Coca-Cola Europacific Partners - Q1 2023 TU

Transcript

Operator (participant)

Hello, thank you for standing by, and welcome to today's Coca-Cola Europacific Partners Q1 2023 Trading Update Conference Call. At this time, all participants are in listen only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. I must advise you that this conference call is being recorded today. I would now like to hand the conference over to Vice President of Investor Relations and Corporate Strategy, Sarah Willett. Please go ahead, Sarah.

Sarah Willett (VP of Investor Relations and Corporate Strategy)

Thank you all for joining us today. I'm here with Damian Gammell, our CEO, and Nik Jhangiani, our CFO. Before we begin with our opening remarks and our first quarter trading update, 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 made by Damian. We will 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 (CEO)

Thank you, Sarah, and many thanks to everyone joining us today. I'm really pleased with how the year started. We achieved solid top line growth of 14% in the first quarter, reflecting great in-market execution, as well as good underlying demand across our markets. As always, I would like to start by thanking everyone at CCEP for their continued hard work and commitment to our business and to our customers. Revenue per unit case is up 10%, reflecting positive headline price across all markets, and our continued focus on promotional spend optimization. Favorable pack and channel mix also contributed to the growth in revenue per unit case, led by the outperformance of the away-from-home channel, which was still impacted by COVID-related restrictions at the beginning of last year.

Volume growth of 5% in Europe reflects strong underlying demand and the tail end of COVID recovery in markets such as Germany, Northern Europe and Iberia. For example, in Germany, the away-from-home channel was still down 20% versus 2019 in the first quarter last year. We've now seen a strong rebound, particularly in restaurants and cafes this year. With recent trading indicating no significant change in underlying consumer demand, we are optimistic but remain vigilant as we head into Europe's key summer selling season. API volumes were flat overall. The great momentum we have been enjoying in Australia and New Zealand continued, with both markets also benefiting from the tail end of COVID recovery and the successful navigation of industry-wide supply constraints. This was despite record rainfall and a widespread catastrophic flooding which occurred in New Zealand earlier this year.

Resilient volume growth in Australia and New Zealand was offset by volume declines in Indonesia, reflecting the early steps we are taking in our long-term transformation journey in this exciting market. We are implementing a much tighter portfolio strategy focusing on sparkling and ready-to-drink tea. As discussed previously, this has led to the rationalization of a significant number of our SKUs, the impact of which will continue into the third quarter this year. Despite some micro consumer headwinds, such as the reduction of fuel subsidies and the slightly later timing of the religious Holy Day salary bonus, we achieved sparkling volume growth during the quarter. Excluding the SKU rationalization, total volumes in Indonesia would also have been slightly positive. Revenue per unit case in Indonesia was positive as we continue to focus on driving profitable revenue growth through a more focused portfolio.

This was supported by fantastic activation during both Chinese New Year and of course Ramadan, with more activations already planned as we start to build out new occasions across the entire year. Overall, we gained value share both in store and online in NARTD categories. We also retained our position as the highest value creator for our retail channel customers within FMCG in Europe, delivering over EUR 100 million of absolute growth, and within NARTD in Australia and New Zealand. The NARTD category continues to be one of the best performing categories within FMCG, growing in value terms by approximately 7% in Europe and nearly 9% in API. Ultimately, we continue to believe that with our great brands and best in class capabilities, we can continue to at least maintain or grow our share of the category.

Trading aside, we continue to make disciplined investments for long term growth, particularly in our people, our portfolio, our digital capabilities, and of course, our sustainability agenda. On our portfolio, we continue to invest in our much loved core brands and launch focused innovation. Coca-Cola Zero Sugar continued to perform well, up 8% versus last year. You may also have already spotted our limited edition Marvel themed Coca-Cola cans out in our market. Monster also continued to outperform, driving overall energy volume growth up 15% versus last year. Fantastic innovation and partnerships continue to help drive recruitment and distribution. In our flavors, Fanta and Sprite achieved good volume growth overall, supported by double digit growth in Australia, where we also gained over 250 basis points of value share. WhatTheFanta is back again in Europe with a fabulous new purple taste.

ARTD achieved double-digit volume growth in Australia, led by -196, and we are very excited to have launched Jack Daniel's and Coca-Cola ready-to-drink in Great Britain and the Netherlands. The packaging looks fantastic, integrating the iconic qualities of both brands, and it tastes great. On digital, in online grocery, we continue to see share gains of 40 basis points, and we relaunched our B2B portal, My.CCEP.com, with a new design, improving the user experience and making it easier for our away from home customers to do business with us. On sustainability, we are proud to have retained inclusion on CDP's A list for supplier engagement for the 5th consecutive year and to be again recognized amongst the Financial Times-Statista list of Europe's Climate Leaders.

We are also extremely pleased to announce an investment of over EUR 40 million in our refillable bottling infrastructure in Germany. Investing in refillable solutions is just one of the ways that we are seeking to eliminate packaging waste and reduce our carbon footprint as we continue our journey to net zero. I'm also proud that we were recently recognized as one of Australia's best places to work for 2023 from over 700 nominated organizations. Now on to our outlook for the full year. Our first quarter has set us up really well for the rest of the year, and we are now focused on building on this great momentum in the key trading months ahead, particularly as we lap last year's amazing European summer.

As you know, the first quarter is our smallest, and as such, today we are reaffirming the full year outlook we provided in February, albeit with greater confidence given an encouraging start to the year whilst remaining conscious of the dynamic macroeconomic outlook. We continue to anticipate full year revenue growth of between 6%-8%, mainly price and mix led, driven by our anticipated headline prices increases this year, combined with the annualized impact of last year's second round of pricing. Importantly, our priority is to remain relevant and affordable for consumers, so we will continue to optimize promotional spend and focus on delivering our revenue and margin growth management initiatives. As you know, we experienced unprecedented levels of input cost inflation last year and continue to face cost pressures, albeit to a lesser extent this year.

We continue to expect commodity inflation of around 10% for the full year, although we are seeing some respite on account of easing inflation in recycled PET, as well as lower gas and power pricing. We are now approximately 90% hedged on our commodity exposure for 2023. We continue to anticipate an increase of around 8% in our COGS per unit case, with slightly more favorable commodities offset by upwards pressures through the concentrate line as a result of strong revenue per unit case growth as well as geographic and pack mix headwinds. We will continue to update you on this as the year progresses. On OpEx, we remain on track to deliver our previously announced efficiency programs and continue to focus on optimizing our discretionary spend.

Overall, I'm pleased to confidently reaffirm our operating profit guidance of 6%-7% growth versus last year and to reaffirm our commitment to deliver strong free cash flow of at least EUR 1.6 billion this year. Our guidance, combined with today's interim dividend declaration of EUR 0.67 per share, clearly demonstrates the strength and resilience of our business as well as our confidence in delivering shareholder value. To close, I would like to thank our customers, our brand partners, and our great people whose hard work and commitment mean we are able to go further together to deliver for all our stakeholders. Thank you for your time today. Nick and I will now be happy to take your questions. Over to you, operator.

Operator (participant)

Thank you. We will now begin the question and answer session. As a reminder, we kindly request only one question per analyst. If you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star one and one again. Once again, please press star one one if you wish to ask a question. Please stand by while we compile a Q&A queue. This will only take a few moments. We will now take our first question. It comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.

Bonnie Herzog (Managing Director)

All right. Thank you. Good morning, everyone.

Damian Gammell (CEO)

Morning, Bonnie.

Bonnie Herzog (Managing Director)

Great quarter. I just had a question on your guidance. I recognize Q1 is a small quarter for you, but, you know, given the strong underlying momentum and execution so far this year, I guess, you know, what gives you guys, you know, pause to increase your full year guidance today, especially on the top line? You know, is there some concern that elasticities are strengthening? Also, you know, you touched on utilizing promotions, so trying to understand if pricing levels will be maintained and/or promotional levels may need to increase, I guess, as the year progresses? Or, you know, really, is there just a level of conservatism on your part for you to maintain your guide? Thank you.

Damian Gammell (CEO)

Thanks. Thanks, Bonnie. Good morning. I think you answered the question in your, in your opening comment. I mean, it is our smallest quarter. I mean, we're very happy with the start to the year that we've seen. We've got good momentum heading into the key selling period, particularly in Europe of summer. I think it's just, you know, a reflection that we've a long way to go this year. It's a great start. On some of the specifics, our pricing has landed well in the market. You know, we've seen our volumes hold up. We have called out more promotional pricing optimization, that's on the back of some of the work we're doing in data and analytics, just to really understand how we can spend that investment even wiser in the market.

That's baked into our plan and into our guidance. You know, we called out affordability as being, you know, important given some of the pressures our consumers are under and our shoppers. We will maintain our planned promo strategy and pricing strategy. That hasn't changed. It's working well. Really it's a reflection of, as you said, it's our smallest quarter. You know, we've got the key selling period, particularly in Europe, to come. We're not seeing anything beyond that, so it really is about the timing and the fact that it has been a great quarter, but obviously a small one. That's, that's the reason behind us not moving our guidance today.

Nik Jhangiani (CFO)

Just keep in mind, Bonnie, we are lapping very strong performance in Q2 and Q3 last year, as you'll recall. You know, we just wanna see how the summer starts out as well.

Bonnie Herzog (Managing Director)

Okay. That's helpful and expected. Thank you so much.

Damian Gammell (CEO)

Thanks, Bonnie.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Edward Mundy from Jefferies. Please go ahead. Your line is open.

Edward Mundy (Managing Director)

Afternoon, Damian. Afternoon, Nick. Just one question on your volumes. Appreciate that your away-from-home volumes had a little bit of a post-COVID tail and a post-COVID boost, but your at-home volumes didn't have that, and we're lapping some quite tough comps. You've still managed to deliver 3% volume growth. Could you, as you reflect on that volume number, could you perhaps provide a bit of color as you think about the category, the consumer environment and some of the sort of the execution that you've been driving that very strong volume performance at the home channel?

Damian Gammell (CEO)

Thanks, Ed. Good morning. We're really pleased that, you know, both of our channels held up really well in the quarter. As you said, away from home, you know, we believe it or not, it seems like a long time ago, but we were still cycling some of the remains of the pandemic, so that was pretty much expected. The home market has proved very resilient. I think on the back of a lot of the work we did, you know, over the last number of years around some of our brand innovations, particularly around Zero, new packaging formats, smarter price promotional activity, good listings and distribution, big push around our in-store inventory levels and Solvi.

I think there's a number of initiatives that we've been focused on over multiple quarters that are just giving the home market a little bit more growth. We're also seeing the consumer remaining resilient. We do see our retailers focusing a little bit more on retailer brands, and really that's on the back, particularly in Western Europe, of some of those consumer challenges around energy prices and disposable income. Despite that, the category remains very resilient. I'm pleased that we could hold our share in ARTD and continue to deliver good volume growth on the back of really solid pricing.

I think it demonstrates, you know, the investment from The Coca-Cola Company in building out our brands, and the ongoing work we've been doing with our customers around value creation, ensure that we got that space, in store that allowed us to kinda capture that increased demand. Yeah, very pleased with the volume number. I think it's been a while since we've seen that in a normalized quarter in the home market. As I said, it sets us up well for the rest of the year.

Edward Mundy (Managing Director)

Great. Thank you.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Lauren Lieberman from Barclays. Please go ahead. Your line is open.

Lauren Lieberman (Managing Director)

Great. Thanks. Good morning, everyone. Damian, you gave a lot of detail, a good update on Indonesia, I was curious also on Australia. you know, I think, you know, Coke yesterday actually called out package diversity in small cans as a highlight on their call, particularly in Australia, I should say. I just curious if you could talk a little bit about some of the work that you've been doing on package diversity, the degree to which this is kind of creating new immediate consumption opportunities, transaction growth, and also any developments in terms of on-premise penetration and mix as well. Thanks.

Damian Gammell (CEO)

Thanks, Lauren. Yeah, really pleased for the Australian team. I think they've had, you know, a great 2022, and they've kicked off with a very strong 1st quarter in 2023. I think the whole team down there, you know, are really doing a good job. One of the call-outs when we did the transaction was to try and bring some of the learnings from Europe around pack mix in retail, smaller packs, mini cans, smaller PET and better promotional effectiveness. The team in Australia have really taken that and really started to implement it. What you're seeing, and James called it out yesterday, is really strong transaction growth, particularly in retail on the back of smaller pack sizes, which obviously deliver better revenue per case growth for us and our customers.

That's definitely been a key driver of our revenue, and it's supported volume. On top of that, we've seen very strong share gains, particularly in flavors in Australia. Again, that goes back to the transaction where as you know, we strategically realigned our portfolio with The Coca-Cola Company and sold the flavor brands that we used to own to The Coca-Cola Company so we could have one strategic plan around flavors. That's paid off honestly a lot earlier than I expected. You know, we've really seen that clarity for our people and for our customers around our flavors portfolio working. A combination of pack price, small packs, particularly on Coke and Coke Zero, and a stronger flavor performance on the back of that new aligned plan with The Coca-Cola Company.

Both of those are delivering really strong growth in Australia. Out of retail, you know, the team continues to do a great job in terms of just driving our way from home business there. We've had a good summer. You know, we're now coming into autumn, you know, strong momentum continues. You know, all of those three elements really, you know, make the Australian business a standout in Q1.

Nik Jhangiani (CFO)

The home channel in particular, Lauren, was up in a high single digits. When you look at it, one of the things that Damian and I have really seen that they've been able to leverage with some of those smaller packs is they've got great presence in retail in terms of front of store. The checkout coolers, and the bank there and the shares that we have in there are just tremendous. The team have really been able to leverage those small packs through there as well.

Damian Gammell (CEO)

Yeah.

Nik Jhangiani (CFO)

That's really positive.

Damian Gammell (CEO)

Yeah. That's something we're looking at for Europe. I mean, we continue to look at how Australia have really built that front of store cold availability. I think we've lost a little bit of that in Europe, so it's something that we're trying to bring back because clearly it's great for our retailers' profit, and for transactions. Learning going both ways, which is something we really focused on as part of the deal. Next question.

Operator (participant)

Thank you. Sorry. We will now take the next question. It comes from the line of Charlie Higgs from Redburn. Please go ahead. Your line is open.

Charlie Higgs (Director)

Hey, Damian, Nick. Hope you're both well. I just had a question on the energy drinks category there, another strong quarter with volumes up 15%. Could you maybe just share a bit more color on that? Which countries are driving it? Is it predominantly Monster from the sugar-free range? Is it very much driven by the innovations? Any color there would be very useful. Thank you.

Damian Gammell (CEO)

Yeah. The category continues to be the winner in NARTD. It's had a phenomenal number of years. The first quarter again, you know, very strong. It's really coming on the back of the innovation on the Monster brand, Charlie, and it is sugar-free variants. You know, they continue to bring really great products to market, great imagery and, you know, we matched that with a lot of great space in store and the execution. You know, it's pretty much across all of our markets. It's very consistent. We've seen strong growth across all of particularly Western Europe and, you know, we see that continuing as we go through the year based on the pipeline of innovation.

Yeah, as I said, that category continues to take share in NARTD. We're taking share within the category, which is great. You know, we're challenging for leadership across a number of markets or have taken leadership. Yeah. The growth is pretty much across all of the countries at the moment, Charlie.

Charlie Higgs (Director)

Thank you.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Simon Hales from Citi. Please go ahead. Your line is open.

Simon Hales (Managing Director)

Hi, Damian. Hi, Nik. Hi, Sarah. I wonder if I could just ask a little bit about COGS. I mean, Damian, you provided an update on your 2023 COGS and hedging situation. Can I ask a little bit more about 2024? I know it's still some way off, but I think back at the full year results, you talked about being just under 50% hedged for 2024. I just wonder where you are now, especially on things like sugar, given the recent moves we've seen in spot prices there. Just any early color again on 2024, please.

Nik Jhangiani (CFO)

It's never too early to be planning ahead. We are still about that 50% coverage level, and we're continuing to look at, you know, the right trigger points to raise that. When you think about some of the key materials like Aluminium, we're about 50% for 2024 across both Europe and API. Sugar, a little more covered in API versus Europe, but a healthy level of coverage. You're probably picking up that there's quite a lot of volatility in Europe potentially with sugar. That's one that we'll continue to watch with our supplier base as well. Overall, I think we're in a good position at that circa 50% hedged, and we continue to look at 2025 and 2026 as well.

2025 today we're about 20% covered, but we'll continue to, you know, over the course of this year, bump up 2024 for sure, but also look at appropriate entry points and trigger points for 2025.

Simon Hales (Managing Director)

Got it. Thanks, Nick.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Bryan Spillane from Bank of America. Please go ahead. Your line is open.

Bryan Spillane (America's Director of Equity Research)

Thanks, operator. Good morning, everyone. My question is just around mix and looking at, I think it's slide three, if you look across the different geographies, I think mix is, you know, pointed both package and I guess, channel mix and brand mix, are called out positively, really pretty much across all the different geographic regions. Can you touch a little bit upon, you know, is that mix actually better than you expected? Looks like especially immediate consumption away from home and, you know, if it holds, just like what the implications of that are for the year, I guess especially as we think about margins going forward.

Damian Gammell (CEO)

Hi, Bryan. I mean, it has been very strong. I think, you know, when we look at it, our transactions, which is a metric that we focus on quite a bit, are well ahead of our volume. I think that's a really healthy sign. We are seeing more consumers coming in to your point, on smaller packs on immediate consumption. That is giving us a mixed benefit. Clearly, you know, we'll see how that evolves as we go through the summer, particularly in Western Europe. I mean, we've talked about it in Australia. We expect that to be maintained. It's been, you know, a good start there and in New Zealand. We'd expect mix to be favorable as we go through the summer in Europe as well.

It comes back to a lot of focus around those smaller packs. Obviously, away from home is getting a boost. You see it quite challenging to get a flight or a hotel if you're trying to book summer vacation in Europe. It looks like it's gonna be a good summer. Having said that, we had a great summer last year, right? Nik called that out, so we've got to be mindful that we had a very warm summer. We had the benefit of reopening. That probably comes back to, you know, my comment to Bonnie at the beginning that, you know, let's see how we get through the next quarter and into the key summer season. You know, we expect mix to be a puzzle for the rest of the year.

Whether it remains at this level, you know, we'll wait and see. We're well positioned to capture it. From a supply chain perspective, pack availability perspective, promotional plans, you know, customer alignment, I think we're in good shape. We've got through the pricing with minimal disruption, which is great. That does set us up. As I said, we are cycling a couple of strong quarters, so more to come on mix.

Bryan Spillane (America's Director of Equity Research)

Okay. Thank you very much.

Damian Gammell (CEO)

Yeah. Just keep in mind that.

Nik Jhangiani (CFO)

Yeah, Brian, just keep in mind, again, to the earlier comment with Q1 in particular, we are seeing a bit of that still post-COVID recovery in markets like Germany, NEBU, Iberia, et cetera, which is clearly helping the mix element as well. That will start moderating as we go through the rest of the year.

Bryan Spillane (America's Director of Equity Research)

Understood. Thank you.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Richard Withagen from Kepler Cheuvreux. Please go ahead. Your line is open.

Richard Withagen (Analyst)

Yeah, thanks. Good afternoon, all. Damian, you talked about promo optimizations in Europe. What is the trend in general in promotions in NARTD in Europe? Is that picking up again as markets normalize, or do you see major differences per market?

Damian Gammell (CEO)

Hi, Richard. No, it's pretty holding steady at, you know, it has been traditionally different by market. In terms of the percentage of volume sold on promotion, you can get a range from 20%-30% depending on the market. Some markets traditionally have just had a higher level of promotional intensity in NARTD and in other categories. What we are seeing is, you know, the investment probably being spent a bit wiser. We've done a lot of work to understand what promotions generate more revenue and profit for our customers and for CCEP. We're also doing a lot of work around what promotions drive recruitment and into the category. We've done some very interesting work in Australia where we've looked at the promotional intensity level.

We've talked to this before, but you know, continues to be a big driver in 2023, where traditionally the category was promoted at a 50% discount. We, we tested the water at 40% to see what would happen. On some promotions now we've gone to 30%. You know, we'll continue to look at how we optimize that. The good news is with those changes we're seeing, you know, volume remain robust, our share pretty steady. And I think that's, you know, that's what we look at for the rest of the year. Yeah, no dramatic changes. You are probably seeing outside of our portfolio a bit more promotional intensity coming from retailer brands. You gotta remember, that's on the back of quite high pricing.

If you look at the pricing that the retailers took on their own label, percentage-wise, obviously, much bigger than what we've achieved. You are seeing a bit more promotional intensity on retailer brands and a bit more feature. Again, I'd imagine that's to offset, you know, the impact of that higher pricing that really hit the market in Q1. That's kind of what we're seeing at the moment in Europe, and in Australia in particular.

Richard Withagen (Analyst)

Very good. Thanks. Thanks, Damian.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Robert Ottenstein from Evercore ISI. Please go ahead. Your line is open.

Robert Ottenstein (Senior Managing Director and Partner)

Thank you. Congratulations on another terrific quarter. I was wondering if we can kinda... You started to touch on it a little bit in this last question, but wondering if you could go into more detail. You know, Coca-Cola yesterday was talking about the need to expand the pricing ladder, both, you know, to premiumize as well as focus on affordability. I was just wondering, you know, what does that mean for you? Specifically, is this all through packaging, or, you know, is liquids a consideration? Just trying to understand, you know, your initiatives to, you know, address kind of the, you know, what Coca-Cola, you know, talks about as the need for a widening, you know, pricing ladder. Thank you.

Damian Gammell (CEO)

Thank you, Robert. Yeah, I picked up on those comments yesterday, Clearly that's probably been a journey we've been on for a number of years at CCEP. I think if you look at our pack availability, and I'll just talk in retail and the number of SKUs we have on shelf, we've pretty much looked at premiumization for a number of years, whether that's been on mini cans have gone really well. Glass is now available in most of our retailers in small multi-packs, very premium. We launched 1 liter glass in some markets, again, very premium. We've launched in Australia, small PET, 12 packs, 10 packs. You know, we've got that at the top end, and then we've obviously got immediate consumption available in retail, cold, which is great.

On the other side, as you recall, you know, in Europe in particular, we rolled back a number of years ago from some of those very heavy promo discounting. 8-pack, 1.5 liter. I mean, a pack you couldn't even carry if you could buy it. Became a little bit smarter around our OGM promo strategy on affordability. At the lower end of the ladder, you'll see competitive pricing on multi-pack cans in Europe and Australia, and you'll continue to see PET offering as well. We are conscious that a lot of our shoppers and consumers have other pressures on their spend, and we wanna make sure we retain them in our brands and in the category.

Having that balance of affordability on our large packs, you know, having good value on premium packs as well. That's driving that mix that you're seeing in our numbers. That will continue. I think the pricing ladder is well established in Europe and Australia, New Zealand. You know, it's ongoing, so we'll continue to look and trial packs that may give us more consumer reach. If you stand in a store in Europe or Australia or New Zealand, I think you're gonna see a lot of pack offerings from, as you said, that premium level, as I said, glass, mini pack cans, all the way through to those affordability packs that, let's face it, are really, really important for a large number of our shoppers.

You know, our pricing strategy over the last number of years has been behind some of the cost pressures. We've talked about that on a lot of our calls. You know, that was a deliberate choice by us to maintain relevance and affordability, and to drive mix. I think we're seeing the benefits of that. We saw it in 2022, and thankfully we're seeing it starting off in 2023 as well. Hopefully that covers that, Robert.

Robert Ottenstein (Senior Managing Director and Partner)

Thank you very much.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Sanjeet Aujla from Credit Suisse. Please go ahead. Your line is open.

Sanjeet Aujla (Managing Director)

Hey, Damian and Nik. My question is just regards to input costs again, given where energy costs are today, and have remained quite stable year to date, but well below levels from the second half of last year, are you already starting to renegotiate some of your conversion costs with suppliers? If so, when would you expect to see the benefit from that?

Nik Jhangiani (CFO)

Yeah, great question, Sanjeet. I mean, clearly we are seeing some of that benefit coming through both on what we would call, you know, primary as in what we are facing in terms of consumption of that energy and power, but also what the supplier conversion costs will be. I think it comes back to having a lot more transparency with them than being able to get them to lock it in right now and say, "That's what we're gonna be able to go ahead and commit to." And that's what we're working on with them, because that's a multi-year journey, right? Because, I mean, this is gonna be an ongoing issue for the next couple of years.

I think we've got a very good relationship with our suppliers in terms of more transparency and how that will start flowing through in terms of those conversion cost elements coming through. Clearly, when we look at our COGS, you know, the commodities element or line of it is clearly coming down, which is good versus what we had initially guided to. Keep in mind, if you're looking at it from an angle of a broader COGS perspective, we're also hoping to continue achieving good rate and mix realization, as you've seen evidenced in Q1, which as you know with the incidence model, has some implications on our concentrate element. We'll provide you all a more holistic update probably at the half year.

Sanjeet Aujla (Managing Director)

Thank you.

Operator (participant)

Thank you. We will now take the next question. It comes from the line of Olivier Nicolai from Morgan Stanley. Please go ahead. Your line is open.

Olivier Nicolai (Chief of Staff)

Thanks for the question. Good morning. Good afternoon. I'm hoping you could give a little bit more color on Indonesia. It's early, but it looks like you're making some progress on sparkling there with the growth in the quarter versus a strong push for Ramadan last year. How are you, any... Hoping you could discuss some early learnings from your efforts in Indo and how you're looking at the rest of the year there and your efforts to expand consumption beyond Ramadan?

Damian Gammell (CEO)

Yeah. Thank you, Olivier Nicolai. I mean, it's a really exciting market. I was down there again in Q1. Team did a fantastic job getting ready for Ramadan. We are at the beginning of that transformation journey. I think we've made some good decisions. I think the two call-outs in the quarter for me would be our revenue per case growth of 11%, quite strong. While achieving that, also delivering sparkling volume growth. You know, our primary goal there is with The Coke Company to really make sparkling more and more relevant for the Indonesian consumer. You know, that's a multi-year journey. That doesn't happen in a quarter, I think we can be pleased with the start we've made.

I think tidying up the portfolio has unlocked a lot of benefits in terms of a number of areas. One, you know, our people, particularly our sales force and our distributors, can really focus on 2 categories now rather than 5 or 6. It's bringing, you know, much more efficient supply chain just in terms of getting, you know, product to market. I'm pleased with that. Obviously, as we stripped out some of those brands, our overall volume declined. Again, that's just a cycling issue and we'll see through that. We'll continue to focus on sparkling. We're well set for the rest of the year. We are working on, you know, as I've talked about, building out the shoulders of Ramadan even more, so identifying other occasions throughout the year, whether it's, you know, Independence Day celebration.

There's a number of other big holidays that we can activate, so to try and create that excitement around the category. Fundamentally, you know, connect with passion points for Indonesian consumers. With The Coca-Cola Company, you know, we've looked at our investment and really, you know, focusing on music and food. You know, two passion points for consumers and making sure we can connect our brands, particularly Sprite and Coke, against those occasions. I think that's what we gotta do consistently, quarter by quarter, year by year, to build the relevance of the sparkling category. As I said, it's early, but it's been a good start. Some of those decisions have landed quicker than we anticipated, which is great. There has been some pressures on the consumer in Indonesia. Fuel pricing has been high.

You know, if you look at volume growth, it's a little bit lower than normal, but that's on the back of a quarter where there was a lot of pressure on the consumer. That's something we look forward to seeing how that goes as we come into Q2 and into Q3. You know, overall positive but, you know, as I say to the team and, continue to talk to, it's gonna take a bit of time. You know, but a good start is half the battle, so we're pleased with that. Thank you.

Olivier Nicolai (Chief of Staff)

Great. Thanks.

Operator (participant)

Thank you. We will now take our last question for today. It comes from the line of Jared Dinchak from JPMorgan. Please go ahead. Your line is open.

Jared Dinges (Equity Research Analyst)

Yeah, thanks, guys. To come back on pricing, you know, you said you were able to land pricing in line with expectations so far this year. Do you think you're done with pricing for the year in Europe? Do you need or do you expect more pricing to be done in the remainder of the year? I'm thinking maybe more specifically about Germany and the U.K., given I think pricing was expected to fall a bit later this year than normal. I'm also saying that in the context of the falling commodity prices that you've mentioned.

Nik Jhangiani (CFO)

Yeah. To your question, a categorical yes, we will be taking more pricing. I think it comes back a little bit to while you're seeing, you know, a slight falling on commodity prices, which clearly will have a positive implication, the year-on-year inflation is still very much prevalent, right? It's not like we've gone into a deflation mode. It's just that the level of inflation is coming down a little bit on the commodities element. To your point, we've been able to very successfully land pricing in some of our key markets in Q1, Iberia, France, Australia, Indonesia, et cetera. The plan is for pricing to be taken in both GB and Germany.

GB, those conversations are actually ongoing as we speak, with the idea to be able to close that out in the early part of June. Then Germany, we'd be looking at that during Q3, Q4. Again, just to reiterate, we are still seeing inflation just at a slightly lower level than we were expecting. So that will be a theme that will continue, because again, keep in mind, when we look at our margins over the last couple of years, back to the point that Damian's made, you know, we've tried to make sure that we have continued to stay relevant. We've always said this is a multi-year journey as opposed to a single year of trying to pass on all the inflation. That's something we'll continue to monitor as we go forward as well.

Jared Dinges (Equity Research Analyst)

Got it. Thank you.

Operator (participant)

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)

Thank you, operator. A big thank you to everybody for joining us today. As both myself and Nik have said, it's been a good start to the year, but to echo Bonnie's opening comment, it is our smallest quarter. We'll continue to update you as we go through the year. I do wanna call out again all of my colleagues at CCEP from, you know, the Pacific Islands, Australia, New Zealand, PNG, Indonesia to Europe to Iceland. We've got a great group of people at CCEP who are really committed to our customers. That continues to be a big part of our story at CCEP. Thank you to all of them. Myself and Nik are out on the road soon, so looking forward to seeing many of you. We've got conferences coming up in May and June.

I will see some of you later today in our offices in London, so I look forward to that. We'll be in New York next month. Again, look forward to giving you a further update with our half year earnings results in August. Again, thank you for joining us and have a great rest of the day. Thank you.

Operator (participant)

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