Coca-Cola Europacific Partners plc

Hello and thank you for standing by and welcome to today's Coca-Cola Europacific Partners half year 2026 results conference call. At this time all participants are in a 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 Gammell, our CEO, and our CFO, Ed Walker. First, 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 the courts filed with the UK, US, Dutch and Spanish authorities. A copy of this information is available on our website at www.cocatolaep.com. Prepared remarks will be made by Damian. 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. Volume movements, unless otherwise stated, adjust for the impact of six more consumption days in the half when compared to the same period last year. Following the call, a full transcript will be made available as soon as possible on our website. You will see on the first slide of the presentation a picture of one of the limited edition two million campeon champion gold cans to celebrate our Spanish market winning the World Cup. So on that note I will now turn the call over to our CEO Damian who found one of these cans selling online for 20 euros.

Thank you Sarah, I didn't buy it but thank you and thank you all for joining. We delivered a strong first half and I really want to start by thanking our colleagues for their focus, hard work, and continued dedication to CCEP, and most importantly, to our customers. Our people and our strong brand partnerships continue to drive us forward. We've seen broad base growth across markets and categories, continued share gains, robust profit delivery, and strong cash generation. Our value creation strategy is working. We are creating value for our customers, we are consistent top and bottom line compounder, We are generating significant cash which is which is supporting record investment behind future growth and we are increasing our returns to shareholders. Looking back over the past three years we've generated 4.4 billion of value for our retail customers and returned 4.3 billion to shareholders through dividends and buybacks. We operate in large, attractive and a growing beverage market. NARTD is a 180 billion category globally and is expected to grow 3-4% annually through to 2030. We are well positioned in the fast-growing categories and across a diverse channel and geographic footprint, including particularly attractive long-term opportunities in Southeast Asia. Looking now at our results, the business continues to perform well. We're pleased to have delivered a strong first half with balanced top line growth across our markets, continued share gains and robust profit delivery. We're executing well and innovating at pace, focusing on the categories where consumers are most engaged, including zero sugar, energy, sports and hydration. As a result, we continue to lead value creation for our customers. We're staying disciplined on costs with our productivity mindset and efficiency programs continuing to support profit expansion, strong free cash flow and investment in our brands, supply chain, technology and our people. Also enabling us to grow our shareholder returns. We've laid strong foundations through our commercial plans, our innovation pipeline, our in-market execution and the ongoing development of our strategic capabilities. We are confident in reaffirming our guidance for this year and in the longer term opportunity ahead. Turning now to the key metrics, you can see a well-balanced performance across the business. Revenue grew strongly with great execution across our markets, positive revenue per case and strong growth in volumes, particularly in Q2, despite Easter falling into Q1 this year. June was actually our biggest volume month ever. We also grew value share by 20 basis points driven by gains in Europe. Our customer relationships remain a real source of competitive advantage. We continue to maintain high service levels and we're proud to remain the number one retail value creator, which is important because creating value for our customers is central to how we will grow sustainably. Operating profit reflects the quality of our top line as we've benefited from stronger volumes, as well as disciplined cost management and our ongoing productivity agenda. Cash generation remains a core strength of CCEP. We delivered strong comparable free cash flow in the first half and continue to invest behind future growth while also returning cash to shareholders through our dividend and our share buyback program. So overall, the first half demonstrates the strength of our model. We are growing, Investing, improving productivity and growing shareholder returns all within a disciplined framework. We delivered revenue of €10.7 billion, an increase of 6.1% with volumes growing 5.6% or 2.2% on a days adjusted basis with volume growth in both Europe and APS. Revenue per case grew 0.4% against a strong comparative of almost 4% growth in the first half of last year. Headline price increases, promotional optimization, and positive mixed benefits from the growth of energy and more coolers were partially offset by the growth of larger volume formats in Europe. In addition, we also faced a headwind from the Suntory alcohol exit in APS, and this has worked just over 1% of total revenue during the first half. In fact, in Australia Pacific, revenue excluding alcohol grew a really healthy 10%. Cost of sales per unit case increased by 0.6%, lower than a full year time around 1.5, and this largely reflects both a higher half one comparable of 3.6% last year, and with much of the absorption of the ongoing uncertain situation in the Middle East still to land in half two. OpEx as a percentage of revenue was 21.4%, an improvement of around 40 basis points, supported by savings on discretionary spend and continued productivity gains. The combination of these factors drove operating profit of $1.5 billion, up 8.1%, with an operating margin of 13.8%, up around 30 basis points on last year. Diluted earnings per share of €2.20 was up 10.6%, supported by the share buyback with around €600 million of the full year €1 billion now completed. And finally, free cash flow of €435 million was slightly ahead of last year. This was after investing in key projects, including more coolers, a new warm fill line for power in Australia, new can fillers in Sweden, and the development of our exciting greenfield site Manila. which is on schedule to begin production next year. We do remain on track to deliver comparable free cash flow of at least 1.7 billion euros for the year. Our performance in the first half and a solid start to the second reinforces our confidence in the outlook for the full year, notwithstanding six fewer trading days in the second half. So today we're reaffirming all elements of our full year 26 guidance. and the 26 guidance is in line with a midterm objectives with a quick reminder of those here. Our performance and the continued delivery of these midterm objectives come back to the execution of our focused and consistent strategy captured in these core priorities. Firstly, we're broadening our total portfolio, investing behind faster growing categories and driving innovation across both established and emerging brands. We bring these brands to life in market with great execution, whether that's through impactful on-shelf, differentiated points of interruption, cooler placements, or recent major activations such as the FIFA World Cup to differentiate ourselves in the marketplace. Enhancement of our revenue and margin growth management, investment in commercial capabilities, and productivity improvements ensure we remain competitive. Our investments in the Philippines and Indonesia represent significant long-term opportunities to accelerate growth and we're encouraged by the progress we're making in both markets. And we're unlocking growth through technology and AI. These investments are helping us to generate new growth opportunities across the business, improve decision-making, enhance customer service, and increase our manufacturing efficiency. Our focus on these priorities is strengthening our business today and creating the foundations for growth and value creation for many years to come. And of course, all done sustainably. Briefly on that, we recently updated our sustainability goals to include the Philippines, something we explored in a recent ESG webinar and available for replay on our website. So how are we getting on more broadly against these priorities? Our portfolio strategy is working. We're continuing to invest in the core whilst broadening our participation across faster growing categories and occasions, including sports, energies and zeros, where we're seeing strong momentum, which I'll come back to shortly. We've seen a meaningful contribution to our growth from some great innovation in the first half. On our Coke trademark across original tastes and zeros, our new cherry variants, including Cherry Float and GB perform well. We continue to make good progress with small and more premium packs, and the new 500ml supercans are proving to be a great success, especially with younger consumers. So watch this space for more to come. And we welcome the return to growth for Diet Coke and GB, supported by the addition of Cherry and the collaboration with The Devil Wears Prada. Our flavors family has seen lots of exciting new introductions, from Royal Grape and Lychee in the Philippines, the fantastic Nippies Mint in Indonesia and the fun new visual identity for Fanta with Xbox gaming graphics. We're strengthening our presence in sports and hydration with volumes of 12%. Aquarius continues to drive strong growth in Iberia while PowerAid grew double digit supported by the FIFA activation. This brand has also been recently introduced to Indonesia where the sports category is already half the size of sparkling. Energy continues to outperform with volumes up an incredible 19%. Monster growth is running at roughly twice the category rate. Our share was up 230 basis points supported by innovations such as Viking Berry and strong activation around our motorsport partnerships with Oscar Piastri now featuring on the cans of Monster Green. Water is growing well. particularly in GB with Smart Water and in the Philippines with Wilkins. And we've made fantastic progress in coffee in Australia where Grinders is now the number one coffee bean brand in retail with sales of over 100 million Aussie dollars. The common theme here is choice. More brands, more packs, more flavors and more occasions focused on faster growing categories. That's helping us recruit consumers, increased frequency and capture a greater share of the beverage spend. As I mentioned earlier, we've seen great momentum in the growth of zeros everywhere, whether in Coke trademark, flavors with Sprite and Fanta, in hydration or in energy. Both Coke Zero Caffeine in its eye-catching, caffeine-free in its eye-catching new black and gold packaging and Zero Chill Sprite with its refreshing glass of mint have delivered beyond our expectations. with Sprite overall grown by 6% supported by the Fantastic Sprite and Spicy campaign. We've extended our range of zero flavors in Fanta and are seeing good growth in both zero sugar sports through Powerade and Aquarius and in energy where the Monster Ultra range was up over 50%. Overall, zero sugar volumes increased by 10% and we expect strong growth going forward with innovation offering more choice for consumers as they increasingly seek out healthier but exciting and great tasting options. Execution is one of our most durable competitive advantages and in half one, we turn brand strength and innovation into visible, measurable marketplace impact. One example is our cooler rollout plan which is running well ahead. We've added more than 80,000 coolers this year, an increase of 5%, more than 10% since last year when we began our accelerated program, to expand cold availability and grow instant consumption, which supports mix. We're continuing to win with customers and listings across markets, including smart water infused tea at McDonald's in selected markets. Domino's was a significant recent win in Australia, with the GB team winning Parkdean Resorts, Papa John's, and Leeds United. This expands our coverage of English Premiership grants to 80%, and makes Ed, our CFO, a proud Yorkshire man, very happy. And we've seen a terrific win for the whole system with Marriott International, including over 600 hotels in air markets, and that will start rolling out during half two. Beyond that, execution on our packaging collection progress continued. DRS has landed well in Portugal. We continue to prepare for GB next year, and we launched a cross-border recycling program across the Pacific Islands. all contributing to our decarbonization journey. And finally, we're bringing our brands to life through stronger activation as you can see here on the Fanta and Xbox and of course through FIFA World Cup which I'm keen to touch on next. World Cup 2026 has been our biggest activation program ever providing a great example of how we work with the Coca-Cola company combining world-class assets with exceptional local execution at scale to create value for our customers and excitement for our consumers. We delivered more than 500,000 displays with our field teams continuing to build momentum as the tournament progressed. All of our top European home customers executed the campaign covering more than 47,000 outlets. We activated exclusive Panini sticker unpacked promotions with 163 million packs and produced more than 135 million team and player cans. Importantly, it just wasn't about brand awareness. The activation supported transactions with more than 1.3 million FIFA items awarded to shoppers through the purchase of our brands. Onto competitiveness. Sharping competitiveness is not simply a cost agenda. It is about building a faster business One that is more efficient and more effective in serving our customers and consumers and one that can grow profitably. One important lever is revenue and margin growth management. We are continuing to use sharper insights, better promotional mechanics and stronger pricing tools to balance value for consumers with profitable growth for our customers and CCP. That is particularly important in an environment where many consumers remain focused on value. Promotions are a good example. They're not only about headline price, but as the examples here demonstrate about great promotional mechanics helping to drive higher incidents, whether that's through free meals in QSR, gifts with purchase, or prize-led campaigns for Fuse Tea and Coke Zero Zero. At the same time, we are building more scalable capabilities across the business. expanding integrated shared services with more than 1500 colleagues, including now over 250 in Manila. This is all part of our broader productivity mindset. We are improving how we work, simplifying processes as we leverage AI, reducing OPEX and reinvesting behind the capabilities that matter most across both commercial and their supply chain. Our markets in Southeast Asia are fastest growing within CCEP as you saw earlier. In Indonesia, we made solid progress during the first half of this year, which sparked and continued to grow ahead of the total category. Our new launches like Sprite Nippy's Mint, Coke Zero Vanilla, and Powerade are performing well and have contributed significantly to growth in Q2 following a great festive period. This has been supported by a new route to mark model which is helping us strengthen execution and improve category participation with our distribution partners. In the Philippines, we've continued to see strong momentum. Our Coke Zero campaign focused around all-out syrup or all-out deliciousness supported double-digit volume growth and we've continued to see good momentum at Wilkins, our water brand, which is benefiting from new listings. We're also investing for future demand. Construction of our new facility remains on track for 2027, and this will provide additional capacity to support long-term profitable growth in the Philippines, with margins now approaching our 10% target. Taken together, Indonesia and the Philippines are becoming a scalable Southeast Asia growth engine for CCEP, combining strong category growth, improving execution, innovation momentum, and growing profitability. Now just to talk a little bit to AI and tech. Our approach to AI is clear. We are focused on a key number of strategic opportunities across the business, but we are deliberately centered around growth. By way of few examples, it is providing enhanced analytics to optimize promotional pricing levels. It's supporting our insights team to analyze data to drive swifter commercial decisions. It's cleaning millions of pieces of manufacturing data in days rather than years. and it's helping key account managers prepare more effectively for customer conversations and is starting to enhance productivity as we leverage digital twins in our supply chain. So what gives me confidence is that while we're seeing good progress against all our strategic priorities, we will keep coming back to demonstrate how we are straightening our business today and creating foundations for tomorrow. We know, however, that we've got more to do. We continue to broaden our portfolio, especially in zeros, bringing even more magic to Coke Original Taste and driving more innovation with new and exciting options coming from our brand partners. In Southeast Asia, we are encouraged by the early progress in Indonesia and the continued strength of the Philippines. Our focus is now to sustain that momentum and scale it into a long-term growth engine for CCEP. All of this was continued to execute across our markets each and every day whilst adapting even faster, leveraging that and tech across our business. So, as you've seen today, we're continuing to build on the consistent track record of delivery over the past 10 years. We've created significant value for customers, consumers and shareholders, and we believe the opportunity ahead remains just as compelling. We are growing across attractive categories and markets, broadening our portfolio, winning through execution, sharpening our competitiveness, scaling Southeast Asia and unlocking new growth through data, technology and AI. The strength of our first half performance demonstrates the resilience of our business and the consistency of our growth model. While we have several key months to go and six less trading days in Q4, The second half has started well, giving us confidence in our full year outlook and our ability to deliver on our medium term objectives. We are winning today and we are creating an even stronger platform for tomorrow. Thank you everybody and Ed and I would now be very happy to take your questions as I hand the call back over to you Mel.