Buenos días y bienvenidos a la presentación de resultados del primer semestre de 2022 de Vidrala. La compañía estará representada por Raúl Gómez, Director Financiero, e Iñigo Mendieta, Responsable de Relación con Inversores. La exposición se realizará en inglés. En el turno de preguntas, se recomienda realizar las preguntas en inglés, aunque se atenderán también preguntas en castellano. En la página web de la sociedad, www.vidrala.com, encontrarán documentación de soporte a esta presentación, así como un enlace para acceder al webcast. Good morning and welcome to the conference call organized by Vidrala to present its 2022 First Half Results. Vidrala will be represented in this meeting by Raúl Gómez, CFO, and Iñigo Mendieta, Head of IR. The presentation will be held in English. In the Q&A session, questions will be also answered in Spanish. Nevertheless, it's strongly recommended to pose 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 a supporting material to cover this call, as well as a link to access the webcast. Mr. Mendieta, you now have the floor.
Okay. Good morning to everyone, and thank you for the time that you dedicate to attend this call. As announced, Vidrala has published this morning its 2022 first half results. Additionally, we have also published the results presentation that will be used as supporting material to this conference call. Following this document, we will dedicate 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. Starting with the main magnitudes, in the first half of 2022, we achieved our most relevant business figures, revenues of EUR 651 million and EBITDA of EUR 112 million and a net income equivalent to an EPS of EUR 1.9.
Net debt at the end of the period stood at EUR 250 million, which is equivalent to a leverage ratio of 0.9x the reported EBITDA. Turning to slide four, we look at the top-line performance, analyzing the annual variation of revenue broken down by concepts to arrive at the reported figure of EUR 650.8 million. As it is shown in the graph, this figure is the result of an organic growth of 21.8% and incorporating the effect of the currency, the reported variation amounts to 22.9%. Following the order of key business figures referred to at the beginning, we analyze with exactly the same breakdown the variation of operating income. 2022 first half EBITDA amounted to EUR 112 million, reflecting an organic decline, in this case of -25.4%.
In reported terms, EBITDA decreased by -25.1% in the period. These operating figures resulted in an operating margin, EBITDA over sales, of 17.2%, which represents a contraction of approximately 11 percentage points compared to the 28.2% registered in the previous year. Taking a detailed look at the performance quarter- by- quarter, we can see how our pricing adaptation initiatives and a more stable global energy market have enabled us to recover more, let's say, normal margins, consistent with the guidance that we announced back in the month of April. Going down through the income statement, net profit obtained in the period amounted to EUR 56.3 million, equivalent to EUR 1.9 per share, which reflects a decrease of -30.8% over the previous year.
Let's analyze now the free cash flow generation in detail. We will do so with the help of the chart on slide nine, which reconstructs the cash conversion accumulated for the last 12 months in order to fully normalize our annual cash profile. Starting from an EBITDA margin of 19.1%, we have dedicated 10.1% of sales to investments. As usual, the aggregate of working capital, financial and taxes represented a cash outflow of 7.7% of sales. As a result, free cash flow generation stands at 1.3% of sales. Finally, net debt at the end of the reported period closed at EUR 250 million, and as a result of this, the leverage ratio stands at 0.9 x EBITDA.
Now before turning to the Q&A session, I pass the word to Raúl so that he can extract the main conclusions or highlights and make additional comments that he considers appropriate.
Good morning. Thank you. Thank you, Iñigo, for your great introduction. Thank you all for your time today attending this conference. Well, let me conclude with some basic remarks before going directly to the Q&A. You will surely agree with me that we are living quite particular times. I will try to summarize how we see the business today, and basically how we are managing current priorities based on three main factors. First, most important, demand for glass containers in our regions of activity remains quite strong, exceeding our expectations. This is due to a number of causes, and some of them are structural, that proves that glass as a packaging material has today a really bright future.
Despite we are all very aware of the different potential global macroeconomic distortions we could soon face, this solid base of market conditions, combined with stock levels that are quite tight, short across the industry, give us some further, probably higher than usual visibility over our sales performance in the coming months. Let me say this, looking beyond in the future, we invite you to keep in mind that glass packaging demand fundamentals have proven to be quite resilient under different economic context in the past. Second factor, not less important and much more focused on the very short term. Cost inflation is exceeding everyone's expectations. This is now, today, basically a matter of what is happening around the European natural gas markets that are crazy volatile.
Despite we have been able to recover, as Iñigo said before, more normal margins in the second quarter, despite we are today more protected against energy inflation than at the beginning of this year, and despite we are solidly executing price adaptation initiatives, the reality today is that natural gas prices have doubled in only four weeks. Should natural gas markets remain so stressed as they are today, it will be difficult for us to avoid some margin deteriorations from the current level temporarily as energy markets stabilize or alternatively, our prices are progressively, fully readapted. Please, at this point, don't forget that this is mostly due to an external factor that affects all of us, that will be corrected soon in any sense. Energy markets are changing every day, every hour.
I'm sure we will go deeper in the discussion of this point during the Q&A. Third and final factor, our cash generation in the short term will be determined by our more unpredictable margins, the abnormal temporary movement in working capital caused by the inflationary context explained before, and a CapEx plan that remains intense as planned. We will have a voluntary plan to invest more than before, to reduce cost, to improve our competitiveness, to realign our capacity, to expand the business, to secure service, and better serve our customers. All this, as I said, will consume some cash in the short term. But as a good proof of our confidence in the future and our confidence in our strong financial position today, we are in this context executing a new share buyback program.
In conclusion, we can say today that we are managing the context more protected than before, fully conscious, sorry, of the situation in the short term, and we are doing this under the warranty or the credentials of a business profile that has been able to recover more normal margins very recently. We do keep a clear view on the future. Please let me finalize remarking that demand for glass is there and quite strong. Okay, this completes our exposition, so we now give way to the Q&A session.
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 zero one on your telephone keypad. Thank you. Your first question comes from Paco Ruiz from Exane BNP Paribas. Please go ahead.
Good morning. I have three questions. The first one is on the energy surcharge, because Raúl has commented that, if gas prices continue to be at these levels, your margin will suffer. Will it be the same with the absolute EBITDA or could we think on your words that the clients are more reluctant to accept the initial charge at prices of EUR 150 per MWh of the gas? The second question is on the working capital. You mentioned that, I mean, this sudden increase on prices and costs has mainly implied a huge increase on working capital, and we show in the figures. How temporary is this?
Also in the cash flow statement this quarter, you have EUR 36 million of the impact on provisioning, mainly due to CO2 rights. Could you elaborate a little bit on this and how sustainable are this? Last but not least, just if you could give us the data on volume growth in Q2 isolated. Thank you.
Okay. Thank you. Thank you, Paco. Well, your first question regarding our pricing initiatives. Well, let me start saying that obviously, under the current conditions, our capacity to recover absolute EBITDA in value will be easier than EBITDA margins or in relative terms, obviously. Let's say I will try to provide as much clarity as needed in this point. Let's say that today, 1/3 of our sales are concentrated in contractual pass-through mechanisms under multiyear agreements. These are mostly based in the U.K. and Ireland and Italy.
An additional 40% of our sales, mostly in Southern Europe, for this, we executed an energy surcharge price increase during the second quarter of the year, and decided very recently to fix most of the energy exposure associated to these volumes and to fix the price increase in and around an increase that is today around 25%. We did this in an effort to avoid market share losses as our competitors were following more relaxed pricing initiatives. The remainder of our sales are basically based on direct negotiations. All in, if we consider that today, 2/3 of our natural gas consumption for the remainder of the year, for the second half of the year, is protected by hedging. It's 2/3 for natural gas, it's 62% for our total energy consumption.
If we do consider that today our average price increases exceed 25% annual, this should be enough to preserve current margins if for the percentage of our energy position that is under hedging, okay? The problem or the issue is the open position, yeah. How do you say that? All we need today is for natural gas prices to revert to levels of three weeks ago. That means the business is prepared, is more protected and prepared to maintain margins as they were in the first half of the year, even if natural gas prices are slightly above EUR 100 per megawatt, a figure that is extraordinarily high, okay?
The problem is that today, energy markets or natural gas prices have doubled in only two, three, four weeks, and we cannot avoid, under such a sudden movement, some margin deterioration in the short term. This, we wait for energy markets to stabilize, or if not, we will be forced to readapt our prices, and probably we are able to do this only in weeks, months, okay? That's the situation. Second point, working capital, Iñigo, please.
Just to give the figures, Paco, and then Raúl will add some additional comments. For the year- to- date, let's say free cash flow generation, working capital is cash outflow in the region of EUR 125 million. For the figures that we have presented in the results presentation, which is last twelve months, working capital is a cash outflow of slightly more than EUR 60 million. Okay.
Yeah, let me add on this point that I assume that this is a point of discussion today. Obviously, our increase in debt shown in our numbers is explained by, first, obviously lower operating cash flow generation following the EBIT variation, and more important, by a significant easy to understand increase in working capital. Because we have started to suffer our normal OpEX increases, inflation, since the beginning of the year, and this is fully cash out . We basically started to recover in the second quarter this inflation through higher sales prices that are not fully cash in, following normal payment and receivable periods. That's the main reason of this extraordinary working capital variation.
For the remainder of the year, this effect will remain as long as prices during the end of the year are expected to be higher than a year ago or even higher than today, and some of this will be cast in 2023, okay. The rest of our debt variation is basically, in my opinion, explainable if we consider that we are executing our planned intense investment plan and focusing on your reconciliation of our debt movement. Finally, to complete this understanding, please keep in mind that we are boosting above last year levels our share buyback program.
Okay, on your third question, Paco, volumes, prices, you can assume that prices in the second quarter
Slightly above 30% with volumes slightly down in the range of 5%. This is for the second quarter stand-alone. For the, let's say, year- to- date, the six months of the year, prices are slightly above 20% with volumes more or less flat.
Thank you.
Thank you. The next question comes from Alberto Espelosín from JB Capital. Please go ahead.
Good morning Raúl and Iñigo, and thank you for taking my questions. Most of my questions were just asked by Paco, but I still have one and two follow-ups from Paco's questions, if I might. First is on volumes, and it's actually a clarification on your business outlook. You commented that sales forecasts for the second half of the year remain stable. Could you please share the sales forecast in terms of volumes? My second one is a follow-up on Paco's question on the price formulas for the rest of the year. If I understood correctly, 2/3 of your sales and costs are currently fixed.
Could you please specify at what margin, and why are you not being able to do these fixed prices at for the other 1/3 of your sales in the U.K.? The third one is I did not really hear the answer. I don't know if you'd provide the answer on the EUR 36 million of provisions due to emission rights this first half of the year. Thank you.
Okay, thank you. Well, first question regarding volumes. Well, first of all, demand is still today quite strong, still in our expectations all across our regions of activity, particularly in Southern Europe. That is a region probably more benefited by some short-term drivers that are boosting demand, for example, reopening of activities, boost on consumption levels, tourism and the rest of things. Demand is pretty strong and exceeding our previous expectations all across the business. Having said that, our sales volume performance in the short term from now will be fully determined as planned. This is not a surprise for us, and if it is, it is probably more as positive surprise by our exceptionally low inventory levels.
We assume we understand from our customers, from what our competitors are publicly saying that this shortage that these tight inventory levels are basically common around the industry. In our specific case, will limit our capacity to growth on volumes during the second half of the year. You will agree with me that this is positive looking at the next year. The reasons why this is happening, these low inventories are happening is basically. It's a solid demand, and that means finalizing our comment that our positive sales forecast for the remainder of the year are basically based on pricing, the pricing driver, okay? On price increases. Volumes should be flat for the remainder of the year, and that won't follow or reflect real underlying demand conditions.
That will be basically determined by our short or tight inventory levels. Second question, probably more important, I will try to be even more clear. I say that approximately 2/3 of our natural gas consumption, more than 60% of our total energy consumption for the second half of this year is now protected. This is a higher percentage than at the beginning of the year, so we deliberately increased hedging during the second quarter of this year.
The remainder 1/3 is open, exposed to an abnormal level of inflation as natural gas prices have, as I said before, doubled in the last four weeks and more than 10 x, 15 x higher than a year ago, following the difficult events that we are seeing, particularly in Central Europe, regarding an apparently growing risk of future gas supply, gas supplies from Russia in these areas. Simultaneously, our prices are today seeing increases of more than 25%. One-third of our sales are protected by contractual pass-through mechanisms under multi-year agreements that will take some time, not much time, but some time to be fully efficient.
This is enough, this hedging protection, these price increases, these contractual price adjustment formulas, this is enough to preserve margins as they are today for the portion of our cost, I mean, of our energy costs, that are today protected under hedging. But obviously, understanding the sudden increase of natural gas prices concentrated in a couple of days, in a couple of weeks, this is today. Today things can change quickly, not enough to avoid a deterioration in the portion of our open energy position. We need, looking at the short term, some time to adapt our prices to this energy environment, okay? This industry is not prepared to such sudden movements as you can imagine, but maybe only weeks or months. Or maybe energy markets stabilize. Okay?
Before you ask, the magnitude of the reason for this open position changes every day. You can make your own calculations if you estimate that, okay, the situation is this, 1/3 of our energy costs are exposed and today doubling. Our margins are still positive, but below recent levels. My final remark, just to give you some visibility and optimistic clarity, I hope, we don't need natural gas prices to revert or go back to previous historical levels, something that is probably not realistic today, unfortunately. We only need natural gas prices for this open position to go back to levels of three weeks ago. As I said before, above EUR 100 per megawatt. We monitor the situation very carefully.
If this finally doesn't happen, we will quickly, efficiently apply, be forced to apply new pricing initiatives to readapt our prices. Is that clear?
Finally, Alberto, on your point on CO2 rights, the deficit that is registered is similar to the deficit that we had in December, so no big changes on that. The provision only reflects the increase on prices, on the prices of CO2 rights both in Europe and the U.K. Okay? If you want, in any case, to have further detail, we can have a quick chat after the conference.
Perfect. Thank you.
Thank you. The next question comes from Luis de Toledo from ODDO BHF. Please go ahead.
Yeah. Good morning. Two questions on my side. The first one referring to, I mean, the guidance. Obviously, you removed the comment in the presentation. You made some remarks. Obviously, it's a lot of volatility affecting the guidance. Would you stick to your previous comments regarding the level of EBITDA margin for the remainder of the year above 20%? The second question refers to the segment reporting. U.K. profitability levels have underperformed a little bit. Do you associate this to the pricing formula, or because we can also see some inflation, particularly in personal? I don't know if you can refer to the U.K. situation in markets. Thanks.
Okay. Thank you. Thank you, Luis, for your question. Well, I will again try to be very clear on this. As long as the situation on natural gas markets are particularly volatile today, and despite we are much more protected on energy hedging and on prices than before, today, our guidance for the very short term, I repeat, for the very short term, cannot be maintained. Okay? That's all the clarity we can give you.
What we need for our guidance to be maintained for the remainder of the year, probably for the fourth quarter of this year, is energy markets to stabilize, I will say, a little, not to recover or revert to historical levels, or our prices to readapt to the new reality for this small portion of our business, sales and cost, that are not fully protected, okay? The portion of our business that is not protected is small, but the variation or the inflation that we are seeing in this small portion is so high that will unfortunately, in the very short term, temporarily affect our margins.
On your question, Luis, regarding results by business segment, we can see, as you were saying, in the U.K. and Ireland, a higher deterioration of margins in the second quarter standalone. Please consider that, the levels of margins are similar to the region of Italy. That is also more related, as you were already pointing, to price adjustment formulas with whose path of execution of the price increases is different to the rest of the business. This is the main reasons. Of course, there are some also differential demand conditions, some differential operational performance. In the case of the U.K. and the second quarter in 2021, there is also a tougher comparison basis, so it's a combination of factors.
The main point, as you were already saying, is the fact that it's more exposed to price adjustment formulas with different paths of execution of the price increases.
Thank you.
Thank you. The next question comes from Bruno Bessa from CaixaBank BPI. Please go ahead.
Hello. Good morning. Thank you for taking my questions. I have a few questions. Starting with the price increases you mentioned you need to offset the current environment in terms of natural gas. You mentioned already that you are increasing prices above your direct competition. My question is, what is the room and the ability that you see for Vidrala to be able to effectively implement more price increases, if this backdrop of natural gas costs remains as it is? This will be my first question. Next two questions related also with natural gas. The first one, there have been news of proposed reduction of natural gas consumption, particularly during August.
My question is, how could this impact your activity during the summer period. The second question related with natural gas, just wondering and looking a little bit beyond summer, if you have any contingency plan, in case there is a shortage of natural gas during the coming winter. This will be the third question on, I would make if I may just a final one on cash flow. I think in the last results conference call, you mentioned that you expected positive cash flow over the next nine months, so until the end of the year. We saw this relevant cash consumption during Q2.
My question is, if this view has changed after the performance in Q2? Thank you very much.
Okay. Thank you. Thank you, Bruno. Well, your first question is a relevant point to understand. Okay. Well, it's obvious that we successfully increased prices and recovered margins during the second quarter of this year. We did it keeping our prices quite above, as long as we can see from the reactions of our customers, quite above our average levels in the industry or quite above our competitors. Okay. This is something we needed to do, but this is something we need to take care of, or we need to manage it very carefully because we now need to avoid the structural market losses as you can imagine. Okay. That's the reason for having changed our temporary short-term surcharges in fixed prices. Okay.
Fixed price increases. Okay? Simultaneously, we did it increasing our hedging or protecting more our business. Okay? The reality today, and we will try to focus on the situation or to monitor the situation carefully for the next months, particularly competitive dynamics, is that differential hedging positions during the first half of this year have created differential pricing initiatives to protect margins. This is abnormal. Hedging, you will agree with me, could be positive or negative, could be higher or lower in the short term, but is temporary by nature. In the long term, we will all in the industry face similar cost conditions, particularly energy cost conditions. We don't know what these conditions will be.
We are almost sure that current price increases, even Vidrala's higher current price increases, are not yet enough to fully recover cost inflation if we exclude or remove the temporary effect or protection of energy hedging. I mean, if we include real market conditions in our energy cost and not the effect of hedging. The demand is still quite solid, and inventories are low and our customers are demanding more and more bottles from us and from our competitors. I should say that this should be a constructive starting point for the needed price increases we will probably, unfortunately, need in the coming months. Okay. It's true that the differential competitive dynamics will be a point to monitor.
It's also true that Vidrala is successfully, but differentially increasing prices more than average in the industry. Okay. Your second and third point, if I understood them well, are basically related to the same. If not, let me know, please. The situation on natural gas markets and risk or growing risk of potential supply shortages caused by the events we are seeing around Russia and Ukraine after the summer. Well, what we can say today is that we are monitoring the situation very carefully, that we are today, unfortunately, more concerned about natural gas prices than about the supply of natural gas. Following comments from experts, governments, politicians, big utilities, it seems evident for us that the gas supply infrastructure is particularly solid, more isolated and less dependent on Russian gas supply in our regions of activity.
This is the case of Spain, Iberia, the U.K., Ireland, and even Italy. That give us a significant level of comfort about this scenario of a gas supply cut after the summer. I would say that there was a scenario under which we are working is the worst scenario, still, in my opinion, unlikely, is a potential reduction on natural gas supplies and not a full, complete supply cut. I repeat, in our regions of activity. Maybe, or it seems evident that other countries in Europe, in Central Europe, are apparently under more risky circumstances, something that I would say should help dynamize different competitive drivers or dynamics that should be also supportive for the price increases we will probably need over the next coming months. Okay?
Having said that, we are internally basically prepared in terms of contingency plans to reduce consumption of natural gas and to substitute natural gas through alternative sources of energy, heavy fuel, gas oil. Actually, we are doing this since the beginning of the year just to reduce cost. I will say to finalize like this, that if the worst scenario in terms of potential Russian gas supply cuts after the summer becomes a reality, our problem will be more the price to supply natural gas in our regions than the quantity or the amount of gas that is supplied in our sites. On your final comment, our guidance on cash flow, it's true.
What we are seeing today is that, due to a combination of factors, lower EBITDA during the third quarter, some temporary non-recurrent use of cash for working capital and our intense investment plan that is fully on track, we now expect a negative cash flow, free cash flow variation from now till the end of the year, despite our margins recover sooner than expected because energy markets soon stabilize or we are able to quickly re-adapt our prices.
Just a quick follow-up, just to see if I've understood correctly. You expect net debt to increase until the end of the year from its current levels. Is that correct?
This is correct. I'm saying that cash flow, free cash flow generation will be slightly negative from now till the end of year. We will keep on, as a proof of our confidence in the future and our financial position, we will keep on buying back shares or accelerating share buybacks, and that will also determine or condition our net debt. That should be, as you say, you are right, it should be at the end of the year higher than today's levels.
Okay. That's very clear. Thank you very much.
Thank you. The next question comes from Iñigo Egusquiza from Kepler. Please go ahead.
Hello. Good morning, Raúl and Iñigo. Thanks for taking my questions. Most of them have been already answered, so I have just two follow-ups and an additional question. The first question is on the demand that you are mentioning that it's quite strong, exceeding your expectations. I don't know if you can share with us, according to you, the visibility is higher than in the past. What can we expect for the summer and also after the summer, September and October? Because it seems that we are gonna have a pretty strong summer, but as from September, everybody's waiting, like, the perfect storm. If you have any indication for glass demand. That's the first question.
The second question on the natural gas, just, a small question after all your answers on the topic, what is the exposure of Vidrala to the Russian gas, if any? Third, just to change the topic to a different one, consolidation. I don't know how is the situation today? In your case, you have recovered the margins, but now margins are again suffering and below the level you have achieved in Q2. I would guess that other small players are suffering as well, margin deterioration, natural gas keep going up very rapidly, as you have mentioned. I don't know what is exactly the situation in terms of consolidation in the industry. Thank you.
Okay. Thank you, Iñigo. If you let me, I will start with your last question. What we can say is that despite our financial position remains strong today, and despite that we are seeing some interesting dynamics around the industry, not only in Europe, it is time for us now to be prudent and structurally focused on recover more normal margins. Despite we will remain careful observers, let me say that about what happens around the industry. A relevant corporate transaction for now, for us, is unlikely today.
Having said that, there are a few other smaller potential transactions we are working on that are part of our plans, that are aligned with our investment program, that are basically focused on diversifying the business, verticalization, partnering with suppliers and customers to secure sales, to secure supplies, to improve margins, or to improve our control over the business, and we are working on this. I will say, in terms of M&A, that we won't be quiet, and you won't be materially surprised. Whatever happens in the future, please think that this is the result of a long-lasting process of analysis and negotiation. Okay. Well, regarding your previous comments, your first question is around demand. I should say that demand is really exceeding expectations.
In some regions that you can imagine, Southern Europe, the organic demand growth that we are seeing during the first six months of this year are not significantly below double-digit growth. This is bigger, abnormally high. Okay. The drivers for this exceptional growth are. We should assume that some of them are non-recurrent, but some of them are structural. What we can say is that, or what we can see is that the inventory levels in the industry are tight. There is a real shortage of supply in the glass container industry, particularly in continental Europe, particularly in Southern Europe. Actually, our inventory levels are shorter or tighter than usual.
We can see that the inventory levels in our customers are tight as well, and we can imagine, and we are trying to monitor this more carefully than in the past, that inventory levels in the customers of our customers are also tighter or shorter than usual. That should give us some level of confidence visibility over the rest of the year. If you combine this with the reality that we are today losing sales because of our limited availability of product, because of our tight inventory levels, that means that our demand performance or our sales performance over the next coming months will be much more determined by our production capacity or production levels than external demand conditions. Okay.
We cannot avoid the message that macroeconomic conditions are probably getting worse, and that could have an impact on demand for glass containers after the summer, particularly if we consider that the comparison basis is quite strong. This is not the point for us. This is not our main point of concern. The industry and our customers are so affected by limited availability of glass bottles that that could give us some level of confidence. Our point today is how to recover margins and how to manage the current inflationary context. Finally, Iñigo, regarding your question on Russian natural gas.
Our exposure, the exposure of the group is something in the range of 2%-2%, so I would say that you can assume that we have a very, very limited or almost no exposure to natural gas coming from Russia.
Okay. Thank you. Gracias.
Thank you. The next question comes from Beltrán Palazuelo from Bestinver. Please go ahead.
Hello, good morning, Raúl. Good morning, Iñigo. Thank you for the hard work. I have three little questions. One regarding hedging. What is exactly your hedging position, and how are you expected to play it in a non-efficient market like natural gas? Regarding your CapEx, your strong CapEx program. Could you say how much your capacity is going to increase, let's say, in the next two to three years with a strong CapEx program? Regarding 2023 and regarding, let's say, a good level of margins, which margins are you going to, like, fight for?
Which is, let's say, your level you're going to fight for in the next two, three years in order with your clients with price increases in order to see your business perform adequately?
Thank you, Beltrán. Well, hedging. Today, we, our hedging position is 2/3 of our natural gas consumption for the remainder of the year is protected by hedging. This is for natural gas. For our total energy consumption, considering that the remainder of our energy consumption is basically electricity or power with market dynamics that are quite different than the crazy dynamics that we are seeing on the gas markets. For the total energy, it's 62%. Two-thirds natural gas, 62% total energy for the remainder of the year, for the second half of this year. You asked how we are planning to manage the current circumstances in terms of our hedging.
We are much more protected, significantly more protected than at the beginning of the year. Our prices are growing solidly, higher than at the beginning of the year. The problem is the inflation that we are seeing in the remainder open energy cost position. It's time for us to wait a little to see if energy market stabilize or to accelerate new pricing readaptation initiatives to offset this wave, okay? CapEx. Our CapEx this year will be around EUR 140 million-EUR 150 million. Nothing surprising, I hope. This figure is almost double the figure requested for our business profile today for minimal maintenance or pure replacement. We are doing more than this, more than pure replacement, very deliberately investing.
We said, we anticipated this to you before, investing in modestly expanding selectively our capacities in the U.K., in Italy, and in Portugal. We are investing in new technologies for cost reductions, basically. We are investing in sustainability, making our operations more sustainable. Say, for example, self-supply power generation facilities, that not only put us in a better, more sustainable place, but do have real attractive returns. We want our operations to be more sustainable and more profitable. I repeat, a significant portion of our investment plan under execution today is deliberately abnormal above replacement levels.
As a proof of our confidence in the future, we are executing this plan without any change till today, even after some things around the industry, the business context, particularly, energy inflation, is surprising all of us in the industry. So that gives me room to speak a little about 2023. Well, 2023 is particularly unpredictable now. The level of unpredictability is mostly, I mean, margins for 2023, okay? This level of unpredictability is mostly due to or based on only one factor, the natural gas factor, okay? What we can see is that first, our sales volumes in 2023 will remain, let's say, at minimum stable. This is. I'm saying this fully aware of potential or the impact of potential macroeconomic conditions.
I mean, fully aware of the fact that on a macroeconomic point of view, 2023, probably a tougher, more difficult year than 2022. Please keep in mind our explanations around the inventory levels across the industry, inventory levels across our customers, our particular inventory levels inside our business, inside Vidrala. Second, we expect prices to be progressively adapted to whatever is the circumstances around cost inflation, manufacturing cost inflation, including natural gas. We do have 40%, 40% of our total energy consumption under hedging for 2023 at a particularly lower than current market levels. That should give us some minimal level of confidence for 2023 to crystallize or to materialize some positive gap between prices and costs.
If we consider that internally, in 2023, we should have additional effects of our in terms of cost reductions following our intense investment plan on track. Our internal cost, our internal industrial footprint will be more competitive, cost competitive in 2023 than in 2022. Having said that, it is too soon for us to give you a number. It's easy for us to say today that margins will be higher in 2023 than in 2022, and this is mostly due to the fact, as we have been trying to explain during all this conference call, that the circumstances that are affecting our margins today are basically abnormal, extraordinary volatile, inflationary, certain or temporary circumstances. That will be corrected.
Okay. Thank you very much. Maybe if I may follow up regarding M&A. Let's say you're an excellent company, industrial company, with allies and excellently executed M&A in the past. As I understand, let's say, M&A and consolidation, it should be done countercyclically in order to get the, let's say, best price possible. Why with a good balance sheet and with good assets are you being, let's say, so conservative when exactly companies should do the other way around? You should attack when everybody is being conservative and being conservative when everybody is attacking. Why that much caution in the M&A execution and consolidation of the industry?
Well, well done. Thank you very much for defining us as excessively conservative. Okay. I think that this is a very real and good point under the current circumstances that personally help me focus on the long term. Okay. Let's say that maybe if the industry is living a process of transformation is particularly in the part of the industry dominated by a smaller, less sophisticated players that in the past have been particularly profitable. Let's say that the current inflationary, extraordinarily inflationary context that we are living will do nothing but dynamize a more constructive process of consolidation.
It's time for us to not be in a hurry, to keep our eyes open, to be financially prepared, and we will do this, okay. My obligation today is to let you know that our first priority is to gain some level of visibility about our capacity to recover margins. We have created, let me say that, some credentials, because we have been able to recover margins, basically through price increases initiatives during the second quarter of the year. A second quarter of the year that has been still particularly inflationary and particularly in energy. We need this. This is our first priority, but I promise our eyes remain open, and we won't lose particularly attractive opportunities if these arise. This is not the case today, okay.
Anyway, as I said before, we are working in some particularly strategic potential M&A actions that will be probably not particularly relevant for you, not particularly material in terms of the change of the business. Behind this, there is a lot of strategic rationale. You will see us active and probably time is passing in our favor.
Okay, thank you very much for the answers and for the hard work. All my support from here.
Thank you very much. The next question comes from Ignacio Romero from Banco Sabadell. Please go ahead.
Yes, good morning. Thank you for taking my questions. I have a question to clarify the market share situation. If I understood correctly, you had a volume decline in the second quarter of 5% in a growing market. Therefore, you lost some market share in the second quarter. My question would be, is that so? How much would you estimate that the market grew in terms of volumes in the second quarter?
A second question related to this is, do you... If I understood you correctly, do you plan to gain back that lost market share in the next quarters when your competitors are forced to increase prices because their hedging strategies or their hedging instruments, as time goes by, well, start to reflect a higher energy cost, and therefore they are forced to increase prices. Is that the situation or there is something you could please tell us about this, please?
Okay, thank you very much. Well, first regarding the market conditions or organic demand growth, it's difficult to say, specifically, but we do estimate that the organic demand for glass containers around Western Europe and the U.K., during the first half of this year is growing by slightly more than 5%. More in Southern Europe because of abnormal effects as the reopening of social activities, consumption, tourism, and the rest of things that you can imagine. Probably there is also a certain effect of restocking from our customers and from the customers of our customers. The reality having said that is that the organic demand performance is exceeding all or everyone's expectations. This is a very good starting point. This is a very solid starting point because we need to readapt our prices.
We are not capturing these organic sales, organic demand growth in our sales volume performance because our inventories are tight, because we do have a limited capacity to supply our customers' request. That means that the rest of the industry, some of our competitors are taking some market share in the short term temporarily, okay. We have even intensified this process that is not yet critical, and is mostly deliberate or under our control. I was saying we have even intensified these market share movements. Because we obviously increased prices during the second quarter of this year above the industry average or above our competitors, and that even intensified this movement. For now in the future, our availability, our capacity will be probably more aligned.
Our stock levels will be progressively more aligned with to supply more efficiently the market. We can see that the rest of the industry is now particularly short on inventories. Hope you are able to confirm this with comments from some of our competitors, but this is the reality we can observe from our point, and that will help us to progressively recover or normalize our market share. Any movement, as I said before, is not critical and is basically under control. What is critical is the different pricing dynamics we are seeing or we are to see from now around the industry, across different competitors.
What we need is for our competitors to be, I will say, more disciplined in the price increases that the industry need today to fully capture the cost inflation we are suffering if we exclude energy hedging that is temporary by nature, okay? That will be the focus to monitor in the next coming months and not the market share or even not the demand, organic demand performance.
Thank you.
Thank you. The next question comes from Manuel Lorente from Mirabaud. Please go ahead.
Hola. Buenos días, Raúl, Iñigo. Thank you for taking my questions. Most of them has already been answered, but maybe one quick one, regarding next year. I missed the number you gave in terms of natural hedge position for 2023.
Sorry, Manuel, you mean for 2023?
Yeah.
Okay. For 2023, I say that it's 40%.
40%. Right. Okay. Just my final question. I tend to see you guys very concerned regarding natural gas position, which makes perfect sense. But I see you very less concerned regarding underlying demand trends. I don't know. I compare to that stance. You mentioned it a number of times that demand is pretty strong, but looks like the vast majority of that 5% demand growth has been restocking driven. I don't know. Do you have any other metrics regarding your positive stance on underlying demand for the remaining of the year in the context of the massive price increases that you have already implemented these first months of the year?
Yeah. Well, we are very aware of the circumstances that are happening across the macroeconomic distortions that we could face after the summer. We are doing our own internal calculations under different cases, even negative cases, around or regarding how this could affect our organic demand. We are doing this with the confidence, what with our reality, that is the comparison base is high and some of the short-term nonrecurrent effects that are today contributing to this solid organic demand performance should soon disappear after the summer. Under this process of fully realizing, please believe us that we are making our numbers or our estimations under a realistic view. Behind this, the reality is that our inventory levels are very tight.
Inventory levels around the industry are tighter or shorter than ever, and that will give us some level of visibility for the next coming months, okay? Having said that, also, please keep in mind that we do have a particular plan, a strategy under which we are investing more than ever in the past to reduce cost, to improve competitiveness, to make our operations more sustainable and more profitable. We are not expanding significantly our capacities. Our capacity of production in 2023 won't be significantly different than in 2022. We don't need, and we don't depend on demand or on our growing demand in 2023. Actually, we have been preparing since some years ago, since we decided to exit from [Valdehuncar]. You remember probably this.
We have been preparing our industrial footprint to be much more focused on cost competitiveness than on market share than on market share gains. This is obviously probably good news for the industry, good news for our competitors. Our driver for future profitability will be cost competitiveness, a realigned industrial footprint, and not the market share gains based on a realistic organic demand growth. That gives us a reasonable, hopefully well-supported level of confidence about the top line performance in the next coming months. Okay. The priority now is cost and how to recover this cost on margins.
Is it fair to say that for next year, you are not expecting or your base case scenario is the fact that massive price increase will end up leading to demand destruction?
Yeah, exactly. Actually, what I'm saying is that in terms of our production capacity expected for the next coming months, we have no room to further improve our sales volumes, okay? In any circumstances in terms of organic demand. If we have some room, that will be the result of some small potential internal corporate transactions, a small M&As, as I said before, for example, buying a customer, buying a supplier, taking some market share. The reality is that organically and structurally, our capacity plan in 2023 is basically very similar to 2022, and our inventory levels today should be slightly increased in 2023 to maintain a more, let's say, manageable internal business profile.
Thank you.
Thank you. The next question comes from Fraser Donlon from Berenberg. Please go ahead.
Hi, Raúl and Iñigo. Fraser from Berenberg. Thanks so much for the detailed presentation. Just a few questions from my side. First one, just you mentioned this contingency plan which you've made. Could you perhaps clarify, and I know you're not completely exposed to Russia, but I'd just be interested to know how much of your production at the group level you believe you could switch to fuel oil or gas oil, which you mentioned. The second question was just on, I guess, the glass Valdehuncar proposition. Like I saw, I think, like, Fever-Tree in the U.K. profit warn because of the availability of glass and the cost of glass.
I just wondered if you have any sense that some customers are being forced towards other substrates like aluminum or whether indeed the price of aluminum is trending in a similar way as glass. Then the third and final question was just thinking about Germany. I know you said you're not looking to add capacity, but is there a scenario in which you would consider kind of adding capacity in the event where maybe German glass production has to substantially decrease and for a more sustained period of time? Thank you very much.
Well, thank you very much. Three very interesting questions. The first, in terms of contingency plans against the potential gas supply caps. What we are seeing today is that apparently the glass supply should be more or less secured following the particularly strong infrastructures we see in our regions of activity. This is the case of Spain, Portugal, U.K., Ireland, and Italy. Also, we are aware of this, we are seeing today some politicians asking for consumption to be reduced after the summer at levels of 15%.
Simultaneously, we understand that, theoretically, the glass manufacturing industry should be out of this request if this becomes a reality in the future, because we should be identified as an essential industry as we were during the pandemic for different circumstances. That give us some level of comfort. Okay. If in this worst case scenario, we are for any government obligation forced to reduce our gas consumption to these levels, 10%, 15%, 20%, we are basically prepared to do this. Almost in all facilities, we should be prepared when it happens, if that happens after the summer. Okay, if that happens, in my opinion, and this is a personal opinion, if that happens, the problem won't be supply of natural gas, it will be the price to supply this natural gas.
Again, that's my personal opinion. Okay. Second, regarding alternative materials and the different pricing dynamics or competitive dynamics around different materials. Well, it's true, basically, the glass packaging industry is today competing against the aluminum beverage can industry, as long as we are all both taking progressively market share from plastic due to very positive dynamics in terms of sustainability. Historically, the price for a current customer of us to supply a beverage aluminum can has been 20%-25% cheaper than an alternative, similar in volume glass bottle.
That changed at the beginning of this year, as the cost of aluminum was more than tripled, and the customer agreements infrastructure in this industry is more sophisticated than ours and is more dominated by automatic, efficient price adjustment formulas or pass-through mechanisms. That means that the average price to supply an aluminum beverage can is today growing, increasing much more than the price for a glass bottle. That's good because apparently for the first time in years, maybe for the first time ever, the price today to supply an aluminum beverage can is higher, more expensive than a glass bottle. That's very good looking at the future.
The reality, to be fully realistic, is that we have started to see a significant drop, relaxation in the aluminum commodity markets, something that will be soon passed through prices of prices of cans. This has not yet been the case of costs in the glass for manufacturing glass containers. Why? Because of the abnormality that we are seeing around European natural gas prices. That's the total reality of this. Your final comment. Well, yes, we are seeing certain European economies, particularly Germany, Poland, the Netherlands, even France, suffering relatively much more. I mean, the glass industry, the glass packaging industry in those countries suffering relatively much more the abnormal inflationary pressures that we are seeing, that we are suffering in our business.
This is the consequence of the geographical positioning and the dependence on Russian gas supplies that won't. The further this difference will probably intensify in the short term, and this is creating new abnormal competitive dynamics, I mean, competitive differences. That should be maybe should be positive for us to create a more constructive pricing environment for the needed price adaptation initiatives we need to execute or to materialize in the next coming months. That will also probably create some capacity, temporary or structural capacity rationalization or capacity curtailments. This is happening in Ukraine, and Ukraine was a natural exporting market for glass containers in Western Europe. This is not the case today. This is actually happening in some sites in Germany, in Poland.
That's o kay. Finally, understanding that this is the consequence of a very sad event that we would like to never see, but this will probably create some level of confidence of our capacity or the capacity around the industry to re-adapt prices soon, as we need.
Perfect. Thank you, Raúl.
Thank you very much. There are no further questions by phone. I return the floor to Mr. Raúl Gómez and Mr. Iñigo Mendieta.
Okay, there are still five questions that we have received via webcast. I would say that three of them on prices, on free cash flow, and on hedging for 2023 have already been answered. Please, if you want to make a follow-up, just contact me after the call. There are still two questions without an answer. Okay, the first one is on the new share buyback program, the size and the timing. Well, we have announced a new share buyback in the month of May for a maximum amount of 300,000 shares to be acquired for a maximum amount in terms of cash outflow of EUR 30 million and with a maximum timing of 12 months. Okay. In any case, we are currently acquiring shares.
We have been for a month in a blackout because of this earnings release, but we are acquiring shares and probably will finalize this share buyback program before the end of the year. Finally, there is also an additional question on stock levels, if the increase is due to higher valuation or to increase of stocks in unit items. Well, as Raúl has mentioned during the call, we are still very tight in terms of inventories in the range of 65-70 inventory days. But it's true that we have seen stock levels slightly above June 2021, so slightly above one year ago. We are still below in unit items December 2021. Okay.
Part of this movement is also explained by the increase in valuation due to the current pricing and cost context. Okay. We have now answered also all the questions received via webcast. Once again, thank you for the time that you have dedicated to us this morning, and just remind you that we remain at your complete disposal for any further questions that may arise. Thank you very much, and enjoy your summer season.
Thank you very much. We can hear the sea in some of your comments. That's great. Please enjoy your summer. Hope you enjoy your very well-deserved holidays, and please keep on consuming, drinking, and eating from glass. Thank you.
Ladies and gentlemen, thank you for your participation. You may now disconnect.