Coca Cola HBC AG

LSE:CCH

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by, ladies and gentlemen, and welcome to the Coca-Cola HBC's Conference Call for the 2021 Third Quarter Trading Update. 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 you that this conference is being recorded today on Wednesday, the third of November 2021 and I now pass the floor to one of your speakers, Ms. Joanna Kennedy. Please go ahead.

[Joanna Sherratt Kennedy, Investor Relations Director]

Good morning, everyone, and welcome to our third quarter trading update call. Today, I'm joined by our CEO, Zoran Bogdanovic; and our CFO, Ben Almanzar. Although we have added a webcast facility to our call for ease of access, there will be no slide presentation today as per our usual practice for trading updates. I will start with some opening remarks from Zoran, and then open the floor to your questions. As always, kindly ask your questions one at a time, waiting for us to answer one question before then moving to another. The operator will keep your line open until we have answered all of your questions. We have about an hour for the call today, which leaves sufficient time to facilitate a good discussion. Finally, I must also remind everyone that this conference call contains various forward-looking statements. These should be considered in conjunction with the cautionary statements in our trading update press release, which we published this morning. And with that, I will turn the call over to Zoran.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Joanna, and good morning, everyone. In Q3, we continued to make progress on our growth story 2025 strategic pillars. We are prioritizing and fully resourcing the strong brands in our 24/7 portfolio, both those that will deliver today and the ones with the highest potential for the future, such as coffee. We are continuing to develop and augment valuable route-to-market capabilities, adding precision to how we segment our customer base with digital tools. And we continue to press forward on all our sustainability commitments, including setting a milestone commitment last month to achieve net 0 emissions across the whole of our value chain by 2040. In the context of the global climate situation and the COP discussions this week in Glasgow, this is a critical step. It is the continuation of a journey that we have been on for more than a decade and will be vital for all our futures, not just for our business. Of course, while ensuring we are investing for the future, we have remained focused on the opportunities to capture growth in our markets, and I'm proud of our execution this summer. Q3 FX neutral revenues grew by 17.1% with volumes up 13.1% and price/mix up 3.5%. We are particularly pleased with the performance relative to 2019, which, we believe, is the most relevant benchmark for any company impacted by the COVID-19 pandemic. On that count, we have shown a notable recovery. Q3 FX neutral revenues were ahead of 2019 in all segments and showed a sharp acceleration on a 2-year basis compared with where we were in the recovery during H1. This is in line with the scenarios we painted for you at the start of 2021, which were, for our red Q1, amber Q2, moving into green during second half. This performance puts us on track to achieve the guidance we set at H1 of a strong recovery in FX-neutral revenue and a 20 to 30 basis point EBIT margin expansion in 2021. Excellent execution during the summer season ensured that we and our customers captured the growth opportunities available. We were able to rapidly adopt our route to market to the new reality. For example, in Italy, where we anticipated and then saw good tourism trends from locals in coastal regions and, therefore, put more capacity into those routes or in Greece where tourism ended up being better than expected, and we were able to seize the opportunity ramping up production at short notice to meet the increased demand. In these cases, and countless others, our agile teams were able to ensure our customers were ready and supported. As a result, out-of-home volume grew by 20% in Q3, reaching 10% above the levels of 2019 in the quarter. While capitalizing on the rapid recovery of the out-of-home channel, we have seen healthy growth in at-home consumption. In Q3, we have accelerated share gains in this channel and overall have seen at-home volumes up 10%, reaching 17% above the levels of 2019. The routines we have all created in our homes during lockdown remain quite sticky, and we continue to focus on capturing value share in the most lucrative of these occasions. This is a key contributing factor to the strong results we reported today. Share gains are not only a measure of success for us as an individual company, it's also a reflection of the value we are able to create for our customers. Coca-Cola HBC is the #1 generator of incremental value for our customers in nonalcoholic ready-to-drink segment in our markets. During the last measured period, which was first half of 2021, we delivered nearly $250 million of incremental retail value to our customers. This also makes us the second largest creator of value for our customers in overall FMCG. And in several markets, we are the #1 value creator in that larger category also. This is a testament to our joint value creation model and close partnership with our customers. We continue to invest behind digital commerce with the goal of building leading tools and capabilities in this rapidly growing space. We are seeing strong results from our B2B customer portal, where we have been investing to transform what was a functional order-taking platform into a user-friendly digital experience for our customers. As a result, we have seen our customer portal usage increased significantly with it now accounting for a high single-digit percentage of total orders for the company. At the same time, in e-retail, we are seeing revenue growth in the high double digits with one of the fastest-growing subchannels being food service aggregators. Sparkling volumes grew by 13.1%, a strong performance, especially given the tougher base from Q3 of 2020. Versus 2019, sparkling volumes are up by high teens. It is notable that the fastest growth is coming from our areas of strategic priority, showing that our actions are working and that this business has a reliable sustained growth engine. Low and no sugar sparkling grew by 54.6%, while Adult sparkling grew by 27.5%. These two subcategories now represent over 1/4 of the total portfolio or over 1/3 of sparkling. Q3 price/mix grew by 3.5% with pricing taken in Poland to pass on the sugar tax contributing 1.7 percentage points of debt. Again, when trying to understand the trends, it is best to look at this performance versus 2019 since 2020 had a lot of volatility between the quarters driven by the lockdowns. Price/mix accelerated in Q3, when compared to 2019 performance, by over 2 percentage points. This is true for every segment as well as the group. The key drivers have been an accelerating in -- acceleration in pricing as well as improving package and category mix. Given the inflationary environment we are operating in, this ability to drive price and mix is critical to ensure we continue to make progress delivering EBIT expansion in line with our growth algorithm. The revenue growth management capabilities that we have built over many years, together with the Coca-Cola Company, we are the most important tool to achieve healthy price/mix expansion. We are encouraged by the ample headroom we still have in category and package mix, where we believe we can continue to drive improvement for years. When it comes to pricing, we will always do this in a carefully considered way, taking into account the range of insights and analytics we have available and always with a view to creating value for our customers, consumers and the business. Of course, we would never take an action that could risk the long-term health of our position in the market. However, Pricing is an important component of managing the current environment, where we are seeing input cost pressure from the aluminum, sugar PET resin and other commodities used in manufacturing. In 2021, we have priced in over 95% of our markets without a negative impact on volumes, and we plan to continue to take further appropriate actions on price in Q4 and 2022. Our other tool, when managing cost pressures, is to continue to focus on productivity opportunities and strong OpEx discipline. We have a strong track record of flexing our cost base to manage challenging environments and the current one is no different. Moving on to our segmental performance. The Emerging segment continues to show the strongest top line growth with FX-neutral revenue up 26.1% in Q3 or up 31% versus 2019 on a like-for-like basis. Within the segment, our largest markets are showing the fastest momentum. In Nigeria, where we saw volume growth in the mid-30s, we are benefiting from the underlying strength of the NARTD market, but crucially also continuing to grow ahead of it and gaining share. Our segmented execution is ensuring that we have the right products and offers in the right place, while capacity and route-to-market investments are allowing us to meet the strength of demand. At the same time, smart pricing as well as strong category mix is improving the value equation in the market. Russian volumes accelerated during Q3, up by mid-20s on a tougher base. The Russian consumer environment remains healthy, and we have also benefited from a summer of good weather in the market as well as local tourism, as fewer Russians chose to travel abroad this year. Russia also continues to be one of the fastest-growing markets when it comes to e-commerce, and we are seeing rapid adoption of our B2B platform in the market across our channels. The Developing segment grew FX-neutral revenues by 11.8% with volumes down 1.9% and price/mix up 14%. Performance continues to be impacted by pricing put in place to offset the sugar tax in Poland, which came into effect in January. Developing segment price/mix made good progress in Q3. If we strip out the pricing for the sugar tax then segmental price/mix was up 4%, and we can see that the pace of expansion versus 2019 accelerated in Q3. Volume performance also improved markedly in Q3, closing the gap versus 2019 in the quarter with volumes 0.6% ahead of the pre-COVID levels. This performance is all the more notable given the anticipated volume declines in Poland, which is the largest country in the segment. On Poland, in particular, as you know, we have passed on this tax in full and are seeing volume declines in line with our expectations. Strong performance from low and no sugar variants, up 28% in Q3 versus 2020 and up 82% versus 2019, shows that our dual pricing strategy, which we put in place to help offset the tax is working well. Moving to the Established segment. FX-neutral revenue grew by 9.8% and is now 3.9% above 2019 in the quarter. Our Established segment countries have the largest exposure to the out-of-home channel and increased food traffic. The partial recovery of tourism and our targeted and successful execution to capture these opportunities drove strong performance. Let me now say a few words about the rest of the year. We are cautiously optimistic about Q4 and expect another solid performance in the quarter, albeit moderated by localized lockdowns in various geographies. Robust top line, combined with the effective management of input cost inflation in 2021, gives us strong confidence in achieving the 20 to 30 basis points of EBIT margin expansion we guided during first half. Looking to 2022 and beyond, while uncertainties remain in our markets, we have high confidence in our portfolio, route-to-market, commercial strategy and the agility of our people. We believe that these underlying strength will continue to allow us to promptly adjust our investments and approach to maximize our opportunities. Thank you for your attention. And I will now hand over to the operator. And Ben and I will be happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Edward Mundy from Jefferies.

[Edward Brampton Mundy, Equity Analyst]

I've got a couple of feedback one by one. The first is really around price/mix, which I think was 1.8% in the quarter before the benefit of the Polish sugar tax. If you back out negative country mix, i.e., strong Nigeria and Russia and weak Poland and Switzerland, what do you think is a simple average price? And as part of this question, how do you think about the split between headline pricing where you've taken price to 95% of markets and other revenue growth management tools as well as channel recovery?

[Zoran Bogdanovic, CEO & Executive Director]

So yes, I think you highlighted well that the negative country mix impacted the performance of which, on average, sounds and it is 1.8%. But I just want to highlight that in a big majority of the markets, we have actually, in Q3, realized a quite healthy improvements, which are ranging all the way from low single digits, mid-single digits and even in some cases double digits, like, for example, Nigeria. So that's what actually in any given country drives the -- also the other lines in the P&L. So I just wanted to emphasize this piece, and I hope I captured well what you asked by that. And also to emphasize that in the 95% of the markets where we took the price, we haven't seen any negative impact from that. Of course, the outlier is Poland because of the unique situation with this huge price increase we took from January 1 because of the taxation. But in any other market, we have not seen any negative impact. Actually contrary we do see very good share performance, which step-by-step also is even more increasing from Q2 to Q3. So that's a good proof point that pricing has landed quite well. Ed, I think you said about the channel mix, which I would just highlight that the overall performance, as you heard from the remarks, was quite good in the recovery of the out-of-home, which in this quarter was also above the '19 level. And at-home continues to be on a very, very strong performance quarter-by-quarter. Does that cover your question, Ed?

[Edward Brampton Mundy, Equity Analyst]

It does, but I don't know whether -- of the overall revenue per case growth, do you have a sense as to what proportion is headline price rate increase? And what is the other stuff [ revenue ] growth management and channel recovery?

[Ben Almanzar, Group Chief Financial Officer]

Sure. Perhaps I can build on that. Ben speaking. So look, pricing, as Zoran mentioned, was the single largest contributor to growth in FX-neutral revenue per case during Q3. So again, if we take just a simple average of our price mix across our geographies, it was around 4.9% in the quarter and 3.9% exclusively in Poland. So that indicates a very healthy underlying pricing that Zoran referenced. The other thing that I would like to highlight briefly is the fact that, in addition, category mix was positive, however, not as strong as it will be in other quarters because we had the water category and juices doing very well during Q3.

[Edward Brampton Mundy, Equity Analyst]

Very clear. My second question, also again one for Zoran is, you mentioned routines created during the pandemic at-home remains sticky. And the value shown the most lucrative occasions, presumably that, that seems like the meal time occasion. Is that a question of increased health of the penetration? Or is it increased frequency?

[Zoran Bogdanovic, CEO & Executive Director]

I think, Ed, it's both for sure, penetration has increased, but also with adjusted types of promotion -- cross-category promotions that we are doing for various -- you said meals, but also socializing at home, screen time at home. So all that has led also to bigger frequency. So it's a result of the both variables.

[Edward Brampton Mundy, Equity Analyst]

Great. And then a final one, perhaps for Ben. Could you talk about some of the moving parts for margins into 2022? I mean, clearly, you've highlighted there is COGS inflation, but you're getting good price mix. You've got the consolidation of Egypt, which is likely to be margin dilutive. You've got the Italy plastics and sugar regulatory environment to navigate. How do you think about the moving parts for 2022?

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Ed. Look, it would be a bit premature to talk about 2022 margins. As we do every year, we'll provide the guidance in February with the full year results. Again, we're keenly aware about the cost pressures. That's why we are working, as Zoran said earlier, on those detailed plans, incorporating the expected impacts in cost per case as well as the initiatives that we have to mitigate it. We talk about accelerating pricing. We talk about keeping on driving that mix management and the ongoing cost control. So we're expecting 2022 to be another year of progress for the group and remain committed to the midterm algorithm.

[Operator]

And your next question comes from the line of Sanjeet Aujla with Credit Suisse.

[Sanjeet Aujla, European Beverages Analyst]

Zoran, Ben, Joanna, a couple from me, please. Firstly, are you in a position at the moment to be able to quantify the input cost per case outlook for next year? And tied to that, where are your hedges now on 2022? That's my first question, please.

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Sanjeet. Look, again, we understand very well that concern about inflation for next year and want to be as helpful as we can at this stage. When thinking about 2022, it is useful to consider COGS per case, which include input costs, the concentrate, production overheads, haulage and depreciation. And we are expecting a high single-digit increase in COGS per case for 2022. That estimate incorporates, again, commodity inflation moderated by other COGS lines, which are less volatile. We are, as I said earlier, very focused on making sure that we drive the right action to offset the headwinds and we will provide more guidance with the full year results. When we -- on your second question, Sanjeet, around the level of coverage that we have. We have increased significantly since the half year results, and we are now sitting at approximately 60% of the input cost of 2022 covered.

[Sanjeet Aujla, European Beverages Analyst]

Got it. And just building on the pricing discussions a little bit more. You talked about more actions to come in Q4. I guess with that input cost dynamic, is it reasonable to assume your pricing actions would be more significant in 2022 versus 2021, which has landed quite well?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, Sanjeet. So pricing happens in waves. It's not that we take price in all countries at the same time. That really depends on a market-to-market customer structure and how that happens. There are sometimes certain windows. So there is another wave that happens in Q4 as a continuation of the overall pricing strategy for this year. And then next year takes into account also the fact that what we have done this year is carried forward as the positive impact for the next year, and we do plan to build further on that. And all those pricing plans, let's regard them that there is like a base plan. And then on top of that, there is another variable part. Once we also see to which extent the whole inflation environment will continue developing and how it will progress. But I'm -- I just want to reiterate here, Sanjeet, the confidence that I really have with our RGM toolbox, that really helps us to play the ball depending how the situation evolves whether adjusting it and flexing it in every single market, depending on circumstances. So -- and that's why I feel that all the pricing that we have taken in a very well thought-through manner by category, by brand, by channels, this is the reason that we are doing it in a very considerate way so it doesn't have any negative impact. So to conclude, 2022 will further build on already '21 that we will also benefit from next year.

[Operator]

Next question comes from the line of Simon Hales from Citi.

[Simon Lynsay Hales, Managing Director]

A couple for me. I mean, the first one was just to come back to this sort of outlook on 2022 sort of margins. I know you don't want to be drawn understandably at this stage. But I just wanted to clarify my understanding of what you've said so far today. I mean Zoran, you're talking pretty confidently about your ability to mitigate that challenging cost environment. And I think Ben, from your comments to Ed's question, you were indicating that you hope to see a progressive development in margins in 2022 on an underlying basis, in line with your midterm growth algorithm? Have I understood that correctly? That's my first question.

[Ben Almanzar, Group Chief Financial Officer]

Thank you, Simon. Look, we remain committed to our midterm algorithm of 20 to 40 bps of average margin expansion. To avoid any ambiguity, I want to stress two points: We have been clear that this is an average until 2025. And secondly, it is applicable to the existing CCH businesses. Therefore, it excludes the acquisition of Egypt, which is likely to be 20 to 30 bps dilutive to margin in 2022. Does that answer the question?

[Simon Lynsay Hales, Managing Director]

Yes. No, that's very helpful. Secondly, can I just ask a little bit about sort of OpEx and the actions you've continued to take there to sort of minimize the expansion of that element of the cost line. Is there anything you'd call out that you've been doing sort of more in the second half of the year and how we should think about that heading into 2022? And maybe related to that, maybe you can talk a little bit about some of the logistical cost headwinds you're facing sort of generally along with the wider industry at the moment?

[Zoran Bogdanovic, CEO & Executive Director]

Simon, I'll kick it off and then Ben will add anything that I might miss. So cost management is still very much influenced from the year -- from last year where we have applied very disciplined and rigorous cost management and mitigation. We have kept that agile way of approaching the cost, and this is embedded in this year as well as in the work in progress plan that we have for next year, which means that a number of things that we used to do in the past are not happening to that extent or are done alternatively, needless to say, obvious things of how and to which extent meetings are happening leveraging all the technology and intensity of the travel, leveraging more digital tools, both in the customer interaction as well as the internal way of working. Additionally, there is ongoing effort, which is every single year that we are finding ways to improve productivity and efficiencies in every corner of the business. And every year, we do have a positive impact from that. And this year and next year will not be exception for that. And what helps us a lot in this exercise is the increasing level of technological advancements and digital in our operations, which are evidently helping us to reduce the cost and increase the productivity. Ben, anything?

[Ben Almanzar, Group Chief Financial Officer]

Zoran said it really well. What I would just remind ourselves is that driving cost efficiencies is really embedded into the culture of our business. We're always looking for opportunities to generate savings, as Zoran, again, alluded, to some of those elements. And when you think about OpEx for 2022, again, Zoran mentioned the marketing spend, which is likely to continue to expand to 2019 levels. However, we're going to be very rigorous everywhere else. And we have changed those ways of working. We're seeing the benefit of that. This business has a good track record of being able to grow the topline much faster than the OpEx line. And we will continue to look for productivity initiatives that deliver those further cost reductions while improving efficiencies and service levels. For example, warehouse automation and logistics, automatic line changeovers and improving predictive maintenance and manufacturing, to name a few.

[Simon Lynsay Hales, Managing Director]

Got it. And just one quick clarification sort of for you, Ben. I kind of missed it. My line broke up when you were sort of answering Sanjeet's question around the level of hedging you have in place on input costs for 2022. Can you just repeat that number for me again, please?

[Ben Almanzar, Group Chief Financial Officer]

Yes, Simon. When I mentioned that our 2022 hedge positions have improved and we have now covered 60% of the 2022 input cost. And this is where I think we should be at this time of the year, considering market conditions. We will continue to take advantage of dips in the market to make more progress over the coming months and into the new year.

[Operator]

Your next question comes from the line of Mitch Collett with DB.

[Mitchell John Collett, Research Analyst]

You mentioned that you're cautiously optimistic for Q4 but you also highlighted some localized lockdowns. Can you give us a bit of color on where you're seeing that? And linked to that, obviously, the volume comparison for Q3 is very similar for Q4, but you've got a weaker price/mix. So can you comment on your expectations for 4Q on price/mix and volume as well?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, Mitch. Yes, that's exactly what we said because we've seen that in the last couple of weeks. Unfortunately, we do see, again, increasing number of cases in a number of countries, mostly in the Eastern Europe territory. And we have also seen, in the last week or two, some of the reemerging restrictions, certain level of curfews as well as varying degrees of lockdown in HoReCa. Examples, concrete examples is Russia, where HoReCa, for market, is closed for a week. The Romania imposed curfew. Slovakia is looking -- is closing HoReCa. So there are several markets where -- that's why we said that we are cautious about it. We are closely monitoring it. Let's say, positive thing in this is that, by this time, customers have adjusted that in case this happens, a number of them can do home delivery and service the market in such way. But needless to say that this is not the same level of trading if they were open. I want to reiterate that based on the year-to-date performance, Q2, Q3 specifically, there is underlying strong trend, which we do see continuing also in Q4 based also on quite positive October trading. But we just need to emphasize this cautiousness for the reasons that I just said, as we will be then estimating and seeing and reading if this has any impact bigger than what we see now. That's it.

[Mitchell John Collett, Research Analyst]

That's great. And sorry to keep bringing you back to 2022 margins, but you said that the 20 to 40 basis points is intended to be an average. But just coming back to that comment about 2022 being another year of progress, am I right to interpret that as up ex the impact of Egypt?

[Ben Almanzar, Group Chief Financial Officer]

Again, Mitch, it will be a bit premature to offer guidance on 2022. As we've said before, we'll come back to that with the full year results and give you a much better picture.

[Operator]

Next question comes from the line of Andrea Pistacchi from Bank of America.

[Andrea Pistacchi]

Two questions, please. First one on pack mix and growing single-serve in the off trade, which has been and continues to be, obviously, a strong driver for you. And you said it will help you mitigate the cost pressures next year. How confident are you? And what can you do really to ensure that consumers stay, you retain consumers in single-serve as inflationary pressures build in the coming quarters. And sort of connected to this in single serve, I think you've told us in the past that on average, at a revenue per case level, I think you said it's about 1.7x above group average. Are you able to share that profit level how single-serve sort of compared to the average of the group? That's the first question, please.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Andrea. So in short, we are quite confident that we will continue building trajectory of the single-serve penetration and consumption in at-home channel, which is continuously happening over years and has accelerated last year and this year. And it comes as a result of the deliberate conscious insights and then initiatives that we are embedding in the plans that are -- this is also where we leverage together with Coca-Cola Company, the way we use all the consumer and household data on the behaviors that are happening at home on the occasions that are happening there. And it is a matter of tailoring all the offerings, our promotions, marketing communications that are happening both above the line or in media, but also on the floor level. All that does matter. Now this doesn't happen like tectonically in one quarter, but this is a persistent continuous build up all the habits of consumers. And we are constantly channeling more and more marketing resources and everything to support it. And I strongly believe that with that, our continuous innovation that happens behind the packaging, cross-category promotions, be it behind meals, be it behind Premium Spirits for the socializing at home. So there are many platforms and levers that are helping us to realize that. So I hope that, that provides a good level of confidence. And I would just reiterate that also the single-serve versus the multi-serve, there is no dramatic difference because single-serve also carries a different level of cost to serve related to single-serves, but it's fair to say that, yes, single-serves, on net-net, are somewhat more profitable than multi-serves.

[Andrea Pistacchi]

My second question is on Costa, an update there. If you could share any metrics on the progress that you're making in the at-home channel, maybe share some early end market share reads? And in what countries your market share in the at-home is highest? And also you've started the rollout of the out-of-home. Any feedback on that, please?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. So the metric is that in the countries where we are, at the moment, measuring the share, very encouraging thing is that we see that in those markets, Costa is month-by-month -- step-by-step gaining, albeit from the low ground -- from the low base, but is improving and increasing share. We are also looking into a repeat purchase that Costa has. Also following the sampling that we are doing across the markets as a critical step to promote the product as we strongly believe once the consumers have the opportunity to taste it, that then they will also end up in buying it. And that's also the measure that we see that from the number of samples, what's the incidence of those that actually are progressing to do the purchase. So that's for the at-home. And then in the out-of-home in line with the reopening of that whole channel, we are consciously progressing there and every month are increasing penetration of customers. So we are doing planned recruitment. We are doing that in a quality way. This is not about quantity just for the sake of recruiting as many as possible, but I want to emphasize that, that approach is safeguarded that we do that in a quality revenue way without price discounting, but doing it really in the sustainable way and building it for the next years. But I'm quite pleased with the progress. This is not sprint, this is a marathon, which we are approaching in a holistic way with building distribution, driving share, building capabilities, fully staffed teams, consumer and customer engagement and marketing adjusted plans that we're doing together with the Costa team. So I'm pretty confident that we are on a quite good track.

[Operator]

Your next question from the line of Natalia Svyriadi from Eurobank Equities.

[Natalia Svyrou Svyriadi, Research Analyst]

I have one question on maybe you said something in the beginning, but I didn't really get it on the sugar tax in Italy, which is -- is it expected to kick in, in January? And in general, what are the expectations on that with the Polish sugar tax in 2021 affecting so much volumes you're expecting to price and have the same volume negative impact there?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, good question. That's a piece of a good news that actually during October, as part of the budget planning document for 2022, it was confirmed that the plastic and sugar tax will actually be postponed until January of 2023. So I just want to say that we were ready for it even if it was starting from January 1 of next year. However, we think that this is quite sensible decision that was taken. And of course, we take it as a positive piece of news.

[Operator]

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

[Fintan Ryan, Analyst]

Three questions from me, please. Firstly, I'm wondering, could you comment in terms of the acceleration in your market share gain performance over Q3? What do you think were the key drivers of that could you call out particular markets where you've seen the most share gains? I'm taking Russia and Nigeria, given the strength of performance. And how you'd expect to see competitive response into next year, particularly given the pricing that you're putting through? Are you seeing competitors take pricing more broadly? That's first question, please.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Fintan. So the share gains are a result of the well-planned activities by quarter. And if you remember also from the last call, we did say that our marketing investment is going to accelerate from quarter-to-quarter. And actually, there is more that was allocated to second half versus the first half. So on top of the base plans that we had for Q3 and now Q4, we are actually going to see more investments that are happening. And that also is one of the drivers. Another thing also that helps in the overall share is the category mix because of the strong performance of sparkling namely more valuable adults part of the sparkling also energy. So I'm just saying that overall share gains are fueled by good category performance of those categories. And also, I have to give credit to the way the teams are working closely with customers and leveraging also the abundance of data that we have from which we are drawing the insights that get converted into a sharper actions and initiatives that we are doing in the markets. So that's where we are. And I'm really pleased that this is bearing good results. Expectation also for next year is that we are -- that we continue gaining share. By that, I always mean value share. The fact that we are increasing pricing, also it is good that also the market is doing the same and that a big majority of competitors as well are doing the pricing. For sure, the key competitor is doing that as well as we observed. So I think that doing the pricing is not an obstacle to share progression. Actually, doing pricing in a well-considered manner is a good way to create more value also for customers, for our business as well as consumers. Because let me just remind that there is a lot of work that happens around conditions that allow us to take the price. I think James on the Coca-Cola Company call talked very well about earning the right for brands to take the price and that's exactly what is happening in a close collaboration between us and the Coca-Cola Company team. So I'm pretty confident with also the marketing element that is like a tailwind behind brands, within categories to allow us to take that pricing. And just a reminder that this is the integral part of the whole revenue growth management framework against which we are working very closely with the Coca-Cola Company team.

[Fintan Ryan, Analyst]

Great. My second question, I was wondering if you could -- now that the Polish sugar tax has been in the market for 10 months now. I wonder could you give us some color in terms of how your portfolio mix in the Polish market has evolved? I appreciate overall volumes are down, but how much share, how much incremental share of your portfolio has come from low no-sugar variants in market? And are there other learnings that you apply proactively to some of the other Eastern European markets?

[Zoran Bogdanovic, CEO & Executive Director]

So in Poland, first of all, this whole situation with the taxation created that the whole market went significantly up with the price. As a reminder for everyone, we are talking about 25% to 35% price increases on -- depending on the pack. And yes, that created in line -- fully in line with expectation, implosion of the volumes in the market. Okay, we knew that will happen. On the other side, that's why doing the two-tier pricing and focusing on other parts of the portfolio that like Zero and Light and really seeing the performance of Zero and Light in Q3 as well as whole first 9 months is actually very, very encouraging. Also seeing that energy continues to perform really well. And I'm quite positive that from January, when we entered the year when we have fully cycled out this price increase, I'm pretty confident that we are getting into a territory where we will be able to, again, bring [indiscernible] back to the growth trajectory. Also, we've been progressively gaining share in Q2 and Q3. One element that is not related to price increases and sugar tax is also that there was also a customer negotiation and situation in Poland that marked Q1 and beginning of Q2. However, that has been successfully resolved, and that's also, on one side, was the driver of the share drop in Q1, but we were conscious about it. However, then in Q2 and Q3, following the successful solution with the customer, we have resumed our good share performance.

[Fintan Ryan, Analyst]

And just for final question. I appreciate very recently the Coca-Cola company acquiring full ownership of BodyArmor, a sports drink in the U.S. Could you give us some sense of your thoughts around sports drink category? I appreciate it's not one of your sort of strategic priorities over the last few years. How do you think about that evolving? And would you intend to bring BodyArmor into your portfolio at some point in the foreseeable future?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. I think that's a great move, first of all. We don't know the product here, but everything that we read and heard from a number of our colleagues from the Coca-Cola Company, this sounds like a great product and great addition to the portfolio with impressive performance over the last 3 years that we see in the U.S. market. So there has to be something about this product composition type of product that is working. And we look forward discussing with Coca-Cola team. When and where, we, in the future, which I cannot say now because honestly, we did not have conversations yet. But we would see complementarity of it in the whole wider sports category. And so that's -- let's call it, stay tuned, and we'll see when this would happen in the future. Reminder that we do play in the sports category with Powerade, which is excellent product, and I'm very pleased to see how also last couple of quarters, there is a good tailwind in performance with Powerade. There are exciting plants coming up going forward. So I'm very positive actually about this whole category, we'd already solutioned that we have. And then tomorrow, when the complementary part of the portfolio comes, I think it's going to really strengthen our play there.

[Operator]

Next question comes from the line of Alicia Forry from Investec.

[Alicia Ann Forry, Consumer Analyst]

Just two questions, I think, that I have left. One is your volumes were very strong, and you've discussed some of the reasons for that. But I'm wondering, can you confirm whether there was any pull forward of Q4 demand ahead of impending price increases? And then the second question, it sounds like you haven't suffered any major supply chain issues. Can you just elaborate on the state of your supply chains and in particular, looking ahead to 2022, what you expect in that area?

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Alicia. Related to price increases and any possible stock up, if I understood your question, I wouldn't call out anything there that is material to the results, especially because sometimes this can happen in a country. However, this is done always in a very well-planned manner. But I really, in the Q3 results or year-to-date results, there is nothing that I would call out that really made any material impact to the results. And then on the second one, on the supply chain, again, nothing that materially impacted our Q3 performance. We did have, here and there, situations. You know very well that a number of markets had a temporary or partial shortage of cans. However, really nothing that I would emphasize as material. Anything that happened in various corners was of a lower magnitude and quite quickly fixed and resolved. So nothing concerning at all.

[Alicia Ann Forry, Consumer Analyst]

And nothing for 2022?

[Zoran Bogdanovic, CEO & Executive Director]

Sorry, I didn't understand.

[Alicia Ann Forry, Consumer Analyst]

No supply chain challenges anticipated for 2022 that you can currently see?

[Zoran Bogdanovic, CEO & Executive Director]

No, I don't see anything, I think that, first of all, following what Ben said, which was related to hedging. However, in terms of the securing the supply of all required materials, commodities for quantities we need for next year and year after, we are very well covered, and we are in a quite confident place by this time already.

[Operator]

And your next question comes from the line of Mandeep Sangha from Barclays.

[Mandeep Sangha, Analyst]

My first one relates to the elevated at-home consumption. Clearly, it's well above 2019 levels. How sustainable do you think this is in the near term? And particularly in those markets where you're seeing COVID restrictions lifted and travel allowed, are you seeing at-home consumption normalize faster than maybe the broader group level?

[Zoran Bogdanovic, CEO & Executive Director]

I'm afraid, if you can just clarify the second part of the question. I got the first one, but I didn't get the second one. If you can do that, please.

[Mandeep Sangha, Analyst]

Sorry. What I was trying to say is, in the markets where you do see sort of countries where there has been a lifting of COVID restrictions and consumers are allowed to travel, are you seeing at-home consumption normalized to -- sort of normalized levels quicker than the average sort of group level?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. Got it now. So first of all, on the overall at-home performance, I'm -- look, it's hard to say how the whole consumer behavioral patterns evolve over the multiyear basis. However, it's still fresh, and we do see that more life is happening at home, even with the reopening of the market because the extent and some cautiousness of people not really getting into big crowds. So definitely, there is some positive, let's say, stickiness in the at-home that we are experiencing, even in the markets where the COVID restrictions have been lifted. And I'm fairly positive that at-home good performance will continue for sure next year, and I would say, in the next couple of years. And this is on top of the fact that in every single market, we have a different base. But irrespective of it, I do expect that it's going to continue with a good performance irrespective of lifted or not lifted COVID measures.

[Mandeep Sangha, Analyst]

My second question. Just to clarify a previous comment that you made about input cost inflation for next year. I think you commented that you expect high single-digit cost per case inflation for FY'22. Could you just clarify, does this include the impact of finished goods brought in? Or is just -- or does this just cover the commodity impact?

[Ben Almanzar, Group Chief Financial Officer]

That is correct. So that estimate includes all lines of COGS, including the products that we procure as finished goods.

[Mandeep Sangha, Analyst]

Okay. Perfect. And just my final question, a bit longer term on ESG. You recently announced a EUR 200 million (sic) [ EUR 250 million ] 2investment to help you reach sort of net 0. Could you clarify whether that EUR 250 million investment, does that does get you to your 2030 goal of reducing carbon by 25%? Or does that cover your target to get to -- as a carbon neutral by 2040? What I'm just trying to work out is, should we expect incremental investment to hit that 2040 net carbon target?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. To clarify, what we said in our announcement about this commitment of net 0 by 2040 is that, that amount covers us by 2025 and all the things that need to happen year-by-year until then. And just to preempt maybe your question, that investment, which is a combination of the capital expenditure as well as the operating costs is fully embedded in our 2025 growth algorithm that we have -- against which we are sharing with you -- what we are shooting for as our growth algorithm.

[Operator]

And your next question comes from the line of -- excuse me, I will now hand the call back to Zoran Bogdanovic for some closing remarks. Thank you.

[Zoran Bogdanovic, CEO & Executive Director]

Well, thank you all for your time. We believe that the results we announced today underline the fundamental attractiveness of our markets and industry as well as the strength of our business and people. While clearly, there are uncertainties and challenges to come, we are all well prepared to continue to adopt and to capture the considerable growth opportunities we believe are ahead. We look forward to speaking to you all again soon. Thank you.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.