Vidrala, S.A. (VID) Earnings Call Transcript & Summary

Next question comes from Bruno Bessa from Caixa Bank BPI.

2 quick ones from my side. The first one, if you could give an update on your factoring level at the end of the year. This will be the first question. The second one, if you could give some color on the capacity expansions that exist in the industry? And how could this impact the evolution of prices and the industry's ability to pass through the higher inflationary costs in terms of [ refinery ] over the coming years.

Okay. Bruno, thanks for your question. Well, regarding on the first question is our hedging for 2020 -- '21, sorry, is approximately 70%, slightly more than 2/3 of our energy and raw materials consumption are hedged, prices are protected, 70%. And second, your point with regards to prices. Well, prices in 2021 will be -- okay, that was the main point of discussion only weeks ago and will be finally only modestly down in 2021, okay? Almost all of this is done, is closed for us and this performance, this variation negative modestly -- modest but negative variation are basically reflecting the real cost deflation experienced in 2020 and transferred into formulas are in the negotiations. But the fact that we are only modestly down, almost flat, also reflects the recent inflationary pressures that has helped us to close prices for 2021, slightly better than we thought only 2 months -- 2, 3 months ago. The question now is whether that is going to happen in 2021, an structural external negative gap between prices that will be broadly flat or slightly negative, and cost, where we are seeing abnormal sudden inflationary pressures. And this is probably the question to understand the dynamics across the industry, across the consumer industry, across the packaging industry in 2021. Okay. Under these dynamics, under these growing uncertainties and in some cases, growing concerns, Vidrala is particularly well protected with this 70% of hedging.

And I don't know if I put correctly the first question, but I was referring to the levels of factoring that you have. I don't know if you could share with us that information.

Okay, Bruno. We thought that you were referring to the level of hedging. No, there is no factoring. The sales...

No factoring?

Yes. The income sales that you are seeing in the working capital -- that you are seeing in the working capital is fully proportional with our average receivable period and our real sales. There's no factoring in that you need to do that or to compute to understand the balance sheet, the debt or the -- or working capital.

The next question comes from Patricia Cifuentes from Bestinver Securities.

[Foreign Language]

[Foreign Language]

There are no further questions by phone. I will turn the floor to Mr. Gómez and Mr. Mendieta.

Okay. So we have received a couple of questions via webcast that we will answer now. The first one, Rául refers to the possibility of seeing Vidrala entering into the CAM business or other products like it as the case of other competitors.

Well, this is an interesting question. We are seeing dynamics across the packaging industry with more players diversifying its business profile and there are different materials -- through different materials. And this is just an example of the transformation that we are leading and the transformation that we referred before, where we were defending or supporting our ambitious CapEx plans. But the likeliness of Vidrala of doing something material different in the sort is attempt is very limited. We are happy with the product we produce. We are happy with the very relevant diversification that we have obtained in the last years, geographical diversification and also the diversification by type of business. Please keep in mind that in our English factory, in our Manchester factory, we not only produce or manufacture glass containers, we also provide logistic services and filling services and this is -- this represents a new era for us. Okay, that means that we feel comfortable today with our industrial footprint side-by-side with our level of competitiveness that has improved over the last years. And with the investments that we are going to do in the existing facilities, focus on manufacturing glass and providing some collateral packaging services. It's very, very unlikely to see Vidrala diversifying by material, but who knows, who knows.

Okay. And there are a couple of further questions that some of them have been answered in Spanish and we were asked in English. Regarding if there are some positive one-offs impacts in Q4 2020, the answer is no. There are no relevant -- any relevant one-off impacts in Q4 2020. But as Rául said before, this is the performance in terms of margins in Q4 is the result of a very particular context in terms of pricing, favorable pricing cost spread and also the comparison basis that is affected by the exit of volume that is relevant for the fourth quarter and also the ramp-up of the project, the expansionary project, the new line in the U.K. There are some other questions that have been also answered in English regarding energy costs and pricing. We have said that despite the recent increase in energy costs, prices in 2021 will be finally -- only modestly down as a consequence of the combination of the cost inflation experienced in 2020, but also the recent inflationary pressures that have limited the decrease in -- the expected decrease in pricing for 2021. And finally, some questions left, Rául. We have actually -- do we see some potential to create value through M&A at this point in the cycle? And if we are relaxed on the capacity being added by peers and the discipline of the market as we see inflationary inputs?

Thank you, Iñigo. With regards to the main question, well, as I said before, the message remains the same. Nothing has changed. Vidrala keep focused on our priorities, that is investing in our existing facilities, that is ambitious organic CapEx plans, and that will be the main use of cash for the next couple of months as we have a plan on this point. In the meanwhile, you can be sure that we will keep our eyes open, and we will analyze any opportunity that could be interesting for us. But the likeliness of something materially interesting to happen in the midterm is low. And this is because we will be more selective. And this is also because actually, there are not many opportunities for a simple company like us. It is true, we know that. We are aware of this. The industry or the packaging industry, I mean, is becoming particularly dynamic in terms of corporate movements. And this is something that we will monitor very carefully. But -- and will probably create some collateral effects in other players like us. In most of the cases, in my opinion, positive collateral effects because this dynamism is good for the industry, basically shows a point of modernity. But it is unlikely that we take or we play an active role in that sense.

Okay. And final questions, receiving via webcast. The first one says if it could be successful, be a full experiment in Northern Ireland be scaled across other plants? And the second one is we think that the shortage of polymers, plastic shortage of aluminum cans could support glass as the market recovers?

Well, the second question is becoming relevant. It is true that the industry, the green consumer packaging industry, particularly for beverage products, is tight, tight on supply. And that explains that, okay, the pandemic has had some positive effects, probably temporary but positive effects in other materials, not only for gas. But soon, in my opinion, as things normalize, as things become more normal, I consider that the circumstances will recover some level of normality, and we will keep on seeing a transfer -- a transition against plastic in favor of glass and probably also metal cans. So in the short term, the shortage of materials is something that could be beneficial for glass, I don't think so, particularly. What we need is real recovery and real reopening of activities and the end of the pandemic. Simultaneously, what we see is that the market share -- today's market share of glass as a packaging material is solid, probably stronger than ever. Can you repeat the other question, please?

Yes. The first one was, if they're successful, be a full experiment in Northern Ireland could be scaled across other plants of the group?

Well, this is part of our environmental efforts. And this is becoming a big thing for us. This is a big point for us. This is part a minor, a very minor part of our environmental strategy. And at this -- in this minor point -- minor part, we are making our ways. We are dedicating time, money and cost to make trials to try to use alternative energies in our manufacturing process. But that one, we will try to repeat -- to replicate these trials in other sites for sure. That will be part of our continuous process. But nothing of this will become materially relevant in our business in the short term. This is part of a long-term run, okay? In terms of environmental strategy, okay, we want to keep on investing, analyzing or trying to obtain more efficient facilities in terms of energy consumption. And this is just a matter of CapEx. The more we invest, the more efficient we become. We feel optimistic about our potential future in that sense. And secondly, we want to further increase the usage of recycled materials in our process. Please keep in mind when comparing the environmental impact of glass against plastics or against metal cans or against cartons that we have been granted by the unique properties of a product, glass that is the ultimate sustainable material, fully recyclable and a unlimited number of times. Okay, this is our first point of attention, energy efficiency and recyclability.

Okay. So we have now answered all the questions received via webcast. So once again, thank you for the time you dedicated to us. And just remind you, that we remain at your complete disposal for any further questions that may arise. Thank you very much, and keep safe.

Thank you.

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