Coca-Cola Europacific Partners plc

Thank you and good afternoon Europe or good morning in the US. Thank you all for joining us today. I'm here with Damian Gammell, our CEO, and Nick Danziani, our CFO. Before we begin with our opening remarks and our preliminary results for the fourth quarter and fall year 2020, a reminder 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 this morning's release, as well as the detailed cautionary statements found in reports filed with the UK, US, Dutch and Spanish authorities. A copy of this information is available on our website at www.cocacolaep.com. Prepared remarks will be made by Damian and Nick and accompanied by a slide deck. We will then turn the call over to your questions. Following the call, 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. 2020 was clearly an unprecedented and challenging year for all of us. So let me start by saying a huge thank you to everyone at CCEP for their incredible commitment and agility as well as their support they provided to our customers, consumers and communities throughout the year. We entered 2020 with good momentum, building on a solid performance in 2019 and a strong track record. Then the pandemic hit our markets and communities. Our response was rapid and we clearly demonstrated resilience of our business, evidenced by another year of market share gains. I'll talk more about our actions, but I am proud of our ability to protect our performance in the short term without compromising the longer term. We over-delivered on our cost mitigation plans of which a significant amount will not return and we launched our Accelerate Competitiveness efficiency program on our journey to an even leaner future. And even after our continued investments behind our portfolio digital and sustainability, we were able to deliver over 900 million euros in free cash flow. A standout performance given the year we have had. This foundation gives us confidence in the future and our fantastic portfolio of brands provides an exciting platform for growth. A future that no doubt will be digital and green led. And of course, we've also had the exciting opportunity to acquire Coca-Cola Amateur. While there remains some uncertainty about the duration and impact of the pandemic, the rollout of COVID-19 vaccines brings new optimism. Our decisive actions during the year have put us in a stronger position to react to the renewed restrictions we are facing in 2021. We remain confident that we will emerge from this crisis an even more efficient and sustainable business. You will have seen this before and the message remains the same. We do come from a position of strength. We operate in an attractive and valuable category. We enjoy scale, and a market leading position across all our geographies. We have an exciting portfolio of brands, products and packaging with a strong future pipeline of innovation. We continue to create a lot of value for our customers through this great service we offer. We have a solid balance sheet and despite a challenging year, we continue to generate a lot of cash. And we continue to be strongly aligned with our largest franchise partner, the Coca-Cola Company, and all our other brand partners. As you know, sustainability is a key priority for us and the pandemic has threatened our determination to go further and faster in decarbonizing our business. And I am privileged to be leading a strong team of such dedicated, talented and engaged colleagues. In addition to thanking our employees, I'd also like to extend my gratitude to all of those who worked hard to keep us safe and well last year. Daystarting our people has been our number one priority. The majority of our office space colleagues continue to work remotely, utilizing the digital workplace tools in place across our markets. And we increased our internal communications and emotional and mental health support, including the rollout of online well-being training modules. We work closely with all our partners to support our communities. Together with the Coca-Cola Company we provided substantial aid and where possible we made our logistics and transportation services available to support emergency relief work. Securing business continuity has been a big focus and the pandemic has really reinforced the power of the relationship we have with the Coca-Cola Company and our other brand partners. We share a collective belief in driving our core brands through our joint investment plans We were able to react quickly to the sharp changes in consumer behavior. The widespread closure of away-from-home outlets and low demand for immediate consumption meant we needed to quickly optimize our pack price architecture in the home channel with greater emphasis on our core brands and larger pack sizes. Reducing our FKUs, which at the height of the pandemic were down by over a third, helped us to ensure product availability and visibility for our customers as well as driving further efficiencies in our supply chain. This meant we were able to maintain great customer service levels at close to 100% despite the challenging backdrop. Some of these SKUs have of course been reintroduced based on our stringent criteria but we continue to aim for a permanent 10% reduction with a focus on our core brands and key innovations. We reallocated resource across the business especially within field sales from away from home to home to increase coverage and capture revenue opportunities. We pushed extra adjacencies in the home channel such as meal deals and introduced more premium packs both in store and online to capture some of the away from home dining occasions that have moved to the home. And we successfully leveraged our digital capabilities with strong growth in both our B2B home and B2B business segments. Importantly, the focus and close collaboration with our customers and brand partners allowed us to gain overall market share. A fantastic achievement. And finally, we took bold actions to protect our performance both in the short and long term. We have been and continue to be extremely disciplined from a cost perspective. ensuring all OpEx and CapEx was limited to what was essential. We also took actions to protect our cash and managing our working capital requirements. All of this enabled us to generate strong free cash flow and maintain our solid balance sheet. And finally, we took an important step in our sustainability journey by setting a bold ambition to become carbon neutral, which I will come on to next. The pandemic has threatened the determination to go further and faster on our integrated sustainability plan. This is forward. In December, we announced our ambition to reach net zero greenhouse gas emissions by 2040. Our focus will be on reducing emissions across our entire value chain. From the raw ingredients we source and the packaging we use to the drinks we sell. To support this ambition, we have set an interim target to reduce absolute greenhouse gas emissions across our entire value chain by 30% by 2030. Our sustainability initiatives are at the core of everything we do at CCEP. This was reflected in the decision to integrate a carbon reduction metric into our long-term incentive plan for the first time in 2020, making CCEP an early adopter in this space. Packaging is of course central to our carbon reduction targets and I'm pleased that despite the pandemic we continue to move closer to our 50% recycled classic target, progressing from 30% to 41% since this time last year. But the journey will not stop there. Sweden became the first 100% recycled PET market and the first in the Coca-Cola system, with the Netherlands, Norway and Iceland to follow this year. We are proud that we continue to be recognized for our sustainability efforts. We are one of just four beverage companies to be included on the Dow Jones sustainability indices and recently had our position on the CDPA list for climate and water reaffirmed for a fifth consecutive year. We also retained our AAA MSCI ESG rating. I would now like to hand over to Nick to talk in more detail to the financials. Nick?

Thank you Damian and good afternoon and good morning to all of you joining us today. Let me start with our 2020 financial summary. Our revenue declined by 11% on an FX neutral basis driven by a 10% comparable volume decline reflecting the impact of the COVID-19 pandemic, which of course I'll come back to in a moment. The combination of the adverse channel, PAC and geographic mix resulted in a 1.5% decline in revenue per unit case. You'll find our revenue performance by geography in the appendices of this presentation with detailed commentary in the release. On our Cox per unit case, that increased 2.5% on a comparable and FX neutral basis, mainly driven by an under recovery of our fixed costs given the lower volumes. combined with adverse mix mainly due to the higher demand for cans. As a reminder, approximately 15% of our COGS relates to fixed costs, namely manufacturing costs and DNA. Commodities which account for a further 25% were mainly favorable in 2020 with lower PEP and aluminum prices partially offset by an increase in sugar prices. In addition, we benefited from the lower concentrate costs driven by the decline in revenue per unit case in line with our incidence model. A full breakdown of our COGS is included in the appendices. While we're not providing 2021 COGS guidance today, please note that our commodities exposure is largely hedged for this year, as for our multi-year hedging policy. Given this current level of coverage, we currently anticipate commodities inflation of approximately 1%, and we will keep you updated as the year progresses. Our comparable gross profit declined by 17% reflecting the decline in revenue and adverse cost per unit case. Combined with an 11% reduction in comparable operating costs driven by discretionary OPEX savings of circa €216 million, this led to a comparable operating profit of €1.2 billion down 28.5% on a comparable and FX-neutral basis. I'll talk about OpEx and its discretionary savings in more detail shortly. A comparable effective tax rate declined to 24%, mainly due to lower corporate tax rates in France and Belgium, as well as a change in profit mix. This resulted in comparable diluted earnings per share of €1.80 and 28.5% on a comparable and FX neutral basis. As you're aware, free cash flow has been and continues to be a core priority for us here at CCEP. Despite the challenging backdrop, we delivered strong free cash flow generation of 925 million euros, close to our median term annual objective of generating at least 1 billion euros a year. This highlights the strength of our free cash flow generation supported by our capex and working capital initiatives which I'll also cover in more detail shortly. And finally on shareholder returns we returned approximately 130 million euros to shareholders via share buybacks before the suspension of our 1 billion euro program in March last year. We also paid a full year dividend of 85 euro cents per share in December maintaining our dividend payout ratio of circa 50% in line with our dividend policy to which we remain fully committed. Now to some revenue highlights. Joint value creation with our customers remains a key priority so it is great to see that we were the largest creator of retail value in the NARTD category in 2020 adding an additional 500 million euros versus 2019. In fact we delivered nearly twice as much value as our nearest competitor and at a brand level we had three of the leading five brands for absolute value growth in our portfolio. This was driven by smart revenue growth management initiatives such as optimizing our promotional efficiency, SKU rationalization and the reallocation of field sales reps into the home channel. These initiatives also helped us to take value share in the markets during the year both in-store and online. These share gains would not have been possible without the resilient performance of our core brands. Coca-Cola Zero Sugar was the number one NARTD brand for absolute value growth during the year and as we pushed additional adjacencies and ensured the supply of larger packs in-store, we saw solid volume growth in multi-pack cans for both Santa and Sprite. Energy has also been very resilient with volume growth of 13% so we are well on track to meet our goal of doubling the size of our energy business. Monster was the standout performer with volume growth of 15% supported by new flavors such as Pacific Punch and a broader multi-pack offering in markets such as GV. Impressively, Monster is now the number one energy brand ahead of Red Bull in both Spain and Portugal. We've embraced the opportunity digital represents for our consumers and customers. In fact, our online grocery revenue grew 44% resulting in value share gains of 140 basis points. In GB, our market share online has actually surpassed that of what's in store, reflecting our dedicated efforts to drive e-commerce sales together with our customers. And as restrictions have limited away from home socializing, we have continued to see Strong growth in online food delivery with revenue growth of around 50% during the year. But our digital momentum goes much further than just online grocery. We have a winning B2B portal with MyCCP.com, now with around 35,000 customers using the platform, four times more than that at the beginning of the year. And this number continues to grow. We also launched our first ever direct-to-consumer sales platform in GB as a pilot, Your Coca-Cola. and finally despite the pandemic we continue to invest behind our core innovation and future revenue streams as we continue to diversify to become a total beverage company aligned with our brand partners. So now to the impact of COVID-19. You can see on this chart clearly the monthly volatilities in volumes mirroring the varying extent of lockdowns, out of closures and restrictions. Unsurprisingly, the most significant impact has been on our away from home channel where volumes declined by circa 28%. While we saw a marked improvement in volumes during quarter three, reflecting the easing of initial lockdown measures and favorable weather, volumes in the fourth quarter again deteriorated impacted by the renewed restrictions, particularly during November and December. On the whole, trading in the home channel has been more stable with full year volume growth of circa 2%, benefiting from the RGM initiatives as well as the growth in online as I mentioned earlier. The resolution of the customer dispute also supported home volumes in the second half, particularly in France and Germany. From a tax perspective, on-the-go media consumption was negatively impacted across both channels with volumes down nearly 25%. Future consumption packs such as large PET and multi-pack cans perform better, particularly in the home channel. As a reminder, the away from home channel and immediate consumption typically account for around 40% and 35% of our volumes respectively. You'll find more color on these volume breakdowns in the dependencies of this deck. The start to 2021 continues to be challenged by the pandemic, with January volumes weaker than Q4, impacted by tougher restrictions in most of our markets. While considerable uncertainty remains over the depth and duration of these restrictions, we anticipate they will remain in place throughout most of the first quarter. That said, our learning from 2020 and the way we have adapted our business gives us confidence that we will navigate through any short-term challenges effectively. Moving now to costs. Importantly, we came into the crisis with a solid understanding of our cost base given the closeout of the merger synergy program in 2019 alongside ongoing work around our accelerate competitiveness initiatives. This enabled us to react even more quickly when the pandemic hit our markets. The decline in operating profit was therefore moderated by robust action on discretionary spend. In total, we delivered OPEC savings of $260 million ahead of our guided range of 200 to 250 million euros. Some costs declined naturally such as seasonal labor given lower volumes as well as incentives, travel, meetings and other services like consultancy. We were also able to reduce our trade marketing expenses as we work closely with the Coca-Cola company to become more targeted and efficient with our spend. Keep in mind though that this is of course an area where we will continue to invest as restrictions begin to lift and volumes return. and as a reminder we would see roughly two-thirds of our total OPEX as fixed and a third as variable. These variable volume related savings are the key bridging item between the 260 million euros of savings and 315 million reduction in total OPEX that you see on this chart. This was partially offset by some one-off costs coming into the business such as bad debts, inventory write-offs and protective equipment for our colleagues and of course inflation. We anticipate OPEX savings of approximately €150 million in 2021 when compared to 2019. This includes some permanent benefits from the 2020 mitigation program such as less travel and more efficient PME spend as well as the initial benefits from our Accelerate Competitiveness program which we launched in October. This program will result in some structural headcount changes as well as the closure of three plants to address duplication, increase efficiency and scale and simplify how we work. We anticipate that around 1200 roles will be impacted across central supply chain, finance and support functions. These are of course difficult decisions to make but are the right ones for our business in the longer term enabling us to meet the changing needs of our customers. Importantly these initial initiatives will have multi-year benefits from a run rate perspective and as always we will continue to manage our cost base as we look to become a more structurally efficient business. I said it before but I'll say it again we will not return to our pre-pandemic cost base and as a result we expect our OPEX in 2021 to be lower than that of full year 2019 despite the inflationary pressures given the actions we are taking to become a permanently leaner business for the future. This continued focus gives us the confidence in our ability to return to sustainable growth in 2021 and beyond. Returning back to free cash flow in more detail, a hugely important metric for us. Despite the challenging backdrop we generated 925 million euros of free cash flow. This slide lays out the key components. When the pandemic first hit our markets we moved at speed to reduce all sources and uses of cash to preserve maximum flexibility. This included reducing capex by around a third by deferring non-critical projects. Recognizing the importance of continued but targeted investments we still spend circa 360 million euros excluding leases on supply chain digital and other technologies as well as cold drink equipment. We will continue to be disciplined with our capex spend in 2021 to ensure that we have the right portfolio and distribution capabilities to sell our products to all our customers across all channels. At this stage we expect to maintain capex at 2020 levels that cannot provide any specific guidance today recognizing the current uncertain environment. We will however continue scaling up our digital investments and anticipate that this bucket will account for about 30% of our spend this year which compares to about 10% in 2019 and 20% in 2020. And despite the pandemic we delivered a working capital inflow of 185 million euros in 2020. Some of this is down to timing so we'll reverse but reflecting on new multi-year focus on driving working capital improvements we do expect to retain approximately 100 million euros taking our cumulative improvements to approximately 750 million since 2017. This strong performance has all been driven through strong cross-functional collaboration as well as solid routines to track and drive results across trade payables, receivables and our inventories. And finally on the balance sheet, as you know we entered this crisis from a position of strength having delivered quickly post-merger driven by a strong free cash flow generation. We ended 2020 with a net debt to adjusted EBITDA ratio of 3.2 times reflecting the decline in profits owing to the pandemic More than offsetting the reduction in net debt. We remain fully committed to our strong investment grade rating. We have a balanced profile of long-term debt maturities as the chart shows and we're very pleased to secure an additional 1.6 billion euros of funding in the debt markets last year taking advantage of favorable market conditions. These proceeds continue to provide us with additional liquidity and flexibility including the repayment of maturing debt. We also continue to have access to other sources of liquidity including currently holding around 1.2 billion euros of cash and 1.5 billion euros sustainability link RCF. Additionally, we have access to the commercial paper market via our 1.5 billion euro multi-currency program. That said, we currently do not have any RCF utilization or commercial paper outstanding. So we have ample liquidity providing us with financial flexibility in the continued uncertain environment. And importantly, there are no covenants on either our long-term debt or our facilities. So with that, I'm going to hand back to Damian. Damian? Thank you, Nick.