Coca-Cola Europacific Partners plc

Thank you all for joining us today. I'm here with Damian Gamal, our CEO, and Ed Walker, our CFO. Before we begin with our opening remarks on our third quarter trading update, a reminder of our cautionary statements. This call will contain forward-looking management comments and other statements affecting 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 question. Unless otherwise stated, metrics presented today will be on a comparable and FX neutral basis throughout. They will also be presented on an adjusted comparable basis, thus reflecting the results of CCP and our Australia, Pacific and Southeast Asia business unit, APS, as if the Coca-Cola Philippines transaction had occurred at the beginning of this year rather than in February 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 again, many thanks to everyone for joining us today. Before getting into our Q3 training update, I just wanted to pause and convey that our thoughts are with the communities in Spain and all those affected by the recent devastating flooding. Coca-Cola has had a presence in Spain for more than 70 years, and we will continue to support our colleagues, customers in the affected area, as well as our local communities. So now to our trading update. Before we get into more detail on our third quarter, I just wanted to take a moment to stand back and reflect on the year to date. 2024 continues to be a solid year for CCEP. We've grown volume and revenue year on year, with share growing ahead of the market. and in both any RTD category which remains resilient and continues to grow in both Europe and in our APS region. Our focus on revenue and margin growth management, headline price, and promotional optimization across our broad packet offering has driven a really solid revenue per unit case growth, especially in our developed markets. Our geographic diversifications means we are more robust than ever. With our higher growth markets in APS, led by the Philippines, offsetting softer volumes in Europe. Underlying volumes, which exclude the effect of strategic portfolio changes, were up year-to-date by just over 1%. Turning to Europe, despite transactions growing ahead of volumes this year, volumes have been relatively challenging. After allowing for those strategic exits, which account for around 1%, we believe that much of the remaining decline, although as you can appreciate not an exact science, was driven by adverse weather. This is also reflected in our channel performance, where away from home has understandably seen a greater impact, even though we continued to gain share. What gives us confidence, however, is that when normalized weather prevailed, as it did during August, we saw our consumers responding favorably, driving high single-digit volume growth. In addition, our share in both NA-RTD and Sparkling have held up well and have improved across the year. So although we are slightly lowering our full-year revenue guidance today, we are very pleased to be reaffirming our full-year profit and cash guidance alongside declaring a full-year dividend up just over 7% on last year. This reflects our strong plans in place for the balance of the year, together with our continued focus on efficiency and productivity. Our great brands, great execution, and great people continue to drive the delivery of our clear and sustainable long-term strategy. None of this would be possible, however, without the continued hard work and unwavering commitment of all of my colleagues at CCEP. Our recent and latest engagement survey is a proof in point, achieving record engagement scores, facing CCEP among the best of its peers as a great place to work. I'd also like to thank our customers and our brand partners for their ongoing support. Our customers will always be at the heart of our business. and they will share in our success as we continue to create more customer value in the retail channel than our FMCG peers in Europe, Australia, and the Philippines. And we were recently recognized for our great service in the Adelaisis Advantage supplier survey results with almost all of our markets ranking CCP as number one. So now turning to Q3, it's been a solid quarter with some brilliant activation around iconic events, namely the Olympic and Paralympic Games in Paris, the Euros in Germany, and the America's Cup in Barcelona. These have created a great platform for brands like PowerAid alongside Coke Trademark. Not only have they reinforced their position as a leading beverage partner for existing customers, they've also contributed to winning new customers. Recent wins include Alisa, a multi-brand restaurant franchise operating in Spain, Punch Taverns in GB, and Ancol Dreamland, the largest theme park in Indonesia, attracting 13 million visitors a year. We delivered total revenue growth of 2.4% in the quarter. This was driven by solid progression in revenue per unit case, reflecting our strong revenue growth management capabilities, partly offset by geographic mix. While total volumes for Q3 were flat year-on-year, transactions were ahead, with underlying volumes excluding the Capri Sun exit growing by around 1%. Volumes in Europe were down by 1.4%, offset by the strength of APS, where volumes were up by 3.3%. This was driven by the Philippines, despite cycling volume growth of over 20% in Q3 last year, and was led by Coca-Cola original taste, reflecting not only underlying market demand, but also the fantastic execution leading to continued strong share gains by our Philippines teams. I'm delighted with how seamlessly the integration of the Philippines has gone. As our focus is very much now on the future, we are up-weighting our investment in this exciting market. To that end, we are looking forward to showcasing this business at our Capital Markets event in Manila next May. Elsewhere in Southeast Asia, and similar to many other Western brands, our Indonesian volumes continue to be affected by geopolitical events. We do, however, continue to see encouraging growth in less affected parts of the country, supported by the recent launch of Coca-Cola Zero Sugar. We also recently launched refillable glass bottles in Indonesia, focusing initially on the traditional food stores around Jakarta and surrounding areas. And the transformation of our route to market continues to progress well to ensure it is fit for our longer-term growth strategy in Indonesia. Now to Australia and the Pacific. The momentum we've seen this year has continued. We've fully annualized our exit from bulk water, with volumes in the period marginally ahead. This was driven by a solid quarter for Coke Zero, Fanta, and Monster. Revenue per unit case was up 1.2% in APS, reflecting headline price increases and promotional optimization, partly offset by strong volume growth in the Philippines, which has a lower revenue per unit case. Returning to Europe. Weather and colder weather year on year, particularly in July and September, contributed to some softness in the away-from-home channel. The home channel outperformed with volumes of 0.6% on an underlying basis. While consumer spending has held up reasonably well in Europe, we fully understand that some of our consumers continue to feel the squeeze. We continue to focus on driving great execution both in the home and away-from-home channels, focusing on price relevance across our consumer base. using data and insights to make sure we can optimize pack and pricing. For example, in Spain, we've continued to activate the popular and affordable price point on the iconic two-liter pack. Revenue for Unicase in Europe grew 3.2%, reflecting price increases across all markets, including GB in Germany, executed during Q3, as well as a favorable brand and pack mix. So now briefly to some highlights on our great brands. We are extremely privileged, as always, to make, move, and sell some of the world's most loved brands. We continue to invest and innovate to make them even better and to appeal to even more consumers. Coca-Cola trademark volumes perform well. This was driven by Coca-Cola Zero Sugar of 5.5%, which continue to achieve good share and volume growth across our key markets. We delivered fantastic activation centered around this year's sporting events. And we launched the exciting Zero Sugar Limited Edition Coca-Cola and Oreo collaboration, which has performed particularly well in Australia and GB. Also in GB, we've just launched our new Diet Coke campaign, This Is My Taste, emphasizing bold self-expression and featuring our new brand ambassador, actor Jamie Dorn. In flavors, you can't have missed the new Beetlejuice-inspired Fanta Halloween campaign, celebrating the launch of the movie sequel and newly released limited edition Fanta Zero Afterlife. Sprite volumes also performed well, up 1.8%, again on the back of great execution, great reformulation, and refreshed marketing. Our sports volumes grew 7%, driven by Aquarius and Powerade, supported by, again, great activation and the launch of Powerade Mango, alongside favorable trends in the overall category. Again, Monster outperformed, driving overall energy growth of 4.5%. Fantastic innovation continues to drive recruitment and distribution, supported by flavor extensions like Ultra Strawberry Dreams, Ultra Violet, and Nitro Cosmic Peach. And finally, in ARTD, as we diversify our business to address different need states, and following the encouraging results of Jack Daniels and Coca-Cola, the number one ARTD value brand in GB, we continue to build with the recent launch of Absolute and Sprite in Europe. Already off to a good start and with an encouraging rate of sale, and many of you have seen the recent announcement of Bacardi Rum and Coca-Cola, which is due to launch next year. So now let me turn briefly to our full-year guidance and outlook. As I've said earlier, we have today reaffirmed our full-year guidance on both operating profit and free cash flow. We continue to anticipate full-year operating profit growth of around 7%, supported by our ongoing efficiency initiatives and strong free cash flow generation of around 1.7 billion euros. On our efficiency programs, in short, they remain on track and are progressing well. For example, we recently announced proposed changes to our supply chain network in Germany to ensure it remains fit for the longer term. From a revenue perspective, revenue per unit case growth has been broadly consistent year to date, and we expect that to continue for the full year. And as I touched on earlier, from a volume perspective, whilst year to date volumes are slightly up, the recent quarter has been weaker, primarily driven by mixed weather in Europe and softer demand in the away from home channel. Although adverse weather has persisted into October in Europe, we have strong and exciting plans in place as we head towards Christmas, from the summer season in APS to the winter season in Western Europe. In that context, and including the benefit of two extra selling days in Q4, as previously guided, we are lowering slightly our full year revenue guidance to around 3.5%, slightly below our previous guidance of around four. Looking at COGS, with over 95% hedging in place, and with less than two months of year remaining, We now expect full-year COGS per unit case growth of around 2.5%. This is lower than our previous guidance, partly driven by the positive mixed impact from the higher growth in the Philippines, which has a lower COGS per unit case. We're also very pleased to be declaring our second half dividend of €1.23 per share. This level of dividend maintains an annualized payout ratio of approximately 50%, representing an absolute full-year dividend increase of just over 7% versus last year. Now, looking to next year, we remain confident in the resilience of our categories. Whilst it's too early to provide detailed guidance, which will be provided with our full-year results in February, we're confident we have the right strategy in place to deliver on our mid-term objectives. We have fantastic brands in the category, which we expect to continue to be robust into 2025 while clearly our biggest opportunity is to see the return to quality underlying volume growth in Europe. We're continuing to invest for the long term and excited about what lies ahead. We're adding capacity into key areas such as the Philippines, new can lines in Europe and Australia, accepting capacity to support the growth of sports-infused tea, all whilst adding over 100,000 coolers to our universe. We're also accelerating our digital transformation. For example, adding even better functionality to our B2B portal, myccp.com, making it even easier for customers to do business with us. This has grown strongly and is now expected to account for around 2.7 billion euros of revenues this year, up from around 2 billion previously. As I mentioned earlier, we have an exciting platform event in Southeast Asia next May, so we really look forward to hosting you there. In summary, and back to where I started, we are delivering. 2024 continues to be a solid year for CCP. Combined with today's dividend declaration and a near-term anticipated return to our target leverage range, this demonstrates the strength and resilience of our business and our ability to sustainably grow our shareholder returns. Again, thank you for your time today. Ed and I will now be very happy to take your questions. 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 and 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 1 1 again. Once again, please press star 1 and 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. Thank you. We'll now take our first question. First question is from the line of Matthew Ford from BNP Paribas. Please go ahead.