Vidrala (LON:0NV7) (VID.MC), a leading glass packaging manufacturer, has announced its first-half results for 2024, delivering a solid financial performance with over €830 million in revenue and an EBITDA of €225 million. The company's net income translated to an earnings per share (EPS) of €3.75.
Despite a slight growth in revenue of 0.7% at constant currency and comparable scope, Vidrala maintained a stable EBITDA margin of 27.1%. The company's leverage ratio stood at 1.0 times proforma EBITDA, with net debt reaching €433 million by the end of the period.
Performance was particularly strong in the UK and Brazil, while the demand in continental Europe was subdued. Looking ahead, Vidrala anticipates an EBITDA above €450 million for the full year and is preparing for future demand recovery with a focus on improving manufacturing sites and analyzing growth opportunities, particularly in Brazil.
Key Takeaways
- Vidrala's revenue surpassed €830 million with an EBITDA of €225 million in the first half of 2024.
- The company reported a net income resulting in an EPS of €3.75.
- Revenue growth was modest at 0.7% on a constant currency and comparable scope basis.
- EBITDA margin remained stable at 27.1%.
- UK and Brazil business units showed robust performance, while continental Europe's demand was soft.
- EBITDA for the full year of 2024 is expected to be above €450 million, with free cash flow projected to exceed €180 million.
- Vidrala plans to invest €150-160 million in CapEx for the year, mainly for furnace refurbishment.
Company Outlook
- EBITDA for 2024 is anticipated to exceed €450 million.
- Free cash flow is projected to be above €180 million for the full year.
- The company is focusing on manufacturing improvements and growth opportunities in Brazil.
- A slight decline in pricing is expected for the remainder of the year, but financial preparedness for demand recovery is assured.
Bearish Highlights
- Continental Europe experienced soft demand.
- A decline in demand is expected due to market softness and down trading.
- Production capacity may be adapted in the second half of the year if necessary.
Bullish Highlights
- The company's UK and Brazil units performed well.
- Vidrala is gaining new volumes and market share in Brazil and the UK.
- Market conditions in Brazil are favorable with balanced supply and demand.
Misses
- Revenue growth was relatively low at 0.7%.
- Volumes in the wine and beer segments decreased, although a better performance is expected in the second half of the year.
Q&A Highlights
- Volumes in Iberia decreased by 1%, with an 11% price reduction.
- In the UK, volumes increased by 11%, with a 4% price reduction.
- Brazilian volumes surged over 65%, with prices slightly down by 4%.
- Sales performance in July aligns with the company's guidance.
- Pricing for the rest of the year and into 2025 will be adjusted based on external costs.
- The company does not plan to change its current guidance.
- CapEx for the year is expected to be around €150-160 million.
- In Brazil, 40% margins are necessary for operations, and the company is capturing new market share.
- Hedging strategies include 90% protection for GBP in the UK, with no FX hedging in Brazil, where cash flow will be used to reduce debt.
- Energy exposure is hedged against market movements at similar levels to current market levels.
- Inigo Mendieta has been promoted to Corporate Finance Director, focusing on strategic financing planning and strategy.
Full transcript - None (VDRFF) Q2 2024:
Operator: 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 Raul Gomez, CFO, and Inigo 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.
Inigo Mendieta: 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 these documents, 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 €830 million, an EBITDA of €225 million and a net income equivalent to an EPS of €3.75. Net debt at the end of the reported period stood at €433 million, which is equivalent to a leverage ratio of 1.0 times the proforma EBITDA, which considers the contribution of the last 12 months from Vidroporto. Turning to Slide four, we look at the top-line performance, analyzing the annual variation of revenue, broken down by concepts. We arrive at the reported figure of €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 1 March of 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 €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 two months of 2024. And since March, it is reported as discontinued operations, contributing exclusively to net profit, until the sale became effective at the start of July of 2024. So the graphs show still a weaker performance in EBITDA, negatively affected by price adaptations and still soft demand context. They show results in these divisions should progressively improve as comparison basis becomes easier towards the second half of the year. The UK continues to do well, supported by new demand for glass containers we are creating through the filling business and integration of the park, and Brazil experiences the second round effects of the recent capacity expansion projects in the southeast unit in operation 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. 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 €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 €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 Raul, so that he can extract main conclusions or make some highlights or comments that he considers appropriate.
Raul Gomez: Thank you, Inigo, for your presentation. And thank you all for your time in attending this meeting today. You know, 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 under 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, we realize today a much more different company. Let me recap in that point that over the last five, six years, we have divested from our operations in Belgium. We have acquired the large bottling operations named The Parks in the UK. We have entered Brazil, quite a relevant movement for us. We have finally completed the sale of Italy under expected conditions. And all along this period, we are intensively investing in improving our manufacturing sites, our industrial footprint. Hope you can see as clearly as we do the strong focus and the solid rationale behind our strategy. We realize today a different company, more diversified. Diversified across three different strategic regions and units that creates a great business combination. And our financial position is today more solid than ever. This is the background behind, these are the reasons why we are today reiterating our guidance in the two 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 for the year 2024 above €450 million. And we see our free cash flow for the year 2024 above €180 million. More relevant, 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, hope you agree with me, with us, that we are and we remain particularly well positioned for the future. Thank you.
Inigo Mendieta: Thank you, Raul. And now I'll give way to the Q&A session.
Operator: Ladies and gentlemen, the Q&A session starts now. Questions by telephone will be answered first. [Operator Instructions] Our first question comes from the line of Francisco Ruiz from BNP Paribas (OTC:BNPQY). Please go ahead.
Francisco Ruiz: Hello, good afternoon. I have three questions. The first one is, Raul, 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 regulating the guidance, but you agree with me that the visibility is still low. So what's your visibility in order to be so firm regulating this EBITDA of €450 million and €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 Brazil's operation for 2025? And then it's more a modeling question. Working capital this semester is still growing €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? Thank you.
Inigo Mendieta: Okay. Thank you, Paco. As we have been mentioning on your first question regarding the second half, we are seeing that demand recovery within our most mature markets is being smooth. We would say the softness is mostly widespread across geographic regions and product segments. But especially regarding Iberia and the UK, comparison basis should become easier towards the end of the year. Costs should remain under control and also the industry seems disciplined in terms of capacity management and pricing environment. 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.
Raul Gomez: Thank you, Inigo. Thank you, Paco. Regarding the second question, yeah, 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 real space, so we are happy to see that they are responding well to the 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, won't take longer than needed to consolidate the recent growth. We need to maintain, let's say, a slightly and temporarily prudent approach in that sense.
Inigo Mendieta: And finally, Paco, on CapEx and working capital, on the state of CapEx, we expect, as probably anticipated, CapEx levels for the full year in the range of €150 million, €160 million euros, which is around 10% of sales, and working capital for the full year should normalize. Of course, it will depend on stocks levels and so on, but we expect working capital to be a limited cash out some way in the range of 2% of sales, let's say.
Operator: Our next question comes from the line of Alberto Espelosin from JB Capital. Please, go ahead.
Alberto Espelosin: Yes. Hi, Raul, Inigo. Good afternoon and thank you for taking my questions. I have three, 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 UK and Brazil, but if you could please confirm this and give us a bit more visibility on this, it 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 a trading update on July's performance and your expectations for August. Thank you.
Raul Gomez: Thank you, Alberto. Could you please repeat your second question, because the line was off?
Alberto Espelosin: Yes, sorry. The second question is, if you could please provide more color on demand by end market, so mainly wine, beer and food?
Inigo Mendieta: 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 UK, we see volumes still growing in the range of 11%, as we were saying, creating new demand through our 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 in our 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, are the ones that are showing a bigger decrease in terms of volumes. And again, we understand that the second half of this year, because of comparison basis, should perform slightly better progressively.
Raul Gomez: Thank you, Inigo. And thanks, Alberto. And 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 this summer period in Europe, let me say that it's never summer in the UK 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 this is performing as expected, consistent with our prudent guidance.
Alberto Espelosin: Perfect. Thank you very much.
Operator: The next question comes from the line of Natasha Brilliant from UBS. Please go ahead.
Natasha Brilliant: Hi, thank you. I've got three questions as well. So, firstly, just on pricing, can you give us a bit of an update on how you're thinking about pricing for the rest of the year and into 2025 as well? You've reiterated guidance for this year, but what sort of price decline does that factor in for the full year in regards to the minus 5 or minus 10 that you've mentioned previously? Can you narrow that down a little bit? Second question is, again, on the guidance, is there a chance -- you just described it as being prudent. So, given that you've done exactly half of the guidance in the first half in terms of EBITDA and comps get a bit easier, I know that visibility is low, but is there a sense that you're being conservative there? And then, finally, could you just talk on CapEx, given the softness, are there any projects that you've maybe delayed or are reconsidering given the underlying demand? Thank you.
Inigo Mendieta: Okay. Thank you very much. Let me start with the first one regarding our prices or our pricing initiatives. You know that most of our prices are naturally reviewed once per year or every -- each natural year, and this year shouldn't be an exception. So, our prices will be adapted at the end of the year, started in January 2025, and our prices will be adapted positively or negatively, trying to capture the real external cost conditions. Hope these real external cost conditions give us some arguments to relax our prices. Unfortunately, this is not yet the case, but we'll see. We'll see.
Raul Gomez: Then, Natasha, regarding on the guidance you write, we're just in the middle of this guidance. Theoretically, compression basis should become easier, but this is, I would say, something specific to the region of Iberia, to the business unit of Iberia. But, yeah, we feel still we don't see any reason to change the guidance at the moment. And finally, regarding CapEx, CapEx for this year, as I said previously, will be somehow in the range of €150 million to €160 million, and this is mainly CapEx that we dedicated to the refurbishment of some furnaces. We didn't have any specific project to expand capacity, so I would say there is nothing to delay in that sense. Anyway, we will remain disciplined, taking the advantage of this furnace refurbishment calendar to protect inventory levels and adapt production capacity if necessary. Okay, but we didn't have any plans to increase capacity this year.
Operator: Our next question comes from the line of James Perry from Citi. Please go ahead.
James Perry: Hi. Thanks for the presentation. I just want to ask a bit more about Brazil. So, we know that it's been slightly undersupplied in recent years, but how are you seeing the supply-demand dynamics into 2025? And in relation to this, how sustainable are the 40% margins? Should we expect a gradual decline in margins as the market matures and new supply eventually comes online, or could it be an increase in margins with more consolidation economies of scale from increased production? Thanks.
Inigo Mendieta: Well, thank you very much. Well, Brazil is obviously an emerging market in itself. We have seen in the past particularly positive organic demand growths, and that created the need for some imports of glass for other countries. This is not the case today. We have mostly offset and balanced the market. I think that the market is today balanced between supply and demand. This is not bad news for us because we are closing this gap. And this is due to our investments, some business investments, maybe particularly in one of the factors. 40% margins in Brazil are the margins we need to recover or to create a minimum level of profitability considering the cost of capital in Brazil. 40% is needed in Brazil to sustain our operations and to keep on investing industrially as long as 25% is needed for similar operations to maintain similar operations in Europe. So I don't think that Brazil at 40% of the margin is particularly more profitable than Europe at 25% in the margin. I hope you agree because our customers understand this well. Looking at the future, we are everywhere in the world, apparently we are seeing that everywhere in the world apparently a demand for glass containers for beverages and food products is softer than initially expected. Probably it's more dynamic in Brazil, but even in Brazil we are not yet seeing any particular positive organic demand growth, something that gives, let me say that, a particular level of credit to the strategy that we have implemented in Brazil.
Operator: The next question comes from the line of Francisco Ruiz from BNP Paribas. Please go ahead.
Francisco Ruiz: Hi again, just a follow-up on the pricing side. It looks like your level of pricing since the beginning of the year were lower. I don't know if the reason is because you have a more adjusted formula pricing or because you've been more aggressive on that. Do you think that this situation has led you to gain market share compared with the recent evolution of all your competitors? And given some price cuts from your competitors recently, do you think any, I mean, turnaround on the market share scenario in the second half?
Raul Gomez: Okay, thank you. Thank you, Francisco. Well, we are actually obviously taking some market share in Brazil, which is very evident. We are not increasing our market share but capturing new volumes, attracting new demand for glass containers in the UK, thanks to our unique business fundamentals after the acquisition of the filling facility. And we are probably recovering, slightly and modestly recovering some of the market share we lost in the after-pandemic, post-pandemic period in the rest of our business in Europe. This market share was lost due to our, deliberately or intentionally, unavoidably due to our corporate actions after the sale of Belgium [ph]. And we are probably slightly, very slightly, recovering only a portion of this market share. We maintain a particularly aggressive approach in the sense this is not part of our strategy to recover immediately our market share. But probably you will agree with me that even after this brilliant approach, commercial approach, we should have improved significantly our cost competitive baseline and it’s time for us to obtain the benefits of this. That's all we can say.
Francisco Ruiz: Okay, thank you.
Operator: There are no further questions by the telephone. I return the floor to Mr. Gomez and Mr. Mednieta.
Inigo Mendieta: Okay, so we have received several questions via the webcast. The first one states if Vidrala has any hedge on currency both in the UK and Brazil? The answer is yes. At the reporting date we have hedging for approximately an amount of €41 million for GBP and this means that we expect a level of protection of cash flows in this division for the remainder of the year of 90%. In the case of Brazil, there are no FX hedging at the time as we will dedicate the free cash flow generated in Brazil to reduce debt that is in that same FX, so having a kind of natural hedging. There is another question asking about the average interest rates for the group under the new structure which should be somehow in the range of 5%, okay? Another person asks about the €25 million of other cash in across July. This is a combination of minor closing adjustments to the Italian transaction and more relevant is the cash generated across July. As on energy hedging, currently I'm considering both pure energy hedging and those energy supplies that have been directly contracted at a fixed price. We estimate that 57% and 52% of our energy exposure in 2024 and 2025 respectively is protected against market movements and at levels that are similar to current market levels. Finally, just checking the questions, we see also questions on some more details on demand performance, asking if the stocking is affecting demand. Our way of understanding it is that the stocking is pretty much over and what we see is a kind of generalized softness, especially in Iberia, where this is the region where we are more exposed to consumer dynamics, because the UK has specific dynamics due to the film business and Brazil has also specific characteristics due to the capacity expansion. So, this is due to generalized softness and probably some down trading also on the side of our consumer. And finally, about utilization rates in Iberia, we have been running at full utilization rates, but as I said before, we will take advantage of our furnace refurbishment calendar to adapt production capacity if necessary in the second half of this year. And then the final question probably for you, Raul, says congrats on your new role as CEO and could you tell us who is going to be the new CFO looking forward?
Raul Gomez: Okay, thank you, Inigo. Funny to see you answering this question, obviously in the name of others. Again, I'm very proud to announce that we with the full support of our Board of Directors, created a new position, Corporate Finance Director. I'm happy to announce that Inigo is being promoted to this position. I hope you all join me in my congratulations to Inigo. Inigo will be in-charge of what we name as our strategic financing planning, our strategic financing strategy, the relationship with banks. Don't forget that we need a person with a more strategic approach. He won't be involved in our daily operations. He needs to be involved in our strategic financing actions. And obviously, we keep in mind and we have defined this position that three quarters of our total debt today is based in Brazilian reals. So, our business is becoming more diversified and more complex in that sense. Congratulations, Inigo.
Inigo Mendieta: Thank you. Thank you. So, we now have answered all the questions received via webcast. If there is any other questions, because there are some repeated questions that we haven't fully answered, please just feel free to reach us after the call. So, many thanks for your attention and just remind you that we are at your complete disposal for any further questions. Thank you and enjoy the summer.
Operator: Ladies and gentlemen, thank you for your participation. You may now disconnect.
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