bit different, but in Europe, prices are negotiated, usually once a year.
And, we have about 20% of our business in Europe, which is based on long term contracts with price indexation formulas. So for 20% of the business, it's more or less covered by formulas. So whether it's up and down, the formulas will will will will tell us what the new price would be next year. And for 80% of the remaining business, it's a annual negotiation. Which usually takes place between November February of the following year.
So We will see what the energy costs are are, in November, December. We'll see what the the capacities on the market are at that time. We'll see what our customers are are willing at that time, to to do. It's very early to say what would be the the the pricing dynamics, if you want, on the markets. But, we would see a due time around the end of the year.
It's hard to project again.
Appreciate that.
Did you want to to pick but
Yes. Yes. In the services. So the 5,000,000, I when I make the when I make my comments. I do the the 5,000,000 was made with 3 buckets.
Bucket number 1 is Jerry speaking, your services, which encompasses 2 types of, of each. Number 1 is the fact that you are not performing at the expected level of performance and your the stronger price of your product is, is not rich. And the real cost is higher than the standard cost. So you have a you have a neutral variances. On the top of that, you know, we are performing on a very regular, and I think some of the business, a review of our inventory AG.
Basically, depreciating some inventories that are not either, either good from, no, we have too long as a duration. Or they are not at the right quality. So that's the 2nd bucket with the first one. I would say that's the day to day of the business. The 3rd bucket is really linked to that what we're seeing given the confinement, the confinement, and the restriction to, to have the right level of people available online.
Meaning what? Meaning that, if I produce, in a given plant, I produce 10% less with the same level of fixed cost, especially on on, on labor costs, dear, dear, indirectly. I had 2 options. I could attend the activity given to the COVID and the rest is Either I put that with my inventory cost, which is I put that in balance sheet, which is not financial sound, or I take it as under activity. In my P and L.
That worked as happened in March and was as happened essentially in France because we have a level of something that were high. Therefore, lines running with a lower production instead of charging all you know, the fixed cost to the adequate production. It's a it's a case. It's a plant by plant type of approach. Clearly, the plant is running normally We should so instead of taking that cost within the cost of production going into the the average cost of, inventories We have put that in the p and l.
And that's probably something that can that can be discussed in the future, whether it's a nonrecurring event, or it's a recurring event at at March. We consider that as non significant. So we put that here as as anti activity, initial variances, impacting the the PAP.
Makes sense. Thank you.
And you had a question on Europe activity. We don't need the breakdown. We don't need the breakdown. What I can tell you is that as we said, Northern Europe was, showing a positive organic growth. Italy and Spain are together.
That was partially offset by, by France.
Okay. Thank you
Thank you, Lars, for that question. And the next question comes from the line of James Rose from Barclays. James, you're now on muted. I may now ask your question.
Hi. Evening, everyone. If I talk about some trends in March April, And could you talk about how the demand evolved in the off trade path? And then maybe give us an idea of how demand has evolved by category, by differences between, you know, wine beer and perhaps there's some offsets from food and water jars as well by the sounds of it. And then lastly, on working capital, because you've got such a fragmented customer base of many smaller producers, have you got any concerns about receivables in the near term, or is there a help you can provide to those customers?
Thanks.
Okay, James. Thank you very much for your question. I will I will to the first question regarding the trend and the and the little bit more, I would say, color on the business And I will let, did you talk about the working cap and what we are doing to protect, of course, our our receivables and and of our cash generation. So regarding the trends in March, on April, basically, the trend that we started to see, and, you know, as a strengthened was was similar to similarly how to say it in April with, the same categories as in March that were doing very well, like, jars for food, like, beer to some extent in many countries. And on the opposite, the categories that are doing, the the the the worst are actually the spirits and, the sparkling wine that are, also lead to mostly Orika, say, channel we when we talk about the the split between on trade and off trade, just to this is our our own assumption.
And so it's kind of, a kind of, estimate from our side because, of course, it's more the business of our customers, but but we estimate, there's quite a significant difference between one country and the other. The country that we see with the highest share of on trade business, was around 45% on trade. This is 55% off trade, countries like Iberia or Brazil or Latin America, and more more generally speaking. Where on the opposite of the spectrum, you see countries in office, Europe with a much lower share of one trade business, which is we estimate about 20% only. And when you talk about France and Italy, they are more in the vicinity of 35 to 40%.
So the on trade off trade business changes quite a lot by by country. But altogether, when we average it out, it's about one third for for, the Viralia Group on trade and 2 third off trade. And I repeat the dollars, for example, our most exclusively off trade in the retail shops whereas spirits are mostly on trade or a big big share of it is on trade. So that's that's what we can say on the on the business side. Maybe did you want to you want to comment from the customer?
On the receive of yes. On the re on the receivable aspect. Clearly, this is, as you say, we have a very, diversified, customer base. Part of it, a big chunk of it was, under the, off balance sheet or nonrecourse factoring. Meaning, this is, depending as well, a lot on, the risk insurance companies.
And those one, honestly, They're not paying their role. They are they are reducing some coverage. Tell it something we're monitoring on a daily basis because for two reasons, Number 1, we are not a bank. Number 2, base customer, we want to protect as well. But they have to make the effort, especially in the country like France, where they can have access to, you know, state sponsored type of of a loan.
As of today, the overdue the overdue at the end of Q1 are very similar to the end of q 1 19. However, I think the worst is in front of us because, I mean, as we said, the drop in sales is is coming, is coming from Thomas. So we need to be very, very careful. We have taken, you know, we're monitoring that. We have taken very, close a look to the commercial people who are given, tools to support to anticipate going customer by customer.
And, the only thing is from a pure number, a pure 1,000,000 standpoint, the over dues are the same as last year, same period, which is not satisfactory and because, really, clearly, we want to we wanted to go down in the in a normal, in a normal environment. And, Kelly, it's a point of attention because he can he can can derive and you know what we call, and we call the working capital, the silent tier. You don't see it. You don't feel it. But at the end of the day, you don't get the money.
Okay. Thanks very much.
Thank you, James, for that question. And the next question comes from the line of Marcus Remitz from RCD. Marcus, you're now unmuted. I may now ask your question.
I'm good evening, Chance. Two left from my side, firstly, relating, to the mix, and especially asking about the, off rate channels, to which extent are you concerned that we will see a deterioration of the mix of people optic for less premium. Feed wine or spirits. You name it. And then secondly, if you could, clarify whether you applied for any state aid measures, some sort of subsidies, moratorium to Texas, in in in any of the countries you're operating in?
Well, regarding the the mix it's it's really hard to to to the the the biggest mix impact will be between categories rather than within categories, I believe. The mix within categories can happen, but I'm not sure, how big it will be, but, the biggest impact would be probably the mix between categories. The fact that spirits are are down usually spirits and champagne have, for us, higher margins than and for our customers too, by the way, higher margins than, for example, their segment. So so the mix that we would probably, that we could probably the negative mix that we could probably face, and it's too early to say would probably come from the segment mix rather than than than the the channel mix if you want. Regarding the the application for the state, maybe did he want to to to mention what what we've done, but as much as possible.
What we've done, especially in France, we've used, all the, holidays and bank towers that people had. First of all, to adjust for the lower level of activity. Suddenly, we are not applied for any state supported loan or state sponsored loan as a as a as probably as a company. Is that all? And, usually, the only thing that we've, that we've used is a partially partial and temporary layoffs when we had to adjust for a lower level of activity in some plants.
So that's basically what what we've been what we've been doing. And, yeah, as a country, we we've not had to to ask for special support from from the state either.
And to, like, initiate I thought to Michelle point that the reason why the the drop through will not be 50% as well.
Alright. Maybe maybe one more, on the on the dividend. So, the option to get new shares that's essentially script dividend. Can you kind of, how should we think about the the the the conversion prices that fixed in advance, or or when would that be kind of stipulated? How much new shares they get for the 85¢?
This will be very, this will be communicated, very, very soon, to the market. It's very, the usual practice, based on the the current practice in, in this kind of, share based payments for dividends. So we will communicate to the market, the details of, of the the way the share, dividend will be calculated, knowing that you you have plenty of time. And because the I remind you that the general assembly, the shoulder general assembly will take place only on June 10th. So so we'll communicate probably next week about, about it.
At the same time, we we make public our resolutions for the board, for the original assembly. Sorry.
Okay. Alright. Thank you.
I think we have a written question, from Rosanna Boucherry, Artemis, from Artemis. I will read it for you so that, you get the all the the question to get we have 80% of the 80% of the contract are volume based on annual basis. Could there be a possibility of no volume discount at your end as volume targets will not be reached the answer is clear. Yes. I mean, we have a rebate system, which in many cases is volume based.
And, therefore, his volume, for some reasons is not is not, at the expected level, the the rebate might not might not be paid. Of course, this will be a negotiation at the end of your customer by customer, but but, the answer is yes. There would be a a reduction of rebate at the end of your if the volumes are are not met by your customers. Do you have another question, or are we
No. No further questions on the phone line, Michael. Michelle, sorry.
Okay. No worries. So, thank you all for attending this this, long discussion and presentation. I would much appreciate your time and and your interest in the area. Again, thank you very much for pulling our our performance.
And, and I wish you all to stay to stay in good health, in the coming weeks months and, years to come. So have a good evening. Thank you very much.
Thank you very much. For joining today's call. You may now disconnect your handset's house. Please stay connected.