Earnings Call Transcript
COCA-COLA EUROPACIFIC PARTNERS plc (CCEP)
Earnings Call Transcript - CCEP Q4 2023
Operator, Operator
Thank you for joining us. I'm here with Damian Gammell, our CEO; and Nik Jhangiani, our CFO. Before we begin with our opening remarks, reminder of our cautionary statements. This call contains forward-looking management comments and other statements affecting our outlook. These comments should be considered in conjunction with the cautionary language contained today, as well as the detailed cautionary statements found in reports about the UK, US, 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 and Nik, 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. 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 good morning, everybody, and many thanks for joining us today. Before I begin, I just want to take this opportunity to thank all of my great colleagues at CCEP for their continued hard work and dedication to our customers and our business. And obviously, today, we welcome our new colleagues joining us from the Philippines, a great coke market and a great addition to the CCEP story. So welcome. And again, a big thank you to everybody at CCEP for your ongoing hard work. 2023 was another great year for CCEP. We continue to execute on our clear strategy. We have an unwavering commitment to stakeholder value creation. Our retail customers importantly continue to share in our success since 2017, we've created more value for them than any of our peers. And indeed, our tier store speaks for itself, validated by entering the NASDAQ 100 index late last year. We've paid a record dividend last year and now returned more than $6 billion to shareholders since 2016. We are clear on the strategic choices we make. We're making the right decisions on our portfolio to drive a more efficient business for the long-term. And from today, as I mentioned, we welcome Coca-Cola Beverage Philippines to the CCEP family, the acquisition having now formally closed. This creates an even more diverse footprint for CCEP, provides the opportunity to leverage best practice and talent, including supporting our exciting transformation journey in Indonesia. I'll come back on bulk markets a little bit later. And as always, we are supported by our strongly aligned relationship with the Coca-Cola Company and our other brand partners. So now to our full year key messages. I'm really pleased with our performance in 2023, delivering on all key metrics. We achieved solid top and bottom line growth, value share gains in the market and as always, an impressive free cash flow generation. Top line growth was price/mix led, but also supported by solid volume growth in Europe, Australia, and New Zealand, where we also grew transactions at of volume. We continue to invest for the long term in our portfolio, our digital journey, our supply chain, sustainability and, of course, in our people. We are a stronger and better business. We're more diverse and robust in our categories. They remain resilient despite some of the ongoing macroeconomic and geopolitical volatility. This collectively makes us well-placed for full year 2024 and beyond, underpinning our commitment to create continued shareholder value. As I've talked about before, we are focused on great people, great service, great beverages, all done sustainably. So now let's take a brief look back on last year. Starting with our great people, we achieved an excellent score in our global engagement survey, positioning us comfortably ahead of our industry benchmark group. And we continue to be externally recognized as being a great and diverse place to work. This included our 2023 inaugural entry into the Forbes Top 200 World's Best Employers and the Top 100 World's Top Companies for Women. Great service and execution are always a key priority at CCEP as we strive to make it even easier for our customers to do business with us. We continue to invest in our supply chain like new state-of-the-art can lines in Australia, Norway and Great Britain. And we were recognized for our great service in the Advantage survey results where we ranked number one globally among our top retailers, up from last year. On our journey to becoming the world's most digitized bottler, we continue to invest in our broader digital capabilities. For example, around 85% of our volume is now captured digitally including our B2B portals which represent nearly 15%. And finally, our great brands and beverages. We are extremely privileged to make, move, and sell the world's most loved drink brands. We continue to invest and innovate to make them even better and appeal to even more consumers. In fact, in Europe, over 75% of households purchased from our NARTD portfolio, up 70 basis points from the previous year. And now let's look at our sustainability journey where we continued to make great progress. We've achieved 55% recycled plastic content, up from 48% last year. Having surpassed our 50% commitment, but our efforts do not stop there as we remain focused on our ultimate goal of 100%. We continue to invest in sustainability-focused technology to our CCEP ventures arm and we are proud to be part of the Coca-Cola System Sustainable Venture Capital Fund. A big milestone was the validation of our carbon emissions targets by the science-based targets initiative across all of our markets including API. This includes both our 2030 30% greenhouse gas reduction and our long-term 2040 net zero targets. And importantly, we continue to be recognized externally, retaining our inclusion on the CDP's A List for climate and maintaining our MSCI AAA ESG rating. So now turning to our performance highlights. As I mentioned earlier, we delivered a solid top-line performance. Solid underlying demand in our developed markets alongside great in-market execution drove volume growth in Europe of 0.5%, despite what you will all recall was a very mixed summer in terms of weather. Excluding the strategic choices we've made, we saw underlying volume growth in Europe of 1% and in Australia and New Zealand of 2%. In Indonesia, we made good progress with our long-term transformation journey, which I will come on to in a bit more detail later. Execution of our revenue and margin growth management initiatives along with our dynamic price and promotion strategies across a broad pack offering drove solid revenue per case growth of 8.5%. Headline pricing last year, although ahead of pre-pandemic levels, was below realized cost inflation as we continue to prioritize relevance and affordability for our consumers. Now to the NARTD category overall. It remains resilient, growing in volume terms by 8% in value terms by 8% in Europe and 9% in API. We gained value share both in-store and online and continue to win with our customers, supported by some great activation. Our strong top-line performance, together with our continued focus on efficiency as we close out our full year 2021 to 2023 efficiency programs drove strong operating profit growth of 13.5%. This, in turn, supported impressive comparable free cash flow generation of just over €1.7 billion and the return to the top end of our target leverage range as guided. I'd now like to hand over to Nik to talk in more detail about the financials. Over to you, Nik.
Nik Jhangiani, CFO
Thank you, Damian, and thank you all for joining us today. Let me begin with our financial summary. We reported comparable revenue of €18.3 billion, reflecting an 8% increase, which I will discuss further shortly. The cost per unit case rose by 7.5%, which aligns closely with our guidance of around 8%. This increase was attributed to higher revenues per unit case, leading to increased concentrate costs through our pricing model, as well as inflation in manufacturing and commodity prices. The high single-digit growth in commodity prices was primarily due to higher sugar and aluminum costs, partially mitigated by lower gas, power, and recycled PET prices. This resulted in a gross margin expansion of approximately 80 basis points, with Europe exceeding that figure. We achieved a comparable operating profit growth of €2.4 billion, up 13.5%, which reflects our strong revenue growth, the impact of our ongoing efficiency programs, and our management of discretionary spending. This led to an operating margin expansion of around 60 basis points, as we focus on returning to our 2019 operating margin baseline. As guided, our comparable effective tax rate rose to 24% from 22% in 2022, chiefly due to variations in the taxable profit mix across territories and known tax rate hikes, including last year's U.K. tax rate increase to 25%, which will be fully effective in 2024. Consequently, our comparable diluted earnings per share reached €3.71, reflecting a 12% increase. Free cash flow generation, as Damian mentioned, remains a core priority, and we achieved an impressive €1.7 billion on a comparable basis, which I will elaborate on shortly. Our return on invested capital increased by 120 basis points to 10.3% on a comparable basis, driven by the profit after tax increase and our focus on capital allocation. Lastly, on shareholder returns, we declared a record dividend per share of €1.84, a rise of 9.5% compared to 2022. Now, regarding our revenue highlights, as Damian noted, our strong top-line growth was fueled by an increase in revenue per case, while reported volumes decreased by 0.5% year-over-year. This reflects the strategic decisions we made, such as the SKU rationalization in Indonesia and exiting bulk water in several markets, including Australia, Germany, and Spain. If we exclude these one-time effects, overall volume would have risen by nearly 1%. Specifically, in the fourth quarter, our volumes grew by 1%, indicating resilient consumer demand bolstered by effective Christmas promotions and in-market execution. Revenue per unit case increased by 8.5% for the year, driven by positive pricing, continued promotional optimization, and revenue growth management initiatives. However, we remain vigilant. While consumer spending has held up well, we recognize that some consumers are feeling financial strain, leading to a shift toward retailer brands in some categories, though less so in colors and flavors, and an increase in shopping at discount retailers. This channel will continue to be a key focus for CCEP, where we are working to grow our market share. Our consumer-centric strategy is focused on maintaining affordability and relevance, offering a diverse range of brands across various price points. Now more than ever, it's important to balance premium offerings with more affordable options. For instance, in Spain, we've implemented an affordable price point on the popular 1.25-liter pack to increase purchase frequency and household penetration. Regarding revenue by segment, more detailed insights are provided in the release. Underlying volume growth of approximately 1% was driven by our core brands, where we are making ongoing investments. For example, Coke Zero Sugar has seen solid share and volume growth across all key markets, with a volume increase of 4%, as the trend toward low and no-calorie beverages continues. These products now represent around 50% of our total volumes. In the Energy segment, Monster outperformed with full-year volume growth of 14%. Innovative products like Monster Green Zero Sugar have seen a successful launch, contributing to this growth. Sports volumes increased by 9%, with Powerade growth across all markets supported by effective activation and favorable trends within this category. We aim to replicate the successful Women's World Cup activation in Australia and New Zealand alongside Coca-Cola Zero Sugar, anticipating an exciting year ahead with upcoming sporting events in our European markets. Fuze Tea also performed well, with volumes rising by 23%, particularly in France and Germany. Additionally, we launched Jack and Coke with promising initial results in the rapidly growing ARTD drinks category. Now, a brief overview of our strategic decisions aimed at ensuring profitable and sustainable business growth. We are adopting a more selective approach regarding our market engagements. The successful 60% SKU rationalization in Indonesia is an example, with Damian elaborating on this later. As previously mentioned, we have strategically exited low-margin Bulk Water in various markets, and this phase is now largely complete. Moreover, we have made additional strategic decisions regarding our beverage portfolio and partnerships. In Australia and New Zealand, we plan to leverage our expertise in the ARTD category by introducing scalable offerings aligned with the Coca-Cola Company, ending our partnership with Beam Sun in the second half of 2025. Similarly, our partnership with Capri Sun is concluding this year. These decisions are strategic and will not significantly impact CCEP, allowing us to concentrate on priority categories with our key brand partners, Coca-Cola Company and Monster. Now, turning to operating expenses and our efficiency programs. We have successfully completed our full-year program for 2021 to 2023, which has supported our operating profit growth in 2023. This program amounted to approximately €375 million in benefits, totaling over €700 million, including our first post-merger efficiency program initiated in 2016. At our Capital Markets Day, we announced a new efficiency program aiming for an additional €350 million to €400 million in savings by the end of 2028. While this is a substantial target, we are confident in our ability to achieve it, primarily through the use of digital tools, data, and analytics. We have been investing in digital capabilities for years, and as Damian pointed out, 85% of our volume is now digitally captured. For this next phase, we are transitioning from four legacy systems to a unified system, HANA, which will standardize our processes significantly over the coming years. Our strong base in Bulgaria and partnerships with auto service providers will be crucial in this transition. We have shifted our capabilities at our Bulgarian center from traditional reporting to analytics and robotics, with potential for expansion in areas like finance, people and culture, supply chain, and commercial operations, including our new shared services center in Manila. When we announced this new efficiency program, we emphasized that the savings would be realized over several years, from 2024 to 2028. For this year, we anticipate savings of approximately €60 million to €70 million, which will help counteract inflation. Naturally, there will be cash costs to implement this program, incorporated in our un-comparable free cash flow guidance of around €1.7 billion per year. Now, let’s discuss free cash flow in more detail, a crucial metric for us. We generated €1.7 billion in comparable free cash flow for the full year 2023. This slide highlights key components, including ongoing restructuring cash costs. Recognizing the importance of targeted investments, we allocated around $700 million in CapEx, not including leases, for supply chain enhancements, digital initiatives, and cold drink equipment. We continue to focus on working capital management, and I’m pleased to report another year of significant benefits, bringing the total cumulative amount to around $1.3 billion since 2017. Be aware that our comparable free cash flow excludes a one-time receipt from the disposal of core royalties of approximately €90 million in Australia related to the 2021 Amatil acquisition. Regarding our leverage and balance sheet, we concluded 2023 with a net debt to comparable EBITDA ratio of three times. We returned to the top of our target leverage range of 2.5 to 3 times a year earlier than initially planned, which shows our significant de-leveraging progress since completing the Amatil transaction in mid-2021. As today marks the closing of the Philippines acquisition, this is not included in the current ratios, although we expect it to have a modest impact on our leverage. Our strong focus on improving cash flows and working capital should allow us to return within our target leverage range this year while maintaining our commitment to strong investment-grade ratings. Now, a brief reminder of our midterm objectives from our last Capital Markets Day, which remain unchanged and set the context for our full year '24 guidance. This guidance aligns with our midterm objectives and reflects our assessment of current market conditions. It is based on an adjusted and comparable basis, assuming the Philippines has been part of our business since the beginning of last year. As you may have noted, we have shared a separate release detailing adjusted financial information for the Philippines for full year '23. Please keep in mind these growth rates are comparable and FX-neutral, as it is currently too early to offer specific FX guidance, though we will provide updates throughout the year. We expect comparable revenue growth of around 4% and COGS per unit case growth of approximately 3% to 4%. Our ongoing focus on operational efficiency anticipates comparable operating profit growth of around 7%. Regarding interest, we expect our underlying interest costs to remain broadly flat, with a weighted average cost of net debt around 1.3%, which reflects an attractive debt maturity profile. The Philippines transaction has been financed through existing liquidity and new borrowings, including euro public debt issued in November '23 and local peso borrowings, which raises our total weighted average cost of net debt for this year to a still attractive level of around 2%. As previously mentioned, we anticipate a rise in our effective tax rate, reflecting variations in the taxable profit mix and known tax rate increases. Therefore, we expect the ETR to rise to around 25% this year, up from 24%, including the full transition to the 25% tax rate in the UK in 2024. We will continue to provide updates on our anticipated ETR, including assessments of any uncertain tax positions throughout the year. Regarding CapEx, given the opportunities ahead, we expect our CapEx guidance to reach the upper range of 4% to 5% of revenue. This primarily reflects increased digital investments, which I mentioned earlier, and supports our new efficiency program. Following the closure of the Philippines transaction, we will be investing more aggressively in this rapidly growing market to secure long-term success, and Damian will discuss this further shortly. Given the urgency of these opportunities, we project our CapEx will be at the top end of our range for the next three years. Finally, we expect to achieve comparable free cash flow of approximately €1.7 billion, factoring in the tax costs associated with our efficiency initiatives. Let me now provide additional context regarding our COGS guidance before handing it back to Damian to discuss top line, Indonesia, and the Philippines. Regarding COGS, based on our current understanding, we anticipate per unit case costs to rise by about 3% to 4%. Our concentrate costs are closely linked to our revenue per case growth, although they are more balanced with volume compared to the previous year. We expect low single-digit inflation in commodity prices, influenced by significantly higher sugar costs, albeit partially countered by lower prices in other commodities. From a hedging standpoint, I'm pleased to report that about 80% of our exposure for full year 2024 is hedged, including the Philippines. We continue to face inflationary pressures in labor within manufacturing, but these should be broadly offset by lower gas and power costs in our facilities and our continued efficiency focus, as I previously discussed. Lastly, regarding tax, the change in the Netherlands soft drinks excise tax from €0.08 to €0.26 per liter will have a throughput tax impact, but this will be offset within revenue. With that, I will turn it back to Damian.
Damian Gammell, CEO
Thank you, Nik. I want to discuss the revenue opportunities for 2024. We anticipate a more balanced growth this year between volume and price compared to last year. Our priority remains to be affordable and relevant to consumers while managing the business for long-term success, with our pricing tracking below inflation. We are still experiencing some industry-wide inflationary pressures, though they are lower than last year. We've completed pricing negotiations in several markets for this year. We have strong brands that consumers love, and with ongoing investments and innovations in our brands and product packaging, we continue to build a solid growth platform for our customers. We will invest in Coca-Cola Zero Sugar and Powerade, capitalizing on the Women's World Cup success with activation plans around the Olympics and Euros. We have exciting innovation plans for the Coke portfolio, including a new lemon-flavor extension for both Coca-Cola original taste and Zero Sugar. In Flavors, we will introduce a new tasting Fanta and a more sustainable label-free Sprite pack in Great Britain. We'll build on the success of Jack Daniel's & Coke, the top alcohol ready-to-drink brand in Great Britain, launching alongside Absolute and Sprite this year. The energy category will benefit from the wider launch of Monster Green Zero Sugar and new flavors of Reign Storm. We also remain committed to refillable glass, which will become increasingly relevant, especially with the Philippines contributing over 5% of our volumes sold in refillable glass. Now turning to the Philippines, this strategic move represents the best use of cash and offers great value for our shareholders. The acquisition diversifies CCEP's footprint, now referred to as APS, Australia, Pacific, and Southeast Asia. The business has an established record and operates in a growing market, supported by a strong local team. This partnership provides an opportunity to adopt best practices, particularly in aiding Indonesia's transformation, where the sparkling category is still developing. We look forward to working with Aboitiz, a key player in Southeast Asia, whose market expertise will be invaluable as we unlock potential in the Philippines, all in alignment with the Coca-Cola Company. The Philippines is part of a large and attractive non-alcoholic ready-to-drink (NARTD) category, valued at around €8 billion, increasing CCEP's addressable market to approximately €140 billion. The category is rapidly growing, expected to rise by about 10% annually, outpacing CCEP's current group growth of 3% to 4%. Macro conditions are favorable, with the Philippines being the 13th largest country globally, showing strong GDP and population growth, along with a burgeoning middle class, all metrics surpassing those in Europe. The sparkling segment accounts for around 55% of volume, with per capita consumption significantly higher than the Asia Pacific average, indicating a promising growth potential compared to more developed markets. Future opportunities will include low-sugar options, energy drinks, and alcohol ready-to-drink products. The business already demonstrates impressive scale and profitability, having delivered around 655 million unit cases and generating about €1.7 billion in revenue and €105 million in operating profit last year. As we finalized the transaction today, we acquired a 60% majority stake alongside Aboitiz, and the business will be consolidated into our results, with their minority stake recognized as a non-controlling interest. The business showed robust top and bottom-line growth last year, although part of this recovery was due to normalization after adverse weather conditions affected sugar availability in 2022. This transaction is immediately accretive to EPS and has a modest impact on CCEP's leverage in 2024. Our focus on effective capital allocation and long-term strategy will support the market's projected 10% growth for the Philippines. This acquisition allows us to reset our growth goals for the business, and our capital plans reflect this renewed ambition. I would like to note that we will not discuss specific synergies related to the Philippines, as they fall under our overall guidance. Like with our previous acquisition of Amatil, we see many opportunities for sharing insights and best practices in areas such as digital technology, procurement, and sustainability, given the established capabilities in Manila. We have a proven track record of integration and value creation, and we look forward to sharing more with you soon. Moving on to Indonesia, we are in the initial stages of our long-term transformation and are seeing good progress. Consumer spending is currently under strain due to broader market inflation and the reduction in fuel subsidies, which is impacting our situation. Nonetheless, we remain focused on the long-term opportunity. The sparkling category here is far less developed than in the Philippines, representing under 10% of the NARTD category. We've executed our portfolio plans and streamlined our offerings, with an emphasis on sparkling and ready-to-drink tea. We've also developed a new price-pack channel strategy to better understand consumer sensitivities and affordability. We're expanding drinking occasions beyond the important Ramadan period and have made significant activations at key events like the annual Jakarta Fair. Collaboration with the Coca-Cola Company remains integral, as we aim to recruit younger consumers by leveraging nearly 900 influencers with a collective reach of about 370 million. We are also committed to sustainability, having already launched 100% recycled PET bottles through a recycling partnership near Jakarta. Despite the changes, our employee engagement remains high, which is great to see. We are confident in our future in Indonesia and look forward to providing more updates. In closing, 2023 was a strong year for CCEP, achieving all key performance indicators. We remain committed to executing our strategy and investing in our portfolio, digital enhancements, supply chain, sustainability, and our people. We are now a stronger and more diverse business with the addition of the Philippines. Our categories continue to perform well despite ongoing economic and geopolitical volatility, positioning us favorably for 2024 and beyond, while we focus on creating shareholder value. I extend my gratitude to our customers, brand partners, and dedicated colleagues for their hard work, which enables us to advance together for all stakeholders. Thank you. Nik and I are now ready to take your questions.
Operator, Operator
Thank you. We will now take our first question. Please standby. The first question is from Edward Mundy from Jefferies. Please go ahead.
Edward Mundy, Analyst
Morning or afternoon, actually, Damian, Nik and Sarah. So just on the guide of 4%, I appreciate it's pretty early days and some consumers are feeling a bit of pressure, but could you provide perhaps a bit more color on some of your assumptions? I mean, on volumes, I think you're talking about a balance between volumes and price mix, which I think implies some volume growth. I think on the price piece, look it's clearly going to start to taper, but you do have a bit of a carryover from price and taken. Germany Q3, GBN's Q2. Mix has been a really good driver through most of 2023 and should continue to 2024. You've got these very mixed summer weather comps. You've got the Olympics, you've got the football, you've got the Philippines. I guess, growing ahead of group. What are we missing?
Nik Jhangiani, CFO
You're not missing anything. You've kind of covered it all, so it's a great summary. We should just have recorded you and played you back. But I think let's start with your point on volume. So we clearly see volume coming back, and it was good that we exited the year with volume growth. And again, keep in mind 2023 underlying with these strategic choices and exits clearly plays through. So when you go into 2024, I would say you're looking at off that 4%, at least a third plus coming from volume. All right. So we see that momentum, which is good. And it comes back to what Damian and I have both said on the call. We will continue to balance that in terms of what we see from an angle of the affordability and continued focus on premiumization. So clearly looking at volume growth. If you look at that carryover of that pricing, you're absolutely right. We have two of those markets that came through in the second half. So there's a carryover impact of that. And then clearly, as we've seen inflation moderating that I called out, you will obviously see more balanced 2024 pricing, most of which has happened in Q1 that we've actually been able to land so far without any disruption, which is positive. On the mixed one, it's a good point that you raised, clearly on our business, we've continued to have good mix and we will continue to see that into 2024. Keep in mind, these numbers include the Philippines, which is at a much lower revenue per case. And so effectively, that mix benefit that we continue to see gets wiped out as we rebase with the lower revenue per case coming in from the Philippines. And then you've also got that impact of the Netherlands tax that I called out. So again, we'll continue to update you on that, but I think very much volume led with good pricing carryover and some more moderate pricing into this year as well. And again supported by what we want to do on the promo side as well to balance that affordability.
Edward Mundy, Analyst
And just to clarify on the 8% revenue per case within Europe, I think you mentioned that price is running below inflation, inflation probably running 5.5% or 6%. So you're probably getting one-third of your benefit in revenue per case from mix. Is that math broadly right? I mean, is that one of the reasons why you're confident that your brands remain affordable and you're not going to get the same elasticity impact you're seeing across other parts of staples?
Damian Gammell, CEO
I believe that's a fair assessment, Ed. When examining our Q4 volumes, particularly in Europe, Australia, and New Zealand, they look very solid. We have prioritized retaining our shoppers and consumers because, as you know, losing them results in significantly higher costs to win them back. I'm pleased with our performance coming out of Q3, especially given the challenging weather conditions we faced. In Q4, we witnessed volume growth in our developed markets of Europe, New Zealand, and Australia. This balance is working in our favor, and we have laid the groundwork for 2024. As Nik mentioned earlier, we have some excellent brand innovations, and we have strong assets in Europe, especially with events like the Olympics and the EUROS. As we approach Q3 and summer, we hope for a return to normal conditions in Europe, but time will tell. Overall, we believe we have achieved a good balance with pricing that supports our ongoing successful consumer narrative in Europe without straying too far from what has been a positive story for many years.
Operator, Operator
Thank you. We'll now take our next question, and this is from the line of Matthew Ford from BNP Paribas. Please go ahead.
Matthew Ford, Analyst
Thank you. Hi, Nik. Hi, Damian. My question is about the Philippines. Now that everything is completed and you can assess the business properly, in the first year, which areas do you expect to gain the most traction now that you are fully in control? Where do you see the most immediate opportunities? I believe you mentioned no and low sugar and energy, but could you elaborate on what will be the focus for the next 12 months?
Damian Gammell, CEO
Thanks, Matt. We have been very excited about this opportunity since it arose, and our team has been working diligently to ensure a successful launch, which is now happening. This marks a significant milestone. In analyzing the business, it clearly stands out as a strong Coca-Cola operation in that region. We also anticipate learning from it while contributing ideas. Initially, we've discussed areas where our expertise at CCEP could add value, particularly in key accounts and through our advanced key account management program, as well as the analytics tools we've utilized for pricing and price elasticity in Europe. Our digital initiatives geared towards frontline capabilities are expected to provide additional value. Given our extensive supply chain operations, we believe our knowledge in this area can enhance customer service levels and improve stock availability. We are also committed to investing in this business with our partners, enhancing our capital contributions as we foresee stronger growth ahead. This is a space where we will keep learning, and I am confident in our competencies. I am also enthusiastic about the insights we will gain from the team in the Philippines, which will aid our efforts in Indonesia. Their ability to manage affordability with refillable offerings is particularly noteworthy, and it aligns with our interests in Indonesia. This serves as a great illustration of how we can add value while benefiting from the team’s experiences in our other businesses, and we will keep you updated as we progress. I look forward to an engaging discussion during our next Capital Markets Day.
Operator, Operator
Thank you. We'll now take our next question. This is from the line of Lauren Lieberman from Barclays. Please go ahead.
Lauren Lieberman, Analyst
Good morning, everyone. I wanted to ask about affordability and consumer pressures, especially in Europe. You’ve mentioned the discount channel, which has been a focus for a while. Can you provide an update on the volume that goes through the discount channel and your current positioning in terms of category exposure? Is there an opportunity to expand the categories available in the discount channel? Are there any new pack sizes being implemented, given their growing importance? Additionally, how can you leverage your success in the discount channel to enhance performance in more mainstream channels during this time of decreased consumer confidence?
Damian Gammell, CEO
Yes, thanks, Lauren. We've been in that environment for over a year now. Looking back at our commentary during 2023, we emphasized maintaining relevance and affordability, which supported our volume growth and will continue into 2024. You're right that as shoppers face some pressure, the discount channel is performing exceptionally well. This has been a trend in Europe for quite some time, especially in markets like Germany, and now in Australia as well. The discount channel is a key partner for our growth. We are prioritizing two categories: our core Sparkling portfolio and Energy, both of which are doing well with those customers in Europe. We're mindful of pack size and formatting; we introduced a 1.25-liter pack to meet a price point that is more relevant for shoppers. We are continuously working with them on technology. In Australia, I'm pleased to report we've initiated some cold drink trials at the front of stores, aiming to integrate a mixed benefit into that channel as it expands. There’s a lot happening, and we are also utilizing insights with our other customers since the affordability mindset extends beyond discounters. All retailers are focused on maintaining relevance and are aware of their own market share, so our pack pricing strategies apply to broader retail, not just discount channels. We are achieving great supply chain efficiencies, making our cost of doing business very attractive, which supports our margin expansion and profit growth. I'm very pleased with our performance, built on years of experience. When we first established CCEP, one of our goals was to leverage the success of our German business with Aldi and Lidl, which has been a significant driver of our growth. There's more to come, and as you pointed out, the discount channel is thriving and we're succeeding with them, and we want that to continue.
Nik Jhangiani, CFO
And Lauren, the only thing I would add is it doesn't change our focus on the premiumization piece and what continues to be a whole ladder of pricing opportunities for our shoppers and consumers to enjoy whether in traditional retail and actually more so even in some of the discounters where we are getting small packs in. We've got coolers in Germany. So, it's all kind of merging in a way in a positive direction.
Operator, Operator
Thank you. We'll now take our next question. And this is from the line of Sanjeet Aujla from UBS. Please go ahead.
Sanjeet Aujla, Analyst
Hey, Nik, Damian, and Sarah. Just coming back to the Philippines please. You spoke a little bit about 2022 being held back by lack of the sugar availability. Has the full benefits concerning 2023? So, is that really a clean base on which to work from? Or is there more to come in 2024? And I think the disclosures margins there are around 6%. Are there any structural factors holding that margin back? Or would you expect that to get back into double-digit where it was a few years ago over time?
Damian Gammell, CEO
Maybe Sanjeet I'll talk on the first piece and then hand over to Nik. Yes, so I think 2023 was a more normalized year. So, I think the business cycled out of what was a very challenging 2022 both from a weather perspective leading to basically a shortage of sugar which the team then had to allocate across the portfolio. So, they did a great job. That was pretty much done by the end of 2022. So, 2023 you could look as a normalized base in terms of the availability of sugar. We can talk about the cost of sugar, that's a different debate. It has got a high cost relatively speaking, but we know that, but from an availability perspective, definitely a more normalized year. On margins, Nik do you want to?
Nik Jhangiani, CFO
Yes, of course. I think part of this ties back to what Damian mentioned. First, reiterating the point regarding 2023, we can see the performance and growth. Clearly, the growth in 2022 was hindered by supply shortages, which has positively impacted our results in terms of top-line growth and importantly, the year-on-year operating profit growth. We have a solid foundation. From a margin standpoint, the main structural issue relates to commodity costs, particularly in comparison to global market prices. The teams are actively working locally to identify areas of influence. It's worth noting that, looking back at Europe, it was a heavily regulated industry for several years, and then it began to change with increased import options. This shift will certainly provide support. Additionally, the team is making excellent progress with new packaging options that will help improve margins and is exploring new categories. They have just entered the energy sector and launched ARTDs, contributing to our margin growth narrative. As Damian pointed out earlier, there are numerous opportunities to leverage best practices as we integrate them into our organization.
Damian Gammell, CEO
And just to close out, it will probably come up on CapEx because we talked a little bit about CapEx in our release. Clearly, we do see opportunities in the Philippines around capital unlocking margin over time, both particularly on supply chain and building a more efficient supply chain. And we're also curious about the role some of our technology platforms can play in the Philippines. So that kind of plays back to that CapEx number that Nick talked about earlier. And I think that's not a one-year journey, let's be clear. But as we do look at it, we do think investing a bit more in the Philippines will over time allow us to get margins that we feel are more representative of a business with that scale of that market. So more to come on that.
Operator, Operator
Thank you. We'll now take our next question. This is from the line of Eric Serotta from Morgan Stanley. Please go ahead.
Eric Serotta, Analyst
Great. Good afternoon everyone. Damian, you mentioned landing pricing in a number of markets year-to-date. Just wondering if you could expand on that? Which markets? Where did you get pricing? And certainly, there have been some headlines related to competitors about retailer pushback and delistings in certain European markets. Any color you could provide on the state of retailer discussions and pushback and delistings would be helpful. Thank you.
Damian Gammell, CEO
Yes. Thanks, Eric. I mean just to kind of step back a little bit, I think we've kind of taken a multiyear approach to pricing. I think I commented on that actually this time last year that when we look at pricing, we're looking beyond the calendar year because we think it's a more strategic conversation. And we have been pricing slightly behind some of our competitors and as we talked about, slightly behind inflation. And we recognize our retailers as much as our consumers are also under some pressure around offering affordability in the cost living kind of backdrop that we have. Just to echo something Nick called on, we are fortunate that despite that, we've got a lot of premium packaging that we've listed over a number of years, mini-cans, glass and retail. So I think we're playing a good balance of allowing consumers who want to spend a bit more on our products and brands to do so, while also making sure that consumers who have that affordability mindset remain in our franchise. So to that end, we've been managing pricing for 2024 well back in 2023. I suppose to kind of pull in practical terms, all of our markets have the pricing in place that we expected coming into 2024. Two markets in Europe will probably come a bit later in the year, which would be GB and Germany. But beyond that, we've landed in a pretty good place, both in terms of headline price and promotional pricing. And again, it's a topic that's sensitive for our retailers. We respect that. We're proud that, we're delivering a lot of value growth for them year-on-year more than anybody else. So, I think we're in a good place on pricing, which kind of comes back to what we've been talking about. And I think back to Ed's point we see volume as being a bigger part of that story than in 2024 which I think is great.
Operator, Operator
Great. Thank you. We'll now take our next question. And this is from the line of Charlie Higgs from Redburn Atlantic. Please go ahead.
Charlie Higgs, Analyst
Yeah. Hi, Damian and Nik. Hope you are well, and congrats on the Philippines acquisition. I wanted to drill a bit more into the Philippines, but particularly on the margin point and how you see balancing margin expansion in the country but also the need to be very cognizant of ESG? For example, I think you said refillable was 45% of the mix today. Like does that have to come down over time to drive margin expansion in the Philippines? And how does that all play in with things like the extended producer responsibility on single-serve plastic for example in the Philippines?
Damian Gammell, CEO
Hi, Charlie. The straightforward answer is that we don't see the need for refillables to decrease. In fact, our gross margin on refillables is typically quite strong due to the reusable nature of the bottle. The challenges we face in the Philippines extend beyond just pack sizes; affordability plays a crucial role. We have a pricing strategy in place that aims to attract and keep consumers, which is a significant focus for us. We've identified that our gross margin has faced difficulties related to sugar costs, which are higher there. This isn't a conversation limited to specific pack sizes. We view refillables as an important part of our future in both the Philippines and Indonesia, and we believe this will aid in margin expansion. As we've discussed earlier, we see opportunities for efficiency and productivity improvements in our supply chain, as well as smarter revenue growth management strategies, especially with key accounts. As we increase our volumes, we anticipate gaining leverage on the profit and loss statement in the Philippines that will contribute to margin growth. We also have a midterm opportunity with Zero Sugar, which has exceeded our expectations in Indonesia, and we'll be discussing its potential in the Philippines. Overall, we expect the margin situation to improve, but it's definitely not an issue related to revenue growth management. We remain committed to our sustainability goals and have no plans to reduce refillables, as we believe they will play a key role in our margin narrative moving forward. Generally, refillables have a more favorable gross margin profile due to their reusable design, so that will remain unchanged.
Nik Jhangiani, CFO
Yeah. And Charlie, there's a bit of a technical or mathematical issue because in 2018 there was an excise tax introduced in the Philippines and that's continued to increase. Remember, how we account for that that's grossed up in revenue and grossed up in your COGS. So as that increases year-on-year, it's purely mathematical that your absolute gross profit will grow. But in margin percentage terms, it just comes down because of the fact that your revenue is higher and hence you get a mathematical element. Clearly, if you normalize for that, if you're looking at performance over the years, there'd be almost a 500 to 700 basis points improvement in that margin, if you start normalizing for that. But that's the reality of the way we have to account for it. So just keep that in mind as you look forward as well.
Damian Gammell, CEO
But 6 is a good place.
Operator, Operator
Thank you. We'll now take our next question. This is from the line of Simon Hales from Citi. Please go ahead.
Simon Hales, Analyst
Thank you. Hi, all. I wonder if I could just ask a little bit more about the efficiency program that's kicking in this year. You flagged the €60 million to €70 million of benefits in 2024. How do you think about the timing of that? Is it going to be a little bit more perhaps H2 weighted, given the changes you're making? And then as we look forward into the remainder of the program, how do we think about modeling this going forward? Will it be linear delivery for the following sort of four years? Or is it fair to assume it'll be a bit more front-end loaded to 2025 and 2026?
Nik Jhangiani, CFO
So to 2024, yes, it will be more second half weighted, the numbers that we've given you. As Damian said, we continue to look at ways to continue to drive efficiency and some of that obviously does mean we just have to look at the way we do things today. Then as you go into 2025, 2026, 2027, I would say it is probably going to be more linear because there will be phasing of bringing in some of those programs and part of that will also be linked to our drive towards standardization and more digitization with the S/4 HANA implementation. So I would call currently that's more linear but we'll continue to give you more updates as we finalize the program.
Operator, Operator
Thank you. And we'll take our next question. This is from the line of Bonnie Herzog from Goldman Sachs. Please go ahead.
Bonnie Herzog, Analyst
Hi, thank you. Hi, everyone. I actually had a couple of quick follow-ups from earlier questions. First on volumes. Just curious to hear how they trended during Q4 and then so far this year? And then second, could you comment on consumer elasticities? And if you've seen any changes of late, given either the challenging macro backdrop or maybe from some of the pricing you've put through? And then finally, maybe just a little bit more color on your business away from home versus at home and sort of how you guys see that evolving this year? Thank you.
Damian Gammell, CEO
Thanks, Bonnie. So quite a few follow-ups you got in there. That's not bad for one question and as always. So volumes as you saw in the release improved in Q4. And I think if you strip out some of the one-offs that Nik alluded to held up really well. I think particularly compared to other categories. So I think we've enjoyed good volume performance. It has been a similar environment for the consumer over not just the last quarter or even in this quarter I think it's been – we talked a lot about 2023 that that affordability mindset and cost of living pressure has existed. So we're well into it. Volumes are holding up. For 2024, I would say it started in line with expectations. I think we're excited about a couple of events earlier in the year this year Ramadan, particularly in Indonesia starting earlier and Eastern – and Western Europe is earlier. So I think that's going to give us good momentum coming out of Q1. We're well set up for both of those big festivals and events. And then clearly as we look through the year, we know that as I mentioned a few times, we have got an opportunity to hopefully enjoy a more reasonable summer in Northern Europe and that will certainly help on volume as we go through the second half of the year. That also plays into your last question. I mean, I think we see strong revenue growth in away-from-home and home. We see volumes holding up in home market. I think depending on the country you're in, I think away-from-home volumes were a little bit under more pressure based on, obviously weather coming out of Q3. What we've seen away-from start strongly particularly in markets like Spain. I have just been there recently and very, very strong growth in away-from-home. So we'd expect that to continue through the summer in Europe. And obviously, as we look at Australia and New Zealand again, coming out we also see strong volume growth as well. So yeah, Nik I don't know if you want to add anything?
Nik Jhangiani, CFO
No. I would just remind you Bonnie, a lot of the work that we did, during and post-COVID realizing for a period of time we were just going to be a home business is how do we improve the profitability both for our customers and for ourselves in the home channel as well. So to Damian's point, while we see good growth in both channels from a profitability perspective, that's in some ways fairly neutral to us, which is a good thing because we just want to grow where the consumer wants to be and where we can offer them a full range of great brands and packs.
Operator, Operator
Thank you. I would now like to hand the conference back over to Damian Gammell for his closing remarks. Damian, please go ahead.
Damian Gammell, CEO
Well, thank you, operator. And again, thank you everybody for joining us. I know it's a little bit earlier than usual for those of you in the US, so I appreciate you getting up a bit earlier, but for good reason, to hear about a great 2023. And on the back of that, I just want to again, thank all of my colleagues and our customers. As Nik pointed out, and as we've talked about today, we will continue to invest for the long-term growth of our business, both in terms of volume, revenue and in terms of the sustainability journey we're on. We've got a lot to look forward to. It's going to be a busy year at CCEP, both with the Philippines and some of those big sporting events that I talked to across all of our markets this year and the ongoing transformation in Indonesia. We are well placed for 2024 and beyond. And now, as we've talked about our new family member the Philippines taking the number of markets we operate within to 31. So Nik and I look forward to talking to you again next time, which will be to update you on our Q1 performance. Thank you very much.