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

[Foreign Language] Good morning, and welcome to the conference call organized by Vidrala to present its 2021 full year results. Vidrala will be represented in this meeting by Rául Gómez, CFO; and Iñigo Mendieta, Head of Investor Relations. The presentation will be held in English. [Operator Instructions] In the company website, www.vidrala.com, you will find available a presentation that will be used as a supporting material to cover this call as well as a link to access the webcast. Mr. Mendieta, you may have the floor. Thank you.

Okay. Good morning to everyone, and thank you for the time that you dedicate to attend this call. As announced, Vidrala has published, this morning, its 2021 full year results. And additionally, we have also published the results presentation that will be used as supporting material to this conference call. Following these documents, we will dedicate the first part of our exposition to briefly explain the figures released today, to devote afterwards as much time as necessary to discuss on the business performance in the Q&A session. We invite you to access the webcast through the link available in our web page. So starting with the main magnitudes. In the full year 2021, we achieved as most relevant business figures, revenues of EUR 1.1 billion and EBITDA of EUR 268 million and a net income equivalent to an EPS of EUR 4.88. Net debt at the end of the year stood at EUR 97 million, which is equivalent to a leverage ratio of 0.4x 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 1.084 billion. As it is shown in the graph, this figure is the result of an organic growth of 8.2%. And incorporating the effect of the currency, the reported variation amounts to 9.7%. Following the order of key business figures referred to at the beginning, we analyze with exactly the same breakdown, the variation of operating income. 2021's full year EBITDA amounted to EUR 267.7 million, reflecting an organic decline of 5.7%. Again, in reported terms, EBITDA decreased by 4.3% in the period. These operating figures resulted in an operating margin, EBITDA over sales of 24.7%, which represents a contraction of approximately 360 basis points compared to 28.3% registered in the previous year. Now going down through the income statement. Net profit obtained in the year 2021 amounted to EUR 145.2 million, which is equivalent to EUR 4.88 per share, which reflects a reduction of 8.8% over the previous year. Let's analyze now the free cash flow generation in detail. We will do so with the help of the chart on Slide 8, which reconstructs the cash conversion, starting from the operating margin recorded in the full year 2021. So starting from an EBITDA margin of 24.7%, we have dedicated 10.1% of sales to investments. And usually, the aggregate of working capital, financials and taxes, represented in this case, a cash inflow of 1.3% of sales. As a result, free cash generation in the year amounted to almost EUR 172 million equivalent to a 64% cash conversion rate and a 16% cash generation over sales. And finally, net debt at the end of the reported period closed at EUR 97.1 million. This figure is the consequence of the just mentioned cash generation, which has been mainly allocated to debt reduction and the rest has been allocated to remunerate shareholders. As a result, the leverage ratio stands at 0.4x EBITDA. And now before turning to the Q&A session, I pass the word to Rául, so that he can extract any conclusions or highlights and make additional comments that he considers appropriate.

Okay. Good morning. Thank you, Iñigo, for your great introduction. And thank you all for your -- for attending this meeting for your continuous interest in us, and for your time in days as today, that we assume are particularly busy. Well, let me conclude the Iñigo's introduction with some final remarks. The year 2021 is finished, but it actually looks now far in the past as never before. Let us highlight some aspects that market last year and that are probably relevant to understand our business today and tomorrow. First, demand for gas containers is growing. It's broadly exceeding our expectations. I mean our customers demand more and more of our products, and we are serving them well, having met an internal challenge after the capacity restructuring actions executed last year that you probably remember. It included different integrations, also investments and divestments. And also, we are serving our customers well despite the many difficulties that affected the supply chains globally. And there are context where stock levels are really tight across all the industry. All this, this is a great proof of present and future for our business and for the demand of the products and services we supply. Second aspect we ended the year 2021 with a strong generation of cash that was mainly used to reduce debt and to further improve our balance sheet. This is an evidence of our principles and of our discipline, and this put us in a particularly solid financial position. And finally, our margins in 2021 were progressively lower over the course of the year, proving that cost inflation is quite higher than usual, as probably everywhere or in almost every industry, and also that our prices are not yet adapted. And this situation will predetermine our business in the start of this year 2022. I mean demand is solid, and our sales are growing at double digit, but inflation is higher than expected, and our prices are not yet fully adapted. So unavoidably, our margins will be affected during this first part of the year. In any case, we feel today confident, we are performing at good levels operationally. We are taking the benefits of our ambitious [ investment ] plans. We are even more competitive than before. And so in conclusion, our business is probably better prepared than ever to soon recover the expected profitability once the cost conditions are back to some minimal level of normality. It's a matter of time, and it's probably a matter of not a long time. Anyway, looking at the future, our internal business conditions are quite solid. Our structural business fundamentals will remain strong, and our strategic guidelines will be firmly secured, committed to our priorities: customer competitiveness and capital. We are to invest with our customers in mind, to grow the business and to improve our leverage of competitiveness, expanding our capabilities, and diversifying our business with the aim to supply our services and make our products in the most sustainable way. And we will do it in 2022, securing a strict capital discipline.

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

[Foreign Language] [Operator Instructions] The first question comes from Iñigo Egusquiza from Kepler Cheuvreux.

I have 3 questions on my side. The first one is on the EBITDA margin we have seen in Q4 2021. There has been an important dilution on the margin. I guess, cost inflation is having a huge impact in the last part of 2021. The question is whether you can explain if there is something else worth mentioning or the reasons for this EBITDA margin dilution on the quarter? This is the first question. The second question is on pricing for 2022. If you can please elaborate a bit what has been the final price increase you have implemented for January, If I am right is around double-digit. And if you are planning or the industry is planning to try to increase prices again considering what we are seeing in terms of energy cost inflation during the year? And the third question is on consolidation. I mean probably, a positive surprise we have seen on the numbers you published the strong cash flow and the limited net debt. I assume this gives you a good opportunity to study and to try to go for new acquisitions. I don't know if there is something you can update us.

Okay. Thank you very much, Iñigo. Well, your first question is with regards to our operational margins over the last quarter -- or last year. Well, we have said that our fourth quarter margins last year were unusually low. And they were just broadly reflecting what we consider abnormal levels of inflation, and prices that were not adapted to this new context. So answering your question, yes, last -- margins last quarter over the last year were unusually low, but there is nothing different than what you can imagine behind this calculation, okay? Abnormally high levels of inflation and prices stay completely unadapted at that point of time. Your second question related with the first is with regards to our prices, our pricing initiatives for 2022. Well, we negotiated prices for 2022 some months ago as usual, as you know. We now can say that we have reached the level committed. That means that our prices are today on average, more than 10% higher than a year ago. And this is a total achievement for us. We should like to give thanks to our customers, and appreciate the huge effort of our sales teams. But -- and since the inflation has further intensified, these price increases are not yet enough to fully recover cost. So as a conclusion of this, our margins are still lower than a year ago, okay, as they were during the last quarter of last year. The gap of -- between prices and cost depends on the day, as I said before, okay? So we will -- it's time for us to keep calm. We will see what happens on the -- particularly on the energy factor. We should probably be forced to start again -- to go again with our customers to see how much we can increase prices further for the remainder of the year. But it's something to take transparently -- to negotiate with our customers with transparency, and to try to reflect the things that are not purely coincidental, but is structural, okay? It's a matter of trying to reflect the new reality into our prices and not to reflect the particular levels of volatility on a day-by-day basis. Third question is M&A, consolidation. Well, thanks for your comments on our cash generation and the debt reduction. Our approach in terms of M&A remains basically the same. This approach tells us that we are a company interested in growth. We strongly believe that we can create value adding new units into the business. Okay, let me say that we probably have some credentials or track record on that sense. We do believe that our business is leaving our transformation most of our biggest customers are strategically and globally thinking in glass as a packaging material for the future. And we have no other, let's say, strategic desire, but to support their projects. We are prepared, and we will have the opportunity to act as a [ different ] In glass packaging manufacturer, a strategic permit for the future. As probably no other glass player can at least here, in our regions of activity. And our financial position, as you say, it is particularly well prepared for that today. But despite this, we soon today remark that we are not immune to the geopolitical tensions, the economic situation and the very inflationary context today. So we should clarify that we know that there is always a moment in businesses, and probably in life where simply the right thing to do is to do nothing, okay? So it is still likely for Vidrala today to see Vidrala missing an opportunity due to our historical exercise of the principle of prudency is much more like this than I should say, in Vidrala involved in a very big deal that is unlikely, okay? I mean you won't be very surprised, probably. We know the industry. We monitor its dynamics. We know what we like and what we dislike. And there are -- believe me there are very few assets or businesses, we do consider potentially interesting for Vidrala. And in those cases, we will try our best, but we will remain very selective, and we will remain prudent. And I understand that you will consider this boring. And if this is not the case, if we do something, please be sure that this will only happen after a very conscious and very deep strategic analysis with our financial discipline always in our mind.

The next question comes from Paco Ruiz from BNP Paribas.

I have some questions. First one is, I mean, a follow-up on Iñigo's question. So taking into account the excellent performance of your cash. And -- I mean difficult to find the adequate M&A partner. Are you thinking on a higher shareholder remuneration, or even a buyback taking into account the level at which the stock is trading? The second one is also assuming that you have enough financial capacity, looking at your peers, your peers has been probably, in my opinion, more aggressive on capacity increases. I'm not only talking about your European peers, but also the Turkish one. Why are you not more aggressive increasing capacity taking into account that, I mean, the industry is growing at least over the year it has commanded? And last but not least, just clarifying on the recent news on the cancellation of the partners for the future project. I mean, if you -- it's going to have any consequences for you in your ESG targets? How you are going to deal with this? There are some players that have commented that they will do it on their own. What's your view there?

Okay. Paco, thank you. Well, first, with regards to our cash allocation priorities and our shareholder remuneration policy. Okay. The target for us is -- in terms of management principles is to generate a sustained level of attractive cash, okay? Once we obtain this, the first -- the main use of cash for us is expansionary CapEx, expansionary CapEx including M&A. And I saw remark, and this is probably following also your second question, Paco, that we are under a very ambitious investment plan under which we plan to invest more than 10% of our sales over the next 5 years. And this level, 10% of our sales are abnormally high level, and this is very deliberate. And what is important to understand for us is that only a portion of this -- I should say, less than half of this, around 4% of our sales, will be CapEx for peer replacement, okay? Our calendar for refurbishment replacement over the next 3, 4 years are particularly relaxed, but our CapEx will be higher. So that means that an additional major portion of our CapEx double this portion probably, will be expansionary CapEx focused on expanding our capacities or -- and this is different for Vidrala when you compare Vidrala with other competitors, amplifying the range of our services, as for example, logistics or whether it's [ filling ] services. And more important, not less important, at least, an additional 2%, 3% of our sales will involve CapEx dedicated to invest for sustainability. We will invest in self-generation power facilities to enable the hybridization in the industry or in our business, and we will invest in increasing the use of recycled content in our glass containers for what we need to invest and create our own facilities and logistics solutions. And we will closely work and invest money with customers, suppliers of technology and competitors to find the best solution for the manufacturing facility of the future. So first use of cash will be expansionary CapEx. The remainder will be shareholder regulation. As long as we keep on achieving our long-term targets in terms of cash generation, we will have no option and no idea and no desire, but to return a higher level of cash to our shareholders, okay, both in a combination of pure cash dividends and share buybacks. Share buybacks, answering your questions, should be restarted as long as the things normalize, okay, probably very soon. Your second question is with regards to the capacity increases, and what is happening in the industry. But, it is true that Vidrala has maintained internal delivery rate. I'm probably very appreciated by our competitors' prudent approach in terms of capacity realignment or in terms of capacity strategy. We divested very successfully, I should say, our unprofitable Belgian operations. And as a result of this, our capacity today is similar or even below the levels 2 years ago. This is good news for the industry. This is good news for our competitors. And more than this, this is very good news for us because our competitiveness today is much stronger. We will see this in our margins once this situation, the inflationary context becomes more normal. Looking at the future, as I said before, 4% of our CapEx will be expansionary CapEx. This expansionary CapEx is not only a matter of expanding our capacities in terms of glass manufacturing capacity. We are a different player when we -- when you compare with Vidrala with others. But some of this CapEx will be actually to expand -- dedicated to expand capacity in glass manufacturing, okay? Please keep in mind that we are today involved in a project in Portugal, a region that is strategic for Vidrala, where we will expand 1 furnace is something that will soon operations, hopefully start next year. The total capacity to be increased by Vidrala over the -- in conclusion over the 2 years -- 2, 3 years, [ 2010 ], '20, '22 will be around 5% of additional capacity, but this is only probably offsetting the capacity we sold exiting from our Belgian side. So in sum, Vidrala will, in the future, have probably a similar capacity than 3 years ago through lower sites. And there are much more competitive industrial footprint.

So Rául, on that side, if you were already at full capacity a couple of years ago before the COVID, what's the -- your rate capacity at this moment?

At this moment, we are running at full capacity. Our inventories are particularly tight 10 days below average. So that means that, okay, we are obviously losing some sales opportunities, and that will be a good starting point for the potential future further price increases we will need, okay? And this is also good news for the industry and for the balance in terms of our competitors, okay? If your question is why we are not now accelerating capacity increases? We are but only through one project, the project in Portugal. For the rest, it's not only a matter of how demand dynamics are in the industry. It's a matter of how we see the future of our business on a long-term view, okay? And we really believe that this -- the time to be very selective in terms of capacity additions, okay? It's not the right time to accelerate capacity increases all across our units. It's time for us to be selective and to be prepared for the future, for example, in terms of expanding our capabilities in other businesses, in other activities or why not in terms of M&A. M&As will happen in the future. We don't know when exactly, but still happen, okay? So we are very selective and we remain very selective. Well, your third point is with regards to the electric furnace, the future of the electric furnace in this industry. This is a big challenge for the industry. And within Vidrala, we do accept the challenge. You only probably need to type on the Internet or follow us in the social media or ask our customers, particularly the bigger customers. And you will find that we are one of the players that drive most of the changes, the transformation that we are seeing across the packaging industry in favor of sustainable packaging solutions. First, in terms of sustainability, please do not forget that we are granted by the benefits of a unique material glass and unlimited recyclable materials, the ultimate sustainable material, okay? But with regard to the electric furnace, probably this recyclability nature of our product is not enough, and we need to address the environmental impact of our operations, and this is where we find this challenge. We need to invest more and we will invest more than ever. In that sense, we will invest internally with suppliers of technology. We will invest with some competitors as it is the case of the furnace of the future that has been temporarily put on hold, and we will invest through different options, not only this, okay? Most of player -- most players in this industry are working in association and individually. And Vidrala is not an exception. And you will see the results soon.

The next question comes from José Maria Cánovas from JB Capital.

Three, if I may. First of all, could you provide some color on the dynamics by region during fourth quarter '21? Secondly, I would like to know if you are going to provide any quantitative or qualitative guidance for 2022. And finally, you are commenting on the price hikes, which I'm guessing are taking place now, during the first quarter. So should cost inflation stabilize -- not go back to normal levels, but just stabilize? Can we consider the margins that we saw during the fourth quarter as a bottom level?

Okay. José, thank you very much for your questions. I'll take the first one regarding performance by region in the fourth quarter of 2021. We see differential performance is to be clear on that for all the ones that are attending the call. We saw a margin -- an EBITDA margin in the range of 12% in Iberia and others in this segment. In our Italian segment, we see [ 0% ] EBITDA margin. And in the U.K. and Ireland, we saw a margin in the range of 22%, EBITDA over sales in the fourth quarter stand-alone, okay? This is all fourth quarter stand-alone. So starting probably with the last one, with the U.K. and Ireland, but we see that in this division, we have the benefits of different businesses, businesses that have been already mentioned by Rául regarding mainly the -- our filling business, where we are seeing still positive trends, especially in terms of demand. Second of all, the U.K. is also benefiting from the increased capacity in the last part of 2020. If you remember, we had capacity in our glass manufacturing business there with an additional line. And finally, probably the U.K. has also a more concentrated customer base or bigger customers where price adjustments in this case are more reactive and also more effective, okay? We are seeing already in the last part of the year, some minor price adjustments in the U.K. and Ireland. And probably, the Iberia and Italy are similar in terms of capacity. So there are no big changes versus last year. And we haven't seen -- or price increases haven't started yet in the fourth quarter. So this is probably the differences between regions, with particularity of Italy that is the example of a smaller business that is, moreover, more affected by -- especially by energy inflation in the fourth quarter.

Okay. Thank you, Iñigo. And I will try to respond to your second and third question in the same. Usually, as you know, we provide guidance for the year on April at the date of our Annual General Meeting, and we plan to do the same this year. What I can say for now is that the business conditions across many industries in Europe are far from normal, and we are not an exception. And you will probably agree with me that we are living in exceptional times, not only the war in Ukraine, but also for the history of economics in terms of inflation, particularly what means about the industrial manufacturing inflation. So we are simply not an exception. I hope you understand this. If you need more color, and I understand that you need, we could say that we accept the message that our fourth quarter margins last year were unusually low as they were affected by an abnormal level of inflation. And our prices, as we said before, were fully unadapted to this new context. So yes, these levels are a reference of what we consider abnormal margins. But having said that, today, February 28, inflation is even higher, and our margins remain broadly affected. But our prices are improving. Our demand is solid. Our operations are running at particularly efficient levels. So this makes us maintain an optimistic approach. In the long term, as long as our products remains appreciated or needed by customers and brand owners, our prices, you should probably agree with me on that, will be adapted to cost in the needed time. So probably the situation today is more that of timing than on fundamentals. I insist, demand for glass containers is growing solidly, probably at its best pace in years -- in many years. And we have no reasons to be concerned about the structural -- our structural business conditions in the long term. So it's time to keep calm to understand that the structural demand conditions are pretty good. And to conclude that normality will soon come, probably thanks to a mix of the -- know when some relaxation from the extreme circumstances that we are seeing around natural gas markets, and for further price recovery measures that we will force to execute soon.

If I may, a follow-up question on your last comment on natural gas demand. You're saying that it is growing significantly. Do you believe that part of this growth could be explained by clients, anticipating some demand ahead of future price increases?

Yes. This is a very understandable question. I don't think so because the proof is that the start of this year once our prices have already, at least in a first stage, adopted remains -- our sales remains at the same solid pace. So I don't think so. Probably what is happening behind our solid demand context is hopefully, hopefully, I am not wrong, is much more structural. Consumers are very favorable about the glass as a packaging material in the future, premiumization, healthy conditions, sustainability. Consumption levels are pretty good across our regions of activity. We are exiting from the pandemic, and we are recovering some level of normality on all those social activities, particularly the on-trade activities that were completely closed since the beginning of the pandemic. And that make us to be nothing but optimistic about our demand performance over the next couple of months. And hopefully, we are able to reflect in the needed time, as I said before, to reflect this in our levels of profitability.

The next question comes from Manuel Lorente from Mirabaud.

My first question probably is on the demand side as well. From the 10% sales growth on the fourth quarter stand-alone, can you give us an indication of the weight between volume and price-driven?

Yes. Manuel, thank you for your question. For the fourth quarter stand-alone, we saw, as you were seeing sales in the range of 10% [ of the ] lead, and prices was only in the fourth quarter in the range of 1%. The rest was volumes.

Okay. So again, my second question is on -- is again -- I'm sorry to come back again on the time lag between price increases and the impact from carrying energy stocks. When Rául -- when you are referring to further price increases, you are referring on top of the one that you have already implemented since January 1. And you are mentioning that if current situation on energy price stabilize or in the case of current situations on energy prices continue throughout the year.

Thank you, Manuel. It's always a matter of discussion. If natural gas prices will still recover normality, and I mean normality is levels seen a year ago because natural gas prices started to spike over 10, 12 months ago. There is no need for us to further increase the prices to recover a minimum level of normality in our -- in the levels of profitability that we deserve, okay? But as long as -- unfortunately, that won't be the case. Probably, we will need to go back, speak with our customers and make them understand. We want to be transparent in this. That is what is the reality in the [ needed] time, okay? So that means that in some weeks, we will probably restart conversation with some of our customers, even if energy markets stabilize slightly as we hope, okay? Only, if inflation recovers a very relevant level of normality, we will avoid doing this. Please also keep in mind in that sense that a significant portion of our sales, approximately 1/3 of our sales are already automatically hedged or protected by efficient price adjustment formulas, where the only issue is that of time, the delay of time for these calculations to capture inflation, okay?

[Operator Instructions] The next question comes from Ignacio Romero from Banco de Sabadell.

I have a question on capacity. You already mentioned before, Raul, what your own plans for capacity increases are. But in order to better understand what's the prospect of -- for the whole industry or the places where you are present, what the prospect is in terms of pricing power. I would like to know your views on where the industry is right now in terms of capacity utilization. And what are the planned investments in new capacity for the foreseeable future, please?

Thank you. this is an interesting question. Okay. What we know is that our inventory levels are particularly tight, okay? The lower in years, okay? 10 days in terms of inventory levels in comparison with last year. When we speak with our customers, we can see that the inventory levels or stock levels across the whole industry in our regions of activity, Europe and the U.K., are probably even tighter because we can see that our service level is probably above, better than those of our competitors. Also, when I take a look at what our competitors are publicly saying, and you know this much better than we, we can confirm this message. So I should say that the capacity utilization is at maximum levels all across the industry in Europe and the U.K., probably at its highest levels in decades. I can see -- I can understand that inventory levels are exceptionally low. And that means that there is a specific particular deficit today between supply and demand, something that will be a very good starting point for the future recovery measures the industry needs in the needed time, okay? Having said that, that won't make us change immediately, our priorities in terms of CapEx. We already have our own plan to selectively expand capacity in one specific project, as we said before.

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

Yes. From my side, only one. And regarding the price increase and a bit to understand the overall context of the industry -- of the drinking industry. If you could provide us a little bit of visibility on how much your competitors other than container glass are raising prices as of today? And what has been the reaction from the clients to both the price increase implemented by container glass players and alternative container players? This will be my question.

[Foreign Language] Thank you very much. Well, with regards to price increases, please keep in mind that this is a very competitive industry. We don't know prices of our competitors. We only have evidences, and we execute our own internal and very specific initiatives -- pricing initiatives. What we can say is that we have been able to achieve price increases of double-digit this year, something that is historically high level as it is historically high level of inflation that we are suffering. With this level already executed, already on track, what we are seeing is our sales growing and growing every day. And our customers are demanding more and more of our products. So that should be an evidence that we are not particularly different in terms of price increases than the average of our competitors in the industry, okay? But again, I don't know. I will say that if we finally need to execute further price increases for the remainder of the year, we will try to do it carefully, transparently speaking with our customers, and trying to reflect our prices, things that we do consider structural, not coincidental, okay? And we feel confident that we should be able to do this without creating any relevant disadvantage -- competitive disadvantage in terms of the price of the products we supply.

The next question comes from Luis de Toledo Heras from ODDO BHF.

I have a question regarding trade payables. We don't have yet the annual report, and we can't see the clean figure for pure trade payables. I just would like to know if there's some exceptional factor here, and which might potentially explain the good performance of working capital.

Luis, thank you very much for your question. Well, there is nothing especially remarkable on payables and receivables. We have been progressively improving, but the biggest impact in terms of working capital is, as you can imagine, the level of stocks that is, as Rául also mentioned before, in the range of 10 days below the end of 2020, where inventories were also lower than average because of the measures to control capacity that we took in 2020 with demand at the end of 2020, performing slightly better than expected. So the biggest movement is explained by that. Although as I said at the start, we see progressive improvement on both payables, accounts payables and receivables.

Just to clarify on this, Luis. We are performing well in terms of payable terms and receivable terms, and this is deliberate, and this is part of our plans, and this will become structural. But the main factor behind our exceptional source of cash in working capital books in 2021 is stocks, okay? Having said that, I should say that considering things that are structural and things that are not structural, I should say that today, our future needs of cash for working capital should be estimated at slightly lower than initially estimated. It's something that will help our cash, your understanding of our structural cash profile.

The next question comes from Fraser Donlon from Berenberg.

Just one or 2 questions from my side. The first would be on Q4 versus Q1 2022. Could you maybe give some color on the level of hedging that you've had in Q4? And then how we could think about that into Q1 in terms of the coverage and energy costs specifically? And then the second part of that, on a similar topic would just be, could you maybe give some color as to what your internal energy team think of how gas prices evolve over the next 12 months? And what you're kind of beginning to build into your business plan, let's say?

Thank you very much, Fraser. I will try to answer both questions in the same, okay? Well, initially, we were hedged at around 40% to 50% for 2022 and for the last quarter of 2021. So first question -- first answer is that we are basically similarly hedged, okay? Last quarter '21 and first quarter '22. But some of this hedging protects us against oil prices, others against power prices and others against pure natural gas prices. And this has been the structure of prices supplied by big utilities for consumers like us, okay? The point -- the difference is that today, pure natural gas underlyings are correlated from oil prices. I mean both are growing, both are very inflationary, but natural gas even more. So that means that the real effectiveness of our hedging is becoming lower, slightly lower, but lower than initially expected, okay? Because I repeat, we are hedging oil prices, power prices and natural gas prices, but natural gas prices are growing significantly more. Having said that, in my opinion, it doesn't really make a big difference, this hedging. The reality is that energy prices in Europe, particularly natural gas prices, as I said before, are abnormally high levels since 10 months ago. So I assume that any hedging structure today alive is actually mostly reflecting or capturing a very [ level ] portion of inflation. Hedging is for us, and for any player in this industry, a very temporary protection by nature. What we did now -- what we need now is energy prices to relax or we will be forced to increase our prices in milk. If you ask me how different are our energy cost today in comparison to fourth quarter is quite different. And fourth quarter last year were -- was already quite different to a year ago. But as a complement today, we have higher prices and our internal operations are going well, significantly well, and that will help us offset the situation once natural gas prices started to recover some minimal level of normality. And today, particularly today, natural gas prices are -- in Europe are abnormal affected by the sad events that we have now.

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

Thank you. There are just a couple of questions on the webcast, referring to one to M&A and the other one to level of hedging that we believe that has been already answered. In the case if you need further detail, just feel free to contact us, okay, after the call. So with this, we have now answered all the questions. So once again, thank you for the time you have 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 all. And please drink on glass. Thank you. Bye-bye.

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