Verallia SAS
F:1VRA
Earnings Call Analysis
Q4-2023 Analysis
Verallia SAS
Verallia, a global leader in glass packaging, holds the top spot in Europe, is second in Latin America, and third overall worldwide. Their customer-centric strategy has led to a diverse portfolio, serving over 10,000 clients across various sectors. Notably, strategic moves, including the acquisition of Allied Glass, contributed to a shift in market segmentation, enhancing their spirits category from 13% to 16% in 2023. Their operational footprint boasts 34 plants and 63 furnaces across 12 countries, paired with an increased focus on cullet treatment facilities, evidenced by seven new acquisitions in Iberia. Financially, Verallia achieved its highest ever EBITDA in 2023, crossing EUR 1 billion—doubling since 2017. A strong cash performance combined with strategic deleveraging tactics also marked the year. With organic revenue growth at 21.4% and a robust adjusted EBITDA margin increase of 256 basis points to 28.4%, Verallia has shown notable productivity and efficiency gains.
Verallia continued to excel in ESG performance in 2023, maintaining an A- rating from CDP and receiving a B in water security. An MSCI rating upgrade to A underscores their commitment to sustainability. On carbon emissions, Verallia is on track with a 5.6% reduction from the previous year, working towards a 46% reduction target by 2024 compared to 2019. Investments in cullet demonstrate their dedication to the circular economy, with additional treatment centers acquired in Spain to support their sustainability goals. Verallia also has a keen eye on innovation, specifically in furnace technologies that will contribute to their decarbonization roadmap, with several launches planned through 2026. These environmental initiatives are expected to provide Verallia with a competitive edge and position them for long-term growth.
Despite a challenging market in 2023, especially during the latter half, Verallia's proactive measures ensured continued strong financial performance. The company successfully navigated through negative volume impacts in H2 by controlling production costs, and capitalizing on favorable spread contributions. Their financial structure was further strengthened with a EUR 1.1 billion refinancing, staving off significant maturities until 2027. This strategic decision-making has enabled Verallia to maintain a net debt leverage of 1.2x, even after significant cash returns to shareholders and continued investments to drive future growth.
Looking ahead, Verallia is preparing for a return to normalized market conditions in 2024. They anticipate volume recovery throughout the year, with the latter half expected to outperform H2 2023. To align with the current market reality, Verallia delayed additional capacity projects in Brazil and Italy by six and nine months, respectively. They forecast a sequential quarterly improvement starting in Q1 2024 and culminating in an adjusted EBITDA of EUR 1 billion for the year. These projections hinge on the assumption that consumer purchasing power will rebound as inflationary pressures subside, paving the way for a positive turn in the food and beverage industry and, consequently, for glass packaging. Verallia's strategic pillars are designed to ensure performance throughout these changing dynamics, with an emphasis on continued cost reduction and price alignment to maintain a stable EBITDA margin.
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Hello, and welcome to the Verallia Financial Results for Financial Year 2023. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded.
[Audio gap]
[Operator Instructions] I will now hand you over to your host, Patrice Lucas, the CEO, to begin today's conference. Thank you.
Good morning, everyone, and welcome to our full year 2023 results call. As usual, Nathalie and I will go through our presentation, and we'll have our Q&A session. I will share with you some key highlights. Nathalie will present in detail our numbers, and then I will present our guidance. To start over, just to remind you that Verallia is a global leader in glass packaging. We are #1 in Europe, #2 in Latin America and #3 worldwide. One of our strong assets is our customer base, more than 10,000, and the diversified and balanced market in which we operate. On this chart, you have an update of our ID card with our 2023 numbers compared to '22, still wine moved from 35% to 31%, minus 4 points. Spirits increased from 13% to 16%, plus 3 points, explained mostly by the acquisition of Allied Glass at the end of '22. And finally, Food increased by 1 point. We do operate in 12 countries with 34 plants and 63 furnaces, and we have increased our cullet treatment facilities from 12 to 19, plus 7, with the latest acquisitions in Iberia.
Let's move to key highlights over year. In 2023, we did a lot, and we had major achievements to well prepare our future. One is obviously our financial performance. EBITDA is the highest ever, crossing the bar of EUR 1 billion. And another way of looking at it is '23 EBITDA has been multiplied by 2 since 2017. And we are also able to generate again the strong cash performance and to continue deleveraging. Two, thanks to team commitment and agility, we are able to control our inventory level. Meaning in H1, we took the benefit of a low demand to rebuild our inventory at standard level, and we decided to adapt strongly in H2 to well prepare 2024, meaning we accepted to take some bad news on production costs, closing some lines. But we did also some smart management of furnace repair, anticipated the stop and/or delaying the restart on a case by case. Three, we also strengthened our financial structure with EUR 1.1 billion refinancing, meaning that we do not have any significant maturity until 2027. Four, we successfully integrated Allied Glass, implementing synergies and preparing the future, implementing our industrial standards. And for instance, PAT methodology is now in place in U.K. and first result should be recorded in 2024. Five, we kept our focus on implementing our ESG and decarbonation road map, a key lever and differentiator for the future, with new light products, and here, I'm referring to our Bordelaise Air product, 300-gram bottles, minus 17% less weight and CO2 than a standard bottle. And we also -- and we are also focused on our new furnace technologies.
So despite the challenging market environment in '23, especially in the second part of the year, we continued to deliver a strong performance. Revenue is up by plus 16.5% to EUR 3.904 billion; organic growth, plus 21.4%; adjusted EBITDA, EUR 1.108 billion, plus 28% compared to '22, with a margin of 28.4%, plus 256 bps compared to last year. Net income is at EUR 475 million, plus 33.7% compared to last year with an EPS of more than EUR 4 -- EUR 4.02. And we kept on deleveraging the company compared to 1.6 end of '22, we ended at 1.2 after all the cash out coming from dividends, share buybacks and the acquisition of our treatment centers. As far as dividends, so we are proposing a dividend of EUR 2.15, which is an increase of 54% compared to last year. And finally, on our extra financial indicators, we are keep on progressing on CO2 emission reduction, minus 5.6% compared to '22, which is giving us a cumulative reduction of 15.8% compared to 2019. And external cullet was still at high level at 54.1%, even if below last year. In 2023, we continued our progress in ESG performance, and it is rewarding to see, but it does materialize in the evolution of our ratings. With CDP first, we maintain our A- rating despite expectations increasing year after year. Also for the first time, we participated in the water security category, and we received a B rating now.
And finally, with MSCI, our rating has just been upgraded to A, showing our continuous progress over the past 4 years. All of that is just demonstrating the robustness of our actions and our commitment as a leader to pave the way on ESG. There is no doubt that by doing so, we are well positioned for future growth. On CO2 emissions reduction, we are on track and progressing towards our target of minus 46% compared to 2019. In '23, we reduced our Scope 1 and 2 emissions by 5.6% compared to '22. And compared to 2019, we are already at minus 15.8%. To do so, we continued to roll out our energy consumption reduction program. And please note that in '23, our share of low carbon electricity reached 60% compared to 50% in 2022. In 2023, we invested again in cullet. Glass packaging is having a significant advantage compared to our over substrates in the circular economy as we are closing the loop. And we are committed to play a key role on this matter. In LatAm, we invested in boxes to increase the collection rate, and our external cullet usage went up to 36%. In Western Europe, our usage percentage was down almost 2 points, but still at very high level. We invested in France and Germany to modernize our treatment facilities to better master quality and improve efficiency. And in Spain, we made the acquisition of 5 additional treatment facilities at the end of '23. This will support our sourcing plan to keep on increasing cullet rate usage. In 2023, we are also focused on innovation with our new furnace technologies, which are a key pillar in our decarbonation road map. And I can tell you that we are on track. We have 3 ongoing projects to replace traditional furnaces, and we'll have 2 launches in '24, our world premier in Cognac with our 100% electrical furnace to be launched in Q2, and our hybrid furnace at the end of '24 at Zaragoza. And as already communicated, we will launch at Saint Romain-le-Puy an hybrid furnace beginning of '26. About additional capacity. I want to share with you a decision we have made to adapt our plans to current market conditions. One, we confirm the additional capacity in Brazil at Campo Bom and Italy at Pescia. Industrial phase of these projects is going on. But we have decided to postpone the start of production. Campo Bom will be delayed by 6 months and will start in Q3 '24, and Pescia will be delayed by 9 months to start in Q2 '25. This is to reflect current market reality and to be ready for the second part of the year. Two, at the beginning of '23, we announced additional capacity in Spain in Montblanc for '25 and Italy for '26. I want to inform you that we have decided to put them on hold. We are still working on the technical studies. But technology and tightening will have to be confirmed. And as we speak, we do not see the need for a launch in Montblanc before Q1 '27. To conclude this first part, just want to remind you that we are on track, on track to deliver our targets of our '22-'24 midterm plan. On organic growth, we are above 20%, looking at '21-'23 CAGR compared to plus 4%, plus 6% announce, obviously, in a different configuration in a different environment. Adjusted EBITDA margin, we closed '23 at 28.4%, within the range provided at that moment. And please keep in mind that the implied -- the implied '24 EBITDA in euro was between EUR 800 million and EUR 900 million. Cumulative free cash flow, when we look at '22 plus '23, we are above EUR 700 million -- EUR 729 million, which is totally in line with the objective of EUR 900 million over 3 years. EPS, excluding the PPA, so '23 is showing a number of EUR 4.4 compared to a commitment of EUR 3 in '24. And about shareholder return policy, our commitment was an EPS growth of 10% or greater than 10% per annum.
And when we look at '21 to '24, we are at plus 31%. Share buyback, we did 1 in '22-'23, EUR 50 million. So again, we are ticking the box on these 5 KPIs. We are delivering our numbers. We are working the talk. So now I leave the floor to Nathalie to comment in detail our 2023 financial performance.
Thank you, Patrice, and good morning, good afternoon everyone. So let me lead through the 2023 numbers. And we start with the consolidated revenue. So you see on this chart, as usual, the bridge between our sales of 2022 that were EUR 3.352 billion, up to EUR 3.904 billion in 2023. So this represents an organic growth of 21.4%. And please keep in mind, I will come back to that, that we have Argentina in our perimeter and we have some specific impact this year with the devaluation. So excluding Argentina, organic growth is plus 14.3%. So in Q4, the organic growth for the group is plus 18.1%, but is very close to 2% if you exclude Argentina. Negative volume, so pillar that you see here, we have seen negative volume impact especially in H2. We commented in October that we were seeing a significant reduction in volumes, slower consumption and significant destocking down the chain in the whole second semester. If we look by product category and make some comments here. So the decline -- the stronger decline is in beer and to a lesser extent, in still wine. We see more resilience in the spirits in H1, especially, but we've seen also some reduction in H2. And in fact, over the full year, the more resilient segment categories are food jars, nonalcoholic beverages and sparkling wine. You see in this bridge that the price mix of pillar is very positive. And we have specific comments here. So in Latin America, let's start with that, we have the selling price variation to adapt to local inflation with, again, the specific 1 in Argentina that is significant, especially this year. And in Europe, if we look at the year, we have increased prices, if you remember, already a bit end of 2022 and then early 2023. And then we started to have some moderate price reduction in the second half. We also can note a positive mix contribution to this pillar. And also, you will see through the EBITDA bridge throughout the year. So the foreign exchange is negative. And here again, Argentinian peso, mainly. And then nice to see the contribution of Allied Glass, so Verallia U.K. now, for EUR 203 million. We -- just to remember that we made the acquisition of Allied Glass on the 8th of November 2022. So it's a nice add-on to the group. If we look now by geographies. So South and West Europe revenue evolution, plus 13%. So here again, we have basically the main comments I did for the group. So we have the -- especially in H2, lower year-on-year volumes. The beer is the most affected in the categories. And we saw some slowdown in the spirits, for example, Cognac in H2. But again, resilient markets also, food jars and NAB and sparkling wine. So if you remember, we have a very balanced product portfolio, so mitigating the lower trend in the [indiscernible] spirit in this region as well. And the positive mix is especially in this region as it is mainly driven by Italy. Moving now to North and Eastern Europe revenues. So here, we have a scope impact as we had the U.K. perimeter impact. And again, nice to see that. And here, volumes are also down. I just mentioned about Ukraine to say that we reopened the second furnace in early 2023. But we see unfortunately the decline in beer and still wines, especially in Germany, that is waiting on the volumes. If we move to Latin America, so here you can very well see the impact of -- the foreign exchange impact of Argentina. Just to remind everyone that we have hyperinflation accounting in Argentina for many years now, which implies that you use the exchange rate of the last day of the period to value the full P&L. So -- so this is -- sorry. Sorry. So in fact, we have the impact of this revaluation that is weighing on the top line and much less on the anti-EBITDA. So if we look now at constant exchange rate and scope, we can see that we have an increase in the sales and increase both volume here and prices. So moving now to the consolidated adjusted EBITDA. So we are moving from EUR 866 million in 2022, up to EUR 1.108 billion in 2023, so indeed above EUR 1 billion. If you look at the different pillars in this bridge, so you have a negative activity, minus EUR 155 million. And this is just the result of the previous comments, and we've seen again volumes down versus 2022, especially in H2. And we have made some capacity adjustments, I mean, accordingly in H2 after the rebate of the inventories in H1. Now the spread is contributing very positively. It was also positive in Q4, and ends at EUR 392.8 million, mainly driven by price and cost, but also by the mix. You can see that the net PAT saw our continuous improvement of production cash costs in all the plants is contributing like every year, and we succeeded [ into ] reducing our cash production costs by 2.1%. That leads to plus EUR 52.5 million to the EBITDA. The exchange rate impact is significant. And here, it's mainly driven by Argentinian peso. And in the other pillar, plus EUR 41.6 million, you have as in a positive way the Allied Glass contribution and some negative items in -- like provisions or some inflation on SG&A spread over the regions. And overall, important to mention that Allied Glass EBITDA contribution for the year is absolutely in line with our expectations before the acquisition.
So if we move to EBITDA by regions, South and West Europe, adjusted EBITDA evolution. So nice to see that the adjusted EBITDA margin on the top right is increasing from 24.8%, up to 28.7%. And here, you have basically the same drivers as what we saw for the group bridge, including a good industrial performance. If we move to Northern and Eastern Europe, adjusted EBITDA evolution also an increase in the margin from 21.1% up to 24.9%, with here included a relative impact of Allied, so U.K. integration and improvement in also the rest also driven by the pillars that we've seen previously. And we have here some negative FX impact coming from the ruble and the Ukrainian currency. If we move to Latin America adjusted EBITDA evolution. So here, we see a reduction in the adjusted EBITDA margin and the absolute value, and I come to that. So the margin, if you remember in 2022 was really high, 39.2%. So we are still in 2023 at a very nice margin level, 34.9%, but a bit less than the 2022. If we move now to the left and see at the FX impact, you can see that in absolute value, we are reducing the adjusted EBITDA, but corrected from FX, we have a nice increase here again, driven mainly by here the 3 pillars, but mainly the spread. And we have a strong industrial performance again in the region. So now let's go to cash elements. So here, as usual, you see the CapEx evolution. We have kept CapEx well under control despite the reduction in activity in the second half of the year. So we end the year with 10.7% of sales of CapEx. And you can see compared to previous year that, in fact, we are increasing the strategic CapEx. To remember, strategic CapEx comprised the additional capacity plus the CO2 emission reductions. So here, we have ongoing the construction of 2 new furnaces for '24, Campo Bom and Pescia. And in the CO2, of course, we have the impact of what was presented, and we have the Cognac electrical furnace coming soon. So that leads to a group cash flow generation of EUR 365.3 million, that is very much in line with previous year. And you can see that it starts with strong adjusted EBITDA, contained CapEx, so a strong cash conversion. The change in operating working capital is mainly driven by the inventory in H1 and was well kept under control in H2.
And then other operating impact, nothing really specific. It's mainly IFRS 16 adjustment. And we see some increase, but here again, contained on the interest paid and financing costs, mainly driven by our short-term financing. And let's remember that in 89% of our long-term debt is fixed. And in the end, the cash tax is increasing alongside the increase of the results. So another year of strong free cash flow generation. So that leads to a net debt leverage of 1.2x. And this is after a EUR 209 million cash return to the shareholders in 2023. So the dividend and EUR 42 million of the EUR 50 million share buyback program. And again, we have had the investment-grade rating upgrade in H1.
So in the finance structure and liquidity, no change here compared to previous quarter. But just to remind that we have a well-balanced financing structure with well-spread maturities, and we enjoy a liquidity of EUR 866 million.
Thanks, Nathalie. So for our guidance, let me share first our view of the European glass market. Here on this chart, you have from 2012 to H1 2023, the official data from FEVE, the European glass producer Federation. So historical data from 2012 to 2019 are showing that annual growth was regular with a CAGR of 2%. Then in 2020, with COVID, we entered in a different era with a different pattern compared to previous year. After a moderate drop in 2020 due to lockdowns, we moved from plus 2% to plus 4.4% CAGR between 2020 and '22. Most precisely and to step back, in 2020, despite the lockdowns in different countries, market was very resilient with just a market decrease of minus 1.5%. And you remember that conception at home increased a lot, which was totally unexpected. And for us, glass maker to follow this unforecasted demand, facing nonoptimal conditions to operate with absentees. And at that time, we started to decrease our inventory level. Then in 2021, post-COVID, we faced a strong growth due to high-end demand, and we are running production at maximum and inventory kept on decreasing to serve our customers. Then in 2022, demand was again high, and the conflict between Russia and Ukraine has further disrupted the supply chain. Many of our customers were afraid about not getting their glass packaging to do their own business. And remember that at the end of '22, we are talking about gas supply restriction in Europe due to embargo measures with Russia, meaning that many customers reacted in a way to secure and inflate some inventory to ensure good business continuity. And then '23. In '23, it is a totally different story. After 2 years of high inflation in Europe, unprecedented for the past 40 years, the demand was impacted by a lower consumer consumption amplified -- amplified by high level of inventory in the overall supply chain. And on top in the context of high interest rate. For the consequence, H1 '23, according to FEVE number is showing that the market is down by minus 9.5% in H1. And we know that it has further decreased since summer '23. So what does it mean for the semesters to come? Good news is that destocking will end at a point of time. And we believe that at the end of H1, it should be normalized. And inflation slowing down. We foresee consumer purchasing power, recovering in '24 and beyond. So in a nutshell, our assumption is that 2024 will be a year of normalizations. Volume will gradually recover during the year, with H1 certainly being lower than last year, but H2, higher. And we see a sequential improvement quarter after quarter. Q1 '24 being better than Q4 '24 -- '23 and Q2 '24 progressing compared to Q1. This normalization being effective, we believe that 2025 and beyond will be back to historical and normal performance of plus 2% growth per annum. We remain very positive and confident in the medium- and long-term resilience and growth of the food and beverage business and on glass packaging. Giving this gradual rebound [inactivities ] and volumes up year-on-year, combined with our strong performance action plan, our objective ever is to deliver an adjusted EBITDA of around EUR 1 billion in '24 with a sequential improvement through the year. Due to the basis comparison, H1 '24 will be lower than '23 and H2 will be higher than H2 '23. To finish and complete our presentation, I want to share with you how we see the contribution of our operational pillars, our 3 operational pillars, impacting -- impacted our EBITDA bridge. On the left, as a reminder, you have our '23 '22 EBITDA bridge. And on the right, an illustration of what we project for '24 and '25 bridge. So in '24 compared to '23, our first pillar of activity, activity recovering through the year, we see a positive contribution of the activity. And it will start being red and then turn green through the year with the activity, again, recovering gradually along the year. Two, about spread. We maintain our policy of spread management to be spread neutral in '24, meaning that compared to end of '23, prices will be reduced in the same order of magnitude than our cost in '24. But obviously, in the bridge, the variation of spread will be negative due to the high level of comparison. And due to the carryover effect of price reductions down during the year in '23, which will impact '24. Three, we do expect, as usual, our performance action plan to deliver as minimum of 2% cash cost reduction for a positive contribution. So based on these 3 pillars and the way it's going to impact '23, we see again our 2024 EBITDA around EUR 1 billion in '24. Thanks for your attention, and I think we can move now to the Q&A session.
[Operator Instructions] We'll now take our first question from Patrick Mann with Bank of America.
I just want to ask a little bit more about the price/mix and cost spread. So obviously, it's been very successful over the past 2 years in increasing EBITDA. And you have hit your 28% to 30% EBITDA target. Is that -- is that sort of structural shift higher in your EBITDA margins from this done now? And I think you alluded to that, Patrice, where you said you're targeting a neutral from here. So just trying to understand if we should assume that this is kind of -- you've reached the peak of your pricing power or your margin expansion. And then maybe related to that, can you just talk a little bit about mix, the impact that mix has here? So how much further do you think you could drive mix as a way to improve the spread and increase margins? So maybe what percentage of your production or revenue is going into higher margin, higher -- better mix products and where do you think you can take that over the next few years?
Thanks a lot for your questions. You have 2 questions. So about spreader -- about spread, maybe what we could say is that we see a low single-digit decrease in cost base, with a decrease on -- in energy, certain raw material and offset by moderate growth in personnel cost. So we see our cost going down low single digit in '24. As a consequence, you know that our management is to align our price reduction within the year according to our cost evolution, so cost reduction for '24. So our objective is going to retain this neutral spread for '24. And as you have understood, due to the high comparison in '24 -- in '23, sorry, and the carryover of what we did as price reduction in '23, it will have an impact in the variation of spread in '24. Pricing power is a question on how we manage that. It means that this is our policy. So if cost goes up, we need to push for selling price up. If its costs go down, we manage the reduction of our pricing. And then we need to consider as well that there is a competitive landscape. So this is all a balance but we have to manage here. And delivering EUR 1 billion profitability in '24, I mean, would be a nice result, nice profitability, high-level profitability. And this is what we are going to shoot for. And we see the way to get there. About mix, it's always difficult to comment due to the market, due to the number of SKUs, due to the demand we have. But this is a clear objective we have to improve our mix. And we have been quite successful lately to do so, and we are going to keep on doing that. Premiumization is a target for us. We have high-end value product that we are focusing on. The acquisition of Allied in U.K. was a clear purpose for that. So we are going to keep on working on our mix on a daily basis. But as you know, we are quite cautious on mix because very difficult to anticipate on the assumptions we have always taken when we are projecting ourselves is to be kind of neutral. And then we try to get the upside from the mix.
I think we can add here is -- when you ask about the margin, just remember that the margin improvement does not only come from pricing power. And this is also what we wanted to show with the last slide on the pillars with the bridge. We have the activity pillar, and it is suffering now, but it will come back. And we have the key pillar, that is really our internal pillar to reduce production cash costs over the year, and we have been delivering that for years now, and we will continue.
Maybe one follow-up, if I can. Allied Glass seems to have been a very good acquisition in terms of your strategy and slotting in. Do you see opportunity for more M&A like that?
I mean, first of all, stepping back, I think what was interesting with Allied, so it's positioning, new territory. And we have demonstrated in '23 our ability to make good integration of this bolt-on acquisition. So obviously, it's giving us some ideas. And as we have always said, we are continuously making some screening of some opportunities. And if there are ones, we will try to get them. Each time it has to make sense. It has to create value. It has to be relevant and consistent with our strategy. But yes, we are looking for that. It takes time. It needs to be aligned with the target. So -- but as we always said, we are looking for opportunities. And if there are some, we will take them.
[Operator Instructions] We'll now move on to our next question from Francisco with BNP Paribas.
I have 3 questions for me. The first question is, if you could give a little bit more color on what has been the impact of the curtail in production in Q4 in your activity in volumes in EBITDA? The second question is, if I look at your 9-month figure in terms of volume contribution in sales and the Q4 -- sorry, and it's end of the year, the Q4 result in a positive volume contribution. Could you explain us what was the impact of this? And last but not least, also, I saw that receivable has declined significantly. So if you could give us also a reason for such a big decline.
Okay. Thank you. Thank you, Francisco, for your questions. Please do not hesitate if I forget something, especially about the first one. So I think your question was about Q4 and adjustment of production and production costs. So in fact, in -- we had the Q4 very much in line with Q3 in terms of activity, in terms of volumes. And I will come back to your next question about the activity impact in the sale.
But if we look at Europe, we had a volume reduction in Q3. We commented that was around 10%. And basically, Q4, and it's not a surprise. That is what we anticipated with a little bit better, but very much in line. And so what we already said in October is that we adjust our production level in order to keep our inventory basically at the level they had at the end of H1 because we needed to rebuild inventory. We did so in H1 2023, and then we are keeping the right level of inventory and the right quality also have inventory to address 2024. So basically, in Q4, we did exactly the same as in Q3 regarding to that. And now regarding the sales bridge and the 9 months versus the full year. In fact, when we look at the group sales bridge, Q4 is basically polluted by Argentina with some hyperinflation bookings. So if we look at -- if we would see a Europe bridge there, you would see a negative Q4 in the activity of pillar. So Latin America is offsetting, in fact, the effect. And regarding your last question about receivables. Yes, they reduced at the end of December. We had a low month of December. It's always a low month, but here, I mean, it was lower than usual. And especially December, us and our customers had a longer, I would say, Christmas break. So receivable decreased indeed significantly at the end of December.
Just a follow-up. How is it possible that Argentina preinflation impact volumes, if you look in FX or in pricing?
Yes. It's a presentation topic. In fact, Paco, we have always presented hyperinflation -- part of the hyperinflation bookings in the activity in order to have the right level of price measurement. So it is really a specific one that in Q4, it has an impact because there is a retroactive calculation. So it's not a new presentation, but usually it's a very limited impact. And in Q4 especially, we have this specific impact. So that is why in our press release, we always comment organic growth with and without Argentina. And this year, it's unfortunately polluting because the devaluation was in December. It's 53% devaluation on the Argentinian peso in December.
So could you give us the [ fatigue ] in terms of volumes, I mean, what is really [ tonnes ]?
The underlying volume in Argentina is in line with Q3. So if volumes in Argentina are below 2022, they are lower since actually Q2. And it was very much in line. So it's not at all a drop in volumes or a big up in volumes. It's purely accounting here.
Thank you. We currently have no questions coming through the audio line. I would like to hand over for the written questions. Over to you.
Okay. This is David Placet speaking, I'm the Head of IR for the group. I'm going to walk you through the written questions, and we do have quite a few of them this morning. First question from [ Inigo Egusquiza ], it's about this 4, 5 questions there.
The first is about the quarterly volume evolution. So how about the volume evolution in Q4. I think that basically is the same as the previous question, more or less, whereby and the answer, I guess, is just that underlying volume trend, like Nathalie said was more or less in line with Q3. The second question, which may have been covered as well is how much one-offs are linked to underutilization of capacity in Q4?
So coming back, Inigo, thank you for your questions. So in regards of sequential volume evolution as we said already. So in Q4 was very much in line in Europe with Q3, a little bit better and so I think this is answering the question indeed. In terms of underutilization, so in the activity pillar of the bridge, you have, in fact, the impact here of the fixed costs that are not covered by the activity. So the answer is basically in the red pillar in the bridge.
Maybe Inigo, just to complete, because I said it during my -- our presentation. When it comes to volume, so Q3 '23, you remember that we said that we are around a little bit above minus 10%. What we have seen is that Q4 was slightly better, but in the same order of magnitude. And the good news is that we start to see recovering gradually down the year. And this is why we said that we see a Q1 '24, it will be slightly higher than Q4 '23, even if it's going to be below last year.
And then we see again Q2 '24 much better than Q1 '24. So we see this gradual improvement in terms of volume, demonstrating but and confirming that we get a market recovery, a gradual recovery along the year. About the production, you remember that we said that we were running at 80% in Q4, and we decided to do so again, to be well prepared for '24 and not to end the year with high level of inventory, so to keep inventory at good level.
And in January, during the month, we are starting to restart some of our lines, which were down here and there depending on the country, depending on the demand. And we see that we are going to restart. And now, let's say, that if I can provide a number, we are running at 90%. And then we will go ahead. We'll go up down the year.
Thanks, Patrice and Nathalie. Three more questions that are more forward looking from Inigo. One is what pricing evolution can be expected in 2024? The second question is more midterm. So after the 2024 normalization, if we see 2% growth again in '25, will Verallia's EBITDA grow again? And the last question is, so DPS is up substantially to 2.15 with a 53% payout. What is your dividend policy for the future? And do you plan to keep increasing shareholder remuneration?
Okay. So about pricing evolution for '24, again, we are sticking to our policy, which is a neutral spread or zero-plus spread on the year. So again, in '24, we are going -- as we see a deflation in our costs, we are going to reduce pricing in the same order of magnitude, comparing the ending point of '23. So costs will be down low single digit. So pricing would be done, let's say, some order of magnitude, keeping a neutral spread in '24. About '24, '25 and beyond EBITDA growth. Yes, our objective is to keep on growing our EBITDA in value. And for that, we have our 3 pillars. So first would be the activity. So again, after an unprecedented '23 year with negative and no contribution at all at the activity, we expect the activity contributing to our EBITDA growth. So starting in '24 and beyond '25 and '26.
Second, we do expect to keep on applying our spread policy. So it means it should be at minimum, 0 plus. And 3, our PAP, which -- this is what we have in our hands, clearly, to keep on delivering with rigor our methodology in each of single production lines to contribute for 2% cash cost reduction.
And keep in mind that when we are speaking about that, it means roughly, it's a 120 bps margin improvement, roughly more than EUR 50 million, 120% bps based on our product cost. So yes, this is going to be our policy. This is our objective or our strategy. About dividend policy, so you have well noticed what we are proposing and what it does represent. We will -- capital allocation is still -- is still the same for us. This is what we have always said. First is we invest in the company. We invest for the growth of the company. We invest in the decarbonation road map, which for sure will be a key pillar for future business. Two, M&A, if any opportunity and it makes sense, we will allocate our capital for M&A. And three, shareholder return policy. And so here, in the last Capital Market Day '22 to '24, we committed to a growth of 10% per year. So we will have to come back to you at the end of the year, certainly, depending on the conditions, the market condition and all of that, but we plan to come back with a new Capital Market Day explaining what would -- what -- how we see our future, what would be our commitment for the future. And part of it, obviously, will define or redefine our dividend policy or shareholder return policy.
All right. Thank you, both. One question from [ Laurence Monte, ] regarding share buyback versus dividend. Question is worded as such, basically, given multiple discount versus historical average, shouldn't capital allocation be more focused on share buyback versus dividend? What is your view on this?
Well, let's say, again, what we define as a shareholder policy for '22 to '24 is: first, dividend growth above 10% per annum. This was a clear commitment. And then share buyback as an opportunity when it's going to make sense. So last year, we did -- and you have the number, we did both. And we returned full dividend, EUR 160 million, EUR 163 million. And we did a share buyback program of EUR 50 million between '22 and '23. This year, we have decided to put the emphasis on dividend. And you can notice the significant growth we are proposing. Last year, so the dividend plus share buyback was more than EUR 200 million returned to shareholders, EUR 205 million, to be precise.
And then this year, we are going to return EUR 250 million. So this was a choice to make it tangible to our shareholders to have them appreciating this dividend we are proposing. And then we will see what would be next, but it was clearly decided here to put priority on dividends, and we see opportunity, if we have some opportunity in the next...
Thank you, Patrice. One more -- well, I guess switching to the CapEx topic. Two questions from [ Juan Jimenez ]. So one is the view on the share buyback. So I think that has just been addressed. And the second is, will strategic CapEx decrease substantially with the postponement in new furnaces?
Obviously, compared to initial plan, it means that we are going to delay some CapEx expenses, which is a good management of our cash. And what we keep in mind or what we keep as an objective is globally to have -- to be around 10% of revenue for CapEx.
And obviously, what is important for us is to make sure that we have a good balance between recurrent and strategic, but with a clear focus on strategic because strategic is clearly preparing the future with new furnaces, when it's going to make sense according to the demand evolution. And this is why we have stepped down a little bit here, as I said, and obviously, everything which is related with CO2. So yes, compared to initial plan, in '24, we are going to delay and reduce CapEx expenses according to our plans.
Great. Thanks. Well, 2 questions from [ Jean-Francois Grana ] with [ Oddo ]. So one is about -- well, again, the CapEx. So I think that has just been addressed. So in other words, will there be a decrease in relation to the postponements? The second question is, okay, looking at the EBITDA margin in Q4 of 23%, should we look at this as a normative level for the future?
The answer is no. Obviously, this is not the future. This is not what we want to deliver. You need to consider that in '24, again, we have made some strong decisions to adapt, which has an impact on the margin when you are running just at 80%. Even if we did the maximum to make that efficiently, I mean you have some operating costs, which are not fully optimized. So it has an impact. And this has an impact, obviously, in the margin. So no, you cannot consider that as normal. We take all the bad news in Q4. Again, with the strong willingness to not impact the future and to be well prepared for the future and especially starting in Q1.
Great. Thanks. 3 more sets of questions. So one is from [ Fernando Vigon ]. It relates to the share buyback. So I think the question was, with the share buyback finished at the end of '23, do you expect to continue in '24? I think that has been answered. 2 questions from [ Francis Prep with Citi ]. The first is what is the inventory situation at Verallia and at its customers' sides? And the second question is, if spirits consumption recovers, how long will it take to clear the inventory surplus?
Good questions.
Thanks for that, Francis. So what we show is that I can answer for the Verallia side of it because we have the numbers and we control the numbers. As explained, we took H1 last year as an opportunity to rebuild our inventory and to be back at what is our standard. And since then, we are managing -- we are not moving from that. So it means that we are planning production accordingly to demand and we adapt. And this is what we want to keep on doing. So we are very well positioned in our -- with our inventory level, country by country, segment by segment, to be ready and to deliver a good service level our customers. What is outside of Verallia? I mean, I have some guess. I have some estimates, but I have no obviously firm data on that. And this is what we said. And it depends from 1 segment to the other, it depends from 1 country to the other, but we see the destocking being effective. We see the destocking ending worst case at the end of H1. And I think that in Q2, it should be -- most part of it should be done, but we are betting on the fact that -- and at the end of H1, it will be done. It means that we will reconnect the real end consumer consumption with a glass packaging demand, which was over the roof. We had this decoupling for the past 6 months with [ destock ] effect.
On spirit specifically, I think it's going to take some time. And I think maybe longer time than -- than the other segments. And I'm reading and we are in contact with our customers to understand, but it's going to be as well somewhere in Q2, which is our guess depending on how U.S. is going to react. And if China is going to rebound. But in a nutshell, to make it simple, we do believe that destocking will end at the end of H1.
Thanks, Patrice. One last written question from [ Mark Ventura, Segura ]. Congrats on your '23 results. Thank you. Can you please explain why was higher year-on-year EBITDA in '23, free cash flow is in line with the previous year? I think that has been partly addressed but Nathalie, I don't know if you want to elaborate on that?
Yes. Thank you for the question. I presented, in fact, the walk through the free cash flow generation. And indeed, compared to previous year, we have a higher EBITDA indeed. But in absolute value, first, we have also higher CapEx. And main point is, as you could see on the slide I presented is the VCR variation that is negative. And let's not forget that end of 2022, we ended with still low level of inventories in quantity and also in quality. And so we had to rebuild the inventory. So we kept them the level in H2, but at the end of H1, we increased inventory, and this is basically most of the negative VCR variation that you can see. And then more marginally, we have also a higher interest cash out and higher tax cash out as well. But again, more marginal.
Okay. Thanks, Nathalie. I think we've reached the end of the written questions. So I will hand over back to the operator, as I think there's a few more questions on the call. Thank you.
Sure. Thank you, David. We'll now take our audio question from Alessandro with Equita.
I have just one question about the competitive landscape that you expect for 2024. So you are reducing production capacity or adjusting your production. End of this year, you are postponing new capacity. So I would like that this seems a very -- at least a very smart, very good for the pricing discipline in the industry. So I would like to understand your view about the total market, if you see other players to do that? If you see price discipline that will continue in 2024. I think that it's a very, very important variable for your P&L next year or for the P&L of the industry.
Thanks a lot for this question. But I mean, I cannot really comment about that because, first of all, I have no real fact-based data and this is a competitive landscape. What I have read is that some of our competitions are adapting for the ones we are publishing. So obviously, we are looking at the big data. But I have no specific data about that. Again, we are focusing on doing our job with our 3 pillars, which is activity, which is spread management and which is PAP. And then observing the demand through all the contacts we have with our customers, forecast that we get from our customers, we are adapting. And then for sure, what we want to do is to make sure that we are not opening production capacity, which does not make sense according to the demand and the market evolution. So this is what we are doing. This is where we want to be disciplined, again, to make sure that we are smart with production and CapEx related to the demand.
And we will now move on to our next question from Manuel Lorente with Bank of Santander.
For -- my first question, sorry to come back again to the Argentina adjustment. My full sympathy because I perfectly understand that first getting the number is complex. And secondly, putting the number in a breach in the correct manner to gain trustability is also very complex. But to be perfectly honest, when you look at the 9-month comparison versus the full year, on the revenue side, the number just looks too low, that positive impact of EUR 10 million.
And as Nathalie was perfectly explaining, there has been some, let's say, methodologies issues. But when you apply the same methodology at the EBITDA level, you guys get the different direction because the delta in terms of EBITDA of 9 months versus full year was a minus EUR 116 million, right? So anyway, regardless of that, which is complex, I would like you -- if you can give us some sort of indication of what has been the real impact on Argentina on sales on an EBITDA level on Q4 the stand-alone?
Yes. I apologize for this difficulty in comparison basis. So what you have on the sales bridge and that has no effect, in fact, on the EBITDA is really some booking in the hyperinflation, it's purely accounting in hyperinflation. And again, it shows in activity. And it's about EUR 100 million that you see here as a positive, and you have a negative in the foreign exchange part. So this is basically what you need to correct in the sales bridge. And if we move to the EBITDA bridge, it is not polluted in the same way. So you have a mitigated impact that is fully in the ForEx pillar. And basically, the negative impact of the FX in the EBITDA is around EUR 20 million, to be very -- to give very clear figures. For the better understanding of everyone.
Much more clear. And my second question -- and my second question probably is on the -- on the 2024 bridge of the EBITDA guidance, right. You mentioned in that the green bar of activity will be somehow on red territory in the first half and on the green territory in the second half. But I would like also some order of magnitude, right? This is something that will start let's say, slightly negative from H1 and then flat to slightly positive in H2? Or it's more something that on H1, we will see more or less the same dynamics than in H2, this year? And on H2 this year, then we will see a significant rebound because of the end of the destocking in the context of these incomes. So a little bit of more color on the phasing of that negative versus positive. That would be great.
Okay. So as we said, we will see a gradual recovery during the year. What we can say right now is that we see Q1, slightly better than Q4 last year. But still down compared to '23. We see Q2 going better. So in a nutshell, we see an H1 which should be lower compared to last year. But in sequence, recovering. And in H2, we expect to be much higher than last year. All in all, what we could say is that we see a kind of a full year, we see a low to mid-single-digit growth in terms of volume. And obviously, we have a total different pattern H1, H2. So good news is that we see a good sequence and stocking ending at the end of H1 and a recovery in H2, leading to a full year low- to mid-single-digit increase. Is that clear?
Yes. I mean -- and your positive view regarding H2 is something that is based on, let's say, conversations with clients, overall macro conditions, the fact that the technicality of the destocking should help or also easier comps? What is the different level you're taking about?.
It's a little bit of that or all of that. First of all, destocking part, we should get the full benefit of it in H2, as our hypothesis is that it will end at the end of H1. We could imagine as well that end consumer consumption will recover down the year. Because we could imagine the purchasing power of our consumers are going -- is going to be recovered in '24 and then in '25. And obviously, this is the discussion -- part of the discussion we have as well with our customers. And with some forecasts we get, but being cautious obviously of what is the forecast. So it's a little bit of all of that. But we can be quite positive on the fact that at least the destocking effect would be recovered in '24. All right, I think...
Thank you. There are no further questions in queue. So I'm handing it back to Patrice Lucas for closing remarks. Thank you.
Okay. So thanks a lot to all of you for your attention. Thanks for all the relevant questions that you put through. And I wish you a good day, and let's meet again in [ 1Q ] and especially for Q1 results. Thanks a lot. Have a good day. Bye-bye.
Thank you. Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.