Well, thank you all very much for joining us at the Barclays Global Consumer Staples Conference again today. I am very pleased to have Zoran Bogdanović from CCH, CEO of CCH, joining us. We are going to have an interesting discussion about the evolution of Coke across a lot of European and African markets. Zoran, why do not we kick off with the first half? Because you had a very strong set of figures. Were you happy with how the first half went? What were the highlights, and where are the sort of key areas you are looking to improve things?
Thank you, Lauren. We are very happy with the first half. I mean, it came as a result of very hard work of really working close with customers, focusing on executing excellent initiatives that we had in the first half, of which, of course, the FIFA World Cup was a highlight. That also overlapped with our preparation for the season, which was really done well. All that resulted in this very strong 9.6% and a 7.5% volume, which is acceleration of our underlying volume versus Q1. Very pleased with the profit improvement that resulted, and I would like to highlight that we are very happy with the consistency that this is 13th quarter in a row consecutively of having volume growth.
For us, even in the times when there was quite inflationary environment where price mix was a big thing, we really maintained focus that in the overall RGM and volume and mix and price all have to play their role. It is easy to say I am pleased, that is why I am just elaborating more like why, that there is consistency and quality and focus, and kudos to the teams for really doing that. What we can do better is that, look, every day we are looking whenever anything does not work, and for that, we have our own internal listening. All employees are rating our own functions. We constantly identify and listen where maybe there are pain points, where we need to improve processes, where we have to be faster. There are always opportunities to improve, and I love this mindset that it is never good enough.
We recognize that it is good, but there is so much more that we do. We put also our food where our mouth is, that we also invest more behind initiatives together with our partners, starting with The Coca-Cola Company. Then we are also investing in our own capabilities, capacity, digital, AI, all kind of things which can always, and continuously make us better.
You mentioned profitability there. I couldn't help but notice your profitability result for the first half was well in excess of where the guidance is for the full year. I guess that sort of assumes a bit of a slowdown in the second half. What really gives you cause for concern around the second half, and what needs to happen in order to hit the high end of the range versus the low end of the range?
Look, this first half I just referred to gave us confidence to do this update and upgrade of the guidance, clearly. Having done that beginning of August, we recognized the fact that there are four days less in Q4, particularly in December, which is a big trading period for us. We have to take that into account. We did say at the beginning of the year that our split between H1 and H2 will be more skewed towards H1. We simply have to recognize also that any week, many things can happen. We know very well that we are managing through this situation between Ukraine and Russia. You never know what happens there. Equally, Middle East, we literally see these days. We do see in many of our countries the impact on the energy cost. How will possibly this trickle down on the consumer behavior?
Because sometimes you really see that consumer have this cliff behavior. Everything is fine until one day when suddenly they start maybe pulling the brake. While we feel confident about the full year outlook for which we did upgrade, we have a very good program, what's ahead of us for the remainder of the year. We simply have to be responsible in recognizing many variables to which we don't have an answer. That's how it all comes together.
I want to come back to some of the volatility you mentioned. I suppose as part of that, we have seen a bit of a change in consumer sentiment in a number of markets, which you alluded to. Where are the key areas where you're seeing that pressure? Are there any markets you'd really call out where the consumer's perhaps a little bit more under pressure from these increased costs?
Well, overall headline would be that there is nothing dramatically different, materially different versus last year. We know that already from last year, we went into this year preparing that consumers in general have more sensitivity and more need for affordability. So in our overall revenue growth management umbrella, affordability plays an important role, yet affordability in country X versus country Y is different, but it is very well embedded, what we do there, and I can elaborate more. But particularly, there are a few markets where that sensitivity and elasticity is bigger. Romania, which simply in a sequence of several years now has been going through some regulatory changes of VAT, of sugar tax, of DRS. So it has to boil down on a consumer, or we see more politically driven in Bulgaria. They are getting used to the fact that they are now with Euro.
We know that sometimes it will create a bump in the prices overall, and of course, Ukraine. On the other end, you see countries that continue to perform strong this year and in sequence of last year, Hungary, Czech, you see Ireland. Switzerland had a very good first half. I am also pleased how also Italy went through the first half. So we see a number of markets. Austria had a very good bounce back because last year they were dealing with their own DRS introduction. So in balance, we do see that still consumers, while being mindful, they are the ones with which we delivered these results. And we feel responsible that we constantly pulse and read how they are, and that we dynamically react with adjusting initiatives whenever needed.
And of course, this is going to affect your own cost line as well. You are going to be exposed to some of the raw materials that have been inflating as a result of these various changes. What levers can you still pull in order to mitigate those increased costs? Would you expect pricing to have to materially step up as we go into next year?
Look, even in this, I like football analogy. Best way to defend yourself is to attack. And we have been always front-footed and focused on driving top-line growth. I think that is the best way to drive cost leverage. To drive top-line growth is infinite. With costs, there is a floor. So that is why our investments behind the 24/7 portfolio that we are developing with a number of categories where each one of them play their role in a given market. Where with our partners, we are actually stepping up investments in marketing exactly for that reason that we can support broader portfolio range and brands that we do with excellent initiatives, with supporting more events where we give consumers and customers really a chance to activate our products, drive transactions more.
Also, we see that with digital. Actually, first of all, I would say that one of the key areas where we are investing through digital and with the support of meaningful AI is micro-segmentation, because that really helps us to deploy our assets and investments in a much more targeted, relevant way. In the past, way back, it was like one size fits all. Now we know that for certain brand, even for certain packages, these are the types of outlets we really need to go versus the other ones. So that increases our effectiveness of resources that we deploy and the time of our people. All that plays a role. Then, not to be misunderstood, we have every year productivity initiatives. That is constant, where we are constantly finding ways of increasing productivity, enhancing efficiencies, reducing cost wherever necessary and that also plays a role.
I am also very happy with the very robust governance that we have with the overall hedging approach that we do in our purchases of materials. So when you blend that all together, I feel that there is a lot that is in our control, even in these circumstances, and that is one of the key learnings that we have from last six, seven years from COVID onwards, that irrespective of what is going on, there is a lot in our hands that we can react, and we do have tools and resources to do that.
Just staying on this topic of volatility, of course, you are very acutely exposed to the Russia-Ukraine situation. You mentioned the Middle East earlier. We have had this FX volatility across Africa, of which you are going to have increased exposure to with the closure of the CCBA deal. How has your framework of managing these sort of geopolitical currency-type risks evolved, and what do you consider resilience really looks like once you consider the consolidation of the CCBA?
Look, even before COVID, we had. Because I mentioned that period because that changed so many things in how we constantly run scenario simulations, risk management, which again, is based on a number of estimating various scenarios. But our academy for that was Nigeria. This is where we went through all kinds of things, and we went through political, macro, fiscal, supplier issues. All kinds of things tested us there from which we were capturing learnings, which really came useful then in a number of other territories of running scenarios. Even when every single country, when they present business plan, of course, they have to have one core scenario, but then there are risks and opportunities, and there is scenario, how can it look more on upside? And what if things go, and what could go wrong?
Our people are empowered to bring their own locally relevant knowledge and insights and their own understanding. I think that's the strength of our model, where we rely on the expertise of our general managers and the local country teams to really bring that. They identify what are the possible things that can potentially be worse, and immediately they are asked to tell us, "Okay, if that happens, what do you do?" There is a constant iterative way of what if, with quantification. If we see that all the risks come down to amount X, we have to see if that happens, how will we overcome it? We don't leave that now, well, let's see if it happens, and then something happens in April. If something happens in April to think through, then it's late. We have to have already some thinking in that.
We as a Hellenic overall management team, we constantly are out there on the search for more opportunities where we can unfold something that we haven't been doing so far. It's always more on the commercial front. Where are the additional customers, how we can work better and closer with them. I correlate that also with the way we constantly increase the intimacy and loyalty with our customers, which is reflected in a constant growth of our NPS score with them and listening. That's where we get lots of ideas that this is a time where curiosity has to be at its best. You never know what's tomorrow, but solutions are there. It's only a matter of us allowing ourselves and to be disciplined to listen. Never underestimate. Everyone has a view.
When we talk and walk with our market developers, it's so useful to listen to them, what they think. You get great ideas when you talk to line operator. These people have great ideas, so it's our responsibility to listen. As much as this might sound trivial, this overall also plays a role.
It sounds very similar to our job as well. The best ideas come from the team. I want to talk a little bit about some of your markets. Let's start off with the emerging side of things because of course, I think you're getting a lot of questions on that space, and it's a lot of change happening there. Many of us came out to Egypt with you, a few months ago now. I suppose when I saw the aspirations of getting double-digit growth every year, it sort of appears relatively lofty until you see it on the ground. For those who weren't able to travel to Egypt, why are you so confident you're able to deliver growth at that sort of level?
Yeah. Well, it was great to have you and others on July 7 for this day in Cairo. I can encourage anyone who would like to listen to that, it is available on our website to listen what we shared very openly that day. We believe that from the moment we decided to go after this acquisition, in agreement with The Coca-Cola Company, we were then, and now even more excited about the immense opportunity that this country offers. First of all, the size of 110+ million people, that is going in the right direction when you see the whole infrastructural development, and many things how the country is progressing. Within that context too, we know that this market is far from its developed level. So investing further, prioritizing commercial capabilities to be able to deliver on the great portfolio that we have there.
Making meaningful additions right from the start, where apart from the focus on sparkling and water, which were two key categories there, then we started also with energy, which was proven as the right thing. That has provided more additional growth relevance to our customers. So, we immediately invested in raising the commercial capabilities, which starts from even basics. Every single sales person has gone through sales academy to unlearn, relearn on the way how we educate all of our people and train them constantly to be able to more effectively and better connect with customers. Seeing the market in June when we had all general managers meeting in the north of Egypt, and then later on when we were there together, it is mind-blowing to see the difference of 18 months, how much has been achieved.
Not only for the business that we have in Egypt, for the unit itself, but we also use Egypt for our broader capability development. In July, we opened our new digital hub in Cairo, where currently we have 250 people. By Q3 next year, we will have 450. That is part of the intentional insourcing specific roles and capabilities that we want to have in-house for various solutions platforms that we are developing as they are forming the competitive advantage that we then, through those solutions, deploy in all countries. I would say the joint belief, commitment with our partners, The Coca-Cola Company and Monster Energy, knowing what needs to be done, the right locally relevant investments, and then deploying them with a great discipline focus. We are ambitious. That is why we say that this is a market that has to be double-digit. It has to.
Now, can it happen that one year is not double digit? Yes, if God knows what happens. But we have to be ambitious. If you are not ambitious with this type of market and say that it needs to be double-digit growth, then what else? Which market can be? When we have the strong ambition, that is pushing us to really constantly think, what do we do more? How do we do better? Egypt is really market for something like that.
And of course, it was an acquisition a few years ago, and you are expected to close the CCBA deal later on this year. How transferable are the learnings that you have taken from integrating Egypt to the CCBA business? What is similar? What is more different?
Many things are transferable. For us, four years ago, integration of Egypt was a great learning ground. We reflected what were the things that really went well. We also incorporated some of the learnings that we saw we can do even better. Now, myself and my team, we personally, and every one of us has personal ownership for all the chapters of the integration plan that we are developing, that we started from January. From the moment CCBA closed its books of 2025, we really did not want to touch them, leave them alone to do that. But from end of January, we really started very disciplined, systematic approach in preparing. In parallel, while the old regulatory process work was happening, and as it soon, sometime Q4, will happen that the closing really happens, I am confident how ready we will be for day one.
We also phased all the thoughts and ideas and initiatives. Okay, what is day one and first six months? What is 6- 12 months and beyond? We cannot do everything at the same time. We need to respect that it needs to be phased. Many things are transferable. I also have to highlight that we also need to never forget, while many things are transferable, we have to be respectful that every single market within CCBA has its own dynamics and insights. We need to learn that, and that will happen through on-site visits, meeting our teams, customers, to really understand what are the specificities of every market. End of July, we went for the first visit, South Africa, Tanzania, Ethiopia. It was fantastic to really learn on the ground, and I can tell you, Laurence, if anything, when we finished the trip, we really were boosted.
We can really see tremendous opportunity.
Well, I look forward to many bite-sized trips in the years to come.
Sure.
When you talk about these markets, which are the ones that you see as the biggest opportunities, and maybe some of the markets that we haven't spent a huge amount of time on? Where do you see the most opportunities?
Look, unsurprisingly, the largest market, South Africa, is the biggest opportunity. It's really the backbone of CCBA. It's a phenomenal market with so many opportunities. It's already great business, but we really see that we can provide more tailwind to do wider, maybe more things. Beyond the obvious of South Africa, Kenya. I'm impressed with Ethiopia. I mean, size of 140 million people. The country, slowly but surely, is getting in the right direction. We were impressed with the quantity of development that we observed in Addis Ababa. Next year, they are having COP32. That's a big thing that puts Ethiopia on a global stage. Entrance of international players slowly getting there. We've seen team that is very ambitious, very knowledgeable, competent.
It's for us to really see how do we support them more, give them more tools, more resources, because they clearly know what they want to do, and they are for sure not lacking ambition. Tanzania was another market that really loved seeing and specificities. Great country. Many of these markets are on a level of development that has abundance of per capita consumption opportunity, development of the categories, introduction of some of the categories or packages that they at the moment don't have. That's why from the moment we take over, we will see in the first years that we will need to support them with some more investments, because for the car to go faster, we'll need to pour some fuel, so that it can really then prepare it for sustainable, profitable growth.
You mentioned a Q4 completion. Do you have any updates on approvals or anything that has been approved recently?
Yeah. There are last two approvals of South Africa and Tanzania that are pending. All of that is progressing well, and we feel very confident that now in Q4, this is going to be completed.
Okay. Just staying on Africa, you have seen quite a big volume acceleration in Nigeria. What was the key reason behind that? Was there a bit of lower pricing? Is there a bit of a risk that we see increased competition now that we have seen a bit lower FX pressure?
No, no. I think consistency of performance in Nigeria comes as a result of many things coming together. First of all, capability, not only of the management team, and their determination and focus and discipline, but overall capability of the organization when we see and walk the streets with market developers to really see how they guide us when they explain what they do, how they do, how they are leveraging all the tools that we introduce to Nigeria, even as a testing ground. When we started with RGM, Nigeria was in the first wave. When we started with data insights analytics, from 2020, Nigeria was the first one there. The first global pilot of the use case of micro-segmentation with The Coca-Cola Company, and us together was in Nigeria.
We are constantly enhancing the capability of the country that it is able to deliver on very strong brand marketing initiatives that we do together with The Coca-Cola Company, with Monster, and even with other brand partners that we have in that country. It can sound simple. Know what are the relevant initiatives that we have to do marketing-wise, which are connected with passion points that consumers in Nigeria have. They make it easy for us because the way they love music, the way they love football, and the way they socialize, and they gather around meals make it very simple to focus consistently behind these three points. The challenge is on our own creativity, how do we do that?
We have seen how Coke Studio there transformed into one of the best ones globally, the way football is activated. I think that we will only see the new wave of doing that when now we activate English Premier League on an insight that you have more EPL fans in Nigeria than in U.K. People are crazy about football. Now, thankfully, we have that great asset of EPL that we can activate in Nigeria, and we will do that. Actually, next week we are in Nigeria, where first we will celebrate 75 years of the company that started in 1951. We have a big event for our stakeholders in Abuja, and then we have our board meeting in Lagos. Of course, before the meeting, we are going to the market to really see what is being done.
Lastly, Laurence, even in the times when there were quite some challenges with hard currency accessibility, with devaluation, we were not in a half-pregnant state. We knew that we believe in Nigeria. We know how tremendous potential it has, and we kept investing. You know very well that many companies have left Nigeria in some past years. That never crossed our mind. Now we see that some of them are looking how to come back, because this is a country of tremendous growth potential, and the result that you also see this year is just a result of continuous focused investment, and work. I do not correlate it with any lower pricing. It is RGM work where it is perfectly fine that now is the time when volume has to drive more of the revenue generation.
There is always some level of pricing there that is healthy and that is needed, and it is there.
Speaking of a very volatile market in Ukraine, it is completely understandable that it is very challenging given where the conflict is. There was some news of recent damage to one of the Coke production facilities in Kyiv. I was wondering if you could give us an update on that, but also, how do your teams continue to deliver some pretty strong results in the face of such daily challenges?
Look, first of all, I need to recognize our team in Ukraine, for heroic work that they are doing in most unbelievable circumstances, where they are in the street visiting customers or producing. There is alarm, go back in the shelter, come back out. They really serve as an inspiration to all of us. Our biggest and utmost priority there is that we always secure, make sure that everyone is safe, that we do everything in our power to support them and families in staying protected, which so far, I think we have been doing really well. What you reference, yes, and it is not the first time that our manufacturing facility was impacted among many of the attacks that were happening.
This happened last week, seven, eight, 10 days ago, where limited impact has happened on our factory with certain damage there, which is not enabling us to produce simply because we will need to first clean all of that and do some repairment. Most importantly, we were alerted. We knew that attack was coming. Everyone was evacuated. No one was harmed. Most importantly, on human element, everyone remained safe. As I said, it already happened a few times before. So far, we have repaired, brought everything up and running, and this is what we will do also this time. Our team and all of us are committed to do that, but always done in a fully safe way.
Our also leverage is that whenever and if we are not temporarily able to produce in Ukraine, which is a big factory of ours, then other countries are there to support with a contingency supply like we had last year also in one situation. Options are there and it is inspiring to see, Laurence, to see how our people stay committed to serve customers in the most difficult situation, find solution, creative solutions, how they all care for each other. It is inspiring to see. I was talking earlier about finding new solutions. Actually, they are inspiration to see some of the most innovative ideas where they have some of the processes much faster, simpler than anyone else because they are forced to think like that, and we learn from them.
We're running out of time, but I want to talk about the energy category because of course that's been delivering, I think it's 10 years of double-digit growth, and you've had further acceleration. What's really just driving this sustained acceleration? Is it category recruitment, distribution, innovation, premiumization? Where do you expect that sort of growth level to normalize?
Look, it is definitely starting with a category. That category is continuously growing year by year and expanding. It's a category where it's increasing the average age of consumers, which now is 35, 36 years of age is the average energy consumer, which 15 years ago was definitely different. Now you see energy products on menu boards, quick service restaurants. Did we see that 15 years ago? No, we didn't. Even 10. Simply, there are more drinking moments during the day. Also, the category somehow has the benefit of direct correlation of the fact that consumers say and clearly claim we need more energy to endure through the day. Lives are more hectic, busy, intense, and simply people need more energy, and they divert to energy drinks as a no-brainer solution for more energy.
While also, there is more work to be done to also remind people that there are also other sources of energy. Even Coca-Cola Original Taste is energy in itself, coffee. First of all, on the category. By the way, it's expanding. 26% of energy consumers have entered the category in the last 12 months. That's clear statistic that we get as an insight from Monster team. Now, Monster does phenomenal job with the portfolio development, with reformulations. Ultra is a zero sugar variant, is performing phenomenal. Now there is a green version, zero sugar, and various other versions like Valentino Rossi, you see now also zero. So reformulation. Constant innovation of products. Every year there is something. We can clearly attribute to innovation that is driving approximately one-third of the growth. Then tapping into the right passion points of consumers.
Energy has been a key proposition in the gaming occasion. Monster has been focused on that. Then you see football, what they do with Predator and Chelsea now. MotoGP, music, rappers. The overall experiential approach to marketing really does play a role that's complemented with lots of sampling. Then you add to that continuous investments behind coolers, providing more equipment so that product is chilled and available. So you put all that together and yes, last 10 years, average growth rate volume 29%. This year will be another 20%+ growth year. I remain confident that the category will continue to grow.
Zoran, we have jumped around a number of different topics in your business, but what is the area of CCH that investors just do not ask you about and we really should spend a little more time looking at?
First of all, I really like when sometimes people do ask about our culture and our people, and I think that is an important one to sometimes understand more how we do things and how does this organization really live? What values are driving us? How do we nurture all the time this high performance which I think with a unique way of high performance and care. I think the element of people and culture, anything else that we can talk, if people and culture element is not in the right place, I do not think we would be where we are today. Then second thing is appreciation how wide our portfolio is. People very often get surprised when we tell them.
Some of them maybe do not know that we have coffee or that we actually have two coffee propositions, that we are in many markets also exclusive distributor of premium spirits to reputable companies. Even in The Coca-Cola Company portfolio, sometimes people, some of them do not appreciate that we own the Fuze. Depends level of knowledge that people have around us. But 24/7 portfolio is one thing, because I do not think there is another player who has that broad portfolio, which really offers us the opportunity to get to one customer almost all beverage propositions. That is the reason why they all get surprised when we share that we get to be 80%, even sometimes 85% of the overall customers' revenue generation comes from our products. Then also, I would say, Laurence, people maybe do not appreciate how much we are investing behind digital and AI, overall technology.
We are very committed in the last seven, eight years since we started accelerating investments, what we are producing in-house, how much we have already digitalized our business, how committed we are, and that is attracting now talent that worked in technology companies where they find it more attractive to work for us because they do see that we mean it serious. They are in environment like this digital hub in Kyiv, where they really see that we almost act as a technology company, but they are able to see faster results of the things that they work on because they need to translate tomorrow to that sales or whatever initiative is. So there is a faster connectivity between work they do and the results that we achieve.
We are blending this and somehow, let's say that's probably underrated thing in understanding how much we invest and how much we are transforming company in that sense.
Well, thank you, Zoran, for joining us. I can see we're out of time, but I really appreciate you coming here today and spending your time with us. Thank you.
Thank you very much. Thank you. Thank you.