Coca-Cola Europacific Partners PLC

NASDAQ:CCEP

Earnings Call Analysis

Revenue Growth Forecast Increased, Strong Profits Expected

The company anticipates revenue growth of 8-9%, stepping up from its earlier forecast of 6-8% due to strong underlying demand and forthcoming price increases. Volume performance has notably supported this improvement. The firm continues to focus on promotional efficiency and consumer affordability while managing business with a long-term perspective, aiming to boost operating profit by 12-13%. Cost pressures appear to be slightly easing with commodity inflation projections dropping from 10% to 8%. Furthermore, the company is well-hedged against these costs, and it is looking to improve operating margins by 40-50 basis points. Ultimately, the company assures a minimum free cash flow of €1.7 billion.

Firming Foundations for Growth

The company has seen robust growth due to strategic moves such as SKU rationalization in Indonesia and market exits in Australia, coupled with a consistent focus on developed markets. Despite lapping strong comparables, volume growth was evident, mainly driven by performance in Europe's away-from-home channel and single-digit growth in key markets like France and Germany. The home channel remained resilient, contributing to the firm's sustained progress. This volume expansion aligns with their long-term strategy to bolster the core areas of business and maintain market dominance.

Revenue Resilience Amid Inflationary Pressures

Revenue per unit case notably increased by 10% in the first half, signifying successful implementation of price hikes, promotional strategies, and revenue growth management initiatives. The company's broad pricing architecture proved effective, even as consumers grow cost-conscious against the backdrop of inflation. The management's emphasis on affordability and promotional efficiency, particularly in large markets such as France, underscores their commitment to consumer-centricity and sustainable business growth.

Upward Trajectory with Updated Guidance

The company has upgraded its full-year 2023 revenue growth guidance from 6%-8% to 8%-9%, driven by solid demand and indicative of their capability to effectively navigate pricing in an inflationary environment. Operating profit growth expectations have also been raised from 6%-7% to 12%-13%, suggesting confidence in operational efficiencies and cost management. A projected improvement in full-year operating margins by 40 to 50 basis points reflects a focused approach on long-term profitability.

Strategic Acquisitions: Expanding Horizons

The acquisition of Coca-Cola Beverages Philippines stands as a strategic growth initiative, marking the company's expansion into a market with a rich NARTD category and high potential for category growth at approximately 10% per annum. With a history tracing back over a century in the Philippines and a formidable market position commanding over 40% NARTD share, the business paves the way for geographical diversification and category expansion. The acquisition, valued at an enterprise level of approximately $1.8 billion, showcases the company's proactive approach to tapping into new consumer bases while driving shareholder value.

Consolidating for Competitiveness

The proposed transaction is tactically aligned with the objective to solidify the company's position as a leading bottler on a global scale. By integrating the Philippines business, they aim to harness synergies and scale knowledge across the extended enterprise. The addition of 9,000 skilled personnel, partnered with the Aboitiz family—a formidable conglomerate in Southeast Asia—and the backing of The Coca-Cola Company, equips the firm with the necessary leverage to optimize its regional operations and nurture a thriving market presence.

Financial Prudence in a Growth-Focused Narrative

While forging ahead with this acquisition, the company intends to sustain its strong financial footing. The purchase will be financed through existing liquidity and modest borrowing, reflecting their judicious approach to capital utilization. The transaction is anticipated to be accretive to earnings per share (EPS) and portrays a strategic allocation of resources that aligns with the company's broader financial targets. Moreover, marginal impact on leverage positions the firm for continued financial flexibility, a testament to their sound financial management amidst expansionary activities.

Guidance Beyond Numbers: The Story of Resilience & Reach

In summary, the story here is of a company not just meeting expectations but raising the bar despite adverse market conditions. Their ability to strike a balance between maintaining affordability and implementing necessary price adjustments aids in preserving consumer loyalty. As they build upon a strong first half, a promising set of activation plans and an innovation pipeline further solidify their marketplace stance. Keeping investors at the forefront, the strategically timed acquisition and guided performance place the company on a trajectory promising robust growth and market share consolidation in existing and new markets.

Earnings Call Transcript 2023-Q1

[Sarah Willett]

Thank you all for joining us today. I'm here in Manila with Damian Gammell, our CEO; Nik Jhangiani, our CFO. Before we begin with our opening remarks, a reminder of our cautionary statements. The call will contain forward-looking management comments and other statements reflecting our outlook. These comments should be considered in conjunction with the cautionary language contained today, as well as the detailed cautionary statements found in reports filed with the U.K., U.S., Dutch, and Spanish authorities. A copy of this information is available on our website at www.cocacolaep.com. Prepared remarks will be made by Damian and Nik and accompanied by slide deck. We will then turn the call over to your questions. Unless otherwise stated, metrics presented today will be on a comparable and FX neutral basis throughout. Following the call, a full transcript will be made available as soon as possible on our website.

I will now turn the call over to our CEO, Damian.

[Damian Gammell, Chief Executive Officer]

Thank you, Sarah, and good morning, good afternoon, and good evening, everybody, from Manila, and thank you for joining us today. Before we get into the detail of today's announcements, I just wanted to take a moment to stand back and reflect. We continue to execute our clear strategy. We have an unwavering commitment to stakeholder value creation. Our retail customers continue to sharing the success since 2017, and we've created more value for them than any of our peers. And indeed, our TSR speaks for itself.

We've had a fantastic first half, driving an impressive upgrade to full year guidance, supported by unparalleled in-market execution. Further geographic diversification is reinforced today with our proposed and exciting acquisition of Coca-Cola Beverages Philippines, which will also support our transformation journey in Indonesia. We're also clear on the strategic choices we make from simplifying our portfolio to driving a more efficient business while investing for the long-term and always aligned with the Coca-Cola Company and all our brand partners.

So now to the agenda. Let's start with our strong first half. Before I begin, I would like to take this opportunity to thank all of my great colleagues at CCEP for their hard work, commitment, and dedication to our customers and to our business. I'm very pleased with our financial performance, achieving double-digit top and bottom-line growth, value share gains, and impressive free cash flow generation. Top line growth was price mix led, but importantly, also supported by solid volume growth. In addition, we grew transactions ahead of volume in Europe, Australia and New Zealand. This collectively has enabled us to raise our full year guidance today, which Nik will cover in more detail shortly. And we have continued to invest in the business for growth across our portfolio, digital supply chain sustainability and of course in our highly engaged people. We are focused on great people, great service, great beverages, all done sustainably for a better shared future. And I will touch on each of these areas as we take a brief look back at the first half.

Starting with great people, whose well-being and safety continues to be our number one priority at CCEP. I'm extremely pleased that even more of our colleagues participated in our global engagement survey this year, we achieved an excellent score, positioning us comfortably ahead of our industry benchmark group, and we continue to be externally recognized as being a great place to work. We are committed to building an even more inclusive and diverse culture. We celebrated a number of key events across our business, including Pride, International Women's Day, and we support the Special Olympics with our colleagues from the Coca-Cola Company. Great service will always be a key priority at CCEP as we strive to make it even easier for our customers to do business with us.

We continue to invest in our supply chain. Like the new state-of-the-art can lines we recently installed in Australia and Norway and a new PET line in Iceland. Our journey to be the world's most digitized bottlers continues as we invest in our broader digital capabilities. In fact, our B2B portal, MyCCEP.com, celebrated its fifth birthday last week. And through ongoing investment, we are on track to have over 200,000 customers, generating an impressive €2 billion of revenue through the platform in Europe alone.

Most importantly, our customers continue to share and support our success as we once again created more value in the retail channel for our customers within FMCG in Europe and within NARTD in Australia and New Zealand than our peers. Activation, both in-store and online is key to our success. We have kicked off some great plans for the summer and with some really exciting plans for the FIFA Women's World Cup, Halloween and, of course, Christmas to come. And finally, our Great beverages. We are extremely privileged to make, move, and sell some of the world's most loved brands. We continue to invest and innovate to make them even better and to appeal to even more consumers. In fact, in Europe, over 75% of households purchased from our NARTD portfolio up 50 basis points versus last year.

Coca-Cola Zero Sugar continues to be a great example of successful innovation, achieving good share and volume growth across all key markets, with volume of 5.5% in the first half as consumer trends for low or no calorie beverages continue. In Energy, Monster continue to gain share through innovation with even more flavors in the juice and ultra ranges and supported by some great celebrity collaborations. We also expanded our footprint in the alcoholic ready-to-drink category with an encouraging start for Jack & Coke.

So now moving on to two strategic choices we've made on our beverage portfolio and our partnerships as we strive to further simplify to grow our business profitably. We believe these choices are right for the long-term success of our business, enabling a greater focus on our priority categories. In this vein, in Australia and New Zealand, we will maximize our extensive knowledge in the ARTD category by launching new scalable offerings aligned with the Coca-Cola Company. The category is highly attractive and one in which we are well positioned for a great future, having recently become the market leader with over 16 years experience. It is, of course, complementary to our core business from a manufacturing, sales, and distribution perspective.

In this context, our partnership with Beam Suntory will come to an end in the second half of 2025. And in Europe, our partnership with Capri Sun will come to an end during the full year 2024. As you see here, neither of these choices will have a significant impact to CCEP. Importantly, we continue to make great progress on our sustainability journey. We remain focused on our packaging commitments and reaching our ultimate goal of using 100% recycled or renewable plastic in Europe and API. We recently introduced 100% recycled PET bottles in Indonesia. And in Australia and New Zealand and Indonesia, we moved Sprite to clear bottles, making them easier to recycle, so now in line with our European markets.

We continue to invest in sustainability focused technology through our CCEP ventures, and we are proud to be part of the recently announced Coca-Cola System Sustainability venture [indiscernible]. And importantly, we continue to be recognized externally. So all in all, great progress for the first half.

I’d like to turn now to our first half performance highlights. As I mentioned earlier, we are very pleased with our top line performance. Solid underlying demand in our developed markets, the continued recovery of the away-from-home channel in the first quarter and resilient trading in the home channel helped drive volume growth of 1%. I am particularly pleased with the volume growth in Europe in light of the headline pricing, demonstrating consumers’ love for our brands. Execution of our dynamic pricing strategies across our markets drove solid revenue per case growth of 10%.

Our headline pricing remains ahead of pre-pandemic levels with the low realized cost inflation reflected in our margins as we continue to prioritize relevance and affordability.

We gained value share both in-store and online within NARTD, and we also continue to win with our customers remaining focused on delivering fantastic activation and making it even easier to do business with us. Our continued focus on efficiency as we close out our full year 2021 to 2023 programs, together with strong top line growth drove strong operating profit growth of 13%. This supported impressive free cash flow generation of €850 million. And as I said just now, we have today upgraded our full year guidance.

I'd now like to hand over to Nik to talk in more detail to the financials. Nik?

[Nik Jhangiani, Chief Financial Officer]

Thank you, Damian, and thank you all for joining us today.

Let me start by taking you through our financial summary. So we delivered total revenue of €9 billion, an increase of 10.5%, which I will come back to shortly, while our cost of sales per unit case increased by 9%. As communicated previously, we anticipated the cost of sales per unit case increase to be weighted more towards the first half given the comparables from last year. We delivered comparable operating profit of €1.2 billion, up 13%. This reflects our strong top line performance as well as the benefits of our continued focus on efficiencies and discretionary spend. All in this resulted in comparable diluted earnings per share of €1.85, up 17%.

Free cash flow generation continues to be a core priority, and we delivered an impressive €850 million during the first half. And finally, on shareholder returns, we paid a first half interim dividend per share of €0.67, which we declared in the first quarter and paid out in May. As a reminder, this was calculated as 40% of the full year 2022 dividend.

So if you now turn to our revenue highlights, as we anticipated, the strong growth in our top line was driven by an increase in revenue per unit case and good underlying volume demand in our developed markets with overall reported volume up 1% despite lapping strong comparables and, of course, our strategic portfolio alignment choices, primarily in Indonesia, but also the exit of bulk water and frozen in Australia.

In Europe, trading momentum continued in the away-from-home channel with volumes up 4% in the first half, lapping 38% growth last year. And very importantly, this is up 2.5% versus 2019 levels. The home channel continued to remain resilient, growing 1.5%, lapping strong growth of 4% last year for the same period. While all markets were in volume growth, France outperformed, delivering high single-digit volume growth and Germany delivered mid-single-digit volume growth.

In API, very good trading momentum in Australia and New Zealand was offset by Indonesia with volume down 5.5%. As I explained, the SKU rationalization was the main driver of this. And excluding these one-off volumes in API would have been down 1.5%. More importantly, when you both look at Australia and New Zealand and you back out some of these choices in Australia, Australia was up 3% on a volume basis, and New Zealand and the Pacific Islands were up 3.5%.

So as Damian said, we are really pleased with the underlying strong volume momentum despite what we continue to have to manage through in terms of the pricing environment.

In Indonesia, we did see some solid and encouraging growth in our affordable packs. Softer consumer spending in Indonesia as a result of the macro softness we referred to in our Q1 trading update is really what contributed.

Moving to the revenue per unit case, which grew by 10% in the first half. This reflects positive headline price, continued focus on promotional optimization and revenue growth management initiatives. Encouragingly, we continue to be relevant to our consumers and shoppers and continue to leverage our broad past price architecture that we have continued to develop over the years. Revenue by segment is also referred to here with more detailed commentary by geography in the release.

Now to our upgraded guidance for full year 2023, which reflects our current view of market conditions. Starting with the top line, we now anticipate our revenue growth of 8% to 9%, an increase from 6% to 8%, driven by solid underlying demand in the first half and the implementation of our price increases. As per our previous guidance, top line growth will be mainly price mix led, but as I said, the volume performance supporting that has been very impressive. We do have Germany and Netherlands due to be implemented in the third quarter in terms of pricing, but that combined with the annualized impact of last year's second round of pricing, we would expect some moderation in our revenue per case in the second half.

Promotion efficiency, of course, remains a top priority for us. Our consumer-centric approach has a clear focus on maintaining affordability and relevance. For example, in France, we have already committed to an additional 3 months of promotional activity on Coke Zero Sugar and continue to look at opportunities across other markets as well. As always, we continue to manage the business for the longer term with the overall realized pricing still tracking below inflation as reflected in our margins. Clearly, we remain focused on improving our margins over the midterm.

The NARTD category has remained resilient to date, demonstrated by the value growth in all of our markets. And with our ongoing investment and innovation in our great brands, we believe we can at least maintain or grow our share in this robust category. We continue to see a dynamic external environment with consumers increasingly being cost conscious. With this in mind, we continue to leverage our recommended price pack architecture to address different consumer needs across the spectrum of affordability and premiumization.

From a cost perspective, we now expect commodity inflation of around 8%, previously 10%, driven by lower gas and power and recycled plastic pricing. We are now over 95% hedged on our commodity exposure for this financial year. We still anticipate an increase of around 8% on our COGS per unit case.

While we will benefit from slightly more favorable commodity pricing, this will be offset by upward pressure through the concentrate line as a result of strong revenue per case and strong mix as well as the geographic mix. As a reminder, concentrate accounts for approximately 45% of our cost of goods. And as we look out further, we continue to build cover, and we are now over 65% hedged for 2024 and around 30% hedged for 2025. We will update, of course, more in due course.

Given our improved top line outlook and our continued focus on OpEx management, we will now look to deliver operating profit growth of 12% to 13%, an increase from 6% to 7%. From a phasing perspective, we now anticipate operating profit growth to be more evenly phased across the first and second half of the year. Our updated guidance today implies that we expect to improve our full year operating margins by 40 to 50 basis points, a focus area for us, as I said earlier. Please note that these growth rates continue to be provided on an FX-neutral basis. And whilst it is too early to provide finite FX guidance, for modeling purposes, we continue to expect to see a translational headwind of approximately 200 basis points for the year based on current rates.

As per our previous guidance, we anticipated an upward trend on our effective tax rate, driven by the known tax rate increases, such as the recent UK tax rate increase. We now expect our full year comparable ETR to be around 24%, implying a higher ETR in the second half. This is primarily due to the timing of the UK statutory rate increase, which only came into effect April of this year and, of course, as well lower reversals of unrealized tax positions. And finally, we now expect to deliver free cash flow of at least €1.7 billion, increased from around €1.6 billion.

With that, I'm going to hand back to Damian to talk about the transaction.

[Damian Gammell, Chief Executive Officer]

Thank you, Nik. So now turning to the proposed acquisition of Coca-Cola Beverages Philippines, a great next step for CCEP and an exciting opportunity for two great partners to come together and unlock even more potential than what is already a successful and profitable business in a great market. So just over two years ago on from the acquisition of Coca-Cola Amatil. This will be a great next step for us as we further expand our geographic footprint in the region.

The strategic rationale behind this proposed transaction is compelling. It would underpin our ambitious midterm objectives and would solidify our position not only as the largest Coca-Cola bottler globally by revenue, but also by volume. We have been reviewing the potential transaction and have invested significant time understanding the Philippines business and the attractive market in which it operates. And put simply, we are really excited by the journey ahead.

We're going to add diversification into an exciting part of the world with a strong local partner who shares our passion and focus on people and culture, innovation, and doing business sustainably. We've talked before to the meaningful benefits of scaling knowledge, best practice, and talent across the CCEP family. As we extend to 30 markets, this would naturally amplify our ability to go even further together. And by adding the second most populous market in Southeast Asia, alongside our presence in the first, we would not only significantly increase our consumer reach in a successful and growing market, but would will also further support our transformation journey in Indonesia, where we see a strong opportunity to share learnings. We believe this would, in turn, create value for all our stakeholders and, of course, further solidify an already strongly aligned relationship with the Coca-Cola Company.

As I mentioned earlier, the Philippines operates in a large and attractive NARTD category. Currently valued at around $8 billion, which would therefore take CCEP's addressable market in euros to around €140 billion. The category is fast growing, estimated at around 10% per annum value terms, so well ahead of CCEP's current group average of 3% to 4%. Within the NARTD category, Sparkling is well established, representing around 55% of volume with per caps over 4x higher than the average for Asia Pacific. There still remains attractive headroom for growth when compared to other markets, where the category has a rich history and a longstanding relevance to consumers. And with consumer trends following in their direction, future growth opportunities would include low and no sugar, energy, and alcohol. So lots to shoot for and leverage from the rest of the group.

It is also a market that comes with attractive macros. The Philippines is the 13th largest country globally with solid GDP and population growth and a fast-growing middle class, all metrics that are clearly ahead of Europe. So all in all, across the fundamentals and the category opportunities ahead of us, this would be a great 30th market to be adding to the CCEP family.

Moving now to look at the Philippines business. It is the number one beverage supplier currently accounting for over 40% of the NARTD category and nearly 70% of the Sparkling category. The business serves around one million outlets through an extensive supply chain, supported by 9,000 highly engaged colleagues known as the Coca-Cola Tigers. Like New Zealand recently in CCEP, the Philippines won the prestigious Coca-Cola system, Candler Cup, best bottler in 2019. And the Coca-Cola brand has a long 111-year history in the Philippines. It was, in fact, the first market outside of the Americas, where our great brands were introduced.

As an established business with a proven track record, the Philippines has delivered solid top and bottom-line growth. Last year, the business delivered around 650 million unit cases, which will double the size of our API business. It's also generated around $1.7 billion of revenue and $90 million of profit before tax. So already a business with attractive profitability and scale. And like CCEP and Aboitiz, the Philippines has a strong focus on people and sustainability. For example, around 50% of our Sparkling volume is already sold in returnable glass packaging.

So to people. The CCEP family would be set to grow by around 9,000 colleagues to 42,000. Our people would have even more opportunity to grow and develop as we create a more diverse and inclusive culture. To our legacy, as I'm confident you would agree, we have a strong track record of integrating and driving value creation. As I mentioned just now, we could not only benefit from combining our talent pools and sharing learnings and best practices, including our partners of voice. These will be in areas such as by no means exclusively digital, technology, procurement, and sustainability. And this transaction will be expected to support a transformation journey in Indonesia where the NARTD category is less developed at around 10%.

Now, I’d like to hand back to Nik to talk to the proposed transaction and the government’s arrangements. Nik?

[Nik Jhangiani, Chief Financial Officer]

Thanks, Damian. And so the proposal is for CCEP to acquire 60% of CCBPI with an enterprise value of around $1.8 billion, a business with very attractive profitability and growth prospects as Damian has just talked to. CCEP would be acquiring a majority stake. The business is expected to be consolidated into our results from an accounting perspective with the Aboitiz minority stake recognized as a non-controlling interest.

From a financing perspective, the transaction would be primarily funded by existing liquidity with a modest incremental borrowing that we would look to access from the public debt markets. Given our strong and flexible balance sheet together with our solid free cash flow generation, the transaction would only have a modest impact on our leverage position.

We have previously guided to return to the top end of our net debt to adjusted EBITDA range of 2.5 to 3 times by the end of 2023. This would now instead be expected to be achieved during 2024. The transaction would be immediately EPS secretive and by working together with the Aboitiz and the Coca-Cola Company, we would be able to unlock even more potential for the Philippines, so clearly a great use of our cash and a great deal for our shareholders.

Moving now to the Aboitiz family, one of the leading conglomerates in Southeast Asia as AEV, Aboitiz Equity Ventures is a publicly listed company and brings over 100 years of experience across multiple sectors, including food, power, banking, infrastructure, construction, and land and data science.

Aboitiz’s considerable experience off the market and cultural dynamics together with their strong local connections and proven partnership experience working with multinationals like CCEP would no doubt be invaluable to us. Bringing this together with CCEP’s proven track record is one of the world’s largest consumer goods companies with deep bottling expertise, we believe this would be a very, very powerful combination.

By working together, Aboitiz and CCEP would therefore be unable to unlock even more potential for the Philippines business. And similar to CCEP, Aboitiz have a clear long-term investment mindset with a large family ownership. So all in all, a very complementary partner. Of course, this is endorsed by the Coca-Cola Company and we are tremendously excited to be working with the Aboitiz family.

Now, before finishing with the next steps, a few comments on governance and how we would work with the Aboitiz and this joint venture setup. A strong governance framework would be put into place, the local Board of Directors, which consist of five members, three appointed by CCEP, including the Chair. The two other directors would be appointed by Aboitiz. CCEP would also appoint the CEO, the highly regarded General Manager Gareth Baconwould continue in role supported by a strong local leadership team.

As expected, although both CCEP and the Aboitiz are committed to this transaction and the partnership for the long-term, an exit mechanism has been agreed in advance should the need arise and subject to a predefined initial lockup period. The Philippines would naturally be incorporated into CCEP’s existing API business unit led by Peter West. He – Peter recently stepped away from the running of the Australia business day to day, enabling him to spend more time across API including the Philippines once this potential transaction closes.

And I think we have a strong focus both to support the Indonesia transformation and bring across some great learnings as Damian referred to earlier. So finally to next steps, the proposed transaction is subject to satisfactory completion of customary due diligence by both CCEP and the Aboitiz group, which is well underway today.

And all parties obviously then concluding definitive agreements and the receipt of the requisite regulatory approvals. Therefore, there is no certainty at this stage that the acquisition of CCBPI will be entered into all completed. So as it stands, the potential transaction if entered into would be expected to close around the end of the year. We will of course update you on our progress here and more details during the course of the next month.

And with that, I’m going to hand back to Damian for some closing remarks.

[Damian Gammell, Chief Executive Officer]

Thank you, Nik. We remain very focused on delivering a very successful rest of year at CCEP. We have a lot to look forward to in the second half of the year and beyond with some great activation plans and an exciting innovation pipeline, some of which you can see on this slide. As we’ve talked about today, we have had a strong first half driving an impressive race or a full year guidance.

We are really very excited about the proposed acquisition of the Philippines business. This transaction demonstrates our commitment to further diversification and underpins our mid-term objectives. We’re equally committed to driving shareholder value creation. Not only would this proposed transaction be immediately accretive to earnings and therefore our absolute dividend, but does not compromise our deleveraging path, given that we’ll only have a modest impact.

To close, I would like to thank again our customers, our brand partners, and our great people whose hard work and commitment mean we are able to go further together for all our stakeholders. So thank you very much. Nik and I will now be happy to take your questions. Thank you, operator.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Ed Mundy from Jefferies. Please go ahead.

[Ed Mundy, Jefferies]

Afternoon or evening, Damian, Nik, and Sarah. I’ve got one question on the transaction. It looks like revenue per case is about just under €2.5 for the business, which has a relatively high market share and quite a decent proportion of Sparkling. Could you talk to in the headroom to grow revenue per case as you’ve done in your other regions through either your RGM toolkit or portfolio as you bring a bit more strategy and focus to that? And as part of the same question, could you perhaps clarify what the multiple you paid for this business? It looks like a high-single digit multiple, but I’d love to get some clarification around that.

[Damian Gammell, Chief Executive Officer]

Hi Ed, maybe I’ll just touch on the first part of your question and thank you. Yes, obviously, we’ve got a number of experiences and toolkits across CCEP that we would like to bring to this transaction if it closes. And I think that would allow us to look at the revenue per case and their overall RGM strategy.

So obviously as we get to understand this business a bit more and learn, what is and what has been quite a successful business? We see the opportunity to share best practice and learnings whether that's from Europe, Australia, New Zealand, and obviously we see an opportunity to share learnings back into Indonesia. So that combination really excites us. And one of those outcomes would purely B2C, can we use some of those revenue growth management tools in the Philippines to extract more value from what is, as you called out, pretty uniquely high sparkling share and a pretty uniquely high NARTD share.

So that certainly gives us a platform to explore it. So more to come on that once we get into the business a little bit later. Nik, do you want to comment on the transaction?

[Nik Jhangiani, Chief Financial Officer]

Yes, sure. So as you've seen, we're paying $1.8 billion on that 60-40 share would be roughly that $1.1 billion. We've obviously disclosed the revenue as well as the PBT. PBT is pretty much proxy, I would say, for operating income. So when you add back the depreciation impact to get to an EBITDA, you'd come out to an approximately 10 times multiple.

[Ed Mundy, Jefferies]

Got it. Thank you, and congrats on the transaction.

[Nik Jhangiani, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Please go ahead.

[Lauren Lieberman, Barclays]

Hi everyone. So, so many questions. I guess, first thing would be a long list.

[Damian Gammell, Chief Executive Officer]

Only get one, Lauren.

[Lauren Lieberman, Barclays]

Yes, God.

[Nik Jhangiani, Chief Financial Officer]

Just kidding.

[Lauren Lieberman, Barclays]

Okay. So I guess, I'm going to follow-up to Ed’s and then throw in an extra, so the follow-up on Ed’s was just, what can you tell us the profitability of this business before sort of inflationary times? I was just curious if the margin profile while great that – Philippines makes good money, if the margins were materially higher, let's go back two or three years ago before there was inflation. I'm assuming it's been pretty significant in the Philippines as well. And then the second thing was just route to market. I know with Indonesia, one of the big long list of things to, but to unlock or figure out was a route to market in this very complex and tough to serve marketplace. So what could you tell us about what that looks like in the Philippines today? Thanks.

[Damian Gammell, Chief Executive Officer]

Yes. So hi, Lauren. Maybe I'll just take the second part of your question. Yes, so clearly there's a lot of similarities in terms of both markets between the Philippines and Indonesia. From a route to market perspective, a lot of outlets, small outlets, islands, so a high degree of logistics focus. I think clearly, when you look at the results of the Philippine business, they've clearly found a way to execute in the market and create value for the shareholder. And that comes down to quite an efficient and I would say flexible route to market system that we're still learning about. So obviously taking those learnings back to Indonesia is something that excites us. Clearly, the Philippines business benefits from a much higher per cap. I mean, it's a business that should the transaction close the Philippines will become our oldest market in CCEP having been here well over a 100 years.

So that's quite an unusual dynamic. So the category has got scale, it's got relevance, and with that comes a lot of velocity and they've got a route to market that allows that to grow and make money. So while the category dynamics are slightly different in terms of per capita, the volume of outlets, the geography, the impact of islands, et cetera, very, very similar to what we're experiencing Indonesia. So we're already taking back some learnings. And I think both countries could collaborate really strongly to build out, a particularly on the systems and technology side, some solutions that would work well in both markets. So more to come on that, but clearly as we looked at this opportunity, it's something that we really felt could create value outside of the Philippines, but particularly in Indonesia. So more to come on that. Nik, do you want to comment on the profitability in margins?

[Nik Jhangiani, Chief Financial Officer]

Yes. So Lauren, it's an interesting question, because I think to your point, no single market has been immune to the inflationary pressures. But if you look over the last couple of years both BIG and Gareth who runs the operation, who will be continuing to work with us and we're really excited about that, have been quite focused on being able to achieve pricing in the market. And they've actually had three rounds of pricing in the last two years to try and protect some of that margin erosion as a result of the inflation.

Interestingly enough, and I think this is where we have strong local partner that can really help us continue to unlock some of the value when you think about some of the structural issues that we can talk more about once the transaction is closed, that will also give us more opportunities in terms of unlocking future margin opportunities as well as how we continue to look at Pac Evolution to help drive that margin opportunity as well. So I think we've gotten some initial good on that through Gareth and the team and I think we're excited about the opportunities going forward on that margin evolution as well, some more to come.

[Lauren Lieberman, Barclays]

Great. Thanks so much.

[Operator]

Thank you. We will now take the next question. And your next question comes from the line of Charlie Higgs from Redburn. Please go ahead.

[Charlie Higgs, Redburn]

Good morning. And Damian and Nik, hope you're both well. We've touched on Philippines, congrats. I just wanted to talk maybe a bit about Indonesia and clearly quite a big impact from the SKU trim down there. Can you maybe just give us a sense of the reception on the ground from customers? And maybe how the underlying portfolio, excluding that SKU trim is performing? And then just what it means in terms of Indo revenue per case and margins going forward? Thank you.

[Damian Gammell, Chief Executive Officer]

Thanks, Charlie. So no surprise in Indonesia. I mean, as we laid out our near-term strategy in that market, clearly, we felt that simplification of our portfolio would unlock value in the medium-term, both for us and for our customers. So if you look at the categories that we've decided to exit or streamline, they're not as profitable as sparkling for us or our customers. So while we haven't guided on the impact of that, clearly, it's part of our plan to bring margin to CCEP, but also to our customers on a sustainable basis.

So yes, there's a near-term impact, obviously you see that in the volume line, but that's as we expected, it does unlock, I think a lot more value in the medium-term, both from an asset utilization for us in Indonesia, prioritizing our sales force, which is a very large sales force in Indonesia using the space that we get in our customers more efficiently for them and us.

So, as you can imagine, as I mentioned in the Philippines, a lot of small outlets, not a lot of space. So you’ve got to be really choiceful about what you put into that space. And I think one of the learnings that we’ve seen in Indonesia that in some ways we crowded that space with categories that didn’t really create value.

So we’ve executed that now, we’ll cycle through that in 2023. And again, that will give us a cleaner platform for 2024. So no specific guidance on margins, but all I can say is that what we’ve prioritized is sparkling and that is our highest margin category in Indonesia. So I think for us and our customers it supports that that midterm value creation story.

[Charlie Higgs, Redburn]

Thank you.

[Operator]

Thank you. We will now go to the next question. One moment please. And your next question comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead.

[Bonnie Herzog, Goldman Sachs]

All right. Thank you. Hi, everyone, I have a question on your guidance this morning. You did raise and tighten your top line guidance, which is great, but implies a little bit more modest top line growth in the second half of mid-single-digits. I mean, you highlighted the expected moderation in net revenue per case, but could you talk about some of the other drivers and maybe what’s factored into top line guidance in terms of elasticity and future pricing? And then your guidance also implies greater operating leverage in the second half, which you touched on, but maybe wanted to better understand the visibility you have on this and maybe a little bit more color on the drivers of that too. Thank you.

[Nik Jhangiani, Chief Financial Officer]

Yes, sure. Hey Bonnie. So I think a couple of things to call out. So if you look at the top line, it’s primarily being driven by obviously the moderation that you would expect because we’re getting the benefit in our revenue per case from last year’s price increases and everything that we’ve taken this year as well. And so that’s effectively what is driving that. From a volume perspective, clearly remember we are also lapping through a very, very tough comp in the third quarter, if you remember last year.

So we are mindful of that because July has been quite a wet month across most of Europe, as you probably have seen on the news, which is a bit of a change in what we saw in terms of the performance in May and June this year, which really helped us buck and manage through some of those comms from last year.

I think the other piece that we’re cognizant of obviously is continuing to remain, like I said, affordable and relevant and ensuring that we have the right level of promotional support as well to ensure that our products remain relevant to that consumer base. So I think that’s on the top line. So we’ll obviously provide you an update and a lot of it will play out based on how August and September, which are critically important months trend for Q3. And then obviously December is an important month for us as you know as well.

On the cost side and the margin piece that really comes back to the fact that we had always indicated that our COGS per case was more weighted towards the first half. And as I said, so if you look at the guidance of 8% COGS per unit case and the fact that it was up 9% in the first half, effectively that’s about 7%. So you’re getting that type of leverage then coming through to support that OI growth and that margin expansion as I alluded to as well. So all in all, we feel good in terms of where we are and feel that that’s still a very healthy level of top line and bottom line growth for the year.

[Damian Gammell, Chief Executive Officer]

Maybe just Bonnie to add to mixed comments. I think when we are experiencing above average inflation on the revenue side that we see that across all of our markets, I think it’s really important to focus on volume and transactions, because I think they in that type of environment, demonstrate the strength of our consumer relationships. So as Nik called out, as we look at the second half of the year, we really want to continue to replicate what we achieved in the first, which is to deliver really good top line revenue growth with price mix, but also with volume and transactions. Because I think as we continue to navigate the higher cost of living challenges making sure that our consumers are still connecting with our brands is really important. And I think that’s something that we’ve reflected in our second half guidance as well.

[Bonnie Herzog, Goldman Sachs]

Okay. All makes sense. Thank you.

[Operator]

Thank you. We’ll now take your next question. And the question comes from the line of Eric Serotta from Morgan Stanley. Please go ahead.

[Eric Serotta, Morgan Stanley]

Good morning and good evening. So the Philippines business has been under different – various different owners over the past 10 years or so. I’m hoping you could give some perspective as to what CCEP and your new partner plans to do different from previous owners, what you guys bring to the table that’s a bit different and how you’re approaching the strategy for the business that would be different?

[Damian Gammell, Chief Executive Officer]

Yes. Hi, Eric. Yes, from our perspective, I think there’s a couple of elements that we feel excited about. I mean, clearly we’re going to bring a lot of scale and best practice learning to the Philippines from both within the region with our API business and also from Europe. I think we’ve got clearly a long-term focus on this business with our shareholders. And clearly, we believe that the Philippines for us and our partner represents a fantastic long-term opportunity for CCEP and I know our partners feel the same way. We do feel in this instance, having a local partner can unlock more value. And I think that is a different structure to what went previously.

And I also think the business is in a very different place now. I think under the leadership of Gareth and BIG as you can see from the numbers we share today, it’s a growing business. It’s a profitable business, it has momentum and clearly we believe by bringing it into the family of CCEP that we can accelerate that value creation. So I mean, a lot of different phases of the Philippine business, but it’s a very, very established and old business. So it’s managed all those really well.

And we clearly believe by bringing it into CCEP now it’s a new chapter that gives certainty to the employees, certainly to our customers and with the local partner, I think adds an extra dynamic that we believe gives us more relevance within the Philippine market. So that’s a unique combination that hasn’t existed before in the ownership structure. And obviously, we do that with the support of the Coca-Cola Company which as you can appreciate is a critical enabler as we look forward in the Philippines. So a number of elements as we move forward in the proposed transaction and as we aim to close, clearly that question is something we’d love to come back to with a bit more detail and granularity about how that looks for the next two or three years. But clearly that will come probably early 2024.

[Eric Serotta, Morgan Stanley]

Great. Thanks so much.

[Operator]

Thank you. We’ll go to the next question. And the next question comes from the line of Mitch Collett from Deutsche Bank. Please go ahead.

[Mitch Collett, Deutsche Bank]

Hi Damian, hi, Nick. When you bought Amatil, it felt like the Indonesia business was a nice addition and you were really trying to apply your European toolkit to another developed market. But I guess this is a different proposition given that you’re buying an EM geography. I guess given that this only delays your degearing by one year, I’m interested in the strategic direction you think you’ll take going forward. So do you think there’s a building a bigger EM presence is the most attractive route to creating value from here? Are you more interested in focusing on DM focused assets? Or is it really just dependent on what assets are available and what those assets bring in terms of value creation opportunities? Thanks.

[Damian Gammell, Chief Executive Officer]

Mitch, so I mean, clearly, if you look at CCEP’s value creation story, it will remain predominantly coming from the developed markets of Europe, and we’ve unlocked tremendous value very quickly from Australia and New Zealand. So, I think that supports our cash flow. It supports our value creation story for our shareholders. Ultimately, it allow us to deleverage and then move, as you said, probably a little bit later than planned, but not too much later into returning even more cash to our shareholders. So that part of the story remains the biggest part of the story at CCEP.

As you pointed out, we were excited about the opportunity in Indonesia represented when we did the Amatil deal, 300 million consumers, a very underdeveloped market in terms of the category. So we do see continued upside there. What’s unique about the Philippines is you may define the Philippines as an EM from an economic perspective, but from our category perspective, it’s quite well developed. If you look at it per capita as we showed earlier, it’s not obviously a mature business. It’s a growing business, but it’s got a very strong foundation. So when the opportunity arose to consider, it was always something we had on our radar.

When we acquired Indonesia, we felt there would be potentially one more step in this part of the world to allow us to build scale. And I think by combining the Philippines and Indonesia, we will have achieved that. I think we will have brought markets that of similarities. But as I mentioned earlier, quite different category dynamics. And I’m confident that we can extract a lot of value from what the Philippines are stone to build a Sparkling category and an efficient route to market back into Indonesia.

But if you look at our numbers, our free cash flow and our profit generation, we will still be very much focused on our developed markets. So a little bit like our computing Indonesia. I think it’s a fantastic addition to our business if the deal closes, but ultimately, it will balance in a nice way what is a really great developed market and cash-generated business. And that obviously will remain our core focus.

[Nik Jhangiani, Chief Financial Officer]

Yes. And I would just add to that, if you did take that traditional approach of an EM versus DM even with adding in this market from a revenue perspective, if you looked at that at EM, and Damian rightfully said, it’s actually very developed in terms of the category, but it’s only 10% of our revenues in Indonesia and CCBI together. So there’s still the majority of our business that’s coming from the DM side in the classical sense, one. And two, I think you shouldn’t underestimate the power of having a larger platform with two of the most populous countries in Southeast Asia with Indonesia and the Philippines in terms of how we can think about things from a perspective of synergies from a digital perspective, from a digitization perspective, et cetera, and cross learning. So, I think we’re very excited about that opportunity. And to the point around leverage is really a minor tweak. So I wouldn’t even be over-indexing on that in any way.

[Mitch Collett, Deutsche Bank]

Thank you both.

[Operator]

Thank you. Our next question comes from the line of Bryan Spillane from Bank of America. Please go ahead.

[Bryan Spillane, Bank of America]

Thanks operator. I don’t know what time of the day, whatever. Good day, everyone. So just two kind of quick ones related to the Philippines. Nik, you – I think what you inferred in answer to the earlier question was roughly $180 million of EBITDA. And I believe what Coca-Cola tends to disclosed when they were exiting, I think EBITDA in 2017 is $178 million. So similar, I guess, today versus what it was in 2017. But just kind of interested because you did mention inflation just – so what the path has been was, had the EBITDA and EBITDA margins improved and maybe we’ve taken a step back on inflation. So just kind of some perspective there?

And then the second, if just if I look across kind of where consensus estimates are for next year, I think some folks have put share repurchases in their models. And so just maybe some thoughts there in terms of how we should be thinking about that now given this transaction, should we be thinking about maybe pushing share repurchase out a little bit further in the future? Thank you.

[Nik Jhangiani, Chief Financial Officer]

So let’s take the second one first because just to be clear, we had never guided towards any kind of share repurchases outside of what people decided to put in their models. So, I can’t help you change their models. But if looking at it from an angle of what this does, as we had said, this would have taken us to the top end of our leverage by the end of this year. If you think about the size and scale of the 60% based on the $1.8 billion that we’d be paying in dollars, you’re talking about €1 billion, right? And that’s significantly less than what we generate in free cash flow.

So really from a timing perspective, this is really a tweak, like I said. And again, we’ve always said we would continue to work towards that midpoint of our net debt-to-EBITDA ratio and accordingly then be able to consider absent other M&A, which obviously we don’t see anything on the horizon today, but as we all know that’s opportunistic. Clearly, our commitments to being shareholder friendly and maintaining an efficient balance sheet is unchanged. So I think the modeling can work pretty well to be able to tell you when that might come in. So for argument’s sake, that could be a 2025 event absent some of the other areas that I talked about.

In terms of obviously the fact that you are looking at a 2017 number is a while away given the fact that we had COVID and then you’ve had a significant inflationary impact as well. I think the team has done a great job, but keep in mind these are 2022 numbers that I have given you. 2022 clearly also had some issues that I referred to in the broader comment around some of the structural issues which had an impact on both the top line and the bottom line, which clearly we would expect to start seeing improving in this year and the years going forward. So I think once the transaction closes Bryan, we’d be able to give you some more information as to how you might be able to model that. But clearly keep in mind there was some one-offs structurally that caused that number in 2022 to be what it is.

[Operator]

Thank you. We will now go to the next question – and to your next question comes from the line of Sanjeet Aujla from Credit Suisse. Please go ahead.

[Sanjeet Aujla, Credit Suisse]

Hey, Damian, Nik. Just curious on the timing of this transaction. Why now when you’re still busy integrating Amatil? Was it – was there some urgency from the Coca-Cola Company to get this done? Just love to get a bit more perspective there, please. Thanks.

[Damian Gammell, Chief Executive Officer]

Hi Sanjeet. No, not at all. I mean, we felt it was the right time. I think if you look at the results that we’ve delivered two years into the Amatil transaction, I think we’re even ahead of our expectations. And as you know, Nik and I always set very high expectations of the business. But clearly we felt very comfortable with the leadership of Peter across API and the talent that we’ve acquired. So that gave us comfort to look for bigger opportunities in the region. So we felt this was the right time. Clearly, we’ve got to go through a process probably till the end of the year to get it closed. So from a kind of implementation integration phase, you’re looking probably 2024. So that’s two and a half years after the Amatil transaction closed. So for us, we can be a bit impatient Sanjeet. So we felt it’s a good time and we found a good partner. So yes, we’re very happy with the timing.

[Nik Jhangiani, Chief Financial Officer]

And the balance sheet allowed it as well.

[Damian Gammell, Chief Executive Officer]

Yes.

[Sanjeet Aujla, Credit Suisse]

Got it. And just for perspective, when did you start working on the transaction and was it – what was the plan on day one to incorporate a local partner?

[Damian Gammell, Chief Executive Officer]

Well, we’ve been looking, I suppose probably predates Amatil. So as we looked at acquisition opportunities that we felt could create significant value for our shareholders, obviously Amatil at the time came out as a priority. And obviously we’ve demonstrated that was the right decision, we had also looked below that at the same time at other bottling assets that we felt were valuable and creating value. And through that process we had identified the Philippines and then pretty much over a period of time we explored that with the Coca-Cola company. And then obviously through that process we explored a local partner as being a good option to unlock some more of that value. So yes, over a number of months as you can appreciate these things take time. I’m glad we got to the day that we could announce it, but clearly we’ve got a bit more work to do to close it, and that’s our priority at the moment.

[Sanjeet Aujla, Credit Suisse]

Great, thanks. And just a quick follow up for Nik. Can you just give us a bit of a sense of how commodity costs are shaping up for 2024 for the portion that you’ve hedged to date?

[Nik Jhangiani, Chief Financial Officer]

Yes, I think the portion that we’ve hedged to date, obviously, remember, we don’t look to try and beat the market. We’re always trying to make sure that we’re getting the certainty so that the business can plan appropriately. I would say to you, generally we’ve obviously gone in when we’ve seen the right trigger points. But I said it’s a combination of that uncertainty. The most important piece that you need to keep in mind that’s still a little open is on sugar. And that’s probably the element that we’re working on right now for a couple of our markets. And again, we’ll be able to provide you with some more color on that as we go through the year. But clearly, you’re seeing not the same levels of absent the sugar piece of what obviously we have seen in the last couple of years, particularly with gas and power easing a lot, some of the recycled PET costs coming down, et cetera. But then again, it’s a volatile market, right, in terms of how oil prices have reacted over the last 10 days. So I feel good about where we’re covered for now and we’ll provide you more updates in due course.

[Sanjeet Aujla, Credit Suisse]

Great. And just to be clear, at this stage you're seeing commodity courses inflationary, not deflationary, but to a lesser degree than in recent years. That's the message.

[Nik Jhangiani, Chief Financial Officer]

Exactly, exactly.

[Sanjeet Aujla, Credit Suisse]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Nik Oliver from UBS. Please go ahead.

[Nik Oliver, UBS]

Thank you [Technical Difficulty] questions. And just one on liquidity in Europe, because I guess, with most liquidity still on the U.S. line and there are a number of investors who would like to own MCCP [ph] but can't anything that you can share with us on broader approaches to getting more liquidity in Europe?

[Damian Gammell, Chief Executive Officer]

Well, listen, the only approach to getting more liquidity in Europe is actually doing an equity offering in Europe, which we are not currently planning or contemplating in any shape or form. So the potential unlocker, there could be what might happen in the UK with the FCA’s announcements and what the FTSE then might do, which is towards moving to a single segment. So getting away from what is the standard and premium listing segment to a one-single segment. Clearly, if the FTSE maintained its current rules which obviously we'll wait to see in the fall what they come out with once the finalization of the FCA's position, then that would mean that from a size perspective, we would become a FTSE 30 company. And like I said if the rules do exist and we get fast tracked just based on our size, then we would immediately be a part of the FTSE index, which naturally would drive more liquidity, either pre during or post. So back to an event that we will continue to monitor, and I'm sure all of you are monitoring it as well.

[Nik Oliver, UBS]

Yes. Well, yes, we are. But yes, I guess, in terms of timing, I guess, I think maybe autumn; I think is when they're going to connect update, but…

[Nik Jhangiani, Chief Financial Officer]

Correct. Autumn is on the FCA would give that update because the consultation period should then have been through. And then the FTSE obviously is working in the background we are assuming to be able to hopefully affirm its rules, which I said is that both happened then hopefully we would get included into the index just based on our size and our liquidity and then that would be tested at periodic intervals on how that liquidity then moves and how our trading liquidity happens on that exchange, which in some ways comes back to my point around that pre-during and post. But the more that happens, the more that supports us than remaining as a part of that index.

[Nik Oliver, UBS]

Perfect. I'm quite super thrilled. Thank you.

[Nik Jhangiani, Chief Financial Officer]

Great.

[Operator]

Thank you. Our next question comes from the line of Robert Ottenstein from Evercore ISI. Please go ahead.

[Robert Ottenstein, Evercore ISI]

Great. Thank you very much. Damian, I'm wondering if you could just give us a very short history lesson on the FEMSA situation. They had bought back, they had bought 51%, I think of the business. They sold it back to Coca-Cola. I think if I recall right, there was labor issues, there was a sugar tax, some other issues. So maybe kind of give your sense of what happened, what went wrong in that go around and where things stand on the labor or sugar, any of those sorts of factors that led to that outcome? Thank you.

[Damian Gammell, Chief Executive Officer]

Hi, Robert. I mean, it's quite a while since that period and honestly I don't have the history. I think you've probably just outlined it better than I could have. And I think to be fair; I think FEMSA are probably the best people to talk to around their learning's and experiences. I think I can look at the last three to five years because I think it's just a bit closer in time. I think some of the elements that disrupted the business like sugar tax, et cetera, is in the base now. Certainly, when I look at the business, and I speak to the team locally, there's been stronger top line growth, good value creation, profitable.

So I suppose we're looking at it based on what we see today in the past couple of years and really going back to those days, I'm not sure we'll add a lot of value. But clearly if you're curious, but I think you did a good summary. I'm sure FEMSA will be able to answer that better than we will. All I can say is we're just really excited based on what we've seen and what we've looked at. And I think, again it's a great soft drinks business, and that's unusual in this part of the world, I suppose that's what excites us.

Nik, do you want to add any?

[Nik Jhangiani, Chief Financial Officer]

Yes, Robert, all I would add to Damian's comments is remember that the way the deal was constructed, it did have a put and call option, which obviously gave FEMSA that flexibility or that ability to sell that back or exercise that put. So we haven't taken that approach. We have a very long-term mindset as do our partners, the Aboitiz. We believe this is a very attractive business with an attractive growth profile, a very developed Sparkling category as we talked about, with high shares, high NARTD share and a great management team. And I think for us, we look at it more in terms of looking forward with a strong long-term mindsets.

[Robert Ottenstein, Evercore ISI]

Great. And you referenced regulatory issues. Is there anything unusual on the regulatory side that we should be aware of or anything that gives you particular caution? Or is this just somewhere kind of normal procedural things that just take time?

[Nik Jhangiani, Chief Financial Officer]

Yes. Just to be clear, I didn't mention regulatory issues. I said regulatory clearance, which is...

[Robert Ottenstein, Evercore ISI]

That's what I meant. Sorry, that's what I meant.

[Nik Jhangiani, Chief Financial Officer]

Yes. Absolutely. Which is just a normal process with any transaction, which we don't anticipate any issues, but obviously you need to plan sort of timing of that post agreement of DOS. So yes, that's all it is, Robert.

[Robert Ottenstein, Evercore ISI]

Got it. Thank you very much.

[Operator]

Thank you. We will now take our next question. And our next question comes from the line of Richard Withagen from Kepler. Please go ahead.

[Richard Withagen, Kepler]

Yes. Hello all, and thanks for the questions. I want to get back to promotional effectiveness. I think Nik or Damian; one of you two mentioned that, as it helped to get to the 10% revenue per unit case growth. So what changes are you putting through and which tools help you to achieve the improvement in promotional effectiveness?

And then maybe, Nik, if I can quickly squeeze in, what kind of cost of capital are you assuming for the Philippines transaction, please?

[Damian Gammell, Chief Executive Officer]

Thanks, Richard. So I suppose on the promotional effectiveness, it's been a multiyear journey. I think it started particularly in Europe. And then obviously, it's followed in Australia and New Zealand where so the first step was to broaden the number of SKUs and pack offerings that we presented to shoppers and consumers, and we've done that quite successfully. An example will be our mini cans or new small PET in some of our markets.

Then we've overlaid that with some really good data and analytics tools that allow us to really go back and look at what has been the impact of any given promotion in our market. And then we measure that against clearly what did it mean for our customers' profitability? What did it mean for [indiscernible] profitability? And most importantly, what did it mean for the shopper. So did it add shoppers, did it grow frequency, did it grow penetration, did it grow transaction size. And over many, many quarters, we build up a really solid database of what really works in an – what environment.

And as you can appreciate, in Europe, really in the back half of last year, we started to pivot some of our promotional effectiveness against some of those more affordable packs because we realize with the cost of living pressures, energy prices, et cetera, that a number of our shoppers are probably becoming more value conscious than they've been previously. So that allows us to kind of discuss with our customers pretty much against the same aligned objectives. They want to retain shopper loyalty. They want to retain brands because that's where they generate higher margin, particularly cash margin. And then we look at the mechanics that will unlock that. So it's quite a good process now, and it's something that has unlocked a lot of value in Australia and New Zealand, and it's something that we've built into our routines now. So it's not a one-off. It's part of the way we do business.

The more we do, the richer the history of data gets, and that allows us to make even smarter decisions going forward. We are also embarking on a new SAP platform, and that will allow us to have a fully integrated system across all of our markets, which will include our proposed transaction in the Philippines, and that will even make it more seamless. So looking forward to that, that will take a bit of a while. But in the meantime, we're using the same tool everywhere. So that's exciting. Nik, do you want to comment on cost of capital?

[Nik Jhangiani, Chief Financial Officer]

Yes. Richard, we've looked at a range of 9% to 9.5% of cost of capital for the transaction.

[Richard Withagen, Kepler]

All right, very good guys. Thanks.

[Operator]

Thank you. We will now take our last question for today. And our last question comes from the line of Carlos Laboy from HSBC. Please go ahead.

[Carlos Laboy, HSBC]

Yes. Hello everyone. Damian and Nik, will you – do you think you'll be able to secure some form of an LTRM model in the Philippines for ensuring that you can comfortably exceed your cost of capital there looking out over the long-term. And then sort of related, the backbone of the Philippine affordability strategy is refillables. Is it your intention to grow or to reduce refillables in the Philippines? And how do you view the role of refillables over the long-term there?

[Damian Gammell, Chief Executive Officer]

Hi, Carlos, yes. So I mean I think we've been working on the LTRM with the Coke Company across all of our markets and the Philippines will be no different, and that model will allow us both to achieve our financial goals and our growth goals. So I think we've done that quite well in Europe. And in the old Amatil territories will do the same in the Philippines. So we're already having those conversations. So I feel good about that.

I think refillable is one of the strengths of the Filipino business when we look at it, both in terms of driving affordability and relevance. So we see that as a key part of our future. Clearly, we'll look at, how do we extract value from that pack and from the supply chain. As we look at our investments going forward, clearly, it's an area that we'd look to see if we can optimize. As you know, we've got a big refillables business in Europe, both in glass and in PET. So when you combine the Philippines, we're a sizable bottler in terms of using refillable packaging. So we're working with the company on some new initiatives around universal bottles, float harmonization. So that will allow us to maintain that affordability, which we know is critical, particularly in markets like Indonesia and the Philippines, but also unlock value. And I think that's critical.

So yes, very excited about it. It's about 50% of the Sparkling business. It's growing. We expect it to grow in the future, and it's something that we see as a core part of our proposition, not just in the Philippines, but we use it across all of our markets where it makes sense. And I think that will continue Carlos.

[Carlos Laboy, HSBC]

Thank you.

[Operator]

Thank you. I would now like to hand the conference back over to Damian Gammell for his closing remarks. Damian, please go ahead.

[Damian Gammell, Chief Executive Officer]

Thank you, operator. And again, I just want to say a big thank you to everybody for joining us today. As you can appreciate, it's been a long and exciting day for all of the team here in Manila. And I just wanted to kind of end with a few closing remarks.

I think most importantly, I'm extremely pleased with our strong first half performance and our ability today to raise our guidance. I mean that performance, whether you look at the top line, the volume growth, the free cash flow generation has allowed us to take the next step in our journey, which is obviously we're very excited today to announce the proposed transaction of the Philippines bottling business with our local partner. And I think that's something that sends a new era for a business in this part of the world and also supports our Indonesian business going forward.

And then finally, as you'd expect from CCEP, we remain fully committed to shareholder value creation. We see the proposed transaction to be accretive to earnings. It has a very modest impact on our leverage. And again, I think, demonstrates the strong free cash flow this business allows us to make the right choices for all our shareholders and our customers as we continue to look forward to a growing business at CCEP. So thank you again, and look forward to speaking to you all soon. Have a great rest of the day.