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Verallia: Q3 2018 results show improving operational performance

Highlights of the third quarter: decreasing reported revenue year-on-year (-4.3%) at EUR 599.5 million; robust 4.3% revenue growth at constant foreign exchange rates and excluding IFRS15 impact; strong adjusted EBITDA of EUR 147.6 million, with a major growth of 12.6% year-on-year (+20.0% at constant foreign exchange rates); significant Adjusted EBITDA margin expansion reaching 24.6%, up 370 bps compared to Q3 2017 (of which 70 bps is linked to IFRS 15); highly positive operating Cash-Flow generation of EUR 92.1 million and very good level of cash conversion at 80.0%.

In its third-quarter results, Verallia reported revenue decreased year-on-year (-4.3%). However, at same exchange rates and excluding IFRS15, Verallia posted a robust 4.3% growth between Q3 2017 and Q3 2018. This growth was driven by volume/mix improvement, supported by price increases aiming at mitigating rising energy costs.

In Europe, reported revenue decreased by -2.7% in value but increased by 1,6% year-on-year excluding exchange rates (-0.6%) and excluding the impact of IFRS15 (-3,7%). This growth was driven by volume/mix improvement and higher prices, in particular in Germany, Eastern Europe and Iberia.

In South America, reported revenue decreased by -15.2% because of negative exchange rates variations. At same exchange rates and excluding IFRS15, the growth is significant at +22.5% supported by a good level of activity, notably in Brazil, as well as higher prices in an inflationary context in Argentina and Brazil.

Adjusted EBITDA was up 12.6% (+20.0% at constant exchange rates), driven by robust revenue growth (excluding IFRS15) associated to continuous reduction of the cost base, despite rising energy costs.

In Europe, adjusted EBITDA increased by 17.4% (18.3% at constant exchange rates), driven by improvements of sales and significant productivity increases at plant level, in particular in France, Germany and Italy.

In South America, adjusted EBITDA decreased from EUR 22.9 million to EUR 20.5 million between Q3 2017 and Q3 2018 (-10.5%). Adjusted EBITDA has been significantly impacted by unfavourable exchange rates (hefty depreciation of the Argentinean Peso and Brazilian Real). However, at constant exchange rates, South America delivered a strong 28.4% adjusted EBITDA increase, supported by a good level of activity in Brazil, price increases to mitigate inflation as well as improvements of our manufacturing performance.

Operating cash flow was highly positive and reached EUR 92.1 million in Q3 2018. In Q3 2017, operating cash flow reached EUR 112.3 million. This decrease between 2017 and 2018 was mainly due to a negative change in net working capital variation (EUR-42.4 million variation year-on-year). The improved productivity of the plants has enabled a build-up of stocks of finished goods to improve the service offered to Verallia’s clients. This change in net working capital offsets positive contribution of adjusted EBITDA (EUR+16.5 million year-on-year) and recurring capex (EUR-5.7 million year-on-year) to operating cash flow.

Verallia has been pursuing its deleveraging effort. Net debt over last 12 months Adjusted EBITDA reached 3.3x in Q3 2018, compared to 3.7x in Q3 and Q4 2017.

“Verallia is pursuing its improvement in adjusted EBITDA margin to reach 24.6% in Q3 2018, up 370 bps since last year. This is the result of a good commercial performance associated to a continuous focus on improving Verallia’s operational efficiency over the year. Verallia will pursue its productivity action plans in Q4 2018 and beyond,” commented Michel Giannuzzi, CEO of Verallia.

Outlook: In an increasingly challenging environment (energy cost continuous increase and unfavorable exchange rates evolution in Latin America), Verallia confirms its yearly objectives announced in March: (i) Positive organic growth and adjusted EBITDA increase (ii) Further adjusted EBITDA margin expansion (iii) additional deleveraging and (iv) Recurring capex amount around EUR 200 million (ca. 8% of revenue). The macro-economic environment and continuous operational improvements shall contribute to achieving Verallia’s 2018 objectives.

Verallia has successfully completed the sale of its minority stake in the IVN joint venture (Brazilian company named “Indústria Vidreira do Nordeste”) on 26 October 2018.

Annual results are expected to be released on 14 February 2019.

An independent group, Verallia is the third largest global manufacturer of glass containers for food and beverages, and proposes innovative, customized and environmentally-friendly solutions. EUR 2.5bn revenue with 16 billion glass bottles and jars produced in 2017. Around 10,000 employees, and 32 glass production facilities in 11 countries.

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