Q1 2022 Coca-Cola Europacific Partners PLC Trading Statement Call
Hello, and thank you for standing by and welcome to today's Coca Cola Youre right Pacific Partners, Q1, 2022 trading update conference call.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone muster.
Must advise you that this conference call is being recorded today.
I would like to hand, the conference over to Vice President of Investor Relations and corporate strategy separate with it. Please go ahead Sir.
Thank you for joining us today I'm here with Damian Gammell, our CEO , John Kiani CFO before we begin with our opening remarks on our first quarter trading update remind you of our cautionary statement.
This call will contain forward looking management comments and other statements, reflecting our outlook. These comments should be considered in conjunction with the cautionary language contained in today's release as well as detailed cautionary statements found in reports filed with the UK U S Dutch and Spanish authorities a.
A copy of this information is available on our website at Www Dot Coca Cola AP Dot com.
<unk> remarks will be made by Damian We will then turn the call over to your questions unless otherwise stated metrics presented today will be on a comparable and FX neutral basis. Throughout there will also be presented on a pro forma basis, that's reflecting the results of CCP.
The Australia Pacific and Indonesian business unit API is if the Coca Cola Amatil transaction had occurred at the beginning of the prior year rather than in May when the acquisition completed.
Let me Nicole a full transcript will be made available as soon as possible on our website I will now turn the call over to our CEO .
Damian.
Thank you Sarah and many thanks to everyone joining us today before I begin I would like to acknowledge the millions of people affected by the conflict and suffering in the Ukraine.
<unk> continues to work closely with partners across the Coca Cola system to provide humanitarian relief, we joined orders across the world.
Calling for a return to peace in the region.
So now to today's coal as you would've seen despite accelerating inflationary pressures, we are reaffirming our full year profit guidance for 2022.
This reflects strong top line growth driven by the reopening of the away from home channel, especially in Europe , and solid trading an API and an ongoing resilient demand in the home channel across our markets.
This translates into strong revenue growth of 18, 5% driven by volume growth of 16% up three 5% versus 2019.
And their continued focus on driving price and mix delivered revenue per unit case growth of three 9% up four 5% versus 2019.
We drove positive revenue per unit per unit case in all markets. However, in our API segment overall revenue per case ended broadly flat.
This is due to the volume outperformance of our Indonesian business.
Volumes in Europe reflected the strong recovery in the away from home channel is easing restrictions enabled our consumers to enjoy our great beverages with friends with friends and family and Hurricanes.
Indeed, a number of our markets reached or exceeded our 2019 volume levels in this channel.
As we now head into Europe's key summer selling season, we are optimistic given that we are serving roughly the same number of outlets as compared to 2019 in the mid to high Ninety's and we are seeing encouraging hotel and airline bookings coming through.
We saw great momentum in our API business unit led by solid end market execution in Australia, and New Zealand.
Increased mobility in Indonesia.
Nick and I recently visited Australia, and it was great to get out into the market and see some of these initiatives we've already rolled out in action as well as some excellent Easter activation.
We're now actually currently in Indonesia, So we're seeing ourselves.
Biggest mark ever market Ramadan activation, which also contributed to volume growth in the first quarter.
Overall, we gained value share according to Nielsen both in store and.
Online and DNA RTD category.
Including critically in sparkling.
Any RTD category continues to be robust growing in volume terms by approximately 2% in Europe and nearly 16% in API.
I'm mindful of the inflation backdrop, we are watching closely but so far we've not seen any significant behavioral changes in consumption whether by brand R&D bipack.
Trading aside we continued to make disciplined investments for long term growth, particularly in our people our portfolio, our digital capabilities and our sustainability agenda.
We recently marked world Health day, and World Safety day across our business as we continue to focus on our colleague safety and wellbeing.
And our portfolio several of our great beverages are growing ahead of pre pandemic levels.
And we continue to focus on choice full innovation.
Coca Cola zero sugar continued to benefit from its new look on formulation.
More recently, new flavor extensions of 12, 9% versus the prior year and up 22% versus 2019.
In GB, we saw the lift off of the first Coca Cola creation.
Coca Cola <unk> electric playful zero sugar proposition that tastes like space and provides access to the world's first.
Concert on the Coca Cola Com.
Invite you all to try it.
Amongst our brand continued to outperform.
Driving overall energy volume growth of 19% versus prior year.
And a truly phenomenal 72, 5% versus 2019.
Fantastic innovation, including new juice variants, such as Monster chaotic continue to help build excitement and drive brand leadership within the category.
We are also marketing this year as the 20th anniversary of Monster in our markets with extensive activation and distribution plans.
<unk> also performed well with volume ahead of 2019.
The new Pink what the fund launch during the quarter with new mystery flavors supported by solid execution.
Finally, as we see at home occasion trends continuing.
We launched a new schweppes flavor variant in GB Schweppes Slimline grapefruit.
Larger glass formats for more premium homebase mixing.
Okay.
On digital our journey to becoming the world's most digitized Butler continues and online grocery we continue to see share gains.
20 basis points in Europe , our <unk> portal <unk> Dot com continues to grow making it easier for away from home customers to do business with us.
It is now on track to represent around 30% of our away from home business. This year up from around 20% last year and finally, our personalized cancer Valentines mother's day were well received by consumers on a direct to consumer platform Europe Coca Cola co UK.
On sustainability, we achieve carbon neutral net neutrality on a third manufacturing site, we switch to biofuel across our entire third party logistics fleets in the Netherlands.
We saw the opening of Australia's largest PT recycling facility.
In which we are invested via an industry wide partnership.
We are proud to again be recognized amongst the financial times Statistical list of Europe's climate leaders.
We continue to challenge our commitments as we strive to make progress on our ambition to reach net zero emissions by 2040.
And to invest in making our packaging more sustainable.
Now onto our outlook for the full year given.
Given the strong start to the year continued trading momentum into the second quarter on our confidence in the continued recovery of the away from home channel.
Mindful of a more uncertain outlook for consumers given inflationary pressures, we have increased our expectations on revenue growth to a range of 8% to 10% up from 6% to 8% previously.
We have successfully executed our pricing strategies across our markets.
But given the uncertain inflationary backdrop, we continue to optimize our promotional spend.
And we're not discounting a further round of pricing in selective markets.
But don't responsibly, a smaller increments over time, just helping our customers manage consumer shelf pricing to remain competitive and to protect the broader health and affordability of the <unk> category.
In terms of shape, we previously guided to a revenue growth being roughly half volume and half price and mix.
We now anticipate that our revenue growth will be more weighted towards volume as evidenced in our first quarter.
As you know we have been experiencing unprecedented levels of input cost inflation.
A modeling and energy costs have accelerated since we last updated you with our full year results in February .
We now expect commodity inflation to be in the high teen range for full year 'twenty two up from high single digits previously.
This reflects our latest hedging coverage, which means approximately 70% of our commodity exposure for 2020 twos fixed up from 57% in February the <unk>.
Weighted towards the first half with heavy with hedging coverage of nearly 85% for Q2 versus around 50% for the second half of the year.
We continue to set and closely monitor the approach be it trigger levels in order to lock in more of our unhedged exposures depending on market conditions.
This translates to our latest view on Cogs per unit case for the full year or an increase of around 7% up from 5% previously.
This reflects our best estimate today for modeling purposes across the first and second half Cogs guidance is naturally weighted towards the second half of the year.
Hence, we expect Cogs per unit case in the first half to be up mid single digits.
<unk> is up high single digits for the second half.
On Opex nothing has changed we remain on track to deliver our previously announced efficiency savings and API combination benefits and continued to focus on optimizing our discretionary spend.
So although the shape of our guidance has been modified in terms of revenue and Cogs per unit case I am however, very pleased to be reaffirming our operating profit guidance of 6% to 9% growth versus last year.
In addition to remaining focused on driving operating profit. We also remain laser focused on driving cash.
So we are today, providing new guidance to deliver strong free cash flow of at least $1 5 billion euros. This year, well above our medium term target of $1 25 billion.
These commitments combined with today's interim dividend declaration of <unk> 56 Europeans per share.
Demonstrate the strength and resilience of our business as well as our ability to deliver continued shareholder value.
So thats is our update for today.
On the closing night note I would wholeheartedly like to thank our customers.
But in particular, our colleagues for their ongoing support and dedication to our business.
Thank you for your time today.
Nick and I will now be happy to take your questions and it's over to you operator.
Thank you we will now begin the question and answer session adjuvant mindset, we kindly request only one question per analyst. If you would like to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press the husky.
Once again, please press star one if you wish to ask a question. Please standby, while we compile the Q&A queue.
I meant.
Yes.
Our first question comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead.
Alright, Thank you good morning.
Good morning question on pricing.
Pricing you know overall, you guys reported a very strong quarter, but your revenue per unit case growth came in I guess slightly lower so hoping you could talk a little bit further as to why it wasn't stronger, especially the.
The context of improved away from home and immediate consumption also you know Damian you mentioned is that specifically an API. Your revenue per unit case was down so maybe a little bit more color on the elasticities Youre seeing in this region and then finally just for for FY 'twenty two I mean, you mentioned that.
You know your sales growth here your higher growth outlook will be weighted towards volume growth niches.
Hoping you could talk a little bit more about your pricing strategy and and maybe why you you orange wanting to get a little bit more aggressive on pricing.
Hi, Bonnie.
Well I think we're really pleased with our pricing so far this year. So I think you've kind of got to look at it across two areas security in Europe , again, very strong pricing price and mix growth per unit case.
And again, that's on top of two very strong years.
Of delivering really good growth year on year. So we're very pleased with the pricing we've landed with our customers in Europe , we're pleased with the results, particularly.
In Q1, I think your point on away from home I suppose you've got to just remember that Q1 is quite a small quarter for the away from home market. So as we go through the year with tourism and hurricane reopening in summer coming to Europe , we will see a bigger impact from the away from home reopening so it's quite a small quarter, but it was up.
Positive the first as well in Q1.
Australia also New Zealand very strong performance I think what youre seeing in API is purely a mix effect where.
Our Indonesian business recorded really strong growth in the quarter coming into the Ramadhan festive season. So that's really just a mix impact.
As we look for the rest of the year clearly we still have left open the opportunity to take more pricing and that's something we will continue to reflect on.
As we look through the year and as we look through our performance. We're really pleased with the volume performance I mean, thats coming on the back of a number of really good customer.
<unk> a lot of the work we did last year to set the foundation for a strong 22.
Great alignment with the Coke company and monster around marketing campaigns and innovation.
And obviously reopening as well so theres a number of factors behind that volume growth, but clearly that gives us.
Good leverage on our P&L going into the summer it is leading to strong share gains across all of our markets. So we're very pleased with that.
But ultimately given the volatility on the commodities on Cogs, we will continue to look at whether it's promo price investments are absolute real price increases as we go into the second half of the year. That's clearly something we will continue to monitor.
Nick I don't know if you want to know and I would just add I think two two points that I would just add to give you a little more color. If you look at it within Europe and you look at the markets that were the most impacted even though Iberia is for instance, still down on away from home volumes versus 19, the recovery on a price per.
<unk> has been in in the low teens. So when you actually dig in deeper into each market, we actually think that that price mix element both from a mixed in away from home recoveries coming back strong a market like GB was in the high single digits. So the weighted average of that comes down.
That five.
But we're seeing where we're seeing that rebound that mixed impact on rate is coming through as well and as Damian said, if you look across the API markets. Each one of those had strong growth and in fact, I would call out of Australia, because they actually were really able to drive rate.
And drive down the promo.
Floor, which typically was over 50% and as we were out in the market Damian and I have a couple of weeks ago.
The ability to take that down to 40 and continue to challenge ourselves more going forward in that market and it's sticking and you can see the volumes coming through we actually feel really good about it but.
But again as Damian said this was based on everything that we knew at the time that we were negotiating this and we're not ruling out.
Second round in select markets, depending on again getting that balance of affordability ryzen.
And maybe Bonnie just.
To put some of the points you mentioned, we are seeing our elasticity hold up really strong in the first quarter.
The bulk of coming into strong Easter.
Strong Ramadan so.
Happy also that our pricing.
Landed but also we've seen our business continued to grow really well on the back of higher pricing and even though.
Might say, it's a bit lower it's a lot more than normal for us as well. So we've taken a lot more pricing and we've seen our volume held up so clearly we don't take that elasticity for granted.
And as consumers, particularly in western Europe come under more pressure on the back of higher cost voltage and obviously fuel energy, but in basic commodities, yes, we want to make sure that we keep our category relevance and particularly our brands relevant.
So trying to strike that nice balance between a right level of pricing to protect our P&L margins strong volume momentum in the market I'm, having a mid midterm view of our business, which is through into 'twenty, three and really doing what's right now for 'twenty two but also for 'twenty three and we now.
As forever, we don't take that consumer franchise for granted it's held up really well.
We expect that to continue but that's really what we're going to be looking for any signals around.
That will guide us both on the commodity side, but on the consumer sentiment side and then what we do with the second price increase and we'd be happy to update everybody on that as we go through the year.
Okay. Thank you I'll make sense it really sounds like you guys have good visibility. Thanks again.
Thanks <unk>.
Next question is from the line of Simon Hales from Citi. Please go ahead.
Thank you Damian Nik Sarah.
Just coming back to obviously.
<unk> delivery in the quarter clearly very strong then you highlighted Damian Youre running ahead of 2019 levels, which is great to see but I think it's still in the away from home in Q1, I think you said, you're about 1.5% below 2019 levels.
Given that there was still some out of home restrictions in place, particularly in some of the European markets in the early part of Q1 I Wonder if you could share any data you've got around what the exit rates look like in March perhaps early Q2, because the away from home channel in some of your key regions I'll be running ahead now of 2019 levels.
Yeah. Thanks, Simon Yes, we're definitely seeing as you would expect.
Particularly in Europe .
A direct correlation between the restrictions easing, particularly in northern Europe I mean, if you look at our business that was probably the most unrestricted which was the UK extremely strong performance in the quarter and Thats being mirrored now as we come into the second quarter across all of our markets.
The data that we're looking at as well as quite positive around tourism hotel bookings, which will be key driver of that number versus <unk> 19 in markets like France and Spain.
Very strong Easter.
Home and away from home.
So we're confident that as long as the regulatory environment stays where its at will.
You need to see that.
Way from home number get close to and ahead of 2019 across all of our markets at the moment.
Yes, so it's purely early months, John said, if you recall, northern Europe , particularly Belgium, Spain and.
We still had a lot of restrictions in away from home mask wearing.
It was winter so.
Factors that really make that number versus 19 actually look quite strong when you factor all of that and to be honest.
And Thats whats given us confidence as we look into Q2 in the summer.
And.
That's really useful and just to clarify obviously the timing of the Easter really felt in Q2. This year was there an Easter effect that we should be aware of when we think about modeling Q2 versus Q1 or you see some more of an acceleration in April .
Yes.
Obviously, the timing did have an impact on the positive into Q2.
We've seen that in the month of April .
And I would say that.
Without without saying too much. It's it's a positive it's a positive impact so we're clearly seeing the benefits of that.
Great. Thank you I'll pass it on.
Thank you. Thank you. The next question is from the line of Lauren Lieberman from Barclays. Please go ahead.
Great. Thanks, good morning.
Just wanted to I guess first clarify that youre constructive on the ability to price, but that they are reiterating.
<unk> of the currency neutral operating profit guidance does not assume any incremental pricing versus what's already in the market that's kind of part one.
And then part two was I was curious as any of its share on what you've been doing or plan to do around.
Package mix and assortment and kayo spoke about some interesting examples in the U S.
This week about what theyre doing to really focus on affordability, but still realized price mix and I was just curious if there are any new examples beyond I think you've called out the large sized schweppes glass, but anything else that's worth calling out in your markets.
On the price pack assortment conversation thanks.
Yeah. So on the first question, Laura and we have not factored in.
Pricing as we've indicated in select markets potentially for the second half of the year, but we have put in optimization, where appropriate on some of the promo spend remember we've talked about two buckets of where we will continue to manage that so we factored that in as we look at it but again that's a dime.
NAMIC process, both in terms of how we'll continue to look at potential rate as well as what we might also want to continue pushing more on versus what we factored in on that from a spend perspective.
And then maybe just on your.
Second part of the question.
Really back in 2020 and $2 21.
Recall, we due.
Due to the restrictions of Lockdowns, we became a very focused retail business and in our western European markets in particular.
And that actually focused a lot more into a promo spend efficiency, but also our packaging strategy.
And you'll recall on a number of our meetings and calls we talked about.
Value packs and large packs being a bigger part of our business in retail as two things were happening one people, we're not visiting stores that often because of COVID-19 .
Two they were consuming a lot more home so.
We did a lot of work, particularly coming out of 2020 into 'twenty, one to reshape our retail package mix both through promos to pack size.
Really what drove that NSO per case success in 2020 one.
And I think that's really still too as well as we've come into 'twenty. Two so our overall <unk> per unit case in our home market retail business is really strong now and that's on the back of a lot of what you heard from the U S last week smarter promo pricing.
Better pack sizes, and we've just gone into another one and schweppes.
But clearly on our on our Kao and on our Monster portfolio. That's been something we've been working on really since we got hit by Covid hard in mid 2020, which seems like a long time ago now but.
But.
Clearly that's been a big part of our growth and also in Q1.
Okay, great. Thanks, so much.
Thank you. The next question is from the line of Edward Mundy from Jefferies. Please go ahead.
Hi, everyone.
Just a question on the at home volumes would have been a particularly strong still you mentioned solid and market execution as well as market share gains, but could you talk to the broader health of the category and sort of stickiness as consumer habits with people, having pretty drunk more of your products at home during the pandemic.
What is it that's really driving this very very strong.
Volume is it penetration or is it frequency.
Hi, Ed.
I don't know if you're going to hate this answer it's a little bit of both.
We've clearly seen.
In Australia, and New Zealand, Western Europe , and Indonesia.
Very healthy sparkling category, so we always.
I've enjoyed it very healthy energy category with a good momentum.
Momentum in our tea business.
But clearly the last couple of years will be characterized by a very robust sparkling category.
Particularly driven at home.
And with eating out restrictions.
With overall Covid.
Restrictions, we have seen a lot of our consumption move back in home people eating at home.
Showing our products at home so we've seen an increase in penetration of the category.
Clearly that's down to the fact that people used to go out or even home. So that's good we have seen a frequency increase.
On the back of <unk>.
Our initiatives around our pipe pricing. So both of those are driving the category to levels of growth, we haven't seen for a long long time in western Europe , but also.
In Australia, and New Zealand has been doing well for many years.
And I think credit to both monster, but particularly to the Coke company in terms of some of the product innovation, the new formulation of Coke zero and the new look is worked really well lot of great innovation around scientists. So that's driving the category clearly monster has a very dynamic pipeline innovation, that's creating a lot of excitement in that category. So.
It's not just one element, which which I'm actually happy with because I think that gives us sustainability. The fact, it's coming across a number of initiatives.
And then obviously, we've worked very hard with our customers to land our pricing without disruption to continue to drive solely in in store execution.
And as our away from home, we opened to be the first supplier in those outlets too.
To reconnect.
To support our customers reopening so a mix of initiatives with.
But overall I would say, a very healthy M&A or to the category, but particularly sparkling which is obviously something we're very pleased with.
Great. Thanks, David and then I guess on the same topic of pickups been since you are in Indonesia could you perhaps sort of.
A bit of light on sort of what youre seeing on the opportunity in a while perhaps low and what is the opportunity and how do you feel about that opportunity to really drive per caps in the category within that market.
That's extremely exciting market when you look at the overall and we talked about this before the overall.
The size of the consumer base here at the <unk>.
Age profile.
It's amazing the GDP growth.
The emerging middle class.
Our market share here in sparkling is above 90%. So theres a lot of really strong indicators I think the one week. One is what you called out which is per capita which is really a tale of of the holiday festive period, Ramadan, which is now where we see really good per capita as strong consumption.
The holiday period, and then it drops off so we're just working on particularly with the Coke company is understanding what.
What relevance our category and our brands get in this period and how do we build out relevance to other tools, including pipe pricing, but including other passion points with consumers outside of the main festive period, that's what excites us.
A quick journey, if we're going to make it sustainable and if we're going to make sure it creates value for our shareholders.
But clearly if you look at the results in Indonesia, we are seeing.
The merits of the decisions, we took last year around really going back to two categories to focus on and really focusing on sparkling and on tea.
Exiting a lot of the other categories and de prioritizing them, but really driving our investment in sparkling and Thats really kicked off in the middle of last year and I think that's definitely driving a much stronger Spartan performance into 'twenty two.
Got some new innovation, that's coming to market in the coming months. So I think that will give us a stronger platform in tea.
And then obviously, we'll come back towards the end of the year, probably around our capital markets day, and give you a bit more color on how we see that per capita conversation evolving on sparking here because that's really the key to unlock value for our shareholders.
And then we can get into the categories than we can.
Look at Adjacencies, but until we get that sparkling per capita.
Growing faster and that's doing that already but making it sustainable.
That's going to be our number one priority.
Got it thank you.
Thank you. The next question is from the line of Eric <unk> from Morgan Stanley . Please go ahead.
Great.
You guys now that we're approaching a year one year anniversary of the amatil deal, hoping we could take a step back and you could discuss a bit.
Any surprises learnings about the AMETEK business.
Reverse learnings or learnings from AMETEK that you're applying to CCP and then just following up on the last question any additional thoughts in terms of where you are in evaluating the route to market model for Indonesia.
Thanks.
That's a big question for Paul.
Paul So.
Trying to do it justice, but obviously, that's definitely something we will give a lot more color on <unk>.
Later in the year I think that would be great topic for a couple of markets stay to really lay out for everybody.
We've learned both positive and what surprises on the downside as well, but maybe I'll take the second part of that question first.
We are currently exploring the benefits and also the some of the opportunities within our current go to market, which are clear.
And then we're also looking at how other successful <unk> brands get to market.
In Indonesia, because I think that's clearly we want to learn from companies that are doing it differently why theyre doing it differently and what benefits. It gives their business both from a execution perspective, but also from a cost perspective. So we're laser we've laid out about two or three different options.
We're currently working with the team around.
Modeling what impact they would have in our business and on the <unk>.
Size of the chain, so more to come but I think both myself and Nick are pleased with the progress. The team have made locally in terms of looking at the alternatives doing some testing.
Understanding the impact of that on your broader question I suppose overall looking back nearly a year waterfront tastic deal for us to do it when we did it when we were under.
Obviously, some COVID-19 impact in Western Europe .
Obviously, the integration has gone extremely well.
We operate as one company now we've got great leadership in API with Chris Peter and Jorge.
We are particularly pleased with the results. So I think that they speak for themselves beyond that theres a lot of learning.
That we've taken back to Europe from both New Zealand, Australia, particularly around our segmentation capability, how to use data and analytics.
Power to small store business in New Zealand.
And clearly from Europe , we've been bringing down a lot of supply chain.
Shared services insights our customer digital platforms, how we manage pack price mix in particular and really how we've been very focused on cash generation in Europe .
Nick will probably push it out a bit later, but clearly we're seeing the benefit of that cash flow mindset coming to API as well so as I said it will be a really long answer what we can do it justice both both on the negatives and positives to be honest because clearly we've seen both but that's definitely something we will share with you in a bit more detail and color on the capital markets day.
Nick I don't know if you want to know.
No I would just add one point to the second part in terms of the route to market changes because I think what we've also spent some time here doing is really assessing both what we need to do in the short term.
How do we need to think about the growth opportunity and how do we position ourselves to be successful for the long term. So we don't want to go ahead and make what could be quick decisions or choices now that result in us being regretful of those three or four years from now so I think we've got to get that balance right in terms of.
What we can do today versus what we should be just choice for law and just assess how the market growth and what we can capture going forward.
He is also reflected in our thinking around the route to market.
Great looking forward to hearing more thank you.
Thank you. The next question comes from the line of Finton, Brian from Jpmorgan. Please go ahead.
Yes.
Dr. James.
Thanks.
Just a question in terms of.
I appreciate it.
In spot markets.
But the 5%.
You too.
7%.
But the actual.
The names of hedging that you display.
57% to 71%.
Scott.
Hi, Tom this is commodity inflation that based on spot prices.
Prices for the rest of the year or do you expect.
You be anticipating or hoping for some deflation and the spot price of the commodities.
The year end.
Right.
Yes.
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Just checking if the speakers can still hey, Ross your line is on mute.
Okay.
So let me speak is still connected with your line on mute.
Yes.
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Yes, I was just checking with them. Thank you.
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Sarah.
Hey, Darling now thank you.
Yeah.
Yeah.
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Yeah.
And participants please continue to standby, we just trying to reconnect the speakers now.
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Sam participants please do continue to standby, while we reconnect the speaker.
Yeah.
Hello, Kevin.
Speakers reconnected please continue.
Great.
So theres a thunderstorm happening here and that's what resulted in the line being lost Benton I'm not sure where you lost us, but I'll just start again.
Yeah.
Hedging profile reflects that we do expect hopefully not to want to lock in at these rates, but there might be some easing in some areas and thats whats really helped us move from that 57% to that 71%.
So.
7% right now just looks at what spot.
Best what we see today.
So clearly there could be some upward or downward pressure, but as we've said we have levers to continue to to manage that but the level of what we have opened is obviously significantly lower than where we were sitting.
Couple of months ago, and we'll continue to hopefully layer on some more hedges as we see the right opportune triggers being filled.
Great.
I know, it's again very early.
2022.
And then.
Could you give us.
You are.
At this stage.
Okay.
Well listen we have obviously started layering on some hedges, but at this point I would say were.
Probably in that 30% range in terms of overall hedge coverage for 'twenty three at this point and we will continue to look at those in fact I just approved some triggers.
Aluminum for 'twenty, three as well yesterday, given where we saw some of that softness come in so we wanted to make sure we put some triggers.
Now for 23 as well so we'll continue to update you on that as we go through the rest of this year as well.
Great. Thank you and safe travels.
Thank you.
Thank you the next question.
<unk> is from the line of Sanjay <unk> from Credit Suisse. Please go ahead.
Hey, guys just coming back to the Cogs guidance can you just give us a feel for how much of the uplift in the commodity cost outlook to high teens from high single digit is driven by energy.
On how well hedged are you on that specific components.
So.
Obviously.
At different levels versus where we were.
There's elements coming from energy and there's elements that have come from Ali as well from where we were.
So it would be difficult for me to break out specifically, which elements of on that.
But if you look at it from a perspective of.
Gas and power.
In Europe , obviously, that's where we continue to see some more volatility we have not broken out just to give you individual hedge coverage area.
But what we are doing is also making sure. We're there is a reliance for instance on gas are there alternatives that we might be able to utilize and deploy for instance in a market like Germany, and we're building up that that that backup to ensure that we have continuity of supply.
Hi.
Along with what is obviously the best pricing.
Got it and if you if you do go ahead with the second round of price increases when when would you need to announce that to your retailers for that to be effective for the second half of the year I mean, how far away are you from making that decision.
Well typically youre looking at anywhere between eight to 12 week window that we'd be working on so it's not like we're not working on those and opportunities and options in select markets as we've said.
And it was very it might not happen.
On August 1st it might be September or October depending on the market.
The way, we're looking at it too as we continue to see visibility into 2023.
What is the right approach in terms of what we might have to do in that second half and what we might have to do in early 'twenty three to break it up into more digestible type of shelf price increases to manage sticker shock as well. So those are the things that we're looking at as we speak.
Just to build on Nick's comments, Andy I mean, there's kind of three areas that we're looking at <unk> got yes.
As we look at reopening of away from home <unk> got 40% to 50% of our revenues in the away from home segment, which is more wholesale small customer driven so clearly a different timeline around pricing there.
And we've got obviously, a promo pricing and retail again, which we look through to the end of the year in terms of what's the most effective use of data for us obviously that there's a lot of <unk>.
Revenue there and then you've got this straight.
Price increase into retail and big customers, which is the timeline Nick outlined so.
And then not a complicated is also slightly different by country, but there.
There are all the things that we're working on but I am quite happy because we have got a number of levers as away from home reopens.
That brings another area of pricing leverage into our business as well, which we haven't had for a couple of years. So we'll continue to look at it and as Nick said make the right call not just for 'twenty, two but into 'twenty three as well.
Got it thanks.
Thank you. The next question is from the line of Charlie Higgs from Redburn. Please go ahead.
Hi, Damian Nik, if youre willing to join the world too.
I had a question on the sparkling category in Australia. Please maybe you could maybe update on your initiatives there.
Perhaps how coke zero sugar Coke.
Next year he has been doing.
Given pepsico's, winning quite a bit of share, but then also perhaps the home cooks vs pricing fan to how that's playing out please.
Yes, Hi, Charlie.
So yes, you called out a good a good area because we have seen our relaunch of Coke zero, both in terms of formulation and packaging in Australia paying dividends. So we are now back gaining share in our core sparkling business and unlike.
Cola light in particular, so we're pleased with that Peter.
Peter and the team have obviously put a number of initiatives in place going back pre deal to.
To be fair.
That started paying dividends coming out of 2020 into 'twenty, one and that's continued into 'twenty two and clearly we're looking at what we can learn from Australia and Europe around their coke zero initiatives, whether it's flavors package sizes.
Paying out so we're seeing some some good share gains on flavors.
We are currently.
Working through what that means for fantasy Kirks and sprite.
Okay.
A number of those initiatives haven't hit the market yet because clearly we're just closing that deal with the company.
But we've aligned very clearly on what role each brand will play in our portfolio.
We're looking at some new initiatives with the company around better zero sugar free variance from the <unk> brand in particular that Hasnt enjoyed that previously.
And we're also looking at some of the formulations on some of our flavors down there because we have we've got I think we've looked at a slightly stronger flavors in Europe , and we have a stronger flavor business. So we're also examining whether or whether that's something we can bring to Australia, so more to come on flavors.
The alignment.
We've laid out the strategy, we've taken some initiatives already on formulation and on zeroes unclear.
And clearly that's something that will pay dividends into 2023 in particular.
And just on that share piece in particular, just to give you a number we've actually gained about 80 basis points with Coke zero within the light segment.
So it's actually a very strong performance from the team has been driving based on what <unk> just given you in terms of the color.
Perfect. Thank you very much.
Yeah.
Thank you. The next question is from the line of Mitch <unk> from Deutsche Bank. Please go ahead.
Hi, Damien Hi, Nick I wanted to ask about cash if that's the case.
Given free cash flow guidance for $1 5 billion this year and Thats, obviously, a step up on last year.
And on the year before I appreciate higher EBIT will be a contributor to that higher cash flow, but could you, perhaps give us a bit of color on the other moving parts like Capex working capital.
Restructuring et cetera, and is there any impact at all on your your <unk>.
Gearing target.
Okay.
Yeah, So listen I would say to you. If you are looking at it from an angle of what's driving that it's two main factors.
Improved EBITDA as you rightfully said and as Damian highlighted earlier, we have done a lot of work around <unk>.
Answering some of the best practices on working capital into API and have also challenged the Europe team to look deeper and harder on some of the areas. So improved.
Ebitdas as well as working capital focus Capex will actually be.
Globally in line, if not slightly higher because we are continuing to invest.
And you've also got the fact that our restructuring and you've seen some of the announcements that we've just made recently in Germany as well that will continue to be a little bit higher but then you've also got the benefit of some of the deal costs that we had last year.
Think gives and takes on each of those but obviously much higher.
Solid performance for <unk>.
The group with that $1 5 billion that we've committed to.
And it won't affect our D. Gary.
Actually in support and help us continue to drive the deleveraging.
But in line with.
Our previously communicated target of getting towards that top end of that range by the end of 'twenty four.
Understood and then an unrelated follow up if I can is there any of the increase in your Cogs guidance related to indirect costs.
Apply as passing on higher costs.
That facing.
Well clearly that has an impact as well and we factored in.
Some level of that but obviously clearly we will continue to negotiate and work with our suppliers because this isn't about a long term partner as well and then not just passing on anything on a one on one off basis. So we'll continue to look and work on that but we factored in where it makes sense because it is also linked sometimes to indices as opposed.
Just a fixed price contract.
Understood. Thank you.
Thank you and the last question today is from the line of Brett Cooper from consumer Edge Research. Please go ahead.
Okay.
Hey, guys I was hoping you can provide us a couple of numbers that would help us understand the competitive advantages that might accrue to your business from returnable. So what percent of your business as an addressable channels I would imagine thats Orca, but correct me if I'm wrong and then can you just provide share differential versus the number two player I realize it might be different by market, but just trying to frame that up thanks.
Sorry, Brett could you could you repeat that we missed the first part sorry.
Sure I'm trying to understand the opportunity in returnable, So I would imagine the channel where thats most likely as worker, but if that's wrong. Please correct me. So I'm wondering what percent of your business is there and then just your share differential versus the number two in those channels.
Yes, so so maybe.
When we look at our packaging today that is reusable or refillable, including returnable, we're at about 18% of our mix. So it's quite a big part of our business already if you look at clearly where we've got returnable glass as a strength division haruka.
And that really goes to markets like Germany, Belgium.
Spain and France.
Most of the other markets, we've got a one way glass proposition Hurricanes, So thats something we will continue to evaluate.
We have got a sizeable refillable PT business in Germany, and retail so that goes beyond hurricane, but thats really it.
Standalone.
As we look at our long term sustainability objectives, we're looking at the role that all of those parts to play in making our business more sustainable from a leadership ratio, we clearly enjoy.
Across all of our markets, but particularly in western Europe , very strong leadership ratios in hurricane in it.
Away from home and Youre talking high single digit to double digit. So we can give you the exact numbers but.
It is very very strong it's a part of our business that we have.
Done really well in over a number of years and that's been supported by some of our package mix. So we'll keep looking at it but we're about 80% at the moment I think.
18% in total, yes, and just to your point also in Germany, I think we have a big advantage there because we have stayed in that one liter which has become.
Our preferred pack and a lot of what was in refillable has moved up in competition. So we're in a good position there as well.
Hope that answered that question, Brett I'm not sure we got it all to you but.
No that's great. Thank you.
I would now like to hand, the conference back over to Damian Gammell for his closing remarks Damien. Please go ahead.
Thank you operator once again, thank you everybody for taking the time to join us today.
We were very pleased to reaffirm our profit guidance for 2022.
We are now focused on delivering a great summer in Europe , and continuing that really strong momentum across our API markets.
You would expect our focus remains not just on the top line, but also on our profit and cash delivery through the rest of 2022.
As Nick highlighted.
All of that and delivering that strong free cash flow, while we continue to invest in our business, particularly in our people, our sustainability agenda, and and our capabilities, particularly across our supply chain across our digital platforms to drive a better customer experience and to continue to make <unk>, a more productive and efficient business.
And we do look forward to updating you in early August on our half year results.
Spoken about today, we are planning our capital markets day in early November we got some good questions. Today that we can give you a bit more color on during that meeting and obviously, we will come back and share a bit more of a wider perspective on our Indonesian business. So thank you again.
We're very pleased that you could join us as we continue to focus on creating sustainable value for our customers and of course for our shareholders. The CCP. So thank you and have a great rest of the day everybody.
That concludes our conference for today. Thank you for participating you may all disconnect.
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