Thank you for standing by, ladies and gentlemen, and welcome to Coca-Cola HBC's conference call for the 2023 half-year results. We have with us Mr. Zoran Bogdanovic, Chief Executive Officer, Mr. Ben Almanzar, Chief Financial Officer, and Mr. John Dawson, Head of Investor Relations. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session, and if you wish to ask a question, please press star one on your telephone keypad at any time and wait until your name is announced. I must also advise that this conference is being recorded today, Wednesday, ninth August, 2023. I now pass the floor to one of your speakers, Mr. John Dawson. Please go ahead.
Good morning, and thank you for joining the call, and thank you, operator. In a moment, Zoran will share his highlights of the first half of the year and our strategic progress before Ben takes you through our financial performance in more detail and discusses the outlook for the balance of 2023. Zoran will return to summarize before we open the floor to questions. We have just over an hour available for the call today, which should leave over 30 minutes for questions. We will therefore ask you to keep to one question and one follow-up before joining the queue again. Let me remind you that this conference call contains forward-looking statements. These should be considered in conjunction with the cautionary statements in our slide pack and in other results statements issued today. With that, now let me turn the call over to Zoran.
Thank you, John. Good morning, everyone, and thank you for joining the call. I'm very pleased with our strong performance in the first half of 2023, which has been achieved against a mixed backdrop. Key to our success has been our committed, passionate, and engaged people who have overcome a variety of challenges, guided by their outstanding sense of purpose. As a team, we are making Coca-Cola HBC a stronger business every day. Also, a very big thanks to our customers, The Coca-Cola Company, Monster Energy, and all our partners for their trust and collaboration in jointly driving sustainable growth. I'd like to highlight five things that stand out for me over the last six months. First, our focused execution against clear strategic priorities and our revenue growth management capabilities have helped drive strong organic growth in both revenue and EBIT.
We've made choices to strengthen the business, including delivering price and mix improvements to offset cost inflation. For example, we've focused on the most profitable revenue growth in the water category, leveraging our premium positions in advanced hydration, including enhanced waters and sports drinks. Second, we've seen good outcomes in our strategic priority categories of sparkling, energy, and coffee. We delivered robust volume and market share performance across our markets and in all three segments, despite varying degrees of economic pressure and consumer demand. Third, our teams across all our regions were flexible and fast-moving, handling a range of challenges and opportunities well. Our supply chain continues to be resilient, our hedging policies effective, and our management team adaptable. For example, our team in Nigeria navigated the country's banknote crisis in the first quarter and the currency devaluation in the second.
They delivered a solid performance, growing volumes in second quarter while executing the price and mix changes needed to offset external pressures. Fourth, sustainability continues to be embedded in our strategy, as shown by the consistent investment we've made, including a new returnable glass line in Austria. Finally, at the same time as delivering financial and sustainable performance improvements, we have continued to invest behind our strategic priority categories, our core capabilities, and other targeted opportunities in the portfolio. For example, our acquisition of Finlandia, and more on that later. Turning to the financial highlights of the first six months. Our organic revenue growth of 17.8% was very good, with solid volume performances from our priority categories while delivering strong price mix improvements. Better than expected operating leverage contributed to a strong second quarter for EBIT.
Our comparable EBIT in the first half was EUR 561 million, up nearly 18% on an organic basis and resulting in a margin of 11.2%. Our earnings per share was up 22.3%, led by strong performance throughout the P&L. Ben will take you through the drivers of this in more detail, let me share some commercial highlights, starting with our category results. Sparkling continues to be our main growth engine, representing around 70% of Group revenues. Sparkling volume grew by 1.6% overall, with growth in all three of our segments. Excluding Russia and Ukraine, growth in Coke variants was broad-based, with Coke Zero in particular growing mid-single digits in Established and Developing markets. We further accelerated the rollout of Coke Zero Sugar, Zero Caffeine.
I'm also excited about our fourth What the Fanta campaign, with innovative new flavors launched in 14 countries. Adult Sparkling growth was held back by a tough consumer backdrop in several Central European markets, as well as strong competitors. However, Established markets delivered double-digit revenue growth. In particular, I would call out the good performance of Schweppes in Greece, as well as the Kinley relaunch, especially in Italy. Turning to Energy, volumes grew by over 20%. Growth was strong in each segment, but particularly Emerging, with successful launches in Egypt of Monster and Fury. Established and Developing growth was led by Monster, helped by the very successful launch of Monster Lewis Hamilton Zero Sugar, now present in the majority of the U.S., in Europe. Volume growth in Coffee was very strong, 22%, with excellent results in the Established and Developing segments.
We are continuing our journey to scale and invest in Coffee. With the Costa Coffee and Caffè Vergnano brands, we have a segmented portfolio approach that allows us to cover multiple price tiers, from mass premium to super premium. This has driven good progress on out-of-home customer recruitment, and we are now reaching 10,200 outlets at the end of the half, up from 8,000 at the end of last year. Finally, for our categories, Stills performance was mixed. Water was impacted by our deliberate focus on more profitable revenue growth. As a result, while we grew revenue and single-serve packs, volumes of Water were down 14%, with the biggest drop in the at-home multi-serve offering. Elsewhere in Stills, Sports drinks performed well, with volumes growing mid to high single digits in our Established and Developing segments.
Juices were down with declines in developing and emerging, more than offsetting positive growth in our Established markets. Premium spirit volumes were strongly ahead. Turning to sustainability, I am pleased we have been rated AAA by MSCI for the ninth consecutive year as we continue to deliver on our Mission 2025 and Net Zero by 40 goals. In particular, we made good progress with sustainable packaging and coolers. To increase the range and capacity for returnable glass bottles, we've installed a new line at our factory in Edelstal, Austria, which has been in commercial production since May. I visited the plant last month and saw the line in operation, processing the new returnable and refillable 400 ml bottle, as well as our current 1 liter universal bottle. It's impressive what the teams are delivering at this state-of-the-art facility.
I'm also really pleased to share that at the end of June, we exceeded our target of 50% energy-efficient coolers by 2025. Together with The Coca-Cola Company and seven other bottling partners, we recently committed $15 million to a new venture capital fund. At nearly $140 million, the fund will focus on innovative solutions to drive carbon footprint reduction, supporting our goal to be Net Zero by 2040. Let me now share a few reflections on some market and strategic developments. As I touched on earlier, one of the highlights for me in the first half has been the consistent growth performance across our three segments. Each of our segments delivered double-digit organic growth in both revenue and profit.
There are, of course, many moving parts behind this outcome, and then we'll discuss these in a moment, but it just shows the flexibility and strength of our local management teams, how they are able to use our prioritized capabilities, and they are experienced to manage through changing market and consumer conditions. This consistent and strong performance has been achieved despite mixed market conditions and demonstrates the strength of our category, our portfolio of brands, our disciplined focus on execution, and the capabilities we deploy to adapt to win. NARTD and Sparkling industry revenues grew in the first half of the year, and we are gaining share in NARTD, both versus branded and private label. We are not without challenges in our markets.
I have said to you in previous calls, we do have some countries with persistently high inflation, including Czech, Hungary, and Romania, where we have seen changes in consumer behavior and more demand for affordable options. The post-pandemic boost I talked about last year, which propelled a very strong out-of-home performance, has moderated somewhat. There have been also significant macro challenges in Nigeria and Egypt, related mainly to inflation and currency devaluation. In every market, we apply our well-developed revenue growth management capabilities to address both affordability and premiumisation, helped by the strength of our brands. For example, we developed new pack formats in Czech, Slovakia, and Romania, focusing on smaller multi-serve entry packs to address affordability. We continue to be vigilant, watching out for changes in consumer behavior. We remain cautiously optimistic about market conditions going forward.
The signs are that in key markets, demand for our core portfolio is remaining robust, and the price increases we have delivered in the first half have had a better than expected impact on volume elasticities to date. Our investment in data, insights, analytics have helped underpin this performance. Every year, we deploy significant spend behind promotions to stay competitive in the market, to be the preferred partner for our customers, and the first choice for our consumers. We aim to drive higher volume uplifts and better return for every euro invested. Supported by data and advanced analytics algorithms, we can now quantify the true incremental value of promotions at the most granular level, incorporating a holistic view that considers the impacts of forward buying, competition, and cannibalization.
The consequence of this is that in the first half of the year, we've been able to target promotional spend at specific points of maximum impact, managing dynamically the necessity to support our price increases and balance those with affordability and volume elasticities. The benefit can be seen in our improved profitability and margin. Turning briefly to M&A. The acquisition of Finlandia Vodka presents a unique opportunity for us to acquire an excellent brand we worked for 17 years. Over 60% of Finlandia's total sales are in our geographies, but we only distribute a smaller proportion. This will strengthen our offering to key customers in the HoReCa channel in those markets, growing our revenue as we leverage its proven mixability with our core and ARTD portfolio.
Poland is a good example where Finlandia is one of the country's top vodka brands, a must-have for many of our target HoReCa customers, and yet is not part of our offering. Bringing Finlandia into our family gives us the chance to leverage reputation and position of this consumer-relevant product and strengthen our business in the country. At our recent Investor Day in Rome, we showcased our team and shared important developments that are critical foundation for our medium-term growth. Our markets have exciting growth prospects with a combined addressable market value of around EUR 100 billion and projected growth of 4%-6% per annum. We unpacked how the pillars of our growth strategy are delivering results, how we are activating our unique 24/7 portfolio, winning in the marketplace, working in strong customer partnerships, and investing to fuel growth.
All of this underpins our updated midterm guidance of organic revenue growth of 6%-7% on average per year from 2024, ahead of our previous guidance and ahead of the industry. We confirm confidence in our ability to grow EBIT faster than revenue, and our expectation to grow organic EBIT margins in the range of 20-40 basis points on average per year. We are a stronger business. We are delivering a stronger 2023, and we are well positioned for sustainable, profitable growth into the medium term. Let me now pass over to Ben to take you through the half year financials in more detail.
Thank you, Zoran, and good morning, everyone. Another strong set of results building on the Q1 momentum. We delivered consistent top-line growth with organic revenues up 17.8% and organic revenue per case up 19%. Pricing was the main contributor to revenue per case, accounting for more than 80% of the improvement in the period. The rest came from mixed levels, led by package and category. Volumes were marginally down 1% on organic basis, with our strategic priorities, the best performing categories, as Zoran mentioned. Gross profit increased by 22.6%, leading to a 90 basis points improvement of gross profit margins. I am pleased to see these results, even as we continue to wrestle with still elevated inflationary pressures, resulting in costs per unit case up by 13.1%.
We are proud to have delivered the highest half year comparable EBIT in CCH history, reaching €561 million and up 17.7% on organic basis, supported by a strong Q2 performance. Comparably, EBIT margins were 11.2% on change on organic basis. We benefited from strong operating leverage, thanks to double-digit top-line growth and hedging strategy, which offset input cost pressures and increased operating expenses in the period. Turning now to the drivers of performance on a segmental basis. In the Established segment, organic revenues grew by 16.9%. We saw strong revenue per case expansion of 16.7%. We benefited from price increases in all markets through the period, as well as improvements in category and package mix.
Single-serve mix increased 3.8 percentage points. Our premium glass portfolio grew high single digits in the period. Volume in Established markets was broadly in line with last year. We delivered good growth in Sparkling, Energy, and Coffee, which was offset by declines in stills, mainly Water. Ireland and Greece closed with very good volume performance in the first half. In Ireland, we saw strong growth in Sparkling, led by Coke Zero, and an impressive result in Energy, the second best in the group. In Greece, our decision for early activations for the summer season is paying off, with volumes up high single digits in the first half, despite cycling tough comparatives. For the segment, organic EBIT grew 20.8%, and organic EBIT margins were up 30 basis points, with price and mix more than offsetting higher COGS.
Organic revenue grew 23.6% in the Developing segment. This was driven by improved organic sales per unit case, thanks to pricing initiatives. Category and packet mix were also positive, the latter helped by improvements in single-serve mix. Volume growth in Sparkling and Energy was offset by declines in Stills. Coffee continued strong momentum, growing mid-30s. During the second quarter, we also successfully launched Jack and Coke in Poland, Hungary, and by the way, in Ireland, Established. Performance to date has been ahead of expectations. I want to call out Poland, which continued to deliver a good volume trajectory in the second quarter and sustained share gains. Low/no sugar variants retained their strong momentum with volumes up by low-20s. Organic EBIT increased by 27.2%.
Comparable EBIT margins improved by 20 basis points on organic basis, with better price and mix actions covering inflationary pressures for countries in the segment. In the Emerging segment, organic revenue grew 16%, with MSR per case increasing by 17.7% on organic basis. This was driven mainly by pricing initiatives in our markets to proactively manage currency devaluations and mitigate cost inflation. Organic volumes were down 1.4%, mainly affected by the decline in Stills. Sparkling grew by low single digits and Energy grew almost 30%. In Nigeria, the challenges with the shortage of banknotes have normalized. Our strong execution in the market delivered volume growth in the second quarter and share gains for the period, all under the umbrella of carefully considered RGM initiatives.
In Egypt, we are expanding the Energy portfolio with the launch of the Monster brand in May, following the successful introduction of Fury at the end of 2022. We have continued deploying key RGM capabilities in the market, helping us to drive revenue per case. Serbia and Bulgaria delivered very good performance for the period, backed by share gains in no alcoholic, ready to drink. Emerging segment comparable EBIT increased by 13.9% on organic basis. Organic comparable EBIT margins were down by 20 basis points as a result of adverse transactional FX impact, mainly for the Nigerian naira and Egyptian pound. Further down the P&L, we delivered comparable EPS growth of 22.3%. Net finance costs were down 26.5%, as we secure higher interest income from increased interest rates.
We now expect improvements in net finance costs with full year 2023 in the range of EUR 65 million-EUR 75 million. Our comparable tax rate of 27% was at the higher end of our guided range, due mainly to country mix. We expect our tax rate to be around that level for the full year. CapEx, as percentage of revenue, was below our guidance range in half one and EUR 39 million higher than in 2022. We expect an increase in the second half as we accelerate investments in our strategic priorities and capabilities. This includes deploying capital behind capacity expansions in growth markets, placing more energy-efficient connected coolers to drive single-serve mix, and investing towards our sustainability commitments. We expect full year CapEx, as percentage of revenues, to remain within our guided range of 6.5%-7.5%.
Free cash flow for the period was down EUR 76 million versus prior year, mainly due to working capital phasing, as well as increased capital expenditure. Our balance sheet remains a source of strength for the business. We have significant firepower for all our capital allocation priorities, including organic investment and M&A. The unique opportunity to acquire the Finlandia Vodka brand, which is expected to be completed in Q4 2023, and the increased CapEx to enable the growth of the future, are recent examples of our continued investments in attractive, value-enhancing opportunities. We are maintaining our progressive dividend policy. In June, we paid a dividend of approximately EUR 219 million, a payout ratio of 46%. With these considerations in mind, we expect to see net debt to EBITDA in the lower end of the 1.5x-2x targeted range by year-end.
Turning to the outlook. We delivered strong top-line growth in the first half of the year and now expect mid-teens organic revenue growth for the full year. We expect to continue to benefit from our pricing actions and retain our focus on mix improvements. We have seen some moderation in input cost pressures, which means that we now expect COGS per unit case to increase by high single digits for 2023 as a whole. As a result, we reiterate the upgraded guidance we provided early in July of organic EBIT growth for the year of 9%-12%. We have high confidence in the strength of our business, our growth portfolio, led by the exceptional Coca-Cola brands, and underlying growth in our categories to achieve those results despite mixed market conditions. With that, I'll hand back to Zoran. Thanks, Ben.
To summarize, we are executing on our strategy, focusing on our priorities, and have delivered strong organic growth of both revenue and EBIT in the first half. We remain cautiously positive about market conditions going forward, and we have an even stronger platform of which to grow revenues, margins, and returns from 2024 onwards. Our people remain at the center of what we do, and it is their passion and dedication, with the commitment and trust of our partners, that enables us to keep delivering for our customers and consumers. Thank you for your attention, and we'll now hand you back to the operator for questions.
This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one. At this time, the first question is from Mitch Collet of Deutsche Bank. Please go ahead.
Good morning, Zoran. Good morning, Ben. I've got one question, please. Your guidance, which you updated a month ago, clearly implies a lower level of organic EBIT growth in the second half. Presumably, input costs are better in the second half than the first half, and you have a much easier comparator in terms of the performance of your Russia business. Perhaps could you give us some of the puts and takes as to why the second half profit growth is expected currently to be lower than the level of profit growth in the, in the first half?
Thank you, Mitch. Good morning. Yes, let me give you a bit more color about what's happening with that, our second half guidance. Obviously, we've s- you've seen that we've delivered a strong first half, with organic EBIT growth of 18%, led by good execution of price increases and a resilient volume performance across our markets. You are right that our guidance implies a slowdown in EBIT growth in the second half. What we're expecting to see some moderation of the revenue growth driven by price mix. While COGS inflation is subsiding, we're still growing on a very high COGS base from half 2 2022, reflecting a more significant transactional FX headwinds in the second half.
Also, we expect a lower contribution of EBIT from Russia in half two, which means that there's a big swing between half one and half two.
Understood. Thank you.
The next question is from Sanjeet Aujla of Credit Suisse. Please go ahead.
Hi, good morning, Ben, Zoran. Just, just following up on that, outlook, comment. Can you give us a sense of how significant Russia is from a profit contribution perspective in H1? A little bit more context around the moving parts between H2 and H1 there would be really helpful, Ben. You know, what, what's driving that big swing in H2 versus H1 profitability in Russia? That's my first question.
Thanks, Sanjit. Russia's contribution to absolute half-year EBIT is slightly higher than 2022's, but this is due to the consolidation of Multon. You remember that we have a full six months this year coming in. One thing that I want to stress is that Russia did not drive our H1 organic EBIT performance and our subsequent full year upgrade in July. Actually, if I look at the organic EBIT growth of the group, excluding Russia, it would have been quite a bit higher. From today's visibility, what we expect is a lower EBIT contribution from Russia over the full year.
Got it. Is there anything in particular that's driving that second half swing in contribution, Ben?
Well, of course, Sanjit, if you remember last year, there was currency was in a different place. There was a number of one-off, a lot of pricing and so on, those conditions have changed this year.
Got it. Thank you. My second question, is just to contextualize a little bit more the mixed market environment, Zoran, you were talking about. I think in the past, you'd called out some signs of weaker consumer behavior, in Czech, Hungary, Romania. Are there any other markets you'd add to that list, throughout Q2, where volumes are becoming a little bit more of a concern? On the flip side, any markets where you're seeing more consumer resilience than perhaps you expected a few months ago? Thanks.
Yeah. Thanks, Sanjit. The markets you mentioned are the ones, as especially we see that inflation levels persist on higher level, plus in Hungary and Romania, I need to remind, we had either VAT or excise tax increase, which just kind of, you know, has added cream on the cake. Apart from these markets, we did see in the first half more challenged behavior in Egypt of consumers, because the food inflation level is on a very high, very high level there. Also with the things that the team is doing, in how dynamically we adjust the plans, I'm really encouraged with the last month performance in Egypt.
Look, I just wanna say that there are a few markets where, when you see the volume performance, it's actually, you know, the underlying thing is not as volume indicates, because in few markets we have made a conscious choice that we focus on the price mix in Water segment. We focus on more premium segments of the Water and focused on a single service, as I had in my remarks. If you strip out Water just for temporary case, actually several markets would be in the positive and would not be in the negative volume. Yeah, there are several markets on the flip side that like, as Ben talked in his remarks, Greece, Ireland, Serbia, Bulgaria, have performed quite well.
Let me highlight here, last three months, very, very encouraging trend and performance of Nigeria. I can, I can just pause there, to see if you have anything further that interests you.
Yeah, just look to pick up on the Nigeria comments, particularly where most of the consumer companies are talking about a much tougher consumer backdrop. Just look to get a bit more color on, on that return to volume growth and, and perhaps,
Yeah
what you're expecting for the second half.
Yeah. Look, I, I, I really think that this performance and the way we managed through Q1 and Q2 really comes as a consequence of something that has been done earlier. The fact that we really consistently invest and significantly in Nigeria to build our capability, Nigeria is always our lead market whenever we start with our prioritized capabilities, whether it's 2017 with revenue growth management, then what was a significant reshape of route to market, then was Data, Insights and Analytics. All that has enabled that the ability of team to react quickly in Q1 when we had banknotes, I mean, I can't comment how other companies have managed through that, but I was really, really pleased to see how the team quickly reacted, and this is where route to market and proximity to customers have helped a lot.
Our ability to switch them to online has helped us. Also in Q2, when the valuation happened, this is where, again, you see, you know, the effect of our Revenue Growth Management because there is a constant monitoring of what's happening in the market, on consumer sentiment, elasticities by region, by category. Team has quickly adjusted the plans. That was also blended with really consumer-relevant marketing plans that are really touching the heart of consumers, and it plays a role.
In bottom line of that, in a country as important as Nigeria is for us, we've seen, as soon as the banknotes crisis normalized, Nigeria has delivered very good performance in May, June, and that trend has continued also now in July. That gives us, you know, cautious optimism for the rest of the year, of what we expect from Nigeria.
Great. Thank you very much, Zoran and Ben.
You're welcome.
The next question is from Simon Hales of Citi. Please go ahead.
Thank you. Morning, Zoran, morning, Ben, morning, John. Yeah, a couple from me then. Maybe, maybe just following up on Sanjeev's earlier question there, you know, around market performance. I wonder if you could just talk a little bit more about the trading you're seeing into Q3, maybe particularly in Established markets in July. I'm just obviously very conscious of the mixed weather we've seen, you know, across Europe over the last month and a half, as well as potential disruption you might be seeing in your business in Greece, given the wildfires that we've seen there. That was the first one.
Then secondly, on the changes to some of the below the line, sort of guidance that you, you highlighted, Ben, in the presentation, can you explain some of the drivers behind, you know, particularly that improving, you know, sort of finance cost line? Clearly a much bigger interest income, you know, sort of coming in than sort of you and we originally expected. Now, is that being driven by interest income really on the trapped EUR 250 million of cash in Russia, and that being higher than you thought, or is it more broad-based? And with regards to the tax increase for the full year, you highlighted geographic mix. Does that include also potentially at the higher windfall profit tax now in Russia, on foreign company earnings that was announced earlier this week?
Hi, Simon. Yeah, that's a good line up of a couple of questions. I'll start and then Ben will elaborate. We'll be very pleased to answer the other ones. In July, July trading was really in line with expectations and in line with the guidance that we have provided and how we see the year going on. You said very well that we've seen really mixed bag of unexpected weather impacts, as we also could see on the news. Look, that did have certainly some impact because Italy, Slovenia, Croatia, Hungary, Serbia have had really issues with incredible rainfalls and floods. At the same time, we've seen those, you know, horrifying scenes of wildfires in Greece.
It did, for sure, in those areas, it impacts, because then when this happens, it's not about performance, it's about really doing the right thing for our employees, helping anyone we can. That becomes priority and, and that's the purpose of, you know, what we do there. It has been in line with expectations. What we've seen also that what I made as comments for the first six half, we continued, you know, our strategy execution in terms of focus on the, on the price mix, the, the same effect on, on the Water. Bottom line is that, overall, but also in Established markets, the performance has been really in line with expectations.
All right. Thanks, Simon. On your first questions, related to the improved finance cost, well, look, most of our debt structure is on fixed rates. What that means is that the increasing interest rates don't materially affect our finance costs in the near term. On the other hand, that increasing rates do provide us with higher interest income from our deposits, and that's really the main driver of our finance costs decline when we look at the half year 2023 versus last year, and also for the updated guidance for the full year. Addressing specifically your question on Russia, as if you've been following the market, you see that interest rates actually are coming down there rather than up.
Your, your second, second question was about the, the tax rate, and, you know, why are we guiding towards the top end? You know, a reminder, our group's effective tax rate varies depending on the mix of taxable profits that we have by territory. Also other items like non-deductibility of certain expenses, non-taxable income, other one tax, one-off tax items that happen across the different countries. And I would also like to remind you that our half one ETR, ETR of 27% is actually consistent to where we finished 2022. That's where we expect the year 2023 to remain, based on the visibility that we have today.
We've incorporated everything we know so far, and over the midterm, we expect that to return to our 25-27 guidance.
That's really helpful. Can I just check then? I mean, you said in your prepared remarks that overall you expect Russia for the full year to be a smaller percentage of group EBIT than it was in 2022. Is that comment also true at the net profit level, once you take account of, you know, some of the further down the P&L impacts you'll see from the trapped cash in Russia on finance line, et cetera?
No, indeed, because, you know, remember, the biggest driver of the bottom line is going to be EBIT as well. Yes, it's applicable.
Brilliant. Thanks very much.
Thank you.
The next question is from Edward Mundy of Jeffries. Please go ahead.
Morning, Zoran. Morning, Ben. appreciate that you've, you showcased at the capital market event, you know, your revenue growth management toolkit, that's getting increasingly sophisticated, and it gives you a lot of insights and analytics, you know, to think about affordability and premiumization. As you think about 2024, and given this sort of focus on joint value creation plans with your big customers, what's your level of confidence and ability to not just hang on to price taken over the last couple of years, but continue to grow revenue per case, you know, into next year? And as, as part of that same question, could you perhaps talk about, you know, the outlook for COGS inflation, you know, given it's moderating, you know, into the second half of the year, for, for 2024?
Good morning, Ed. Thank you. Look, we talk almost on every call about revenue growth management as a critical capability, and it is because, through everything that we've been going through last couple of years and whatever will be ahead of us, we really find the revenue growth management as a foundational capability, which I feel even more confident in the last two years, exactly because we see the value when it's enabled and supported by Data, Insights and Analytics. Because it really gives us opportunity to play at a different level, granularity of so many parameters that we now take into account, and all that comes into a play because the segmentation is really the in the very heart of what we do.
Not only that it's every country has its own dynamic, the beauty of this is that this really gives us the ability to play a unique game and within the country, whether that's a region, that's a category, follow the elasticities of categories and packages. This really gives me a very strong confidence that as we go forward, we only get I dare to say, better and smarter. This is the process with the like, even, you know, example of promo effectiveness. The more we do it, the more we learn, the more we are capable to really make the improvements.
Evidence of that is the fact that also in the first six months of this year, we've had a better promo effectiveness play than we even anticipated, and that was one of the drivers of our better profitability and overall result. We are getting really excellent insights which are helping us in our constantly adjusted plans. That's why, even though next year, the pricing is not going to be at the levels, probably with the visibility we have at, with what we have experienced at the beginning of this year and last year. Revenue growth management is far more than just price. It is about price, it is about promotions, it is about mix. All that will play a role.
In our future algorithm, price mix will remain, and I'm confident that it remains, a driver of how we will generate revenue.
Hi. On your second question about 2024 costs per case, as you know, it's a bit early for us to talk about 2024 and provide guidance. We'll do it with the full year results as, as usual. What I can share now is that we certainly don't foresee the same level of inflations that we've, we've seen recently in 2022 and 2023. Obviously, we're not assuming that we'll go back to 2021 levels, but we should see some benefits in terms of easing of commodities and energy prices. Perhaps the exception there is sugar. It's, it's the key main commodity where we're seeing big increases this year, and we can expect some more pressure next year as well.
As you can imagine, we have some hedges in place, and we'll continue to looking for the right opportunities to increase the coverage. The last thing to highlight as you think about 2024 is that you remember that concentrate represents about a third of our, of our costs. With that excellent top-line delivery and pricing work that we have been doing over the past 18 months, then concentrate costs are expected to increase proportionately. It's very important we continue to focus on improving price mix, as Zoran rightfully said, continue driving our hedging strategy and long-term supply contracts, and the focus on productivity as those key levers to help us navigate the 2024 costs environment.
All right. Thank you. As my, my follow-up, really on the Energy category, which is what, 6% of your volumes, you know, still growing 20% or so, and I know it's seen a lot of growth in the last, you know, four or five years. How do you think about the opportunities to, you know, continue to broaden distribution and expand the range there?
Well, look, we've been, we've been continuously doing exactly that, Ed, and that's been the driver of growth. I think we, like no one else, play in the energy category with stratified brands. In most cases, two, sometimes even three brands, and really expanding number of occasions. Distribution is constantly increasing. Number of coolers is constantly increasing because we know that in this category, around about 60% plus is all coming from impulse and spontaneous purchase. So there is a constant recruitment of new consumers, and innovation plays continuously role. We see that very well. And the beauty of that is that while innovation plays a big role, there is also, you know, foundational flavor of a green Monster, which now will come also with zero sugar.
That, again, innovation of reformulation happening in Energy as we see also in the Sparkling. All that really gives us really strong confidence how Energy is going to continue to perform. Best testament of that is these last seven years of very strong performance, and, and our plans are very, very robust and cut long story short, I really, really believe that we will continue seeing strong performance there.
Great. Thank you.
Thanks, Ed.
The next question is from Mandip Sangha of Barclays. Please go ahead.
Good morning, Zoran. Good morning there, Ben. Thank you for the questions. My first one very much relates to sort of the cost phasing into the second half. You sort of mentioned that obviously, the second half revenue growth will slow down as sort of price mix normalizes. You've obviously spoken about sort of cost inflation at the COGS line item into the second half. How should we think about OpEx phasing? It's certainly stepped up in the first half, about 14% per unit case. Is there anything we should be aware of in terms of phasing between 1H and 2H, or do you feel like OpEx per unit case level is probably a good place to be for the second half also? That's my first question.
All right. thanks, Mandip. Look, when we think about the OpEx, we take a very disciplined approach. That said, you've seen that 30 basis points of as percentage of sales that we deliver in the increase in the first half. This has to do with our continuous investment to further enhance our in-market execution with our customers, as well as some phasing to half one of our OpEx spending. We also increased marketing strongly in half one. To give you, you know, Zoran mentioned some of the examples in his prepared remarks, for What the Fanta, which is being deployed in around 14 markets. There's also the introduction or further acceleration of Coca-Cola Zero Sugar and Zero Caffeine as well.
As Zoran mentioned, energy is a very important category for us to continue to drive marketing support behind. Naturally, we, we invest behind coffee in preparation for the summer season, particularly in the out-of-home channel. For half two, we expect to continue to invest in marketing, but we're also mindful of some of the comparatives from last year will continue to be disciplined in OpEx, and the idea is that we should see an improvement as the year progresses.
Absolutely. That's great. Like, I guess my follow-on question really relates to Nigeria. As you, as you pointed out in the slides, there was a, a sequential, well, a strong sequential improvement in Q2 and obviously returning to positive growth. Are you confident there then that the sort of the worst of the market is, is now behind us potentially? If we look at the second half of the year, you do have more favorable comps. Is there anything that maybe you should call out on a more cautious note, or do you think that the, the, the momentum we've seen in Nigeria in the second quarter can, can certainly continue over the next half? Thank you.
Yeah, Mandeep. Look, with visibility, we have elections behind us. Banknote topic is out. Look, we see. We are monitoring to see with the new president how some of the new policies are panning out. We've seen the evaluation, which should be seen as a positive, you know, move, but that still needs to be surrounded with a couple of more things that we hope will happen. The fact that fuel subsidies are out, potentially we see conversation, debate, and probably something will come with a minimum wage increase in Nigeria. While this could be like a short-term cost impact to certain degree, however, overall, that's a positive sign that consumer will, you know, will be better off and will be positioned to, you know, to, to have increased consumption.
There are some signs that really, some things, some good things should start happening with policies. And, therefore, as I said, I, I do expect that performance for the rest of the year in Nigeria will be quite positive. You said well, we see that we are now entering into Q3 and Q4, where we are, where we are cycling negative volumes that we had last year. That's also something to bear in mind. Overall, as I said, I have to use this word cautiously, but certainly optimistic about Nigeria and about next year. In line with that, we are also looking, you know, and continuing with our investments to support the growth.
Excellent. Thank you very much.
The next question is from Charlie Hicks of Redburn. Please go ahead.
Yeah. Good morning, Zoran and Ben. Thanks for the question. My first one is on Russia and the sugar tax that was implemented there on the first of July. I was just wondering if you could give any early color on what the reception has been from the consumer on the ground, and then also any competitor reactions. Have you seen any falling away? Just, was there any pre-buying in H1 that influenced the numbers ahead of that sugar tax? That's my first question.
Hi, Charlie. Yeah, indeed, the, the, this sugar tax has happened. It's, you know, nothing new as per se, as it's a, it's a flavor of many markets. It happened, and it drove a local team to do immediate, you know, price increase, as we always do. That's the way how we treat those taxes, never absorbing them. I, I assume that competitors have also done the same thing. Just to say that on the market, there is nothing much different, quite dynamic, and market became quite more fragmented with many more players that have emerged, but basically, no change over there. Ben?
No, nothing to build. I think you said it very well, Zoran.
Okay.
Thank you. My second one is just on the Water category and some of the deprioritization, how we should think about that in H2 from kind of a volume drag perspective, and where is it mainly situated in the Established region in Italy, and how we should think about that from a volume, but also an improving category mix perspective?
Yeah. We will stay the course with what we are doing. We, we, we see this as a, not just a quarter play, but it's a, it's a, it's a full year play where we deliberately focus on the enhancing the value from the category. Actually, very good element to highlight there, that apart from a very healthy price mix, there is an element of the price in a number of markets where we have really have not been shy to do what had to be done, but also mix plays a very important part. This year, we are having around four percentage points increase of the single-serve mix, and that comes at the back of, I think three, four percentage points that we had last year.
We are continuously doing that while also doing more on the enhanced and advanced hydration, kind of a, you know, those subcategories which are kind of leaning on to water, like Vitamin water, which we launched a few months ago in Switzerland. There is a smart water in couple of markets. That's the, that's the play, and we will stay, you know, consistent for the rest of the year to executing that strategy, while building, you know, respective relevant plans for next year from this kind of a rewired base. Thank you, Charlie.
Thanks, Zoran. The next question is from Fintan Ryan of Goodbody. Please go ahead.
Good morning, Zoran, Ben, John. Three questions from me, please. So two technical and maybe one sort of bigger picture. I'll start with the technical questions. Firstly, could you call out what specific FX transactional headwind you saw in H1 and what broadly is in your guidance for H2? Look, I appreciate there's a lot of moving parts, particularly in the Naira, but at this point in time, what you, what you would anticipate a potential FX transactional headwind into 2024? That's the first question.
Hey, hi, Fintan. One, one thing, very, very important. We talk about translational effects in our guidance, and we say, that is, EUR 50 million-EUR 60 million, based on the spot rates, that's what we see for this year. When it comes to transactional effects, that's baked in into our guidance for EBIT.
You're not calling out what is baked in within that?
No. Basically what we do is that, you know, to help guide the market, we take all the puts and takes, including the transactional impact, which is operational, because you remember, we, we hedge for that, you know, it's part of how we manage our costs, et cetera, et cetera. Therefore, that's included already in, within our guidance of organic EBIT expansion this year of 9%-12%.
Thanks for clarifying. My second technical question would be around the free, the free cash flow dynamics. I appreciate you call that some working capital outflows in the first half, and with CapEx increasing in the second half. Could you give us a sense of where you think full year free cash flow is gonna come out at? In particular as well, the regional dynamics behind that. Like, so you've called out the EUR 250 million cash that's sort of stuck in Russia. Will that, how much do you think that will be increasing from the second half?
Okay. Let me tackle that, that question about the duration in the first half and to what extent it's affecting issues. What we saw is that despite the higher profitability in the first half of the year, you saw the free cash flow was lower, and that was indeed adversely impacted by working capital movements. What is happening there, we all understand, is that our receivables increased with that strong NSR growth performance that we delivered in the first half of the year. Personally, I'm very reassured because there's no issue with collections. In fact, we're performing better than prior years. There are no one-off impacts, quite the contrary.
This is really a facing aspect of working capital, and we'll see that improving as the year progresses. You know, the other thing that I mentioned also in my prepared remarks is also CapEx, where we continue to invest to support the growth of the business. I expect that the free cash flow to continue to improve as the year progresses.
Great. Thank you. Just this is my final question, just a bigger picture. Like you, within the Coffee category, you've talked about getting to 10,800 out-of-home outlets. I think in the past you talked about you're aspiring to a low single-digit share of the Coffee category in your markets. What does that look like in terms of the ultimate number of out-of-home outlets that you'll be targeting with Coffee? Is that 40,000 in time, 50,000, just to sort of put that 10,800 number into context?
Thank you, Fintan. Look, as, as, as you've seen also at our investor, Investor Day in Rome, when, where we featured what we are really doing with, with coffee, you'll, you'll see, and just for the benefit of everyone, we, we are really seriously allocating resources to build the capability and to strengthen our right to win, and all that is reflected through continuous outlet and customer acquisition and penetration. I can only say that I do expect that quarter by quarter we are in more outlets, and I'm pretty sure we will be. One caveat to say is that this is not about account and outlet acquisition at any cost.
We really want to get into the right outlets from the right segments and with the right proposition, both for customer and us. I'm happy that team is very conscious on the types of outlets we are doing and converting from obviously competitors. I see this as a, as a journey that has a multi-year plan. Progress so far has been A, encouraging, and B, in line with our expectations on quantity and quality. I hope that answers, Finton.
Yes, thank you very much.
Thank you.
The next question is from Alicia Forry of Investec. Please go ahead.
Thanks. Good morning, everyone. two questions from me. The first one on the cost inflation that is now moderating. Can you say whether that is broad-based across your, your COGS-based, or is that a few key inputs? Also, is that market driven or due to specific actions that you yourselves have taken, hedges or some other activity? The second question is on Finlandia. I think the rationale is very clear in terms of strengthening the relationship with HoReCa customers. I was wondering if you could talk about the timeline to full integration of that brand. I expect it would likely be shorter than we've seen with coffee because you're already, you know, well-versed with the proposition and with the brand.
Also, you know, are there any investments required to deliver on the full potential of including that brand within your portfolio? Thank you.
All right. Good morning, Alicia. Let me start with your first question around, you know, the cost per case and what's driving it. That improvement that we're signaling, we're to finish the year in high single-digit inflation of our costs per unit case, is driven primarily by a couple of factors. You know, first and foremost, you know, we saw already in half one, a better-than-expected delivery, and we see that continuing into the second half on more favorable comps. We also are seeing a relief in key commodities like aluminum and PET, and that's starting to benefit us. We see that coming through in the P&L.
We've also experienced a more normalized energy cost, which for us is important, both indirectly, because it affects input costs, but also directly with the lower utilities. Again, particularly in the second half, we're lapping a very high energy inflation from last year. Those are the fundamental drivers, and we see that generally across the businesses.
Thanks, Ben. Good morning, Alicia. On Finlandia, firstly, I'm, I'm, I'm very glad to hear that you also find the rationale very clear. Now, indeed, this is different than Coffee. In Coffee, we started from, from scratch. Here with Finlandia, as well as with our Premium Spirits capability, we have it for 17 years. We have dedicated teams in the countries. We have dedicated Premium Spirits academy to constantly improve the skills and knowledge for this respective category. We know this brand really well because we've been working with it already in several markets. There are, First of all, brand is known, there are developed toolkits, there are proven mixability programs.
We are already not in a phase, you know, where we start crawling, but we are already here in speed walking, if not running. The moment the transaction closes, I expect Q4 of the year next year, you know, we press the pedal.
Thank you.
The next question is from Matthew Ford of BNP Paribas Exane. Please go ahead.
Morning, morning, Ben. Most of my question has been answered, but just one from me, really. Obviously you mentioned, you know, the Finlandia acquisition, and recently, you know, we've heard from CCEP, quite a major acquisition there. What's your current thinking on kind of, you know, more large scale M&A, and what's the kind of outlook if there are any options that, you know, potentially on the table that you're considering?
Good morning, Matthew. I mean, we, we, we just have the, you know, the, the, the, the ink on the, the contract from Finlandia is still fresh. As I always say, we are very open, we are very open, whatever, strategically fitting can come our way. Ben highlighted that our firepower is clearly there. We always welcome and are always keen to look for a sound opportunities that will support our growth. Are we looking in the background for those kind of opportunities? Yes, I can only say that we, we are a growth mindset company looking for avenues for growth that really make strategic, complementary, fitting sense.
Whenever those occur, we will seriously evaluate them, and if ever valuation is good for our company and shareholders, we will go ahead. That's all I can say now.
Thank you.
Thank you.
Operator, I think we're, we're out of time now, so perhaps we could.
There's someone, there seems to be someone.
If I can, remove the, the last question from Jared Dinges of JP Morgan. Please go ahead.
Yeah, thanks, guys, for letting me sneak one in here at the end. I, I wonder if you could talk about profitability in Nigeria, actually. You know, it sounds like you guys are, are feeling much better, at least on the, on the volume side and, and top line side. You know, I wonder if you could talk about, you know, kind of the profitability outlook there. I think especially given what we've seen with, with the currency, you know, is it a market where you can sustain your margin? Or should we expect that to be, you know, kind of, single digit, maybe even lower end of that, on the EBIT margin side for, for some time? Thanks.
morning, Jared. You know, you know, we don't provide such data by country. The only thing I can say is that we, we, we, we focus constantly on really doing work on all the levers that impact profit and profitability. That's why we talk a lot about price mix, because in these days and years, that's especially critical. For that reason, we are front loading our capabilities investment in Nigeria. I also just want to say that we've done exceptional work on the cost efficiency and productivities in Nigeria over years, making it one of the absolutely most efficient markets cost-wise that we have in the group. So that helps a lot.
Got it. Thank you, guys.
Thank you.
Operator? That was the last question. Back to you for any closing remarks.
Well, thank you for all your time, questions, and your really, your interest. We really appreciate it. Let me just conclude to say that we believe that these strong results we announced today underline the fundamental attractiveness of the markets where we operate, as well as the, you know, proven strength of our execution and capabilities. I strongly believe that we are well prepared to adapt and seize the future opportunities in our industry, this year and going forward. We look forward to speaking to you all again soon, wishing you a great day. Thank you very much.
Thank you. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.