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Hello, and welcome to the Verallia Q3 2021 Financial Results Call. [Operator Instructions] I would now like to hand over to our hosts, Michel Giannuzzi and Nathalie Delbreuve, CFO, to begin the call. Thank you.
Thank you very much, and good morning, everyone, and thank you very much for attending this call on our first 9 months of 2021 results. Let's start first with just a quick reminder about Verallia Group. Verallia, as you know, is a global leader in the glass packaging industry. We are #1 in Europe, and Europe represented last year, 90% of the higher sales. We are #2 in Latin America that represented 10% of our sales last year, and we are #3 by size in the world. If you see on the left-hand side of the chart, we address all end market segments in a quite balanced way, although we have a strong focus on the wine and sparkling wine business due to our historical strong presence in the 3 largest wine producing countries in the world, namely Italy, France and Spain, but we address all end segments of the market, which is providing a balanced and diversified end market exposure. If we look at our footprint, we are present in 11 different countries with 32 glass production plant. We also have 9 collect recycling centers. The collect is the used glass that is being recycled in our [ facilities ]. We have 3 decoration plants also that are enabling us to provide additional services to our customers and we employ around 10,000 people in 11 different countries. This is a mass production industry. As you can see, we produce 18 billion bottles and jars every year. So last but not least, you see on the top right-hand corner of the chart of our 2021 guidance, which we have confirmed during this press release today, it's about achieving EUR 2.6 billion sales with volumes back in line with 2019 levels, and we are targeting an adjusted EBITDA of around EUR 675 million. Now moving to the key highlights of the quarter. I think the most important thing for the quarter was the Capital Market Day that we held on October 7, which I will summarize in a few slides for some of you who didn't look at it, although the full presentation is available on our website. So I think what is interesting to start with is how we run this business and our beliefs in what is good for Verallia and all the stakeholders around the company. We strongly believe that our corporate purpose, which you know is reimagine glass for a sustainable future, should drive our strategy. And this is taking into account very seriously our environmental and social responsibility. We also strongly believe that we should deliver a sustainable and profitable growth, and this is the only way to benefit to all stakeholders, I mean customers, employees and shareholders. We believe in our organizational model, which is lean, agile and decentralized to be close to our customers, and we empower our teams to best serve our customers. Very important is our operational excellence focus that is helping create value. And we believe that this is more important than size. And this is shaping our straightforward and very focused strategy. Last but not least, we strongly also believe in the alignment between all stakeholders and the coherence of what we do, starting with our corporate purpose, but including our strategy and action plans, and this is key to our success. As a consequence of all these things, we are investors and we run this company in a long-term view as long-term owners. And finally, as you know, this is a very cash-generative business, we aim at returning excess cash to our shareholders through dividend increase and share buybacks. Now very importantly, as I said, we have communicated in January this year, our ambition to be in line with the COP21 objectives which is to limit global warming below -- well below 2 degrees C. And this objective in January has been validated by science-based target initiatives. And this translated into our commitment to reduce our CO2 emissions for Scope 1 and Scope 2 by 27.5% in 2030 compared to 2019. This was clearly detailed in a very strong and precise road map that has been presented in January, which is also available on our website. And this is basically focusing on 3 main levers. The shift of raw material mix and to have less carbonated raw materials, including a strong increase of collect use. The second lever is to reduce our energy consumptions in our operations through mostly technical innovations and investments. And the third lever was to increase the share of renewable energy. Now based on the fact that the deterioration of the climate is evident, lastly by the report of the IPCC in August this year, we decided in October during the Capital Market Day, to raise our ambition to a new level of reducing and limiting the global warming to only 1.5 degrees C. This is a significant step-up in our ambition, which will mean for Verallia to reduce our CO2 emissions by 46% in 2030 compared to 2019. We will keep our Scope 3 emissions also below 40% of total emissions, which means more or less the same level of reduction for our Scope 3 emissions, around 45% reduction for the Scope 3 emissions. And more longer term, we believe that we should be able to achieve net 0 impact on the CO2 by 2050. The difference between the initial objectives of January and the new targets of October is based on the fact that in January, our road map was only taking into account existing technologies and non, I would say, action plans and defined action plans to reach this 27.5% reduction. The new ambition to limit our global warming to only 1.5 degree C is taking into account future technologies that in the decade should be made available and namely things like the better use of hydrogen, for example, like the new furnace of the future that is currently being developed in a consortium with other industrial glass-making companies at European level, with also a stronger share of renewable energies. All this is included in our new ambition action plan. And of course, there is quite a lot of work still to do to have a very precise road map on this topic. The strategy that we also presented during the Capital Market Day has not very much changed since the IPO 2 years ago. I mean -- and by the way, I should have started by reminding you that the reason for this Capital Market Day in October is because we achieved 1 year in advance, the midterm objective that we set at the time of the IPO. So we are not changing a winning strategy, which is basically based on 4 pillars. The first pillar is to pursue disciplined growth, and this includes strategic investments, both for decarbonating our industry and to potentially acquire new companies and extend our perimeter. The second pillar is to keep increasing our operational excellence as we've done in the last few years. The third pillar is to keep investing wisely for a sustainable future. I remind you that on average for the last 5 years, we've invested 9.8% of our sales in capital investments in the company. And the fourth pillar is to keep developing a strong entrepreneurial culture in our company. And all this is aiming at developing a profitable, inclusive and durable growth. Now financially, how does it translate into new midterm objectives. First of all, the organic growth sales that we are targeting for the next 3 years will be between 4% to 6% organic growth per annum. This will come mostly -- half, sorry, of it would be coming from volume and the other half from price and mix. This is assuming that inflation, which is expected to be strong next year, will start slowing down in 2023 and after. We are targeting at the end of the period in 2024 to reach between 28% to 30% EBITDA margin. This will be achieved through a positive price and cost spread, which you know is 1 of our important pillar in our strategy and also through the second very important pillar, which is achieving every year at least 2% of reduction of our production cash cost, which is generating EUR 35 million improvement on our EBITDA every year. The third objective is on cash flow. This is a very cash-generative business, and we expect to reach around EUR 900 million of [ cumulated ] cash over the next 3 years. And this is despite strong investments that will be around 10% of our sales during the period, and that includes the CO2-related CapEx and also 3 new furnaces, 1 per year that we are going to build during the period, 2 in Latin America and Brazil and 1 in Italy in 2024. As a consequence of these strong improvements, the earnings per share should reach around EUR 3 in 2024, excluding the PPA from the Saint-Gobain divestiture. And this is based on the tax -- sorry, tax -- effective tax rate of around 27% and a cost of financing which is around 2%. And last but not least, the shareholder return policy is also very clear. We expect to grow our dividend per share around 10% per annum, in line with the net income growth, which will be more than 10% every year. And potentially, if we have excess cash, as I explained before, we will consider accretive share buybacks. This being said, let's now focus on the highlights of the financial results and the highlights of the first 9 months. The revenue for the first 9 months increased 3.4%, but it means in reality of 5.8% organic growth. Our Q3 revenue grew 2%, and this also was a 2.1% organic growth, which I remind you is a strong performance given the fact that in Q3 last year, we had an 8.9% increase compared to 2019. So we are comparing ourselves with a very strong and very difficult base of 2020, and we are pleased to report a good organic growth in the quarter. The adjusted EBITDA improved to EUR 528 million for the first 9 months, which is an 11.2% increase and our margin reached 26% -- 26.1% compared to 24.3% last year for the same period. We kept deleveraging the company with a reduction of our net debt, which now is reaching a leverage of 1.8x the last 12 months adjusted EBITDA compared to 2.2 at the end of September last year. And this includes -- despite, I would say, the dividend that was around EUR 119 million this year and the share buyback that we did also 2x this year, which was around EUR 109 million altogether. And as we anticipated and as we communicated before, during the first 9 months of the year, we have reached the same level or slightly above 2019 levels in terms of volumes and revenue. So this introduction being made, I will now hand over to Nathalie Delbreuve, the Group CFO, and she will present to you in more detail the financial results.
Thank you very much, Michel, and good morning to you all. So let's walk through the year-to-date September results. So we have an organic growth indeed of 5.8% that I will present to you in this usual bridge from our 9 months 2020 to 9 months 2021. We have seen growing volumes over these 9 months. And as Michel said, this is despite a very strong comparative basis, especially in the third quarter 2020. If you remember, after second quarter in 2020, where with the first lockdown, we had seen a decrease in sales, we had seen a very strong rebound last year. So the fact that we have a positive organic growth in Q3, now with this comparison basis, high is very good. And we see, as we anticipated, that we are now back to 2019 levels, that is pre-COVID volumes. The price/mix is positive with EUR 78.3 million, significantly positive, contributing to our growth. Sales prices are flat in Europe, and in Latin America they follow the cost inflation, so they are increasing. And we still have a strong contribution from the mix at group level. Now the exchange rates are contributing negatively, but this impact is mostly stemming from H1. It's pretty neutral in the third quarter. If we comment shortly by region in South and West Europe, sales are up over the 9 months with some slight slowdown in the third quarter, but really due to the high comparisons. So volumes are still strong and market is dynamic. In North and Eastern Europe, we have presented to you in the first half year a reduction in sales but with improvements in the second quarter. And we see now indeed that the third quarter is showing growth versus previous year, so improvements. And in Latin America, continued strong momentum in all the countries, the market is in growth dynamic. So this is leading to a sustained adjusted EBITDA growth and margin improvement. So our adjusted EBITDA is EUR 528 million for the period, and a 26.1% margin. So you can see on this bridge that the activity pillar is now positive. We have the positive volume impact, we just commented. And we have a lower than last year destocking impact, we have been stabilizing our inventories in the third quarter. The positive -- the price mix cost spread is significantly positive, contributing to our EBITDA. We are seeing now a negative price cost spread in the third quarter, the cost inflation has been significant in the third quarter, but still a positive spread, with a positive mix contribution. The net productivity continues to deliver. We have 2.4% production cash cost reduction for the period. In the foreign exchange, you see a negative number, but mostly coming from H1. And in the other, the minus EUR 4.5 million, 1 significant item for the third quarter is impact of a fire that we had in Argentina, where we have posted insurance cost for EUR 3.5 million. So it means our adjusted EBITDA margin is up by 183 bps. Now let's look at the leverage. We have continued to deleverage the company with 1.8x at the end of September. And this includes, as Michel said, payments of dividends and share buyback for EUR 109 million. The decrease in this leverage is also allowing us to decrease our interest cash out as we have [ rad said ] on our term loan, which we are benefiting from. Now if we look at the fundings and our detail of fundings and maturities, you can see in this table, in the first line, our sustainability-linked bond that we issued in May and that is maturing in May 2028, so a 7-year bond for EUR 500 million. The proceeds of this bond helped us reduce the term loan. And here, we are diversifying sourcing but also lengthening the maturities of our funding and this with a very low coupon at 1.625. Our available liquidity is very comfortable with EUR 930 million at the end of September. And considering the success of our bond, our first bond, we are continue to consider further diversification of our sources -- financing sources.
Thank you very much, Nathalie. So as a conclusion, after a very strong quarter -- third quarter, first of all, we -- and despite the very short-term inflationary context and environment, we are confirming our 2021 guidance, which I remind you is to reach around EUR 675 million of EBITDA this year for EUR 2.6 billion sales. Now more longer term, the summary is that our winning strategy for profitable, inclusive and durable growth is working well and will be continued in the next 3 years with the 4 pillars I've already explained. And you've seen also that for each of the pillars, we are precising or giving a more precise guidance about what does it mean in terms of financial results. So I will not comment it again. But everything we do is really centered around our corporate purpose, which is to reimagine glass for a sustainable future and at the end of the day, reach profitable, inclusive and durable growth. So thank you very much for your attention. And now I think we will take your questions.
[Operator Instructions] Our first question this morning comes from the line of Matthias Pfeifenberger from Deutsche Bank.
The first one is a bit on Q4 in terms of price/cost mix, what are the dynamics versus last year? And also what's the plan for further restructuring potentially? And the second question is more on 2022. How are the pricing negotiations going so far? And how do you think about margins next year when on the 1 hand, you have very ambitious medium-term targets but also just passing on the cost inflation has a technical margin diluting effect. So what's your initial thoughts on pricing and margins for next year?
Thank you, Matthias. I will take the 2 first questions. So first question on Q4 price/cost mix evolution. As we commented, we have seen the spreads and the price cost turning slightly negative in the third quarter with inflation, especially for us on packaging and transport as we are quite almost well hedged on energy. In Q4, we see -- we include the same in our guidance, meaning a negative price/cost spread. And with 2 comments here. One is that the comparison basis is very low. We were exactly in the opposite last year with deflation on cost. And second, that indeed we see sequentially cost inflation still increasing, again, on packaging and transportation since H1 and also on the rest, especially on energy on the part that is not fully hedged for. So we see a negative price cost spread in our lending for the year-end. This is included in our guidance. And on some other parts, we have some other stuff to -- other pillars to compensate. For example, you've seen that our PAP is delivering above 2%, that is also contributing to the year-end performance.
Okay. For 2022, Matthias, we are just entering, as we speak, in the price negotiations in Europe, given the fact that usually they take place between November and let's say, February, March, for the last -- for most of the negotiations. Clearly, we are going to request a significant price increases compared to what the [ figures ] we used to ask for in the past. I would like just to remind everyone that, on average, this year in Europe, prices have been maintained flat. Therefore, the strong price increase that we need to request to our customers to cover for the inflation of costs is to be considered over almost a 2 year period. Now technically speaking, you are perfectly right, Matthias. If we increase prices just make the math, if our objective is always to maintain a positive spread, which means that our pricing is at least at the level of the -- or matching or covering, if you want, the inflation of costs. So if we, for example, look for a price increase that covers the cost increase, and that is of 5%, for example, price increase this has a mechanical dilutive effect on the margin. The margin is dropping by 1 point, okay? 100 basis points. So it's too early to say exactly what will be the impact of this strong price increases next year on the margin because there will be other factors like, of course, the growth of the business like the PAP next year. And as you know, we committed to increase -- to reduce sorry, our cost base by 2% of production cash cost every year. So therefore, this is also, as you know, by itself, helping improving the margin by more than 100 basis points. So we are in the process of, of course, putting everything together in our next year's budget and we will complete the exercise by the end of the year and will provide the market with the guidance for 2022 when we publish our full year results in February next year. So that will be the time when we provide some guidance about EBITDA and potentially EBITDA margin next year.
Yes. Thanks for sharing your thoughts and just a small add on the restocking. Will that continue in the fourth quarter?
Yes, exactly. On the restocking, so we have been able to -- we have stabilized, I would say, the inventories at group level in the third quarter. Not yet rebuilding inventories, which is -- the reason being that the market is bullish, and we are still short of glass. So we should rebuild in the fourth quarter partially our inventories. But indeed, there will be further restocking in 2022, we think maybe mainly in the second half of the year, and this will have a negative impact on our cash generation next year.
Our next caller today is Lars Kjellberg from Credit Suisse.
You delivered of course a decent growth on a very difficult comp from Q3. Could you remind us what sort of comp we're up against in Q4 in terms of underlying volumes? That's my first question, and I think Matthias covered most of the others, but may I have a follow-up as well.
Okay. Well, Lars for Q4, I mean, Q4 last year started to normalize a little more compared to very hectic Q2 and Q3 because if you recall, last year, our Q4 organic growth was 1.7%, sorry. 1.7%. And therefore, this is much more in line with what we used to see in terms of organic growth. So we -- right now, are still enjoying as Nathalie just said a few minutes ago, a very strong market, which to some extent is not allowing us to restock a lot to rebuild our inventory as we would like to, which is, to some extent, a good news. Now we are expecting, as usual, because there is some kind of seasonality that Q4 is less -- the size of the Q4 impact on the full year is less than the other quarters. So we have a weaker, by definition, by seasonality, a weaker Q4. But so far, we see still a strong demand. And as you know, right now, the limit we have is our production capacity. We are producing everything we can. So we are working at full speed, full capacity. And therefore, the limit is today the production capacity.
One of your competitors talked about very strong growth in next year for various products that you're most engaged, including Prosecco Champagne, but he also mentioned Bordeaux wines. Is that something you would agree with as a positive for next year considering the frost bite et cetera earlier in the current year? Does that make sense?
Well, yes, to some extent, but not for everything you've said. So let's be clear. When you look at our French market, clearly the champagne which was down last year by quite a significant amount, because people were not partying when they were in -- locked at home. When you look at champagne, the exports in the first half of the year have grown up by 48% according to the official sources. And this was following a year where last year, the exports were down 18%. So a strong rebound on champagne, and which means that the champagne that was expecting [ full year ] to recover the highest record level of 2019, will recover already this year the highest level. So champagne is doing extremely well. And that's, of course, from a premium point of view, good news for us. The second thing which is -- I would agree with is the spirits, especially in France, the spirits industry and especially the cognac industry is doing extremely well. At the end of September, the industry, according to the national professional information, the cognac volumes have increased 25% at the end of September for the first 9 months compared to last year with a strong pull from the U.S.A. and Asia. And even more in the high-end cognac, the VSOP, which is growing by 38%. Again, premiumization trend that we mentioned before in our Capital Market Day is being recognized through those numbers. The 1 thing which I would less agree with is the wine business. You know that the harvest this year is the lowest since many, many years in France, due to the frost we had in spring, in April; due to also some diseases in the wine, so in wine, I would say grapes. And therefore, the volume of wine that will be produced this year will be certainly much lower than last year. Here, we think that the difference will be become -- between, sorry, the entry wines and the premium wines. For sure, it seems that the wine quality will be good. And therefore, the premium Bordeaux that you mentioned are going to do very well. And by the fact -- by the way, sorry, the fact that taxes in the U.S. against the French wines, or the ones from Europe except Italy, have been dropped in the first quarter this year is also boosting the exports of premium wines to the U.S., like the Bordeaux you mentioned. However, altogether, there will be probably a bit less wine especially in the entry segment being bottled this year because of the very poor harvest that we are seeing this year.
One final question for me. If you want to look at your sort of midterm 4% to 6% organic growth, half of which from volumes considering your capacity constraints that you currently have, is that volume component like somewhat back-end loaded because you need to build out your capabilities to deliver that sort of 2% to 3% volume growth?
No. The reason why, I mean, everything is coherent. I mean at the same time we have -- we are looking for I would say, a good volume growth in the coming years, we are also investing to increasing -- to increase our capacity. We are building 1 furnace every year in the next 3 years. We currently have 58 furnaces. So 1 furnace every year is just a bit less of 2% capacity increase. On the top of this, of course, we have, as usual, and as most companies, we are doing our own work to increase capacity marginally through debottlenecking activities or full production improvements, which are giving also some marginal increase of capacity. So the combination of the marginal capacity increase we have thanks to the regular and ongoing job we are doing in our factories, and the additional furnace we build every year in the next 3 years, is giving us the capacity to support our strategy of growth.
Our next questions come from the line of Francisco Ruiz from Exane.
My first question is regarding stocks, mainly on the channel and on the industry as a whole, no? So everybody is reporting they are playing at full capacity. And also, we have some comments on beverages companies that they are I mean, running out of glass. So how do you see the demand or the capacity to attend to this demand in the coming semesters? And what's your level of utilization capacity at this moment? The second question is a follow-up on 1 of the previous questions. And if you could give us some I mean, some flavor on how the negotiations are by regions. I mean if you are finding more difficulties to increase prices in 1 region versus others?
Paco, thank you very much for your questions. So regarding the stock, it's true that the capacity shortage that we experience at Verallia is not just Verallia. I mean the whole, at least in Europe -- and in Latin America, by the way -- the whole regions in which we are present in are showing some capacity constraints, and this is true for our competitors as well. As you know, it takes 18 months minimum to build new furnaces. So -- and we know more or less what's going to happen in terms of new capacity being put in the market in the next 18 months. This is something we have reported during our Capital Markets Day. Therefore, the market will be certainly under some kind of pressure or the balance will be barely positive in terms of excess capacity in the next few years, I mean, at least next 18 months, given the strength of the market. And we recognize that it is creating some difficulties to our customers. We apologize for this. By the way, 1 thing also which has changed after the pandemic is the very difficult forecast ability of our customers which by itself is creating also some disruptions in the production factories, because they have to change over jobs more often. And we are very flexible, but this is also not playing in favor of increasing capacity. It's just the opposite. It's reducing the capacity because when you make job changes, during the time you make job changes, you don't produce. So -- and this, I think, is something that the whole market is seeing right now. So I think this tension on the capacity on the market is unfortunately going to last for quite some time and certainly at this point for next year. That's what we see. Now regarding negotiations, I repeat, it's very early to say, except Latin America, where we are permanently renegotiating as we see fit our prices. But in Europe, you know very well that we just entered in the negotiation period. So it's too early to say what will be the reaction of the customers. But I repeat 1 more time. Yes, we are going to ask for significant price increases. However, I would like to remind you that this year, on average in Europe, there has been no price increase at all. And in some countries, we even have decreased our prices because our cost base was deflating last year. So as usual, I mean, negotiations are never easy, but that's the job of our sales people to find the right argument.
Okay. Can I do a follow-up on the shortage capacity, could this bring to an improvement on mix if you prioritize those higher-margin product versus other products? Or you are continue delivering more or less in line with your sales rep down right now?
No, that's a good point, Paco, I think you know that this year, we enjoyed -- you've seen that in the bridge from Nathalie, we've enjoyed a very strong mix impact. Part of it is due to the rebound of the premium segments like what I just said about champagne or cognac. So yes, there is a rebound of the most I would say, premium products and therefore, the biggest margin products that we sell. But part of it also is just the fact that we -- the lack of capacity we had, of course, we favored the best products and the best customers margin -- from a margin point of view. So we will keep -- I think in the future, we will keep seeing the positive impact of the premiumization, which is not huge, but it is positive year-on-year because I think this trend, which I explained several times, is a long-term trend, and we expect to see this positive mix improving going forward. However, on the opposite next year, especially probably in H2, we would probably not have the same positive impact due to the fact that we are going to serve now better all customers, including the lower-margin products that were somehow sacrificed this year.
We now have questions from the line of Charles Scotti from Kepler.
Yes. Three questions from my side. The first one, the shortage of glass. Is it because of lack of crushing capacity or because there is tension in the supply of some raw materials? And I guess this shortage of glass is creating a favorable environment to raise prices within it [ in Q ] And second question on the Q4 implied by your full year guidance, it suggests a low single-digit sales drop and 70 basis point margin contraction. So what explains this cautiousness for the balance of the year? And then third question on the profitability that I guess you won't give any specific figures, but is it fair to assume kind of a plateau in 2022 and more back-end loaded profitability increase throughout your 2024 strategic plan?
Charlie, and thank you also for your questions. Regarding the first one, the shortage of glass. Yes, clearly, it's linked to the lack of capacity of the market. I mean the whole market has been really taken by surprise with the strong rebound. First of all, the fact that the drop of demand was very concentrated in Q2 last year. But then after as soon as the hotels, cafe and restaurants reopened in Q3, the rebound was really unexpected and at a very high level, and has been strong since. So this is clearly this shortage of glass is really linked to the lack of capacity, not to the lack of supply. The raw material we get to produce glass is we need to produce glass through our collect, which is by definition available in the market as people consume, and mostly sand and soda ash and we've not experienced any shortage of raw materials. So we've had, although especially in Q3, some tensions on transportation, which delayed some deliveries, some shipments to our customers. But this was a very short-term impact of some service being impacted by lack of trucks and lack of transportation companies, the ability, but not impacting really the sales, just impacting the service -- the quality of service that we are offering to our customers.
About Q4 and your comments, Charles. In fact, important component in our Q4 is inflation on cost. We have 10% of our costs are packaging and transportation where we have seen inflation, and we are not 100%, 100% hedged on energy even if we are well covered. And the gap again versus previous year is significantly negative as the comparison basis was on the opposite way. So that is the main impact that we see in Q4 before we adjust prices in Europe. As you know, it is annually done and the negotiations are just starting for 2022. Now is 2022 thing is a plateau? I mean, for 2022, we intend to have our usual pillars delivering. But then as Michel mentioned already, there will be some dilution in the margin due to the size of the inflation and then price increase. So that will be the main specific impact that, let's say, we are not used to in the past year.
So don't underinterpret Nathalie's comment. She's just mentioning the technical dilution of the margin due to the price increase, but I repeat 1 more time. We are just making our budget as we speak. And this will be offset by growth and PAP. Therefore, at the end of the day, when we have the positive contribution of growth, the positive contribution of PAP, the spread, which will be 0 plus, which is our goal but dilutive. I don't know if the whole -- the summary, if you count all these factors, is making the margin plateauing next year or slightly increasing or hopefully, I hope it won't be decreasing. But certainly, one thing for sure is we are going to have a headwind in terms of margin expansion next year, which, by the way, will revert the year after because if, as we see, the energy prices are going down in 2023, then there will be normally everything being stabilized by 2023, there will be very little price increase in 2023, hopefully, for our customers. And therefore, we won't have this margin dilution effect in 2023, which gives us more opportunity to catch up on margin expansion in 2023 and 2024. So that's the way to look at it. In other words, to say differently, we are 26% EBITDA margin today. We are aiming more than 28% by 2024, but it won't be linear. It will be less next year and more the years after, just for technical reasons as you can figure out.
[Operator Instructions] Our next questions come from the line of Peter Testa from One Investments.
I have 3, please. Just on the price mix cost question. There are 2 parts. One, I was wondering if you could give us a sense if there's any difference between the 3 regions in this regard. I mean you don't need to be specific, but whether they're certain positive or negative. And then as far as the timing of the price, as you talked about the negotiations start now and finish in January, whatever. If you can give a sense that based upon your understanding how this actually works, do you get the full price increase in Q1? Or is it phased through Q1? Then I had a question on the activity bridge -- or the EBITDA bridge. Firstly, just looking at activity, is it a good idea to essentially look at this on a 2-year basis, given all the volatility and try to understand that bridge on a 2-year basis, so that it should be kind of flat or somewhat positive on a 2-year basis on EBITDA? Just to help us. And then -- the last is a small question. On the Other line on the EBITDA bridge, it's I think minus 5.9%. I was wondering if there's any particular reason for that and any view on Q4.
Okay. So first question, I'll answer the first question on the price mix cost per region. First, we have 10% of our business in Latin America. And there, as we said, the -- there is recurring inflation throughout the year and price evolution throughout the year. So the price dynamic is different in Latin America. But then the price mix cost spread is positive in Latin America, as our teams are following inflation with prices. And the mix has been contributing also in Latin America. Now I would say that the mix is especially helping in South and West Europe. And there, I would come to Michel's comments on champagne, on cognac evolution this year. But if you look at regions this year, the mix has been contributing positively in all our regions.
Okay. So for your -- the second question regarding the timing picture. I repeat: Latin America, the price increases happen throughout the year whenever we negotiate. So usually, it happens the month after negotiation. And this can be done at any time during the year. In Argentina, for example, which you know is an hyperinflation country, we negotiate prices every month, and therefore every month the prices are changes -- are changing, sorry. In Europe, it's once a year. I would say most of our customers have their fiscal year starting in January. And therefore, most of them, the price increases are from January to December, applicable from January to December. Some customers have deferred, if you want, I would say, price implementations could be the first of April, usually first of the second quarter or in a very few cases, mid-year. But again, this is every year the same. We don't change the timing of the price negotiations from 1 year to the other. So it's very recurrent from 1 year to the other, which means that when you look at our bridges, it has -- the timing has no impact, if you want, on the bridge itself. Regarding the EBITDA bridge, I think probably this one...
Yes, I can take that. So your question was on -- is it fair to look at activity on a 2-year basis. If we do that, indeed, the volumes, as we say, we see that volumes are back to 2019 levels. And then the stock variation is really another negative component because we have today lower inventory -- inventories than what we had 2 years ago at the beginning of the year 2020. And this is a main differentiating factor if you look at the activity over 2 years. Now in the Other, in fact, in our year-end lending, I mean, we don't know yet. This even -- this other is a bit like items that are exceptional, I would say. So of course, we don't know what will happen in Q4. So I mean, we will have the same orders as we have at the end of September. And we are a bit prudent. We always take some impact to cover what could happen in Q4. But other than that, I cannot comment further.
Maybe, Peter, I can add just a few things. Exchange rates in Q4 based on the fact that most of the devaluation of the currencies took place in H2 last year. We don't -- as you've seen in Q3, there is very little exchange rate impact in Q3, and we don't expect exchange rates to have a meaningful impact in Q4. So that's 1 thing. And on the other, just to add on what Nathalie has said, as we speak today, we have no material positive or negative charge or profit in the Other column for Q4. So it doesn't mean that nothing will happen between now and the end of the year. But as we speak today, we have none.
Okay. And maybe just 1 last question, if I could, please. Is there anything different on the timing of the furnace refurbishment in the next 12 months versus what we've seen?
So a good question. I mean we are still reviewing the budget for next year, and therefore, the timing of those repairs for next year. But as we have seen, those last 2 years have been somehow quite unbalanced in terms of spread of repairs during the year. Although on the full year basis doesn't change, we are still talking about 6 to 7 furnace repairs every year, but we have not yet finalized exactly with each division the timing of the repairs for next year. So we'll come back to you probably in February with the exact shutdowns of the furnaces for reconstruction. But you should expect for the full year the same number of furnaces that we're going to repair next year.
We now have questions from the line of Jean-Francois Granjon from ODDO BHF.
Jean-Francois Granjon speaking. I just want to come back on the spread impact. Are you comfortable to confirm a positive spread impact next year despite the price increase for transport, et cetera, et cetera? You had mentioned a positive spread impact. So due to the fact that it will be probably more difficult to do during the second half of this year, do you confirm a positive spread impact next year?
Jean-Francois, thanks for the question. I repeat next year, this is the goal. I mean our strategy and that was, I would say, reiterated during the Capital Markets Day, is to go for a positive spread every year. Now when the prices are going down, it means that we decrease prices less than the deflation and where the -- sorry, when the costs are going down, we decrease our prices less than deflation and when the costs are increasing, we should increase our prices to cover for inflation. So I repeat one more time, our goal is to achieve a positive spread. We are working hard on it. All negotiations have just started. So it's too early to say whether this goal, which is ambitious given the strong price increases we need to get, will be achieved, but this is definitely the goal. So we will probably give you a bit more color again in February when we -- first of all, we'll have done most, at least the majority, of the negotiations. And secondly, we will have completed our budget and therefore have a better view of the full year, and we'll provide a guidance at this time. But yes, I confirm this is the goal.
We now have a follow-up question from the line of Lars Kjellberg from Credit Suisse.
I just wanted to clarify, you mentioned plateauing or maybe positive or negative. That was, of course, referring to margins as opposed to absolute EBITDA? Just to clarify.
Yes. No. I mean last -- for next year, I just wanted to -- again, if you take the 3 pillars of our bridge, EBITDA bridge, activity next year will be positive. We see some growth coming and we'll benefit, by the way, of the new capacity that we didn't have in Q1 this year with the 2 new furnaces built in Spain and Italy. So the first pillar, which is a combination of organic growth on the sales side, plus inventory valuation. We expect to stock next year, where we reduced our inventory this year and we expect to have growth again. So this pillar would be positive. And therefore, as a consequence, should contribute to higher, I would say, to better -- to a higher EBITDA. The second pillar, which is contributing to higher EBITDA is the PAP. And again, we commit to more than EUR 35 million of improvement next year. So this will increase EBITDA as well. The spread, we aim at a 0 plus spread which will not strongly contributory like this year to the EBITDA growth. And on the opposite, mechanically will have a dilution impact, because the price increases being more than 5% this will dilute the margin by around 1 point. I expect, but I repeat, it's not a commitment [ this stage ], I expect that altogether the margin will keep improving, will still improve, but probably not as strongly as were the improvements we've seen in the last few years. I mean, I'll just remind you that in the last 4 years, we improved our margin about 1 point every year. So right now, I don't see us improving another 1 point in 2022, given the dilutive which is a mechanical impact of the huge price increases. That's all we are saying. But again, it's too early, but I still hope that we're going to achieve a margin expansion next year. But more importantly, is the [ BD ] expansion.
Our final question today via the phone lines is a follow-up question from Matthias Pfeifenberger from Deutsche Bank.
Yes. Sorry to be nagging about this. And thanks for the statement on the margins for next year. You don't have to comment, but you can maybe tell me if my thought process is completely wrong. So supposedly, you're better hedged than some of your competitors on the energy side, and you will probably not show your strikes to the customers. So when your competitors move ahead with price increases, they will probably be higher than yours. And I don't know, I mean, just economically, there is no incentive to not price as much as possible, right? So if this works, I mean, is there really going to be a negative effect from the technicalities of the price increase? I mean, in a very positive scenario you could be pricing much more than you need, right?
I will tell you the way we operate. And thanks for asking the question, Matthias, because I think it's a very important question. The hedging policy is at Verallia, a pure financial tool to average out our energy costs, okay? We never speak to our customers or to our salespeople about the level of hedging that we have, because it's a pure financial tool. And because this tool and we've been extremely transparent on our hedging policy, and you know very well -- you know it very well because this hedging policy is very transparent. It's financial tool, but we are not -- and it's not speculative, which means that, by the way, in 2020, for example, when energy prices dropped quite significantly after the pandemic or during the pandemic, we -- our hedging positions was at loss, okay? And therefore, next year, we will be probably the opposite. Next year, we've hedged at lower prices than the current prices we have -- or we see. And therefore, we should have somehow a profit from hedging, okay? This is what we expect to see. But this is not what we tell our salespeople, it's not what we tell our customers, unless a few customers, but very few of them, at least 1 or 2 customers who want to edge, which we are prepared to hedge together, but this is not the case of the vast majority of all customers. At the end of the day, the price negotiations are based on the market -- available market information. And this allows me to be more precise of what I said during the Capital Market Day. If you remember, in October, when we take the future prices of energy that we saw in October for 2022, applying those prices -- the gross costs of energy of '22 that we saw in October to our P&L, this would mean a double-digit price increase to be neutral in terms of spread. Now and this, of course, is a spot price. You've seen that since October, the 2022 prices have gone down a little bit. So therefore, if our customers wait a little bit, and for example, some customers' negotiations will take place on -- in January or February, they will use probably the latest information available, which could be slightly lower than the information we had in October. You've seen that since October, energy prices have started to decrease a little bit, not too much, by the way, but a little bit. And we don't know what will be the energy prices in January. But if they are lower, maybe the double digit that we needed in October will be high single digit. So that's what you need to have in mind. And when we negotiate with the customers in January, they will not look at October prices, they will at January prices. Therefore, it's a kind of real-time negotiation that will take place on the information available at that time. What we have done for the last 3 years, is to hedge out our cost -- our energy cost in order for us to know exactly what is the bare minimum we need to cover our energy increase. And therefore, as you understood, the fact that we are hedged give us probably more safety margin than other companies that are not hedged, okay, or hedged differently. And I don't know how they are hedged. Now the dynamics in the marketplace regarding the fact that some competitors might ask price increases maximize their [ rise ], each company has its own strategy. We cannot comment about the pricing strategy of our competitors, and some of them will be more or less aggressive. Some of them will probably accept to reduce their margin. Some of them will try to maintain their margin by -- or at least a positive spread, some of them will accept the negative spread. This is their decision. Our policy is very clear. We are fighting internally and with our customers to maintain a positive spread. I hope I clarified the point because I think you're asking a very important question. And it's important to understand the way we manage the business in order to make the best estimate possible based on the information.
Yes. So thanks for that. The only point I would add is that Vidrala, for instance, talked about double-digit price increase already in the Q2 call, which was ahead of the majority of the spikes. That's when you talked about 5% to 10%. So I think the safety margins are maybe quite big.
No, I'm not sure about the comments of our competitor. I mean I don't know what they said because it's not public information, at least I have not seen it. But I repeat, what we tell to our customers is nothing to do with hedging. It's based on the prices that we see on the external available indexes and informations.
Yes. Spot prices. Thanks a lot for the clarity. I appreciate it a lot.
Thank you very much, everybody, for your questions today. All questions have now been answered. So I'd like to hand back to our hosts, Michel and Nathalie, for any concluding remarks.
Well, thank you all for attending this call. I think we are very pleased that we've been able to answer all your questions. And I look forward to meeting you at some point in time and stay safe and enjoy a good day. Bye-bye.
Bye-bye.
Thank you very much, everybody, for joining today's Verallia conference call. You may now disconnect your lines.