Coca Cola HBC : 2021 Half Year Q&A Transcript

CCH - 2021 Half-year results

Conference call Q&A transcript - 12 August 2021

C O R P O R A T E P A R T I C I P A N T S

Zoran Bogdanovic - Chief Executive Officer

Ben Almanzar - Chief Financial Officer

Questions From

Sanjeet Aujla - Credit Suisse

Alicia Forry - Investec

Edward Mundy - Jefferies

Simon Hales - Citi

Fintan Ryan - JP Morgan

Andrea Pistacchi - Bank of America

Pinar Ergun - Morgan Stanley

Charlie Higgs - Redburn

Mandeep Sangha - Barclays Capital

Osman Memisoglu - Ambrosia Capital

Questions and Answer

Telephone Operator

Thank you. So as a reminder if you would like to ask your question, please press star one on your telephone keypad. Should you wish to withdraw your question, please press star two. You will be advised when to go ahead. And the first question comes from the line of Sanjeet Aujla from Credit Suisse. Please go ahead.

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CCH - 2021 Half-year results

Conference call Q&A transcript - 12 August 2021

Sanjeet Aujla - Credit Suisse

Morning Zoran, Ben, and a couple of questions from me please just on the transaction to begin with. Can you give us a sense of where EBITDA and EBIT margins were for the Egyptian bottler for the last couple of years? Just trying to work out the transaction multiples here.

And how quickly do you think you can get margins up to the group levels? That's my first question please.

Zoran Bogdanovic - Chief Executive Officer

Thank you, Sanjeet. And once again to you and everyone else, thank you for understanding that we sent the press release literally at the start of the call, but we really wanted to ensure that literally the moment it was done that we shared it with all of you because we really didn't want to delay it and miss the opportunity of this call.

First of all on the margins which I highlighted that are lower than our group EBIT margin. Therefore you could see from the press release example of net profit which is in between mid and high-single digit millions.

We expect that with this growth story and growth opportunity that we see in Egypt that progressively over the years, we will be taking it to the group average and hopefully also beyond. We see a number of actions that I can go into more details.

But I just want to emphasise that this acquisition is not a cost synergy type of acquisition, but rather fuelling and supporting the acceleration of very important business given the underlying conditions as well as already the setup that this business has.

So myself and the whole team are quite optimistic about taking it progressively over the years with all actions we plan to do.

Sanjeet Aujla - Credit Suisse

Got it. And do you have an EBITDA multiple to mind - you're able to share at this stage based on the earnings the business had generated in the last couple of years? And my follow-up question is just really on the input cost outlook, if you're able to just give us a feel for the magnitude of that raw material cost inflation as we think about H2 and more importantly 2022? Thanks.

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CCH - 2021 Half-year results

Conference call Q&A transcript - 12 August 2021

Zoran Bogdanovic - Chief Executive Officer

Yeah. Yes, yes, Sanjeet. So the multiple of the deal is around 10. And then I'll hand over to Ben for the second part of the question.

Ben Almanzar - Chief Financial Officer

Thank you, Sanjeet. So it is early to provide guidance for 2022. We'll do that as usual during the 2021 full year results. Our mid-term algorithm of FX neutral revenue growth in the 5% to 6% range accompanied by 20 to 40 basis points of EBIT margin expansion per year on average.

We made some change. We believe that the business has the capacity to continue to invest and grow the top and the bottom line even as the operating environment becomes more challenging.

And while we expect input costs to be higher in 2022 than they will be in 2021, we believe that the combination of driving the topline through category mix, package mix, pricing, the discipline that we have demonstrated managing the cost base to help us stay in track with our targeted margin products in 2022.

Sanjeet Aujla - Credit Suisse

Thank you.

Telephone Operator

The next question comes from the line of Alicia Forry from Investec. Please go ahead.

Alicia Forry - Investec

Hi, good morning. And thanks for taking the question. I just really wanted to discuss the fact that you were able to grow your volumes as the markets reopened while still holding your costs down so much. I appreciate this is not going to continue into H2.

But could you talk a little bit about what enables you to do that because it's quite impressive to my mind? Thank you.

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CCH - 2021 Half-year results

Conference call Q&A transcript - 12 August 2021

Zoran Bogdanovic - Chief Executive Officer

Thank you, Alicia. I will kick it off, and then Ben will jump in with anything that he might have additionally. You might remember we also said when we entered into the year that we did estimate red, that Q1 will be as we called it red.

We expected that Q2 will be orange or amber. And then that progressively the second part of the year will be green. Therefore, we have planned that our cost will be - need to be much tighter in the first half. And that's exactly what we have done. And I would say giving credit to the team that we have done that very, very diligently because we have seen that actually Q1 had even a spill over of the measures into the start of Q2, and exercising again the algorithm and agility of managing our costs in terms of what we see in the market.

This is where we have been really holding on until we get better visibility. And for that reason and what we have seen in the second part of the Q2 where we are also today, even though we are mindful that a lot of things can still happen by the end of the year.

However, we do see the need and we want to invest more in the second half to support the business for the rest of the year as well as for the next year.

And that's why it has been highlighted we will be investing much more costs across many areas for the rest of the year. Ben, anything?

Ben Almanzar - Chief Financial Officer

Thank you. Zoran said it very well. We are pleased with the cost discipline in the business. We have adapted our ways of working resulting in lower headcount. To give you a sense in June this year we had over a thousand FTEs less than what we had in June 2020.

We have also maintained strict control on inflationary expenses to finish H1 with OpEx again practically in line with last year, completely flat, notwithstanding the double-digit increase in revenue and marketing spend. As we look into the second half as Zoran rightly said, we will step up the brand investment partnership with the Coca-Cola Company to sustain topline recovery near-term and support the long-term health of our unique 24/7 portfolio.

Alicia Forry - Investec

Thank you. If I could have a follow-up, Nigeria has been very strong and continued to be in the latest quarter. Can you talk about the outlook there over the sort of near to medium term?

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CCH - 2021 Half-year results

Conference call Q&A transcript - 12 August 2021

Zoran Bogdanovic - Chief Executive Officer

Sorry, so Alicia you said outlook for the rest of the year?

Alicia Forry - Investec

Yes for Nigeria, yeah.

Zoran Bogdanovic - Chief Executive Officer

For Nigeria, absolutely. So, listen, as you see not only this year but also building on momentum of the last year, we've been performing very well. And I expect that Nigeria is going to continue also in the second half performing on a strong note.

So that means that there's going to be a continued double-digit performance. We see that also from the current trading and the overall, even though there are some of the - in line with Nigeria being a true emerging market, there always are certain uncertainties.

However, from today's visibility, we have every reason to believe that the rest of the year is also going to be on a strong double-digit note.

Alicia Forry - Investec

Thank you.

Telephone Operator

The next question comes from the line of Edward Mundy from Jefferies. Please go ahead.

Edward Mundy - Jefferies

Morning, everyone. So, my first question is really for Zoran on Egypt. Congrats on the deal. I think you could talk about some of the opportunities in the broadest terms that you've identified on top and bottom line in terms of the best practices you can bring from your business over to Egypt?

And the sort of part of that same question, it's a slightly different setup to your current footprint where you've got incredibly strong market share. So, you're a sort of a very

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