Coca-Cola Europacific Partners PLC (CCEP) 2016 Q3 法說會逐字稿

Good day and welcome to the Coca-Cola European Partners third-quarter 2016 conference call. At the request of Coca-Cola European Partners, this conference is being recorded for instant replay purposes. At the time, I'd like to turn the conference over to Mr. Thor Erickson, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and thanks to everybody for being on our call. We appreciate your interest and for joining us to discuss our third-quarter 2016 results and our outlook for 2016. Before we begin, I'd like to remind you of our cautionary statement. This call will contain forward-looking Management comments and other statements reflecting our outlook for future periods. These comments should be considered in conjunction with the cautionary language contained in this morning's release as well as detailed cautionary statements found in interim financial reports filed with the UK, US, Dutch and Spanish authorities. A copy of this information is available on our website at www.CCEP.com.

Today's prepared remarks will be made by John Brock, our CEO, and Nik Jhangiani, our CFO. Damian Gammell, our COO, is also with us on the call today. Following the prepared remarks, we'll open the call for your questions. In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question and we'll take followup questions as time permits. Now I'll turn the call over to John Brock.

Thank you, Thor. We thank each of you for joining us today.

Before discussing our third-quarter results, a brief comment on today's announcement that Damian Gammell will succeed me as Chief Executive Officer at the end of the year. Since joining as COO in 2015, Damian and I have worked very closely together. Following the successful completion of the merger, we now have an experienced leadership team, a clear plan for growth and we're building the structure that will help us capture that growth. Importantly, our business is in a meaningfully stronger position and our strategy is already starting to deliver improved results.

Now, as we look to 2017 and beyond, our Board of Directors, Damian and I all agree this is the right transition, and it is at the right time. With over 25 years in the Coca-Cola system, Damian is the right person to lead the next chapter for CCEP, and I know he will be an exceptional CEO. It's been a privilege to be a key part of the creation of Coca-Cola European Partners. Further, over the last 10 year, it's been a real pleasure to have led Coca-Cola Enterprises through a transformation that delivered substantial shareowner value and is contributing to a new Company with strong foundations and the significant potential for future growth.

Now I'd like to focus on our results. This is our first full quarter since the merger to create CCEP, and as you saw in our release this morning, we have returned to growth with a combination of solid revenue and operating profit increases. There were several factors impacting these results, including brand and package innovations, better execution, and favorable weather. Most importantly, however, these results demonstrate the solid opportunity that we have at CCEP to create meaningful, value building, long-term growth. We have significant assets, including the right brands, the right people and a solid relationship with the Coca-Cola Company that we believe will enable us to continue to achieve success.

As we work toward this objective, we are maintaining a keen focus on three key areas. First, it's vital that we deliver against our guidance for this year. This includes mid-teen EPS growth, flat revenue growth and a modest mid-single-digit operating profit increase, all on a pro forma, comparable and currency-neutral basis. We affirm this guidance in our release this morning.

Second, we must continue to deliver on our synergy objectives, which include a pretax goal of EUR315 million to EUR340 million by mid-2019. We are making good progress and, in fact, we're already seeing the benefits in our results. There is still much work to do, however, and we are committed to achieving this objective. Third, we must continue to work in partnership with the Coca-Cola Company to deliver long-term, sustainable, profitable growth. Our two companies have shared goals and a consistent view of the marketplace.

Now, as you've seen in our news release this morning, our third-quarter results include pro forma, comparable diluted earnings per share of EUR0.66. This reflects a revenue increase of 3.5%, with operating profit growth of 7%, both on a pro forma, comparable and currency-neutral basis. Importantly, volume grew 3.5% in the quarter, which reflects the benefits of our brand, package, marketing initiatives and improved weather.

For example, Coca-Cola trademark brands grew 2% in the quarter, driven by 1% growth in regular Coca-Cola and very strong mid-teen growth in Coca-Cola Zero. Our Coca-Cola Zero brand has been relaunched as Coca-Cola Zero Sugar in Great Britain, France, Belgium and the Netherlands and the campaign has been very successful. We are achieving renewed consumer interest in trial, leading to volume and value share gains and we're working with our customers to expand the brand's presence and distribution. We will continue the relaunch in additional territories next year.

In sparkling flavors, we achieved excellent growth for Fanta, up 6%, and in Germany, we benefited from the introduction of sparkling beverage ViO BiO Limo, made with organic juice. Energy drinks also achieved solid growth, driven by Monster and low-calorie Monster Ultra, and the incremental volume created by the acquisition of Monster distribution rights in Iberia earlier this year.

Overall still volume grew 4.5%, driven by growth in sports drinks, ready-to-drink tea and water. Key brands here included Aquarius, Nestea, ViO, Chaudfontaine, Smart Water and Aquabana. Let me note that we see significant long-term potential for our still brands, particularly water. A great example here is Smart Water which we launched very successfully in Great Britain more than a year ago and more recently, a sparkling version of that brand.

Now at the heart of the success of our brands is the strength and the success of our supply chain. For example, we've introduced new production lines in Spain, increased Smart Water capacity in Great Britain, added a new high speed glass line in the Netherlands and completed a logistics overhaul in Germany. Every day we are working to improve our operations and ultimately to improve the service we provide to our customers.

In closing, let me share some key thoughts. First, we're encouraged by our return to growth in the third quarter, which is our first full quarter as Coca-Cola European Partners. This is a positive first step and supports our belief that there are opportunities for meaningful growth. We have strong popular brands in the sparkling and still categories and we have a clear plan to deliver that growth. Second, we also recognize that we continue to face a challenging operating environment. This makes it imperative that we achieve our objectives for synergy, that we continue to bring innovative brands and packages to the market and that we continue to enhance our supply chain.

Third, we'll continue to build on our solid strategic partnership with the Coca-Cola Company. We have a shared vision of the future for our business, (technical difficulty) sustainable long-term growth and we will work together to reach that vision. Last, as the leading Coca-Cola bottler and a major European CPG company, Coca-Cola European Partners has a strong commitment to driving shareowner value, a commitment that was at the very heart of the decision to create this Company. Importantly, I'd like to note that our management transition will not impact this commitment. Thanks very much for your time. Now I'll turn the call over to Nik for more detail on our financial results as well as our full-year outlook.

Thank you, John, and thank you to all of you for joining us today to discuss our third-quarter results and the outlook for 2016. On a reported basis, the third-quarter diluted earnings per share were EUR0.67, or EUR0.66 on a pro forma, comparable basis, including a negative currency translation impact of EUR0.03. Third-quarter revenue was EUR3 billion, up 3.5% on a pro forma, comparable and currency-neutral basis. Operating profit was EUR459 million, up 7%, also on a pro forma, comparable and currency-neutral basis.

As John mentioned, this return to growth was sealed by brand and package innovations, strong execution and favorable weather conditions, enabling us to grow volumes 3.5% during the quarter. We were also able to maintain growth margins, as pro forma, comparable and currency-neutral revenue per case and was down 0.5% and cost of sales per case declined 0.5%. This close margin reflects favorable year-on-year costs for some key commodities, including sugar, offset by slightly negative price mix.

It also reflects the increase in Germany due to a shift from returnable to recyclable packages, and the impacting changes in our route to market, clearly the right thing to do from an OI level over the mid term. Additionally, operating margins improved even though operating expenses increased 1.5% on a pro forma, comparable and currency-neutral basis. Several factors influenced this result, including the positive impact of volume growth and timing of expenses, partially offset by realization of our in-flight synergy savings and our efforts to manage expenses while fully meeting the needs of our customers and our business.

Looking forward at 2016 full-year guidance, we continue to expect revenue to be approximately flat and operating profit growth in a modest mid--single-digit range, both on pro forma, comparable and currency-neutral basis. This reflects the benefits of ongoing cost control and the initial benefits of restructuring. We also have a firm diluted earnings per share growth in the mid-teens range on a pro forma, comparable and currency-neutral basis. When you include a negative expected currency impact of approximately 4.5%, we expect pro forma, comparable diluted earnings per share in a range EUR1.86 and EUR1.90.

In addition to operating profit growth, full-year 2016 diluted earnings per share growth is benefiting from differences in interest and tax rates between comparable 2015 figures and our 2016 outlook. Our weighted average cost of debt is expected to be approximately 2% and the pro forma comparable effective tax rate for 2016 is expected to be approximately 25%.

Now let me add a note on restructuring. As we discussed in our release this morning, we recorded about EUR53 million in restructuring charges. These are principally related to initiatives in Germany that were already under way at the time of the merger and the start of the transition of Atlanta-based headquarters rolls to Europe. Additionally, in October of 2016, we announced several new restructuring initiatives, including those related to further supply chain improvements, a transfer of German transactional activities to our shared services center in Bulgaria and other central function initiatives. Please do note that these assets are subject to consultation and agreement with the relevant employee groups. We look forward to providing you with more details on our synergy initiatives as well as our outlook for 2017 in December.

Let me close with a couple of key points. First, we remain committed to managing each of the levers of our business to achieve our guidance and our objectives for the remainder of the year. We're very pleased with the growth we had in the third quarter. We acknowledge some of this was driven by favorable weather.

Second, as John mentioned, we are on track to deliver expected synergy objectives, with a pretax goal of EUR315 million to EUR340 million by mid-2019. Finally, we will remain focused on generating cash and creating long-term profitable growth, all in support of our most important goal, delivering increasing levels of shareowner value. Thanks for your time. Now John, Damian and I will be happy to take your questions. Operator?

(Operator Instructions)

Our first question comes from Ali Dibadj with Bernstein. You may begin.

Hey, guys. Two main questions. One is, in terms of volumes specifically, can you try to quantify how much was weather versus underlying? In the underlying, how much is increase in kind of like for like versus rolling out distribution, like Coca-Cola zero or Monster rollouts? Then I have another question.

That's an incredibly difficult question to answer, to pick apart the various components. Damian, why don't you give us your thoughts on that?

I agree, John. I think it is very difficult to try and break it out in terms of specific weather impact. Clearly, we've seen an uplift in our business across all the territories and obviously the weather is a factor, but we don't break out specifically or disclose the amount we attribute to the weather. I think what we're more focused on is, when we are blessed with good weather that our business and our system is in a place to respond and take advantage of. I think when you look at our volume in Q3, clearly right through supply chain, right through the organization, we were able to deal with that uplift.

We're also more focused around continuing to do the right things in markets. In Q3 you will see the benefit of our continued focus on Zero Sugar Coke, particularly in GB, pushing distribution in all our brands' impacts across the market. Rather than focusing on the weather impact, we just want to make sure we continue to do the right things long term in the marketplace and I think that's what you're seeing in Q3 as well.

Okay. I know it's tough to segregate. Second question is totally different. Congratulations to you both, John and Damian. John, as you transition to Damian, maybe Damian, can you comment on any changes in philosophy?

You mentioned this, John, in your prepared remarks, but really any changes in philosophy, because clearly the market's view, and there's a lot of noise in the market these days, as we all know. The market's view seems to be, Damian, the belief you're more focused on top-line driving as opposed to not against, but as opposed to more emphasis on bottom-line drivers of growth, so wanted to hear your assessment of that interpretation, clearly by the market. In that context, what prevents the Company from just going higher in terms of the 2.5 to 3 times debt-to-EBITDA target and buy back stocks sooner? Thanks.

Yes, Damian, why don't you answer the first part of that question. I think, Nik, you might want to take the second part.

Sure. Yes. I think for those of you who happened to be at our meeting in Barcelona, I think that question was also raised. Categorically, my focus, like John's, is on shareholder value creation and generating free cash flow, so there is no substantial change in the way I look at the business versus the way John and I have looked at it.

I think that's been clear. We've been working together on this on both at CCE aspect, but also in creating CCEP for over a year now. I think at all times both of us have been consistent in our view around our primary focus is being shareholder value generation. Clearly top-line growth is an enabler, but it's one of many, and I think in the past both CCE (inaudible) have benefited from top-line growth as an enabler growth shareholder value along with many, many other metrics. That's my focus going forward, and it's very consistent with what John and I have spoken about over the last 12 months.

Okay. Nik.

Again, just to reiterate this point, and I think we've talked about it several times, one, I think as a company we remain fully committed to driving shareowner value. Now, whether -- I don't think the only lever through which you drive shareowner value is levering up and returning cash or doing share buybacks, right? I think it's a combination of business growth, it's a combination of what we need to do to look at opportunities in the marketplace and obviously continue to look at our dividend yields or some other form of returning cash if we're sitting on excess cash.

You know, today we set a long-term capital structure target at 2.5 to 3 times, which doesn't mean that we couldn't revisit that. We believe that's the right structure for us today, particularly as we look to remain focused on maintaining dry powder, as we look at other opportunities, whether it be in M&A opportunities, restructuring our business, investments for growth to drive top line, I think it's a combination of those factors. Ultimately, if there isn't those opportunities, clearly we would look at what is the best use of cash and what is the best leverage for us to be operating on, on a long-term basis. So no change to our philosophy, no change to our targets today and something that we would continue to reassess based on the business environment and opportunities that are out there.

Okay. Thanks very much.

Okay.

Thank you. Our next question comes from Caroline Levy with CLSA. You may begin.

Thank you so much. It's sort along the same lines in terms of I do note, Damian, you're very competitive. You like gaining share, and so just understanding if there might be even in the short term some costs to doing that, there's some pricing adjustments that need to be made or other things that could impact margins at least in the short term. Secondly, what is the outlook for CapEx again, because it seems like you might need to retool plants in order to have more flexibility with packages? That would be really helpful.

Okay. Damian.

Simple answer, Carolyn, no, to the first question. Maybe Nik can deal with the second question.

Sure. Caroline, I think we have indicated a capital spending in the range of 4.5% to 5%, 4% to 5% of net revenue, but I think that is really what we see for this business in a steady state. Having said that, I would say to you as we look at our plans, and this is completely non-linked in any way to John or Damian. As we look at our plan for CCEP and what are the right things to do, I think our CapEx initially might be slightly higher than our D&A, because we will be investing in some of those synergies. As we provide you with an update on that in December in terms of particularly our 2017 outlook, we'll give you some indications of that. Again, we feel comfortable on a normalized recurring basis that 4% to 5% should be a sustainable level of CapEx investments in the business.

Thank you.

Thank you.

Our next question is from Judy Hong with Goldman Sachs. You may begin.

Thank you. Good morning. John, congratulations on your well-deserved retirement. It's been great working with you over the years.

Thank you.

I guess my question is just, broadly speaking, on the pricing side. Obviously it's been kind of flattish, maybe down a little bit in the third quarter. Maybe just a little bit more color just in terms of by region, where you feel a little bit more pressure just from a pricing standpoint. It looks like France was down in the third quarter. As you think about 2017, obviously inflation potentially picking up in markets like GB, your comfort level in getting more price mix as part of your revenue growth algorithm.

Yes. I'd say is we look to the future, we are confident that the whole algorithm around price mix does work, and that our category is one of the most important ones out there in terms of our ability to capture price, which we are doing. Damian, why don't you specifically comment on the results.

Thanks, John. Hi, Judy. Just on your point on France, we had slightly more consumer promotions in Q3 in France, so that's the primary driver of pricing in France in the third quarter (technical difficulty).

Secondly, overall if you recall on our earlier calls, we have been pretty happy with our ability to realize our pricing plans in 2016. Most of those (inaudible) first quarter and have carried on through the year. To John's point, we believe that, that's going to be part of a plan going forward and a combination of mix, headline pricing on volume driving our net revenue guidance and through 2017 and beyond. That's really what's been happening with pricing in Q3.

Okay. Maybe just a little bit more color on the gross margin. Nik, just flattish gross margins. I think in the last few quarters we've seen gross margins a little bit better. Can you sort of bridge between how much cost saves you got in the quarter, some of the commodity impact in the quarter just on the margin side?

I would say to you there was no big shift from the perspective of our year-on-year saves on the commodity side in the third quarter specifically. We did have some synergy benefits starting to come through. I would say that was circa about EUR15 million of benefits we've seen, post close, towards our target of EUR315 million to EUR340 million. Outside of that, obviously we did -- a part of this also is driven by strong top line from a volume perspective. That just gives you some leverage through as well. Nothing else, really.

The EUR15 million, can you sort of break down between COGS and SG&A?

We'll give you more of a breakdown on that in December when we give you a full-year position on 2015 -- 2016 as well as what our outlook is for 2017.

Okay. Got it. All right. Thank you.

Thanks, Judy.

Our next question comes from Bill Schmitz with Deutsche Bank. You may begin.

Hey, guys. Congratulations to both Damian and John. My first question is, last quarter you gave us pretty bullish September trends. Can you tell us what's sort of going on so far in October in terms of trend line versus that September month?

Go ahead, Damian.

Yes. We've -- obviously you've seen Q3, as we talked about, came in quite strongly. We've also seen a good October. Again, we continue to see momentum through October. Our challenge really is as we look at Q4, December is a huge month for us in Europe with Christmas, et cetera, and so clearly that's what our priority is now, is getting through November and then making sure, and we're already doing it, that all our Christmas activations are in place across the customer and country base to ensure a strong finish to the year. With the size of December in Q4, obviously that's our primary focus. To answer your question, October was also a strong month for us.

Great. Thanks. I'm going to be that guy and sort of go through a bunch of the countries, and I apologize in advance. Is the worst over in France? I know it was up 1%. Are you starting to see tourism come back? Spain was great too. My take on Spain is that all the tourists who won't go into Turkey, Egypt and France are going to Spain now. Tell me if that's true and if it continues and if you think France has bottomed.

On the GB side, why isn't inflation coming through in GB yet? I know there's been some resistance from the retailers, but intuitively, from a macro economic perspective, you get a big currency devaluation, typically everyone starts to pass through pricing. It's been a little slower than we expected. Am I looking at it the wrong way, or do you think it's just a matter of time? Are you getting any resistance from the retailers in the short term?

Maybe I'll deal with Spain first. I mean, clearly we have seen Spain and Iberia continuing to perform very well. Obviously history of very solid execution in that market, but as is publicly well known, a big uplift in tourism in 2016, which also has played a part in our year-to-date results, and it's benefited from favorable weather. We would see that continuing. Obviously, tourism plays less of a role in Q4 compared to the summer, but obviously that's a positive trend for us. If you look at the data for 2017, there's also a lot of commentary about 2017 also being a strong year in pre-bookings for Spain, so we will focus on how we can make the most of that going forward.

I think in GB, it's a good point. Obviously when you look at the valuation and the currency and the impact that, that may have on consumer pricing, that hasn't happened yet. It's safe to say that it is a discussion across all categories and across all customers. GB is quite a mature market, so a lot of the activity is locked in well in advance.

I think it's going to be probably closer to Q1 2017 before we may see any significant impact from the currency translating into inflation. There's a lot of commentary about inflation rates in GB dribbling up 1% or 2%, so we'll keep a close eye on that. Candidly, a lot of the pricing activity and pack architecture was in place and that's what we're seeing executing going forward. We look at that closely and obviously we'll make our own decisions around what's right for our business in GB based on the inflation numbers that we see coming through.

I think on France, we had a good quarter, but, again, I'd like to talk about France after a number of good quarters. Clearly, we haven't seen any real change in tourism figures in France. I think a lot of people, again, made decisions about whether it's weekends away or holidays early in the year and due to a number of external reasons, France dropped down the list for a lot of people and that has continued to year end. If we look at the trend beyond the quarter, I would say France has been hit negatively in tourism, particularly obviously affecting the away-from-home business. Thankfully there's been no further incidents in recent months. Obviously, that's what we wish to continue and therefore maybe consumer and tourism confidence will pick up as we move into 2017, but candidly, it's a bit too early to talk about any turn around in France.

Okay. Thanks. Sorry for being so long winded.

The other point I would make, Bill, is --

Nik, go ahead.

I just said, sorry for being so long winded.

That's okay.

Your prerogative.

Nik, did you have one point you wanted to add to that.

The only point I was going to make to you, Bill, remember for 2016 in particular, we were pretty much covered in terms of our transactional exposure, so as a Company we've been able to maintain what our pricing is for 2016. To Damian's point, clearly we'll be looking at this as we look at what's happening in the market in 2017 and what our exposures are as well.

Okay?

Okay, great. Thanks so much.

Thank you.

Our next question is from Steven Powers with UBS. You may begin.

Thanks and congrats from me as well. Two quick ones on specific businesses to start and then I've got a broader one for Nik in followup. First on the quicker ones, any early comments you can share on the Honest Tea launch in Great Britain? I'd be curious there. Similarly, as we think about energy specifically, can you comment maybe on the velocity you're seeing on Monster Ultra and how those Ultra SKUs compare to the core Monster SKUs, again, in terms of velocity relative to your expectations?

Thanks, Steven. I'd say early days with Honest Tea. I think initial reaction has been very positive from consumers and from customers. Again, we've seen that as a play into a fairly new developing segment of the tea category and quite channel specific. We'll continue to look at how that brand performs, but early days, very successful, but again, we'll see where it goes.

On Monster, the bulk of our growth is coming from the Ultra variance, and again, it's playing into a widening consumer trend. We're seeing where we broaden the number of SKUs in Ultra to four now in most markets and we're seeing that driving a lot of our top-line energy growth, in particular in Germany and also in Spain, where they are newer markets for us with Monster. Again, they're benefiting even more, but in a more mature market like GB, we're seeing Ultra continue to take a higher and higher share of the energy category and of the Monster brand, which for us long term is a very positive trend.

Yes. You have confidence that, that's consumption and true velocity versus just distribution winds as you roll that out?

Yes. We're seeing it topping our rate-of-sale numbers off shelf. There is obviously distribution benefit, but when we get it listed, its rate of sale of is extremely strong. It's definitely sellout, consumer driven.

That is great. Nik, as we think about the go-to-market model today across your geographic portfolio, and apologies if you've spoken about this before, but can you just identify about how much of today's SG&A or distribution costs are what you'd classify as variable in the form of third-party relationships and indirect distribution, for example, versus the more fixed costs that will create leverage or deleverage with better or worse growth? Then looking forward through your synergy and supply chain restructuring plans, what do you think is the balance of fixed versus variable SG&A looks like in the next few years when the dust has settled? Thanks.

I think if you look at our SG&A, you've got essentially about 1/3 in selling, 1/3 in delivery and 1/3 in true admin type of expenses, right? If you look at the selling and the delivery piece, and particularly if you take that 2/3, you're going to find that roughly half of that, at least, is variable, if not slightly higher, too. There is an opportunity there as we continue to look to get more leverage throughout (inaudible).

From an admin perspective, that's where we have actually looked at a lot of opportunities from a synergy target perspective outside of what is procurement and the manufacturing efficiencies from a perspective of best practice sharing, network optimization, et cetera. I wouldn't be able to give you a clear indication of that today, but it is something as we roll out with our plans to realize the synergies and look to be able to variablize a lot of it, we would come back to you with that. The other piece you've got to keep in mind that if you look at our COGS, truly about 85% of that is variable, right, because it's all linked to stuff that is in the product and goes out, be it concentrate, be it commodities, et cetera. There is a fair amount of variability that we already through the C&L, hence our model would work from a perspective getting operating leverage.

Okay. Is it fair to assume that on the distribution portion of costs that you spoke of that those costs are likely to migrate more towards variable costs as we go forward, as you look maybe more towards moving things from direct your own distribution to indirect, third-party distribution?

Again, keep in mind that if you look at the majority of our markets, even in Spain where we have essentially what I would call a direct but an indirect model because we have direct from a standpoint that we have our salespeople going into the store, we do the merchandising, we do the invoicing, but the delivery is already variable, so to speak, because it's through a third party, right? The one market that would continue to evolve that is in Germany, where it's moving more from DSD towards more central warehouse, so that's where the opportunity is. That's where you see some reclassifications in our P&L, as well, over time because of the fact that with your DSD and how you actually record that there's an impact to your revenues, an impact to your cost of sales and SG&A, but then net-net, that's actually over time a positive to our OI.

Okay. Perfect. Thank you.

Thank you.

Our next question is from Mark Swartzberg with Stifel Nicolaus. You may begin.

Thanks. Two questions, and perhaps they're directed at you, Damian. One is, can you give us the performance of your wholly owned brands in Germany and Iberia specifically? Just trying to get a sense of the underlying trends there, backing out Monster. Irrespective of that, when you think about Germany and your own history there, what is your opinion about the path to growth in Germany? I appreciate the timing is uncertain, but when you think about getting Germany back to growth, what do you think the key variables are?

Hi, Mark. First of all, on our wholly owned brands, I'm not sure what you're referring to, but in Germany all our brands are pretty much KO brands, so I think when you look at the performance of Germany, it's pretty much KO and now we've added Monster. We don't separate out by country the performance, but overall they're all pretty much KO system brands.

Well, don't you have distribution of Monster in Germany? That's what I'm trying to back out.

Yes, we do, yes.

Yes, but Monster is less than 2% of our total portfolio for CCEP, so I don't think that would move the needle significantly in terms of what's happening in Germany or Iberia.

Got it. That was the assumption behind my question. Okay. Got it.

I think Germany has been growing quite successfully for a number of quarters and years now. Germany is back in growth certainly in terms of volume and revenue, and we've also seen margin expansion in Germany over a number of years. I think the plans that are being put in place in Germany are delivering. Clearly being proud of CCEP and leveraging best practice sharing and leveraging our scale within Western Europe, our goal is to accelerate that improvement, and that's what we're focused on. If you look across all of the rest of the European markets, certainly over the last two or three years, Germany has been pretty much at the top in nearly all quarters of growth in Western Europe. That's been on the back of strong growth within core sparkling and flavors but also expanding its portfolio into stills and the (inaudible) sold water premium water business. Pretty good growth in Germany market over the last number of years.

That's a reference to volume? I'm looking at the press release, the minus-[1] revenue in Germany in the quarter and the minus-[0.5] year to date.

Yes. There is one specific dynamic in Germany that will affect our net revenue as you've called out. As we move out of in returnable PDT in Germany and into one-way PDT, which is part of our ongoing plan and also is allowing us to restructure our business there as we take out some cost and complexity. The delivery costs for one way are obviously above net revenue because they go into central warehousing, so they're really sitting in the terms with the customer and for refillable, they're actually below because it goes through our own distribution system is so it's a sales expense below net revenue.

It's difficult in Germany to look at net revenue as we transition because clearly we're doing the right thing in terms of long-term growth, consumer choice and profitability, but on a net revenue line, there is a quirk as the distribution expenses for one go above revenue and for the other to go below. That's really what you've seen in the quarter and also year to date in Germany.

That's very helpful. If I could follow up, so what is the underlying volume -- rate of growth in Germany and when do you think this noise, so to speak, will start to become comparatively small?

We'll continue with the transition on packaging through 2017 and 2018. Obviously, as we go further we'll look at just ensuring that we make that clear, because it is a dynamic that will affect the net revenue in Germany going forward. If you look at our overall performance and volume wise, we've seen strong growth in Germany and quarter by quarter, I think 36 months, so if you look at it, there's probably a -- volume is up 2% in our business year to date in Germany. That gives you some indication and also on the underlying revenue as well.

Awesome. Very helpful. Thank you, Damian. Thanks, Nik.

Thank you. Our next question is from Brett Cooper with Consumer Edge Research. You may begin.

Good morning, guys. Two quick ones from me. In the guidance component, you guys removed the text of net-debt targets for year end. Can you just give us kind of the reasons why you did that. Is there cash that's coming out of the business at year end that we should expect?

Nik, would you like to address that one?

Yes. Sorry, Brett. I think we continue to be -- remain focused on bringing our leverage down to our target range of 2.5 to 3 times net debt to EBITDA, but I think if you just look at some of the recent exchange rates, exchange rates that you have and the current projections, we've seen probably a modest increase that we would expect in our 2016 net debt-to-EBITDA projections. I think the important piece is we continue to, one, remain on track for our synergy efforts and two, focus on cash. We'll provide you an update in terms of what 2016 and 2017 look like when we do our outlook call.

Thanks. Then on -- I think it was specific in GB, but the Coke trademark, the growth that we've seen in Zero, I was wondering if you could kind of review what you've seen in regular red can Life, Light and Zero to give a holistic view of that?

Damian, would you like to (multiple speakers) Coke in GB?

Yes. When you look at our GB numbers, we have a very strong cola franchise both in terms of our classic Diet Coke is a great big brand for us in GB, it's one of our strongest markets, not just for CCEP but globally. We've seen a very strong performance of the new zero-sugar variance, not just in terms of existing Zero users, but clearly when we look at our volume growth, we're anticipating we're also bringing in new users into that particular brand which is one of our goals. Interestingly, in our Q3 in GB, our existing red classic Coke also grew, so we saw strong growth across our three Coke varieties in Q3. That gives us optimism going in obviously to Q4 and also for 2017.

Yes. Red grew at the top a little over 1%.

Thank you.

Thank you. Our next question is from Andrew Holland with Societe Generale. You may begin.

Yes. Hi. Just two questions if I may. Just coming back to what you were saying about Germany and this transition with PET, did I hear right that, that's going to continue to drag through 2017 and 2018, is question number one. Question number two is you've given us a range of EPS on the basis of pro forma, FX neutral, the EUR1.86 to EUR1.90. Are you able to give a similar figure on a reported basis?

Damian?

Just to be clear, the EUR1.86 to EUR1.90 includes the impact of FX that we currently quantified would have a negative impact of about 4.5%.

Okay. Now, as just on the same basis as you were giving that, can you give us the same perimeters on a reported basis?

Thor can probably give you that offline because, I mean, that's really not that meaningful a number from the perspective of something comparable, but we're happy to provide that to you offline.

Thank you.

Maybe I'll just come back on Germany. We've got a well-managed transition plan on our packaging strategy in Germany, so I wouldn't use the word drag. It's been a huge part of our business, the refillable business, Germany and we've transitioned out of that while growing the top line and growing volume and revenue, and we will continue with that plan through 2017 and into 2018. At one point over 50% of consumption in Germany was in refillable and we've managed that down, as I said, while growing the business and growing revenue and improving margins.

We're very confident that we're on the right path. It is slightly ahead of our plans, actually, in terms of expectations. We've gone further in 2016 and we'll continue to do that. I wouldn't use the word drag, but you'd expect that transition to continue through 2017 and into 2018.

Okay. Thank you.

Okay. Operator, we'll have time for one more question.

Our last question is from Robert with Evercore. You may begin.

Great. Thank you very much. Look, I think we all appreciate that it's impossible to understand the impact of the weather on the top line. Obviously, great volume numbers and I think we're all kind of looking for any kind of evidence to suggest that you can get the kind of volume growth that you guys are looking for. Everybody is very confident on the synergy numbers. It's the top line where there are question marks.

I was just wondering if you could give us any additional kind of tangible things that you can call out in the quarter in terms of improved execution that's sustainable or additional information in terms of the innovations and stuff that are coming out into the market so that we could have a little bit more confidence that, hey, maybe you can't continue to do 3% volume growth, obviously, or perhaps not obviously, but maybe a little bit more than what most people have modeled, which I think is a lot less than Company guidance?

Okay. Damian.

Again, just to maybe give you three or four examples of what we believe is weather-independent activities that will deliver sustainable growth in the business. Some of these come from -- one of the benefits to CCEP like best practice sharing, so you'll seen in Q3 we've started to do business with Aldi in our Belgium business, so we've listed a number of SKUs and brands and Aldi obviously a big partner for us in Germany and across Western Europe. We've managed to create a good relationship with them in Belgium, so that's in there.

You'll see Honesty Tea, which was referenced on the call in GB being distributed and sold now across GB and we look at the opportunity for that brand in other markets but that's an example of us tapping into the 75% share of the market we don't operate in within Europe. You'll have seen strong Fanta activation across Europe on the back of Halloween in the quarter. Again, that's a property that we believe is very relevant for that brand and is paying dividends. Obviously the biggest contributor which is a sustainable innovation, the sugar-free Zero in GB. As we've talked about before, that variant formula is going to be rolled out across Western Europe.

There are a number of specific initiatives that are supporting that 3% in the third quarter that will continue through Q4 and into 2017. Obviously, like all of the bottlers we're also focused on some of the basics of execution around cola placements, distribution and great customer service. There are -- as we talked about, there are a lot of sustainable activities going on beyond the weather that we're excited about.

Terrific. Thank you very much.

Okay. Thank you. Let me just say to all of you, thanks for joining us today. As we sign off just a couple of thoughts I have. One is to let you know, again, just what a pleasure it's been for me running CCE and CCEP for 11 years. It's been great working with all of you, and I can assure you that this transition is going to go well and that we are moving to the right new CEO, that I'm leaving this Company in good hands going forward.

Secondly, look forward to an opportunity to share a Coke with many of you who we've worked with over the years. That's not to say good-bye, but to say thanks. I'll be with you on the outlook call in December, and in the meantime have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.