Coca-Cola HBC AG (LON:CCH), a growth-focused Consumer Packaged Goods business and strategic bottling partner of The Coca-Cola Company, has reported its financial results for the twelve months ended 31 December 2023.
Full-year highlights
· Focused execution of 24/7 strategy delivered 16.9% organic revenue growth1
o Organic volume growth of 1.7% led by our strategic priority categories, with Sparkling +2.5%, Energy +27.3% and Coffee +31.5%
o Strong finish to the year with 6.8% organic volume growth in Q4 and improving trends in all three reporting segments
o Organic revenue per case growth of 15.0%, reflecting the benefits of revenue growth management initiatives throughout the year
o Reported revenue up 10.7%, with strong organic growth partly offset by FX translation headwinds in Emerging markets
o Continued value share gains in 2023 in both Non-Alcoholic Ready-To-Drink (NARTD) and Sparkling of 110bps and 80bps respectively
· Strong organic EBIT growth of 17.7% driving good improvement in Return on Invested Capital
o Comparable EBIT of €1,083.8 million; Comparable EBIT margins improved 50 basis points on a reported basis to 10.6%, up 10 basis points on an organic basis
o Comparable gross profit margin up 80 basis points, reflecting easing cost pressures in the second half of the year
o Disciplined investment in growth capabilities and good operating leverage reduced comparable operating expenses as a percent of revenue by 10 basis points
o ROIC up 230 basis points to 16.4%
· Double-digit organic revenue and EBIT growth across all segments
o Established: Organic revenue up 12.3%, led by pricing and mix. Organic EBIT grew 23.0%
o Developing: Organic revenue up 18.2%, with strong revenue per case expansion. Organic EBIT grew 26.9%
o Emerging: Organic revenue up 19.9%, with volume growth as well as revenue per case improvement. Organic EBIT grew by 11.7%
· Strong EPS progress, record FCF generation and improved shareholder returns
o Comparable EPS grew by 21.8% to €2.08, supported by strong profit delivery and effective management of finance costs
o Free cash flow increased by 10.3% to a record €711.8 million
o Net debt of €1.6 billion and 1.1x net debt to comparable adjusted EBITDA, reflecting the strength of our balance sheet
o Launched a two-year share buyback programme of up to €400 million in November, reflecting the Board’s long-term confidence in business performance
o Board of Directors to propose an ordinary dividend of €0.93 per share, up 19.2% year on year and representing a 45% payout
· Sustained investment across our strategic priorities
o Capital expenditure of €674.9 million, up 14.5%, focused on sustainable growth
o Acquisition of Finlandia Vodka business from Brown-Forman for €180 million net consideration paid
o Accelerated investment in bespoke capabilities, particularly digital initiatives, and our agenda to further strengthen our ability to win in the market
o Launched Jack Daniel’s & Coca-Cola in Poland, Ireland and Hungary
Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG, commented:
“I am deeply proud of our team as we delivered a third year of double-digit growth and record profits. I would like to thank them for their tireless efforts, and their commitment to our company vision, our customers and consistent focused execution. I would also like to thank our customers and partners for their ongoing support throughout the year.
“2023 was another year of consistent execution of our growth strategy. We delivered volume growth, share gains, improved margins and record levels of free cash flow. As a result, we were able to increase shareholder returns, including the launch of a share buyback programme.
“The power of our 24/7 portfolio, our diversified country footprint and our sustained investment in building bespoke capabilities, driven by data, insights and analytics, are foundations of compounding growth.
“In 2023, we made significant progress towards our Mission 2025 and NetZeroby40 goals, with key milestones including commissioning a new in-house recycled plastic (rPET) production facility in Romania and a new line for returnable and resealable glass bottles in Austria. In December, we also announced that we are establishing a charitable foundation dedicated to supporting local communities where we operate.
“While we expect the macroeconomic and geopolitical environment to remain challenging, we remain confident that we will continue to make progress against our medium-term growth targets.”
| Full Year | ||||
| 2023 | 2022 | % Change Reported | %Change Organic1 | |
| Volume (m unit cases) | 2,835.5 | 2,711.8 | 4.6% | 1.7% |
| Net sales revenue (€ m) | 10,184.0 | 9,198.4 | 10.7% | 16.9% |
| Net sales revenue per unit case (€) | 3.59 | 3.39 | 5.9% | 15.0% |
| Operating profit (EBIT)2 (€ m) | 953.6 | 703.8 | 35.5% | |
| Comparable EBIT1 (€ m) | 1,083.8 | 929.7 | 16.6% | 17.7% |
| EBIT margin (%) | 9.4 | 7.7 | 170bps | |
| Comparable EBIT margin1 (%) | 10.6 | 10.1 | 50bps | 10bps |
| Net profit3 (€ m) | 636.5 | 415.4 | 53.2% | |
| Comparable net profit1,3 (€ m) | 764.2 | 624.9 | 22.3% | |
| Basic earnings per share (EPS) (€) | 1.730 | 1.134 | 52.6% | |
| Comparable EPS1 (€) | 2.078 | 1.706 | 21.8% | |
| Free cash flow1 (€ m) | 711.8 | 645.1 | 10.3% | |
1For details on APMs refer to ‘Alternative Performance Measures’ and ‘Definitions and reconciliations of APMs’ sections.
2Refer to the condensed consolidated income statement.
3Net Profit and comparable net profit refer to net profit and comparable net profit respectively after tax attributable to owners of the parent.
Business Outlook
We have delivered a stronger-than-expected financial performance in 2023, despite the significant headwinds to our business. While we expect the macroeconomic and geopolitical environment to remain challenging, we have high confidence in our 24/7 portfolio and the opportunities for growth in our diverse markets, amplified by our bespoke capabilities, and above all, the talent of our people. In 2024 we expect to make progress against our medium-term growth targets.
Our guidance for 2024 is:
· Organic revenue growth at a Group level in our 6-7% medium-term target range
· On a comparable basis, COGS per unit case should increase low to mid-single digits through the combined effect of inflation, transactional and translational FX
· Organic EBIT growth in the range of +3% to +9%
Technical 2024 guidance
FX: We expect the impact of translational FX on our Group comparable EBIT to be a €30-50 million headwind.
Restructuring: We do not expect significant restructuring initiatives to take place.
Tax: We expect our comparable effective tax rate to be towards the top end of our 25% to 27% range.
Finance costs: We expect net finance costs to be between €50-70 million.
Scope: We expect the scope impact from the Finlandia acquisition to be between €5-10 million
Group Operational Review
Consistent execution of our 24/7 growth strategy has delivered a strong financial performance and significant strategic progress. We have invested strategically in the business, further developed our bespoke capabilities and evolved our culture, our partnerships and our portfolio. As a result, we remain very confident in the differentiated strengths of our business and our ability to sustain high levels of revenue growth into the future. This is well reflected in the progress we have made delivering our strategic pillars.
Leveraging our unique 24/7 portfolio
Full year organic revenue grew by 16.9%, with growth in volumes, price and mix. Reported net sales revenue increased by 10.7%, with adverse FX translation effects partially offsetting strong organic growth across the group.
Volumes increased by 1.7% on an organic basis, led by our strategic priority categories of Sparkling, Energy and Coffee, which offset declines in Stills, as a result of conscious choices to drive profitable growth.
· Sparkling volumes grew by 2.5%. Excluding Russia, where we no longer sell any Coca-Cola Company brands, Trademark Coke brands grew 1.9%.
· Energy volumes grew by 27.3%, the eighth consecutive year of strong double-digit growth, with good results across all segments. In Established and Developing markets, growth was driven by Monster, while growth in Emerging was led by Predator, as well as the successful launch of our Energy portfolio in Egypt.
· Coffee volumes grew 31.5%, with all three segments growing above 20%. We continue to make good progress on out-of-home customer recruitment, adding 5,000 outlets in the year to bring our total to 13,000. Our segmentation strategy is working well and we remain excited about the medium-term opportunity.
· Sports drinks delivered good growth, however Still volumes declined 4.4% as we consciously chose to focus on opportunities for the most profitable revenue growth in the Water category. As a result, Water volumes were 5.9% lower than the prior year, largely reflecting declines in Italy, Poland, Hungary, Czech and Romania.
· Premium Spirits volumes grew by 13.1% on an organic basis, driven by all segments. The acquisition of the Finlandia Vodka business, completed in November 2023, is a unique opportunity with significant geographic overlap in our territories, enhancing our premium spirits credentials and opening incremental mixability opportunities for our NARTD portfolio.
Winning in the marketplace
Organic net sales revenue per case grew by 15.0% in the full year, led by 19.0% growth in the first half, due to pricing actions to mitigate cost inflation in our markets. As cost pressures eased in the second half of the year, organic net sales revenue per case grew 11.1%, largely reflecting the cycling effect of pricing actions taken in the second half of 2022.
Our revenue growth management initiatives, powered by ongoing investment in data, insights and analytics, have allowed us to take more informed pricing decisions and address both affordability and premiumisation, while still improving revenue per case. Affordability remained important in 2023, as many of our markets faced pressures on consumer disposable income. We responded by launching new smaller pack formats, as well as by driving promotional activities with a higher return on investment, and utilising the strength of our 24/7 portfolio to tailor our offer in different markets and for different customer needs.
Our actions to drive premiumisation resulted in positive category and package mix. Category mix benefitted mainly from the increased contribution of Sparkling, Adult Sparkling and Energy, as well as the lower contribution from Water. Package mix improved as we made further strategic progress, increasing single-serve mix by 80 basis points.
As a result of the commercial decisions we have made, we continued to deliver strong share gains in 2023, gaining 110 basis points of value share in NARTD and 80 basis points in Sparkling. This improved performance benefitted from our core focus of driving joint value with customers and the strength of our 24/7 brand portfolio. We were again the number one contributor to retail customers’ absolute revenue growth within fast moving consumer goods (FMCG) in Europe, according to Nielsen.
Operating profit, margins and cost control
Comparable gross profit grew by 13.2%, with gross profit margins up 80 basis points to 35.0%. Comparable COGS per case increased 4.7%, mainly reflecting easing inflation in some commodities in the second half of the year, FX translational benefits from the movements in the Nigerian Naira, offset by transactional headwinds.
Comparable operating costs as a percent of revenue decreased by 10 basis points to 24.4%. We benefitted from good operational leverage while investing in growth as revenues accelerated. We increased marketing spend and added route-to-market capabilities, seizing opportunities across our markets while maintaining tight control of non-essential costs.
Comparable EBIT increased by 16.6% on a reported basis to €1,083.8 million, principally driven by organic growth across our markets, only partially offset by negative foreign currency movements. The comparable EBIT margin was 10.6%, up 50 basis points on a reported basis, benefitting from operational leverage. On an organic basis, comparable EBIT increased by 17.7%, and margins grew 10 basis points.
We saw a negative translational and transactional currency impact in 2023, driven by the depreciation of the Nigerian Naira, Russian Rouble and Egyptian Pound.
Net profit and free cash flow
Comparable net profit of €764.2 million and comparable basic earnings per share of €2.078 were 22.3% and 21.8% higher respectively. Reported net profit and reported basic earnings per share of €636.5 million and €1.730 were 53.2% and 52.6% higher respectively compared to 2022, reflecting the lower level of non-cash financial charges including impairments.
Comparable taxes amounted to €277.1 million, representing a comparable tax rate of 27%, at the top end of our guided range of 25% to 27%.
ROIC expanded by 230 basis points to 16.4%, driven by higher profit, partly offset by higher invested capital.
Net finance costs were €34.4 million lower than the prior year at €48.3 million, driven mainly by higher finance income as a result of increased interest on cash deposits and stable finance costs on fixed rate borrowings.
Net impairment losses were €16.9 million lower, reflecting a €109.4 million charge in Egypt, more than offset by the non-repeat of the charges taken in 2022.
Capital expenditure increased by €85.4 million to €674.9 million as we continued to invest in developing our production facilities, renovating and expanding our cooler footprint, and driving other strategic opportunities that help deliver our sustainability agenda. Capex as a percentage of revenue was 6.6%, towards the low end of our targeted range of 6.5% to 7.5%, reflecting the strong level of revenue growth achieved in the year.
Free cash flow was €711.8 million, an increase of €66.7 million compared to the prior year and a record for the business, largely reflecting higher operating profit.
ESG leadership
In 2023 we made good progress on sustainability, which remains an important growth enabler.
A significant focus for us is full packaging circularity. In 2023, Romania became our first country to have all three elements: 100% recycled bottles, in-house rPET production and a newly launched, country-wide Deposit Return Scheme (DRS). By the end of the year a DRS was live in six of our markets: Croatia, Estonia, Latvia, Lithuania, Romania and Slovakia. Our in-house rPET production in Poland, Italy and Romania will cover 50% of our rPET needs in 2024, securing availability and reducing costs.
We have also led on packaging innovation. In Austria we commissioned a new RGB4 line for both 1 litre and new 400ml resealable bottles. We also introduced an industry-leading, innovative solution to replace shrink plastic with 100%-recyclable paper on 1.5 litre PET bottles.
Turning to other elements of our Mission 2025 framework, we exceeded our goal of having 50% energy-efficient coolers in the market (excluding Egypt – acquired in 2022), with a total of 54% by June 2023 – eighteen months ahead of target. On water stewardship, we now have community projects in twelve water-risk areas where we operate, up from eight last year.
Innovation is critical in creating new technologies and for this reason we became a partner in the $137.7 million Greycroft Coca-Cola System Sustainability Fund, with seven other bottlers and The Coca-Cola Company. Also in 2023, we announced we are establishing a charitable foundation, with an initial donation of €10 million, dedicated to supporting local communities.
Our 2023 sustainability performance was recognised externally by leading scores from major ESG benchmarks. We were ranked, for the seventh time, as the world’s most sustainable beverage company by the 2023 Dow Jones Sustainability Indices, and we were recognised in CDP’s A List for leading practices in climate and water security.
4 Returnable Glass Bottle line co-funded by the European Union, NextGenerationEU.
Operational Review by Reporting Segment
| Established markets | ||||
| Full Year | ||||
| 2023 | 2022 | % Change Reported | % Change Organic | |
| Volume (m unit cases) | 628.7 | 643.9 | -2.4% | -2.4% |
| Net sales revenue (€ m) | 3,358.5 | 2,974.1 | 12.9% | 12.3% |
| Net sales revenue per unit case (€) | 5.34 | 4.62 | 15.7% | 15.1% |
| Operating profit (EBIT) (€ m) | 379.2 | 310.4 | 22.2% | |
| Comparable EBIT (€ m) | 381.1 | 307.1 | 24.1% | 23.0% |
| EBIT margin (%) | 11.3 | 10.4 | 90bps | |
| Comparable EBIT margin (%) | 11.3 | 10.3 | 100bps | 100bps |
Net sales revenue grew by 12.3% and 12.9% on an organic and reported basis respectively, as we experienced positive foreign currency movements from the Swiss Franc.
Organic growth in net sales revenue per case was 15.1%, driven by price increases, weighted to the first half, as well as positive category and package mix. A focus on single-serve activation drove a 3.2 percentage point improvement in single-serve mix.
Established markets volume declined by 2.4%, on strong comparatives, with an improving trend towards the end of the year. Sparkling volumes fell slightly, despite growth in Coke Zero and Adult Sparkling. Energy volumes expanded by mid-teens despite tough comparatives, with good growth in Monster. Stills volumes declined by high-single digits, driven by a low-double digit decline in the Water category, as we made conscious choices to prioritise profitable revenue growth.
· Volumes in Greece grew by 6.9%, despite tough comparatives, driven by strong execution throughout key trading periods, with an extended tourist season. Sparkling expanded mid-single digits driven by Coke Zero, Fanta and Adult Sparkling, while Energy grew mid-teens. Stills grew high-single digits.
· In Italy, volumes declined 8.6%, primarily due to Water. Volume trends improved in Q4, with growth in Sparkling. In the year, Coke Zero volumes grew low-single digits and Coke Zero Sugar Zero Caffeine performed well. Adult Sparkling grew high-single digits, driven by both Kinley and Lurisia. In Water, we made deliberate choices to focus on profitable revenue growth, and as a result volumes declined over 25%. Stills overall declined over 20%, but only low-single digits excluding Water.
· In Ireland, volumes grew by 2.7%. Sparkling volumes were up by low-single digits, driven by Coke Zero, Sprite and Fanta. Energy grew in the mid-twenties, retaining good momentum. Stills were slightly down year-on-year, with a low-single digit decline in Water, partly offset by strong growth in premium water brands.
· In Switzerland, volumes increased by 1.6%. Sparkling volumes grew low-single digits with a strong performance from Adult Sparkling and Coke Zero. Energy volumes grew strongly. Stills volume was down low-single digits, impacted by Ready-to-Drink Tea, despite low-double digit growth in Sport Drinks.
Comparable EBIT in the Established segment increased by 23.0% and 24.1% on an organic and reported basis respectively, to €381.1 million. Comparable EBIT margin was 11.3%, up 100 basis points on an organic basis, as operational leverage and cost control more than offset COGS inflation.
| Developing markets | ||||
| Full Year | ||||
| 2023 | 2022 | % Change Reported | % Change Organic | |
| Volume (m unit cases) | 471.0 | 478.8 | -1.6% | -1.7% |
| Net sales revenue (€ m) | 2,088.6 | 1,719.7 | 21.5% | 18.2% |
| Net sales revenue per unit case (€) | 4.43 | 3.59 | 23.5% | 20.2% |
| Operating profit (EBIT) (€ m) | 152.6 | 113.1 | 34.9% | |
| Comparable EBIT (€ m) | 153.8 | 115.1 | 33.6% | 26.9% |
| EBIT margin (%) | 7.3 | 6.6 | 70bps | |
| Comparable EBIT margin (%) | 7.4 | 6.7 | 70bps | 50bps |
Net sales revenue grew by 18.2% and 21.5% on an organic and reported basis respectively, as well as positive foreign currency movements from the Polish Zloty and Hungarian Forint.
Organic net sales revenue per case increased by 20.2%, driven by pricing initiatives, and positive category and package mix.
Developing markets volume declined 1.7% on an organic basis, with a better performance in Q4. Sparkling volume declined slightly, while Energy delivered low-teens growth. Stills declined double-digits, as Water and Juice contracted.
· Poland volumes increased by 1.5%, despite lapping a strong performance in 2022. Sparkling grew by low-single digits, led by double-digit growth in Coke Zero and Sprite, and an encouraging performance from Coke Zero Sugar Zero Caffeine. Energy grew by low-teens and Coffee grew strongly. Stills volumes declined more than 20%, due to deliberate choices made in Water to prioritise profitable revenue growth.
· In Hungary, volumes declined by 5.3%, due to Stills. Encouragingly, we saw a return to volume growth in Q4. In the year, Sparkling grew slightly, despite being impacted by the incremental sugar tax effective July 2022, and Trademark Coke grew mid-single digits. Stills declined high teens, led by Water.
· Volume in the Czech Republic declined 12.6%, on tough comparatives. We saw declines in Sparkling and Stills, albeit with an improved performance in Q4. We actively drove robust price mix to manage cost inflation, particularly in the first half. Energy grew low-double digits and Coffee grew strongly.
Comparable EBIT in the Developing segment increased by 26.9% and 33.6% on an organic and reported basis respectively, to €153.8 million. Comparable EBIT margin was 7.4%, up 50 basis points on an organic basis, as operational leverage and cost control more than offset COGS inflation.
| Emerging markets | ||||
| Full Year | ||||
| 2023 | 2022 | % Change Reported | % Change Organic | |
| Volume (m unit cases) | 1,735.8 | 1,589.1 | 9.2% | 4.3% |
| Net sales revenue (€ m) | 4,736.9 | 4,504.6 | 5.2% | 19.9% |
| Net sales revenue per unit case (€) | 2.73 | 2.83 | -3.7% | 15.0% |
| Operating profit (EBIT) (€ m) | 421.8 | 280.3 | 50.5% | |
| Comparable EBIT (€ m) | 548.9 | 507.5 | 8.2% | 11.7% |
| EBIT margin (%) | 8.9 | 6.2 | 270bps | |
| Comparable EBIT margin (%) | 11.6 | 11.3 | 30bps | -80bps |
Net sales revenue grew by 19.9% on an organic basis, or by 5.2% on a reported basis, as currency headwinds from the Nigerian Naira, Egyptian Pound and Russian Rouble offset strong organic growth and the impact of the consolidation of Multon for the first seven months of the year.
Net sales revenue per case grew 15.0% organically, driven by pricing actions taken throughout the year, proactively managing the impact of currency devaluation.
Emerging markets’ volume grew by 4.3% organically and 9.2% on a reported basis, which includes the consolidation of Multon. Sparkling volumes grew by mid-single digits and Energy volume grew strong double-digits. Still volumes were broadly unchanged year-on-year.
· Volume in Nigeria grew by 1.8%, with high-single digit growth in Q4. We continued to consciously drive price mix to manage cost inflation and currency devaluations while addressing affordability and gaining both value and volume share. Trademark Coke volumes increased high-single digits and Energy continued to grow strong double-digits. Stills fell low-double digits, due to Water.
· Ukraine volume grew by 17.8%, with good results across the portfolio, on soft comparatives impacted by the war. Sparkling grew high-teens, led by Trademark Coke, Adult Sparkling and Fanta. Energy grew very strongly, and Juice and Ready-to-Drink Tea performed well.
· Volume in Romania declined by 8.3%, reflecting a challenging customer and consumer backdrop for the first nine months of the year. Trends improved in Q4, with volumes returning to growth. Sparkling volumes fell mid-single digits, although we drove low-single digit growth in Coke Zero and strong double-digit growth in Energy and Coffee. Stills declined high-teens.
· Volumes in Serbia increased by 2.2%. Sparkling grew low-single digits, and Energy delivered low-teens growth. Stills grew high-single digits.
· Volumes grew by 4.5% in Egypt on an organic basis, despite some macroeconomic headwinds, benefitting from our significant investment in commercial capabilities over the last two years. Sparkling grew, with a good performance in Coke Zero. We are encouraged by the launch of Energy, both Monster and Fury, which contributed positively to the results. Water grew high-single digits, with a rebound in the second half. Trademark Coke was impacted in Q4 by pushback against some western brands.
· Volumes in Russia grew by 12.1% on an organic basis. Compared to 2021, volumes were down around 30% on an organic basis. The local business continued to perform in line with expectations.
Comparable EBIT in the Emerging segment grew by 11.7% on an organic basis and 8.2% on a reported basis, to €548.9 million. Operating profit grew strongly, driven by lower non-cash financial charges compared to prior-year period. Comparable EBIT margin was 11.6%, down 80 basis points on an organic basis, but up 30 basis points on a reported basis, reflecting the mix effect from currency headwinds.
Conference call
Coca-Cola HBC’s management will host a conference call for investors and analysts on Wednesday, 14 February 2024 at 9:00 am GMT. To join the call, in listen-only mode please join via webcast. If you anticipate asking a question, please click here to register and find dial-in details.
