Charlie Higgs

Charlie Higgs from Redburn Atlantic asked for an update on the Australian business's margin turnaround since the Amatil acquisition, and whether margins could return to their historical highs.

Answer

CEO Damian Gammell stated the opportunity in Australia is 'far from over,' citing portfolio alignment like the Beam Suntory exit as a driver of future efficiency. CFO Ed Walker confirmed that operating profit margin has already seen accretion since 2021, driven by strong revenue growth, capital investments, and the leveraging of shared services.

Charlie Higgs from Redburn Atlantic asked for an update on the Australian margin turnaround since the Amatil acquisition and whether margins could return to previous peak levels.

Answer

CEO Damian Gammell stated the opportunity is 'far from over,' citing portfolio alignment and capital investments as drivers. CFO Ed Walker added that since 2021, revenue has grown at an 8% CAGR with operating profit margin accretion, thanks to strategic investments and the leverage of shared services.

Asked for an update on the Australian margin turnaround story since the Amatil acquisition, questioning if margins could return to their previous high-teens/low-20s levels, considering operational improvements and the new Manila shared service center.

Answer

Management is very pleased with progress in Australia, stating the opportunity is 'far from over.' Revenue has grown at an 8% CAGR since 2021, with operating profit growing even faster, leading to margin accretion. This is driven by investments, RGM capabilities, portfolio alignment (like the Beam Suntory exit), and leveraging shared services. More progress is expected.

Charlie Higgs of Redburn Atlantic noted the net debt to EBITDA ratio has fallen to 2.7x and asked about the capital allocation strategy, questioning if the company is leaving dry powder for M&A despite the new buyback.

Answer

CFO Ed Walker confirmed the goal is to operate within the 2.5x to 3.0x leverage range, leaving some flexibility for cash investments and potential M&A. CEO Damian Gammell added that the new share buyback still leaves "powder for M&A," and the company remains interested in accretive opportunities, particularly in bottling assets.

Charlie Higgs asked about capital allocation, noting that leverage had fallen to 2.7x and that even with a €1 billion buyback, it might continue to decline. He questioned how the company views its balance sheet and potential for M&A.

Answer

CFO Ed Walker confirmed the goal is to operate within the 2.5x-3.0x leverage range, leaving flexibility for business variations and potential M&A. CEO Damian Gammell added that the buyback still leaves 'powder for M&A' and that while the company is interested in opportunities, finding attractive bottling assets is challenging.

Asked about the company's capital allocation strategy, particularly regarding the balance sheet leverage and whether they are reserving financial capacity for potential M&A.

Answer

The company aims to operate within its target leverage range of 2.5x to 3.0x EBITDA. This provides flexibility for organic investments, shareholder returns like the new buyback, and leaves 'dry powder' for potential value-accretive M&A should opportunities arise.

Questioned how CCEP will balance margin expansion in the Philippines with ESG goals, specifically asking if the high mix of refillable bottles would need to decrease to improve margins.

Answer

Executives stated that the refillable mix does not need to decrease; in fact, refillables have a strong gross margin and are key to the future strategy. Margin improvement will come from supply chain efficiencies, RGM, and volume leverage. A local excise tax also mathematically suppresses the margin percentage, while absolute profit grows.

Charlie Higgs requested more detail on the 6% volume growth in the Asia Pacific region, with a specific focus on the consumer environment and execution in China.

Answer

Chairman and CEO James Quincey explained that the strong Asia Pacific growth was driven by a good quarter in India and growth in China. He noted that China's performance reflects a recovery based on actions taken last year to focus the portfolio, including a strong Lunar New Year activation. He also mentioned decent results in Japan and South Korea, with some softness in ASEAN.

Charlie Higgs asked about the recent refranchising of a portion of the India business, inquiring what attributes the new local partner brings that could accelerate growth.

Answer

CFO John Murphy, having recently returned from India, explained that the refranchising is part of the company's ongoing global program. He stated that the new partner, the Jubilant group, fits the desired profile of being ambitious, well-capitalized, and capable of building capability over time. He expressed belief that the new partner will add tremendously to the company's ability to step-change execution in the vibrant and competitive Indian market, which has a tremendous amount of runway.

Charlie Higgs of Redburn asked for more detail on the 1% decline in Q3 unit case volumes, seeking to quantify the impact of consumer hesitancy and portfolio trimming, and questioned if Coke Zero's growth was incremental.

Answer

Chairman and CEO James Quincey explained the volume decline was concentrated in emerging markets, citing ongoing pressure in China and Eurasia, and temporary factors like a heavy monsoon in India. He contrasted this with good volume performance in developed markets like North America, Europe, and Japan. He did not directly address cannibalization but noted Coke grew volumetrically in China.

Charlie Higgs asked for confirmation that the organic sales growth guidance now includes high-inflation economies and questioned what contribution from these economies is built into the forecast for the rest of the year.

Answer

EVP and CFO Jamie Caulfield confirmed the guidance now includes high-inflation economies to align with peer reporting. He stated it was not a significant contributor in Q1 and is not expected to be a significant part of revenue generation for the full year. Executive Ravi Pamnani added that the impact is immaterial and has no effect on earnings.