Coca-Cola Europacific Partners plc

hello and thank you for standing by and welcome to today's coca-cola euro pacific partners q1 2023 trading update conference call at this time all participants are in the listen-only mode after the speaker's remarks there will be a question and answer session to ask a question during the session you will need to press star 1 and 1 on your telephone i must advise you that this conference call is being recorded today I would now like to hand the conference over to Vice President of Investor Relations and Corporate Strategy, Sarah Willett. Please go ahead, Sarah.

Thank you all for joining us today. I'm here with Damian Gamble, our CEO, and Nick Jankiani, our CFO. Before we begin with our opening remarks and 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.copetolaep.com. Prepared remarks 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. Following the call, the 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. I'm really pleased with how the year started. We achieved solid top-line growth of 14% in the first quarter, reflecting great in-market execution, as well as good underlying demand across our markets. And so, as always, I would like to start by thanking everyone at CCP for their continued hard work and commitment to our business and to our customers. Revenue per unit case is up 10%, reflecting positive headline price across all markets and our continued focus on promotional spend optimization. Favorable pack and channel mix also contributed to the growth in revenue per unit case, led by the outperformance of the away-from-home channel, which was still impacted by COVID-related restrictions at the beginning of last year. Volume growth of 5% in Europe reflects strong underlying demand and the tail end of COVID recovery in markets such as Germany, Northern Europe, and Liberia. For example, in Germany, the away from home channel was still down 20% versus 2019 in the first quarter last year. And we've now seen a strong rebound, particularly in restaurants and cafes this year. With recent trading indicating no significant change in underlying consumer demand, We are optimistic, but remain vigilant as we head into Europe's key summer selling season. API volumes were flat overall. The great momentum we have been enjoying in Australia and New Zealand continues, with both markets also benefiting from the tail end of cold recovery and the successful navigation of industry-wide supply constraints. This was despite record rainfall on a widespread catastrophic flooding which occurred in New Zealand earlier this year. Resilient volume growth in Australia and New Zealand was offset by volume declines in Indonesia, reflecting the early steps we are taking in our long-term transformation journey in this exciting market. We are implementing a much tighter portfolio strategy, focusing on sparkling and ready-to-drink tea. As discussed previously, this has led to the rationalization of a significant number of our SKUs, the impact of which will continue into the third quarter this year. Despite some macro consumer headwinds, such as the reduction of fuel subsidies and the slightly later timing of the religious holy day salary bonus, we achieved sparkling volume growth during the quarter. And excluding the FKU rationalization, total volumes in Indonesia would also have been slightly positive. Revenue pre-unication in Indonesia was positive as we continued to focus on driving profitable revenue growth through a more focused portfolio. This was supported by fantastic activation during both Chinese New Year and, of course, Ramadan, with more activations already planned as we start to build out new occasions across the entire year. Overall, we gained value share both in-store and online in NARTD categories. We also retained our position as the highest value creator for our retail channel customers within FMCG in Europe, delivering over 100 million euros of absolute growth. And within NARTD in Australia and New Zealand, The NAORTD category continues to be one of the best performing categories within FMCG, growing in value terms by approximately 7% in Europe and nearly 9% in API. And ultimately, we continue to believe that with our great brands and best-in-class capabilities, we can continue to at least maintain or grow our share of the category. Trading aside, we continue to make disciplined investments for long-term growth, particularly in our people, our portfolio, our digital capabilities, and of course, our sustainability agenda. On our portfolio, we continue to invest in our much-loved core brands and launch focused innovation. Coca-Cola Zero Sugar continued to perform well, up 8% versus last year. You may also have already spotted our limited edition Marvel Team Coca-Cola cans out in our market. Monster also continued to outperform, driving overall energy volume growth of 15% versus last year. Fantastic innovation and partnerships continue to help drive recruitment and distribution. In our flavors, Fanta and Sprite achieved good volume growth overall, supported by double-digit growth in Australia, where we also gained over 250 basis points of value share. And what the Fanta is back again in Europe with a fabulous new purple taste. ARTD achieved double-digit volume growth in Australia, led by Minus196. And we are very excited to have launched Jack Daniels and Coca-Cola Ready to Drink in Great Britain and the Netherlands. The packaging looks fantastic, integrating the iconic qualities of both brands, and it tastes great. On digital, in online grocery, we continue to see share gains of 40 basis points. And we relaunched our B2B portal, myccp.com. with a new design, improving the user experience and making it even easier for our away-from-home customers to do business with us. On sustainability, we are proud to have retained inclusion on CDP's A-list for supplier engagement for the fifth consecutive year, and to be again recognized amongst the Financial Times Statista list of Europe's climate leaders. We are also extremely pleased to announce an investment of over 40 million euros in our refillable bottling infrastructure in Germany. Investing in refillable solutions is just one of the ways that we are seeking to eliminate packaging waste and reduce our carbon footprint as we continue our journey to net zero. I'm also proud that we were recently recognized as one of Australia's best places to work for 2023 from over 700 nominated organizations. So now on to our outlook for the full year. Our first quarter has set us up really well for the rest of the year, and we are now focused on building on this great momentum in the key trading months ahead, particularly as we lap last year's amazing European summer. As you know, the first quarter is our smallest, and as such, today we are reaffirming the full year outlook we provided in February, albeit with greater confidence given an encouraging start to the year, whilst remaining conscious of the dynamic macroeconomic outlook. So we continue to anticipate full-year revenue growth of between 6% to 8%, mainly price and mix-led, driven by our anticipated headline prices increases this year, combined with the annualized impact of last year's second round of pricing. Importantly, our priority is to remain relevant and affordable for consumers, so we will continue to optimize promotional spend and focus on delivering our revenue and margin growth management initiatives. As you know, we experienced unprecedented levels of input cost inflation last year and continue to face cost pressures, albeit to a lesser extent this year. We continue to expect commodity inflation of around 10% for the full year, although we are seeing some respite on account of easing inflation in recycled PT, as well as lower gas and power pricing. We are now approximately 90% hedged on our commodity exposure for 2023. We continue to anticipate an increase of around 8% in our COGS per unit case, with slightly more favorable commodities offset by upwards pressure through the concentrate line as a result of strong revenue per unit case growth, as well as geographic and pack mix headwinds. We'll continue to update you on this as the year progresses. On OPEX, we remain on track to deliver our previously announced efficiency programs and continue to focus on optimizing our discretionary spend. Overall, I'm pleased to confidently reaffirm our operating profit guidance of 67% growth versus last year, and to reaffirm our commitment to deliver strong free cash flow of at least 1.6 billion euros this year. Our guidance, combined with today's interim dividend declaration of 67 euro cents per share, clearly demonstrates the strength and resilience of our business, as well as our confidence in delivering shareholder value. To close, I would like to thank our customers, our brand partners, and our great people whose hard work and commitment mean we were able to go further together to deliver for all our stakeholders. Thank you for your time today. Nick and I will now be happy to take your questions.