Patrice Lucas (Verallia) : "Nous sommes satisfaits de voir que le marché reconnait nos résultats !"

The story is that it's the result of our teams' work, the rigidity of their capabilities, and also a competitive advantage: our hedging policy. I need to explain for the ordinary people what happened. A small hedge is that you determine in advance the potential ceiling of the prices you pay for electricity, especially gas. So a policy that is rigorous and implemented systematically, which consists of taking positions on our costs, definitive positions: in N+1 over year N+1 I hedge at 85%, over N+2 at 50%, over N+3 at 25%. And it's a rolling policy, meaning that the further we go, the less we are covered. For example, at the end of 2022 when I enter 2023, I am hedged at 85%. In 2023 when I enter 2024, I will be hedged at 85%, but I will already have taken 50% for... It's a rolling policy that has the merit of avoiding volatility points and allows us to preserve margins. Visibility that allows us to adapt, visibility for our internal action plans, but also visibility we can give to our customers. And when prices fall, the hedge does what? We paid for nothing, in fact. That's it. We paid for nothing. We take, when you look for example...

And so if ever, in fact, when I buy energy in 2024, I have energy that is lower price than the daily spot. So already, there is a mathematical phenomenon where I make an average; it's a mille-feuille of layers.

Not only, because we have our business model that rests on three pillars. Another business rests on three pillars. The first pillar is linked to activity, so it's operational: more activity, we have a fixed-cost industry, so it falls directly quite significantly to the net. The second lever is the management of our spread, so for French... our mix, and we give ourselves an extremely clear strategy to have a positive spread. And then the third lever: we raise prices more than costs rise, we try to balance thanks to our energy hedging policy. I did not pass on all current spot prices of energy thanks to this hedging policy. And the last lever is what we call our performance plans, where we aim to reduce year after year by 2%. That is our internal productivity: reduce our production costs by 2% without sacrificing the future, without sacrificing investment. It's about touching daily operations, exactly. It's the efficiency of our operations. It's rigorous methodologies. It's not just that, it's hard to do 2%. And so these three levers are the three levers that contribute to improving our results.

So we announced in our guidance for 2023... magic number, and for revenue we aim for growth above 20%. So growth is still there, so no slowdown in the different zones, mainly in Europe and South America. Yes, Europe and South America. We remain vigilant, but we do not see a recession at the door. Demand situations can be quite different depending on geography, but we see volumes. To give a bit of history, when we look at the past seven years, the market has grown by 2.9% per year, including the COVID period. A mature market. Does that annoy you when people talk about a mature market for your glass and bottling market? I don't know what that means. A mature market at 3% growth per year? It seems to me a market that still has potential, especially with a material like glass, which has a future because of its recyclability, ability to be reused, even we'll talk about it, its inert properties, no chemical migration from packaging to content. To exist with other types of packaging, we are on a material with significant growth potential ahead. And again, our market is very resilient, 3% growth over recent years.

In fact, with two periods: a first half that was quite strong, a second half that was rather down, with two particularities. In the second half, we knew that the furnaces... they need to be rebuilt every end of life, every 12 years. But we have operations that allow us to manufacture exactly... and at noon we do maintenance operations. In the second half, there were more operations than the previous year, which gave us a small capacity limitation effect from these maintenances. Our plants run at 100%, 7 days a week. So demand is there, we even have trouble following demand. It's true, of course.

In Europe, we are the number one. I want to say there is a one in three chance when you open a bottle that it is produced in one of our plants. So I was saying: sparkling, still wines, rosé, white, red, non-alcoholic drinks, and everything that is food, so baby food jars, dairy pots, the Nutella pot, rather premium. Which also explains that you pass on costs better to customers? We are trying to develop our premium positioning. We develop it, we work on our mix period after period. But we are present across all segments. For example, in the sparkling wine segment, we are present on very high-end, very specific bottles for big champagne names, as well as entry-level, the traditional champagne bottle. There are many people, which is one of the strengths of our group: our capacity on a resilient market. And we see that in contexts of purchasing power issues, consumers ultimately make trade-offs, but on food and drinks they continue, they continue to feed themselves. Where they make trade-offs is they will go from a premium bottle to a medium bottle or an entry-level bottle. And the beauty of Verallia is that we are present across all these segments.

We have a great decarbonization project. We wrote a roadmap that started when? There was very clear communication at the end of 2021. When does it start? We are in it. I will give you some perspective. We committed to reduce our CO2 emissions by 46% by 2030 compared to 2019. So we are on that path. In 2022, we reduced our CO2 emissions by 2.7% compared to 2021, a reduction of 2.7%. And cumulatively compared to 2019, we are already at 10.8% reduction so far. We work on the efficiency of our furnaces, we already work and introduce solutions to reduce our energy consumption. And above all, we have a few revolutions to come: we have decided to invest in a 100% electric furnace in Cognac, France. It will start at the end of 2023. And we have a second technological block we call a hybrid furnace, where we will go from 80% gas to 80% electricity. And for new nuclear, we will need to sign what we call PPAs, power purchase agreements, that guarantee us green electricity. In 2022, we signed a contract with a supplier, RWE, to name it, to cover 30% of our electricity needs in Germany. It starts in 2026, it's a 10-year contract with certification.

First on recycling. Recycling, I knew that in France, in Europe, sorry, the collection rate for bottles or consumed glass is 80%. That's great. France is at 80% with situations; Northern countries are closer to 90-95%. But in Europe, 80%. And with the European Glass Federation, we have a project to increase this collection rate from 80% to 90% by 2030. So we recover this glass through different processes, we treat it, we cut it. Exactly. It's you and me when we put our bottle in the containers. It's effective. And today in 2022, sorry, more than 50% of recycled glass in our furnaces, a little more than 50%. The job is to get there, obviously. We set ourselves a target: 59% in 2025 and 66% in 2030. So we need to work on collection and treatment. Let me give you a situation: in Brazil, the collection rate is only 25%, very low. So there, we as a responsible company invest ourselves, we take on investments with certain local authorities, we directly install bins to recover the glass, organizing logistics. So that's recycling, taken to deposit. Reuse, what we call reuse, meaning instead of producing a bottle, my customer fills it, it goes to distribution, it's consumed, it goes into the bin. We have reuse systems where we can do 20 loops. That means the bottles are recovered, they are not put in the bins, and a logistics chain is set up. We clean the bottle without destroying it, and we reintroduce it. Companies and services are being set up to organize this logistics chain. But it's B2B, not at all... In France, it's mainly B2B. In Germany, the mineral water pool is organized like that. In most German supermarkets, the deposit infrastructure has remained in place. It existed in France when I was a kid, we used to bring our bottles. That was dismantled. And so reuse is employed directly; there is no need to destroy it, we can do up to 15 to 20 cycles. So energy savings. We believe in it; it's something that will develop. We are behind compared to Germany. In Europe, Germany is far ahead of everyone, and many local initiatives are emerging with this short-circuit logic. An important potential is on non-alcoholic drinks and on food. In these two segments, glass has the least market share compared to metal, cardboard, etc. So for us, we see it as an opportunity to offer more ecological solutions compared to competing packaging solutions.

First, are you satisfied to see... Again, satisfied to see that the market recognizes our results, recognizes our roadmap, especially on the decarbonization part, recognizes the ambition we have and the development we will continue to instill within the group, notably with the capacities I recently announced in Europe, with a new furnace in Spain, a new furnace in Italy. So yes, satisfied. But it's the beginning of the story. I believe Verallia is a young company, ultimately, listed on the stock exchange. So we need to build our track record, as we say. The important thing is to say what we do, do what we say, and I believe the market will follow. And happy to see that the market has been following since October. There was indeed a trigger. What happened last autumn? For the eyes to light up? At the beginning of 2022, I think the market had doubts about our pricing power, the ability to pass on price increases in the face of inflation while controlling costs. Exactly. And the second phenomenon, before summer, there was, if you remember, the risk of gas shortage, that we would have to stop operations, etc. And when we published our results at the end of September, I think there was a great recognition of what we were doing, and in particular that we had action plans if needed to continue producing with 20% less gas. Well, the stock market story that begins with an 85% rise, that still happens on a stock order. Thank you very much, Patrice Lucas. Come see us on Boursorama. Thank you, CEO of Verallia, guest of the big interview live on Boursorama. Thank you.