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 1 July 2022.
Half-year highlights
· Execution of our strategy drove continued strong organic growth1, well balanced between volume and price/mix
o Organic revenue +19.4%. Reported revenues +29.6%
o Excluding Russia and Ukraine organic revenue +25.2%, with volume +12.1%
o Organic revenue per case of 14.0% benefited from pricing and targeted actions to improve mix, further supported by out-of-home channel recovery
o Broad based volume momentum continues outside of Russia and Ukraine, with growth led by strategic priorities
o Integration of Egypt progressing well; 7 pp addition to reported revenue growth
o Further value and volume share gains in NARTD and Sparkling
· Organic EBIT up 23.0%, with margins up 30bps on an organic basis to 11%, benefiting from pricing, mix and cost discipline
o Quality of revenue growth driving underlying profit expansion
o Opex as a percent of revenue improved, driven by operating leverage and cost savings
o Marketing expenses excluding Russia and Ukraine increased by 9%
· Continued investment behind strategic priorities to drive profitable growth
o Consistent investment behind adult sparkling proposition driving continued strong performance, with volumes +18.7% excluding Russia and Ukraine
o Acquisition of craft adult sparkling business, Three Cents, expected to complete in Q3, strengthens premium brand offering
o Coffee volumes +56% with accelerating contribution from out-of-home
o Rapid digitisation of the enterprise – our proprietary B2B, Customer Portal now has more than 200,000 customers
o Deployment of our key revenue growth and route to market capabilities in Egypt
· Improved cash generation and continued strong balance sheet
o Comparable EPS +33.9%; free cash flow increased by €55.4 million to €332.9 million
o Strong balance sheet and liquidity remains after paying the €0.71 dividend in August
Segment highlights
Established and Developing show strong momentum, Emerging impacted by declines in Russia
· Established: Organic revenue increased by 19.1% with well-balanced volume and revenue-per-case expansion. Organic EBIT expanded 26.5% with margins up 60bps
· Developing: Organic revenue up 33.6%, led by strong share gains. Organic EBIT up 63.8% with margins up 120bps
· Emerging: Organic revenue up 14.2% driven by momentum in markets excluding Russia and Ukraine. Organic EBIT up 15.5% with organic margins up 20bps
Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG, commented:
“We delivered strong performance in the first half as we continued to execute our growth strategy with focus and discipline, including making progress on our sustainability commitments. I would like to thank our people for their outstanding contribution every day. I am also particularly grateful for our strong partnership and collaboration with customers and suppliers during these volatile times.
The quality of our 24/7 brand portfolio, revenue growth management capabilities and execution excellence allowed us to take full advantage of post-pandemic recovery across our markets and to continue to gain significant share. I am pleased we achieved strong organic growth, balanced between volume and revenue per case. Pricing, mix and cost efficiencies helped to mitigate input cost increases, underpinning successful conversion of revenue growth into profits and cashflow.
Consistent investment in high-potential opportunities, prioritised capabilities and capacity over years is delivering growth today. And we stay the course, with targeted investments for growth.
We have high confidence that our close customer partnerships, strong portfolio and the capabilities of our people will allow us to continue to create value even as we face a period of macro-economic and geo-political uncertainty. We are reinstating guidance for 2022 and expect to generate comparable EBIT in the range of €740-820 million.”
| Half-Year 2022 | Half-Year 2021 | % Change Reported | % Change Organic1 | |
| Volume (m unit cases) | 1,330.2 | 1,126.7 | 18.1% | 4.7% |
| Net sales revenue (€ m) | 4,209.9 | 3,247.9 | 29.6% | 19.4% |
| Net sales revenue per unit case (€) | 3.16 | 2.88 | 9.8% | 14.0% |
| Operating profit (EBIT)2 (€ m) | 275.7 | 350.1 | -21.3% | |
| Comparable EBIT1 (€ m) | 462.5 | 350.3 | 32.0% | 23.0% |
| EBIT margin (%) | 6.5 | 10.8 | -420bps | |
| Comparable EBIT margin1 (%) | 11.0 | 10.8 | 20bps | 30bps |
| Net profit3 (€ m) | 152.9 | 233.1 | -34.4% | |
| Comparable net profit1,3 (€ m) | 316.9 | 235.6 | 34.5% | |
| Basic earnings per share (EPS) (€) | 0.418 | 0.639 | -34.6% | |
| Comparable EPS1 (€) | 0.865 | 0.646 | 33.9% | |
| Free cash flow1 (€ m) | 332.9 | 277.5 | 20.0% |
1For details on APMs refer to ‘Alternative Performance Measures’ and ‘Definitions and reconciliations of APMs’ sections.
2 Refer to the condensed consolidated interim 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
While we remain attentive to macro-economic and geo-political risks, we have high confidence in our portfolio, route to market strength, customer-centric commercial strategy, the potential of our diverse markets, and above all, the capability of our people. We are actively prioritizing investments across geographies to drive sustainable growth.
· In 2022 we expect to generate positive organic revenue growth at a Group level.
· Our markets outside of Russia and Ukraine continue to show strong momentum. Excluding Russia and Ukraine we expect double digit organic revenue growth.
· We continue to face ongoing inflation and now assume COGS/case increase by mid-teens in 2022.
· We will remain disciplined on efficiency improvements. We will also continue to invest behind growth opportunities in the portfolio, our markets, our capabilities, people and sustainability commitments. To support growth opportunities in our markets we anticipate an increase in marketing in H2 2022.
· Going forward, our presence in Russia will be significantly smaller than in prior years and focused on existing local brands. Our expectation is for this local business to be immediately financially self-sufficient.
· As a result of these factors, we expect Group comparable EBIT in the range of €740 to €820 million for 2022, which includes the full consolidation of Multon starting on 11 August.
Technical guidance
Restructuring We do not expect significant restructuring initiatives to take place for the rest of the year.
Financial charges In H1 we incurred non-cash charges of €188 million and cash charges of €2 million, predominantly related to our business in Russia. As a result of post balance sheet events, we expect to incur further charges in H2, currently estimated at €82 million. These charges do not affect our comparable metrics.
Tax Considering the dynamics of the evolving mix of profitability in our country portfolio, we continue to expect our comparable effective tax rate to be in the range between 25% and 27%.
Finance costs We continue to expect net finance costs for 2022 to be approximately €15 to €20 million higher than 2021, mainly due to the consolidation of Egypt.
Group Operational Review
Update on Ukraine and Russia
We continue to prioritise the safety of our people and their families who have been affected by the unspeakable tragedy in Ukraine. On 24 February 2022 we temporarily closed our plant and stopped production for safety reasons. Since May, we progressively restarted manufacturing in Ukraine and are currently distributing and selling beverages where it is safe to do so. In Q2, volumes in Ukraine declined by 45%.
On 8 March we stopped placing orders for concentrate of The Coca-Cola Company’s branded products in Russia and we have worked in close alignment with The Coca-Cola Company on the implementation of its decision to suspend its business there. We have ceased investment in Russia and will not deploy new capital into the market. In Russia, volumes declined by 46% in Q2 and we expect some further declines in H2. Going forward we expect to have significantly smaller presence in Russia focused on local brands which will be immediately operationally and financially self-sufficient. We have incurred non-cash charges of €188 million and cash charges of €2 million. These charges will be recognised as items affecting comparability and will impact EBIT and EPS only on a reported basis. We will start full consolidation of Multon from 11 August.
Leveraging our unique 24/7 portfolio
We delivered half year organic volume growth of 4.7%, which was impacted by declines in Russia and Ukraine. Excluding these markets, organic volume growth was up 12.1%, with broad-based growth and increased momentum in Q2. All segments achieved H1 volumes above 2019 levels.
Our focus on the most profitable growth opportunities across our 24/7 portfolio is driving high quality revenue growth and EBIT margin resilience.
· Within Sparkling, Low/ no sugar variants were up 28.6% and Adult Sparkling brands up 7.4%. Trademark Coca-Cola volumes grew by 4.0%, led by ongoing strong performance from Coke Zero. Overall, Sparkling volumes grew by 3.6% (+11.2% excluding Russia and Ukraine).
· Energy volumes grew by 18.6%, with consistently high growth in all three segments.
· Coffee performed well, up 55.8%, led by growth in Costa Coffee. We continued out-of-home customer recruitment, strengthened by our premium brand Caffè Vergnano.
· Still volumes grew by 7.0%, with growth led by the Established and Developing segment, while performance in the Emerging segment was weaker, impacted by Russia and Ukraine.
· Premium Spirits volumes increased by 4.9%, cycling growth of nearly 50% in the prior year period.
Winning in the marketplace
Organic revenue per case expanded by 14.0%. We saw an acceleration in our pricing and other revenue growth management actions in Q2, as we took decisive actions to mitigate ongoing inflationary pressures.
Organic revenue increased by 19.4% and reported net sales revenue increased by 29.6%. Egypt added 7 percentage points to reported net sales revenue growth and we also faced a positive currency impact from the Russian Rouble and Nigerian Naira.
Pricing and mix
All price increases have been executed according to plan. We continue to take advantage of all revenue growth management capabilities, the strength and breadth of our portfolio, as well as data, insights and analytics, to support affordability in a profit accretive way, while also premiumising to enhance revenue per case.
Strong growth in the out-of-home channel, and targeted activation of single-serve package formats, improved package mix. Similarly, multi-packs of single serves were a focus area in the at-home channel. These combined actions improved single serve mix by 3.7 percentage points, 2.1 percentage points above 2019 levels. Outperformance of Adult Sparkling and Energy drove further improvements in category mix.
Market share gains
Successful execution in the out-of-home channel ahead of the summer season was crucial across our markets. We complemented this with a continued focus on opportunities in the at-home channel, leveraging the strength of our portfolio with strong marketing campaigns and execution. We gained 160 basis points of value share in NARTD and 210 basis points of value share in Sparkling over the period, showing the enduring strength of our brands and attractiveness of our offering for customers and consumers.
Cost control, operating profit and margins
Comparable gross profit grew by 20.8%, while gross profit margins declined by 250 basis points to 34.1%. We saw headwinds from inflation in input costs, energy and production overheads, which drove comparable COGS per case higher by 14.1%. The consolidation of Egypt eroded the gross profit margin by 70 basis points.
Comparable operating costs increased by 17.1% on the back of higher volume and Egypt, but operating costs as a percent of revenue decreased by 250 basis points to 23.7%. We benefited from good operational leverage by controlling costs as revenue growth accelerated. To seize opportunities in markets outside of Russia and Ukraine, we increased marketing spend, partially offset by cuts in Russia from March onwards.
Comparable EBIT increased by 23.0% and 32.0% on an organic and reported basis respectively, to €462.5 million. Egypt added 2 percentage points to reported growth and currency impact was positive overall as the Russian Rouble and Nigerian Naira appreciated. Comparable EBIT margin was 11.0%, up 30 basis points on an organic basis, as the combination of pricing, operating leverage and disciplined cost control more than offset higher costs.
Net profit and free cash flow
Comparable net profit of €316.9 million and comparable basic earnings per share of €0.865 were 34.5% and 33.9% higher than in the prior year period, respectively. Reported net profit and reported basic earnings per share during the period were €152.9 million and €0.418 respectively, mainly due to impairment charges relating to our operations in Russia.
Comparable taxes amounted to €104.8 million, representing a comparable tax rate of 24.9%, 80 basis points lower than the rate in the prior year period.
Financing costs were €42.7 million in the year, €8.0 million higher compared to the prior-year period, in line with expectations.
Capital expenditure reached €199.7 million, €19 million lower than the prior-year period. Capex as a percentage of revenue was below our targeted range at 4.7%. We expect to return to our guidance range of 6.5% to 7.5% by the end of the year.
Free cash flow was €332.9 million, an increase of €55.4 million compared to the prior year, mainly driven by higher profitability.
Earning our license to operate
We are committed to enhancing biodiversity by reducing emissions and water use, preserving and re-instating water priority areas, and by sourcing agricultural ingredients sustainably. In June 2022, we joined the Science Based Targets Network (SBTN) corporate engagement programme and will work to implement the SBTN’s guidance. We have committed to achieving a net positive impact on biodiversity in critical areas in our operations and supply chain by 2040 and eliminate deforestation in our supply chain by 2030.
We continue to make progress on packaging. Switzerland was a focus market for two packaging improvements in Q2. We launched Valser water in label-free bottles in the market. In addition, as part of pack/price architecture adjustment in Switzerland in June, we launched our entire Swiss portfolio in rPET. We are planning 100% rPET launches in additional markets by the end of the year while we continue to navigate very limited availability of rPET. We are working actively to promote and support the launch of well-designed, industry-led, deposit return or collection schemes to improve collection rates and increase rPET supply.
Operational Review by Reporting Segment
| Established markets | Half-Year | Half-Year | |||
| 2022 | 2021 | % Change Reported | % Change Organic | ||
| Volume (m unit cases) | 305.7 | 274.3 | 11.4% | 11.4% | |
| Net sales revenue (€ m) | 1,384.2 | 1,149.8 | 20.4% | 19.1% | |
| Net sales revenue per unit case (€) | 4.53 | 4.19 | 8.0% | 6.8% | |
| Operating profit (EBIT) (€ m) | 147.4 | 110.6 | 33.3% | ||
| Comparable EBIT (€ m) | 140.2 | 108.6 | 29.1% | 26.5% | |
| EBIT margin (%) | 10.6 | 9.6 | 100bps | ||
| Comparable EBIT margin (%) | 10.1 | 9.4 | 70bps | 60bps | |
Established markets volume grew 11.4%, supported by out-of-home performance. Sparkling volumes grew low-double digits benefiting from mid-thirties volume expansion from Adult Sparkling. Stills grew by mid-teens, benefiting from strong execution and improvement in the out-of-home channel. Energy volumes expanded in the high-teens despite tough comparatives.
Organic growth in net sales revenue per case was 6.8%. We benefited from price increases in all markets amplified by positive package and channel mix. A focus on single serve activation, both in at-home and out-of-home, saw a 6 percentage point positive swing in single-serve mix driven by nearly 25% volume growth from single-serve package formats.
Net sales revenue grew by 19.1% and 20.4% on an organic and reported basis respectively, with the difference coming from the stronger Swiss Franc.
· In Italy, volumes grew by low-double digits. Volumes were driven by strategic priorities in Sparkling: Coke Zero up mid-teens and Adult Sparkling up strong double-digits. Energy and Ready-to-drink tea grew in the twenties. The market benefited from favourable comparatives in the out-of-home channel. In addition, our early summer season activations and execution boosted share gains in Sparkling.
· Volumes in Greece were up by low-double digits. We saw high-teens volume growth in Stills, driven by Water, which performed well as the out-of-home channel recovered. Sparkling grew by high-single digits driven by Coke Zero and Adult Sparkling, while Energy continued to grow double digits.
· In Ireland, volumes grew by low-double digits. Stills delivered strong double-digit volume growth driven by successful new premium launches in Hydration. Sparkling volumes grew by low-double digits, driven by Trademark Coke and Adult Sparkling.
· In Switzerland, volumes grew by mid-single digits, benefiting from out-of-home recovery and the success of pack price architecture adjustments made during Q2. Stills volume was up high-single digits, driven by Ready-to-drink tea. Sparkling volumes grew mid-single digits and we gained share.
Comparable EBIT in the Established segment increased by 26.5% and 29.1% on an organic and reported basis respectively, to €140.2 million. Comparable EBIT margin was 10.1%, up 60 basis points on an organic basis, despite higher input costs, due to good operating leverage.
| Developing markets | Half-Year | Half-Year | ||
| 2022 | 2021 | % Change Reported | % Change Organic | |
| Volume (m unit cases) | 230.4 | 190.9 | 20.7% | 20.7% |
| Net sales revenue (€ m) | 791.6 | 601.6 | 31.6% | 33.6% |
| Net sales revenue per unit case (€) | 3.44 | 3.15 | 9.0% | 10.7% |
| Operating profit (EBIT) (€ m) | 56.9 | 35.7 | 59.4% | |
| Comparable EBIT (€ m) | 51.6 | 32.9 | 56.8% | 63.8% |
| EBIT margin (%) | 7.2 | 5.9 | 130bps | |
| Comparable EBIT margin (%) | 6.5 | 5.5 | 100bps | 120bps |
Developing markets volume grew by 20.7%, with a good performance across all countries and categories. Both Sparkling and Stills grew above 20% and we delivered strong results in Adult Sparkling and Energy.
Organic net sales revenue per case increased by 10.7%. The segment benefited from pricing initiatives, as well as positive package and category mix. Net sales revenue grew by 33.6% and 31.6% on an organic and reported basis, respectively.
· Poland volumes increased by mid-twenties, with a very strong performance in Sparkling, thanks to Trademark Coke. Performance has benefited from cycling the implementation of the sugar tax and our execution with customers, driving significant share gains in Sparkling. Energy and Juice also grew by double digits.
· In Hungary, volumes increased by low-twenties. We saw double-digit growth in Sparkling, driven by Trademark Coke, Flavours, and Adult Sparkling. Energy continued its strong momentum, and Ready-to-drink tea saw a good recovery. A sugar tax was implemented in July which we are passing on in pricing and mix to consumers.
· Volume in the Czech Republic grew by low-twenties. We saw mid-teens growth in Sparkling driven by Coke Zero, Flavours and Adult Sparkling. Water volumes grew strongly as the out-of-home channel cycled prior year’s lockdowns.
Comparable EBIT in the Developing segment increased by 56.8% to €51.6 million, an organic growth rate of 63.8%. Comparable EBIT margin was 6.5%, up 120 basis points on an organic basis as net sales revenue expansion sufficiently improved operating leverage to mitigate the higher input costs.
| Emerging markets | Half-Year | Half-Year | ||
| 2022 | 2021 | % Change Reported | % Change Organic | |
| Volume (m unit cases) | 794.1 | 661.5 | 20.0% | -2.6% |
| Net sales revenue (€ m) | 2,034.1 | 1,496.5 | 35.9% | 14.2% |
| Net sales revenue per unit case (€) | 2.56 | 2.26 | 13.2% | 17.3% |
| Operating profit (EBIT) (€ m) | 71.4 | 203.8 | -65.0% | |
| Comparable EBIT (€ m) | 270.7 | 208.8 | 29.6% | 15.5% |
| EBIT margin (%) | 3.5 | 13.6 | -1,010bps | |
| Comparable EBIT margin (%) | 13.3 | 14.0 | -70bps | 20bps |
Emerging markets’ volume fell -2.6% organically and grew 20.0% on a reported basis, which includes the consolidation of Egypt from mid-January. Sparkling volumes declined by low-single digits and Stills volumes were marginally down, both negatively impacted by Russia and Ukraine. Excluding Russia and Ukraine, organic volumes and Sparkling both grew high-single digits.
Net sales revenue per case grew 17.3% organically, benefiting from pricing, as well as positive package mix, partially offset by country mix. Net sales revenue grew by 14.2% on an organic basis, or by 35.9% on a reported basis, due to the consolidation of Egypt from mid-January, also helped by the stronger Russian Rouble and Nigerian Naira. Organic net sales revenue grew by high-twenties when also excluding Russia and Ukraine.
· Volume in Nigeria increased by high-single digits as momentum continued on tough comparatives. We benefited from strong improvements in pricing and mix. Sparkling grew by high-single digits led by low-double digit volume growth in Trademark Coke and strong double-digit growth in Adult Sparkling. Energy continued to perform well, led by Predator, and Juice grew strong double-digits.
· Russia volumes declined by high-teens, through the process of depleting inventories of The Coca-Cola Company’s branded products initiated on 8 March.
· Ukraine volume fell by high-thirties. We stopped production in Ukraine on 24 February 2022 and closed our plant. In May, in response to a much-improved security situation in the Western and Central parts of the country, as well as recurring requests from employees and customers, we progressively restarted production in Ukraine distributing and selling beverages where it is safe to do so.
· Volume in Romania increased by mid-single digits. Sparkling volumes grew low-single digits, with mid-single digit growth in Adult Sparkling and low-double digit growth in Energy. We saw an ongoing recovery in Stills, which grew by mid-teens, driven by Water.
· Volume expansion in Egypt is in line with plans, with growth of mid-single digits on a tough comparative. Integration continues to progress well, with focus on implementing our execution capabilities in the market, particularly across Revenue Growth Management and Route to Market. Gradual deployment of our key capabilities in Egypt are helping to drive market share gains in Sparkling in the period.
Comparable EBIT in the Emerging segment increased by 15.5% and 29.6% on an organic and reported basis respectively, to €270.7 million. Operating profit declined 65.0%, primarily due to the impairment of Russia. Comparable EBIT margin was 13.3%, up 20 basis points on an organic basis, as positive price mix development offset higher input costs.
Financial information in this announcement is presented on the basis of International Financial Reporting Standards (‘IFRS’).
Conference call
Coca-Cola HBC’s management will host a conference call for investors and analysts on Thursday, 11 August 2022 at 9:00 am BST. 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.
Next event
8 November 2022 – 2022 Third quarter trading update
