Half Year 2020 Coca-Cola European Partners PLC Earnings Call

[music].

Good afternoon, My name is Michelle and I will be your comp French operator today at this time I'd like to welcome everyone to the Coca Cola European Partners first half 2020 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks.

Works there will be a question and answer session. She would like to ask your question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question piece Presser Pankey. We ask that question time, if you would limit yourself to one question that would be great in order to allow.

Everyone to get their questions and I would now like turn the call over to Cerro Willett VP Investor Relations you May begin your conference.

Thank you and good afternoon, and Europe, well good morning in the U.S.. Thank you joining us today I Havent, Damian Gammell, CEO and they can Jani althea side, when we began with our remarks on off the top and included 19 update I'd like to remind you of I'll caution segment. This cool contain forward looking.

Can management comment on the other Coleman and statements with cutting or outlook. These comments should be considered in conjunction with the cautionary language contained woman's release.

That's what is the details push me sight and sound in the pool felt in the UK U.S. Dutch and Spanish authority a copy of this information is available on our website at Www Dot Coca Cola in P. Dot com.

Today's prepared remarks, he made by Dania, Nick and the company by slide deck.

Well they prepared remarks, we will tend to quit I've two questions I'm sort of in the West Coast full time spent will be made available as soon as possible on our website I went out tend to quite a bit too I see a stadium.

Thank you Sarah on many things again to everyone joining us today.

Clearly, we all continue to live on an operating presented an uncertain times.

So firstly I would like to extend or sincere gratitude and thanks everyone.

How's been continues to keep a safe and well thank you.

We have a strong franchise with solid fundamentals.

It's all a business.

The Paul Great people, Great service and great beverages.

We entered 2020 would good momentum than the pandemic either markets under communities.

I responsible was Robert or we have demonstrated originally from resilience.

What would be possible UBS.

We have a will continue to prioritize the well being over people.

Serving are great customers supporting our communities.

And taking actions to protect their performance.

Conserve cash as Youve seen in our results today.

We do believe the most impacted quarter is now behind US However, we face uncertainty.

The full extensive the pandemic is unpredictable and its impact on all businesses continues.

Many of our customers continue operations and reduce capacity on some of that remain closed.

On on the go consumption in particular remains under pressure.

With all this in mind, we are very focused on driving a strong recovery in the second half here.

We are confident about the future of our business.

This future will continue to be supported by.

And then have digital sustainability strategy.

You have a seem to slide before but we do come from a position of strength.

T. P is achieved a lot since the merger.

We delivered on their commitments.

We continue to operate in an attractive on very valuable called degree.

We do enjoy scale on a market leading position across our markets, including to more and more importantly online segment.

I'm critically we also have a fantastic portfolio of brands and products and packaging.

A little player consumers and customers across Europe.

We are creating a lot of body for those customers.

On delivering great service.

We work to build a very solid balance sheet.

We do generate a lot of cash.

We have solid access when needed to liquidity.

Oh, we continued to be more lines than ever with a largest franchise partner the Coca Cola company.

Our focus remains the doing all of this a sustainably as possible.

And I'm very privileged to be working with 23000 committed talented.

I'm very engaged colleagues at CCP.

Now to our response to the pandemic.

There was referred to as I said earlier.

I'm very proud of all our colleagues on our partners have shown extraordinary ability to adopt.

Stepping up to the task in very challenging times.

We did to able to de key measures. We took other Q1 trading update.

So today briefly by way of a recap an update.

First to safeguarding or people, which as I mentioned remains the number one priority.

We implemented comprehensive measures in line with guidance large scale homeworking they'll all almost feels like the new door.

Supported by enhanced digital support which specific measures for a colleagues of sites or in the field.

We also continued to provide emotional mental well being support alongside a very comprehensive communication strategy.

We insured the continuity of supply of or products throughout the pandemic.

The brands people want to buy shifting production as necessary.

Crossed our sites by prioritizing cores can use.

With their communities, we continue to work closely with the Coca Cola company, providing substantial financial aid to the Red Cross and those are local Ngos.

We have so far donated over 650000 unit cases of product in the countries, where we operate.

As well as giving access to our logistics and transportation resources for really for.

And we took the right actions to protect our business for the long term.

We increased the cadence of leadership reviews with our teams are board on the Coca Cola Company.

Well, it's also learning from water bottlers across the Coca Cola system.

We have been and continue to be extremely disciplined from a cost perspective on capex as well as or cost of goods and opex to ensure all spend is relevant and essentially.

And finally from a broader perspective, you'll remember that we formally with through our full year 2020 gardens in March.

We suspended our share buyback program.

We bolstered our liquidity through the debt markets and what's the board fully continues to recognize the importance of cash returns to shareholders. The decision has been taken to defer consideration of a full year 2020 dividends until a quarter three.

So all in all very rapid unsolved in response to the pandemic.

So now.

Let's look at her first half performance.

Hi, I'm, particularly pleased that we've continued to take value market share in the first half according to Nielsen.

Both in store and online.

We've seen behavioral shift in society in recent months when people are now living shopping on working very differently.

Including a significant increase in demand for online grocery.

We were strong in this space pre crisis, and this is serving us well today.

Overall, our online grocery revenue grew 35% in the first half, resulting in value share gains of 150 basis points.

And that was locked down restrictions have limited away from home socializing, we've continued to see strong growth and online food delivery two important so to recap on take away dot com with revenue growth of around 30% in the first half.

Well the importantly, our digital momentum goes much further than just online grocery.

We've also been accelerating or b to b platforms to make it even easier for customers and wholesalers to do business with us.

We have a winning portal with my TCP Dot com now available to all our markets with functionality that continues to improve and encourage higher customer reach.

We currently have around 30000 customers using the platform a 300% increase since the end of last year and this number continues to grow.

Despite most of our away from home telcos has been close for much of the second quarter.

We have a great portfolio brands Coca Cola zero sugar was the number one and they OTV burn for ups do value growth during the first though.

Fantastic achievement given the backdrop.

The energy category has also been resistant led by Monster, which saw volume and revenue growth of seven 8%, respectively supported by new flavors, such a specific punch on a broader multipack offering in markets such as GB.

As I mentioned earlier, one of our key priorities has been to protect our piano.

We remain on track to deliver between 202 hundred 50 million euros in full year discretionary Opex savings.

Nick will talk more about that later.

And finally, our sustainability remains a key priority for our business. We've continued to make further progress in the first half, which I will now come too.

Our integrated sustainability action plan.

There's no importantly, underpinned by carbon reduction targets being incorporated into our long term incentive plans.

This makes TCP a very early adopter in this space.

We will do more to reduce our carbon footprint improve our packaging.

And support new packaging solutions.

We continue to use less water.

You will see here a few examples of some with the progress we're making on our sustainability objectives.

Hi, I'm, especially proud that Sweden recently became our first 100% recycler P.T. market.

On the first into Coca Cola system.

We also recently signed the recover better business statement, a call to action for business leaders and governments globally to prioritize science based climate action in their covert 19 recovery efforts.

We wholeheartedly support this agenda.

For us the pandemic has strengthened our determination to go further and faster and building a better and greener future for business.

Details of which we will continue to share with you in due course.

I'd now like to hand over to Nick to talk in more detail to the financials.

Thank you Nick.

Thank you Daniel Thank you all for taking the time to be with US today here you would see after a tough financial summary, our revenue declined by 16% on an FX neutral basis, driven by a 26% decline in the second quarter, reflecting the impact of the pandemic.

Our Cogs per unit case increased three and a half a cent on a comparable in FX neutral basis, mainly driven by an under recovery of our fixed costs.

This combined with an 11 in hospice and reduction in operating costs, driven by discretionary Opex savings led to a comparable operating profit.

398 million euros down, 48% on a comparable and FX neutral basis.

I'll talk more about revenue Cogs and opex more detail shortly a.

A comfortable effective tax rate declined to 24%, mainly due to lower corporate tax rates in France, and Belgium, as well as a change in profit mix.

This resulted in diluted earnings per share of 57 years, then down 2% on a comparable in FX neutral basis.

So broadly neutral resolved on free cash flow, reflecting the topline impact at the pandemic some cost led with Capex and an increase in receivable days.

As you away free cash flow generation has been a core priority of our business and we have delivered over 3 billion euros over the past through calendar year.

As soon as depend doesn't hit on markets. We moved the deep to review all sources and uses of cash to 'cause a maximum flexibility.

Just concluded deferring non critical Capex projects, where we remain on track to deliver savings of 200 million euros for the full year.

We continue to expect Twentytwenty capex upset the 315 million excluding leases with approximately 214 million that's been during the first half.

On working capital, we get proactively chosen to support our away from home customers. During this challenging time.

Just in some cases has meant extending payment terms and this is reflected an increase of circa 13 receivable days versus the same period last year.

We expect this can pack to be temporary and as a reminder, we come from a solid working capital base haven't delivered around 650 million of improvements over the last three calendar years, including a 14 days reduction in receivable days.

As gaming referred to earlier, we do believe the most impacted quarter is behind us.

So as we look to the second half, we do expect down through cash flow to significantly improve reflecting the general seasonality of our business easing up the effects of the pandemic.

Capex being weighted to the first talk as I mentioned.

And finally are shown on the returns we returned approximately 130 million to shareholders. The for the suspension of a 1 billion Euro program, which we announced in March.

On different I'll talk more about that in the context about full year 2020 outlook later in the presentation.

So let me not provide some insight into the impact covert 19 had no business during the first half primarily the second quarter.

The most significant impact has been on all away from home channel.

Well the exposure varies by market last year. This channel represents a 39% about volume and 43% by revenue with markets like GB in Spain, particularly weak impacted given higher exposures.

At the peak of the crisis, we believe that roughly 75% of away from home outlets were closed. These closures resulted in a 50% decline in away from home volumes during the second quarter.

At social dispensing measures the listed the number up its open sequentially improved throughout the quarter and we now believe that wants 70% of outlets open.

Trading the home channel. That's also been volatile volumes down three and half with them during the second quarter.

Well. He was initially benefited from houses stocking independently first hit our markets, but this quickly turned around and we sold reduced football supermarkets, especially distancing measures we felt it feels physical shopping trips over all.

This was partially offset by increasing demand for online grocery and Dave talked to are there.

And then it's clearly had a significant impact them the way people shopping today, evidenced by fewer shopping trips overall, but the bigger basket sizes and less on the gum consumption.

Got into right shows that neither chan with immune to the spend with both channels have exposure to the smaller single or immediate consumption back.

These facts typically accounted for approximately 35% of the good volume with around quarter, usually sold through the home channels, there from store and supermarket convenient hormones.

Unsurprisingly future can function packs, such as watch to T and noted that can't have been performing better older. This does vary by market.

For example, and phone, Switzerland initial disruptions the movement resulted in fewer shopping trips <unk> out of town supermarkets Hypermarcas locations.

So overall, we saw volume declined 22% and the second quarter with the sequential improvement monthly trend as highlighted on the next slide.

So its restriction eat through the quarter. Our volumes also improved from a 36% decline in April 2009% decline due.

This is never an outlet reopening the away from home channel, but also an increase in consumer mobility that social distancing measures the lifted helping the home channel as well.

These trends have continued into July with volumes broadly in line with June reflecting the gradual using restrictions.

Of course, the restrictions have not going away as Daniel said earlier than many of a away from home customers with reopened or doing so reduced capacity.

And the on the go consumption remain under pressure.

The rate of improvement has varied greatly across our markets due to differences in approach timing and extensive lifting of lockdown descriptions for example, or conflicts able to open some may on assays basis in Germany, and Spain, but not until early July for GB.

The combination that at this channel pack and geographic mix resulted in a 5% decline revenue per unit case in Q2, and a 2% decline for first half with an improving trend in July the second how could we opened the Nigeria, which I'll come back to talk to shortly.

As a reminder away from home revenue per unit cases, approximately 15% higher than that at the home channel and immediate consumption pack. So it's accretive to mix compared to multi packs school lunch PT.

Let me now provide more revenue detail by geography.

Given detailed commentary by geography is provided in the release I want to focus on Liberia haven't really suffered disproportionately some dependent as well as provide an update on a customer negotiations.

As you are aware Iberia over indexes and its exposure to the away from home channel, which more narrowly says an advantage versus other markets.

Including cash and carry volumes, which last year comes it for 112.5% of Iberia volumes. It's total expose it to be away from home channel is approximately 60% compared to closer to 30% for markets like John.

As a result for closures and the associated decline in Glasgow media consumption packs profoundly impacted both volume and revenue per unit case.

Resulting in a total revenue decline of 48% in Q2, although this did sequentially improved throughout the quarter as outlets reopened.

And that highlighted earlier in the year, we had some temporary disruption during the first cost as we continue to negotiate with a handful of customers.

Well I'm pleased that we wouldn't actually able to successfully agree on local pricing plan principal certain international effects were delayed and the resulting impact is visible and does that and the performance of funds in Germany in particular.

Our priority is and will continue to do to lead the category for sustainable value creation for our customers and we have every intention resolving this as quickly as possible.

Moving now to Cogs as Youre aware cost savings from a cost effective and more limited we typically around 85% of our total called the variable is you could see here.

This would include our concentrate purchases and finished goods accounting for 45 percentage points, which actually has pulled them along the path incidents model, reflecting the decline no revenue because of the case.

Commodities accounts or for the 25% and have been mainly favorable with lower P.T., an aluminum prices, partially offset by an increase in sugar prices.

Please bear in mind that our commodities exposure is largely hedged for this year.

We have now also around 80% hedged for 2021, giving us good visibility on a commodities exposure.

Approximately 15 percentage points relates to the manufacturing costs and DNA, both of which are largely fixed and as expected. We saw an adverse impact from a cogs per unit case, resulting from the under the covers on this fixed cost base given the low volumes produced.

This affects combined with an adverse mix impact primarily due to higher demand for cans, which cost more to manufacture resulted in a three and half percent increase some cost begin case, when a comparable FX neutral basis, we do expect this impact to moderate in the second half as the volumes improved.

Importantly, we came into the crisis with a solid and understanding the Holocaust space given ongoing work around accelerating competitiveness initiatives, which enabled us to react more quickly when the pandemic kit that markets.

The decline in operating profit was there for moderated by robust action on discretionary spend over and above two of those answers.

Despite some additional one off costs come to the business such as bad debts inventory write offs and protective equipment for our colleagues.

Cost of decline naturally a seasonal labor given the quieter summer as well as traveling meetings, the ultraflex stock trade marketing expenses and pulled back on our promotional spend.

Well action in the first half to protect the piano have put our somebody on track to achieve the previously announced discretionary opex reduction.

200, 250 million euros on a full year basis.

As a reminder, we would see roughly two thirds of our total opex is fixed.

But as variable has broken down on this slide.

Importantly crisis is providing the license to accelerate our competitiveness initiatives to becoming even more agile and efficient business.

We will not lose that opportunity. Therefore, we do anticipate that some of these cost savings will be permanent for example, as we expect less travel to the company.

We entered the crisis with a strong balance sheet, reflecting on investment grade ratings, having de lever quickly since the merger driven by strong free cash flow generation.

We have a balance profile of long term debt maturities were pleased to secure an additional 850 million of funding the debt markets Q2 transactions during the first while taking advantage of favorable market conditions.

These proceeds continues to provide us with the additional liquidity and flexibility, including the repayment maturing debt later, India.

We also continue to have access to other source of liquidity.

Floating around 900 million of cash and a one half billion sustainability Lynn Austria.

And this is backed up by a one half billion Multicurrency commercial paper program of which approximately 300 million has been issue.

So we have ample liquidity, providing us with financial flexibility in the current uncertain environment and importantly, there no covenants on either long term debt off facilities.

Finally, before I close on the financials I wanted to touch briefly on the way, they're looking at the balance of 20 Twond.

We remain on April to provide full year guidance given the lack of visibility of the second house that said that some factors were highlighting.

We do believe the most impacted quarters behind us However, we still face much uncertainty on the balance of Thea.

We remain focused on driving had stronger recovery as we can the second half of the and then you would come back and talk about because in a moment.

I've already talked to Cogs, and Opex, but from a technical guidance standpoint, we now anticipate a full year tax rate of approximately 24% versus previous guidance of 25% due to lower corporate tax rates in some markets the geographic mix of profits.

And as regard dividends the board continues to recognize the importance of cash returns to shareholders.

While the business continues to improve each month.

Given the ongoing uncertainty if the impact of the pandemic. The board continues to believe is appropriate to defer consideration of the twentytwenty dividend in Q2 interim dividend onto Q3, when visibility will have improved and of course inline with our normal cadence.

Now back to dig in to close Damian.

Thank you Nick.

I said earlier, we are very focused on driving a stronger recovery as we can into second half.

We reassessed our price pack architecture, alongside optimizing our promotional efficiency.

To cater for the changes in shopper behavior.

So more focused on large projects, reducing or SK use which at the height of the pandemic was down by over toured.

Help us ensure product availability.

Visibility for our customers.

It has also driven further efficiencies in our supply chain, which we are obviously determined to retain.

A very stringent reintroduction criteria have already being put in place and are working well.

We also pushed extra Jason seems to capture more of your way from home dining occasions transferring to home both in store and online.

Well, we reallocated our colleagues, especially are frontline field sales from away from home to home to increase our coverage. This has been a great support to our home channel customers, who obviously have an increased workload at this time.

All of this has meant that despite the pandemic, we are maintaining great customer service levels at over 97%.

Equally.

As now our away from home outlets are reopening we have been there to provide the support.

Helping not only with product, but everything from digital menus for the sanitizing of cold drink equipment.

And to ensure we can support them as quickly as possible, we're working with Google data to identify outlets as soon as they reopen.

A rebuild journey supported by the launch of the new open like never before summer marketing campaign.

With the Coca Cola Company will also support our efforts in away from home.

On digital we are benefiting from the sizable investments we've been making over the last couple of years, which will support our growth year to go and also into 2021.

And finally, our people.

Well being is our number one priority we continue to provide health and wellbeing supports.

We continue to communicate regularly and efficiently.

And we recently performed a pro survey to check how all our colleagues were feeling.

I'm pleased to say they remain engaged.

Many enjoying the flexibility of are you working practices.

This is a great business and we're confident in its future.

We are in a in the privileged position of making moving in selling some of the world's most loved brands.

We have great people, who are passionate and committed to what they do.

We feel strongly lasting relationships with our customers I.

When we work alongside of partners to support the communities we serve.

We have a great platform for growth.

Leading in a big valuable category that is robust and resilient.

On set to keep growing long term.

Goal at CCP is to beat the market going ahead of that I'm building market share.

We want to continue growing in sparkling and double our already strong energy business.

We will build a platform for growth and coffee would cost, which I will come back to shortly.

We have a track record of creating value for over 1 million customers, helping them become more profitable businesses.

By serving these customers are world class execution, we will return to the levels of growth we enjoyed for the last four years.

At CCP.

This growth will be done in a sustainable way.

I take huge pride into sustainable business that CCTS be cool.

The pandemic the strength of their determination to go further and faster.

So as we grow the focus on sustainability will become even greater.

We will continue to invest put in a more targeted way we will focus on the biggest opportunities the capabilities and the technologies that are people need to win.

This will require us to manage our costs, making choices about spending are looking for more ways to be more efficient.

With no return to our pre pandemic cost structure.

Digital solutions will play a vital role in our growth.

The pandemic has shown the important role digital platforms are playing for our customers and consumers.

We will continue to lead this opportunity.

We will strengthen the workplace culture done embraced as well being inclusion diversity and the quality.

People should have the ability to continue to act with agility and challenge the status quo.

Building a platform for growth in coffee is a very exciting opportunity. This is a large and growing category and as a result, I'm pleased that we recently appointed a new senior leader.

You look at hot beverages across all of our CCP markets.

Outside of GB cost will be launching an all or the market starting with express machines and proud to serve.

In Germany. This all them, we look forward to sharing more in due course.

So in summary, we are confident about the future.

We entered 2020 with momentum.

After a best year, so far generating 1.7 billions of euros comparable operating profit.

A 1.1 billions of free cash flow and 29 team.

We demonstrated our resilience these past months evidenced in our first half performance.

Well, we still face uncertainty.

The full extent of the pandemic is unpredictable.

Its impact on a business continues.

However, we're very focused on driving a stronger recoveries, we can into second half.

By leveraging the solid capabilities, we have built at CCP.

So we face a future would hope optimism and confidence we are ambitious about our future I'm confident in our ability to grow.

But don't sustainably for a better shared future as we believe a more sustainable business.

Well when longer term.

Now we would like to open up the call for questions. Thank you operator.

At this time if anybody has a question. Please press star one on your telephone keypad.

And that would be start playing on your telephone keypad and again, we ask that everybody limit. Your question to find in order should get everybody that chance for that question. Your first question comes from Bonnie Herzog.

And then Saks your line is open [noise].

Thank you hi, everyone [noise].

I am I did have a question on March and you know obviously, it's not surprising to see that de leverage this quarter you know given the pressure on your topline that you called out but [noise].

And just trying to think about how margins can lucky in the back half, especially as you know volumes have been changed sequentially. During the quarter, maybe you could touch on some of the puts and takes in terms that you know the possible stepped up spending you might be doing ahead of the recovery and then you know any assets like the.

Ability to flow through even more at the cost savings initiatives that you touched on in again that you kind of started earlier in the year I think that would help us in terms of facing thank you.

Great Funny. So you know clearly as I highlighted in our opening comments the biggest impact comes from the fact that.

You have the under recovery given the Q2 volume drop off and as you rightfully said, that's going to continue to improve.

And we see sequential improvement you know already happening in Q3, and I'm sure, we'll talk little bit more about that so clearly the under recovery drag should improve so you would expect that the the Cogs per unit case.

Should trend downwards versus what you've seen in in half one obviously difficult give you exact guidance because we need to see how that trend continues to happen, but clearly if you're looking at something you know at that freeing up 3.7% Uh Huh, one growth you're probably some looking at something closer to.

The the 3% for the full yeah. So clearly you can see that house to would improve again this being subject to various scenarios that we've done on volume.

Then on the Opex side, you know clearly if you look at the.

200 to 250 million that we committed to.

If you see the bridge that I provided you see about 165 million of savings coming through this is largely as a result, it goes mitigations.

Then some savings on variable expenses as a result of lower volumes and then some one off costs. So you know if you look at that trend of what we've we've delivered against that 200 to 250 million, you're probably looking at another 50 to 100 million to go now again Dave.

And I continue to be focused on is the ability to see like sapped up or down depending on how the volumes come through so as volumes continue to pick up you're probably going to see that the lower end up that if volumes don't pick up based on various scenarios given you know.

Outbreaks again, you might see it you know at the top end to end, maybe some more as well and we'll update you in October as we continue to see August and September Claire.

So hopefully that helps.

It does that make if I may just clarify one thing I'm.

You know Tonight on discretionary spending yeah thinking about your willingness to spend how does some of the markets maybe as you're seeing some of the recovery the openings happen I'm. Just wondering how aggressive you are going to be in some of their markets and turns have spending ahead of status.

Well clearly as we see that volume recovering we're going to go back and spend some of the T. M that we've we've cut and potentially as needed support.

Promotional activity as well so like I said, if you're looking at the second half being the range of 50 to 100, you know you might see that with volumes picking up being closer to the 50 and if they don't be got 100, and we'll continue to look at other things that we can do seems like travel meetings things that we can do you know that clearly we just don't.

See happening in we've cut back.

Hiring freezes vacancy rates not being sale the seasonal labor those will.

Happen essentially in Q3 here, so while we feel good about.

Well, Matt maybe I, Bonnie I am just to build on what Nick said I mean, I think you know we are seeing volumes improving as we came out a June July into August and we are seeing mix, improving which is great I.

I think when when I look at year to go on what we haven't place too you know accelerator performance.

A lot of that comes back down to our price promo, which is which is pretty much based Dan as you know in Western Europe, and secondly to the power of our field sales force, which we which we have already so.

In terms of you know large incremental investments you know as outlets reopened where do you what they're looking for is the cooler working you know kinda give to order or we helping them with digital menus.

I'm you know our we you know helping them you know reopened and in some ways that that's a cost that is really covered by our existing cost base through field sales.

Then on the grocery side as Nick said as volume picks open overseeing the benefit of our refocus promo spend and we're clearly trying to drive makes a lot faster. So a lot of what you'll see in retail in Europe, no single serve promotions, which is helping.

So you know I think we'd be able to provide a bit more color that in October but certainly were yeah. We're happy to see actions that we took already in June starting to pay off as we come through July and August.

Okay, that's great color I really appreciate it thanks.

Thank you next question will come from San change I Love from Credit Suisse. Your line is open.

[laughter], Hey, Dave you didn't make a couple of questions for me. Please firstly I.

What are your growth in recent years has really come from targeting the away from home channel and the on the current consumption.

As well to what extent does this pandemic of the new normal have implications sort of long term strategy will sort of tweaks.

Do you think you have to make that a two to keep driving mix longer term, which has been a big big part of the algorithm.

And secondly can you just talk a little bit about what sort of pay so oh revenue per unit case, you've seen.

Into June and July <unk> would it be logical to assume that's trending down into low single digit range at the moment. Thanks.

Hi, Sunday, maybe I'll cover the the first.

Part of your question. Thank you.

So yeah, we still believe and we're seeing it even as we come through the pandemic in the strength of away from home in Europe and those are the three open they'll fundamentally people still want to go out and they will want to go out and enjoy beverages out of home.

But you know fair to say prior to the pandemic, we had already spoken about.

You know rebalancing our revenue to you know more around volume.

Becoming a bigger part of our mix along with price and mix. So yeah. We had already you know recognized and in the first for years, we had.

Really done a good job driving away from home and we'd also driven or retail business and I think what we've done really well is we've driven single serve in retail really well and again you know we're seeing that recover faster as we go through the year as people are obviously now returning back to supermarkets.

And the other elements that you know I'm getting excited about is you know if for some reason there are consumers who are reluctant to go out.

In the short term a lot of them are moving to online food providers.

You know again pre crisis, we we've invested a lot in their digital platforms to work with.

You know a number of the large providers to ensure it out or share online or in some cases greater than a share in store.

So I think in the short to medium term that combination will serve us well I think long term you know clearly we wrote it'll take a view on away from home.

Overtime, but ultimately people would still drink our beverages and I think we will continue to.

Reconfigured our route to market on our product offerings to make sure we capture that opportunity.

Obviously, you know our customers in away from home. You know are also looking forward to a brighter future as the pandemic hopefully receipts, but they're also adjusting their business on moving online as well so.

A lot happening in that space, but it doesn't really change your view.

Mix price and volume over the medium term.

Another said that something we'd already talk to the end of last year and as we saw you know some of the away from home mix starting to optimize it so markets clearly smaller packs and reach I became or focus and that's going to drive or mix in 2020, I mean to 2021, so Nick maybe I'll, let you.

Take the second part of that question.

Yes, sure Sanjay I mean, clearly as I indicated.

While volumes with pretty much in line or in July. This is what you saw in June the mix was definitely improve so we don't give an exact number.

In terms as the price mix, but it was improved.

As a result of you know those athletes opening as Daniel said some of the stuff that we're doing to drive back businesses the away from home singly so business.

Can I just follow up on your comments on the commodity cost outlook for 2020 and 2021.

Given that you have decent hedges in place and good visibility can you just give us some.

Some indication of where you expect commodity costs year over year $2020 2021.

Well, so clearly for Twentytwenty up commodity costs will be down than you've seen that in terms of my comments for the first half mainly driven by PT in aluminum.

And then we've had.

A negative impact on sugar, but that's really coming from our hedging because we went into Twentytwenty. You know a exposure was largely hedged and we have fixed price contracts and we have some floating but with the floating we went ahead and hedged. So right now is we look at a 2021.

Clearly, we would see a downward trend on the commodity side can give you.

An exact number.

But we are again, putting in some favorable hedges compared to our twentytwenty hedge great and as I said, our total Cogs.

It's definitely trending down for the full year versus what you saw in the half one.

So again, all heading into right direction.

Yeah, and sometimes you just maybe a bit more color I mean, I think one thing we've learned is.

It is not time to be positive in the pandemic. So we are we're being extremely.

Joel you know, we're looking at you know a lot of opportunities as as again certainly continues.

No we're spending a lot of time on data analytics were working very closely with Google.

So we're being.

Very aggressive.

On action oriented around you know how we capture the opportunities that are evolving as as this continues so I think thats something thats got us to a better place today, and it's certainly going to help us get through a better placed by the end of year.

Hi, good thanks, guys.

Your next question will come from Lauren Lieberman from Barclays. Your line is open.

Hey, Thanks, good morning.

And I wanted to just talk a little bit about kind of coordination with the Coca Cola company on some of the it's called like reactionary measures and that you know could prove laughing and and beneficial and so top of mind with I guess, one absolute marketing spending any spoke you know.

You just gave us a lot and they can help understand important that field sales is really being the can be opening but I was curious about more traditional marketing spending to this is Dan you know as as a whole coming from K. Okay recall that there was a headline get was in March.

Pull back in on in spending across TV, So kind of where you stand on that front, if you're getting to support you need and then secondly about skew rationalization you guys definitely spoke also earlier.

How does this call about the work you were able to do to streamline production. The Kao has been discussed you know getting more aggressive on the zombie doctors they talked about in and you know that large percentage of their skews. It trended very small percentage of global business.

Of course, they have no idea how much of that falls into your markets, but I'm just kind of thinking about the coordination of those efforts going forward and like you said the sticky best as some of this I guess more streamlined production. Thanks.

Hello, and thank you yeah. So I mean I'd characterize as you know the way we've been working with with Coke because as as being really fantastic you know throughout this period I'm very aligned very.

Very agile you know lots of communication I'm. So we've really you know stepped up from what was already I think a very solid relationship and align since we created CCP you know in in into a new level of collaboration and decision, making so I think that's been great on both sides you know everything doesn't it make them.

Myself will talk to for the second half a year and actually it's a read through to 2021.

So these are fully integrated plan. So we you know we're seeing the level of above the line marketing support coming back now and our territories to supports the pack price initiatives that we're you know launching customer by customer.

We're also seeing you know open like never before you know a great campaign to support I'm encouraged both consumers and customers and away from home and you know clearly a lot of that funding is going to both the line. So we are seeing you know the spend you know we need coming into the second half of the year on into 2021 that we spend.

As a lot of time already talking about 21 with the co company because clearly we believe the more focused is going to lead to a faster recovery and greater shareholder value and were line them up. So that you know has led us to the conversation around SK use again, we've had very firms.

Support from the company on the decisions, we made an S.K. use I suppose a little bit different for CCP I mean, we never had the level of and that's like that for his zombies that probably on a global footprint naturally you will have as the co company. We were yeah, we were quite disciplined anyway, and so what you're seeing more and.

Our aside the is you know I'm, a greater prioritization of brands certainly in sparkling a greater priority of packaging innovation to get our mix back to where we'd like it to be.

More support for categories, where we're winning like T and obviously I mentioned in my prepared remarks, you know very exciting conversations around what type of investment that we jointly move to get behind Costa and we've taken a decision to move one on one of our best executives into a role to give that more momentum as we come out of 20.

One other 20 to 21. So you know we are working on integrated plans for the top and bottom by ourselves the co company.

We are you know a learning.

Other learned already on 2021 brand initiatives, which gives us a lot of confidence also allows us to make avoid choices around capex on their supply chain each or 21, so that's great.

And we will continue to you know keeper S.K. you level very optimal level as I mentioned to you know we've put in a very strict reintroduction protocol with the co company and I guess he used I want to come back.

And so far they they've been few and far between.

Yeah, we probably got a few more as we get through the year, but certainly we're going to remain well below what we entered the crisis, which so they're all in all I think is very positive dynamic with the company at the moment of adults. So.

Come and that's that's also similar with Monster and again, we've seen their business performed better than sparkling through the crisis and we expect that to continue into the second half it into 2021 as well thanks loan. Thanks.

Loren just to give you some color on the S.K. use just to give you. Some numbers. So you know we have probably a little over 4000 SK use across CCP.

And then we've identified as Daniel said, we don't necessarily call them zombies, because we don't have as many but we've looked at the tail that we believe you know need strong criteria to be reintroduced and that's probably about 40% off those SK users and we've set a target that at least you know.

A 25% of those that tail should be cut if not more so we've said an initial target of at least a 25. So net net a minimum of 10, but you've probably seen more coming as well and that obviously drives a lot of efficiencies in our supply chain too. So it should definitely be one of those permanent type of savings that we should see going.

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Thanks, so much.

Your next question will come from Bryan Spillane from Bank of America. Your line is open.

Hey, good morning, everyone.

And Brian. So my question is just.

Around just trying to get some better visibility into into the business than it into the you know just into the into that category I guess.

Oh, you know right now I do want Oren will use Nielsen we've tried to the like open table. Some other sources.

But I'm curious just you know what you're doing now what schools you may be using now to get better visibility into the reopening in into which channels are coming back faster and.

And if that's something that you know maybe you know more permanent in terms of the way you're looking at the business and just just getting better visibility.

Hi, Brian and Yeah, I mean, obviously Nielsen covers you know well, let's say.

Pre pre 2020, it covered about 50% of of our of our revenue. So you know we've spent a lot of time.

I'm working on efficient on cost effective ways to get more transparency in the rest of the market and we use a combination of insights with a lot of our customers we shared people's data.

So we're getting a read directly from the outlet.

With the adjacent see work, we're doing with Google and we're also getting read real time Reeves on outlets that are planning to reopen because obviously, what we're saying is that they start to post reopening dates and times online and we can pick that up to a high.

We have a huge salesforce on you know, we've we've while weve redirected there some of our sales force to home market in the short term, which has been great as market reopens, they're going back out to their away from home mood. So you know you kind of be you know all eyes Irrs on the street to look at what's happening. So that's definitely helping and then you know we.

We are also I'm, a big player with a lot a whole says in Europe purely what we're doing is also tapping into their database and also getting a reads from them because clearly as away from home opens its above that such as beverages, but we're you know we're getting a read on food ordering.

Condiments.

And also you know with our cold drink business, we typically get request to work on equipment Sanitization. So.

You know, we're doing a lot to get all of that day that together, we've created a very cool.

On a macro database that allows us to work with all of that data. So you're at the moment you know just to give you. Some numbers, we're seeing outlet reopenings across our markets and away from home getting close to 70% to 80% and away from home, which is great and all this the some of the areas that are more challenged our touristic zone.

Yes.

And some of the larger cities, where obviously some customers are taking their time to reopen but that is improving.

You know, we're seeing a range of footfall number certainly some outlets are doing better.

So they're footfall has increased so a lot of the food to go take away a lot of our customers who are being at home delivery are are doing more business under this pre crisis and clearly more of the fine dining and on areas, where probably space is more constrained they're struggling and there are probably the ones that are making the decision it's not quite the right terms we opened so.

A lot of analytics, and that's allowing us to deploy resources better. It's also allowing us to measure our we beating the market, which is important for us and I think thats something that we'll continue to focus on as we go through all this the into September.

Okay. Thanks.

Your next question will come from Simon hails from Citi. Your line is open.

Oh, Thank you everybody.

A couple people to come. Please just following on from the comments you were making around supply chain benefit should see miska, you rationalization and Damian you will come into the presentation about no returned to pre pandemic cost structures.

Suddenly you think about margin evenly from her beyond Twentytwenty I note that took to one of your peers yesterday was indicates that they thought they might we gained 2019 EBIT margin levels by the end of Twentytwenty won't be interesting new Gen thoughts as to the evolution of the margins over the next with a couple of years.

Then secondly back through the Knicks points around the commercial issues in Germany, and France, which the drug do you think that is being on your business in the second quarter. How do we how do we think about the as an ongoing negative and how quickly can you resolve that is the Q3 issue. We're still a whole age to issue how do we need to think about that.

Hi, Cyberknife, maybe I'll start with the second part of that question and then provide some color on the cost and then I'll, let Nick talked a little bit more of that our margins and so you know clearly we have had some some challenges with with a number of our retail customers.

As we came out of Q1, [laughter], you know pretty much across Europe.

We were able to deliver on what we felt we still like pricing strategy put into Q2, you know obviously, it's taken longer than we would like and I think our co symbols would like we thought that particular group to get to resolution, but we feel we're definitely we continue to trade with the we were not at the level that we would like.

Or they would like yeah, we're working very hard to for a resolution.

That will allow us to come out of Q3 stronger with that group Q4 and into 2020 more so.

Obviously, those discussions are ongoing and you know so I can't comment too much but I would say that we've made great progress I'm in recent weeks and clearly what the pandemic has shown a lot of or close to presumes that consumers really go back to brands. They love interest I'm certainly our brands fit.

Right within the so.

And on our retail business is outperforming as well so I think that gives us good momentum into Q3 and into Q4 on the cost side.

Clearly, it's very hard to kind of used the word opportunity when we're talking about prices does impact that so many people and families.

But suffice to say it has shaken up our business in terms of being able to make.

Asked or changes in some areas of our cost structure.

And some of them are quite logical Nick is called them out whether that travel meetings et cetera, but also in supply chain. It's allowed us run more efficiently. We've kept our service levels very high and it's not allowed us to challenge ourselves again on our redeploying existing resources to the best locations and make those choices and clearly that's going to come.

Tim you as we get into Q3 four on into 2021. So you know our confidence in a steadfast is that we're not going to return to our pre crisis cost base and you know we're not there now and we won't be there by the end of year and certainly we don't want to return to it so a lot of those changes.

We're baking into our plans for 21 in 22 and beyond them make I'll just handed over to you to just.

Give some commentary on margin.

Yeah sure so I think.

For us if we look at a recovery threefold focus free cash flow and how quickly can we get back to you know that at least a billion of free cash flow I think thats a critically important measure for us to obviously, that's driven then by profitability and so what's our absolute.

The level of operating profit recovery back to 19 levels and then obviously the margin now a lot of that is going to be driven we hope by solid topline growth, but as Daniel said, continuing to rationalize and Variabilize, our cost base and where we can have strong reintroduction.

Hi Tech area, not just in the elements like travel and meeting.

Relook at our office space footprint look at a ways of working internally and with the Coca Cola companies look at our investments in trade marketing expenses that we've cut and how do we reintroduced those and spend smarter and more efficiently. So we've got a whole program around that so I think you know I.

I wouldn't give you a timeline by which we want to get back to 2019 margins ideally a timeline that says if we look at the next couple of years, we clearly see and if we look at that order of priority getting back to free cash flow. So this would be our top focus of getting back to that level, then absolute profit and margin will follow.

Obviously based on topline affordability as well as what we do on the cost side, so strong focus on recovery.

Brilliant.

Thanks.

Your next question comes from Edward Mundy from Jefferies. Your line is open.

[noise], Hi, Jamie Hi, Nick I've got one question, one follow up I'm sort of questions on Spain, which is when youre. Most successful markets. When it comes to away from home there was going to be disproportionately hit by the supply chain and crisis in particular that Youre very hard look down in Spain in Q2.

What extent you think the weakness is due to domestic cutting is reluctant to talk going out again, breaking some restaurants and talking about that's what he simply due to tourism.

Then my second question.

Follow up question, even is really around the with dividends and what sort of for not some non Sinatra Chronicle.

Think about when you're looking to size the dividend.

Salix announced with Q3 and sort of a 50% Patricia.

Proxy estimates history.

Hi, Hi, Ed. Thank you and so just on on the Spanish and calm and.

You know I would say looking at what we've seen since the Spanish domestic market has reopened does the majority of what we've seen in our Q2 numbers was as you called out because a lot more from you know Spanish consumers are not being able to go out you to some of the locked down or being.

We look them.

To go up quickly and I think that that's held off because we've seen that improves in July and August so.

Clearly, there's a lot more domestic tourism in Spain. There is an any month of the year, a really healthy away from home business in Spain without tourism, just by the culture and the nature of our business, there, which is fantastic and that is recovering and that's what we're seeing in our numbers you know clearly, we'll still have a headwind from foreign.

Tours about going to Spain, ammo, albeit that somehow gone back would be obviously not a prior year levels.

Yeah, I suppose what we've seen in their numbers is you know Spain's business has recovered faster than tourism, which leads us to believe that obviously the bulk of the headwind was really domestic consumption.

Mainly due to domestic guidelines rather than just tourism, obviously that helps us as we move into Q3.

And Nick I'll hand over to you on the dividend question.

Sure. So you know at clearly we continue to have a lot of discussions with the board around this and you know just to reinforce aboard completely is onboard with what we've been doing over the last years on the progressive dividend policy will be got up to the 50% dividend payout and there's no.

Wavering at this point from that we feel that's a good level in a competitive level I think if you ask in terms of what were looking to see I mean, clearly we've got a good tick in terms of access to liquidity because that strong as you've seen with everything that we've done to shore up our balance sheet.

You know leverage will clearly be impacted but that's mathematical and again back to my earlier point when I talked about free cash flow being a priority is to go into recovery clearly that will de lever very quickly given strong free cash flow generation. So really the thing that we're looking at is that topline recovery to give us that.

That that confidence or and then you know obviously that converting into strong free cash flow for the balance the so.

No no no real change book continues to understand the importance of it and we'll update you more in October.

Thank you.

Your next question comes from abroad. This time from Evercore. Your line is open.

[noise] great. Thank you very much a couple of questions first I just wanted to drill down a little bit in terms of and I know you probably don't have very complete information, but the the July results, you mentioned that mix had gotten better.

But the you know the results look like basically a stabilization from June in terms of volume both both down 9% I'm just wondering if there's any kind of color a nuance there.

In terms of the weather or number of days included.

You know is you know just to try to get a better sense or things just basically stable or are there factors or other factors at play perhaps the retailer issue that you spoke to so that that'd be my first question and then the second one a you know we've seen in the last a couple of months a pretty.

Significant increase in the euro versus the dollar and I was just wondering if you could remind us.

How you think about that are any implications.

To your business all your cost structure your relationship with the Coca Cola company any anything that we should be thinking about thank you.

Hi, Robert and thank you for the question. So I think there's a couple of factors that I would call out on your June July question.

First of all we did enjoy fantastic whether in June so that's definitely a factor what I think probably a and another element and again, it's hard to put a number on this but you know a lot of our outlets in away from home really only started reopening in June.

And.

So what we have seen is obviously you know a restocking benefit in June as they reopen than we stopped.

Clearly you know body ended June most of the elements that are open in July it already we opened so.

There is a timing factor.

What we're seeing from a traffic and on a sellout factor is that you know July is better than June.

On for US that's important and we're seeing that continuing in August. So I think from a report the level. There's a couple of factors you know that initial buying is always going to give you a bounce which is great and the weather gave us a bit of lifting in June.

But we have seen or business improve in July and August and.

Nick I'll, let you cover the currency question.

Thanks, Robert Yeah.

Robert on the Euro dollar clearly our exposure is limited to commodities that we buy in dollars, which would primarily be part of our Chicago.

When we buy New York 11, and we do contracts there.

As well as on aluminum. So we have taken and approach obviously is the always have to hedge our commodity exposure, we do not cover for translation exposure, but again here. We have no dollar base translation exposure anyway. So that's kind of covered in.

What we would look at as hot hedged yeah, Yeah cost, which is both the commodity and the currencies home. So hopefully that helps terrific very clear unhelpful. Thank you guys.

Your next question comes from Brett Richard.

Well taken from Kepler Your line is open.

Yeah. Good afternoon, Oh, Thanks for the question I want to ask a on your conversations a meetings with the other but lives into Coke system. What are some of the learnings as it comes to recovering from the pandemic.

You have implemented at the CCP.

Thanks, Richard Yeah, We've had I think we mentioned in there in our last call Weve had led led by Atlanta that some some really good opened forms with all the Butler is.

C O level, another phone churn level to share learning and I think that's being one of the you know benefits if the if there has been out of other what's happened is we've really been sharing ideas.

That that has ranged across the whole business. So we shared great ideas on supply chain SK you rationalization.

We shared great ideas around we opening strategy of marketing campaigns like open never before like never before.

And our HR teams of I've shared you know I think the work that we've done around supporting our colleague.

At this time through our well being initiatives on and making you know that very accessible we've shared ideas and with all of bottlers around that you know we've also shared you know areas of focus for cost reduction it'll be on supply chain. So I.

I mean I could spend a lot of time, Richard detailing you know the conversations and I suppose you know there continuing you know we're still learning.

As I said you know, we're not passive into pandemic, we're very active and as we continue to try things and learn a we're sharing that learning a lot of bottlers are doing the same. So you know that that's great for me in my position as you know as I focus on returning to 19 levels as quickly as possible I can also copy into all of that learning globally.

That's continuing to happen and and I don't see that stopping and I think its major system stronger.

Right I'm certain thing.

Your next question will come from Sean King from your P.S. Your line is open.

Hi, Thanks for the question I believe in the last call you mentioned that a 25% of the bottling and Kenny lines, where prudently idled, but where do we stand today, you know as things improve in terms of our line utilization.

Hi, Thanks, Charlie Yeah, where were back running all our lines I mean, clearly as we've seen the recovery you know coming up and as we've seen the opportunity to build inventory what our customers.

We took the decision you know really in March April may to expand production on those 25 lines and that was predominately as we talked about you know glass manufacturing or smallpox Cindy there was no them on you know two things happened one week right the demand in retail for a lot of those packs.

Everything is open for business on everything is running at the moment, which is great for people.

Great. Thanks, a lot.

I think our final question for today will come from Charlie Hate This from Redburn. Your line is open.

Hi, David in it kept your well fine O S. T. One from me, please and he said and I know pet talk with 50% by 20 to 23, which is probably most ambitious target I've I've seen us many soft drinks company.

Let's talk about the cost of transitioning to that and what's the differentiating between all pets and version PT and then what you all strategic partnership with cure enables each day. Thanks.

So thanks, Charlie Yeah, you're correct I mean, I think we have set a very ambitious target for that it's also one but you know we're looking to before so I was like 2023.

May seem aggressive you know we're committed to trying to get there even faster and so on a number of fronts. You know we've we've obviously been active tour or CCP ventures to partner with companies that we believe can sustainably lower the cost of recycle PT.

And really that's what that venture is going to allow us to explore.

Obviously utilized in our business going forward.

We've also.

You know looked at how do we create more value from a consumer and customer perspective, because what we do know is like consumers on Monday customers, obviously preferred brands that have better sustainability credentials clearly as we move fast on all pet those would actually go up.

And as I mentioned, Sweden, you'll see in our Swedish business, which has performed well and during the last summer months. We spent a lot of time communicating boldly to consumers.

About the benefits of the packaging and it's 50% recycled content. So we're going to keep doing that we haven't called out and the incremental cost of that directly but Nick maybe you want to just talk about how we're thinking about that.

Yeah. So I mean, clearly we are seeing that isn't on cost, but as Damian rightfully said that we see this has been more shorter time in nature as you start seeing much more.

Supply of recycled P.T. come on and that's why we're investing in new.

New technologies and partnering up with several companies to ensure that we can be ahead of that cold and then we truly believe over time, you know there should be something bad consumers.

Value ER and hopefully we can see that in a revenue generation as well, but we want to do it for the right reasons to begin with.

So we will give you that guidance you know as an all in basis as opposed to called that out separately.

Thank you.

Thanks, Charlie So I just like to close with a few comments first of all I just want to thank everybody for joining us today I just also want to go back and.

You know reiterate our tanks and gratitude to everybody who has helped us through this crisis keep us well unsafe and continue to do so.

I, particularly want to thank all of my colleague the P.C.P., who you know really are working.

To get our business back to growth and we're seeing that paying off both you know the second quarter, but more particularly as we go through July and August.

Yeah, we have more momentum, particularly in volume and mix.

We've got very solid and great plans for year to go and those plans to melt rolled into 2021, which gives us good visibility on both our revenue and on our cost base.

This gives us confidence in our business.

And I never ability to generate great value for our shareholders, our customers and all our stakeholders and most importantly, and back to the last question that will be done more sustainably whenever we believe that is a competitive advantage for us a TCP. So thank you for joining us look forward to our next update and I Hope every.

But it continues to stay well.

And enjoys the summer thank you very much.

Ladies and gentlemen. This concludes today's conference. Thanks for your pay participation and have a wonderful day.