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Edited Transcript of GCL.MI earnings conference call or presentation 13-Nov-19 5:00pm GMT

Q3 2019 Guala Closures SpA Earnings Call

Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Guala Closures SpA earnings conference call or presentation Wednesday, November 13, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alessandro Baj Badino

Guala Closures S.p.A. - Head of IR

* Anibal Diaz Diaz

Guala Closures S.p.A. - CFO & Director

* Claudia Ilaria Banfi

Guala Closures S.p.A. - Group Finance & Administrative Director

* Francesco Bove

Guala Closures S.p.A. - COO & Director

* Marco Giovannini

Guala Closures S.p.A. - Chairman & CEO

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Conference Call Participants

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* Enrico Antonio Coco

Intermonte SIM S.p.A., Research Division - Research Analyst

* Fabio Fazzari

Equita SIM S.p.A., Research Division - Analyst

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Presentation

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [1]

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Ladies and gentlemen, good evening and welcome to Guala Closures 9 Months Results Conference Call. I am Marco Giovannini, the Chairman and CEO of the company. And joining me today is Anibal Diaz, our Chief Financial Officer; Franco Bove, our COO; Claudia Banfi, Group Finance, Administrative Director; and Alessandro Baj Badino, our Group Investor Relator.

Let me start by giving you my perspective on the business in the 9 months 2019, the main achievements and some important trends we've seen during the same period. Going through Page 4 of our presentation, after a very solid start to the year, our positive business momentum continued into the third quarter 2019. As you can see, in the 9 months, we posted substantial revenue growth. The incremental sales for Europe is [EUR 50 million.] Net profit increased by EUR 13 million reaching a profit of EUR 1.5 million versus the last year loss of more than EUR 11 million. Lastly, in term of cash generation, our operating cash flow increased by EUR 36 million. So all in all, a good set on numbers and cash generation.

Let me now focus on the business. After the group signed as an executive and distributed the 2 agreements with Malibu and Böen for the launch of the new connected -- with NFC technology, at the end of September, we presented it during the Luxe Pack exhibition in Monte Carlo, a complete range of connected caps. I'll give you more details shortly. Then, the continued integration of UCP is progressing across a number of fronts, including the establishment of a single management team responsible for the U.K. business, active projects on operational improvement to raise efficiency and productivity and alignment on best engineering practice to realize targeted synergy savings.

Moreover, another priority project is optimizing elements of the supply chain, in fact, in warehousing, transport and energy group. We still have to work hard in order to reach the margins currently registered by Guala Closures in the U.K. as we found a series of unexpected problems due to severe lack of maintenance in the past. But we know how and what to do in order to improve profitability by 2020.

On capacity enhancement, as you probably remember, we recently decided to open a new production facility in Belarus to better serve the local and Russian markets. At the beginning of September, we established the company and at the beginning of November production started with 4 assembly lines. I would like to express my gratitude and appreciation to all my team as they were able to execute the whole project in a very short time allowing Guala Closures to take full advantage of market opportunities in order to increase business and profitability.

In Kenya, the inauguration of our new East Africa site in Nairobi took place on November the 4. After having established the company in November 2018, production started in February. And after the excellent results obtained at the end of first quarter in August, we decided to double the production capacity. The Nairobi operation includes state-of-the-art manufacturing equipment, most of which is Italian design at the manufacturing. Again, I want to underline that the whole workforce has been trained by Industry 4.0 using remote simulator. To date, Guala Closures has invested approximately EUR 5 million to establish the operation.

Now just a few words on corporate delivery. Starting from 23rd of September, Guala Closures has been included in the FTSE Italia Mid Cap index with shares more than doubled the daily traded volumes of the stock. Furthermore, at the end of July, we signed a liquidity provider agreement with one of the major Italian banks and on August 1, the contract started to be executed. Finally, as already mentioned, on September 5, we provide for the constitution of Guala Closures BY LLC.

Now let's move to Page 5 and focus on the launch of new products. As I mentioned before, our successful start of Malibu in June and the California wine producer, Böen, in August, at the end of September, during the Luxe Pack exhibition in Monte Carlo, we presented NeSTGATE, a complete range of connected caps. For our clients, the NFC technology can offer several advantages, marketing and consumer engagement, logistics and supply chain. After these successful launches, the Italian group R&D department dedicated to product innovation, is now working to expand this NeSTGATE range around other technologies: QR codes, voice connection and augmented reality.

Moving to Page 6, I am pleased to announce that we are supplying the metallized Gravitas Closures to Grant for their premium single malt brand, Glenfiddich Grand Cru, our first entrant for luxury closures for Grant. We already start delivering the product and has been very well received by our clients. And we are now in talk with the company regarding other luxury closures.

Page 7, we are showing a new aluminum closure, the Greencap, an eco-packaging solution for the wine industry. This innovative ROPP screwcaps allows safe food separation of aluminum and glass by the final consumer after use. Greencap has been, for the first time, presented in Japan during Japan Pack exhibition in October 2019. In fact, Japanese legislation requires to categorize and discard the various types of waste produced from homes and businesses. This innovative caps shows our commitment to the fiscal economy and to minimize final waste.

Last but not least with regard to sustainability, we currently have a 3-year program in place covering the 2018 to 2020 period. During this time, over 100,000 trees will be planted, offsetting the production of more than 50,000 tons of CO2.

Now I'd like to hand over to Anibal for his review of our 9 month financial performance, and I would follow-up with a conclusion before taking your questions. Thanks.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [2]

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Thank you, Marco. Let me start on Slide 9 with giving you some highlights on the 9 months results. As Marco said, we delivered a solid set of numbers. Group revenues reached EUR 448 million, up 12.7% at constant FX. The organic growth was 3.5% for the period, posting an increase both in volume and price as you will see in the next slide. Adjusted EBITDA reached EUR 79.3 million with a year-on-year increase of 7.9% at current FX. At a constant perimeter, EBITDA was EUR 75.9 million, reaching a margin of 18.5%, in line versus last year.

Let's move to Slide 10. In the 9 months ending in September 2019, net result came at EUR 1.5 million posting an increase of EUR 13 million versus last year. 9-month 2018 results has been restated to include the negative impact of EUR 8.4 million coming from the economic effect of the PPA on balance sheet restatement from the 31st of July 2018, the day of the business combination. The more than EUR 13 million increase in net profit is mainly due to the improvement of EBITDA, the reduction in net financial expenses and in income taxes, partially compensated by the increase in depreciation and amortization, which include the PPA impact for the quarter.

Moving to Slide 11. The net financial position at the end of the 9 months 2019 is around EUR 486 million due to an increase in cash absorption for EUR 9.4 million. Let me highlight that the net debt at the end of the third quarter is in line with the first half 2019, while historically the outflow further increases in the third quarter due to the normal seasonality of our business related to increase in volumes.

Now allow me to underline the EUR 51 million of cash flow improvement versus last year. As you can see from the bottom of the slide, the results is due to robust growth in operating cash flow, which increased from around EUR 10 million for the last year to more than EUR 46 million at the end of the 9 months 2019. A further improvement in cash flow was obtained through an increase in the financing outflow for around EUR 18 million. The strong increase in the operating cash flow was mostly obtained through an increase in EBITDA, as I said before. And optimization policies put in place by managing the working capital together with lower compound from other operating activities. Clearly, improvements in financing cash flow was mainly due to the nonreplicable amount posted in 2018 related to the business combination and refinancing for a total of around EUR 23 million last year.

Moving to Slide 12. Here, we have the details on the net revenues evolution. The 3.5% organic growth was achieved through an almost balanced increase on both volumes and prices. The main drivers of the volume increase are in America and in -- specifically in Mexico, thanks to the significant increase recorded in the market of safety closure for tequila; and in Chile, in wine roll-on -- in wine closure for the Chilean market; in Europe, specifically in the U.K., in the roll-on and luxury segment; and in Spain, in the water sector.

Prices up EUR 7.7 million. This was obtained thanks to the effort and to the work of our salespeople to renegotiate prices with our clients. The consolidation of UCP for EUR 36.3 million bring us to a total revenue of EUR 447.3 million. Therefore, registering a 12.7% increase in group net sales at constant FX or up 12.9% at current FX. The positive translation impact is mostly coming from the revaluation of the following currencies compared to the euro: the Ukrainian hryvnia, the Indian rupiah and the Mexican peso, and, of course, partially offset by the devaluation of the Argentinian peso.

Moving to the evolution of net sales by geography, Slide #13. The strongest absolute increase were registered in Europe, thanks to the positive contribution from the UCP acquisition and from higher sales in the U.K., that is for Europe.

In the Americas, Mexico was the main driver of sales growth, thanks to the increase of safety closures in the tequila market. Please allow me that in the third quarter 2019, in Asia, we finally registered a stabilization of sales after 2 declining quarters, while Oceania turned into positive growth for a EUR 0.6 million at constant FX after stabilization of revenues in the second quarter. Finally, in Africa, revenues were positively impacted from the ramp-up of our Kenya operation that we officially inaugurated there during this month.

Moving on the evolution of revenues by products, specialty closures, safety and luxury registered an increase of EUR 21.2 million and were the best product performance. Specifically, safety posted a year-on-year growth of 11.7% at constant FX rate, thanks to sales in the Mexican tequila market and to the growth recorded in the U.K. as well as the contribution of the newly acquired Guala Closures UCP.

Luxury products posted a 41% growth at constant FX, thanks to recent investments we made in U.K. and Mexico for this segment approach. Wine registering an 8% growth at constant FX benefiting from the start -- the constant shift from cork to aluminum caps. Roll-on posted 18.2% growth at constant FX, mainly thanks to Italy following the investment we made in the mineral water segment and the consolidation of UCP.

Moving to Slide 14 with the EBITDA bridge. The selling price increase almost offset the negative impact registered in mix and other cost variance, posting an organic adjusted EBITDA growth of 3.3% year-on-year. And then we are showing you the ability of Guala Closures to increase prices. That impact including the raw materials, even when the raw materials are stable or slightly declining. Including the positive effect from the UCP acquisition for EUR 2.5 million and a marginal impact from FX, the adjusted EBITDA increase is 7.9% at EUR 79.3 million.

Moving to Slide 15. You can see that the CapEx in the 9 month reached EUR 25.4 million, perfectly in line with last year. Also the split between maintenance and expansionary CapEx is equal. The majority of the CapEx has been spent in Europe and specifically in Italy, Ukraine and U.K., mostly on the UCP plant. Also in India and East Africa, relevant investment were undertaken for the enlargement of the action plan. That was the factory -- the company we bought in 2017 and in Nairobi for the new opening or doubling the capacity in the past.

Let's now move to the working capital in Slide 16. You can see in terms of days, the improvement, initiatives put in place by the management showing in comparable situation. We end up with 10 days less of sales -- less of working capital compared to the same period in 2019. We ended up 83 days compared to 93 days during 2018. This result was obtained mainly due to the reduction in days of sales in receivables, while we maintain the inventories days in line with last year. As you can see from the chart, we further improved this year's trend compared to last year at the same period of time.

Now let's move to Page 17 where you have the cash flow bridge. This slide is a comparison between 9-month 2019 versus 2018, highlighting the differences in detail. As you can see, this year, we registered an improvement in all the components of the free cash flow from the operating activities, excluding the extraordinaries, which increased from EUR 22 million of last year to more than EUR 52 million this year. As consequence, also the cash -- the free cash flow before dividend, M&A and extraordinary were grouped substantially with an improvement of EUR 32 million, also benefiting from the refinancing executed last year in term of lower interest expenses. Finally, in 9 months 2019, the cash absorption had a total improvement of EUR 51 million. Since the 2018, the results of the business combination and the refinancing negatively impact from -- for more than EUR 23 million.

Let's move now to the last slide, the net financial debt evolution. This is a summary of what I previously mentioned in the slides. We started the year with a net financial position of EUR 476.5 million due to the restatement for the adoption of IFRS 16 and the purchase price allocation and revaluation of the liabilities for the put option of noncontrolling interest. The cash absorption for the period -- for the 9-month period was EUR 9.4 million, slightly lower than in the first half 2019, much better compared to the same period last year.

I'd like to hand over to Marco now for some closing remarks and outlook. Thank you.

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [3]

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Thanks, Anibal. On Page 20, you can see some bullet points. And I want just to explain that before I start the question-and-answer session. With regard to connected closures, after the first 2 successful agreements with the Malibu and Böen, we are undertaking some innovative tests with a number of Italian wine producers. Furthermore, we are ready for the launch of a famous whisky brand in Europe. Before announcing this deal, 2 new contracts, we need, as usual, to wait for the brands available on the shelf. So the full details would be done simultaneously with the producers' marketing campaign.

As for Kenya, after the excellent results obtained today and given the positive growth trend in East Africa following the needs of our clients, we have decided to double the entire plant by year 2020, introducing another 50 closures into the market. In addition, next year in India, specifically in our Axiom plant, we have decided to double the capacity to fully exploit the local continuous market growth. Both these investments should have, not only positive contribution to our sales, but also at the EBITDA level given the height of the visibility within those areas.

UCP, as I mentioned before, we found a series of unexpected problems due to a severe lack of maintenance of the past management. Consequently, we are undertaking some extraordinary maintenance that could potentially impact production capacity in the short term. On Chile, we are closely monitoring the current political situation and the potential impact on the everyday working environment.

As us losing in Australia in the past, now we are carefully looking at adverse weather conditions, we are affecting the great harvest in South Africa and the potential impact on production and wine bottle distribution. Anyway, we shared with you some planned and potential events for the coming months and next year. As far as the full year 2019, I expect still to register a solid and continuous revenue growth together with a positive cash flow generation, deleveraging the debt.

Thank you. And now, operator, we are ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have 4 questions in queue. Let me just go ahead and get the name. Our first question is from Enrico.

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Enrico Antonio Coco, Intermonte SIM S.p.A., Research Division - Research Analyst [2]

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Enrico Coco from Intermonte. I have 2 questions, please. The first is on top line trend. If I'm not wrong, in Q3, the organic growth was around 0. I have 0.4%. It was slightly above 7% in the first quarter and then plus 3.5% in the second quarter. This quarter is again around 0. So the question is what kind of expectation do you have for the last quarter of the year if it's just a normal, let's say, quarterly volatile trend and we should remain within your guidance of organic growth of 3%, 4%? So this is the first question.

The second question is about financial charges. Financial charges in this quarter were pretty higher than the first half of the year. I guess the financial charges on, let's say, the debt are stable -- should be stable at around EUR 5 million per quarter. And so the difference should be ForEx losses, loss of the fair value of the put option on the minorities. I just want to check this point. Why financial charges increased in this quarter compared to the trend we saw in the first half of the year?

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [3]

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Yes. The growth in the quarter at constant perimeter on FX was 0.4%, at current exchange rate was 4%. So we are quite confident in keeping the growth at the rate we said. The other thing is that don't forget that we are already shipping or sending sales from our former U.K. Guala Closures also to UCP. So we now starts, because of the integration of UCP, start to be a little more, let's say, the constant perimeter, a little more complex now than before. But yes, the quarter was a 4% growth at current FX. And we -- apart from what Marco said, for example, for Chile, we are not seeing any, let's say, problem on the sales in the last quarter. For the financial charges...

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [4]

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Yes. Enrico, you are right. The interest on the debt are quite stable. So you can find the details of the other components with that, which are net financial charges at Page 29 in the Annex. You can see that there are net exchange rate losses in Q3, and there is also the change in fair value of the noncontrolling interest.

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Operator [5]

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(Operator Instructions) Our next question is from Fabio.

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Fabio Fazzari, Equita SIM S.p.A., Research Division - Analyst [6]

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I have a question related to the working capital and the cash flow generation. So I saw that you gained versus last year around 10 days on average on the working capital. And I was wondering if you can put more color about which kind of initiatives you made to reach these results. And in terms of cash generation, considering the level reported at the end of the 9 months, if you see as a fair assumptions to have, including the impact of the IFRS 16, the same level of net debt of last year at the end of full year '19. This means an improvement in terms of positive cash generations and free cash flow of around EUR 15 million. So if you can give your view about these assumptions.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [7]

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First of all, I need to repeat. We are not giving guidance for the year-end, as you know. What I can confirm to you is that we are in the right direction for the target we fixed on the debt side, in the cash generation. The other question was...

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [8]

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The other question was on the improvement in net working capital.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [9]

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Yes.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [10]

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Can I...

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [11]

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Please.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [12]

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The improvement in net working capital is mainly due to the reduction of receivables. Part of this improvement comes from the consolidation of UCP, which has a lower trade receivables today. And the other part comes from the action on the other data, which includes operating initiatives with clients and also from factoring investments.

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Fabio Fazzari, Equita SIM S.p.A., Research Division - Analyst [13]

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And sorry, just a couple of follow-up. If you can give the indications about the factoring and the difference versus last year?

And also just a clarification for me. You have, in the slide on Page 17, last year, in the column others, last year was EUR 22 million. This year is at EUR 4 million. I'm sorry, maybe you already explained this, but just if you can clarify to me which kind of items are included in this item.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [14]

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In the other items?

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Fabio Fazzari, Equita SIM S.p.A., Research Division - Analyst [15]

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Yes.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [16]

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I can talk about this year, then I will talk about last year. And this year, this EUR 4 million is mainly the change in derivatives and other financial items, which is mainly the change in fair value of put options. And on past year, I will tell you, but it's mainly related to the impact from the business combination.

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Fabio Fazzari, Equita SIM S.p.A., Research Division - Analyst [17]

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Okay. About factoring, can you give quantitative indication about the difference between this year and last year?

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [18]

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It's about -- I'd say, it's about EUR 7 million. Talking about the Guala Closures group, so excluding the impact from UCP.

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Fabio Fazzari, Equita SIM S.p.A., Research Division - Analyst [19]

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The EUR 7 million is the difference year-on-year or the...

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [20]

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The impact at the end of September 2018 and end of September '19.

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Operator [21]

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Our next question is from Christian.

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Unidentified Analyst, [22]

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A quick one on the 2 new contracts in Europe you have added. Could you probably elaborate on what closure category that's in? Is that the safety closure? Is it going to be luxury closures? And secondly, on CapEx. How should we think about the CapEx going forward? You added -- you alluded to the doubling of capacity in Kenya and India, probably the new contracts in Europe also costing a bit of CapEx and as well as the additional maintenance you have to do at UCP. How is that going to, let's say, play out with regards to CapEx going into 2020? So from now, on I would expect higher CapEx next year.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [23]

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In your closing remarks, in your contracts in Europe. If you can elaborate, but we cannot elaborate.

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [24]

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Okay. Simply speaking, as far as the new Gravitas contract that had just been launched, we are near the order from the Grant, but we cannot disclose. Normally, we cannot disclose the volumes by product as the data is provided with the brand. So I cannot answer you on that. And the launch has been very successful in -- mainly in the on trade and the [duties]. But again, we cannot say how the volumes and the revenues coming from that. As far as...

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [25]

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As far as doubling the capacity in Kenya.

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [26]

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In Kenya, just to give you a short information on that. During the inauguration, we had -- there was a real talk with national agency, for our counter venture seizing that, agency. And after, let's say, a discussion with them, we found that there is a very huge impact on counterfeiting growing in this part of Africa. And with the plan today is working just with 1 closure for the 250 milliliter product, and we have been asked to manufacture closure for bottles of (inaudible) contract. Of course, volumes would be different, but value would be different. I think that in 2021, probably our sales would be 350% let's say, higher than the 2020 expected. Don't forget that the plant will be ready probably in the third quarter next year, and production will start just before the Christmas growth.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [27]

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And in India, we kept following the growth of the market...

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [28]

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That is around 5%, 7%, is around 5% to 7%.

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Unidentified Analyst, [29]

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And in terms of necessary investments for capacity addition?

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [30]

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The investment for India is a partial and internal investment in the sense that we move production away from Ukraine to India, then we should have some new deals with -- and some new more, but I think that in total would be in the way. Of course, we do not build the share there. So this we believe would be in the range of EUR 1 million, something like that. Not so big as we are moving production line that is idle from Ukraine.

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Operator [31]

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Our next question is from Ken.

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Unidentified Analyst, [32]

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Just a little bit confused here. So the -- on your revenue bridge, so you have volumes being quite a positive impact. And then when I look at your EBITDA bridge on Page 14, volumes are then sort of not contributing to your like-for-like growth. So I just -- if you could just please explain why that is. And then I have a couple of other questions as well.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [33]

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Part of the explanation on this is because in the volume/mix is also included additional volumes on luxury, for example, in Mexico, which is still in defined as start-up phase regarding the wood, the luxury part. So in terms of margin, it's not significant.

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Unidentified Analyst, [34]

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Got it. Okay. And then on your investment in Kenya and sort of the water investments you mentioned as well. I'm just trying to get a sense of how do you think of investments and paybacks then on these investments. Are they what, 1.5 year, 2 years?

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [35]

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No, I think that it would be in the range of the months, if really we should sell the full capacity. Honestly, to be fair, today, even after the trend on ramp-up, we are short on capacity. Probably, we were so good to underestimate the potential of the business growth. I think that we need to be very proud about that. We are very well to develop the business. Sometimes, our sales team consists of everybody. And now we are lucky with a bit of capacity we're trying to supply from India to Ukraine, but the next step we are assuming around 18 months.

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Unidentified Analyst, [36]

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Understood. And then before you make a decision to build that, like, do you have contracts or you're just basing the expansion on your current utilization rates and what you see -- market? So are they back -- going back? January...

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [37]

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We have contract -- we have a twofold approach as usual. Normally, when we start something, we have a very good visibility of what we could do. We have contracts in some case and in some other case, we need to prevail in the market. (inaudible) we are still here to debate with you when we're doing the investment as doing -- producing is growth with process. If we do not ever have the capacity before, we're still able to supply the market. That's something that I try to explain several times, but sometimes honestly, people are not perceiving that. Over 50% of our business is proprietary, yes, do not forget that. Of course, when we think to move the line to start the biggest there in terms of different size closures, we know the customers. We know how many bottles they could sell and the worth they could convert to a different project. If you ask me today, if I had already the contract on our end, the answer is no. If you ask me today, will you sell and the growth of next year, the answer is yes.

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Unidentified Analyst, [38]

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Okay. That's very helpful.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [39]

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Let me -- just to add a little about this. We created the Kenya factory, starting sales from India, South Africa. First, we got the sales after we decided to install the factory because there are import duties also coming from India or South Africa. So when we install the first capacity -- and remember that in the first 2 quarters of 2019, we said that India was selling less because we were selling in Kenya before we were selling in India. So we started a factory with a base already of sales made in 2019. The second -- the expansion we are -- we did later and we are doing now is because our capacity there is less than the request we have from the customer there. But as always, we do first -- we create the market, supplying from a factory where we have the product. And after we -- if it's necessary, and in this case it is, we install a factory in this country.

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Unidentified Analyst, [40]

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Understood. Okay. Helpful. I just have 2 more. Just on UCP, can you talk just a little bit more about sort of what level of production, capacity outage you may see and what exactly is the issue there? And I can't remember what UCP accounts for in terms of EBITDA of the group. I'm just trying to figure out if this is potentially a significant effect or not.

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Francesco Bove, Guala Closures S.p.A. - COO & Director [41]

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Yes. This is Franco Bove speaking. In terms of the -- I understood what your question. In terms of the problems we're encountering though, some of the issues we're encountering, it's just that we basically have found some unpredicted issues that had to do -- as Marco has explained before, issues that had to do with basically lack of maintenance in the past, which were not really easily detected, say, during due diligence. So we're having to deal with that right now. We call that extraordinary maintenance because it is extraordinary maintenance. We're having to spend some money on it. And -- but by doing that, we're finding that our capacity will consequently improve after we have put those things right. So we expect -- as we have said in the past in terms of synergies, we expected to be making the synergies we saw in terms of output increased and obviously scrap spoilage coming down as we're going along. So in terms of what the weight of UCP is in the context, well, that's -- in terms of sales, overall, should be around an 8% to 10% weight.

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Unidentified Analyst, [42]

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Okay. And so do you expect to be -- are we talking like a 6-month, 3 months extended maintenance period?

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Francesco Bove, Guala Closures S.p.A. - COO & Director [43]

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We're in the middle of it right now. It's probably going to delay us by a couple or 3 months, not more than that compared to our original schedule.

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Unidentified Analyst, [44]

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Okay. Helpful. And then just finally on the -- I have a final question on updates. Just -- if you can just remind me of the seasonality on working capital generally that you see every year. Is it outflows in the first half and then inflows in the second half? And then -- and just the way I can think of this, your new connected products. So essentially, if I want to buy a bottle of wine, I get my mobile phone up and I don't know, whatever, scan that tab, is it, and then it shows me information about the line and then also it can help you to -- with your customers to, as you said, track, yes, working after the inventory, supplies, et cetera? Is that basically the way? So it's this kind of 2-way system?

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [45]

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The question of...

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [46]

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Net working capital, yes, you're right. The trend you see is quite typical of our seasonality. So if we had more years as a comparison, this is the typical seasonality of the business. Regarding question number 2, I don't know...

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [47]

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About connected, you're right. I'd still stress one point. Whenever we do a launch, we need to be 100% sure that, the whole system is working. And when I call the -- when I say the whole system, the whole system is the closure, the software, the internet degree and the password. Do not forget that there are several -- today several smartphones with different position of the NFC leaders. And in certain case you need to be charging up. So a big job that we are doing with the company in the U.K. is how to train the sales force of our customers how to promote this kind of stuff. If you don't tell, for example, the last day for their 7M, for example, so we did the NFC. You need to discharge the application or its level way 10, so 10x, I don't remember now. That's either in the middle of the phone, some on the top of the phone.

So that's the reason why we are not cautious, but we are very diligent, not boosting all the sales force to sell from another 100%. First we need to hold the system in place and explain the future consumer how to work with. See what I mean?

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Unidentified Analyst, [48]

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Yes.

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [49]

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Okay. But we feel very positive as the start-up coming with -- the data coming back from the U.S. are very encouraging in, let's say, a number of consumer who topped in terms of the closures, how many minutes are there being connected. And let's say, some indicators of the digital applications. They are very, very encouraging. I expect this launch in Europe from a famous whisky brand being the point of enactment, but probably I'm doing their own job saying that we want to be diligent. If it would have been a software company, (inaudible) should have presented a totally different approach, but we have an investment mentality.

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Operator [50]

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Our next question is from [Bartek].

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Unidentified Analyst, [51]

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[Bartek Bazant] here with [Cheuvreux.] If you can just confirm or clarify. I didn't really catch. What was your CapEx guidance for next year? I think you said that or someone else asked about that already.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [52]

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We have not given a specific guidance for next year. So the comments you've heard on the investments are not with the intention to give a number of guidance. In general, the level of CapEx is about 5% and 6.5% on sales, and this is the average that we have in the group.

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Unidentified Analyst, [53]

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5% to 6% of sales is what you're at. Okay.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [54]

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5% to 6.5%. Yes, 5%, 6.5%.

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Unidentified Analyst, [55]

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Okay. And in the past, you run at an EBITDA margin of close to 20%. Now you're looking at sort of 16%, 17%, maybe 18%. What sort of changed overall? And how -- would you go back? Is it possible for you to go back to 20% levels on EBITDA margin or...

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [56]

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Yes. I think -- sorry. I think, as always, if you look at constant perimeter, you find the margin, but we are doing at the current perimeter is the impact of consolidating UCP. Without giving precise guidance is what we said that we are going to be increasing around 50 basis points per year the margin.

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Unidentified Analyst, [57]

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This is from current levels, is it? Or from past of around 20%?

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [58]

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Yes. That's our -- let's say, it's always our problem that when we are doing an acquisition and they do 10 points less than us, the impact is to reduce the margin. But that's -- I think, at least for that we can say without any false humility that we are best-in-class in margins.

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Unidentified Analyst, [59]

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Okay. And the factoring as well. I didn't -- I was -- the operator was speaking to me when you talked about factoring. The size there and what's your utilization development, please?

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [60]

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We just said that the difference in the -- at the end of September versus end of September last year. If we exclude the integration of UCP, it's only -- so only like-for-like Guala Group is an additional EUR 7 million of factoring.

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Unidentified Analyst, [61]

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And what is your total factoring or total factoring line approved that you can use?

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [62]

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We are not providing that guidance at the moment.

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Operator [63]

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Our next question is from Nicholas.

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Unidentified Analyst, [64]

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I just saw your bonds will be callable in a few days. Do you plan to call that?

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [65]

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Yes. The bonds are callable now since a month, let's say, now. And as you know, the market today is very nice. The payback of refinancing is quite long. So until the market is improving more than today, we are financed -- right financed today.

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Operator [66]

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Speakers, at this time, we do not have any question on queue.

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Alessandro Baj Badino, Guala Closures S.p.A. - Head of IR [67]

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Okay. Good evening to everybody. If you have any further question, this is Alessandro Baj Badino. Send me an e-mail or give me a call. Thank you.

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Marco Giovannini, Guala Closures S.p.A. - Chairman & CEO [68]

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Bye.

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Anibal Diaz Diaz, Guala Closures S.p.A. - CFO & Director [69]

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Bye-bye.

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Claudia Ilaria Banfi, Guala Closures S.p.A. - Group Finance & Administrative Director [70]

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Bye. Best regards.

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Operator [71]

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And that concludes today's conference. Thank you, everyone, for participating. You may now disconnect.