# Coca-Cola report a good start in a challenging environment

- Link: https://www.directorstalkinterviews.com/coca-cola-report-a-good-start-in-a-challenging-environment/412988192
- Published: 2021-05-12T07:22:58+01:00
- Author: Giles

**Coca-Cola HBC AG** (LON:CCH), a growth-focused Consumer Packaged Goods business
and strategic bottling partner of The Coca-Cola Company, today announces its 2021
Q1 trading update.

First quarter highlights

·   Good FX-neutral revenue growth, +2.7% or +6.1% like-for-like^(1), driven by 
Sparkling and Energy, the Emerging segment and strong execution in the at-home channel

·   Growth accelerated in the Emerging segment, while the Established and Developing
segments continued to be impacted by COVID-19 related restrictions extending through
most of the quarter

·   Volumes up +1.5% or +4.7% like‑for‑like^(1); Sparkling and Energy together grew
10.7%. The comparative period in 2020 had 3 fewer selling days but also benefited
from 2.5 months of pre-pandemic trading

·   FX-neutral revenue per case +1.2% or +1.3% like-for-like^(1); continued strong
category mix and pricing in several markets

·   Gained or maintained value share in Non-alcoholic ready-to-drink and Sparkling
in the majority of markets

·   Costa Coffee roll-out continues to progress well; now selling a range of formats
in 16 markets

Segment highlights

·   **Established:** Sustained positive price/mix development despite ongoing restrictions
in the out-of-home channel

·   **Developing:** Sugar tax implementation in Poland progressed as expected with
volume recovering at the end of the quarter. Pricing taken to offset this tax had
a 10.3pp impact on Developing price/mix

·   **Emerging:** Continued strong momentum in Nigeria and accelerated trends in
Russia, with both markets growing volumes double‑digit

| Q1 2021 vs Q1 2020 | Net sales revenue |  |  | 
| growth (%) | FX – neutral^(2) | Reported | Volume | Net sales revenue per unit case
FX – neutral^(2) | Net sales revenue per unit caseReported | 
| Total Group | 2.7 | -4.0 | 1.5 | 1.2 | -5.4 | 
| Established markets | -3.2 | -3.7 | -4.7 | 1.5 | 1.1 | 
| Developing markets | -3.5 | -7.3 | -11.4 | 8.9 | 4.6 | 
| Emerging markets | 10.4 | -3.0 | 8.7 | 1.6 | -10.7 |

> **Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG, commented:**
> _“We have had a good start to the year despite the continued impact of the pandemic,
> with revenue growth led by Sparkling, Energy and strong execution in the at-home
> channel. Our operational agility, flexible route to market and strong customer
> relationships mean that we are well placed to capitalise on the reopening of the
> out-of-home channel. In the meantime, our diverse and balanced geographic footprint
> has allowed us to benefit from accelerating revenue in the Emerging market segment,
> while lockdowns continue to impact most European markets._
> The speed and shape of recovery from the pandemic remains uncertain, but Q1 puts
> us on track to achieve our 2021 guidance for a strong recovery in FX-neutral revenues,
> along with a small increase in EBIT margin.”

_^(1)__Performance, unless stated otherwise, is negatively impacted by the change
in classification of our Russian Juice business, Multon, from a joint operation 
to a joint venture, following its re-organisation in May 2020. For the Group’s growth
including the performance of Multon as a joint operation in the current period, 
refer to the relevant table in the ‘Supplementary information’ section._

_^(2)__For details on Alternative Performance Measures (‘APMs’) refer to ‘Alternative
Performance Measures’ and ‘Definitions and reconciliations of APMs’ sections._

**Operational highlights**

**Good performance in a challenging environment   **

Our business delivered a good performance in the quarter, maintaining the momentum
seen in Q4. Strong execution is being driven by improvements in our route-to-market,
through greater use of digital tools and our increasing ability to segment our customer
base in more fine detail. We have also seen results from our focus on gaining share
in the highest value at-home occasions, and we continue to gain or maintain share
in the majority of our markets.

We benefited from another strong performance in the Emerging segment. Underlying
category growth, combined with our teams’ execution of the portfolio, focusing on
affordable packs as well as premiumisation opportunities in Adult Sparkling and 
Energy, led to continued double digit growth in Nigeria and an acceleration in Russia.
We continue to invest behind the most attractive growth opportunities in this key
segment, adding both capabilities and capacity to sustain business momentum.

While Q1 volume growth included 3 additional selling days, it was delivered against
a comparative period that was far less impacted by COVID-19 restrictions, with Q1
2020 benefitting from roughly two and a half months of pre-pandemic trading.

**Continued growth in the at-home channel**

The _at-home channel_ has continued to be an engine for growth for the business 
with volume expansion in the mid-single digits. Our teams have executed their plans
well, including:

·   Remaining focused on increasing our share of at‑home occasions, targeting affordable
and premium offerings with our customers.

·   Ensuring affordability needs are met with the right pack and price portfolio
offerings and targeted promotion. There is a strong focus on smaller packs that 
allow for lower consumer price points.

·   Continuing to seize a considerable premiumisation opportunity in the at-home
channel through the expansion of multi-packs of single-serves which earn a higher
revenue per case, and which grew by 18.4% in Q1, a significant acceleration compared
to the prior two quarters (Q3 2020 +4.7%, Q4 2020 +12.9%).

The _out-of-home channel_ saw declines of 20 to 30% in January and February. Performance
stabilised in March as we began to lap a base where many of our markets had gone
into lockdowns by mid-March 2020. Once underway, the recovery of the out-of-home
channel, in addition to driving volume growth, is also expected to have a positive
impact on price/mix.  In the meantime:

·   The flexibility of our route to market allows us to dynamically re-allocate 
our sales force, maximising opportunities in a changing marketplace.

·   We are actively supporting our customers so that they can drive more transactions
and capture the growth opportunities in the channel as markets begin to reopen through
the rest of the year.

_Digital commerce channels_ are an increasingly important part of our route to market,
and the COVID-19 pandemic has provided an additional boost to this trend.

Although e-retail and digital commerce currently contribute a small proportion of
revenues, we are seeing revenue growth from the channel in the high double digits,
and we continue to invest capital and management attention in this area.

We now focus on four main areas of opportunity in this space:

·   Growing demand from our customers to order online from us and engage with us
24/7

·   Opportunities to digitise our physical business to business (B2B) route to market
through e-marketplaces creating ecosystem effects

·   Business acceleration with pure e-retail and omnichannel brick and click customers
where we are working to increase our availability, digital shelf space and visibility
as well as direct shopper engagement; and

·   Opportunities in accelerating direct to consumer (D2C) offers and business models,
especially in the post-COVID context with more and more consumers’ moving online

**Driving growth through disciplined innovation** 

Costa Coffee is now live in 16 markets and we continue to build our presence and
distribution with plans to expand coverage to all 28 markets by 2023. We have also
had good early results from the out-of-home opportunity which remains a key focus
for 2021.

We began the roll out of the enhanced formula and package design for Coca-Cola Zero
Sugar towards the end of the quarter, as well as the targeted acceleration of Aquarius
in several markets.

**Established markets segment – positive price/mix on partially offsetting out-of-
home**

Established markets volume declined 4.7% in the quarter. The Established segment
countries have a greater proportion of their revenues from the out-of-home channel
and most of the countries in the segment saw restrictions in this channel tighten
throughout the quarter, which impacted performance. Meanwhile the at‑home channel
continued to see strong volume performance as consumers have adapted their habits
and our teams have focused execution on growing at-home occasions.

Energy and Sparkling continue to be the best performing categories, with Energy 
volumes up double digits. Sparkling volumes excluding Energy declined by low-single
digits with low and no-sugar variants and Adult Sparkling growing volumes double
digit. This good performance was offset by weaker trading in Water and Juice, which
declined in the low to high‑teens. Water over-indexes to the out-of-home channel
which impacted performance.

In Italy, volumes declined by low-single digits. The country was the first in our
territories to see restrictions in the out-of-home channel in 2020. We have seen
low-single digit volume growth in Sparkling led by Trademark Coke and Energy while
Stills volumes declined by mid-single digits.  

Volumes in Greece declined low single digit. The out-of-home channel was closed 
for the whole quarter. Despite this, we saw low-single digit volume growth in Sparkling
and ongoing volume growth in the at-home channel, while Stills volumes declined 
by low teens.

In Switzerland, volumes declined by low double digits. The out-of-home channel was
closed for the whole quarter while the at-home channel grew. On a category basis
we saw volume declines in Stills and Sparkling overall, while Energy saw strong 
volume growth.

In Ireland, volumes declined by low single digits. The out-of-home channel was closed
for the whole quarter impacting performance, while we continued to see strong trends
in the at-home channel. The sparkling category remained resilient, with low-single
digit volume declines overall while Energy saw strong volume growth. Stills volumes
declined, led by Water.

FX-neutral net sales revenue per case increased by 1.5% in the quarter benefiting
from favorable category mix as well as price increases in several markets. Package
and channel mix was negative, although with an improved trend compared to 2020. 
FX-neutral revenues declined by 3.2% in the quarter, while reported revenue declined
by 3.7%, with the difference being due to the weakening of the Swiss Franc.

**Developing markets segment – pricing taken to offset sugar tax in Poland**

Volume in the Developing markets declined by 11.4%, led by Poland where pricing 
taken to pass on the new sugar tax resulted in an anticipated volume decline. Excluding
Poland, the segment’s volume decline was 3.2%. We saw COVID-19 related restrictions
continue through the quarter. Energy and Sparkling continue to be the best performing
categories, while Stills volume declined double digits.

In Poland, volumes were impacted by the new sugar tax which started on 1 January
2021. In line with our plans, we have passed this tax on in full, necessitating 
price increases and resulting in an anticipated volume decline in the low twenties.
Early signs from the tax are in line with our expectations and we are encouraged
by the resilience of the sparkling category, very good volume growth of Coke Zero,
as well as continued strong growth in Energy. Outside of the tax, the out-of-home
channel remained closed for the whole quarter, but a relisting at a major retailer
saw volumes improve in the last month of the quarter.  

In Hungary, volume contracted by mid-single digits led by declines in Stills, while
Sparkling volumes grew mid‑single digits. The out-of-home channel was closed throughout
Q1, which led to volume declines, while the at‑home channel continued to grow.

Volume in the Czech Republic declined by mid-single digits led by Stills, particularly
Water. The out-of-home channel was closed throughout the quarter. Despite that, 
Sparkling volumes were stable, and Energy saw strong performance.

FX-neutral net sales revenue per case increased by 8.9% buoyed by the pricing taken
to offset the Polish sugar tax, without it, FX-neutral revenue per case would have
been -1.4%. The segment benefited from strong category mix while package and channel
mix declined. FX-neutral net sales revenue in the Developing markets was down 3.5%
in the quarter. Reported revenue declined by 7.3%, negatively impacted by adverse
currency movements in the Polish Zloty and Hungarian Forint.

**Emerging markets segment – continued momentum in Nigeria and accelerated performance
in Russia**

Emerging markets volumes increased by 8.7% or 14.5% on a like-for-like basis. This
like-for-like adjustment includes the volumes from our Russian Juice business, Multon,
which as of May 2020 is classified as a joint venture, following its re‑organisation,
thus resulting in the relevant volumes not being recognised as part of our reported
revenues.

In Q1, the Emerging segment saw an acceleration in volume growth, despite a high
comparative, due to faster growth in Russia and continued strong results in Nigeria.
The capabilities developed over many years in revenue growth management and route
to market are allowing us to take advantage of strong category growth and continue
to focus on value share expansion.

In Russia, volumes declined by low-single digits, or grew by high teens like-for-
like. This acceleration in performance was led by Sparkling, up mid-twenties with
double-digit growth across Trademark Coke, Fanta and Sprite, while Schweppes volumes
doubled. Energy saw a strong acceleration. Juice volumes grew by double digits like-
for-like, while overall Stills performance grew mid-single digits on a like-for-
like basis.

Nigeria has maintained strong momentum, with Q1 marking the second quarter in a 
row where the market has achieved double digit volume growth despite cycling high
comparatives in the prior period. Volume strength was led by Sparkling, which grew
by high-twenties and exceptional growth in Energy. Stills volumes declined by mid-
single digits with double digit growth in Juices offset by volumes declines in Water.

In Romania, volumes grew by low-single digits. The country has operated with relatively
few COVID-19 related restrictions in the quarter, achieving growth in both at-home
and out-of-home channels. Sparkling volumes grew high-single digit while Stills 
declined mid-teens.

FX neutral net sales revenue per case was up 1.6%, or 3.2% like-for-like. Positive
category mix, as well as pricing, more than offset negative channel and package 
mix. FX-neutral revenues increased by 10.4% or by 18.3% on a like-for-like basis.
Reported revenues declined by 3.0%, or increased by 3.9% like-for-like, with the
difference mainly due to the weakened Russian Rouble and Nigerian Naira.

**Category highlights**

Sparkling volumes were up 9.6% in the quarter. We saw particularly strong performance
from low and no‑sugar variants, which grew volumes by double digits in all three
segments. Growth was broad-based across brands and led by Trademark Coke at 9.1%.
Adult Sparkling is a key area of focus for the Group since it offers premiumisation
and revenue generation opportunities across our markets and is well placed for the
growing trend for consumers to replicate out-of-home experiences at home. We are
pleased to see the sub‑category continuing to expand faster than the core portfolio,
up 28.5% in the first quarter with volume growth across all three segments. The 
energy category saw an acceleration in performance, with volumes up by 55.8% and
double-digit growth in all segments.

Still drinks declined by 22.1%, or by 10.5% on a like-for-like basis. The category
was weighed down by Water which over‑indexes to the out‑of‑home channel and declined
by 16.9% with declines across all three segments. Juice volume was up 1.3% on a 
like‑for‑like basis, or down 52.7% on a reported basis which includes the change
in accounting treatment of our Russian Juice business. In RTD tea, volume declined
by 10.5%.

Package mix is recovering, finishing with a marginal decline of 0.2pp in Q1, a notable
improvement compared to the 3.0pp decline in 2020 with single-serve packs growing
volumes by 4.1% like-for-like.

Emission reduction targets

Coca-Cola HBC was one of the first companies to set, and deliver, science-based 
CO2 emissions targets. We are proud of our track record, having cut direct and purchased
carbon emissions by 50% in the last decade. We have now committed that, by 2030,
we will reduce emissions by a further 55% compared to a 2017 baseline. These targets
are approved by the Science Based Target initiative and in line with the 1.5-degree
pathway.  

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