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 six months ended 30 June 2023.
Half-year highlights
· Focused execution of strategic priorities and revenue growth management drives strong organic growth1
o Organic revenue up 17.8%, driven by organic revenue per case growth of 19.0%, led by the effective delivery of price and mix improvements across all categories and segments
o Organic volume growth across our strategic priorities, with Sparkling +1.6%, Energy +20.9% and Coffee +21.9%; while Stills declined 11.2%, led by Water; overall organic volumes -1.0%
o Reported revenue up 19.3%, reflecting strong organic growth and the consolidation of Multon, which more than offset FX headwinds in Nigeria and Egypt
o Value share gains of 60bps in Non-Alcoholic Ready-To-Drink (NARTD); maintained value share in Sparkling
· Organic EBIT up 17.7%, with margin unchanged on an organic basis at 11.2%
o Stronger than expected operating leverage from double-digit top-line growth
o Comparable gross profit margin grew 90 basis points despite comparable Cost of Goods Sold (COGS) per unit case up 13.1%
o Disciplined management of operating costs while increasing resources to further enhance execution in the market with our customers
o Comparable EBIT margin grew 20 basis points
· Segmental highlights: Strong double-digit organic revenue and EBIT growth across all segments
o Established: Organic revenue increased by 16.9%, led by revenue-per-case expansion and a resilient volume performance in key markets; organic EBIT grew 20.8%
o Developing: Organic revenue up 23.6%, driven by revenue-per-case expansion; organic EBIT up 27.2%
o Emerging: Organic revenue up 16.0%, despite pressure on consumer spending from macro headwinds in several markets; organic EBIT grew 13.9%
· Strong EPS growth and robust balance sheet
o Comparable EPS up 22.3%, led by EBIT growth and lower net finance costs
o Strong balance sheet and liquidity; dividend of €0.78 paid in June
· Investor Day 2023: Strategic priorities and medium-term financial targets
o At our Investor Day in May, we reaffirmed our commitment to our five strategic growth pillars and the investments we are making in our prioritised capabilities, positioning the company for higher levels of growth over the medium term
o Financial targets were updated to cover the period beyond 2023:
§ Average annual organic revenue growth of 6-7% (previously 5-6%)
§ Average annual organic EBIT margin expansion of 20-40 basis points per annum
§ Continued focus on growing ROIC
· Continued investment behind our 24/7 portfolio and strategic priorities
o Further investment in Sparkling brands across flavours and variants, including the further roll-out of Coke Zero Zero, underpinning our low/no sugar strategy
o Successful launch of Jack Daniel’s & Coca-Cola in Poland, Ireland and Hungary in Q2
o Development of the Energy category in Egypt, adding the Monster brand in Q2
o Announced an agreement to acquire Finlandia Vodka from Brown-Forman for $220 million2; a unique opportunity with significant geographic overlap in CCH territories, enhancing our premium spirits credentials and driving mixability opportunities with our NARTD portfolio; completion expected in Q4 2023
1For details on APMs refer to ‘Alternative Performance Measures’ and ‘Definitions and reconciliations of APMs’ sections.
2Purchase price is subject to customary closing price adjustments and completion is subject to regulatory clearances.
Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG, commented:
“It has been a very good first half of the year with progress across our strategic pillars. Our priority categories of Sparkling, Energy and Coffee, together with a strong performance across all segments, have driven organic revenues and EBIT growth ahead of expectations.
“While some markets continue to face a challenging consumer environment, revenue per case has been improved through careful price and mix management enhanced by data, insights and analytics. At the same time, volumes have remained resilient which is testament to the quality of our execution.
“We continue to invest in the activation of our 24/7 portfolio and targeted expansion, underpinned by our leading position in and focus on Sparkling. In the first half of the year we reached an agreement to acquire Finlandia Vodka, successfully launched new innovations including Jack Daniel’s and Coca-Cola in three of our markets, further developed the energy category in Egypt, and added 2,200 new distribution points for our Coffee business.
“Our second quarter performance enabled us to upgrade our earnings expectations for 2023 in July, creating a stronger platform for the future growth ambitions we set out in our Investor Day in May. I am grateful to our customers, suppliers and partners, particularly The Coca-Cola Company, for their collaboration as we drive growth together. I especially want to thank all our people for their drive and dedication to make our business stronger every day.“
| Half-Year | |||||
| 2023 | 2022 | % ChangeReported | % ChangeOrganic3 | ||
| Volume (m unit cases) | 1,383.1 | 1,330.2 | 4.0% | -1.0% | |
| Net sales revenue (€ m) | 5,021.5 | 4,209.9 | 19.3% | 17.8% | |
| Net sales revenue per unit case (€) | 3.63 | 3.16 | 14.7% | 19.0% | |
| Operating profit (EBIT)4 (€ m) | 557.3 | 275.7 | >100% | ||
| Comparable EBIT3 (€ m) | 560.7 | 462.5 | 21.2% | 17.7% | |
| EBIT margin (%) | 11.1 | 6.5 | 450bps | ||
| Comparable EBIT margin3 (%) | 11.2 | 11.0 | 20bps | – | |
| Net profit5 (€ m) | 385.7 | 152.9 | >100% | ||
| Comparable net profit3,5 (€ m) | 388.9 | 316.9 | 22.7% | ||
| Basic earnings per share (EPS) (€) | 1.050 | 0.418 | >100% | ||
| Comparable EPS3 (€) | 1.058 | 0.865 | 22.3% | ||
| Free cash flow3 (€ m) | 256.6 | 332.9 | -22.9% | ||
3For details on APMs refer to ‘Alternative Performance Measures’ and ‘Definitions and reconciliations of APMs’ sections.
4Refer to the condensed consolidated income statement.
5Net 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 delivered a better-than-expected financial performance in the first half of 2023, led by price and mix improvements, despite headwinds to our business. While we remain attentive to macroeconomic and geopolitical risks, we have high confidence in our broad 24/7 portfolio, the opportunities in our diverse markets, enhanced by our focus on execution and prioritised capabilities, and above all, the abilities of our talented people.
· Following the strong start to the year, we expect mid-teens full-year organic revenue growth (previously above 5-6%)
· We now assume COGS/case increases by high-single digits in 2023 (previously low teens), as inflationary pressures begin to moderate
· We expect organic EBIT growth in the range of 9% to 12% in 2023 (unchanged)
Technical guidance
FX: We expect the impact of translational FX on our Group comparable EBIT to remain a €50-60 million headwind.
Restructuring: We do not expect significant restructuring initiatives to take place in 2023.
Tax: We now expect our comparable effective tax rate to be at the top end of our 25% to 27% range.
Finance costs: We now expect net finance costs for 2023 to be between the range of €65-75 million (previously similar to 2022: €82.7m).
Scope: In 2023 we expect around a €45 million Scope benefit to EBIT, reflecting the consolidation of Multon (from 11 August 2022) and the acquisition of Three Cents (from 21 October 2022).
Group Operational Review
Leveraging our unique 24/7 portfolio
We delivered half-year organic revenue growth of 17.8%, driven by price and mix and resilient volumes. Reported net sales revenue increased by 19.3%, benefitting from the consolidation of Multon, partly offset by negative foreign currency impact due to the depreciation of the Nigerian Naira, Egyptian Pound and Russian Rouble.
Organic volume fell by 1.0% in the half-year, with growth in our strategic priority categories of Sparkling, Energy and Coffee offset by declines in Stills.
Our focus on the best growth opportunities in our 24/7 portfolio is helping drive a high-quality revenue performance.
· Sparkling volumes grew by 1.6% overall, with low-single digit growth across all three segments. Growth was particularly good in the Established segment, where Coke Zero, Flavours and Adult Sparkling maintained good momentum.
· Energy volumes grew by 20.9%, with strong momentum in most markets. In Established and Developing markets, growth was driven by Monster, while in Emerging we saw strong growth of Predator and Burn.
· Coffee volumes grew 21.9%, with noteworthy performances in the Established and Developing segments. We continued to make good progress on out-of-home customer recruitment, reaching 10,200 outlets, up from 8,000 at the end of 2022.
· Still volumes fell by 11.2%, with declines led by Water, as we focused on the most profitable revenue growth in the category, with a marked improvement in net sales revenue per unit case as a result. In Sports Drinks we delivered good growth in Established and Developing markets.
Winning in the marketplace
Organic net sales revenue per case expanded by 19.0%. Revenue growth management initiatives, powered by data, insights and analytics, have allowed us to drive pricing and mix and enhance revenue per case across our markets, while addressing both affordability and premiumisation.
Pricing taken in 2022 and the first half of 2023 remained the most important tool to drive value and mitigate cost inflation. Effective in-market execution, including joint value creation plans with customers, pre-summer activations and improving returns on promotions, enabled the implementation of clear pricing plans whilst delivering better than expected volume and EBIT growth in priority categories.
Mix remained a critical value contributor in driving growth across all our markets. We delivered positive category and package mix in the period.
· Single-serve mix improved by 1.2 percentage points organically. We achieved strong gains in both the Established and Developing segments, driven by further activations of single-serve multipacks, as well as glass activation in the out-of-home channel.
· Category mix was favourable, driven by Sparkling and Energy as well as a lower contribution from Water.
· The focused application of our data, insights and analytics tools has allowed us to continue to improve the effectiveness of our promotions, enhancing our ability to achieve better returns.
We grew 60 basis points of value share in NARTD in the first half of 2023. In Sparkling, value share was in line with the previous year, as we consciously drove price/mix expansion.
Cost control, operating profit and margins
Comparable gross profit grew by 22.6%, leading to a comparable gross profit margin of 35.0%, an improvement of 90 basis points. This was despite inflationary pressures from input costs, energy and production overheads, as well as an adverse foreign currency impact, which pushed comparable COGS per case higher by 13.1%.
Comparable operating expenses as a percent of revenue increased by 30 basis points to 24.0%, reflecting a disciplined approach to operating expenditure, which was more than offset by continued investment to further enhance execution in the market with our customers.
Comparable EBIT increased by 17.7% on an organic basis, and the comparable EBIT margin was up 20 basis points to 11.2%, unchanged on an organic basis, as we saw strong operating leverage from double-digit top-line growth, which more than offset increased input costs. Comparable EBIT increased by 21.2% on a reported basis to €560.7 million, benefitting from organic growth and the consolidation of Multon, only partly offset by negative foreign currency movements.
We faced a negative translational and transactional foreign currency impact in the first half of the year, mainly due to the depreciation of the Nigerian Naira, Egyptian Pound and the Russian Rouble.
Net profit and free cash flow
Comparable net profit of €388.9 million and comparable basic earnings per share of €1.058 were 22.7% and 22.3% higher than in the prior year period, respectively. Reported net profit and reported basic earnings per share of €385.7 million and €1.050 respectively more than doubled versus the prior year period, as we cycled the impairment charges relating to our operations in Russia taken in 2022.
Comparable taxes amounted to €142.7 million, representing a comparable tax rate of 27%, at the top end of our 2023 guidance range of 25% to 27%.
Net financing costs were €11.3 million lower than the prior year period, at €31.4 million, driven mainly by higher interest income as a result of increased interest rates.
Capital expenditure increased by €39.1 million to €238.8 million as we continued investment in our production facilities, cooler placements, as well as towards our sustainability commitments.
Free cash flow was €256.6 million, €76.3 million lower compared to the prior year period, as adverse working capital and higher capital expenditure more than offset increased profitability.
Earning our licence to operate
Throughout the period we remained focused on delivering our Mission 2025 and NetZeroby40 goals, and reconfirmed our ‘AAA’ MSCI rating for the ninth consecutive year.
Investments in sustainable packaging and energy-efficient coolers are important steps in supporting our ambition to achieve net zero emissions across our value chain. In Austria, we invested €12 million in a new energy and water-efficient returnable glass bottle line for our 1 litre bottle, and introduced a new 400ml resealable bottle. On coolers, we exceeded our target of 50% energy-efficient coolers by 2025, excluding Egypt, at the end of the half year.
Water usage remains one of our key strategic priorities. By using innovative technologies, we’ve improved water consumption. For example, we installed water-free cleaners for our new can lines in Greece and Poland. All our countries are continuing to make improvements as we aim to reduce water consumption by 20% by 2025, compared to 2017, in water-risk areas.
Together with The Coca-Cola Company and seven other bottling partners, Coca-Cola HBC committed $15 million to a new venture capital fund, the Greycroft Coca-Cola System Sustainability Fund. This $137.7 million fund will focus on innovative solutions to drive carbon footprint reduction, helping accelerate our journey towards NetZeroby40 goal.
Operational Review by Reporting Segment
| Established markets | ||||
| Half-Year | ||||
| 2023 | 2022 | % ChangeReported | % ChangeOrganic | |
| Volume (m unit cases) | 306.4 | 305.7 | 0.2% | 0.2% |
| Net sales revenue (€ m) | 1,628.0 | 1,384.2 | 17.6% | 16.9% |
| Net sales revenue per unit case (€) | 5.31 | 4.53 | 17.3% | 16.7% |
| Operating profit (EBIT) (€ m) | 170.8 | 147.4 | 15.9% | |
| Comparable EBIT (€ m) | 171.3 | 140.2 | 22.2% | 20.8% |
| EBIT margin (%) | 10.5 | 10.6 | -20bps | |
| Comparable EBIT margin (%) | 10.5 | 10.1 | 40bps | 30bps |
Net sales revenue grew by 16.9% and 17.6% on an organic and reported basis respectively, as we benefitted from positive foreign currency movements from the Swiss Franc.
Organic growth in net sales revenue per case was 16.7%. We benefitted from price increases in all markets through the period, as well as positive category and package mix. A focus on single-serve activation, both in at-home and out-of-home channels, delivered a 3.8 percentage point improvement in single-serve mix.
Volume in Established markets was broadly in line with last year. We saw good growth in our strategic priority categories. Sparkling grew low single digits, with Coke Zero up high-single digits and Adult Sparkling up low-single digits, despite tough comparatives. Energy saw continued strong momentum, with volumes growing high-double digits in the period. This growth was offset by declines in Stills, primarily Water and RTD tea where volumes were down low-double digits and high-single digits respectively.
· Volumes in Greece were up by high-single digits, driven by our strong execution and an earlier start to seasonal activations. We saw mid-single digit growth in Sparkling, led by Coke Zero as well as low single-digit growth in Adult Sparkling, and Energy grew high-teens despite tough comparatives. Stills were up by high-single digits driven by low-double digit growth in Water.
· In Ireland, volumes grew by high-single digits, with good results in all strategic priority categories. Sparkling grew by mid-single digits driven by low-double digit growth in Coke Zero and solid growth from Sprite and Fanta, while Energy delivered volume growth above 30% in the period. Stills were up mid-single digit driven by continued growth of our premium launches in Hydration.
· In Italy, volumes declined by mid-single digits, due primarily to Water, as we deliberately focused on profitable revenue growth, at the expense of volume. We saw growth in our strategic priority categories in the half year, with low-single digit growth in Sparkling and Energy, despite an impact from worse weather in Q2 and tough comparatives. Coke Zero volumes grew mid-single digits and Adult Sparkling grew low-double digits, with both Kinley and Lurisia performing well. Stills declined overall, but we drove slight growth excluding Water.
· In Switzerland, volumes grew by mid-single digits, with high-single digit growth in Sparkling reflecting good performance across the board. Stills declined by low-single digits driven by Water.
Comparable EBIT in the Established segment increased by 20.8% to €171.3 million, an organic growth rate of 22.2%. Comparable EBIT margin was 10.5%, up 30 basis points on an organic basis, as higher price and mix more than offset higher COGS.
| Developing markets | |||||
| Half-Year | |||||
| 2023 | 2022 | % ChangeReported | % ChangeOrganic | ||
| Volume (m unit cases) | 227.3 | 230.4 | -1.3% | -1.3% | |
| Net sales revenue (€ m) | 985.2 | 791.6 | 24.5% | 23.6% | |
| Net sales revenue per unit case (€) | 4.33 | 3.44 | 26.2% | 25.2% | |
| Operating profit (EBIT) (€ m) | 67.2 | 56.9 | 18.1% | ||
| Comparable EBIT (€ m) | 67.3 | 51.6 | 30.4% | 27.2% | |
| EBIT margin (%) | 6.8 | 7.2 | -40bps | ||
| Comparable EBIT margin (%) | 6.8 | 6.5 | 30bps | 20bps | |
Net sales revenue grew by 23.6% and 24.5% on an organic and reported basis respectively, with the difference due to slightly positive foreign currency movements.
Organic net sales revenue per case increased by 25.2%. The segment benefitted from pricing initiatives and favourable category and package mix.
Developing markets volume declined by 1.3%. Sparkling volumes grew by low-single digits, driven by Coke Zero, while Energy delivered low-double digit growth. This was offset by a mid-teens volume decline in Stills, driven by Water and Juice.
· Poland volumes increased by mid-single digits, with growth led by our strategic priority categories. Sparkling volumes were up by high-single digits, driven by Coke Zero and Sprite. Energy continued to grow by strong-double digits, despite tough comparatives. Coffee grew above 40%, as we continued to expand outlet distribution. Stills volumes declined, driven by Water and Juice.
· In Hungary, volumes decreased by high-single digits, reflecting weakness in Stills, with a notable decline in the overall Juice category, against a tough inflationary backdrop and challenging comparatives. Sparkling volumes grew slightly in the period, driven by Trademark Coke.
· Volume in Czech decreased by mid-teens, with declines in both Sparkling and Stills. We continued to actively drive robust price mix to manage cost inflation and despite volume declines, we delivered strong revenue growth. Energy and Coffee were the best performing categories.
Comparable EBIT in the Developing segment increased by 30.4% to €67.3 million, an organic growth rate of 27.2%. Comparable EBIT margin was 6.8%, up 20 basis points on an organic basis, benefitting from price and mix improvements which offset higher COGS.
| Emerging markets | ||||
| Half-Year | ||||
| 2023 | 2022 | % ChangeReported | % ChangeOrganic | |
| Volume (m unit cases) | 849.4 | 794.1 | 7.0% | -1.4% |
| Net sales revenue (€ m) | 2,408.3 | 2,034.1 | 18.4% | 16.0% |
| Net sales revenue per unit case (€) | 2.84 | 2.56 | 10.7% | 17.7% |
| Operating profit (EBIT) (€ m) | 319.3 | 71.4 | >100% | |
| Comparable EBIT (€ m) | 322.1 | 270.7 | 19.0% | 13.9% |
| EBIT margin (%) | 13.3 | 3.5 | 970bps | |
| Comparable EBIT margin (%) | 13.4 | 13.3 | 10bps | -20bps |
Net sales revenue grew by 16.0% on an organic basis, or by 18.4% on a reported basis, with the difference due to the consolidation of Multon, which was partly offset by the devaluation of the Nigerian Naira, Egyptian Pound and Russian Rouble.
Net sales revenue per case grew 17.7% organically, benefitting from pricing actions taken throughout the period to mitigate cost inflation, as well as proactively managing the currency devaluation.
Emerging markets’ volume fell by 1.4% organically and grew 7.0% on a reported basis, which includes the consolidation of Multon and Egypt. Sparkling volumes increased by low-single digits and Still volumes were down low-double digits. Energy delivered growth of almost 30%, continuing the momentum from Q1.
· Volume in Nigeria declined by low-single digits, reflecting good execution in the market despite the temporary lack of availability of local currency. This normalised through the period, such that Q2 returned to growth. Sparkling volumes declined low-single digits in the half-year. Energy delivered strong double-digit growth, while Stills declined double-digits. We continued driving strong price mix to manage the cost inflation and currency devaluation.
· Ukraine volume grew over 50%, a good rebound on soft comparatives due to the outbreak of war. Growth was led by recoveries in Sparkling and Energy, despite ongoing operational challenges. Water volumes rebounded in Q2 leading to a mid-single digit growth for the half-year.
· Volume in Romania declined by low-double digits, due to a double-digit decline in Stills and high-single digit decline in Sparkling. The consumer environment remained challenging, impacted by the VAT increase in January. Energy continued its strong momentum with volumes up close to 30%.
· Volumes in Serbia grew mid-single digits, driven by Sparkling. Trademark Coke and Fanta volumes grew high-single digits, and Energy delivered low-double digit growth in the period. Water volumes were up low-double digits.
· Volumes in Egypt declined by high-single digits on an organic basis driven by Water. In Sparkling, we saw low-single digit growth, with Trademark Coke volumes up high-single digits, driven by Coke Zero. In Water, we consciously focused on improving net sales revenue per unit case, which meant that volumes fell double-digits. Following our launch into the Energy category with Fury, we also introduced the Monster brand in May, and are very encouraged by early progress. Across all categories we continued to proactively implement revenue growth management actions to manage the inflation and currency devaluation.
· Russia volumes declined by high-single digits on an organic basis. This largely reflects comparisons to the prior period, following the decision of The Coca-Cola Company in March 2022 to suspend sales of their brands.
Comparable EBIT in the Emerging segment increased by 13.9% on an organic basis and grew 19.0% on a reported basis, to €322.1 million. Comparable EBIT margin was 13.4%, down 20 basis points on an organic basis, impacted by adverse transactional FX, which offset price & mix benefits. Operating profit increased more than 100%, as we are cycling the impairment charges in Russia.
Conference call
Coca-Cola HBC’s management will host a conference call for investors and analysts on Wednesday, 9 August 2023 at 9:00 am BST. To join the call in listen-only mode, please join via the webcast. If you anticipate asking a question, please click here to register and find dial-in details.
Next event
| 31 October 2023 | 2023 Third quarter trading update |
