Remitly Global H2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2024

There are 10 speakers on the call.

Operator

thank you for standing by and welcome to today's Coca Cola Euro Pacific Partners Q4 and FY 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session. I must advise you that this conference call is being recorded today. Now I'd like to hand the conference over to Vice President of Investor Relations and Corporate Strategy, Sarah Willett.

Operator

Please go ahead, Sarah.

Speaker 1

Thank you all for joining us today. I'm here with Damian Gamilar, CEO and Nick Gianciani, our CFO. Before we begin, the line of these remarks is a reminder of our cautionary statements. This will contain forward looking management comments and other statements reflecting our outlook. These comments should be considered in conjunction with the cautionary language contained today as well as the detailed cautionary statements found in reports filed with the UK, U.

Speaker 1

S. Dutch and Spanish authorities. A copy of this information is available on our website at www.cospolapep.com. The prepared remarks are made by Damien and Nick. We will then turn the call over to your questions.

Speaker 1

Unless otherwise stated, metrics presented today will be on a comparable and FX neutral basis throughout. 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.

Speaker 2

Thank you, Sarah, and good morning, everybody, and many thanks for joining us today. Before I begin, I just want to take this opportunity to thank all of my great colleagues at CCEP for their continued hard work and dedication to our customers and our business. And obviously, today we welcome our new colleagues joining us from the Philippines, a great coke market and a great addition to the CCEP story. So welcome and again a big thank you to everybody at CCEP for your ongoing hard work. 2023 was another great year for CCEP.

Speaker 2

We continue to execute on our clear strategy. We have an unwavering commitment to stakeholder value creation. Our retail customers importantly continue to share in our success since 2017. We've created more value for them than any of our peers. And indeed, our TS store speaks for itself.

Speaker 2

Validated by entering the Nasdaq 100 Index late last year, we've paid a record dividend last year and now have returned more than $6,000,000,000 to shareholders since 2016. We are clear on the strategic choices we make. We're making the right decisions on our portfolio to drive a more efficient business for the long term. And from today, as I mentioned, we welcome Coca Cola Beverage Philippines to the CCEP family, the acquisition having now formally closed. This creates an even more diverse footprint for CCP, provides the opportunity to leverage best practice and talent, including supporting our exciting transformation journey in Indonesia.

Speaker 2

I'll come back on both markets a little bit later. And as always, we are supported by our strong Align relationship with The Coca Cola Company and our other brand partners. So now to our full year key messages. I'm really pleased with our performance in 2023 delivering on all key metrics. We achieved solid top and bottom line growth, value share gains in the market, and as always, an impressive free cash flow generation.

Speaker 2

Top line growth was price mix led, but also supported by solid volume growth in Europe, Australia and New Zealand, where we also grew transactions at a volume. We continue to invest for the long term in our portfolio, our digital journey, our supply chain, sustainability and of course in our people. We are a stronger and better business. We're more diverse and robust in our categories. They remain resilient despite some of the ongoing macroeconomic and geopolitical volatility.

Speaker 2

This collectively makes us well placed for full year 2024 and beyond, underpinning our commitment to create continued shareholder value. As I've talked about before, we are focused on great people, great service, great beverages, all done sustainably. So now let's take a brief look back on last year. Starting with our great people, we achieved an excellent score in our global engagement survey, position us comfortably ahead of our industry benchmark group. And we continue to be externally recognized as being a great and diverse place to work.

Speaker 2

This included our 2023 inaugural entry into the Forbes top 200 World's Best Employers and the top 100 World's Top Companies for Women. Great service and execution are always a key priority at CCEP as we strive to make it even easier for our customers to do business with us. We continue to invest in our supply chain, like new state of the art can lines in Australia, Norway and Great Britain. And we were recognized for a great service in the Advantage survey results where we ranked number 1 globally among our top retailers, up from last year. On our journey to becoming the world's most digitized bottler, we continue to invest in our broader digital capabilities.

Speaker 2

For example, around 85% of our volume is now captured digitally, including our B2B portals, which represent nearly 15%. And finally, our great brands and beverages. We are extremely privileged to make move and sell the world's most loved drink brand. We continue to invest and innovate to make them even better and appeal to even more consumers. In fact, in Europe, over 75% of households purchased from our NARTD portfolio, up 70 basis points from the previous year.

Speaker 2

And now let's look at our sustainability journey, where we continued to make great progress. We've achieved 55% recycled plastic content, up from 48% last year. Having surpassed our 50% commitment, but our efforts do not stop there as we remain focused on our ultimate goal of 100%. We continue to invest in sustainability focused technology through our CCEP Ventures arm and we are proud to be part of the Coca Cola System Sustainable Venture Capital Fund. A big milestone was the validation of our carbon emissions targets by the science based targets initiative across all of our markets including API.

Speaker 2

This includes both our 2,030, 30 percent greenhouse gas reduction and our long term 2,040 net 0 targets. And importantly, we continue to be recognized externally retaining our inclusion on the CDP's A list for climate and maintaining our MSCI AAA ESG rating. So now turning to our performance highlights. As I mentioned earlier, we delivered a solid top line performance. Solid underlying demand in our developed markets alongside grading in market execution drove volume growth in Europe of 0.5% despite what you will all recall was a very mixed summer in terms of weather.

Speaker 2

Excluding the strategic choices we've made, we saw underlying volume growth in Europe of 1% and in Australia and New Zealand of 2%. In Indonesia, we made good progress with our long term transformation journey, which I will come onto in a bit more detail later. Execution of our revenue and margin growth management initiatives along with our dynamic price and promotion strategies across a broad pack offering drove solid revenue per case growth of 8.5%. Headline pricing last year, although ahead of pre pandemic levels, was below realized cost inflation, as we continue to prioritize relevance and affordability for our consumers. Now to the NARTD category overall.

Speaker 2

It remains resilient, growing in volume terms by 8% in value terms by 8% in Europe and 9% in API. We gained value share both in store and online and continue to win with our customers supported by some great activation. Our strong top line performance together with our continued focus on efficiency as we close out our full year 2021 to 2023 efficiency programs drove strong operating profit growth of 13.5%. This in turn supported impressive comparable free cash flow generation of just over €1,700,000,000 and the return to the top end of our target leverage range as guided. I'd now like to hand over to Nick to talk to more detail to the financials.

Speaker 2

Over to you Nick.

Speaker 3

Thank you, Damon, and thank you all for joining us today. Let me start by taking you through our financial summary. We delivered comparable revenue of €18,300,000,000 an increase of 8%, which I'll come back to shortly. COGS per unit case increased by 7.5% broadly aligned with our guidance of around 8%. This was driven by our increased revenue per unit case driving higher concentrate costs through our incidence pricing model, inflation in manufacturing and commodities.

Speaker 3

High single digit growth in commodities reflected higher sugar and aluminum pricing, partly offset by lower gas and power and recycled PET pricing. This equated to gross margin expansion of around 80 basis points with Europe ahead of that number. We delivered comparable operating profit growth of €2,400,000,000 up 13.5 percent reflecting our solid top line growth, the benefit of our ongoing efficiency programs and our efforts on managing discretionary spend. This equated to operating margin expansion of around 60 basis points reflecting our focus on returning to our 2019 operating margin baseline. In line with our guidance, our comparable effective tax rate increased to 24% from 22% in 2022.

Speaker 3

This is largely due to the differences in the mix of taxable profits across our different territories and known tax rate increases such as last year's UK tax rate increase to 25%, which comes into full effect in the 2024 calendar year for the full year. This resulted in a comparable diluted earnings per share of €3.71 up 12%. Free cash flow generation as Damian referenced continues to be a core priority and we delivered an impressive €1,700,000,000 on a comparable basis, which I'll cover in more detail shortly. Our returns on invested capital increased by 120 basis points to 10.3% on a comparable basis, driven by the increase in profit after tax and our continued focus on capital allocation. And finally, on shareholder returns, we paid a record dividend per share of €1.84 up 9.5% versus 2022.

Speaker 3

Now to our revenue highlights. As Damian mentioned, the strong growth in our top line was driven by an increase in revenue per case with reported volumes down 0.5% for the year. This reflects the strategic choices we made driven by our SKU rationalization in Indonesia and the exit of bulk water across a number of our markets mainly in Australia, Germany and Spain. Excluding these one offs, volume overall would have been up around 1%. Specifically in the 4th quarter, our volumes were up 1%, reflecting resilient consumer demand supported by great Christmas activation and in market execution.

Speaker 3

Revenue per unit case grew by 8.5% for the full year. This reflects positive headline pricing, continued focus on promotional optimization and revenue growth management initiatives. However, we are not complacent. Although consumer spending has held up reasonably well, we fully understand that some of our consumers are feeling the pressure. And we are seeing some shifting into retailer brands across a few categories, less in colas and flavors, but also more shopping in discounters.

Speaker 3

And this channel will and has and will continue to remain a core focus for CCEP where we continue to grow and gain share. Our consumer centric approach remains focused on maintaining affordability and relevance for all consumers. We have great brands across a broad price pack architecture, which enables shoppers to access our products across a wide spectrum of price points. It is essential now more than ever that we continue to balance premiumization for those that seek it with more affordable packs for those that need it. For example, in Spain, we've activated a popular and affordable price point on the iconic 1.25 liter pack to continue to drive frequency and household penetration.

Speaker 3

Revenue by segment is referred to here with more detailed commentary by geography in the release. As mentioned just now, underlying volume growth of around 1% was driven by core brands where we continue to invest. Here are a few examples. Coke 0 Sugar continued to achieve good share and volume growth across all key markets with volume up 4% as consumer trends for low and no calorie beverages continue. In fact, these now account for approximately 50% of our total volumes.

Speaker 3

Continued to outperform driving full year volume growth of 14%. Fantastic Innovation continues to drive recruitment and distribution, including the launch of Monster Green 0 Sugar, which has had a great start. Sports volumes were up 9% with Poway growth across all markets driven by great activation and continued favorable consumer trends in this category. We will look to replicate the fantastic Women's World Cup activation in Australia and New Zealand last year alongside Coca Cola 0 Sugar as we look ahead to the exciting pipeline of sporting events favoring our European markets this year. Fuze Tea outperformed with volumes up 23% reflecting continued growth across Europe, especially in France and Germany.

Speaker 3

And finally, we launched Jack and Coke with very encouraging results in the fast growing ARTD drinks category. Briefly now to a summary of the strategic choices we're making to ensure we grow our business profitably and sustainably. We are being more choiceful about where we want to play as you can see here. The Indonesia The Indonesia 60% SKU rationalization was successfully executed and Damien will talk to that in a bit more detail later. We've already touched on the strategic exit of low margin bulk order across a number of our markets and this has now largely been cycled through.

Speaker 3

And as we announced alongside our half year results last year, we have made some further strategic choices on our beverage portfolio and partnerships. In Australia and New Zealand, we will maximize our extensive knowledge in the ARTD category by launching new scalable offerings aligned with The Coca Cola Company. In this context, our partnership with Beam Centuri will come to an end in the second half of twenty twenty five. And in Europe, our partnership with Capri Sun will come to an end this year. As you can see here, neither of these choices will have a significant impact to CCEP.

Speaker 3

They are the right ones for the long term success of our business, enabling a greater focus on priority categories and with our 2 key brand owners, The Coca Cola Company and Monster. Now on to OpEx and our efficiency programs. We've now closed out delivery of our full year 2021 to 2023 program, which as I mentioned earlier supported our operating profit growth in 2023. The entire program ultimately amounted to approximately €375,000,000 of benefits adding up to more than €700,000,000 in total together with our first post merger efficiency program initiated in 2016. At our Capital Markets Day, we announced a new efficiency program aiming to deliver €350,000,000 to €400,000,000 of incremental savings by full year 2028.

Speaker 3

Overall, yes, it's a big number, but we feel very confident in its delivery. It will largely be enabled by leveraging digital tools, data and analytics. Of course, this is not an area that's new to us. We've been investing in digital capabilities for many years. And as Damian said already 85 percent of our volume is captured digitally.

Speaker 3

For this next phase, we're moving from 4 legacy systems to take a huge amount of standardization into our processes and ways of working over the next multiple years. Our large base in Bulgaria and our outsold service providers will be pivotal. Already our capability there has been transitioned from a more traditional shared service center to being a lot more focused around not just reporting, but analytics and robotics. And there's a lot more we can do to build out capability beyond finance to people and culture, supply chain and the commercial areas of our business, while incorporating our new and established shared services center in Manila that we're very excited about. We said when we announced this program that the savings would be multi year from 2024 through 2028.

Speaker 3

With respect to this year, we anticipate savings of around €60,000,000 to €70,000,000 which back to the previous slide will help offset inflation. And naturally there will be cash costs associated to deliver this program. These have been included in our midterm comparable free cash flow guidance of around €1,700,000,000 per year. So turning to free cash flow in more detail, a hugely important metric for us and I'm sure for you as well. We generated €1,700,000,000 of comparable free cash flow in full year 2023 and this slide lays out the key components including ongoing restructuring cash costs as I referred to.

Speaker 3

Recognizing the importance of targeted investment, we spent around $700,000,000 in CapEx excluding leases on supply chain examples, which Damien gave earlier, digital and other technologies as well as cold drink equipment. And as you know, working capital remains a core focus for us and I'm really pleased that we delivered yet another year of significant benefits taking the cumulative amount to approximately 1 point $3,000,000,000 since 2017. Finally, you can see our comparable free cash flow excludes the one off receipt of proceeds from the disposal of core royalties of approximately €90,000,000 in Australia related to the acquisition of Amatil back in 2021. And now for our leverage and balance sheet, we ended 2023 with net debt to comparable EBITDA ratio at 3 times. This means that we return to the top end of our target leverage range of 2.5 to 3 times 1 year earlier than originally guided, thus firmly demonstrating the pace of deleveraging since we closed the Amatil transaction in mid-twenty 21.

Speaker 3

Given the timing of today's closing of the Philippines acquisition, this does not include that related impact. Having said that, this will only have a modest impact on our leverage and given our strong focus on driving cash and further working capital improvements, we anticipate that we will return to within our target leverage range during this year. This while remaining fully committed to our strong investment grade ratings. Now to a quick reminder of our midterm objectives, which we updated at our last Capital Markets Day. They remain unchanged and here more for context as I come into our full year 2020 4 guidance, which nicely brings me into our full year 2020 4 guidance, which is aligned with these midterm objectives.

Speaker 3

The guidance reflects our current view of market conditions and is based on adjusted and comparable basis, which from a modeling perspective assumes the Philippines was included in our business from the start of last year. As you may have already seen, we did today provide a separate release incorporating full year 2023 adjusted financial information for selected metrics for the Philippines. Please note that these growth rates are all provided on a comparable and FX neutral basis as it is really too early to provide specific FX guidance. Of course, we will update you as the year progresses. So we expect comparable revenue growth of around 4% and COGS per unit case growth of around 3% to 4%, both of which we'll talk to shortly.

Speaker 3

With our continued focus on OpEx as highlighted earlier, we will look to deliver comparable operating profit growth of around 7%. On interest, we do expect our underlying interest cost to be broadly flat equating to a weighted average cost of net debt of around 1.3%, which clearly reflects a very attractive debt maturity profile. The Philippines transaction has been funded through existing liquidity and incremental borrowing with a mix of Euro public debt issuance completed in November of 2023 and local peso borrowings. Therefore, this newly acquired debt now takes our total weighted average cost of net debt for this year to be expected around still a very attractive level of around 2%. As I referred to previously, we do anticipate an upward trend on our effective tax rate reflecting differences in the mix of taxable profits across our markets and known tax rate increases.

Speaker 3

We therefore expect ETR to increase to around 25% this year, up from 24%, including the full transition to the 25% tax rate in 2024 in the UK as I referenced to earlier. We will continue to update you on our expected ETR including our assessment of any uncertain tax positions during course of the year. On CapEx specifically, given the opportunities that lay ahead, we expect our CapEx guidance to be the top end of our range of 4% to 5% of revenue. This largely reflects 2 areas. Firstly, the upperweighted digital investments we're making and I spoke to that earlier.

Speaker 3

And then also in the context of our new efficiency program, which will clearly be supported through those investments. And secondly, having now closed the Philippines transaction, which underpins these mid term objectives, we plan to invest a bit faster near term in this established and fast growing market to position us for long term success and Damian will touch on that a bit more later. Given both opportunities are more near term in nature, we anticipate that our CapEx will be at the top end of our range for the next 3 years or so. And finally, we do expect to deliver comparable free cash flow of around €1,700,000,000 which will be after the tax costs associated with our efficiency programs. Let me provide a bit more color on the COGS guidance before handing back to Damian to talk top line Indonesia and the Philippines.

Speaker 3

So on COGS, clearly these comments are based on what we know today, which per unit case we expect to increase by about 3% to 4%. Our concentrate costs are tied to our revenue per unit case growth as you know, albeit much more balanced with volume compared to last year. We anticipate low single digit commodity inflation. This reflects significantly higher sugar pricing in part offset by lower pricing in the other commodities. And from a hedging perspective, I'm pleased to say that we are now approximately 80% hedged for full year 2024 including the Philippines.

Speaker 3

Of course, we continue to see inflationary pressures in labor within the manufacturing line. However, these will be broadly offset with lower gas and power in our plants and our continued focus on efficiency as I talked to earlier. Finally, on tax, we have the throughput tax impact from the Netherlands change in soft drinks excise tax from €0.08 to €0.26 per liter with the offset obviously within revenue. And with that, I'll hand back to Damian. Damian?

Speaker 3

Thank you, Nick.

Speaker 2

And now I'd like to spend a bit of time on the revenue opportunities for 2024. We expect top line growth this year to be much more balanced between volume growth and price mix compared to last year. As Nick said earlier, our main priority is to continue to remain affordable and relevant to the consumer. And as such, we continue to manage the business for the longer term with our overall realized pricing tracking below inflation to date. We are however still seeing some inflationary pressures across the industry albeit lower than last year.

Speaker 2

To that end, we've already closed pricing negotiations in a number of our markets for this year. We have great brands, which our consumers love. And on the back of the ongoing investment and innovation in brands, product and packaging, our category and brands continue to support a solid growth platform for all of our customers. We will continue to invest in Coca Cola 0 Sugar and Paraide, taking the success from the Women's World Cup in Australia with some fantastic activation planned around the key sporting events of the Olympics in France and the Euros in Germany. We have some exciting innovation plans for the Coke portfolio, including a lemon flavor extension being launched both for Coca Cola Original Taste and for Zero Sugar.

Speaker 2

In flavors, we will be launching a new tasting Fanta and also trialing a label free more sustainable Sprite Pack in GB. We will build on the success of Jack Daniels and Coke, already the number one alcohol ready to drink value brand in GB, coming with bolder packaging this year alongside the launch of Absolute and Sprite. Energy will benefit from the wider launch of the very well received Monster Green 0 Sugar and the launch of new and exciting flavor extensions and Rainstorm. And refillable glass remains a focus where we will continue to invest and will become even more relevant with the inclusion of the Philippines for over 40 5% of their volumes are sold through refillable glass. So now on to the Philippines, a great strategic move for us, the best use of cash and a good deal for our shareholders.

Speaker 2

The transaction creates an even more diverse footprint for CCEP within what will now be renamed APS, Australia, Pacific and Southeast Asia. The business is established with a proven track record and it operates in a highly attractive and growing market led by a great local team. It provides the opportunity to leverage best practice and talent, including supporting Indonesia's transformation journey where the sparkling category as we know is much less developed. We very much look forward to working with our like minded now joint venture partner Aboitz, one of the leading conglomerates in Southeast Asia. Their considerable experience of the market and coastal dynamics will no doubt be invaluable to us as we unlock even more potential together for the Philippines business.

Speaker 2

And of course, all aligned with The Coca Cola Company. Just by way of reminder, the Philippines operates in a large and attractive NARTD category. Currently, it's valued at around €8,000,000,000 and therefore takes CCEP's addressable market to around €140,000,000,000 The category is fast growing, estimated at around 10% per annum in value terms, so well ahead of CCEP's current group average of 3 percent to 4%. The market comes with attractive macros. The Philippines is the 13th largest country globally with solid GDP and population growth and importantly a fast growing middle class, all metrics that are clearly ahead of Europe.

Speaker 2

Within the NA RTD category, sparkling is well established, representing around 55% of volume where per caps over 4 times higher than the average for Asia Pacific. There remains attractive headwind for growth when compared to more developed markets. Future opportunities would include low and no sugar, energy and ARTD, so lots to aim for and leverage from the rest of the group. And it's a very established business. Last year, the business delivered around 655,000,000 unit cases, translating into APS representing 1 third of the total volumes for CCEP.

Speaker 2

It generated around €1,700,000,000 of revenue and €105,000,000 of operating profit. So already a business with attractive scale and profitability. So as you know, the transaction completed today. As we've acquired a majority 60% stake alongside Aboitiz, we will consolidate the business into our results from an accounting perspective with their minority stake recognized as a non controlling interest. The business delivered solid top and bottom line growth last year, although some of this did reflect the return to a more normalized performance following adverse weather in 2022, which affected sugar availability.

Speaker 2

The transaction is therefore immediately EPS accretive and as Nick said earlier has a modest impact on CCP's leverage in 2024. Our strong focus on capital allocation and our long term mindset will ensure we invest in this established business to support the market's long term 10% growth expectation. The transaction gives us the opportunity to reset the growth ambitions for this business and so our capital plans today reflect that. And lastly, before you ask, we will not be talking to specific synergies in relation to the Philippines. They sit within our overall guidance for CCP.

Speaker 2

Of course, just like we did with Amitil, we see many opportunities to share learnings and best practice in areas such as digital, technology, procurement, sustainability and indeed shared services, given there is already an established capability in that area in Manila. To our legacy, as I'm confident you would agree, we have a strong track record of integrating and driving value creation. So we've already started and look forward to share more with you in due course. So from one exciting market to the next, I just wanted to close out with an update on where we are with Indonesia. As you all know, we are in the early stages of our long term transformation journey, and we are making good progress.

Speaker 2

Unfortunately, as highlighted previously, consumer spending remains under pressure, generally impacted by wider market inflation and the reduction in fuel subsidies. So clearly, that's not helping us right now, but we remain focused on the longer term opportunity. As I said earlier, the Sparkling category in Indonesia is much less developed than in the Philippines at less than 10% of the NA RTD category. We've successfully executed our portfolio plans. We now have a much tighter portfolio.

Speaker 2

We're focused on winning and sparkling and ready to drink tea. Beyond the brand portfolio, we've completed a new price pack channel strategy, which incorporates a deeper understanding of the Indonesian consumer sensitivities and affordability. We're working on building out new drinking occasions across the calendar beyond the must win Ramadan period. This is a picture of the annual Jakarta Fair, the biggest consumer event in Indonesia where we executed our biggest activations yet in 2023. And alongside The Coca Cola Company, we are focused on younger consumer recruitment.

Speaker 2

We're taking the right decisions to reengineer both our cost base and our route to market for the longer term. We've implemented a comprehensive productivity program while starting to move our largely direct route to market to a more fit for purpose and indirect model. We are starting to see progress, a few examples of which I will share on the next slide. Just to talk to a few here. Sparkling transactions, a key metric, are growing ahead of volume and Coke trademark is achieving decade record volumes in what is a traditionally Sprite led market.

Speaker 2

As you would expect, we are fully aligned with The Coca Cola Company on our brand priorities in Indonesia. A good example being the recent launch of Coca Cola 0 Sugar and Sprite 0, a really great opportunity for the future and off to a promising start. As I said just now, we are focused on recruiting younger consumers. We step change our approach to Gen Z, incorporating nearly 900 influencers with a combined following of nearly 370,000,000, that's more than me, one of which is on the slide here with around 1,300,000 followers alone. On sustainability, we are owning our circularity journey from day 1 through the right partnerships and investments.

Speaker 2

You can see here the significant progress we've already made on recycled content, supported by the first to market launch of 100 percent recycled PET bottles in Indonesia achieved through an industry partnership recycling facility just outside of Jakarta. And importantly, despite all of the change, our colleagues are highly engaged in the fact they had a CCEP average, which is great to see. So we remain confident in our future in Indonesia. And as always look forward to updating you more in due course. So finally to our closing remarks.

Speaker 2

As I said at the start, 2023 was another great year for CCEP delivering on all key metrics. We continue to execute on our clear strategy. We continue to invest for the long term in our portfolio, our digital journey, supply chain, sustainability and of course in our people. We are a stronger and better business, more diverse, now including the great market of the Philippines and robust and our categories remain resilient despite ongoing macroeconomic and some geopolitical volatility. This collectively makes us well placed for the full year 2024 and beyond underpinning our commitment to create continued shareholder value.

Speaker 2

To close, I would particularly like to thank our customers, our brand partners, and again our colleagues whose hard work and commitment mean we're able to go further together for all our stakeholders. So again, thank you very much. Nick and I will now be happy to take your questions. So over to you, operator.

Operator

Thank you. We will now begin the question and answer session. First question is from the line of Edward Mundy from Jefferies. Please go ahead.

Speaker 4

Morning or afternoon actually, Damien, Nick and Sarah. So just on the guide of 4%, I appreciate it's pretty early days and some consumers are feeling a bit of pressure, but can you provide perhaps a bit more color on some of your assumptions? I mean on volumes, I think you're talking to a better balance between volumes and pricemix, which I think implies some volume growth. I think on the price piece, look, it's clearly going to start to taper, but you do have a bit of a carryover from pricing taken. Germany Q3, GB end of Q2.

Speaker 4

Mix has been a really good driver through most of 2023 and should continue to 2024. You've got these very mixed summer weather comps, you've got the Olympics, you've got the football, you've got the Philippines, I guess, growing ahead of group. What are we missing?

Speaker 3

You're not missing anything. You've kind of covered it over yet. So it's a great summary. We should just have recorded you and played you back. But I think let's start with your point on volume.

Speaker 3

So we clearly see volume coming back and it was good that we exited the year with volume growth. And again, keep in mind 2023 underlying with these strategic choices and exits clearly plays through. So when you go into 2024, I would say you're looking at of that 4%, at least a third plus coming from volume,

Speaker 2

all right.

Speaker 3

So we see that momentum, which is good. And it comes back to what Damien and I have both said on the call, we will continue to balance that in terms of what we see from an angle of the affordability and continued focus on premiumization. So clearly looking at volume growth. If you look at that carryover of that pricing, you're absolutely right. We have 2 of those markets that came through in the second half.

Speaker 3

So there's a carryover impact of that. And then clearly, as we've seen inflation moderating that I called out, you will obviously see more balanced 2023 2024 pricing, most of which that has happened in Q1 that we've actually been able to land so far without any disruption, which is positive. On the mix one, it's a good point that you raised. Clearly on our business, we've continued to have good mix and we will continue to see that into 2024. Keep in mind these numbers include the Philippines, which is at a much lower revenue per case.

Speaker 3

And so effectively that mix benefit that we continue to see gets wiped out as we rebase with the lower revenue per case coming in from the Philippines. And then you've also got that impact of the Netherlands tax that I called out. So again, we'll continue to update you on that, but I think very much volume led with good pricing carryover and some more moderate pricing into this year as well. And again, supported by what we want to do on the promo side as well to balance that affordability.

Speaker 4

And just to clarify, on the 8% revenue per case within Europe, I think you mentioned that prices running below inflation, inflation is probably running 5.5% or 6%. So you're probably getting a third of your benefit and revenue per case from mix. Is that math broadly right? And is that one of the reasons why you're confident that your brands remain affordable and you're not going to get the same elasticity impact you're seeing across other parts of Staples?

Speaker 2

Yes. I think that's fair, Ed. I mean, I think if you look at our Q4 volumes and I'll just talk Europe, Australia, New Zealand, I think they were very solid. So I think we've been very focused on retaining shoppers and consumers because as you know, if you lose them, the cost of getting them back is always a lot higher. So very pleased coming out of Q3 where we had some tough weather comps.

Speaker 2

Q4, we saw volume growth return in our developed markets of Europe, New Zealand and Australia. So I think that balance is serving us well. It's what we've built into 2024. I think as Nick called out on top of that we've got some as you called out actually better than we could. We've got some great brand innovation, both some great assets, particularly in Europe with the Olympics and the Euros.

Speaker 2

And clearly, as we move into Q3 and the summer, hopefully, we will get a normalized summer in Europe, but who knows after last year. But yes, so that's pretty much a good balance between enough price, but not too much to really derail what's been a great consumer story for many years in Europe in particular. Great. Thank you.

Operator

Thank you. We'll now take our next question. And this is from the line of Matthew Ford from BNP Paribas. Please go ahead.

Speaker 5

Thank you. Hi, Nick. Hi, Damien. My question is just on the Philippines. Now it's all completed and you're able to kind of look at the business properly.

Speaker 5

When you think about the 1st year in the business, which areas do you think you can see get most traction on? How you're kind of fully in control there? Where do you see the most low hanging fruit? I think you mentioned kind of low and low sugar and energy. But if you're able to kind of speak about what's going to be the focus for the next kind of 12 months?

Speaker 2

Yes. Thanks, Matt. I mean, we've been really excited about this opportunity since it presented itself. And we've been working very, very hard with the team, Garrett's team locally and our team to have a great day 1, which is upon us. So that's a milestone.

Speaker 2

As we've been looking at that business, I mean, clearly, it stands out within that region as being a great Coca Cola business. We fully also expect to learn as well as to bring ideas to that business. Initially, I think areas that we've talked with the team about where some of the capabilities from CCEP could add value, certainly in key accounts, our world class key account management program, the analytics tools that we've been using on pricing and price elasticity in Europe, our digital journey around the frontline capabilities, we believe that can add value. Clearly, we operate a very large supply chain. So we certainly believe that a lot of our expertise in that space is an area that we could bring to help improve customer service levels and drive stock availability a bit more.

Speaker 2

We are also committed with our partners to invest in that business. So some of the benefits we bring is capital and certainly stepping up some of the investments as we see the growth outlook even stronger going forward. So it's an area that we'll continue to learn. I'm confident in those areas we've got capability. I'm also really excited about the learnings we'll get from the team in the Philippines, particularly to continue to support our journey in Indonesia.

Speaker 2

I think their availability, obviously, the category relevance, They've managed affordability extremely well on refillables. That's an area that we've always been looking at in Indonesia. So I think it's a great example of we'll bring value, we'll get value from that team into our other businesses. And obviously, that's a story. We'll update you as we go.

Speaker 2

I think it will be an exciting conversation on our next Capital Markets Day.

Speaker 5

Brilliant. Thank you very much.

Operator

Thank you. We'll now take our next question. This is from the line of Lauren Lieberman from Barclays. Please go ahead.

Speaker 6

Great. Thanks. Good morning, guys. Just curious, you talked a lot more about affordability, consumer pressures, particularly in Europe. And you mentioned discount channel.

Speaker 6

And I know that's been a focus for the team for a very long time. But was curious if you could update us maybe a little bit on how much of your I know Eric can tell me the answer, but roughly speaking, how much of your volume goes through the discount channel, where you stand in terms of category exposure there? Is there opportunity to expand the categories that are represented discount channel, anything particular doing a new pack sizes and so on as this becomes more important? And then things you're able to leverage from your discounter experience and success into more mainstream channels as we go through this period of tougher consumer confidence?

Speaker 2

Yes. Thanks, Lauren. I think we've been in that environment for over a year now. I think if you look back at our commentary during 2023, we talked a lot about maintaining relevance and affordability. So I think that supported our volume growth and it's something we'll continue in 2024.

Speaker 2

You're absolutely right. I mean, as shoppers come under a little bit of pressure, we do see the discount channel performing extremely well. Candidly, that's been a story in Europe for a long, long time now as you know, Australia. We see the discount channel being a key, key partner for our growth. Within that, we've got 2 categories we're prioritizing, which is really our core sparkling portfolio and energy.

Speaker 2

Both of those are performing very well with those customers in Europe. We're very conscious about pack size and formatting. As you know, we've had a 1.25 liter pack to hit a price point that we felt was more relevant for their shoppers. We continue to work with them on technology. In Australia, I'm very pleased we've got some cold drink trials from the store.

Speaker 2

So as we try and bring a mix benefit into that channel as it grows. So there's a lot happening. And I think we're also leveraging with our other customers some of those insights, because I think that affordability mindset goes beyond discount as I think all retailers now continue to be focused on maintaining relevance. They obviously are conscious about their own market share. So a lot of what we're doing in terms of pack pricing goes beyond just that discount channel, as you call it, to broader retail.

Speaker 2

Great supply chain efficiencies, so very attractive in terms of cost of doing business for us, which clearly supports our margin expansion and our profit growth. So yes, very pleased with how we're doing. And as I mentioned, it's built on many, many years of experience. I think when we first created CCEP, one of our call outs was to leverage the success of our German business with Aldine Lidl in particular across what was then a legacy CCE business. And if you look back, that's been a big, big driver of our growth.

Speaker 2

So more to come, but as you rightly call out, they are that's a winning channel in retail. And we're winning with them, and we want to continue to do so.

Speaker 3

And Laurel, the only thing I would add is it doesn't change our focus on the premiumization piece and what continues to be a whole ladder of pricing opportunities for our shoppers and consumers to enjoy whether in traditional retail and actually more so even in some of the discounters where we are getting small packs in, we've got coolers in Germany. So it's all kind of merging in a way in a positive direction.

Operator

Thank you. We'll now take our next question. And this is from the line of Sanjit Aujla from UBS. Please go ahead.

Speaker 7

Hey, Nick, Damian and Sarah. Just coming back to the Philippines, please. You spoke a little bit about 2022 being held back by lack of a sugar availability. Has the full benefits come through in 2023? So is that really a clean base on which to work from?

Speaker 7

Or is there more to come in 2024? And I think the disclosures margins there around 6%, are there any structural factors holding that margin back? Or would you expect that to get back into double digit where it was

Speaker 2

a few years ago over time? Thanks. Maybe, Tony, I'll talk on the first piece and then hand over to Nick. Yes, so I think 2023 was a more normalized year. So I think the business cycled out of what was a very challenging 2022 both from a weather perspective leading to basically a shortage of sugar, which the team then had to allocate across the portfolio.

Speaker 2

So they did a great job. That was pretty much done by the end of 2022. So 2023, you could look as a normalized base in terms of availability of sugar. We can talk about the cost of sugar. That's a different debate.

Speaker 2

It has got a high cost relatively speaking, but we know that. But from an availability perspective, definitely a more normalized year. On margins, Nick,

Speaker 3

do you want to? Yes, sure. I mean, I think part of it just comes back to what Damian said. So firstly, just reiterating the point in terms of 2023, when you look at the performance and you can see the growth, clearly 2022 growth was held back by those shortage issues and hence that's played out very nicely when you look at both the top line, but very importantly the operating profit growth year on year. So good base.

Speaker 3

Clearly from a margin perspective, there's if you talk about structural issues, I would say the main one really comes back to some of the cost of that commodity in particular relative to where the world market is. And there's a lot of work that the teams continue to do locally to see what can be influenced. Keep in mind, obviously, if you go back to Europe, for instance, if you remember, it was quite a protected industry for a number of years. And then it started coming off when there was more latitude in terms of imports, etcetera. So that will that is something clearly that will support it.

Speaker 3

And then I think the team is doing a great job in terms of more packaging options that will continue to drive margins, looking at new categories, they've just launched into energy, they've just launched ARTDs. So all that will continue to support that margin growth story. And as Damian referred to earlier, clearly there are some opportunities as they come in, greatly run business with great leadership team, but there'll clearly be some opportunities for more best practice sharing both ways as we welcome them into our family.

Speaker 2

And just to close out, Buzz will probably come up on CapEx because we talked a little bit about CapEx in our release. Clearly, we do see opportunities in the Philippines around capital unlocking margin over time, particularly on supply chain and building a more efficient supply chain. And we're also curious about the role some of our technology platforms can play in the Philippines. So that kind of plays back to that CapEx number that Nick talked about earlier. And I think that's not a 1 year journey.

Speaker 2

Let's be clear. But as we do look at it, we do think investing a bit more in the Philippines will over time allow us to get margins that we feel are more representative of a business of that scale and of that market. So more to come on that.

Speaker 4

Yes.

Speaker 3

And that will support the growth aspirations that we have in that market. And very importantly, it's built into our free cash flow guidance as well.

Speaker 7

Great. Thank you for the color.

Operator

Thank you. We'll now take our next question. This is from the line of Erik Sarotta from Morgan Stanley. Please go ahead.

Speaker 8

Great. Good afternoon, everyone. Damian, you mentioned landing pricing a number of markets year to date. Just wondering if you could expand on that, which markets, where did you get pricing? And certainly, there have been some headlines related to competitors about retailer pushback and delistings in certain European markets?

Speaker 8

Any color you could provide on the state of retailer discussions and pushback and delistings would be helpful. Thank you.

Speaker 2

Yes. Thanks, Eric. I mean just to kind of step back a little bit. I think we've kind of taken a multiyear approach to pricing. I think I commented on that actually this time last year that when we look at pricing or looking beyond the calendar year because we think it's a more strategic conversation.

Speaker 2

And we have been pricing slightly behind some of our competitors. And as we talked about, slightly behind inflation. And we recognize our retailers as much as our consumers are also under some pressure around offering affordability in the cost of living kind of backdrop that we have. Just to echo something Nick called on, we are fortunate that despite that we've got a lot of premium packaging that we've listed over a number of years, mini cans, glass and retail. So I think we're playing a good balance of allowing consumers who want to spend a bit more on our products and brands to do so, while also making sure that consumers who have that affordability mindset remain in our franchise.

Speaker 2

So to that end, we've been managing pricing for 2024 well back in 2023. I suppose to kind of pull in practical terms, all of our markets have the pricing in place that we expected coming into 2024. Two markets in Europe will probably come a bit later in the year, which would be GB in Germany. But beyond that, we've landed in a pretty good place both in terms of headline price and promotional pricing. And again, it's a topic that's sensitive for our retailers.

Speaker 2

We respect that. We're proud that we're delivering a lot of value growth for them year on year more than anybody else. So I think we're in a good place on pricing, which kind of comes back to what we've been talking about. And I think back to Ed's point, we see volume as being a bigger part of that story than in 2024, which I think is great.

Speaker 8

Great. Thank you.

Operator

Thank you. We'll now take our next question. And this is from the line of Charlie Higgs from Redburn Atlantic. Please go ahead.

Speaker 7

Yes. Hi, Damian, Nick. Hope you're well and congrats on the Philippines acquisition. I wanted to drill a bit more into the Philippines, but particularly on the margin point and how you see balancing margin expansion in the country, but also the need to be very cognizant of ESG. For example, I think you said refillable is 45% of the mix today.

Speaker 7

Like does that have to come down over time to drive margin expansion in the Philippines? And how does that all play in with things like the extended producer responsibility on single serve plastic, for example, in the Philippines? Thanks.

Speaker 2

Hi, Charlie. No, I mean, straight answer is no, we don't see the need for refillables come down. Actually on a normalized level our gross margin on refillables usually pretty strong given the reusable nature of the bottle. So the challenges in the Philippines really go beyond any one pack size. Obviously, affordability is key.

Speaker 2

So we've got a pricing strategy there that recruits and retains consumers. RGB is a big part of that. We've called out that on a gross margin level, clearly, we've had a headwind on sugar. It's more expensive there in reality. So it's not really a PAC specific conversation.

Speaker 2

We see refillable is a big part of our future there. We also see a part of our future in Indonesia. We believe that will support margin expansion. I think it comes back down to what we kind of talked about a bit earlier, which is we see opportunities for efficiency and productivity in the supply chain. We see opportunities to bring some smarter RGM thinking particularly in key accounts.

Speaker 2

As we grow volume, we expect to get leverage on the P and L in the Philippines that will support margin expansion. We have got maybe a midterm opportunity around 0 Sugar. We've been pleasantly surprised with the success of that in Indonesia. So that's something we're going to bring into the conversation with the team in the Philippines. So overall, I think the margin story will evolve, but it's certainly not an RGB issue.

Speaker 2

And we are clearly committed to our sustainability goals. So yes, no plans to reduce RGB. We believe it's going to be part of that margin story going forward. As I said, generally, it's got a better gross margin profile due to the refillable nature of the pack. So that will stay.

Speaker 2

Yes. And Charlie, there's

Speaker 3

a bit of a technical or mathematical issue because in 2018, there was an excise tax introduced in the Philippines and that's continued to increase. Remember how we account for that, that's grossed up in revenue and grossed up in your COGS. So as that increases year on year, it's purely mathematical that your absolute gross profit will grow. But in margin percentage terms, it just comes down because of the fact that your revenue is higher and hence you get a mathematical element. Clearly, if you normalize for that, if you're looking at performance over the years, there'd be almost a 500 bps to 700 bps improvement in that margin if you start normalizing for that.

Speaker 3

But that's the reality of the way we have to account for it. So just keep that in mind as you look forward as well. But 6% is a good place. There you go. That's on the operating profit.

Speaker 3

Yes.

Speaker 7

This is the growth. Yes. That's ready.

Speaker 2

So thank you.

Speaker 9

Yes.

Operator

Thank you. We'll now take our next question. And this is from the line of Simon Hales from Citi. Please go ahead.

Speaker 9

Thank you. Good afternoon all. I wonder if you could just ask a little bit more about the efficiency program that's kicking in this year. You flagged the €60,000,000 to €70,000,000 of benefits in 2024. How do you think about the timing of that?

Speaker 9

Is it going to be a little bit more perhaps H2 weighted given the changes you're making? And then as we look forward into the remainder of the program, how do we think about modeling this going forward? Will it be linear delivery for the following sort of 4 years? Or is it fair to assume it'd be a bit more front end loaded to 2025 and 2026?

Speaker 3

So to 2024, yes, it will be more second half weighted, the numbers that we've given you. As Damian said, we continue to look at ways to continue to drive efficiency and some of that obviously does mean we just have to look at the way we do things today. Then as you go into 2025, 2026, 2027, I would say to you is probably going to be more linear because there will be phasing of bringing in some of those programs and part of that will also be linked to our drive towards standardization and more digitization with the S4HANA implementation. So I would call currently that's more linear, but we'll continue to give you more updates as we finalize the program.

Speaker 9

Thanks Nick.

Operator

Thank you. And we'll take our next question This is from the line of Bonnie Herzog from Goldman Sachs. Please go ahead.

Speaker 6

All right. Thank you. Hi, everyone. I actually had a couple of quick follow ups from earlier questions. First on volumes, just curious to hear how they've trended during Q4 and then so far this year?

Speaker 6

And then second, could you comment on consumer elasticities

Speaker 2

and if you've seen

Speaker 6

any changes of consumer elasticities and if you've seen any changes of late given either the challenging macro backdrop business away from home versus at home and sort of how you guys see that evolving this year? Thank you.

Speaker 2

Thanks, Bonnie. So quite a few follow ups you got in there. That's

Speaker 3

not bad for one question,

Speaker 2

as always. So volumes, as you saw in the release, improved in Q4. And I think if you strip out some of the one offs that Nick alluded to, held up really well, I think particularly compared to other categories. So I think we've enjoyed good volume performance. It has been a similar environment for the consumer over not just the last quarter or even in this quarter.

Speaker 2

I think it's been and we talked a lot about it 2023 that affordability, mindset and cost of living pressure has existed. So we're well into it. Volumes are holding up. For 2024, I would say it started in line with expectations. I think we're excited about a couple of events earlier in the year this year, Ramadan, particularly in Indonesia, starting earlier and Easter in Western Europe is earlier.

Speaker 2

So I think that's going to give us good momentum coming out of Q1. We're well set up for both those big festivals and events. And then clearly as we look through the year, we know that as I mentioned a few times, we have got an opportunity to hopefully enjoy a more reasonable summer in Northern Europe and that will certainly help on volume as we go through the second half of the year. That also plays into your last question. I mean, I think we see strong revenue growth in away from home and home.

Speaker 2

We see volumes holding up in home market. I think depending on the country you're in, I think away from home, volumes were a little bit under more pressure based on obviously weather coming out of Q3. But we've seen away from start strongly, particularly in markets like Spain, just been there recently and very, very strong growth in away from home. So we'd expect that to continue through the summer in Europe. And obviously, as we look at Australia and New Zealand, again, coming out, we also see strong volume growth as well.

Speaker 2

So, yes. Nick, I don't know if you want to add anything?

Speaker 3

No. I would just remind you, Bonnie, a lot of the work that we did during and post COVID realizing for a period of time we were just going to be a home business. How do we improve the profitability both for our customers and for ourselves in the home channel as well. So to Damian's point, while we see good growth in both channels from a profitability perspective, that's in some ways fairly neutral to us, which is a good thing because we just want to grow where the consumer wants to be and where we can offer them a full range of great brands and packs.

Speaker 6

Okay. Thank you.

Speaker 2

Thanks, Bonnie.

Operator

Thank you. I would now like to hand the conference

Speaker 2

Thank you, operator. And again, thank you everybody for joining us. I know it's a little bit earlier than usual for those of you in the U. S. So I appreciate you getting up a bit earlier, but for good reason to hear about a great 2023.

Speaker 2

And on the back of that, I just want to again thank all of my colleagues and our customers. As Nick pointed out and as we've talked about today, we will continue to invest for the long term growth of our business, both in terms of volume, revenue and in terms of the sustainability journey we're on. We've got a lot to look forward to. It's going to be a busy year at CCP, both with the Philippines and some of those big sporting events that I talked to across all of our markets this year and the ongoing transformation in Indonesia. We are well placed for 2024 and beyond.

Speaker 2

And now as we've talked about our new family member, the Philippines taking the number of markets we operate within to 31. So Nick and I look forward to talking to you again next time, which will be to update you on our Q1 performance. Thank you very much.

Operator

Thank you. That concludes the conference for today. Thank you for participating. You may all disconnect.

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Remitly Global H2 2023
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