Vidrala SA
MAD:VID
Vidrala SA
MAD:VID
Price:
76.8
EUR
-2.41%
Market Closed
Market Cap:
€2.7B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good afternoon, and welcome to the conference call organized by Vidrala to present its 2025 First Quarter Results. Vidrala will be represented in this meeting by Rául Gómez, CEO; Iñigo Mendieta, Corporate Finance Director; and Unai Alvarez, 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.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. Alvarez, you now have the floor.
Good afternoon, everyone, and thanks for joining today's call. As previously announced, Vidrala has released its 2025 first quarter results, along with the presentation that we will use as a guide during today's session. We will start by reviewing the main figures following the other slides. And afterwards, we will open the floor for your questions to discuss business performance more in detail. I now hand over to Iñigo, who will explain first quarter key financial highlights.
Thank you, Unai. Let's kick off with the headline financials. In the first quarter of 2025, we achieved revenue of EUR 372.5 million, EBITDA of EUR 104.6 million, net income translating into earnings per share of EUR 1.42, and by the end of March, net debt was EUR 289.2 million, implying a leverage ratio of 0.7x our last 12 months EBITDA, as the anticipated price reductions of approximately 4% are already in place while volumes remain down year-on-year, partly reflecting a strong comparable base in the first quarter of 2024. Scope effect, which include the exclusion of the Italian business, had a 4.1% negative impact on sales.
Looking at EBITDA in more detail. Applying this in breakdown, first quarter EBITDA reached EUR 104.6 million, representing an organic growth of 1.4%, driven by greater diversification and the continuous optimization of our industrial footprint to further enhance our competitiveness. This performance translated into a robust EBITDA margin of 28.1%, marking an improvement of 190 basis points compared to the prior year. Here, we break down sales and EBITDA by business units based on the current perimeter, meaning the Italian business is fully excluded from last year figures. As previously mentioned, we are seeing the expected price reductions across all regions, but the anticipated moderate recovery in volumes has yet to materialize, with Brazil being additionally impacted by negative currency effects.
However, margins across all regions remained strong, reflecting the internal actions taken. And finally, turning to our balance sheet, net debt stood at EUR 289.2 million with leverage at 0.7x the last 12 months EBITDA. This solid financial standing puts us in a strong position to invest, further enhance our competitiveness and explore potential opportunities while maintaining a prudent financial strength. And now before we open the floor for questions, I'll hand over to Rául, who will recap the key points and share business perspectives for the full year.
Thank you, Iñigo. Thank you, Unai. And thank you all on this call for attending this call today. Well, our results published today are probably a good evidence of the global context we are seeing and also of the Vidrala business we have created. This is a world we are living, much more challenging and much more uncertain than we thought. And this is also how solidly our business is reacting, better prepared and stronger than ever, a result of many strategic and management actions.
Indeed, our profitability during the first quarter of this year stayed under a reasonable level of control and our competitiveness remained broadly solid at levels that I do consider should enable us to capture any recovery, any opportunity to grow if it happens. And these are the grounds why despite demand is still quite softer than initially expected. And also despite the macro uncertainties are rising, this is the grounds why we are today reiterating that our business is safe, providing an outlook for the full year that in conclusion in the end, reflects guidance of similar or a slightly better EBITDA and free cash flow levels for this year 2025 versus the prior year.
And this could be seen as nothing extraordinary, but it's not a small thing for us. As -- let me remember last year was a big year for us, a year of big change and relevant improvement. In the end, in my conclusion, what we want to share with you today is that the business in the short term is under a reasonable level of control. And this is despite the many challenges, the many difficulties that we are seeing here. This level of comfort, this starting point will help us remain adaptive, looking forward to the future, trying to anticipate trends with a clear vision and a road map, a road map strictly tied to our long-term principles, customer, cost and capital, repeat this to ourselves every day. That means that we will execute internal actions to improve our competitiveness. We will stay dynamic to capture opportunities to analyze potential opportunities. And we aim to keep on investing more than in the past with our customer in mind to make our business stronger looking ahead to the future. And we will do it always with this decline, staying at reasonable low level of debt for a while. Thank you.
That concludes our initial remarks. Let's turn to the Q&A session.
[Foreign Language] [Operator Instructions] And our first question comes from the line of Francisco Ruiz Martin from BNP Paribas.
I have 2 questions -- 3 questions. The first one is if you could be a little bit more -- or give a little more detail on why costs have been so outstanding this quarter with a drop of around 10%. And following this mainly if you are still thinking that your sales volume for the year, it's going to be something between, I don't know, flat to slightly grow, as you guided in Q4, with cost, I don't know if it's going to be 10% for the year, but still outperforming last year. It looks like the EUR 450 million of your guidance is -- should be understood as a floor, so I don't know what's my -- wrong in my calculation, but it looks a conservative figure.
The second question is on supply situation in Europe, so further to the cuts that we saw last year, one of your main competitors has announced another 2 closures in France. Do you think that the current situation in terms of supply thinking that the volumes would be flat or slightly growing. It's okay right now? Or there is still an oversupply situation that could be solved with further closures? And last but not least, you mentioned that your next step in terms of M&A and acquisition is going to be Latin America. Would you be interested in a country like Argentina or it's something that you discussed on -- from the very beginning?
Thank you, Francisco. Interesting and not surprising questions, okay. First, regarding costs, what we have been saying over the last couple of quarters, you probably remember is that we think that we are making a stronger business. We are investing more very selectively. That means that we are also divesting to improve our cost competitiveness. So I will say that understanding the normal reasonable level of volatility in our cost and our business, I will say that the cost levels that we are reaching are something that at minimum is sustainable, okay? Yes, it's true. We are becoming more cost competitive than in the past.
This is just a result of our deliberate strategic investment and management actions. Second point related with the first is regarding the competitive landscape we are seeing in Europe, and we are fully aware of process of some capacity rationalization that is happening in most of the cases far from our market of sales. We are not the cause of this, the cause of this is that the demand is lower than initially expected. Probably you will agree with me that the demand context has changed quite a lot. And suddenly, in the last 2 years, our narrative, the narrative across the packaging for the consumer industry was quite different only 2 years ago. And what we are seeing today is probably a process of rationalization that is only closing the gap of preexisting overcapacity.
I don't think that the process is still over and you can be sure that we will try to maximize our competitive levels as much as possible. And last question regarding M&A. In this point, our approach and our narrative remain the same. We are always looking for ways to grow the business. You know that we are trying to create a platform for future growth in Brazil, and basically in South America. We are today analyzing quite a number of potential opportunities. I will say that a bigger number than usual. This is in our view positive for how you see us because at least let me clarify that, that explains that we are dynamic.
We are focused on securing the business as it is today, and there are much more challenging demand context or macro context, but we are also trying to dedicate a portion of our time if you look at the future and to analyze potential opportunities. So that probably means that many of the rumors that you could -- are seeing or hear in the future are -- some of them are right. But there's nothing more that we could add at this point, as you can imagine, okay. The only point is, please keep in mind that whatever we do in terms of M&A, you won't be significantly surprised. And our debt levels will, in any case, remain at particularly strong levels, low level of debt, a strong financial position for a while.
Just a follow-up. I think you didn't answer the first question or the second part of the first question on purpose on the guidance, but I understand that clearly, the EUR 450 million we should understand as a floor under the current situation.
Thank you, but difficult to say, the first quarter of year in reality has been slightly, slightly okay, nothing extraordinary. It's slightly more than initially expected in terms of demand conditions for us and our results this quarter is very evidence of this, okay? So -- and it's difficult to say if our guidance is conservative or not. We normally don't like to express this type of qualifications but what I will say is that our guidance has been calculated after a deep conscious internal analysis under the similar circumstances of prudency and aggressivity that we have always -- that we have always done. So if you take a look at our track record in terms of accomplishing guidance, probably that's a conclusion to your answer.
Our next question comes from the line of Natasha Brilliant from UBS.
So you said that the first quarter had been slightly worse than expected in terms of demand. Can you give us a bit more color in terms of volume versus price for all of the regions in Q1? And also an update on what you're seeing in terms of demand by the different end markets or by region? Just any more color that you can give us on those demand trends? And then my second question is around the energy pricing. Can you give us some indication of what the pricing was like in Q1? How much is hedged? And what we should think about for the full year, please?
Thank you, Natasha. So on your first question regarding prices volumes. So at the group level, we are seeing volumes down in the range of 3% for the first quarter, prices down in the range of 4%, as expected, probably. And then we have, on top of that, the scope and the FX effect, okay. If we take a look by regions, all regions are roughly in this minus 3%, minus 4% in terms of pricing, again, as expected. And volumes are similar in Iberia and Brazil, slightly down in the range of minus 1% and volumes in the U.K. are down minus 5%, minus 6% in the first quarter. Let's consider also that which is relevant that volumes in Q1 2024 last year in the U.K. were growing by 10%, okay. So there is a kind of comparable effect. .
And then in terms of energy hedging, as always, please remind that more than 50% of our sales are secured through long-term agreements with big customers that include what we name PAFs, price adjustment formulas, that somehow give us visibility in terms of margins. And then additionally, nearly 70% of our energy exposure is hedged through derivative instruments, which is more than 80% if we exclude Vidroporto that is closely tied to PAFs and for 2026, around 70% of our position still remains deliberately open, okay?
Okay. And just to come back on the demand trend, anything you can say by the different end markets? So beer versus wine versus spirits, anything on that?
So by segment performance is quite similar. We have seen slightly better performance of beers in the first quarter, but probably the first quarter due to calendar effects, due to the Easter period, et cetera, is not very much representative, okay? Probably, we will be able to have a better picture on the first half, but beer slightly better than wines.
[Operator Instructions] And our next question comes from the line of Inigo Egusquiza from Kepler.
I have another 2. The first one is a follow-up on the volumes trend that you mentioned in Europe by regions. I don't know if you can elaborate a bit the minus 1% we have seen in Iberia, especially after the positive trend that we saw in the last part of 2024 now to see the volumes again on the negative territory if there is something else behind the calendar Easter break last year in March versus this year in April. Any reason would be very helpful. And then the second question that I have is on the -- Rául you mentioned on M&A, a lot of opportunities. But the question is more on the CapEx number that you are giving. I think you put on the presentation that it's going to be intense in 2024, 12% of our sales, which seems a bit high compared to what you have been investing over the last 3 to 5 years, if you can elaborate a bit on the breakdown of this 12% over sales CapEx.
Thank you, Iñigo. So in terms of volumes for the first quarter and specifically in terms of Iberia, there is nothing especially to worry, okay? I think proof of that is the guidance we are officially issuing today that, again, probably the year has started slightly weaker than expected in terms of volumes, but we continue to anticipate that 2025 should be a year of modest volume recovery across the group, probably with better prospects in Latin America than in Europe, where we, since the very first half of this year, we're expecting somehow flattish volume contribution for this full year, and this is aligned also with the guidance that we have issued today.
In terms of CapEx, as you were mentioning, we are guiding for a 12% CapEx figure in 2025. Obviously, obviously, more than half of that is, let's say, pure replacement following our furnace repair schedule but obviously, as I was saying, there is an additional effort, okay, focus on many things, I would say, productivity improvements, differential services, as you know, energy efficiency and vertical integration.
Thank you, Iñigo, and just adding on this, we are aware of the fact that our CapEx levels today are higher than in the past, and it's something that needs further clarifications. So thank you, Iñigo, for giving us the opportunity for -- for us to do this. As Iñigo said before, the minimal maintenance CapEx in this business -- in our business as it is today is probably half the figure we are investing. The other half is improvement, expansionary CapEx, CapEx to capture sales, CapEx to verticalize the business and gain control over the business, to gain control over our future and CapEx to improve cost competitiveness. And you can see that these efforts are paying back.
We are seeing the first signs of the results behind these CapEx levels in our cost competitiveness. We will maintain high CapEx levels for a while. At the same time, I do not consider that these CapEx levels are the normal levels in a business like ours to be significantly lower. But I do firmly think and defend the idea that is now the time, the opportunity for us to invest more than usual as long as our cash profile remains safe. We do have a calendar of -- to replace existing facilities. When we need to replace existing facilities, this means that we need to face extraordinary opportunities, and we are trying to take the benefits of these extraordinary opportunities. But let me conclude that we will keep on investing as needed as much as our margins are under control and as much as our cash profile remains safe.
Okay. Just a very quick follow-up. I know that last year, you paid this extraordinary dividend on top of the ordinary dividend. But any reason why you are not announcing the usual annual buyback that you have been doing for the last few years? I don't know if it's because of this higher CapEx or potential M&A? Or is there any reason for not making a buyback again in 2025?
Thank you, Iñigo, for the proposal. Okay, we are obviously analyzing the opportunity always as we have done in the past to pay back or return cash to our shareholders in any potential deals, but let me say that the share buyback is not something that we do consider usual or recurrent. It's something that we do consider extraordinary depending on business conditions. It's now that -- it's now the time for us to keep -- to take some time after the many changes that we have seen, say enjoyed over the last 12, 14 months. You will agree with me that the macro context is more uncertain than usual. And okay, you -- you have heard us saying that our CapEx will be particularly intense this year, and we are analyzing keeping very dynamic, potential further opportunity, okay? If things keep under control as they are today, you can be sure that we will analyze continuously potential opportunities as share buybacks to return back cash to our shareholders.
Our next question comes from the line of Luis Toledo from ODDO.
Most of them have been already addressed, but maybe just 1 regarding the blackout yesterday in Spain and Portugal, I don't know if you've done an initial assessment, should we expect any impact in the second quarter? The second question is relating to FX hedging. You have in Brazil natural hedging. Looking at the assumptions on your guidance, I don't know if you -- I mean, if you're considering any additional hedging policy on FX on the Brazilian real specifically.
Okay. Thank you very much. The first question we were expecting this one, as you can imagine. Let me say first that so far today, we are recovering normality in our affected industrial sites. Let me also say and remark that this extraordinary incident affected 45% of our production or industrial footprint. This is the 5 sites we have in Iberia, but the group is becoming bigger, more diversified, and that means that we are less impacted, less exposed to this type of extraordinary issues even after this one was really extraordinary and unexpected. At the end, we have lost probably 1 day of production or 45% of our installed capacity. It could have been a serious issue for us, but most of our -- all actually of our emergency protective facilities worked well yesterday. Something that also help us to keep on, sorry, investing as we are doing because the facilities that worked well yesterday were facility that had been invested recently over this, let's say, intense CapEx period. And okay, finally, you shouldn't be concerned about the -- this in our specific case. And indeed, our guidance that we are publishing today for the year was calculated days before this issue and was not changed.
And then, Luis, on your second question, FX, let's say, hedging policy in Brazil. As you know, we remain convinced on the fact that we are generating cash in Brazil in Brazilian reals. We have debt in Brazilian real where we have a natural hedge in that sense. And obviously, we will have a translation effect into our consolidated accounts, into our consolidated numbers that should be inherent or natural to our exposure to Brazil since the acquisition of VidroPorto. Regarding the guidance or the assumptions behind the guidance, what we tried is to not make any assumption, okay? Our guidance is based on average exchange rates year-to-date. And this means that we would like you to understand that the guidance could be met in local currency or at least that performance in the different regions could be in line or exceed guidance behind the final number. And then we should also consider the impact of FX in the different regions.
The next question comes from the line of Manuel Lorente from Santander.
My first question is just a clarification. I believe that it was Iñigo that mentioned that embedded on the full year guidance assumption was still a positive volume growth for the full year. Is that correct? And if that is the case, what is going to be the trigger of this improvement in volumes, is it market share gains from efficiency, improved demand?
Thank you, Manuel. So yes, you are right. We are still expecting 2025, as I said before, to be a year of modest volume recovery, okay? We are not seeing significant reasons to be optimistic and we are always talking about group level, okay? We expect to be -- to see some volume growth at a group level and probably more driven by Latin America, by Brazil, okay? Obviously, first quarter is not especially representative in terms of seasonality. Again, it also has calendar effects this year, as always. So probably by the end of April, or by the first half results, we will have more visibility. But I can also anticipate that when we look also or include April in the figures, we are seeing some modest recovery almost elsewhere, okay? But we remain -- or the message remains similar to that issued at the start of the year that we shouldn't see volume decreases for the full year. Please also do not expect significant volume contribution -- positive contribution.
But in any case, Q2 or the first week of Q2 validate a little bit this, let's say, improved volumes trend?
Probably too soon to validate, but let's say that it's in the right direction.
In the right direction, okay. And just my final question, it is fair to say that given the fact that, let's say, the open part of the energy headwind weighted more on the first half than in the second half. If natural gas prices remain at this level, you should benefit a little bit more on the second half than in the first half that might help a little bit to offset potential, let's say, sticky softness in volume?
Yes. So as I said before, we are around 70% hedged for 2025 for the full year, let's say, but obviously hedging was slightly higher than that for the first quarter than for the remainder of the year, okay? So we could benefit more in the remainder of the year if energy prices go down, but also please consider risk has 2 sides. So we can benefit more. or even be more affected if gas prices go up.
Our next question comes from the line of Bruno Bessa from CaixaBank.
And 2 questions from my side. The first one, if you could provide a bit of color on the market share dynamics between container glass and other materials, particularly the aluminum cans, a bit to understand if container glass is already recovering some market share lost over the recent years. Also the price gap between the 2, the 2 materials, if it is -- if the gap has already been closed in terms of pricing. So a bit to understand the dynamics within the 2 segments. And the second question on margin evolution. Just trying to understand the dynamics in Continental Europe and in Brazil, because after Q4 last year, that was strong in terms of margins for Continental Europe and you kept margins in Q1 above 30% in a quarter that in theory is not a seasonally strong quarter for Continental Europe.
So what I'm trying to understand here is if the new normal for Continental Europe is to have margins in the low 30s going forward? So this will be about Continental Europe and then a bit of the same about Brazil because we saw a relatively soft margin in Brazil in Q1. First, just trying to understand a bit why the margin came at 40.6% and significantly down year-on-year in Q1? And also, looking a bit to the delivery of margins over the most recent quarters. We saw that last year, the strongest quarter was Q1. And then afterwards, obviously, also due to seasonality, but it seems like margins have been more in the range of 40%, which is pretty much what you did also in Q1.
My question here is do you feel that the margin improvement in Brazil or the room for further margin improvement in Brazil is limited at this stage? And that this 40% threshold is difficult to improve much more from here or there is something here that affected particularly Q1 and you believe that going forward, margins could be higher in Brazil?
Okay, Bruno, let's see if I can touch on all your points. So regarding margins, especially in Iberia and Brazil as far as I understood, okay, probably the difference in those regions is caused by differences in terms of dynamics, in terms of prices and costs. Prices, as I said before, in all regions are down 3%, 4%. In Brazil, are more in this range in 4%, in Iberia slightly better than that in the range of 3%. And this is also a consequence of how costs are performing in those 2 regions, okay?
We are seeing better improvement in Iberia because of recent investments and because of change of our, let's say, footprint or realignment of our footprint, closing a furnace in [indiscernible], Northern Spain and having more capacity in Brazil, as Rául previously mentioned. And in Brazil, we are seeing still not that, let's say, that benefits from that we are seeing in Iberia, okay. Besides that, I would invite you to consider margins in a longer, let's say, term. We see structural margins of Iberia in the range of 28% to 32%. So we are more or less in the middle. We see margins in Brazil, also in that range of 40s as structural. But obviously, when we look at quarters and especially when we look at business units or segmental information that is quite specific because these are not big business units or big regions.
It's Brazil, which is exclusively to plants. It's the U.K. and Ireland, which is exclusively another 2 plants plus the boating facility in Bristol, and it's Iberia, which is 5 plants, okay? So probably our divisions are very small. And this means that when we look at quarterly performance, in some cases, small, let's say, effects can distort results, okay? Let's consider that we are more or less in all our regions, probably excluding the U.K., where this 21% for Q1 is still can be still improved for the full year, given that we usually talk about the range of between 20% to 25% as structural in the U.K. But let's say that in the rest of business units, we are quite at optimized levels in terms of margins.
Thank you, Iñigo. I'm going to take you now back to your -- the first part of your question, and you asked us about our issue regarding the rise of metal cans, aluminum cans in our food and beverages packaging industry. We are monitoring more carefully this thing. It's very evident so far that metal cans has in some markets are against glass everywhere in the planet, particularly in well-developed areas. This is probably the result of past inflationary pressures that has -- have affected relatively more the cost of manufacturing glass and the cost of manufacturing aluminum cans and the reality, and we should be aware of that, and we are very aware of that, is that for these reasons, competitive reasons, our product has become less attractive than it was in the past for a number of our products, mostly focused on beer or the beer segment and food and soft drinks, sorry, segments.
So it is our job now to make our product attractive again for customers in these places because I'm sure that the -- our customers, brand owners, hoteliers, packagers and as consumers prefer glass as a packaging of choice. It's all a matter of cost competitiveness, and this is where we are putting all our focus. Following some of our previous questions, and looking at the recent developments that we have seen in the macro context, natural gas prices going down in a moment when aluminum is going up, is something that should be a good starting point to be confident of this optimistic vision.
So just a follow-up, if I may. Does that mean that further price declines should be expected next year, for instance, in order to increase that attractiveness of glass against aluminum? How do you think the price declines should be over this year?
That won't be the reason. We will keep on, as we have done in the past, adapting our prices to the real cost of manufacturing our products, trying to maintain safe our margins. to in order so we are able to keep on investing and creating a reliable future to become a supplier of choice for our customers. So if the cost of manufacturing glass go down next year, if we keep on investing well, gaining cost competitiveness, that should be an opportunity for us to be aligned to the cost competitiveness of alternative materials like metal cans. And what I said is I do feel optimistic that this is probably, probably starting to happen, okay, we'll see.
Next question comes from the line of Fraser Donlon from Berenberg.
So I've got 4. So the first is just -- I was wondering if you could give a feedback on the EPR in the U.K. kind of what your customers are saying about that and the second part to that question, I know a few years ago, you had announced with [indiscernible] that you would kind of expand your capacity with them in the U.K. So is there any kind of update on that project? I know the times have maybe changed, but I just wanted to ask the question. The second question also linked to the U.K. Is it possible to kind of quantify if you expect any negative impact from the kind of higher social security costs for U.K. businesses as of April, whether that cost can be passed through with the contracts you mentioned to your customers in the U.K.
The third question, I'd just be interested to have your thoughts on kind of how tariffs in the U.S. may or may not change kind of the import export complex for glass globally. There's a lot of glass going from China to the U.S., is there a negative impact potentially for Europe or not as you see it? And then my final question, could you maybe answer what would be the kind of average age of the furnaces that you have within the group at the year-end of 2025 post this kind of CapEx, which you mentioned?
Okay. That's -- most of the questions regarding our U.K. business, and reflecting the evidence that the U.K. industry, many industries in the U.K. are suffering a process of hyper regulation that could put at risk the future of the industry in the U.K. In our specific case, I think that things are pretty much under control. You have seen our numbers in the U.K., you are seeing our forecast, our guidance for this full year, and this guidance is calculated consistent with our expectations in the U.K. Please take a look at our performance in our business since we acquired Encirc 10 years ago approximately and okay, you will probably have a higher level of comfort, okay?
Regarding EPR, this is a new example of an abnormal level of regulation, something that we rely, we trust, will change, will be moderated in the future. We are trying to work well, particularly with our customers. Most of them are more impacted than we are. We will do whatever we can to help administrations, politicians, recover a reasonable level of common sense. But if not, our numbers and our margins are still under control and consistent with our guidance.
Regarding the project we had to better serve, expanding capacity 1 of our most strategic customers, not only the U.K., globally, the name you mentioned, what we can say is that this project was based in serving them our products, a better cost or competitively and reasonably quality service and products that are made more sustainably at a better level or improved level of sustainability. And we are doing the same that don't need to be particularly new investment exclusively dedicated to them, what our customers need from us is for us to make our products and serve our services in the most competitive and sustainable way and this is what we are doing in this specific case.
And the last question and another case of excessive regulation against the future of the U.K. industry, the case of social security, we are aware of that. The impact of this is fully captured in our guidance. And actually, we do have and expected process to increase our competitiveness in Encirc, reducing our cost that should fully offset the impacts of this and the other negative regulation that we are seeing so far. In conclusion, we probably feel today more confident than we were only a couple of months ago, regarding the future of Encirc, our U.K. business.
Then Fraser on U.S. tax. So it's difficult to be precise at this stage, as you can imagine, given the uncertainty around how and when they might be implemented. But that said, we have assessed the potential impact on the segments that could be most exposed which is primarily wine, champagne, beer and olive oil exports from Iberia and France. And based on our analysis, just to put -- just to try to put some figures, we believe that the potential impact on group sales should not exceed 2% or 3%.
Yes. Starting on this Fraser, we are very aware of the fact that tariffs are dedicated out of time for you, your work. and we are analyzing a lot of the potential impacts, let me say that 1 thing looks like evident, the worst case for us, the worst impact is reasonably limited, understanding the domestic nature of our business in our 3 different core regions. And secondly, it looks like we don't know where it will end, but it looks like this study, the tariff study will end differently than how it started probably in more moderate circumstances. And the final question, you asked us. This is a very good question about the average life usage of our facilities, particularly our pharmacies.
Let me say without giving you a specific detail because this is something that is very sensitive for our competitive position that is significantly below average. So we are investing more and better. This is giving us a result.
Next question comes from the line of Enrique Avilés from Bestinver Securities.
Just 2 pending questions. The first 1 is the measures that you announced in terms of capacity rationalization. So what is your spare capacity in the different business regions? And how do you expect to evolve throughout the year? And secondly, also in the U.K., I mean we talked a lot of the sector overcapacity in Southern Europe, but it seems that volumes in the U.K. are performing weaker than in Iberia. So I would like to know your opinion about the mismatch between supply and demand in Iberia versus the U.K.? Do you think there's still large difference in Iberia in terms of oversupply or is tending to perform possibly without a big difference between those 2 regions?
Thank you, Enrique. So first one on capacity utilization. You can consider that during Q1, the group production capacity utilization was slightly above 90%, with capacity adjustments primarily focused on the Iberian division. And the U.K. and Brazil, both at levels near to full utilization. Anyway, we will continue to monitor demand as you were mentioning and we will maintain a disciplined inventory management in that sense. And in terms of your second question, as far as I understood because the quality of the line was not especially good. Maybe you can clarify...
About the sector over capacity, you didn't talk about the overcapacity in the south of Europe in Iberia, but it seems that volumes in the sector are being weaker in the U.K. So I'd like to know if you still foresee a large mismatch in terms of supply and demand between those 2 markets?
What we see Enrique -- thank you for the clarification. What we see is that probably demand conditions are similar in both Continental Europe and the U.K. and Ireland. Probably in the U.K., we are somehow different. So we are more comfortable because of the visibility and the complementarity of the feeding business, as you know, which is based on more or less stable volumes coming from outside Europe, remote regions, and this gives us visibility. But basically, I wouldn't give too much relevance to the volume performance in Q1 because, first of all, the comparison basis in the U.K. last year was very high. As I said, volumes grew plus 10% in Q1, and this was not the case of Iberia and this is basically the main reason behind that.
There are no further questions by the telephone at this time. And I hand it back to [indiscernible], who will address questions submitted via the webcast.
Thank you. So we have received several questions via webcast on tariffs, on cans, on CapEx, I think all of them have been answered. If not, please do not hesitate to contact us after the call. But there is 1 that we haven't still answered and it's based on the potential implications for the European glass industry of the French Competition Authority investigation. And also if we foresee a potential risk of that investigation extending into an EU context.
Thank you, Iñigo. And yes, we have asked for information under the terms of this investigation. There is nothing more that we should add so far. But just to secure that we will help provide an immediate information under the terms of this process. And let me remind you that this is a quite competitive context industry. And in our particular case, a relevant portion of our sales volumes are dictated by long-term supply agreements with prices calculated the following specific formula. So we'll help providing any needed information, and we will keep you updated in case any relevant happens.
We have now addressed all the questions submitted via webcast. If you have any additional queries or require further clarification on any point, please don't hesitate to reach out to us. We are always happy to assist. That concludes today's session. Thank you for your time and attention.