Coca Cola HBC : fireside chat Q&A transcript

CCH - Exane BNP Paribas European CEO Conference Fireside chat Q&A transcript - 8 June 2021

S P E A K E R S

Zoran Bogdanovic - Coca-Cola HBC AG - CEO

Ben Almanzar - Coca-Cola HBC AG - CFO

Gen Cross, Exane BNP Paribas Moderator

Questions and Answer

Gen Cross, Exane BNP Paribas Moderator

Thank you, Zoran. So I'd like to begin by asking a few questions of my own before we incorporate questions from the audience.

So to start with a topic that I think there has been a lot of interest in recently, which is inflation. So I think historically periods of very high inflation have seen a bit of margin compression at CCH and I was wondering if you can talk us through the factors that can give you the confidence that it will be different this time and give you the confidence that you can offset the cost pressures we've seen recently.

Ben Almanzar, Chief Financial Officer

Perhaps I can help there. Look, I can understand why the word inflation would raise concerns. You know this is a different company from the one we had a decade ago. So let me step back and provide you with a fuller picture of what it means for Coca-Cola HBC.

Key commodities for our business are sugar, PET, and aluminium. This year, we are anticipating mid-single digits increase in currency neutral input cost per case versus 2020. And input cost inflation in the low to mid-single digits is normal for our business when you consider the geographies where we operate. We are confident to manage it within the year using the various tools at our disposal.

For 2021 I am reassured by our strong hedging positions, covering more than 70% in PET, about 80% in aluminium and approximately 90% for sugar and sweeteners and that provides a cushion against market fluctuations year to go. That is why we have reiterated

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CCH - Exane BNP Paribas European CEO Conference Fireside chat Q&A transcript - 8 June 2021

our guidance of that strong top line growth, with small EBIT margin expansion that Zoran referenced earlier.

Gen Cross, Exane BNP Paribas Moderator

Thank you, thank you Ben. I think you mentioned some of the hedges that you have in place, but could you say anything about the confidence that you have about what you can do to drive price mix to sufficient offset input costs as we look a little bit further out into 2022 as well as this year, or is it a little bit too early to say?

Ben Almanzar, Chief Financial Officer

Alright, so I already talked about how we're covered for 2021, so let's shift into next year. It is still too early, as you say, for the clear picture of 2022, especially with the current market volatility.

However, we're not waiting. We are focusing on three areas specifically, pricing, we have already selectively priced in more than a third of our markets and there are some more to come year to go. Secondly, driving the right mix of the most profitable categories and packs. And thirdly, remaining very disciplined when it comes to cost and productivity programmes within the company.

Gen Cross, Exane BNP Paribas Moderator

Thank you for that. Maybe if we can change tack a little bit and talk a little bit about the recovery in the out of home channel that you're seeing. Maybe if you could just share what you're seeing in terms of the speed and strength of that recovery in the markets where it has been earliest?

Zoran Bogdanovic, Chief Executive Officer

Yes, we do see that across all of our markets there is this progressive recovery enabled by easing of the restrictions. In the majority - in all of our markets out of home customers are open, however, still it's mostly terraces only. But we do see that now in several markets there is also the possibility that finally consumers and guests can go inside.

In line with that we do see that our volume of the small packages is increasing in line with this - finally repeating demand in this part of the trade. And in line with that it is also increasing our price mix, which is very encouraging to see.

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CCH - Exane BNP Paribas European CEO Conference Fireside chat Q&A transcript - 8 June 2021

So even though the shape of the recovery remains unchanged, but because we do see that also vaccination rates are progressing finally better and faster, we do see that things are slowly getting where they should. And in line with that our trading also is encouraged and is boosted by that. so overall we remain, you know, optimistically cautious.

We did say that the second semester, so during Q3 and Q4, there will be a green scenario where we will see less and less measures and we do see that that's what is happening in the markets.

Over to you, Gen.

Gen Cross, Exane BNP Paribas Moderator

Thank you. And you've had through the pandemic quite a lot of success in kind of driving single serve volumes in the at home channel. As you see the out of home channel recovering, do you think you'll be able to retain some of that newfound single serve volume at home?

Zoran Bogdanovic, Chief Executive Officer

Yeah, while we do, as I said, we do expect this gradual recovery of the out of home as restrictions are lifting, at the same time we do expect that the at home channel will stay strong, accompanying the recovery of the economy.

So we do see that there have been some consumer shifts in the way, how people have strengthened and evolved some of the drinking occasions and moments in the at home channel. There are so many things that now happen at home. And we do feel that a part of that is going to stay and be stronger than it was pre-COVID.

This mostly relates to meals at home and socialising, but also more of the screen time, gaming, we know because of the hybrid way of working where people will not be going back to their offices as they were in the past, or not to the same extent, that also means working from home, that in itself is an occasion or drinking moment. So there is also additional significant opportunity for us to drive premiumisation in this channel.

And as you heard us mentioning, one of the key focus areas is multipacks of single serves that we are promoting - that we are trying to create a habit, because these products are bringing us higher revenue per case than larger packages. And these efforts have led to improved pack mix, in the at home channel, which in Q1 grew by 18%. And we do expect that these opportunities and trends will continue in the future.

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CCH - Exane BNP Paribas European CEO Conference Fireside chat Q&A transcript - 8 June 2021

And the habit of drinking single serves at home, which is quite well advanced in some of the Western European markets is still not so developed in Eastern Europe and that is the opportunity that we have. Just for you to have the feeling in Q1 of 2021 our proportion of single serves, or small packs in the at home channel was 26%, so this just highlights that there is a lot of scope and opportunity for growth here.

Over to you Gen.

Gen Cross, Exane BNP Paribas Moderator

Thank you very much. Changing subject a little bit, I think a subject that is always of interest at CCH is essentially the balance sheet de-levers, is M&A. Maybe you could remind us of the kind of categories and the criteria you look at when you're screening for potential acquisition candidates?

Zoran Bogdanovic, Chief Executive Officer

Yeah, we used to say that it's primarily Water and Juice categories where we are looking for bolt-on. However, we have also seen with our concrete example of Lurisia that we have acquired some 18 months ago or so in Italy, that's an example at the same time of Premium Water. And also Premium Sparkling Adult drinks.

So that also demonstrates that we are looking for possible opportunities in the Adult space in Sparkling, but also now with Coffee, which is a new category where we play and where we really see a long-term play, we would be open for possible opportunities that might come also in that category.

So we are looking that there is a strategic fit, that there is a certain level of premiumisation and positioning that we see in the target. And also it has to be financially sound for us. We never expect that we need to underpay significantly, however we want a fair price. But the key criteria are that we do not overpay for things and we do what makes sense for Coca-Cola Hellenic shareholders.

Gen Cross, Exane BNP Paribas Moderator

And maybe staying with, you mentioned Coffee there as an opportunity for you and something you're interested in. You've got Costa Coffee in about 16 of your markets now, maybe you could share the long-term opportunities you see there in that category and how the rollout is going.

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CCH - Exane BNP Paribas European CEO Conference Fireside chat Q&A transcript - 8 June 2021

Zoran Bogdanovic, Chief Executive Officer

Coffee is a significant opportunity, it's a sizeable revenue and profit pool in the market. It is estimated that at the distributer value, that's not at the shelf price, because at shelf price would be multiple value of the distributor value. So at the distributor value across our market we see it around €9bn of revenue pool. And our ambition in this category, which is just to mention very fragmented and it's very competitive. However, we see ourselves over the next four or five years reaching low-single digit to possibly mid-single digit market share. And that would be something that would be good progress.

Just as a reminder for everyone who might not know, our play with Costa in the Coffee category, is not only with cans which are ready to drink, actually that's a very small part. For us this means being present in all types of packaging, from beans, ground coffee, capsules, packaging for HoReCa, or out of home outlets, as well as Expresso Costa machines. And playing across all channels.

Just to highlight that in the 16 markets where we are so far, because of COVID we have primarily focused on the at home part of the market. But even so far, we are present in more than 1,300 out of home customers and for the remainder of the year this is going go be one of the focus areas where we will be ramping up also our focus and attention.

Gen Cross, Exane BNP Paribas Moderator

That's really interesting, thank you Zoran. And obviously you've got a rollout of Costa going on right now, so it's not margin accretive. But as you look, as you say at the long term, and once that business is at scale, is there anything you can share about what you expect the margin profile of that Costa Coffee business to be?

Zoran Bogdanovic, Chief Executive Officer

Yeah, Gen, you said very well - it is not profit contributing and margin accretive now because we have done and we are doing - we are front loading quite some investment in teams, in educating them, in creating technical service support and investing into equipment. So we really want to do a quality approach for Coffee, because as I said this is for us a long-term play, and we really want to do a good architecture to create our right to win.

So for that reason it will require a certain scale level for which we are sure that will come. And eventually in, I would say, three - more likely four to five years we do expect that this category will be margin accretive for us.

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