Vidrala Sa

Good morning and welcome to the conference call organized by Vidrala to present its 2025 first half results. Vidrala will be represented in this meeting by Raúl Gómez, CEO, Íñigo Mendieta, Corporate Finance Director, and Leonid Álvarez, Investor Relations. 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.vidrela.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. Adair, you now have the floor. Thank you.

Good morning, everyone, and thank you for joining this call. As announced, Vidrela published its 2025 first hour results this morning. We also shared a presentation to support today's call. We will start by quickly explaining the main numbers in the presentation. After that, we will spend time answering your questions about the business. Now, Niño will explain the key financial performance for the first half.

Thank you Niño. So let's begin with a quick overview of the main financial figures. For the first half of 2025, Vidrala delivered revenues of 750 million euros an EBITDA of 216 million euros, and a net income equivalent to an EPS of 3.22 euros. At the end of June, net debt stood at almost 215 million euros, which translates to a leverage ratio of 0.5 times over the last 12 months EBITDA. Just a quick reminder at this stage, Italy contributed to revenue and EBITDA in the first two months of 2024, but was reclassified as discontinued from March onwards. So this impacts year-on-year comparisons and we will try to focus on like-for-like trends as we go. Let's take a closer look at revenue. Sales for the first half of 2025 came in at 250.1 million euros. On a light-for-light basis and at constant exchange rates, this represents a year-on-year decline of 6.7%. The reduction reflects the expected price adjustments of around minus 4% and ongoing soft volumes. Scope change due to the exclusion of the Italian business had a negative impact of 2%. Moving on to EBITDA. first-half 2025 EBITDA amounted to €216.1 million, showing a stable performance at constant currency and like-for-like scope. This highlights the benefits of diversification and ongoing footprint optimization to drive competitiveness. This operational performance translated into a robust EBITDA margin of 28.8%, reflecting an improvement of 171 basis points compared to the same period last year, underlying our ability to safeguard profitability despite challenging market conditions. Now, we break down revenue and EBITDA by region, based on the current scope, with Italy fully excluded from the previous year's figures. As already mentioned, price reductions are visible across all our markets, Volumes are performing better in Brazil compared to other regions, although Brazil is again affected by adverse currency fluctuations. Anyway, margins remain solid across regions thanks to our internal measures. Regarding free cash flow generation, we examined this chart that traces cash conversion over the 12 months ending in June 2025. Beginning with an EBITDA margin of 29.5%, we've directed 12.8% of sales towards CAPEX and allocated an additional 4.1% to working capital, financials and taxes. Consequently, free cash flow amounts to approximately 12.6% of sales. And finally, let's take a quick look at the balance sheet. NetBev stood at 214.8 million euros at the end of June, maintaining a low leverage ratio of 0.5 times EBITDA. With this healthy balance sheet, we'll keep investing in the business and finding ways to improve competitiveness. And now, before we open the broad questions, Raul will summarize the main points and offer some additional insights.

Thank you, Inay, and thank you, Inigo. Good morning, you all. Thank you very much for attending our conference today. It's a real privilege to receive your attention, and we today feel particularly proud of seeing how many of you are connected from different places attending this call today. Well, the results we are making public now are, under our view, an evidence of what we are today. the foundations of the Vidrala business profile that we are creating. That means that we are a more diversified business, more agile, well-invested. We are becoming a modern packaging supplier of choice with a strategic commercial positioning in three core regions of activity. And we remain supported by a particularly strong financial project. And so, As a result of this, our second quarter results are totally in line with our expectations three months ago. And this is despite the demand context remains evidently soft. In fact, they're actually persistently weaker than initially expected. So, my conclusion we want to share with you today is that our numbers and our profitability levels that we are making public today obtained under challenging conditions are the result of internal actions. And so, these should be, these levels of profitability should be sustainable. As a result, in consequence, we are today reiterating our guidance for a full year EBITDA of 450 million euros, with some risk of, in any case, limited negative deviations, basically due to the impact of potential FX fluctuations, and a free cash flow of 200 million euros in the year. In any case, looking beyond the guidance and looking beyond the next quarter, please let me share with you, please be sure that we are proactively preparing the business for the challenges ahead. We are managing costs and operations to stay competitive, and we are investing more and better with our customer in mind. Our solid financial position today is only a motivation to remain ambitious. We feel really confident that our future belongs to us today more than ever. Thank you very much.

With that, we finish our introduction and start the Q&A session here.

Gracias. Señoras y señores, a continuación daremos paso al turno de preguntas. Primero se atenderán las preguntas por vía telefónica. Si desean intervenir, por favor marquen asterisco 5 en el teclado de su teléfono. Ladies and gentlemen, the Q&A session starts now. Questions by telephone will be answered first. If you wish to ask a question, please dial star 5 on your telephone keypad. And our first question comes from the line of Francisco Ruiz from BMP. Please go ahead.

Hello, good morning, and thank you for your time and for your presentation. I have three questions, if I may. The first one is if you could give more detail on Q2 numbers and volumes for bi-divisions, and what's your view on them? the current weakness in the U.K. market with theoretically lower volumes than initially expected and also with the tax on packaging coming in the coming quarters. The second question is more on what you have said, Raul, on your EBITDA. EBITDA margin is sustainable from here. So, I mean, with a weaker demand than initially expected at the end of the year, you reiterated your guidance. What is the level of money that you are targeting in 2025 in order to reach this 450? And last, and I will leave the floor to other questions, is quick modeling questions on, I mean, if you have an explanation for the low financial cost, what your estimate for the full year, and also the working capital. Thank you.

Paco, could you repeat, sorry, the third question?

Yeah, the third question is just on modeling. I mean, financial cost has declined significantly versus last year. So what is the best estimate that you could give us for financial cost at the end of the year and the best estimate for working capital?

So thank you very much for your question, Paco. If we look for volumes in our three regions in the second quarter of the year, we got in Iberia a minus 1%, in the UK and Ireland a minus 7%, and if we go to Brazil, we got a plus 4%. If we look at prices in other regions, we are evolving in a minus 3% or minus 5%.

Just to add on that, in terms of the UK market conditions, also consider Paco that the comparison basis for the first half was quite high, showing in the first half of 2024 an increase in volumes of 12%, mainly affected still by second round effects of the park.

And regarding the specific situation of our sales in the UK market, it's very evident that this is a point of attention for us. And under our view, we know the market well. Cirque is a very solid supplier of glass in this market with our market share. So we have the opinion that our sales performance in the first half of the year reflects basically real trading conditions in this region. This is probably where consumption is so far. At the same time, let me insist with you that our margins in the UK will remain solid despite this weak top-line performance, and that gives me the confidence that we can recover volumes and recover markets, sir. So, at the end, to make our guidance, the guidance that we officially reiterated today, possible, that means that we will end this year in better conditions, and that should be a solid starting point for the next year. And, sir, our UK business is a great business, different. And we are very proud of this as it needs to become more competitive so we are able to attract a new market set.

And then finally, Paco, regarding your third question more related to modeling, I should consider that our financials, I assume you're talking about cash flow view, should be below €20 million for 2025. Let's consider the range of €18 million. And working capital, best estimate as of today should be flattish or slightly positive for the full year, depending basically on stock evolution.

And the final comment, the most interesting part of your question, Paco, is we are very conscious, we are aware of the fact that for us to achieve our full year guidance on EBITDA, our margins should remain solid at similar or slightly higher levels than today, and If you are considering DAIS, you are right.

Yes, just a clarification. I didn't hear an eye on the volumes on UK and Brazil, and also on the packaging taxes in UK. What's your view? I mean, how is it going to be affected, specifically GLAAD and more particularly yourself?

Thank you, Paco. Maybe just as a recap for everyone. So I assume you're asking about the EPR. So under this UK extended producer responsibility scheme, the second cost will shift from local authorities to beverage producers. You know that DEFRA gave initial guidance back in December 2024, suggesting a a level of 240 GBP per ton, the final fee was below that, that's 192 GBP per ton, which is a slight improvement, and theoretically, looking ahead, those fees are... should be adjusted depending on how recyclable packaging is, obviously with higher costs for those materials that are harder to recycle. The reality is that... It is probably too early to assess potential impact on volumes, but we are not seeing any significant changes in customer behavior. And in any case, it's relevant to understand that if this regulation means that the UK is less competitive, it should mean also that other regions are more competitive. And please remind that Vidal is the group composed by three different regions. IP and others in the UK and Brazil. And finally, if we take a look at the very final impact, the impact on the price of the final product for a consumer, it should be no more than 2-3% of the selling price of a standard product. These are not good news, but probably are not dramatic.

Thank you.

The next question comes from the line of Enrique Yahweh from Westinburg. Please go ahead.

Good morning. I have two questions. First of all, regarding the expected recovery of demand in the second half of the year, I'd like to know, What kind of recovery do you expect among business areas and in which specific sectors? And what is the tip that you are having from the wineries taking into consideration that it has passed some time since the U.S. tariffs were announced? And secondly, I would like to have a more clear picture of what is driving the significant improvement in margins, which is much stronger than was expected, taking into consideration that prices are falling and modules are not performing well. You mentioned internal action, what kind of internal action and what is the environment of raw materials and energy, because honestly I don't understand well how modules are performing so well. Thank you very much.

Thank you, Kike. So, on your first question, recovery of demand and potential impact on tariffs. So, we are reiterating today the full year guidance we gave back in April. The reality is that we are expecting more than a significant recovery on demand, we're expecting just a Progressive contribution of volumes in the second half. Probably the third quarter will be key in that sense. But let's consider that for the full year we are expecting to be slightly positive in terms of volumes. Something between 0 to plus 1%. So this means that in the second half we should be slightly up, let's say in the range of 3-4%. Overall in all regions, obviously we are expecting better performance in Brazil than in the rest of mature regions. Regarding tariffs, probably those products that are potentially more affected by them, I think about wine, I think about olive oil, and I think about specific regions of Spain, France, and Portugal. So considering our exposure to that segments, considering that the relevant portion of that segments are already sent to the U.S. in bulk, so probably won't have an impact on demand on glass containers for us. So we're expecting that the potential impact of those types could be something in the range of, 1.5 to 2.5% of our group sales. Again, I would say, as the case of the EPR in the UK, not good news, but nothing dramatic.

Okay. And your second question regarding how sustainable our margins are, let me insist that we do consider our margins today in each of our three different divisions as structural and sustainable, at least in the mid-term. Why answer your question? Because our margins are today mostly based in our cost competitiveness. We are improving cost in every place of the business. We are investing more, and this is in a payback. We are managing cost with care in all the structure of our cost base, and at the end makes us feel confident that we are becoming a really competitive player. The market is soft, softer than initially expected, so we need to keep on improving our course beyond the current levels. And as long as we are doing this, I insist our margins are today sustainable.

Okay, thank you.

And this question comes from the line of Inigo Eguskifa from Kepler. Please go ahead.

Good morning, Raúl, Inigo and Unai. Thanks for the presentation and for taking my questions. I have three questions if I may. The first one is on the utilization capacity by regions. If you can share with us what is the level in each of the regions. This is the first one. The second one, Inigo, considering the volumes and recovery that you expect for the second part of 2025, if you can share with us how is July volumes evolving? I mean, we have seen a nice recovery in Brazil, but what has been the performance of volumes in July by regions, if you can share with us some color. And a final question, Raúl, would be on the On the M&A, you have reduced the leverage substantially. You are again below 0.5 times net debt to EBITDA. So I don't know if you can share with us how is the M&A scenario these days. I mean, last call, if I remember well, you were mentioning that it was quite active and a lot of opportunities around the table. So if you can give us an update on that point. Thank you.

Perfect. Thank you very much for your question. So, on the first one, on capacity utilization, during the first half of the year, the group's capacity utilization was still slightly above 90% levels. with all those adjustments nearly concentrated in every division, both Brazil and the UK almost at full capacity. While market dynamics may still call for some degree of adaptation across the broader industry, at this stage we do not anticipate any further closures within our footprint. In any case, we will remain obviously attentive to demand trends and continue to manage inventories with discipline.

Let me insist in this point that probably our capacity to decision rates today are slightly below the industry average in a new evidence that we are taking care of our inventories but taking our margins with a long term view. As long as we remain competitive it will be our intention to keep on and market share in regions or in places where we have lost some market share in the past. Following your question regarding the trading update in July, it's only July, it's one month in the year, but we can share with you the message that our July sales performance, our profitability in this month are basically aligned with the guidance that we have today reiterated. Nothing more to say, but to understand that the industry, the business, and the marketplace is today more volatile than it has been in the past. So probably we need to update these figures and this message during the third quarter results conference call. And regarding M&A, Iñigo, I'm I will say that our narrative remains basically the same. We are, as we have always been, continuously analyzing potential opportunities. This is part of our spirit. We have the aim to grow the business. We want to explore strategic acquisitions. We aim to enter or create solid partnerships with customers in regions where we can add value to the business. This remains the same, but we are not distracted. Let me say this. We remain very focused on the business as it is today, on our current perimeter. At the end, let me make an effort to remain being a predictable company. Whatever happens in the future in terms of EMA, you shouldn't be significantly surprised. And our financial position shouldn't be stressed significantly, and in any case remain strong. It's true that we dedicate the some time, a long time, to our analysis. So our decisions are always the result of a deep process of analysis because we have the aim to be sure that the sellers consider us a good buyer in each of the opportunities that we analyze and to be sure that we pay what is worth for any potential opportunity that we analyze and enter into business where we really can add value grow the future vitara porcini and are welcomed by customers. It's time to keep calm today, under my view.

Thank you. Gracias.

Our next question comes from the line of Natasha Brilliant from UBS. Please go ahead.

Thank you very much for taking my question. I've just got one, which is to clarify on the full year guidance. So you said today 450 million of EBITDA. I think previously, when I look back at the Q1 slides, it said more than 450 million of EBITDA. So is that just being a little bit more conservative? Is it maybe just some deviations from FX, just to clarify on that? And also on the FX, as currency stands today, just to confirm that 450 million EBITDA, number is fine. It's just if there's any further moves on FX that there could be some changes. Is that correct?

Thanks, Natasha. You're absolutely right. As you were mentioning, we're reiterating this figure of 450, no more than, as it was the case in April. Basically, this is, as you were identifying, perfectly identifying, an exercise of prudence. And Mainly this is related to, as we published in the specific slide, mainly due to FX movements. Let's consider that the guidance we issued back in April was done with FX for the British pound of 0.84 and for the Brazilian Real of 6.2. Both of them are worse today. In any case, we guess it's important to clarify that we expected limited variations, which means variations in the range of 1-2%. Thank you.

At the end, let me say... Let me add that if we exclude the effect of FX fluctuations, it's very evident, and we are very aware of it, that our full year guidance that we are reiterating today means that mathematically our second half results will be slightly higher than the first half. And, okay, we are aware of this.

And this question comes from the line of Luis de Toledo from Odo. Please go ahead.

Good morning. Three small questions from my side. First one, if there was any effect on the blackout, if you, after analyzing, I assume you have not taken any provision, and if it's something that is definitive. With regards to the energy hedging levels, if you could provide some information ahead of the release of the algorithm information. And finally, with regards to these higher levels and if you're projecting any additional measure, hedging, or the like. Thank you.

Thank you, Luis. Well, regarding the first question, the blackout that we suffered in Spain three months ago, I guess there is an impact in our cost that is fully capturing our results in the second quarter, and beyond this impact, that is not small, lies a big concern for any Spanish intensive industries, because the circumstances that we suffer these days were difficult to manage, dangerous to manage, and it's sad for us to see that no significant correcting action has taken place so far in Spain. But my final message is if you consider how serious this blackout was in Spain and you analyze what is the most impact that this has had in our global numbers, group numbers for the second quarter, that makes me reiterate that we are becoming a more diversified multinational company, stronger than in the past.

On your Second point, based on energy hedging, you know that our energy hedging policy tries to balance protection against price volatility, also still having some flexibility by using a mix of derivatives and options to manage risk. As a result of that, approximately 75% and 60% of the group's energy exposure are hedged through derivative instruments in 2025 and 2026. respectively, which is obviously in addition to the protection provided by our long-term price adjustment formulas. And finally, regarding hedging on the side of currencies, you know that we, our policy, usually tries to hedge the expected free cash flow generation in the UK, in British pounds, and this continues to be like that, and Brazil is a specific case where The biggest part of our debt, the biggest part of our free cash flow is denominated in Brazilian real, so we have a kind of natural hedge in that sense.

Thank you very much.

We have a follow-up question from the line of Francisco Ruiz from BNP Paribas. Please go ahead.

Hi again. This is Juan. a question on the use of cash. As you commented that your focus is on the day-to-day business and M&A will come opportunistically, you are reaching practically net cash position. So, are you thinking on a different way to remunerate shareholder or to pay special dividends taking into account your solid balance sheet position?

Hi, Paco. Good morning. Well, As you know, our debt levels is not our target in itself. We always basically say the same. Our target is to obtain a structural, solid, sustainable level of free cash flow. After having secured that we are going to business, that we are remaining competitive, that we are protecting our values, that we are, for this to remain possible in the future, investing more. more than ever with our customers, our cost competitiveness in mind. If, as a result of this achievement of our long-term cash profile, we are continuously reducing our debt levels and reach to a point of being in a net cash position, that won't be a problem. We'll be prepared to return cash to our shareholders who deserve it, in every potential way that is more efficient. We have been in the past using cash dividends, where we always try to create a solid, sustainable level of cash dividends, trying to avoid any distortion in the future, trying to create a predictable return. dividend policy in this point, and we are combining the past share by backs, something that we still consider as an attractive tool, and maybe in the future, why not, we explore other extraordinary ideas. Let me insist that some months ago we paid an extraordinary dividend after exiting from Italy, so We won't disappoint you in our surrogate remuneration if the business keeps on improving as we aim.

Thank you. Our next question comes from the line of Manuel Lorente from Grupo Santander. Please go ahead.

Yes, hi. Good morning. My first question is regarding the, let's say, volume recovery on the second half of the year. I might see four possible explanations for that volume recovery. The first one is, let's say, an improving macro because of less disturbances from tariffs. The second one is a potential market share gain given the massive restructuring that we have seen especially in Europe in the last quarters. The third one might be some volume recovery associated with the narrowing of the glass to can gap because of the tariffs on aluminum. And the final might be a more, let's say, straightforward regarding easier comparables versus the first half of this year. So I don't know. Does it make any sense? Do you see any of this fall more biased towards reality? Or is there any other issue that you want to add to these potential levers?

Thank you, Manuel. Thank you for the question and answer. Well, let me add to this that Vidrola is comprised by three different regions that creates a good combination of demand context. So in some cases where demand is softer in Europe could be stronger in Brazil. And that makes me think that the dollar is becoming a real powerful combination of businesses. So one thing is this, our diversification, another reason to understand our safe values recovery expected for the second half. And another one is, insisting in your comments, is true that we have suffered a number of excessive noise distortions during the first half of the year that should be progressively moderate, not disappear, moderate. We are not considering a specific level of optimizing in this point, okay, just to secure that you consider us as a conservative company in terms of our guidance. And the third point is, well, as you can see, our margins remain more or less solid and significantly weaker than expected sales or top-line performance. And this is a proof that we are competitive in each of our regions of activity and that will help us to progressively, with our mind in the long term, capture sales and recover some of the market share that has been lost in the places where it has been lost.

Okay. And again, on the margin side or in the BDA side for the second half of the year, apart from the, let's say, larger benefits from a greater operational leverage from the top line, the energy savings in terms of hatching are going to help a little bit versus the first half?

No, not significantly because, as you probably know, most of our energy savings for 25 fees fixed so far, so our energy prices in the second half should be similar to the first half, and probably actually the market prices are not significantly different. So the reason for our cost improvements expected in the second half, because we are foreseeing some cost improvements, is again the same factor. Our continuous investment ambition, our internal actions, and the reality that I don't want to see us excessively optimistic in this message, but the reality is that the first half of this year has been distorted by an excessive amount of noise across our business, externally and internally. So the comparison basis should be, in terms of cost, the comparison basis should be easy to prove.

Okay. Thank you. Thanks.

There are no further questions by telephone. I now hand it back to the Beatrice Latin, who will address questions submitted by our webcast. Thank you.

Okay, so there are no further questions through the webcast. If you have more questions or need more details, please feel free to contact us anytime. That's all for today. Thank you very much for joining and listening.

Thank you very much, you all. I hope you living in Europe particularly enjoy a very well-deserved holidays. Drinking and eating in glass is best for you. Thanks for your interest.