Coca-Cola Europacific Partners PLC (CCEP) 2016 Q4 法說會逐字稿

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

Thank you, and thanks to everyone for being on our call today. We appreciate your interest and for joining us to discuss our results for 2016 and our outlook for 2017.

Before we begin, I would like to remind you of cautionary statements. This call will contain forward-looking Management comments and other statements reflecting our outlook for future periods. These comments should be considered in the conjunction with the cautionary language contained in this morning's release, as well as detailed cautionary statements found in reports filed with the UK, the US, and the 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 Damian Gammell, our CEO, and Nik Jhangiani, our CFO.

(Caller Instructions)

Now I'll turn the call over to Damian Gammell.

Thank you, Thor, and it's great to join each of you today for our call as we discuss our fourth-quarter and full-year earning results for Coca-Cola European Partners. It's been nearly 10 months since the creation of our new Company last May, and through the ongoing dedication and skill of the people at our Company, we have made significant progress in a variety of areas which I will discuss with you today on our call.

Early on, as many of you are aware, we established the importance of a sustained focus across four key areas of the Business: no surprise, first one being business integration and the setting up of CCEP; the second, realizing the operating synergies that we have disclosed; thirdly, managing our day-to-day business effectively and efficiently; and finally, all of that leading to us restoring growth profitably in Western Europe at CCEP. As we review our year, it's clear that we've achieved success in each of these key areas.

We have moved forward quickly with the integration of our territories, we have created new platforms for sharing best practice and ideas, and we've worked on developing new system routines across all of our markets. We are, I am very happy to say, on track to deliver our synergy targets, which include a pre-tax goal of between EUR315 million to EUR340 million by mid-2019. On this we are making good progress, and in fact, we're already seeing the benefits in our results. This is very much down to a lot of the pre-planning that went into the creation of CCEP, and the ongoing collaboration of all our employees and territories.

We continue to execute at a high level each day, focused on delivering value for our customers, and in the process, restoring profitable growth to our Business. Today, working with the Coca-Cola Company, we are better positioned to meet marketplace challenges, and we are even more convinced of the solid opportunity for CCEP to create meaningful, value-building, long-term growth.

Now, as you've seen in our news release this morning, our results include pro forma comparable diluted earnings per share of EUR1.92. This reflects 1% revenue growth, 0.5% volume growth, and 5% growth in operating profit, all on a pro forma comparable currency-neutral basis. It is important to remember that many of the numbers we discuss are pro forma, and include results as if CCEP had existed in the periods represented.

Clearly, our full-year results reflect the benefits of solid execution of our brand, marketing, and operational plans, and indeed, as we've mentioned in earlier calls, a more favorable weather environment at key times during the year. Sparkling brands grew 0.5%, Coca-Cola trademark brands declined 1%, and we're very pleased that we saw Coca-Cola Zero Sugar growing 10% driven by the highly successful relaunch of the brand as Coca-Cola Zero Sugar, which looks and tastes more like regular Coca-Cola.

Regular Coca-Cola did decline 1.5% for the year. Together with the Coca-Cola Company, we are addressing the consumption of the brand with a focus on smaller packages, more pack diversification, and programs to drive enhanced value perception and relevance combined with increased brand penetration. Our goal is to grow our core business and add incremental revenue growth by investing in portfolio expansion.

Sparkling flavors and energy grew 5% in the year. Energy was a key part of that growth, as we continue to execute well against our multi-brand strategy, and we benefited from the expanded distribution of Monster in both Germany and in Sweden. I am also happy to say that sparkling flavors results also reflected solid growth in our Fanta brand, which was up nearly 4%, and growth in our ViO BiO and our Sprite brands.

Our still brands grew 2%, driven by growth in sports drinks, water and teas, offsetting softness in fruit and juice drinks. Our water business, led by AquaBona, SmartWater, and Chaudfontaine and ViO, grew at 3.5%.

Now, at the heart of the success of our brand is the strength and success of our operating and marketing programs, and our supply chain. We have made significant progress in these areas throughout the year, and have solid plans in place for 2017 to move our Business forward even faster. As an example, we have a solid sales force effectiveness program that aims and does increase our impact with our customers, allows us to spend more time identifying opportunities for profitable growth, and allows our sales force to become even more effective and efficient, increasing the customer-facing time as we go forward. We've implemented many customer marketing programs that make our brands more compelling at the point of sale, and we're using the great marketing assets of the Coca-Cola Company to drive that consumer awareness into action.

We are also continuing to look for ways to drive growth in other areas of our portfolio. In Great Britain, we have launched the Honest Tea brand, and we continue to expand in energy with the sugar-free Monster Ultra range. In Germany, we are working with the Coca-Cola Company to leverage the success of our ViO BiO brand with a sparkling version of ViO BiO lemonade made with organic juice. Also included is the relaunch of Coca-Cola Zero as Coca-Cola Zero Sugar, with new packaging and a new formula that tastes more like regular Coca-Cola, building on the success of GB, and that will continue to be rolled out across our territories in 2017.

Now let's take a quick look at our guidance for 2017. As you read our release, we affirmed our prior operating guidance, including expectations of modest low-single-digit revenue growth with operating profit and diluted earnings per share growth to be up high-single digits. Nik will provide more details, but I want to note that our outlook reflects continued growth and a solid free cash flow. This is a significant demonstration of our potential and reflects our commitment to achieving the value-building growth that will ultimately drive shareholder value.

Further demonstrating this commitment, today we announced an increase of over 20% to our quarterly dividend. As we continue to work to build value, we will also continue to communicate clearly and provide regular updates of the steps we're taking to integrate the business and to achieve long-term value growth.

As part of this communication, I would like to take this opportunity to remind you that tomorrow we will make a presentation to the Consumer Analyst Group of Europe, CAGE, at 2:15 PM GMT. The presentation will be webcast to our website, www.ccep.com. We hope you are able to listen to our presentation or review it later, as it will provide more details on the opportunities we see and our plans to capture these opportunities.

Now in closing before I hand over to Nik, let me share some key thoughts. First, there are opportunities for meaningful value growth in each of our territories. We have a compelling business combination and a clear path to deliver that growth.

Second, we returned to growth in 2016 and affirmed our 2017 guidance for high-single-digit growth in both operating profit and diluted earnings per share. Thirdly, we have a solid strategic partnership with the Coca-Cola Company and a shared vision of the future of our Business as we continue to expand the brands and packs across the portfolio of opportunities in our territories.

Last but not least, as the leading Coca-Cola bottler and a major European CPG Company, Coca-Cola European Partners presents a proven commitment to driving shareholder value, a commitment that was at the very heart of the decision to create this great Company. So thank you very much for your time, and now I will turn the call over to Nik who will share more detail on our financial results and our full-year outlook. Thank you. Nik?

Thank you, Damian, and thanks to each of you for joining us on our call today. For the fourth quarter, CCEP achieved pro forma comparable earnings per diluted share of EUR0.43, including a negative currency impact of EUR0.03, an overall increase of 16%. Revenue grew 4% on a pro forma comparable and currency-neutral basis, which includes the benefits of one extra selling day in the quarter versus the prior year.

Fourth-quarter revenue per unit case was up 1.5% on a pro forma comparable and currency-neutral basis. Volume grew 1.5% on a pro forma comparable basis after adjusting for one additional selling day versus the same quarter a year ago, or 2.5% including the benefits of the one extra selling day.

Operating profit grew 13% on a pro forma comparable and currency-neutral basis. Importantly these results reflect modest margin expansion, as operating profit grew ahead of revenue growth even after excluding synergy benefits of approximately EUR20 million in the quarter.

For the full year we achieved diluted earnings per share of EUR1.92 on a pro forma comparable basis, an increase of 13% on a pro forma comparable basis including a negative currency translation impact of EUR0.08 per share. Full-year 2016 revenue increased 1%, with full-year revenue per unit case growth of 0.5% and volume growth of 0.5%, all on a pro forma comparable and currency-neutral basis.

Our pro forma comparable operating profit grew 1%, or 5% on a pro forma comparable and currency-neutral basis. Excluding the benefits of synergies of approximately EUR35 million in 2016 in the second half, our operating profit grew approximately 2% ahead of our revenue growth of 1%.

As indicated, full-year revenue per case grew 0.5% while cost of sales per unit case was flat, both on a pro forma comparable and currency-neutral basis. This allowed us to achieve moderate gross margin improvement as we continued to balance a favorable cost of goods environment with competitive marketplace programs. Pro forma comparable and currency-neutral operating expenses increased 0.5% for the full year, reflecting the impact of volume growth and wage inflation partially offset by the benefits of restructuring.

Let's now turn to our outlook for 2017. For the full year we expect modest low-single-digit revenue growth with high-single-digit operating profit and diluted earnings per share growth. Excluding synergies we expect core operating profit growth to modestly exceed revenue growth, as we have demonstrated in 2016. These growth figures are on a comparable and currency-neutral basis. At recent rates currency translation would reduce 2017 full-year diluted earnings per share by approximately 2%.

We expect free cash flow in the range of EUR700 million to EUR800 million, including an expected benefit from improved working capital of at least EUR150 million. This free cash flow outlook is after the expected impact of restructuring, integration and deal costs. This reflects the focus we put on core free cash flow generation, reducing our leverage and our dedicated efforts to improve working capital.

Capital expenditures are expected to be in a range of EUR575 million to EUR625 million, including EUR75 million to EUR100 million of capital expenditures related to the synergy capture. Excluding capital expenditures related to these synergies, CapEx is expected to be less than the 5% of revenues. Weighted average cost of debt is expected to be approximately 2%, and the comparable effective tax rate for 2017 is expected to be in a range of 24% to 26%.

As Damian discussed, we remain on track to achieve pre-tax run rate savings of EUR315 million to EUR340 million through synergies by mid-2019. We have already achieved savings of approximately EUR35 million in the second half of 2016, and we expect to exit 2017 with run rate savings of approximately one-half of that total target. Cash costs to achieve these synergies are expected to be approximately 2.25 times expected savings. This includes post-close cash costs associated with pre-transaction close accruals, as we indicated in December.

Given these factors, currency exchange rates and our outlook for 2017, CCEP now expects year-end net debt to EBITDA for 2017 to be just under 3 times. We are continuously working to find ways to lower cost to achieve our synergies as we manage our Business efficiently, leverage the strength of our balance sheet, and diligently work to create share-owner value.

A few modeling notes before closing: Quarter one is almost over, and we remain focused on our plans for the important summer selling season. Keep in mind that the first quarter of 2017 has one less selling day than the first quarter of 2016, with the full-year 2017 having one less selling day versus full-year 2016. Also the selling period for Easter primarily falls in the second quarter of 2017, given the late timing of Easter this year.

Also included in today's release are revised quarterly pro forma income statements. These reflect some income expense reclassifications in Iberia that have been identified as we've gone along through our first full year of closing, and now deals with all classifications consistently across our territories. Notably, while these are relatively minor shifts between revenue, cost of sales and operating expenses, there is no change to operating profit or below on the income statement.

In the coming weeks you can expect to see our full-year 20-F filings. As we've noted before, the timing of these filings is taking a bit longer as we manage the implications of the merger and the move to IFRS. During 2017 and 2018 we expect to continue to shorten the cycle time for issuing our results.

Finally, we declared our quarterly dividend of EUR0.21, or an annualized dividend of EUR0.84, an increase of 23.5% over 2016. This represents an approximate 40% dividend payout ratio at the higher end of our previously stated dividend payout range, and is an indication of our commitment to share-owner returns.

In closing, let me summarize with some key thoughts. First, we remain realistic about the environment and are pleased with our return to growth. However, overall conditions continue to be challenging.

Second, we have a solid history of, and a commitment to, managing the levers of our Business to deliver value, and we will continue to look for ways to improve growth and drive value. Third, we are looking forward to significant new opportunities created by the formation of CCEP and are continuing to work to better position our Company to capture those opportunities. Finally, we remain focused on generating cash and creating long-term profitable growth, all in support of our most important goal, delivering increasing levels of share-owner value.

Thank you for joining us today. Now Damian and I will be happy to answer your questions. Operator?

(Operator Instructions)

Ali Dibadj, Bernstein.

Hey, guys. A couple questions. One is just on volume versus price mix. Can you give us a sense of what you feel the breakout could be going forward between the context of obviously inflation that you talked about before and then we're seeing coming through, maybe a competitor seeming a little bit more rational, retailers being a little bit more giving and pack size changes that you're mentioning. So volume versus price mix.

Then a separate question is just dividends versus buybacks. Clearly, dividend increase interesting impactful here. Can you talk a little bit about your decision-making there versus buybacks and how we should think about that mix going forward? Thank you.

Thank you, Ali. I'll deal with the first question and then I will pass it over to Nik and he can share with you, or restate our view around our policy around dividends, et cetera. We don't break out specifically the elements around our revenue growth, but as you highlighted in your question the three areas that we are focused on are volume, price and mix.

Market by market we make the decisions underneath those three pillars on what's right from a customer and value-creation perspective. It's fair to say of the three the one that takes longer to impact is mix. But as you've heard in my commentary and you will hear a little bit more at CAGE tomorrow, we are very much focused on pack diversification and brand diversification that over time will drive a mix benefit and we're seeing that come through, but again it takes a little bit longer.

On pricing, that is probably being a bigger lever in 2016, and we're quite happy with pricing in 2017. You'll probably see our revenue much more focused around price, volume with mix playing a role but obviously it's a longer term burn. We're pushing and focusing on all of those three components.

Nik, do you want to talk about dividends?

Sure. Ali, as you saw we increased the dividend, but this is very much in line with our stated objectives of an initial dividend payout ratio in that 30% to 40% range. We had about a 35% range as we declared our first maiden dividend for CCEP in 2016, and this is just an indication of a continuing trend to get us probably still at the lower end of what we would call a competitive range in terms of the dividend payout ratio. I don't think this in any way changes our outlook on broader cash returns to shareholders. The Board, again as we reach appropriate leverage targets and look at other opportunities would assess what's the best way to return any excess cash to shareowners outside of what it might be a continued focus on normal sustainable levels of dividends.

Okay. Thanks very much.

Lauren Lieberman, Barclays.

Great, thanks. Good morning.

Good morning.

I was hoping (multiple speakers) could talk a little bit about the water strategy, timing of potential expansion of Smart Water beyond Great Britain and how that would fit in with your existing portfolio of Aqua, Vio, et cetera? Thanks.

Hi, Lauren. We have been very pleased with the Smart Water performance, particularly in GB. 2016 we really focused on how we enhance that proposition, and we have recently just launched sparkling Smart Water, which as you are aware in Europe, particularly mainland Europe, sparkling is a big category. We are now looking at expanding that offering toward our territories.

It is quite a different consumer proposition than our other brands. It's packaging is quite unique. It's only in single serve.

It's quite a premium proposition, and it's very much focused in on-the-go. We have seen an opportunity for both our existing brand and Smart Water to play a role in the market.

As you know, the water category in Europe is quite sizable. First to have one or two brands in the premium end of the market is quite feasible.

As we've seen in GB, it does create a different consumer occasion around water, and again, I think it's back to the fundamentals it's a great tasting product. It's great packaging, it looks very different on shelf and as we've added sparkling, we've also expanded that proposition to new consumers. We look at that for all our markets, but clearly it's been a good launch for us in GB so far.

Can you just also talk about the capital requirements for building out Smart Water relative to other products?

It's not a significant impact in our overall CapEx. We have got the capacity in GB.

Like a lot of our new products there's some slightly different filtration around Smart Water, but in terms of absolute CapEx impact it's minimal. Certainly from a value-creation perspective it is in a barrier. From a CapEx perspective it's in our guidance. So no issue on that.

Okay, great. Thanks.

Kevin Grundy, Jefferies.

Thanks. Good morning, guys. First question for me, just on the divergence of growth across your territories. Can you give us a little bit more detail, what drove particular strength in Spain, and perhaps some of the weakness in Germany?

Then if I'm not mistaken, back in December I think the hope was that all the territories would contribute to growth this year. Is that still your view? And then I have a follow up. Thanks.

Just looking at other growth, certainly we would see to your point, all of our territories contributing to our growth guidance in 2017. We had a number of factors throughout 2016 that impact individual markets differently.

As you may recall, at the beginning of the year we had initial GB around the systems implementation. And then in a lot of our market coming out of the summer we actually had a late summer, and I mentioned that my comments where we did get a benefit of weather across most of our markets.

If you look at what's driving growth where we are growing, there's a lot of consistency. It certainly is our sugar-free Coke zero proposition. It certainly is Fanta and our flavor's are growing pretty much everywhere.

Our innovations are delivering growth across all our markets including Germany, Vio Bio for Spain, or GB with Honest Tea. And certainly we've seen a common challenge around Coke Classic in all of our markets, although we have seen that brand performing stronger as we've brought in more pack differentiation and offered a smaller pack for consumers, and we also believe the brand is benefiting from the one-brand strategy, the Coca-Cola Company. So fairly common themes across our territories.

From a customer perspective, again we've seen that growth coming across multi channels. We're also pleased to see some of our away-from-home businesses performing a little bit better.

Hard to call out any specific market issue. I suppose the good news for us is a lot of what works in one market we're seeing will work in others, and that goes back to why we created CCEP.

We're definitely seeing transfer of best practice and learning working. I suppose to close one of the [multi-brand] examples of that is if you look at our footprint now in the likes of [Aldi] across Western Europe, it's made a significant change in 2016, and a lot of that comes from leveraging the learning of the relationship out of our German business as we created CCEP. So hopefully that answers your question, Kevin.

That's helpful, Damian. If I could just ask one more. Given where we are here in the quarter, and I think the discussion back when you met with the sell-side back in January was around momentum that had continued through January. I'm just trying to connect that with the scanner data which didn't look great, at least in carbonated soft drinks for the month of January.

Can you maybe comment a bit on what you're seeing and whether the Nielsen data, which was down more than 3% for the Coca-Cola Company, at least in carbonated soft drinks, is that sort of representative of what you're seeing, at least in January, if not for the quarter? Thanks.

Just a disclosure. As you know, that doesn't cover the whole market, but it covers a very important part of the market, so it is a relevant number. But clearly a lot of our volume is not tracked by Nielsen.

The data for January is pretty much online. I think if you look at the industry, we had a slow start to the year in January. We had a very strong finish to the year, as you've seen in our results today. We have had a slow January, but the quarter has improved as it has gone on.

We've been pleased with the momentum that we've seen since January. It gives us the confidence to maintain our guidance for the full year. I think Nik mentioned it in his comments, clearly Easter has moved out of Q1 in 2017 and it is into the second quarter. So that will have an effect certainly in our March numbers.

Overall, I think January was a challenging month but thankfully it hasn't continued in February and March. We remain confident that we'll have a solid quarter, albeit that we have to take into account that Easter, which is a big selling period, will move into April. Again, we've got a lot of confidence what we've seen in February and March that our guidance for the full year is still solid.

Okay, very good. Thank you. Good luck.

Thank you.

Mark Swartzberg, Stifel.

Great, thanks. Good morning, everyone. Damian, one for you on energy drinks. Then, Nik, on the free cash flow.

On energy drinks, Damian, your newer, so to speak, distributing Monster in Germany and Iberia is helping you nicely in those markets. It's more established in Great Britain.

How much runway would you say there is in these two newer markets for the product, and then how would you compare that to the opportunity that's still in front of you for the product in Great Britain? I don't mean to isolate it entirely from your own energy portfolio. Any comment on that would be helpful.

Then on the free cash flow, Nik, nice to see the dividend increase. It seems, at least from where I sit, to signal a degree of optimism in your free cash flow view, given the kind of revenue momentum you had in the second half last year and some of the margin performance you are getting and the cost synergy flow through.

Why not increase the free cash flow view? Are you being conservative here? Is there some headwind beyond a weak January that you are seeing that you haven't talked about? Just trying to get a read on why the free cash flow view hasn't come up a little bit.

Thanks, Mark. I will just address the energy question. As you pointed out, we're further ahead in GB on our energy portfolio, particularly with the Monster brand.

In terms of runway for both Germany and Spain, we see no reason why the size of our energy portfolio can't get to where we are in GB. Then if we look at GB, we would argue why it couldn't get to the same relevance as it is in North America. Both the markets where we are up with a higher, let's say, per capita for CCP, which is GB, it's still below what we see in North America.

So the Company see that too. We've just announced a new Lewis Hamilton product under the Monster brand, which is getting a huge connection with consumers and with customers. Specifically our markets like Spain and Germany, we will talk a lot tomorrow if you look at our CAGE presentation around opportunities where we are not the leading player and opportunities where we can grow our share, and I think energy is a great example.

There's a lot of revenue both in Spain and Germany that we don't participate within the energy category, simply because we've got into those market later. We have enjoyed early success in both Spain and Germany with Monster, particularly Monster Ultra Sugar-free.

When we look at our share relative to the market leader or to other brands, for example, we underperform on multi-packs, as a specific example, in both GB and in Spain and Germany. We have done a lot of good work segmenting where we can grow profitably within energy, and then either true product innovation like Lewis Hamilton or true pack innovation like multi-pack capabilities. We believe that gives us a lot of runway for growth in the energy category.

We also benefit from having a multi-brand strategy, and in some areas we are more comfortable with how that plays out between Relentless, Monster and Burn and Nalu, but I would say candidly, that is a challenge that we have to keep working on with the Company, which is how do we have two or three brands in the energy category? Clearly Monster is the winner, but we see a very significant role for a second brand within our portfolio. Whether that's Burn or Relentless, we are working on that at the moment.

Overall, momentum will continue. I think the sugar-free variety and ultra will continue to drive growth. Then we've got some executional opportunities in terms of product distribution in multi-pack that we are focused on at the bottlers.

A lot of runway to go, and I'd emphasize even in GB where we are our most developed. Hopefully that answers your question, Mark, and I'll hand it over to Nik.

Very helpful. Thank you, Damian.

Hey, Mark. The simple answer, quite honestly, is the fact that the dividend that we've declared was included in our plan. The implications for free cash flow really remain unchanged, and I would say to you ultimately we're still looking to deliver in the range of EUR700 million to EUR800 million of free cash flow.

Keep in mind we're still in transition from a perspective of the restructuring activities that we're undertaking to deliver on those synergy benefits, which clearly is a shorter-term drain, as well as some of the CapEx related to recapture of those synergies, which is over what would be our normal recurring CapEx. Part of what we are doing to boost that is obviously our renewed focus and our efforts around working capital improvements, which we've indicated will be at least EUR150 million. I think we're doing the right things, and clearly as you see us come out of the big bulk of what would be the cash spend related to the restructuring, you will see those numbers improve as we go forward.

That's great. If I could, one quick follow-up, Nik, on that. Given the objective of being slightly below 3 times EBITDA by year end, you're really going to be looking at an opportunity to either get even more aggressive with your payout ratio or to commence repo, or to do a deal. I think at least the question on my mind is, when you think about that set of alternatives that you either are or might be facing, is it reasonable to think that your Board would consider a repo authorization by year end, or is that just not really in the consideration set because of the opportunities you face even with dividend or M&A?

Listen, I think the opportunities we face with dividend would continue to be what we would see as a steady increase as opposed to a Big Bang increase there to get us more in line with what we would see with some of the European peers. I think we are competitive, but we're probably still at the lower end.

I think the Board will ultimately make a decision based on what are the best uses of that cash, given all the needs of the business from a growth perspective, one. Two, look at what might be out there in terms of other investments that need to be made, including in M&A, and what kind of returns those generate versus alternatives of returning cash to shareowners.

Again, what form that cash return takes, we've been very clear, that is something that we will continue to look at to determine whether it's more special dividend link or share repo, but more to come on that. Again, ultimately the Board would decide what's the best use of that cash and what are the alternatives that are out there. I think very much intact with what we've been saying since day one in terms of the strategy on value creation for share owners being very much intact.

Fair enough. Great. Thank you, Nik.

Just to add to Nik's point. The Board and ourselves, to Nik's point, it would be foolish to dismiss any avenue of shareholder value return, because the environment that we operate within, there may not be an M&A opportunity. So to form any view on that now would be way too premature. Ourselves and the Board clearly will look at all of the opportunities, and nothing is ruled out. That's for sure.

Perfect. All right. Thank you, gentlemen.

Steve Powers, UBS.

Great. I guess first, given that we are nearly through Q1, can you give some general comments on competitive conditions in Great Britain relative to 2016, and also how your pricing and shelf space negotiations have gone with retailers across Europe? I'm specifically wondering if there's any call-outs that we should be aware of.

Then second, as Damian you were discussing earlier, you definitely started to emphasize more of your aspirations for non-CSD, non-sparkling initiatives, be it Smart Water or Monster or NSN or Honest. The Coca-Cola Company, too, has been increasing its emphasis on broadening the beverage portfolio across all beverage types.

The question is, just to build on Lauren's question from earlier in the call, as your portfolio broadens into new categories and new package formats, who funds the investment in principle? I'm thinking whether it's across production capacity and capability, new distribution, needs, brand building, et cetera.

What portion of that expansion is CCEP's responsibility versus what portion is the Coca-Cola Company's? If you could just talk us through how to think about those dynamics over time, that would be great. Thank you.

Thanks, Steve. I will come back on portfolio. That sounds like a question on how the Coca-Cola system works that could take the rest of the call, but I will try and give a short answer in a minute.

On pricing and particularly through UK, I suppose there was a previous reference to scanner data. What you'll see in the year-to-date numbers and coming out of Q4 in 2016, our share position in GB has improved both in the total and within the sparkling category. If you look at on-shelf pricing in GB, probably the most significant move that we have seen from the customers has been a higher promo price in our category.

For our brand specifically, a number of customers have decided to sell our two-by-1.75 liter at GBP2.50 per transaction. Previously they had decided to sell that at GBP2. So that has been a change that has hit the market in Q1, and clearly that's a significant change in promo pricing. You'll also see in a number of our markets retailers moving to promoting smaller multi-packs, particularly in France.

In Germany you will see the absence of a 12-plus-2, which was a standard promotional format, 12 one-liter bottles and 2 free. For a number of years in Germany that hasn't been seen in the market by customers this year. So I think there's a number of proof points around pricing and promo that we are seeing, led by our customers in GB and particularly France and Germany.

On your second question, the great thing about being a bottler is a lot of the cost that you articulated we carry, and therefore when we're expand our portfolio and add new brands or packages, we really add that to an existing call space. If you look at our biggest call site or capital, our operating expenses, our manufacturing plants, a lot of these products can be filled on our existing line capabilities. Or if is there needs to be some sort of amendment, like we talked about with Smart Water, it's not a material investment.

They go through the same distribution network. Generally whether at we do it ourselves, which we don't want to do, or through third parties, it gives them a chance to absorb more fixed cost.

Finally, our biggest asset and our biggest competitive capability is our sales force. Whether that's through our key accounts, our call centers, our field sales adding incremental brands into that network doesn't generate a whole lot of extra cost for us. So the bulk of it is cost absorption, which obviously helps us expand margin.

It is fair to say both ourselves and the Coca-Cola Company, when we look at a new brand launch, we will plan incremental trade-marking, our operational marketing expenses, and the Company will add incremental consumer marketing into the proposition. Like any brand, there will be an element of the value chain that gets reallocated back into reinvestment in marketing.

But again, that is within the kind of normal business structure, so nothing significant. Again, we're looking at how we can get more high-value brands into our network, because the network exists.

Okay. Thank you very much.

Judy Hong, Goldman Sachs.

Thank you. Hi, everyone. I guess a couple of questions from my end. First, just in terms of the Coca-Cola sugar-free volume performance. Obviously it's been pretty impressive, and I'm wondering if you can talk about how much of the volume is being sourced from within the Coca-Cola trademark broadly, and how that sort of looks across your different geographies that you have launched so far?

Hi, Judy. I mentioned it in my opening remarks. We're very happy, but we're also very excited about the potential of our Zero Sugar Coca-Cola offering. I think we've been pleased with the packaging, the format has responded well with consumers, and really GB is the market where it's had its impact. It still rolling out across our territory. Obviously that's part of our marketing plans for 2017.

From a cannibalization perspective, it differs market by market. What we're seeing is obviously all of the old Coke Zero drinkers migrate into the new pack and formula, so we haven't seen any evidence that we've lost any of those consumers.

Typically when we've looked over a longer period of time, you can have, again depending on the market, 50% to 60% coming from your cola franchise. That could be Coke Classic drinkers who want a sugar alternative.

In Europe a lot of that has come from diet or light, so you've seen in our previous presentations where we've talked about our Coke Light or Diet Coke franchise being under a little bit of pressure. A lot of that was consumers moving to a stronger Zero Sugar.

The good news for us is we have seen it bring consumers back into the cola category, and in many cases grow the category. That's the long-term objective for us and our customers, is to sustain what is a hugely valuable category and get it back to growth. We're seeing it play that role, which is for us the most strategic.

Then in markets like GB and in some of the Scandinavian markets, we're also seeing that brand take share from competitors in some of those markets where they have had higher share over a number of years. If those grow to franchise, we do move consumers from our existing brands, but net/net it's an incremental part of our business and it can allow us to take back some share that we've lost over a number of years in key markets.

I think we've talked to the calls before better performance in GB and in some of the Nordic markets when you look at our Nielsen figures. Overall, a positive.

Got it, okay. Then Nik, just on the synergy target of getting to one-half of your target run rate by end of 2017, I just wanted to clarify one thing.

You exited 2016 with EUR20 million in the fourth quarter, so that is a run rate of EUR80 million. Then if we want to take the high end of the EUR340 million, half of that would be EUR170 million. So incrementally are you looking at something like a EUR90 million in 2017 as getting to the run rate of, say, one-half of the EUR340?

Ballpark? Yes, absolutely, Judy.

Okay. Then the step-up you saw in third quarter to fourth quarter, was there anything, just from big bucket savings perspective, that drove going from EUR50 million to EUR20 million in one quarter?

There was elements of what we had started out with some of our procurement programs, and then also some efficiency saves that we had that came through as we did some early moves into shared services, et cetera to try and build that out. So if we look at that again just roughly split out between what we saw in terms of COGS benefits versus OpEx benefits, you would say about 60% was COGS, 40% was OpEx.

Got it. Okay, thank you.

Bryan Spillane, Bank of America.

Hey, good morning everyone.

Good morning.

One quick question from me. Nik, I guess a follow-up to Mark Swartzberg's question related to cash and buybacks or dividends. In terms of buybacks, you now have with Iberian partners and Coca-Cola Company, you've got two really big shareholders now. That dynamic didn't exist with the legacy TC.

If you were to consider share repurchases, is there any additional consideration in terms of the concentration of their ownership, any kind of limitation there might be in terms of being able to buy back stock because considering that the concentration would go up if they were to sell stock into a repo? Just trying to understand whether or not that concentration of ownership, if at all, has any impact on your thinking about share repurchases? Thank you.

No. I don't believe so at all. Obviously as we get closer to making a decision around whether we're going to do repo or share buyback, depending again on the use of that cash as both Damian and I talked earlier, it would be something that would be considered. But no, nothing that would prevent us from doing that.

There is obviously the opportunity, if we decide to go ahead and they don't participate in that piece. But I don't think there's anything that we would look at this stage that would be a deterrent to it.

Okay, great. Thank you.

Lauren Lieberman, Barclays.

Great, thank you. I wanted to ask two things more on the cost side of things. First, any change to your view on cost per case for 2017? I think in December you talked about 1% to 1.5% inflation. Then the second thing was the go-forward split on synergies for 2017 between COGS and SG&A. Thanks.

Sure. I think if you look at the guidance that we provided, nothing really changed at this point in terms of that 1% to 1.5%. Clearly as we go through the year and look at the one area that's probably a little more open as normal is PET, given the fact that you don't really have a hedging, a big hedging market for that.

Having said that, we've done some hedges this time around done on MEG and paraxylene, et cetera so I think we're in a better position. But obviously depending on oil price movements that could have some implications, although again to be clear there's not a direct one-to-one correlation. I would say the 1% to 1.5% still stands intact for now and we'll guide as we get through the next couple of months, probably, if that changes or tightens.

In relation to how we see the continuing level of synergy capture, I would say for 2017 as we've looked at it you'd probably see roughly about a 55/45 split between COGS and OpEx. The COGS element would obviously have procurement, but also what we're doing from a manufacturing and distribution footprint perspective, some of which would go into the COGS line. That is a rough indication, Lauren, at this stage.

That's great. Thanks so much.

I think we have time for one last question.

Mark Swartzberg, Stifel.

Thanks for taking the follow-up. It's a follow-up, really, to Judy's query on Coca-Cola Zero Sugar, Damian, which sounds like it's not only benefiting from a distribution gain going to multiple markets it wasn't in it before, but you like what you are seeing in the way of the repeat purchase. Could you give us a little bit more perspective on either channels where it's doing well or one country versus another where that repeat dynamic is going well?

Again, I know it's rather new in multiple markets and more established in GB, but of course the question we're all going to be talking about a year from now is lapping all of this. And so the repeat element is something I want to understand a little bit better to the extent you can share what you are seeing in that regard.

We're very much focused on lapping it, too, so it's top of mind for all of us. It is a mainstream proposition.

From our perspective, Coke Zero Sugar is a must-have brand in all customers, all consumers and all channels. We are seeing that pervasive distribution mentality drive growth, whether you are talking about a bar in Barcelona or a Tesco in London.

It's resonating with consumers and customers in all channels, and quite frankly, that is because it is a mainstream great cola taste and it's sugar-free. It has the license to be as pervasive as that.

Clearly GB is the market where we've had it with its new formula and its new packaging the longest. Given the size of that brand, we can track repeat purchases weekly. We're happy with what we see. We're seeing people trying the brand.

We are investing money with the Coca-Cola Company buying sampling. We will roll that out in parallel with the brand across the rest of our markets.

I suppose the area where we also see more opportunity is to move the brand into more pack sizes and formats, mini-cans and smaller PT packaging, different varieties of glass. As we continue to build that brand, we will also see different pack formats.

Again, everywhere you would find a Coke Classic in that particular pack size, our goal as you will find a Zero Sugar Coke. That's the essence of the strategy. I hope that answers the question, Mark.

Perfect. Great. It does indeed. Thank you, Damian.

Again, on behalf of myself and Nik, we'd like to thank you all for joining us today. We do look forward to seeing some of you at CAGE. And for those of you who can't join, again a reminder that our webcast is available for you to join tomorrow.

We are truly pleased with the progress we have made since the formation of CCEP 10 months ago. We have a great team, we have a strong organization, and critically we've got the best beverage brand in the world.

We are very excited by the opportunity to create value for all our shareholders, to create value for our customers, and to continue to engage with all our employees to make CCEP not only a good Coca-Cola bottler, but a great Coca-Cola bottler.

Thank you for your time today. And as I said, I look forward to catching up with some of you at CAGE. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.