Earnings Call Transcript - CCEP Q3 2024

Operator, Operator

Hello, and thank you for joining us for Coca-Cola Europacific Partners' Q3 2024 Trading Update Conference Call. I must inform you that this call is being recorded. Now I'll turn the call over to Sarah Willett, Vice President of Investor Relations and Corporate Strategy. Please go ahead, Sarah.

Sarah Willett, Vice President of Investor Relations and Corporate Strategy

Thank you all for joining us today. I'm here with Damian Gammell, our CEO; and Ed Walker, our CFO. Before we begin with our opening remarks on our third quarter trading update, a reminder of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook. These comments should be considered in conjunction with the cautionary language contained in today's release as well as the detailed cautionary statements found in reports filed with the U.K., U.S., Dutch and Spanish authorities. A copy of this information is available on our website at www.cocacolaep.com. Prepared remarks will be made by Damian, we will then turn the call over to your questions. Unless otherwise stated, metrics presented today will be on a comparable and FX-neutral basis throughout. They will also be adjusted on presented on an adjusted comparable basis, thus reflecting the results of CCEP in our Australia Pacific and Southeast Asia business unit, APS is the Coca-Cola Philippines transaction had occurred at the beginning of this year rather than February when the acquisition completed. Following the call, a full transcript will be made available as soon as possible on our website. I will now turn the call over to our CEO, Damian.

Damian Gammell, CEO

Thank you, Sarah. And again, many thanks to everyone for joining us today. Before getting into our Q3 trading update, I just wanted to pause and convey that our thoughts are with the communities in Spain and all those affected by the recent devastating flooding. Coca-Cola has had a presence in Spain for more than 70 years, and we will continue to support our colleagues and customers in the affected area as well as our local communities. So now to our trading update. Before we get into more detail on our third quarter, I just wanted to take a moment to stand back and reflect on the year-to-date. 2024 continues to be a solid year for CCEP. We've grown volume and revenue year-on-year with share growing ahead of the market. And in both the NARTD category, which remains resilient and continues to grow in both Europe and in our APS region. Our focus on revenue and margin growth management, headline price and promotional optimization across our broad pack offering has driven solid revenue per unit case growth, especially in our developed markets. Our geographic diversification means we are more robust than ever with our higher growth markets in APS, led by the Philippines, offsetting softer volumes in Europe. Underlying volumes, which exclude the effect of strategic portfolio changes, were up year-to-date by just over 1%. Turning to Europe. Despite transactions growing ahead of volumes this year, volumes have been relatively challenging. After allowing for those strategic exits, which account for around 1%, we believe that much of the remaining decline, although as you can appreciate, not an exact science, was driven by adverse weather. This is also reflected in our channel performance where away-from-home has understandably seen a greater impact, even though we continued to gain share. What gives us confidence, however, is that when normalized weather prevailed as it did during August, we saw our consumers responding favorably, driving high single-digit volume growth. In addition, our share in both NARTD and Sparkling have held up well and have improved across the year. So although we are slightly lowering our full-year revenue guidance today, we are very pleased to be reaffirming our full-year profit and cash guidance alongside declaring a full-year dividend of just over 7% on last year. This reflects our strong plans in place for the balance of the year, together with our continued focus on efficiency and productivity. Our great brands, great execution, and great people continue to drive the delivery of our clear and sustainable long-term strategy. None of this would be possible, however, without the continued hard work and unwavering commitment of all of my colleagues at CCEP. Our recent and latest engagement survey is proof of point, achieving record engagement scores, placing CCEP among the best of its peers as a Great Place to Work. I'd also like to thank our customers and our brand partners for their ongoing support. Our customers will always be at the heart of our business, and they will share in our success as we continue to create more customer value in the retail channel than our FMCG peers in Europe, Australia, and the Philippines. And we were recently recognized for great service in the latest Advantage Supplier survey results with almost all of our markets ranking CCEP as #1. So now turning to Q3. It's been a solid quarter with some brilliant activation around iconic events, namely the Olympic and Paralympic Games in Paris, the Euros in Germany, and the America's Cup in Barcelona. These have created a great platform for our brands like Powerade alongside the Coke trademark. Not only have they reinforced our position as a leading beverage partner for existing customers, but they've also contributed to winning new customers. Recent wins include multi-brand restaurant franchise operator in Spain, Punch Taverns in GB and Ancol Dreamland, the largest theme park in Indonesia, attracting 13 million visitors a year. We delivered total revenue growth of 2.4% in the quarter. This was driven by solid progression in revenue per unit case, reflecting our strong revenue growth management capabilities, partly offset by geographic mix. While total volumes for Q3 were flat year-on-year, transactions were ahead with underlying volumes, excluding the strategic exit growing by around 1%. Volumes in Europe were down by 1.4%, offset by the strength of APS, where volumes were up by 3.3%. This was driven by the Philippines despite cycling volume growth of over 20% in Q3 last year and was led by Coca-Cola original taste, reflecting not only underlying market demand, but also the fantastic execution leading to continued strong share gains by our Philippines team. I'm delighted with how seamlessly the integration of the Philippines has gone. As our focus is very much down in the future, we are increasing our investment in this exciting market. To that end, we are looking forward to showcasing this business at our Capital Markets event in Manila next May. Elsewhere in Southeast Asia and similar to many other Western brands, our Indonesian volumes continue to be affected by geopolitical events. We do, however, continue to see encouraging growth in less affected parts of the country, supported by the recent launch of Coca-Cola Zero Sugar. We also recently launched refillable glass bottles in Indonesia focusing initially on the traditional food stores around Jakarta and surrounding areas. And the transformation of our route to market continues to progress well to ensure it is fit for our longer-term growth strategy in Indonesia. Now to Australia and the Pacific. The momentum we've seen this year has continued. We fully annualized our exit from bulk water with volumes in the period marginally ahead. This was driven by a solid quarter for Coke Zero, Fanta and Monster. Revenue per unit case was up 1.2% in APS, reflecting headline price increases and promotional optimization, partly offset by strong volume growth in the Philippines, which has a lower revenue per unit case. Returning to Europe. Weather and colder weather year-on-year, particularly in July since September contributed to some softness in the away-from-home channel. The home channel outperformed with volumes up 0.6% on an underlying basis. While consumer spending has held up reasonably well in Europe, we fully understand that some of our consumers continue to feel the squeeze. We continue to focus on driving great execution, both in the home and away-from-home channels, focusing on price relevance across our consumer base, using data and insights to make sure we can optimize pack and pricing. For example, in Spain, we've continued to activate a popular and affordable price point on the iconic 2-liter pack. Revenue per unit case in Europe grew 3.2%, reflecting price increases across all markets, including GB and Germany, executed during Q3 as well as a favorable brand and pack mix. So now briefly to some highlights on our great brands. We are extremely privileged as always, to make, move and sell some of the world's most loved brands. We continue to invest and innovate to make them even better and to appeal to even more consumers. Coca-Cola trademark volumes performed well. This was driven by Coca-Cola Zero Sugar of 5.5%, which continued to achieve good share on volume growth across our key markets. We delivered fantastic activation centered around this year's sporting events and we launched exciting Zero Sugar Limited Edition Coca-Cola and Oreo collaboration, which has performed particularly well in Australia and GB. Also in GB, we've just launched our new Diet Coke campaign. This Is My Taste, emphasizing bold self-expression and featuring our new brand ambassador, actor Jamie Dornan. In flavors, we launched a new Beetlejuice inspired Fanta Halloween campaign, celebrating the launch of the movie sequel and newly released limited-edition Fanta Zero Afterlife. Sprite volumes also performed well, up 1.8%, again on the back of great execution, great reformulation and refreshed marketing. Our sports volumes grew 7% driven by Aquarius and Powerade supported by, again, great activation and the launch of Powerade Mango alongside favorable trends in the overall category. Again, Monster outperformed, driving overall energy growth of 4.5%. Fantastic innovation continues to drive recruitment and distribution, supported by flavor extensions like Ultra Strawberry Dreams, Ultra Violet and Nitro Cosmic Peach. And finally, NARTD as we diversify our business to address different need states and following the encouraging results of Jack Daniel's and Coca-Cola, the #1 ARTD value brand in GB, we continue to build with the recent launch of Absolut Sprite in Europe. Already off to a good start and with an encouraging rate of sale and many of you have seen the recent announcement of Bacardi Rum and Coca-Cola, which is due to launch next year. So now let me turn briefly to our full year guidance and outlook. As I've said earlier, we have today reaffirmed our full-year guidance on both operating profit and free cash flow. We continue to anticipate full-year operating profit growth of around 7%, supported by our ongoing efficiency initiatives and strong free cash flow generation of around EUR 1.7 billion. On our efficiency programs, in short, they remain on track and are progressing well. For example, we recently announced proposed changes to our supply chain network in Germany to ensure it remains fit for the longer term. From a revenue perspective, revenue per unit case growth has been broadly consistent year-to-date, and we expect that to continue for the full year. And as I touched on earlier, from a volume perspective, whilst year-to-date volumes are slightly up, the recent quarter has been weaker, primarily driven by mixed weather in Europe and softer demand in the away-from-home channel. Although adverse weather has persisted into October in Europe, we have strong and exciting plans in place as we head towards Christmas from the summer season in APS to the winter season in Western Europe. In that context and including the benefit of 2 extra selling days in Q4, as previously guided, we are lowering slightly our full-year revenue guidance to around 3.5%, slightly below our previous guidance of around 4%. Looking at COGS with over 95% hedging in place and with less than 2 months of the year remaining, we now expect full-year COGS per unit case growth of around 2.5%. This is lower than our previous guidance, partly driven by the positive mix impact from the higher growth in the Philippines, which has a lower COGS per unit case. We're also very pleased to be declaring our second-half dividend of EUR 1.23 per share. This level of dividend maintains an annualized payout ratio of approximately 50%, representing an absolute full-year dividend increase of just over 7% versus last year. Now looking to next year, we remain confident in the resilience of our categories. Whilst it's too early to provide detailed guidance, which will be provided with our full-year results in February, we're confident we have the right strategy in place to deliver on our midterm objectives. We have fantastic brands in the category, which we expect to continue to be robust into 2025, while clearly our biggest opportunity is to see the return to quality underlying volume growth in Europe. We're continuing to invest for the long term and excited about what lies ahead. We're adding capacity into key areas such as the Philippines, new can lines in Europe and Australia, expected capacity to support the growth of Sports and Fuze Tea, all while adding over 100,000 coolers to our universe. We are also accelerating our digital transformation. For example, adding even better functionality to our B2B portal, myccep.com, making it even easier for customers to do business with us. This has grown strongly and is now expected to account for around EUR 2.7 billion in revenues this year, up from around EUR 2 billion previously. As I mentioned earlier, we have an exciting platform event in Southeast Asia next May. So we really look forward to hosting you there. In summary, I'm back to where I started. 2024 continues to be a solid year for CCEP. Combined with today's dividend declaration and a near-term anticipated return to our target leverage range, this demonstrates the strength and resilience of our business and our ability to sustainably grow our shareholder returns. Again, thank you for your time today. Ed and I will now be very happy to take your questions. Over to you, operator.

Operator, Operator

We'll now take our first question. The first question comes from Matthew Ford at BNP Paribas.

Matthew Ford, Analyst

So my question is just on Europe and the consumer there. Damian, you mentioned that August was much better as the weather improved, but you mentioned in the release that you're seeing softer consumer demand in the away-from-home channel. Any update on how we should think about the European consumer health now that we're into Q4? Have you seen any deterioration in the level there within Europe among consumers? Or are things kind of as they were earlier in the year? And then a quick kind of follow-on to that. Given the nature of the comps now, we've had a weak summer this year and a relatively soft summer last year. Is there any reason why looking to 2025, the European business shouldn't see sales growth kind of ahead of its midterm algorithm, which is around 3%, I think, in Europe?

Damian Gammell, CEO

Thanks, Matthew. I'll cover the last one first, but we're clearly not going to guide on volume expectations for Europe next year. We'll give a bit more color in February. But yes, suffice to say, we haven't had the year we planned on volumes in Europe. So we'll be cycling that in 2025, when we give a bit more color on how we think about that going forward. To your first point, we haven't seen a dramatic change in the consumer. I mean, ultimately, when you look at revenue growth in Europe across our business, it's holding up well. Clearly, we've got the benefit of a great away-from-home business, which supports our longer-term value creation model. But obviously, when the weather turns, that's a channel that really gets impacted more. So in summary, we've seen retail holding up well, both in terms of revenue and consumer. We have seen the consumer respond when we got more normalized weather in August, and volumes were up high single digits. So that gave us a lot of confidence. Unfortunately, it didn't last long, but we got one good month. Yes. So we're pretty confident. I think we've been very focused on price relevance, particularly in retail, offering price points across the spectrum of consumer needs, including value because we know that's still important, but also not losing sight of premium offerings and smarter price promos. And I suppose the one number that I'm particularly pleased about is our revenue per case growth in Europe. I think that's testimony to the work we've done with our customers, but also in terms of some of the data and analytics work. So that's really supported our returns this year. It would have been great to see that multiplied by the volume growth we expected that didn't come. But despite that, I think to be able to deliver the year-to-date results we've had reiterate our guidance on profit and free cash flow. I think just proves that the diversification strategy that we've taken has been the right one. What it means for '25, I need to say, Matthew, but clearly, we'll talk to that in February. But in summary, we've seen the consumer spending, they spent a bit more when the environment allowed it, but also in retail, it's held up pretty well, and that gives us some confidence heading into Christmas in Europe and also, obviously, summer in Australia.

Operator, Operator

We'll now take our next question. This is from the line of Simon Hales from Citi.

Simon Hales, Analyst

Can I just follow up, Damian, on your last point there around the solid revenue per case development in Europe? I mean, can you just talk a little bit more really about what drove that in the retail channel again in Q3, particularly given the sort of backdrop on the wider marketplace as you said away-from-home under pressure? And how confident are you about sustaining good revenue per case in Europe into Q4? Are you seeing any increase in promo activity across the land mass? There's been a number of other beverage companies that have highlighted maybe some signs of increased promo in other categories. Interested in your thoughts on soft drinks.

Damian Gammell, CEO

Yes. Thanks, Simon. So we expect to sustain that through the end of the year. I mean what drove it is, we took pricing across all of our markets during 2024. I think that's been a good cadence. In general, our customers at their discretionality took a little bit more. So margins continue to improve. We'd expect that to continue into '25. I mean, again, we'll talk more to that in February. But we think that has been a good driver of revenue per case and also value creation for our customers. We're very conscious that we do it in a way that retains momentum with the consumer. So transactions growing ahead of volume. We're happy to see that. So we don't expect any change as we go into Q4. Generally, our promo calendar and most of our customers are well locked in. So as you can appreciate, we would have locked them in, in some cases at the beginning of the year, firm them up through the summer. So we've got good line of sight. And obviously, that's reflected in the guidance, Ed and I are happy to reconfirm today on profit. So nothing material in Q4. What hasn't been a big driver has been mix and again, that comes back to my commentary around the away-from-home channel being a little bit weaker. So typically, we'd get a little bit more from mix in our net revenue per case, and that hasn't been the case in Europe as much as we'd like. And clearly, that's something we'll focus on into 2025 as we'd expect away-from-home to perform a little bit better.

Operator, Operator

We'll now take our next question. This is from Sanjeet Aujla from UBS.

Sanjeet Aujla, Analyst

Just dig in deeper a little bit into the away-from-home channel in Europe. Are there any particular sub-channels there, Damian, you think are underperforming more than others? Any particular markets you'd call out? And how much of this do you think might be an affordability issue in the channel?

Damian Gammell, CEO

Thanks, Sanjeet. I wouldn't probably call out any particular country. I think from a subchannel perspective, clearly, we've seen restaurants, particularly outdoor dining in Southern Europe terraces. So France and Spain, which clearly it's an area where we typically enjoy that occasion. And so I'd say that's been the one that's been hit the most. Convenience has held up well. QSR has held up well, although, to your point, we do see a lot of our QSR customers promoting more value meals now I think, on the back of affordability. And I think pricing on menus clearly has been quite inflationary over a number of years in Europe across the full range of food and beverages. So probably not a surprise you're seeing a bit more value focus particularly in QSRs. But generally, it's been our kind of fragmented traditional bar restaurant, terrace trade that's been impacted the most, we should expect. Other channels have held up reasonably well. Convenience has been strong. Petroleum has been strong. Energy has done particularly well there. Probably France and Spain, a little bit more just based on the fact that typically they have a bigger business in that subchannel, Germany as well, yes. So that's how we see it, Sanjeet. Nothing that dramatic across the market, so pretty consistent.

Operator, Operator

We'll now take our next question. This is from Mitch Collett from Deutsche Bank.

Mitchell Collett, Analyst

I'll ask Ed one to give Damian the rest. You mentioned the EBIT guide is stable despite slightly lower revenue growth. So there's clearly some benefit that you flagged from lower cost of sales. I wonder are there any other factors driving that better margin performance during fiscal '24?

Ed Walker, CFO

It was a bit hard to hear you, but I think the question was about still delivering our EBIT guidance despite the revenue change. So yes, we're very pleased that we are able to maintain.

Damian Gammell, CEO

Sorry, Mitch, could you repeat that? Just you're breaking up a bit.

Mitchell Collett, Analyst

Yes. sorry about the sound quality. So you're right. It's just that you've managed to maintain the EBIT growth guidance despite slightly lower revenue and you've obviously given the lower cost of sales. But I just wondered if there were any other factors contributing to that ability to maintain the EBIT growth performance and a slightly higher margin delivery.

Ed Walker, CFO

Yes. So as you say, we're very pleased that we've been maintaining our EBIT guidance. The main driver is, in fact, yes, as you pointed out, the cost of sales. So we've moved from approximately 3% to 2.5%. Within that is the mix impact from the Philippines, which has a lower cost per case. So as it grows, we get a mix benefit. But also, we've had some commodity favorability and the benefits of our transformation program, obviously, also flow through cost of sales. And given the top line, we have focused a lot on cost saving and making sure that we protect the bottom line given the challenging situation in Europe. And that applies to cost of sales, but also to all of our OpEx lines. So from logistics, G&A, sales and marketing, we've been focused on doing what we can to make sure we can give confidence around that 7% on the operating profit.

Operator, Operator

We'll now take our next question. This is from Lauren Lieberman from Barclays.

Lauren Lieberman, Analyst

First thing I wanted to ask was just on the Q4 implied acceleration because even accounting for the 2 extra selling days, it looks like you're expecting things to get quite a bit better sequentially despite tougher comps. So Damian, you mentioned activations. I was wondering if kind of channel mix is a piece of it that it's seasonally some of the fragmented trade is less important in Q4 typically. But I just wanted to understand a bit better the drivers of that acceleration sequentially?

Damian Gammell, CEO

Yes. Thanks, Lauren. I suppose it's certainly turning into a period in Western Europe where Christmas retail becomes the bigger focus compared to out of home. So that's reflected. And we've seen our retail business perform stronger. So from a kind of mix perspective going into Q4, it's a bigger part of our business in Europe. And that with the added selling days kind of supports that acceleration. We continue to see strength in our Philippines business as we head towards the end of the year, and that gives us confidence. We're cycling through some of the effects in Indonesia. So that business starts to cycle through the beginning of some of those geopolitical impacts. And obviously, we're fully loaded in Australia, New Zealand and the Pacific Islands heading into summer. So yes, it is a step-up, but it's on the back of those 4 or 5 key changes that we see. And obviously, from a pricing perspective, on a revenue per case, as I mentioned earlier, we expect to retain that as we go into Q4 as well. So that's a key driver of that revenue expectation in the quarter.

Operator, Operator

We'll now take our next question. This is from Dara Mohsenian from Morgan Stanley.

Eric Serotta, Analyst

It's Eric Serotta. I wanted to follow up on the away-from-home situation in Europe. Could you share more about how you're enhancing value for the channel to improve the overall trends? What strategies do you have at your disposal besides waiting for the consumer to return? Also, do you anticipate any impact on the business from the tragedy in Spain in the fourth quarter?

Damian Gammell, CEO

Thanks, Eric. To address the last point, it's a very unfortunate situation in one part of Spain. We recognize a minor impact, but overall, it's not significant on a consolidated level. We're actually reopening operations in that area today with support from the local community and regulatory authorities. We're committed to helping our customers by providing new equipment, retrieving damaged products, and assisting them in resuming their businesses. This will be a considerable journey for us in Valencia until the end of the year, and we're actively engaged in it. On a consolidated level, the impact is relatively small. In the away-from-home segment, we value this part of our business and manage it strategically, independent of short-term challenges. We’ve been successfully increasing our market share across all markets, and we're pleased with that progress, which includes onboarding new customers. I mentioned our goal of increasing our cooler presence, targeting over 100,000 coolers, and we’ll continue to invest in this channel to enhance availability. We plan to maintain our focus on incidents in 2024 and into 2025 as a key driver of profitable growth. This strategy includes menu combinations, increased in-store presence, and availability. We've also expanded our refillable glass offerings in markets like France, aligning with our ESG goals and consumer preferences. Despite external challenges, we're implementing various initiatives to capture market share, attract new customers to CCEP, and execute effectively in outlets. This approach has contributed to over 40% of our revenues, and we anticipate it will continue into 2025. When faced with tougher conditions, we double down on our efforts to generate revenue by collaborating closely with our customers, which positions us favorably for 2025 and beyond. We see this as a long-term commitment rather than a short-term engagement; staying focused and continually investing is essential for ongoing success.

Operator, Operator

Next question is from the line of Bryan Spillane from Bank of America.

Bryan Spillane, Analyst

My question is as we're thinking about next year, just headwinds and tailwinds. So I think as we start to kind of look back, I guess, the weather and the impact it had on volume is a bit of a tailwind as we look at next year. It seems like commodity cost inflation or unit cost inflation per cases reasonable. We are going to comp against next year or over this prior year, just all of the programming in Europe around the Olympics, The Euros, Euro Cup, there was a lot of activity, I guess, over the course of the summer. I don't know if I'm missing anything else. And I guess what I'm after is just as we kind of look forward, again, not knowing what the weather will be like, but it seems to set up for a pretty normal year. And I just would like to get your perspective on that.

Damian Gammell, CEO

Yes. Thanks, Bryan. I mean, I'll comment a little bit on some of those consumer programs and pass to Ed to talk a little bit about the cost environment. We certainly welcome a few more tailwinds next year. That's for sure. And I think you called out some of them. To your point on Olympics and Euros. I mean, 2 great assets that we enjoyed this year on a large scale. I suppose, as you'd appreciate, we've known for quite a while that they won't be repeating in '25. So particularly happy with the work Manolo and the Coke Company have done around some of the programs that you'll see in Europe next summer. Too early to give more color on them. But suffice to say, we went into our planning at the beginning of this year for '25 knowing that we're going to have to have something pretty good and strong for the consumer on the back of cycling the Olympics and Euros. And I've reviewed those, and I'm really happy with what we've got in terms of consumer activation. So that will help. We'll continue probably to see some of the macro challenges around some of the geopolitical tensions, although we will be cycling the beginning of them, but we've got to hope to see a resolution to that quickly, but that's something we'll keep an eye on. I'll pass over to Ed now on the cost side because clearly, we've taken our COGS guidance on this year, and he can talk to how we see that going into next year.

Ed Walker, CFO

Yes. As I said earlier, I mean, we're very pleased with the COGS performance in '24 and particularly the stability now that we see on commodities, and we expect that stability to go forward into 2025, which will help us. Actually, as we sit here today, we're over 70% hedged on the main commodity wallet, which is a good position to be in. Of course, there are other elements of cost of goods. So there's our supplier conversion costs, which are obviously subject to their own inflationary pressures, particularly on labor. From our side, on the manufacturing point of view, we have the benefits of a number of the transformation programs that are in planning at the moment that Damian referred to earlier. And then on the rest of the OpEx lines, we'll see the usual inflationary pressures on labor. But as we sit here today from a cost perspective, I think we're in good shape for our 2025 planning.

Damian Gammell, CEO

Yes. I think just to close, Bryan, it would be great to have conversations next year that don't involve the weather, that's what we're looking forward to.

Operator, Operator

Our next question is from the line of Charlie Higgs from Redburn Atlantic.

Charlie Higgs, Analyst

I was wondering if you could dig in a bit more detail in the Southeast Asia division. I think there's some offsetting parts there. So another strong quarter by the Filipino Tigers. Can you just unpack that a bit in the growth in the modern trade channel? And then on Indonesia, maybe a bit more color on what you're seeing on the ground and how the reception was on your recent returnable glass bottle initiative?

Damian Gammell, CEO

Yes. Thanks, Charlie. I mean the Filipino team has done a fantastic job in having a great year. As we talked about on the back of that acquisition with our partners, we recognize the need, particularly short term to provide a bit more capital into our, for example, our glass float. RGB is a big part of our business there. I think we're seeing the benefits of that investment throughout 2024. It's taken a lot of pressure off our supply chain. It's increased inventory in our warehouses and in our customers. So I think that's gone really well. I think the team has also executed a few price moves across the year that have landed well and support that revenue growth. And clearly, from a consumer market perspective, it continues to be quite a healthy growth outlook for the Philippines. So very happy with it. We continue to look to the future there. A couple of elements we reinforce today. We have signaled a slight tick up in our capital to that 4% to 5%. Again, that will support the Philippines growth in terms of capacity and glass float. We have also brought some of our key account capabilities from Europe, both in terms of people and technology. As we see key accounts and modern trade becoming a bigger part of the growth story in the Philippines and we think we can benefit from that just by leveraging some of the work that we've done in Europe and across Indonesia, Australia, and New Zealand. So yes, set up for a solid finish to the year and really looking forward to having our Capital Markets Day down there where we'll just demonstrate on the ground exactly what the Tigers are doing, which is super exciting. Indonesia, obviously, has had some more challenges on the geopolitical side. We continue to execute our long-term plan there despite those headwinds because we see the opportunity in that market. We have launched refillable glass in Jakarta. It's very early days, but we felt it was a good move in terms of giving us a different affordability option, particularly for eating and drinking out of home. So those small street cafes and they're a critical part of consumption behavior. And we know refillable glass plays a role for the tea category there, and we haven't had refillable glass in our soft drinks business. So again, early days, we'll start in Jakarta, look at consumer and customer acceptance and then look at how big that could be our portfolio. Generally, across Indonesia, I was there recently, a couple of topics that I feel the team are doing a great job on. We continue to change our route to market. So every week, we're onboarding new distributors moving away from our old model, and we see performance improve when we do that. So that gives us confidence that we are landing on a model which is very similar to the Philippines, coincidentally that will support long-term cost competitiveness, which will allow us to keep the affordability proposition, but also long-term growth as those distributors' financial model is much more linked to our top-line growth, and that gives us confidence for the future. And then I did call out that there are some areas in Indonesia, less impacted by some of those macro issues. And there, we see solid growth, and that gives us confidence because in those areas, the price packaging is working. Some of them have the new route to market. And as I said, we have less of that consumer headwind, and that's delivering solid top-line growth. So a lot to do. All we said Indonesia was going to be a longer-term play, but they certainly give ourselves and our team in Indonesia confidence that we're investing in the right areas, the changes we're making in the route to market work. It's the right thing to do to try refillable glass in that market. We just got to look at the Philippines and see how big it is there. Yes, and obviously, we'll get through some of the short-term challenges, although clearly, we'd like to see an end to the root cause of all those issues. But that's not within our control. So we focus on what we can manage. Thanks, Charlie.

Operator, Operator

The next question is from the line of Edward Mundy from Jefferies.

Edward Mundy, Analyst

Could you clarify your comments about the key opportunities related to potential volume growth in Europe? I would like to understand your perspective on this. You've experienced strong revenue growth per case in recent years. Does this suggest a need for a better balance between revenue per case and volume? Additionally, there seems to be some disruption in Europe due to new entrants in the Cola category linked to geopolitical factors. I assume you've considered this, even though it's still quite minor. I would appreciate your thoughts on how significant this might be in terms of influencing the current challenges.

Damian Gammell, CEO

Thank you, Ed. To address your second point first, we're investing significant time with Coca-Cola Company to understand the macro impacts on our performance in Europe, and we monitor that closely. So far, we haven't noticed any new brands negatively affecting our sales volume. However, we acknowledge that certain areas in Europe do have an impact, especially on the Coke trademark, which we continue to observe. Looking ahead to 2025, what excites us are the concrete actions we're taking, particularly regarding Diet Coke. The new campaign in Great Britain is a positive start, generating momentum for 2024 and into 2025. Diet Coke is a strong brand, and we believe that increased investment in Great Britain will foster quality growth into 2025. We will also consider similar strategies for markets like Australia and possibly Germany, where we still have significant Diet Coke and Coke-like products. As I mentioned earlier, with the upcoming Olympics and Euros, there will be strong activations around our Coke trademark and Zero during the summer. Our Monster and energy portfolio continue to perform well, supporting quality underlying growth. We're transitioning our business in Spain from Nestea to Fuze, which may bring some short-term challenges, but we believe the Fuze platform has been beneficial for us. Additionally, we'll share more about sports and Powerade, which are important to our portfolio in Australia and represent potential in Europe, so we'll focus on Powerade to encourage quality growth. Importantly, we haven't reduced any investments in our away-from-home business this year, so we anticipate having more coolers and customers in the market, enhancing support for our operations. Regarding the midterm, particularly in Europe, we aim for an annual volume growth of one percentage point. We'll keep raising prices as needed, and we hope to see a greater mix contributing to our revenue, supporting our midterm guidance. It’s not surprising given this year's performance that we'd like volume to play a bigger role in 2025 in Europe, but we’ll ensure this doesn’t come at the expense of pricing, which is essential for long-term business value. We'll balance both aspects next year for sure.

Operator, Operator

Our next question is from the line of Gregory Porter from Evercore ISI.

Robert Ottenstein, Analyst

This is Robert Ottenstein. Again, I think things may have got a little mixed up. A financial question, it's kind of 2 parts. One, has the addition of higher-growth markets like Indonesia and the Philippines increased the capital intensity of the business in any way that would affect dividend payback dividends or share buybacks? You alluded to that a little bit in the Philippines, but just want to touch on that. And then somewhat related does any of the movement with the FTSE and the exchanges have an impact on how you think about dividends versus share buybacks and liquidity issues and our buybacks because of this maybe a less attractive route?

Ed Walker, CFO

Thank you. I'll address that. Regarding Indonesia and the Philippines, these markets indeed require significant capital to tap into the potential and enable volume growth. We are particularly optimistic about the Philippines, where there's both portfolio growth and mix opportunities. One reason our capital has increased to around 5% from 4% is the inclusion of the capital requirements for the Philippines and Indonesia in that figure. For the medium term, we expect to maintain around 5%, although it should decrease in the long term. All of this is reflected in our guidance and midterm goals moving forward, and it won't affect our plans for share buybacks or dividends. Our capital allocation strategy prioritizes using cash to invest in the business to support growth. As for the FTSE, the new listing category will be effective from November 15. We need to meet liquidity requirements over the next 2.5 months to be included in the FTSE, which seem manageable at around 50,000 shares traded daily. While this figure is low relative to our overall trading volume, it’s higher compared to current trading levels in London. We are actively pursuing this, and the earliest possible entry into the FTSE would be in March. This won't impact our other listings or our capital allocation strategy. Looking ahead, we are in a strong position with an expected EUR 1.7 billion in free cash flow, which will bring us back within our leverage range of 2.5x to 3x by year-end. We will discuss our options for returning cash to shareholders with our board at year-end. Share buybacks will be among those options, and we plan to provide an update in February. However, we don’t anticipate the FTSE listing will significantly alter our policy.

Damian Gammell, CEO

Yes. Just to add to Ed's comments, Robert, I think all of the investments we call out today are guided within that 4% to 5%. So we feel really comfortable. It's a big number, which I remind my team of when you take 4% to 5% off our revenue, that's a lot of capital to spend. So we're very comfortable that that's going to allow to what we need to do, not just in Indo Philippines but across Europe. And then within that, currently, we are transforming our IT platform and moving to an S/4HANA solution. That's going to be a multiyear journey. But as you can appreciate, within that 4% to 5%, there's a huge amount of IT and tech investment, which we're really happy with. Over time, that will roll out as we finish the implementation. So I think to Ed's point, near term, that 4% to 5% is good. And as we roll out of some of those big step-ups, we'd probably come back and look at that percentage again in the future, but more to come on that. But certainly, nothing beyond that in the near term. As I said, there's a lot of cash to get out. We're good at it. So that's okay. Yes, but nothing incremental. Thanks, Robert.

Operator, Operator

And our last question today comes from the line of Philip Spain from JPMorgan.

Philip Spain, Analyst

I have one more question regarding the expected impact of the increase in sugar taxes in the U.K. next year, specifically concerning pricing and the anticipated effect on volumes. Additionally, considering that the government has mentioned possible changes to the sugar tax thresholds, how do you plan to approach reformulations in light of these potential adjustments, and what do you expect regarding those threshold changes?

Damian Gammell, CEO

Yes. So obviously, new news on the back of an exciting budget in the U.K., not the only thing in that budget that will impact our business, but certainly one of them. So clearly, we've been on a reformulation journey for quite a while. So about 70% of our drinks now in GB are low or no calorie. So that's been a key driver of our performance. Sugar reduction in soft drinks is down about 46%. So I think the industry was reformulated across GB. So it will have an impact, but it's on a much smaller part of our business and it will be effective per liter in April 25. So without getting ahead of ourselves, I think what's happened generally, the industry has passed that on to the customer, and they've generally passed it on to consumers, Philip. So I see that probably occurring again. So as we look at price elasticity and our pricing in the U.K., we'll factor that in predominantly from the consumer level. Yes. And if there are reformulation opportunities, we'll take them, but we've just reformulated our zero variants in Sprite and Fanta recently and the products have been well received. Coke Zero has gone well. Clearly, I talked about Diet Coke earlier. So that would be a good play in GB as well to mitigate the risk. Yes. So it will impact GB, but on the smaller part of our business and in line with previous years, well, I'd expect we will pass it on. And then we'll factor that into some of that elasticity modeling to see on top of that what our pricing strategy will be for GB. So that's how we're looking at that at the moment.

Operator, Operator

I would now like to hand the conference back over to Damian Gammell for his closing remarks. Damian, please go ahead.

Damian Gammell, CEO

Thank you, operator. I want to extend my gratitude to Ed, Sarah, and everyone for being part of our call today. As we discussed, 2024 looks to be another strong year for CCEP. I am particularly pleased to see our diversification strategy in action as we expand our bottling operations across different regions. We've mentioned a strong finish to 2024, and we have robust plans for the remainder of the year. Additionally, we are focused on 2025 and how to maintain the midterm growth guidance we've provided. We're looking forward to welcoming many of you to Manila in May, and Sarah will share more details about the logistics. During that trip, we will also offer a visit to Jakarta to showcase our transformation journey in Indonesia. There is much ahead of us, and we will return in February to discuss our full-year results, which we eagerly anticipate sharing with you. Thank you all, and enjoy the rest of your day.

Operator, Operator

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