Hello and welcome to today's O-I Glass Second Quarter 2022 Earnings Conference Call. My name is Elliot and I will be coordinating your call today. [Operator Instructions] 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 second quarter 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 of 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 second quarter adjusted earnings of $0.73 per share which exceeded prior year results as well as guidance. Performance improved across all business levers. 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 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 Fanal as well as JV expansion in IBC and Comegua. Additionally, O-I recently announced the first US 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 Legacy asbestos liabilities and fully funded the Paddock Trust as of July 2018. 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, the strengthening capital structure, and improved outlook for 2022 and…

Thanks, Andres and good morning, everyone. O-I reported second quarter 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 and 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 cost, 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, second quarter results were exceptionally strong reflecting favorable performance across all key business levers. Let's turn to page 8. 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 four times at the end…

Thanks, John. We are very pleased with our second quarter results and the achievement of several key milestones on our transformation journey. O-I is managing well through market 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 historic overhangs on the stock and material improving our capital structure. Likewise, we are delivering on our commitments to generate profitable growth, execute on our plan and advanced 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. [Operator Instructions] Our first question comes from Ghansham Panjabi from Baird. Your line is open. Please go ahead.

Thanks good morning, everybody

Good morning.

Good morning.

So on the European exposure and Slide 10, in your investor deck, with 34 plants there and obviously some are more exposed to Russian natural gas and others, how much flex capacity do you have in your system at current 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 for example, the Czech Republic.

Yes. 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. So with that, 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 to three months of supply. Czech, is 80% which is close to five months of supply. But again, they're actively not only sourcing from different sources in this case, but they're already activating their communities for substantial savings. So 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. So, the focus is really on supply. So the continuity of our operations over there, in our minds is -- will be there. So 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. And then in terms of the $47 million price cost, segment variance for Europe. How do you think that evolves in the back half of this year? And then on North America, the $5 million decline is that just a timing issue, given the surge in natural gas prices?

Yes, Ghansham, this is John. We believe that our -- we believe that we'll have a long-term net price favorable variance. That includes the back half of the year. So we had about $0.16 favorable net price overall for the company. And the second quarter, we think that the levels in the third and fourth quarter would be very consistent with that. And to your point, on the Americas being down $5 million, one thing I would point is, year-to-date it is actually up $7 million down $5 million in the second quarter. And 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. So we've been very working actively to push the inflation, through pricing as quick as we can, but some of it is tied up in annual PAF, that we'll have to work through. But again, as we said in our prepared comments, we're actively working on the contract structures in the America because it does need to be more flexible.

Yes. And in this case for North America, any spread would not really getting this year is going to be a positive for 2023.

Yes. And we do expect positive spread in 2023.

Our next question comes from George Staphos from Bank of America. Your line is open.

Hi, everyone. Good morning. Thanks for the details. And 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. So, 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 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 your comfort that you won't be having to dial this back another 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 going to have only two new MAGMA lines in the US, 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, so how does that all shake out? And then a quick follow-on.

Okay. So the – what we've done with this new plan is changed what used to be greenfield projects, which are highly impacted by the conditions you mentioned, right the – all the civil work that is required cement steel and all of that to projects that are required much smaller infrastructure, right? So line extensions, line additions bringing back the existing capacity that is down. So from that perspective we are lowering the risk of the whole plant significantly. Now our focus on MAGMA increases because instead of being implementing a larger number of lines, we're going to focus on two lines that will allow us to test everything we wanted to test. By the way, we are already testing Gen 2 and Gen 3 capabilities in several places in our footprint. So 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. So for our purposes, we're going to 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. So with that we think we are quite well covered. So the whole redesign of the plan is taking in 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 3. Now Gen 3 is the generation that has all the capabilities we've been describing for MAGMA. We are moving faster towards the entry. So 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 going to 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. So we're taking all the actions to improve our value engineering and all that to be able to help offset some of those pressures. And we expect that over time the supply chains will improve too.

Understand. I get that. I guess – and I appreciate all the color there. Just correct me, if I'm wrong the fact that with the revised plan you'll only have two MAGMA greenfield additions relative to what had been up to a 11 and you have a lot of legacy and Brownfield Additions. 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? And then just a quickie because we've got some questions on this. Can you give us a bit more color in terms of why the volume is down in the fourth quarter? Is it purely capacity constraints, or are there other weaknesses showing up in the business? Thank you and good luck on the quarter.

George, this is John. Just on the capital intensity comment. Keep in mind that Generation 1 and Generation 2 were always going to have kind of the legacy look of a large factory structure and things like that, right? So the capital intensity of those were still relatively high, a little lower than legacy, but still relatively high. It's Generation 3 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. And keep in mind everything that we were going to do in the original plan over the next three years was either going to be what we call Generation 1.5 or Generation 2, still relatively high in the capital intensity environment. Now, we're leapfrogging a lot of that activity, right? We're going to be going to Generation 3 quicker. So I don't think, this overall changes our capital intensity picture by resequencing things much at all. And then on your later question, on the fourth quarter, 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 fourth quarter. But again, all that just ultimately taken care of earlier part of the year, when we bring new capacity online first in Colombia and then Canada.

And just to complement that the -- our perspective on the MAGMA potential remains intact. And the goals that we had in our plan, we presented to you last year, also remain intact. And 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 solid quarter and outlook. And thanks for taking my questions. So you mentioned that you have the 20% flex capacity to oil. Does that switch come at a higher cost? And I want to try to get it as -- 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, we're not going to see a skyrocket in your energy costs.

Yes. So, yes 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. So, you'll be able to not have to fully switch one way or the over -- 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. And 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. And then 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? And that -- was that because -- that share gain was it due to price or other factors that were above?

Let me just give you one perspective on that. The -- we've been measuring Net Promoter Score, NPS for several years now. And the improvement in that NPS which means, how the customers see us has been material. And material is material. And it is quite high in multiple customers. So, 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. So, we have become a lot more effective and efficient working with lower inventories in terms of service.

Yes. 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. But I'll tell you what we're trying to get done. We're trying to increase the topline, increase our prices, increase the volume of the business, increase our segment profits, increase our margins, and increase the profitability of the business. We accomplished all of those.

Our next question comes from Anthony Pettinari from Citi. Your line is open.

Hi, good morning. On the -- 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? And is that maybe more likely to come through divestitures or sale leaseback, or -- and then just broadly does the strength that you're seeing in glass maybe -- has it caused you to maybe kind of reconsider divestitures potentially? Thanks.

Yes sure. So, 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, we've been fine-tuning our portfolio now for a couple of years, that's filed after a period of as we indicated expanding in the Americas. Now we've been fine-tuning our network etcetera. 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 the receptivity the best marketplace to be able to get the best valuation for any divestitures that we have. But as I said the market is really good. We're liking how our business is looking now. Of course, there's opportunities to fine-tune but we're more focused now on operating our company.

Okay. That's very helpful. And then just a 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 think that you have confidence that you can recover that within the year?

Yes. 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 the EU is trying to reduce their consumption by 15%. A good chunk of this could be done through behaviors. You're already seeing, dictates in Germany for example -- them [ph] cutting out no longer heating 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%. So, the consumer behavior activities are a pretty big lever out there. You throw that with -- in there what we believe that will be well received by many markets about 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. And then on those allocations, if you have to 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'm 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?

Yes. 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. So 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 got to be 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. And there are plenty of imports going into that market and others don't buy us or even the customers or competitors which provide a cushion for demand. So, 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 are going to be produced locally in Europe, provides a cushion of protection for our demand. So that's why we feel so comfortable about the balance of the year. And even 2023, it's the underlying demand. It's the new capacity that is going to 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. So all these things are coming together to help us expect a pretty good performance for the balance of the year and 2023.

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 in 2008 and 2009 and what we really found is a lot of those premium categories did fine. And in fact, they're affordable luxuries and held up quite well. The one category that was under pressure was the US mega-beers. As we all know and as Andres indicated that's down to 4% volume for the company right now. And in fact, we've mixed managed ourselves more to more attractive categories. And so all in all, that would suggest in addition to the very strong market fundamentals that it's a different landscape than maybe we've seen in the past.

Even in the US market there is localization of international and global brands. And we are going through one of those localizations right now and into the first half of the next year, which is going to help volumes in North America.

That's very helpful. And then 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 or hedged if you will going into 2023?

For competitive purposes, we don't throw out numbers in that regard. But what I would say is we're very comfortable. We take a long-term structural approach to managing gas energy overall. We've been doing that even before the pandemic. So 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 good progress on the whole range of initiatives over the last few years. I wanted to 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 and 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 probably one element in the mix right now?

I mean I would say Mark our sales volumes were up 5% or so in Europe in the first half of the year. And again, they were up more like 0.6% or 0.5% or something like that in the second half 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. But I think at the end of the day, the ability to do massive movements in share 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 because there's just -- there's no margin for somebody who's not hedged at this point?

Yeah, Mark. We have seen that. And overall, we believe about 5% of capacity between the Ukraine and Russia war and those marginal players, we believe that they've come offline about 5% in total. So there are some smaller kind of niche players who have shared operations for the time being.

Yeah. And there was -- there were repairs that were to happen earlier in the year. Those repairs never happened and those furnaces are down. So that adds up to the shortage coming from Ukraine and Russia. So Ukraine and Russia add up to one million plus. Obviously, close to 5%. And 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.

Hey, Andres and John, good morning.

Good morning, Adam.

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 is tracking 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 going to hold up well? And 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, you can't throw out the two or three Sigma event type of a deal. But at this point in time going back to it is if we're seeing an environment where the -- 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 a marginal change in the cost structure, supply structure overall in the marketplace. 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. But for the relevant range of outlook for the business, we feel pretty comfortable about the ability to maintain positive spread going forward.

Yeah. And we continuously model several scenarios that includes all the drivers of demand up and down, and we include price elasticity. And when we put all that together, we see a very small risk of that demand been 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 are actions that either customers or consumers are taking that are significantly larger than the glass supply can serve. And all of that comes as a caution. We've got to go through all that first before we go into a negative. And so we got to model all that together. And, for example, replacing 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. And John just can you -- back to the capital and MAGMA plan. So 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 what 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. So 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?

Yeah. So first of all, we are -- 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 the availability of steel, labor availability, all the type of things that go in with a big complex structure. So let me be clear that we're still going to enable the growth that we originally planned, but we weren't going to 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 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. But if you have a number of smaller scale projects, you're able to get those parts more and there's less complexity by 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, a very good course.

Does that makes sense, Adam?

Yeah.

Our next question comes from Gabe Hajde from Wells Fargo. Your line is open. Please go ahead.

Hi, Andres. John, Chris, good morning. Thanks for taking the question.

Good morning.

I was curious if you can -- one of your competitors last week had talked about initiating a portfolio review or potential restructuring of their North American -- and I feel like I heard multiple times, kind of, being displeased with the price environment. It's bit of a head scratcher, I think, for me given it's a pretty well consolidated market. So a two-part question. One, is do you 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 was? And if there is, do you see potential? I mean I know you kind of alluded to it, but for potential improvement going forward on kind of repricing of business.

Yeah. So the -- we started about six years ago to diversify away from mega beer. And that implies, not only accessing or increase our position in growing categories like food, spirits, NABs and premium beer by changing the footprint. And 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. And so we've been doing that consistently. Now with regards to commercial conditions, we're actively working on that. And we've been working on that through in third year obviously with so many changes that are happening today. And we'll continue to do so going to the following year. So 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% 1-5 share of this market. It's about half what it used to be. So 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. And 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 want to say plus 60 on price cost. You talked about similar things John for the second half. So I mean, should we kind of just extrapolate that out. And then, just because you kind of teased us with it, looking out into next year, can you give us a preliminary view on if we freeze input cost as they are today appreciating obviously Europe is volatile would you expect something similar lower or more [ph] next year? And then, any kind of view into start-up costs? Because it looks like a lot of this project activity is going to be ramping up next year, I think Colombia was delayed by maybe six months or so. So just maybe an order of magnitude on what you expect kind of start-up costs and rebuild activity would be like.

Yeah. Sure. Okay. Let me unpack a few of those elements in there. So first-of-all, on the net price realization, don't extrapolate the first half to the second here, use the second quarter and continue that for each of the quarters. Because we were in ramp-up mode with price we had two price increases over the course of the first half. So I think the second quarter is a better illustration of the run rate that we would expect to have in both the third and fourth quarter which obviously is a little bit more than just annualization of the first half of the year. And then 2023, I can't be too specific on dollar amounts nor should we at this particular point in time. But overall we think just looking at the year you're looking at 1% to 2% kind of volume growth. As we included in our prepared comments, we do anticipate positive spread not in a position to quantify that just yet. And we expect continued margin expansion initiatives continuing on as we've been able to quite successfully achieve. So the one thing that we do have out there to your comment is we do have more asset enablement costs, a lot of the start-up 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 in the tune of $35 million to $40 million probably call it $0.15 to $0.20 worth of elevated costs that we're incurring as we ramp up these particular types of projects. Now, next year is going to be another robust year of activity for these projects and things like that so I don't see that going down. Maybe it goes up marginally. But obviously we've taken a big step up in that in this particular year and including the second half 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 premium demand drivers. And to the extent that we do see 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 a large competitor in the market?

Yes. I think the growth of the premium beer is quite important. And the growth of the imported and global brands is very important too. And it is important to highlight that what has been produced abroad has been localized in the United States, which provide a volume opportunity, and we're seeing that obviously impacting our numbers. Our focus on diversifying away from mega beer past six years now. So this is a process that takes time and we've been consistently every year working on that. But we also has OIPS, which is the distribution business, which we continue to develop. And that's very important, because that business has -- adds up to 2.3 million tons that are all imported. And through this and matching that -- 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 going to be serving OIPS, OIPS volume as well as spirits, which is also a premium market. So we've been working actively on this for years now. And we feel we're making good progress. And there is a lot to be done still and we'll continue to focus on that.

Got it. Thank you. And then John just a quick housekeeping item for you. In terms of the Paddock funding, so was the cash actually moved to the Paddock Trust this quarter? And if so does that also imply that you guys drew down on the delayed draw?

Yes, on both accounts. On July 18, we fully funded the Paddock Trust with $610 million. The $600 million of that came from the delayed draw, so we pulled on that. And so that's where we stand right now.

We have no further questions. I'll now hand back to Chris Manuel, Vice President of Investor Relations for final remarks.

Thank you everyone. That concludes our earnings call. Please note our third quarter call is currently scheduled for November 2. And as a reminder, make it a memorable moment by choosing safe sustainable glass. Thank you.

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.