Hello, and welcome to today's O-I Glass Q2 2022 earnings conference call. My name is Elliot, and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to hand over to Chris Manuel, Vice President of Investor Relations. The floor is yours. Please go ahead. Thank you, Elliot, and welcome everyone to O-I Glass Q2 2022 earnings call. Today, our discussion will be led by Andres Lopez, our CEO, and John Haudrich, our CFO. Today, we will discuss key business developments and review our financial results. Following prepared remarks, we'll host a Q&A session. Presentation materials for this call are available on the company's website. Please review the safe harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Now I'd like to turn the call over to Andres, who will start on slide three. Good morning, everyone. I appreciate your interest in O-I Glass. Last night, O-I announced a strong Q2 adjusted earnings of $0.73 per share, which exceeded prior year results as well as guidance. Performance improved across all business layers. As expected, glass shipments increased slightly compared to the prior year, and the benefit of higher selling prices continued to more than offset cost inflation. Likewise, solid operations, cost performance, and our margin expansion initiatives contributed to this strong quarter and helped offset elevated costs as we ramp up our expansion projects. As illustrated on the left, all key measures improved with adjusted EPS up about 35% from the prior year, and debt down significantly. In addition to a strong performance, we continue to advance our strategy. Our balance sheet is now in the best position since prior to a substantial investment to build out the Americas network between 2015 and 2019. This includes the acquisition of O-I Mexico and Nueva Fábrica Nacional de Vidrio, as well as the Andes-Bernal expansion in IBC and Comegua. Additionally, O-I recently announced the first U.S. MAGMA greenfield facility at Bowling Green, Kentucky, which should start mid-2024. Last, but certainly not least, the company has achieved a third and final resolution of Paddock's legacy asbestos liabilities and fully funded the Paddock trust as of July 18. O-I has passed an inflection point, and we are developing a track record of consistently delivering on our commitments. I'm proud of the team's agility and strong execution amid the backdrop of unprecedented macro volatility. In a little while, I'll review our revised capital expansion and MAGMA development plan, which has been adapted to better fit the current macro challenges while achieving our Investor Day goals. Finally, John will review our recent business performance, strengthening capital structure and improved outlook for 2022, and discuss how O-I is well-positioned to navigate the potential Russian natural gas curtailment in Europe. Let's move to page four as we review recent sales volume trends. Our shipments increased nearly 1% in the Q2, which comes on top of an 18% improvement in the prior year quarter. Volume was up nearly 1% in both the Americas and Europe, with the strongest demand in the Andean, Mexico and Southwest Europe. Year-to-date shipments were up 3%, about 5% in Europe, and 2% in the Americas. Market trends clearly favor glass, resulting in the strongest market fundamentals in over 20 years. Let me comment on a few of the longer-term secular trends. Across Latin America, a structural shift in demand is driving sustainable growth. Customers and consumers increasingly favor premium products, and our customers are localizing international brands that have been successfully imported to these markets for several years. Premiumization favors one-way glass containers, while consumer affordability and sustainability considerations are prompting greater use of returnable bottles. For example, glass now holds 50% market share in the Brazil beer category as both one-way and returnable glass gain share. As illustrated at the bottom of the page, we have improved our mix in North America by consistently shifting away from beer to other growth categories. In fact, U.S. mega beer only represents today around 15.15% of our North America business and 4% globally. In Europe, a large volume of glass historically imported from Russia and Ukraine is no longer available due to the recent conflict, which drives up demand for locally produced glass. Glass has demonstrated a strong performance across markets, both on-premise and off-premise over the last few years, redefining long-held assumptions about glass resilience through channel shifts. Finally, a strong demand is driving increased new product development in glass, which is up about 10% from pre-pandemic levels, according to Mintel data. Clearly, there are many important drivers for continued secular demand growth. We expect our full-year sales volume will be up around 1% in 2022 as healthy demand is tempered by record low inventories and capacity constraints across many markets. In fact, our volumes each quarter this year should exceed pre-pandemic levels. Improved production speed and efficiency can support modest sales volume growth for now. Long term, we have several expansion projects on their way that will add much needed capacity in 2023 and beyond. On top of strong performance, we continue to advance our transformation. Let's turn to page five. Our margins are up 130 basis points year to date, despite unprecedented cost inflation. In April, we successfully raised selling prices for the second time this year, and O-I should exceed its full year net price objective. Likewise, our margin expansion initiatives are off to a good start, and we have already exceeded our annual target. Amid the strongest glass fundamentals in over 20 years, we have revised and adapted our expansion and MAGMA development plans to better fit the macro challenges, to further strengthen profitable growth, and achieve our financial targets. I'll expand more on the next page. Our ESG and glass advocacy efforts are also progressing well. Nearly one-third of our electricity is now being supplied from renewable sources, a big step towards our goal of 40% renewables by 2030. Our glass advocacy digital marketing campaign remains in high gear, generating over 650 million digital impressions year to date, which supports our growing commercial pipeline. Our current portfolio optimization program should be completed by year-end, ahead of schedule. Finally, we achieve a fair and final resolution on legacy asbestos liabilities by mid-2022, as expected. Overall, we are making excellent progress on our key strategic objectives. Advancing to slide six. Last fall, we introduced our capital expansion plan to enable profitable growth over the next three years and our corresponding MAGMA development plan. Since then, unprecedented macro challenges have impacted these original plans. We are experiencing delays of six to 12 months as we contend with significant supply chain lags, cost inflation, labor availability issues, as well as COVID-related disruptions. As a result, our original plan no longer meets commercial requirements. O-I is responding to these macro challenges with agility. Today, we are introducing our revised capital expansion and MAGMA development plan, which we believe better meets today's business environment. Importantly, the revised expansion plan enables our 5%-6% organic volume growth target and sustains the 20% return on investment goal across our portfolio with lower total CapEx. We are planning on a wider range of smaller scale projects that reduce construction cost and complexity, broadens our market reach, and fit the timeline required to meet customers' expectations. In particular, the sky-high steel and cement prices and supply chain lags are hampering larger scale greenfield expansion, whether with legacy or early MAGMA generation technology. We have reduced the number of greenfield projects in favor of line extensions, adding lines to existing furnaces, reactivating idle furnaces and other similar efforts. The map shows the various projects included in our revised capital plan. There are no changes to the new capacity coming online in 2023. Likewise, initial MAGMA expansion plans will be focused in the U.S. to support the attractive spirits and O-I PS distribution business, starting with the recently announced MAGMA facility in Bowling Green, Kentucky. MAGMA development is proceeding well, yet progress is slower than originally anticipated due to the same macro challenges. We are focusing our R&D and engineering resources on two MAGMA greenfield lines in the U.S., rather than a larger number of sites based on early-generation MAGMA technology. This will help accelerate development of our Generation Three solution, which includes the full suite of MAGMA capabilities that are best positioned to address key market opportunities. We expect to complete development of our Generation Two solution by end of 2023 next year, which will be the basis of our new Bowling Green facility. Generation Three development should be completed in mid-2024, with the first site to follow in 2025. In summary, the revised plan meets today's business environment and supports our Investor Day financial and growth targets. Now I'll turn it over to John to review financial matters starting on page seven. Thanks, Andres, and good morning, everyone. O-I reported Q2 adjusted earnings of $0.73 per share, up $0.19 from the prior year. This strong improvement was fully attributed to very favorable net price realization and slightly higher sales volume. All other elements, FX, divestitures, corporate interest and taxes, et cetera, essentially netted to zero. Segment operating profit was $257 million, up from $232 million last year, as margins improved 60 basis points despite FX headwinds. Favorable net price increased segment operating profit by $42 million, as higher selling prices more than offset elevated cost inflation. At the same time, volume and mix added $6 million as shipments increased 0.6%. Finally, operating costs were comparable with the prior year. Segment operating profit improved significantly in both the Americas and Europe, despite unfavorable FX and dilution from recent divestitures. The Americas posted segment profit of $130 million, up $14 million from the prior year on an adjusted basis, reflecting modestly higher sales volumes and improved operating costs, while higher selling prices nearly offset elevated cost inflation. Given this situation, we are focused on adapting future contracts to improve this pass-through and margins, especially in North America. In Europe, segment operating profit was $127 million, up $33 million from the prior year on an adjusted basis. Earnings benefited from very favorable net price, while operating costs were higher due to elevated asset project activity and import costs. The chart provides additional details on non-operating items. Overall, Q2 results were exceptionally strong, reflecting favorable performance across all key business levers. Let's turn to page eight. As discussed, we continue to make very good progress on our key strategic objectives, including the financial priorities you see here. As shown on the bottom chart, our total financial leverage approximated 4x at the end of the Q2. In fact, leverage is at the lowest level since prior to substantial investment to build out the Americas network, including the acquisition of O-I Mexico in 2015. Likewise, leverage was down more than a turn since this time last year. Overall, we expect to end the year in the mid to high 3s, which is favorable to our 2022 objective. Let me outline our current capital allocation principles. Reflecting the best glass fundamentals in a generation, our top priority remains investing in expansion, ultimately enabled by MAGMA, which drives profitable top-line growth, higher margins, and greater cash flows. Continued balance sheet improvement is our next priority, which is tracking well. Finally, we will evaluate return of value to shareholders, which may be enhanced as our balance sheet position improves. In summary, our balance sheet is in the best position in years, and we are committed to the appropriate capital allocation for value creation. Let's discuss our business outlook. I'm now on page nine. Overall, our outlook has improved. Results for the H1 of the year exceeded our original expectation, and we have good momentum heading into the H2 of the year. We have provided our updated outlook for both the third and Q4, as well as full year. Keep in mind, we are observing unfavorable FX, dilution on recent divestitures, as well as incremental interest on funding the Paddock Trust. Together, these factors represent around a $0.20 headwind to earnings in the back half of the year. Furthermore, our network is capacity constrained, which will limit volume growth into the H2. However, the addition of new capacity early next year, along with improved productivity, will support 1%-2% growth in 2023. We expect Q3 adjusted results will approximate $0.55-$0.60 per share, which is comparable to the prior year. Yet this represents approximately a $0.05-$0.10 improvement in operating performance when adjusting for FX, divestitures, and Paddock. We anticipate continued favorable net price and stable or slightly higher shipment levels. Operating costs will likely be higher as we ramp up planned asset project activity, which will be partially mitigated by our margin expansion initiatives. We anticipate Q4 adjusted earnings will range between $0.20 and $0.30, which is down from the prior year, but potentially up around $0.05 when adjusting for FX, divestitures, and Paddock. Earnings will benefit from favorable net price. However, we expect sales volume will be down some as shipments grew 5.5% in the prior year quarter, and we now contend with low inventories and capacity constraints. Operating costs will likely be higher as we ramp up expansion projects, which will add new capacity in early 2023 to support growth. Looking at the full year, we are increasing our earnings and cash flow guidance. We now expect adjusted earnings will range between $2.05 and $2.20 per share, and free cash flow should exceed $175 million. Adjusted free cash flow should top $400 million, which is on the high end of historic performance levels, and future cash flow growth will be supported by our expansion investments. This outlook assumes $600 million of CapEx this year, which will be concentrated in the H2. Please note that ongoing supply chain challenges could impact project timing some. Of course, we continue to monitor macro trends, including potential recession signals, which may affect our business outlook. Overall, we are much better positioned to navigate a potential recession than in the past, given solid glass demand fundamentals. As we all know, there is a risk of Russian natural gas curtailments over the next several months in Europe, which could be disruptive. Let's turn to page 10 to further discuss this topic. Europe is preparing for potential Russian natural gas curtailments through this next winter. Countries are actively sourcing more gas from other locations, including the U.S. and Middle East, as well as ramping up alternative energy sources such as temporarily restarting idled coal-fired plants. In addition to these actions, the EU has established a plan to reduce NG usage by 15% to mitigate the brunt of potential Russia gas curtailments. Each member country will have a specific plan. Potential drivers include promotion of consumer behavior changes, government-imposed gas allocations, and safeguarding key industries. We have been tracking and evaluating this situation for some time and preparing our operations. Early in the year, we started to install energy switching capabilities and establish agile network optimization plans. To date, 20% of our capacity in EU is capable of running with oil, and we expect to have 50% covered by year-end. Likewise, we maintain best-in-class long-term energy contracts that protect against volatile spot market prices. Importantly, glass is often regarded as an essential product in many EU markets. For example, Italy and France, our largest markets, currently have taken positions that may protect the glass industry. At this time, it is unclear if meaningful issues will emerge. If this scenario does materialize, we are well positioned to manage the situation, which we believe represents only a slight potential risk to OI's 2022 business outlook. Now back to Andres. Thanks, John. We are very pleased with our Q2 results and the achievement of several key milestones on our transformation journey. O-I is managing well through macro volatility and margins have improved despite significant cost inflation. Likewise, we are executing our revised capital plan that is properly suited for today's business environment. We have increased our full year earnings and cash flow outlook, reflecting solid progress year to date and good momentum. This represents the ninth consecutive quarter O-I has either met or exceeded guidance, and we have consistently increased our full year outlook. In fact, our updated 2022 earnings outlook is approaching our 2024 target from last year's Investor Day. Overall, we are increasingly optimistic about our 2023 performance, provided no significant changes in business conditions. In conclusion, I believe O-I represents an attractive investment opportunity. We are successfully addressing many historical overhangs on the stock and materially improving our capital structure. Likewise, we are delivering on our commitments to generate profitable growth, execute on our plan, and advance breakthrough MAGMA technology. We are confident this strategy will continue to create value for our shareholders. Thank you, and we're ready to address your questions. Thank you. For our Q&A, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Today, we ask you to limit yourself to one question and one follow-up. Our first question comes from Ghansham Panjabi from Baird. Your line is open. Please go ahead. Thanks. Good morning, everybody. Good morning. Good morning. On the European exposure, you know, in slide 10 in your investor deck, with 34 plants there and, you know, obviously some are more exposed to Russian natural gas than others, how much flex capacity do you have in your system currently in Europe? I can't imagine it's too high, but just curious as to your ability to flex across your manufacturing footprint if there were some disruptions in countries such as, you know, for example, the Czech Republic. Yeah. Ghansham, the conversions of furnaces in 20% of our capacity that allow us to use oil already provides that flexibility. Every curtailment level that we have heard about is in the range of 15%. We already have capacity converted up to 20%. We expect to have up to 50% by year-end, and that is going to provide a very good protection for us to be able to have enough capacity to run without a problem to serve our demand. Now, it is important to consider that the largest markets in which we operate have been having the government officials very active, highlighting that most likely glass will be characterized as an essential industry. With that very large part of our footprint is protected. We know Germany and Czech have one of the largest challenges. Nevertheless, the situation for them is already improving because they're already implementing measures to reduce consumption to increase their reserves going into the winter. For example, Germany's stock at this point is at 70%, which is 2.5-three months of supply. Czech is 80%, which is close to five months of supply. Again, they're actively not only sourcing from different sources in this case, but they're already activating their communities for substantial savings. We're pretty optimistic that the risk here will be really minimized if a risk at all. Now the other country is Hungary, which the government has been focusing the priority on glass supply because there used to be supply coming out of Ukraine into Hungary, which is not available anymore for a country that has a very large agricultural industry. The focus is really on supply. The continuity of our operations over there, in our minds, is will be there. All in all, when we look at all this, even though we watch this very closely on a continuous basis, we feel very comfortable this risk is really low for us. Okay, that's great. In terms of the, you know, $47 million price cost segment variance for Europe, how do you think that evolves in the back half of this year? On North America, the $5 million decline, is that just a timing issue given the surge in natural gas prices? Yeah. Yeah. Gotcha. This is John. We believe that our you know, we believe that we'll have a long-term you know, net price favorable variance that includes the back half of the year. So, you know, we had about $0.16 favorable net price overall for the company in the Q2. We think that the levels in the third and Q4 would be very consistent with that. To your point, on the Americas being down $5 million, one thing I would point out is year to date, it is actually up $7 million, down $5 million in the Q2. You're right, it gets a little choppy because overall the Americas, in particular North America, has a higher proportion of long-term contracted businesses, have price adjustment formulas. We've been very working actively to push the inflation, you know, through pricing as quick as we can, but some of it is tied up in annual PAFs that we'll have to work through. Again, as we said in our prepared comments, we're actively working on the contract structures in the Americas because it does need to be more flexible. Yeah. In this case, for North America, any spread we're not really getting this year is gonna be a positive for 2023. Right. That's correct. Yeah. We do expect positive spread in 2023. Mm-hmm. Our next question comes from George Staphos from Bank of America. Your line is open. Hi, everyone. Good morning. Thanks for the details. You know, just some props here, too. Thanks again for just over the years making the deck clearer and really well outlined, at least in my view. Thanks very much for that. My question is around operations. When we think about MAGMA and the shift to the new plan relative to the old plan, how comfortable are you that the constraints on steel, the constraints on concrete, the lead times, all the stuff that we've been hearing about for the last year and a half in industry overall, not just from you all, makes you still comfortable about the new rollout of the technology and the new capacity expansion plan relative to where you were? What makes you comfortable that you won't be having to dial this back another, you know, year from now for these same issues? Relatedly, since there seems to be, and correct me if I'm wrong, a greater amount of sort of heritage technology relative to, I think you're gonna have only two new MAGMA lines in the U.S., what does that mean? What are the implications for ongoing reliability, glass quality, capital intensity? Because I thought MAGMA was in part around reducing the capital intensity footprint, and improving the quality of the glass over time. How does that all shake out? A quick follow-on. Okay. What we've done with this new plan is change what used to be greenfield projects, which are highly impacted by the conditions you mentioned, right? All the civil work that is required, cement, the steel and all of that, to projects that require much smaller infrastructure, right? From that perspective, we are lowering the risk of the whole plan significantly. Now, our focus on MAGMA increases because instead of implementing a larger number of lines, we're gonna focus on two lines that will allow us to test everything we wanted to test. By the way, we are already testing Gen two and Gen three capabilities in several places in our footprint. We will be able to test everything, and we'll be able to have the R&D team and the engineering team focus on those two projects, which will be located nearby, too. For all intents and purposes, we're gonna increase the efficiency of these teams working in these developments, which give us a lot of comfort. Now, we are placing all the orders well in advance for everything that is under pressure in the supply chain of today. With that, we think we are quite well covered. The whole redesign of the plan is taking into consideration, George, achieving what you're highlighting, which is providing enough time to be able to be successful and get there on time with the deployment in 2024 for this first line and 2025 for the second line for Gen three. Now, Gen three is the generation that has all the capabilities we've been describing for MAGMA. We are moving faster toward Gen three. When it comes to serving the markets, we are improving our position, and we're doing that by focusing. Now, our markets are quite healthy at this point in time. The demand is high. We cannot even serve the demand in multiple markets. Now it's extremely important to be able to bring capacity on time to satisfy the customer requirements. The kind of projects we're doing are gonna do that. The original plan, because of all the issues, will take too long, and we wouldn't be able to deliver on time. Now, capital intensity is one of the attributes of MAGMA. It will be there. We're taking all the actions to improve our value engineering and all that to be able to help offset some of those pressures. We expect that over time supply chains will improve, too. Andres, I get that, I guess, and I appreciate all the color there. Just correct me if I'm wrong. The fact that, you know, with the revised plan, you'll only have two MAGMA greenfield additions relative to what had been up to 11, and you have a lot of legacy and brownfield additions, you know, three, four years from now on an ongoing basis, let's assume everything goes as you expect. Will the new O-I, if you will, have a greater capital intensity than you would have otherwise had with the first plan? Why or why not? Then just a quickie because we've gotten some questions on this. Can you give us a bit more color in terms of why the volume is down in the Q4? Is it purely capacity constraints, or are there other weaknesses showing up in the business? Thank you, and good luck in the quarter. George, this is John. Just on the capital intensity comment, keep in mind that generation one and generation two, we're always gonna have kind of the legacy look of a large, you know, factory structure and things like that, right? The capital intensity of those were still relatively high, you know, a little lower than legacy, but still relatively high. It's generation three that allows you to get to that 40% lower capital intensity that we talked about during Investor Day, which we still see as the target. Keep in mind, everything that we were gonna do in the original plan over the next three years was either gonna be what we call generation one point five or generation two, still relatively high in the capital intensity environment. Now we're leapfrogging a lot of that activity, right? We're gonna be going to Generation three quicker. I don't think this overall changes our capital intensity picture by resequencing things much at all. Then on your later question on the Q4, that is all a comp issue. Okay. We were up 5.5% last year. Our production wasn't up 5.5%. We were serving that out of inventory. Of course, inventories now are at record lows. It's just a matter of capacity constraints, relatively low inventories and a tough comp in the Q4. Again, all that gets ultimately taken care of earlier part of the year when we bring new capacity online first in Colombia and then Canada. Just to complement that, our perspective on the MAGMA potential remains intact. The goals that we had in our plan we presented to you last year also remain intact. The good thing is the plan we put together can help us to achieve both. Our next question comes from Mike Roxland from Truist Securities. Your line is open. Please go ahead. Congrats, Andres, John, Chris, on a solid quarter, and outlook, and thanks for taking my questions. Thanks. You mentioned that you have a 20% flex capacity to oil. Does that switch come at a higher cost? What I'm trying to get at is you've done a very good job hedging natural gas effectively in Europe, but wondering if you've been able to similarly hedge on oil such that if you do make that switch, you are not gonna see a, you know, a skyrocket in your energy costs. Mike, we have, like I said, 20% flex capacity going to 50%. That capability will have your ability to run on oil, but it also has blending capabilities between gas and oil too. You know, you'll be able to not have to fully switch one way or the other. Now on the fuel oil, it is more expensive. It's not nearly as expensive as spot markets of natural gas are today, just to be clear on that. Of course, if we did incur that higher cost, we would obviously be looking to pass that on to the marketplace, just as we've done very successfully so far through the cycle. Got it. I appreciate that, John. Just one quick follow-up. One of your European competitors recently acknowledged that it has lost market share because of tight inventories, and also mentioned that other players have not been as aggressive on implementing price as it has been in the market. Can you just talk about any share you may have gained in Europe? That share gain, was it to do with price or other factors that were involved? Let me just give you one perspective on that. We've been measuring Net Promoter Score, NPS, for several years now. The improvement in that NPS, which means how the customers see us, has been material, and material is material. It is quite high in multiple customers. I think O-I is built today as a strategic partner, and customers come to us because of many reasons, one of them being that one. Now, inventories are tight in the system. They're tight for us too, but our planning processes have improved significantly. We have become a lot more effective and efficient working with lower inventories in terms of service. Yeah, I mean, and I would add on that is relative to the competitive environment question out there, obviously, every company is a little bit different, have a different book of business, different markets that they serve, things like that. You know, I'll tell you what we're trying to get done. We're trying to increase the top line, increase our prices, increase the volume of the business, increase our segment profits, increase our margins, and increase the profitability of the business. We accomplish all of those. Our next question comes from Anthony Pettinari from Citi. Your line is open. Good morning. You know, you've been active on divestitures, but I think you're still around $200 million away from the $1.5 billion target. Can you comment on sort of incremental opportunities remaining there? Is that maybe more likely to come through divestitures or, say, a leaseback? You know, broadly, does the strength that you're seeing in glass, you know, maybe has it caused you to maybe kind of reconsider divestitures potentially? Thanks. Yeah, sure. For clarity, we've completed about $1.3 billion of our $1.5 billion program. We have $200 million left. That's one final sales leaseback that we expect to accomplish here in the relatively near future. As we look to the opportunities going forward, you know, we've been fine-tuning our portfolio now for a couple years. That's followed after a period of, as we indicated, expanding in the Americas. Now we've been fine-tuning in our network, et cetera. I mean, I think we're at later stages in that. There's always opportunities that we will continue to evaluate, but we also need to understand, you know, the receptivity, the best marketplace to be able to get the best valuation for any divestitures that we have. As I said, you know, the market is really good. We're liking how our business is looking now. Of course, there's opportunities to fine-tune, but you know, we're more focused now on operating our company. Okay. That's very helpful. Just to follow up to Mike's question on the nat gas to oil switching potentially, you said it would come potentially at a higher cost, but you would look to recover those higher costs in the market with price increases. Is that higher cost, I mean, is that something that could potentially impact kind of the full-year outlook, or is that something that's really potentially just at the margin and, you know, you think that you have confidence that you can recover that within the year? Yeah, I think it's a marginal issue for the company right now. Even in our prepared comments, we said that we believe the situation represents fairly limited exposure. If you take a look at it, you know, the EU is trying to reduce their consumption by 15%. A good chunk of this could be done through behaviors. You're already seeing, you know, dictates in Germany, for example, of them cutting out, you know, no longer heating, you know, pools and asking people to reduce the temperatures in offices and homes and things like that. For example, I've heard one degree centigrade change in the heating of the facility actually reduces total consumption by about 6%. You know, the consumer behavior activities are a pretty big lever out there. You throw that in there with, we believe that will be well received by many markets about, you know, the nature of our product and the essential nature of glass. Overall, we think the net effect of allocations and all those items is relatively low. Then on those allocations, if you have to, you know, ultimately do some switching with oil and things like that, the exposure is relatively low, not to mention the ability to go back to the marketplace and pass it through. So that's kind of how we're looking at all the different pieces of the pie and hope that helps. Our next question comes from Kyle White from Deutsche Bank. Your line is open. Please go ahead. Hey, good morning. Thanks for taking the question. I was just curious if you guys are seeing any kind of consumer spending or behavior changes because of inflation that is potentially impacting demand for glass products, any kind of impact from price elasticity yet? Yeah. So far, we haven't seen any impact of a change in behavior in the consumer side on our demand. Now, it is important to highlight that our demand is driven by fundamentals and underlying drivers that are beyond what we can serve today. Just to give you an example, in the Andean markets in Brazil, there is localization of international and global brands. That is volume that is already in those markets that are being transferred to local production. When you put that together with the healthy demand of all end users in a market like that, plus other factors, we cannot serve those markets today. There are plenty of imports going into the market and others by us or even the customers or competitors, which provide a cushion for demand. Let's assume that consumer behavior changes in the future. The kind of cushion we have in those markets in Europe because of the displacement of more than 5% of the capacity because of the conflict that now got to be produced locally in Europe provides a cushion and protection for our demand. That's why we feel so comfortable about the balance of the year and even 2023. If the underlying demands, if the new capacity that is gonna come online that John mentioned can help us to have support substantial growth next year, but it's also our performance with the multi-year margin expansion initiatives and our positive perspective on the spread. All these things are coming together to help us expect a pretty good performance for the balance of the year and 2023. You know, one thing I would add is, we did go back and looked at what happened to the behavior and the performance of our business back in the Great Recession, 2008 and 2009. What we really found is a lot of those premium categories did fine. In fact, they're affordable luxuries and held up quite well. The one category that was under pressure was the U.S. mega beers, as we all know. As Andres indicated, that's down to 4% volume for the company right now. Yeah. In fact, we've managed our mix more to more attractive categories. So all in all, that would suggest, in addition to the very, very strong market fundamentals, that it's a different landscape. Yo u know, than maybe we've seen in the past. Even in the U.S. market, there is localization of international and global brands. Yeah. We are going through one of those localizations right now and into the H1 of the next year, which is going to help volumes in North America. No, that's very helpful. On your energy needs in Europe, are you able to say how much of your energy needs for next year is already secured and contracted out, or hedged, if you will, going into 2023? For competitive purposes, we don't throw out numbers in that regard. What I would say is we're very comfortable. We take a long-term, you know, structural approach to managing gas, energy overall. We've been doing that even before the pandemic. We're in good shape there. Again, what I would say is we're confident of having favorable spread again in 2023. Our next question comes from Mark Wilde from Bank of Montreal. Your line is open. Thanks. Good morning, good quarter, and it's good progress on the whole range of initiatives over the last few years. I wanna just chase down Kyle's question a little bit further, if I can. To what extent do you feel like you're benefiting at the moment in Europe from the fact that some of your peers are not as well hedged on gas as you are and really don't have any choice around raising prices? I know you need to be careful about this for competitive terms, but it does seem like it's a, you know, it's probably one element in the mix right now. I mean, I would say, you know, Mark, our sales volumes were up 5% or so in Europe in the H1 of the year. Again, they were up more like 0.6% or 0.5% or something like in the H2 of the year. This is not an environment where there's massive market share changes going on. I think the market overall was oversold. We've actually been supplementing a little bit with imports from Asia in that regard. I think at the end of the day, the ability to do massive movements in shares just isn't there given the supply-demand dynamics. John, right now at kind of current gas prices over in Europe, are you actually seeing capacity go out of the market 'cause there's just no margin for somebody who's not hedged at this point? Yes, Mark, we have seen that. Overall, we believe about 5% of capacity between Ukraine, you know, the Ukraine-Russia war and those marginal players, we believe that they've come offline about 5% in total. There are some smaller, you know, kind of niche players who have shuttered operations for the time being. Yeah. There were repairs that were to happen earlier in the year. Those repairs never happened, and those furnaces are down. That adds up to the shortage coming from Ukraine and Russia. Ukraine and Russia are up to one million-plus, obviously up close to 5%. All these other things are scattered in the whole footprint and add on top of it. We now move to Adam Josephson from KeyBanc Capital Markets. Your line is open. Please go ahead. Thanks, Andres. John, good morning. Good morning. John, one question on the price cost comments you made about next year that you're confident you'll be price cost positive next year, irrespective of what happens to nat gas, oil, et cetera. Implicit in that is that there wouldn't be severe demand destruction in Europe if everyone's jacking up prices substantially, I assume. Is that in fact what you're assuming that even if Europe goes into a major economic downturn, that glass demand is gonna hold up well? If so, why would you expect that? Well, first of all, I would say our projections are based upon some reasonable level of business normalcy. If you can't throw out the two or three sigma event type of a deal. At this point in time, going back to it, if we're seeing an environment where Europe is trying to plan around that 15% reduction in NG demand, again, in an environment where the net effect on our business is moderated because of behavior changes and things like that, we're seeing kind of a marginal change in the cost structure, you know, supply structure overall in the marketplace. You know, if there's some type of event over in Europe that we can't foresee right now that results in a different scenario, we can't project that right now. For the relevant range of outlooks for the business, we feel pretty comfortable about the ability to maintain positive spread going forward. Yeah. We continuously model several scenarios that includes all the drivers of demand up and down, and we include price elasticity. Right. When we put all that together, we see a very small risk of that demand being impacted in an important manner. Remember the fundamentals we described in the opening remarks and we highlighted in answering some of the questions are pretty strong, and they're not necessarily driven by GDP. They're actions that either customers or consumers are taking that are significantly larger than the glass supply can serve. All of that comes as a caution. We gotta go through all that first before we go into a negative. Right. We gotta model all that together. For example. Right. R eplacing the one million tons in Europe is a pretty challenging thing for the industry. It won't be around the corner. Right. I appreciate that. John, just can you back to the capital and MAGMA plan. You're talking about how capacity constrained you are and your inventories are at record lows, yet you're delaying these projects by, call it a year, and some of which you're attributing to cost inflation, some of which you're attributing to labor availability, supply chain problems. I mean, if it's just cost inflation, I would think you'd go ahead with the projects anyway, because if you can't keep up with demand, why not spend a little more money to get this capacity up in time? Can you help me just at a basic level understand what the primary reasons for these delays are, again, particularly given how supply constrained you're saying you are? First of all, this change allows us to bring smaller projects faster than we would have been otherwise able to do because it's the big greenfield complex projects that are delayed because of the availability of steel, labor availability, all the types of things that go into the big complex structure. Let me be clear that we're still gonna enable the growth that we originally planned, but we weren't gonna be able to do that if we were trying to do a handful of bigger greenfields that are just slowed because of all of these elements. To give you an example, if you're doing a big complex project and one, you know, major part is missing because it's delayed over in China or something along those lines, the whole project stops, right? I mean, you're just behind that bottleneck in that particular element. If you have a number of smaller scale projects, you're able to get those parts more, and there's less complexity about getting those in there, and you can actually get those to market faster. That's what we're dealing with here. We're not really dealing with changes in demand or the inability to do that. It's all associated with trying to deal with the bottlenecks that are hampering larger scale, more complex projects rather than smaller scale ones. Something that is quite positive is all the projects that support the incremental capacity for 2023 are in good course, in very good course. Okay. Yes, got you. Does got you. Does that make sense, Adam? Our next question comes from Gabe Hajde from Wells Fargo. Your line is open. Please go ahead. Andres, John, Chris, good morning. Thanks for taking the question. Good morning. I was curious, one of your competitors last week had talked about kind of initiating a portfolio review or potential restructuring of their North American. I feel like I heard multiple times kind of being displeased with the price environment. Bit of a head scratcher, I think for me, given it's a pretty well-consolidated market. Two-part question. One is, you know, do you kind of feel like as you look across your business that there's a similar level of mispricing? I mean, I kind of feel like based on results to date, the answer is no. If there is, you know, do you see potential, I mean, for potential improvement going forward on kind of repricing of business? Yeah. We started about six years ago to diversify away from mega beer. That implies not only accessing and increasing our position in growing categories like food, spirits, NABs and premium beer, but changing the footprint. We've been doing that consistently. Every year, we've been investing in our footprint to change it, to be able to go to those categories. Now, as we do that, we've been updating that footprint too. We've been doing that consistently. Now, with regards to commercial conditions, we're actively working on that. We've been working on that through the entire year, obviously, with so many changes that are happening today, and we'll continue to do so going into the following year. We've been quite proactive with this market that has had some change. That is implying, for example, that today, mega beer is only 15% share of this market. It is about half what it used to be. This North America market for us is not so indexed to that anymore. In fact, there are these growth categories that are performing quite well, including premium beer, for which we are seeing a very good growth. Okay. Then I guess maybe this is a too simplistic way to look at it, but I think kind of on a year-to-date basis, you're kind of positive, I wanna say +60 on price cost. You talked about similar to what John for the H2. I mean, should we kind of just extrapolate that out? Just because you kind of teased us with it, you know, looking out into next year, can you give us a preliminary view on, you know, if we freeze input costs as they are today, appreciating obviously Europe is volatile, would you expect something similar, lower or next year? Any kind of view into startup costs, 'cause it looks like a lot of this project activity is gonna be ramping up next year. I think Colombia was delayed by maybe six months or so. Just maybe an order of magnitude on what you expect kind of startup costs and rebuild activity like. Yeah, sure. Okay, let me unpack a few of those elements in there. First of all, on the net price realization, don't extrapolate the H1 to the second here. You know, use the Q2 and continue that for each of the quarters because we were in ramp-up mode with price. You know, we've had two price increases over the course of the H1. I think the Q2 is a better illustration of the run rate that we would expect to have in both the third and Q4, which obviously is a little bit more than just annualization of the H1 of the year. Then 2023, you know, I can't be too specific on dollar amounts, nor should we at this particular point in time. Overall, we think, just looking at the year that, you know, you're looking at 1%-2% volume growth as we included in our prepared comments. We anticipate positive spread, not in a position to quantify that just yet. We expect continued margin expansion initiatives, continuing on as we've been able to quite successfully achieve. The one thing that we have out there to your comment is we have more asset enablement costs. A lot of the startup costs, there's maintenance and engineering and labor costs and everything that go on the front end of that. If we take a look at that this year, there's probably something to the tune of $35-$40 million, probably call it, you know, $0.15-$0.20 worth of elevated costs that we're incurring as we ramp up these particular types of projects. Now, you know, next year is gonna be another robust year of activity for these projects and things like that. I don't see that going down. Maybe it goes up marginally. But, you know, obviously, we've taken a big step up in that in this particular year and including the H2 of the year when we have peak activity. Hopefully, that provides you the information you're looking for. Our next question comes from Jay Mayers from Goldman Sachs. Your line is open. Please go ahead. Good morning, everybody. Thank you for the time this morning and all the details in the slide deck. I had a quick kind of follow-up on the last question about the North American market. I was wondering if you could just kind of talk about some of the, you know, premium demand drivers. You know, to the extent that we do see, you know, the competitor that was mentioned kind of try to shift its mix more towards the premium products that you guys have seen driving demand growth there. Like, how do you feel about the kind of current demand situation that is out there to the extent you see kind of increased competition from, you know, a large competitor in the market? Yeah, I think the growth of the premium beer is quite important. The growth of the imported and global brands is very important too. It is important to highlight that what has been produced abroad is being localized in the United States, which provides a volume opportunity. We're seeing that obviously impacting our numbers. Our focus on diversifying away from mega beer is past six years now. This is a process that takes time, and we've been consistently every year working on that. We also have OIPS, which is the distribution business, which we continue to develop. That's very important because that business adds up to 2.3 million tons that are all imported. Through OIPS and matching that with MAGMA, we will have a very good access to that market that is quite a premium market. By the way, the Kentucky first line is gonna be serving OIPS volume as well as spirits, which is also a premium market. We've been working actively on this for years now, and we feel we're making good progress. There is a lot to be done still, and we'll continue to focus on that. Got it. Thank you. John, just a quick housekeeping item for you. In terms of the Paddock funding, so was the cash actually, you know, moved to the Paddock Trust this quarter? If so, does that also imply that you guys drew down on the delayed draw? Yes, on both accounts. On July 18th, we fully funded the Paddock Trust with $610 million. You know, $600 million of that came from the delayed draw. We pulled on that. That's where we stand right now. We have no further questions. I'm gonna hand back to Chris Manuel, Vice President of Investor Relations, for final remarks. Thank you, everyone. That concludes our earnings call. Please note our Q3 call is currently scheduled for November second. As a reminder, make it a memorable moment by choosing safe, sustainable glass. Thank you. Today's call is now concluded. We'd like to thank you for your participation. Thank you. You may now disconnect your line.