Coca-Cola Europacific Partners PLC

NASDAQ:CCEP

Earnings Call Transcript 2022-Q2

[Sarah Willett, VP, IR, CS]

Hello. Thank you all for joining us today. I am here with Damian Gammell, our CEO and Nik Jhangiani, our CFO.

Before we begin with our opening remarks on our results for Second Quarter and Half Year 2022, a reminder of our cautionary statements. This 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 in today’s release 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 a slide deck. We will then turn the call over to your questions.

Please note that unless otherwise stated, metrics presented today will be on a comparable and FX neutral basis throughout. Any growth rate, will also be presented on a pro forma basis. 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, CEO]

Thank you, Sarah. And good morning, good afternoon and many thanks to everyone joining us today. In May, we celebrated our first year as Coca-Cola Europacific Partners, and I'm incredibly proud as I had the team and pleased with the progress we've made today. We built a solid platform for long-term profitable growth, focused on delivering value for our shareholders and of course our customers. We had a fantastic first half, achieving strong top and bottom line growth, value share gains and an impressive level of free cash flow. This really gives us confidence for the rest of the year. So, I'm really pleased to be raising our 2022 revenue, profit and free cash flow guidance today. We are very proud of our strong relationship and alignment with the Coca-Cola Company and our other brand partner such as Monster and we're confident in the future.

We've retained a sharp focus on revenue growth management and driving efficiencies throughout the business, while continuing to invest for long-term growth. Particularly in our portfolio, our digital platforms, sustainability and of course in our people to whom I wish to say a big thank you for everything you do for CCEP and our customers. So, although mindful of the macroeconomic and the unprecedented inflationary environment, we do believe we're well placed for the second half of 2022 and beyond. I would now like to talk a little bit to the categories in which we compete. The remained robust and I'm very pleased that we've continued to take share, grow household penetration and importantly drive more value for our customers. We have great plans which our consumers love and on the back of ongoing investment and innovation in brands, products and packaging, our brands continue to support a very solid RGM growth platform for our customers.

This means that we can continue to achieve good pricing in the market even in the most challenging of times because that brand love, taste and quality are always of paramount importance to our consumers. We continue to innovate driving excitement and growth into NARTD category that grew by a 5% in the first half of across our market. That growth was even higher in API at around 15%. This is great for our customers too and I'm immensely proud of the long-standing and supportive relationships we have with them. Particularly over the last number of years with all of the challenges that COVID brought to our business and their businesses. It's great to see that once again during the first half, we are the largest value creator in the retail channel within FMCG in Europe and across NARTD in API.

In fact, in Europe, we delivered more than twice the value to our customers than that our nearest peer. We have made structural changes to our business in these years which positions us more favorably in the event of a potential recessionary environment. As you know, approximately 40% of our volumes come from the more inelastic away-from-home channel which is naturally more resilient in challenging times. And in the home channel, we have made bold strategic decisions in recent years, clearly targeting value over volume and improving the underlying profitability of the channel. We've step changed our recommended price pack architecture to continue to address different consumers and now confidently play across spectrum of recommended price points and elasticities.

We also continue to actively manage our headline pricing and optimize our promotions through smart digitally led revenue growth management. So, we do see a good about our categories and although we're not seeing signs of a shift in consumption, we are well placed as we moved into more uncertain times. So, this slide should be familiar. We have a simple but vital purpose to refresh Europe and API and critically to continue to make a difference to all our communities and our stakeholders. We have a simple focus around great people, great service and great beverages. All done sustainably for a much better shared future. So, now I'd like to briefly touch on each of these areas as we look back at the first half of 2022.

Firstly and most importantly to our great people, the wellbeing and safety of our colleagues remains our number one priority at CCEP, and our new "get home to what you love" campaign has really brought the importance of safety to life across all of our businesses. We had a very strong participation in our first global digital engagement survey with a stable engagement survey overall, a great result in what has been a challenging environment as we establish new ways of working post COVID. This score continues to position CCEP ahead of our benchmark group. In June we saw some fantastic Pride celebrations across many of our sites as we further progress our "everyone is welcome" philosophy.

Our D&I credentials continue to be recognized externally too and we were recently included in Bloomberg’s gender equality index for the second year in a row. And we were recently awarded gold at the U.K. employee experience awards in recognition of the digital technologies we use across our workplace. As ever, great service remains a key priority and a critical driver of our performance. We have continued supporting our customers through the reopening of HoReCa and maintained levels of customer service in the 90s. In Indonesia, we had a record Ramadan period with our biggest ever activation, a huge event in the calendar, representing about a third of our annual sparkling sales. More focus on our core sparkling and tea categories allowed us to effectively manage our supply chain and deliver better service to our customers across what is a wonderful period for our consumers. And finally, I’d like to take this opportunity to congratulate and wish the Netherlands good luck as they will represent Europe in the final of the annual global Coca-Cola bottler competition the Candler Cup, which recognizes world-class customer service and execution.

You may recall that we celebrated New Zealand winning the cup last year. We are also extremely privileged to make, move and sell the best beverages in the world. Coca-Cola Zero Sugar has continued to outperform across all of our markets growing volumes by 24% versus 2019. Fanta, new flavor launches, such as Fanta Raspberry in Australia, and the latest What the Fanta campaign continued to drive excitement for our consumers. Celebrating its 20th anniversary in our markets, Monster continued to gain share through great innovation and in-store execution. In GB, we are pleased to launch the new Costa Frappe range in three indulgent flavors, Smooth Coffee, Chocolate Fudge Brownie and Caramel Swirl. This is being supported by a great summer sampling campaign across the country, so if you come across one, make sure you try in GB.

And all of what we just shared much continue to become more-and-more-sustainable. This is a key focus for all of us at CCEP, our consumers, our customers, and our shareholders. We want to continue to be the leader in package-less solutions and in some of our markets we are piloting new compact freestyle dispensing technology, this is designed for smaller on-the-go and at work locations. And as we continue our journey towards net zero emissions by 2040, we’ve introduced lighter weight necks for our sparkling drink bottles and will soon distribute 100% of our packaged beverages in returnable glass bottles to all of our HoReCa customers in France.

To make it even easier for our consumers to recycle, similar to Germany, we've introduced new attached caps to our plastic bottles across GB. Our progress continues to be recognized and we are proud to be included on the Financial Times Statista list of Europe’s Climate Leaders as one of 400 companies having achieved the greatest reduction in Scope 1 & 2 greenhouse gas emissions between 2015 and 2020. So, all-in-all continued great progress towards a better shared future.

Now, turning to our first-half performance highlights. We continue to win with our customers, and this momentum is evidenced by our NARTD value share, which grew by around 30 basis points both in-store and critically online. I am pleased that we delivered volume and revenue ahead of 2019 levels. The recovery of HoReCa and tourism as well as a resilient home channel led to strong volume growth of 13% in the first half. This was supported by great execution and as I mentioned earlier, solid service levels across all our markets. Our continued focus on revenue growth management drove solid revenue per case growth, significantly ahead of pre-pandemic levels.

In the digital space, our transformation journey continues and we remain on track to deliver around 30% of our European Away From Home revenue through our B2B portal, myccep.com. Given the uncertain outlook and some of the macro headwinds that we are facing, it is more important than ever for us to continue focusing on driving efficiencies throughout the business and as you see referenced here and which Nik will cover in more detail shortly. And having recently celebrated our first anniversary as Coca-Cola Europacific Partners, I’d like to now share with you some of the key highlights.

Last year we described the Amatil transaction as the right deal at the right time. The more time I spend in the business, the more excited I get about the opportunities ahead. I firmly believe this was not just the right deal, but indeed a great deal. The API business had a great first half with revenue and profit ahead of 2019 and is moving ahead with its strategic priorities at pace. We've already made good progress in reducing the depth of our promotional support in Australia, with little impact on volumes. This is also great for our customers. We are sharing learnings and best practices in both directions in areas such as IT infrastructure and data analytics. And our Chairman Sol Daurella and I recently visited New Zealand and Indonesia which sets the benchmark for world-class execution, and we look forward to bringing learnings back into Europe too.

And I’m even more excited about the transformation opportunity in Indonesia, having spent time there recently with a full Board of Directors. And the reorientation of our portfolio is well advanced. We now have substantially exited beer and cider in Australia as planned, and the majority of the proceeds have been received from the sale of our CCEP-owned NARTD brands with a few brands in New Zealand and Fiji still outstanding. This is all in line with the long-term growth plans that we continue to develop with The Coca-Cola Company to better align our portfolio with more focus on the core. So, clearly the growth potential from API is significant and I look forward to sharing more at our capital markets event later this year.

So on that note, I would now like to hand over to Nik to talk in more detail to the financials. Over to you Nik.

[Nik Jhangiani, CFO]

Thank you, Damian. And thank you all for joining us today. Let me start by taking you through our financial summary. We delivered total revenue of €8.3 billion, an increase of 17%. I will provide some more details on this very strong top-line delivery in a few moments. Our COGS per unit case increased by 5.5%. This was driven by higher commodity prices, as well as concentrate costs, which have naturally increased in line with the growth in revenue per unit case via our incidence pricing model. Clearly our mix as you have seen is much more favorable on the topline, this has had a COGS impact as well, partially offset by the benefits from recovery of our fixed manufacturing costs given higher volume.

We delivered comparable operating profit of €1.1 billion, up 29%, reflecting solid topline growth, the benefit of our on-going efficiency programs and our continued efforts on managing discretionary spend. Our comparable effective tax rate increased to 24.5%, which I’ll come back to later. All-in-all then, this resulted in comparable diluted earnings per share of €1.61, up 32% on a pro forma comparable basis. Free cash flow generation continues to be a core priority and we delivered on an impressive €1.3 billion during the first half. This was due to the strong growth in operating profit as well as some CapEx phasing with a few larger projects landing in the second half of the year.

And as you know, working capital remains a core focus for us and I am pleased that we were able to deliver approximately €400 million of benefits in the first half, with a notable improvement in our payable and inventory days in API as we rolled out our Rebond project into that region. That said, we do expect to see some reversal of these working capital benefits in half two, mainly driven by inventory. We believe it is prudent to build our safety stock levels on key raw materials to ensure continuity of supply and ensure on-shelf availability given the logistics and supply chain constraints that we will continue to face.

And finally on shareholder returns, we paid a first half dividend per share of €0.56 which we declared in Q1 and was paid in May. As a reminder, this was calculated as 40% of the full-year '21 dividend, with the second half interim dividend to be paid with reference to the current year annualized total dividend payout ratio of approximately 50%. Now if I move to our revenue highlights. The strong growth in revenue was driven by both an increase in volume and importantly continued growth in our revenue per case.

As you would have expected, the most significant improvement has been in the recovery of our away-from-home volumes given last year’s base was still impacted by lockdown restrictions. That said, we are pleased that our away-from-home volumes returned to 2019 levels in half one, with traction in immediate consumption, a rebound in tourism in many of our markets and of course the start of great weather this summer across our markets. Strong trading in the home channel continued, benefitting from increased at-home occasion as well as the continued growth in online grocery, with volumes up 7.5% versus 2019 in the first half. This meant that overall volumes grew 13% in the first half or by 4.5% versus 2019.

Revenue per unit case grew by 4.5% in half one, up 6% versus 2019 levels. This reflects the strong growth in away-from-home but also testament to our revenue growth management initiatives, with positive headline price, pack and brand mix. Now moving to OpEx and our efficiency programs. As a reminder, our pre-announced efficiency savings and combination benefits equate to €350 million to €395 million in total and we remain very much on track to deliver that. In fact, some of the combination benefits have been realized at a faster pace than we had initially thought and so we now expect to deliver approximately 85% of these savings by the end of this year.

We remain committed to rebasing our cost base to below pre-pandemic levels. And you can see that here. As a percent of our revenue, our OpEx has continued to decline not only compared to last year but more importantly compared to 2019. Going forward we will continue to manage costs very tightly but of course we do anticipate an increase in our volume linked OpEx as well as some inflationary pressures in areas like labor and haulage. And as we continue to invest for the future, naturally our TME investment has increased in order to support our topline growth given the recovery. So, let me now move on to updated guidance for full-year 2022 which reflects the current market condition. First to revenue. We now expect pro forma comparable growth of 11% to 13% versus the 8% to 10 % previously guided.

This reflects the stronger first half results that I just went through and our confidence in our revenue growth management initiatives for the rest of the year. The second half has started well helped by the continued great weather as well as the continued recovery of the away-from-home business and tourism. But we do remain very mindful of the more uncertain outlook for the consumer as we move into the post-summer period but I do caveat that with points that we are not yet seeing any signs of a shift in consumer behavior and their buying patterns.

From a modelling perspective, volume growth will be lower in the second half reflecting a tougher comparison as the away-from-home channel began to recover last year. And in terms of shape, we expect our full-year revenue growth to be more weighted towards volume as evidenced by our first half. Additional headline price increases and promo efficiencies are currently being discussed and in progress across all markets in the second half to help offset some of the unprecedented inflationary pressures we are seeing across the industry, particularly aluminum and gas and power and other key commodities including conversion costs. Some markets are more exposed to these trends such as Great Britain which over-indexes to cans, which clearly has an impact on their costs for the second half of this year.

These pressures more broadly will be much higher in the second half across all our markets and as always we are very surgical in how we look at these increases across our various brands, packs and channels that can remain relatively inelastic using strong RGM capabilities that we have developed over the years. And we are not looking to fully pass on these cost increases to our customers to ensure that we continue to manage affordability and relevance to our shoppers and consumers which is even more heightened in key markets like France and Germany given higher exposure to the home channel where we need to be conscious of that dynamic of relevance and affordability.

As always, we will continue to work with our customers to optimize our recommended price, range and pack architecture, so that we can expand our categories and importantly focus on joint value creation. And of course, we will continue to focus on our own efforts to manage our cost base as well to ensure continued profit and free cash flow growth going forward. Moving to COGS and clearly these comments are based on what we know today. We now expect COGS per unit case to increase by approximately 7.5%, weighted more towards the second half as you can see in this chart. This slight increase from our previous guidance of 7% mainly reflects very small moves driven by gas and power costs, as well as the slightly higher concentrate costs impacted from the additional headline price increases planned for the second half as I just discussed.

This is in line with our incidence pricing model and as a reminder, concentrate accounts for approximately 50% of our total cost of sales which is linked to revenue growth. We continue to anticipate commodity inflation in the high teens range weighted more to half two and we are now approximately 90% hedged for this year. In terms of the 2023 outlook, as you know, the commodities markets remain extremely volatile. While there has some recent respite in spot prices for certain raw materials, such as aluminum, please do remember that conversion costs still account for approximately half of our total commodities exposure.

And here we and our suppliers continue to feel the effects of higher energy prices and we'll continue to work with them to manage this appropriately. We are now approximately 55% hedged on our commodity exposure for next year at a group level and closer to 60% within Europe. We will continue to look at the right trigger levels to lock in more of our exposures depending on market condition. Taking all this into account, at this stage our best estimate is for high single-digit commodity inflation in full-year 2023. Of course, we are still seeing other inflationary pressures within COGS such as labor, gas and power as well as concentrate in line with our incidence pricing model as we realize more price and mix in the market going forward.

Whilst too early to provide full guidance for 2023, all of these factors combined will result in further COGS per unit case pressure next year, albeit not expected at the levels we have seen in 2022. Of course we will continue to look at all levers to continue to support our profitability with the focus on value creation for all our stakeholders. And as always, we will update you on more of that 2023 outlook in due course.

Back now to our remaining guidance. Taking into account our updated guidance for revenue as well as our latest view on COGS per unit case, we are now expecting operating profit growth between 9% and an 11 %. That said, we still expect overall operating profit for the full-year 2022 to be ahead of 2019 levels, albeit at a lower margin a great achievement in the context of such uncertainty and volatility in the market and importantly demonstrate us managing all levers on our P&L particularly on our operating cost base as I discussed earlier. We continue to expect a comparable effective tax rate for full-year '22 at 22% to 23%, implying a lower ETR in half two versus half one .This is due to certain timing related factors, for example we will realize some benefits in half two from the expiration of statutes of limitations on some of our tax exposures.

We will continue to reassess our uncertain tax position as we move through the balance of the year. Given our strong free cash flow performance in the first half, we are now raising our full-year guidance for 2022 from at least €1.5 billion to at least €1.6 billion, well above our medium term target of €1.25 billion. This equates to a current free cash flow yield of 6.6%. And given this strong focus on driving cash and working capital improvements, we remain confident that we will return to our target leverage range of 2.5 to 3.0 times by full-year 2024 whilst remaining fully committed to our strong investment grade rating. Our balance sheet is strong and we will continue to monitor the markets to determine opportunities to further optimize our debt structure and maturities.

So, that’s it from me for now. I’ll turn back to Damian for a few more comments before we open up to Q&A. Damian?

[Damian Gammell, CEO]

Thank you, Nik. So, finally to recap on our key messages. We had a great first half with strong revenue growth, value share gains and our away-from-home volumes back in line with 2019. This, alongside with our continued focus on driving efficiencies, has enabled us to raise full-year guidance today for revenue, profit and free cash flow. We are confident in our future alongside the Coca Cola Company and our other brand partners, while remaining mindful of the uncertain outlook. And finally, we look forward to welcoming you in our London office for our capital markets event on the 2nd and 3rd November. Here we will share more on our longer term growth ambitions as well as an update on our third quarter performance.

So, thank you very much. Now we would like to open for questions. Over to you operator.

[Operator]

Thank you. [Operator Instructions]. Your first question comes from the line of Edward Mundy from Jefferies. Please ask your question.

[Edward Mundy, Jefferies]

Afternoon, Damian, and to Nik. Sir, look I appreciate you're not seeing any shift in consumption patterns yet but relative to prior periods of consumer weakness. Can you talk to how the business is different vis-a-vis the portfolio, the digital platforms, and also the relationship with customers and then how does this help you navigate that potentially in a more tricky environment?

[Damian Gammell, CEO]

Good morning, Ed. Yes. I think we're very conscious and as you'd expect given the uncertainty, looking very closely on what's happening with the consumers, our shoppers, and indeed some of our customer's strategy. So, I think a couple of pillars that we've built over a number of years, I think give us the confidence that we can navigate it. I think one obviously we're seeing stronger revenues and volumes coming a while from away-from-home. I mean, that was a headwind for us during COVID but clearly it's bringing a much more balanced revenue stream and obviously a little bit more inelastic. So, that’s good. I think we're seeing grocery, we've been very focused on generating value for our customers.

And we've grown the category, we've grown margin, and I think that positions our brand as a key value driver for our customers. And I think that's always a good place to be at any given time but clearly as you move into some maybe more challenging times, I think the margin strikes in the value of our given time but clearly as you move into some maybe more challenging times, I think the margin strikes in the value of our brand, is a big asset when we look forward. Within that and if you go to any of our retail outlets in particular now, I think we've done a really good job having a much more balanced pack architecture, so I mentioned in my prepared remarks. So, we're moving conscious about having value across more balanced pack architecture.

So, I mentioned in my prepared remarks, we moving conscious about having value across all of the price points and so our RGM work really has balanced our pack off and now in retail. And I think that allows us not just to manage promotions more effectively and efficiently but those allow consumers to participate with our brands at varying degrees of price points. I think that’s critically important. And then sort of final aspect is both our sales Monster and the Coca-Cola Company continue to invest in that category. Well ahead of prior years and I think that's also important because as people make choices, the brand equity and the brand love that we built is critically important.

So, think all of those give us confidence. And having said that, we've looked back at previous economic challenges, the category continues to perform very strongly particularly cola and if there are some moves to private label, it tends to be in flavor. So, we're aware of that and we'll adapt accordingly. So, I think all of those tools will allow us to manage that. We haven’t seen it yet to your point and but clearly things will change quickly. So, we're prepared.

[Edward Mundy, Jefferies]

Okay, Damian. And just as a quick follow-up. I mean, you mentioned some of that the tailwinds you've got from an execution standpoint. If you were to really pinpoint what led the acceleration in market share from 10 bps to 30 bps at H1. What would you really put that on?

[Damian Gammell, CEO]

Yes. I mean I think you even look within Sparkling and its and then most of our markets has seen a stronger performance Ed, and I think that's on the back up. We continue to invest in 2021 and we continue to focus on the long-term health of the category. We continue partner well with our customers. And obviously we've a lot of innovation. I mean Coke Zero, the new packaging has been phenomenal; there's great flavor innovation of Fanta; the Monster portfolio continues to innovate and expand. So, there's not really one reason and I think it's just really the output of a number of different initiatives over many years; it's not something that's just happened this year.

We had strong momentum on share. Obviously we were hurt in away-from-home with COVID but during that period we reorientated our business to being a more retail focused business and we probably sharpened our focus and execution and that's coming through now in some of these share gain. And obviously we're very happy with that and we'll see that continuity here, Ed.

[Nik Jhangiani, CFO]

And I think our customer service levels have also been very strong in terms of ensuring availability on shelf which is great relative to a lot of our competition. So, I think that's also something that clearly helps and will help us going forward, it will.

[Edward Mundy, Jefferies]

Great. Thank you.

[Operator]

Thank you. We will take our next question. Your question comes from the line of Simon Hales from Citi. Please ask your question.

[Simon Hales, Citi]

Thank you. Hi Damian, and Nik, Sarah. Nik, maybe one more for you. But can you talk a little bit more about your sensitivity in how focused are as we end in directly to potential further moves in the European sort of gas price. I know you referenced it with into stock building and I will ask you what the impacts on the second half as you have taken this volume coming from a potential both gas supply and supply chain disruption standpoint. Can you help with the from sensitivity as to how material that all the 10% or 15% move could be when we think about planning for H2 margin into 2023?

[Nik Jhangiani, CFO]

Hey, Simon. Yes, great question and very tough to give you a clear position on that. I think if I look at half two and Q4 in particular, I think that couple of things that we're doing and it's coming more from ensuring that we have alternates in terms of what we can use. So, I think so if you take a market like Germany, we've ensured that we've got contingency plans in place both from an availability in natural gas or also looking at fuel oil. And all our plans actually will have duel fuel boilers being available or mobile boilers to allow us to have alternate sources of energy to be used for that.

I think as we look at '23, that will also help us as we look at other sources of renewables across some of our plans and how we're expanding and building out our ranges there. Obviously one of the challenges that we're working through is a little bit more with our suppliers to ensure that they have adequate contingencies and back up plans to be able to continue to supply us with critical ingredients and packages to ensure back to that point around ensuring that we have product available on shelf. So, a lot of moving parts but I think we're well-positioned as you've seen from an angle of what we've been able to deliver so far and how we continue to work in what is probably the most volatile and fragile supply chain. But well protected to the best we can. I think it comes across again in our service levels relative to a lot of our competitors.

[Simon Hales, Citi]

Got it. And then just a follow-up. As we go to mostly the working capital move that you highlighted, now you have been absolutely working some of the H1 benefit that we've seen. You equated maybe the free cash flow you said in the first half is very impressive. The step-up and guidance for the full-year is quite limited. Is it all really all working capital that's sort of depressing the H2 cash flow delivery or something else in the cash flow that we should be aware of?

[Damian Gammell, CEO]

Yes. I mean, honestly, that's actually quite a small element of it. Because it's really like is said just limited to inventory and what we want to do there. Part of it is definitely linked to CapEx phasing and I think as we were looking at our plans for this year, some of the larger projects are landing in the second half. And that's one element. And the second element is the slight impact from the working capital fees. But clearly a very strong delivery and I will continue to say even the upgraded guidance remember is a very strong number in terms of full-year free cash flow relative to our mid-term target of the $1.25 billion. So, we're very pleased with the progress on making that.

[Simon Hales, Citi]

Got it, excellent. Thank you.

[Operator]

Thank you. We would take our next question. And the question comes from Brian Williams from Bank of America. Please ask your question.

[Brian Williams, Bank of America]

Thanks, operator. Good morning, guys. So Nik, just a question on I guess gross profit or gross margin and I guess two parts to it. One, in the first half given how strong the volume was on the volume growth. Is volume leverage, was the volume leverage a contributor to cognificient fee I guess or bringing down that COGS per unit case inflation on a net basis. And then I guess if we look into to the second half, given it looks like we're still looking at revenue growth on being more driven by volume. Is that a factor again as we’re kind of looking at kind of the next COGS inflation to the back half of the year. So, really question is just how much of a benefit are you or are you getting from volume leverage?

[Nik Jhangiani, CFO]

Well, clearly a big benefit when you think about the fact that 15% of COGS is the manufacturing piece and that's largely fixed and largely label related, right. So, there's an efficiency element in there but clearly as you get that volume returning, should be back to leverage tailwind for us from an angle of the COGS per unit case. And that is the case in the second half as well. I think obviously it's clearly not offsetting the challenges that you're seeing from a broader commodities inflation perspective. So, but all-in-all if you look at the first half, we're very pleased with what we were able to deliver given our hedging position. Clearly that will accelerate in the second half when we think about that commodities pressure that we're looking at. So yes, that's the short answer, Brian.

[Brian Williams, Bank of America]

Okay, yes. And Nik, just to follow-up on that. Just as we're thinking about model -- we're modelling out next year, does that benefit kind of stay in the base, and again we're not knowing entirely what volume growth would look like next year. But just trying to sort of understand whether or not that should stay in the base and we model off of that or should we be thinking about if there is the potential that there is you put volumes pull back next year that that could be like a gross margin headwind?

[Nik Jhangiani, CFO]

No. So, clearly look here and when without giving any '23 guidance, we're expecting growth and volumes for '23. So, that clearly stays in our base and should accelerate but then keep in mind the headwind that you'll have there as you're looking at labor inflation as well, right. And we need to continue focusing on efficiency gains to offset that labor inflation fees along with volume growth. So, it'll be both those factors that should continue to support in terms of efficiencies and volume growth.

[Brian Williams, Bank of America]

Got it. Alright, thanks Nik.

[Operator]

Thank you. We will take our next question. Your question comes from the line of Charlie Higgs from Redburn. Please ask your question.

[Charlie Higgs, Redburn]

Hi, Damian, Nik, if you will. I got a question on Australia where in the three to five years throughout the pandemic it was quite tough market both the volume and the revenue the case growth stand free. But it looks like you've already managed the credit volumes and the revenue be case kind of mid-single digit range. So, can you maybe just talk about some of the early things you've changed there, Damian, maybe what you saw when you're on your site visit that could be applicable back in Europe. And how much further is to go in sense optimizing the portfolio down in Australia. Thank you.

[Damian Gammell, CEO]

Yes. Very exciting market and I've been pleased to being down there and say hands on. And I think to give credit to Peter and the Australian team coming into the acquisition, they'd already started to make some changes in the Australian market based on as you call that a number of years of stagnant and no growth. So, clearly when we've looked at some of them issues we've taken in the last 12 months, the portfolio came out I think as a boost to volume growth and ironically because that allows us to focus in the categories that are growing and not to get distracted with plays and beer or cider. So, there's definitely a focus benefit. There's an alignment benefit coming thorough now with the Coke Company as we've executed the brand sales.

So, we're very clear now on how to win in flavors, a category that we've struggled within. And we've made some bold moves on the back of European learnings and based on some work that Peter did in Australia around promotional price levels. So, clearly that has allowed us to support our revenue growth. And with the Coke Company, I think Coke Zero in Australia has really had a great year as well. So, a number of different drivers of growth and also we're benefitting clearly with COVID restrictions easing and people going back out and eating and drinking and is a big part of the lifestyle when they're outside. So, that's definitely helping. But it's very sustainable volume growth and revenue growth which I'm pleased with.

In terms of learnings, I think a couple of areas that I really liked about our Australian business is well a very clear focus on cost or profit on shares. So, I think the team has done a lot of work on a channel level looking at the cost of shares and had an impact on that, something we're looking out for Europe. A lot of great work and data analytics and they we enjoy a lot of store level data on the category, not just on our business. Got to love, Peter and the team been very segmented about what particular not just what customers want stores but our customers really do we need to focus on anything, that's something that we've taken back and Steven and on GB team particularly have looked at that for the U.K.

So, quite a wide range. Something we'll touch on when we're together in November. I think it's going to be a topic at the Capital Markets Day that we'll be able to share a bit more about what best practices have gone both ways. But I'm very confident that the commitments I made that it's a great deal not just because we're buying a great business but it's a great year because it'll make Europe stronger and I think I see that coming through more-and-more. And that’s really exciting.

[Charlie Higgs, Redburn]

Thanks, Damian. That's very useful. And then just a quick follow-up for Nik. On the cost savings from the combination benefits coming in quicker, is the way to read that that they're all going to be realized in 2022 and therefore none in 2023?

[Nik Jhangiani, CFO]

No. All I've said is that there's an acceleration and we now expect to have delivered about 85% of the total benefits that we had announced to the $350 million to $395 million by at the end of 2022. So, that's clearly definitely more savings to come in '23 and '24, although I'd like to accelerate that to have back in 2023. So, that's the plan.

[Charlie Higgs, Redburn]

Perfect. Thank you, very much.

[Nik Jhangiani, CFO]

Uh-huh.

[Operator]

Thank you. We will take our next question. And the question comes from Sanjeet Aujla from Credit Suisse. Please ask your question.

[Sanjeet Aujla, Credit Suisse]

Hi, Damian and Nik. Just a question on pricing. Can you give us a sense of the magnitude of pricing you bring through in H2 relative to what you did earlier this year? And it sounded like you were striking a bit of a cautious turn on France and Germany in particular perhaps pursuing a bit more of an affordability approach there. So, just love you to elaborate a little bit on that. Is there anything to do with what you're seeing with the consumer today? Thanks.

[Nik Jhangiani, CFO]

No. So, I'll come back to the first question. But on your second question, no I was just talking more around the fact that clearly the cost pressures that we're seeing all across all our market and both France and Germany do have a larger home market relative to some of our other markets and hence we just need to be mindful and watchful of that. Nothing other than that. So, I think obviously the good news is as we're looking at some of the markets in Northern Europe as well as our Spain and Portugal. We've kind of already been able to land our pricing in July and that is now in the market. So, that's great news. The markets now ahead of us are really France which is live as we speak and should be concluded during this month.

And then you got Germany and GB coming right on the back of that. I would say the price increase is going to range across our markets depending on obviously the channel mix, the brand mix, and it'll vary like I said and Damian said we're not really taking just a fixed price increase across channels and across all brands and packs. We're being very surgical in terms of how we're looking at it based on brand packs, internal and elasticities and then back to the broader comment around also being mindful around continuing to be affordable and relevant to our consumers and shoppers. I mean, the great news is I think we're an affordable product that obviously has strong brand equities, strong brand love, and ultimately taste and quality are of critical importance, right. So, we remain very excited about the category as a whole and the robustness of the category and what we both has seen during pack downturns in terms of how the category continues to perform. And so, that's where we are.

[Sanjeet Aujla, Credit Suisse]

Great. And just a quick follow-up on Indonesia. And clearly there was some phasing between Q1 and Q2 in terms of the Ramadan timing. But can you just give us a sense of how much the portfolio you are rationalizing and taking out, how impactful has that been?

[Damian Gammell, CEO]

Yes. I mean, it's made a bigger impact and quicker than we kind of expected, to be honest. So, I think we clearly have aligned on two core categories; Sparkling and Tea. I think what we've seen in Ramadan and actually it continued, post-Ramadan is that has allowed a salesforce and a supply chain and indeed our customers to align against two categories what we believe we got brand strength. Simplifies our business quite a bit and frees up the supply chain to deal with that peak around Ramadan. Clearly a long term objective is that peak gets smaller because we've built a bigger business outside of Ramadan. And that's the strategy when I'm working on with the teams locally and with the Coke Company. So, it's added a medium impact and it's been executed quicker than we expected. The team locally have done a great job.

I think our customers understand it because for many years they saw us trying to compete with multiple categories with very limited success. And I now start to see the growth in Sparkling and clearly when you look at the Sparkling category and the margin structure for them as well is more attractive. So, we continue to focus on that but the bulk of the work has been executed and is already in market. And then clearly as we understand that business better and the consumer better, that gives us the opportunity to invest not across six categories but in certainly one category Sparkling and then the second one Tea. So, yes it's been a big driver of our progress in Indonesia. And as I said from myself and Nik we were down there and we did great buying from the teams and our customers. And because of that, they executed it quicker than I thought we could. So, that was that's a nice surprise.

[Sanjeet Aujla, Credit Suisse]

Great, thank you.

[Operator]

Thank you. We will take our next question. And the question comes from Bonnie Herzog from Goldman Sachs. Please ask your question.

[Bonnie Herzog, Goldman Sachs]

Hi, thank you. Hi, everyone. I'm just hoping you could talk about any changes you're making to your price cap up in pressure to ensure greater affordability for consumers, getting all the pressures. Just I'm curious to hear how quickly you can put it in your portfolio and maybe just how much lead time you need to such things over. As we think about this second half, how should we think about your mix changing, any key call outside region based on this. Thanks.

[Damian Gammell, CEO]

Hi, Bonnie. And yes, I mean it really comes back to what I talked about. I think we've over a number of years built a much broader pack, I mean B brand portfolio within retail where if we start to see that pressure would be in it'll be more retail obviously. So, I think that gives us existing SKUs on shelf and if you visit any of our retail outlets across CCEP you'll see our brand pack architecture representing premiumization in terms of glass, multipack, all the way through to more value conscious consumer offerings around large multipack 6 x 1 ½ either PET or multipack cans. So, what we have seen in COVID is our business pivoted much more towards retail, so we'll see a lot more momentum of multipack cans and clearly that is a pack that is if we look through the consumer becoming more price sensitive.

It is possible for us to change our promotional focus with our customers and pivot more towards some of those value packs. The good news for us is value packs now are at a lower level of discounting and you would have seen certainly four, five years ago, in Europe we've done the same now and on Australia. So, we can continue to offer value and margin for our customers. And I think that's critical and also for our shareholders. In terms of lead time, and it's quite flexible once they're on shelf, so I think we're in a good position. It can differ from four to 12 weeks depending on the customer you're talking to and so we're quite flexible. We don’t see a significant shift and we're already coming in to and the second half of the year.

Some has been very strong. Once we get to Christmas, which will be the next big peak in our business. Anywhere our portfolio tends to move towards larger pack sizes as people enjoy Christmas and celebrate at home. So, that's already in our mix plans anyway. And it'll really be then into 2023, do we see a significant move from the consumer side towards more value until we change our pack emphasis going into '23. But that's something we can update you on later in the year.

[Bonnie Herzog, Goldman Sachs]

Okay, I appreciate that. Helpful. Thanks.

[Operator]

Thank you. We will take our next question. The question comes from Fintan Ryan from JPMorgan. Please ask your question.

[Fintan Ryan, JPMorgan]

Good afternoon, Nik, Damian. And just one question from me, please. Sorry for this slightly delay from the point of pricing. But with regards to the conversation that you're having with customers currently, do you still feel confident that you'll be able to take another round of pricing from the start at 2023. And presumably, sort of taken the low hanging fruits trend and in relation to cost. How should we think the balance between in absolute pricing, product mix, and promotional intensity, as we look into 2023? And is there any sort of are you seeing any changes within the competitive environment of competitors maybe being more-or-less possibly more at certain pricing from your big market.

And also assume that given some of the pressures and your and the energy costs, will it be a fair assumption that should be more or to be more aggressive when it comes to price realization within Europe versus in the API market if we look into next year?

[Damian Gammell, CEO]

Hi, Fintan. You did well to fit in four questions into one. So, let me make sure we try to answer them. And as I think we've called that before, I mean our pricing strategy is multiyear. So, I mean, I think we're we've done a good job and we continue to a good job managing pricing over multiple years. And clearly, when we look at the pricing that we've taken in 2022 and we're currently looking at, we're also looking at what we will need to take in 2023 as well. So, we don’t see any difference clearly based on some of the topics you outlined continuing pressure on energy costs, labor inflations, Nik talked about. So, clearly we managed our pricing strategy on a multiyear level. As I said on previous calls, would have you to maintaining momentum with our customers and with our consumers.

So, I think we've been very mindful about what pricing we take and what pack and what channel Nik mentioned that it's really driven by good data, insights, and understanding. Where we can pass on pricing and where we want to maintain a value proposition to keep the category healthy and to make sure that we grow value for our customers. So, that will continue into 2023. So, no change. We're actually investing more in promo, if you look at our numbers. So, clearly we've come back with a strong retail business, we've got a strong away-from-home business, so our promo is growing because our volumes is growing. So, we redeployed our promo function to smarter promotions and but we continue to invest in promotional pricings because we believe it's good for the category, it's good for our customers and it gives us a tool to manage some of that potential consumer headwind if it comes.

So, we've been quite protective of that investment. We tried to continue to spend it smarter and you're seeing that in our net unit case revenue growth. But clearly that is a large as Nik continues to remind, our commercial people, it is a large amount of funding and which drives our business but also gives us flexibility to look at in 2023 had we want to deploy that. And that's something we'll continue to look at. And from a European and API perspective, obviously going to need is a little bit different but we would see similar strategies across New Zealand and Australia around our price promo.

And so, not a big difference which is also I think been somewhat encouraging since we did the deal. And so, a long answer and but clearly more pricing in '23 and continued investment behind the right packs and channels to make sure we continue to drive this very healthy category. And we will continue to grow value for our customers. And if we need to make bigger decisions on promo, we've now we've got that value to play with and we'll continue to make smarter decisions. Nik, I don’t know if you want to add anything to that. I think you've covered it, I'm good.

[Nik Jhangiani, CFO]

Great. Thanks very much for the multi question.

[Operator]

Thank you. We will take our next question. The question comes from the line of Lauren Lieberman from Barclays. Please ask your question.

[Lauren Lieberman, Barclays]

Hi, thanks. Good morning or good afternoon. And I just want to ask yet another question on we saw revenue growth management, in this time focusing actually on away-from-home outlook. And so far and many mentioned the glass and increasing in glass in the release. I know some of that's going to be related to the reopening. But I was curious if you could speak to how you've actually tend to, you have changed the package mix within away-from-home account. The degree of assessment and focus over the past two years, if you think there's sort of any structural change in mix within those outlook. I think that'd be helpful and interesting to talk about as well. Thanks.

[Damian Gammell, CEO]

Okay. Thanks, Lauren. Yes, I suppose if we go back to pre-COVID if I can talk like that. So, or maybe even back to the origin of CCEP. I mean, one of the growth drivers we identified in Europe was away-from-home pack mix and you've seen that we've been offering a lot more options for our customers and our consumers around glass and premium can offerings in particular. Here we got great businesses like Spain, Belgium and now New Zealand where we really see and can demonstrate the power of having a really healthy pack mix in away-from-home. And we set some goals across our European businesses to continue to kind of mirror that. And we've made investments. So, if you go to Germany, we're now offering four to five different glass pack sizes and that investments been over multi years. We've now just moved our whole portfolio on France and to RGB.

So, it's really been clear to our salesforce and what we believe is important in away-from-home, supporting now with cooler investments, TME, promotions and advertisings. So, you'll see a lot more glass being advertised now in Europe. And then making sure that the value structure for our customers is in place and clearly the margin structure and RGB based on the prices that they sell for is very healthy. So, there's a good profit story for the customer. Our biggest challenge has been continue to keep up with demand. So, as to get our supply chain and continue to invest in glass and in RGB to meet that demand. So, that will continue as I said its multiyear and we're also seeing with HoReCa coming back post-COVID. And where there is a slightly more premium offerings in the market now which also plays into that glass and premium can proposition.

And yes, so it's going to be part of our story for a number of years along. It's we've got a lot of growth potential. If you look at you've been to Spain, you look at our market there and you look at some of other markets, clearly we've got a way to go which is great. I'd like to particularly call at GB and I think if you look at our market in GB, Steven and the team has done a great job driving glassy solution in GB. So, next time you're in London, we'll hopely show you a bit more of that as well.

[Nik Jhangiani, CFO]

November, coming up soon.

[Lauren Lieberman, Barclays]

Excellent. Exactly, as soon as possible. Alright, thank you so much.

[Operator]

Thank you. We would take our next question. The question comes from Robert Ottenstein from Evercore ISI. Please ask your question.

[Robert Ottenstein, Evercore ISI]

Great. Thank you, very much. And congratulations on terrific results. I am just wondering if you could please remind us about your package mix in Europe. So, just specifically European question, the mix between PET, glass, aluminum. And then, I know you touched on it earlier in terms of your discussion with your suppliers but can you just kind of give us any more granularity in terms of your confidence in glass supply in worst case scenarios with natural gas. Thank you.

[Damian Gammell, CEO]

Well, just on this. Maybe I'll take. Hi, Robert. I'll just take the second question. I mean, I just want to call out to the alignment with our suppliers based on the challenges has been fantastic. I mean, clearly we're a big customer for them. But over a number of years we've been working to try and build more strategic relationships and they've done a great job keeping up with not just the challenges that you mentioned around energy pricing and availability but also our volumes have been a bit stronger than we originally planned. So, that’s worked well. I'll hand over to Nik just to kind of share with you a little bit around how that mix looks in Europe.

[Nik Jhangiani, CFO]

Yes. And I think just building on Damian's point. I mean the fact that we've been able to continue to support the growth that we're seeing across the various packs. And I'll particularly call out our can and our glass suppliers is has been testament to I think the strength of our relationships with them. So, I think if we look forward, we continue to feel good around continuity if by. From a mix perspective in Europe, about 55% of our business is in PET. And just as a reminder, we have over half of that in terms of recycled PET that we use in a number of markets that transition to a 100% rPET at least for the on-the-go part of the business or a market like the Sweden that's 100% rPET across all their packages. About 30% in cans and that's where we've seen some strong growth. And then, about 7% to 8% in glass and post mix each. So, that's roughly the mix that you would see in Europe.

[Robert Ottenstein, Evercore ISI]

Terrific. Thank you.

[Damian Gammell, CEO]

And I think, just on that Robert. I mean, that's volume.

[Robert Ottenstein, Evercore ISI]

Yes.

[Damian Gammell, CEO]

So, I you want to turn rate that into revenue, clearly those numbers would change dramatically with glass and cans in particular being a much higher share of our revenue which is really what we look at internally. So, that's the volume mix. But on the revenue side, it's even more balanced with glass and cans playing a bigger role which I think back to a lot of the questions around price mix or how are we going to deal with any potential consumer headwinds and it demonstrates a much healthier list of options for our salesforce and our customers to work with than previously.

[Robert Ottenstein, Evercore ISI]

Thank you, very much.

[Operator]

Thank you. We will take our next question. And the question comes from Eric Wilmer from ABN AMRO-ODDO. Please ask your question.

[Eric Wilmer, ABN AMRO ODDO]

Hi, everyone. I was wondering if you could talk a little bit about the difficult situation at the European airports especially in July with the potential knock on effect in August. How do you see consumers behave in this regard that's by cancelling or changing holiday plans? So, and too and what would be the impact on your Iberian and French business in Q3 which I believe is very much on track geared during this quarter. Thank you.

[Damian Gammell, CEO]

I think the biggest impact is people are getting to the airports earlier.

[Nik Jhangiani, CFO]

They could see I mean more of our product along their way.

[Damian Gammell, CEO]

I know, we are. I mean I think proportionately what you're picking up is very small relative to the size of our business. And if I just look at our Spanish business, our French business which are probably more tourist centric and we're not seeing any sign of a slowdown. In fact, trying to get hotel bookings or restaurant bookings and across all of our big cities and it's quite challenging. And even in London, I commented I was around some of the tourist areas last night in London and they are completely packed. So, we are picking up noise be a can for the future with all flights, we noticed there's been challenging's at Skip-Bo. Maybe a percentage of people have cancelled their holiday but generally then they stay at home.

So, we pick up a bit more volume maybe in Holland and our Netherlands and a bit less in Spain. But overall it's on the edge, really and quite marginal when we look at the volume of people who are moving. And if we look at tourism numbers and across all of our markets extremely strong. Clearly a bit less than traditional from Asia, so that will probably be a benefit coming into next year if that reopens a bit more but certainly we're not seeing any dramatic impact other than probably a few people moaning about security cues. But I think that's going to be like. As you said, definitely into Q3, it could probably run fully end of the year as airports continue to cope with what is being dramatic demand. And but again, nothing material in our numbers at all.

[Nik Jhangiani, CFO]

No. And I think as we look at and our business units have good visibility at least six to eight weeks south in terms of order flow and no real impact that we're seeing. So, we feel pretty good about the continued strength of the growth in the away-from-home at least through the summer.

[Eric Wilmer, ABN AMRO ODDO]

Got it, that's very helpful. Thanks.

[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, CEO]

Great, thank you. And again, thanks everybody for joining us. And I just like to wrap up by once again just saying a big thank you to all of my colleagues at CCEP for delivering what has been as you've heard today a great first half. I'd also like to thank our customers for their partnership as we continue to grow on this category and this business. And as we touched on a little bit in the call but I do want to call out and a big thank you to our suppliers that clearly stepped up to meet stronger demand in a more volatile environment and continue to keep our airlines running.

So, again a big thank you to our suppliers. Yes, as I wrap up the call, I'm extremely pleased and proud today to be able to raise our guidance for 2022. And to have shared with you the opportunity around our business much as looking at the first half of 2022 but how we see the year progressing and the actions we're taking also to ensure another successful 2023. I do look forward to welcome you those of you who'll travel to join us in London for our Capital Markets Day in November.

[Operator]

And that concludes our conference for today. Thank you.

[Damian Gammell, CEO]

Everybody, a great summer. And I look forward to seeing you in London. Thank you, everybody.