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Thank you for standing by, ladies and gentlemen, and welcome to Coca-Cola HBC's conference call for the 2020 first quarter trading update. We have with us Mr. Zoran Bogdanovic, Chief Executive Officer; Mr. Michalis Imellos, Chief Financial Officer; and Ms. Joanna Kennedy, Investor Relations Director. [Operator Instructions] I must also advise this conference is being recorded today, Thursday, May 7, 2020.I now pass the floor to one of your speakers, Ms. Joanna Kennedy. Please go ahead.
Thank you. Good morning, everyone, and welcome to our first quarter trading update call. I'm joined by our CEO, Zoran Bogdanovic; and our CFO, Michalis Imellos. Although we have added a webcast for ease of access, there will be no slide presentation today, as per our usual practice for trading updates. We will start with some prepared remarks from Zoran, who will then hand over to Michalis to give you some more detail on the financials, and then we will open the floor to your questions.[Operator Instructions] I'd like to also take this opportunity to note that we will be taking a small step away from our normal practice this quarter and collecting an updated consensus after the results also, which we will then, as we always do, publish on our Investor Relations website.I must remind you that this conference call contains various forward-looking statements, which should be considered in conjunction with the cautionary statements in our trading update press release which we published this morning.With that, let me turn the call over to Zoran.
Thank you, Joanna. This crisis is beyond anything that those of us on this call today have experienced before, and its effects are having a profound impact on all of our stakeholders. So let me start by saying that I hope you and your families are all well. We also owe a debt our gratitude to those health care workers doing such vital frontline work, both across our territory and the whole world. We are living and working in extraordinary times that will test us all. However, we also -- we are experiencing significant challenges in our markets today, Coca-Cola Hellenic is a well-positioned and resilient business prepared to adapt and emerge to take on new opportunities. At Coca-Cola Hellenic, our priorities are: first, to ensure the safety of our people, customers, partners and communities; second, to maintain business continuity through the crisis by decisive, timely and effective action; and third, to prepare for the opportunities that we know will emerge once recovery is underway.We have taken a number of steps to support the physical and mental well-being of our people as they work tirelessly to serve our customers. Our supply chain has been fully operational every day since the start of the outbreak and all our production facilities with even more stringent health and safety measures in place remain open. Our salespeople have been continuously serving every one of our customers who is able to operate and maintaining contact with our customers who are not. We have also adapted our customer routines to provide them the best support that we can, as they face their own challenges of rapidly shifting demand patterns.I have been inspired by the extraordinary effort, resilience and adaptability shown by my colleagues across our entire business. In unprecedented conditions, by effectively leveraging our scale and resources, we have been able to keep our people safe, serve our customers and make a difference to the communities where we operate. This is something every person in our company should be proud of. All of our actions have been guided by our values, whether it's through the system-wide partnership with the Red Cross or in Romania, where 40 volunteers helped build a medical facility, or in Russia, where we used our 3D printing capability to produce protective face shields. There are countless examples and in every way possible, we have and will continue to play our part in fighting this pandemic. We entered this crisis from a position of real strength. We are a resilient business with a culture of adaptability, which embraces change and challenge. When I see the speed and innovation of our response and how we are anticipating the future, I know that we will be in a strong position to capitalize on the opportunities in the new normal.And then -- and when I think about some of the business decisions we have made and insights we have acted on, those have been enabled by strong collaboration with our partners across the Coca-Cola system. We have benefited from the insights of our Chinese colleagues. And of course, we were able to take early learnings from Italy and share those with a broader system. Let me share some of the learnings. Although different countries took slightly different approaches with their lockdown measures, the outcome was broadly similar. In all of our markets, we saw the closure of schools, hotels, restaurants, cafés, bars, entertainment and often public spaces as well as restrictions on personal travel with very few exceptions, which in turn require extensive remote working.We saw common patterns in channel performance with large volume declines in the out-of-home in the range of 70% to 90%. This has also had an impact on the part of wholesaler business that supply the out-of-home channel. On the other hand, we saw varying growth trends in the at-home channels, as we progress through the weeks of the lockdown. At first, we saw double-digit growth rates in the weeks of household stock-up, followed by a normalizing of trends towards the end of March and then volume declines in the low teens in April.While the out-of-home channel has been essentially closed, the relative winners have been discounters, supermarkets and e-commerce. These formats saw fast-changing demand patterns and had to rapidly adapt their own supply chains. E-commerce, for example, has been growing as fast as its logistical capacity has allowed it to, since demand was practically unconstrained. We believe that the growth of online ordering and home delivery will normalize going forward, but on a significant growth trajectory compared to the pre-crisis levels and certainly here to stay.We have also seen a shift in shopper behavior as the crisis progressed. Shoppers who started off bulk buying gradually became more cautious with consumer sentiment weakening in most of our markets. While the outbreak started with large basket sizes in large-format stores, as the crisis progressed, these have shifted to smaller baskets and proximity shopping. With food and drink, consumers are interested in both essential products and some indulgence to make the experience of being at home more fun. We see that our products have relevance in both of those categories, and we are adapting.Revenue growth management is critical at this time, as it enables us to get the right pack at the right price for the consumer while ensuring that we are able to generate the best value possible for every case we sell. Let me share a few areas of focus. Affordability will continue to be a crucial factor. And fortunately, we have a lot of experience and capability as adjusting package sizes to meet important price points. The right package format will continue to be crucial and we are focusing, in particular, on multipacks of single serves, which work for our at-home channel and can also be adapted to shopper, who is focused on hygiene and tending to a smaller-sized basket. And finally, premiumization will continue to be an opportunity, particularly in the increasingly important aperitivo at-home occasion.We are also adjusting our route to market. We have redeployed salespeople from out-of-home to at-home and enabled remote selling for salespeople, who are working from home. We have stepped up our activities in e-commerce on our own B2B sales platform and also in partnering with food aggregators and in working with our wholesale customers to develop D2C offerings. Excellent customer service remains our North Star, and I'm proud on the ways that our teams have been serving our customers. For example, in some cases, in order to reduce the pressure on some supermarket customer supply chains, we have been delivering direct to store rather than to the customer's central warehouses. And while we are reducing marketing spend, we will maintain our visibility in the store, which is even more crucial now when shoppers are making shorter and more infrequent trips.Our out-of-home business remains central to our strategy. Our position in this segment will be a key competitive advantage for the future. Throughout the crisis, we are by the side of our out-of-home customers. We are maintaining our personal relationship with them. And wherever we can, we are helping them with strategies to weather the storm, such as supporting and enabling them to deliver or to build online sales or crucially, we will be ready to support them as they are able to open again.Overall, our business saw currency-neutral revenues decline by 1.2% in the quarter. Inevitably, the quarter we are reporting on this morning includes 2 very distinct periods before and after COVID-19 became a global pandemic. As such, we believe the way we can facilitate the best understanding of our business during this crisis as well as its potential is to make the distinction between these 2 periods clear in the numbers we are reporting today.We also need to be clear about what we know and what we don't know yet about the future. There is still a great deal of uncertainty on the nature, duration, extent and effectiveness of social distancing and other measures, as we emerge from the withdrawal of lockdown across our territories. As such, we do not believe it is prudent to provide guidance for 2020 at this point. We will continue to closely review the situation as we move through the year.We started 2020 with strong momentum following good acceleration of growth in Q4 of '19. We saw this strength continue in January and February. On the 21st of February, Italy put in place some limited containment measures in the north of the country. And by the last week of March, every one of our European markets was in lockdown, including the major cities of Russia. The only countries to still be operating normally at this point were Nigeria and Belarus. And in April, Nigeria, too, went into lockdown. We have seen organic volume declines in the month of April of 27% and broadly, we believe that this is a good indication of the performance of the business, with all markets under some form of lockdown.With what we see and know today, we also believe that April may represent the worst of the performance that we can expect as a direct result of the lockdowns, given a few key factors. Firstly, all of our markets, except Belarus, were in lockdown during April. Secondly, in April, we were cycling a real Easter in 2019, where people celebrated with their families compared with the very unusual Easter of 2020 that we have all just experienced. Thirdly, April also saw customer destocking, as they reacted to normalized demand conditions. And fourth, we are also somewhat encouraged by the relative stability of the declines in the range of minus 25% to minus 29% over the period as well as the trading at the start of May.Let me also give you an understanding of what we are seeing on a segmental level. In our established markets, Q1 volume was down 5.5% with most of March negatively impacted, while in April established volumes declined by 41.6%. In our developing markets, Q1 volumes were up 1.8%, while April volumes declined by 29.3%. And in our emerging markets, Q1 volumes were up 5.3%, while April volumes were down 19.7%, both excluding Bambi.Finally, while short-term price/mix impacts cannot be reliably measured because of the phasing of promotions year-on-year, we have seen that price/mix is negatively impacted by the lockdown and the social distancing measures. While price/mix was positive year-to-date February, it turned negative in March due to the significant channel shift as a result of the declines in out-of-home, the pet mix shift from single serves consumed out-of-home to multiserves consumed at home, the discontinuation of Lavazza and the gradual decline of Sparkling volumes in the mix, combined with the lack of pricing actions amid the crisis.Drawing from experience across the broader Coca-Cola system, we currently believe that the full extent of the lockdowns will be in April and May, after which the easing of restrictions will allow for gradual recovery. This process is not without risks. And of course, we expect some continuation of safety and social distancing measures after this period as well as to see the possible impact from a weaker consumer environment and the negative impact all this will have on tourism in several markets. Overall, as you would expect, we are continually and very closely monitoring the evolving trends together with our partners from the Coca-Cola Company.As I mentioned earlier, the future will undoubtedly present us with new opportunities. The whole management team is focused not just on managing our business through the crisis, but also looking at where the new opportunities will occur and how we should position ourselves to take advantage of them. We can already see some clear areas on which we will focus. For example, it has been impressive to see our people rise to the challenges they face and find faster, more agile ways of working. We want to keep this sense of urgency and the positive attitude of our people, which is what will sustain us through the crisis and keep us on track to our vision of being the leading 24/7 beverage partner.Another area is digital transformation. Continuing the acceleration of our work here, be it on e-commerce solutions, data analytics or digital ways of working and collaborating will help us and our customers to build greater joint value in new ways. Within revenue growth management, we will be adjusting our OBPPC by putting a bigger focus on affordability and winning in growing occasions like leisure and home. In route to market, we will be accelerating both our physical and digital route to market by leveraging several B2B and D2C solutions and platforms as well as boosting our e-commerce share. And we will also intensify our focus in HoReCa by supporting our customers' operations in the new post-COVID reality. There is no doubt that the current situation is challenging, but we will weather it and are excited by the new opportunities to come.I will now hand over to Michalis, who will share a few thoughts on our financials, as we navigate through Q2 and the remainder of the year.
Thank you, Zoran, and good morning, everyone. As Zoran said, we do not believe it is prudent to provide guidance at this point because the impact of the lockdown measures and the gradual withdrawal on the economies and consumption as well as the evolution of the pandemic in the balance of the year cannot be reasonably estimated. That said, we continuously run and update various internal scenarios, which will start converging as more is known and understood about the factors just mentioned. At times like this, I would like to start with what we can be more confident about, the strength of our liquidity and balance sheet. We exited April with a net cash position of EUR 1.4 billion. This is the net result of the refinancing we did last year, whereby we raised EUR 1.8 billion to meet our debt for lower and other obligations as well as the good operational cash performance in the last 6 months. We will utilize EUR 563 million to pay the remaining June bond maturity, cover our annual interest cost in the region of EUR 70 million and pay the proposed dividend of some EUR 230 million. We have reprioritized capital expenditure plans by reducing our CapEx cash outflow this year by EUR 100 million compared to our original plans, aiming to preserve our cash without sacrificing our preparedness for the recovery when it comes.We are also managing working capital very closely, and it is fair to assume that this will be impacted by the reduced levels of activity and the market challenges as a result of the lockdowns. Taking all this into account, we believe we can maintain solid liquidity to operate the business under any of our stress scenarios. With our next bond repayment being in November 2024, over EUR 900 million of our commercial paper facility unutilized as well as the untapped EUR 800 million emergency revolving credit facility in place, and no financial covenants that would impact our liquidity or access to capital, we are in good shape to plan for the recovery period.Turning now to the financial modeling of our P&L, where certainly more uncertainty exists at this point in time. We have provided you with pre-COVID trading results and an understanding of what trading has been like during the peak of the lockdowns at the end of March and April. I will now zoom into the different dynamics by channel and geographical segment. As Zoran mentioned, April saw volume declines of approximately 27%, excluding Bambi, which translated to currency-neutral revenue decline of 37%. We consider this peak -- we consider this the peak of the declines while the lockdown measures are enforced, so we expect some gradual easing from mid-May onwards, subject to the success of the next phase of social distancing measures. During the lockdown period, we saw volume declines in the out-of-home in the range of 70% to 90%. In terms of revenue, this channel's contribution varies by market, but for total Hellenic, as a percentage, is in the low-40s.We can divide our footprint into 3 tiers based on each country's out-of-home revenue contribution to this given the country's total revenue. The first tier includes countries with more than 40% revenue contribution from out-of-home. These are mostly countries in our established segment and include Italy, Austria, Switzerland and Greece. In the second tier, we find countries with between 30% and 40% revenue contribution from out-of-home. These are mostly our developing markets like Poland, Czechoslovakia and Hungary, but also include Ireland, Romania and Serbia. And Tier 3 where less than 30% of revenues comes out from out-of-home, includes mainly the Eastern European countries, such as Russia, Ukraine and Belarus.It is worth noting that Nigeria is a significant outlier, with roughly 70% to 80% of revenues contributed by out-of-home outlets. Excluding Nigeria, the out-of-home channel accounts for between 35% to 40% of the group's revenues. In terms of each peer's overall contribution to total group revenues, excluding Nigeria, Tier 1 represents 40%; Tier 2, 35%; and Tier 3, 25%.The at-home channel, on the other hand, saw low teens volume decline in April, affected by the cycling of last year's normal Easter consumption and some stocking up at the end of March when the lockdown measures were starting. Zoran gave you a good overview earlier of how shoppers' behaviors evolved during the lockdown, leading to this decline in April.We benefit from a significant variable cost structure, which will support our EBIT as we are dealing with the decline in revenue from the impact of the COVID-19 pandemic. Nearly 2/3 of our total annual cost is variable. Compared with our original plan, we have also cut more than EUR 100 million of costs in areas such as marketing, seasonal labor, consultancy and contracted services, travel, meetings and events and have put in place a general recruitment freeze.Let me also say a few words on FX and input costs. The recent weakness in the oil price has had a negative impact on the oil-dependent currencies such as the Russian ruble and the Nigerian naira, with a significantly positive impact on resin rates. Currency wise, we are very well hedged for transactional exposures in 2020 at favorable rates that prevailed prior to the depreciation. However, we expect a significant negative impact from currency translation and the remaining open transactional exposures. Having said that, the negative impact of currencies when netted with the significant gains from lower commodity costs leaves us close to our original budget for the year.To summarize, our strong balance sheet and liquidity position, significantly variable cost base and agile cost mitigation combined with our leading market shares, unique portfolio of brands and capabilities of adjusting our packaging types to meet consumer demand will allow us to weather this unprecedented crisis and at the same time, prepare our business and partners to win once it is over.Thank you for your attention. Zoran and I are now happy to take your questions, and I will hand back to the operator, so that they can get the Q&A session underway.
[Operator Instructions] The first question comes from the line of Edward Mundy from Jefferies.
Three questions. I'll ask them one at a time. The first is your degree of confidence that revenue per case will recover from April minus 10 as the away from home comes back into the rest of the year. I was wondering if you can comment on that.
In short, yes, we do see that revenue per case will improve gradually. It's hard to say exactly at which pace and to which extent. But yes, we do see as the easing across the countries is going to happen. And as the outlets and customers will start opening, and as single serves start to go back into trading and consumption that this is going to have a positive impact on our revenue per case because it is very clear that what you have seen in April that our primary and most critical negative impact on revenue per case is coming from package mix.
Great. The second question, I think you mentioned in your sort of opening remarks, there is the potential risk of weaker consumer sentiment post COVID and the initial impact here. How do you think about ensuring that consumers don't move out of the Sparkling category and into Water and Tea? I was wondering if you can talk about some of the levers you have to protect that.
If I understood well, you're asking how do we ensure that the risk of switching from Sparkling to Water and Tea. Did I understand well?
Correct, yes. Well, out of your products into Water and Tea, yes.
Actually, Ed, I have to say that in this crisis as well as what happened over the last 2, 3 years, and that is additional reason to -- for my belief that actually Sparkling proves its strength, relevance, and, actually, is the category that all of this is performing quite well. What we saw in April was -- I mean in all that sea of red numbers, negative numbers, Sparkling category relatively performed well versus others. And first week of trading in May also proves that. So we believe that all the work and category perception, the relevance with consumers of various age groups and making Sparkling relevant and critical part of so many occasions is absolutely fit for even what's going to happen in the future. And we are going to take advantage of that. We are going to continue work, respecting the fact that we will also pay more attention, as I said in my remarks, to affordability, which definitely is going to have its relevance even more, as we are out of these lockdowns and in the next period. However, that affordability stays still with premiumization and Sparkling plays a role in both of those areas. We will continue with innovation, yet with a slower pace as we have also a little bit reprioritized the sequence of the things that we will be doing. However, the fact that our pipeline is full, didn't go away. So we will be very mindful how we play that. And Sparkling is going to be a critical element, and I'm pretty confident that Sparkling is the category that is going to be winning element and a critical driver of our future growth.
Great. And then just my final question, perhaps for Michalis. You mentioned that 2/3 of your cost base is variable and you're announcing another EUR 100 million cut in discretionary spend. Is that EUR 100 million over and above the reduction of costs you'll see from the low variable costs as your business declines or your top line declines as part of the impact of COVID-19?
Yes, that's correct. So we mentioned 2/3 because we take into account also within COGS the raw materials and the concentrate, which are obviously fully variable. So this EUR 100 million has nothing to do with the reduced cost as a result of the reduced activity. This EUR 100 million is coming from marketing cuts or deferrals. It's coming from, as we said, various levels of discretionary costs that we are cutting. So nothing to do with the variable cost in the algorithm.
The next question comes from the line of Ewan Mitchell from Barclays.
Three questions from me. Firstly, the Italian and Greek volumes due to tourist impact. You mentioned earlier that you may see some weaker volumes due to that lower traveling. I was wondering what you could share in terms of your thoughts around that? And perhaps what you're seeing as Italy sort of starts to get back to work over the coming weeks or months?
Look, it's very hard to predict how exactly the whole recovery right after the lockdown stops and the easing of the measures happens. We do know that in several countries, governments are preparing and working on all the opening of the tourism, how the movement and transportation of people and as well as goods will happen. So all of that is still yet happening. We do see that there is going to be whatever tourism does happen primarily will happen with more of a local people staying in their own countries. And then possibly, we do see from some operators that car reaching locations will play a more relevant role this summer. Good thing is that tourism is important. However, it's not disproportional to the rest of the economy that we see in the countries because in Italy, it is approximately 13%, 15%. In Greece, it's around 20%. So we do see preparations are happening. We are already in contact with some of our customers, of course, with whom we are continuously in contact to help them and support them. And we will be quickly learning once we see when they start operating what's the traffic, what are the bookings, and we remain completely agile and fully flexible and ready to support them and take the opportunity to help them with recovering the business as much as possible. But it's very hard to say the exact extent or proper estimates at this point.
That's very helpful. Second question, just to build on Ed's question. Previously, you've talked about your operating expenses being sort of 50% variable, 50% fixed. When we're thinking about that, that EUR 100 million that you've guided to, does that fall into that variable bucket? Or should we be thinking about that a bit more broadly across that line?
Yes. Let me take this one, Ewan. So yes, if you look at OpEx, including DME, which is approximately 30% of our cost base, within that, around 60% of OpEx is fixed. So the cuts that we talked about today, the EUR 100 million, predominantly come from this area, from the OpEx, including DME. So there is a significant DME cut. And there is also, as I said, a lot of discretionary costs, which do not follow the volume decline. So -- and if we didn't take this decision to cut them, they would still be there even with the volume decline. So from that perspective, you can say that the cuts are all from fixed costs.
That's very helpful. And final one. You mentioned that e-commerce has grown as fast as logistically it's been possible. First of all, can you give us some numbers around that in terms of where it's coming from as a percentage of sales and how the kind of the growth is showing? And then you mentioned that you think it will grow at a higher rate. Again, any sort of numbers around where you think it might end up or continue to grow out would be very helpful.
Yes, Ewan. Yes, e-commerce definitely proved its relevance in this crisis and is one of the clear winners. I can only say that e-commerce has been having various degrees of strong impact across countries with strong double digits, even triple digits growth of sales. As part of the mix, it's very different from market to market. In some countries, it's already in between, let's say, 10%, 15%, 20%. In some markets, it's still with a single-digit percentage as a part of the sales. However, one red threat there is that it has been reacting everywhere. And this is where we've seen that our existing already B2B platform hybrids has been extremely useful. It has enabled heavy order taking. And we have seen, as I said, sizable increases. Also, we have adjusted -- quickly reacted to support our wholesalers with various direct-to-consumer solutions and help them that they do that deliveries and sales directly to households because they could not serve the customers that were closed. Also, we have seen the excellent D2C platform that we have in Switzerland called Qwell, which -- where we are directly serving households, through our drivers or partner drivers. This has been also exploding and working extremely well.We have further shifted our resources to e-commerce, and we have also learned and quickly adapted that we started doing our regular e-store check routines, so that we can spot what and how we need to do better. We are constantly working to increase our SKU lineup in e-commerce, also recognizing the need to even more improve the way our products are presented in those online shops and also increasing promo support where it is relevant and needed. And let me also just say last point, that we have intensified and leveraged our partnerships with food aggregators to further increase beverage penetration in home delivery via various food and beverage combos and suggested orders. So I just took the opportunity to give you a little bit more of flavor, how much is going on there and that this crisis actually provided -- flagged even more and surfaced this opportunity that we will be tapping into, and we will be accelerating our resources, our investments to leverage it even more in the future.
The next question comes from the line of Sanjeet Aujla from Crédit Suisse.
A couple of questions on my side, please. Firstly, I don't want to get too short-term focused, but as some of your markets are starting to reopen in the last week or 2, can you just comment on what you've seen from a trading perspective, maybe go into a bit more detail? And then also throughout March and April, in particular, through the lockdowns, can you just talk a bit more about what sort of competitive dynamics you're seeing across your major markets? Do you feel like you're gaining share? And what sort of impact is this happening -- is this having on your broader competitive landscape?
Yes. Thank you. So first of all, on this gradual opening, I mean, that literally is what it is. It's gradual, and it's literally starting these days. We've seen across countries, a number of countries, how it has -- in waves, this gradual opening is happening. In some markets started from this last Monday, then some more things from May 18 and then all the way to June 1 in many of our markets. This marks also the entry into the phase of restricted reopening, as we would call it, after the phase of the lockdown. And first of all, we are happy that it finally started. We are only now seeing what that means, how we observe, how people are more and more coming out, are starting to relive in a kind of a normal way. It's yet too early to say what that really means for real impact. However, what we observed from week 1 trading in May, we do see that the trend for recovery numbers are happening. Not to be misled, we are still in the negative. And we do estimate to be in March, still with a double-digit negative. However, we do expect that it's going to be better than we've seen in April. But it's very hard to predict now the extent of that. We do see that some customers are preparing and preparing their outlets for new ways of continued social distancing, how they organize themselves. So everything that we read in the papers, we -- our people on the ground exactly experience that.You mentioned our -- how March, April, I have to say that I'm quite pleased with all the latest numbers that I see in terms of how we have been performing in Q1 and also first half of April, all the numbers of -- that we have seen are pointing that a big majority of our markets we have been maintaining or, even more, gaining share. Actually, I'm really pleased with some even significant share gains, and this is where our strong position as well as fast rerouting that we have done during the COVID. I need to recognize our sales teams in all countries that have continuously been serving customers. We have done dynamic rerouting so that people who were -- for out-of-home, they additionally supported people for the channel of at work, different types of customers, providing merchandising services, taking orders. So we have been there, changing also more to full pallet display in the stores to help customers with the new buying patterns. So all that proved to be extremely useful, appreciated by customers, done in a relevant way with relevant packages and sizes. And I see that, that has also given a concrete result, and we plan to continue on that level.I just want to connect also your question to what Ed mentioned on Sparkling. We have seen also that this type of crisis is making consumers to revert more to known and loved brands, and Coca-Cola has very unique and special place in that. And additionally, what we also see how even premium, high-quality brands like Schweppes are even in this hardest times reacting, we've seen excellent performance in Bulgaria, as an example. And in Russia, even in April, during the lockdown, we are experiencing significant double-digit growth of Schweppes. And all that is translating into favorable share numbers.
That's very helpful, Zoran. If I can follow up with a quick question on Nigeria, I think given the significant away-from-home channel exposure there, can you just help us understand the consumer behavior throughout April in that market and again, how the competitive landscape is unfolding there, please?
Yes, sure. So first of all is, as I think we highlighted, Nigeria didn't feel anything in Q1 because the lockdown started right after the end of the quarter. And I want to first recognize that after excellent Q4 of last year, we have seen another very strong double-digit growth quarter of Q1 this year, which was very encouraging, even ahead of the plans that we had for the quarter. Also in April, I think that relatively, even though there was a double-digit decline in Nigeria as well with small teams, however, I think that in relative terms, we've been trading better than others in the market. That's a credit to a couple of things. One is that exactly this route to market that we have done in the country over the last 2, 2.5 years has proved completely precious because we've been reaching a number of outlets like no one else. We have constantly been with those that have operated. And as soon some others started operating, we were the first ones to be with them.Also, in Nigeria, this is not something that goes without saying, but we've been able to operate every single day in all plants, have continuous and uninterrupted supply of all raw materials, and we've been producing every single day, which seems has not been the case, maybe for some other players. And that has enabled us that we have ensured product availability at all times.Also, what is encouraging to see, during this crisis, is that some competitive moves in terms of pricing up or downsizing of the packages, which is indirect way of doing the same or reducing promos started happening. And they started following what we have done in Q1 with our own price-ups across targeted packages and targeted regions. So that's quite encouraging what we are seeing there. And I have seen and observed that, and based on the numbers that our trading in Nigeria has been quite favorable and very positive in relation to others. What we see from consumers is that, in some parts, it started reopening. We see that in Lagos and Abuja the streets are getting easier because the states have recognized that with good measures that have been done, still that's critical for the economy. However, you need to understand that their states have their independence only as of last night. In Port Harcourt, for example, the governor has imposed very strict no-movement, complete lockdown, where no one is moving, no companies are working, et cetera. So that's something fresh from the press, if I can say, of last night. Of course, we will be doing the same what we have done in every other country, is to demonstrate that we, as a part of food and beverage industry, are critical player for support of the society and that we need to be also classified as the essential goods producer to enable society function.But overall, I'm happy that Nigeria is coming out of those lockdowns gradually but still small. For example, in Port Harcourt, we see what we see today. But I'm sure this is not going to last for too long. That's my personal estimate. So that's the main color on Nigeria, Sanjeet.
The question comes from the line of Fintan Ryan from JPMorgan.
Few questions from me, please. Just in terms of the gross margin mix of the -- of seeing different packaging formats and channel mix during Q1 and into Q2, could you help give us some color, please, in terms of the moving parts there, particularly with raw materials as well?
Yes, let me take this one. So looking, first of all, at the dynamics in the channel, comparing out-of-home versus the at-home margins, generally speaking, out-of-home has higher revenue per case, thanks to single-serve and more premium packs compared to the at-home channel, but also higher cost of sales per case, given the SKU to smaller and more premium packs, where, obviously, concentrate costs and raw materials per case are higher than in multi-serve packages. And also the out-of-home has higher cost to serve because we employ, obviously, more salespeople in this channel. It involves more picking at the warehouse, given that we deliver primarily mixed pallets, and it also requires more cooler placements per case that is [ holes free ].So as a result, the profitability of the 2 channels is not too dissimilar at gross margin and at contribution margin level. I would say that's within a couple of percentage points of revenue. And of course, out-of-home is higher than the at-home, okay? So up to that level, I would say, is relevant for any modeling when it comes to the shift in the volume between the 2 channels, okay? So not a major difference. It's only fixed costs that come after that, that obviously, the under absorption that is happening right now with the major decline of volumes is having a major impact on our EBIT margin evolution.Now if I look at single serve versus multiserve, in terms of the pack mix, single serve, obviously, has higher revenue per case but also higher cost of sales per case, of course, because it has higher value per liter, which drives the incidence cost as well as the raw materials cost is higher on a per liter basis as the pack size gets smaller. Now cost to serve is also higher for single serve for similar reasons as what I mentioned earlier for the out-of-home channel. So as a result, the profitability of single serve and multiserve is not too dissimilar either at gross margin and contribution margin level, with single serve being a bit higher than multiserve, also within a couple of percentage points as a percent of revenue.
That's very clear. Secondly, just in terms of the underlying consumption trends that you saw in April, clearly you said volumes were down 27%. But you did also mention sort of the Easter year-on-year comp effect and some destocking -- some pull forward from March as well as, I guess, some destocking from the wholesaler channel. Do you have any sense of what your actual consumption rates are during -- at the consumer level during April and continuing into May?
Fintan, what do you mean consumption level? Just to clarify.
Just in terms of like what the -- what volume are people actually drinking compared to -- you called out, Easter year-on-year -- so I would say, excluding Easter, but in terms of the wholesaler destocking and maybe some of the volume pull-forward into Q1, what would be the sort of depletions?
Look, it's hard for me to say that exactly. However, what is very -- what is clear is that overall, consumption level in April has been lower or quite lower than April, a year ago for the obvious reason of what you mentioned of Easter, where we -- there was no family and other gatherings, et cetera. The other element was that after people have stocked up end of the March, second part of March just before the lockdown where people bought more than actually they needed, which was psychological effect of a little bit of panic, et cetera, when that has eased in April and when people realize that food supply and beverage supply, all that is going to be there, people went -- and went to their proximity stores. They went only into more necessary purchases because they also became more conscious and considerate of what they are buying, as also their own sentiment has been maybe becoming more concerned of overall impact that this crisis is going to have. So we have seen that shift more onto multiserves that everyone was primarily buying, less single serves and at lower frequency because simply many of the consumption occasions, which were happening, of course, in out-of-home, did not happen because of the closed outlets. And that's why wholesalers also stopped operating or at a very minimum level, and they were doing this destocking because the outlets that they usually serve only are those that were operating, only were doing this home delivery -- home delivery things, restaurants delivering food at home. People even didn't order many of the drinks with such combo orders because they already bought, let's say, their Coke of 1.5 liter in their proximity outlet. So simply, even at home because of less of gatherings, the consumption occasions have been lower. So when we sum up all of that, that's why we see the results, which in hindsight, are not very surprising. And when you stack up mathematically everything together, it makes a reasonable sense how these numbers they have derived given the nature and the size of the lockdown across these channels.
And if I can give also -- just to build and give also dimension from a category perspective to what Zoran just explained. It's very encouraging to see in April that the best-performing category by far is Sparkling. In April, we saw a relatively lower decline in Sparkling than any other category, 20% down in April Sparkling volume, when Energy and Juice was at around 25%, Water and Spirits were 50% and above. So it seems here that the consumer during the lockdown was not willing to carry water or the big 6 packs potentially of water back home, especially as most probably those small shopping trips that Zoran described were happening on foot. However, with the basket getting smaller and smaller during the lockdown, still, Sparkling has been more resilient than any other category. And that's very positive when we look at the category mix in the month of April, which if you take out the Lavazza are normally because of the discontinuation of Lavazza compared to prior year. Actually, category mix in April was positive, supported by the fact that Sparkling really outperformed any other category in April.
The next question comes from the line of Alicia Forry from Investec.
I think most of my questions have been answered here, but I do have one on the out-of-home customers as this channel starts to slowly open up. Do you anticipate a need to extend credit terms to these customers, who have presumably been struggling with the loss of several months of cash flow? Have you had these conversations already? What's the sort of temperature from them?
Alicia, thank you. I'll just start, and Michalis can chip in. And I would just say that, yes, that, in some cases. In some cases, we had those and we have those conversations. It's obvious that this is not a blanket approach. And this is where our long-standing very well-known solvent customers play a role, and this is where we pay attention. And let's -- I would just say that this is one of the elements in the mix of what constitutes our support for the HoReCa customers, as they will be going through this and reopening. Michalis, anything to add from your end?
No, that's the gist of it. This is a very local approach customer by customer and country by country by the local teams. And as Zoran said, we are behind our customers, the healthy ones with -- whether it's payment plans or any other type of accommodations and support, so that they can gradually reopen. And we are managing also any exposures, again, on a customer-by-customer basis to ensure that we minimize also any bad debt risk.
The next question comes from the line of Simon Hales from Citi.
I've got 2 or 3, please. The first one was, I just wanted just to confirm in terms of the fixed and variable split. You've given us, obviously, the overall numbers. I just want to check my math that in your COGS line, around about 20% of your COGS are fixed costs. That's the first one.
Yes. In COGS, I would say 15% is fixed. COGS represents 70% of our cost base. So yes, pretty close to that.
Perfect. And then the second one was just around, obviously, for April, you've given the volume performance regionally. You've talked about the revenue per case being minus 10% at the group level. Is there much variation overall at the regional level in that minus 10% that you saw in April for the group in revenue per case?
Well, generally speaking, not dissimilar to the trends that you see in the 3 segments in what we described for March. So established more impacted and followed by developing and then finally emerging. In emerging, I just want to give a watch out. We -- as we have said before, Nigeria is a major drag, both in terms of the cycling of the price rollback on PET last year, in September, which we will cycle until September this year. So that's a major negative impact as well as the fact, of course, that Nigeria is performing relatively better than anybody else right now, and that simply by which of the country mix has got a negative impact.
Perfect. And then just finally, I mean, obviously, it's encouraging that some of the trends that perhaps you're starting to see sort of generally in the business in May and hope to see over the next sort of in a month or so as outlets begin to open up. But when you look at your scenario modeling and taking account of the timing of the flow-through of the EUR 100 million of discretionary savings you hope to make this year, is there still a risk that in the first half that you could be loss-making overall? Or do you not think that you'll see a loss-making number in your P&L?
We wouldn't like to go now into some kind of EBIT guidance for first half. It's very early anyhow to really see what the impact of May and June will be overall. We just have one data point during the lockdown, which is April. So obviously, we will see in the next couple of months how things develop and we'll report them in August.
The next question comes from the line of Nico Von Stackelberg from Liberum.
It sounds like you're fully operational, so business interruption insurance probably isn't a benefit. But I imagine you have insurance for bad debt. Could you quantify this? And can you confirm that, if bad debts arise from a pandemic, you're covered?
Yes. We do have in a few countries credit insurance. And there is -- it's arguable how much, let's say, protection this gives because don't forget that the bulk of our receivables in terms of insurable, let's say, mode is coming from modern trade, where this channel operates as normal, and there is no real issue with the collections. We -- the risk is more in the smaller out-of-home customers. And there, as I said earlier, we manage on a case-by-case basis. So I wouldn't say at this point in time that from everything that we are seeing from the progression of the overdues, the performance of any payment plans that we've put in place for small HoReCa customers that we see any really major bad debt risk for the year.
Okay. And also a question on M&A. I guess with the balance sheet being reasonably strong, is the phone ringing? Are you looking at deals? Is there any outlook for M&A this year? Or is this sort of out of touch to be asking the question?
Well, Nico, that -- this remains open area. Given the balance sheet strength and position that Michalis talked about, this is -- so this is one of the areas that remains open. We, of course, would be even more choiceful. However, that is not on hold or on pause. However, this is also not something that we will be just rushing or running without any clear strategy. So the things -- some of the things that we are evaluating or working on in the background are there. And only if, as always, strategic fit as well as the price combination happens, we would be able to react. So that is, let's say, an open and possible area should any right opportunities and things happen.
Okay, great. And one final question, hopefully, I can get it in through. On your base case assumptions, do you have a feel for where consensus is? Is it too low or too high or just right? Are you able to comment at all and give us some confidence that we've roughly adjusted appropriately?
Well, all I can say at this point in time is that we see a very wide range of figures in the consensus. So I guess that following this call and as the weeks progress, hopefully, things will -- and as we know more about how the crisis evolves, this will converge. But as we said also during the prepared remarks, it's really early for us to give any type of guidance for the year. And that's why we cannot really, at this point, comment where we stand against the consensus.
There are no further questions in the queue. So I'll hand back over to your hosts for any closing remarks.
Thank you all for your time and attention today. Let me just say that we are managing operations for this unprecedented time by focusing on the well-being of our people and communities, maintaining business continuity and taking necessary actions to maintain a strong business. I strongly believe that Coca-Cola Hellenic will emerge stronger and smarter from this crisis, able to leverage our geographical footprint to its full advantage and to take hold of the immense growth opportunities ahead. Let me extend my good wishes to you and your families, and all of us at Coca-Cola HBC sincerely hope you stay safe and well. We look forward to speaking to you all again soon. Thank you.
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