Verallia Société Anonyme (VRLA) Earnings Call Transcript & Summary

Hello, and welcome to the Verallia H1 2024 Financial Results [ Analysis ] Call. Please note, this call is being recorded. [Operator Instructions]. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions]. 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 H1 '24 results 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 for full year. To start with, just to remind you that Verallia is a global leader in glass packaging. We are #1 in Europe #2 in Latin America; and #3 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 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 Vidrala Italy and with 64 furnaces, which is plus 2 with Vidrala Italy and minus one with the 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 4 for an enterprise value of EUR 230 million financed with a 3-year term-loan. This acquisition is about one production site near Milan, with 2 furnaces for capacity of 225 kilotons per year with about 200 employees. In 2023, the company generated a revenue of EUR 131 million and an EBITDA of EUR 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 Allied glass in U.K. 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 H1 '23, our results are down versus H1 '23. We had a positive gradual recovery of volumes during the semester, but slower than expected. In Q2, we are 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. When we closed H1 with a revenue of EUR 1.765 billion, minus 17.6% versus last year with an organic growth of minus 10.4%, an adjusted EBITDA of EUR 431 million minus 34.6% versus last year, giving an EBITDA margin of 24.4%. A leverage of 1.9x compared to 1.2x at the end of '23 and the net income of EUR 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 9. To start, let's step back. Here on this chart, you have the official data of the glass container sales from FEVE, the European glass producer of 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 pattern compared to previous years. It has been the starting point of supply chain disruption. Then in '21, 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 2 years of high inflation in Europe and precedent for the past 40 years and with the 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. On Verallia, 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 other substrates 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 consumption of glass in units between '23 and '22, the variation of it and consumption of glass was around minus 1% in Europe. If we put in perspective, the minus 12% of glass demand reduction and this end consumption 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, a positive point is that destocking will end at a point and that the demand for glass will align again with the end consumption. The difficulty is to predict when destocking will end. And as you know, our initial assumption was end of H1 '24. The destocking end point or the speed of a destocking to say it differently, must obviously be put in relation with the end of consumption demand with the end consumption demand. And EV and consumption is lower than expected, the destocking impact will be delayed. On this chart, we have a Euromonitor and consumption forecast in glass in Europe for '24. The graph is showing by segment, the forecast of '24 full year as it was projected mid'23 and as it is projected now mid '24, and you see that the end consumption is revised down on NAV from a growth of plus 4.8% to plus 1%. We see no change in 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 sales, this is giving a downward end consumption revision of minus 1.3% from plus 1.7% to plus for 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 plus COVID 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 at a slower pace than expected due to the end consumption forecast revised down. meaning that destocking will still impact H2. This is why having this new set of data in hand, we have decided to revise our forecast for '24 based on this lower activity. And to be more specific, our initial assumptions for '24 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 digits, our new volume assumption for H2 has had 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 consumption. 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 a 10% capacity down for inventory control. And we are doing that in a smart way with a mix of extended cold repair, temporarily some line shutdowns, but taking mostly the benefit of our cold stops. Capacity down, we have decided as well to stop one furnace in Essen, because here, we see something much more structural. And we have close to 90 redundancies for a one-off restoring cost of EUR 10 million. On productivity, we are delivering a strong PAP results with 2.6% cash production cost reduction in H1. And we are renewing our focus on productivity as a profitable level, obviously. On SG&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 of CapEx you see that in H1, we are ending at 8.9% and a strict in-boundary inventory control. You can count on the management team to keep a high focus on this execution. Now I would like to hand over to Nathalie 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 a turnover of EUR 2.143 billion last year down to EUR 1.765 billion you can see, as usual, the pillars. The first pillar is down by EUR 168.5 million. These are the volumes. As we shared in introduction, remember that H1 last year was 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 high single digit in H1, and I will give you more color by region later on. The price/mix pillar in the bridge is a minus EUR 53.5 million and it's more minus EUR 100 million if we exclude Argentina, just for everyone to remember that Argentina is still distorting significantly, especially 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, mix element. I will come back to that in the EBITDA is negative in the semester. Here again, a 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 cullet treatment centers last year in Iberia as a continuation of our policy to decarbonate and have a good control of our cullet supply base. So now if we give a bit more color by regions and also I'll comment the segments. 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 nonalcoholic beverages as we speak in the region. And there was clearly an effect of the poor weather condition in H1 2024 compared to last year. And the mix impact in this region is the -- where we have the main variation, for fiscal this year. Last year, we had a very positive mix impact and mainly driven by Italy. And here, we have a trading down impact. But here you see the H1, and this is true for all region. We see a sequential improvement in volumes Q1 and Q2, sorry, versus Q1, which is what we expected. If we move to Northern Eastern Europe, you see here a stronger percentage in decline, minus 25.8%. In the region, you have 2 countries that are more suffering than red, Germany. So U.K. Germany, we already shared in the first quarter and since last year, is suffering from beer volumes being down. And this is a 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. U.K. is much more consensual as the spirit segment is currently suffering more than others. Let's remember, together that lager segment did not react at the same base. Spirit segment was holding very well during the year 2023 and started to decline in November, December, so Q4. So there is a lag basically in the adjustment of spirit volumes. And there is clearly the destocking 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 U.K. And here, mix is more flattish as I was saying before, it's more in the South and West Europe that we have the mix impact. But here again, sequential improvement from 1 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 year-on-year volume change, slightly negative volume year-on-year. But all in all, pretty good activity and a strong rebound in volume in Chile after lower 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 a consolidated adjusted EBITDA? So as usual, you see the bridge here. We move from a very, very strong semester last year with an EBITDA of EUR 659 million. And if you look on the top right, the margin that was at the highest at 30.8%, and we end in H1 at EUR 431 million and with a margin that is still really strong at 24.4% and very much in line actually with the first quarter's as well. So the usual pillar to bridge from 1 year to the other. So the first pillar the activity is down by EUR 162.9 million. And it's basically half the consumption 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 at the same -- at this level, which is the right one. So we benefited last year from the inventory increase, and we don't have it anymore in H1. And this comp will, of course, disappear in H2. The Spread pillar is negative by EUR 53.4 million. And here, again, excluding Argentina, it's more EUR 100 million. And this is the result of the price mix element that I already commented and with a significant impact of mix that is all in all, close to EUR 30 million. 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% the semester, which is contributing to EUR 32.6 million to our EBITDA and mitigating part of this adverse trends versus prior year. So a very satisfactory results and with that we can see in all regions. The FX is mainly linked to Argentina, and you have some positive other points by EUR 3.2 million. This includes the SG&A improvement that Patrice was mentioning in his presentation. So when we move in the regions, we have in Southern Western Europe an EBITDA of EUR 288 million. So down versus last year and adjusted EBITDA margin very much in line with the group average at point 3% of the total sales. And here, okay, that tell us actually valuation are exactly the one I presented for the group with a good industrial performance. When I move to Northern Eastern Europe, I have a margin and adjusted EBITDA, sorry, of EUR 76 million to be compared to EUR 142 million last year and a margin of 20%. So here, a lesser contribution of U.K. as the Spirit in U.K. are temporarily 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 U.K. being now a very well trained and integrated into our programs and contributing significantly. And here again, declined versus last year, but sequential improvement in activity from Q1 to Q2. If we move now to Latin America, we have an adjusted EBITDA of EUR 67 million to be compared to EUR 81 million last year and still a very strong adjusted EBITDA margin at 33.6%. We see -- in fact, the EBITDA decrease is mainly driven by Argentina and ForEx and we have here as well a strong 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 evolution. If we move now to the cash element. So CapEx, as Patrice shared with you, are very much kept under control in this environment. As we have CapEx at 8.9% of the total sales. And we can see that we do not develop, of course, on our strategic CapEx. So it's a tight monitoring. But of course, we keep with our long-term strategy. We have 2 new furnaces, one in Campo Bom and one in Italy. So we have some CapEx but remember, we delayed the start of the furnaces to adjust to the demand as we always do. And we have very important in 2024, 2 significant investments for our decarbonation road map 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 Zaragoza for end of the year. If we look here at the group cash flow generation, so the free cash flow is negative at minus EUR 49.2 million. But if we split Q1 and Q2, remember, we had more than EUR 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 market cap, excluding CapEx this year. And on top, you have the CapEx this year that, as you see here, is a minus EUR 81.7 million. That leads to an operating cash flow of EUR 90.5 million. And below that, we have the usual other operating impact, including IFRS and some elements in EBITDA with a cash effect in the semester for, it includes the purchase in CO2 interest paid and other financing costs at minus EUR 47.5 million. So the increase versus last year is no surprise linked to the increase in interest rates mainly. And there is also some FX losses for EUR 8 million in this amended in this amount and the cash tax that is lower than last year. The net debt evolution in the leverage. So the net debt is at [ EUR 1,645.7 billion ] And this is after the dividend payment that occurred in the second quarter for EUR 252 million this year. And the leverage is at 1.9x after this dividend payment. And just reminding our ratings from S&P and Moody's that have been confirmed, so investment-grade rating and a stable outlook. As usual, you can see our financial structure and -- so no new -- nothing new here. Using our program on the Neu CP up to EUR 408 million in the in the semester, reminding you that most of our long-term debt is hedged and or fixed. And we have a nice available liquidity of EUR 591 million. So that is for the H1 and before turning to Patrice. So just to remind you what we see for H2 and our assumptions ended into lending to our guidance. So in activity, as Patrice already said, we see full year -- mainly a volume story, mainly flat to slightly native when we were before that more optimistic. So 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 in the spread, as I shared, we see that the mix is impacting negative 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 full year up to low teens. And we have -- because of our energy hedging policy, we are not benefiting fully from the lower current spot rates in our spread for the full year. In the productivity pillar, consistent PAP entering through the year is embedded, of course, for the full year. And as you could see, H1 has been very strong in that respect.

Thanks, Nathalie. So about our guidance for '24. Full year '24 and to sum up what we have just shared. For the market recovery, we just see the shape of the curve being delayed. Destocking 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, throughout 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 in. Based on this situation, we revised on July 9, 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 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 '21 and '24. Please, not as well, but since IPO, cumulative return to shareholders was a dividend of EUR 6.4 per share, and the total amount of EUR 271 million of share buyback. To finish a few words about '25 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 down-trading impact in '24, as explained by Nathalie, premiumization will contribute positively. We are convinced that our leading market position, our ESG decarbonation road map and our strong balance sheet and cash management are strong competitive advantages which will support our growth and will be ready for potential M&A each time it will make sense, creating value for Verallia. All of that is making us confident in resuming a sustainable and profitable growth track. Thanks a lot for your attention. And let's move now to the Q&A session.

[Operator Instructions]. We will take our first question from Louise Wiseur from UBS. Please go ahead.

I've got 3 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 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 2 projects, I think, comparable and Campo Bom and Pescia 2. I do think from the presentation, it seems that there's no further delays, but I just wanted to check on that, please. Thanks so much.

Good morning and thanks for your 3 questions. So I'm going to take the volume and capacity and Nathalie will comment on the price cost spread. So about volume, we are just confirming what we are -- 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, 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 destocking endpoint. But we see so far drive 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 Campo Bom 2 projects 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, '25. And the one in Pescia is about the same. Last time we said it will be Q2 '25. We'll see, maybe we'll delay it a little bit few months in '25. 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 -- if you were 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 EBITDA bridge would be negative and mainly coming from the carryover of price increases from the 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 will benefit more for 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 situations 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.

We will take our next question from Francisco Ruiz from BNP Paribas Exane.

I have 3 questions as well. The first one is, you commented that you expect a 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 confirming that is going to be around high teens in the second half of the year or I'm doing something wrong. The second one, I don't know if you could help with this. If we assume no incremental volumes from the one in H1 but help that also by the easy comparison, how do you see the volumes at the end of the year? Because you are seeing that this progressive recovery. But if this not happen, how do you see the volumes at the end of the year? And last, if not Nathalie, you could give us what's your estimate on inventory conversion impact in activity for the second half of the year?

Okay. So on the price element, yes, your calculation is good Paco. 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, we 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 again, versus H2 of the previous year linked to the volume of the quantity, there will be a bit of a valuation impact, but much, much more reduced. So In the activity bridge, it will be very smaller. And it was, as you could see, a very significant 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 a high single digit. This is what we see. So confirming the recovery since late '23, but leading to a year, which is going to be flat to slightly down, which is the assumptions we are working with.

We will take our next question from James Perry from Citigroup.

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

Thanks for your 2 questions. The topic of the inventory is not really between us and our customers because there is a low level of inventory between us and our customer or if we have some is very marginal. The topic of the destocking or 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 is 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 okay. We are still learning on optimizing all the OpEx stand-up but this is quite promising. And we'll enjoy this in decarbonation road map and as a contribution to our CO2 reduction. So we are on track on that to make it simple.

We'll now take our next question from Jean-Francois Granjon from ODDO BHF.

I have 5 questions, please. The first one that concerns the trade, impact in 2025. So I understand what you mentioned, Nathalie. But do you expect, in fact, negative -- probably a negative spread impact lower compared to 2024, but a negative impact for the spread in 2025? The second question, could you [ mention us ] utilization rate the units. You mentioned a low point at 80%. So 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 not -- not mention the price, but the mix, you mentioned a negative mix effect. Could you explain more precisely how to justify this negative mix effect? And what do you expect for the second half? The fourth question, you mentioned, yes, for the guidance, the similar level for the EBITDA compared to 2022. But if I understand for this year, you integrate 6 months of the units coming from Vidrala. So in fact, for -- if we have a look on the 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 question -- if you look at the consensus for 2025, I see EUR 1 billion EBITDA level expected. What is your opening about that, it seems to be quite high or changing from my opinion. What do you think about that?

Thanks a lot, Francois. So Jean-Francois, 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 our 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, just the mix effect. Let's remind that for the past years, mix was always positive, and we were focusing on that obviously, to get the benefit of it. What we see in '24 is obviously that we -- current context, the inflation, the purchasing power of the final customers, we see some down trading. So down trading leading to mix being negative and not supporting this year. But again, after 3 years in row of a nice contribution. So this negative mix coming from this down trading. What is sure and this is what I said in my conclusion, that we know that premiumization is still a trend and it's still a social trend. So we are fully convinced 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 6 months, you're right. Vidrala embedded because now we are consolidating since July 1. 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 double-digit -- low double-digit EBITDA contribution in value. And when we are seeing comparable to '22, we are seeing comparable to '22. So it does not represent any material effect compared to the guidance being with or without Vidrala. For the consensus for '25. I mean, too early to call, too early to comment on that. Let's do the job in '24. 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 midterm guidance to give much more view of what we see next for the Verallia. So we'll come back on that. About the spread about the same. Do we answer to your question, Jean-Francois?

Yes, absolutely.

We will take our next question from Mengxian Sun from Deutsche Bank.

So 3 questions from my side. So the first one is just to confirm, your current assumption of slightly down in volume and the low teen price reduction. Is this including Argentina? And the second question is on the 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 flow. 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 is still possible?

Okay. So I will -- thank you for your questions. I will answer the first 2. So when we comment pricing excluding Argentinian effect. And so we take it out so that there is no disruption. 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 FX elements outside for that. Argentina is not such a big country in the group. So for the group, 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.

Okay. About the dividend. So to be clear, this is too early to speak about it. This will be a Board decision to be considered early '25. You know that our policy was not defined in a payout ratio to reduce volatility, and the dividend paid this year for more than EUR 250 million was not meant to be 1 shot. So yes, stable dividend is possible, but it will be the decision of the Board and to be decided beginning of next year, so let's see early '25. What is key for us is to deliver, is to do our job, and then the dividend will be a consequence of it.

[Operator Instructions] We will take our next question from Manuel Lorente from Santander.

Most of my question has 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 volume has been the -- now for 2 or 3 consecutive quarters. So my first question was are you thinking of changing something. I was thinking maybe to have [indiscernible] raw material hedging or your footprint maybe in Argentina, which is complicating the set of results. I don't know. Are you, at this point, thinking of any strategic shift to things that -- are you -- have you been considering now?

Thanks for your question. Just maybe -- and with all the respect, when I'm hearing 2 or 3 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 EUR 1 billion, but we upgraded it with H1 to be between EUR 1.1 billion and EUR 1.25 billion and that we indeed -- we deliver within, obviously within the low range and mainly coming from the activity addition. 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 and obviously, which is leading to something which is much more reachable, but Nathalie, I think, is doing the job explaining what is each time the impact of Argentina. About the strategic topic, obviously this is something we are reviewing on a regular basis. With our 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 introducing since COVID. So -- 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 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. Well, 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 '25 and beyond. The gradual recovery being confirmed, the better visibility to come with the destocking ending, meaning we will align with the end consumption. So we'll get additional volume. We'll get the fall-through 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 decarbonation run map is going to pay. Maybe today, by some of our stakeholders, it is seen as a kind of cherry 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 precedent to do business. So we see why we are very confident in the activity or easy activity, and we are facing it doing the job, adapting and delivering the good results.