EthiFinance Ratings has analysed the credit profile of Verallia in order to review its short-term rating. The outcome is SR2, the third-highest grade in EthiFinance Ratings’ rating scale.
Based in Paris, France, Verallia is the world’s No. 3 manufacturer of glass packaging. The group produces a wide range of glass bottles, containers and jars for around 10,000 customers, ranging from local wine producers to global food and beverage brands. Verallia has been listed on Euronext Paris since October 2019, and is currently owned by BWSA (27.96%), BPI France (7.51%), and employees (c. 3.47%), with a free-float of c. 56.63%.
Verallia has a special focus on wine and spirits (around 60% of sales), being the No. 1 glass packager in Europe and No. 2 in Latam. This premium positioning entails higher margins than competitors while reducing substitution risks from other containers like metal and plastic. Over the long term, we expect Verallia to continue to benefit from its positioning, with increasing exports from European wine and spirits producers, as well as from its presence in Latin America, including Brazil, Argentina and Chile. Verallia’s market shares are quite well protected by high barriers for new entrants, as well as by a highly diversified portfolio of clients with which the company has strong and longstanding relationships.
The glass packaging industry is highly capital-intensive. Verallia’s activities necessitate high annual capex (c. 10% of sales or around €250m per year) to maintain the quality of its assets. Furthermore, it needs a significant amount of raw materials, including recycled glass and silica sand, as well as energy, the prices for which tend to be volatile. Energy represented c. 17% of the cost of sales in 2021 or c. €375m (with c. 55% stemming from gas). The group has a comprehensive hedging policy in place which mitigates the impact of energy prices and has some ability to pass on cost inflation to clients. Given the presence of the group in Latam and Russia, which contributed to c. 15.0% to consolidated revenues in 2021, its results may be negatively affected by adverse currency fluctuations.
Our SR2 rating is constrained by Verallia’s limited geographical diversification with France, Italy, Spain and Germany together contributing c. 80% of consolidated revenues in FY21 and Latam broadly 11%. Furthermore, the rating is constrained by Verallia’s moderate leverage, with EthiFinance Ratings’ net adjusted debt-to-EBITDA ratio of 2.6x (vs 1.9x as reported by the company) at the end of 2021. This rather elevated leverage stems from Verallia’s former private ownership and should be seen in the context of a capital-intensive industry characterized by high maintenance capex. However, Verallia has a satisfactory track record as highlighted by its gradual improvement in profitability, with EBITDAR margin increasing from 20.4% in FY16 to 25.4% in FY21. The improvement in profitability goes along with a decrease in indebtedness; EthiFinance Ratings’ net adjusted leverage ratio for Verallia has decreased from 5.0x in FY16.
The liquidity profile is good. It features large undrawn revolving credit facilities, a long-term debt schedule profile with diversified maturities, and high cash on balance sheet, while we expect that Verallia will continue to generate strong free cash-flow. Given Verallia’s credit profile, we currently consider that the company will be able to refinance its debt in due time.
Credit metrics expected evolution (CMEE): Stable
Our Stable CMEE reflects our expectation that credit metrics will be maintained at a broadly similar level over the next twelve months.
Our methodologies used for this rating are available at:
At Verallia, our purpose is to re-imagine glass for a sustainable future. We want to redefine how glass is produced, reused and recycled, to make it the world's most sustainable packaging material. We are joining forces with our customers, suppliers and other partners across the value chain to develop beneficial and sustainable new solutions for all. With around 10,000 employees and 32 glass production facilities in 11 countries, we are the European leader and the world's third-largest producer of glass packaging for beverages and food products. We offer innovative, customised and environmentally friendly solutions to over 10,000 businesses worldwide. In 2021, Verallia produced more than 16 billion glass bottles and jars and posted revenue of €2.7 billion. Verallia is listed on compartment A of the regulated market of Euronext Paris (Ticker: VRLA – ISIN: FR0013447729) and is included in the following indices: SBF 120, CAC Mid 60, CAC Mid & Small and CAC All-Tradable.
For more information, visit www.verallia.com
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