Vidrala SA

MAD:VID

Earnings Call Transcript 2022-Q3

[Operator]

[Foreign Language]

[Interpreted] Good morning, and welcome to the conference call organized by Vidrala to present its 2022 9 months results. Vidrala will be represented in this meeting by Rául Gómez, 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 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 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, the floor is yours.

[Iñigo de la Rica, executive]

Hi. Good morning to everyone, and thank you as always for the time that you dedicate to attend this call. As announced this morning, Vidrala has published its 2022 9 months results and additionally, we have also published the results presentation that will be used as supporting materials to this conference call.

Following the 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 9 months of 2022, we achieved as more relevant business figures, revenues greater than EUR 1 billion, and EBITDA of almost EUR 160 million and a net income that is equivalent to an EPS, earnings per share, of EUR 2.65. Net debt at the end of the period stood at EUR 165 million, which is equivalent to a leverage ratio of 0.8x the reported 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 1.017 million. As it is shown in the graph, this figure is the result of an organic growth of 23.3%. And if we incorporate the effect of the currency, the reported variation amounts to 24%.

Following the order of key business figures referred to at the beginning, we analyze now with the same breakdown, the variation of operating income. 2022 9 months EBITDA amounted to EUR 158.9 million, which reflects an organic decline of minus 30%. In reported terms, EBITDA increased by -- decreased, sorry, by 29.9% in the period.

As a result, these operating figures reflect an operating margin EBITDA over sales of 15.6%, which represents a contraction of approximately 12 percentage points compared to 27.6% registered in the previous year.

And finally, net debt at the end of the period closed at EUR 165 million. As a result, the leverage ratio stands at 0.8x the last 12 months EBITDA.

And now before turning to the Q&A session, I pass the floor to Rául, so that he can extract the main conclusions or highlights and make additional comments that he considers appropriate.

[Rául Merino, executive]

Thanks, Iñigo, for your great introduction, and thank you -- thank you all for your time today in attending this presentation. Well, we are today making this conference call extraordinarily to further explain business conditions that have been far from normal during the third quarter of the year. As we have anticipated in our last conference call back in July, energy markets in Europe, particularly natural gas markets have performed -- have behaved extraordinarily volatile and inflationary during the summer following the events we have seen around Russian supplies. Despite our high levels of protection, this extraordinary situation had an unavoidable impact on our margins, an impact that we do consider temporary. These attritional margins due to abnormal energy cost should not limit us understanding the reality of our business conditions.

Demand for glass containers is growing solidly, exceeding expectations. Our sales volumes are consequently increasing, our operational efficiency level is at the best ever, and yes, obviously, our sales prices are not yet fully adapted to the reality of the underlying cost conditions.

For now, to the remainder of the year, we expect our demand to remain strong. We are successfully implementing actions to mitigate energy inflation, and we are to progressively readapt our sales prices. And the combination of all of these gives us confidence to reactivate our guidance on margins. We now expect our margins to recover progressively towards the level of 20% EBITDA over sales over the last quarter of the year. And consequently, this is more remarkable. We are, today, deliberately disclosing a new full year 2022 EBITDA guidance in value of more -- to exceed EUR 200 million.

And this expected more normal level of profitability will be nothing but the starting point for the year 2023. In any case, in any event, we keep fully aligned with our strategic priorities, focused on the 3 key points: customer, cost, on capital, we promised ourselves that we won't get confused after such an extreme year. We do think that soon, our margins will reflect the reality of our competitive industrial footprint, and our strong commercial positioning.

And in conclusion, we will invest with our customer in mind to expand capacities, to better serve our growing customers, to further improve our cost competitiveness and to make our operations more sustainable. And we will do it preserving our historical capital discipline, our solid financial position and the focus on our bright long-term business prospects.

[Iñigo de la Rica, executive]

Okay. This completes our exposition. And now we give way to the Q&A session.

[Operator]

[Foreign Language]

[Interpreted] Ladies and gentlemen Q&A sessions starts now. [Operator Instructions]. The first question comes Paco Ruiz from BNP Paribas Exane.

[Francisco Ruiz, analyst]

I have 3 questions. Rául, you have commented about the initiatives to mitigate the cost -- the energy cost inflation -- could you be a little bit more precise on which are these initiatives?

The second one is, if you could give us a breakdown on the evaluation of your free cash flow in this quarter. I mean, the debt has been reduced significantly from Q2. So if you could give us a detail on working capital and CapEx and what do you expect for the full year?

And last but not least, it's on price increases. I mean, in the industry, there is a rumor of 20% to 25% increase on price increases for next year and probably not for next year, but also from now almost. Do the risk and evolution of the gas prices changed their mind? And are you seeing the client more open to accept this or more reluctant?

[Iñigo de la Rica, executive]

Okay Paco. I will take the second question. Rául will take the first and the last one. Okay, so regarding our free cash flow, working capital, CapEx, et cetera. For the figures year-to-date, for the 9 months, CapEx stands at EUR 80 million, okay? But we would like you to understand that part of this CapEx or that we will face in the fourth quarter, higher concentration of CapEx as we already have previously announced that this -- fully as planned and that is related to our CapEx plan and to the investment that we are executing in Portugal, okay?

So let's consider that CapEx for the full year could be something in the range of EUR 110 million to EUR 120 million. This means that more than 40% of the CapEx -- of the annual CapEx will be concentrated in the fourth quarter. And working capital has slightly relaxed in the 9 months.

Overall, we see an impact in the 9 months of EUR 75 million, approximately, cash out, as you can imagine affected by price increases, but normal average collection period. This means that for the full year will continue to be a cash out. And that's why we expect debt to moderately increase in the fourth quarter, something in the range of -- from current levels and a maximum of around EUR 200 million.

[Rául Merino, executive]

Okay, Paco. Well, regarding our energy cost -- energy cost mitigation initiatives, what we can say today is that our energy risk profile has changed quite significantly since our last reports, okay? In our regions -- in some regions, sorry, we are seeing prices decoupled from the very expensive Central European natural gas price reference. In some of the regions, we are seeing government-market integrations like it is the case of the U.K. and Italy that will theoretically limit inflation in future potential scenarios. And in some of the regions, we are being able -- or we are prepared to switch from natural gas to alternative sources of energy like diesel or similar, where our diesel prices are fixed in our -- this is relevant in our supply agreements -- energy supply agreements give us some reasonable level of flexibility.

Let's say that as a result of this, approximately -- today, approximately 70% of our energy for the next 2, 3 quarters are reasonably kept at below current hedgeable market levels. And this also means that we are taking a big proportion of the benefit from the current recent market relaxation we are seeing in some regional natural gas spot prices. And this is a big factor for our expected margins recovery for now. Having said that, midterm hedgeable natural gas prices are still quite expensive. And this is the only argument we can use when we need to renegotiate our prices, okay?

So going to your -- directed to your third question on our price increases, what we can say is that despite the new energy more relaxed profile we are seeing today that we do consider basically internal for Vidrala. The reality is that looking at our margins, obviously, our prices are not yet adapted to the reality of industry underlying manufacturing cost. The inflationary pressures that we have seen over the last 2 years have been quite intense, extraordinary not only in the energy factor. And it is not very difficult to reflect these extreme circumstances immediately in our prices on a timely or efficient manner.

Please keep in mind, you know that our prices are or were normally review only annually or biannually. Today, we know that 1/3 of our sales are concentrated in contractual pass-through mechanisms under multiyear supply agreements. Our different price adjustment formulas reflected in these agreements need some time to be fully efficient and cannot be fully efficient in such volatile markets immediately. So I mean with this, that a number of our bigger customers where we have long-term supply agreements have enjoyed more moderate price reviews in 2022 following the nature of these mechanisms of these price adjustment formulas that always implies a time delay. And for them, we need now to reflect all the last year inflation. For the rest of our customers, we plan to reinitiate, immediately, additional price increases before the beginning of the next year.

And in conclusion, all in understanding this time or delay factor. We see our average sales prices increasing in 2023 by more than double digit. And despite price levels will somewhat depend, following your question, on the reality of costs, particularly on the reality of energy cost, we do see today our prices growing in 2023 by at least 20%.

[Francisco Ruiz, analyst]

Just a follow-up, Rául. As you have such a good visibility on energy for the next 3 quarters you said, what's your expectation on energy inflation for next year? Keeping in mind that the energy prices remains at these levels.

[Rául Merino, executive]

Well, that depends on the different hedging structure or the different hedging position in each quarter, okay? Without any hedging, the reality is that energy prices -- hedgeable energy prices for 2023 in comparison with the average of 2022 are still -- is still positive, between plus 5% to plus 10%. This is the inflation every player can capture today, excluding any hedging discussion in 2022, okay? Another reality is that the spot prices are quite below hedgeable mid-term forward prices. But forward prices are the prices that we need to consider when we negotiate with our customers in terms of prices.

So having say that, in our particular circumstances, we are seeing energy inflation in 2023 after a very tough comparison basis, particularly during the first 9 months of this year, something that is fully evident in our margin deterioration that will be pretty much under control, pretty much flat, okay?

But please keep in mind that the energy markets are almost broken everywhere in Europe. It's particularly difficult to foresee what will happen. There are rumors that the European Commission will soon announce market integration over natural gas prices in Central Europe, something that we hope, simultaneously, we are seeing export prices under a process of relaxation, particularly in regional references like Iberia unlike the U.K.

But all in, the reality is that prices are still particularly expensive -- hedgeable prices, particularly expensive in 2023. So it's quite complex to navigate under the current conditions and maybe historical and financial hedging derivatives that has been used as a tool to control a risk, is a risky tool to control a risk, in my opinion.

[Operator]

Your next question comes from Bruno Bessa from CaixaBank, BPI.

[Bruno Bessa, analyst]

Just as we leave this stage. So you mentioned the inflation in terms of energy costs for the next year. Just wondering if you could give us an idea of the inflation you could see in the remaining cash cost components in 2023? This will be my first question.

The second question well, you mentioned, the solid demand evolution in the industry, that industry is with tight levels of stocks. Just trying to understand here if this is the reality for the industry customers or if we are talking about stocks in producers, in glass manufacturers? So this will be the second question.

And then the third question, if you could provide us a little bit more visibility on your hedging policy for Q4 this year and as well for 2023. And namely, what is the percentage of your needs that is covered? And also, if you could give us an idea of the price at which it is covered.

[Rául Merino, executive]

Okay, Bruno. Well, first question regarding inflation or deflation trends. What -- we are not foreseeing, unfortunately any particular deflation in any part of our cost structure. Okay?

Energy will be a main factor of volatility in 2023 as it has been in 2022 and 2021, and maybe we see some relaxation and maybe we've seen some negative -- hopefully, some negative variation in 2023, but that will only be the consequence of the expected energy market relaxation. And you will be very prepared to follow this because our energy costs are that transparent, okay?

On the rest of our cost structure, in some cases, we are more or less concerned, but the reality is that if you consider CPI levels are today across Europe at about 8%, probably, surprising negatively any [high end] in the macroeconomic context that will have an avoidable consequence impact on our cost structure in 2023. So it's very unlikely to see, if we exclude the energy factor, it's still very unlikely to see a real deflation in our cost structure. Probably it will take times for us and for many other industries to recover cost conditions of 2020, okay? If this is possible in the future, okay?

Having said that, what we need now is to readapt our prices to do the reality of this underlying cost, even excluding extreme circumstances on the energy factor, and we do feel confident of our capacity to lease and our capacity to recover margins under the new reality of manufacturing cost.

Your second question is regarding inventory levels or organic demand trends across our regions of activity. What we can say today is that demand for glass packaging is growing almost everywhere, modestly, but positively exceeding expectations. Maybe the recent pace of growth is -- maybe is lower in the U.K. than in Southern Europe. But this is surely what you can imagine. This basically reflects the different demand fundamentals and the macro factors that you are very aware of. Another factor to say -- another factor to take in mind is as you mentioned, is that inventory levels are tight across the industry. This is not an exception for Vidrala. Inventory levels are particularly tight across the industry, because in this industry, it takes time to expand capacity, and we have all been positively surprised by how solidly demand is performing.

And the combination of this, solid bank performance, tight inventories give us nothing but quite a level of visibility for top line growth for a couple of quarters from now, despite any conditions on the macro context that we are very aware of.

And the third question is, well, regarding hedging. As I said before, our energy risk profile has changed significantly. In some regions, our energy costs are to be automatically capped or protected by government interventions without any internal need of executing any additional hedging policy. Actually, after this market integration, what we need to do is to remove -- to wind up any potential riskier speculative financial hedging derivatives, okay? This is the case of our natural gas prices for the next couple of months, let's say, at least 2 quarters in the U.K. and in Italy.

In other regions, we are prepared, and we have been switching from gas to other sources like diesel, as I said before, and diesel prices are also capped, okay? But if natural gas prices drop down below diesel prices, we are very, very flexible to switch back to natural gas prices. So that means that we are also particularly capped to the level of the alternative use of diesel. As a result of this, including that we still do have some hedging tools, historical or traditional hedging tools. The reality is that 70% of our energy consumption for the next 2 quarters are protected, but they are protected basically under a capped mechanism. I mean, we are and -- we are taking almost all the benefit of the current relaxation we are seeing -- the recent relaxation that we are seeing in some regional natural gas export prices. And as I said before, this is a significant factor for us to be more confident on our capacity to recover margins, something that is the top first priority now.

[Bruno Bessa, analyst]

If I may, just a follow-up on the second answer you gave regarding the stock in the industry. Let me just be a little bit more specific because we have been seeing some companies in other industries mentioning that their stocks were low, that demand was quite strong. But in the end, we are not seeing that stocks at the producers were low because there was a relevant stocking -- restocking in the customers that led to abnormally high levels of stocks now that we are entering in a potential cycle downturn and that has been impacting those companies.

I know also that, for instance, in the cork stoppers business, stocks are at high levels, which is a bit the opposition of what container glass players are saying. So what I'm just trying to understand is if these low levels of stock that you are seeing in container glass producers, corresponds also to low levels of stocks in your customers or if you are seeing an abnormal restocking from your customers post the pandemic and considering the strong recovery of consumption and tourism post-pandemic that could lead to abnormally high level of stocks in your customers over the next couple of quarters?

[Rául Merino, executive]

Yes. Bruno. Well, let's consider that there are 2 factors. As you mentioned, there are 2 factors to consider, Okay? First is organic demand performance, organic demand trends. And okay, I assume that organic demand for glass containers across our regions of activity are growing so solidly that a percentage of this growth is due to probably abnormal nonrecurrent circumstances.

We still don't have all the answer of these, and we still don't have all the needed traceability, but we do assume that some of these is due to nonrecurring positive impacts like, for example, some potential restocking on our customers or on the customers of our customers. But the reality is that if we do consider that most of these restockings to have ended after the summer period, the reality is that we are still today seeing quite a solid demand -- quite solid demand conditions. So surely demand growth will nothing but relax in 2023 following the macro context and following the type or the high basis of comparison. But underlying -- please do believe as the underlying demand conditions that we are seeing and the message that we are receiving from our customers are still quite solid for the next year 2023. Evidently, we won't be immune. Demand for glass containers for food and beverage products won't be immune to a worsened macroeconomic context, if that happens. But the starting point is quite solid. okay?

The second factor is how quick, how efficiently this industry can be adapted in terms of expanded capacity -- capacities to these organic demand conditions that are exceeding expectations. And in this industry, it takes times to expand capacity. It takes times for projects to be fully executed to expand capacity. And a number of our competitors, I understand that they have been running at full capacity. Vidrala has been particularly running at full capacity over the next -- over the last 2 years. We do consider that our tight inventory levels are something that is more or less consistent with the inventory levels that we are seeing in the industry even when we receive some feedback from our customers, we can see that probably our level of services -- our level of service, our inventory levels are even higher than the average of the industry. And the combination of this will give us a lot of visibility for the year 2023, if you try to understand. I assume that this is what we are trying to do. If you try to understand what will be the consequence in the worsened scenario of deteriorated macroeconomic context.

We do think that the following underlying demand conditions, excluding potential nonrecurring factors and tight inventory levels across all the industry, not only the case of Vidrala, should give you visibility of -- for top line place stability for the next, let's say, couple of quarters.

[Operator]

[Operator Instructions]. The next question comes from Luis de Toledo from ODDO BHF.

[Luis de Toledo Heras, analyst]

One question from my side, Rául and Iñigo, it's regarding the replication of the -- reclassification of the costs of CO2 emissions and energy that previously -- partially you reported SG&A level to the cost of goods sold. Is there any rationale behind that? Do you expect some changes? Does it follow your strategy to mitigate this cost and potentially bring some synergies and potential advantages in the future?

[Iñigo de la Rica, executive]

Luis, the only reasoning behind is that this is a more relevant cost has become a more relevant cost in the more recent years. And we understood that this is better reflected under cost of goods sold than separately, okay? And is now reported together with other energy costs, such as power and gas okay, but there is nothing more behind that change.

[Operator]

The next question comes from Beltran Palazuelo from DLTV.

[Beltran Palazuelo Barroso, analyst]

I have 2 questions regarding 2023, of course it's very uncertain yet. But with the price increases exactly what type of margin are you looking to recoup? And then if you could give us, let's say, a little background of what type of operations you're analyzing regarding M&A? Or you think it's still very early and still very uncertain to really analyze in detail on M&A operations?

[Rául Merino, executive]

Beltran. Your first question, is it still too soon to see how is it, things in 2023. But it is evident as I say, we have mentioned before many times that our first priority is to recover margins to normal levels. We do consider that our margins will progressively recover some more minimal normal levels during the last quarter of this year. The target -- the public target is a minimal of 20% EBITDA over sales, and that will be the starting point for further recovery in 2023. This is all we can say for now, but I assume that this is as much as you need, okay?

Second question, M&A. Well, the message in this point remains basically the same. Our top first priority is to recover margins. We do feel today realistically confident on our capacity to do this, as explained before. Frequently, in terms of our capital allocation priorities, we aim to saturate our potential brownfield growth opportunities. And we are, let me remind this, we are to finalize over the next year, significant expansions in our [protein] facilities -- and third, yes, we will analyze potential M&A opportunities, okay? Our financial position is quite solid. And we aim to secure sales to further diversify the business, to expand the range of services we offer to our customers and to be more -- and to have a more powerful, even more powerful business profile. But opportunities are limited and our level of frequency is always high. What I can say is that whatever we do in the future, even Beltran, even if we do nothing, that will be the result of a deep conscious analysis or evaluation.

We can say that we are not stopped and I can also add that any potential dramatic transformational deal, I mean, in terms of level of indebtedness or financial effort needed is quite unlikely. You won't be, from a financial perspective, particularly surprised on whatever we do, okay? We will always remember that this has been our financial approach. And we do understand, as a final completion of this, we do understand the current business context. After such an extreme year 2022. We are learning that it's time to extreme prudency, but also, at the same time, probably to extreme the desire of looking for opportunities despite it seems paradoxical. Okay? And this is basically where we are.

[Beltran Palazuelo Barroso, analyst]

If I may a follow-up regarding you were saying that the price increases of double digit, let's say, you were looking for around 20%. It's no backlash from clients because if we assume that, let's say, we put for 2023, if demand stays stable, you're saying your demand at the moment is stable growing. It's not the same to have a 21% margin, let's say, a 20% from, let's say, a revenue standpoint of EUR 1.5 billion then -- EUR 1 billion. So clients are not looking at, say, maybe, okay, you were in 26%, 27%, 28% margins. But now if you're in 21% margins with that types of revenue, your return on capital -- on return is historically high. Are they -- they're not pushing back?

[Rául Merino, executive]

Of course, they are. And of course, they will keep on pushing us on the trends, but our particular margins, our internal margins won't be an allowance to be used commercially in terms of our pricing initiatives, okay? What is the only argument to be used today is the reality of underlying cost inflation across the industry, okay? Please keep in mind that before this energy crisis, excluding the evident distortion that is creating the different hedging policies across margins in the industry, across different competitors. Vidrala was, by far, one of the most profitable players in the industry, and that was the result of our structural underlying cost competitiveness, and that was a result of our strong industrial footprint, particularly after our exit from Belgium. And that remains there, and that still have been even expanded because since then, we have kept on investing significantly to further improve our cost competitiveness in our facilities. So our margins won't be the tool we used in our pricing conversations, it will be the reality of inflation or cost inflation conditions.

And please keep in mind that only 1/3, much in 40% till now, excluding hedging of the real underlying manufacturing cost inflation suffered in the glass packaging world over the last 2 years, have been yet reflected in our sales prices. So there is still a lot of things to do. We are far from fully recovering or fully readapting our sales prices. And the reason for this is, okay, first, this industry is highly competitive, obviously. This is the main reason why we will focus always on our cost competitiveness to secure the future of this business.

And second, because of the mathematical effect, the time delay needed to fully reflecting price adjustment formulas, particular selling conditions on -- energy inflation. So only because of these, prices are to be increased in 2023 unavoidably.

[Operator]

The next question comes from [Roberto Casoni] from [Corus Capital].

[Unknown Analyst]

Rául, Iñigo. Most of my questions have been answered already, but I have one if you want, a structural question. I mean it's -- since 12, 18 months, the structure of the sector in Europe at least as much as we knew it has broken, i.e. you are currently relying on U.K. and the Italian governments basically to protect you from volatility in the gas price. And whilst others have been kept what was originally also your strategy, which was hedging well in advance in the following years. So it looks like now the sector is in its dynamics, it's sort of disconnected. So just we all connected to the Vidrala's conference call yesterday, and we all understood that those guys are now hedged at a higher price for '23 and potentially in the beginning of '24. And so they need to increase prices and was your -- you are much more exposed to short-term volatility of the energy price.

So my question is the following. I mean, if the energy price for any reason for -- because the public debt in Italy doesn't allow protecting you anymore, U.K. is possibly in the same field now or a cold winter goes and the gas price goes back to 200, 250, how would be your 2023? Would you need to increase prices more than 20% to protect your margins? And how would the other players react given the fact that they don't have the emergency and the need to do a price increase immediately?

[Rául Merino, executive]

Roberto. Let's say that it is true that a number of market interventions -- government-market interventions, particularly in the U.K. and Italy are things that could change, only seeing what has happened with the U.K. government since they announced these projects. But please keep in mind that all the things that the U.K. government -- are reverting back, it's not having an impact on the natural gas price cap mechanism. So this is good news for us. Simultaneously, this is still not done, but the European Commission's -- and this is not only rumors, this is a real principle of intention. The European Commission will try to execute -- to implement an additional cap mechanism over natural gas prices in Central Europe. The famous reference TTF natural gas prices. And that's big for us, and that will give us a level of visibility.

Okay, the question is what happens since this is not possible, if the governments are forced for any reason -- basically for reasons, say, dictated by financial markets to revert back from this mechanism. What we have now is capacity in almost all of our facilities to arbitrate -- to arbitrate, sorry, between different energy sources for natural gas into fuel, into the diesel, our energy supply agreements are quite, quite flexible because we have dedicated some time to renegotiate these. And in that case, that will act for us as a cap. Having said that, we could be today using diesel in some sites at quite below natural gas equivalent prices in the average of 2022.

So we don't have a significant amount of financial derivatives, something that, in my opinion, nothing but capture inflation in 2023, just as a mathematical time effect. That won't be our case. But we do have a relevant level of protection because of significantly different energy risk profile. Obviously, obviously, the question is how long this protection will last and what could happen in one year from now. And this is where we are taking probably a bigger risk than our competitors, just to be fully transparent on this.

[Unknown Analyst]

Okay. Well, just to -- been reading a bit about the European initiative. It's a bit weaker than what originally thought and the price cap is basically -- well, basically goes into a cost for the public finances when it comes to paying for a difference. And believe me, I mean, I don't know the U.K. as much as Italy, but Italy doesn't have the ability and the freedom to go much higher on its debt as it is today. So that's why I was mentioning the price cap mechanism and the protection from Italy and U.K. as potentially a weak point. But that was just to anyway, listen, congratulations for your results.

[Operator]

The next question comes from Manuel Lorente from Mirabaud.

[Manuel Lorente, analyst]

My first question is on U.K. This massive bounce back on profitability on Q3. It's mainly where you had just stated regarding cap mechanism? Or is any other lever that is taking place?

[Iñigo de la Rica, executive]

Manuel. Well, we're still not affect from this cap mechanism, okay, that theoretically is in place from first of October to the 31st of March as -- okay? The region of profitability in the U.K. is mainly the different paths of execution of price increases and the more efficient pricing mechanisms that we have in the U.K., together with the fact also to have in mind that gas prices in the U.K., NBP reference have increased less than proportionally if we compare to other reference in Continental Europe such Slovenia, which is solar.

[Manuel Lorente, analyst]

Okay. And then my second question is are you able to -- I mean, contest is very difficult. I know that visibility is changing very rapidly. But I'm having some problems to reconciliate some of the messages that Rául has been stated. On the one hand, he had stated that a nice way to think on the next quarter should be on some top line stability, right? On the other hand, he has mentioned it, this 20% price increase for the next quarters following competitors. And on the other hand, you have also been stated about some stability on demand. So maths do not go on the proper direction. I mean if we have stability on demand and 20% price hike, how do you see a stable price? Is there something that I'm missing? Or ...

[Rául Merino, executive]

Manuel, there are 2 factors to consider the price factor and the volume factor, okay? In terms of prices, do consider that prices will be the main driver of top line growth during the last quarter of the year as long as we will further intensify additional price increases just to be better prepared for 2023, okay? And that will only follow our need to recover cost inflation as we have very well discussed before. So the main driver for top line growth in the last quarter of the year will be price increases, okay?

In terms of volumes, what we do see is partially stability, but this is not only -- this is not reflecting organic demand conditions. This is reflecting our tight inventory levels, okay? We can't grow more on volumes within the last quarter of the year because from a seasonal point of view, the last quarter of the year, let me remind [indiscernible] always the less relevant period of sale of any natural traditional year for us. And secondly, our inventory levels are particularly tight, okay? So the combination of this gives you real unavoidable growth on top line. But as I said before, basically, based on price increases, not on volumes, and these volumes stability won't reflect underlying organic demand conditions.

[Iñigo de la Rica, executive]

Manuel, just to clarify, probably the misunderstanding was respecting table or similar top line growth, okay? Top line growth to remain similar for the full year in comparison to 9 months.

[Manuel Lorente, analyst]

No, but I was more referring regarding next year. I mean, indication for Q4 was -- I mean, it's already there. So looking for next year, this 20% price hike is on top of the average of the year, on top of whole quarter or....

[Rául Merino, executive]

This is on a mathematical year-over-year comparison, okay? Full year average 2023 compared with the full year average 2022.

[Manuel Lorente, analyst]

Okay. So if you are putting this price increase and a certain volume deterioration, in the context of what you have stated of 20% EBITDA margin as a starting point for next year. On absolute terms, that implies that your EBITDA will be peaking. This will be above 2019 levels. So that's the correct way of thinking about next year? Is it a message that you want to state that given visibility that you have on prices, volumes and the starting point of fourth quarter EBITDA margin. Your best guess today is that next year, you will be picking a bit EBITDA in absolute terms?

[Rául Merino, executive]

2 mathematical, seasonal things for you to consider Manuel, we do expect these price increases for the full year 2023 in comparison with the full year 2022. But basically, we do consider that prices in January 2023 will be pretty similar to prices on December 2022, okay? So that means that if we are seeing a driver of margins recovery during the last quarter of the year that is prices, that will be an additional significant driver for further margin recoveries in 2020 (sic) 2023.

Secondly, please do not forget that we are still to see -- as we have mentioned in any of your colleague question before at the beginning of this call, we are still seeing, unfortunately, some level of inflation in 2023. So the combination of all of this, I do think that will give you the result that our margins have a real capacity to further expand or to recover historical levels probably sooner than expected. Hopefully, hopefully, you are right. but please don't think that all the price increases that we are to implement in 2023 will be -- will mathematically result in a positive price cost spread, that won't be the case.

[Operator]

The next question comes from Ignacio Romero from Banco Sabadell.

[Ignacio Romero, analyst]

I just have one quick one, a clarification on the EBITDA margin for the next quarter, Q4. I'm not sure I got the numbers right. You only need EUR 41 million of EBITDA to reach your target of EUR 200 million for the year. And that just means a 13% margin on a 20% sales increase in the fourth quarter, stand-alone. But you also suggested if I'm not wrong, that a 20% margin that may be achieved in the fourth quarter. I understand that for the full quarter. So that all is correct, if wouldn't then be that EUR 200 million EBITDA target, too conservative? Shouldn't it be more EUR 223 million. I'm not sure I got the numbers right. So if you could please clarify that.

[Iñigo de la Rica, executive]

Sure Ignacio. Just to clarify, on top line, as you were mentioning, we're expecting solid contribution of pricing for the fourth quarter, okay? But keep in mind that, okay, in terms of volumes, we do not expect significant contribution, and this is still the main trends and volume trends for the fourth quarter are still open, okay? And second of all, in terms of EBITDA guidance, we were saying that we expect during the fourth quarter a progressive gradual recovery towards 20%. This means that probably, we will be finalizing the year in December at these kind of levels, we'll be probably starting 2023 already at these levels of 20% but for the full quarter, margins will be slightly below that level, okay? Just as I said the progressive recovery in October, November and December, okay? And in any case, the guidance is absolute EBITDA above EUR 200 million.

[Rául Merino, executive]

The negativeness of our guidance. Ignacio, well, we are trying our best to avoid missing our guidance again. So this is how we are seeing at our guidance at this level.

[Operator]

Ladies and gentlemen, there are no further questions by telephone. I will return the floor to Mr. Gómez and Mr. Mendieta.

[Iñigo de la Rica, executive]

Okay. Thank you. Just -- we have received just 1 question through the webcast. And we are asked if we can split top line growth in terms of volumes and price mix, for both Q3 stand-alone and 9 months accumulated, okay?

Very easy on that point, both Q3 and 9 months organic growth are fully due to pricing, okay? Volumes are flat in Q3 and flat in 9 months. This means that prices for Q3 are something in the range of 25% to 26% and prices in 9 months are something in the range of 23%.

So with that, we have now answered all the questions, also received via webcast and okay, once again, thank you, everybody, for the time that you have dedicated to us this morning. Let's remind you that, as always, we remain at your complete disposal for any further questions that may arise after the call. And as always, please keep on consuming glass. Thank you very much.

[Rául Merino, executive]

Thank you, bye.

[Operator]

[Foreign Language]

[Interpreted] Ladies and gentlemen, thank you for your participation. You may now disconnect your lines.