Vidrala SA

MAD:VID

Earnings Call Analysis

Vidrala sees strong Q1 2024 with strategic shifts.

In Q1 2024, Vidrala reported revenues of €419.4 million, fueled by a 10% rise in volumes and a -9% price mix effect. Despite a challenging environment in Iberia and Southeast Europe, the company sustained its profits. In Brazil, Vidroporto showed robust growth, with EBITDA expected to exceed 25%. Vidrala's EBITDA margin was 26.2%. The company's outlook for 2024 forecasts an EBITDA above €450 million and free cash flow over €180 million. The strategic shift has positioned Vidrala favorably, focusing on key markets and maintaining a solid financial stance.

A Strong Start to 2024

Vidrala kicked off 2024 with solid results, recording revenues of EUR 419.4 million and an EBITDA of almost EUR 110 million, which translates to an earnings per share (EPS) of EUR 1.64. The company's revenue growth, at 1.4% year-on-year on a constant currency basis, came primarily from a significant increase in volumes, which were up by 10%, balancing out a negative price mix effect of -9%.

Impact of Strategic Changes

The revenue figures reflect a strategic transition after parting ways with Vidrala Italia. From March 2024, Italy will be accounted for as a discontinued operation. This shift contributed an additional 8% to revenue growth, indicating the significant operational restructuring that has occurred. EBITDA reported for the first quarter was EUR 109.8 million, showing a 4.7% decline organically compared to the previous year, mainly mitigated by the 'scope effect' from the reorganizations.

Regional Performance Insights

Breaking down performance by regions, Iberia showed flat to slightly positive volume growth, while the UK & Ireland achieved an impressive growth of about 9%. However, it was Brazil that shone brightest with a remarkable 55% increase in volumes year-on-year, thanks to recent capacity expansions. Despite a challenging pricing environment in Europe, with expectations of downwards adjustments of 5% to 10% over the full year, Vidrala remains optimistic, particularly about its growth prospects in Brazil.

Future Guidance and Financial Projections

Vidrala provided a robust year-end outlook, anticipating an EBITDA gain exceeding EUR 450 million and free cash flow generation greater than EUR 180 million for 2024. Interestingly, they maintain a cautious stance on CAPEX, planning to keep it high between EUR 150 million and EUR 160 million, primarily for capacity enhancements and sustainability initiatives.

Market Position and Competitive Strategy

Vidrala's strategic pivot toward key growth areas has positioned it well to capture market share in emerging regions. The management emphasized that their focus remains on customer-driven strategies, enhanced service offerings, and their commitment to sustainable practices. The solid performance in Brazil, specifically through Vidroporto, exemplifies the effectiveness of their previous investments and decisions.

Looking Ahead

As we advance through 2024, Vidrala is set to continue navigating a competitive landscape, particularly in the context of fluctuating raw material prices and demand cycles. The company emphasizes that while first-quarter results reflect resilience, the second half of the year is expected to show improved comparisons in terms of sales performance in Iberia and other European operations. The cautious optimism is palpable, with plans to leverage the full utilization of capacity while remaining vigilant about potential market segments.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, and welcome to the conference call organized by Vidrala to present its 2024 First Quarter Results.

Vidrala will be represented in this meeting by Raul Gomez, incoming CEO; 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 is 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 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.

[Iñigo de la Rica, executive]

Thank you. Good afternoon to everyone, and thank you for the time that you dedicate to attend this call. As announced, Videla has published this morning its 2024 first quarter results. And additionally, we have also published the results presentation that will be used as supporting material to this conference call. As always, 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.

So starting with the main magnitudes. In the first quarter of 2024, we achieved as most relevant business figures, revenues above EUR 419 million and EBITDA of almost EUR 110 million and a net income equivalent to an EPS, earnings per share of EUR 1.64. Net debt at the end of the period stood at EUR 530 million, which is equivalent to a leverage ratio of 1.2x debt pro forma EBITDA, pro forma EBITDA that considers the contribution of the last 12 months of the report.

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 419.4 million.

As it is shown in the graph, this figure is the result of a 1.4% growth at constant currency and comparable scope. Volumes were up in the range of 10%, mostly offset by a minus 9% price mix effect. Scope, which aggregates the combined effects of the incorporation of 2023 year-to-date results of the report and the exclusion of Vidrala Italia since the 1st of March 2024. Again, this scope effect contributed an additional 8% to revenue growth.

Following the order of key business figures referred to at the beginning, we analyze with the same breakdown the variation of operating income. 2024 first quarter EBITDA amounted to EUR 109.8 million, reflecting a minus 4.7% organic year-on-year variation, which was more than compensated by the scope contribution. These operating figures resulted in an EBITDA margin, EBITDA sales of 26.2%, which represents a contraction of approximately 40 basis points compared to 26.6% registered in the previous year.

In this slide, on Slide 7, we present the distribution of sales and EBITDA by business units under the new perimeter that is including Vidroporto in 2023 figures and fully excluding the results of Vidrala Italia in 2024. Although, as you know, it has -- Italy has contributed to reported sales and EBITDA in the first 2 months of 2024, okay? And from March on, it will be reported as discontinued operations, contributing to net profit until the sale becomes effective. So the graph shows a weaker performance in Iberia, negatively affected by price adaptations, still suboptimal cost absorption due to lower production and also partially the calendar effect regarding this decision.

Results in distributions should progressively improve as competition basis becomes easier towards the second half of the year. The U.K. continues to do well, supported by new demand for glass containers we are creating through the field business and integration of the part. And Brazil experiences the second round effects of the recent capacity expansion project in the Southeast unit in operations since mid 2023.

Finally, we analyze free cash flow generation in detail with the help of this chart on Slide 8 that reconstructs the cash conversion accumulated for the last 12 months in order to fully normalize our annual cash profile. So starting from an EBITDA margin of 25.2%. We have dedicated 9.6% of sales to investment and another 4.5% to the aggregate of working capital, financials and taxes.

As a result, free cash flow generation stands about 11% of sales and also consequently, net debt at the end of March 2024, closed up EUR 529.7 million including this figure, the payments for recent M&A transaction and incorporating also the acquired debt. And now before turning to the Q&A session, I pass the word to Raul, so that he can start main conclusions or highlights and make additional comments that we consider as appropriate.

[Rául Merino, executive]

Thank you Iñigo for the huge job. And thank you all for attending this call today. We really appreciate your time in a slightly different time slot than useful. Today is a busy day for us as we held our Annual General Meeting, an event that marks an opportunity to make public for you our outlook for the full year and outlook for the full year that we will surely discuss in this conference. Well, our results published today for the first quarter of 2024 probably helped us to start putting on evidence the strong fundamentals of our business as it is today. And our business today is different.

We now manage 3 different separated business units in 3 different geographies after a conscious and clear refocusing of our business in the strategic markets. Three different areas that [indiscernible] create a great business combination. As an example of this, let me explain this with more detail, let's see our results published today. First, in our more traditional markets in Iberia and Southeast Europe, we have been able to sustain our profits despite having been forced to reduce our utilization rates are minimum levels rarely seen before in order to adapt to our inventories after the share drop in demand seen last year.

Yes, it's true that we are seeing our demand in this area showing some signs of recovery, but demand is still weaker than and far from expected a year ago. And our prices are progressively being adapted downwards to the new inflationary conditions. So this is a context. Our margins in this region that put into value our results because our results are counted on internal actions on our competitiveness and on the benefits obtained from our capacity realignment plan executed during the last 3, 4 years. In our mind, that is at the high operating profit levels achieved last year in this region -- in this unit remains safe.

Second, in the U.K. and Ireland, we are there progressively capturing demand as a result of the contribution of the additional bottling activity acquired a year ago. So already remember that. That means that our business in the U.K. and Ireland is even more unique case in the packaging industry that offers a unique range of services that help us grow the business despite the demand context.

Third, the U.K. and Ireland is as mature as it is in Europe. So in this region, our operating profits are expected to keep on expanding from the current levels, and our margins consequently still be higher at the end of this year than they are today. And third, and obviously more important for us. In Brazil, we are living as expected, a completely different business context, a context of real graph, a context of sales volume growth after the expansionary investments made in 2023.

The performance of the business we can see in Vidroporto evidence the quality of the decisions made in the past and the rationale behind our entry into Brazil. We announced a month ago, you probably remember that, that Vidroporto see a growth of EBITDA in value this year of more than 25% and we are obviously on track to exceed this number. As we are executing synergies rapidly, the business is probably to be quite competitive expected.

Our customers are responding well to the new capacity. And I would say the overall consumer environment in Brazil remains quite solid. So under this context, we today communicate our annual official outlook forecasting an EBITDA value for the full year 2024 above EUR 450 million. After, as Inigo said before, having discontinued the Italian business since the end of February this year. And we are also announcing a forecast of an annual free cash flow generation of more than EUR 180 million. Despite our organic CapEx will deliberately remain at high and ambitious levels to better prepare the business for the future.

So in our conclusion, this business performance shows the first effects of our strategic plan that has been firmly directed to diversify the business towards new growing regions to expand differential services as an example of what we did in the U.K. to realign our industrial footprint and to selectively enhance our manufacturing facilities with our customer in mind and a clear focus on making our products and supplying our services in the most sustainable way.

We Vidrala are today a different and stronger company with leading competitive positions we focused on 3 clearly strategic and core markets. And we have been able to accelerate this progress maintaining a strict capital discipline as it is shown in our solid financial position and in our leverage rating. A financial position that will boost us to remain dynamic, prepared to invest organically to create industrial future and prepared to continue returning cash to our shareholders in an attractive manner. That ends my exposition. Thank you.

[Iñigo de la Rica, executive]

Thank you, Raul. This completes our exposition. So we now give way to the Q&A session.

[Operator]

[Operator Instructions]

First question comes from Alberto Espelosín from JB Capital. Now your line is open.

[Alberto Espelosín González-Simarro, analyst]

Congratulations on the results. I have 3 questions, if I might. My first one is on volumes. If I understood correctly, you said that organic volume growth was 10% this quarter. If you could please share this figure in Brazil and Europe, it will be great. And what volume growth are you expecting in your guidance by geography? That will be also great.

My second question is on Brazil. EBITDA margin this quarter was 42% in the region. This is much higher than in the fourth quarter of 2023. Could you please provide a bit more color on the reasons behind this? And how sustainable is this margin for the upcoming year?

And my third question also on Brazil on Vidroporto. Top line is very strong even after accounting for the new furnace. I assume that you are pretty much at full capacity you could please confirm this? And if so, are you already looking to expansion in the country? Or when do you expect to need to add capacity in Brazil?

[Iñigo de la Rica, executive]

Thank you very much, Alberto. So taking your first question, you're right. Volumes in the quarter were up in the range of 10% for the group. And this has different performance by regions, okay? In the business unit, we name Iberia and others, we see volumes slightly in the positive range. This is between flat to plus 1% in the first quarter.

In the U.K. & Ireland, volumes are up in the range of 9% with a specific condition or characteristics regarding our film business. And finally, in Brazil, volumes are up more than 55% quarter -- first quarter 2024 versus 2023, okay?

As you know, these first 2 quarters compared with 2023, where we still didn't have the effect of the capacity expansion in Brazil. So this means that we should see significant growth in the first half of 2024 versus the first half of 2023, but this comparison should moderate significantly in the second half in Brazil just because of comparison basis effect.

[Rául Merino, executive]

Just to add on this Alberto, let's say that we are not particularly surprised about the margins that we are seeing today that we are reporting today in Brazil. This is basically under our plans. Margins in Brazil are -- our margins in Brazil are reflecting the planned contribution of accelerated synergies execution, a solid response from our customers, particularly big customers to the new capacity added in the second half of last year, as Inigo said before, and a number of assets, 2 assets that are particularly of quality and the level of competitiveness of Vidroporto is performing as expected.

That means that our margins are where we were expecting to be. That means that our margins are sustainable for the remainder of the year. But just keep in mind that in terms of seasonality, natural seasonality in Brazil, the first and the fourth quarter are more big sales seasons, something that is -- that gives a particularly good combination with the big seasons of the second half third quarter in the rest of our business, okay? So margins are sustainable, but won't be expanded significantly for the remainder of the year.

In terms of utilization rates, where we are is still a little bit soon. We are still under the process of capturing the sales volumes needed to put all our capacity in sale. We are running at full capacity as to our customers, our demand is responding well. That's very good news. That means that we made a good efficient entering into Brazil at the right timing. But it is still a little bit soon, let us ask a little bit more time before the -- not before the end of the year to analyze if we are actually exhausted or saturated in terms of production capacity, okay?

We are not actively looking for additional opportunities in Brazil, not yet. We are in Brazil to create a platform for [indiscernible]. So just to clarify, giving you a realistic scenario of where we are in terms of M&A activity and a realistic scenario of why we are entering to South America, okay? Hope that helps.

[Operator]

The next question comes from [indiscernible] from BNP Paribas Exane.

[Unknown Analyst]

Congratulations for the good results and for your new position role. I have a follow-up question and a couple of new ones. The first one is you commented that volumes has gone 10%, but this includes Brazil as I imagine. So I would like to know, out of the 1.4% improvement in organic, how much is price, how much is volume?

The second question is if you could quantify how much of the improvement in U.K. is coming from M&A, I mean, from the park, mainly not only on the acquisition, but also the volumes that you are delivering there? And the third one is on the guidance, if you could give us an idea of how much of your sales guidance is pretty much, I mean its Brazil [indiscernible].

[Iñigo de la Rica, executive]

Okay, Paco. Just going back to volumes and prices, okay? At the group level, volumes are up plus 10%, as we stated before, and prices are down minus 8.6%, okay? This gives us this organic growth of 1.4%. If we exclude Brazil...

[Unknown Analyst]

Sorry, Inigo. But if you say before, not that U.K. is plus 10% and Europe is plus 1%, how do you get to the top 10% organic?

[Iñigo de la Rica, executive]

The plus 10% is at the group level.

[Unknown Analyst]

Yes. But organic does not include Brazil...

[Iñigo de la Rica, executive]

Exactly.

[Unknown Analyst]

So mainly flattish in Europe and plus 10% in U.K.

[Iñigo de la Rica, executive]

But organic what shows of Brazil, Paco is the growth -- the complete growth with this 55% is growth of Brazil 2024 versus Brazil 2023, okay? So this growth is being captured in volumes too is organic.

[Unknown Analyst]

Yes, okay. But this is on a pro forma basis.

[Iñigo de la Rica, executive]

Yes, that's why what I'm saying is Iberia, it's flattish. And the U.K., it's in the range of 10% growth of volumes, okay? So more or less with a similar weight, slightly more weight in terms of sales of Iberia, we should be in the, let's say, mid-single digit of volume growth in -- excluding Brazil, completely excluding Brazil.

And prices, just to clarify, Iberia is in the range of double-digit down and the U.K. and Ireland is more resilient in the range of minus 1%. Just to clarify for everyone in the call -- the organic growth of the new capacity in Brazil, let's say, the growth of Brazil Q1 204 versus Q1 2023 is included in organic growth. In inorganic growth or a scope effect, we are including the results of 2023 of Vidroporto.

[Rául Merino, executive]

Regarding the specific situation of our sales volumes, our demand context in the U.K. and Ireland, Paco, I would say that that's a simple response. All the growth that we are seeing is due to the contribution of the bottling facilities acquired in [indiscernible]. For the rest, organically, the market is basically flat, something that is quite consistent with what our customers, our competitors are saying about this region. And something that also explains well the good rationale and the good timing of the execution of this something that was made to capture demand.

[Iñigo de la Rica, executive]

And then finally, on the full-year guidance, top line full-year guidance -- let's consider that Vidroporto after having released the figures for the full quarter should contribute in the range of EUR 200 million of sales. And Italy, of course, depending on the performance for the rest of the year, but exclusion should be something that should be, let's say, 10 or 12 months exclusion of Italy. And this should be something above EUR 100 million, considering the figures that we reported in Italy in 2023.

[Operator]

The next question comes from Inigo Egusquiza from Kepler Cheuvreux.

[Íñigo Egusquiza, analyst]

Good afternoon, Raul and Inigo. I have just 2 quick questions on my side. The first one is a follow-up on pricing in Europe. You mentioned that prices are falling by around 10%. I think this is the number that I got. What is the evolution that you expect for the full year? I guess the comps in terms of pricing, it's easier as we go throughout the year. That's the impression that I have. Or you should expect it seems that demand is recovering, as you are mentioning.

So we shouldn't expect additional price adaptation in the following quarters. I don't know what's your view on this point in terms of pricing for Europe? And then the second question is on the shareholder remuneration is just to double check with you guys if the -- I mean, the extraordinary dividend that you announced in a few weeks ago on the sale of Italy to Verallia, I guess it has been approved by the AGM and if the sale goes ahead as we expect you are going to pay this EUR 4 extraordinary dividend per share.

[Iñigo de la Rica, executive]

Okay. Thank you, Inigo. Pricing in Europe, you're right, we are in the range of double digit down as expected. If you remember, we were expecting a price mix effect for 2024, something in the range of minus 5% to minus 10% at the group level. And we are -- we are in this figure in Q1, and we are probably still in this range for the full year, okay? And now Raul will make some additional comments on pricing, specifically to Europe, but probably comparison basis, it's easier, especially on the volume side, not that much on pricing. I'm not sure if you want to make any additional comments Raul.

[Rául Merino, executive]

Just an additional comment to let you to invite you to understand well the comparison basis of last year quarter-by-quarter. As you said Inigo, as you know, I know that you know this, our sales volumes went worse progressively last year, something that will condition will dictate our comparison basis for the remainder of this year, quarter-by-quarter, okay?

You remember that our sales volumes were particularly weak during the third and the fourth quarter last year, something that will make comparisons easier. Our prices went progressively, but slightly. The difference was a small down last year as well. But please keep in mind that a significant growing amount of our sales prices, particularly if we include Brazil and today dictated 40% of our sales volumes by price adjustment formulas, something that creates probably a more confident basis of analysis for you, more predictable.

But something that means that automatically, mathematically, some of our prices will be progressively adopted if cost relaxed without affecting our value. So our prices at the end of the year should be lower than today, but slightly lower, okay? Now all the focus in terms of pricing is put on 2025. So the difference is basically the comparison basis the remainder of the year will be more or less stable in that sense.

[Iñigo de la Rica, executive]

And regarding your second question on the extraordinary dividend that is subject to the sale of Italy. You're right, this has been approved by the Annual General Meeting, and we will announce the timing of this extraordinary dividend once the transaction of Italy finally sold. You know that this is pending usual approvals in this case, from antitrust. And we expect this officially, as we stated in our communication to the Spanish between the second and the third quarter. Hopefully, this can be more the second than the third. That is something that, as you can imagine, we do not control the timing.

[Operator]

The next question comes from Jose Antonio Suarez from Caixa Bank.

[Jose Antonio Suarez Roig, analyst]

I have 3, if I may. First one will be related to the CapEx level expected for 2024. You just mentioned you expect a strong year in CapEx investment. If you could provide the range of some [indiscernible] regarding which CapEx level should we expect for this year? The second one is related with your guidance. You just provided -- you mentioned you expected [indiscernible] of free cash flow for 2024 of EUR 180 million organic excluded payment for M&A [indiscernible]. I would like to know if you could give us some more visibility on how you're calculating the sales flow, if you may. And a third 1 I have, it's regarding, if you have some -- already some visibility for expectation in terms of prices for 2025 considering how natural gas and energy prices have been evolving recently. If you have any visibility on negotiations, we did expect for price evolution going to 2025. It will be very, very helpful. Thank you very much.

[Iñigo de la Rica, executive]

Thank you, Jose Antonio. So on your first question on CapEx, which is probably also related to the second one regarding the guidance of free cash flow, okay? Because it plays also a role on this free cash flow calculation. We're estimating a CapEx 2024 figure of CapEx in the range of EUR 150 million to EUR 160 million cash out, which includes the usual CapEx for replacement. Also in some cases, when we are facing the refurbishment of specific furnaces, we are implementing technological improvements and finally includes also CapEx for sustainability projects mainly related to the deployment of solar photovoltaic plants or installations in specific regions, okay?

Regarding the CapEx -- the free cash flow guidance of above EUR 180 million, this is considering this EBITDA of EUR 450 million. This is considering that both in terms of financials and taxes, we should consider that the situation or the context of the group has changed with incorporation of Vidroporto Brazil, where we see higher interest rates than the historical Vidrala. Historically, we had interest rates in the range of 1%, and we are seeing interest rates in Brazil in the range of 13%, 14%. And second of all, also the tax rate in Brazil is higher than average in Europe, okay?

So you should consider higher cash out this year in both cases, interests and taxes, okay? And we'll see how working capital performs if volumes perform as expected, overall at the group on a positive performance in 2024, probably we should see a better performance of working capital.

If not, I think that the working capital as of today to be prudent, the cash-out for working capital in the range of 1%, 2% of sales in line with historical level is reasonable or prudent, okay? It could probably be above this guidance of EUR 180 million if some of these elements perform better than expected.

[Rául Merino, executive]

Just to clarify and to complete this point, Jose Antonio, our free cash flow calculation is that simple. It's just a net debt variation for real free cash flow, excluding some of the remuneration and including M&A. So I hope you understand the simplicity of our calculation because we want to be very transparent on that.

And the last question is regarding your question regarding pricing. Well, our official message is also very clear in the sense we will progressively and transparent about our prices to the prevailing external cost conditions with the priority of keeping our margins safe in every region, okay? And this is where we are. In some cases, our prices will be adapted mathematically as a result of the recalculation of the price formulas. In some of the business, our prices will be adapted voluntarily depending on our specific business conditions.

But I do feel comfortable with a message as long as we can see a constructive, competitive environment in the marketplace. And I can see that some of our costs, particularly energy cost that affected us or concerned us that much in the last years are under a solid process of normalization, relaxation, something that is very good news to recover market share against alternatives and less sustainable packaging materials.

[Unknown Analyst]

If I may be a follow-up on the one regarding free colon. With what you've been mentioning, just in terms of net debt levels for the full year 2024 to see more or less in which line should we move [indiscernible] the expected billing of EUR 130 million in the sales of Italy. And that which should be our level more or less the leverage level we should expect company at year-end 2024, for example, EUR 230 million and the 0.5, which more or less level should we then should we expect for the year-end 2024?

[Rául Merino, executive]

That's an easy question, okay? If we complete the sale of Italy. And if we pay an extraordinary dividend of EUR 130 million after the sale of Italy for a total consideration of EUR 230 million. And as long as we will complete our share buyback program on track before the end of the year. And we are still pending of distributing the complementary dividend, the scale dividend in July. And if we achieved our outlook at EBITDA levels and free cash flow levels, that means that our net debt at the end of the year should be around 0.5, 0.6x net debt to last 12 months pro forma EBITDA, 0.5% to 0.6x.

[Operator]

The next question comes from Fraser Donlon from Berenberg.

[Fraser Donlon, analyst]

Thanks for the presentation. I have 3, maybe 4 questions. So the first was just to understand if there are any, let's say, negative impacts relating to hedging, which could have been more expensive, for example, in Q1, which should say, normalize or become easier in the next quarters. And if you could maybe somehow color that trend a little bit.

The second topic, I just wondered if you could comment on the net kind of impact you see of localization, delocalization of customers and which regions that could positively or negatively impact? And then the final question I had was just on the U.K., obviously, it seems to be going quite well. And I think it was announced that you could work a bit with Diageo in the midterm on the new furnace, for example, in the U.K. and Elton.

What do you see as kind of the midterm opportunity here to further expand the group in the U.K.? That's perfect. Those are my 3 questions.

[Iñigo de la Rica, executive]

Thank you very much, Fraser. So on your first question regarding hedging levels, you can consider that we are hedged in the range of 60% for 2024 and the range of 50% of 2025, okay? Out of this 60% for 2024, as you can imagine, hedging level is slightly higher for the first half of the year, slightly lower for the second half of the year, okay?

This means that, yes, there has been an impact in terms of margins due to hedging in the first half of -- in the first quarter, the impact that we are not disclosing that is not relevant because hedging levels were also not significantly above of market levels in the first quarter. But as you were mentioning and the analysis is right, let's say, the comparison should be easier for the remainder of the year.

[Rául Merino, executive]

The second question regarding your -- if I understood well, regarding the potential impacts or the current impacts of utilization rates, let's say that you probably remember that we started the year at particularly low, less than optimal utilization rates in Iberia and our unit segment, Iberia and rest of Mainland Europe, as -- and that has affected significantly our margin during the first quarter as long as demand is showing some signs of recovery.

And as long as that as we are today, now entering into the peak sales season, we are increasing our utilization rates and that will have a positive impact on our margins in the second quarter that will be more normal to our historical levels. And this is captured in our outlook in our forecast and the guidance that we are publishing today. In the rest of the regions, particularly in Brazil, we had close to running at full capacity. So you shouldn't see any positive or negative impact in terms of utilization rates.

The key unit segment -- business segment to analyze in that sense is Iberia and Mainland Europe. And the last question, okay, you referred to potential opportunities with one particular customer in the U.K. and Ireland, let me expand a little bit the explanation and let's start speaking about the potential opportunity with specific big brand owners, global brand owners across the beverages industry.

We are showing some signs of positivity in the way big names in the beverage industry see us and that will probably accelerate potential opportunities, not only in the U.K. and Ireland, but also in South America. And we are here to accept the challenge and start discussing with these customers, okay? Our customer base is changing significantly without affecting significantly our profitability levels, something that is very good news. Vidrala is becoming a glass player more and more focused on long runs on volumes, on competitiveness, and we are very proud of saying that, okay? As it is found in our margins.

In the specific case of potential opportunities in Europe, the U.K. or Ireland, let me clarify that, okay? The number of opportunities we were working with, with some specific customers, particularly the opportunity that you mentioned was being discussed 2 years ago. And last year, the demand environment changed for the worse. So we probably need to be a little bit more patient and see what happens and what is the level of real recovery we experienced this year.

[Operator]

The next question from Cole Hathorn from Jefferies.

[Cole Hathorn, analyst]

I just like a little bit of color if you're seeing anything from your spirits and beer business on promotional activity. I mean we're hearing in a number of other packaging substrates that a lot of the branded companies are increasingly trying to promotional activity. And I'm just wondering how that impacts Vidrala. Is it kind of an opportunity for more volumes? Or can you get paid for particular product runs a little bit more. So I'm just wondering how kind of promotional activity, particularly in the beer and soft drinks element impacts you? And then following on from that, are you expecting anything with the Olympics coming up or the Euros? . Thank you.

[Iñigo de la Rica, executive]

Sorry, Cole. We didn't get your question. So can you please repeat the question?

[Cole Hathorn, analyst]

I'm trying to understand if Vidrala will see any benefit from promotional activities from some of the branded companies, We're seeing that in some other packaging substrates. And I'm wondering if the glass business, particularly for beer and soft drinks, there might be promotional activities for the Euros or for Olympics and you might be getting paid -- better mix by changing your packaging or just better volumes over the summer period into these events.

[Rául Merino, executive]

Well, actually, what we are seeing, particularly in the beer space, the rest of the segments are probably in a different, weaker landscape. But in the beer space, what we are seeing is this -- okay, some positive effects of this promotional activity, and we are seeing beer consumers or beer big brand owners promoting more and more premium products, premium brands, that are normally packaged in glass, in one-way glass, not returnable glass, something that creates a portion of demand.

But last year, a year ago, our customers in the beer space were particularly concerned about the weakness of demand in Europe and the U.K. Today, it's good to see, probably you took a look at the numbers of some of our bigger competitors in the beer space. It's good to see that they are particularly more ambitious, optimistic. And in this level of optimizing what we can see is prioritization to our premium brands, and this is good for us. We are prepared to match the challenge. We are prepared to offer them the values they need, and we are prepared to help them substitute glass -- one-way glass to promote their premium brands against other substrates or packaging materials, okay? That's happening, but that won't change significantly our commercial positioning for the remainder of the year.

And the Olympics or any extraordinary events like this is a good news, but Vidrala is changing significantly. We are a more geographically diverse company, and that means that a certain temporary effects of events like this, positive or negative effects, are becoming less relevant to explain our business prospect, okay? But that's -- that should be theoretically good news.

[Operator]

The next question comes from Paco Ruiz from BNP Paribas Exane.

[Francisco Ruiz, analyst]

In my question, I mean some follow-ups. The first one is if you could tell us what you're going to do with the extra bit of cash that you're going to generate in this year? I mean it is [indiscernible] the debt in Brazil or you would like to keep some level in Brazil in order to [indiscernible] with the [indiscernible] ?

The second question is, I remember that you commented that at the end of last year that you expect EBITDA, excluding Brazil or in Europe to be above last 2023, 2024 -- this is just a case for this year? And the third question is you said that you do not expect any M&A activity in Brazil, do you expect expansion of your current facilities in terms of what capacity you are running.

[Iñigo de la Rica, executive]

Okay. , just to clarify on -- on your second question, okay, on the guidance on EPS. The guidance on EPS and the second and the third column of the slide of the guidance.

[Francisco Ruiz, analyst]

It's on EBITDA. EBITDA. [indiscernible] EPS, that is on EBITDA.

[Iñigo de la Rica, executive]

Okay. Can you repeat your question on that point?

[Francisco Ruiz, analyst]

You commented that for 2024 EBITDA in Europe should be higher than 2023 EBITDA in Europe. Is this still the case after Q1?

[Iñigo de la Rica, executive]

No. What we were saying is that EBITDA levels in Europe and the U.K., both divisions should be safe for 2024 and growth should come from Brazil, okay? But especially the division of Iberia and others, that is the, let's say, the worst performing in the first quarter. This comparison should progressively improve because also the competition basis for the remainder of the year is here in this division.

It is division where we suffered the most -- the volumes declined last year and where we suffered the most the capacity control measures last year. But what we are saying is that results in Iberia, there's in the U.K., everything that is a European continent, let's say, remain safe for the full year.

[Rául Merino, executive]

Thank you, Paco. And regarding your other questions, Brazil potential opportunities and M&A, and my view, this is all part of the same question, I opportunities. Well, I will say that, obviously, you won't be immediately surprised in terms of our business guidance and so our strategy, I promise that we will continue seeing a company that is dynamic, more modern and aware of the times that we are living in the consumer space, prepared to take action when needed and ready to invest more and return more and financial [indiscernible], the fact of how solid our financial position is today won't accelerate the opportunities that we are looking at.

The first priority for us is to try to find opportunities to expand our existing facilities in gradable regions. That means that we are obviously focused particularly on Brazil as long as Brazil report is performing as good as initially expected. So we are here to promote the idea of capturing new sales volumes with big customers that are becoming bigger than ever. Secondly, we will try to analyze the idea of expanding our capabilities in the U.K. and Ireland where our business is unique.

And third, we are actively looking for potential opportunities as we have ever been early in the past. Nothing has changed for potential opportunities in terms of M&A. But let me say that in the short end, I think that the likeliness of you being significantly surprised is very limited. And let me clarify a little bit more in detail. You will probably like this, the likeliness of us increasing our indebtedness, about 2x debt to EBITDA in the next 2 years is very low.

[Operator]

The next question comes from Luis Toledo from ODDO.

[Luis de Toledo Heras, analyst]

Just one left from my side and regarding the guidance for this year. I assume the EBITDA guidance you provided today implies the lower end of the range of the previous price indications of minus 10% to minus 5%. So I'm assuming maybe minus 7.5% to minus 5%. I know there's -- there are many moving parts on adjusting formulas, but I don't know if it's fair to assume that.

[Iñigo de la Rica, executive]

Okay. Thank you, Luis. Yes, you're right. So we are reiterating that in terms of prices and at the group level, we are seeing a price mix effect, a negative price mix effect for volume in the age of minus 5% to minus 10% following deflationary trends that we are transferring into prices.

And this guidance of EUR 450 million of EBITDA is, let's say, current with this price mis-effect estimation. And to add on this and to clarify the guidance and also the second column, the column that we are giving the figures accumulated for the last 12 months as of March 2024. In both cases, are the new perimeter. This means fully including the contribution of Brazil and only considering the contribution of Vidrala Italy for the first 2 months of 2024, okay?

[Operator]

The next question comes from Ignacio Romero from Banco Sabadell.

[Ignacio Romero, analyst]

So you have already answered partially these questions that -- I had this question regarding Brazil, which is doing very well. I understood currently, Raul, you said that [indiscernible] could be used as a platform to grow in LatAm. So my question would be within 3 to 5 years' time, what would you expect LatAm to be in terms of sales.

[Rául Merino, executive]

Well, that's a good question. That doesn't depend completely on us, okay? What we say is that the aquation of the report for us means transformational and strategic change. And that means our entry into a new country like Brazil, and Brazil is part of what we do consider the South American market and maybe the South American market is what we do consider as the Latin American market.

So we are speaking probably, specifically about the big, big regions, full of opportunities is true that we like the area, and we invite you to consider this as an entry door to create a platform for [indiscernible]. But please let me ask you patience [indiscernible] -- you won't be surprised immediately. And having said that, it's good to see that Brazil, for us, is performing as expected.

It's good to see that we are running close to full capacity in Brazil after the capacity additions and the contribution of margins because of this made last year. And that means that Brazil is a different country with different market dynamics that will offer us potential opportunities to capture sales volumes, and we are working on this.

[Operator]

The last question comes from Manuel Lorente Ortega from Santander.

[Manuel Lorente Ortega, analyst]

Most of my questions have already been answered. But maybe just two quick ones. The first one, Inigo, you have perfectly explained the, let's say, organic volume contribution in Brazil. I was somehow surprised from the plus 9% volume increase that you mentioned in U.K. as well. So I was wondering whether you can give us some more detail on really underlying volume growth in the area compared with volume contribution from capacity expansion as well or the difference between filling or the remaining -- just the different moving parts behind that 9% growth will be great.

[Iñigo de la Rica, executive]

Thank you. So as you know, our business in the U.K. is quite unique because of our 360 offer, where we do not only do the glass packaging, but we also do the filling and all the logistics associated with this activity. So as you were perfectly mentioning, we are not purely exposed or purely dependent on demand. Of course, we are affected by demand trends.

But what we see in our volumes is also affected by these specific characteristics in the U.K., okay? So I would say that we can see demand probably growing in the range of 3%, 4% in the U.K. market, and the remainder should be considered as our new demand due to our filling business. So we are transferring bottling activities from the original collection to the destiny of consumption.

So for exactly the same level of consumption or demand in the U.K., we are creating new demand for glass packaging that we are capturing in these volumes or this is also related with still the effects of the integration of the park. But demand should be no more probably than something in the range of 3%, 4% of this on book.

[Manuel Lorente Ortega, analyst]

Okay. Excellent. And then just my final question on the slide regarding the outlook. We have, let's say, EUR 40 million delta of EBITDA. And we only have, let's say, a similar free cash flow evolution on the outlook versus the last 12 months and so that gap between, let's say, cash earnings and free cash flow generation, it's all coming from what you were mentioning before of higher taxes and higher financials on the new Vidrala because of Brazil?

[Iñigo de la Rica, executive]

Yes, it's a combination, Manuel. It's probably partially explained by CapEx and the rest explained by this effect we have mentioned before regarding both financials and taxes.

[Rául Merino, executive]

Let me please you remember, Manuel and the rest of you that we have deliberately, as part of our financial strategy, to enter into Brazil to refinance our debt in Brazilian reals locally, something that changes the cost of debt deliberately, but something that under my view improves the capital structure of Vidrala.

[Operator]

There are no further questions by telephone. I return the floor to Mr. Gomez and Mr. Mendieta.

[Iñigo de la Rica, executive]

Okay. Thank you very much. We're now quickly revising questions received through the webcast. Okay. We see many, many questions that we feel all of them have been answered. -- questions on Brazil, on moving parts, on the free cash flow, working capital, et cetera, questions on hedging. So again, we feel all of them have been answered here live through the questions via telephone.

In any case, if some of the people that have asked questions through webcast feel that their question hasn't been answered, please feel free to contact us after the call. So again, thank you, once again, for the time that you have dedicated to us, and again, we remain at your complete disposal. Thank you very much.

[Rául Merino, executive]

Thank you very much for your time. We know that it's a busy day for you. Thanks for all. See you next quarter. You please keep on eating, drinking well quality products in glass. Thank you.