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

[Foreign Language] Good afternoon, and welcome to the conference call organized by Vidrala to present its 2024 first half 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 supporting material to cover this call as well as a link to access the webcast. Mr. Mendieta, you now have the floor.

Good afternoon to everyone and thank you for the time that you dedicate to attend this call. As announced, Vidrala has published this morning its 2024 first half results. And additionally, we have also published the results presentation that will be used as supporting material to this conference call. Following this document, we will dedicate as always, 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 half of 2024 we have achieved as most relevant business figures, revenues above EUR 830 million and EBITDA of EUR 225 million and a net income equivalent to an EPS of EUR 3.75. Net debt at the end of the reported period stood at EUR 433 million, which is equivalent to a leverage ratio of 1.0x, debt pro forma EBITDA, which considers the contribution of the last 12 months from 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 830.4 million. As it is shown in the graph, this figure is the result of a 0.7% growth at constant currency and comparable scope. Volumes were up plus 9%, almost fully offset by negative price-mix effect. Scope, which aggregates the combined effect of the incorporation of Vidroporto's 2023 year-to-date results and the exclusion of Vidrala Italia since first of March 2024 contributed an additional 2.8% 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 half EBITDA amounted to EUR 225 million, reflecting an organic year-on-year variation of minus 2.4%, which was more than compensated by the scope contribution. These operating figures resulted in a solid margin EBITDA over sales of 27.1%, which remains roughly stable versus the previous year. In this slide, 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 contributed to reported sales and EBITDA in the first 2 months of 2024. And since March, it is reported as discontinued operations contributing exclusively to net profit until the sale became effective on July -- at the start of July of 2024. So the graph show still a weaker performance in Iberia, negatively affected by price adaptations and still soft demand context. Results in these divisions should progressively improve as comparison 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 filling business and the integration of The Park. And Brazil experiences the second round effects of the recent capacity expansion projects in the Southeast unit in operations since mid-2023. Finally, we analyze free cash flow generation in detail with the help of this chart that reconstructs the cash conversion accumulated year-to-date. So starting from an EBITDA margin of 27.1%, we have dedicated 9.1% of sales to investments and another 7.2% to the aggregate of working capital, financials and taxes. As a result, free cash flow generation stands around 11% of sales. Net debt at the end of June 2024 closed at EUR 433.4 million. Nevertheless, on the 4th of July, we announced the closing of the sale of Vidrala Italy. So after the proceeds from this transaction and the payment of the corresponding extraordinary dividend and the July complementary dividend net debt should be around EUR 320 million at the end of this month, at the end of July, considering also the cash generated across the month. And now before turning to the Q&A session, I pass the word to Rául, so that he can extract main conclusions or make some highlights or comments that we consider appropriate.

Thank you, Iñigo, for your presentation. And thank you all for your time in attending this meeting today. We really appreciate your interest, particularly today that we are in our traditional timing. Well, our results published today are a good proof of the strong business profile that we have created. Under quite modest demand conditions, I mean, and there a period where demand is not recovering as expected from last year's drop. Our solid numbers prove the strong reason behind our strategic actions and are mostly driven by our internal corporate movements. We are today not only stronger than ever. Vidrala is today a much more different company. Let me recap in that point that over the last 5, 6 years, we have divested from our operations in Belgium. We have acquired the large bottling operations named The Park in the U.K. We have entered Brazil, quite a relevant movement for us. We have finally completed the sale of Italy and their respective conditions and all along this period, we are intensively investing in improving our manufacturing site, our industrial footprint. Hope you can see us clearly as we do with the strong focus and the solid rationale behind our strategy. Vidrala is today a different company, more diversified, diversified across 3 different strategic regions and units that creates a great business combination and our financial position is today more solid than ever. The background behind these are the reasons why we are today reiterating our guidance for the 2 -- in the 2 more [ relevant ] indicators to monitor. Despite as we said before, demand conditions are, I will say, globally, softer than initially expected, we still do see our EBITDA above -- for the year 2024 above EUR 450 million and we see our free cash flow for the year 2024 above EUR 180 million. [indiscernible] In conclusion, our financial position has improved. And the business, and we leading the company, remain fully prepared to respond once our demand recovers, something that will happen soon. That means that in our conclusion, I hope you agree with me -- with us that we are and we remain particularly well positioned for the future. Thank you.

Thank you, Rául. I'll give way to the Q&A session.

[Foreign Language] [Operator Instructions] Our first question comes from the line of Francisco Ruiz from BNP Paribas.

I have 3 questions. The first one is, Rául, if you could comment a little bit on how you see the second half in terms of volumes in Continental Europe mainly because you are reiterating the guidance, but will you agree with me that the visibility is still low? So what's your visibility in order to be so [ firm ] reiterating this EBITDA of EUR 450 million and of EUR 1,600 million on these sales? The second question is a question that I made in Q1 as well. We've seen that Brazil is skyrocketing or at least your numbers in Brazil, but you are working practically at full capacity. So are you taking any initiatives to see some growth for next year? Or probably we should expect similar levels of growth in the Brazilian operation for 2025? And then it's more a modeling question. Working capital this semester is still growing EUR 50 million. So if you could give us an idea of what you see working capital at the end of the year as well as CapEx?

Okay. Thank you, Paco. As we have been mentioning on your first question regarding second half, we are seeing that demand recovery within our most mature markets being smooth. We would say the softness is mostly widespread across geographic regions and product segments. But especially regarding Iberia and the U.K. comparison basis should become easier towards the end of the year. Costs should remain under control and also the industry seems discipline in terms of capacity management and pricing environment, okay? So regarding the second half, we still see some moderate volume growth. So that in Iberia, which is probably the region where the biggest focus in terms of volumes we are seeing, we expect volumes to be in the full year flattish or slightly positive. Volumes in Iberia in the first half are down minus 1%. So this means that the second half should be slightly better than the first half.

Thank you, Iñigo. Thank you, Paco. Regarding the second question. Yes, you're right. In Brazil, we are running at full capacity, and that's a big thing because as you probably remember, a year ago, this time or less, we increased capacity significantly adding a new furnace in our biggest facility in the state of Sao Paulo. The customers that are supporting this capacity addition are responding well, and this is also a big thing for us because these customers are big multinational, very sophisticated and challenging customers in the beer space. So we are happy to see that we are responding well to volumes. So obviously, we are thinking in the future. We know that we are in Brazil to find opportunities to create a platform for future growth. We are analyzing many opportunities, as many opportunities as we can, and we do see opportunities for future growth, but let me say that we probably need some time that won't take long or I promise it won't take longer than needed to consolidate the recent growth. We need to maintain, let's say, a slightly and temporary prudent approach in that sense.

And finally, Paco on CapEx and working capital. On the side of CapEx, we expect as probably anticipated CapEx levels for the full year in the range of EUR 150 million, EUR 160 million, which is around 10% of sales. And working capital for the full year should normalize, Of course, will depend on stock levels and so on, but we expect working capital to be limited cash out somewhere in the range of 2% of sales, let's say.

Our next question comes from the line of Alberto Espelosín from JB Capital.

I have 3, if I might. First, could you please provide price volume growth by geography in the second quarter? And also could you please discuss industry volumes this quarter by geography? I guess that you are growing above the industry in both U.K. and Brazil. If you could please confirm this and give us a bit more visibility on this would be great. The second one is also on volumes. Could you please provide some [Technical Difficulty]. And the third one is that we have already entered into an important period, which is the summer period, if you could please provide the trading update on July's performance and your expectations for August?

Could you please repeat your second question because the line was off?

Yes. Sorry, the second question is, if you could please provide more color on demand by end market, so mainly wine, beer and food?

Okay. Thank you. So first of all, trying to clarify volume price performance by different regions, okay? And I'm giving you figures for the first half of 2024. We see in Iberia volumes slightly down, minus 1% and prices similar to that reported in Q1, this is in the range of minus 11%. In the U.K., we see volumes still growing in the range of 11% as we're saying creating new demand through our filing business and prices are down in the range of 4% in the first half, the rest is contribution of FX. And finally, in Brazil, for H1, we see volumes up more than 65% with prices slightly down in the range of 4%. The rest, again, is FX contribution. Regarding demand by different segments, specific exposure by segments, what we see is that those segments that are weighting the most in our sales exposure, which is wine and beer, the ones that are showing a bigger decrease in terms of volumes, okay? And again, we understand that the second half of this year because of the comparison basis should perform slightly better progressively.

Thank you, Iñigo. And thanks, Alberto. Regarding your last question, again, how we are in our recent short-term sales performance? Well, there is little we can say -- but all you can [ imagine ] behind our guidance reiteration today. It's true that the summer period in Europe, let me say that it's never summer in the U.K and it is winter season in Brazil. So you probably are asking us about how demand is evolving in this division, Europe, where it is summer, the intense period of sales following our natural seasonality. And I will say that it's performing as expected, consistent with our prudent guidance.