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[Interpreted] Good morning and welcome to the conference call organized by Vidrala to present its first quarter 2023 results. Vidrala will be represented in this meeting by Raul Gomez, CFO; and Iñigo Mendieta, Head of IR. The presentation will be held in English. In the Q&A session, questions will be also answered in Spanish. Nevertheless, it strongly recommended to post questions in English in order to facilitate understanding of everyone.In the company website, www.vidrala.com, you will find available a presentation that will be used as a supporting material to cover this call as well as a link to access the webcast. Mr. Mendieta, you now have the floor.
Good morning to everyone and thank you for the time the due to decades to attend this call. As announced, Vidrala has published this morning its 2023 first quarter results. Additionally, we have also published the results presentation that will be used as supporting material to this conference call. Following this document, we will dedicate the first part of our exposition to briefly explain the figures released today to devote afterwards as much time as necessary to discuss on the business performance in the Q&A session. We invite you to access the webcast through the link available in our web page. So starting with the main magnitudes in the first quarter of 2023, we achieved as most relevant business figures, revenues of almost EUR 378 million and EBITDA above EUR 100 million and a net income equivalent to an EPS of EUR 1.91. Net debt at the end of the period stood at EUR 316 million, which is equivalent to a leverage ratio of 0.9x the last 12 months EBITDA. Turning to Slide 4. We look at the top line performance, analyzing the annual variation of revenue broken down by concepts to arrive at the reported figure of EUR 377.9 million. As it is shown in the graph, this figure is the result of 38.3% growth on a constant currency basis. Our recent acquisition, The Park consolidated since the 1st of February 2023, contributed plus 2% to sales growth. Volumes were down 3% in the quarter, while price mix effect was up 39%. Following the order of key business figures referred to at the beginning, we analyze with exactly the same breakdown, the variation of operating income. 2023 first quarter EBITDA amounted to EUR 100.7 million, reflecting a constant currency growth of 339.3%. In reported terms, EBITDA increased by 332.6% in the period. These operating figures resulted in an operating margin EBITDA over sales of 26.6%, which represents an expansion of more than 18 percentage points compared to 8.3% predicted in the previous year moment where it was affected by unprecedented inflationary pressures. If we come back to the analysis of last 12 months data to try to mitigate non-representative quarterly discussions and to deduct business trends, we can appreciate how we are gradually recovering more normalized profitability levels towards historical average well above 20% over sales. Finally, net debt at the end of the reported period closed up EUR 315.7 million, which is a consequence of cash generation that is still affected by exceptional working capital movements, something that was already anticipated and that we expect this effect to normalize throughout the year. As a consequence also of our firm commitment to shareholder remuneration with the interim dividend payment executed in this first quarter. And finally, the cash out for the acquisition of The Park and the non-controlling minority stake in the share capital of [indiscernible]. As a result, leverage ratio stands at 0.9x last 12 months EBITDA. And now before turning to the Q&A session, I pass the word to Raul, so that he can extract the main conclusions or highlights and make additional comments that he considers appropriate.
Thank you, Ino, and thank you all for attending this call today. We really appreciate your time. Well, after a quite volatile year 2022, I think that we are where -- we were planning to be some months ago. The results published today are a good proof of the strong fundamentals of our business and an evidence of what we are. After the last year that was completely restarted and may be made more difficult for you to read and understand our real underlying business profitability. I mean, our sales prices are today more adapted to cost. Our industrial footprint is stronger than ever. We consider that we are gaining some competitive advantages under a phase of very ambitious industrial investments. And we are actually further diversifying the business, always keeping a particularly solid financial position. Under the basis of today's numbers and the deliberate intention to promote transparency and a business story that you all can consider predictable. We would like to provide you some color on our business outlook for the full year 2023. First, we expect to maintain a double-digit growth on sales for the full year 2023. The obvious implicit flattish volume sales flat -- sales volumes go out reflect the fact that we are running still at low inventory levels and also reflects an overall demand outlook, intentionally conservative given risk of a weaker economic context.Also, not less important. The implicit moderation on our annual sales price increases, mostly reflects the effect of a progressively higher last year comparable base, a point that we invite you to understand and analyze well and the result of moderate and progressive pricing adaptations to reflect real cost conditions. Second, despite this more modest top line contribution, we feel quite confident that our margins will remain safe at levels about 25% of sales, EBITDA of sales every quarter until the end of the year. This confidence on margins, this confidence on our levels of profitability basically reflects that our cost base, our manufacturing efficiency and all the many recent investments are giving real or are offering real results. Third, maybe more important, as a conclusion of the before, we today guide that our earnings would grow by more than 40% this year 2023, reaching targeted levels about EUR 7 per share. This number, EUR 7 per EPS for the full year 2023 intends to give you a guidance on how strong we see our operational profits this year. And fourth and last, after a period, as Inigo explained before of evident cash consumption due to well anticipated extraordinary CapEx programs and some needs also extraordinary and non-recurrent of working capital. We now expect to generate more than EUR 150 million of free cash flow for the full year 2023, something that would be more than EUR 180 million for the remaining 3 quarters of the year. This particular concentration of cash will keep us keep our leverage ratio or our financial position at quite a strong levels, even if we complete the acquisition of the remaining stake in the Brazilian company. In summary, under our view, we are today delivering a guidance for the year that includes what we consider useful for you to understand our real conditions. A sustained and sustainable solid core operating performance, forecasting levels of margins not far from our historical record levels. A full year guide on sales that take what we consider an appropriate prudence on underlying demand conditions. A proof that this won't change our expectations for strong earnings growth this year, including operating profits. And a detailed perspective to a more normalized cash generation from now that will be full year free cash flow this year will be a first reference or a starting point of our structural cash profile for the years ahead. Finally, before the Q&A, please let me end with some remarks on our -- what has been quite a dynamic recent corporate activity. As you are aware of since last January, our subsidiary in the U.K. Encirc owns the beverage, logistic filling facilities and infrastructures in Bristol, known as The Park. The business purchased further improves the range of services we provide in the U.K. and more important, creates demand and captures sales. There is a lot of strategic sense for us behind this small transaction. Moreover, cultural probably more transformational for us. In early February this year, Vidrala announced the acquisition of a minority stake in the Brazilian company Vidroporto, a very well-known for us competitive, highly competitive Brazilian manufacturer of glass containers. This is a step nothing but remarkably represents for us a very deliberate development. Whatever is the timing for now for the completion of this acquisition, please consider that this movement gives a driver for future growth for Vidrala in regions that will offer interesting opportunities in the long term.
Okay. This completes our exposition. We now give way to the Q&A session.
[Interpreted] Ladies and gentlemen, the start questions by phone will be answered first. [Operator Instructions]. The first question comes from Francisco Ruiz from BNP Paribas Exane.
Hello. Can you hear me?
Yes.
I have some questions. Some quick ones. First one, if you could give us the average price of your energy cost in the guidance for the year. Also an update on the Vidroporto remaining acquisition, if you could give us some more detail. The third question is, given the current environment, we sand-out on price increases or on price evolution for next year and also some weakness on volumes, not only on you, but in the whole industry. Have you seen any pushback on the new projects on new capacity are you coming in the U.K. or Belgium in the coming years? And last but not least is on the debt side. If you could give us more detail about what's the level of CapEx in this quarter and the working capital? How do you expect the stock to evolve in the coming in the coming quarters?And looking at your free cash flow assumption, I mean, this EUR 150 million for the rest of the year, taking into counter has been negative in the quarter. It looks quite high this level of 0.8x net debt to EBITDA. Are you conservative from that? Or are you making any wrong calculation here?
Well, thank you, Paco. Well, first point, regarding our energy costs, please let us remind that we are hedged this year 2023, 65% of our total energy, natural gas and electricity, the percentage hasn't changed since our last conference call. We feel more or less comfortable with the prices that are fixed in this hedging level despite hedging is this year economically useless, okay? What that means, that means that we are considering our energy prices approximately 10% to 15% above our current market prices, okay?More important, please let me remark because time is passing that for 2024, our hedging level is deliberately low, less than 25% so far. So that means that we are probably gaining some competitive advantage as long as we are capturing most of the recent energy drop looking at this year, looking at 2024. Second point, your question was regarding Brazil, Vidroporto. Let me externally with my position on this point because I do consider very relevant, and this is -- okay, we are really getting out of time to this process, okay? We know where it Vidroporto since years ago. We have been providing them technical assistance. And my view, our destinies to be partners. The assets of Vidroporto, the 2 factories are what we like, very well invested. Vidroporto is by far the most competitive player in Brazil, and we can see -- we can confirm that all stakeholders without any exception around Vidroporto like us as future owners, shareholders, management staff, customers, banks, administration. They are probably giving us our credit to our business integrity and our long-term industrial intentions and our more or less a solid industrial track record in other previous acquisitions. I do consider that Vidroporto on it's as industrially and financially. The majority shareholder that represents the founder family and all the great industrial legacy created by them has expressed formally its desire to sell us, and we have an agreement with them. But we won't materialize this agreement until some legal limitations that block the sales of this majority stake are fully solved. And this is not a problem for us, and we can't control this timing. We transparently want and we will take full control of Vidroporto, but we feel comfortable where we are today, and we won't accelerate events that we can't control. So this will take very time. Let's please patient. And let's remind that even with a minority stake, we are creating value for Vidrala and please let me invite you to consider that this is only the beginning of the platform we are building in South America for [indiscernible]. And this is relevant for a long an industrial company like us, okay? This month of weight will, in my opinion, soon be forgotten or diluted in our long-term history. Third point, capacity additions. Well, it's true that the last 3 years, the industry has been determined maybe extensively determined by a deficit of supply scarcity of glass and some supply chain disruptions as in many other industries. It's true, and this is great to see that the glass demand, particularly in Europe and the U.K. over these periods, particularly after the pandemic has been performing, in some cases, surprisingly positive. So, okay? The conclusion behind this is that glass has a brighter future than ever, okay? And this is good.As a result of this, a number of players in the industry, and we are not an exception. We have been trying to expand capacity and projects to expand capacity in this capital-intensive industry, it takes time, okay? And we still consider that there is a deficit between supply and demand. Obviously, demand conditions, mostly macroeconomic conditions could be changing, and we need to monitor this very carefully. Vidrala will monitor carefully, underlying real demand conditions frequently or periodically to adapt our inventories, our utilization rates and more our expansionary ambitious with all needed [indiscernible]. And I hope that the rest of the industry do the same, okay? But we don't know. So far, we still haven't received any news about the closures or cancellations of any particular project. But please consider that most of the projects that are on track or have been announced are projects that won't affect us significantly, okay? We are not a [indiscernible] player. We are the leaders in Southern Europe. We are the leaders in the U.K., and we do have a level of market share, control of the market and competitiveness that should give us some level of protection. Even if all these projects to add capacity takes place in a future of maybe weaker demand conditions, okay?Third point CapEx, Inigo, please?
Okay. Paco, just to clarify on the working capital of this first quarter, you know that this first quarter is not the strongest in terms of free cash flow generation, mainly because we usually have the payment of the interim dividend. It is something around EUR 30 million this year. And on top of that, this year, we have a special item, which is around EUR 90 million related to M&A transactions, okay. On top of that, what we see is a CapEx figure for this quarter around EUR 35 million and mainly the pure free cash flow generation is explained by a EUR 90 million negative effect in terms of working capital, explained by both an increase of stocks, both versus the previous year, but also versus '22 year-end. You know that we were very tight. So this is somehow something needed. And second of all, still the effect of additional round of price increases. Okay. Just trying to give you a picture for the full year, we expect CapEx to be something in the range of EUR 150 million for the full year. Again, working capital should progressively normalize, especially in the second half of 2023. Let's say, may still be cash outflow, but it should be closer to more historical levels, something in the range of 1% or 2% of sales, okay. And this means that, okay. In terms of leverage ratio, we could be, as we are guiding below the 0.8x debt to EBITDA.
[Operator Instructions]. The next question comes from Inigo Egusquiza from Kepler Cheuvreux.
Raul, can you hear me?
Perfectly well.
Okay. So just, I would say, a follow-up on Paco questions because, I mean, most of my questions have been already answered in this first -- in this first question from Paco. So just a follow-up on the volumes. You have given any of the breakdown on the top line for Q1. And if I understood well, volumes are falling 3%. If you can give us some more details in terms of this negative volumes by markets and by categories of products? Or how can you explain this minus 3%? Some other players were also publishing weak volumes in Q1. But just if you cancer with us your explanation. And on the same topic on volumes, Raul, on your guidance for the top line that you were mentioning this solid sustained double-digit revenues with this pricing moderation quarter after quarter, if you can give us what can we expect in terms of volumes for the full year 2023.
Thank you, Inigo. Just very quick on the volume performance for the first quarter in 2023. We see volumes, let's say, in our 2 biggest divisions, business units in Continental Europe. Volumes are down 6% approximately, including both Italy and the rest of Iberia. In Italy, the decline is even higher, okay? You know that we have a small business on that division that is -- okay, more seasonal and especially dependent on a small number of big customers. We have seen some customer order deferrals in first quarter, but okay, they should normalize throughout the issue, we are not especially worried with the Italian case. And probably more relevant, it is like to see the results improvement in Italy since our investment plan and commercial repositioning, okay. Volumes in the U.K. are growing in the first quarter by 3%.
And let me add that by segment situation is more or less aligned. And the only point to mention is that we are seeing somewhat weaker in those segments that are more cyclical, for example, when we compare year to [indiscernible], okay? But nothing yet particularly relevant, okay. The first explanation of our weak volumes in the first quarter is, please do always consider that the first quarter is not particularly illustrative for us from a natural seasonality point of view. We need to understand that our sales volume performance since the last year is still determined by our tight inventory levels while it is obviously very evident from our competitors, from customers, from macro indicators that glass demand is in our regions of activity during the first quarter is down, probably down maybe around 5% to the prior year.And this is maybe reflecting some unavoidable impact of economic slowdown and maybe also some normalization or restocking after a very good and very high comparable levels last year and even the year before, okay? Having said that, the second quarter so far to give you some confidence on our guidance for the full year, the second quarter so far evolve as expected, basically flat. And our customers today, not that we are to enter into the peak season of sales, still keep on insisting us to secure supply of glass. And glass demand remains under a solid momentum compared to other materials, and we are particularly well prepared better than a year ago to serve our customers and capture any demand conditions, okay? So all in, as a conclusion, we still predict flat volumes for the full year 2023. And in any case, let me remind you that we didn't depend on volume growth to deliver on our margins and profit targets, okay? So that's the reason why we do feel confident in terms of EPS and in terms of margins. Maybe I should add the view on the demand side on the macroeconomic conditions will be now put on 2024 and beyond. But this is probably another study. We will discuss early in next calls and then probably our business will be may be different or particularly strong or a stronger position, diversified and competitive.
There are no further questions by phone. I will turn the floor to Mr. Gomez and Mr. Mendieta.
Okay. Just taking a look at the webcast, there are some additional questions. Some of them have been already answered. Just taking the ones that are still pending, okay? First of all, some clarification on financial results or results below EBIT in the first quarter of 2023. For you to understand the contribution of Vidroporto participation that has been accounted through the equity method in this first quarter is EUR 1.8 million. So this means that financial results, excluding this impact, is at minus EUR 2.2 million, okay, just to clarify that figure. The next was during 2022, we mentioned that some of our contracts had price adjustment formulas. Given the current lower energy prices, will you need to give back some of the price hikes you implemented through [indiscernible]
Yes. And let me add with regards to our price increases, some of our [indiscernible] so far for the remainder of the year, please understand the comparable basis. In 2022, you remember that we made -- we were forced to implement different consecutive price increases to adapt our prices to abnormal cost inflationary pressures. So that means that our prices in 2022 started to grow by around 10% and grew by more than 30% for the last 3 quarters of the year 2022. So should prices remain where they are today, our annual valuation will mathematically moderate to less than 15% for the remainder of the year, okay? And this is only the base effect. It's that simple and won't affect profitability. Please understand this comparable base effect. Second, as you negotiate and as you probably remember, 40% of our sales are already comprised by long-term supply agreements, where prices are dictated by automatic price adjustment formulas that very efficiently. We like this very efficiently help us secure our margins and protect our margins, okay? This portion of our sales will progressively as a result of this, reflect some price adaptations if cost relax, not affecting our margins in value or in percentage. And third, we have today that should our external underlying cost really relaxed on a sustained basis, far beyond the energy factor and you can believe us there is still a lot of inflation across our business. In some cases, consolidated inflation in many factors from raw materials to labor. Should that happens, we will defer with our customers, we will refer with the market, and we will accept some progressive price adaptations that again won't affect our margins and will capture and secure some positive price to cost spreads.
Thanks. Now going into the LATAM debate. We are asked, you clearly have ambitions to build a presence in LATAM, is it's conditional on securing foothold in Brazil first and then considering other countries? Or can you enter other countries before Brazil is secured?
Thank you. Well, it's a good question. Listen, Vidrala, you need to understand this is still from a strategic point of view, quite a conservative company, okay? The decisions we are taking are the result of deliberate consumes in deep internal deliberations. So Brazil is a big country, South America is a big region, full of opportunities, but with not many glass players active in this region. So opportunities are a few. The opportunity -- the main opportunity that target our desire is one, Vidroporto. So we would like to first complete the acquisition of Vidroporto. This period of weight is something that is becoming very useful for us because we are learning and learning more about what that means for Vidrala entering into a business in Brazil or in South America. So I really think that is becoming quite an illustrative interesting and strategically useful period. So the question -- the answer is no, we will first complete with Vidroporto. We will then understand how we can grow with Vidroporto and help our big customers deliver the ambitious expansionary projects in Brazil before thinking in another steps. Obviously, looking at the future, as I said before, we also be aware that we are nothing but opening at our -- for federal. Okay.
The next question, again, says you mentioned that Vidroporto is a platform to grow in LATAM. From now on, will LATAM be your main growth area? If this is the case, we'll be able to achieve equal or higher return levels adjusted for FX risk than in Europe. And okay, beyond Brazil, will you consider other countries in LATAM, I think that this has already been answered. The first question is...
Well, if you take a look at the numbers of our competitors and luckily, this is very transparent because most of our public competitors are quite active in South America, and particularly in Brazil, you can see that Brazil is a grain market for the glass packaging industry. And it's a market a regional focus for expansionary projects for big beverage companies, particularly in the beer segment. And that means that Brazil is from an operational point of view, is a country that is structurally more profitable than other more mature markets like the European or the U.K. market, okay? But in terms of return on capital employed, basically situation is aligned with our situation in Europe in our traditional business and with our targets, okay? Brazil is needs to be more profitable in terms of margins. Something that will help expand margins of Vidrala is if we complete this acquisition, but Brazil is a country where the cost of capital is higher where we need to invest more to capture growth. Growth that is not happening in the mature European markets. And that's the reason to sustain this higher on average levels of profitability.
Thanks. We have now answered all the questions [indiscernible] webcast. So once again, thank you all for the time that you dedicate to us and just remind you that we remain at your complete disposal for any further questions that may arise. Thank you very much.
Thank you very much. Please keep on consuming on glass. Good for you. Thank you.
[Interpreted] Ladies and gentlemen, thank you for your participation. You may now disconnect.[Statements in English on this transcript were spoken by an interpreter present on the live call.]