Verallia reports significant profitability growth

Verallia posted a solid 6.3% growth between Q2 2017 and Q2 2018

Stable reported revenue year-on-year (-0.9%) at EUR 650.1 million; robust 6.3% revenue growth at constant foreign exchange rates and with 2017 restated for IFRS15; strong adjusted EBITDA of EUR 155.8 million, i.e. a growth of 8.0% year-on-year (+13.2% at constant foreign exchange rates); Significant Adjusted EBITDA margin expansion reaching 24.0%, up 200 bps compared to Q2 2017 (up 140 bps vs 2017 restated for IFRS 15 impact); robust operating Cash-Flow generation of EUR 126.5 million and cash conversion at 69.8%; major enhancing of the capital structure and further deleveraging.

Reported revenue was stable year-on-year (-0.9%). However, at same exchange rates and with 2017 restated for IFRS15 impact, Verallia posted a solid 6.3% growth between Q2 2017 and Q2 2018. This strong growth was driven by robust volumes as well as price and mix improvements.
In Europe, reported revenue grew by 0.8%. Exchange rates had a negative impact of 0.8%, mainly due to the weakening of the Russian Ruble and the Ukrainian Hryvnia. At constant exchange rates and excluding the impact of IFRS15, the 4.8% growth was driven by higher prices and volumes in most countries, in particular Germany, Eastern Europe and Iberia.
In South America, reported revenue decreased by -13.7% because of negative exchange rates variations, the Brazilian Real but in particular the Argentinean Peso. At same exchange rates, the growth is significant at +18.1% supported by a good level of activity -notably in Brazil- as well as higher prices in an inflationary context.
Adjusted EBITDA was up 8.0% (+13.2% at constant exchange rates), driven by a robust top-line growth associated to overall improvements in price and mix as well as a reduction of the cost base.
In Europe, adjusted EBITDA increased by 9.1% (9.7% at constant exchange rates), driven by the robust level of activity, improvements of price and mix, and productivity at plant level.
In South America, adjusted EBITDA remained stable at EUR 18.9 million between Q2 2017 and Q2 2018 (+0.5%). It was highly negatively impacted by exchange rates (hefty depreciation of the Argentinean Peso and Brazilian Real). However, at constant exchange rates, South America delivered a very significant 36.1% adjusted EBITDA increase, supported by a good level of activity in Brazil, price increases to mitigate inflation and currency devaluations as well as improvements of its manufacturing performance.
Operating cash flow was highly positive and reached EUR 126.5 million in Q2 2018 compared to EUR 162.1 million in Q2 2017. This decrease was due to higher recurring capex in Q2 2018 compared to 2017 (EUR 47.0 million vs EUR 32.5 million in 2017) and, comparatively a lower reduction of working capital during Q2 2018 compared to the same period of 2017 (EUR 17.8 million instead of EUR 50.4 million in 2017) partly offset by EUR 11.5 million higher adjusted EBITDA.
Verallia has been pursuing its deleveraging effort. Net debt over last 12 months Adjusted EBITDA reached 3.4x in Q2 2018, compared to 3.7x in Q4 2017 and 3.9x in Q2 2017.
“The results of the first half of the year have been very strong. Verallia has reached 22.2% of adjusted EBITDA margin, up 190 bps compared to last year, driven by a favourable market environment and improvements in our operational efficiency,” commented Michel Giannuzzi, CEO of Verallia.
Verallia has undertaken a major step in enhancing its capital structure and confirmed its deleveraging effort through a sequence of several operations. First, in June 2018, the Group successfully signed an agreement to raise a EUR 550 million term loan bullet facility with a 2025 maturity. In addition, the Group has launched a EUR 250 million Neu CP program, of which EUR 80 million was drawn as of June 30th, 2018. On 1  August 2018, the proceeds of these facilities, along with cash on hands, will be used to repay the existing EUR 500 million senior secured notes (2022 maturity) and EUR 225 million senior unsecured notes (2023 maturity). Lastly, to reinforce its already strong level of liquidity, Verallia has increased its Revolving Credit facility by EUR 75 million to EUR 325 million at no additional recurring cost. All together, these operations will enable Verallia to decrease its annual cost of debt by a third (ca. EUR 25 million) on a normalized basis and extend its maturity debt profile.
In an increasingly challenging environment (energy cost increase and unfavourable exchange rates evolution especially in Latin America), Verallia confirms its 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 (at 8% of revenue). The favourable macro-economic environment and continuous operational improvements shall contribute to Verallia’s objectives.
Q3 2018 results will be released on 14 November 2018.
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, and around 10,000 employees, and 32 glass production facilities in 11 countries.