Half Year 2022 Coca-Cola Europacific Partners PLC Earnings Call
Yeah.
Yeah.
Hello, and thank you for funded by welcome to today's OCA Kodak Yoga Pacific Partners H, One 2022 results conference call.
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 drove in the session you will need to press star one and one on your telephone I must advise you that this conference call is being recorded today.
I'd like to hand, the conference over to Vice President of Investor Relations and corporate strategy Saga with it. Please go ahead server.
Hello, and thank you all for joining us today I'm here with <unk>.
Damian Gammell.
No.
Yeah.
We begin with remarks on our results for the second quarter and half year 2020 to remind you of our cautionary statements.
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 the detailed cautionary statements found in reports filed with the U K U S financial authority.
A copy of this information is available on our website at Www Dot com.
Tom.
Prepared remarks be made by Damian Nik and accompanied by a slide deck. We will then turn the call over to your questions. Please note unless otherwise stated metrics presented today will be on a comparable and FX neutral basis throughout.
And the growth rate will also be presented on a pro forma basis. Following the call a full transcript will be made available.
Our website I will now turn the call over to our CEO Damian.
Thank you Sarah and good morning, good afternoon, and many thanks to everyone joining us today.
In May we celebrated our first year as Coca Cola Europe , Ossific partners I'm incredibly proud.
As our team I am pleased with the progress we've made to date.
We've built a solid platform for long term profitable growth focus on delivering value for our shareholders.
And of course, our customers.
We had a fantastic first half achieving strong top and bottom line growth value share gains and an impressive level of free cash flow.
This really gives us confidence for the rest of the year. So I'm really pleased to be raising our 2022 revenue profit and free cash flow guidance today.
We're very proud of our strong relationship in alignment with the Coca Cola Company and our other brand partners such as Monster and we are very confident in the future. We retained our sharp focus on revenue growth management and driving efficiencies throughout the business.
While continuing to invest for long term growth.
Particularly in our portfolio, our digital platforms sustainability and of course in our people to whom I wish to say a big Thank you for everything you do for CCP and our customers.
So, although we're mindful of the macroeconomic and the unprecedented inflationary environment. We do believe we are well placed for the second half of 2022 and beyond.
I would now like to talk a little bit to the categories in which we compete.
They've remained robust and im very pleased that we've continued to take share grow household penetration and.
Unimportant to drive more value for our customers.
We have great brands, which are consumer close and on the back of ongoing investment in innovation and brands products and packaging. Our brands continued to support a very solid or GM growth platform for our customers.
This means that we can can we can continue to achieve good pricing in the market even in the most challenging of times.
That brand load taste and quality are always are paramount importance to our consumers.
We continue to innovate driving excitement and growth in NAR TD category that grew by around 5% in the first half across our markets.
That growth was even higher and API at around 15%.
This is great for our customers too and I'm immensely proud of the longstanding unsupportive relationships, we have with them, particularly over the last number of years with all of the challenges that COVID-19 brought to our business in their businesses. It.
It's great to see that once again during the first half we are the largest value creator in the retail channel within <unk> in Europe and across any RTD and API.
In fact in Europe , we delivered more than twice the value to our customers.
Nearest peer.
We have made structural changes to our business in recent years, which positions us more favorably in the event of a potential recessionary environment.
As you know approximately 40% of our volumes come from the more inelastic away from home channel, which is naturally more resilient and challenging times.
And in the home channel, we have made bold strategic decisions in recent years, clearly targeting value over volume and improving the underlying profitability of the channel.
We've step changed our recommended price pack architecture to continue to address different consumers and now constantly play across the spectrum of recommended price points and elasticities.
We also continue to actively manage our headline pricing <unk>.
I'll now optimize our promotions through smart digitally led revenue growth management.
So we do feel good about our categories and although we're not seeing signs of a shift in consumption. We are well placed as we moved into more uncertain times.
So this slide should be familiar we have a simple, but vital purpose to refresh Europe in API.
And critically to continue to make a difference to all our communities and our stakeholders.
We have a simple focus around great people, great service and great beverages.
All done sustainably for a much better shared future.
So now I'd like to briefly touch on each of these areas as we look back at the first half of 2022.
Firstly, and most importantly to our great people.
The well being and safety of our colleagues remains our number one priority at TCP.
And our new get home to what you Love campaign has really brought the importance of safety to life across all of our businesses.
We had a very strong participation in our first global digital engagement survey.
With a stable engagement survey overall, a great result in what has been a challenging environment as we establish new ways of working post Covid and this score continues to position CCP ahead of our benchmark group.
In June we saw some fantastic pride celebrations across many of our sites as we further progress our everyone is welcome philosophy.
Our DNI credentials continues to be recognized externally too and we were recently included in Bloomberg's gender equality index for the second year in a row.
And we were recently awarded a gold at the UK employee experience awards and recognition of the digital technologies, we use across our workplace.
As ever Great service remains a key priority and a critical driver of our performance. We've continued supporting our customers through the reopening of Arca and maintained levels of customer service in the nineties.
In Indonesia, we had a record Ramadan period with our biggest ever activation.
A huge event in the calendar representing about a third of our annual sparkling sales more.
More focus on our core sparkling and tea categories.
Loud us to effectively manage our supply chain and deliver better service to our customers across what is a wonderful period for all of our consumers.
And finally I'd like to take this opportunity to congratulate and wish the Netherlands could look as they will represent Europe in the final of the annual global Coca Cola Bottler competition the lockup.
Which recognized as world class customer service and execution.
You may recall that we celebrated New Zealand, winning the cup last year.
We are also extremely privileged to make move and sell the best beverages in the world.
Coca Cola Zero Sugar has continued to outperform across all of our markets growing volumes by 24% versus 2019.
Santa new flavor launches such as Vantiv Raspberry in Australia, and the latest what the fund the campaign continued to drive excitement for our consumers.
Celebrating its 20 <unk> anniversary and our markets Monster continued to gain share through great innovation and in store execution.
In GB, we are pleased to launch a new cost of <unk> range and three industrial flavors smooth coffee chocolate <unk> unparalleled squirrel. This is being supported by a great summer something campaign across the country. So if we come across one make sure you tried in GB.
And all of what we've just shared must continue to become more and more sustainable.
This is a key focus for all of us at CCP, our consumers our customers and our shareholders.
We want to continue to be the leader in packaged solutions and in some of our markets. We are piloting new complex freestyle dispensing technology.
Designed for smaller on the go and at work locations.
And as we continue our journey towards net zero emissions by 2040.
Introduced lighter weight next for our sparkling drink bottles and will soon distribute 100% of our packaged beverages.
And returnable glass bottles to all of our <unk> customers in France.
To make it even easier for our consumers to recycle similar to Germany, we've introduced new attach caps to all our plastic bottles across GB.
Our progress continues to be recognized and we're very proud to be included on the financial times Statistical list of Europe's climate leaders.
As one of 400 companies, having achieved the greatest reduction in scope, one and two greenhouse gas emissions between 2015 and 2020.
So all in all.
Continued great progress towards a better shared future.
Now turning to our first half performance highlights.
We continue to win with our customers on this momentum as evidenced by our RTD value share, which grew by around 30 basis points, both in store and critically online.
Im pleased that we delivered volume and revenue ahead of 2019 levels.
The recovery of Hurricane tourism as well as a resilient home channel led to strong volume growth of 13% in the first half.
This was supported by great execution, and as I mentioned earlier solid service levels across all our markets.
Our continued focus on revenue growth management drove solid revenue per case growth significantly ahead of pre pandemic levels.
In the digital space, our transformation journey continues.
And we remain on track to deliver around 30% of our European away from home revenue through our <unk> portal <unk> Dot com.
Given the uncertain outlook and some of the macro headwinds that we're facing it is more important than ever for us to continue focusing on driving efficiencies throughout the business.
And as you see reference here on which Nick will cover in more detail shortly.
We recently celebrated our first anniversary as Coca Cola year precision partners.
I'd like to now share with you some of the key highlights.
Last year, we described the amatil transaction as the right deal at.
At the right time.
The more time I spend in the business the more excited I get about the opportunities ahead.
Firmly believed this was not just the right deal, but indeed, a great deal.
The API business had a great first half with revenue and profit ahead of 2019 and is moving ahead with its strategic priorities at pace.
We've already made good progress in reducing the depth of our promotional support in Australia with little impact on volumes. This is also great for our customers we.
We are sharing learnings and best practices in both directions in areas, such as infrastructure and data analytics.
And our chairman solid Earl and I recently visited New Zealand and.
And Indonesia, which sets the benchmark for World class execution, and we look forward to bringing learnings back into Europe too.
And I'm, even more excited about the transformation opportunity in Indonesia, having spent time there recently with our full board of directors.
The re orientation of our portfolio is well advanced we now have substantially exited beer and cider in Australia as planned and the majority of the proceeds have been received from the sale of our CCP owned any RTD brands with a few brands in New Zealand and Fiji still outstanding.
This is all in line with our long term growth plans that we can continue to develop with the Coca Cola company to better align our portfolio with more focus on the core.
So clearly the growth potential from API significant.
And I look forward to sharing more at our capital markets event later this year.
So on that note I would now like to hand over to Nick to talk in more detail through the financials over to you Nick.
Thank you Damian and thank you all for joining us today, let.
Let me start by taking you through our financial summary.
We delivered total revenue of $8 3 billion euros, an increase of 17% I will provide some more details on this very strong top line delivery in a few moments.
Our Cogs per unit case increased by five 5%. This was driven by higher commodity prices as well as concentrate costs, which have naturally increased in line with the growth in revenue per unit case via incidence pricing model.
Clearly our mix as you have seen is much more favorable on the top line. This has had a cogs impact as well, partially offset by the benefits from the recovery of our fixed manufacturing costs given higher volumes.
We delivered comparable operating profit of $1 1 billion euros up 29%.
Reflecting solid top line growth the benefit of our ongoing efficiency programs and our continued effort on managing discretionary spend.
Our comparable effective tax rate increased to 24, and a half defense, which I'll come back to later.
All in all then this resulted in comparable diluted earnings per share of one euro and <unk> 61 up 32% on a pro forma comparable basis.
Free cash flow generation continues to be a core priority and we delivered an impressive $1 3 billion euros during the first half.
This was due to the strong growth in operating profit as well as some capex phasing with a few larger projects landing in the second half of the year.
And as you know working capital remains a core focus for us and I'm pleased that we were able to deliver approximately 400 million euros and benefits in the first half with a notable improvement in our payables and inventory days and API as we build out a rebound project into that region.
That said, we do expect to see some reversal of these working capital benefit in half two mainly driven by inventory. We believe it is prudent to build our safety stock levels on key raw materials to ensure continuity of supply and ensure on shelf availability, given the logistics and supply chain constraints.
That we will continue to face.
And finally on shareholder return, we paid a first half dividend per share of <unk> 56 euros.
Which we declared in Q1 and paid in May.
As a reminder, this was calculated at 40% of the full year 'twenty, one dividend with a second half interim dividend to be paid with reference to the current year annualized total dividend payout ratio of approximately 50%.
Now if I move to our revenue highlights the strong growth in revenue was driven by both an increase in volume and importantly continued growth in our revenue per case.
As expected the most significant improvement has been in the recovery of our away from home volumes given last year's base was still impacted by lockdown restrictions.
That said, we are pleased that our away from home volumes return to 2019 levels and half one with traction and immediate consumption a rebound in tourism and many of our markets and of course, the staff of great weather this summer across our market.
Strong trading in the home channel continued benefiting from increased at home locations as well as the continued growth in online grocery with volumes up seven 5% versus 2019 in the first half.
This meant that overall volumes grew 13% in the first half or by four 5% versus 2019.
Revenue per unit case grew by four 5% in half one up 6% versus 2019 levels.
This reflects the strong growth in away from home, but also a testament to our revenue growth management initiatives with positive headline price pack and brand mix.
Now moving to Opex and our efficiency programs as a reminder, our pre announced efficiency savings in combination benefits.
Wait to 350 to 395 million euros in total and we remain very much on track to deliver that.
Some of the combination benefits have been realized at a faster pace than we had initially thought and so we now expect to deliver approximately 85% of these savings by the end of this year.
We remain committed to rebase, our cost base to below pre pandemic levels.
And you can see that here as a percentage of our revenue Opex has continued to decline not only compared to last year, but more importantly, compared to 2019.
Going forward, we will continue to manage costs very tightly but of course, we do anticipate an increase in our volume linked opex as well as some inflationary pressures in areas like labor and haulage and we continue to invest for the future naturally TMA investments has increased in order to support our top.
Line growth given the recovery.
So let me now move on to updated guidance for full year 2022, which reflects current market conditions.
First to revenue, we now expect pro forma comparable growth of 11% to 13% versus the 8% to 10% previously guided.
This reflects the stronger first half results that I, just went through and our confidence in our revenue growth management initiatives for the rest of the year.
The second half has started well helped by the continued great weather as well as the continued recovery of the away from home business and tourism.
But we do remain very mindful that the most uncertain outlook for the consumer as we move into the post summer period, but I do caveat that with points that we have not yet seen any signs of a shift in consumer behavior and the buying patterns.
From a modeling perspective volume growth will be lower in the second half, reflecting a tougher comparison as the away from home channel began to recover last year.
And in terms of shape, we expect our full year revenue growth to be more weighted towards volume as evidenced by our first half.
Additional headline price increases and promo efficiencies are currently being discussed and in progress across all markets in the second half to help offset some of the unprecedented inflationary pressures, we're seeing across the industry, particularly aluminium and gas and power and other key commodities, including <unk>.
<unk> costs.
Some markets are more exposed to these trends such as great Britain, which over indexes to cans, which clearly had an impact on their costs for the second half of this year.
These pressures more broadly will be much higher in the second half across all our markets and as always we're very surgical in how we look at these increases across our various brands tax and channels that can remain relatively inelastic using strong RG and capabilities that we have <unk>.
Over the years.
And we are not looking to fully pass on these cost increases to our customers to ensure that we continue to manage affordability and relevance to our shoppers and consumers, which is even more heightened in key markets like France, and Germany, given high exposure to the home channel, where we need to be conscious of that dynamic of relevance.
And portability.
As always we will continue to work with our customers to optimize a recommended price range and pack architecture. So that we can expand our categories and importantly focus on joint value creation.
And of course, we will continue to focus on our own efforts to manage our cost base as well to ensure continued profit and free cash flow growth going forward.
Moving to Cogs and clearly these comments are based on what we know today, we now expect Cogs per unit case to increase by approximately seven 5% weighted more towards the second half as you can see in this chart.
This slight increase from our previous guidance of 7% mainly reflects various small moves driven by gas and power costs as well as the slightly higher concentrate costs impacted from the additional headline price increases planned for the second half as I just discussed.
This is in line with our incidence pricing model and as a reminder, concentrate accounts for approximately 50% of our total cost of sales, which is linked to revenue growth.
We continue to anticipate commodity inflation in the high teens range weighted more to half two and we are now approximately 90% hedged for this year.
In terms of the 2023 outlook as you know the commodities markets remain extremely volatile.
While they had recent risk fights in spot prices of certain raw materials, such as aluminum. Please do remember that conversion costs still account for approximately half of our total commodities exposure.
And here, we and our suppliers continued to feel the effects of higher energy prices and we'll continue to work with them to manage this appropriately.
We are now approximately 55% hedged on our commodity exposure for next year at a group level and closer to 60% within Europe .
We will continue to look at the right trigger levels to lock in more of our exposures depending on market conditions, taking all this into account at this stage. Our best estimate is for high single digit commodity inflation in full year 2023.
Of course, we are still seeing other inflationary pressures within Cogs, such as labor gas and power as well as concentrate in line with our incidence pricing model as we realize more price and mix in the market going forward.
While it's too early to provide full guidance for 2023 all of these factors combined will result in further Cogs per unit case pressure next year, albeit not expected at the levels, we have seen in 2022.
Of course, we will continue to look at all levers to continue to support our profitability with a focus on value creation for all our stakeholders.
And as always we will update you on more of that 2023 outlook in due course.
Back to our remaining guidance taking into account our updated guidance for revenue as well as our latest view on Cogs per unit case, we're now expecting operating profit growth will not be nine and 11%.
That said, we still expect overall operating profit for the full year 2022 to be ahead of 2019 levels, albeit at a lower margin, but great achievement in the context of such uncertainty and volatility in the market and importantly demonstrates us managing all leaders on our P&L, particularly on operating.
Cost base as I discussed earlier.
We continue to expect a comparable effective tax rate for full year 'twenty, two at 22% to 23%, implying a lower ETR in half two versus half one.
This is due to certain timing related factors for example will be we'll realize some benefits in half two from the expiration of statute of limitations on Sunday.
Tax exposures.
We'll continue to reassess our uncertain tax position as we move through the balance of the year.
Given our strong free cash flow performance in the first half we are now raising our full year guidance for 2022 from at least $1 5 billion euros to at least $1 6 billion euros, well above our medium term target of 125 billion euros.
This equates to a current free cash flow yield of six 6% and given the strong focus on driving cash and working capital improvements. We remain confident that we will return to our target leverage range of two five to three times by full year 2024, whilst remaining fully committed.
To a strong investment grade ratings.
Balance sheet is strong and we will continue to monitor the market to determine opportunities to further optimize our debt structure and maturities.
So that's it for me for now I'll turn it back to Damian for a few more comments before we open up to Q&A Damian.
Nick.
So finally to recap on our key messages.
We had a great first half with strong revenue growth value share gains in our away from home volumes back in line with 2019.
This alongside with a continued focus on driving efficiency.
Has enabled us to raise full year guidance today for revenue profit and free cash flow.
We are confident in our future alongside the Coca Cola company on our other brand partners, while remaining mindful of the uncertain outlook.
Finally, we look forward to welcoming you.
Our London offices for our capital markets event on the second and third of November .
Here, we will share more on our longer term growth ambitions as well as an update on our third quarter performance.
So thank you very much now we'd like to open for questions over to you operator.
Thank you we will now begin the question and answer session. As a reminder, we swiftly request only one question per analyst.
If you would like to ask a question. Please press.
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Your first question comes from the line of Edward Mandate from Jefferies. Please ask your question.
Afternoon, David afternoon Nik.
So I appreciate you are not seeing any shifts in consumption patterns, yet, but relative to <unk>.
Prior periods of consumer weakness can you talk to how the business is different.
Obviously the portfolio.
The digital platforms and also the relationship with customers and how does this help you navigate the potentially more tricky environment.
Thanks, Ed I think we're very conscious.
As you would expect given the uncertainty.
Looking very closely at what's happening with our consumers or shoppers and indeed some of our customers.
Strategy, So I think a couple of.
Pillars that we've built over a number of years I think give us the confidence that we can navigate that I think one obviously we are seeing.
Stronger revenues and volumes coming in from away from home I mean that was a headwind for us during cohort, but clearly.
It's bringing a much more balanced revenue stream and obviously.
A little bit more inelastic. So that's good I think within grocery we've been very focused on generating value for our customers that we've grown the category we've grown margin.
And I think that positions are brands as a key value driver for our customers and I think thats always a good place to be.
Given time, but clearly as you move into some maybe more challenging times I think the margin structure and the value of a given.
Given time, but clearly as you move into some maybe more challenging times I think the margin structure and the value of our brands is a big asset when we when we look forward within that.
If you go to any of our retail outlets in particular now I think we've done a really good job, having a much more balanced pack architecture. So I mentioned in my prepared remarks.
Really being conscious about having value across more balanced pack architecture. So I mentioned in my prepared remarks.
Really being conscious about having value across all of the price points.
So our <unk> work.
It really is balanced our pack offering now in retail and I think that allows us not just to manage promotions more effectively and efficiently.
Allow consumers to participate.
With our brands at varying degrees of price points.
Think thats critically important and I suppose the final aspect is both ourselves monster and the Coca Cola company continued to invest in our category.
Well ahead of prior years.
I think that's also important because as people make choices.
The brand equity and brand love that we built is critically important so I think all of those gives us confidence.
Having said that we've looked back at previous.
Economic challenges the category continues to perform very strongly particularly cola.
If there are some moves too.
Private label it tends to be in flavors. So we're aware of that and we will adapt accordingly, so I think all of those tools.
We will allow us to manage that we haven't seen that yet to your point.
But clearly things can change quickly so we're prepared.
David and just as a quick follow up I mean, you mentioned some of the better.
<unk> got from an execution standpoint, if you were to really pinpoint what led to the acceleration of market share from 10 bps to 30 bps at H one.
What would you really put that on.
Yes, I mean, I think if you even liquid in sparkling.
Most of our markets as even a stronger performance ad.
That's on the back of we continue to invest.
In 2021.
We continue to focus on the long term health of the category.
We continue to partner well with our customers.
And obviously, we have a lot of good innovation I mean coke zero, the new packaging has been phenomenal with great flavor innovation on Panther. The monster portfolio continues to innovate and expand so theres not really one reason I think it's just really the <unk>.
Put of a number of different initiatives over many years, but it's not it's not something that <unk>.
What's happened this year, we've had strong momentum on share obviously, we were hertz and away from home with Covid, but during that period, we reoriented our business to being a more retail focused business and we probably sharpened our focus on execution and thats coming through now and some of the share gains.
And obviously, we're very happy with that we will see that continue to Europe .
And I think our customer service levels have also been very strong in terms of ensuring availability on shelf, which is which is great relative to a lot of our competition.
So I think Thats also something that clearly helps and will help us going forward as well.
Great. Thank you.
Thank you.
We will take our next question.
Yeah.
Your question comes from the line of Simon Hales from Citi. Please ask your question.
Thank you.
Hi, Damian Nik Sarah.
And it probably won't be but could you talk a little bit more about your sensitivity, perhaps both directly and indirectly to.
To further boost in the European.
Gas price I know you've referenced that youre doing some stock building and that will have impacts.
The impacts on the second half with heat pumps do some salary of funding.
A potential both.
Volume and supply chain disruption standpoint, when can you help us with some sensitivity as to how material a further 10% or 50% move could be when we think about planning for HP mode into 2023.
Hey, Simon.
Yes, great question and very tough to give you.
A clear position on that I think if I look at that.
Half two in Q4 in particular.
I think there are a couple of things that we're doing and it's coming more from ensuring that we have alternatives in terms of what we can use so I think.
If you take a market like Germany.
We've ensured that we've got contingency plans in place.
Both from an availability of natural gas also looking at fuel oil and all our plans actually will have dual fuel boilers being.
Available or mobile boilers to allow us to have alternate sources of energy to be used.
For that.
I think as we look at 'twenty three that will also help us as we look at other sources of renewables across some of our plants and how we are expanding and building out a range is there.
Obviously, one of the challenges that we are working through is a little bit more with our suppliers to ensure that they have adequate contingencies and backup plans to be able to continue to supply us with critical ingredients and packages to ensure back to that point around <unk>.
During that we have product available.
On shelf.
So a lot of moving parts, but I think we are well positioned as <unk> seen from an angle of what we've been able to deliver so far and how we continue to work in what is probably the most volatile and fragile supply chain.
But.
Well well protected to the best we can and I think it comes across again and our service levels relative to a lot of our competitors.
Got it.
Maybe just to follow up.
Obviously, the working capital needs the highlighted property, perhaps sort of reversing some of the <unk>.
We've seen be created maybe free cash flow you did in the first half was very impressive with doubleclick in guidance for the full year is quite limited.
Our working capital flexibility pressing the H two cash flow delivery with something else in the cash political we should be aware of.
No I mean honestly.
Actually quite a small element of it because it's really.
Like I said, just limited to inventory and what we'd want to do that.
Part of it is definitely linked to Capex phasing and I think as we were looking at our plans for this year.
Some of the larger projects are landing in the second half.
And that's one element.
And the second element is a slight impact from the working capital piece.
But.
Clearly.
A very strong delivery and I will continue to say, even the upgraded guidance remember, it's a very strong number in terms of full year free cash flow relative to our midterm target of the one 5 billion. So we're very pleased with the progress we're making there.
Got it excellent. Thank you.
Thank you we will take our next question.
The question comes from Bryan Spillane from Bank of America. Please ask your question.
Thanks, operator, operator, good morning, guys.
So Nick just a question on I guess gross profit or gross margin and <unk>.
I guess two parts to it one in the first half given how strong the volume was the volume growth as volume leverage with volume leverage a contributor too.
Cogs efficiency, I guess or bringing down that Cogs per unit case inflation on a net basis and then I guess as we look into the second half given it looks like we're still looking at revenue growth being more driven by volume.
Is that a factor again is we're kind of looking at kind of the net cogs inflation for the back half of the year. So really the question is just how much of a benefit are you or are you getting from from volume leverage.
Well clearly a big benefit when you think about the fact that 15% of our Cogs is the manufacturing piece and that's largely fixed and largely labor related right. So there's an efficiency element in that but clearly as you get that volume returning.
Clearly that's the leverage tailwind for us from an angle of the Cogs per unit case and that is the case in the second half as well I think obviously, it's clearly not offsetting the challenges that you're seeing from a broader commodities inflation perspective.
So.
But all in all if you look at the first half we're very pleased with what we were able to deliver given our hedging position clearly that will accelerate in the second half when we think about that commodities pressure that were.
We're looking at.
<unk>.
So yes, that's the short answer Brian Okay, Yes, and Nick just just to follow up on that just as we're thinking about model as we're modeling out next year does that benefit kind of stay in the base.
Again, we're not not knowing entirely what volume growth would look like next year, but just just.
Just trying to sort of understand whether or not that should stay in the base and we model off of that or should we be thinking about if there is potential that there's you put volumes pull back next year that that could be.
Like a gross margin headwind.
No so clearly.
Without giving any 23 guidance, we're expecting growth in volumes through 'twenty three so that clearly stays in our base and should accelerate but then keep in mind. The headwind that you will have there as youre looking at labor inflation as well right and we need to continue focusing on efficiency gains to offset that labor.
<unk> PS.
Along with volume growth. So it will be both those factors that should continue to support it.
<unk> of efficiencies and volume growth.
Got it alright, thanks, Nick.
Yeah.
Thank you we will take our next question.
Your question comes from the line of Charlie Higgs from Redburn. Please ask your question.
Hi, Damien Nicks or Victor well I've got a question on Australia.
In the three to five years across the pandemic. It was quite tough market, both the volume and the revenue per case growth standards, but it looks like you've already managed to grow volumes and revenue per case, it kind of mid single digit range.
Maybe just talk about some of the other things you've changed the Damian maybe what you saw when you're on your site visit that could be applicable package Europe and how much further to go in terms of optimizing the portfolio down in Australia. Thank you.
Yes.
Yes, very exciting market.
I'm pleased to be down there in <unk>.
Hands on.
I think to give credit to Peter in the Australian team coming into the acquisition. They had already started to make some changes in the Australia market based on as you called out a number of years of stagnant or no growth so far.
Clearly when we've looked at some of the initiatives we've taken in the last 12 months.
The portfolio cleanup I think is a.
A boost to volume growth.
Ironically, because it allows us to focus on the categories that are growing and not to get distracted with plays in beer cider. So there's definitely a focus benefit.
Alignment benefit coming through now with the Coke company as we've executed the brand sales. So we're very clear now on how to win in flavors Academy that we've struggled within.
We've made some bold moves on the back of European learnings.
Based on some work that Peter did in Australia around promotional price levels.
So clearly that has allowed us to support our revenue growth and with the Coke Company I think Coke zero in Australia has really had a great year as well so.
A number of different drivers of growth and also we're benefiting.
Clearly with.
Covid restrictions easing and people going back out and eating and drinking.
A big part of the lifestyle that outside so that's definitely helping but it's very sustainable volume growth and revenue growth, which im pleased with in terms of learnings.
I think a couple of areas that I really liked about our Australian businesses.
A very clear focus on cost our profit to serve so I think the team has done a lot of work on the channel level looking at.
The cost to serve and how that impacts or that's something we're looking at for Europe , a lot of great work in data analytics.
We enjoy a lot of store level data.
On the category not just on our business.
That's allowed Peter and the team being very segmented about what particular not just for customers what stores within our customers really do we need to focus on and I think that's something that we've taken back.
Stephen on the GB team, particularly I've looked at FERC for the U K.
So quite a wide range.
We will touch on when we're together in November I think it's going to be a topic at the capital markets day that we'll be able to share a bit more about what best practices are gone both ways, but I'm very confident that the commitment I made.
It's a great deal not just because we are buying a great business, but it is a great deal because it will make Europe stronger.
I think I see that coming through more and more and that's really exciting.
That's very useful and then just quick follow up for Nick on the cost savings from the combination benefits coming in quicker is the way to read that that theyre, all going to be realized in 2022, and therefore not in 2023.
No no no. All I've said is that there is an acceleration and we now expect to have delivered about 85% of the total.
Benefits that we had announced the 350 to 395 by the end of 2022.
So thats clearly definitely more savings to come in 'twenty, three and 'twenty four although I would like to accelerate that to help us in 2023. So.
That's the plan.
Perfect. Thank you very much.
Yes.
Thank you we will take our next question.
Our next question comes from Tom <unk> from Credit Suisse. Please ask your question.
Hey, Damian Nik just a question on pricing can you give us a sense of the magnitude of pricing you are putting through an H two.
Relative to what you did this year.
It sounded like you were striking a bit of a cautious tone on France, and Germany in particular.
Perhaps the skewing a bit more of an affordability approach there so just.
Love you to elaborate a little bit on that.
The thing to do with what you're seeing with the consumer today.
No so.
I'll come back to the first question, but on your second question No I was just talking more around the fact that.
Clearly the cost pressures that we're seeing our cost of all our markets and both France, and Germany to have a larger home market relative to some of our other markets and hence we just need to be mindful and watchful of that nothing.
Nothing other than that.
So I think obviously the good news is as we're looking at some of the markets in.
<unk>.
Northern Europe , as well as Spain, and Portugal, we've kind of already been able to land pricing in July and that is now in the market. So thats great news.
The markets now ahead of us are really France, which is live as we speak and should be concluded. During this month, and then you've got Germany and <unk>.
<unk> coming right on the back of that I would say the price increase is going to range across our markets depending on obviously the channel mix the brand mix.
Very like I said, and Damian said, we're not really taking just a a fixed price increase across channels and across all brands and packs were being very surgical in terms of how we're looking at it based on brand packs in channel and.
Elasticity is and then back to the broader comment around also being mindful around continuing to be affordable and relevant to our consumers.
Consumers and shoppers I mean, the great news is I think we're an affordable product that obviously has strong brand equities strong brand love and ultimately taste and quality of critical importance right. So.
We remain.
Very <unk>.
Excited about the category as a whole and the robustness of the category and what we've also seen.
During past downturns in terms of how the category continues to perform.
So.
So thats why we are.
Great and just a quick follow up on Indonesia.
Clearly there was some phasing between Q1 and Q2 in terms of the Ramadan timing, but can you just give us a sense of how much the portfolio.
Youre rationalizing and taken out how impactful has that been.
Yes.
It's made a bigger impact.
Quicker than we kind of expect it to be honest, so I think we.
Clearly have.
Aligned on two core categories sparkling and T. I think what we've seen in Ramadan.
<unk> continued post Ramadan as that has allowed our sales force and a supply chain underneath our customers to align against two categories, where we believe we have got brand strength.
Simplifies our business quite a bit.
On freeze up the supply chain to deal with a peak.
Around Ramadan clearly our long term objective is that peak gets smaller because we build a bigger business outside of Ramadan and Thats. The strategy. We are now working on what the teams locally and with the Coke company. So it has had an immediate impact.
It's been executed quicker than we expected the team locally has done a great job.
I think our customers understand it because for many years they saw us trying to compete in multiple categories with very limited success.
And they now start to see the growth in sparkling and clearly when you look at the sparkling category in the margin structure for them as well it's more attractive. So we will continue to focus on that but the bulk of the work has been executed.
Already in market.
Clearly as we understand that business better on the consumer better.
It gives us the opportunity to invest not across six categories. Both in certainly one category.
Sparkling and then the second one so yes.
Yes, it's been a big driver of our progress in Indonesia, and as I said for myself I think we were down there.
<unk>.
Really great buy in from the teams at our customers.
Because of that they executed a quicker than I thought we could.
That's a nice surprise.
Great. Thank you.
Thank you.
We'll take our next question.
And the question comes from Bonnie Herzog from Goldman Sachs. Please ask your question.
Alright, Thank you hi, everyone.
I was hoping you could talk about it.
Any changes you're making in share price.
Sure sure and a greater part of value for consumers and given all the pressures.
Curious to hear how quickly you can pivot air portfolio and maybe just how much lead time, you need to get such things over.
As we think about the second half.
How should we think about your mix changing any call outs by Ria channel based on that.
Hi, Bonnie.
Yes, I mean, it really comes back to what I talked about I think we've.
Over a number of years built a much broader pack R&D brand portfolio within retail, where if we start to see that.
Pressure will be it'll be more retail obviously, so I think that gives us existing skus on shelf.
If you visit any of our retail outlets across CCP Youll see.
Our brand pack architecture, representing premium amortization in terms of class multipack, all the way through to more value conscious consumer offerings around large multi pack six by one and a half theater PT or multi pack cans.
What we have seen in Covid.
As our business pivoted much more towards retail so we've seen a lot more momentum our multi pack cans.
And clearly that is a part that if we look through the consumer becoming more price sensitive it is possible for us to change our promotional.
Focus with our customers.
Pivot more toward some of those value packs. The good news for US is value packs now are at a lower level of discounting and you would've seen certainly four or five years ago in Europe . We've done the same now in Australia. So we can continue to offer value and margin for our customers and I think that's critical and also for our shareholders in terms of lead time.
Its quite flexible once theyre on shelf. So I think we're in a good position.
It can differ from four to 12 weeks, depending on the customer you're talking to.
So we are quite flexible.
Flexible, we don't see a significant shift and were already coming into.
And the second half of the year somewhere as being very strong once we get the Christmas which will be the next big peak in our business.
The way our portfolio tends to move towards larger pack sizes as people enjoy Christmas and celebrate at home. So that's already in our mix plans anyway.
It'll really be then into 2023 do we see a significant move from the consumer side towards more value on do we change our emphasis going into 'twenty three but that's something we can update you on later in the year.
Okay I appreciate that helpful. Thanks.
Thank you.
We'll take our next question.
The question comes from Vincent <unk> from Jpmorgan. Please ask your question.
Nicotine.
One question from me please sorry.
Sorry for slightly belabored the point on pricing.
Sure.
With regards to the conversations that youre, having with customers. Currently you still feel confident that you'll be able to take another round of pricing come the start of 2023.
Presumably sort of taken the low hanging fruit.
Promotions.
To close out.
Should we think of the balance between.
Absolutely.
Absolute pricing product mix and promotional intensity as we look into 2023.
Are you seeing any changes within the competitive environment of competitors may be.
More or less.
Activewear surgical devices.
Big markets and also assume but given some of the pressures around Europe .
The energy costs.
Fair assumption that should be more fair to be more aggressive when it comes to price realizations at work.
API market.
Next year.
Hi, Vincent you did well to fit in for questions.
Yes.
So let me let me make sure we try it out.
As I think we've called out before I mean, our pricing strategies multi year. So I mean, I think we are.
We've done a good job on we'll continue to do a good job managing pricing over multiple years and clearly when we look at the pricing that we've taken in 2022 and we're currently looking at we're also looking at what we will need to take in 2023 as well so.
We don't see any difference clearly based on some of the topics you outline continuing pressure on energy costs labor Inflations Nick's talked about so.
Clearly we managed.
Our pricing strategy on a multi year level as I've said on previous calls with a view to maintaining momentum with our customers on what a consumer so.
I think we've been very.
Mindful about what pricing, we take a more powerful more channel Nick mentioned that it's it's really driven by good data insights and understanding where we can pass on pricing.
And where we want to maintain a value proposition to keep the category healthy to make sure that we grow value for our customers. So.
That will continue into 2023, so no change.
We're actually investing more in promo if you look at our numbers so clearly.
<unk> come back with a strong retail business, we've got a strong away from home business. So our promo is growing because our volume is growing so we we've redeployed our promo funds into smarter promotions.
But we've continued to invest in promotional pricing because we believe it is.
Good for the category, it's good for our customers and it gives us a tool to manage some of that potential consumer headwind difficult. So we've been quite protective of that investment. We've tried to continue to spend at smarter.
And youre seeing that in our net unit case revenue growth, but clearly that is a large as Nic continues to remind our commercial people. It has a large amount of funding.
Which drives our business, but also gives us flexibility to look out in 2023, how do we want to deploy that.
And Thats something we will continue to look at.
From a European and API perspective, obviously, Indonesia is a little bit different.
But we would see similar strategies across New Zealand and Australia around our price promo.
So not a big difference, which is also I think been somewhat encouraging since we did the deal.
So a long answer, but clearly more pricing in 'twenty three continued investment behind the right packs and channels to make sure. We continue to drive this very healthy category.
And we will continue to grow value for our customers.
If we need to make bigger decisions on promo we've now we've got that value.
To play with and we'll continue to make smarter decision, making a low if you want to add anything I think you've covenant I'm good.
Great. Thanks, so much for that.
Multi question.
[laughter].
Thank you we will take our next question.
Our question comes from the line of Lauren Lieberman from Barclays. Please ask your question.
Hi, Thanks, and good morning, or good afternoon, and I just wanted to ask yet another question on <unk>.
On <unk>.
Both management and if time focusing actually on.
When it comes home outlet.
And then you mentioned the glass increasing in glass.
I know some of that is going to be related to the reopening but I was curious if you can just speak to how you actually hedge we have had.
Change the package mix in.
Away from home account the degree to which that's been our focus over the past.
Two years.
Do you think there should have been a structural change in mix within those outlets.
I think that the helpline and to talk about as well thanks.
Thanks Lauren.
Yes, I suppose if you go back to.
Pre COVID-19, if I can talk like that so while maybe even back to the origin of CCP I mean, one of the growth drivers we identified in Europe was.
Way from home pack mix.
Within that we have been.
Offering more options for customers on our consumers around glass premium count offerings in particular.
We've got great businesses.
Like Spain.
Belgium, and New Zealand, where we really see and can demonstrate the power of having a really healthy pack mixing away from home.
And we set some goals across our European businesses to continue to kind of mirror that.
And we've made investments. So if you go to Germany, we're now offering four to five different plus pack sizes.
That investment has been over multi years, we've now just move their whole portfolio in France into RGB.
So it's really been.
Clear to our sales force.
What we believe is important in away from home supporting network cooler investments <unk> <unk>.
Promotions.
Advertising, so you'll see a lot more glass being advertised now in Europe , and then making sure that the value structure for our customers is in place and clearly the margin structure and RGB based on the on the prices that they sell for is very very healthy. So there is a good profit story for the customer.
Our biggest challenge has been continued to keep up with demand so as to get get our supply chain.
Continuing to invest in glass and in RGB to meet that demand. So that will continue as I said its multi year.
We're also seeing with the hurricane coming back post Covid.
There is a slightly more premium offerings in the market now, which also plays into that class.
Premium com proposition.
Yes, so it's going to be part of our story for a number of years.
Got a lot of growth potential. If you look at you have been to span you look at a market there and you look at some of other markets clearly we've got a way to go which is great I would like to particularly call out GB.
I think if you look at our market in GB Stephen and the team has done a great job driving glass distribution in GB. So next time, you're in London will hopefully show you a bit more of that as well.
Remember November coming up.
Walkway soon as possible I think you saw that.
Sure.
We will take our next question.
Our question comes from Austin <unk> from Evercore ISI. Please ask your question.
Great. Thank you very much and congratulations on terrific results.
Im just wondering if you could please.
Please remind us about your your package mix in Europe , So just specifically European question.
The mix between PT glass aluminum.
And then I know you touched on it earlier.
In terms of your discussions with your suppliers, but can you just kind of give us.
Any more granularity in terms of your confidence in glass supply.
In worst case scenarios with natural gas. Thank you.
Well, just maybe I'll take hi, Robert I'll, just take the second question.
Just wanted to.
Called out the alignment with our suppliers.
Based on the challenges has been fantastic I mean, clearly, we're a big customer for them.
But over a number of years, we've been working to try and build more strategic relationships and they've done a great job keeping.
Keeping up with not just the challenges that you mentioned around energy pricing and availability, but also our volumes have been a bit stronger.
Than we originally planned so that's worked well I'll hand over to Nick just a tonnage share with you a little bit around how that mix looks in Europe , yes.
And I think just building on <unk> point I mean, the fact that we've been able to continue to support the growth that we're seeing across the various backs in a particularly call out are can and our glass suppliers is has been testament to I think the strength of our relationships with them. So I think if we look forward we.
Continue to feel good around continuity of supply.
From a mix perspective for Europe .
About 55% of our business is in PD and just as a reminder.
We have over half of that in terms of recycled PT that we use in a number of market has transitioned to a 100%.
Our pet.
At least for the on the go part of the business or a market like Sweden that 100% of our pet across all their packages.
About 30% in cans, and that's where we've seen some strong growth.
And then.
About.
7% to 8% in glass and post mix each so that's roughly the mix that you would see in in Europe .
Terrific. Thank you.
And I think just on that Robert I mean, thats volume. So if you want to translate that into revenue clearly those numbers will change dramatically.
<unk> in particular being a much higher share of our revenue, which is really what we look at internally. So that's the volume mix, but on the revenue side.
Even more balanced with glass and cans, playing a bigger and bigger role, which I think back to a lot of the questions around price mix or how we're going to deal with any potential consumer headwinds.
Demonstrates a much healthier.
List of options for our sales force and our customers to work with them previously.
Thank you very much.
Thank you we will take our next question.
Yes.
Our next question comes from Amit <unk> from ABN umbrella, although please ask your question.
Hi, everyone. I was wondering if you could talk a little bit about the difficult.
Tuition at the European airports, especially in July .
With the potential knock on effect on August .
How do you see consumers behave and disregard perhaps by canceling or changing our holiday plan. So.
What would be the impact on your Iberian and French business in Q3, which I believe is very much on trade geared.
During this quarter. Thank you.
I think the biggest impact as people are getting to the airports earlier.
And consuming more of our products while they wait.
I mean, I think proportionately what youre picking up is very very small relative to.
The size of our business and if I just look at our Spanish business, our French business, which are probably more tourist centric, we're not seeing any sign of a slowdown in fact trying to get at.
Hotel bookings or restaurant bookings.
Across all of our big cities.
<unk> is quite challenging.
Even in London I commented was around some of the tourist areas last night in London and are completely packed. So yeah, we are picking up noise com.
Council. The few short haul flights, we know there's been challenges at Schiphol may be a percentage of people have canceled our holiday, but generally then they stay at homes. So we pick up a bit more volume maybe in Holland.
Netherlands, and a bit less in Spain.
Overall, it's on the edge really and quite marginal when we look at the volume of people, who are moving and if we look at tourism numbers.
Across all of our markets extremely strong clearly a bit less traditional from Asia. So that will probably be a benefit coming into next year is that reopens a bit more but certainly we're not seeing any dramatic impact other than probably a few people moaning about security queues, but I think thats going to be life as <unk>.
Said definitely into Q3, it could probably run until the end of the year as airports continue to cope with what is been dramatic demand.
But again nothing material in our numbers at all and I think as we look out in <unk>.
Our business units have good visibility at least six to eight weeks out in terms of order flow.
And no real impact that we're seeing so.
We feel pretty good about the continued strength of the growth in the away from home at least through the summer.
Okay.
That's very helpful.
Thank you I would now like to hand, the conference back over to Damian Gammell fifth closing remarks Damien. Please go ahead.
Great. Thank you and again, thanks, everybody for joining us.
To wrap up by once again, just saying a big big Thank you to all of my colleagues at TCP for delivering one of those being as you've heard today, a great great first half.
I'd also like to thank our customers for their partnership as we continue to grow this category in this business.
And as we touched on a little bit in the call, but I do want to call out a big thank you to our suppliers.
So clearly stepped up to meet stronger demand in a more volatile environment.
To keep our our lines running so again, a big thank you to our suppliers.
As I wrap up the call I'm extremely pleased and proud today to be able to raise our guidance for 2022.
We have shared with you the opportunity around our business not just looking at the first half of 2022, but how do we see the year progressing on the actions. We're taking also to ensure another successful 2023.
As you look forward to welcoming you those of you who travelled to join US in London for our capital markets day in November .
Can you talk conference for today, Thank you everybody a great summer.
And look forward to seeing you in London. Thank you everybody.
That concludes our conference for today. Thank you for participating you may all disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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