Verallia,Courbevoie

Hello and welcome to the Viralia Q3 2024 Financial Results Analyst Call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only mode. 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 to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Patrice Lucas, the CEO, to begin today's conference. Thank you.

Good morning, everyone, and welcome to our Q3 24 financial result call. As usual, Nathalie and I will go through our presentation and we'll share and we'll have a Q&A session at the end. I will share with you some key highlights. Natalie will present in details our numbers, and then I will be back on our guidance. Just to start with, just to remind you that Zeralia 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 card. 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 customers, 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, with 64 furnaces, including the acquisition of Vidrala Italy. completed early July, and the closing of one of our furnace at Essen in Germany. Please note as well that we are running 19 collect recycling centers, allowing us to control about 50% of our needs for external collect. Let's move now to the key highlights of the quarter. The two first key highlights are illustrating our move toward decarbonization. First one is about Veralia Air Range to implement a breakthrough offer with the lightest product on the market. You know already the Bordelaise Air 300 gram launched at the end of last year. And I'm satisfied to share with you that close to 900 million units have already been sold and that this product is getting a strong customer and industry recognition with many awards in France in UK and other countries. Our objective is to keep on developing this breakthrough offer with new products for other segments. And lately we have launched our Air Jar offer with 7 jars from 37cl to 265cl. This offer is an opportunity to supply to our customers the best packaging in terms of sustainability and modern design, with a weight and CO2 emission reduction between 10% to 27%, depending obviously on the size. The second key highlight is our world premiere with our electrical furnace. It is a strong move. towards the implementation of our ambitious decarbonization roadmap. The furnace is running with a pool of 180 tons per day, producing about 300,000 bottles per day. And what is much more important, being operational now, running at full speed, we are confirming the minus 60% CO2 emission reduction. Next step will be the launch of our second technology brick, with the hybrid furnace at Zaragoza in Spain, replacing a traditional import furnace. This launch is scheduled for H2 next year. And I'm sure it will be, again, a success as the one we have just launched in Cognac, the electrical one. Next, I want to share some market information. The market environment is still soft. Conception in Europe The poor summer weather and on-trend performance have impacted the Q3 selling out performance. We see the day stocking coming to an end in the faster moving segments, but still underway in the more premium and export-oriented segments. We also see cautious customer strength and adverse geopolitical environment. On the opposite, we have a good market momentum in Latin America, and in Q3, we had a significant double digit growth. As expected, our Q3 volumes are up compared to last year. Our current trading and outlook for the year end is consistent to the low end of our last July 24 revised assumptions. And we do expect the full year volume to be, as commented last July, slightly negative compared to 2023. Good news is that despite the slow market recovery in Q3, we are returning to organic volume growth and delivering a solid profitability. Q3 revenue are minus 6.6% year over year, with a minus 4.7% organic growth. EBITDA is 210 million euros, with a margin of 24.1%, minus 336 bps versus last year. This is giving a nine-month revenue variation at minus 14.3% year over year, We have an organic growth at minus 8.7%. For the nine-month EBITDA, the result is 641 million euros for a margin of 24.3%, minus 543 BIPs versus 2024. And finally, about our net debt at the end of September, leverage is at 2.3 compared to 1.9 end of June and 1.2 end of last year. Now I'm leaving the floor to Nathalie for the detailed presentation of our results.

Thank you, Patrice. So let me lead you through the quarter results and the nine-month results as a consequence. So in this presentation, you will find two changes. So first, we did highlight the Q3. And second, in the bridges, We have separated Argentina as a whole. If you remember, due to the strong devaluation that occurred last year, it was disturbing to keep Argentina in all the pillars of our bridges. So now, as you can see on the screen, you have one separate pillar for Argentina. And you can see that on the Q3 sales, for example, the variation is a positive plus 1.6 million euros. So for our Q3 revenue variance, We move from sales of 932 million euros in Q3 2023 to 871 million euros in Q3 2024. Organic growth for the quarter is minus 4.7% and this is minus 9.7% excluding Argentina. The volumes are up year on year organically, so this is the good news of the quarter. We are back to a positive organic growth on volumes, and this growth is combined with the contribution of newly acquired Vidrala Italy operations. We closed the acquisition in July, so we consolidate this activity in the full third quarter. In Europe, we have a positive volume growth led by beer and, to a lesser extent, food. And in Latin America, we see a strong year-on-year increase in volume here as well, led by beer and also non-alcoholic beverages. As Patrick mentioned, Latin America is more dynamic. Price and Meek, growth-based price decline with the full impact of H1 price negotiations now running in the third quarter. We have a slight negative price impact, minus 92 million euros, but with a positive contribution from MIX from South and West Europe. In the quarter, we see MIX step by step going to a more neutral effect after a stronger negative one in H1. And the ethics impact that you have here is mainly from the Brazilian real. And you can see in the perimeter column the contribution of mainly vidrala glass business in Italy. And to a lesser extent, some of the colored treatment centers acquired in Iberia last year. So if we move to the nine months, You can see that the volumes here are back to a negative number, minus 185 million euros. This is mostly from H1, as just explained. For the full nine months, the organic growth is minus 8.7%, and it's minus 15.3%, excluding Argentina. So, lower volumes down mid-single-digit despite the year-on-year increase for NQ3 that I just In Europe, overall, for the nine months, the volumes are down mostly in spirits, non-alcoholic beverages, and impacted, if we remember, by a strong comparative basis in H1. In Q3, we still have quite a strong comparative basis as well for spirits. If you remember, last year, spirits started to slow down. in Q4, so after the other segment. In Latin America, we have a strong positive year-on-year volume evolution again. The price mix is strongly negative with a contribution driven by lower selling prices, and this is mainly in Europe. In Latin America, we continue to follow inflation. And the contribution of the mix, as I commented, is negative, but with a better trend in Q3. The foreign exchange impact, again, mainly from Brazilian real, and the perimeter effect coming from acquisition and collect treatment centers in Iberia. That's why the amount is very close to the Q3, of course. And you can see that the full impact in Argentina variation is only 1.1 million euros. So how does this translate into consolidated adjusted APV8? So we moved in the third quarter from an adjusted EBITDA last year of €256 million to €210 million this year. You can see on the top right the margins. So we maintain a margin of both 24 percent in the quarter, so 24.1 percent to be compared to 27.5% last year. So how do we go from 256 to 210? You see in the bridges we have an activity pillar that is negative with minus 35.4 million euros. So in the quarter despite the positive volume impact we have here. This is entirely due to the inventory variation Last year, in the third quarter, we had a significant increase in our inventory due to the, I would say, the surprise of the lower volume came after the summer, and we started to slow down our inventory for the year end. So we have this negative impact as a comparison in the third quarter. This is a very specific one. We see a minus 33.7 million euros, so same drivers and lower selling prices, not really offset by a lower cost, even if we have deflation in our costs. And the mixed contribution, mainly in South and West Europe, is neutral to meet two positives, which is a good news. We can see that the net productivity continues to deliver and strongly 2.9% of cash production cost reduction. You know that our target is to deliver a minimum of 2%. So we are above that. That brings 14.8 million euros to the party. And this is, of course, very important. We push our NETVAP contribution to offset the adverse trends on sales. In the other, you have 9.2 million euros. This includes the perimeter impact, if you remember. So a large part is coming from Vidrala Italy acquisition. But we also have a nice reduction in LCNA costs that we also had in H1 in the nine months. And that is as well as steadily contributing to our APDA. The forex is negative by minus 3 million euros and this is again mainly linked to Brazilian real and the Argentina EPD variation is plus 1.9 million euros in the quarter. So for the nine months, you have here the summary. So the main negative pillar remains the activity one. So sales volume down year on year, especially in H1. And we have here, as I explained from Q3, the negative on the inventory variation. We were restocking at the end of September 23. And since then, we keep, you know that we keep our inventory very much under control by adjusting our capacity to the current volume level. The price mix cost spread is negative by minus 136.7 million euros, driven by the lower selling prices and negative mix, despite, again, the deflation in cost. For the nine months, the net PAP is 44.6 million euros positive, and that's a 2.7% cash production cost reduction. The forex for the nine months is a minus 6.3 million euros, and the total valuation that it gives for the nine months of Argentina is minus 6 million, as you can read here. For the leverage, so as you can see here, our leverage is 2.3 times at the end of September. The variation between June and September in the debt is mainly driven by the acquisition of Vidrala's Italian business in July. We financed it by 250 million euro debt. So this is the main variation of the debt. We did have a positive free cash flow in Q3 and then some adverse effects on the debt also in the quarter if we want to bridge the two debt levels. And, of course, as a reminder, we did pay our dividends for 252 million euros, and that was in May, so already incorporated into the June data. And our long-term credit ratings have been confirmed by Moody's and S&P. Now if we look at our financial structure and liquidity as usual, so here the new line is for the acquisition of our new Italian activity. from Vidrala in Italy. We have a total of borrowings of €2,388.7 billion and the total available liquidity which is €649.2 million euro at the end of September. As you have read in our press release, we are contemplating a bond issue that would help us again re-diversify funding sources and extend debt maturities.

Thanks a lot, Nathalie. About our view for full year 24 results. So we confirm our guidance to deliver an adjusted EBITDA at a level comparable to 2022. All the teams are mobilized on execution for 2024 and at the same time on preparation for 2025. Meanwhile, we are keeping on strengthening our market intelligence to detect any signal from the market environment. Business focus on agility, cost discipline, and cash management are paramount in such a context. And as always, we are focused on execution to get the most of what we control 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. We still have about 10% of our capacity not utilized to keep inventory level under control. PAP is a must and is delivering. PAP, our performance action plan for productivity, is a must and is delivering. And CapEx Control is also active. To sum up in a few words, we are working the talk on what was presented to you in July. Thanks a lot for your attention. And let's now move to the Q&A session.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We will now take our first question from Louise Viger of UBS. Your line is open. Please go ahead.

Good morning. I've got three questions, please. The first one with regards to the distocking, so you mentioned that you still see distocking in Europe in some categories. Do you have an indication of when that this talking might end based on maybe what you hear from your clients and maybe what they hear from their own clients? The second question is, could you give some colors on the trends that you see in the latest weeks by category? Is there any maybe improvement in spirits? I mean, you mentioned that spirits started to slow down in Q4 last year, so just wondering. And then the last question is around the price-cost spread for 2025. and just general outlook for 2025, but how do you think about the price-cost spread on EBITDA for next year, and is there the possibility for you to quantify maybe what the potential negative impact could be? Thanks very much.

Thanks a lot for all your district questions. So first one about destocking. So what we see is that in Europe, We are at the end of destocking for the fast-moving products. Let's say when we are speaking about beer, non-alcoholic beverage, food, to say it in other words, for the products which are produced, bottled, and consumed locally, we do not see any destocking effect anymore. On the opposite, for the segments which are export-oriented, and here we can say spirits, wine, still wine and sparkling wine, we do believe that there is still a destocking effect, which is affecting our market. And if I'm looking at the different communication on our customers on that, it seems to be confirmed. when it's going to end on this part of our segment, we are monitoring that. I mean, each week we believe it's reducing, obviously, it's moving in the right direction, but we still see maybe some impact in the first part of 2025. But this is why we are functioning here, our market intelligence, to get a better understanding between all the selling out of end conception and the glass market. But you know that everybody is quite cautious, especially on top of that with the geopolitical potential topics. So we know China, for instance, the tariff certainly to come and to be country on spirits and specifically on cognac. And we have a US election, which could be, as well, a game changer. So we see a big part of our customer being very cautious in any kind of wait-and-see situation. For 2025, so first, we are just in the process, as usual. This is the intensive period to prepare 2025. So working on all our budget assumptions cross checking that with all our teams and the different divisions. Negotiation is ongoing with our customers. So it's too early to be definitive. What we can nevertheless say is that First, as far as volume is concerned, we do expect to keep on seeing a recovery as we have started to see during the year, and especially in Q3 with volume higher than in Q3 last year. So we do expect volumes to recover and to keep on growing. Two, on pricing. The big part, the most part of the pricing, selling price reduction, has been done and is behind us. And it was mainly in the first semester. And as we said, we are going to be a low team on selling price reduction. So obviously, we will see a carryover effect next year. And as far as 2025 selling price reduction, I would say that we are going to be in a kind of normalization, inflation being controlled back to standard level, pricing evolution for 2025 will be the pricing reduction or increase we have to do will be as a standard in the past industry, what we did in the past industry. So this is what we see for 2025. But obviously, we'll be able to give much more color when we present our full year results at the end of February.

Thanks. Thank you. And we will now take our next question from Francisco Ruiz of BNP. Your line is open. Please go ahead.

Hello, good morning. Also three questions, if I may. The first one is on 2024 guidance. In order to reach this around 860 million euros on EBITDA, you need to grow 15% in this quarter. Also taking into account that Q4 has never been bigger than Q3, could you give us more capillarity on what are the the main drivers on this quarter million on effects and activity. The second question is on cost. If you look at the quarter, the cost reduction has been significantly, according to my calculations, something like around 60 million euros. Is this something that could be sustainable also for Q4 and for next year? And what is driving this is just the SM facility or is something behind? And last but not least, Patrice, you talk about de-stalking, but how do you know that this is de-stalking and it's not a weak demand that it is here to stay? Thank you.

Thank you, Paco. For the EBDA guidance, let's not forget that we said it would be around 2022, comparable to 2022 adjusted EBDA. It doesn't mean that we speak exactly to the 22 value. Second comment is that Q4 last year was also still very weak. Let's not forget that we were in the full H2 with a much lower volume and a lot of shutdowns, especially in December. And the third point is that we have also the addition of the acquisition of Corsico, so the Italian business that will contribute this year in the quarter APDA. For the cost reduction and the PAP, but also the reduction in SG&A that we see. Yes, it is sustainable. I mean, the PAP, we have a high value here, but you know that this program is really continuous improvement. It is not a very big program that we would launch, especially because of the situation this year. It's really the continuation of our usual PAP actions. And it now includes fully our new acquisitions, especially in the UK, where we see a good contribution this year. And it is a good synergy that we have here.

On your second question about cost reduction, and I guess you're mentioning a PAP, sustainable performance of our PAP. So first of all, we see a sustainable performance for Q4, no doubt about that. And as you know, this TAP methodology is something which is very standardized in each of our facilities. And we have a strict and rigorous methodology to identify all the inefficiency improvement we can make on each of our line. We are using the big database with a big nice benchmark, internal benchmark with all our 64 fundacies, which is feeding productivity project portfolio. And you know that our objective is to deliver a 2% cash cost reduction figure. So we do not see why this will not be active again next year. And obviously, this year, it was quite paramount for us to strengthen and to put much more, I would say, positive pressure on delivering additional cost reductions. To make it simple, yes, in Q4, we see something similar to what we have delivered so far after nine months. And for next year, no reason to not keep on delivering a minimum 2% cash cost reduction. For your last question about this talking versus weak demand, the first comment I can make on that is facts and data for 2023. First one, we have some noise, background noise, I don't know where it's coming, but okay, nevertheless. So the first fact, Francisco, is that If you remember what we share already together, the selling out of un-conception in 2023 was down minus 1%, roughly. So this is representing really the consumer demand. And the glass market was down by minus 12%. So this was clearly the fact that there was a disconnect. What we see as a recovery today, as we speak, is not totally back to what I could call a coupling between what is real demand in terms of volume and the glass market. We see that recovering. And on top of that, this is what we get as information from our customers, some of our customers. And again, it depends on the segment. It depends on how they are exposed to export. I said that everything which is related local production, local bottling, local consumption, there is no more destocking effect. But on the rest, we believe that we have that. We are very cautious on the demand, as you all mentioned, and very vigilant to look at that. But we believe that destocking, again, is still on, on this spirit, still one, and a sparkling one.

Can I do a follow-up? So on the Q4 bridge, could you tell us what was the effect of the hyperinflation expected in Argentina taking into account such a negative impact that you had last year? And also on the Corsico contribution, taking into account that you are valuing stocks at a market value, how much could it be the contribution in EBITDA in this quarter? Thank you.

Okay, so you are right. Last year we had a strong negative impact in Q4 from Argentina. Basically the DDA was divided by two. So it was several million euro impact in last year Q4. And as for your second question on our new entity in Italy, you are right with the valuation of the Opening balance sheet that is still in process. Our inventories, basically you don't benefit from the margin of your inventories, but we are not only selling on inventories. So still we have a positive contribution in the second half. sorry, from this new business where we need to be, I mean, just to get to the document. Anyway, this is a Bolton acquisition, so it's not a game changer, but it's still an additional contribution just as a few millions in the year are brought from our new collect treatment centers in Iberia that we are fully benefiting. So all of that are not very significant impacts, but they are positive in the Q4 when we compare our steps to last year.

Is that okay, Francisco?

Yes, thank you very much. You're welcome.

Thank you. And we will now take our next question from Lars G. Joel Berg of Stifel, your line is open. Please go ahead.

Thank you. Two questions remaining. Of course, activity has been a major drag this year. Could you give us any color on what you expect in the final quarter in this bucket? It has directly been improving, of course, through the year to date, but what should we expect in Q4? The other component that, again, was raised, meaningful cost reduction outside the the performance action plan in Q3. Is that anything to do with, you know, energy hedges becoming more supportive versus the sort of negative impact you had in H1? And also, could you share with us how you see energy based on your hedging policy now progressing into 2025 versus 2024? Thank you.

Thank you for your question. To answer to you, in the PAP we do not have at all any impact of our hedging policy. What we record, what we add in our PAP actions are without any inflation impact, because inflation impacts, of course, are in the spread pillar. It's really purely a reduction on costs, meaning I'm using one forklift less, I have less people in the plant, so productivity action. And if I have some energy impact, it's because I have a lower consumption of energy, but it is not linked at all to hedging. So that is why we consider that as sustainable, because you see these are real actions, continuous improvement in our plant. It's hundreds of actions that are rolled out. now every year in the plant and just as a reminder for everyone, we have a very powerful tool there by benchmarking all our plants on several KPIs of efficiency in the production and the idea is really to lower everywhere our production cash costs. So this is pure productivity and again no impact of the hedges here. For the current energy and the impact of our hedges, you know that we do not give the detail of our hedge levels. What we said, and this is still valid for Q3, is that we have a decrease in our energy cost in 2024 versus 2023, all included with our hedges as well. And what we see today is a kind of stabilization of energy crisis anyway. So we are still in that trend.

In terms of the activity component, and again, I guess more expensive hedges must be... ...directionally what this means for 2025.

Sorry, we didn't hear you. It's a bit cut.

Yeah, so, again, the activity bucket, how should we think about that in Q4? And then, I guess, on the hedging front, if I can ask just a follow-up. You know, you, obviously, you had more expensive hedges in the books in 24 as they rolled out. Can you share with us directionally how initiatives should be faring based on your hedge policy in 25?

So for the activity in Q4, here we won't have again this negative impact of coming from a stock values down that we commented in Q3. In fact, last year we did have an increase in inventory in the third quarter. and this year we maintain basically our inventory level to the right, to the current level by adjusting our capacity of production. So the inventory variation will be, we won't have this adverse impact on the inventory. And for volumes in Q4, we should also be better than last year because remember last year, uh was uh as i as i commented are very very low yeah so uh we we are seeing today uh a kind of high single digit growth or single digital so we will have growth again in volumes in q4 and we won't have this adverse inventory variation and you don't want to comment on the edge change into 25 So it should be pretty stable or some slight decrease versus this year overall.

Thank you.

Thank you. And we will now take our next question from Patrick Munn of Bank of America. Your line is open. Please go ahead.

Good day. Thank you very much for the presentation. Just two questions left for me. So just to follow up on the volume, I think you said, obviously, we're seeing positive volume momentum into the end of the year, but you also said that you've still got about 10% of your capacity offline. I mean, how do you see that evolving? Do you think if the destocking comes to an end, that's you'll be back to full capacity? Or do you think that potentially you might still have to take some capacity out permanently or wait for somebody else to take capacity out? And then the second question is more broad. So you gave us three-year forecasts. I think it was October 2021. And we're at the end of that period. Just wondering when you might be in a position to give us sort of your next medium-term goals for the business and how we should be thinking about what your strategy and ambitions are for the business medium-term. Thank you.

Thanks a lot, Patrick, for two questions. So about our capacity use. So you're right, this is what I said. We are still running or not running 10% of our capacity as we speak. And what is very key for us is really to control our inventory level because I don't want the operation to get out of control and to be with inventory not serving the business. And we've obviously a premium cost on whatsoever. So as we speak, we are controlling this and we are in a good position to close the year. And about When we will be back to full capacity, this is a question related to the volumes we'll see next year. As we speak, we do not have any plan to shut down definitively additional furnaces. We did it in the first part of this year with Essen in Germany, because here, as I explained, it was for us a structural change in the German market, for our German market. It's not the case on the other regions. We see that much more . So this is why we are much more taking temporary measures. What we've decided as well, for instance, in Italy, with our new furnace, obviously, is to postpone the launch of the additional capacity, which we plan beginning of 2025. This, as we speak, we'll see that much more at the end of 2025. So this is, I would say, a daily monitoring through our scheduling process, according to the demand we see in front of us with our forecast, and we adapt production accordingly. Again, to make it simple, 10% not used today until the end of the year. For sure, maybe Q1 will be about in the same proportion. And we do expect with volume recovery in 2025 to better use our capacity. But again, with high monitoring and to keep our inventory under control. And no definitive additional shutdown schedule as we speak. Paul, your second question about much more mid-term visibility and guidance to the market. So as we said, we'll come back to you next year for Capital Market Day, giving a mid-term guidance. And we do that somewhere in Q2. So we really want to finish 24, to well prepare 25, and obviously, as you can understand, to get a little bit better visibility on this top line and on the growth and what was mentioned about this talking versus a weak demand. So this will be our target to come back into the next year.

Great. Thank you very much.

Thank you. And we will now take our next question from James Perry of Citigroup. Your line is open. Please go ahead.

Good morning. Thanks for the presentation. I'd just like to ask about mix. So I know you said there's still destocking in wine and spirits, but within wine and within spirits, would you be able to give any more commentary on how the premium and super premium segments are faring relative to the non-premium? Or to put it another way, how much of the minus 5% price mix in Q3 or the minus low teens in 2024 is driven by mix?

Thanks, James. So you remember that we said in H1 that for quite a while, premiumization was down. We're seeing a down trading. And that the first time, the mixed effect was negative in our results. We knew that we see that in Q3, the mix is neutral. So it means that we start to see, but again, we are very cautious, but we start to see no negative impact on the mix. Nevertheless, we are still, as we speak, we are still very low on the spirit segment and on still wine and sparkling wine. This is where we are lower than what we could expect. So there is much upside to come. for us in 2025 on this segment and as a result on the premiumization and mixed effects. Because we all know and we know and we are convinced that premiumization is still a trend and that what we are facing in H1 which is start to revert, was the result of some arbitration from our customer, plus obviously the spirit market impact. So we still see that as an upside for next year and the years to come.

Okay, thank you.

Thank you. We will now take our next question from Philippe Lorraine of Bernstein. Please go ahead.

Good morning, thanks a lot and thanks as well for giving us a different presentation on the bridges and incorporating Argentina now. I would like to ask a couple of questions please on volumes and as well on prices. I understand that your point on the mix effect that is quite neutral in Q3 If I strip out Argentina, I have the impression that then the price part of the price mix has become worse in Q3 versus H1. Would you agree with that? And what is the reason behind that? And then the second question is more like on the volumes. I calculate that excluding Argentina, the volume is up maybe slightly more than 0.5% in Q3. How does that square back with your comments regarding the different regions saying that Europe was up, and to some extent as well, LATAM was up? Thank you very much.

Thanks. So, Nathalie will speak about the price. About volumes, say that again. I'm not sure I understood your point.

I was just wondering if you could shed a little bit more light, because in your press release you were mentioning strong volume growth, actually in southern and western Europe, strong volume growth in Latam, but overall it seems like the volume impact, if we exclude Argentina, was somewhere around 0.5, 0.6%. And if we include Argentina, it was just slightly less than 1% in Q3. So I just wanted to understand if my view is correct or whether I've done something wrong with the calculations.

Okay, so just to say, so we commented the volume growth in the third quarter. You have then some, when you look at the euro in the activity pillar, You have a bit of country mix, I would say, depending on the selling price for countries, because overall we have a growth, but we have some countries that are still with a flat or a slight decrease. So overall, it's a bit difficult to circle exactly back to our comments on the pure volume. And the main increase versus last year is really coming from Latin America. Here we have also additional capacity we are benefiting from. If we move to Europe, I think that's the color we gave in the press release, is that we have a bit of positive. It's not very, very positive overall in the third quarter. So LATAM still remains the most dynamic overall for the group. And for the prices, on your question, you have mainly the carryover effect of H1 decreases and Q2 decreases in prices. So we are again in a year where we have had several rounds of price decreases, unfortunately, so the reading is a bit more difficult than when in the past we were running one price evolution at the beginning of the year. So in Q3, for the pure price, it's really coming from that. into the preparation for the 2025 price negotiations. So we have limited impact now on prices. You always have some case-by-case, but nothing on the full extent of our portfolio. Okay.

Just to follow back on your comment on the regional mix. So the regional mix is included in the volume pillar.

In each pillar, you have variations in the euro per tonne, for example, by country. It's pretty different from country to country.

I understand. Thank you.

Thank you. We will now take our next question from Jean-François Grengy of OdoBHS. Please go ahead.

Yes, good morning. Jean-François Ranjon speaking from OdoBHF. Four questions from my side. The first one is, I just want to come back on the volume for the Q3 plus 0.8%. It seems quite limited. And so that you mentioned some mid-simple digits growth expected for the volume in the second half. Do you confirm that? Yes. And could you give us more color already the strong growth for the volume in Q3 for the source on West Europe? The second question, I just want to come back. I don't understand why we have limited growth for the volume in Q3 and a negative impact at 36 million rows on the EBDA. I don't understand the reasons. You mentioned some destructing, but I don't understand very well. First question, you can see on the guidance for the EBDA, so at the same level, around the same level on 2022 for the EBDA, so that means a strong Q4 at 225 million rose higher than we have for the Q3. Generally speaking, the Q4 is probably less compared to Q3. So do we expect a so huge Q4 in terms of EBITDA to reach the guidance, or should we be more cautious? And the last question, could you give us some color about the free cash flow for the Q3? We have a negative free cash flow in H1. What is the trend for Q3? Thank you.

Thanks a lot, Jean-Francois. I'm going to commence the volumes, and I will give you much more color on Q3 volumes. And here I'm speaking about volumes, not revenues. Our volume in Q3, we have mid-to-high single-digit growth in volume. All this is clear. All the earlier, including Corsico, including the acquisition of Drala Intel. If I remove the acquisition, a kind of like for like comparison to last year, the total growth is low single digit, low to mid single digit. We have some contrasted situation within the different regions. Southwestern Europe is up high single digit, close to low. Removing Perimeter effect of italy we are we are losing a digit Southwest Northeastern Europe is done by Meeting a digit plasma missing a digit and here were impacted by Germany which is also a UK With the spirit market remember that UK is much more dedicated to spirits market 75% of what they are doing is for spirit And then in LATAM, we have a strong double-digit. For HOPE, it's clarifying the volume situation. And for Q4, we do expect, again, a high single-digit growth compared to last year, keeping in mind, again, that last year was a very low comparison basis. HOPE clarifies on volume the situation.

On the ABDA, on the Q3 activity pillar, it's a bit strange to see a negative pillar when you have a positive one in the stage. It is really due to a variation of stock variation. So what does it mean? It means that last year we were producing more and we were increasing our inventory. So this has a positive impact on your APDA. You have production costs covered by putting inventories, raising inventories. While this year, we have less production. We adjust our production, and we do not increase our inventory. So we do not benefit, I would say, from this. So when we compare ourselves bridge to bridge, we have this negative impact of what we call the stop variation. I hope it's more clear now. And it's very much linked to this quarter. That's an important one. For the full year guidance and the Q4, you are right. Usually, Q4 is not stronger than Q3. Again, let's not forget that we said we would be in the area of our 2022 APDA. So, yes, let's be a bit cautious about that. Even if, as I already said, Q4 last year was not very good and we have some impact of acquisitions and also additional capacity in Latin America. For the free cash flow, so thank you for asking, in Q3 as in Q2 we are back to a positive free cash flow generation. You remember in July call I said we did generate a positive free cash flow in Q2 after a very negative Q1. And I was expecting to have a positive free cash flow in H2. So we are on track with that, starting with a positive free cash flow in Q3. And we expect also a positive free cash flow in Q4.

Okay. But as mentioned on the press release, you expect, compared to what you expect for the full year, for the plan, for the previous plan between 2022 and 2024, you expect a cumulative free cash flow lower than 900 euros. That's right.

Yes, we are close to the term, but we will be lower. Exactly. You are perfectly right. Okay. Thank you very much. Yes.

Thank you, and we will now take our next question from Fraser Donlan of Barenburg. Your line is open. Please go ahead.

I had two questions. So the first is on pricing. So what gives you, I guess, confidence that it's only a negative carrier effect, which you should expect in 2025, given industry utilization still probably on the low side? um and then the second question was could you maybe comment a little bit how you see the structural positioning of your german business because that seems to be a a business which has been suffering quite a lot in the last few quarters so is there any kind of major changes we should expect there other than the closure of the peasant furnace which you already made thank you thanks a lot fraser so

About pricing, first of all, as you know, we want to be disciplined on that and we want to base that on our value-based pricing. What is sure is that the big part of this post-inflation or inflation period and then correction is behind us. And in 2024, we have done the bulk part of it. What we are seeing now is that we are just in much more tactical pricing variation. For 2025, again, as I commented, we are working on all our assumptions and moving right now with the customers for negotiations and contracts for next year. So we'll see where we end. But as the inflation and the price reduction are behind us, we will be back to something which I do see normal. And we'll have to adapt capacity if needed compared to what is the market demand as we are doing right now. The only impact for sure for 2025 will be, or the biggest impact, will come from the carryover of what we did in 2024 with 2025. No doubt about that. And then we could expect to monitor the price variation in 2025 according to our cost variation in 2025. capacity adaptation measure. As I said, so far we are just taking SN in Germany. We do not see anything else, as I speak, and we'll adapt and if we do something structural, we'll not hesitate to make the appropriate measures, again, as we did in SN in Germany. Specifically in Germany, it's right to say that it's quite a difficult situation. And we'll see what we do. If we had to adapt one more, again, I would not hesitate to do it, to adapt to shut down one additional furnace. But we want to be responsible and to look at what is needed according to the market demand. Hope it answers your question, Fraser. Yeah, that's perfect. Thank you, Patrice. Thank you.

Thank you. And we will now take our next question from Edram Rabih of Citigroup. Please go ahead.

Thanks. Most of my questions have been answered. Just one on your light weighting glass strategy and... Could you give us a sense as to the pricing premiums that you can expect for this, or is it more a CO2 reduction drive that's driving this? And again, in terms of mix, I mean, you mentioned 8.8 million units, and I think you sell about 16 billion bottles. So, I mean, what percentage of the mix do you think this particular product line is going to be, let's say, in three to five years? And then finally on that as well, in terms of additional costs, either CAPEX or OPEX, to make this kind of product line? What would be the investment that's required for a given level of volumes?

Okay, thanks a lot. So, about this important topic, Is it CO2 or is it something else? I would say it's everything. It's CO2 reduction. This is the opportunity to give competitiveness to the glass packaging to our customer versus over-packaging solution. And it is a way as well for us to preserve profitability. As we are managing with one ton of glass, you are making much more bottles at the end. I do see that as a strong trend. Obviously, we see that it's ramping up. We see that there is some demand coming and appetite on this kind of product. And this is why we have decided to propose and to define a full offer for each segment on some breakthrough in terms of weight. It does not require any additional capex. It's just about having the appropriate tools to design, so to make the mold, so with good simulation to make sure that we are going to the minimum of thickness in the wall of the bottle, but still sticking and respecting all the technical specifications we have. And it is about having a strong process control, because it's much more difficult to produce a light bottle than a heavy bottle. You need really to control it as well, to have strong capability in your production means to reproduce and control the fitness of the wall, to make it simple. So no additional capex, just using the best know-how And the skills for engineers being product engineering or process engineering.

And any sort of expectations of volumes in three to five years, or we'll see as the market develops?

Difficult to say. We can say that the standard product could move significantly in that direction. For the peaceful product, obviously, it will be much more difficult. But for standard products, especially in wine, I think we could see a big move. Difficult for me to give a percentage, I mean, or a mix. Thank you.

Thank you. And we will now take our next question from Alessandro Cecchini of Equita. Your line is open. Please go ahead.

Hello everybody and thank you for taking my question. Just one question. You spoke about your capacity level, utilization level that is right now 90%. Do you have a feeling about what is happening at the industry level in Europe? You are a market leader so you probably have a feeling about what It's happening in the market, just in order to understand what is the current discipline of the market in terms of capacity utilization or stoppage for the furnaces for the next year or end of this year. Thank you.

Thank you. So correct again, so we are not using 10% of our capacity as we speak. The information I have and the feeling I can get is everything which is public and from our peers. What I know is that, again, globally we see a kind of discipline to adapt capacity we see some peers taking much more definitive measures, maybe much more impacted by some segments where there are some definitive moves, I would say. And what we see is that most of the industry is thinking twice when they have to rebuild a furnace. So each time you have a furnace which is coming to the end of life, and then you have to make a new investment to keep the capacity. Obviously, this is a big question. Do you do the investment now? Do you conserve the capacity? Do you postpone the capex to get the capacity? And this is what everybody is doing with a good business sense. This is the feeling I get.

OK. Many, many thanks.

Thank you. We have no further questions in the queue currently. I will now hand it over for webcast questions. Thank you.

All right. Thanks a lot. This is David Plessis speaking. I'm the head of IR. Well, we've had quite a long list of questions on the phone. We only had, I think, four written questions. Two, I think, have been covered already. That leaves us with just two quick questions to be answered. One from Claudio De Ranieri at Albemarle, which is, okay, given the decline in profitability that you've seen in 24, are you considering extraordinary cost-saving measures besides the PAP? And the second is... Well, no, that one was covered, so that's it. That's the first question.

So, the answer is yes, and this is what we are doing already, because we are not speaking about SG&A adaptation as these kinds of topics. So, obviously, we are doing it already, trying to flex the SG&A according to the top line. So we are quite successful on some topic in our members so far. But this is what we have to do if needed, obviously. What is important for us is that we are still confident for 2025 and beyond. Is it going to be January 1, 2025? Certainly not. But we believe that in the course of 2025 and beyond, we will recover. Keep in mind that as we communicated in July, this year we are facing quite strong headwinds compared to the previous year, and this will revert at a point in time, being market, being energy cost, being premiumization, being utilization of our capacity, and all of that. But be sure that if we were to face some structural change, some structural impact, I mean, without any doubt, we'll take the appropriate measures. But we are doing that today in order to protect profitability and cash, as I said. And this is part of the optimization and the... are doing on a daily basis, I would say.

Thank you, Patrice. One last question from Roberto Cassoni at Otis Capital. Could you please give us a sense for CAPEX in 2025 and beyond? Where will it be focused in a context of presumably limited capacity additions?

So in terms of CAPEX, Remember that our view is to stay around the 10%. Today, we are below the 10% of our sales. So that means that when your sales are reducing, we also reduce the capex expense. This is already what we are doing in 2024. And second comment for 2025 and beyond, we have had in the past two years additional capacities, so investment for additional capacity in Brazil, in Italy. This is now behind us. And we would be, of course, not adding any new capacity unless the market is there. And also, last comment, we will keep our decarbonization roadmap capex. It is embedded into the around 10% of sales as we did this year.

strict control on on capex uh not giving up of course our uh decarbonization roadmap that is very strategic yeah thanks madly that's it on my end okay so thanks a lot for for your attention again uh doing our call and for all the uh good and relevant questions you you had uh so i wish you a good day and please take care bye-bye bye-bye all right

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