Earnings Call Transcript
COCA-COLA EUROPACIFIC PARTNERS plc (CCEP)
Earnings Call Transcript - CCEP Q1 2022
Operator, Operator
Hello, and thank you for standing by, and welcome to today's Coca-Cola Europacific Partners Q1 2022 Trading Update Conference Call. I must advise you this conference call is being recorded today. I would now like to hand the conference over to Vice President of Investor Relations and Corporate Strategy, Sarah Willett. 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 Nik Jhangiani, our CFO. Before we begin with our opening remarks on our first 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 presented on a pro forma basis, thus reflecting the results of CCEP and our Australian, Pacific & Indonesian business unit as if the Coca-Cola Amatil transaction had occurred at the beginning of the prior year, rather than in May 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 many thanks to everyone joining us today. Before I begin, I would like to acknowledge the millions of people affected by the conflict and suffering in Ukraine. CCEP continues to work closely with partners across the Coca-Cola system to provide humanitarian relief, and we join others across the world in calling for a return to peace in the region. So now to today's call, as you will have seen, despite accelerating inflationary pressures, we are reaffirming our full year profit guidance for 2022. This reflects strong top line growth, driven by the reopening of the away from home channel, especially in Europe, solid trading in API, and ongoing resilient demand in the home channel across our markets. This translates into strong revenue growth of 18.5%, driven by volume growth of 16%, up 3.5% versus 2019. Our continued focus on driving price and mix delivered revenue per unit case growth of 3.5%, up 4.5% versus 2019. We drove positive revenue per unit case in all markets; however, in our API segment, overall revenue per case ended broadly flat, and this is due to the volume outperformance of our Indonesian business. Volumes in Europe reflected a strong recovery in the away from home channel as easing restrictions enabled our consumers to enjoy our great beverages with friends and family in HoReCa. Indeed, a number of our markets reached or exceeded our 2019 volume levels in this channel. As we now head into Europe's key summer selling season, we are optimistic given that we are serving roughly the same number of outlets as compared to 2019, in the mid to high 90s, and we are seeing encouraging hotel and airline bookings coming through. We saw great momentum in our API business unit led by solid in-market execution in Australia and New Zealand, and increased mobility in Indonesia. Nik and I recently visited Australia, and it was great to get out into the market and see some of the initiatives we have already rolled out in action, as well as some excellent Easter activation. We are now actually currently in Indonesia, so we are seeing for ourselves our biggest ever market Ramadan activation, which also contributed to volume growth in the first quarter. Overall, we gained value share, according to Nielsen, both in-store and online in the NARTD category, including critically in Sparkling. The NARTD category continues to be robust, growing in value terms by approximately 2% in Europe and nearly 16% in API. Mindful of the inflationary backdrop, we are watching closely, but so far, we have not seen any significant behavioral changes in consumption, whether by brand or indeed by pack. Trading aside, we continued to make disciplined investments for long-term growth, particularly in our people, our portfolio, our digital capabilities, and our sustainability agenda. We recently marked World Health Day and World Safety Day across our business, as we continue to focus on our colleagues' safety and well-being. In our portfolio, several of our great beverages are growing ahead of pre-pandemic levels, and we continue to focus on choiceful innovation. Coca-Cola Zero Sugar continued to benefit from its new look and formulation, and more recently, new flavor extensions, up 12.5% versus the prior year and up 22% versus 2019. In GB, we saw the lift-off of the first Coca-Cola Creation, Coca-Cola Intergalactic; a playful Zero Sugar proposition that tastes like space and provides access to the world's first concert on a Coca-Cola can. We invite you all to try it. Our Monster brand continued to outperform, driving overall energy volume growth up 19% versus the prior year and a truly phenomenal 72.5% versus 2019. Fantastic innovation, including new juice variants such as Monster Khaotic, continue to help build excitement and drive brand leadership within the category. We are also marking this year as the 20th anniversary of Monster in our markets with extensive activation and distribution plans. Fanta also performed well, with volume ahead of 2019. The new Pink What The Fanta launched during the quarter, with new mystery flavors, supported by solid execution. And finally, as we see at-home occasion trends continuing, we launched a new Schweppes flavor variant in GB, Schweppes Slimline and Grapefruit, and new larger glass formats for more premium home-based mixing. On digital, our journey to becoming the world's most digitized bottler continues. In online grocery, we continued to see share gains, up 20 basis points. In Europe, our B2B portal, myccep.com, continues to grow, making it easier for our away from home customers to do business with us; it is now on track to represent around 30% of our away from home business this year, up from around 20% last year. Finally, our personalized cans for Valentine's & Mother's Day were well received by consumers on our direct to consumer platform, yourcoca-cola.co.uk. On sustainability, we achieved carbon neutrality on a third manufacturing site. We switched to bio-fuel across our entire third-party logistics fleet in the Netherlands, and we saw the opening of Australia's largest PET recycling facility, in which we are invested via an industry-wide partnership. We are proud to again be recognized amongst the Financial Times-Statista list of Europe's Climate Leaders. We continue to challenge our commitments as we strive to make progress on our ambition to reach net zero emissions by 2040 and to invest in making our packaging more sustainable. Now onto our outlook for the full year. Given the strong start to the year, continued trading momentum into the second quarter, and our confidence in the continued recovery of the away from home channel, while mindful of a more uncertain outlook for consumers given inflationary pressures, we have increased our expectations on revenue growth to a range of 8% to 10%, up from 6% to 8% previously. We have successfully executed on our pricing strategies across our markets, but due to the uncertain inflationary backdrop, we continue to optimize our promotional spend; we are not discounting a further round of pricing in selective markets, but done responsibly as smaller increments over time, thus helping our customers manage consumer shelf pricing to remain competitive and to protect the broader health and affordability of the NARTD category. In terms of shape, we previously guided to our revenue growth being roughly half volume and half price and mix. We now anticipate that our revenue growth will be more weighted towards volume, as evidenced in our first quarter. As you know, we have been experiencing unprecedented levels of input cost inflation. Commodity and energy costs have accelerated since we last updated you with our full year results in February. We now expect commodity inflation to be in the high-teen range for full year '22, up from high single digits previously. This reflects our latest hedging coverage, which means approximately 70% of our commodity exposure for 2022 is fixed, up from 57% in February, though weighted towards the first half, with hedging coverage of nearly 85% for Q2 versus around 50% for the second half of the year. We continue to set and closely monitor the appropriate trigger levels in order to lock in more of our unhedged exposures depending on market conditions. This translates to our latest view on COGS per unit case for the full year of an increase of around 7%, up from 5% previously. This reflects our best estimate today. For modeling purposes across the first and second half, COGS guidance is naturally weighted towards the second half of the year. Hence, we expect COGS per unit case in the first half to be up mid-single-digit versus the second half being up high-single-digit. On OpEx, nothing has changed. We remain on track to deliver on our previously announced efficiency savings and API combination benefits and continue to focus on optimizing our discretionary spend. Although the shape of our guidance has been modified in terms of revenue and COGS per unit case, I am however very pleased to be reaffirming our operating profit guidance of 6 to 9% growth versus last year. In addition to remaining focused on driving operating profit, we also remain laser-focused on driving cash. So we are today providing new guidance to deliver strong free cash flow of at least EUR 1.5 billion this year, well above our medium-term target of EUR 1.25 billion. These commitments, combined with today's interim dividend declaration of EUR 0.56 per share, demonstrate the strength and resilience of our business, as well as our ability to deliver continued shareholder value. So, that is our update for today. On a closing note, I would wholeheartedly like to thank our customers but, in particular, our colleagues for their ongoing support and dedication to our business. Thank you for your time today. Nik and I will now be happy to take your questions. And it's over to you, operator.
Operator, Operator
Our first question comes from Bonnie Herzog from Goldman Sachs.
Bonnie Herzog, Analyst
I have a question on your pricing. Overall, you guys reported a very strong quarter, but your revenue per unit case growth came in, I guess, slightly lower. So hoping you could talk a little bit further as to why it wasn't stronger, especially in the context of improved away from home and immediate consumption? Also, Damian, you mentioned this, but specifically in API, your revenue per unit case was down. So maybe a little bit more color on the elasticities you're seeing in this region? And then finally, just for FY '22, I mean, you mentioned that your sales growth, your higher growth outlook will be weighted towards volume growth. So just hoping you could talk a little bit more about your pricing strategy and maybe why you aren't wanting to be a little bit more aggressive on pricing?
Damian Gammell, CEO
Bonnie, well, I think we're really pleased with our pricing so far this year. So I think you've got to look at it across 2 areas. Clearly, in Europe, again, very strong price and mix growth per unit case. And again, that's on top of 2 very strong years of delivering really good growth year-on-year. So we're very pleased with the pricing we've landed with our customers in Europe. We're pleased with the results, particularly in Q1. I think your point on away from home, I suppose you've got to just remember that Q1 is quite a small quarter for the away from home market. So as we go through the year with tourism and HoReCa reopening and summer coming to Europe, we'll see a bigger impact from the away from home reopening. So it's quite a small quarter, but it was a positive for us as well in Q1. Australia, also New Zealand, very strong performance. I think what you're seeing in API is purely a mix effect where our Indonesian business recorded really strong growth in the quarter coming into the Ramadan festive season. So that's really just a mix impact. So as we look for the rest of the year, clearly, we still have left open the opportunity to take more pricing, and that's something we'll continue to reflect on as we look through the year and as we look through our performance. We're really pleased with the volume performance. I mean, that's coming on the back of a number of really good customer agreements. A lot of the work we did last year to set the foundation for a strong '22, great alignment with the Coke Company and Monster around marketing campaigns and innovation and obviously, reopening as well. So there's a number of factors behind that volume growth. But clearly, that gives us good leverage on our P&L going into the summer. It's leading to strong share gains across all of our markets. So we're very pleased with that. But ultimately, given the volatility on the commodities and COGS, we will continue to look at whether it's promo, price investment, or absolute real price increases as we go into the second half of the year. And that's clearly something we'll continue to monitor. Nik, I don't know if you want to…
Manik Jhangiani, CFO
No, I would just add, I think 2 points that I would just add to give you a little more color. If you look at it within Europe and you look at the markets that were the most impacted, even though Iberia is, for instance, still down on away from home volumes versus '19, the recovery on our price per case has been in the low teens. So when you actually dig in deeper into each market, we actually think that price/mix element, both from a mix and away from home recovery is coming back strong, a market like GB was in the high single digits. So the weighted average of that comes down to that 5. But we're seeing where we're seeing that rebound that mix impact on rate is coming through as well. And as Damian said, if you look across the API markets, each one of those had strong growth. And in fact, I would call out Australia because they actually were really able to drive rate and drive down the promo floor, which typically was over 50%. And as we were out in the market, Damian and I a couple of weeks ago, the ability to take that down to 40% and continue to challenge ourselves more going forward in that market and it's sticking, and you can see the volumes coming through, we actually feel really good about it. But again, as Damian said, this was based on everything that we knew at the time that we were negotiating this, and we're not ruling out a second round in select markets depending on, again, getting that balance of affordability right.
Damian Gammell, CEO
We are observing that our elasticity remains strong in the first quarter, buoyed by a robust Easter and Ramadan. We're pleased that our pricing strategy has been effective, and our business continues to grow thanks to higher pricing. While the increase may appear modest, it is significantly above our usual rates. We've implemented considerable price adjustments and managed to maintain our sales volume. We're cautious and do not take this elasticity for granted. As consumers in Western Europe face rising costs in fuel, energy, and basic commodities, we aim to keep our category and brands relevant. It's important for us to find the right pricing balance to safeguard our profits and margins, while also maintaining strong market momentum and considering our long-term perspective, particularly for 2023. We prioritize our consumer relationship, which has been resilient, and we expect this to continue. We will monitor signals related to commodity prices and consumer sentiment to inform any potential second price increase, and we will provide updates throughout the year.
Operator, Operator
The next question is from the line of Simon Hales from Citi.
Simon Hales, Analyst
Just coming back to, obviously, the volume delivery in the quarter, clearly very strong, and you highlighted, Damian, that you're running ahead of 2019 levels, which is great to see. But I think still in the away from home in Q1, I think you said you're about 1.5% below 2019 levels. I mean given that there was still some out of home restrictions in place, particularly in some of the European markets in the early part of Q1. I wonder if you could sort of share any data you've got around what exit rates look like in March, perhaps early Q2 for the away from home channel in some of your key regions? Are we running ahead now of 2019 levels?
Damian Gammell, CEO
Yes. Thanks, Simon. Yes, we're definitely seeing, as you'd expect, particularly in Europe, a direct correlation between the restrictions easing, particularly in Northern Europe. I mean if you look at our business, that was probably the most unrestricted, which was the U.K., extremely strong performance in the quarter. That's being mirrored now as we come into the second quarter across all of our markets. The data that we're looking at as well is quite positive around tourism, hotel bookings, which will be a key driver of that number versus '19 in markets like France and Spain. Very strong Easter home and away from home. So we're confident that as long as the regulatory environment stays where it's at, we'll continue to see that away from home number get close to and ahead of 2019 across all of our markets at the moment. Yes. So it's purely early months Jan, Feb, if you recall, Northern Europe, particularly Belgium, Spain, we still have a lot of restrictions in away from home, mask wearing was winter. So a number of factors that really make that number versus '19 actually look quite strong when you factor all that in, to be honest. And that's what's given us confidence as we look into Q2 and the summer.
Simon Hales, Analyst
And that's really useful. And just to clarify, obviously, the timing of Easter really fell in Q2 this year. Was there an Easter effect that we should be aware of when we think about modeling Q2 versus Q1, i.e. see some or an acceleration in April?
Manik Jhangiani, CFO
Yes. I mean I think, obviously, the timing did have an impact on the positive into Q2. We've seen that in the month of April. And I would say that without saying too much, it's a positive impact. So we're clearly seeing the benefits of that.
Operator, Operator
The next question is from the line of Lauren Lieberman from Barclays.
Lauren Lieberman, Analyst
Great. I just wanted to, I guess, first clarify that you're constructive on the ability to price, but that the reiteration of the currency-neutral operating profit guidance does not assume any incremental pricing versus what's already in the market. So it's kind of part 1. And then part 2 was, I was curious if there's any good share on what you've been doing or plan to do around package mix and assortment. KO spoke about some interesting examples in the U.S. this week about what they're doing to really focus on affordability, but still realized price/mix. And I was just curious if there are any new examples, I think you called out the large size Schweppes glass, but anything else that's worth calling out in your markets on the price pack assortment conversation?
Manik Jhangiani, CFO
Yes. On the first question, Lauren, we have not factored in pricing, as we've indicated in select markets potentially for the second half of the year, but we have put in optimization where appropriate on some of the promo spend. Remember, we've talked about 2 buckets of where we'll continue to manage that. So we factored that in as we look at it. But again, that's a dynamic process, both in terms of how we'll continue to look at potential rate as well as what we might also want to continue pushing more on versus what we factored in on that promo spend perspective.
Damian Gammell, CEO
Regarding the second part of your question, back in 2020 and throughout 2021, we became very focused on our retail business in Western Europe due to restrictions and lockdowns. This led us to concentrate more on the efficiency of our promotional spending and our packaging strategy. We previously discussed the importance of value packs and larger packages in our retail business, especially because people were shopping less frequently in stores due to COVID and consuming more at home. We worked extensively on reshaping our retail package mix coming out of 2020 into 2021, which contributed to our success in net sales revenue per case during those years. This trend has continued into 2022. Our overall net sales revenue per unit case in the retail business in our home market is now very strong, supported by the smarter promotional pricing and better pack sizes we have implemented, including those in our Schweppes line. This has been a focus for us since the significant impact of COVID in mid-2020, and it's played a crucial role in our growth, particularly in the first quarter.
Operator, Operator
The next question is from the line of Edward Mundy from Jefferies.
Edward Mundy, Analyst
I've got just a question on the at-home volumes that have been particularly strong still. You mentioned solid in-market execution as well as market share gains. But could you talk to the broader health of the category and sort of stickiness of consumer habits or people having to drink more of your products at home during the pandemic? What is it that's really driving this very, very strong at-home volume? Is it penetration? Or is it frequency?
Damian Gammell, CEO
It's a combination of both. We've observed a very strong sparkling category in Australia, New Zealand, Western Europe, and Indonesia. The energy category has also remained healthy, and we've maintained good momentum in our key business. In the past couple of years, there's been notable growth in the sparkling category, particularly due to people spending more time at home because of eating out and COVID restrictions. This has led to an increase in the consumption of our products at home. The overall frequency has risen due to various initiatives, especially around our pack pricing. Both factors are contributing to significant growth levels, particularly in Western Europe, as well as in Australia and New Zealand, which has seen consistent performance over the years. Monster and the Coca-Cola Company deserve credit for effective product innovations, like the new formulation of Coke Zero and improvements in Fanta. Monster's exciting pipeline of innovations is also enhancing the category. It's a result of multiple initiatives, which is promising because it suggests sustainability. We've also worked closely with our customers to implement pricing strategies without causing disruptions, which helps drive sales volume and enhances in-store execution. As places reopen, we aim to be the first supplier to reconnect with and support our customers. Overall, the NARTD category is healthy, especially in the sparkling segment, which is something we're quite pleased about.
Edward Mundy, Analyst
Great. And I guess, on the same topic of per cap, I mean since you are in Indonesia, could you perhaps shed a bit of light on sort of what you're seeing on the opportunity, why are per caps low? And what is the opportunity? And how do you feel about that opportunity to really drive pick-ups in the category within that market?
Damian Gammell, CEO
It's an extremely exciting market. The size of the consumer base is impressive, with a fantastic age profile, GDP growth, and the rise of a middle class. Our market share in Sparkling exceeds 90%, indicating strong potential. The one area of concern is per capita consumption, which tends to reflect patterns tied to the holiday festive period, particularly Ramadan, when we experience high per capita consumption, followed by a decline. Our focus is on collaborating with the Coke Company to determine the relevance of our category and brands during this time and to enhance that relevance through various strategies, including pack pricing and offerings that engage consumers outside the primary festive season. This is an intriguing challenge for us. Although it won't happen overnight, we're committed to making our approach sustainable and valuable for our shareholders. The results in Indonesia demonstrate the benefits of the strategic decisions made last year, emphasizing our focus on just two categories: Sparkling and tea, while phasing out less critical categories and directing our investment into Sparkling. This strategy commenced in the middle of last year and is already leading to stronger Sparkling performance into 2022. New key innovations are set to launch in the coming months, which will bolster our position in tea. Towards the end of the year, likely at our Capital Markets Day, we'll provide more insights on how we anticipate the per capita conversation evolving for Sparkling. This is crucial for unlocking shareholder value. Once we see sustained growth in Sparkling per capita—it's already on that path—then we can explore other categories and adjacent opportunities. However, ensuring the sustainable growth of Sparkling per capita will remain our top priority.
Operator, Operator
The next question is from the line of Eric Serotta from Morgan Stanley.
Eric Serotta, Analyst
Great. As we approach the one-year anniversary of the Amatil deal, could you take a moment to reflect on any surprises or insights gained from the Amatil business? What reverse learnings or lessons from Amatil are being applied to CCEP? Additionally, do you have any further thoughts on your evaluation of the route-to-market model for Indonesia?
Damian Gammell, CEO
That's a significant question for a quarterly call, and I'll do my best to address it. We'll provide more detailed insights later in the year, and I believe it will be a valuable topic for our Capital Markets Day, where we can share what we've learned, both the positive aspects and any unexpected challenges. I'll tackle the second part of your question first. We are currently looking into the advantages and opportunities within our existing market, which are evident. Additionally, we are examining how other successful FMCG brands operate in Indonesia, as we aim to learn from their different approaches and understand the benefits they bring to their businesses in terms of execution and costs. We have identified about two or three options and are actively modeling their potential impact on our business. More updates will follow, but both Nik and I are pleased with the progress our team has made locally in exploring alternatives, conducting tests, and understanding their impact. Regarding your broader question, reflecting on nearly a year ago, we're glad we made the deal during a challenging time impacted by COVID in Western Europe. The integration has been very successful, and we now operate as a unified company with strong leadership at API from Chris, Peter, and Jorge. We are particularly happy with the results, which speak for themselves. Furthermore, we have gained valuable insights from both New Zealand and Australia, especially related to our segmentation capabilities, data analytics usage, and small store business strengths in New Zealand. From Europe, we have also imported numerous insights around supply chain and shared services, customer digital platforms, and our focus on managing price/mix and cash generation. Nik will elaborate on this later, but we are definitely seeing the benefits of our cash flow mindset influencing API as well. As I mentioned, it would take a while to cover everything thoroughly, both the negatives and positives. However, we will share more detailed insights during the Capital Markets Day. Nik, you'd like to add anything?
Manik Jhangiani, CFO
No, I would just add one point to the second part in terms of the route to market changes because I think what we've also spent some time here doing is really assessing both what we need to do in the short term. But how do we need to think about the growth opportunity and how do we position ourselves to be successful for the long term? So we don't want to go ahead and make what could be quick decisions or choices now that result in us being regretful of those 3 or 4 years from now. So I think we've got to get that balance right in terms of what we can do today versus what we should be just choiceful of and just assess how the market growth and what we can capture going forward is also reflected in our thinking around the route to market.
Operator, Operator
The next question is from the line of Fintan Ryan from JPMorgan.
Fintan Ryan, Analyst
I have a question regarding the updated COGS guidance. A lot has changed in the spot markets over the past few months since you provided the 5% inflation guidance for '22, which is now up to 7%. However, the amount of hedging you've disclosed has only increased from 57% to 71%. Is the 7% guidance you are looking at now, with high teens commodity inflation, based on stock prices remaining stable for the rest of the year? Or do you anticipate or hope for some deflation in commodity stock prices by the end of the year?
Manik Jhangiani, CFO
So there's a thunderstorm happening here, and that's what resulted in the line being lost. Fintan, I'm not sure where you lost us, but I'll just start again. Clearly, our hedging profile reflects that we do expect, hopefully, not to want to lock in at these rates, but there might be some easing in some areas, and that's what's really helped us move from that 57% to that 71%. So our 7% right now just looks at what spots are best, what we see today. So clearly, there could be some upward or downward pressure. But as we've said, we have levers to continue to manage that, but the level of what we have open is obviously significantly lower than where we were sitting, a couple of months ago, and we'll continue to hopefully layer on some more hedges, as we see the right opportune triggers being filled.
Fintan Ryan, Analyst
Great. I know it's still very early in 2022, but could you give us a sense of how hedged you are for 2023 at this stage?
Manik Jhangiani, CFO
Well listen, we have obviously started layering on some hedges. But at this point, I would say we're probably in that circa 30% range in terms of overall hedge coverage for '23 at this point. And we'll continue to look at those. In fact, I just approved some triggers on aluminum for '23 as well yesterday, given where we saw some of that softness come in, so we wanted to make sure we put some triggers in now for '23 as well. So we'll continue to update you on that, as we go through the rest of this year as well.
Operator, Operator
The next question is from the line of Sanjeet Aujla from Credit Suisse.
Sanjeet Aujla, Analyst
Just coming back to the COGS guidance. Can you just give us a feel for how much of the uplift in the commodity cost outlook to high teens from high single digit is driven by energy? And how well hedged are you on that specific component?
Manik Jhangiani, CFO
So obviously, we are at different levels versus where we were, and I think you know, there's elements coming from energy and there's elements that have come from other areas as well from where we were. So it would be difficult for me to break out specifically which elements are on that. But if you look at it from a perspective of gas and power in Europe, obviously, that's where we continue to see some more volatility. We have not broken out to give you individual hedge coverages per area, but what we are doing, is also making sure where there is a reliance for instance, on gas, are there alternatives that we might be able to utilize and deploy, for instance, in a market like Germany. And we're building up that backup to ensure that we have continuity of supply along with what is obviously the best pricing.
Sanjeet Aujla, Analyst
Got it. And if you do go ahead with the second round of price increases, when would you need to announce that to your retailers, for that to be effective for the second half of the year? I mean, how far away are you from making that decision?
Manik Jhangiani, CFO
Well, typically, you're looking at anywhere between an 8 to 12-week window that we'd be working on. So it's not like we're not working on those and opportunities and options in select markets, as we've said, and it'll vary. It might not happen on August 1. It might be September or October, depending on the market. And I think the way we're looking at it, too, as we continue to see visibility into 2023, what is the right approach in terms of what we might have to do in that second half and what we might have to do in early '23, to break it up into more digestible types of self-price increases to manage sticker shock as well. So those are the things that we're looking at as we speak.
Damian Gammell, CEO
To build on Nik's comments, we are focusing on three primary areas. As we consider the reopening of the away-from-home segment, we observe that 40% to 50% of our revenues come from this area, which is primarily driven by wholesale and smaller customers. This means there is a different timeline for pricing in this segment. Additionally, we are evaluating our promotional pricing in retail as we approach the end of the year to ensure we are optimizing its effectiveness. There is significant revenue potential there. We are also planning straightforward price increases for retail and larger customers, which follows the timeline Nik mentioned. Furthermore, it's important to note that these dynamics can vary by country. We are actively working on all these aspects, and I feel positive because we have several mechanisms to leverage pricing. As the away-from-home segment reopens, we will gain additional pricing opportunities that we haven't seen for the past couple of years. We will keep analyzing this and, as Nik indicated, make informed decisions not only for 2022 but also into 2023.
Operator, Operator
The next question is from the line of Charlie Higgs from Redburn.
Charlie Higgs, Analyst
Damian, Nik, I hope you are doing well and enjoying the world tour. I have a question about the sparkling category in Australia. Could you update me on your initiatives in that area? Specifically, how is Coke Zero Sugar performing there, especially considering Pepsi is gaining a significant amount of market share? Additionally, I'd like to know how Kirks is competing against Sprite and Fanta.
Damian Gammell, CEO
Yes, you pointed out an important area. Our relaunch of Coke Zero, both in formulation and packaging, has been beneficial in Australia. We're gaining market share in our core sparkling segment, particularly with Coca-Cola Light. Peter and the team implemented several initiatives even before the deal that started to show positive results from 2020 into 2021, and this has continued into 2022. We're analyzing what we can learn from our experiences in Australia and Europe regarding Coke Zero, including flavors and package sizes, which are leading to good share gains. Currently, we're assessing the implications for Fanta, Kirks, and Sprite; some initiatives are still in the pipeline as we finalize the deal. We have a clear understanding of each brand's role in our portfolio. We're exploring new initiatives for zero sugar options, especially for the Kirks brand, which hasn't had that before. We're also looking into potential reformulations of some flavors, as we've identified stronger flavors in Europe, and we believe there’s an opportunity to introduce that to Australia. More developments in flavors are on the way. We've established alignment and laid out our strategy, and we've already started taking initiatives in formulation and zero products, which we expect to yield positive results in 2023.
Manik Jhangiani, CFO
And just on that share piece, in particular, just to give you a number, we've actually gained about 80 basis points with Coke Zero, within the light segment. So it's actually a very strong performance the team has been driving, based on what Damian has just given you in terms of the color.
Operator, Operator
The next question is from the line of Mitch Collett from Deutsche Bank.
Mitch Collett, Analyst
I wanted to ask about cash, if that's okay. So you've given free cash flow guidance for EUR 1.5 billion this year. And that's obviously a step-up on last year and on the years before. I appreciate higher EBITDA will be a contributor to that higher cash flow, but could you perhaps give us a bit of color on the other moving parts like CapEx, working capital, restructuring, et cetera? And is there any impact at all on your de-gearing target?
Manik Jhangiani, CFO
Yes. So listen, I would say to you, if you're looking at it from an angle of what's driving that, it's 2 main factors; it's improved EBITDA, as you rightfully said. And as Damian highlighted earlier, we have done a lot of work around transferring some of the best practices on working capital into API and have also challenged the Europe team to look deeper and harder on some of the areas. So improved EBITDA, as well as working capital focus. CapEx will actually be probably in line, if not slightly higher, because we're continuing to invest. And you've also got the fact that our restructuring, and you've seen some of the announcements that we just made recently in Germany as well, that will continue to be a little bit higher. But then you've also got the benefit of some of the deal costs that we had last year. So I think gives and takes on each of those, but obviously much higher solid performance for the Group, with that EUR 1.5 billion that we've committed to.
Damian Gammell, CEO
And it won't affect our degearing.
Manik Jhangiani, CFO
Actually, it will support and help us continue to drive the deleveraging, but in line with our previously communicated target, of getting towards that top end of that range by the end of '24.
Mitch Collett, Analyst
Understood. An unrelated follow-up, if I can. Is any of the increase in your COGS guidance related to indirect costs, so suppliers passing on higher costs that they're facing?
Manik Jhangiani, CFO
Well, clearly, that has an impact as well, and we factored in some level of that. But obviously, clearly, we will continue to negotiate, and work with our suppliers, because this is about a long-term partnership as well. And then not just passing on anything on a one-off basis. So we'll continue to look and work on that, but we factored in where it makes sense, because it is also linked sometimes to indices, as opposed to just a fixed price contract.
Operator, Operator
And the last question today is from the line of Brett Cooper from Consumer Edge Research.
Brett Cooper, Analyst
I was hoping you can provide us a couple of numbers that would help us understand competitive advantages that might accrue to your business from returnables? So what percent of your business is in addressable channels? I would imagine that's HoReCa, but correct me if I'm wrong. And then can you just provide share differential versus the #2 player? I realize that might differ by market, but just trying to frame that up?
Damian Gammell, CEO
Yes. Currently, approximately 18% of our packaging is reusable or refillable, including returnables, which is a significant part of our business. Our strength in returnable glass is primarily found in the HoReCa sector, particularly in markets such as Germany, Belgium, Spain, and France. In most other markets, we offer a one-way glass option in HoReCa, which we will continue to assess. Additionally, we have a substantial refillable PET business in Germany within the retail sector, which is separate from HoReCa. As we consider our long-term sustainability goals, we are examining how all of these packaging types can contribute to making our business more sustainable. We hold strong positions in all of our markets, especially in Western Europe, achieving leadership ratios in HoReCa and away-from-home channels, often reaching high single digits to double digits. While I can provide exact figures, our performance in this area has been impressive over the years, supported by our packaging mix. For now, we remain at about 18%.
Manik Jhangiani, CFO
18% in total, yes. And just to your point, also in Germany, I think we have a big advantage there because we stayed in that 1 liter, which has become a preferred pack, and a lot of what was in refillables has moved out due to competition. So we're in a good position there as well.
Damian Gammell, CEO
I hope that answered that question, Brett. I'm not sure we got it all for you, but...
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. And once again, thank you, everybody, for taking the time to join us today. Obviously, we're very pleased to reaffirm our profit guidance for 2022. We are now focused on delivering a great summer in Europe and continuing that really strong momentum across our API markets. As you'd expect, our focus remains not just on the top line, but also on our profit and cash delivery through the rest of 2022. As Nik highlighted, we're doing all of that and delivering that strong free cash flow, while we continue to invest in our business, particularly in our people, our sustainability agenda and our capabilities, particularly across the supply chain and across our digital platforms to drive a better customer experience and to continue to make CCEP a more productive and efficient business. We do look forward to updating you in early August on our half-year results. As I've spoken about today, we are planning our Capital Markets Day in early November. We got some good questions today that we can give you a bit more color on during that meeting. Obviously, we'll come back and share a bit more of a wider perspective on our Indonesian business. So thank you again, and we're very pleased that you could join us as we continue to focus on creating sustainable value for our customers, and, of course, for our shareholders at CCEP. So thank you, and have a great rest of the day, everybody.
Operator, Operator
That concludes our conference for today. Thank you for participating. You may all disconnect.