Hello, welcome to the Verallia H1 2021 financial results analyst call. My name is Judy, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions later on in the call. If you require assistance at any time, please press star zero and you'll be connected to an operator. I would now like to hand you over to the Chairman and CEO, Michel Giannuzzi, and Nathalie Delbreuve, CFO, to begin today's conference. Thank you.
Thank you very much, and good morning, everyone. Thank you very much for attending this call. I hope you and your relatives are in good health and not suffering too much from the COVID. We will go together with Nathalie through the H1 results, and we'll start first of all by reminding everyone about the company profile. As you know, Verallia is the leader in Europe in glass packaging industry. Europe, which is for us the great Europe, encompassing EU plus Ukraine and Russia, represented last year 19% of Verallia sales. We are number two in Latin America, where we are present in three countries, Brazil, Chile, and Argentina. In last year, Latin America represented 10% of our sales. We are the third largest company in the glass packaging industry.
As you can see on the left-hand side, we have a very diversified end market reach, where we can address all the segments of the market with a strong presence in the wine segment based on our historical presence in the three largest wine-producing countries in the world, namely Italy, France, and Spain. We address it more or less in a balanced way, all the other segments of the market. Now, Verallia is made of 32 glass-producing plants, with in total 58 furnaces to produce glass packaging. We also have three decoration plants that provide additional services to our customers. We are also treating about half of the cullet is the name of the used glass that we use internally, and therefore we have nine factories that are working exclusively for us in order to treat the cullet that we reintroduce in our furnaces to make glass again.
In total, we employ around 10,000 employees in 11 different countries. We make every year about 16 billion bottles and jars. Moving to the financial highlights of the semester. First of all, I think it's interesting to note that the capital structure has evolved quite a lot since December. As you have noticed, there has been two blocks of shares traded on the market based on the sell-down of Apollo, which today means that Apollo owns 16.3% of the capital of the company. At the same time, we've seen our Brazilian investor, BWGI, increasing their share progressively and slightly up to 26.6% at the end of the semester. The most important, I think, highlight of the semester was the fact that, as we mentioned before, we have bought back some shares at two times during the semester.
In total, we bought back EUR 109 million worth of shares. Some of these shares, 1.6 million of the shares that we bought back, have been canceled in order to avoid any dilutive effect due to the employee ownership program that we've implemented last year and this year. We have kept 1.7% of the treasury shares in the balance sheet. Today, the Verallia shares capital is divided into 122,289,183 ordinary shares. The other important financial event of the semester was the launch of an inaugural sustainability-linked bond. This was the first issuance of a bond by Verallia since we are listed as a listed company. It was clearly oversubscribed. We had four times more requests than the EUR 500 million that it finally committed to issue. We were the first issuer of a sustainability-linked bond in Europe in the glass packaging industry.
We benefited from very attractive financing conditions with a coupon of 1.6%- 5% per annum. This has provided us not only a diversification of our forms of financing, but also it has provided us a greater and extended maturity because it's a seven-year bond that we've raised in May. I think we have been very much supported, and we received a lot of interest from the bond investors on the two KPIs that are ESG related that we have taken to measure the sustainability approach of Verallia. One of them is the reduction of the CO2 emissions, which is in line with the presentation we made in January regarding our long-term commitment to reach the 27.5% CO2 emissions reduction by 2030, in line with the COP 21 agreement.
Therefore, for this specific bond, the objective is to reduce by 15% against 2019 our CO2 emissions by 2025. The second KPI that we took was to increase the external cullet usage rate, and to increase it by 10 points versus 2019, again, reaching 59% by 2025. This has been considered by Vigeo Eiris, which is the independent or third-party opinion that looked at this bond as very relevant and of a higher ambition, which allowed Verallia to reach the highest rating provided by Vigeo during this issuance. The team here is very proud about what has been achieved, and it's again, a strong commitment, not only on the financial benefits of this bond, but also of the commitment of the company in its move and ambition to reduce CO2 emissions. Moving to another completely different topic, one of the very strong capabilities of Verallia is design.
Just as for information, since 2009, we are organizing in the main Verallia countries some design contests with students. This year we had more than 500 students in France, Italy, Spain, and Ukraine, and we provide a theme of the year. This year the theme was glass in solo format, and based on this theme, we receive a lot of interesting design ideas and design products that sometimes end up in a commercialization because they are very much liked by some of our customers. We've had very interesting successes in the past with this contest being the most interesting products and have been selected by our customers to be commercialized. Every year, we also have on the design side what we call a style book, which is trying to anticipate the trends for the following year.
This is our premium product line, which we call Selective Line, that is benefiting of this trend book. This again, has been updated and put online on our website very recently, and you can see all the beautiful products that we can provide to the customers, as well as the new trends for the next year. This is all for the design. Let's move again to environment, where Verallia has joined the Ambition 4 Climate initiative, launched by AFEP. AFEP is The French Association of Private Enterprises. The idea is to really put together all the good examples of what companies in France are doing to reduce the global warming at the global level. We've submitted three low carbon projects on the platform, the Ambition 4 Climate platform. One of them is about the improvement on non-melting energy.
The second one is about the ability to demix white cullet in order to improve the share of white cullet in the flint glass production. The third project is about the project that is ongoing with the installation of photovoltaic panels on our Portugal site of Mondego. These were again, some good examples of what Verallia is doing to reduce its CO2 emissions. Last but not least, on the social and community side, we have, as we speak, partnered with Bpifrance on their Big Tour. This is the second year in a row that we participate to this Big Tour. The purpose of this is really to get consumers, citizens know more about the glass industry, about Verallia, and also promote, of course, the recycling habits at a very large scale.
This Big Tour is organized in 24 different cities from July 16th to August 20th by Bpifrance. We also promote during this tour the knowhow and the innovation and the French industry and technology. We have a stand there where we meet hundreds or thousands even of, I would say, visitors, where we educate them about the quality of glass and the importance of recycling. The goal is really to raise awareness and to involve local communities in the challenges of the circular economy. Last but not least, we have a few jobs to propose to those people that will be interesting to join us in our industry. These are the most interesting, I think, highlights of the semester. Let's move to the financial results.
As you've seen from the numbers, this is a very robust performance in the first semester with a very strong Q2, where you can see that the revenues were up 4.2% for the semester. It was even a 7.7% organic growth for the semester. Q2 shows a very strong after Q1, as you remember, that was a bit soft. We mentioned a soft start for the year. Q2 was extremely strong with 14.8% growth in Q2 and a 17.6% organic growth in Q2. This is, as we said before, the results of the progressive reopening of hotels, café, and restaurants, mainly. By the way, we are clearly sold out, and our factories are producing as much as they can. Everything they can produce is today being sold, given the strong demand that we have on the market.
On the profitability side, our adjusted EBITDA increased also very significantly, 15.4% compared to H1 last year, and 20.8% organically to reach EUR 345 million, which means an adjusted EBITDA margin of 26% compared to 23.4% last year. Very nice results that we are very proud to comment to you today. Indeed, the net income jumped significantly from EUR 79 million last year to EUR 133 million, and it's even EUR 155 million if we exclude the PPA impact due to the acquisitions of the company from Saint-Gobain, which is the amortization, basically, of the customer relationships that was, I would say, booked at the time of the acquisition.
Despite the strong share buybacks that we made during the semester, the very strong cash flow allowed us to keep reducing the leverage of the company, and we ended up the semester with a leverage of 1.9x adjusted EBITDA for the last 12 months, against 2.1 at the end of March this year. Altogether, these very strong results give us the confidence that we can improve our guidance for the year, and we are going to revise, if you want, upward, the 2021 adjusted EBITDA guidance, and I will comment it in a few minutes. Before we move to the guidance upgrade, which I'm sure you look for hearing from us, I will hand over to Nathalie, who is going to explain to you the strong results of the semester.
Thank you very much, Michel, and good morning to all of you. Indeed, let's go and look at the sales at the top line, where you can see that we enjoy a strong organic growth in the first half with +7.7%. Now, as Michel commented, you know that we had a slow start in Q1 in the year in terms of volumes. We had a negative organic growth in the first quarter. The second quarter is showing +17.6%, a strong rebound, directly linked to the gradual reopening of the on-trade channel. The sales have been strong on all product categories, except for food jars. That is a category that benefited last year from the first lockdowns in the second quarter. Food jars volumes are more back to pre-COVID and 2019 levels in our portfolio.
The spirits rebounded sharply, thanks to exports to Asia and U.S. pickup in the second quarter. The sales price increases, as already commented, are pretty moderate. This is exactly as planned. One important point in the first half, and even stronger in the second quarter, is that we enjoyed an excellent product mix at a group level. Now, the last pillar is impact on exchange rates. That is negative for us, mainly from Latin America. If we look now per regions and move to South and West Europe, you can see that the sales recovered well and organic growth is positive at +5.5%. The growth is in all the countries and all the product categories with the comments I already made on food jars.
In South and West Europe, we can really see the spirits back and recruiting quite strong in the first semester. The growth is also there in wine and beer, and sparkling wines benefited from Italy increase, and especially on Prosecco. In South and West Europe, price contribution is pretty natural. Moving to Northern and Eastern Europe, here you can see negative organic growth. Some comment here, we mainly had a fall in volume in Q1, so the impact is mainly in the first quarter. We've seen an improvement in the second quarter with volume improving across all product categories. To recall that one year ago, Northern and Eastern Europe had been hit very differently from the COVID and was the only region in our group with still a positive growth in sales.
The comparison with H1 is a bit more difficult for Northern and Eastern Europe. The sales prices are overall stable, and the foreign exchange impact is negative due to Ukraine and Russia. If we move to Latin America, you can see very strong organic growth. We had some additional capacities, as you know, in 2020 that we fully benefit from in 2021. The market is really strong in all the countries and in all the categories with, again, the same comment on food jars. As Michel said, and especially in this country, are fully sold out and the market is pulling really hard. Now, increase in selling prices are still there. We compensate inflation and hyperinflation in Argentina. We still have this effect always in Latin America to maintain a positive spread. The impact on forex is negative.
Despite this impact, even with the impact, the increase in sales is there. How does this translate to adjusted EBITDA and in margin? You can see that we moved from EUR 299 million up to EUR 345 million. More than that, we improved significantly the adjusted EBITDA margin percentage, moving up from 23.4% to 26%. The activity pillar is slightly negative. It was, if you remember, pretty negative in the first quarter. We have also still the stocking effect in our EBITDA as we had five furnace repairs in the first half of this year, compared to much less in last year. We have the strong sales. Again, we are sold out, and we sell everything we produce in the second quarter. The spread contribution is especially strong.
Here, we benefit from EUR 45.4 million in our EBITDA. The mix impact has increased in this second quarter and is strong compared to last year. The PAP is contributing significantly, too, to the good performance of this first half year, with a net productivity of EUR 21.3 million, and that is 2.7% of production cash cost. You know that this pillar is especially important as it is purely our internal work contributing to improving our EBITDA. Exchange rates impact continues to be negative with a minus EUR 16 million, and the other pillar is very low with plus and minus. If we look at the regions now, South and West Europe, we've seen an improvement in the EBITDA margin, moving up from 22.2%- 25%. The spread on sales is positive.
In this region, especially, we benefit from the strong product mix I commented, and the industrial performance is also contributing, despite the difficulties that we had in France in the first quarter, we commented to you, and that are now over. The performance is good overall in industrial. Northern and Eastern Europe, we saw that we are penalized by volumes, and we also have, in this region, adverse exchange rates that are also impacted the EBITDA. Still, the spread is positive. It does not unfortunately compensate fully for the negative impact of the volume drop. In this region, maintenance costs are pretty high in this first half. That's one-off, as we had two furnace repairs versus none one year ago. Latin America is posting an outstanding performance, as you can see, with adjusted EBITDA margin moving from already a nice level of 30.6% up to 38.5%.
The growth in sales volumes and the dynamic of the market, we already commented. The spread is positive, which is a very good achievement in this region where inflation in cost continues. The mix was also strong in the region. The industrial performance is also delivering in the region. One point to comment on this first half is that Brazil benefited from a positive impact tax credit on the ICMS following a Supreme Court decision to grant this credit. Despite this one-off, adjusted EBITDA margin is really strong and improving versus last year. If we move to cash and balance sheet, let's look at investments fully in line with our plans, our strategy. You can see that total booked CapEx reached EUR 109 million in the first half. This semester, we've seen more recurring CapEx.
This is directly linked to the maintenance in the furnaces, which we commented to you, and which were less last year, one year ago. The strategic CapEx, we will see the Jacutinga 2 CapEx in the second half of the year. For the first half, it's pretty limited to EUR 11 million. One year ago, we had the CapEx still for our two new furnaces, one in Italy, Villa Poma, and one in Spain, in Azuqueca. The cash flow generation is very strong in this first half. It starts, of course, with the adjusted EBITDA, the strong growth in adjusted EBITDA, EUR 45 million more. The cash conversion is still very strong with 68.3%. The change in operating working capital is negative by EUR 23.7 million, including CapEx this year, that is EUR 38.7 million. In the operating working capital, worth mentioning two points.
Stocks inventories are still extremely low as we are addressing the market. We have these furnace repairs. One important point on overdues are absolutely very well managed, stable, and we've been facing no customer issue at all in the semester. The operating cash flow ends up at EUR 211.6 million, to be compared to EUR 138.2 million one year ago. Our net debt is at EUR 1 billion, sorry, EUR 266.2 million, and leads to a net debt ratio at 1.9x . That is decreasing versus end of March, but also, as you can see, versus end of the year. One year ago, we were at 2.5x . We continue to deleverage the company, even after the share buyback of EUR 109 million, which Michel commented to you.
The good thing is that by decreasing our net debt leverage below two, we allow Verallia to lower our TLA and RCF margins by 25 bps. We lower our financial interest. Net debt and liquidity profile. Sorry. Our net debt profile has changed since the last time I presented to you. I'm very pleased to present one new line with the sustainability-linked bond we issued in May for EUR 500 million. As you can see on the right of the table in the final maturity column, it allows us to push EUR 500 million of our debt to 2028, when the rest of the maturities are for 2024. As you can see and commented already, the nominal rate is at a very interesting, nice level. In this operation, we managed to diversify our financing sourcing and to diversify also maturity.
Available liquidity is reaching EUR 847.9 million, so still at a very nice and comfortable level.
Thank you, Nathalie. Moving to the conclusion. As you can understand, we are very proud and very happy with the strong performance of the first semester. After a soft start, as we commented in Q1, Q2 has been accelerating quite significantly. We end up the semester with a high organic growth of 7.7%, which is clearly a bit better than expected. We have also improved significantly our EBITDA and EBITDA margin, reaching 26%. As you understand, this is above our target of 25%, and we are again, very proud of this. The PAP has played an important role for that. Consequently, the net income, of course, has jumped significantly.
On the financial side, the issuance of inaugural sustainability-linked bond and the share buybacks have been also two major events using the strong cash flow of the company in a very, I would say, efficient way in the case of the share buybacks that we mentioned. Based on this strong performance, we are revising our 2021 outlook, assuming that there is no new widespread COVID lockdown. We are, of course, always careful about the uncertainty we have in front of us. There are still here and there some partial lockdowns or partial restrictions. Assuming that there is no widespread or massive lockdown like what we had last year in the fall, we believe our sales will reach around EUR 2.6 billion, with a volume that will be back to 2019 level.
We are upgrading our adjusted EBITDA target for the year, which now should be €675 million, versus the €650 million that we commented before. Interestingly, since we have achieved almost all the midterm objectives that we set at the IPO time two years ago, we will organize a capital market day on October 7th in order to provide you with new midterm objectives and an update on our strategy and results. This being said, now I think we can move to the Q&A session, and we'll take a few questions.
As a reminder, if you would like to ask a question on today's call or make a comment, please press star one on your telephone keypad. To withdraw your question, please press star two. You'll then be advised when you can ask your question. Again, it is star one on your telephone keypad. The first question is coming from the line of Matthias Pfeifenberger from Deutsche Bank. Matthias, you're unmuted and may now go ahead.
Yes. Good morning. Thanks for taking my questions. I've got 2 at this stage. You mentioned moderately positive pricing. We've talked about flat pricing before. I listened to the Verallia earnings call, they're talking flat versus -0.5 to -1 before. What's the situation? Are you pricing a bit better on the spirits and champagne side? Also for next year, remind us, I think the majority of your energy costs are hedged as well for next year. We listened to Verallia, I'm not sure if this number is correct, but they're talking about 10% price increases that they want to go for next year. If that's true, isn't your margin expanding significantly if your energy costs continue to be hedged to a very large degree?
Okay. Thank you, Matthias, for your questions. First of all, regarding pricing, we confirm when we say moderate price increase is at the group level. You know we have two very different geographies, Europe and Latin America. In Europe, we are in line with what we said before. Europe prices are flat, basically. It can vary a little bit by country, slightly below zero, I would say, in Iberia and Southwest Europe, and slightly positive in Northeast Europe. Altogether in Europe, it's about flat, as we mentioned before. There's no change compared to the previous comments. The moderate price increase comes actually from Latin America, where here in this region we are facing more inflation.
Also, the commercial relationship with our customers allows us to go back to the customers during the year to revisit the prices, which is not the common practice in Europe. Usually, in Europe, prices are fixed once a year, and we wait for the next round of negotiations, usually at the end of the year or beginning of the year, the following year, to renegotiate prices. Yes, this is exactly what we commented before. There's no change on our side. We are exactly in line with what we commented on the price side. The surprise to some extent, which I would like to highlight again, is on the mix side, which you don't have the split here, but it's very strong. Part of it is because, as you mentioned, premium segments like champagne or especially spirits like the cognac are doing extremely well.
Of course, that is helping us. It's a market-driven, I would say, mix improvement. Also part of it is unfortunately due to the fact that we are sold out. Of course, if we are sold out, we favor the most profitable segments of the market and try to, of course, provide our customers with more added-value products rather than commodity products.
Part of it also is due to the fact that we are sold out. This is an important thing on the mix side. Now, regarding the hedging policy, clearly every company has its own policy regarding hedging. Our policy is very clearly described. I remind everyone what it is. We want to cover 100% of the energy cost of the following year, sorry, 85% of the energy cost of the following year by October, so that we can really have a good control and a good visibility on the cost structure of the following year. This is what we are doing every year, which means that, as you can understand, the energy prices of this year were locked for most of it, for more than 85% of them, they were locked back last year.
Unfortunately, the energy cost increase that we see today will have an impact next year. Of course, next year, even if we are hedging on a rolling basis and progressively into the following years, next year, we will have to go for significant price increases in order to reflect the inflation that we have. When I say significant, it's probably mid-single digit.
Okay. The second one would be on the PAP savings. I guess you prepared for this question. It's EUR 21 million, 2.7%. Are you not raising the PAP savings guidance at this stage? Also coming back to the guidance, maybe we can touch upon the individual components. It's the PAP savings. There will be operating leverage. There's mix, you also talked about restocking being possible in the second half, which is implying better fixed cost absorption. I guess the EUR 675 million still remains as conservative as the EUR 650 million before with the new dynamics in place.
Okay. Let me try to answer, Matthias. On the PAP, yes, we are very pleased to see the strong delivery in this semester with 2.7%. Yes, our guidance is 2%. It's above 2%, remember. We're always pleased to see much higher numbers. In this year, and this is really good, we benefit from the effect of the transformation plan in France, and that was planned, that is contributing to the PAP numbers.
This one will not have that every year. To answer to you on the guidance, we keep with a guidance of having PAP cost reducing our production cash cost basis by more than 2%. You are right, we've been delivering 2.2%, and here 2.7%, which is good. Again, the transformation plan in France and the France effect will be for this year.
Okay, sorry.
On your second point, yes, I was coming to that. In the guidance, you're right, we integrate positive impact of not having to destock and hopefully to restock in the second half of the year. Now on the adverse side, we have two important points, which we mentioned already. The first one is the inflation. I think we would all agree that inflation is coming, and yes, we are hedged on most of our energy. Now we have 15% that is not hedged. This one is, even this year, having inflation. One important point where we see inflation coming strong, and that was quite limited in the first half, is packaging, and to a lesser extent, on freight and transportation. These two, we don't have hedging policies and it's very strong on packaging. Let's see how this goes.
We did integrate a negative effect on inflation costs in the second half. Another point is the mix. We have quite a specific mix situation that is not usual when we manage and serve all the markets. Here, we also integrate a less positive or even a negative impact on the mix effect.
Okay.
That's why the plus and the minus would balance, I would say.
Yeah. Okay. Thanks a lot. Fair enough.
Thank you, Matthias.
Thank you for your question, Matthias. The next question is coming from the line of Francisco Ruiz from Exane. Francisco, you're unmuted and now go ahead.
Thank you very much, good morning to all of you. I have two questions. The first one is a follow-up on Matthias, which is on operator leverage, because we have seen a very positive turnaround in Q2, despite that the inventories are still declining. Could you see an acceleration of the drop through in the second half of the year if you are able to start increasing the stock? Given the strong demand, you think that you won't be able to increase that figures? The second question is on the margin of Latin America. If you could give us the impact of the one-off in Brazil and your view on how sustainable these margins are. Last but not least, is on the latest Fit for 55 plan on the European Union.
If you could give us an idea if there is any change in your ESG view after the publication of this plan. Thank you.
Hello, Francisco. For your first point, on the operating leverage and the inventory level. We would like indeed to rebuild stock in the second half. As per today, we are sold out. We anticipate that we won't be able to rebuild inventory as strong as we would like. The effect there would be more limited than we would have told you at the end of March. Now, in the margin in Latin America, the impact of the ICMS one-off is EUR 7 million, to be really clear. It means that the margin of Latin America, even the adjusted EBITDA margin of Latin America, even if you deduct this one-off, is above 35%. Still a very strong operational performance. How sustainable is Latin America margin above 30%? This is a recurring question we have.
As per today, we don't see many clouds in the sky. I would say the market is strong. The ability of our team to maintain a positive spread has been more than demonstrated over the years, and is still there. We can see that every month. Again, the industrial performance and the PAP is delivering very steadily and strongly in this region. The quality of the operations and the team lead us to be confident on Latin America margin percentage.
Regarding your third question, Francisco, good morning. The Fit for 55 plan, decided by EU, is yet to be better understood at our level. As you know, we are still expecting to receive the final CO2 quota allocations, which are due normally this month. We don't expect any major difference versus our assumption. We know that there will be a reduction of CO2 quota compared to phase III, in phase IV, this is already anticipated. We believe it's going to be around 7% less quota than the phase III quota we used to receive. I remind you, by the way, that we also hedged on our CO2 quota. The shortfall of quota is being hedged. We are fully hedged for next year. We are hedged 75% for 2023 and 50% for 2024.
This is also part of our hedging policy To cover this year's CO2 quota cost. Of course, we know that this Fit for 55 will put additional pressure on the companies to accelerate their CO2 emissions reductions plan. We are extremely pleased that we didn't wait and retreat. We anticipated back in January, if you want, this topic by providing and by working on our roadmap to reduce our CO2 emissions and not just the roadmap and the target, but also complete action plan. We believe we are very well-positioned based on the, by the way, Vigeo Eiris work that has been done when we issued this SLB. In order for them to provide an opinion on the, I would say, ambition of our targets, they benchmark, of course, our competitors and the rest of the industry.
The results of their benchmark was that our results and our ambition are really very advanced, and this allowed them to give us the highest rating. In other words, long story to just say that yes, it will happen, but we anticipated to some extent that this topic is becoming more and more important for the society, and we are comfortable with our action plans that we’ve launched that we’ll be able to follow these additional targets that will be set.
Okay. Thank you very much.
Thank you so much. As another reminder, it is star one on your telephone keypad if you would like to ask a question on today's call. Okay, there are no further questions. Sorry. We do have another question coming through from Fraser Donlon from Berenberg. Fraser, you're unmuted. Now go ahead.
Morning, Michel, Nathalie. Thanks for the presentation. Just a question on pricing for next year. When you look at what's going on in French wine, obviously, there's this kind of weak harvest and maybe this impact will be shared across a couple of years rather than one based on the kind of aging life cycle of wines. Do you think that that disrupts somehow the balance of the market in places like France and that could play through to the ability to increase prices in that particular market? The second question would be, could you maybe just color a little bit the kind of specific volume trends you saw in Q2 in the different regions and/or countries? Thank you.
Good morning, Fraser. I will take the first question and Nathalie will comment the second one. Regarding the harvest, as we mentioned, this frost event that took place in the first quarter was of course impacting the French wine producers, or will impact the French wine producers during this year's harvest. The real impact is yet to be seen because, as usual, they always claim big numbers in order to get the attention of the government. The real impact are still to be measured when harvest comes in the fall. We believe that for Verallia, this could have some impact in France, but yet, I repeat, to be defined and we'll know probably better and we'll comment it probably better in October during the Capital Market Day. Certainly not this year because this will be next year.
To some extent, limited by the fact that last year was a good year, the harvest was very good. If you look back in the past, from good years to bad years, it is not unusual to have variations of 20 or 25% in the harvest. This is why the winemakers are using some inventory, some bulk wine that is put aside during the good years to provide for the bad harvest the following years. What would be difficult is if we have two bad years in a row, because then you have emptied your reserve the first year and the second year you are short of wine, which is not the case. Cross fingers unless 2022 is a bad year from the harvest point of view.
So far, we trust that there will be enough reserves to compensate for the lower harvest this year than last year. Regarding the balance and the consequences in the French market in terms of balance between supply and demand, right now even the French market is really tight in terms of capacity compared to the strong demand that we have. We don't see any significant impact due to this low harvest, if you want, in France. Knowing that, by the way, the harvest in the other countries like Spain and Italy should be very good this year. Again, as you know, there are quite a lot of exports from Iberia to France or from Italy to France, which probably will be less this year because they will have to care about their domestic market first before exporting to France.
On your second question on the sales and volume in the second quarter and to give more color per region. First, in just one step behind on the first quarter, in the regions, Latin America was already strong and it was mainly Europe really strongly hit versus last year. In the second quarter, we've seen very strong rebound in volumes in South and West Europe and in all the countries. In Latin America continued to be really strong. In North America was more flattish compared to previous year as we commented. Again, North and Eastern Europe. Last year, one year ago, the effect of the pandemic was a bit later. The comparison is not exactly the same.
As a conclusion, in the second quarter, really strong, especially strong in South and West Europe, in Latin America still, and a bit more flattish in Northern and Eastern Europe.
Very clear. Thanks both for the answers. Just one final question, if I may, from my side, but just be kind of returning to the point on carbon. Obviously, you have the hedge in place, but do you have now more color on how the number of free permits and allowances might evolve in this year and in later years?
Well, that's what I was mentioning, Fraser. I think we still wait for the final allocations for this year, which are due normally in July. As mentioned before, we believe it will be in line with our forecast, which is basically a reduction of 7% quota compared to phase III. We don't have yet the numbers.
Okay, perfect. That's useful. Thank you very much. I'll leave it there. Thank you.
Thank you.
Thank you, Fraser, for your question. The next question is coming from the line of Lars Kjellberg from Credit Suisse. Lars, you're unmuted and now go ahead.
Thank you. Just had a couple of questions left. Can you remind us about the packaging element as a percentage of your cost structure, considering the significant cost inflation you have there? If you can call out the financial impact of your heightened furnace activity in H1, and how we should think about that in H2, considering last year you had literally everything happening in H2. If you can call out what you expect for the full year in terms of CapEx. You highlighted, of course, Jacutinga will come into the equation as strategic CapEx in the H2. What can we look for the full year for total CapEx, please? Thank you.
For your first question, freight and packaging represent about 10% of our total cost structure. Again, the increase in the packaging line is really strong, which is leading to some impacts and strong impacts expected, sorry, in the second half. All in all, freight and packaging is 10%.
Regarding the furnace repairs, roughly speaking, you can count around probably a bit less than EUR 1 million of additional maintenance cost and startup cost when you shut down a furnace for reconstruction. Less than EUR 1 million is the right number for the cost of such a furnace. Around EUR 800,000, EUR 700,000 or EUR 800,000 is probably closer to the number. Regarding the full year, CapEx will be exactly in line with our guidance, if you want, of 8% for the recurring CapEx. It will be exactly 8% for the recurring CapEx. If we add the strategic CapEx, which in this case will be mostly linked to Jacutinga two new furnace, we should be slightly below EUR 250 million for the full year. I would guess between EUR 240 million and EUR 250 million of CapEx for the year.
Thank you. Just to clarify on the furnace comment that you made, I guess that excludes lost production, et cetera, and potentially lost revenues then, because that number seems.
You're right. This is only the startup cost, the fact that you have to heat the furnace to bring it to 1,500 degrees Celsius temperature. During that heating period, for example, you use gas and energy, which is not used in producing any bottles. These kind of things. It's not including the loss of revenue, which normally should not happen if we have stock. Normally what we do is we build stock ahead of the furnace stoppage in order to keep selling during the reconstruction. The fact is, this year, because we ended up last year with very low stock, we have not enough stock to deliver everything we should have done.
Taking that into account, how would you make us think about the total impact from this activity in H1, that you didn't have the stocks to sell?
Well, this is the most difficult question because it's very hard to know exactly how many sales opportunity we missed, if you want. Your question is about this. We've sold everything we could, and everything we have produced has been sold. Hence, the de-stocking that still occurred in H1, despite, I repeat, the start of the year, which was already starting from the very low end on the inventory side. It's very hard to quantify how many sales we lost because of lack of capacity.
Got it. Final question from me. You obviously called out very favorable product mix as spirits recovered, high premium products recovered, et cetera. How should we think about the mix going forward as we continue to reopen, assuming that that is indeed what's going to happen? Should we have the favorable mix, and how abnormal is the current mix versus what you would see in a normal year?
Okay. I think it's very important and very interesting question you're asking, Lars. Because when we comment the mix, we always comment the mix versus the prior year. You remember last year was exactly the opposite. The first semester, we had an unfavorable mix because spirits, the most, I would say, premium products like spirits, champagne, suffered from the lockdowns, and therefore, our mix was quite negative this year. You've seen the rebound and the very strong sales of our customers in spirits, especially in cognac area, but not just cognac. Of course, year-on-year, the mix is extremely positive. I would say, if we had to compare with a normal year, you wouldn't say it's so positive, I would say. It's positive, but not with the same amount.
What I am trying to say is that it is one thing to compare year-over-year mix impact, which is what we do when we comment the financial results. It is another thing to look at what could be the, I would say, normal run rate of the product mix we have. Here we are back to what we said during the IPO is there is a long-term mega trend about premiumization that we see in spirits, but not just in spirits. We see it in wine also. You look at the rosé wine, it is very obvious that it is going premium. This mega trend that we are observing on many years, if you want, has been somehow disturbed by last year’s pandemic, but is still there. What we see is a catch-up or recovery, compared to last year. The trend is still the same.
Very clear. Thank you.
Thank you, Lars, for your question. There are no further questions in the queue. I'll hand it back over to your host to conclude today's conference.
Okay. Well, thank you very much, everyone, for attending this call. I know that you have a few busy hours and days in front of you with all the half-yearly results of all the companies. I wish you after this intense working period, a good summer break and stay in a good health. I look forward to talking to you again after the summer break. Have a good day.
Have a good day.
Bye-bye.
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