Verallia SA

PAR:VRLA

Earnings Call Analysis

Q1 2024: Verallia Faces Challenges but Remains Optimistic

Verallia, a leader in glass packaging, reported Q1 2024 revenues of €836 million, a decline of 20.5% year-over-year, with organic growth down 12.7%. Adjusted EBITDA was €204 million, resulting in a margin decrease to 24.4% from 29.1%. Despite lower volumes and the impact of hyperinflation in Argentina, the company expects gradual recovery throughout 2024. Additionally, Verallia highlighted its strategic acquisition of Vidrala’s glass business in Italy and celebrated the launch of its first 100% electric furnace in Cognac, aiming for a €1 billion EBITDA for the full year with sequential improvements by H2 2024.

Performance Overview and Market Context

In the first quarter of 2024, Verallia reported a revenue of EUR 836 million, down 20.5% compared to the same quarter last year, wherein revenue stood at EUR 1.52 billion. The company faced challenging market conditions and high year-over-year comparisons from Q1 2023. The organic growth adjusted for Argentina was reported at a steep decline of 20.7%. January sales were muted, mirroring December's low activity levels, but a gradual recovery was noted in February and March, aligning with management's expectations for a slow rebound throughout 2024.

Financial Highlights and EBITDA Analysis

Verallia's adjusted EBITDA for Q1 2024 was EUR 204 million, a reduction of EUR 33.7 million from Q1 2023, resulting in an EBITDA margin of 24.4%, down from 29.1% year-over-year. The decline in EBITDA was primarily driven by lower volumes and the absence of inventory restocking that boosted Q1 2023 figures. The negative price mix impact was quantified at EUR 8.8 million, with a significant positive contribution from Argentina; when excluded, the spread deterioration was highlighted at EUR 33 million. Cost reductions, particularly a 2.8% decrease in cash production costs, contributed positively amid challenging external pressures.

Regional Performance Insights

Regionally, in Europe, beer segments exhibited weak performance, especially in the U.K. and Germany, which suffered from soft demand, while spirits and soft drinks showed more resilience. Latin America experienced a contrasting trend with a rebound in Chile and stabilization in Argentina, although Brazil displayed some softness. Overall, the expected recovery indicates that Q2 may approach prior year levels, and management forecasts high single-digit growth for the second half of 2024, leading to an anticipated low single-digit overall growth for the year.

Strategic Initiatives and Acquisitions

Verallia recently acquired Vidrala's glass business in Italy, strengthening its operational footprint and market position. This acquisition, consisting of one manufacturing site with two furnaces, is expected to generate EUR 131 million in revenue and EUR 33 million in EBITDA in its previous fiscal year. Management emphasized that this aligns with their strategy of driving organic growth through meaningful acquisitions and bolstering customer offerings in key markets.

Operational Improvements and Future Guidance

Verallia's guidance for 2024 remains intact, projecting gradual recovery in activity levels. The company targets an adjusted EBITDA around EUR 1 billion, with H1 anticipated to be lower than 2023's first half, while H2 is expected to exceed the latter half of 2023. Pricing pressures are expected to persist due to last year’s price decreases affecting the current year's negotiations, particularly in the second quarter. Despite these challenges, management is maintaining a focus on improving operational efficiency and lowering costs.

Long-Term Strategy and Carbon Footprint Reduction

Sustainability remains a critical pillar of Verallia's long-term strategy. The company highlighted its advancement in electrical furnace technology, specifically a newly commissioned 100% electrical furnace aimed at reducing CO2 emissions by 60% compared to traditional furnaces. This initiative is anticipated to support the company’s decarbonization roadmap while enhancing its product offerings. Furthermore, Verallia achieved a notable improvement in its EcoVadis rating, attaining a platinum medal, placing it among the top 1% of companies evaluated on environmental and ethical criteria.

Earnings Call Transcript 2024-Q1

[Operator]

Hello, and welcome to the Verallia Quarter 1 2024 Financial Results. My name is Caroline, and I'll be your coordinator for today's event. [Operator Instructions]. I will now hand over the call to your host, Patrice Lucas, the CEO, to begin today's conference. Thank you.

[Patrice Lucas, executive]

Good morning, everyone, and welcome to our Q1 2024 results call. As usual, Nathalie and I will go through our presentation, and we'll have our Q&A session. I will start with some key highlights, Nathalie will present in detail our numbers, and I will be back for conclusion. To start with, just to remind you that Verallia is a global leader in glass packaging for food and beverage. We are the #1 in Europe, #2 in Latin America; and #3 worldwide. On this chart, you have our ID card with our members. One of our strong assets, as you know, is our customer base, more than 10,000 customers, and the diversified and balanced end markets in which we operate. We do operate in 12 countries with 34 plants and 63 furnaces. We have 19 code treatment facilities. And with more than 10,000 employees, we are producing more than 16 billion bottles and jars per year. Let's move to some key highlights for the quarter, I want to share with you. The first one is about Vidrala acquisition. We announced at the end of February, our transaction of Vidrala's glass business in Italy. This project is fully aligned with our strategy to invest in growing markets and get some external growth each time it makes sense for us. This acquisition will reinforce our offer to the Italian market for the benefit of all our customers. This acquisition is about one manufacturing site with 2 furnaces located in Corsico near Milan. And in 2023, the activity represented a revenue of EUR 131 million and an EBITDA of EUR 33 million. We are now between signing and closing. Completion of the transaction is subject to the approval of competition and foreign investment Italian authorities. Completion of the acquisition should take place in the course of the second and third quarter. Second highlight is about innovation. Innovation is on at Verallia to prepare the future and to propose low CO2 product to our customers. Our electrical furnace technology is one of the key technologies, which will contribute to our CO2 emission road map reduction. And on behalf of our technical teams, I'm glad and proud to tell you that we have turned on our first 100% electrical furnace in Cognac on March 18. This is a world premier for food and beverage with the largest capacity 180 tonnes per day. This furnace will operate with 60% less CO2 emissions compared to a traditional furnace, and will be dedicated for flint and extra flint bottles for cognac customers. We are now ramping up and first deliveries are scheduled for the end of Q2. So we are on track. And again, proud of the job done by the team. Next is about EcoVadis. CSR being at the core of our strategy, I am pleased to share with you our last EcoVadis rating. We got against the platinum medal for the third year, meaning being part of the top 1% company in terms of environment, human rights, ethics and responsible portage, and our rating has improved from 78% to 85%. This evaluation is a reward to the robustness of our actions and our commitment as a leader to pave the way on CSR. There is no doubt that by doing so, and especially with our decarbonation road map, we are well positioned for future growth to serve our customers with high quality and low carbon products. Last, light weighting is a trend, and we are preparing our offer. Bordelaise Air is the first one, get the most with the list. This is a value proposal. We are in production now in France, Spain, Germany, Italy, and Chile will come. And we are signing orders. We have signed first contracts for more than 10,000 bottles for 2024. And this is just the beginning. About our financial performance of Q1. As expected, due to the market condition and the high comparison base of Q1 '23, our activity is done versus Q1 23. With a positive gradual recovery of volumes. January was still low, similar to last December, an activity increase in Feb, and again in March, confirming our perspective of gradual recovery in '24. This is giving us for Q1 revenue of EUR 836 million, minus 20.5% versus last year, and an organic growth of minus 12.7%. An adjusted EBITDA of EUR 204 million, minus EUR 33.7 million versus Q1 '23, and an EBITDA margin of 24.4% versus 29.1% last year, and a leverage of 1.5 compared to 1.2 at the end of '23. I let now the floor to Nathalie to comment in detail our Q1 financial numbers.

[Nathalie Delbreuve, executive]

Thank you, Patrice, and good morning to you all. So let me lead you through our sales and EBITDA and debt for the quarter. So you see here our usual bridge for the consolidated revenue in Q1. So we achieved a turnover of EUR 836 million. And you remember, in Q1 2023, it was EUR 1.52 billion. Our organic growth is minus 12.7%. But if you exclude Argentina, where we always have price increases due to the hyperinflation, the organic growth, in fact, is minus 20.7%. So as you can see in the bridge, we have lower volumes versus Q1. So, let's remember that we have very high comps when we compare ourselves to Q1 2023. If we move to geographies and segments. In Europe, we have a soft start in beer. So we see some recovery in beer volumes but quite a bit soft. We have spirits and soft drinks, sparkling and food are showing greater resilience. In Latin America, we have a strong rebound in Chile, and we see some slight pickup in Argentina and some softness in Brazil. So again, quite a low quarter, but again, versus a very strong Q1 and a gradual recovery in volumes, as Patrice said, month after month as we expected. If we move to the price mix, we have a year-on-year decline in selling prices, again, expected in Q1 and Q2 2023, we were at a peak in prices to offset the strong inflation that we had last year. And here in this bridge, you see EUR 7.7 million negative, but this is offset by some strong positive Argentinian impact that you can read down in the bottom of the page. We have stated very clearly the Argentinian impact. So on prices, it's EUR 68 million positive from Argentina. The Forex exchange is negative and it's mainly Argentina. And you see some perimeter effect, plus EUR 4 million, and this is the acquisition of the pellet treatment centers that we did in Iberia in the fourth quarter last year. If we move to the EBITDA variance analysis, so we moved from EUR 307 million in Q1 2023, down to EUR 204 million in this quarter. So no surprise, this is the activity, operating leverage that is showing the strongest negative impact. So we have the impact of the lower volumes, which we just commented. And also, let's remember that last year, we were in Q1 and also Q2, restocking coming from low level of inventories that was also supporting the activity pillar. And this year, we are not doing the same. We are keeping our inventory strictly under control. So in the bridge, it is also a negative impact here. The spread is negative by EUR 8.8 million. Again, here, let's be careful we have positive offset from Argentina that you can read below. It's plus EUR 24 million. So meaning that our spread, excluding Argentina is minus EUR 33 million. So here, again, anticipated, we had a very positive Q1 last year, and we are now in a deflation mode and we did decrease prices. The mix contribution has been positive for several years, if you remember. So now in a comparison basis, it is slightly negative in this quarter as the mix is more stabilized. You can see that the net PAP is strongly positive with plus EUR 17.5 million. We have an excellent performance in the quarter. We reduced by 2.8% our cash production costs. Of course, we concentrate even more on cost reduction in the context. And so, it's very good to see this contribution. We have some positive other as well. So as usual, so it's EUR 4.8 million. As usual, we have a list of positive and negative. And we have also here added a tight control on SG&A that is contributing. In the Forex exchange rate pillar, minus EUR 26.2 million is almost only Argentina. If we move to the group net debt evolution and the leverage. So the net debt moved from EUR 1.364.5 billion at the end of December and increased a bit to EUR 1.496.3 billion. This is due to a combination of seasonality in our BCR and to the CapEx road map. You see that it leads to very good leverage at 1.5x. And to other information, our credit rating has been recently confirmed by Moody's Baa3 outlook stable. And for your information, we did extend a EUR 1.1 billion of credit facility by 1 year as we had the option. And here, you can find, as usual, the financial structure and liquidity profile of the group. So remember that most of our long-term debt is fixed or hedged, and the available liquidity is comfortable at EUR 725.4 million.

[Patrice Lucas, executive]

Thanks, Nathalie. So to conclude, with our guidance and to make it simple, we confirm our guidance for 2024. We foresee a gradual rebound of the activity, the full year, meaning with volume up year-on-year. So as a consequence for our profitability, we maintain our objective of EBITDA for EUR 24, around EUR 1 billion with sequential improvement through the year with an H1 below last H1 '23, with an H2 above H2 '23 and H2 '24 above H1 '24. So thanks for your attention. I propose that we move to the Q&A session. You have the floor. Thanks.

[Operator]

Thank you. [Operator Instructions]. We will take the first question from Lars Kjellberg from Stifel.

[Lars Kjellberg, analyst]

I have a couple. Starting with price mix, relative to what I expected, it was fairly small, even if you adjust for Argentina. So how should we think about that price mix component as we progress through the year? That's my first question. The other one is about the volume, the activity part. You talked about stock effects there as well. Could you share with us how we should think about sales volume in that contribution to the activity and stock levels, how they fell and the impact of that? And then I just wanted to discuss a bit on the Corsico plant acquisition, the Vidrala asset. I mean, you were reasonably well positioned in Italy. What is this plant add to your offer in the region? And how should we think about the synergies in that region from that acquisition, if any?

[Patrice Lucas, executive]

Okay. Thanks for your questions. So, Nathalie, will you go first?

[Nathalie Delbreuve, executive]

I will start and you can complete it in. Thank you very much for your questions. So the price mix and what the -- that's the progression that we can expect throughout the year. So indeed, the spread is minus EUR 33 million, again, if we exclude Argentina. If we think of the dynamics of the pricing first, we have a pricing negotiation throughout the quarter in Q1. And some of the price effects will continue to come in the second quarter as all negotiations are not fully completed. So you always have some lag in the price adjustments at the beginning of the year. Last year was very specific because of the volume shortage. We could get quicker in closing negotiations. This year, frankly, we're not in such a hurry to close negotiations, one. And second, we are back to a more normal timing. So again, some more pricing effect in Q2 is embedded in our forecast. As for the mix, you know it's more that usually we forecast a neutral mix, and we were very good into optimizing our mix in the previous years. So going forward -- so now first, we see some negative when we compare ourselves to our previous year. And moving forward, we don't plan for positive mix impact again. I think your second question was on the activity pillar in the bridge. in the EBITDA bridge, what is relating to stock. So basically, it's around EUR 30 million. 1/3 of the negative effect that you see in this activity pillar is coming from inventories. Again, one year ago. So in Q1 2023, we were increasing our inventory level, because if you remember, we were really short in inventory. So in H1 last year, we were rebuilding inventory. And we explained to you that at the end of June, we were at the right level, what we believe is the right level and quality to serve our customers. And since then, we have been holding on this inventory level. So, now we don't have any positive impact from stocking anymore. And again, it's very important for us to keep our inventory under control.

[Patrice Lucas, executive]

And about your question concerning Vidrala acquisition in Italy. I mean, as we have always explained through our capital allocation rules, it is fully aligned. It makes sense. This is what we want to do each time is going to make sense. And here in Italy, it is the opportunity for us to strengthen our position, complying obviously, with all the competition laws. This is an opportunity to add some new customers, new products, and obviously, to integrate this single manufacturing site in our ecosystem with all the synergy we could expect. So, this is clearly a good move for us, which is going to create value in the months and the years to come.

[Lars Kjellberg, analyst]

To follow up, if I may. Just on the stock component, should we expect a bit more drag from that as we progress in H2, through H1 and then it's going to be more neutral to positive in H2. And then just on the other end synergies you want to share with us when it comes to the Vidrala acquisition?

[Nathalie Delbreuve, executive]

So on the stock, again, in Q2 also, we were -- last year, sorry, we were rebuilding. So, with the comparison basis, we'll have the same a bit lower. I just -- you have the same effect in Q2, but then it will end because, again, since June last year, we believe we are at the right level of volumes, quantity of inventories in the different geographies. And as you know, we are adjusting our production capacity to the level of demand to keep with this stock level. So, again, in Q2 and then not more.

[Patrice Lucas, executive]

About your follow-up on Vidrala's deal and synergy. It's a little bit -- it's early to share that. I mean, let's close the business. But as you can imagine, we're going to have some purchasing strategy, as any you can integrate that company or a site within our ecosystem. So too early to speak about it, but we will be back when completion of the deal is done.

[Operator]

We will take the next question from Patrick Mann from Bank of America.

[Patrick Mann, analyst]

I just wanted to ask a little bit more around capacity and your outlook for volume growth. So you've said you're seeing a sequential improvement month-on-month. I mean, how long do you think it would take for you to return to close to full capacity? And I suppose, I'm thinking also that you've deferred some of your new furnace investments and making an acquisition here and consolidating production. Is it in the light of the current market conditions, are there other opportunities to maybe make similar bolt-on acquisitions and further consolidate production, and in which markets are you looking? That's the first question.

[Patrice Lucas, executive]

Thanks, Patrick, for your questions. So about activity again. The good news is that we see the sequential improvement of the activity, as I have commented. So January was still lower. It was still at the level of December. And we have seen some increase of activity in Feb, and again in March. So this is confirming the scenario on which we built our hypothesis assumptions for '24, which is this gradual recovery with a big impact coming from the end of the destocking, but we are planning and still planning to end at the half of Q2. So we see Q2, which could be closer to last year. And then obviously, due to the comparison basis of last year for the second semester, we do expect a growth in the second semester, let's say, high single-digit growth, which will lead year-on-year to a low single-digit activity growth. Back to the capacity, you're right. As we announced during our full year results, so we decided to postpone additional capacities that we had in mind in '22. And here, I'm speaking about two additional capacities, one which was scheduled 425 in our initial plan in Spain and '26 in Italy, due to the market condition and the way of -- as we explained for the market, this normalization in '24, et cetera. So we have decided to postpone them. So, it means that we are going to push the CapEx bottom for this additional capacity much later on. And as we speak, we do not see the need for this additional capacity best-case for Spain to be in '26 and Italy for '27, not before. About Vidrala's acquisition again in Italy, for us, we are not speaking clear about additional capacity. This is capacity which is already on the market, with customers and products. So there is no move or no disruption about the capacity, the installed capacity in Italy. So it is a different topic, and this is why we believe it's a good way for us to increase our growth in Italy, and as a consequence, in Europe. We are still -- sorry, please.

[Patrick Mann, analyst]

No, no, I was going to say, Patrice, I 100% agree with what you're saying, and that the acquisition allows you to continue to grow without adding capacity. I suppose the question was more, are there other markets where you see that opportunity too? Or was this just a very opportunistic acquisition? Or is it a case of, this is a shift in strategy. So we've deferred capacity additions, we're focusing much more now on industry consolidation and looking for acquisitions?

[Patrice Lucas, executive]

We are totally -- it's a continuity of our strategy. You know that our strategy was, again, crystal clear on capital allocation. First, it was about organic growth. And all the investments we want to make to support our decarbonation road map, especially. So this is all about strategic investment within the company. And two, we said that M&A, if we have opportunity to consolidate on some markets where it is possible, we will take them. So there is no change. The only change is the market condition, which was quite unprecedented in '23. And obviously, it doesn't make sense to add capacity as we were initially planned. So there is just a delay, a postponement on that. At the same time, on a parallel, if we had some opportunity for growth, we'll take them as the one we are just working on right now with Vidrala in Italy. About new markets or new opportunities. I mean, as we always say, we are on a permanent screening. Obviously, in Europe, we have some countries where it is quite not possible due to our positioning and volume we are representing on this market to make some acquisition. But every time it's going to be possible, we are going to look at it.

[Operator]

We will take the next question from the line of Francisco from BNP Paribas.

[Francisco Ruiz, analyst]

I have some follow-up questions and new ones. The first one is on the EBITDA pricing spread, which is -- I mean, if I look at the chart that you show us at the end of the year, you are mainly expecting EUR 100 million negative impact there. But taking into account that the good performance of Argentina, it is close to flattish, and probably it will not worsen in the coming quarters. So should we understand that this is going to be an improvement on your bridge guidance for the year? The second one is if you could give us a little more detail on the -- which products are lagging behind? And where do you see the recovery in Q2 and in Q3? And the third question is on the debt. I mean, I understand some seasonality probably on the working capital. But if you could give us, adding more detail for this debt increase in terms of CapEx and working capital.

[Nathalie Delbreuve, executive]

Okay. So I'll take your -- thank you, Francisco, for your questions. I'll take the first one. So we didn't give specific numbers in our bridge last year, we wanted to show you that we plan for a negative spread in the year '24 versus '23. Now, let's be careful again because, as I explained, we have a pricing effect still to come in the second quarter this year, because, again, negotiations, there is a lag. And you know that for us, we have a limited portion of formula in our contracts, meaning that the rest is really annual negotiations. So we expect further pricing impact, a negative impact in the second quarter. So, no change there in the EBITDA bridge versus what we've shown you. And again, we confirm our EBITDA guidance. For the products, I leave to Patrice.

[Patrice Lucas, executive]

For the activity, let's say, by segment or by geography. So we see diverse situations, obviously. If I speak about geography, U.K. and Germany are still lagging behind. For U.K., this is related to the spirit. You know that they are mainly dedicated to spirits and high handled value product. And the spirits, as you know, is suffering after a strong 23 years. And this is the segment where we saw at the last consumption and stocking effect. So obviously, there is a lag behind. And as we speak, spirit is going to recover later than the year compared to other segments. So U.K. geography is lower. In Germany, we are still not at the level we should be, to be honest. And here, we have a specific topic on beer for us, as we are facing some little bottling delocalization, which we're taking benefit in Brazil, for instance, but obviously impacting our activity in Germany. And here, we are going to make some adaptation in one of our furnace in Germany. So for the rest, South of Europe is recovering. We see good resilience in food and sparkling. In nonalcoholic beverage, it's a little bit contrasted depending on the geography. But globally, to make it simple, we are seeing what we are expecting. For spirit, it's taking much longer to recover. And in Germany, we have a specific topic on beer that we are addressing. This is how we see. And again, Q2 should be close to last year compared to Q1, which is minus, which is low teens below last year. And H2, we should see high single-digit growth compared to last year, which will lead to the year-on-year or low single-digit increase.

[Nathalie Delbreuve, executive]

And then on the cash generation on the debt, some more color. So in terms of CapEx, in fact, we have higher CapEx in this quarter than we had last year in the first quarter. There is a lot of timing in the CapEx agenda if we talk about quarters. And we are finalizing an important project. And we talked about cognac, the new electrical furnace. We have our plant -- new furnace in Campo in Brazil. And also, you know that we will have our first hybrid furnace in Zaragoza in Spain end of this year. So these were projects already launched that have an impact. And in the quarter, it's more than last year. On the opposite side let's be clear, we keep our cost CapEx strictly under control, and we will monitor the year CapEx to stay around 10% as usual. But if we talk about the quarter, you have some specific impact here. And then the VCR, the seasonality of the VCR is that we always have a negative variation in the first quarter. It is not new. It's when we -- if we look at last year, it was very much mitigated and compensated more than compensated by the factoring increase due to price increases. And here, this year, we don't have this effect as we have a more stable or slightly positive impact. So this is more, again, seasonality, and Q2 will be back to positive free cash flow.

[Francisco Ruiz, analyst]

So Nathalie, could you detail the variation of factoring between the end of the year and this quarter?

[Nathalie Delbreuve, executive]

It's pretty stable at because we have better volumes, but you lower prices. So all in all, it's almost stable.

[Operator]

We will take the next question from Philippe Lorrain from Bernstein.

[Philippe Lorrain, analyst]

Philippe Lorrain here from Bernstein. I'm fairly new to the case here. So please excuse if I'm asking questions very, very obvious. The first one would be, can you remind us of what you aim to achieve between the price mix effect in sales and the price mix effect on the adjusted EBITDA? And the second question is, is it fair to assume that Argentina accounts for roughly 3% to 4% of group sales, which would be what I get from back of the envelope calculations based on the additional disclosures that you provided in the presentation this morning?

[Nathalie Delbreuve, executive]

Yes. So I'll answer the second one first. So yes, absolutely for Argentina. Then the first question, sorry, about price mix effect in sales and EBITDA. So what we presented in February was a projection of our EBITDA bridge, not giving specific numbers by pillars, but explaining that in 2024 versus 2023, we expect a negative spread variation, mainly coming from the carryover effect of price decreases done in 2023. So, the answer is we expect a negative spread contribution to the EBITDA and so a negative price pillar in the sales as well.

[Philippe Lorrain, analyst]

Okay. So maybe I can follow up a little bit on that because what struck me was, if I strip out basically, the effect of Argentina now that you provide on the price mix, both at EBITDA and at sales level. I come to a contribution ex Argentina of roughly minus EUR 76 million on sales for basically minus EUR 33 million on EBITDA. So I was wondering whether it's normal to have such a discrepancy between the contribution of price mix on EBITDA versus the price mix on sales, assuming that normally the drop-through on pure price would be 100% normally.

[Nathalie Delbreuve, executive]

Yes. But then you have a compound of different EBITDA impact depending on the countries. So it's not that straightforward. But yes, maybe we can follow up later on with you.

[Philippe Lorrain, analyst]

Okay. Perfect. And then a couple more questions. So first, like if I get my bridge, let's say, for activities ex Argentina, would you confirm that the price is probably down in the mid- to high single-digit range for the first quarter versus last year. And you were mentioning as well that the negative spread variation that you see in EBITDA generally is due to price decreases given in 2023? Is it what I really heard or did you want to say 2024 so far?

[Nathalie Delbreuve, executive]

Sorry. Okay. So yes, for your first point on selling prices, but I didn't get the second. Can you repeat your second.

[Philippe Lorrain, analyst]

Yes. I was just asking for precision, if you really said that the negative spread variation that you saw in the first quarter is basically due to the price decreases that you gave already last year? Or is it just this year?

[Nathalie Delbreuve, executive]

We said for the full year, when we project ourselves for the full year 2024 versus the full year 2023. So we are bridging averages here. We started decreasing prices in the second half of 2023. So we start the year with a carryover impact that will continue to hurt us in the full year. So that leads to, for the full year, a negative spread.

[Operator]

We will take the next question from Jean-Francois Granjon from ODDO.

[Jean-Francois Granjon, analyst]

The first question, sorry, I come back on the spread effect. I was a little bit a bit positive surprised by the limited impact event we integrate it or exclude the Argentina impact. So to understand why, in fact, the spread impact is limited for the Q1. And if I want to understand the spread dispatch should be less negative during the second half. So in fact, could we expect a more limited and negative spread impact for the full year than expected? My second question on the positives of the Forex impact. Can you explain why with a limited 2% to 3% sales from the Argentina sales, we have a so huge impact, minus 8% on the sales impact for the Q1? My third question concerns also the Argentina with a so huge increase of the pricing to set the Forex impact, why there is no impact on the volume? You mentioned some stable volume in Argentina despite the strong growth of the pricing. So why there is no impact on the volume? Another question was revenue, the PAP impact. So there is a great impact with EUR 17 impact positive impact on the EBITDA of the Q1. So this is higher than expected. You mentioned generally speaking, each recent 2.8%. So can we expect a higher impact for the full year, nearly EUR 60 million to EUR 70 million for the full year? And my last question, this is, do you see some positive impact from the Olympics in France, positive impact for your business?

[Patrice Lucas, executive]

Okay. Jean-Francois, thanks a lot for your questions. Okay. So I'm going to start and Nathalie will complete on the Argentina and Forex . So about the spread we are seeing in Q1, the variation of spread in our EBITDA bridge. I mean, keep in mind, as it has been said that there is a kind of lag between the price decrease and some negotiations to come impacting the P&L. So, we do not see the full impact on Q1. We do not see the full impact of Q1. So we are still working on. Obviously, we are working as well on the cost side of a spread because this is what we need to do. And so, we do not change what we said a few weeks ago when we presented '23 full year results, we are still on that. About the PAP, I'm taking this one. So you're right, we have a very good result at the end of Q1, 2.8%, but this is just 1 quarter. Obviously, as we want to push our competitiveness, you know that this is one of the key topic for us to increase our EBITDA from one period to the other. Last year, with the situation, we launched some projects, and we are taking the benefit of them now in Q1. So, I do not expect to be honest, this 2.8 performance to be sustainable the full year, but we are working on to push. And as we have always said, our minimum objective is 2%. So we are on that, and would like to thank the teams, by the way, for what they are doing and we are going to keep on pushing to do so. About the Olympic games, very difficult to comment about that. I would say that we are not betting on that. This could be the cherry on the cake. But we are not betting in our forecast on that, and it will have maybe some impact in France with a tourism coming outside of Europe, maybe it will have some effect as well on the tourist level in Spain or Italy, but we don't want to bet on that, to be honest.

[Nathalie Delbreuve, executive]

So regarding Argentina. So, when we compare ourselves to last year, we compare our assets in terms of Forex to -- it was before the 2 devaluations that occurred in 2023. If you remember, there was around 10% in August and 50% in December. So, this is where we have the highest gap. So that's why mathematically, you have this very strong impact. And in terms of pricing and economic situation in the country, inflation keeps on being very strong in Argentina. It was more than 20% in January. It is reducing a bit. It was about 15% in Feb, and below 15%, so 13%, if I recall correctly, in March. But it's still, of course, very high. So we have pretty good volumes. But for sure, okay, it's not either booming, but it rose quite well so far. And the countries used to this hyperinflation. So indeed, we are increasing our prices accordingly, as we always have done. You remember, we have always had a positive spread in Argentina as the country is shaped that way, I would say.

[Operator]

We will take the next question from Manuel Lorente from Banco Santander.

[Manuel Lorente Ortega, analyst]

My first question is regarding pricing trends. I believe that this has been very vocal regarding volume trends throughout the quarter. I was wondering whether you can be a little bit more precise regarding this well deterioration quarter-on-quarter, Q2 versus Q1, and maybe an expectation for the full year?

[Patrice Lucas, executive]

Well, this is -- I mean, about selling price is a kind of sensitive topic, as you can understand. So we are not willing to comment a lot on that. As it has been said already, we are seeing a mid- to high single-digit price down between Q1 last year and Q1 this year. This is what we are doing. We have our guidance of work spread, which you have understood. So this is what we are going to work on expecting, as well working on the cost side, expecting some positive news on the cost side, which could give us some room of maneuver. But this is -- I do want to comment much more on pricing on that.

[Manuel Lorente Ortega, analyst]

Okay. I understand. And maybe just one final question regarding Vidrala's deal. It is fair to assume that once the deal is complete, we should expect some narrowing of the guidance or some fine-tuning of the guidance for the full year. This around EUR 1 billion may be transforming like EUR 2 billion or above EUR 1 billion, or not necessarily the case?

[Patrice Lucas, executive]

This is a very good question. But too early to state on that. I mean, this is the beginning of the year. You have understood our guidance for '24, which we are confirming what we commented during '23. So let's close the deal. Let's do the job in Q2, and let's meet at the end of July with our H1 results, and it will be the moment to say something about our guidance, including Vidrala, if the deal is completed.

[Nathalie Delbreuve, executive]

Let's not forget that it is not so significant in terms of EBITDA for the -- if you remember, when we released our press release announcing the year, it's around EUR 30 million per year, and we'll have a portion of the year. So maybe a half year, maybe a quarter, so it's not so significant all in all.

[Operator]

We will take the next question from Fraser Donlon from Berenberg.

[Fraser Donlon, analyst]

Fraser here from Berenberg. Three questions. So I just wondered if you could comment on any pricing trends within the European markets, more specifically France, Italy, Spain, Portugal, or if you see any kind of changes in imports in any of those markets? The second question was just on the cognac furnace, which is quite interesting, I guess, good for the Scope 3 emissions of your customers, and I wonder how you price for that in the market, given, I guess, it's been an expensive investment in some way for you, given it's this kind of world first. And then the final question was just looking forward, do you expect to see any divergence in the trend of weight versus like, let's say, bottles or units given you can start having these like lighter orderly bottles that you mentioned in the presentation?

[Patrice Lucas, executive]

Thanks a lot, Fraser, for your questions. About cognac furnace. So obviously, producing and selling products with low CO2 as a value. And I don't want to comment that. But we are able to price because again, it has a value. Keep in mind and remember that we are representing a significant part of the Scope 3 of our customers. And as they have all the decarbonation road map, some commitments to reduce CO2 emission, we are expecting us to do the job. And by doing the job, it has a value. So we're going to start the first deliveries at the end of Q2, and we have been able to value this product. So this is just the beginning. But for us, it has a strong value. About the light weighting, not sure I have understood the divergence you are talking about here. For sure, there is a trend on the market to lightweight. And for us, this is a trend we want to lead. And this is what we have demonstrated with our capability to put on the market this 300-gram Bordelaise Air bottle. This is a big advantage because when you are doing that, you are taking several boxes. The first one is that it's a tool or it's a bottle. You can provide to a customer with a lower price because lower grams, obviously, seen from the customer, it's lower price. But for us, in Europe a tonne, it is a way to not reduce our pricing, and it is a way in some cases to improve the margin. And it's as well as some product which has had value because producing a lighter bottle requires additional engineering capability to design the mold, and it requires a stronger and robust process control to produce it. So it has value. So this is a trend, and this is something we are going to keep on pushing for the benefit of our customers, for the benefit of our profitability, for the benefit of the CO2 as well. It is one of the bricks for our customers to reduce CO2. So this is a trend we see. And it's going to -- I think it's going to move forward. It's going to move forward and it's going to become more and more important. And you had one first question, about imports. No, from what we have seen with the 23 European numbers, we do not see any significant change. By country, we are monitoring that as well. And we do not see significant move here. So it's quite stable to what we had in the previous years.

[Operator]

Thank you. We will take a follow-up question from Philippe Lorrain from Bernstein.

[Philippe Lorrain, analyst]

I just wanted to come back to the fact that you mentioned the mix effect was negative on sales. Could you indicate by how much roughly? And also, if the same order of magnitude would be observed exactly on the EBITDA, i.e., whether there is an additional effect that is actually weighing more on the adjusted EBITDA margin or not? That's the only question.

[Nathalie Delbreuve, executive]

Thank you for your question. We don't give the breakdown and the exact number of mix. I mean, it's not the largest impact, just say that -- just we were benefiting prior year from a positive mix impact. So when you bridge, you don't have it anymore. It's more linked to the current consumption being more -- maybe less on more premium product than it was last year. Again, it's a combination of all our portfolio, a lot of SKUs. So our teams are always working on optimizing the mix. But I would say it's more the cherry on the cake. So in our forecast, we never embed any positive amount on the mix. And here, it is a bit negative, but it's not the most significant impact.

[Philippe Lorrain, analyst]

I was just wondering whether at EBITDA level, you would have the same amplitude like you have on sales. So let's say, sales impacted by X percent. Is it also impacted EBITDA by X percent, or is it more than X percent, because you've got that extra mix effect that is weighing and there's also an impact on the cost base?

[Nathalie Delbreuve, executive]

Yes, you have both indeed. So it's not a direct impact. But again, it's a humiliating sign, so it's not so much. Maybe we can also -- when we have our follow-up call, we can dig more into that. But the takeaway here is more that we have a slight negative mix impact in EBITDA. So again, not significant, slightly negative because we were commenting in previous years that we had a slight positive one.

[Operator]

There's no further questions over the phone. I'll hand it back over for return questions.

[David Placet, executive]

All right. Good morning, David Placet speaking, I'm the Head of IR for the group. Many thanks for the many, many detailed questions. We have a few more, I think in writing, but we'll try to go quick in the interest of time. So, I'll just walk you through the questions. And again, we'll try to proceed quickly. One question from Fernando Vegan, given the liquidity that you have, are you planning on doing any share repurchases to take advantage of the current low valuation?

[Patrice Lucas, executive]

Well, to be honest, a short-term, the answer is no. We have announced with our full year results, our dividend. This is going to be our focus this year. We are going to be back at the end of the year, beginning of next year at the latest with the Capital Market Day to give some clear objectives for the years to come. And obviously, the shareholder policy will be detailed at the time. So, we'll see about a short-term to answer to your question is, no.

[David Placet, executive]

Thank you, Patrice. Second question from Francis Prêtre with CIC. Is it possible to have the global trend in each segment in Europe between sell-in and sell-out. So I guess that refers to the stock variation that our customers. We can only give a kind of a global --

[Patrice Lucas, executive]

Yes, we can just give and repeat what I have said. And obviously, we are very active listeners and readers about our customers release and what we're seeing about the activity. And here, we are seeing some contrasted situation. Everything is recovering, I would say, globally. Again, we have a specific situation for us in Germany with beer. And what is lagging behind, this is what we see with the spirit, which is explaining the volume decrease we have in U.K. and the slow restart of spirits, especially cognac. This is what we see for the rest. This is in line with what we have commented with stock ending, and at the latest by the end of Q2.

[David Placet, executive]

Thank you, Patrice. One further question from Inigo Egusquiza with Kepler. Could you please explain the volume weakness in Europe, knowing that other players have talked about volume recovery since the beginning of the year?

[Patrice Lucas, executive]

I think here, I think the comment is certainly related to beer. If you do remember, last year, beer was the first segment impacted by a slowdown when it started at the end of Q1. This were impacted in Germany, as we commented at that time. So obviously, beer segment has restarted quicker. And this is what we see on the countries where we have some beer volume. So, I think this is one of the big difference maybe with some competitors. As you know, we are not -- we are less beer exposed. So we were performing much better in '23, than what we see a global figure on the market. And obviously, there is a lag. But at the end of the day, what is important is that we are confirming the assumptions and the profitability that we have guided a few months -- a few weeks ago with our full year results.

[David Placet, executive]

Great. Thanks again for this one. Next one from Mengxian Sun with Deutsche Bank. Two questions there. One, in relation to the dynamics by region and in market, I think that has been addressed already. And the second one in relation to the lightweight bottle in terms of its pricing and margin profile compared to the standard bottle.

[Patrice Lucas, executive]

Light weighting bottle, again, is an opportunity to give some price reduction for our customers. So it's a tool to fight inflation for our customers. And for us, it is an opportunity, at the worst case, to maintain our euro per ton. So this is really a win-win strategy, a win-win product. And on top of that, it's taking the box of the CO2 emission reduction. So this is why, again, we are preparing the future on that. But we are pushing to the edge of engineering and manufacturing engineers.

[David Placet, executive]

That's great. And last question from [ Lucas Azayan ]. Regarding the cognac sites, which is 100% electric, does Verallia seek a partnership with a renewable energy provider?

[Patrice Lucas, executive]

So renewable, we are much more speaking about low-carbon electricity. And in France, nuclear is well positioned for that, obviously, as you know. So is why we are speaking about low-carbon electricity. Securing low-carbon electricity at a good price is part of our strategy. We have started to work on so-called PPA. We are signing some -- we have signed some in Germany, in Italy. We have a small one in France. And for the moment for being specific with cognac, we don't need it because it is quite small compared to everything we are consuming, and we still have -- for the French guys who know the system, we still have the RM system in France till the end of '25. But we are working on that to secure your right for the years to come. This is a key strategic topic we are on that, but nothing specific enough for cognac.

[David Placet, executive]

Great. Well, that's it from my end in terms of written questions.

[Patrice Lucas, executive]

Okay. So thanks a lot. Thanks a lot for your comments, for your questions. It's quite valuable. And thanks for your trust. And please, have a good day and see you next time. Take care. Bye-bye.

[Nathalie Delbreuve, executive]

Thank you. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect.