Okay. So let's get started. Good morning, everyone, and thank you very much for attending this 2019. 2019 financial results of Viralia. This presentation will be recorded and will be, audio casted, if some people want to hear them later.
So I will share his presentation with Difante, the group CFO, and I'm Michelle Genuzzi, the group, CEO and Chairman of the Board. So we will start with some key financial highlights and key initiatives during the last quarter of the year. Then we'll move to the financial sections with the results presented by Didier. And I will make a conclusion and an outlook on 2020 financials outlook. So Just as a reminder, 1st of all, Veraya, as you all know, is the leading glass making glass packaging company.
In Europe and Europe represent about 90% of our sales. In Europe, our organization is divided in 2 segments, South And West Europe, which is made of France, Spain, Portugal and Italy. And then we have North And East Europe, which is made of Germany, Poland, Ukraine, and Russia. And then we are number 2 in Latin America, which makes about 10% of our sales Latin America is made of 4 Countries, Brazil, Chile and Argentina. And then, we are the 3rd largest player in the glass packaging industry.
The donut about the end markets that we serve has not evolved significantly since the IPO time, you see that we are still strongly exposed to the wine segments with wine and spirits altogether representing 58% of our sales. We are also presenting the food packaging and then beer and soft drinks make the rest of the sales. We have 32 glass making factories, 57 furnaces, 8 color treatment centers in the group. And we employ around 10,000 employees in 11 different countries. So this is just a recap, our reminder of the group profile.
If we move now to the financial results and the key figures for 2019, the sales were at 2 1,586,000,000, which is a 9.1 percent organic growth. You know that Argentina is in hyperinflation, country. And even if we exclude Argentina, that is boosting the organic growth, the organic growth of the group, excluding Argentina, is still 7.2%, which is fair growth, we believe. The adjusted EBITDA at the end of last year was EUR 650,000,000, which is a 23.8 percent margin, up 130 basis points compared to the prior year 2018. The net income has reached EUR 125,000,000.
And again, this is more than double of the year before. We are at EUR 48 1,000,000 of net income in 2018. So, and despite some one off costs related to the IPO, that DDA will cover, We have a very strong cash conversion. I remind you, the cash conversion is EBITDA minus CapEx divided by EBITDA at 59%, which is exactly the same as the year before despite the 2 strategic investments or at least the free strategic investments that we had last year, Jackuting a new project in Brazil and the start of the two new furnaces in Europe, in Italy and Spain. The leverage at the end of the year, thanks to these very strong cash flow generation, was at two point 6 times EBITDA compared to 3.1 times EBITDA the year before.
So strong deleveraging during the year. As anticipated. And as communicated at the IPO time, we will propose to the general assembly, the shoulder general assembly, to pay a dividend of per share, which in total makes EUR 100,000,000 of net cash out for dividend payments. All these financial results are fully in line with the revised guidance that we provided after the Q3 results in November in November. And as you see on the bottom of this page, I'll give you more color on the outlook for 2020, but despite some headwinds that we had since the IPO, we are still confident about the 2020 outlook.
So moving to also the change of governance linked to the IPO, This is a refresher of the fact that first of all, just 2 months after the IPO, we were, joining the SBS 120 index. We are very proud of that. It was very fast. And beyond our expectation, if I want to say, And this is, of course, enhancing the visibility of the company, for the financial investors. The Board of Directors has changed that IPO times.
You see now that Apollo has free seats. Even though we still have 55.3%, still own 55.3 percent of the shares of the company, they have reduced their number of boat seats to 3 members now, with, of course, a strong rise of the number of independent board members. We now have 5 independent board members that have joined, during the, just after the IPO at IPO time. BPI is still represented with one boss. And very recently, actually, this week, we have appointed the 2 employee representatives at the board.
1 determiner is coming from the European Works Council that has been designated by the European Works Council is German. And the other one, Sylvain Artego has been designed, designated by the French organizations. You see that the free audit committees are all chaired by, by the way, by ladies that are independent ladies. And we fully respect the asset relief code by having a majority of independent board members, especially at the audit committee and the remuneration and remuneration committees. And we've launched at H.
O. Times a sustainable development committee just to highlight how important is sustainability in our in our company and it's re taken at the highest level of governance in the company. Another interesting thing which happened post IPO is, the change of the shareholders' structure that was controlling the company at the time of IPO between Apollo and BPI. They were, if you remember, in the same holding company, post IPO, we decided to split and now BPI France owns the shares of Viralia directly. No longer through the holding company and Apollo is the same owns the share of Eralia directly through, horizontal holding investment holding company that has all the shares of Eralia.
And you see that the public float is today 21% of the company with still the strong presence of our Brazilian investor, BWAC, that also joined the board with with one onboard seat. In the last quarter, we had the opportunity to inaugurate reconstruction or constructed Fernace in Burgos in Spain. That was a major investments. Not only we we built this furnace, but we also expanded the size of this furnace. This is part of the marginal CapEx that are recurring CapEx, but are enabling us to increase our capacity.
And this is one of the largest furnace in Europe, actually. The capacity increase was up by 7% 560,000,000 bottles per year to 600,000,000 bottles per year. This plant is very well located in La Mancha region. Is a Spanish main one producing region. And also, we are we will continue to invest in this site with an additional 1,000,000 of investment this year to renovate the second furnace on the site.
Last year, we also, part of our commitment to sustainable development and to the secular economy as you know, we are investing regularly in improving the collect treatment facility. The collect is a used glass that we collect post use, post consumer use. We have with a partner set up a joint venture near Madrid. Which is Carson Berrico, where we have 49%. Our partner is 51%.
And this plant is a brand new plant state of the art, to treat Collett. And of course, this Collett will be then sent to our Azuqueca factory or Biologous factory in Spain. In order to be able to recycle the glass that we collect on the market. All together, just for you to know, we have invested in the last 2 years about 1,000,000 of CapEx in Kerlet facilities, not just this one, but also upgrading any expanding the capacity of our Collet plants in France and Italy. This being said, now we'll hand over the microphone to DDA, who will go through the financial results.
Thank you, Michelle, and good morning to everyone. My presentation will be divided in 3 parts, 1st revenue, corporate and in, consolidated and by business segment. Then profitability and as cash is king, as said, the bankers, we're going to look at the cash performance. Again, just to repeat what Michelle said, very strong, reported revenue, 7% increase. Once again, it's a little bit by ForEx.
We have been it by ForEx, especially in Latin America, of SEP and in Argentina, especially offset partly by Eastern Europe, where the reason and the robot has appreciated. But overall, if you remove the ForEx And a little bit of perimeter impact, for those who are not aware, we sold or we disposed of our facility in Nigeria in 2018. So it's a minor change. But if we exclude that, 9.1 percent organic organic growth. And if we exclude Argentina because in Argentina was 54% last year.
It's still a very, very robust 7.2% organic, excluding Argentine organic Now, this is again speed on our 3 pillars. You're going to see those 3 pillars in the in the profitability sites. Number 1 is activity. Rooms are growing. 2nd one is blend of price increases, again, mainly to offset, cost base increase energy and raw material, And if the point is value added pricing, especially on the mix and the speculating our SWE business segments.
At the end of the day, I don't think you have a lot of industrial profile with kind of organic growth. Now, if we split by a bike, by business segment, let's start by. What we should say, this is comprising of Portugal, Spain, France, and Italy. 6.4% reported, 6.5% reported. And by the way, when we're talking about 7.2% or 9% organic.
There's not a single business segment, which is below 6.5%. So 6.5% in in SWE. All across the board, there's not one country, which is worse than the other, on less good than the other at that stage. This is addressing all product segments. If you want to get detail in terms of premium in France, a very strong year on still wine and champagne.
Italy, all the businesses, all the products have been positively impacted and Spain is more around beer spirits and and genres. And again, volume price, value added pricing. This is all across the board for the 3 segments. Now when you look at any any very strong 9%. If you remove the appreciation of the RIVNA and ruble is still a very strong seven 6% here.
2 different profiles. First, the market in Germany is very strong and we capture that. We are very strong in beer and wine. And the good news is, again, in Russia, where we stand because Russia is a big country, where we stand, the market is booming, and we have improve significantly operations so that we can capture this growth and the same split seal volume value add pricing and price increases. That's the same three pillars we have to support the top line.
Latin America, so Latin America is always, boy, Carnaval is next week in Brazil, but it's still the Carnaval all year long. Reported revenue 7.5 percent. I said, 54% inflation. The devaluation, if you year, we closed December 2018. At the peso at $43, we closed December 2019.
At the peso was $67. So if you remove If you remove that Forex, which is around the 54,000,000 hit on the top line, you reach 29.4% increase. If you remove Argentina because Argentina is a bit, outside the boundaries, you still have poor for the rest of LatAm, an increase of 12.6 percent, which is still very significant. We're benefiting from what? We've been thinking for a very good position in Argentina because despite the difficulties that the countries facing the operations are doing very well from a business perspective, from a commercial perspective, from an operational perspective, Brazil is very strong because the market is pulling a lot.
And you know, we have been, launching our new plant in H1, JAKuttinga in Nigeria. On time on cost and the ramp up was even more efficient than expected. So we have a lot of good news in those countries and especially you're going to see that when we look at the profit, we have been able in Argentina to pass more in prices than the inflation. Now we cover the revenue. Let's move now to the, adjusted EBITDA.
As Michel said, we are exactly we deliver internally exactly what we want deliver the operations and deliver exactly what we want them to deliver. So first of all, you have a reported growth in EBITDA. 13.2%. And again, I'm insisting on the 3 pillars that I've been discussing the IPO that I've been delivering. Number 1 is operating leverage volume.
There. Number 2 is positive spread there. Number 3 is positivity there. And this is we started in 18. Confirmed in 2019.
This is what you're going to see in the future. So when you look at the percentage, if you remove as well the action rate, again, massive real time, the growth is not anymore. 16 13.2 percent is 16%. And the margin, so we're moving for 1,000,000 to 615 and the margin is moving from 22.5 percent to 23.8 percent. Just a number at the end of 2016, we were at 20.4%, 20.3%.
Again, when you look at the 3 pillars activity, the number is only 2,000,000. Why? Simply because in terms of sales, we increase a lot. However, the market flow was booming, we have to distort massively to address the market. If you remember what happened last year at the end of 2018, at the end of 2018, we anticipated a little bit that the market was going to pull very strongly in 2019.
We increased inventories. Inventories in 2018 increased by 7%. So we ended the year with a lot of inventories. Nevertheless, not enough to address the growth of the market and we have to destock 5% in, in, in, in 'nineteen. So all across the board between 'nineteen, 12% reduction in inventories.
And in our business, which is AV in fixed costs, this is a massive number of unabsorption of fixed costs. So The top line, the growth from Vogoum is partly offset by the destocking. But the fundamentals of the market are there. The market is still pulling significantly. Plus mix and cost inflation, you need to gather the 2 together.
You see the cost inflation has been pretty substantial. We know raw material, we know energy, especially in the first half of the year. Again, we've been able to address that via up and we are generating a positive trend via either price increases, value added pricing and the positive mix. Now, one of the backbone of the company is our capability to reduce our cost base via productivity, PDP. We said as a target 2% of cash production costs, 2% or 1,800,000,000 is 36,000,000.
We deliver net 41,000,000. Y net because, of course, some countries have a have can face some difficulties. So we're looking at net. We want to have a net hitting the bottom line. So the growth has been 43, some industrial variances or minus 3 give a net of 41.
And the 41 is as well all across the board. The strategy is not to have some at 1.5%, some at 2%. Is all across the board want a minimum by plan of 2%. The good, the worst 2% minimum, exactly what we deliver. Exchange rate, as I mentioned, to you, essentially LatAm and essentially Argentina.
On the other, we should have expected a positive number. Because you know you had the impact of the IFRS 16. However, number 1, we have some positive happenings in 2018. One shot such as a subsidiary, grants, refunds that are not up in 2019. Towards a one shot, so you're missing that.
The second one is that that's the life and the day life of industrial company. We have to do some AV recurring maintenance, not extending lifetime of the furnace, but just keeping the furnace in good shape. This is going there. So this is expense. But at the end of the day, the takeaway is the 3 pillars have been working.
That was a message during the IPO. They've been working they've been working in 2019 and they'll be working going forward. Now, if we split by region again, SWE 15.4 percent increase from 1,000,000 to EUR 412,000,000. Again, the free spread, the 3 pillars work perfectly well, PAP. Spread positive and volume and, this has been efficient all across the board again.
But you have a positive impact of IFRS 16 and you're moving almost to a 100 basis point. If you remove the IFRS 16, So you will be moving from 21.6 percent last year to 22.5 percent. So still almost 100 basis points increase. Again, thanks to our 3 pillars. Now if you look at NE, 13.4% increase reported 11.6 percent if you remove the if you remove Forex from 110,000,000 to 125,000,000 performance in Germany, performance in Poland, performance in Ukraine, performance in Russia.
Versus, and you can see those numbers are much higher than the reported or the organic growth in revenue everywhere, each business segment as performing EBITDA higher than its growth in sales organically. Again, 9% growth, 13%, 13.4%, 9% growth in EBITDA, ESRA in sales 13.4% growth in EBITDA. Now Brazil, because Brazil, let's spend some time on it. Brazil reported figures only 2.8% sorry, LatAm, 2.8% increase, but if you remove the Forex, You're reaching 24.8 percent increase reaching 96,000,000 compared to 77,000,000 last year. And maybe you can focus on a little bit of disappointment on the margin, 31.2% last year, 29.8% this year.
It's just a mechanic effect of the dilutive effect of price increases. When you are increasing massively pricing to offset inflation, one to one is dilutive at bottom line percentage wise. Clearly, it's accretive in EBITDA because the spread was positive in Argentina, which is a very good sign that the business is sound, but it's very cheap in presentation. Now if you look at the others, Brazil is doing extremely well. The market is very strong and our new plants and the components are performing very well.
Now let's see how those impact cash. And to start by cash, result by the big cash consumer, which is CapEx. CapEx is very simple. It's about process and discipline. 1st, we establish very clear and simple KPIs on what are the financial KPIs that trigger investment?
You can see on the left hand side, we spent last year, we booked last year 2 1,000,000 of CapEx. This year, we booked 1,000,000, which is a 12% increase, driven mainly by strategic, the strategic CapEx. Last year, the $26,000,000 was Jacob Tinga and the $46,000,000 this year is essentially comprising of Villa Poma and Azuceca, you know that we are launching 2 brownfield that will come live end of the first half of the year, we will fully impact in terms of top line in the second half. So that explain the growth. You see that income of recurring, we are still at 8% and that's what is going to happen forward The good news is in the 2007, there is a new furnace in Chile.
We have been revamping the transit Chile, which by the way, I've been eating up yesterday, which is very good news because again, in a country where it's difficult, this is bringing additional capacity for the group at a very competitive price. So process and discipline, that's triggered the the CapEx spendings. And you're going to see, I'm going to talk about cash on CapEx and you see that might have an impact. Now if you look at the operating cash flow, very strong $108,000,000 above last year. And if you look, this is significantly higher than the EBITDA.
As you know, you have the financial parity that say, working capital is increasing with the activity. This is proven to be wrong again. But honestly, in my life, If you want to work on what kept up, you can work on kept working capital. The financial paradigm is more matter of weakness than something else. Okay.
Despite total CapEx, operating cash flow is much stronger. Why? Because we've been able to work and improve the working capital on 2 aspects as being number 1 inventories. We have been reducing the inventories. Therefore, the need for working capital by almost 1,000,000 this year.
On the top of that, I was mentioning cash on CapEx. The cash out on CapEx despite having booked more CapEx this year than last year book has been the same. Meaning what, meaning that we've been able to improve the terms and condition on CapEx limits. And point number 2, we've been able to plan better the CapEx. The benefit of that is that we have been we have been a positive variance on working Epsilon CapEx.
Meaning as well that next year, don't expect such a good performance because next year, with the 2 big furnaces starting in the middle of the year, I will not have this capability to extend the payment terms and the conditions. So the total CapEx booked will be higher the cash cost on CapEx will be significantly higher. So at the end of the day, very strong cash conversion, 59%, as Michel said, despite higher book CapEx, adjusted EBITDA fueling the operating cash flow, but the positive change in working capital. Good discipline everywhere. Again, confirming that this company can generate a lot of cash despite investing heavily.
Now the consequence of EBITDA, the consequence of operating cash flow show you that number 1, we are reaching a debt of 1,000,000 comprising, we see an improvement of 118,000,000 compared to last year. And if you add IFRS 16 because IFRS 16 is a fit 3,000,000 notional debt. You are 171,000,000 like for like debt reduction. We have been consistently delivering half a turn since 2017. We continue to deliver half a turn.
And next year, it will be a bit lower because we are going to be diligent, but the trend remains the same. Two seconds on our capital structure because together with the IPO, of course, we have been revisiting our capital structure and upgrading it. And in parallel, if you remember that we have been able to be upgraded, by Saint Hampus and Moody's respectively, BB minus and B3. We have been using that or using the IPO process to revamp our capital structure. Number 1, by eliminating can be term loan B and term loan C, changing that with unsecured loans.
Longer term, 5 years bullet 2024 as cheaper. In average, 100 basis points cheaper. We're now using much more commercial paper that we've been using. Last year, you this year, we're using $188,000,000 last year same period. We were $80,000,000 and this is extremely cheap financing I think the market is very open to that.
So at the end of the day, the 22 cost of debt for the company going forward is less than 2%. And the liquidity is, of course, remaining very strong because our revolving credit facility, $500,000,000 is not drawn. And going forward, that can be helpful. Okay. That was all for me, and I'll leave it back to, to Michelle.
Thank you, Vijay. So now it's time to conclude. First of all, I mean, to wrap up on and I'm going to comment or add comments to his presentation. You've seen these results have been fully in line with what we said at the announced at the time of the announcement of the 3rd quarter results, it's illustrating I think the success of our strategy, which I remind you is based on 4 pillars. 1st of all, discipline growth means growth that is profitable.
And sustainable. Secondly, a lot of our improvements come from our own self help operational excellence initiatives. Thirdly, we invest in this business. We're within this business. And, despite the strong investments that we make in this business, because the investments have been wise and very well targeted, we enjoy strong cash flow generation and strong cash flow conversion.
And last but not least, it's all about company culture. This is a result of the 10,000 employees of Eiralia that are getting more and more everyday entrepreneurial owning this company and wanting to lead the industry with best in class performance in this company. So this in a financial way is translated in the 3 pillars that Didier keeps repeating. First one is we have the positive contribution of volume growth, with the leverage impact of the volume. Secondly, the spread is positive.
The inflation spread is positive and we call it to be positive. And thirdly, I repeat the sales led initiatives on productivity are paying off every year. So this model is not going to change. It's a continuation of what we've done and we're going to do more and better every year. Now before I give you an outlook of 2020, let's first of all say that since the IPO, although we are not present in China or in Asia, the major event has been the coronavirus.
Impact that is not impacting us or our suppliers directly, but some of our customers are somehow some extent, impacted by this. So we are not exposed as such directly to this issue, but indirectly through some of our customers. Despite this comment, I would like to say that we are, of course, extending our sympathy to all the people and the families that are facing tough conditions in the present times in this area. And, in Venvo, we are not directly impacted, we are supporting them from algorithms to sympathy. So this being said, despite this kind of adverse or headwind that we see from some of our customers, we maintain our guidance that we gave you 3, 6 months ago now, which is to look for an organic growth between 3% 5%.
This year. So it's in line with our long term outlook. Despite also the fact that the inflation cost will be much more moderate this year than it used to be the year before. Therefore, the price increases that we have to pass to our customers to end up with a positive spread and to pass through the inflation, of course, to our customers will be much more lower than what you've seen before in the in the DTS presentation. So despite this, I would say lower price increases.
This for the lower growth also due to this, we will, we believe we will grow organically between 3% 5% this year. With probably, as you know, the benefits of the new capacity being installed the middle of the year in Spain and Italy that should enable us to capture some of the growth. We are going to deliver an EBITDA above 1,000,000, adjusted EBITDA above 1,000,000 in 2020. And this is our forecast, of course. And we will clearly, as did you explain, control the capital investment the recurring investments will be at 8% of sales.
And, of course, excluding the right of use, which is the application of the IFRS 16, The total CapEx that includes the 2 strategic projects that we mentioned, Villapora and Azuqueca in Spain and Italy. Are going to bring the total CapEx amount to 1,000,000 compared to 1,000,000 this year. And as Didi mentioned, the cash outflow linked to this project CapEx will be significantly more than last year because those CapEx will be completed. Those 2 strategic projects will be completed in the middle of the year. Despite all this, we believe we'll to generate a lot of cash and we'll continue to deleverage the company by around 0.4 times, including dividend payments or post dividend payments to be clear, which means that we will probably end up the year with a leverage of around two point two times adjusted EBITDA.
So this is our outlook, which I think is confirming the confidence we have in this company. And now that we've finished our presentation, we'd like maybe to take your questions and answer them as well. So we'll start with the questions from the room. And then after since we are non audio, cast, we will get the the questions from from from the phone, from the phone. So there's a microphone that will be circulating.
So not hesitate to use it.
This is, from from Exane. Thank you for the for the presentation and congratulations for for the results. I have three questions. Right? First one is, looking at the outlook that you you put here.
And if we assume that the PAP will continue in the same turn of a 2% of the cash cost, this will significantly mean 1,000,000 So this is mainly practically reaching the €650,000,000 on EBITDA. So you commented that the price will not be as as big as in 2019? Probably do you still expect a positive price impact on operating leverage? Should recover. So is this a very, very conservative thing, or I'm missing something on this, on this calculation?
I mean, this is a floor, as you understood, because we said it will be greater than 650. It's just the beginning of the year. We have no visibility on the exchange rate, for example. And just talking about the exchange rate, you've seen that in the last 2 years, we've been strongly impacted by exchange rate on, which have, had a negative impact on our, on our results. But but your peak calculation is right.
The spreads that we are aiming at, we've said it at the time of the IPO would be slightly positive. We are not looking for huge, spread, positive spread, I would say. So if you take just a 0 plus spread and a 1,000,000, you are 6:50. You are right. But now, you know, our life, we cannot forecast what the exchange rate will be, and, and that's that's why it's a it's a floor.
You can just, you can just,
in New York's last year, I mean, 2019, 30 2,000,000 the year before.
I was cautious about it.
But as we should say, it's at
the beginning of the year. Okay. The second question is if you could be a little bit more precise on what's going to be the impact of, CapEx or CAS CapEx for for for this year. And and also in terms of taxes, I mean, the CAS taxes, we haven't seen a much difference between the P and L and the cash flow in 'nineteen, while during the IPO, you see that there's going to be some fiscal credits.
Hello? Hello? No? Yes. Okay.
Okay. If you look at cash CapEx over the past 2 years and you play with the book CapEx more or less the payables. You spend, in average, $250,000,000 in 2018 2019. Whereas, we are going to spend probably around 280,000,000 dollars, $218,000,000, $285,000,000 2019,000,000, depending on the year end, but in 2020. So massively more, essentially because as Michel said, the investment, the largest investment will be completed in the middle of the year.
The largest investment being essentially Vila Poma and that's okay, brownfield projects. As regard to cash taxes, you see that 1,000,000 this year versus 1,000,000. We expect probably to go around 1,000,000 next year.
And and the last the last question is regarding the Jacobina ramp up. So you started mid-nineteen. So how is it evolving? And if you have recovered part of the last round that you have at the beginning of the year, when would you publish first half results?
Well, on Jacobting, as Didi mentioned, we were re exactly where we wanted to be in terms of CapEx spending. We were exactly we started exactly on the date that we plan to start. And actually, the ramp up has been impressive very, very fast, much, much faster than one would have expected. So it's been, frankly speaking, a very one of the successes of last year There is no more, I mean, and and this, you know, that this JAKuting a project was also due to the relocation and the closure of our downtown facility in Sao Paulo. So by doing so, we've increased a little bit our capacity in Brazil.
And given the fact that the market is very dynamic, we're going to enjoy some better growth next year sorry, this year in 2020 than we had last year. By the way, one of the reasons I would like to draw your attention to one of the things I would like to draw 2. When you look at the big swing of inventory between end of 2019 2019, one of the fact that one of the reasons why we built inventory in 2018 was also to prepare the closure of Fade, the downtown Sampaolo facility and transfer the business. So that was part of the ramp up of inventory in 2018. Which we don't expect to see such swings inventory going forward.
Yes.
I have 2 or 3 questions as well. It's Fraser Donlin from Berenberg. That, I mean, when you look at your core, your exposure, how satisfied you with the margin improvement you've seen this year kind of ex IFRS 16 because obviously it's been a great market, 6.5% to 7.5% organic growth. In North And And South And Western Europe. So is the margin improvement you've seen kind of in line with what you expected, or could you do more?
Yeah, that would that would be my first
Well, on this one, as did you mention, I mean, we are very pleased that it's not one region on one segment of the markets that drove this improvement. It was really a general improvement across the board in all countries, all segments of the market. Both Europe, by the way, in Latin America and Latin America, even in Argentina, which, as you know, is a difficult country right now. We are doing extremely well in our business. The only impact is that exchange rate when you convert the Argentinean peso that strongly devaluated into euros.
But in local currencies, we are doing extremely well in Argentina. So to come to your point, we are very pleased and very satisfied all businesses in Europe and in South America have improved last year, and all the segments contributed to this improvement. Now On the other side, you know very well that our midterm guidance is what exceed 25% of EBITDA margin. That's so that says that we still have some room for improvements that we have well identified, especially thanks to the productivity action plans or the performance action plans that we are every year deploying with throughout the company.
And then on the organic growth, side. When you look at the 3 to 5 percent over the next 2 years, is that at constant currency? And then what trajectory
do you see?
A lot of your peers are talking about in Europe, maybe 1 to 1 a half percent price increases next year. What kind of assumptions are you making there when you talk about the 3 to 5% and kind of roughly do you a bit higher or lower end? I know you've got new volumes coming to market.
Well, coming down from 7.2, excluding Argentina last year, organic growth will be the start of productivity action plan, by the way, shutting down light or contribution to the environment, saving the environment and saving the planet. So you take it the way you want. Usually, it goes together, by the way. So, I'm sure they will restore the lighting very soon to take your point. I mean,
it was a question about the 3% to 5% on the growth versus the pricing?
No, the 3.5% is much lower than what we are you're you we grew last year 7.2% excluding our junk. You know? So by itself, it's a it's a it's a it's a more reasonable growth rate going forward, which will be supported by new capacity. As you know, we were sold out, and the fact that we bring new capacity is through debottlenecking or small marginal furnace expansion, as you've seen from the bogus case, I presented this after this morning. The 2 new projects are in Vila Poma and Azuqueca in Spain and Italy are going to help us fuel or support this growth.
Now the market growth will be probably around 2%. That's what our we estimate. And you can expect the the the price increases across the board to be in the vicinity between 1% 2% in Europe. Now in South America is quite different. Inflation is much higher.
So but in Europe, that's small as the ballpark range that you have varies from one country to the other, but but that's more is the, so it's much less than last year to put it this way.
And final one for me. In terms of the dynamics of margin in each region, are you still, I would say more excited or interested by South And Western Europe in terms of what really drives the improvement mid term, I. E. You kind of see more upside. There.
Obviously, your mix there is very favorable too with the wines and so on. Cool.
Yeah. The margin improvements potential is more or less the same everywhere. I mean, the beauty of the performance action plan is that you work on your costs. And, and as I explained at TIPO time, when you are, we have 32 glass making factories, there's always a number 1 and number 132. So you could say, okay, the number 32 has an easier way, an easier job because he he can catch up or should catch up towards the best in class, which is true.
From that point of view. But on the other hand, the reason why the number 1 is number 1 is because usually you have better teams, more knowledge, more server So we can tackle much more sophisticated or more complex issues than the last, factories cannot tackle So what are our and that's why you did explain that every factory has a goal to improve its cash cost by at least 2%. Every, whether you are number 1 or number 32, you have this the same goal because I repeat the best in class have more talent, more and more how and and better skills to go further than the laggards that will probably benefit from benchmarking the others.
Sorry, very final one now. So just obviously, you're delivering quite nicely 2 to 3 times target capital structure. How do you view kind of capital allocation? There isn't really much to acquire in Europe, but just more broadly in the midterm, is it, you know, dividends, or do you see opportunities for M and A?
Well, yes, on this one, we, we are, we've not changed, we have not changed our view on the subject since the IPO time. We will look for acquisitions, not just for the sake of acquisitions, by the way, being very disciplined on what we're looking at. I mean, just take an example. I mean, it's public information. 1 of our competitors is setting its operations in Australia, New Zealand.
Well, we didn't even look at it because for us, we don't think it's gonna create synergies and and help help grow our business in a sustainable and durable way. It's not because it's about business at all, but just that we don't see the synergies that we could we could get from such an acquisition. So we are not going to chase any acquisition. We have a strong views on the companies we like to acquire. Now they're not necessary for sale, as as, as you know, but there will be opportunity if there are opportunities that arise will be certainly looking at them.
And if we don't find a good use of cash, we said very clearly that we target to leverage the company between 20 times. So if you go below 2 times, we'll either buyback shares or pay special dividends or increase our dividend policy. But this is not for this year's probably, at least not for the time being, the question.
Hello, Sean.
Questions. The first one on U. S. Tariffs. Have you seen any impact of U.
S. Tariffs on the European product? Have you seen any pre buy effect in 2019? And my second question on the capacity expansion, how much they will contribute to your 3% to 5% organic sales growth in 2020? Is it fair a 1% boost on a full year basis in 2020.
Thank you.
Okay. On the U. S. Tariff, As everybody remembers, this happened at the middle of our roadshow last year. This was the news of the roadshow for us, which was covidien expected, as you can imagine.
It's really too early to really understand what has been the impact. The reason being that we know some of our customers had anticipated to some extent this tariff impact build up some inventory. On the other side, we know for sure that for example, the French wine exporters have been quite, quite strongly penalized. At least for the bulk of the market, we know on the other side, the premium wines has been doing very well last year. And you know that we are quite strong in the premium segments rather than the bulk of the market.
So It has an impact. It doesn't have yet a huge impact on our customers. But we it's probably a bit early to say given the changes in inventories and the supply chain between us and the final customer. As I mentioned during the IPO times, for the premium products, the consumers will continue to buy them even if there's a price increase due to tariffs. For the more sensitive price for more sensitive segments or more sensitive products on the market on the price side, there might be some, of course, volume impact.
Just one thing to remember on the other side that remember that, excluded from the tariffs in France, the champagne and cognac. So we are not impacted on the champagne and and Spirit side in France. And I excluded from the tariffs, the Italian wines. So it's a bit complicated to follow, but the fact that we are strong in Italy and is and the fact that Italian exporters to the U. S.
Are going to benefit from less exports from France means that at Viralia level, we might have also some shifts from one country to the other, without necessarily feeling the full impact of the tariffs at a group level?
Yes. And regarding the 3% to 5%. The couple of buckets, buckets number 1, Escalade, the new furnaces, I would name, basically Jacques putting a full year impact because he said it was not a full year impact. Number 2, the furnace essentially, which has been eating up yesterday and will generate more growth in the coming months. And to Brownfield, which is, which are sorry, Azuque Karen Villapoma.
So that's the 1st bucket. The 2nd bucket clearly is indirectly for the PAP because we are improving yield was improving operational efficiency. Minimum you are expecting from that is minimum, I would say a really minimum is a 1% CapEx increase per year. That's what you're expecting. And you know, that's what we've been delivering.
CapEx free. CapEx free. And then you have the normal, what you see in the recurring, new equipment, new IS machines, triple go to infrastructuring more. So that the 3 buckets you're seeing. One is investment.
2nd one is efficiency. 3rd one is greenfield, brownfield.
Thank you. Just one quick follow-up question on your on Coles. Can you remind us the share of Coles in your total raw materials and how far can you still go and what could be the benefits on your raw material costs?
A simple number. We are spending raw material around 400,000,000. Half of that is collect. And, half of that color that we are using is clean and processed by us. So give us a little bit of leverage on improvement in trying to get the signal in the park.
4 years or couple of years ago, 4 years ago, we were up at 4 millimeters today. We are using less sense going down to 800 microns. So yes, we want to, we want to develop after one of the, one of really better than users. We are putting more than users. After the issue is probably the collection, the collection, yes, European Development.
The issue is that in Europe, we collect average, the industry collects 76% of the used glass. The urban federation which by the way I'm sharing is, I set up a target of collecting 90% 90% 90 by 2030. So in every country, we are working very hard with national associations, with the brands, with the trade to increase the capability of collecting glass, knowing
that the glass makers, the glass packaging
makers are willing and able to use as much glass as we can collect. So the issue is not the treatment facilities capacity. But it's more the collection right now, which is at stake. Do we have additional questions from the room? If not, we'll take questions on the phone.
Thank you. Can you hear me okay? We received three questions on the webcast, and the 3 are from Christophe Degraves. And he would like to know the following. Could you recapitulate the dynamic between building up inventory and destocking on the EBITDA margin?
It's pretty simple. We are even fixed costs when you put when you put inventories in, when you put production inventory, basically you're transferring fixed cost balance sheet, and then you're selling it. When you are, producing and saying directly, you're transferring directly fixed cost to sales. When you are destocking, unfortunately, the top line is impact is is there what it is, but you're using the fee that we're already in the balance sheet and not going through the normal production and P and L process.
Thank you very much. The second question would be as follows. I was somewhat somewhat late in the webcast, so probably you already tack this subject, but I heard you saying that you were confirming the 2022 targets despite experiencing some headwinds since the IPO. Could you please elaborate a bit on those headwinds?
Well, I mean, I think we've been clear. I mean, at During the IPO auto, we discovered this tariffs, on the in the US made on a puts especially on the wines and spirits, in Europe. That was one surprise that came during the IPO, who didn't lead us to change our guidance. And since the IPO, we have faced now in Asia and that has a knock on impact on many other regions, this coronavirus issue. Which is clearly slowing down the economies in many countries and at a worldwide level, ma'am.
So this is this wasn't expected too, but despite those headwinds, we still believe in our, that our guidance is is is doable, and we didn't, have any intention to modify it.
Term, partly due to the dilutive impact of the shop price increases implemented during the year. Does that mean the price increase led to a loss in volumes, or were you not able to compensate fully the increased input prices, but price increases?
So, no, please, it just there's a basic mathematically principle. 1st of all, let's put a thing's perspective. Inflation in Argentina was 54% we increase the pricing more than 54%. But 1 for 1, give a percentage of So that's just the fact that you need to increase much more. You should to get to get the percentage increase.
You need to increase much more than just inflation. So the highest inflation is the more you need to increase the pricing, not only to be spread positive, but to cope with the growth in the growth in percentage. So from a 1 for 1 is dilutive in percentage and 1 for 1.1 to 1 is dilutive in percentage. Dedicated in Argentina. In Argentina, we're not losing volume.
We are gaining. We're beating in fishing. But we're not beating inflation by 5 times. We're beating inflation by 1.1 times. So basically, this is dilutive in terms of percentage.
That basic principle matter.
Thank you very much. Those will be all the questions that were received on the online webcast. And we'll now be listening to the questions that we have received during the call.
Thank you. We do have a few questions from the audio line. And the first question comes from the line of Matthijer Seifel from Deutsche Bank. Please go ahead.
Yes. Good morning, gents. Matias from Deutsche Bank. Couple of questions from us. Firstly, congrats on the results.
I I just continue on the path of Paco trying to see how really the conservative the guidance is on the EBITDA. And especially, maybe you, if you could help us quantify the effects of the destocking in 2019, also tell us if there is some some good amount of restocking already taking place in, in 2020. And then also you mentioned, on one other occasion that you have fully hedged already for 2020 for the gas costs. So maybe you can share some some quantitative numbers in terms of what's the average benefit going to be in 20 versus 'nineteen? And then related to that, is there any incremental EBT contribution from the new from the new furnaces, or will this be compensated by ramp up costs?
Thanks.
Well, that's a long question. So I've tried to note to take note of all the points that you're mentioning. So forgive me and don't hesitate to repeat part of your question if I didn't answer them properly. Now in terms of, EBITDA forecast, it shows the starting point of your question. I mean, I think the comment that was made before is still valid.
I mean, that's a floor we said it would be above 650. At this time of the year, it's too early to say if if we will face additional headwinds, I mean, just take an example, which we are currently living in France right now, I mean, there have been quite a lot of like, since December due to the, national reform of the pension schemes in France, this has had some impact on our, operations and also somehow to this could have an impact if it's last too long on the consumption of our customers. So So this is something that is a node at this stage. We it's part of the headwinds I was mentioning that we see and we manage, we it might have an impact on the top line. Our goal is read to, of course, work hard on the cost side to to minimize the net impact, but this is something that, we'll have to evaluate, as we see that you're progressing if you want.
Now regarding the stocking, destocking, I mean, just to give you some numbers, because I think, so you are you can make the math. But in terms of tonnage in 2019, we increased our inventory throughout the year by 74,000,2018. So 2018 2018, we increased our our inventory by 74,000 tons. In 2019, we decreased our inventory by 52,000 tons. And as you know, in the P
and L, you'd look at
the variance of the variance if you make a bridge from 1 year to the other. So the variance of decrease inventory in 2019 versus increased inventory in 2018 is altogether 126,000 tons. It's massive. Now going forward, as we explained, even if we ended the year with a good level inventory, we don't have, strong views whether the inventory will slightly go up or go down. Why?
Because we will, on the one hand, we should on the 1 hand increase inventory because our sales are increasing. This is what the deal was mentioning. Our working capital should increase because our sales are growing. On the other hand, we are working at the same time on our supply chain processes to be much more efficient in improving the customer service or maintaining a very good customer service with less inventory. So the net result should not change dramatically the level of inventory during the year.
That's not to leave. Despite the seasonality, we have a little bit of seasonality, which you have to bear in mind, But from December to December, we don't expect a major major change of of inventory.
I think if you look at the 3 pillars, they will to be existing this year, you have seen the activity. So the volume growth has been offset by the destocking. Next year, we don't expect that because as Nishu said, we more or less inventory to remain more stable compared to the closing of this year. Price increases was a mix was significant in 2019. For the reason mentioned that the base costs are going to be much more direct in term of friction.
The spread will be positive therefore contributing to bottom line, but, not massively like this year. And the PP is the PP. So we'll be generating at this percent of the on the cash cost. So that's it. In terms of our forecast as well, we took the assumption might happen or not happen.
That it will be another year of volatility in Argentina. And those who are ready to bet against me on that, I'm ready to bet. Because you know, wait for the month of August and you're going to see that going down again 50%. So we took that as an assumption clearly. This is, this is impacting.
We do not think we are not doing 20 at ISO ForEx 2019. This is not going to happen. We don't see that happening.
Just to give you some color, but the reason why we are to take your words, maybe conservative on the EBITDA side, is the additional volume growth coming from the 2 new furnaces is not a is not at marginal cost. Differently from marginal CapEx improvements that are made for debottlenecking activities where here for very small CapEx or no CapEx at all, you debottleneck your factory and therefore, you have a huge, margin falling through directly to the bottom line. Here, those 2 new furnaces will require full costs set up new teams to be trained. By the way, not just on the startup button, we are training the people as we speak. So this is a ramping cost that we have to absorb, which of course is one off, but my point is it's not, and then you have the ramp up of the factories themselves.
So My point is we will have to incur this year, so some additional costs due to those 2 startups and 2 startups in 1 year for 2 green bond fields. Is is not is not a small thing for for us. So my point is, you put all these things together, I mean, we believe that, that we are able to deliver more than 650, of course, we'll do our best to do more, but we don't want commit too much at this time to be easier to see or to revise our, maybe our guidance, if need be for the year, if we see something that changes quite Yes,
let's not change the tone of the guidance. It's not a defensive guidance. It's not we are worrying about the future. I think we have all the means We have all the fundamentals for the free period that we'll be delivering. Let's not change the tone.
While in February, start of the year, We know where the consensus is. We give you above 650. We don't look nervous. So let's not change the the rule of the game.
Fair enough, gents. That's a really good explanation. Like the destocking wiped out the operating leverage last year and then you have the ramp up costs for the 2 new furnace the missing piece really, and maybe you can can shed some color. Is the gas the gas dynamics, gas cost dynamics,
The gas or the CO2, the CO2, as you said, and the CO2, the phase 3 is full edge. At the price to cost, which is lower than the current cost, which is very similar to 2019 because we took a hedge at the same time for the upcoming 3 years when we did it. So there is no gain compared to compared to 'nineteen. Now we know more or less how much we are going to have to buy on the market because we are very steady. We know we have a, you know, buying between $600,000 $600,000 600,000 tons per year.
And we know at what price very similar to 2019.
Yeah. That's helpful adjustment on the energy costs because you have a rolling hedge for gas prices. And I was just after the the the benefit of of gas cost inflation because, obviously, the the hedges will follow the spot prices with a certain leg. Right?
That's that's clear. The today, market is going down significantly, but our strategy, our strategy is not to be open, I mean, and be doing on spot. We are we don't want to create. So we have we have, gas pricing that are taken on rolling, rolling basis, which are not exactly matching the drop in price. So clearly, and honestly, thanks to God, because if I'm telling you that I'm fully exposed every day on the price of gas electricity, the days going down I might be missing an opportunity, but the day is going up.
Now, you're going to put the thing letters and say, okay, you're speculating. So, no, we're not speculating. Clearly, the spot price on gas and electricity is significantly down and the hedging is a little bit higher than that. But rolling forward as well. That's I think the right way to look at that as usual people want to speculate.
Okay. My two final questions would be you faced all these 2 headwinds basically and you're still facing them, hence, you still kept the 3% to 5% growth guidance. So what's actually positively helping you? Is it the capacity ramps? Is it winning market share?
What's helping you. And then also on the CALID usage, you became a bit more explicit about it. More cautious maybe at the IPO. Now you're saying you want to increase the credit use. Can you give us a number?
Is it like 1, 2 percentage points in the medium term? And also, do you face some competition from new segments like dairy moving again into glass?
Well, we have talked about the headwinds because they are quite new compared to the IPO, but we didn't speak too much about the tailwind. That we talked about during the IPO. The strong move away from plastics to glass, the shift from plastic glass is difficult to quantify And as I said, it will not happen overnight. But clearly, glass is the preferred material because it's healthy. It's infinitely recyclable it gives an image of premium and quality that Tiazza materials don't give.
So this is clearly a tailwind, again, very difficult for us to quantify, but that this is still here and and and even probably even stronger than 6 months ago. So that's that's one thing, which will should help and mitigate some of the headwinds that that we just mentioned. Regarding the collets, we gave you the ratio of credit use in our company. I repeat, the limiting factor right now is not the current treatment, but it's the collection, which is not in our hands or the we buy credits that has been collected by third parties. And it's a complex issue because you have to align a lot of different stakeholders, the municipalities, the brands, the retailers are or hostel or restaurants.
So trade and off trade networks, and of course, the collectors. So that's something we are working on. Ideally, we would like to at least increase the collect ratio by one point a year. Doesn't seem a lot, but, but, this is something which, we believe should be doable. And that's that's about it.
But to
come back on your point, I want to insist because the 3 to 5% growth organically is going to be made a little bit of pricing clearly volume. But again, volume, we have new new capacities or, like a full year impact of new capacities. And this is today. And the efficiency, again, the PAP is bringing on side effect improvement on yield and and operating efficiency. All that together make us comfortable to be able to capture more than the market growth.
Thank you. Our next question comes from the line of James Rhodes from Barclays. Please go ahead.
Hi, there. Just to pick up on the plastic to glass trends, please. Is there any more anecdotal evidence you can give us post the IPO that would would indicate that? And then secondly, at the IPO, I think you've mentioned there were some customers asking you to open capacity in the U. S.
Wondered if you have any more thoughts about that in general. Thanks.
Well, there is no real strong news post IPO regarding the trend of favoring glass versus other materials. I mean, the same trend is solid in the market. How to quantify, but clearly, in the mind of everybody, our customers, the consumers and even the public authorities. So but no big change compared to what we discussed at IPO types. Regarding the U.
S. Market, I mean, clearly, some curse I mean, clearly there's a it seems that there is a lack of glass in the US market right now. For us to go there just to build 1 factory doesn't make sense to be frank with you. So that's not something we are considering as we speak. I mean, adding a greenfield factory in the U.
S. Market just to to be there doesn't seem, to provide enough, strategic interest to us at this stage. Now should we find other opportunities that are much bigger than this one? Why not? But but making one acquisition in or one factory in the U.
S. Is not, is not very sufficient to justify, the investments in this country. Thanks
very much.
Thank you.
Next question comes from the line of Paul Bradley from Citi. Please go ahead.
Hi, that's Paul Bradley at Citi. First, congratulations on results. I'm very good to see you delivering all that you promised. A couple of quick ones from me. On the, working capital side, could you let us know what your factoring balances were at the end of the year and whether you've made any changes to your factoring program?
And secondly, one of your, I guess, picking up on this plastics glass point, one of your, USPS yesterday said, in Brazilian beer, they've seen a move from glass towards, cans. I was wondering if you're seeing the same Brazil if you're seeing anything in Europe, which is losing share for class towards cans?
What was the first question? Sorry, because I had a hard time to listen.
Sorry, factoring
factoring, factoring, I was expecting a question. I didn't want to raise a red flag in front of everyone on the working capital. We factor in 2018 on non reverse factoring, we factor 1,000,000 in 'eighteen. We factor in 19, 313,000,000. So that's what we discussed at the time of the IPO.
There was a ramp up. And of course, there will be an increase seasonally in the year when you sell more, you factor more. But again, this is a service at a cheap price, and we're paying 1%. And we're using it naturally is not a mean for us to improve the working capital. It's just we're using where we have sales 1% is seen more expensive than what our bankers, friends are offering to us.
So, and we have 10,000 customer with a level of a due, which is irrelevant, the level is extremely low for company of foresight. So this is we have a very good customer base. So again, flat number 2 going to increase probably going to be higher at the end of June because it's a strong quarter in terms of sales. And very attractive in terms of pricing.
For your second question regarding Brazil, I've read this comment about the shift from, maybe probable shift from glass to can That's not at all what we see on the market. Let's be clear. The glass market in Brazil is very dynamic. Fueled by, 1st of all, the beer segment, which is growing, growing quite fast, by the way. And more importantly, the consumer habits changing in Brazil where it seems that our customers that are selling beer are selling a lot more one way beer rather than the returnable beer.
In other words, as you know, there's probably 20 terms when you have a returnable packaging versus one way packaging, which is one off. And it seems that the consumers in Brazil are drinking more home right now than they used to in a public spaces. And therefore, the need for glass is quite strong. Actually, we have a strong demand from our customers in Brazil. So I don't know if the growth of glass is bigger or less than the growth of can in in Brazil, but I can tell you the growth of glass is is is is very certain, is very strong.
And we do enjoy it. Now in in Europe, I mean, we'll see, in a few months, the official statistics from the federations, both glass and can faderations, we'll see if we if in Europe, there is some kind of substitution from glass to can, it doesn't seem to be the case to be frank with you, but, but, I don't know if you have any any official statistics.
Great. Thank you.
That was our last question from the audio line. So I'll hand the call back to your staff Thank you.
Okay. So I think it's time to conclude and I would like to thank you very much again for attending this presentation and this discussion. Thank you very much and have a good day. Thank you.