Coca Cola HBC AG

LSE:CCH

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by, ladies and gentlemen, and welcome to Coca-Cola HBC's conference call for the 2021 Half Year Results. We have with us Mr. Zoran Bogdanovic, Chief Executive Officer; Mr. Ben Almanzar, Chief Financial Officer; and Ms. Joanna Kennedy, Investor Relations Director. [Operator Instructions] I must also advise that this conference is being recorded today, Thursday, August 12, 2021. I now pass the floor over to 1 of your speakers, Ms. Joanna Kennedy. Please go ahead. Thank you.

[Joanna Sherratt Kennedy, Investor Relations Director]

Good morning. Thank you for joining the call today to discuss Coca-Cola HBC's Half Year 2021 Results. Zoran and Ben will present the results. And following that, we will open the floor to questions. We have about an hour and 15 minutes available for the call today, and we will therefore ask you to keep to 1 question and 1 follow-up before joining the queue again. Before we get started, I would like to remind everyone that this conference call contains various forward-looking statements and these should be considered in conjunction with the cautionary statements on the screen. This information can also be viewed in our press release issued today. Now let me turn the call over to Zoran.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Joanna. Good morning, everyone, and thank you for joining the call. Before we get going, I want to flag the announcement just made on our agreement to acquire Coca-Cola Bottling Company of Egypt. We wanted to announce this alongside our results, but that simply was not possible as we were finalizing the last but critical details of the transaction. We are very excited about the opportunities we have in front of us in this market, and I'll discuss this in a greater detail shortly. Let me then give you an update on strategy, the CCBCE acquisition plans and business performance in the first half of the year, after which Ben will talk you through the financials in more detail before handing back to me for some comments on the rest of the year and beyond. The numbers we released this morning show a strong recovery across all aspects of our business. Half 1 like-for-like revenues were up 23.1% year-on-year. Very importantly, revenues were 4% above half 1 2019 levels and volumes 5% above on the same comparative basis, giving us confidence about progressively returning to normality following the disruption caused by COVID in 2020. Year-to-date, we have gained 50 basis points of value share, improving the performance from 2020. Meanwhile, EBIT margins expanded 340 basis points, while EPS is up 82%. The agility with which the business has been able to respond to the reopening of our market is clearly visible in the strength of our financials and the continued expansion of our value share performance. This has been enabled by the bold investments we have made into capacity and prioritized capabilities to deliver best-in-class execution, be that new lines in Nigeria or digital tools to allow our salespeople to offer our customers a more targeted, better service. This is also fueled by our tight partnership with the Coca-Cola Company team and our aligned and effective way of doing business. We continue to invest in our sustainability commitment, launching 100% recycled packaging in mineral water in Czech and Slovakia, which adds to our existing portfolio of 100% recycled water brand. In Q2, we also added 100% recycled sparkling single-serve packs in Italy. The pandemic is not yet behind us. In this operating context, the safety of our people and ongoing service of our customers remain central. The people of CCH have shown continued commitment and care, and I'm also proud of the speed and adaptability I witnessed in this business every day. I want to thank them wholeheartedly. It's inspiring to see and I'm excited for us to continue growing together with our customers, creating value for our stakeholders. In 2019, we laid out a clear strategy to drive the business towards our vision of being the leading 24/7 beverage partner. This strategy is called Growth Story 2025, and it is underpinned by 5 growth pillars, leveraging our unique 24/7 portfolio, winning in the marketplace with our customers, continuing to focus on efficiency and fueling investments with careful prioritization, developing our people, particularly by accelerating critical capabilities and earning our license to operate by delivering on our Mission 2025 sustainability commitment. These pillars are positioning the company for sustained success. They have gained our investment choices. They have guided our investment choices and actions, and we are making very good progress. I believe that continuous focus on this strategy over the last 2 years has readied us for the strong performance we are now seeing in the recovery. Let me give you an update on the trends we are seeing during the first half of the year. The easing of restrictions across our markets during quarter 2, combined with increased mobility is fueling a strong recovery in the out-of-home channel and undergo occasions. Volume growth in out-of-home accelerated sharply in Q2, and we have seen that while volumes in that channel remained slightly below 2019 level, the gap narrowed in the second quarter. Given the constrained capacity in the hospitality sector, this suggests a healthy underlying demand for available out-of-home experiences. While we continue to monitor new emerging variants, we are also cautiously optimistic for much of this positive momentum in the out-of-home channel to continue throughout the summer months and into Q4. Throughout the pandemic, we have worked hard to support our out-of-home customers, sharing our consumer insights, providing targeted programs and offering practical support. This has ensured they and we are well positioned to capture the growth opportunities together as markets reopen. Even as the out-of-home channel has reopened, we have continued to deliver a strong performance in the at-home channel. We are benefiting from favorable comparatives in Q2, but looking at the performance on a 2-year stack, it is reassuring to see volumes consistently high single digit to mid-teens ahead versus 2019. We are sizing opportunities around premiumization and the at-home channel. Consumers have developed rituals, recruiting out-of-home experiences in their houses. And we believe that some of these trends will stick propelling our performance in adult sparkling. As a company, we have been focused on selling increasing volumes of high-value single-serve packages for many years. Our track record is confirmed by improved single-serve mix, which we grew by over 1 percentage point per year between 2015 and '19. In 2020, COVID negatively impacted that by limiting volumes in the out-of-home channel where single serve packs predominate. In 2021, we are seeing that the recovery in the out-of-home channel has driven a quick turnaround in packaging... [Technical Difficulty]

[Operator]

Thank you for your continued patience parties for the delay. We are trying to sort the audio issue out, and we will continue as soon as possible.

[Ben Almanzar, Group Chief Financial Officer]

Can we hear us from the backup line. Can you tell her to open the backup line.

[Operator]

Okay. Now we're back online, if you can please continue.

[Ben Almanzar, Group Chief Financial Officer]

Rosie?

[Operator]

Thank you. The line is now open. So if you can please continue.

[Ben Almanzar, Group Chief Financial Officer]

Hello? Rosie, can you hear me?

[Operator]

Yes, we can hear you. Please go ahead.

[Ben Almanzar, Group Chief Financial Officer]

Okay. I will put this line for Zoran to present. Is this is okay?

[Operator]

Yes. Thank you. Please continue.

[Zoran Bogdanovic, CEO & Executive Director]

I hope everyone can hear me and my apologies for this technical disruption. I'll just repeat the last sentence where I believe I left it. Low and no sugar now makes up 22% of sparkling category volumes and is growing faster than full sugar across the segment. We see no signs of slowdown in this performance. In adult sparkling, we focus on the key occasions of socializing both at-home and now also out-of-home. We have a well-established playbook developed with the Coca-Cola Company team to elevate the position of Schweppes and Kinley in the market through new visuals, packaging, flavors and execution, which builds on the product as a premium mixer. Energy closed with exceptional results. Volumes up 66% in first half. Here, we are benefiting from the continued pace of innovation in the category as well as the range of our portfolio, which effectively targets the most attractive market partitions. Mass premium with burn mass with Monster as well as an affordable offering with Predator. We continue to make progress on rolling out Costa Coffee, which is now live in 16 markets. We are building depth and breadth of distribution in the at-home channel in our market and seeing good early results. With Nielsen data showing clear progress in Q2 versus Q1, both in terms of share as well as distribution. However, the at-home is only a part of this opportunity. Having had the experience of selling a full portfolio of coffee in several of our markets through our previous coffee partnership, we believe we are uniquely positioned as a partner of the Coca-Cola Company to target all channels across our markets with Costa Coffee. We believe we can offer a breadth of portfolio as well as level of service enabled by technology to our out-of-home customers that is compelling. Early feedback and take-up is good, and we are accelerating the rollout of coffee in the out-of-home channel in 2021. We are also delighted to have strengthened our coffee portfolio with an agreement to acquire a 30% stake in Caffè Vergnano, 1 of the oldest Italian coffee roasters with an exceptional product and brand and a truly premium positioning. As part of our minority stake, we will acquire exclusive rights to distribute Caffè Vergnano in all of our markets outside of Italy. We intend to hit the ground running by early 2022. You will have seen this announcement on our expansion into Egypt with the acquisition of CCBCE. We are excited to welcome this growth market to our group. We see huge potential for Egypt. The country has Africa's second largest NARTD market by volume with very attractive demographics. To put that into some context, with the addition of Egypt, CCH would have access to the 2 largest NARTD markets in Africa and a combined 25% of the population of the whole continent. The acquisition will increase the population we serve by 100 million taking it to a total of 715 million people. We also see opportunity to accelerate growth by increasing the penetration of our product and per capita consumption. CCBCE is currently the #2 player in the market, allowing room for further share expansion. The business has achieved volume growth of 5% compound average growth rate over the past decade and we believe there are significant opportunities to unlock further growth and value creation for all stakeholders through deploying our best-in-class execution capabilities, commercial expertise and leading approach to sustainability and communities. You will have seen some of the key financial metrics on the release, I hope. Let me highlight that while we expect this acquisition to be accretive to EPS in the near term, we also believe there is an opportunity to create further value by moving CCBCE's margins towards our group average over time, predominantly through seeing operational leverage as revenue expands. We expect the transaction to close in the late Q4 and look forward to being able to share more on our plans in the near future. Moving from 1 growth market to our others in the Emerging segment. We continue to see sustained strong performance in the Emerging segment with like-for-like revenues up 30.3% in first half. Emerging markets FX-neutral revenues are now 19% above 2019 levels. We are benefiting from continued momentum in Russia and Nigeria as well as the recovery seen in several other markets such as Romania and Serbia, where the return to trading in the out-of-home has accelerated results. Nigerian volumes continue to expand double digit, growing over 30% in the first half. We are seeing underlying strength in the categories where we play. But importantly, we are growing ahead of these categories and we accelerated our share gains in Q2. We are also pleased to see the healthy price/mix trajectory in the market in the first half. As you know, we've been investing to build both capability and capacity in Nigeria over several years. This investment is set to continue to unlock the potential of the market. In Russia, we are delivering like-for-like growth in the mid-20s, led by sparkling, where growth was nearly 30%. We continue to believe that adult sparkling is a real opportunity in this market with Schweppes volumes up over 60% in the first half. This strong performance is a result of targeted investments to elevate the Schweppes offering, and we anticipate significant headroom for the brand in Russia, particularly when activated the long side premium spirit. Energy is also a notably strong performer with volumes up nearly 60%. The developing segment's currency neutral revenue increased by 17.6% with price/mix expanding 16.9%. Developing segment, FX-neutral revenues are 2% below 2019 levels. Performance was impacted by the Polish sugar tax. Excluding Poland, the segment's price mix growth was 5.6% as package and price mix improved. Poland's performance is evolving in line with our expectations following the implementation of discriminatory taxation. We experienced some recovery in Q2 volumes as prices settled in the market. We are also pleased with the market share gains and the excellent performance from low and no sugar variants, which were up 36% in the period. This all gives us confidence that our mitigation strategies, including pricing and promo adjustments are allowing us to handle these techs in the best possible way. It is helpful to look at the performance of the segment, excluding Poland, where this tax is the key driver of trends. The markets, excluding Poland, saw volume growth of 11.5%, benefiting from continued good results in the at-home channel and the reopening of the out-of-home. Established segment FX-neutral revenues grew by 16.6% and are now 8% below 2019 levels. The segment benefits from the opening of the out-of-home channel, which started in most markets in May, performance was led by the recovery in Italy, where we saw better momentum in Q2 with volumes towards the end of the period exceeding those in 2019. By contrast, Greece recovery in Q2 has been impacted by ongoing weakness in tourist arrivals. We are pleased by the continued positive momentum in price mix, which was up high single digits in Q2. We are benefiting from better package mix as the out-of-home reopens, ongoing good category mix as well as pricing. As we see recovery in our market, we are also ensuring that we continue to meet the key milestones on our Mission 2025 sustainability commitment. During the first half, we have made progress on our packaging agenda with investments in recycled PET production. I already mentioned our launches of new 100% recycled PET packages. We have also swapped plastic shrink wrap on multipacks for paperboard solutions called KeelClip in 10 of our markets with plans to roll out across all of our EU markets by early 2022. This progress on packaging is a critical part of how we will meet our ball science-based emissions target since packaging is the single largest contributor to emissions in our value chain. I will now hand over to Ben to take you through some more detail on the financials.

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Zoran, and good morning, everyone. In line with our practice, unless specifically stated, I will refer to comparable figures, which exclude the impact of restructuring costs, the mark-to-market valuation impact of commodity hedges and specific nonrecurring items. Zoran has already taken you through our top line performance. So I'll just recap the highlights before digging into the drivers of our profitability and cash flow. Like-for-like volume accelerated in Q2, up 26.5%, ensuring that we closed the first half above 2019 levels. Price/mix also improved markedly in Q2, where we were activating all the levers, a healthy category mix amplified by a sharp recovery in package mix, we have now successfully taken pricing in over 90% of our markets. All of this drove price/mix up 6.2% in half 1 or 4.4%, excluding the price increase we made in Poland to offset the discriminatory tax on beverages. Like-for-like revenues expanded 23.1%. Let me take you through the bridge back to reported euro revenues. Foreign exchange translation had a negative impact of 6.1 percentage points and the reorganization of the structure of the Multon juice business in Russia further decreased revenue growth by 2.3 percentage points, taking reported revenues to EUR 3.2 billion a 14.7% increase on the prior year period. First half gross profit margins were down 70 basis points year-on-year. This is in line with expectations considering that in 2020, our gross profit margin benefited from the combination of lower commodity prices and opportunity to hedge the ruble at favorable rates at the start of the year. Our base case for 2021 was that the commodity and FX environment will pose considerable headwinds, and that is indeed what is materializing. It is worth noting that there are 2 one-offs on the gross profit margin, which has a net impact of negative 20 basis points and which are detailed on this slide. The first is the Polish sugar tax. We pay this tax out of COGS, which the result being that revenue is inflated by the quantum of the tax with minimal impact on gross profit. The result is a mathematical reduction in margin due to a higher revenue number in the denominator. This had a negative impact of 70 basis points on gross profit margin in half 1, and we can expect a similar impact in half 2. The second is the extension of the usual economic lives of some of our production assets. The impact of that has been lower depreciation with a benefit of approximately 50 basis points on gross profit margins. Leaving these one-offs aside, we're pleased to have seen the benefit of positive production and overhead leverage as well as ongoing productivity initiatives in our supply chain, which are driving continued efficiencies over time. We also benefited from the strong improvement in price mix as well as our solid hedging policy in half 1, which helped to ensure that raw material costs per case were up only 2.3% in the period. Moving to OpEx. We have been able to keep it flat versus 2020 during the first half, giving us revenue expanded 23%. I would like to reiterate the message that we expect to retain EUR 15 million to EUR 20 million over the full year of the EUR 120 million we saved in 2020. And while in 2020, the cost saves were delivered with equal weight in half 1 and half 2. In 2021, we would expect the return of this cost to be in half 2 as we step up marketing investments and items like travel resume as mobility improves. Turning now to the margin drivers on a segmental basis. We have seen the fastest expansion of margins in our Established markets due to strong operational leverage as revenues recovered. In the Developing segment, that underlying margin improvement driven by operational leverage was partially offset by the negative impact of approximately 2 percentage points from the Polish sugar tax. The Emerging Markets segment continues to see strong margin performance and sustained top line growth is driving consistent operational leverage. At a group level, comparable EBIT increased by 67.8%, driving a 340 basis point increase in EBIT margins. We are pleased by this strong performance, but are also aware that this is partly driven by the aforementioned cost savings we retained in half 1, which we expect to return to the business in half 2. We also face a much more challenging comp on gross profit margins in half 2 as well as higher commodity prices. As a result, while we expect that we can achieve a 20 to 30 basis point EBIT margin expansion this year, that implies that the second half of 2021 EBIT margin will be below the second half of 2020 EBIT margin. The strong performance in half 1 on EBIT, combined with broadly stable finance charges and tax rate drove EPS up 82%. Free cash flow improved markedly, driven by the higher profitability and another improvement in working capital. CapEx of EUR 218 million reached 6.7% of revenue. We will continue to invest behind capacity expansion in selected markets and categories, cooler placements, which are a key drivers of improved single-serve mix and also our digital agenda. We will also allocate investments to our sustainability commitments. For example, our in-house recycled PET lines. Finally, our growth plans for coffee will require investments, although this is a very small proportion of the overall CapEx. With all of these opportunities, we expect to be at the upper end of our CapEx guidance range for the year 2021. Our net debt-to-EBITDA position at the half year point was 1.1x, assuming that the acquisition of Coca-Cola Bottling Company of Egypt goes ahead in Q4 as planned. We expect the balance sheet to be within the 1.5 to 2x range by year-end. With the continued strength of the balance sheet, we retain a lot of optionality for our capital allocation priorities. We have already discussed organic investment. Our second priority is our progressive ordinary dividend policy. We target a payout ratio of 35% to 45%. In 2020, in order to keep increasing the dividend in a year impacted by COVID-19, we were above that target. We expect to maintain the progressive nature of our dividends in the future while also seeing that payout ratio move back into range over time. Our third priority is value creating M&A. You have seen good examples of the 2 main types of opportunities with both CCBCE and Caffè Vergnano. We remain interested in either selective bolt-on acquisitions of strong local brands complement our existing portfolio or expanding into new markets as and when that is a possibility. Of course, investment discipline remains central. We will only invest if it makes strategic and financial sense. And as you know, we are happy to return capital to shareholders in the event that we don't see value-adding opportunities in the horizon. With that, let me pass the floor to Zoran for the year's outlook.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Ben. We are encouraged by our strong half 1 performance and while conscious of the risks remain cautiously optimistic about the rest of the year. We continue to expect a strong recovery in FX-neutral revenues, and we now believe that we can achieve an EBIT margin expansion of between 20 to 30 basis points in full year 2021. Looking further ahead, beverages continue to be a high potential industry and we see many growth opportunities leveraging our evolving portfolio. We are also blessed by the markets we operate in and now expect to be able to add another growth market to the group. This is why we do believe that once trading conditions normalize, the business can return to the growth algorithm, we set out at our Capital Markets Day in 2019, which was for FX-neutral revenue growth of 5% to 6% with 20 to 40 basis points of EBIT margin expansion per year on average. Thank you for your attention. And we'll now hand over to the operator. And Ben and I will be happy to take any questions you may have.

[Operator]

[Operator Instructions] And the first question comes from the line of Sanjeet Aujla from Credit Suisse.

[Sanjeet Aujla, European Beverages Analyst]

Couple of questions from me, please. Just on the transaction to begin with, can you give us a sense of where EBITDA and EBIT margins were for the Egyptian bottler for the last couple of years? Just trying to work out the transaction multiples here. And how quickly do you think you can get margins up to group levels? That's my first question, please.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Sanjeet. And once again, to you and everyone else, thank you for understanding that we send the press release literally at the start of the call, but we really wanted to ensure that literally at the moment, it was done that we shared it with all of you because we really didn't want to delay it and missed the opportunity of this call. On the -- first of all, on the margins, which I highlighted that are lower than our group EBIT margin. Therefore, you could see from the press release, example of net profit which is in between mid- and high single-digit millions. We expect that with this growth story, and growth opportunity that we see in Egypt that progressively over the years, we will be taking it to the group average and hopefully also beyond. We see a number of actions that I can go into more details. But I just want to emphasize that this acquisition is not a cost synergy type of acquisition, but rather fueling and supporting the acceleration of very potent business given the underlying conditions as well as already the setup that this business has. So myself and the whole team are quite optimistic about taking it progressively over the years with all actions we plan to do.

[Sanjeet Aujla, European Beverages Analyst]

Got it. And do you have an EBITDA multiple to mine you're able to share at this stage based on the earnings of the business that generated in the last couple of years? And my follow-up question is just really on the input cost outlook if you're able to just give us a feel for the magnitude of that raw material cost inflation as we think about H2 and more importantly, 2022?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. Yes, Sanjeet. So the multiple of the deal is around 10. And then I'll hand over to Ben for the second part of the question.

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Sanjeet. It is early to provide guidance for 2022. We'll do that for sure during the 2021 full year results. Our midterm algorithm of FX-neutral revenue growth in the 5% to 6% range accompanied by 20 to 40 basis points of EBIT margin expansion per year on average. We made some change. We believe that the business has the capacity to continue to invest and grow the top and the bottom line, even as the operating environment becomes more challenging. And what we expect input costs to be higher in 2022 than they will be in 2021. We believe that the combination of driving the top line through category mix, package mix, pricing, the discipline that we have demonstrated, managing the cost base to help us stay on track with our targeted margin products in 2022.

[Operator]

The next question comes from the line of Alicia Forry from Investec.

[Alicia Ann Forry, Consumer Analyst]

I'm just really wanted to discuss the fact that you were able to grow your volumes as the markets reopened, while still holding your costs down so much. I appreciate this is not going to continue into H2. But could you talk a little bit about what enables you to do that because it's quite impressive to my mind.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Alicia. I will kick it off and then Ben will jump in with anything that he might have additionally. You might remember, we also said when we entered into the year, that we did estimate and read that Q1 will be as we called it red. We expected that Q2 will be orange or amber. And then that progressively second part of the year will be green. Therefore, we have planned that our cost will be and need to be much tighter in the first half. And that's exactly what we have done. And I would say giving credit to the team that we have done that very, very diligently because we have seen that actually Q1 had even a spillover of the measures into the start of Q2 and exercising again the algorithm of -- and agility of managing our costs in terms of what we see in the market. This is where we have been really holding on until we get better visibility. And for that reason, and what we have seen in the second part of the Q2, where we are also today, even though we are mindful that a lot of things can still happen by the end of the year. However, we do see the need, and we want to invest more in the second half to support the business for the rest of the year as well as for the next year. And that's why, as Ben highlighted, we will be investing much more cost across many areas for the rest of the year. Ben, anything?

[Ben Almanzar, Group Chief Financial Officer]

Thank you. So it's very well. We are pleased with the cost discipline in the business. We have adapted our ways of working resulting in lower headcount. To give you strength in June, this year we have over 1000 SP left than what we had in June 2020, we have also maintained pre-controlled inflationary expenses to finish H1 with OpEx, again, practically in line with last year completely flat, notwithstanding the double-digit increase in revenue and marketing expense. As we look into the second half, sorry, rightly said, we will step up the brand investment in partnership with the Coca-Cola company to sustain top line recovery near term and support the long-term health of our unique 20% in portfolio.

[Alicia Ann Forry, Consumer Analyst]

If I could have a follow-up, Nigeria has been very strong and continued to be in the latest quarter. Can you talk about the outlook there over the sort of near to medium term?

[Ben Almanzar, Group Chief Financial Officer]

Sorry, Alicia, you said outlook for the rest of the year?

[Alicia Ann Forry, Consumer Analyst]

Yes, for Nigeria. Yes.

[Ben Almanzar, Group Chief Financial Officer]

For Nigeria, absolutely. So listen, as you see, not only this year, but also building on momentum over the last year, we've been performing very well. And I expect that Nigeria is going to continue also in the second half performing on a strong note. So that means that there's going to be continued double-digit performance. We see that also from the current trading and the overall, even though there are some of the -- in line with Nigeria being a true emerging market, there always are certain uncertainties. However, from today's visibility, we have every reason to believe that rest of the year is also going to be on a strong double-digit note.

[Operator]

The next question comes from the line of Edward Mundy from Jefferies.

[Edward Brampton Mundy, Equity Analyst]

So my first question is really to Zoran on Egypt. Congrats on the deal. I was hoping you could talk about some of the opportunities in the broader terms that you've identified on top and bottom line in terms of the best practices you can bring from your business over to Egypt. And the sort of part of that same question, it's a slightly different setup to your current footprint, where you've got incredibly strong market share. Here, you're at sort of a very strong #2. But does that sort of change the way you're going to go about your business in Egypt?

[Zoran Bogdanovic, CEO & Executive Director]

Thanks, Ed. First, on the first part of the question, we -- as the transaction will be in the process of fully closing, we will only then be able to get in a deeper way into the business. However, from also from our so far work and engagement that we have done on which we have based our decision, we really see a very -- even though very challenging competitive environment. However, we are very much encouraged with the potentiality of the business and already a number of both commercial as well as operational supply chain practices that the operation has clearly, we see that we can bring lots of benefits from our scale, expertise and accelerated funds into the market to enable them to grow and compete faster and to a better extent. So we primarily see the opportunities to stimulate and drive the top line. However, of course, we will utilize every opportunity for productivity and efficiencies, benefiting from Hellenic sourcing, procurement, our vendor contracts. So we have recognized also that part. And I also want to emphasize 1 another point which might -- which is not easy to put immediate number on. However, Egypt team becoming part of the Hellenic Group also makes it accessible more in the talent exchange, benefiting from our talent development practices, which I strongly believe also can help the local team further where they already are. And then second part of the question was -- please remind me, Ed.

[Edward Brampton Mundy, Equity Analyst]

Just as to whether it's slightly different going back your business there, given that you have a dominant market share.

[Zoran Bogdanovic, CEO & Executive Director]

Well, first of all, I have to give a local team in Egypt credit that they have been as a system team been doing quite well over the last couple of years. We've seen some really impressive initiatives and strategic choices. So the business is having a solid good momentum. And yes, we have been already in some of our markets in Europe in a more challenging competitive position, where we have been #2 player and then over years, overtaking and taking the leading position. And I really have the confidence that with the expertise and fueling with additional investments, we will be able to do same thing eventually in Egypt. I really see it as a very healthy challenge for all of us, and I'm very excited about it.

[Edward Brampton Mundy, Equity Analyst]

Very good. And just a quick follow-up, perhaps for Ben. I appreciate it's probably a little bit too early to talk about input cost for 2022, but could you perhaps just confirm sort of how far hedged you are in COGS for next year at this stage.

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Ed. As you know, the commodity environment it's very volatile. The markets are choppy. We're looking for the right windows when it comes to the second half of the year to go into 2022. There are raw materials of our critical ones where we're further ahead. For example, in sugar, there, European sugar is probably about 25% to 30% already covered. Orders of the strategic materials like PET and aluminum are a bit lower. And we're looking for the right window to make sure that we're looking the right prices for 2022.

[Operator]

The next question comes from the line of Simon Hales from Citi.

[Simon Lynsay Hales, Managing Director]

A couple for me as well. I wonder if kind of just sort of pick up on where you left off really with regards to the Egypt acquisition. I wonder if you could give us a bit more of a flavor of where we are in terms of the capital consumption sort of trends generally in Egypt how things have been evolving over time, how the share of the business you're acquiring has been evolving over time. You talked about the 5% compound volume growth that the business delivered over the last sort of decade? Is there any numbers that you can share with us to give us a bit more color? That's my first question.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Simon. Thank you, Simon. So in both cases, as we said, both in NARTD as well as sparkling Egypt team at the moment is on the second position. It has been sparkling value share of 42%. And there is a very good room for per capita improvement. And with specific numbers, our IR team and Joanna will be happy to come back to you so that I don't disclose a wrong number.

[Simon Lynsay Hales, Managing Director]

Got it. Okay. And then secondly, can I just go back to the sort of the reinvestment that's going back in the second half of the year? I mean, can you give us a little bit more color as to where that will be going. I mean, maybe regionally, should be expected to be more skewed to established and developing. And I sort of asked the question because when I look at the very strong performance we saw in EM from a margin delivery, standpoint through the first half of the year, it seems that, that is really being driven by the operational leverage coming through the P&L. Should we not expect to see sort of a step down in margins in emerging markets as a result of the cost reinvestment, it's going to be more coming elsewhere. Is that how I should think about it?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, Simon. So first of all, all the investments that we are doing in any case, but especially for the rest of the year are in a very targeted, focused way by country. It's not 1 size fits all. However, first of all, you might remember that the biggest chunk of our last year's savings were marketing spend. And this is where we are primarily accelerating. Our initial plan between half 1 and half 2 has been such that in the second half of the year, we already planned higher investment which we are now taking even further with the savings that we had in the first half because our intention, given the development of the year is not to pocket market investment because we do see that investing back into the business is the right thing to do. So out of this spend that will be happening in the second half, more than 50% -- more than 50% is on marketing investments. Then we go into various parts of -- even though we are not resuming even close to the -- to activity of travel or anything like that. However, we do start with certain necessary activities. Also then versus last year, you have different types of incentive costs for the whole teams given the specifics of last year. However, in this year, that's going to be -- we are having incentives on a normal as usual basis. So that is quite significant incremental cost. So these are the primary areas of that where we will be investing. And I'll ask now Ben to do and give you a little bit more flavor on the margin for the second part.

[Ben Almanzar, Group Chief Financial Officer]

Yes. Thanks, Zoran. Again, when you look at the comparatives between half 1 and half 2, then it all makes a lot of sense. If you think about half 2 2020, generally extraordinary with EBITDA of 14%. So clearly, we're always going to be facing a much more challenging income in the second half of the year. And you can also probably remember that we faced very favorable cost environment in 2020 and that we have always expected that to get tougher in 2021. So again, when you put the picture of what's happening on the commodity side of the business, added to what Zoran has already mentioned in terms of our increased investments in that second half, that's where how we get into the margin equation. And we end up with our expectation of 20 to 30 basis points for the year.

[Simon Lynsay Hales, Managing Director]

Got it. That's really helpful. Can I just clarify 1 thing, particularly I think something you said earlier, Ben, with regards to input costs. I know you're not giving any guidance for 2022 at this stage. But did you say that you expected the rate of input cost inflation to be higher in 2022 than 2021 or just the absolute level of input costs to be higher. I think you said something to that order in response to Sanjeet's question earlier.

[Ben Almanzar, Group Chief Financial Officer]

So basically, Simon, if you think about the input costs this year, we had low single digits in the first half. We expect a full year in high single digits. That would imply that the second half is double digit. When we look at 2022, what we are saying is that the annual cost -- input cost for 2022, the absolute certainly will be higher than in '21. That's what we see right now. And that is the expectation for next year.

[Operator]

The next question comes from the line of Fintan Ryan from JPMorgan.

[Fintan Ryan, Analyst]

First to start with wondering could you -- within the sort of 6.2% price/mix that you reported for the first half, I wonder can you breakdown what was the mix component and what was, say, specifically pricing? And just do you have any -- is there any other sort of meaningful pricing actions or countries where you expect to take more pricing in the second half of the year? And what should we sort of expect of that number broadly going into 2022?

[Ben Almanzar, Group Chief Financial Officer]

Very well, let me get started with how to think about that 6.2% increase in NSR per unit case. If you break that down between pricing and mix, you're going to see that pricing is slightly higher than half responsible for -- in the first half of the year as the year progresses, we should be seeing an outweigh in pricing.

[Zoran Bogdanovic, CEO & Executive Director]

And I'll just add, you've seen, Fintan, that we said that we've done pricing in over 90% of our markets. That was intentionally front-loaded seeing how the year will be and doing it almost across the board. All the planned pricing has been done however. However, we are continuously reading and identifying a situation for every single country to see where we can and should do some more pricing. So definitely, as we see how situation evolves and moves, I would say that probably there will be even a bit more by the end of the year. However, at this point, I wouldn't put exact finger where and how much.

[Fintan Ryan, Analyst]

That's clear. And just as a left field as a follow-up question. Could you give us any color on how the Topo Chico innovation has been going in the market where it's launched. And so I appreciate that in the U.S., PepsiCo and Bacardi Breezer sort of alcoholic meant new variants. Are there any other brands or conversations happening with the Coca-Cola Company, maybe where you could consider expanding some of the non-alcoholic RTD brands into the alcoholic space.

[Zoran Bogdanovic, CEO & Executive Director]

Yes, yes. Look, so it's a really new start that we, together with Coca-Cola Company, are doing, and we were very pleased to start immediately as soon as Topo Chico was available. We launched it eventually in a couple of different types of markets. Exactly as we, together with Coca-Cola Company team know that this is going to offer good deal of learning for us because it varies types of markets where already category is existent to types of markets where it's not existent and then it's developing. So we are literally still in the learning phase, but I can say that from a more developed market like Republic of Ireland and Northern Ireland, Austria, we are really seeing some encouraging performance, where already in those markets as well as Greece, for example. We are -- in Ireland, we are growing third player in Tesco. We are a second player with almost 40% share in Greece. We are a second player in Austria. So we do see encouraging results. I need to remind that this is still -- these are still low volumes. However, we really see this as an important evolution of the portfolio expansion from which we learn a lot, and both Coca-Cola Company and us are quite excited to embed those learnings going forward, and we are committed into developing this further.

[Operator]

The next question comes from the line of Andrea Pistacchi from Bank of America.

[Andrea Pistacchi]

My main question is again on pricing, please. If you could give a bit of color by channel. So in what channels are you able to put through the pricing? And going forward, what channels do you expect to see more pricing. Is it more convenient out of home? I asked this because in some of your markets, I imagine that you typically have sort of once per year negotiations, which are I don't know whether this is the case in a lot of your markets in Eastern Europe. But -- so the pricing so far, has that largely been not in the grocery channel and that is still to come. And then just a quick follow-up after, please. I was wondering whether you had a sales number or a broad sales number for Egypt that you could share with us, please?

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Andrea, good to hear. So on pricing, we've taken pricing, I can say, across both types of both at-home as well as out-of-home. And however, how it varies is by different packages as well as different categories. We are really taking into account competitive play and situation in each, if I can call it, subsegment. However, it happened across both segments of the market. In terms of also those customers where usually you need to discuss it and announce it earlier, the teams have promptly done this on time last year. So I'm really pleased that the execution of the whole pricing schedule has been absolutely flawless. And then the second part of the question was?

[Andrea Pistacchi]

It was an Egypt -- if you could share if you have an Egypt sales number that you could share or a broad indication of the business' sales last year?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. With the details, we'll come back at a later stage, but there are sales turnover for last year was just over EUR 400 million.

[Operator]

The next question comes from the line of Pinar Ergun from Morgan Stanley.

[Pinar Ergun, Equity Analyst]

Just a quick follow-up on price mix. Should we expect continued positive mix impacts from sparkling and energy as you lapse stronger comps? And how will you look to balance further pricing with affordability in your emerging regions? And then a very quick check on the balance sheet. Would the Egypt deal preclude further balance sheet deployment in other deals or special dividends in the near term?

[Zoran Bogdanovic, CEO & Executive Director]

So we do expect that there is going to be a positive mix impact from sparkling and energy. Clearly, those are upon Hellenic priorities where we are focusing and doing joint initiatives together with Coca-Cola Company team. So in short, the answer is yes, that we do expect that with our strategic focus areas within sparkling and energy that this is going to give us the positive impact. Then I think you said also on the affordability options, we are absolutely -- we are doing a balanced focus between premiumization as well as affordability in many markets, both of those have to be satisfied and have to be addressed. Most obvious to mention emerging markets, especially affordability is key. And for that reason, we are doing innovation in the pack sizes as well, which are addressing better some of the critical price points that are focused to address more affordable levels. And I can only say in conclusion that both of those of premiumization as well as affordability are working well.

[Ben Almanzar, Group Chief Financial Officer]

On the last question regarding the balance sheet. What we are expecting is that upon successful completion, we should be closing the year within our target range of 1.5 to 2x EBITDA in terms of our leverage ratio more towards the upper end. That still gives us a significant optionality and does not recruit for further transactions. So we find the right opportunities at the right time.

[Operator]

The next question comes from the line of Charlie Higgs from Redburn.

[Charlie Higgs, Research Analyst]

I've got 3 questions, please. The first 1 is on Russia, where, again, another quarter of very strong growth led on to the team there. I was wondering if you could remind us, what are you doing differently in Russia at the moment? And how sustainable is this growth? And maybe some early signs that you're seeing as we move into Q3 would be useful?

[Ben Almanzar, Group Chief Financial Officer]

Charlie, yes, so in short, Russia is really doing well. Let me just say, first of all, externally and market-wise, we see that the industry, both the whole NARTD as well as sparkling, et cetera, there is a good growth in the market, both in volume as well as in value. So we are part of the, let's say, a very fertile playfield that is happening. Secondly, we also see that certain consumer sentiment and confidence in the country has been on a very good level, especially in the best place over the last 5 years, that plays a role. Thirdly, also the fact that Russians to great extent have stayed in the country for their vacations. And fourthly, also we need to call out that we can't complain about weather in Russia, actually, it's been quite good. So all that has given a tailwind from which we benefit. Now this also -- the reason that we are also having this sustained performance is also the fact that some of our big bets in the country are working very well. Russia is 1 of our exemplary examples of the revenue growth management initiatives. Let's say, in the packages where we have done exactly what I said in my previous answer, where we have done, let's say, example, downsizing of 1 liter to 0.9, which is performing extremely well, driving share example of premiumization, where intentionally, over the last 2 years, the team has done really conscious 360 approach to Schweppes as we recognize that adult sparkling is a huge opportunity in Russia and the fact that last year as well as this year, we are having that level of growth on Schweppes, which has higher revenue per liter than the rest of the sparkling portfolio is a good example of how we are driving profitable revenue growth. Also Russia is benefiting from the fact that our big data and advanced analytics, next to Nigeria, Russia is the -- those are the top 2 markets where we are front-loading with capability investments. So Big Data advance analytics has served how we are taking segmented execution in the country to the next level. And let me close also with the fact that Russia is 1 of our leading countries in how they are taking the -- how they are digitizing with our B2B platform, where last year, they were on 1% of orders done through the platform, and they are now just over 25% of all orders in the country being done through the platform, which then enables our teams on the ground to more focus on account development, new initiatives, et cetera. So honestly, Charlie, I could talk much more on Russia for Coke. But let me know if this helps.

[Charlie Higgs, Research Analyst]

That's great color. My second 1 was on -- maybe if you could talk a bit about some of the category growth, in particular, Sprite and Fanta, which have been fairly lackluster for a few quarters but had a very strong half. Could you maybe talk about what you're doing differently there? And how sustainable that is?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. This comes as a result of intentional work coming from Coca-Cola Company and our teams to really embed hard learnings from last year and the year before. I have to also give a credit that in the new emerging stronger reorganization that Coca-Cola Company has done, they have split the teams -- global teams between Coca-Cola trademark team and flavors team. And evidently, there is more oxygen in the teams to focus more and that has produced some very good results, great campaign. This is coupled also with the fact that we are accelerating reformulation, where we are introducing low and no sugar variants, which are performing really well in the market as well as innovation of the flavors. And I have to say that the same thing to preempt the question that I just said for Fanta, I'm very pleased that the same thing I can say also for Sprite. And both of those are performing really well, and I'm confident that they will give us more growth going forward.

[Charlie Higgs, Research Analyst]

Perfect. And so just last 1 to squeeze in for Ben. The working capital profile this half was quite different than normal with the big inflow on freight payables. I was just wondering if you could talk a bit more about that and then how you think that will shape up for the rest of the year?

[Ben Almanzar, Group Chief Financial Officer]

Yes. So on working capital, we have been doing a lot of work taking in the learnings that we -- that we took in 2020 to -- in the management of receivables, for example, and extending it into 2021. So we're seeing a very good performance coming through in working capital. All I can say is that this will continue to be an area of focus. As we enter the second half, we'll have some headwinds in working capital as well. You may remember that during Q4 last year, we received a benefit from payments from customers as we disclosed. And essentially, we'll be analyzing is that. But so far, so good, both in terms of the receivables, inventories and payables as well. I'm very encouraged by the conversion cycle in days that is improving this year versus prior year.

[Operator]

The next question comes from the line of Laurence Whyatt from Barclays Capital.

[Mandeep Sangha, Analyst]

This is Mandeep Sangha on behalf of Laurence. My first 1 just relates to the reopening of the at-home channel. Obviously, that's clearly accelerated in the second quarter. Do you have a feel of where sort of inventory levels are in the -- sorry, out-of-home channel, sorry, where inventory levels are in the out-of-home channel. And do you expect that as being sort of restocking and may have pulled forward demand from free Q2?

[Ben Almanzar, Group Chief Financial Officer]

Yes, Mandeep, look, inventory level have been on a very low level. That was 1 of the learning last year that we worked very closely with our customers to help them keep as low inventory as possible given the circumstances. And then as they reopen, that we are very fast in how we support them with providing them with the product they need. So that's part of what we say, how we support the reopening not burdening them with excessive inventory but being really agile in working closer with them so that also we help them in how they work with our own working capital.

[Mandeep Sangha, Analyst]

Great. And just a follow-on question. Obviously, in terms of the Poland, you took high pricing in Q1, and that sort of led to low '20 volume decline. It looks like that seemed to have stabilized in 2Q. Do you -- are you still confident of sort of mid-single-digit volume declines on the full year? Or do you think maybe underlying trends are a bit stronger and maybe you could outperform that mid-single-digit decline?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. So absolutely, first of all, that performance in Q2 was really encouraging. Overall, between the quarters, it's fully in line with our expectations. On a full year level, yes, I would say that this would be around mid-single digits, maybe slightly a bit more negative, but that's pretty much in line how we expect that year 1 following this tectonic price increase that we had to do because of the tax is evolving. But I'm really also pleased about the fact that we are gaining share in the country that proves that given the new set of circumstances that the activities and measures that the team has done were spot on. And particularly, we are really encouraged how the impact of those has been visible in Q2. And I believe that we will see those kind of in line and positive signs for the rest of the year.

[Operator]

The next question comes from the line of Osman Memisoglu from Ambrosia Capital.

[Osman Memisoglu, Research Analyst]

Just wanted to come back to Egypt. I was wondering if you could give us a bit color on the balance sheet of the company, how much net debt or net cash are you taking over during -- with the transaction? That's my first question. I have another one.

[Ben Almanzar, Group Chief Financial Officer]

Osman, at this stage, I would only refer to the number that we provided in the press release, which is the total assets number, which I think was EGP 5.2 billion. And thank you for the understanding that we'll give you more details and color as we progress towards the closing of the deal.

[Osman Memisoglu, Research Analyst]

That's fine. Let me ask you my second question, if I can. Regarding market share dynamics, you've done another strong quarter half and gained share. Where are the gains coming from? Is it mainly your main competitor in most of the geographies? Or are you seeing some different trends, maybe gains from smaller competitors?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, indeed. So first of all, yes, I'm really encouraged with the share performance and also how it evolved also further in Q2. Depending on the country, this is coming in several countries, either from our key competitor, Pepsi or in some other countries is from the local competition. But it's not only 1 of those. It really depends on the market.

[Osman Memisoglu, Research Analyst]

Okay. And maybe if I could squeeze in. I mean you did talk about Russia earlier in the call. But in the near term, there was a bit of a virus spike. Has that now normalized? I see it has kind of in the Google data, but on the ground, how are you seeing near-term performance in Russia?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. It's still not finished, definitely. However, we think that the country overall has started resolving it in a more accelerated way. Vaccination is improving. And definitely, within our organization, we are pleased also with a quite accelerated vaccination rates that have been achieved and I'm really proud of that. So however, with those measures that were in place, our teams have adjusted and supported customers, but I would say that while measures are not still out or lifted. However, we have adjusted and that is enabling the performance.

[Operator]

We have now come to the end of the question-and-answer session. So I will hand back to Zoran for any closing remarks.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you. Thank you for your time today and for the patience with our technical disruption. I just want to highlight that we are very pleased by this performance and our progress on our strategy. We continue to build on our strength, and I'm confident our portfolio, market execution focus, our customer relationships, our people and our partnerships with the Coca-Cola Company and beyond, ensure that we will continue to capture the recovery. We are also very excited with this opportunity to expand our footprint in Africa, bringing 100 million more consumers in the population we serve, and we look forward to updating you on this soon. Let me extend my good wishes to you and your families, and all of us at Coca-Cola HBC sincerely hope you stay safe and well. We look forward to speaking to you all again soon. Thank you.

[Operator]

Thank you, everyone, for joining today's conference. You may now disconnect. Thank you.