Coca-Cola HBC AG

Thank you for standing by, ladies and gentlemen, and welcome to Coca-Cola HBC's conference call for the 2024 first quarter trading update. We have with us Zoran Bogdanovich, Chief Executive Officer, Anastasis Stamolis, Chief Financial Officer, and Joanna Kennedy, Head of Investor Relations. At this time, all participants are in listen-only mode. There will be some prepared remarks followed by a question-and-answer session. If you wish to ask a question, please press star one on your telephone keypad at any time and wait for your name to be announced. I must also advise you that this conference has been recorded today, Tuesday, April the 30th, 2024. I now pass the floor to one of your speakers, Joanna Kennedy. Please go ahead. Thank you.

Good morning, everyone. I'm here with our CEO, Zoran Bogdanovic, and our incoming CFO, Anastasia Stamoulis. We'll start with some opening remarks from Zoran and then open the floor to your questions. Please keep to one question and a follow-up, waiting for us to answer the first question before moving to your follow-up. We have about an hour for the call today, which gives plenty of time for a good discussion. Finally, I must remind you that this conference call contains various forward-looking statements. These should be considered in conjunction with the cautionary statements in our trading update of this morning. And with that, I will turn the call over to Zoran.

Thank you, Joanna, and good morning, everyone. Thanks for joining the call. I am pleased to share an update on another quarter of good progress and the continued execution of our 24-7 strategy. We've delivered strong sales growth with good volume and revenue per case expansion. This is an encouraging start to the year, and our teams have continued to deliver despite challenging conditions in certain markets. Let me share a few highlights of the quarter. First, we continue to benefit from a clear focus on our three strategic priority categories. Sparkling, Energy, and Coffee all grew revenue in the quarter, driven by strong marketing plans, excellent execution, and continued deployment of our bespoke capabilities. Second, we have continued to expand sparkling and non-alcoholic ready-to-drink value share on top of the strong gains in 2023, a clear testament to the enduring strength of our brands and to our teams in market execution and customer relationships. A big thank you to all our people who continue to activate our markets with precision and passion every day, and to our customers and partners for their ongoing commitment and trust. And finally, this strong start to the year, combined with our 24-7 portfolio, our BISPO capabilities, and great opportunities for growth, gives us confidence in our full-year guidance, and I'm pleased to reiterate that today. And now, I'll share some detail on the Q1 performance, after which our new CFO, Anastasis, and I will be happy to take your questions. Organic revenue grew by 12.6%, volumes were up 1.8%, and price mix grew 10.6%. Reported revenue grew 1% as we faced currency headwinds. I am pleased by the level of volume growth we are delivering as well as the continued improvement in the value of every case we sell. Our revenue growth management toolkit allows us to maintain this consistent improvement and balance. Pricing has been an important lever this quarter as we have navigated specific challenges relating to currency devaluation in Nigeria and Egypt, sugar tax in Romania, the implementation of deposit return schemes in the Republic of Ireland and Hungary, and continued, albeit lower, cost inflation across our segment. Revenue growth in the quarter also benefited from pricing taken in 2023, an impact which will clearly reduce as we move through 2024. Mix and volume are also both improving as we address and adapt to the range of affordability and premiumization needs of our consumers. Our 2024 plans are full of tailored initiatives. A good example is the launch of affordable entry packs such as the 300 ml PET, which had great success in Bulgaria over the last two years, that we are now launching in Romania, Hungary, and Croatia. We also continue to seize premiumization opportunities across our market. For example, with the ongoing innovation in adult sparkling, our focus on glass package formats in the out-of-home channel, and on multi-packs of single service for the at-home occasions. This sustained attention on improving mix is driving good results, with total single-serve mix up by 210 basis points overall in the quarter and by 230 basis points in sparkling. Now turning to performance by category. Sparkling volumes were flat in the quarter. Trademark Coke grew low single digits, led by developing and emergence. One of the most important occasions for our consumers and customers is drinking a Coke alongside a meal. This quarter, we benefited from the Recipe for Magic campaign created for this occasion, which was specifically linked to transactions driving activations. We continue to see momentum in low and no sugar variants, which grew well in the established and developing segments, benefiting from Coke Zero, best Coke ever campaign in Europe. Adult sparkling volumes grew low double-digit, driven by Schweppes, and in particular Kinley, which delivered over 20% growth. Energy volumes grew over 37%, even against strong comparatives, with good momentum particularly in emerging markets. We launched Monster Energy Green, zero sugar, in 16 markets, on top of three launches in Q4 last year. Our segmented approach to coffee is working well, and coffee grew by over 34%, led by good performances in developing and emerging. And this quarter, we've seen strong growth in Cafe del Llano as we continue to expand our coverage of premium outlets. Deal volumes grew 2.5%. We are focused on improving our profitability in water with ongoing targeted revenue growth management initiatives. Water volume grew overall, even without focus on profitability, benefiting from good performance in the emerging segment. And I'm really pleased to see sports drinks growing high single digits. Premium spirits volumes increased by nearly 15%, and our integration of Finlandia vodka is well advanced as we expand in distribution to our further 17 markets. It's early days, but I'm really excited about the opportunities here, especially in mixability with our core portfolio. I'm super proud of our sustainability leadership and packaging circularity continues to be a focus. Deposit return schemes went live in both the Republic of Ireland and Hungary in the quarter. In Nigeria, we are investing in the first ever Coca-Cola system-owned and operating packaging collection facility. We are establishing the infrastructure for gathering plastic bottles for recycling, working with local collectors and recyclers. We expect the first center to be fully operational later this year, initially collecting around 100 tons of plastic bottles per month, contributing to our mission 2025 goal of collecting the equivalent of 75% of our primary packaging. Turning briefly to performance by segment. In established, net sales revenue grew by 5.1%, led by strong price mix of 9.3%. Volumes overall declined, but we've seen good performances from Coke Zero without sparkling and energy. The phasing of pricing into the market in 2023, combined with tough comparatives on volume in Q1, have been important drivers of the shape of our top line growth this quarter. As the year progresses, we expect to see some of this pricing roll off and some recovery in volumes. In developing markets, net sales revenue grew by 12.5%, led by a strong price mix of 8%. We've been really pleased to see the continuation of volume recovery that we called out at our full year results. Again, our strategic priority categories are leading, with sparkling up mid-single digits, led by strong performance from Coke Zero and adult sparkling offerings. And coffee was also up high single digits despite tough comparatives. This is great evidence of how our teams have been able to adapt to inflationary and regulatory pressures with critical tech and price adjustments. Moving on to emerging markets, where organic revenue expanded 19%, with volume growth of 3.2%. We faced two sizable currency devaluations in the segment this quarter in Nigeria and Egypt. I'm very proud of how prepared our teams were for these challenges with ready-to-go execution plans that allowed us to adapt to this environment. Our African businesses offer incredible long-term growth opportunities. We remain agile and poised to adjust to any market conditions enabled by our bespoke capabilities. In Egypt, we saw a mid-single-digit volume decline in what was a challenging consumer environment and felt some pushback against Western brands. That said, we are gaining share with our largest competitor and are pleased to see the continued progress of our market-leading Schweppes brand. Meanwhile, in Nigeria, we saw volume growth in the high-team and value-share game despite purposely driving strong price mix. Our targeted plans, baseball capabilities, and execution in the market has allowed us to continue to drive joint value with our customers in coordination with Coca-Cola companies. Nigeria is just one of many great examples of how our team's brilliant execution, enabled by strong capabilities, ensures that we are well positioned to fully benefit from the growth opportunities in our diverse market, even in challenging circumstances. As we look to the rest of the year, although we are mindful of the broader macroeconomic environment, we remain on track to deliver against our financial guidance in the year ahead and to make further progress against our medium-term growth targets. Finally, I would like to thank all our people for their tireless efforts. They are at the heart of what we do. It is their passion and dedication, along with our commitment and trust of our partners, the Coca-Cola Company and Monster, that enables us to keep delivering for our customers and consumers. Thank you for your attention. I will now hand back to the operator, and Anastasis and I will be happy to take your questions.