• Revenue: EUR1.765 billion, down 17.6% year-over-year.

• Organic Growth: -10.4%.

• Adjusted EBITDA: EUR431 million, down 34.6% year-over-year.

• EBITDA Margin: 24.4%.

• Net Income: EUR123 million.

• Leverage: 1.9, compared to 1.2 at the end of 2023.

• CapEx: 8.9% of total sales.

• Free Cash Flow: Negative EUR49.2 million.

• Net Debt: EUR1.6457 billion.

• Dividend Payment: EUR252 million in Q2.

• Warning! GuruFocus has detected 8 Warning Signs with ITVPF.

Release Date: July 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Verallia (VRLAF) completed the acquisition of Vidrala in Italy, expanding its offer to the food and beverage industry in Italy.

• Despite challenging market conditions, Verallia (VRLAF) maintained a solid EBITDA margin performance of 24.4%.

• The company is implementing a strong productivity action plan, achieving a 2.6% cash production cost reduction in H1.

• Verallia (VRLAF) is actively managing capacity and inventory, running at 10% capacity down for inventory control.

• The company is advancing its ESG decarbonation roadmap with significant investments in electric and hybrid furnaces.

Negative Points

• Verallia (VRLAF) reported a revenue decline of 17.6% compared to the previous year, with an organic growth of minus 10.4%.

• The company experienced a negative price/mix impact, with a significant down-trading effect in the market.

• Verallia (VRLAF) faced a negative spread in EBITDA due to price decreases and mix effects.

• The company is dealing with a prolonged destocking period, impacting volumes and market predictability.

• Free cash flow was negative in the first half of the year, although a positive cash flow is expected in the second half.

Q & A Highlights

Q: How do you think about the price cost spread on EBITDA for this year and next year? Is there a risk of a negative carryover of prices into next year? A: (Nathalie Delbreuve, CFO) The spread pillar in the EBITDA bridge is negative this year, mainly due to the carryover of price increases from the previous year. This was anticipated from the start of the year. For 2025, while it's early to project, the carryover impact from prices will be much lower, and we expect a more positive position on energy costs as hedging impacts decrease.

Q: Can you provide insights on recent volume trends, particularly in Europe? A: (Patrice Lucas, CEO) We confirm a gradual recovery in volumes, although at a slower pace than initially expected. This is mainly due to lower consumption, delaying the destocking endpoint. However, July trends show volumes moving in a positive direction compared to last year.

Q: Are there any updates on the upcoming capacity increases at Campo Bom and Pescia? A: (Patrice Lucas, CEO) The Campo Bom 2 project, initially planned for the end of this year, will be delayed to Q2 2025. The Pescia project, initially set for Q2 2025, might also be delayed by a few months. We are managing capacity according to demand to control inventory and optimize fixed costs.

Q: What is the impact of customer inventories on your operations? A: (Patrice Lucas, CEO) The inventory issue is more between our customers and intermediaries rather than between us and our customers. There is minimal inventory between us and our customers. The delay in destocking is due to lower-than-expected end consumption.

Q: Can you elaborate on the negative mix effect and its impact on pricing? A: (Nathalie Delbreuve, CFO) The negative mix effect is due to down trading, as inflation and reduced purchasing power have led to a shift in consumption patterns. This has resulted in a negative mix impact this year, contrasting with previous years where mix was a positive contributor. We expect premiumization to return as a trend, contributing positively in the future.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.