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 on our first quarter trading update, 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 Damien. 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 the prior 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. Before I begin, I would like to acknowledge the millions of people affected by the conflict and suffering in the Ukraine. CCEP continues to work closely with partners across the Coca-Cola system to provide humanitarian relief, and we join others across the world in calling for a return to peace in the region. So now to today's call. As you'll have seen, despite accelerating inflationary pressures, we are reaffirming our full year profit guidance for 2022. This reflects strong top line growth driven by the reopening of the away from home channel, especially in Europe, and solid trading and API and an ongoing resilient demand in the home channel across our markets. This translates into strong revenue growth of 18.5%, driven by volume growth of 16%, up 3.5% versus 2019. And our continued focus on driving price and mix delivered revenue per unit case growth of 3.5% up 4.5% versus 2019. We drove positive revenue per unit case in all markets, However, in our API segment, overall revenue per case ended broadly flat, and this is due to the volume outperformance of our Indonesian business. Volumes in Europe reflected a strong recovery in the away-from-home channel, as easing restrictions enabled our consumers to enjoy our great beverages with friends and family in Harika. Indeed, a number of our markets reached or exceeded our 2019 volume levels in this channel. As we now head into Europe's key summer selling season, we're optimistic given that we are serving roughly the same number of outlets as compared to 2019 in the mid to high 90s. And we are seeing encouraging hotel and airline bookings coming through. We saw great momentum in our API business unit led by solid in-market execution in Australia and New Zealand and increased mobility in Indonesia. Nick and I recently visited Australia, and it was great to get out into the market and see some of the initiatives we've already rolled out in action, as well as some excellent Easter activation. We're now actually currently in Indonesia, so we're seeing ourselves our biggest ever market Ramadan activation, which also contributed to volume growth in the first quarter. Overall, we gained value share, according to Nielsen, both in-store and online in the NARTD category, including critically in sparkling. The NARTD category continues to be robust, growing in value in terms by approximately 2% in Europe and nearly 16% in API. And mindful of the inflationary backdrop, we are watching closely, but so far, we've not seen any significant behavioral changes in consumption, whether by brand or indeed by pack. Trading aside, we continued to make disciplined investments for long-term growth, particularly in our people, our portfolio, our digital capabilities, and our sustainability agenda. We recently marked World Health Day and World Safety Day across our business as we continue to focus on our colleagues' safety and well-being. In our portfolio, several of our great beverages are growing ahead of pre-pandemic levels, and we continue to focus on choiceful innovation. Coca-Cola Zero Sugar continued to benefit from its new look and formulation, and more recently, new flavor extensions, up 12.5% versus the prior year, and up 22% versus 2019. In GB, we saw the liftoff of the first Coca-Cola creation, Coca-Cola Intergalactic, a playful zero-sugar proposition that tastes like space and provides access to the world's first concert on a Coca-Cola can. We invite you all to try it. Our Monster brand continued to outperform, driving overall energy volume growth of 19% versus prior year and a truly phenomenal 72.5% versus 2019. Fantastic innovation, including new juice variants such as Monster Chaotic, continue to help build excitement and drive brand leadership within the category. We're also marking this year as the 20th anniversary of Monster in our markets with extensive activation and distribution plans. Fanta also performed well with volume ahead of 2019. The new pink What the Fanta launched during the quarter with new mystery flavors supported by solid execution. And finally, as we see at-home occasion trends continuing, we launched a new Schweppes flavor variant in GB, Schweppes Slimline Grapefruit, and new larger glass formats for more premium home-based mixing. On digital, our journey to becoming the world's most digitized bottler continues. In online grocery, we continue to see share gains up 20 basis points. In Europe, our B2B portal, myccp.com, continues to grow, making it easier for our away-from-home customers to do business with us. It is now on track to represent around 30% of our away-from-home business this year, up from around 20% last year. And finally, our personalized cans for Valentines and Mother's Day were well received by consumers on a direct-to-consumer platform, yourcocacola.co.uk. On sustainability, we achieved carbon neutrality on a third manufacturing site, we switched to biofuel across our entire third-party logistics fleet in the Netherlands, and we saw the opening of Australia's largest PET recycling facility in which we are invested via an industry-wide partnership. We are proud to again be recognised amongst the Financial Times Statista list of Europe's climate leaders. We continue to challenge our commitments as we strive to make progress on our ambition to reach net zero emissions by 2040 and to invest in making our packaging more sustainable. Now on to our outlook for the full year. Given the strong start to the year, continued trading momentum into the second quarter, and our confidence in the continued recovery of the away-from-home channel, whilst mindful of a more uncertain outlook for consumers given inflationary pressures, we have increased our expectations on revenue growth to a range of 8% to 10%, up from 6% to 8% previously. We have successfully executed our pricing strategies across our markets, But given the uncertain inflationary backdrop, we continue to optimize our promotional spend, and we are not discounting a further round of pricing in selective markets, but done responsibly at smaller increments over time, thus helping our customers manage consumer shelf pricing to remain competitive and to protect the broader health and affordability of the NARTD category. In terms of shape, we previously guided to our revenue growth being roughly half volume, and half price and mix. We now anticipate that our revenue growth will be more weighted towards volume, as evidenced in our first quarter. As you know, we have been experiencing unprecedented levels of input cost inflation. Commodity and energy costs have accelerated since we last updated you with our full year results in February. We now expect commodity inflation to be in the high teen range for full year 22, up from high single digits previously. This reflects our latest hedging coverage, which means approximately 70% of our commodity exposure for 2022 is fixed, up from 57% in February, though weighted towards the first half, with hedging coverage of nearly 85% for Q2 versus around 50% for the second half of the year. We continue to set and closely monitor the appropriate trigger levels in order to lock in more of our unhedged exposures depending on market conditions. This translates to our latest view on COGS per unit case for the full year of an increase of around 7%, up from 5% previously. This reflects our best estimate today. For modeling purposes across the first and second half, COGS guidance is naturally weighted towards the second half of the year. Hence, we expect COGS per unit case in the first half to be up mid single digit versus up high single digit for the second half. On OPEX, Nothing has changed. We remain on track to deliver our previously announced efficiency savings and API combination benefits and continue to focus on optimizing our discretionary spend. So although the shape of our guidance has been modified in terms of revenue and COGS per unit case, I am, however, very pleased to be reaffirming our operating profit guidance of 6% to 9% growth versus last year. In addition to remaining focused on driving operating profit, we also remain laser-focused on driving cash, so we are today providing new guidance to deliver strong free cash flow of at least €1.5 billion this year, well above our medium-term target of €1.25 billion. These commitments, combined with today's interim dividend declaration of €56 per share, demonstrate the strength and resilience of our business. as well as our ability to deliver continued shareholder value. So that is our update for today. On a closing note, I would wholeheartedly like to thank our customers, but in particular our colleagues, for their ongoing support and dedication to our business. Thank you for your time today. Nick and I will now be happy to take your questions, and it's over to you, Operator.

Thank you. We will now begin the question and answer session. As a reminder, we kindly request only one question per analyst. If you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. Please stand by while we compile the Q&A queue. This will only take a few moments. Our first question comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead.