Verallia: solid start to the year

Reported revenue up 6.7 percent, adjusted EBITDA up 18.8 percent, contemplated IPO on Euronext Paris in 2019

Q1 highlights

  • Robust growth in revenue, up 6.7 percent to 633 million EUR (up 9.9 percent at constant exchange rates)
  • Strong growth in adjusted EBITDA, up 18.8percent to 142 million EUR (up 22.3 percent at constant exchange rates), of which 5.5 million EUR relates to the IFRS 16 impact
  • Increase in adjusted EBITDA margin to 22.5 percent, up 230 bps compared to Q1 2018, 90 bps of which relates to the IFRS 16 impact
  • High net income improvement reaching 27 million EUR compared to 10 million EUR in Q1 2018
  • Reduction in net debt to 1,791 million EUR versus 1,876 million EUR in Q1 2018, i.e. 3.1x adjusted EBITDA for the past 12 months (1,733 million EUR excluding IFRS 16 adoption impact leading to a similar leverage)
  • Early repayment of 150 million EUR on Term Loan B and upgrade in S&P’s long‐term credit rating for the Group from “B” to “B+”
  • Verallia and its shareholders are considering an Initial Public Offering of the Group on Euronext Paris in 2019, subject to market conditions

Revenue came in at 633 million EUR for the first quarter of 2019, representing reported growth of 6.7 percent.
The currency effect had a negative impact of 19 million EUR (‐3.3 percent) on the quarterly performance, mainly due to the continued depreciation of the Argentine peso against the euro.
At constant exchange rates, revenue rose 9.9 percent, driven by a significant volume/mix improvement in all regions. Verallia also further demonstrated its ability to pass on the rise in energy and raw material costs to its selling prices.

  • In Southern and Western Europe (SWE, comprising France, Spain, Portugal and Italy), revenue grew by 7.1 percent on both a reported basis and at constant exchange rates. Along with a general rise in prices, volumes for the region were upbeat, fuelled by strong momentum in the wine market in which Verallia enjoys leading positions.
  • In Northern and Eastern Europe (NEE, comprising Germany, Russia, Ukraine and Poland), reported revenue climbed 11 percent; changes in exchange rates had a slightly negative impact of 0.7 percent related mainly to the depreciation of the Russian ruble, partly offset by small gains in the Ukrainian hryvnia against the euro. At constant exchange rates, NEE delivered 11.7 percent revenue growth, spurred by the volumes in all countries and across all product ranges. Selling price increases are being implemented as expected to compensate cost inflation especially on the energy.
  • In Latin America (comprising Brazil, Argentina and Chile), the 4.3 percent decline in reported revenue results from the further depreciation in currencies in the region, in particular the Argentine peso.
    At constant exchange rates, Latin America actually delivered strong 26.4 percent growth on the back of good sales momentum, especially in Brazil, and a strong resilience in Argentina. The policy of increasing selling prices held firm in a highly inflationary environment, chiefly in Argentina which is still considered a hyper-inflationary economy, requiring application of IAS 29, consistently with FY 2018. The closure of the historic São Paolo site and the start‐up of the new plant in Jacutinga, (State of Minas Gerais, Brazil) were a success.

Adjusted EBITDA grew sharply, up 18.8 percent (up 22.3 percent at constant exchange rates) to 142 million EUR, driven by robust revenue growth coupled with a continued improvement in plants’ productivity. The impact of the first application of IFRS 16 represented 5.5 million EUR on the adjusted EBITDA in Q1 2019. Adjusted EBITDA margin increased by 230 bps, including 90 bps due to the IFRS 16 impact, reaching 22.5 percent.

Net income improved strongly to 27.4 million EUR, compared to 10.4 million EUR in Q1 2018, thanks to the increase in adjusted EBITDA and finance costs decreasing from (25.4) million EUR in Q1 2018 to (21.9) million EUR in Q1 2019.

Operating cash flow came in higher at 37.4 million EUR versus (3.3) million EUR in first‐quarter 2018, buoyed up by strong growth in adjusted EBITDA and lower capex compared to the prior‐year period, mainly due to a different capex phasing than in 2018.

Verallia continued to deleverage, and net debt fell to 1,791 million EUR at March 31, 2019 or 3.1x adjusted EBITDA for the past 12 months (see appendices), versus 3.6x at end‐March 2018 (the net debt excluding IFRS 16 would have been 1,733 million EUR leading to similar leverage of 3.1x adjusted EBITDA for the past 12 months).
On March 28, 2019, Verallia made a voluntary early repayment of 150 million EUR on its 1,275 million EUR Term Loan B facility which will be due in October 2022. This operation will result in yearly interest savings of 4 million EUR. Following the repayment, Verallia still enjoys good levels of liquidity at 352 million EUR.
Verallia also welcomed the decision by the credit agency S&P’s to upgrade the Group’s long‐term credit rating from “B” to “B+” in acknowledgement of its ability to unlock substantial EBITDA margins and reduce costs while generating high levels of cash flow.

Cash conversion also increased from 58 percent to 78 percent thanks to adjusted EBITDA growth as well as lower capex than in the prior‐year period. Cash conversion over the rest of 2019 should continue to outperform the prior‐year period, albeit to a lesser extent due to the capex different phasing in Q1.

Outlook
After this good start to the year, Verallia confirms the outlook announced in February for full‐year 2019. The Group continues to roll out its strategy, which should allow it to deliver on the following objectives: (i) organic growth in revenue and adjusted EBITDA; (ii) additional adjusted EBITDA margin growth; (iii) disciplined capex spending with recurring capex of around 8 percent of revenue (excluding IFRS 16); and (iv) stronger cash flow generation.

Verallia and its shareholders are considering an Initial Public Offering of the Group on Euronext Paris in 2019 to support the Group’s growth strategy, subject to market conditions.

Michel Giannuzzi, CEO of Verallia, declared, “I am very pleased with our performance in this first quarter, shaped by strong revenue growth and continued improvement of the Group’s profitability. We intend to continue improving our performance over full‐year 2019 and beyond. Verallia and its shareholders are considering an Initial Public Offering of the Group on Euronext Paris in 2019. This would enable Verallia to increase its visibility vis‐à‐vis its customers and partners, and would give it the flexibility it needs to pursue any future growth opportunities”.

Robert Seminara, Senior Partner of Apollo, commented, “An Initial Public Offering would be one of the potential next steps in Verallia’s development. Apollo would remain a shareholder in the Company to support Verallia’s strategy of growth and operational excellence as it continues its transformational journey.”

For more information: www.verallia.com

Verallia Investor Relations contact: Alexandra Baubigeat Boucheron ‐ alexandra.baubigeat‐boucheron@verallia.com