Verallia,Courbevoie

Hello and welcome to the Veralia H1 2024 Financial Results Analyst Call. Please note this call is being recorded and for the duration of the call, your lines will be on listened only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Patrice Lucas, to begin today's conference. Please go ahead, sir.

Good morning, everyone, and welcome to our H124 Result Call. As usual, Nathalie and I will go through our presentation and we'll have our Q&A session. I will share with you some key highlights and focus on market information. Nathalie will present in detail our numbers, and then I will come back on our guidance portfolio. To start with, just to remind you that Veralia is a global leader in glass packaging. We are number one in Europe, number two in Latin America, and number three worldwide. On this chart, you have our ID cards. You have on the left the 2023 split of our sales by segment. One of our strong assets is our customer base, more than 10,000, and the diversified and balanced market in which we operate. We do operate in 12 countries, and as of today, we operate with 35 plants, plus one with the acquisition of Hidrala Italy, and with 64 furnaces. which is plus two with Vidrala Italy and minus one with a closing of one furnace we decided at Essen in Germany. One of the key highlights of the semester is the completion of the acquisition of Vidrala in Italy. Closing was achieved on July 4th for an enterprise value of 230 million euros, financed with a three-year term loan. This acquisition is about one production site near Milan with two furnaces for a capacity of 225 kilotons per year with about 200 employees. In 2023, the company generated a revenue of €131 million and an EBITDA of €33 million. This acquisition is allowing us to expand our offer to the food and beverage industry in Italy for the benefit of our customers. And after the acquisition of Ally Glass in UK at the end of 2022, this acquisition confirms our desire to continue to develop and invest in key markets. About our financial performance of H1, as expected, due to market conditions and the high comparison base of H123, our results are down versus H123. We had a positive gradual recovery of volumes during the semester, but slower than expected. In Q2, we were expecting to be close to last year in volumes. However, with this context and our ability to adapt, we are still delivering a solid EBITDA margin performance. And we close H1 with a revenue of €1,765,000,000, minus 17.6% versus last year, with an organic growth of minus 10.4%, an adjusted EBITDA of €431,000,000, minus 34.6% versus last year, giving an EBITDA margin of 24.4%, a leverage of 1.9 compared to 1.2 at the end of 2023, and a net income of €123 million. Nathalie will comment in detail our H1 results in a few minutes, but before, I would like to share some market data as the activity is the main driver of our guidance adjustment for 24 full year, announced on July 9th. To start, let's step back. Here, on this chart, you have the official data of the glass container sales from FEWE, the European Glass Producers Federation, data from the last 10 years. Historical data from 2013 to 2022 are showing steady and regular growth with a CAGR of plus 2.2%. With COVID in 2020, we entered in a different period with different patterns compared to previous years. It has been the starting point of supply chain disruption. Then in 2021, post-COVID, we faced a strong growth due to high end demand. Glass market went up to 6.9%. We were running production at maximum and inventory kept on decreasing to serve our customers. Then beginning of 22, demand was again high and the conflict in Ukraine has further disrupted the supply chain. Many of our customers were afraid about not getting their glass packaging to do their own business, meaning certainly But many customers reacted in a way to secure and inflate some inventory level in the overall value chain to ensure good business continuity. And finally, in 2023, it was a totally different story, impacted by two years of high inflation in Europe, unprecedented for the past 40 years, and with a context of high interest rate. So the glass market went down by minus 12%. minus 9.5% in H1 and minus 14.5% in H2. And Veralia did perform better than this negative variation, confirming the fact that we did not lose market share globally. From the different analysis we have, we have not seen any material shift in glass to oversubstrate, despite some down trading due to macroeconomic situation. And with the data we have from Euromonitor for 2023, we know that the variation of the end conception of glass in units between 2023 and 2022, the variation of the end conception of glass, was around minus 1% in Europe. If we put in perspective the minus 12% of glass demand reduction and this end conception variation of minus 1%, we confirm that the decline in 2023 glass demand was led by destocking in the overall value chain. And due to this high stock variation in the overall value chain for the past semesters, the glass market has become much less predictable. Obviously, the positive point is that destocking will end at a point and that the demand for glass will align again with the end conception. The difficulty is to predict when destocking will end. And as you know, our initial assumption was end of H1, 24. The destocking endpoint, or the speed of a destocking, to say it differently, must obviously be put in relation with the end of conception demand, with the end conception demand. and EV end consumption is lower than expected, the destocking impact will be delayed. On this chart, we have a Euromonitor end consumption forecast in glass in Europe for 2024. The graph is showing by segment the forecast of 2024 full year as it was projected mid-2023 and as it is projected now mid-2024. And you see that the N conception is revised down on NAB from a growth of plus 4.8% to plus 1.8%. We see no changes for sparkling. Spirits revised from plus 1.6% to plus 0.5%. Beer going down from plus 1.1% to minus 0.4%. and still wine down also. Just food consumption is up from plus 1.2% to 1.5%. Considering our mix of cell, this is giving a Veralia downward end consumption revision of minus 1.3% from plus 1.7% to plus 0.4% now. Therefore, this revised forecast of end consumption will lead to longer than expected destocking period across the chain. Destocking will still impact H2 this year. Our main takeaway on the activities are 2023 decline in glass demand was unprecedented and led by destocking. Post-COVID supply chain disruption has given low short-term visibility in a usually predictable industry. For 24, with the latest information we have, we confirm a gradual recovery from late 23, but a slower pace than expected due to the end consumption forecast revised down, meaning that the stocking will still impact H2. This is why having this new set of data in hand we have decided to revise our forecast for 2024 based on this lower activity. And to be more specific, our initial assumption for 2024 was to have a Q2 close to last year and H2 up low teens, giving a full year up low to mid single digit. Now, based on Q2 being down low to mid single digit, Our new volume assumption for H2 is up high single digit for a full year being flat to slightly down. However, the important point for the semesters to come is that glass demand is expected to return to more stable growth and visibility as it reconnects with the end conception. Facing this lower activity recovery, we have strengthened our action plan with determination. And here you have, as a summary, some of the key actions in place. On pricing, despite the challenging environment, we are maintaining our tight pricing policy. We are continuing to focus on value-based pricing. On capacity adjustment, right now we are running at 10% capacity down for inventory control. And we are doing that in a smart way with a mix of extended cold repair, temporary some line shutdowns, but taking mostly the benefit of our cold stops. Capacity shutdown, we have decided as well to stop one furnace in a sense, because here we see something much more structural. And we have close to 90 residences for a one-off restoring cost of 10 million euros. On productivity, we are delivering a strong PAP result with 2.6% cash production cost reduction in each one. And we are renewing our focus on productivity as a profitable lever, obviously. On HG&A, we are doing the job to flex through some selling measures taken at all the level of organization, and obviously as well, strong focus on cash, adapting our capex. You see that in H1, we are ending at 8.9%, and strict inventory control. You can count on the management team to keep high focus on this execution. Now I would like to hand over to Natalie for the details of our H1 results.

Thank you Patrice. So let me lead you through our H1 2024 results in the light of this introduction. So first slide is about the consolidated revenue variance. So we moved from turnover of €2,143,000,000 last year down to €1,765,000,000. And you can see, as usual, the pillars. The first pillar is down by €168.5 million. These are the volumes, as we shared in introduction. Remember that H1 last year was a high comparison, and organic growth is minus 10.4% in the semester and minus 17.8% if we exclude Argentina. We have lower volumes, so we are down a high single digit in H1, and I will give you more color by regions later on. The price-mix pillar in the bridge, is minus 53.5 million euros, and it's more minus 100 million euros if we exclude Argentina. Just for everyone to remember that Argentina is still distorting significantly, especially in H1, because there was a significant devaluation in the currency last year, so this will smooth in H2 and at the end of the year. So the price mix is negative, and in the price mix pillar, the mix element, I will come back to that in the ABDA, is negative in the semester. Here again, very strong H1 last year, and we can see that there is some consumption trading down, so quality of the consumption is currently down versus prior year. We have exchange rate impact and a small perimeter impact coming from our acquisition of collet treatment centers last year in Iberia as a continuation of our policy to decarbonate and have a good control of our collet supply base. So now if we give a bit more color by regions and also I'll comment So in the South and Western Europe region, the reported revenue is down by minus 15.7%. And it's here as well driven by lower volumes and some price. There is a decline in the non-alcoholic beverages as we speak in the region. And there was clearly an effect of the poor weather condition in the H1 2024 compared to last year. And the mixed impact in this region is where we have the main variation versus private here. Last year we had a very positive mixed impact and mainly driven by Italy and here we have a trading down impact. But overall, here you see the H1, and this is true for all regions. We see a sequential improvement in volumes, Q2 versus Q1, which is what we expected. If we move to North and Eastern Europe, you see here a stronger percentage in decline, minus 25.8%. In the region, you have two countries that are more suffering than the rest, Germany and UK. So Germany, we already shared in the first quarter and since last year, is suffering from VIR volumes being down, and this is the country where we decided to shut one furnace in Essen, as Patrice reminded, in Q1, and we are in the process of this adjustment of capacity. UK is much more conjuntural as the spirit segment is currently suffering more than others. Let's remember together that last year segments did not react at the same pace. Spirit segment was holding very well during the year 2023 and started to decline in November and December, so Q4. So there is a lag basically in the adjustment of spirit volumes, and there is clearly, the distilking in this segment is clearly not over and taking longer than anticipated. Then we have some negative price impact mainly coming from Germany, not in the UK. And here, mix is more flattish. As I was saying before, it's more in South and West Europe that we have the mixed impact. But here again, a sequential improvement from one quarter to the other. In Latin America, we have a decrease in reported revenue, but an increase when we correct the Forex impact. We have some slightly negative volume year on year, but all in all, pretty good activity and a strong rebound in volume in Chile after a low H1. And we still follow, of course, in Argentina the hyperinflation by increasing prices, which is why we give you now all the figures in Argentina. So how does that translate into consolidated adjusted EBDA? So as usual, you see the bridge here. We move from a very, very strong semester last year with an EBDA of 659 million euros. And if you look on the top right, the margin that was at the highest at 30.8 percent and we end in H1 at 431 million euros and with a margin that is still really strong at 24.4 percent and very much in line actually with the first quarter's one. So the usual pillars to bridge from one year to the other So the first PILARD activity is down by €162.9 million, and it's basically half the conversion of the lower volumes that we just commented, and the second 50% is linked to inventory valuation, if you remember. Last year in H1 we were in the process of rebuilding inventories and reaching at the end of the semester a better level to supply to have the right service to our customers starting from a very low point beginning of 2023. And since then we are monitoring and holding the inventories as at the same at this level which is the right one. So we benefited last year from the inventory and we don't have it anymore in H1, and this comp will of course disappear in H2. The spread pillar is negative by 53.4 million euros, and here again excluding Argentina, it's more 100 million euros. And this is the result of the price mix elements that I already commented. And with a significant impact of mix that is all in all close to 30 million euros. So it's quite significant when we compare again a semester when we see down trading with H1 last year that was very, very positive and strong. The net productivity is delivering very much in line and even above our targets at 2.6%. So it means we reduced our cash production cost by 2.6% in the semester, which is contributing to 32.6 million euros to our APDA and mitigating part of this adverse trends versus prior year. So very satisfactory results. result that we can see in all regions. The FX is mainly linked to Argentina, and you have some positive other points by 3.2 million euros. This includes the LGNA improvement that Patrice was mentioning in his presentation. So when we move in the regions, We have in South and Western Europe an EBDA of €288 million, so down versus last year, and adjusted EBDA margin very much in line with the group average at 24.3% of the total sales. And here, okay, the payloads actually, variation are exactly the one I presented for the group. with a good industrial performance. When I move to North and Eastern Europe, I have a margin, and I just did the ABDA, sorry, of 76 million euros to be compared to 142 last year, and a margin of 20%. So here, a lesser contribution of UK as the Spirit and UK are down and especially compared to last year and the lower activity in Germany. But what we can say here in this region is a very strong industrial performance with a very strong PAP contribution and including UK being now very well trained and integrated into our programs and contributing significantly. And here again, decline versus last year, but sequential improvement in activity from Q1 to Q2. If we move now to Latin America, we have an adjusted EBDA of 67 million euros to be compared to 81 million last year, and still a very strong adjusted EBDA margin at 33.6%. We see, in fact, the ABDA decrease is mainly driven by Argentina and Forex. And we have here as well a stronger PAP performance. And the spread here, excluding Argentina, is pretty neutral. So we continue to be able to follow the inflation in all the countries with our price evolutions. If we move now to the cash elements, so CAPEX, as Patrice shared with you, are very much kept under control in this environment. So we have CAPEX at 8.9% of the total sales. And we can see that we do not give up, of course, on our strategy CAPEX. So it's a tight monitoring, but of course we keep with our long-term strategy. We have two new furnaces, one in Campobon and one in Italy, so we have some capex. But remember, we delayed the start of these furnaces to adjust to the demand, as we always do. And we have, very important in 2024, two significant investments for our decarbonation roadmap with the first 100% electrical furnace in Cognac that we started in April. And we are preparing our first hybrid furnace, so 80% electricity in Saragossa for end of the year. If we look here at the group cash flow generation, so the free cash flow is negative at minus 49.2 million euros. But if we split Q1 and Q2, remember we had more than 100 million in Q1, so we did generate positive free cash flow in Q2. It's important in the sequence. And we started, especially in Q1, but in the semester with a lower adjusted EBITDA than last year. We see that CapEx are kept under control and the cash conversion is good at 63.6%. The change in operating working capital is negative. There is seasonality here if we look at semesters. in the operating working cap excluding CAPEX VCR and on top you have the CAPEX VCR that as you see here is a minus 81.7 million euro that leads to an operating cash flow of 90.5 million euro and below that we have the usual other operating impact including IFRS and some elements in ABDA with a cash effect. In the semester, for example, it includes the purchase in CO2 quotas. Interest paid and other financing costs at minus 47.5 million euros. So the increase versus last year is not surprising to the increase in interest rates mainly, and there is also some ethics losses for 8 million euros embedded in this amount. And the cash tax, this is lower than last year. The net debt evolution and the leverage, so the net debt is at 1,645,000,007. And this is after the dividend payment that occurred in the second quarter for 252 million this year and the leverage is at 1.9 times after this dividend payment and just reminding our ratings from SAP, S&P and Moody's that have been confirmed so investment grade rating and stable outlook. Here, as usual, you can see our financial structure and liquidity. So, nothing new here using our program on the new CP up to €408 million in the semester, reminding you that most of our long-term debt is hedged or fixed. and we have a nice available liquidity of 591 million euro. So that's it for the H1 and before turning to Patrick, just to remind you what we see for H2 and our assumptions embedded into leading to our guidance. Inactivity, as Patrice already said, we see a full year sales mainly flat to slightly negative when we were before that more optimistic. That's the main driver, clearly, of our new guidance and the softer consumption that Patrice explained. And this is leading, of course, to some lower fixed cost absorption that are also an upside for the coming semesters when volumes are improving. In the price mix cost, so in the spread, as I shared, we see that the mix is impacting negatively. This is, again, a kind of cycle of down trading, which we have seen before, and this is again an upside when consumption will come back to more premium levels. We see selling prices reduction up to low things, and we have, because of our energy We are not benefiting fully from the lower current spot rates in our spread for the full year. In the productivity pillar, consistent PAP delivery through the year is embedded, of course, for the full year. And as you can see, H1 has been very strong in that respect.

Thanks Nathalie. So about our guidance for the full year 2024 and to sum up what we have just shared. For the market recovery, we just see the shape of a curve being delayed. This token is taking more time and consequently the glass demand is impacted as explained before. It has a short term negative impact on activity and spread. Fourth, we are maintaining a strict and disciplined pricing management. As always, we are focused on execution to get the most to protect the profitability and the cash generation. Our focus is to adapt to this environment, being disciplined on adapting temporary capacity in the most efficient way. By doing so, again, we have about 10% of our capacity not utilized. and our objective is to keep inventory level under control. We have also decided again to shut down one furnace in Essen, where we see it's much more structural. CAPEX control is also active to keep the value below the 10% of revenue. And finally, we are continuing our PAP actions for a positive impact above the 2% minimum standard we are aiming. Based on this situation, We revised on July 9th our guidance for 24 for an EBITDA level comparable to the one delivered in 22, which was the second best year of the group. Just to put that in perspective, this 24 result will be still a good result, confirming our track performance track record since IPO. After a period of profitable growth in a steady market evolution, we delivered between 18 and 21 an EBITDA CAGR of plus 7.7%. In 22 and 23, obviously, we delivered an outstanding performance. And in 24, by delivering an EBITDA comparable to 22, it will still be a strong performance despite adverse macro conditions and lower volumes. It will give a CAGR of plus 8.5% of EBITDA between 2021 and 2024. Please note as well that since IPO, cumulative return to shareholders was a dividend of 6.4 euros per share and a total amount of 271 million euros of share buyback. To finish, a few words about 2025 and beyond. We foresee a gradual recovery in activity with the end of destocking and consumer demand improving following lower inflation and a market much more predictable. Meanwhile, we will continue to adapt to the market environment to do our job with good capacity management, cost reduction action plan, and capex control. With a gradual activity recovery, operating leverage will be an upside to fuel our profitability. We know also that premiumization is still a market trend and that after downtrading impact in 2024, as explained by Nathalie, premiumization will contribute positively. We are convinced that our leading market position, our ESG position, and our strong balance sheet and cash management are strong competitive advantages which will support our growth. And we'll be ready for potential M&A each time it will make sense, creating value for Varian. All of that is making us confident in resuming sustainable and profitable growth back. Thanks a lot for your attention, and let's move now to the Q&A session.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. We will take our first questions from Louise Musier from UBS. Your line is open. Please go ahead.

Hello. Thanks very much for taking my questions. I've got three questions, please. I guess the first one is related to the price-cost spread. I was wondering how do you think about the price-cost spread on EBITDA for this year and next year? Is there a risk of maybe negative carryover of prices into next year? So I guess that's the first question. And if so, do you have the ability of quantifying that? The second question is around volumes. I wondered if there's anything you can say around maybe the most recent weeks, what you're seeing in terms of volumes. It does seem that beverages volumes were very weak in Europe in June, so any comment would be helpful. And the last question is with regards to the upcoming capacity increase. So you've got two projects, I think, Kampelbaum and Pesquetu. I do think from the presentation, it seems that there's no further delays, but I just wanted to check on that, please. Thanks very much.

Good morning, and thanks for your three questions. So I'm going to take the volume and capacity increase, and Natalie will comment on the price-cost spread. So about volume, we are just confirming what you have said, and in July, we see the trend going up again. So this is what I have been explaining. We see a good gradual recovery, but at a lower pace. And this is mainly due to the consumption which is a little bit lower than our initial assumptions, so leading to this delay in the day stocking endpoint. But we see so far July moving in the good direction compared to last year. About capacity increase, you're right, we did not say anything about that, but as I commented as a general trend, we are going to be disciplined and manage capacity according to the demand to manage our inventory. So for capacity increase, the Camponbon II project which was supposed to start at the end of this year, will be delayed as we speak, but to be confirmed at the end of the year, will be delayed in Q2, beginning of Q2 next year, 2025. And the one in Pescia, it's about the same. Last time we said it will be Q2 2025. We'll see. Maybe we'll delay it a little bit, a few months in 2025. So again, what's important for us is to stick to the demand, not anticipate any capacity increase, to control our inventory and to control and optimize our fixed costs. This is key.

So on your question about the spread, so already for this year, if you remember in our call in February when we started the year and gave our first view for 2024, we shared indeed that the spread pillar in the ABDA bridge would be negative and mainly coming from the carryover of price decreases from previous year. So this was already embedded from the beginning in our view for the year. And in our revised guidance, we have a bit more negative spread, mainly coming from H2. And here in the price-cost mix spread pillar, let's remember that we have the mix element that I was commenting previously in the call. And also on the cost element, as I was saying, we see a bit of further deflation, which is good news, and we see it also good news for next year but in this year in 2024 with our hedging we don't fully benefit from this from this deflation that we benefit more from next year so it's moving to 2025 yes it's a bit early to project ourselves clearly we will have still some carryover impact from prices as well but much lower I expect nothing to do like this very negative impact we have in this year because it was really linked to the very strong increase and decrease afterwards so very strong inflation and now as we all see this is more normalizing so the size of the fluctuations in inflation and deflation will normalize gradually so this is what we can see for 2025 and for 2025 also a more positive position on energy because step by step we will have less and less impact of our hedging taken in the years where energy prices were higher Thanks very much Thank you

We will take our next questions from Francisco Ruiz from BNP Paribas Accent. Your line is open. Please go ahead.

Hi, good morning. I have three questions as well. The first one is, you commented that you expect negative prices on mid-teens for the year, but correct me if I'm wrong, you have an 8% decline ex-Argentina in this first half, so confirm that It's going to be around high teens in the second half of the year, or I'm doing something wrong. The second one is, I don't know if you could help me with this. If we assume no incremental volumes from the one in H1, but help it also by the easy comparison, how do you see the volumes at the end of the year? Because you are seeing this progressive recovery, but if this does not happen, how do you see the volumes at the end of the year? And last, if Natalie, you could give us what's your estimate on inventory conversion impact in activity for the second half of the year?

Thank you. Okay, so on the price element, yes, your calculation is good. In fact, we have, and we said we have some delay in the application of some price decreases. So already we saw that Q2, I mean Q1 was a bit better than anticipated in terms of pricing and timing of application of price decreases. And then the impact is a bit more in Q2 and also then in H2. That's about the pricing. About the inventory conversion, in fact, in H2, we should have a small variation versus H2, again, versus H2 of previous year, linked to the volume and to the quantity. There will be a bit of valuation impact, but much, much more reduced. So in the activity bridge, it will be very small. And it was, as you could see, very significant in H1.

And Paco, on the volumes, so we see the full year being flat to slightly down compared to last year. And with an H2, which is going to be up, high single digit. This is what we see. So confirming the recovery. since late 2023, but leading to a year which is going to be flat to slightly down. This is the assumption we are working with. Okay. Thank you very much.

Thank you. We will take our next questions from James Perry from Citigroup. Your line is open. Please go ahead.

Hi, thanks for the presentation. Just a couple of quick ones. Again, on inventory, do you have a sense as to the level of customer inventory? And secondly, I'd just like to ask about the new electric furnace that started up in May. I know it's early still, but do you have any preliminary comments as to performance, how it's comparing with other furnaces in terms of efficiency and costs?

Thanks for your question. The topic of inventory is not really between us and our customers, because there is low level of inventory between us and our customer, or if we have some, it's very marginal. The topic of the stocking and destocking in the overall value chain is much more between our customers and all the intermediates going up to the end, to the customer, to the final customer. So difficult for us to have the different view on these intermediate steps, but again, there is no inventory level between us and our customers. What we see is that again, this end consumption being lower than expected, it's delaying this destocking in the overall value chain. On the second topic about the electrical furnace, so we went live at the end of March, ramping up in Q2. Performance is OK. We are still learning on optimizing all the OPEX standard, but this is quite promising. and we'll enjoy this in our decarbonization roadmap, and as a contribution to our CO2 reduction. So we are on track on that, to make it simple.

Thank you. We'll now take our next questions from Jean-Francois Grangion from Odo-BHF. Your line is open. Please go ahead.

Yes, good morning. I have five questions, please. The first one concerns the spread impact in 2025. I understand what you mentioned, Nathalie, but do you expect, in fact, a negative spread impact lower compared to 2024, but a negative impact for the spread in 2025? The second question, could you mention the utilization rate of the units? You mentioned a low point at 80%. Can you confirm a slight improvement for the utilization rate during the first half? Third question, could you come back on the mix? You mentioned a negative mix effect. I did not mention the price, but the mix. You mentioned a negative mix effect. Could you explain more precisely how to justify this negative effect mix effect and what you expect with the second half. The first question you mentioned yes for the guidance the similar level for the EBDA compared to 2022 but If I understand, for this year, you integrate six months of the units coming from Vidrala. So in fact, if we have a look on the same scope, in fact, you confirm the fact that, in fact, the lower should be lower than in 2022 due to the fact that you included the Vidrala contribution. And the last questions. If I look on the consensus for 2025, I see 1 billion EBITDA level expected. What is your opinion about that? It seems to be quite high or challenging for my opinion. What do you think about that? Thank you.

Thanks a lot, François. Jean-François, sorry. Utilization rate, you're right. Last year in Q4, we were running at around 80%, meaning 20% under utilization. In H1, we are around 10% under utilization, so running at 90% compared to our standard. And this is what we see as well as a forecast for H2, again, with our volume assumptions. About the mix. The mix effect. Let's remind that for the past years, mix was always positive, and we are focusing on that, obviously, to get the benefit of it. What we see in 2024 is obviously that with the current context, the inflation, the purchasing power of the final customers, we see some downtrading. So down trading leading to mix being negative and not supporting this year. But again, after three years in a row of a nice contribution. So this mix, negative mix, is coming from this down trading. What is sure, and this is what I said in my conclusion, is that we know that premiumization is still a trend. It's still a social trend. So we are fully convinced that that this normalization of inflation, purchasing power of the final customer being recovered, that mix will contribute again and it will be an upside for the future. About the EBITDA for the six months, you're right, Vidrala is embedded because now we are consolidating since July 1st. Let's keep in mind that even if it is a very good acquisition for us and that we'll get the nice benefit of it, for the second year we are just speaking about the low double-digit EBITDA contribution in value. And when we are seeing comparable to 22, we are seeing comparable to 32. So it does not represent any material effect. compared to the guidance being with or without Vidrala. For the consensus for 2025, I mean, too early to call, too early to comment on that. Let's do the job in 2024. Let's start to see confirmation in Q3, and obviously it will be the time for us. To come back, and by the way, we will come back certainly beginning of 25 with a new mid-term guidance to give much more view of what we see next for Veralia. So we'll come back on that. About the spread, about the same, huh? Do we answer to your question, Jean-Francois?

Yes. Thank you. Thank you so much.

Okay.

Thanks a lot. Thank you.

Thank you. We will take our next questions from Mingxuan Sun from Deutsche Bank. Your line is open. Please go ahead.

Hi. Thank you very much for taking my question. So three questions from my side. So the first one is just to confirm your current assumption of slightly down in volume and the low team price reduction. Is this including Argentina? And the second question is on a free cash flow. So you have posted a quite negative free cash flow in the first semester. As we have commented, there are several seasonal factors affecting the free cash flows. But how should we think about the cash flow generation for the second half of the year? And the third question is on your capital return policy. Can you give us some of your thoughts on the dividend payment for next year Is a stable dividend payment for next year still possible? Thank you very much.

Thank you for your questions. I will answer the first two. When we comment pricing, it's excluding Argentinian effect. We take it out so that there is no distortion. And for volumes, I would say as well or not, but it's not so significant. Let's remember that Argentina, there is some calculative effect because of the devaluation of the currency that was very strong last year. There was a 20% in August and then again a 50% in December that had a retroactive impact. This is purely accounting. So it's mainly on the price and ethics elements. Outside of that, Argentina is not such a big country in the group, so for the grudens it's a very small impact. Regarding the free cash flow, so we foresee a positive free cash flow in the second semester after a positive free cash flow in the second quarter.

OK, about the dividend. So to be clear, this is too early to speak about it. This would be a board decision to be considered early 2025. You know that our policy was not defined in a payout ratio to reduce volatility. And the dividend paid this year for more than 250 million euros was not meant to be one shot. So yes, stable dividend is possible, but it will be the decision of the board and to be decided at the beginning of next year. So let's see, early 2025, what is key for us is to deliver, is to do our job, and then the dividend will be a consequence of it.

Thank you very much, Dr. Leclerc.

Thank you. As a reminder, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take our next questions from Manuel Llorente from SetEnter. Your line is open. Please go ahead.

Hi. Good morning. Most of my questions have already been answered, but maybe let's start with one related, the fact that... backdrop is demanding and you are facing demanding times and profit warning has been there now for two or three consecutive quarters. So my first question was, are you thinking of changing something? I was thinking maybe to have a raw material hedging or your footprint maybe in Argentina, which is complicating the several results. I don't know. Are you at this point thinking of any strategic shift to things that have you been considering now?

Thanks for your question. Just maybe with all the respect, when I'm hearing two or three profit warning, I mean, again, with respect, this is not the real situation. I would like to remind everybody that in 23, we started the year with an objective of $1 billion, but we upgraded it with H1 to be between 1.1 and 1.25. And that we indeed, we deliver within. Obviously, within the low range, and mainly coming from the activity reduction. So we did the job. And the second one was much more technical, and we were with the objective to be fully transparent, to communicate to all our stakeholders the impact of Argentina devaluation. Obviously, which is leading to something which is much more readable, but Nathalie, I think, is doing the job explaining what is each time the impact of Argentina. About the strategic topics, obviously, this is something we are reviewing on a regular basis. With the Capital Market Day, we'll come back with what is our view. But just to make clear, I do believe and I strongly believe that the strategy we have is a good one. What we are just facing is something which is, to be honest, not totally under our control with this high stocking, destocking variation introduced since COVID. And what we are doing is to adapt to that, to do our job with responsibility for the benefit of our stakeholders and for the benefits of the company. Adapting, facing reality, and still delivering good profitability. What we could be blamed on, and I mean I can accept that, is that maybe we are too optimistic in the recovery down 24. I mean, nobody has a crystal ball. We are optimistic, and the good news is that we see this gradual recovery, but, I mean, it's going slower than expected, which is a good upside for the future. This is what I was saying in my view for 2025 and beyond. The gradual recovery is being confirmed. The better is the ability to come with a destocking ending Meaning we align with the end conception. So we'll get additional volume. We'll get the full benefit of that. And this will be an upside. Premiumization will come back again. And what I can tell you is that everything we are doing on ESG and decarbonization roadmap is going to pay. Maybe today, by some of our stakeholders, it is seen as a kind of sherry on the cake. But I can tell you that within the company, aligned with our purpose and aligned with the view we have with the key customers is going to pay. And tomorrow it's going to be a condition, a precedent to do business. So we see why we are very confident and the activity is the activity and we are facing it, doing the job, adapting and delivering the good results.

I see. So regarding the activity recovery, the high single-digit volume growth expected for the second half of the year, can you give us an idea whether those numbers are already incorporated in July trends?

Yes, we see that in July. Again, this is the trend we see since the beginning. Month after month, we see a better this recovery. Obviously, it is quite normal with the destocking going on. We see, and it has been explained, so from one country to another country, it could be different. Natalie explained that on the spirits, for instance, which was the last segment to go down last year, obviously, is a the last segment which will recover, and we are suffering on spirits right now, and it is totally aligned with the different customers' communication we have seen lately. So yes, we confirm that it's going in the right direction. The topic is a question of speed of recovery.

And let's not forget that last year in H2, volumes went down very strongly in all the markets in Europe, so the comparative base is not the same.

And, and that's one thing on, on, on pricing, um, maybe, uh, uh, I think Napoli make a good job explaining the down trading pressures of, of, of Q2. Uh, then we have all the, uh, Argentina impact. So my question was whether, um, let's say underlying core prices are, uh, stable. Q2 versus Q1, or are you facing some, let's say, additional pricing pressure because the demanding demand backdrop from your client is, let's say, forcing them to revisit some pricing conditions?

Again, we have two things. We have some delay in application of price decreases. You know that we are with 10,000 customers. We are in a case-by-case negotiation. So on the price pressure, for sure, in a deflationary environment and where overall volumes are lower or demand is lower, customers are more the hand to come to us and negotiate But as we explained, we are tightly monitoring that and case-by-case. So there is no general answer here. It's more a case-by-case reaction on pricing and tight monitoring that we do. And as you know, just remember that we don't have so many, we are not so much exposed to If you remember, it's 10% to 15% of our total sales or contracts, not more. So it's really negotiation that is going on here.

Okay. Thank you. Thank you. We will take our next questions from Fraser Donlon from Barenburg. Your line is open. Please go ahead.

Morning, Patrice. Natalie, it's Frayden here. Just two questions. I wondered if you could quantify the benefit you could see on energy and other hedging into 2025, given you said you're obviously moving there this year. And then secondly, just on the Essendon furnace, are there any other costs that we should anticipate relating to the closure of that furnace in the coming months? Thank you.

Okay. So on the energy and hedging, Just to remind everyone that we are hedging on a three-year basis, so every year our energy costs just before year-end is hedged at 85% of our forecasted needs with a mix of hedges taken from the three previous years. What happens this year is that as we are reducing our capacities to adjust to this lower than expected demand, basically when we usually have 15, 15 percent of not hedged energy and so spot prices, this portion is significantly reduced because we said that we were running 10% below our normal capacity. So what I was saying is that spot is decreased since beginning of the year and energy spot prices are pretty low currently and we are less benefiting from it because the 15% are not 15% anymore. On the energy hedging, let's remember how strong an advantage it was when energy prices went up crazily in 21-22, so we have benefited a lot. Now we have a slight disadvantage here, but again, overall, the strategy is very positive for Veraya. And again, moving into 2025, we will have, as I say, less portion from hedges coming from the high energy levels, and so we will see decrease again and take more advantage from the energy price level.

Okay, and about SN furnace in Germany cost. So this is related with a shutdown, with a definitive shutdown decided. And so it's about 10 million euro restructuring cost, one-off restructuring cost. And 80% of that is related to the severance cost of the 90%, 90% of this.

Thank you. We have now no more further questions in the queue, so I will hand over to the web questions. Please go ahead.

All right. Well, thanks a lot for this. David Plassé, I'm the head of IR for the group, and I'm going to talk you through the, walk you through the few questions we have in writing. First question from Alain Urvois. After the Vidrala Italy acquisition, What is your market share in this market? What is the global picture of the Italian market in terms of a level of consolidation, et cetera?

Thanks for this question. We are not used and we don't speak about market share, especially by country. What we can say is that in Italy, it is still a fragmented market with many players. I think this is a market in Europe where we have more players. We have six fantasies today, plus one with a post-Vidrana acquisition. So you see that this is a small part of what we have. I said 225 kilotons capacity. And we see Italy as a key market. totally positioned in what we are doing. Steel wines, sparkling wines, spirits, it's a big player in Europe, a big player exporting worldwide. So this is typically the kind of market we want to be in and a market which is going to support and fuel our growth. But again, we are not speaking about market share, specifically by country.

Thank you Patrice. Next question from Inigo Eguskida with Kepler. Three questions actually. One is about pricing and what can we expect for 2025. I think we've commented on that quite a bit. Second question is what can we expect in terms of leverage by the end of the year with the new EBITDA guidance. And the last one is about when we are planning to organize the next capital markets day and provide some midterm guidance?

Thanks Inigo for the question. So Nathalie will comment on the two first ones. So on the capital market day, as I said, we will be back beginning of 2025, so that to be to be scheduled in 25 and to give this mid-term guidance. What's important for us again is to deliver 24 to confirm the assumptions we had and this alignment to come between end consumption and glass demand in order to give much more visibility and predictability. And then we will come back to you. So early 25.

So on pricing, prices for 2025, you know, as usual, when, I mean, in the autumn, we will look at our assumptions for inflation or deflation in cost, and we will build our pricing strategy based on that, as we always do, to start negotiation with pricing. So again, I need to say more at this stage. For the leverage end of year, again, we have the acquisition of the Italian business coming down now in July, but we also forecast positive free cash flow generation in H2, as I said. So leverage should stay around two times at the end of the year.

Thanks Natalie, thanks Patrice. Next question from Paul Manigault. How do you explain your underperformance versus Vidrala, which is quite visible in two comparable regions, SWE and LATAM, in both volumes and EBITDA margin?

Well, so normally we are not commenting, we are not commenting PS performance. but obviously I have read what was public and released yesterday. I'm not sure I agree with what he said. First of all, in LATAM, we are not on the same perimeter. They are just on Brazil. And when I'm comparing what they are delivering and what we do, it's very similar. But us, in our perimeter, we have Argentina and Chile. So this is quite similar. When it comes to Europe, It's about the same, because what we see is that the perimeter has changed, so very difficult for us to understand. But my interpretation is about the same. And at the end, to compare, we should compare the different segments we are playing in. So for sure, my guess is that they were seeing much more bad news last year. compared to us, especially beer being the first segment to suffer starting in Q2 last year. For us, it has less impact. And this year for us, obviously, if we can say something, spirits is much more negative, has much more negative impact. So what is important is not just to look at the performance on a quarter by quarter, but much more to look at it over time.

Great. Thanks, Patrice. And I think we have two more technical questions to end the call. One is from . Could you please explain the inventory impact on EBITDA or inventory variation? I guess explanation is not entirely clear to me.

Okay. So it's pretty simple. we were running, in H1, basically we were running with more, we were producing more, but part of this production was going in inventory, so we were covering our fixed costs, partly by selling and partly by rebuilding inventory, which is not the case for the inventory part in H1 this year. Basically, if I try to really simplify, so it means that you have a fixed cost covered last year that are not covered this year and this is the negative impact in the activity pillar. Really simplifying a lot.

Thank you. Thank you, Nathalie. And one last question to finish the call with our favorite topic of Argentina. Two questions actually, but basically both going in the same direction from Michele Campanier and Sudovi Colet-Miral, basically asking us to elaborate on FX and the peso devaluation and basically just asking to check the share of Argentina within our total revenue and then how is that possible that basically such a small revenue can create such a large revenue reduction, and so such a big impact.

Okay, so all in all, it's really in the bridge that it creates distortion, but in the total sales and the total EVGA, you're absolutely right, it's not significant. And that is why we clearly give now you the numbers in the bridge. So if you just sum up the elements that you see on the pages for SAIT and EBITDA, you will indeed end up with a very small variation, but it is distorting because when you compare at last year's ethics, then of course last year ethics was much, much lower than this year because in the meantime you had two devaluations. one 20% in August, and one of 50% additional in December. So it was very strong. And anyway, this is a high inflation country. So again, net is very small impact. It is distorting the bridges, which is why we give very clearly all the amounts impacting the bridge elements.

Thank you, Natalie. That's it for me in terms of written questions. Thanks all.

Okay. So I guess that we are at the end of our call. So again, thanks a lot for your attention and see you. Bye-bye. Thank you very much.

Bye-bye. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.