Strong execution underpins growth for 2023 and beyond

Coca-Cola HBC AG, a growth-focused Consumer Packaged Goods business and strategic bottling partner of The Coca-Cola Company, reports its financial results for the six months ended 30 June 2023.

Half-year highlights

·     Focused execution of strategic priorities and revenue growth management drives strong organic growth¹

o  Organic revenue up 17.8%, driven by organic revenue per case growth of 19.0%, led by the effective delivery of price and mix improvements across all categories and segments

o  Organic volume growth across our strategic priorities, with Sparkling +1.6%, Energy +20.9% and Coffee +21.9%; while Stills declined 11.2%, led by Water; overall organic volumes -1.0%

o  Reported revenue up 19.3%, reflecting strong organic growth and the consolidation of Multon, which more than offset FX headwinds in Nigeria and Egypt

o  Value share gains of 60bps in Non-Alcoholic Ready-To-Drink (NARTD); maintained value share in Sparkling

 

·     Organic EBIT up 17.7%, with margin unchanged on an organic basis at 11.2%

o  Stronger than expected operating leverage from double-digit top-line growth

o  Comparable gross profit margin grew 90 basis points despite comparable Cost of Goods Sold (COGS) per unit case up 13.1%

o  Disciplined management of operating costs while increasing resources to further enhance execution in the market with our customers

o  Comparable EBIT margin grew 20 basis points

 

·     Segmental highlights: Strong double-digit organic revenue and EBIT growth across all segments

o  Established: Organic revenue increased by 16.9%, led by revenue-per-case expansion and a resilient volume performance in key markets; organic EBIT grew 20.8%

o  Developing: Organic revenue up 23.6%, driven by revenue-per-case expansion; organic EBIT up 27.2%

o  Emerging: Organic revenue up 16.0%, despite pressure on consumer spending from macro headwinds in several markets; organic EBIT grew 13.9%

 

·     Strong EPS growth and robust balance sheet

o  Comparable EPS up 22.3%, led by EBIT growth and lower net finance costs

o  Strong balance sheet and liquidity; dividend of €0.78 paid in June

 

·     Investor Day 2023: Strategic priorities and medium-term financial targets

o  At our Investor Day in May, we reaffirmed our commitment to our five strategic growth pillars and the investments we are making in our prioritised capabilities, positioning the company for higher levels of growth over the medium term

o  Financial targets were updated to cover the period beyond 2023:

§ Average annual organic revenue growth of 6-7% (previously 5-6%)

§ Average annual organic EBIT margin expansion of 20-40 basis points per annum

§ Continued focus on growing ROIC

 

·     Continued investment behind our 24/7 portfolio and strategic priorities

o  Further investment in Sparkling brands across flavours and variants, including the further roll-out of Coke Zero Zero, underpinning our low/no sugar strategy

o  Successful launch of Jack Daniel's & Coca-Cola in Poland, Ireland and Hungary in Q2

o  Development of the Energy category in Egypt, adding the Monster brand in Q2

o  Announced an agreement to acquire Finlandia Vodka from Brown-Forman for $220 million²; a unique opportunity with significant geographic overlap in CCH territories, enhancing our premium spirits credentials and driving mixability opportunities with our NARTD portfolio; completion expected in Q4 2023

¹For details on APMs refer to 'Alternative Performance Measures' and 'Definitions and reconciliations of APMs' sections.

²Purchase price is subject to customary closing price adjustments and completion is subject to regulatory clearances.

 

Zoran Bogdanovic, Chief Executive Officer of Coca-Cola HBC AG, commented:

"It has been a very good first half of the year with progress across our strategic pillars. Our priority categories of Sparkling, Energy and Coffee, together with a strong performance across all segments, have driven organic revenues and EBIT growth ahead of expectations.

"While some markets continue to face a challenging consumer environment, revenue per case has been improved through careful price and mix management enhanced by data, insights and analytics. At the same time, volumes have remained resilient which is testament to the quality of our execution.

"We continue to invest in the activation of our 24/7 portfolio and targeted expansion, underpinned by our leading position in and focus on Sparkling. In the first half of the year we reached an agreement to acquire Finlandia Vodka, successfully launched new innovations including Jack Daniel's and Coca-Cola in three of our markets, further developed the energy category in Egypt, and added 2,200 new distribution points for our Coffee business.

"Our second quarter performance enabled us to upgrade our earnings expectations for 2023 in July, creating a stronger platform for the future growth ambitions we set out in our Investor Day in May. I am grateful to our customers, suppliers and partners, particularly The Coca-Cola Company, for their collaboration as we drive growth together. I especially want to thank all our people for their drive and dedication to make our business stronger every day."

 

	Half-Year
	2023	2022	% Change Reported		% Change Organic3
Volume (m unit cases)	1,383.1	1,330.2	4.0%		-1.0%
Net sales revenue (€ m)	5,021.5	4,209.9	19.3%		17.8%
Net sales revenue per unit case (€)	3.63	3.16	14.7%		19.0%
Operating profit (EBIT)4 (€ m)	557.3	275.7	>100%
Comparable EBIT3 (€ m)	560.7	462.5	21.2%		17.7%
EBIT margin (%)	11.1	6.5	450bps
Comparable EBIT margin3 (%)	11.2	11.0	20bps		-
Net profit5 (€ m)	385.7	152.9	>100%
Comparable net profit3,5 (€ m)	388.9	316.9	22.7%
Basic earnings per share (EPS) (€)	1.050	0.418	>100%
Comparable EPS3 (€)	1.058	0.865	22.3%
Free cash flow3 (€ m)	256.6	332.9	-22.9%

 

³For details on APMs refer to 'Alternative Performance Measures' and 'Definitions and reconciliations of APMs' sections.

⁴Refer to the condensed consolidated income statement.

⁵Net Profit and comparable net profit refer to net profit and comparable net profit respectively after tax attributable to owners of the parent.

 

Business Outlook

We delivered a better-than-expected financial performance in the first half of 2023, led by price and mix improvements, despite headwinds to our business. While we remain attentive to macroeconomic and geopolitical risks, we have high confidence in our broad 24/7 portfolio, the opportunities in our diverse markets, enhanced by our focus on execution and prioritised capabilities, and above all, the abilities of our talented people.

 

·     Following the strong start to the year, we expect mid-teens full-year organic revenue growth (previously above 5-6%)

 

·     We now assume COGS/case increases by high-single digits in 2023 (previously low teens), as inflationary pressures begin to moderate

 

·     We expect organic EBIT growth in the range of 9% to 12% in 2023 (unchanged)

 

Technical guidance

FX: We expect the impact of translational FX on our Group comparable EBIT to remain a €50-60 million headwind.

 

Restructuring: We do not expect significant restructuring initiatives to take place in 2023.

 

Tax: We now expect our comparable effective tax rate to be at the top end of our 25% to 27% range.

 

Finance costs: We now expect net finance costs for 2023 to be between the range of €65-75 million (previously similar to 2022: €82.7m).

 

Scope: In 2023 we expect around a €45 million Scope benefit to EBIT, reflecting the consolidation of Multon (from 11 August 2022) and the acquisition of Three Cents (from 21 October 2022).

 

Group Operational Review

Leveraging our unique 24/7 portfolio

We delivered half-year organic revenue growth of 17.8%, driven by price and mix and resilient volumes. Reported net sales revenue increased by 19.3%, benefitting from the consolidation of Multon, partly offset by negative foreign currency impact due to the depreciation of the Nigerian Naira, Egyptian Pound and Russian Rouble.

 

Organic volume fell by 1.0% in the half-year, with growth in our strategic priority categories of Sparkling, Energy and Coffee offset by declines in Stills.

 

Our focus on the best growth opportunities in our 24/7 portfolio is helping drive a high-quality revenue performance.

 

·     Sparkling volumes grew by 1.6% overall, with low-single digit growth across all three segments. Growth was particularly good in the Established segment, where Coke Zero, Flavours and Adult Sparkling maintained good momentum.

·     Energy volumes grew by 20.9%, with strong momentum in most markets. In Established and Developing markets, growth was driven by Monster, while in Emerging we saw strong growth of Predator and Burn.

·     Coffee volumes grew 21.9%, with noteworthy performances in the Established and Developing segments. We continued to make good progress on out-of-home customer recruitment, reaching 10,200 outlets, up from 8,000 at the end of 2022.

·     Still volumes fell by 11.2%, with declines led by Water, as we focused on the most profitable revenue growth in the category, with a marked improvement in net sales revenue per unit case as a result. In Sports Drinks we delivered good growth in Established and Developing markets.

 

Winning in the marketplace

Organic net sales revenue per case expanded by 19.0%. Revenue growth management initiatives, powered by data, insights and analytics, have allowed us to drive pricing and mix and enhance revenue per case across our markets, while addressing both affordability and premiumisation.

 

Pricing taken in 2022 and the first half of 2023 remained the most important tool to drive value and mitigate cost inflation. Effective in-market execution, including joint value creation plans with customers, pre-summer activations and improving returns on promotions, enabled the implementation of clear pricing plans whilst delivering better than expected volume and EBIT growth in priority categories.

 

Mix remained a critical value contributor in driving growth across all our markets. We delivered positive category and package mix in the period.

 

·     Single-serve mix improved by 1.2 percentage points organically. We achieved strong gains in both the Established and Developing segments, driven by further activations of single-serve multipacks, as well as glass activation in the out-of-home channel.

·     Category mix was favourable, driven by Sparkling and Energy as well as a lower contribution from Water.

·     The focused application of our data, insights and analytics tools has allowed us to continue to improve the effectiveness of our promotions, enhancing our ability to achieve better returns.

 

We grew 60 basis points of value share in NARTD in the first half of 2023. In Sparkling, value share was in line with the previous year, as we consciously drove price/mix expansion.

 

Cost control, operating profit and margins

Comparable gross profit grew by 22.6%, leading to a comparable gross profit margin of 35.0%, an improvement of 90 basis points. This was despite inflationary pressures from input costs, energy and production overheads, as well as an adverse foreign currency impact, which pushed comparable COGS per case higher by 13.1%.

 

Comparable operating expenses as a percent of revenue increased by 30 basis points to 24.0%, reflecting a disciplined approach to operating expenditure, which was more than offset by continued investment to further enhance execution in the market with our customers.

 

Comparable EBIT increased by 17.7% on an organic basis, and the comparable EBIT margin was up 20 basis points to 11.2%, unchanged on an organic basis, as we saw strong operating leverage from double-digit top-line growth, which more than offset increased input costs. Comparable EBIT increased by 21.2% on a reported basis to €560.7 million, benefitting from organic growth and the consolidation of Multon, only partly offset by negative foreign currency movements.

 

We faced a negative translational and transactional foreign currency impact in the first half of the year, mainly due to the depreciation of the Nigerian Naira, Egyptian Pound and the Russian Rouble.

 

Net profit and free cash flow

Comparable net profit of €388.9 million and comparable basic earnings per share of €1.058 were 22.7% and 22.3% higher than in the prior year period, respectively. Reported net profit and reported basic earnings per share of €385.7 million and €1.050 respectively more than doubled versus the prior year period, as we cycled the impairment charges relating to our operations in Russia taken in 2022.

 

Comparable taxes amounted to €142.7 million, representing a comparable tax rate of 27%, at the top end of our 2023 guidance range of 25% to 27%.

 

Net financing costs were €11.3 million lower than the prior year period, at €31.4 million, driven mainly by higher interest income as a result of increased interest rates.

 

Capital expenditure increased by €39.1 million to €238.8 million as we continued investment in our production facilities, cooler placements, as well as towards our sustainability commitments.

 

Free cash flow was €256.6 million, €76.3 million lower compared to the prior year period, as adverse working capital and higher capital expenditure more than offset increased profitability.

 

Earning our licence to operate

Throughout the period we remained focused on delivering our Mission 2025 and NetZeroby40 goals, and reconfirmed our 'AAA' MSCI rating for the ninth consecutive year.

 

Investments in sustainable packaging and energy-efficient coolers are important steps in supporting our ambition to achieve net zero emissions across our value chain. In Austria, we invested €12 million in a new energy and water-efficient returnable glass bottle line for our 1 litre bottle, and introduced a new 400ml resealable bottle. On coolers, we exceeded our target of 50% energy-efficient coolers by 2025, excluding Egypt, at the end of the half year.

 

Water usage remains one of our key strategic priorities. By using innovative technologies, we've improved water consumption. For example, we installed water-free cleaners for our new can lines in Greece and Poland. All our countries are continuing to make improvements as we aim to reduce water consumption by 20% by 2025, compared to 2017, in water-risk areas.

 

Together with The Coca-Cola Company and seven other bottling partners, Coca-Cola HBC committed $15 million to a new venture capital fund, the Greycroft Coca-Cola System Sustainability Fund. This $137.7 million fund will focus on innovative solutions to drive carbon footprint reduction, helping accelerate our journey towards NetZeroby40 goal.

 

Operational Review by Reporting Segment

Established markets
	Half-Year
	2023	2022	% Change Reported	% Change Organic
Volume (m unit cases)	306.4	305.7	0.2%	0.2%
Net sales revenue (€ m)	1,628.0	1,384.2	17.6%	16.9%
Net sales revenue per unit case (€)	5.31	4.53	17.3%	16.7%
Operating profit (EBIT) (€ m)	170.8	147.4	15.9%
Comparable EBIT (€ m)	171.3	140.2	22.2%	20.8%
EBIT margin (%)	10.5	10.6	-20bps
Comparable EBIT margin (%)	10.5	10.1	40bps	30bps

 

Net sales revenue grew by 16.9% and 17.6% on an organic and reported basis respectively, as we benefitted from positive foreign currency movements from the Swiss Franc.

 

Organic growth in net sales revenue per case was 16.7%. We benefitted from price increases in all markets through the period, as well as positive category and package mix. A focus on single-serve activation, both in at-home and out-of-home channels, delivered a 3.8 percentage point improvement in single-serve mix.

 

Volume in Established markets was broadly in line with last year. We saw good growth in our strategic priority categories. Sparkling grew low single digits, with Coke Zero up high-single digits and Adult Sparkling up low-single digits, despite tough comparatives. Energy saw continued strong momentum, with volumes growing high-double digits in the period. This growth was offset by declines in Stills, primarily Water and RTD tea where volumes were down low-double digits and high-single digits respectively.

 

·     Volumes in Greece were up by high-single digits, driven by our strong execution and an earlier start to seasonal activations. We saw mid-single digit growth in Sparkling, led by Coke Zero as well as low single-digit growth in Adult Sparkling, and Energy grew high-teens despite tough comparatives. Stills were up by high-single digits driven by low-double digit growth in Water.

 

·     In Ireland, volumes grew by high-single digits, with good results in all strategic priority categories. Sparkling grew by mid-single digits driven by low-double digit growth in Coke Zero and solid growth from Sprite and Fanta, while Energy delivered volume growth above 30% in the period. Stills were up mid-single digit driven by continued growth of our premium launches in Hydration.

 

·     In Italy, volumes declined by mid-single digits, due primarily to Water, as we deliberately focused on profitable revenue growth, at the expense of volume. We saw growth in our strategic priority categories in the half year, with low-single digit growth in Sparkling and Energy, despite an impact from worse weather in Q2 and tough comparatives. Coke Zero volumes grew mid-single digits and Adult Sparkling grew low-double digits, with both Kinley and Lurisia performing well. Stills declined overall, but we drove slight growth excluding Water.

 

·     In Switzerland, volumes grew by mid-single digits, with high-single digit growth in Sparkling reflecting good performance across the board. Stills declined by low-single digits driven by Water.

 

Comparable EBIT in the Established segment increased by 20.8% to €171.3 million, an organic growth rate of 22.2%. Comparable EBIT margin was 10.5%, up 30 basis points on an organic basis, as higher price and mix more than offset higher COGS.

 

Developing markets
	Half-Year
	2023		2022	% Change Reported	% Change Organic
Volume (m unit cases)	227.3		230.4	-1.3%	-1.3%
Net sales revenue (€ m)	985.2		791.6	24.5%	23.6%
Net sales revenue per unit case (€)	4.33		3.44	26.2%	25.2%
Operating profit (EBIT) (€ m)	67.2		56.9	18.1%
Comparable EBIT (€ m)	67.3		51.6	30.4%	27.2%
EBIT margin (%)	6.8		7.2	-40bps
Comparable EBIT margin (%)	6.8		6.5	30bps	20bps

 

Net sales revenue grew by 23.6% and 24.5% on an organic and reported basis respectively, with the difference due to slightly positive foreign currency movements.

 

Organic net sales revenue per case increased by 25.2%. The segment benefitted from pricing initiatives and favourable category and package mix.

 

Developing markets volume declined by 1.3%. Sparkling volumes grew by low-single digits, driven by Coke Zero, while Energy delivered low-double digit growth. This was offset by a mid-teens volume decline in Stills, driven by Water and Juice.

 

·     Poland volumes increased by mid-single digits, with growth led by our strategic priority categories. Sparkling volumes were up by high-single digits, driven by Coke Zero and Sprite. Energy continued to grow by strong-double digits, despite tough comparatives. Coffee grew above 40%, as we continued to expand outlet distribution. Stills volumes declined, driven by Water and Juice.

 

·     In Hungary, volumes decreased by high-single digits, reflecting weakness in Stills, with a notable decline in the overall Juice category, against a tough inflationary backdrop and challenging comparatives. Sparkling volumes grew slightly in the period, driven by Trademark Coke.

 

·     Volume in Czech decreased by mid-teens, with declines in both Sparkling and Stills. We continued to actively drive robust price mix to manage cost inflation and despite volume declines, we delivered strong revenue growth. Energy and Coffee were the best performing categories.

 

Comparable EBIT in the Developing segment increased by 30.4% to €67.3 million, an organic growth rate of 27.2%. Comparable EBIT margin was 6.8%, up 20 basis points on an organic basis, benefitting from price and mix improvements which offset higher COGS.

 

 

Emerging markets
	Half-Year
	2023	2022	% Change Reported	% Change Organic
Volume (m unit cases)	849.4	794.1	7.0%	-1.4%
Net sales revenue (€ m)	2,408.3	2,034.1	18.4%	16.0%
Net sales revenue per unit case (€)	2.84	2.56	10.7%	17.7%
Operating profit (EBIT) (€ m)	319.3	71.4	>100%
Comparable EBIT (€ m)	322.1	270.7	19.0%	13.9%
EBIT margin (%)	13.3	3.5	970bps
Comparable EBIT margin (%)	13.4	13.3	10bps	-20bps

 

Net sales revenue grew by 16.0% on an organic basis, or by 18.4% on a reported basis, with the difference due to the consolidation of Multon, which was partly offset by the devaluation of the Nigerian Naira, Egyptian Pound and Russian Rouble.

 

Net sales revenue per case grew 17.7% organically, benefitting from pricing actions taken throughout the period to mitigate cost inflation, as well as proactively managing the currency devaluation.

 

Emerging markets' volume fell by 1.4% organically and grew 7.0% on a reported basis, which includes the consolidation of Multon and Egypt. Sparkling volumes increased by low-single digits and Still volumes were down low-double digits. Energy delivered growth of almost 30%, continuing the momentum from Q1.

 

·     Volume in Nigeria declined by low-single digits, reflecting good execution in the market despite the temporary lack of availability of local currency. This normalised through the period, such that Q2 returned to growth. Sparkling volumes declined low-single digits in the half-year. Energy delivered strong double-digit growth, while Stills declined double-digits. We continued driving strong price mix to manage the cost inflation and currency devaluation.

 

·     Ukraine volume grew over 50%, a good rebound on soft comparatives due to the outbreak of war. Growth was led by recoveries in Sparkling and Energy, despite ongoing operational challenges. Water volumes rebounded in Q2 leading to a mid-single digit growth for the half-year.

 

·     Volume in Romania declined by low-double digits, due to a double-digit decline in Stills and high-single digit decline in Sparkling. The consumer environment remained challenging, impacted by the VAT increase in January. Energy continued its strong momentum with volumes up close to 30%.

 

·     Volumes in Serbia grew mid-single digits, driven by Sparkling. Trademark Coke and Fanta volumes grew high-single digits, and Energy delivered low-double digit growth in the period. Water volumes were up low-double digits.

 

·     Volumes in Egypt declined by high-single digits on an organic basis driven by Water. In Sparkling, we saw low-single digit growth, with Trademark Coke volumes up high-single digits, driven by Coke Zero. In Water, we consciously focused on improving net sales revenue per unit case, which meant that volumes fell double-digits. Following our launch into the Energy category with Fury, we also introduced the Monster brand in May, and are very encouraged by early progress. Across all categories we continued to proactively implement revenue growth management actions to manage the inflation and currency devaluation.

 

·     Russia volumes declined by high-single digits on an organic basis. This largely reflects comparisons to the prior period, following the decision of The Coca-Cola Company in March 2022 to suspend sales of their brands.

 

Comparable EBIT in the Emerging segment increased by 13.9% on an organic basis and grew 19.0% on a reported basis, to €322.1 million. Comparable EBIT margin was 13.4%, down 20 basis points on an organic basis, impacted by adverse transactional FX, which offset price & mix benefits. Operating profit increased more than 100%, as we are cycling the impairment charges in Russia.

 

Conference call

Coca-Cola HBC's management will host a conference call for investors and analysts on Wednesday, 9 August 2023 at 9:00 am BST. To join the call in listen-only mode, please join via the webcast. If you anticipate asking a question, please click here to register and find dial-in details.

 

Next event

31 October 2023

2023 Third quarter trading update

 

Enquiries

Coca‑Cola HBC Group

Investors and Analysts:
John Dawson Investor Relations Director (Interim)	Tel: +44 7552 619509  john.dawson@cchellenic.com
Jemima Benstead Investor Relations Manager	Tel: +44 7740 535130 jemima.benstead@cchellenic.com
Marios Matar Investor Relations Manager	Tel: +30 697 444 3335 marios.matar@cchellenic.com
Virginia Philips Investor Relations Manager	Tel: +44 7864 686582 virginia.philips@cchellenic.com
Media:
Sonia Bastian Head of Communications	Tel: +41 7946 88054  sonia.bastian@cchellenic.com
Greek media contact: V+O Communications Manos Iatrelis	Tel: +30 693 742 0246 mi@vando.gr

 

Coca-Cola HBC Group

Coca-Cola HBC is a growth-focused consumer packaged goods business and strategic bottling partner of The Coca-Cola Company. We open up moments that refresh us all, by creating value for our stakeholders and supporting the socio-economic development of the communities in which we operate. With a vision to be the leading 24/7 beverage partner, we offer drinks for all occasions around the clock and work together with our customers to serve 740 million consumers across a broad geographic footprint of 29 countries. Our portfolio is one of the strongest, broadest and most flexible in the beverage industry, with consumer-leading beverage brands in the sparkling, adult sparkling, juice, water, sport, energy, ready-to-drink tea, coffee, and premium spirits categories. These include Coca-Cola, Coca-Cola Zero Sugar, Fanta, Sprite, Schweppes, Kinley, Costa Coffee, Caffè Vergnano, Valser, FuzeTea, Powerade, Cappy, Monster Energy, The Macallan, Jack Daniel's and Grey Goose. We foster an open and inclusive work environment amongst our 33,000 employees and believe that building a more positive environmental impact is integral to our future growth. We rank among the top sustainability performers in ESG benchmarks such as the Dow Jones Sustainability Indices, CDP, MSCI ESG, FTSE4Good and ISS ESG.

 

Coca-Cola HBC has a premium listing on the London Stock Exchange (LSE: CCH) and is listed on the Athens

Exchange (ATHEX: EEE). For more information, please visit https://www.coca-colahellenic.com/

 

Financial information in this announcement is presented on the basis of

International Financial Reporting Standards ('IFRS').

 

Special Note Regarding the Information set out herein

Unless otherwise indicated, the condensed consolidated interim financial statements and the financial and operating data or other information included herein relate to Coca-Cola HBC AG and its subsidiaries ('Coca-Cola HBC' or the 'Company' or 'we' or the 'Group').

 

Forward-Looking Statements

This document contains forward-looking statements that involve risks and uncertainties. These statements may generally, but not always, be identified by the use of words such as "believe", "outlook", "guidance", "intend", "expect", "anticipate", "plan", "target" and similar expressions to identify forward-looking statements. All statements other than statements of historical facts, including, among others, statements regarding our future financial position and results, our outlook for 2023 and future years, business strategy and the effects of the global economic slowdown, the impact of the sovereign debt crisis, currency volatility, our recent acquisitions, and restructuring initiatives on our business and financial condition, our future dealings with The Coca-Cola Company, budgets, projected levels of consumption and production, projected raw material and other costs, estimates of capital expenditure, free cash flow, effective tax rates and plans and objectives of management for future operations, are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they reflect our current expectations and assumptions as to future events and circumstances that may not prove accurate. Our actual results and events could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in the 2022 Integrated Annual Report for Coca-Cola HBC AG and its subsidiaries.

 

Although we believe that, as of the date of this document, the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that our future results, level of activity, performance or achievements will meet these expectations. Moreover, neither we, nor our directors, employees, advisors nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. After the date of the condensed consolidated interim financial statements included in this document, unless we are required by law or the rules of the UK Financial Conduct Authority to update these forward-looking statements, we will not necessarily update any of these forward-looking statements to conform them either to actual results or to changes in our expectations.

 

Alternative Performance Measures

The Group uses certain Alternative Performance Measures ('APMs') in making financial, operating and planning decisions as well as in evaluating and reporting its performance. These APMs provide additional insights and understanding to the Group's underlying operating and financial performance, financial condition and cash flow. The APMs should be read in conjunction with and do not replace by any means the directly reconcilable IFRS line items. For more details on APMs please refer to 'Definitions and reconciliations of APMs' section.

 

Group Financial Review

Income statement	Half-Year
	2023 € million		2022 € million	% Change Reported		% Change Organic6
Volume (m unit cases)	1,383.1		1,330.2	4.0%		-1.0%
Net sales revenue	5,021.5		4,209.9	19.3%		17.8%
Net sales revenue per unit case (€)	3.63		3.16	14.7%		19.0%
Cost of goods sold	(3,259.9)		(2,759.7)	18.1%
Comparable cost of goods sold6	(3,261.5)		(2,774.1)	17.6%
Gross profit	1,761.6		1,450.2	21.5%
Comparable gross profit6	1,760.0		1,435.8	22.6%
Operating expenses (excluding exceptional items related to	(1,208.4)		(1,015.3)	19.0%
Russia -Ukraine conflict)
Exceptional items related to Russia-Ukraine conflict	-		(183.6)	-100.0%
Operating expenses	(1,208.4)		(1,198.9)	0.8%
Comparable operating expenses6	(1,203.4)		(997.7)	20.6%
Share of results of integral equity method investments7	4.1		24.4	-83.2%
Operating profit (EBIT)7	557.3		275.7	>100%
Comparable operating profit (EBIT)6	560.7		462.5	21.2%		17.7%
Adjusted EBITDA6	765.6		663.8	15.3%
Comparable adjusted EBITDA6	769.0		666.9	15.3%
Finance costs, net	(31.4)		(42.7)	-26.5%
Share of results of non-integral equity method investments7	1.7		1.4	21.4%
Tax	(142.5)		(82.0)	73.8%
Comparable tax6	(142.7)		(104.8)	36.2%
Net profit8	385.7		152.9	>100%
Comparable net profit6,8	388.9		316.9	22.7%
Basic earnings per share (€)	1.050		0.418	>100%
Comparable basic earnings per share (€)6	1.058		0.865	22.3%

⁶Refer to the 'Alternative Performance Measures' and 'Definitions and reconciliations of APMs' sections.

⁷Refer to the condensed consolidated interim income statement.

⁸Net Profit and comparable net profit refer to net profit and comparable net profit respectively after tax attributable to owners of the parent.

 

Net sales revenue grew by 19.3% during the first half of 2023, compared to the prior-year period, primarily driven by pricing initiatives and the consolidation of Multon, further supported by favourable category and package mix, which were only partially offset by unfavourable foreign currency movements. On an organic basis, net sales revenue grew by 17.8% during the first half of 2023, compared to the prior-year period, primarily driven by pricing initiatives and mix improvements.

 

Cost of goods sold increased by 18.1% in the first half of 2023, on a reported basis, driven by inflationary pressures on input costs, as well as the consolidation of Multon and adverse foreign currency impact; while comparable cost of goods sold increased by 17.6%, further benefitting by the cycling of unrealised commodity hedging gains in the prior-year period.

 

Operating expenses increased by 0.8% in the first half of 2023 compared to the prior-year period, driven by higher sales and administration expenses and the consolidation of Multon, which were largely offset by the cycling of impairment charges in the prior-year period related to the Group's Russian operations. Comparable operating expenses increased by 20.6% in the first half of the year, driven by higher sales and administration expenses and the consolidation of Multon.

 

Operating profit more than doubled compared to the prior-year period, mainly reflecting the benefits from top-line growth, the consolidation of Multon and the cycling of impairment charges in the prior-year period related to the Group's Russian operations, which were only partially offset by elevated input costs and operating expenses and unfavourable foreign currency movements. Comparable operating profit grew by 21.2% on a reported basis in the first half of 2023 versus the prior-year period, reflecting the benefits from top-line growth and the consolidation of Multon, which were only partially offset by elevated input costs and operating expenses and unfavourable foreign currency movements; while excluding the impact from changes in the consolidation perimeter and foreign exchange rates, comparable operating profit increased by 17.7% on an organic basis.

 

Net finance costs decreased by €11.3 million during the first half of 2023 compared to the prior-year period, mainly driven by higher interest income earned on the Group's cash and cash equivalents and financial assets, partially offset by the increased hedging cost of borrowings in Nigeria and the interest expense from the Green bond issued in September 2022.

 

On a reported basis, the effective tax rate was 27.0% for the first half of 2023, down from 35.0% in the prior-year period, mainly due to the cycling of impairment charges in the prior-year period related to the Group's Russian operations. On a comparable basis, the effective tax rate was 26.9% for the first half of 2023 and 24.9% for the first half of 2022. The Group's effective tax rate varies depending on the mix of taxable profits by territory, the non-deductibility of certain expenses, non-taxable income and other one-off tax items across its territories.

 

Net profit more than doubled, driven by the higher operating profitability, net of tax including the cycling of impairment charges related to the Group's Russian operations in the prior-year period and lower finance costs. Comparable net profit grew by 22.7% compared to the prior-year period driven by higher operating profitability, net of tax and lower finance costs.

 

Balance Sheet
	As at
	30 June 2023	31 December 2022	Change
Assets	€ million	€ million	€ million
Total non-current assets	5,785.8	6,139.5	-353.7
Total current assets	4,190.4	3,716.2	474.2
Total assets	9,976.2	9,855.7	120.5
Liabilities
Total current liabilities	3,454.8	3,006.7	448.1
Total non-current liabilities	3,420.5	3,463.4	-42.9
Total liabilities	6,875.3	6,470.1	405.2
Equity
Owners to the parent	3,005.0	3,282.3	-277.3
Non-controlling interests	95.9	103.3	-7.4
Total equity	3,100.9	3,385.6	-284.7
Total equity and liabilities	9,976.2	9,855.7	120.5
Net current assets	735.6	709.5	26.1

 

Total non-current assets decreased by €353.7 million during the first half of 2023, primarily driven by foreign currency translation. Net current assets increased by €26.1 million in the first half of 2023, mainly driven by higher trade receivables, largely reflecting top-line growth in the period, and cash and cash equivalents, which were partially offset by lower investments in financial assets and higher trade and other payables. Total non-current liabilities decreased by €42.9 million during the first half of 2023, driven primarily by foreign currency translation on the back of the Nigerian Naira and Egyptian Pound devaluation.

 

Cash flow
	Half-Year
	2023 € million	2022 € million	% Change
Net cash from operating activities9	495.4	532.6	-7.0%
Capital expenditure9	(238.8)	(199.7)	-19.6%
Free cash flow9	256.6	332.9	-22.9%

 

⁹Refer to the 'Definitions and reconciliations of APMs' section.

 

Net cash from operating activities decreased by 7.0% or €37.2 million during the first half of 2023, compared to the prior-year period, due to cash consumed from working capital movements and higher taxes paid, which were only partially offset by increased operating profitability.

Capital expenditure increased by 19.6% in the first half of 2023, compared to the prior-year period. In the first half of 2023, capital expenditure amounted to €238.8 million of which 54% was related to investment in production equipment and facilities and 16% to the acquisition of marketing equipment. In the first half of 2022, capital expenditure amounted to €199.7 million of which 55% was related to investment in production equipment and facilities and 20% to the acquisition of marketing equipment.

In the first half of 2023, free cash flow decreased by 22.9% or €76.3 million, compared to the prior-year period, impacted by the decreased cash from operating activities and higher capital expenditure.

 

Definitions and reconciliations of Alternative Performance Measures ('APMs')

1.   Comparable APMs¹⁰

In discussing the performance of the Group, 'comparable' measures are used. Comparable measures are calculated by deducting from the directly reconcilable IFRS measures the impact of the Group's restructuring costs, the mark-to-market valuation of the commodity hedging activity, the acquisition, integration and divestment-related costs, the Russia-Ukraine conflict impact and certain other tax items, which are collectively considered as items impacting comparability, due to their nature. More specifically the following items are considered as items that impact comparability:

1)   Restructuring costs

Restructuring costs comprise costs arising from significant changes in the way the Group conducts business, such as significant supply chain infrastructure changes, outsourcing of activities and centralisation of processes. These costs are included within the income statement line 'Operating expenses'; however, they are excluded from the comparable results so that the users can obtain a better understanding of the Group's operating and financial performance achieved from underlying activity. Restructuring costs resulting from initiatives driven by the Russia-Ukraine conflict are presented under the 'Russia-Ukraine conflict impact' item, to provide users complete information on the financial implications of the conflict.

 

2)   Commodity hedging

The Group has entered into certain commodity derivative transactions in order to hedge its exposure to commodity price risk. Although these transactions are economic hedging activities that aim to manage our exposure to sugar, aluminium, gas oil and plastics price volatility, hedge accounting has not been applied in all cases. In addition, the Group recognises certain derivatives embedded within commodity purchase contracts that have been accounted for as stand-alone derivatives and do not qualify for hedge accounting. The fair value gains or losses on the derivatives and embedded derivatives are immediately recognised in the income statement in the cost of goods sold and operating expenses line items. The Group's comparable results exclude the gains or losses resulting from the mark-to-market valuation of these derivatives to which hedge accounting has not been applied (primarily plastics) and embedded derivatives. These gains or losses are reflected in the comparable results in the period when the underlying transactions occur, to match the profit or loss to that of the corresponding underlying transactions. We believe this adjustment provides useful information related to the impact of our economic risk management activities.

 

3)   Acquisition, integration and divestment-related costs or gains

Acquisition costs comprise costs incurred to effect a business combination such as finder's fees, advisory, legal, accounting, valuation and other professional or consulting fees as well as changes in the fair value of contingent consideration recognised in the income statement. They also include any gain from bargain purchase arising on business combinations, as well as any gain or loss recognised in the income statement from the remeasurement to fair value of previously held interests and from the reclassification to the income statement of items of other comprehensive income resulting from step acquisitions. Integration costs comprise direct incremental costs necessary for the acquiree to operate within the Group. Divestment-related costs comprise transaction expenses, including advisory, consulting, and other professional fees to effect the disposal of a subsidiary or equity method investment, any impairment losses or write-downs to fair value less costs to sell recognised in the income statement upon classification as held for sale and any relevant disposal gains or losses or reversals of impairment recognised in the income statement upon disposal. These costs or gains are included within the income statement line 'Operating expenses', however to the extent that they relate to business combinations or divestments that have been completed or are expected to be completed, they are excluded from the comparable results so that the users can obtain a better understanding of the Group's operating and financial performance achieved from underlying activity.

 

4)   Russia-Ukraine conflict impact

As a result of the conflict between Russia and Ukraine, the Group has recognised net impairment losses for property, plant and equipment, intangible assets and equity method investments, as well as restructuring costs, in connection with the new business model in Russia and adverse changes to the economic environment. The Group has also recognised incremental allowance for expected credit losses and write-offs of inventory and property, plant and equipment resulting from the Russia-Ukraine conflict. The aforementioned net impairment losses are included within the income statement line 'Exceptional items related to Russia-Ukraine conflict' so as to provide users with enhanced visibility over these items considering their materiality, while remaining costs are included within 'Operating expenses' and 'Cost of goods sold' lines of the income statement accordingly.  Net impairment losses and other costs directly attributable to the Russia-Ukraine conflict are excluded from the comparable results so that the users can obtain a better understanding of the Group's operating and financial performance from underlying activity.

 

5)   Other tax items

Other tax items represent the tax impact of (a) changes in income tax rates affecting the opening balance of deferred tax arising during the year and (b) certain tax related matters selected based on their nature. Both (a) and (b) are excluded from comparable after-tax results so that the users can obtain a better understanding of the Group's underlying financial performance.

 

The Group discloses comparable performance measures to enable users to focus on the underlying performance of the business on a basis which is common to both periods for which these measures are presented.

 

¹⁰Comparable APMs refer to comparable cost of goods sold, comparable gross profit, comparable operating expenses, comparable EBIT, comparable EBIT margin, comparable Adjusted EBITDA, comparable tax, comparable net profit and comparable EPS.

 

The reconciliation of comparable measures to the directly related measures calculated in accordance with IFRS is as follows:

 

Reconciliation of comparable financial indicators (numbers in € million except per share data)

 

	Half-year 2023
	COGS	Gross Profit	Operating expenses	EBIT	Adjusted EBITDA	Tax	Net Profit11	EPS (€)
As reported	(3,259.9)	1,761.6	(1,208.4)	557.3	765.6	(142.5)	385.7	1.050
Restructuring costs	-	-	1.3	1.3	1.3	(0.3)	1.0	0.003
Commodity hedging	(1.6)	(1.6)	-	(1.6)	(1.6)	0.2	(1.4)	(0.004)
Acquisition costs	-	-	3.3	3.3	3.3	-	3.3	0.009
Russia-Ukraine conflict impact	-	-	0.4	0.4	0.4	(0.1)	0.3	-
Comparable	(3,261.5)	1,760.0	(1,203.4)	560.7	769.0	(142.7)	388.9	1.058
	Half-year 2022
	COGS	Gross Profit	Operating expenses	EBIT	Adjusted EBITDA	Tax	Net Profit11	EPS (€)
As reported	(2,759.7)	1,450.2	(1,198.9)	275.7	663.8	(82.0)	152.9	0.418
Restructuring costs	-	-	3.8	3.8	3.7	(0.8)	3.0	0.008
Commodity hedging	(15.5)	(15.5)	-	(15.5)	(15.5)	2.8	(12.7)	(0.035)
Integration costs	-	-	8.5	8.5	8.5	-	8.5	0.023
Russia-Ukraine conflict impact	1.1	1.1	188.9	190.0	6.4	(24.6)	165.4	0.452
Other tax items	-	-	-	-	-	(0.2)	(0.2)	(0.001)
Comparable	(2,774.1)	1,435.8	(997.7)	462.5	666.9	(104.8)	316.9	0.865

 

¹¹Net Profit and comparable net profit refer to net profit and comparable net profit respectively after tax attributable to owners of the parent.

                                 

Reconciliation of comparable EBIT per reportable segment (numbers in € million)

 

	Half-year 2023
	Established	Developing	Emerging	Consolidated
EBIT	170.8	67.2	319.3	557.3
Restructuring costs	-	-	1.3	1.3
Commodity hedging	(0.3)	(0.4)	(0.9)	(1.6)
Acquisition costs	0.8	0.5	2.0	3.3
Russia-Ukraine conflict impact	-	-	0.4	0.4
Comparable EBIT	171.3	67.3	322.1	560.7
	Half-year 2022
	Established	Developing	Emerging	Consolidated
EBIT	147.4	56.9	71.4	275.7
Restructuring costs	(5.0)	-	8.8	3.8
Commodity hedging	(2.2)	(5.3)	(8.0)	(15.5)
Integration costs	-	-	8.5	8.5
Russia-Ukraine conflict impact	-	-	190.0	190.0
Comparable EBIT	140.2	51.6	270.7	462.5

 

2.   Organic APMs

 

Organic growth

Organic growth enables users to focus on the operating performance of the business on a basis which is not affected by changes in foreign currency exchange rates from period to period or changes in the Group's scope of consolidation ('consolidation perimeter') i.e., acquisitions, divestments and reorganisations resulting in equity method accounting. Thus, organic growth is designed to assist users in better understanding the Group's underlying performance.

 

More specifically, the following items are adjusted from the Group's volume, net sales revenue and comparable EBIT in order to derive organic growth metrics:

 

(a) Foreign currency impact

Foreign currency impact in the organic growth calculation reflects the adjustment of prior-period net sales revenue and comparable EBIT metrics for the impact of changes in exchange rates applicable to the current period.

 

(b)        Consolidation perimeter impact

Current period volume, net sales revenue and comparable EBIT metrics, are each adjusted for the impact of changes in the consolidation perimeter. More specifically adjustments are performed as follows:

 

i.          Acquisitions:

For current year acquisitions, the results generated in the current period by the acquired entities are not included in the organic growth calculation. For prior year acquisitions, the results generated in the current year over the period during which the acquired entities were not consolidated in the prior year, are not included in the organic growth calculation.

 

For current year step acquisitions where the Group obtains control of a) entities over which it previously held either joint control or significant influence and which were accounted for under the equity method, or b) entities which were carried at fair value either through profit or loss or other comprehensive income, the results generated in the current year by the relevant entities over the period during which these entities are consolidated, are not included in the organic growth calculation. For such step acquisitions of entities previously accounted for under the equity method the share of results for the respective period described above, is included in the organic growth calculation of the current year. For such step acquisitions of entities previously accounted for at fair value through profit or loss any fair value gains or losses for the respective period described above, are included in the organic growth calculation. For such step acquisitions in the prior year, the results generated in the current year by the relevant entities over the period during which these entities were not consolidated in the prior year, are not included in the organic growth calculation. However, the share of results or gains or losses from fair value changes of the respective entities, based on their accounting treatment prior to the step acquisition, for the current-year period during which these entities were not consolidated in the prior year are included in the organic growth calculation.

 

ii.         Divestments:

For current year divestments, the results generated in the prior year by the divested entities over the period during which the divested entities are no longer consolidated in the current year, are included in the current year's results for the purpose of the organic growth calculation. For prior-year divestments, the results generated in the prior year by the divested entities over the period during which the divested entities were consolidated, are included in the current year's results for the purpose of the organic growth calculation.

 

iii.        Reorganisations resulting in equity method accounting:

For current year reorganisations where the Group maintains either joint control or significant influence over the relevant entities so that they are reclassified from subsidiaries or joint operations to joint ventures or associates and accounted for under the equity method, the results generated in the current year by the relevant entities over the period during which these entities are no longer consolidated, are included in the current year's results for the purpose of the organic growth calculation.  For such reorganisations in the prior year, the results generated in the current year by the relevant entities over the period during which these entities were consolidated in the prior year, are included in the current year's results for the purpose of the organic growth calculation. In addition, the share of results in the current year of the relevant entities, for the respective period as described above, is excluded from the organic growth calculation for such reorganisations.

 

The calculations of the organic growth and the reconciliation to the most directly related measures calculated in accordance with IFRS are presented in the below tables. Organic growth (%) is calculated by dividing the amount in the row titled 'Organic movement' by the amount in the associated row titled '2022 reported' or, where presented, '2022 adjusted'. Organic growth for comparable EBIT margin is the organic movement expressed in basis points.

 

Reconciliation of organic measures

	Half Year 2023
Volume (m unit cases)	Established	Developing	Emerging	Group
2022 reported	305.7	230.4	794.1	1,330.2
Consolidation perimeter impact	0.2	-	66.6	66.8
Organic movement	0.5	-3.1	-11.3	-13.9
2023 reported	306.4	227.3	849.4	1,383.1
Organic growth (%)	0.2%	-1.3%	-1.4%	-1.0%

 

	Half Year 2023
Net sales revenue (€ m)	Established	Developing	Emerging	Group
2022 reported	1,384.2	791.6	2,034.1	4,209.9
Foreign currency impact	6.5	5.8	-190.6	-178.3
2022 adjusted	1,390.7	797.4	1,843.5	4,031.6
Consolidation perimeter impact	2.3	-	269.9	272.2
Organic movement	235.0	187.8	294.9	717.7
2023 reported	1,628.0	985.2	2,408.3	5,021.5
Organic growth (%)	16.9%	23.6%	16.0%	17.8%

 

	Half Year 2023
Net sales revenue per unit case (€)12	Established	Developing	Emerging	Group
2022 reported	4.53	3.44	2.56	3.16
Foreign currency impact	0.02	0.03	-0.24	-0.13
2022 adjusted	4.55	3.46	2.32	3.03
Consolidation perimeter impact	-	-	0.10	0.02
Organic movement	0.76	0.87	0.41	0.58
2023 reported	5.31	4.33	2.84	3.63
Organic growth (%)	16.7%	25.2%	17.7%	19.0%

 

	Half Year 2023
Comparable EBIT (€ m)	Established	Developing	Emerging	Group
2022 reported	140.2	51.6	270.7	462.5
Foreign currency impact	1.3	1.3	-20.5	-17.9
2022 adjusted	141.5	52.9	250.2	444.6
Consolidation perimeter impact	0.4	-	37.1	37.5
Organic movement	29.4	14.4	34.8	78.6
2023 reported	171.3	67.3	322.1	560.7
Organic growth (%)	20.8%	27.2%	13.9%	17.7%

 

	Half Year 2023
Comparable EBIT Margin (%)12	Established	Developing	Emerging	Group
2022 reported	10.1%	6.5%	13.3%	11.0%
Foreign currency impact	-	0.1%	0.3%	-
2022 adjusted	10.2%	6.6%	13.6%	11.0%
Consolidation perimeter impact	-	-	-	0.1%
Organic movement	0.3%	0.2%	-0.2%	-
2023 reported	10.5%	6.8%	13.4%	11.2%
Organic growth (%)	30bps	20bps	-20bps	-

 

¹²Certain differences in calculations are due to rounding.

 

3.   Other APMs

 

Adjusted EBITDA

Adjusted EBITDA is calculated by adding back to operating profit the depreciation and net impairment of property, plant and equipment, the amortisation and net impairment of intangible assets, the net impairment of equity method investments, the employee share option and performance share costs and items, if any, reported in line 'Other non-cash items' of the condensed consolidated interim cash flow statement. Adjusted EBITDA is intended to provide useful information to analyse the Group's operating performance excluding the impact of operating non-cash items as defined above. The Group also uses comparable Adjusted EBITDA, which is calculated by deducting from Adjusted EBITDA the impact of: the Group's restructuring costs, the acquisition, integration and divestment-related costs, the mark-to-market valuation of the commodity hedging activity and the impact from the Russia-Ukraine conflict. Comparable Adjusted EBITDA is intended to measure the level of financial leverage of the Group by comparing comparable Adjusted EBITDA to Net debt.

 

Adjusted EBITDA and comparable Adjusted EBITDA are not measures of profitability and liquidity under IFRS and have limitations, some of which are as follows: Adjusted EBITDA and comparable Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; Adjusted EBITDA and comparable Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often have to be replaced in the future, and Adjusted EBITDA and comparable Adjusted EBITDA do not reflect any cash requirements for such replacements. Because of these limitations, Adjusted EBITDA and comparable Adjusted EBITDA should not be considered as measures of discretionary cash available to us and should be used only as supplementary APMs.

 

Free cash flow

Free cash flow is an APM used by the Group and defined as cash generated by operating activities after payments for purchases of property, plant and equipment net of proceeds from sales of property, plant and equipment and including principal repayments of lease obligations. Free cash flow is intended to measure the cash generation from the Group's business, based on operating activities, including the efficient use of working capital and taking into account its net payments for purchases of property, plant and equipment. The Group considers the purchase and disposal of property, plant and equipment as ultimately non‑discretionary since ongoing investment in plant, machinery, technology and marketing equipment, including coolers, is required to support the day-to-day operations and the Group's growth prospects. The Group presents free cash flow because it believes the measure assists users of the financial statements in understanding the Group's cash generating performance as well as availability for interest payment, dividend distribution and own retention. The free cash flow measure is used by management for its own planning and reporting purposes since it provides information on operating cash flows, working capital changes and net capital expenditure that local managers are most directly able to influence.

 

Free cash flow is not a measure of cash generation under IFRS and has limitations, some of which are as follows: free cash flow does not represent the Group's residual cash flow available for discretionary expenditures since the Group has debt payment obligations that are not deducted from the measure; free cash flow does not deduct cash flows used by the Group in other investing and financing activities; and free cash flow does not deduct certain items settled in cash. Other companies in the industry in which the Group operates may calculate free cash flow differently, limiting its usefulness as a comparative measure.

 

Capital expenditure

Capital expenditure is defined as payments for purchases of property, plant and equipment plus principal repayments of lease obligations less proceeds from sale of property, plant and equipment. The Group uses capital expenditure as an APM to ensure that the cash spending is in line with its overall strategy for the use of cash.

 

The following table illustrates how Adjusted EBITDA, free cash flow and capital expenditure are calculated:

 

	Half-year	Half-year
	2023	2022
	€ million	€ million
Operating profit (EBIT)	557.3	275.7
Depreciation and impairment of property, plant and equipment, including right-of-use assets	197.8	317.2
Amortisation and impairment of intangible assets	0.7	14.4
Employee performance shares	9.8	3.7
Impairment of equity method investments	-	52.8
Adjusted EBITDA	765.6	663.8
Share of results of integral equity method investments	(4.1)	(24.4)
(Gain) / Loss on disposals of non-current assets	(2.3)	2.2
Cash consumed from working capital movements	(169.1)	(45.6)
Tax paid	(94.7)	(63.4)
Net cash from operating activities	495.4	532.6
Payments for purchases of property, plant and equipment13	(213.8)	(172.1)
Principal repayments of lease obligations	(28.6)	(29.5)
Proceeds from sales of property, plant and equipment	3.6	1.9
Capital expenditure	(238.8)	(199.7)
Free cash flow	256.6	332.9

 

¹³Payments for purchases of property, plant and equipment for the first half of 2023 include €6.6 million (first half of 2022: €3.5 million) relating to repayment of borrowings undertaken to finance the purchase of production equipment by the Group's subsidiary in Nigeria, classified as 'Repayments of borrowings' in the condensed consolidated interim cash flow statement.

 

Net debt

Net debt is an APM used by management to evaluate the Group's capital structure and leverage. Net debt is defined as current borrowings plus non-current borrowings less cash and cash equivalents and financial assets (time deposits, treasury bills and money market funds), as illustrated below:

 

	As at
	30 June 2023	31 December 2022
	€ million	€ million
Current borrowings	289.1	337.0
Non-current borrowings	3,069.4	3,082.9
Other financial assets	(514.2)	(1,026.7)
Cash and cash equivalents	(1,064.9)	(719.9)
Net debt	1,779.4	1,673.3

 

Principal risks and uncertainties

The Company faces a number of risks and uncertainties that may have an adverse effect on its operations, performance and future prospects and has a robust risk management programme to assess these and evaluate strategies to manage them.

 

General macroeconomic conditions particularly continuing high inflation and higher interest rates provided a difficult operating environment in the first half of 2023, although the more pessimistic conditions that many analysts were predicting did not eventuate. We saw some easing in projected increases in input costs including some key ingredients. We remain cautiously optimistic although we predict ongoing volatility in the shorter term. Foreign exchange rates and currency availability, particularly relating to Nigeria and Egypt remain problematic and are expected to continue to have an impact on our business although we do see encouraging signs from announced changes in economic policies of those governments.

 

The conflict between Russia and Ukraine continues to affect our business in those countries with some continuing impact on our supply chain. There does not appear to be any real prospect for resolution in the short term and our focus remains the health and safety of our people and the long-term viability of our business. The geopolitical environment in which we operate will remain challenging in the medium term.

 

Sustainability related risks particularly related to water, packaging and managing our carbon footprint, remain significant long-term risks with the business involved in a number of initiatives to enhance even further our sustainability standings. We took additional steps to strengthen our assessment of the long-term impact of climate change on our revenue, operating costs and capital investment requirements to respond effectively.

 

In the first half of 2023, we added the impact of artificial intelligence ('AI') to our list of emerging risks and opportunities. We conducted an analysis of the benefits of AI but also made progress on the important governance and policy aspects of reducing the potential risks associated with rapid adoption of AI technology.

 

In addition to the risks and uncertainties referred to above, the principal risks and uncertainties that the Company expects to be exposed to in the second half of 2023 and the management plans to mitigate those risks are substantially the same as those outlined in our 2022 Integrated Annual Report for the year ended 31 December 2022, pages 63 to 81, a summary of which is set out below. Further information can also be found on our website.

 

The principal risks will be closely monitored during the second half of the year to identify material changes to the risk environment.

 

Our principal risks

 

Commodity costs

·     In 2022 we saw a great deal of volatility in many of key commodities. We saw some stability returning to the markets in 2023 and, in some cases price reductions, although we saw continuing high prices of sugar.

·     We expect to see some instability continue in the short to medium term. We expect climate change, and the response of suppliers of key commodities to climate change, to have an impact on commodity costs over the medium to long term.

 

Foreign exchange fluctuations

·     We expect continuing short- to medium-term volatility in foreign exchange in key markets, particularly Nigeria and Egypt.

·     Recent government economic policy announcements have given us reason to be more optimistic although it will take time for changes to have a significant impact.

 

Marketplace economic conditions

·     We expect continuing high inflation and interest rates across our markets over the short term which may affect consumers purchasing decisions.

 

Geopolitical and security environment

·     While the situation remains unpredictable, we do not expect a resolution of the Russia/Ukraine crisis in the short term.

·     Continuing tough economic conditions in the short term will increase the risk of social discontent and political instability.

·     We expect the geopolitical environment to remain volatile in the short to medium term.

 

Product relevance and acceptability

·     There is an increasing risk of additional sugar/beverage taxes in the short term.

·     Heightening concerns particularly around sustainability and the impact of climate change into the medium to longer term.

·     The EU regulatory environment will increasingly focus on health and sustainability issues and new directives and regulations are likely.

 

Strategic stakeholder relationships

·     We continue to maintain strong relationships with our key business partners and continue to focus on maintaining alignment of our strategic objectives over the long term recognising the changing global environment may impact our independent businesses differently.

 

Competing in the digital marketplace

·     The digital marketplace continues to evolve and remains highly competitive with new and existing companies seeking to take advantage of e-commerce growth.

·     We expect the continued strong growth of B2B and B2C e-commerce sales over the medium to long term.

 

Health and safety of our people

·     We will continue to monitor and reduce health and safety risks across our markets.

·     We remain optimistic that COVID‑19 and influenza cases will remain manageable over the short term but we remain vigilant and ready to reintroduce pandemic protocols if required.

 

Suppliers and sustainable sourcing

·     We expect continuing volatility in the short-to-medium term as a result of macroeconomic and geopolitical conditions and continuing supply-demand imbalances.

·     Over the longer term we expect climate change and our suppliers' response to climate change to affect the cost of ingredients.

 

Cyber incidents

·     The number and sophistication of cyber incidents is expected to increase in the short to medium term. Stakeholder concerns about data privacy and expectations to protect privacy will continue to increase.

·     Government agencies will continue to improve their capabilities to investigate and respond to cybercrime. We continue to enhance our cyber security infrastructure and processes.

 

People retention

·     We continue to see challenges in the attractiveness of consumer-packaged goods companies as an employer of choice.

·     Talent retention will be an ongoing challenge over the short to medium term as adjustments are made to new ways of working. We maintain high levels of retention and engagement.

 

Ethics and compliance

·     Continuing and new economic and other sanctions imposed by many countries against Russia and Belarus increased the risk of inadvertent non-compliance. We have strengthened awareness and compliance programmes to mitigate this risk.

·     We continue to focus on reducing the risk of fraud against the Company, and non-compliance with anti-bribery and corruption standards with an emphasis on training and awareness as well as maintaining a strong compliance framework.

 

Cost and availability of sustainable packaging

·     We continue to see heightened stakeholder concerns around packaging and increased regulation across the EU.

·     Significant changes to our packaging mix could have a major impact on our business strategy, longer-term capital investment in production and distribution, and our ability to meet our NetZeroby40 commitments.

 

Water availability and usage

·     We expect that water stress in our water priority locations will continue to increase over the medium to long term as a result of climate change. The extent of that increase will depend both on our actions and on the global response to climate change.

·     We expect that regulatory pressure will increase over the medium term and that will flow through to additional operating costs associated with water. These additional costs have been estimated in our water risk assessment that is updated annually.

 

Managing our carbon footprint

·     We will continue to see heightened stakeholder concerns and increased regulation to drive reductions in carbon emissions and expect to see the price of carbon increase significantly over the next 20 years, as pressure is applied to all companies to reduce their carbon footprint.

·     We have committed to NetZeroby40 and currently undertaking a range of initiatives to meet that commitment, including ongoing capital expenditure on carbon reduction initiatives.

 

Related party transactions

Related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial positions or the performance of Coca-Cola HBC during the period, as well as any changes in the related party transactions as described in the 2022 Integrated Annual Report that could have a material effect on the financial positions or performance of the Group in the first six months of the current financial year, are described in section 'Condensed consolidated interim financial statements for the six months ended 30 June 2023', note 14 'Related party transactions'.

 

Going concern statement

As part of the consideration of whether to adopt the going concern basis in preparing the interim report and financial statements, management has considered the Group's financial performance in the period, the expected renewal of the bottlers' agreements with The Coca-Cola Company beyond 31 December 2023, as well as its 2022 quantitative viability exercise, including the performance of various stress tests, which confirms the Group's ability to generate cash in the year ending 31 December 2023 and beyond. Management has also considered the events involving Ukraine and Russia and no impact has been identified on the Group's ability to continue as a going concern.

Management has also considered the Group's strong balance sheet and liquidity position, its leading market shares and largely variable cost base, together with the unique portfolio of brands and resilient and talented people, which it believes will allow the Group to fully overcome the challenges posed by the volatile geopolitical and macroeconomic environment.

Accordingly, and having also considered the principal risks, the Directors continue to adopt the going concern basis of accounting in preparing these condensed consolidated interim financial statements and have not identified any material uncertainties to the Group's ability to continue trading as a going concern over a period of at least twelve months from the date of approval of these condensed consolidated interim financial statements.

Responsibility statement

The Directors of the Company, whose names are set out below, confirm that to the best of their knowledge:

(a) the condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard (IAS) 34, 'Interim Financial Reporting', as issued by the International Accounting Standards Board (IASB) and IAS 34, 'Interim Financial Reporting', as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidation as a whole for the period ended 30 June 2023 as required by the Disclosure Guidance and Transparency Rules sourcebook of the UK FCA ("DTR") 4.2.4R; and

(b) the interim management report includes a fair review of the information required by:

·     DTR 4.2.7R of the DTRs, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the condensed consolidated interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·     DTR 4.2.8 R of the DTRs, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the 2022 Integrated Annual Report for Coca-Cola HBC AG and its subsidiaries for the year ended 31 December 2022, that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

 

Name	Title
Anastassis G. David	Non-Executive Chairman
Zoran Bogdanovic	Chief Executive Officer
Anastasios I. Leventis	Non-Executive Director
Henrique Braun	Non-Executive Director
Christo Leventis	Non-Executive Director
Evguenia Stoichkova	Non-Executive Director
George Leventis	Non-Executive Director
Reto Francioni	Senior Independent Non-Executive Director
Charlotte J. Boyle	Independent Non-Executive Director
Anna Diamantopoulou	Independent Non-Executive Director
William W. (Bill) Douglas III	Independent Non-Executive Director
Olusola (Sola) David-Borha	Independent Non-Executive Director
Alexandra Papalexopoulou	Independent Non-Executive Director

 

 

Signed on behalf of the Board

Zoran Bogdanovic
Chief Executive Officer

 

 

9 August 2023