Coca-Cola Europacific Partners plc

Thank you all for joining us today. I'm here with Damian Gamill, our CEO, and Nick Gianghiani, our CFO. Before we begin with our opening remarks and our preliminary results for the fourth quarter and fall year 2021, 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 today'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. Unless otherwise stated, metrics presented today will be on a comparable and FX neutral basis throughout. They will also be presented on a pro forma basis, thus reflecting the results of CCP, and our Australian Pacific and Indonesian business unit, API, as if the Coca-Cola Amatil transaction had occurred at the beginning of this year, rather than in May when the acquisition completed. 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. So first, I'd like to begin with a few of our key messages. I'd like to start by thanking all of our highly engaged colleagues at CCEP for their continued hard work and commitment to our business and most importantly to our customers and to each other as we continue to navigate through the effects of COVID-19. 2021 was indeed an extraordinary year for CCEP. Solid top line recovery, the largest FMCG value creator, value share gains, operating margin expansion, and a remarkable free cash flow generation speak to our strong performance in 2021. Our results also reflect a successful integration of Coca-Cola Amatil, a fantastic business acquisition at the right time. And basing our dividend on the now large business, we're very pleased we paid our largest ever dividend in 2021. So we are well placed as we look to 2022 and beyond. In the near term, we expect to see further volume and mixed recovery whilst managing our key levers of pricing, promotional spend, and on driving inefficiencies with the aim of mitigating inflationary pressures and protecting our margins. Our aim at CCP is to be smart and sustainable through our people-centric, data-driven, and digitally-enabled approach. Disciplined investment in these areas, as well as in our portfolio, will support our long-term growth ambitions. And all supported by an even stronger relationship with the Coca-Cola Company and all of our other valued brand partners. At CCEP, we have a simple but vital purpose to refresh Europe and now API and critically to make a difference for all our communities and our stakeholders. And we have a simple focus around great people, great service and great beverages. all done sustainably for a better shared future. So now I'd like to touch on each of these areas as we look back on 2021. As you know, the well-being and safety of our colleagues is our number one priority. At CCP, we continue to break down barriers to inclusion. Our colleagues celebrated Pride, Black History Month, and International Disability Day across many of our sites. In fact, we were named as one of the GB's most admired companies, an accolade acknowledging our D&I credentials. In New Zealand, we were thrilled to be named Employer of Choice, the only company to receive the Gold Award in three consecutive years. In France, we were recognized by the Top Employers Institute, and across CCEP, we were recognized as a great place to work in our first Global Engagement and Culture Survey. Great service has always been a critical element for our customer growth story and engagement. Supporting our customers through the reopening of Horeca has been a key priority. New Zealand were crowned Candler Cup champions, the annual global Coca-Cola system bottler competition. And despite the ongoing challenges, we maintained high levels of customer service in the high 90s and continue to invest in capacity to support our growth and our crucial revenue growth management initiatives. This includes the placing around 130,000 full drink equipment units, increasing our canning capacity and efficiency, and accelerating our insourcing plans. Our focused and creative Euro football, Halloween, and Christmas activation generated great excitement for our customers, our colleagues, and our consumers. And on digital, we hit record revenues with our B2B platform and launched several new platforms via our Ventures arm. We were also extremely privileged to make, move, and sell the best beverages in the world. Both Coca-Cola Zero Sugar and Monster continue to outperform across all of our markets. Our new taste, new look, and new campaign for Coca-Cola Zero Sugar in Europe and Australia has been a great success, with full-year value share gains of 80 basis points in Europe and 260 basis points in Australia. What the Fanta created great excitement for the brand, with value share of 70 basis points. Our Monster innovations have supported impressive growth, driven by solid distribution and innovation. Overall, versus 2019, we've delivered value share gains of nearly 200 basis points, and our energy portfolio volume has grown by a really impressive 36%. We are very excited about Costa Coffee, and we are readily expanding this great brand outside of Great Britain. And Top of Chico continues to be an exciting opportunity, now launching six of our European markets, already with a number two value position. Now to sustainability, which remains a huge priority for all of us at CCEP. In 2020, we committed to ambitiously reducing our absolute greenhouse gas emissions across our entire value chain by 2030, a target that is embedded in our long-term incentive plans and with the aim to reach net zero emissions by 2040. We achieved carbon neutral status at two of our manufacturing sites, And of course, we are working closely with our suppliers to further reduce their emissions. We continue to challenge our commitments, bringing them forward where possible, as evidenced by us achieving our 50% recycled PET commitment a full two years early. In Australia and Indonesia, we are investing in new PET recycling facilities. These collaborations are a step forward towards creating a circular economy for PET, and will contribute further to accelerating our journey towards the ultimate goal of using 100% recycled or renewable plastic. Now, turning to our performance highlights. We continue to win with our customers, having created more absolute value sales growth compared to any of our peers. The NARTD category continues to be robust, growing in value terms by approximately 3% in Europe and over 10% in API. We have grown our value share both online and in-store and doubled our in-store growth if we extend back to 2019. And critically in sparkling, we grew both volume and value share last year. So a very solid top line performance. The 4.5% increase in comparable volume obviously reflects the reopening of away from home and increased consumer mobility given the easing of restrictions and the soft prior year comparables. I am particularly pleased that our continued focus on revenue growth management has driven growth in revenue per case above pre-pandemic levels, a really impressive result given the mixed headwinds we have continued to face. We are moving at pace to accelerate our digital transformation, which I'll come back to shortly. We remain focused on efficiency and are on track to deliver the programs and culmination benefits that we shared with you last year. And we remain committed to not returning to our pre-pandemic call space. And as I mentioned earlier, I'm very pleased that the integration of API is very well advanced. In the digital space, our transformation journey continues. In online grocery, we continue to see share gains, as I mentioned. Our B2B portal, myccep.com, had a record delivering 1.1 billion euros in revenues. around 20% of our away-from-home business. Our direct-to-consumer platform, You Coca-Cola, celebrated its first birthday, extending its personalized cans to Christmas and Valentine's Day. Starstop launched an online marketplace in GB, and we launched Wabi, a B2B ecosystem platform in Portugal in partnership with the Coca-Cola company, as we continue to explore and progress new models that make it easier for our customers to do business with us. We're delivering efficiencies in supply chain, and we are making it easier for our colleagues to work flexibly and efficiently with many digital tools. So a great year of progress with a lot more to come. And on that note, I'd now like to hand over to Nick to talk in more detail to the financial results. Over to you, Nick.

Thank you, Damien, and thank you all for joining us today. Let me start by walking you through with our financial summary. We delivered total revenue of 14.8 billion euros, an increase of 7.5% on a full-year pro forma comparable basis. Our COGS per unit case increased by 1.5%, and as you're aware, typically around 85% of our total COGS is variable. This includes our concentrate purchases and finished goods, which have naturally increased in line with our incidence model, reflecting the improvement in revenue per unit case. Commodities have been adverse, driven by higher aluminum and PET prices, but remember, we went into the year with more solid hedge coverage. And finally, approximately 15% relates to manufacturing and DNA, both of which are largely fixed. As expected, we saw a positive impact from the favorable recovery of fixed manufacturing costs given higher volumes. We delivered operating profit of 1.9 billion euros, up 23.5%, reflecting our solid top line growth, the benefit of our ongoing efficiency programs, and our efforts on managing discretionary spend. On a comparable basis, accounting for the timing of the API acquisition, we delivered operating profit of 1.8 billion euros, up 46%. We're pleased that both our revenues and pro forma operating margins in the second half of the year approach the pro forma second half performance metrics of 2019. This not only demonstrates the resilience of our business, but also puts us in a solid position as we enter 2022. Our comparable effective tax rate declined to just under 21% from 24% last year, The reduction is driven by a reassessment of our uncertain tax positions and release of tax reserves that are no longer required. As I referred to at the half-year, we indicated a future expectation of an upward move on our effective tax rate, driven mainly by anticipated increases in corporate income tax rates. I will touch on this in a bit more detail shortly. Our performance resulted in a comparable diluted earnings per share of €2.83, accounting for the timing of the API acquisition up 54.5%. Free cash flow generation continues to be a core priority, and once again, we delivered an impressive performance of approximately €1.4 billion, and I will share more details on that in a few moments. And finally, on shareholders' returns, we paid a full year dividend of one euro and 40 cents a share in December, maintaining our dividend payout ratio of circa 50% in line with our policy. In absolute terms, this is the largest dividend we have paid, reflecting the earnings of our enlarged business, but also importantly, our confidence in being able to continue to navigate our business effectively. Now if we move to revenue highlights, where we'll focus on the full year given that Q4 drivers are quite similar. The revenue increase was driven by both an increase in volume, as David referred to earlier, and importantly, our revenue per unit case growth. Revenue per unit case grew by 3% versus 2020, reflecting positive pack and channel mix following the reopenings in the away from home channel, positive brand mix, and favorable underlying rate increases. and encouragingly up 1.5% versus 2019. Solid trading in the home channel continued, benefiting from increased at-home occasions as well as continued growth in online grocery with volumes up 2% versus 2019. Revenue by segment is also referred to here. You can see more detailed commentary by geography in the release, but at the headline level, Full year performance has been similar across Europe and API with Great Britain and New Zealand being the standouts with revenues ahead of 2019. Now moving to our efficiency programs. As a reminder, we announced 200 to 225 million euros of efficiency savings in Europe and 145 million Aussie dollars or 19 million euros for API. We also communicated combination benefits of 60 to 80 million euros weighted towards 2022 and beyond. These pre-announced efficiency savings and combination benefits equate to 350 to 395 million euros in total and remain on track. So far in line with the indicative dates on the slide, we have so far delivered approximately 65% of these commitments. This includes the permanent savings from the 2020 mitigation programs in Europe and API, such as less travel in meetings and more efficient trade marketing spend, as well as the more structural efficiencies from Europe's accelerated competitiveness in API's Fighting Fit programs. These included structural headcount changes across field sales, central supply chain, and support functions, and the closure of three plants in Europe during 2020 to address duplication, increase efficiency and scale, and simplify how we work. As we move into 2022, the next wave of these programs will take effect. We will also start to unlock more of the combination benefits from areas such as procurement and supply chain. These ongoing programs, along with our continuous efforts on discretionary spend optimization, are helping us to protect profits and margins in the short term while ensuring that we will be fit and competitive for the longer term. Now, as we communicated last year, we committed to rebasing our cost base versus pre-pandemic levels. And you can see that here, as a percent of revenue, our OPEX is lower now, not only compared to last year, but more importantly compared to 2019. Going forward, we will continue to manage very tightly, but we do anticipate some volume-related increases in OPEX, given that roughly a third of our OPEX is variable in nature. And as that recovery continues, focused investment in TME will be needed to support that recovery, and we are naturally seeing upward inflationary pressures in areas like labor and haulage. So let me now turn to free cash flow in a bit more detail, a hugely important metric for us. Despite the challenging backdrop, we generated nearly 1.4 billion euros of free cash flow in 2021. Based on full-year 2022 VUMA consensus estimates for free cash flow, our free cash flow yield equates to around 7%. On this slide, you can see the key components of the full-year 2021 free cash flow, and I will call out a few items in particular. As you might recall, when the pandemic first hit our markets, we moved at speed to review all sources and uses of cash to preserve maximum flexibility. As we said this time last year, we expected to maintain CapEx in 2021 at 2020 levels given the continued uncertainty. Recognizing the importance of targeted investment and now including API since May, we spent nearly 420 million euros excluding leases on supply chain, digital and other technologies as well as cold drink equipment. And despite the backdrop, we delivered an impressive reported working capital inflow of 270 million euros in 2021, driven by Europe, taking up cumulative improvements to well over a billion since 2017. A very strong performance, and importantly, more to come. And now to our leverage and balance sheet. As you know, we entered this crisis from a position of strength, having delivered quickly post-merger, driven by our strong free cash flow generation. We ended 2019 with a net debt to adjusted EBITDA ratio of 2.7 times in line with our target leverage range of two and a half to three times. Leverage peaked at approximately five times upon closing the Amatil transaction in May, but given our strong focus on cash and working capital improvements, we are confident that we will return to our target leverage range by full year 2024 while remaining fully committed to our strong investment grade ratings. As you will see here, we closed full year 21 at 4.3 times net debt to adjusted EBITDA. Our deleveraging will be through a combination of using the higher combined cash flows of our now enlarged business and a continued strong focus on being disciplined around our investments. And of course, working capital improvements that I mentioned earlier. There's not only more opportunity for driving working capital improvements in Europe, but having also aligned API's annual incentives to Europe to incorporate free cash flow, work is underway to apply the best practices to API as well. So looking now to full year 2022, our guidance today reflects current market conditions, which do remain uncertain. As to revenue, from a volume perspective, although we saw solid recovery in 2021, volumes do still remain below 2019 levels, mainly driven by our way-from-home channel performance. So we expect to see continued momentum in this channel, supporting volume and mix recovery. We continue to optimize our recommended pricing and work with our customers to optimize our range and pack architecture. And we continue to leverage data analytics, customer and consumer insights to drive smart RGM initiatives to expand the category and continue to create value for our customers. Given the inflationary backdrop, pricing will need to take a big role in 2022 compared to previous years. As you know, we have been able to achieve price increases in previous years, typically representing at some points at least half of our revenue per unit case growth across headline price and optimizing our promotional spend. To date, we are executing our pricing strategies successfully across many of our markets, except, for example, France, where the negotiation is currently ongoing. This all translates into revenue growth guidance on a comparable and currency-neutral basis of between 6% and 8%, with about half coming from volume and the other half coming from price and mix. Now to COGS, a chart you've all seen before, and the moving parts which I spoke to earlier when referring to 2021 still very much intact as we look at 2022. So for 22, I don't think we're immune to the dynamic macro and uncertain inflationary environment. As we have seen it today, we expect elevated commodity inflation, reflecting our latest hedging position of approximately 57%, up from approximately 45% in October. This is weighted, meaning we're almost fully hedged for the first quarter, about 60% for the second quarter, with the remainder coverage in the second half. So we will continue to closely monitor the appropriate trigger levels to lock in more of our unhedged exposures depending on market conditions. We currently expect commodity inflation to be in the high single-digit range for 2022. This translates with other factors, as I mentioned earlier, to our latest view on COGS per unit case for the full year of an increase of around 5%. Clearly, this guidance is based on what we know today. Given the level of uncertainty, we will continue to update you more as the year progresses. Continuing with the remaining guidance on operating profit, we are guiding to a range of 6% to 9% growth versus 2021, again, on a comparable and currency neutral basis. This will be delivered through a combination of expected volume and mixed recovery while managing our key levers of pricing, promotional, and discretionary spend and efficiencies. Given the uncertain inflationary backdrop, we are not discounting a second round of pricing and further promotional spend optimization, while of course ensuring that we remain competitive in order to protect the broader health and affordability, but also our strong position within the NARTD category. And lastly, the effective comparable effective tax rate for full year 2022 will be 22 to 23% which is based on enacted tax legislation and assumes no significant change in our assessment of uncertain tax positions at this stage. We will, of course, continue to update you as the year progresses. And then finally, a reminder on our key objectives based on the median term, which all remain very much intact. We will continue to maintain our competitive and progressive dividend payout ratio at around 50%. This year, we will revert to two interim dividends as was our standard cadence pre the pandemic. As detailed in the release, we are simplifying the mechanism across the two payments. The first will be calculated as 40% of the prior full-year dividend, with the second being paid with reference to the current year annualized total dividend payout ratio. And with that, I'm going to hand back to Damian. Damian.