Coca-Cola Europacific Partners PLC (CCEP) 2017 Q4 法說會逐字稿

Good day, and welcome to the Coca-Cola European Partners Fourth Quarter 2017 Conference Call. At the request of Coca-Cola European Partners, this conference is being recorded for instant replay purposes.

At this 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 everyone for being on our call today. We appreciate your interest and for joining us to discuss our fourth quarter 2017, full year 2017 results as well as our outlook for full year 2018.

Before we begin, I'd like to remind you of our 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 conjunction with the cautionary language contained in this morning's release as well as the detailed cautionary statements found in reports filed with the U.K., U.S., 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. Following prepared remarks, we will open your call for questions. (Operator Instructions)

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

Thank you, Thor, and many thanks to everyone joining us today to discuss our full year preliminary 2017 results and our outlook for 2018. We are very encouraged by the progress we've made in our first full year as Coca-Cola European Partners. At the heart of our rationale for creating CCEP is our plan to build a strong platform for long-term profitable growth and focusing on delivering value for all our shareholders. In 2017, we continued to lay those foundations and have started to see the benefits of this transaction coming through.

We are pleased today to have modestly exceeded our initial guidance for revenue, operating profit, diluted earnings per share and most notably free cash flow. This was driven by solid gains in our revenue per unit case, growth in our sugar-free portfolio, a strong innovation pipeline and a continued focus on joint value creation for all of our customers across all of our channels.

Our performance in 2017 has enabled us to accelerate investments behind our brand portfolio, our field sales teams, our route to market and most importantly our digital capabilities. Investing in our people is also a key priority for us, and I am proud that nearly 500 of our leaders will have participated in our Proprietary Accelerate Performance Leadership Program by the end of April 2018. This program was designed to embed a new culture, deepen the understanding of our strategy and ultimately improve execution in the marketplace. Approximately 2,500 additional associates will participate in the local variance as we roll out the program later this year across CCEP. This has been critical in bridging that gap between strategy and execution throughout 2017 and into 2018. We are confident of making further progress underpinned by a number of exciting growth opportunity ahead of us and with continued investments in our business. That said, we acknowledge there are some headwinds ahead of us in 2018. I'll come back to this in more detail shortly, but let me first provide some color on our full year and fourth quarter 2017 performance.

For the full year, revenue increased 3% on a comparable and currency neutral basis, with all territories contributing to growth. This was led by a 2.5% increase in revenue per unit case, reflecting our ongoing focus on driving a positive price mix at CCEP. Volume increased by 0.5%. This helps drive full-year operating profit growth of 10.5% on a comparable and FX-neutral basis. Importantly, these results, combined with an increased focus on driving cash and working capital, led to full year free cash flow of EUR 1 billion.

Looking at it by territory, Iberia revenues were up 3% for the full year, driven both -- driven by both revenue per unit case and volume growth. Channel and package mix continues to support revenue growth, owing to the outperformance of the away-from-home and HoReCa channel. Coca-Cola Zero Sugar, Aquabona and Royal Bliss all performed well throughout the year.

In Germany, we grew our revenue 2.5% in 2017. This was primarily driven by strong revenue per unit case growth, as we continued to scale back large multipack promotions and focus on driving more price mix. Germany also benefits from favorable package and brand mix as we saw further growth in energy and our premium flavors, such as ViO Bio.

Our Great Britain business saw a solid revenue growth of 4.5% for the full year on a currency neutral basis. This was led by gains in revenue per unit case as we continued to improve promotional effectiveness and efficiency as well as drive a positive brand and pack mix. Again, Coca-Cola Zero Sugar, Fanta and Monster all performed strongly during the year. On a reported basis, Great Britain revenues were down 2.5%, reflecting a decline in the value of the British pound versus the euro.

In our French business, revenue was up 0.5% for the full year, again driven by revenue per unit case growth, thanks to a strong channel mix and strong field sales execution. From a brand perspective, our volume growth was supported by Coca-Cola Zero Sugar, Fanta and Capri-Sun.

And finally, revenue in our North European territories was up by 4.5%, led by growth in Belgium, Luxembourg, The Netherlands and the full year impact of the addition of Iceland. Coca-Cola Zero Sugar performed well in Northern Europe alongside our brands, Chaudfontaine and Monster.

Now looking at the fourth quarter in a little bit more detail from a brand and volume perspective. Our sparkling portfolio increased by 1%, with a 0.5% decrease in our Coca-Cola trademark brands. Coca-Cola Zero Sugar continued to perform well with a very solid growth of 15% during the quarter. Sparkling flavors and energy grew by 5%, with another strong quarter from Fanta, which continued to benefit from our new packaging and marketing initiatives, particularly around the Halloween holiday. Energy was up just over 15% as we continued to successfully execute our multi-brand strategy.

Monster brands had another strong quarter, benefiting from the continued growth and increasing distribution of the Ultra range and the Lewis Hamilton 44 range. Still, brands increased by 0.5%, driven by juices and isotonics which grew 2.5%. Our Capri-Sun business saw growth of over 20% in the quarter, mainly driven by strong volume growth in France. This growth was partially offset by a decline in other fruit juice drinks, partially driven by changes in our promotional strategy to focus on enhancing mix and efficiency, particularly in Great Britain.

As expected, our water volume declined by 2% following our decision to discontinue some less profitable water brands, primarily in Germany and to continue our focus on growing in the premium segment with our smartwater and ViO brands.

We also continued to make important progress towards our goal of achieving EUR 315 million to EUR 340 million in synergies by mid-2019. I'm pleased to say we remain firmly on track to deliver that target and continue to work in improving our efficiency across all our functions and territories.

Now I'd like to turn to our 2018 outlook. For 2018, our guidance is for low single-digit revenue growth, with both operating profit and diluted earnings per share growth of between 6% and 7%. We've had some strong achievements in our first full year as Coca-Cola European Partners, and we continue to see plenty of opportunities for profitable growth into the future. That said, we do face some near-term challenges, notably from sugar taxes. In 2018, we will continue to expand our portfolio and build on our commercial capabilities, such as our route to market and in-market execution to deliver long-term value and profit growth. We will continue to strengthen our digital capabilities in 3 key areas: digital for revenue growth, digital in our supply chain and digital in our workplace. These initiatives will be supported by further enhancing the skills of our people as we build our business and deliver value and growth.

With our partners, we will continue to focus on driving innovation. The success we've had from Coca-Cola Zero Sugar and Fanta in 2017, demonstrates the growth potential that exists from introducing new packaging and new flavors within our existing portfolio.

In 2018, we will further expand our portfolio during the year, with a focus on light colas, flavors and energy as well as introducing new products in the growing ready-to-drink tea, ready-to-drink coffee and plant-based segments. The rollout of Honest Tea continues across our markets, and we are particularly excited about the recent launch of our Fuze Tea brand which is now available in all of our territories and I have to say initial feedback has been positive.

And building on the Honest Tea platform, we will introduce Honest Coffee later this year. Additionally, AdeZ, a brand of plant-based beverages, will be available in GB and Spain in March. These are exciting extensions to an already extremely strong portfolio.

From a package perspective and in support of our long-term strategy, we continue to focus on driving more convenience packaging, such as small cans, more premium packaging like small glass bottles. Our revenue growth management strategy is working. And as supported solid price per case realization in '17, it will remain a core focus as we move into 2018 and beyond into 2019.

With our partners, we have developed a robust 2018 marketing calendar. Our marketing initiatives and brand activities will be important factors throughout 2018. To support our innovation efforts, we are also making significant changes to the way we work as a business. This will provide our frontline sales force with more support. It will help us to enhance our route to market and further improve the efficiency and flexibility of our supply chain. Our objective is to have a supply chain that operates cohesively across all our business units, optimizes our cost base and has enough flexibility to lead in an ever-changing and evolving market. This will enable us to better meet our consumer, product and our customer product and package demands.

To support all of this, we will be investing over EUR 500 million in capital expenditure in 2018. As we focus on strengthening our production network, our distribution network and critically providing all of these new brand and packages with the real estate they deserve through a significant increase in our cooler numbers and across all of our markets. These capital expenditures and investments are critical, as we seek to expand our portfolio, strengthen our relationship with our customers and further widen our asset coverage.

As I noted earlier, we expect some near-term headwinds, mainly from the introduction of new soft drinks industry taxes and rising COGS. However, we remain confident that our focus on driving positive mix and increasing innovation, together with our plans to further strengthen our route to market, will further support our platform for future growth.

Nik will discuss our financial results and outlook in more detail shortly. But in closing, let me share some key thoughts. Firstly, we are pleased with the progress we've made in our first full year as Coca-Cola European Partners. We are building brands, expanding our portfolio, increasing efficiency and making our operations more and more effective.

Secondly, we are confident in our approach and in our ability to capture growth opportunities that lie ahead, even with the headwinds in 2018.

Thirdly, our commitment to generating cash and driving growth in shareholder value remains as strong as ever. This is clearly demonstrated by today's announcement of an increase of over 20% in our quarterly dividend per share for 2018.

And finally, we continue to do what is right for our stakeholders. Sustainability has been at the heart of this business for many years, and we are continuing that journey together with the Coca-Cola Company, with our recently launched joint Sustainability Action Plan, this is forward. This is a critical part of our long-term business strategy and sets out how we will grow our business in a responsible and a sustainable way and how we intend to play a meaningful role in addressing key societal issues.

As recognition that we're doing the right things, on the 23rd of January, CCEP was listed on the Corporate Knights 2018 Global 100 list of the most sustainable corporations in the world for the fifth consecutive year. We were one of only two beverage companies featured on the list and are very proud of this achievement. These commitments, along with our long-term growth plans, are central to our journey to becoming a great company and are key to our ultimate objective, driving shareholder value.

The progress we have made at CCEP is due to the dedication and skill of the people working in our company. So I'd also like to take this opportunity to say thank you to all of our employees and colleagues for their hard work in 2017. We strongly believe that we have the right vision and the right people in place to drive growth in 2018 and beyond.

So thank you very much for your time. I'll now turn the call over to Nik for more detail on our financial results and our full-year outlook. Nik?

Thank you, Damian, and thanks to each of you for taking the time to be with us today to discuss our full-year 2017 preliminary results and our outlook for 2018.

So for 2017 on a reported basis, full year diluted earnings per share was EUR 1.41, or EUR 2.12 on a comparable basis. Currency translation reduced earnings per share by approximately EUR 0.04. Before I go into more details, I wanted to highlight one main modeling point on our comparability adjustments. As stated in our release, we have now completed the push down of our acquisition accounting adjustments in the fourth quarter, which has had an impact on our comparable results in 2016 and 2017. These adjustments include the impact of acquisition accounting on the final fair value of assets, the related impacts on depreciation and amortization expenses as well as other one-time acquisition accounting adjustments. Importantly, these final adjustments do not impact cash or our IFRS reported results, but mainly impact comparable depreciation expense. The net impact on comparable diluted earnings per share is a reduction of EUR 0.04 in 2016 and a reduction of EUR 0.02 in 2017.

While these adjustments are small, they do have an impact on our 2017 quarterly phasing, particularly Q1 and Q4. We've provided a full set of revised comparable quarterly financial information for 2017 and 2016 in our release today. These adjustments should allow for better comparability in our financial results going forward and establish the final comparable days for CCEP post the acquisition accounting.

Now returning to the fourth quarter. Revenue increased 4% on a comparable and currency neutral basis. This was mainly driven by revenue per unit case, which increased 3% owing to favorable price, promotion and channel mix. Volume increased by 0.5%, reflecting solid field sales execution and the benefits of marketing and brand initiatives.

Fourth quarter cost of sales per unit case increased 4% on a comparable and currency neutral basis. This was partly driven by channel and brand mix, but also manufacturing overhead recoveries and as previously noted, the continued year-over-year increase in key input cost including concentrate. This concentrate increase is reflective of our incidence model linking our realized revenue growth real time with that of the growth in our concentrate pricing. These factors were partially offset by the benefit from synergies.

In the fourth quarter, operating expenses were up 1% on a comparable and currency neutral basis. This reflects volume-related costs and the impact of our long-term investments, partially offset by synergy benefits and a continued focus on tightly managing our operating expenses.

These factors contributed to operating profit growth of 10% on a comparable and currency neutral basis. For the full year, revenue was up 3% and operating profit was up 10.5%, both on a comparable and currency neutral basis. This includes synergies of approximately EUR 120 million, with another EUR 30 million realized in the fourth quarter.

Excluding synergies, operating profit for 2017 grew by approximately 2% on a comparable and currency neutral basis, as we continued to invest in the business, particularly in digital, field sales and our route to market. Free cash flow generation was extremely strong with EUR 1 billion generated in 2017. This reflects our dedicated efforts to improve working capital where we have improved our total cash conversion cycle by over 10 days, resulting in approximately a EUR 250 million benefit in cash flows throughout 2017.

We've also maintained our prudent approach to our investments and continued to challenge ourselves when managing our restructuring costs.

I also want to take this opportunity to provide some color on the impact from the U.S. tax reform, which clearly is a complex topic. Although CCEP is a U.K. listed and a tax-resident entity, we do have a number of subsidiaries outside of the U.K., including a U.S. incorporated holding company. While the U.S. tax reform resulted in a significant book-tax expense during Q4, we do not expect an increase in cash taxes as a result of any provision of the act. The book-tax expense principally relates to 2 key impacts: first, an estimated tax expense of approximately EUR 125 million, related to the transition from a worldwide to a territorial tax system; and second, a reduction in deferred tax assets of approximately EUR 195 million, primarily due to the elimination of foreign tax credits, which we do not expect to be able to utilize going forward. We will continue to assess the overall situation, but at this stage, we do not anticipate any notable impact on our effective or cash tax rates going forward.

Now let's turn to our outlook for 2018. As Damian mentioned, we will continue to invest behind flavors and no-sugar colas, and we're excited about our product and pack innovation pipeline for 2018. We see strong growth potential from segments like adult sparkling and tea, and we'll expand some of our products into new markets like Honest and smartwater. We also see significant growth opportunities in new brands, such as Fuze, Adez and Honest Coffee. We will continue to look for ways to broaden our portfolio while investing in sales capabilities and digital capabilities as well as our route-to-market and our world-class customer management capabilities. This is particularly important as we face headwinds, such as the new soft drink industry tax.

As you may be aware, since our third quarter earnings call in November, France and Norway also announced new changes to their soft drink tax policies. Our guidance for 2018 now fully reflects the expected combined operating profit impact from these taxes, and we continue to believe that this impact will be more short-term in nature as the markets and consumers adjust to the increase in pricing as a result of our passing on the sugar tax to the customer, which should lead to higher shelf prices in line with what the governments are trying to achieve.

While the introduction of these taxes will clearly be a headwind in 2018, we have continued working with the Coca-Cola Company on reformulation, and our results continue to highlight the strong growth we are seeing from the sugar-free segment, as demonstrated by a 15% increase in volume of Coca-Cola Zero Sugar during the fourth quarter and the full year.

We still expect that in GB, 60% of our portfolio will fall below the industry tax threshold when it's introduced in April. Coke Classic and Monster Green remain the 2 notable brands that will be subject to the tax.

So putting all these factors together in 2018, we expect low single-digit revenue growth, with operating profit and diluted earnings per share growth between 6% and 7%. At recent rates, currency translation would have a minimal impact on 2018 diluted earnings per share.

For the full year 2018, we expect cost of sales per unit case to be up 2% to 3% on a comparable and currency neutral basis. This reflects our ongoing focus on driving price mix in smaller packs, both of which are positive for revenue per case and gross margins. Additionally, we expect our focus on driving revenue per unit case to increase our full year concentrates cost on a per unit case basis, given our incidence model. We also expect some year-over-year increases in key inputs, principally aluminum and PET. These factors will be partially offset by the benefits from our synergy and other cost-reduction programs.

It is important to clarify that our 2018 guidance for both the revenue and cost of goods excludes the accounting impact of the upcoming soft drinks industry taxes, which will increase both the revenue and cost of goods. We estimate the impact will add approximately 2 to 3 percentage points to revenue growth and approximately 4 percentage points to the cost of sales growth. While our comparable results will include the amount, we will provide some color along the way on the underlying performance of the business.

As we've said before, we will be passing this tax on to the customers. However, when it comes to consumer pricing, they, our customers, have the sole discretion.

We continue to expect strong free cash flow generation in the range of EUR 850 million to EUR 900 million. This includes an expected benefit from further working capital improvements of at least EUR 100 million and is after the impact of our restructuring costs related to our synergy program.

Capital expenditures are expected to be within the range of EUR 525 million to EUR 575 million, including approximately EUR 75 million of capital expenditures related to the synergy capture, mainly in supply chain.

Our weighted average cost of debt is expected to be approximately 2% and the comparable effective tax rate for 2018 is expected to be approximately 25%.

As Damian discussed, we'll remain on track to achieve pretax run rate synergies of EUR 315 million to EUR 340 million through the mid of 2019. Since the merger, we have realized savings of approximately EUR 155 million through the fourth quarter of 2017, including EUR 120 million during '17. And we exited 2017 at a run rate of approximately EUR 200 million. Looking ahead, we expect to have realized approximately 75% of the target by the end of 2018 and a run rate of at least 90% as we exit 2018.

Given currency exchange rates and our outlook for 2018, we expect year-end net debt to adjusted EBITDA for 2018 to be towards the low end of our target range of 2.5 to 3x.

After returning cash to shareowners, we are pleased to announce an increase in our dividend per share of over 20% today, and we'll continue to evaluate returning incremental cash to shareowners during 2018. This is the third increase since our company was founded in May of 2016.

To close, let me highlight a few points. First, we're very pleased with our financial performance in our first full year as Coca-Cola European Partners and remain committed to driving long-term profitable revenue growth. Second, we will continue to invest in our business to capture the growth opportunities ahead of us. We have a solid history of and a commitment to managing the levers of our business to deliver value. We will continue to invest for the long term even in the face of upcoming headwinds. And finally, we remain very focused on growing free cash flow. And our plan is to deliver long-term profitable growth by driving sustainable top line growth. By growing free cash flow, maintaining an optimal capital structure and pursuing disciplined investments, we will remain focused on driving shareowner value. This is demonstrated by the increase today of the more than 20% in our quarterly dividend per share.

And with that, I want to thank you for your time. And now Damian and I will be happy to take your questions. Operator?

(Operator Instructions) Our first question comes from Steve Powers with Deutsche Bank.

So maybe to start, as it relates to the GB soda taxes. This is, obviously, something you've been preparing for now for over a year, thinking through the 3 reformulations and packaging and pricing strategies, how to communicate with the consumers, et cetera. And I get that there are likely limits as to how you can reveal for competitive purposes. But as the implementation date approaches, what changes do you think are most critical for you to get right, so as to mitigate the impact of the tax on financial performance this year? And for those aspects of the implementation that you don't directly control, for example, how retailers choose to implement your pricing plans, as Nik mentioned? How confident are you that those will go as you desire versus them creating incremental challenges maybe like we saw in France years ago?

Thanks, Steve. So just maybe to take that question in reverse. On your last point, clearly the retailers are making their own minds up around pricing, as we move into the new sugar tax in GB, and that's obviously within their remit. From a competitive basis, you're also right. So I can share some details on how we feel. But obviously, a lot of what we have prepared and are bringing to the market is slightly sensitive. But if you go back to what we spoke about, probably about a year ago when we saw this challenge coming, we felt the first priority was to reformulate. We did that ahead of our expectations and ahead of time. Our second priority was during that period to prioritize sugar-free and 0 variance of our existing portfolio. You've seen in our results today that's gone better than expected, particularly with the growth of Coca-Cola Zero sugar-free, so that's working. And then the third pillar was to reshape our packaging to reflect what we believe are more consumer-friendly pack sizes based on the taxation that's coming into GB. And all of those changes are now in place. So what's left to do is to make sure we manage the transition of packaging with our retailers in the marketplace. That's underway already. We're not, obviously, waiting until April to do that, so those changes are happening now. Secondly, is to continue to communicate with our customers and consumers so they understand what's happening. And I'd encourage anybody in the call to visit our website for GB, where you'll see a really good illustration of how we're helping our customers and consumers understand the tax, that's underway. And then finally, we believe in the category beyond the sugar tax. So with the Coke company, in particular, we're continuing to invest behind our brands. We've got some great assets coming in after April, like the World Cup soccer tournament. That's going to help us bring more excitement back to the category. So they are really the 4 priorities as we sit here today. And then I just had a final comment. We're obviously looking at well, if other markets have similar challenges, obviously, we're applying the learning that we've got out of GB across other territories. And that's something that we're benefiting from as well, both in GB and outside of GB. So overall, that's how we see it. Obviously, it will be a big change for our consumers and our customers. And each retailer, as I said, will choose their our own pricing strategy based on their own competitive strategy, but we've put our position very clearly to all of our customers. And by and large, it's been very well accepted.

Excellent. And just to maybe follow up on that. So with what you see in GB and with the incremental actions in France and Norway, maybe this is a question for Nik, are you still holding to the 2% to 3% adverse profit growth impact from also the taxes at the consolidated level that you called out last quarter, as you think about your 18 guidance? Or are their reasons to think that that outlook is now better or worse?

Well, I think as we talked about this in November, we gave you our best estimate and we've continued to refine that and add in some of the incremental risks from a top line perspective, primarily volume in France and to a lesser extent in Norway. So I think our guidance is -- what we feel confident in being able to achieve with all those in place. And just by way of estimate, we probably see that, probably towards that top end of that range that we had previously guided towards of the 2% to 3%. Again, just remember, that's a lot of estimates that go into that, so we'll continue to keep you guys posted and updated. And remember, France one -- Norway comes into effect -- has come into effect. GB goes in April and then France goes in in July.

Our next question comes from Ali Dibadj with Bernstein.

Just to build on that a little bit. Your 2018 guidance looks a little bit less inspired relative to consensus in us. And you talk about a sugar tax for sure. But it still sounds like that 2% to 3% hit of EBIT range. And it also looks like you're already taking a lot of pricing, certainly in GB. And so 2 of those may be assumptions that you're making. What are your elasticity assumptions? Are you assuming that the retailer is going to pass it through? Certainly, the Nielsen data suggest that it's already happening in GB at least. And if -- and either way, is there an incremental pain here we should think about from your EPS guidance perspective unrelated to sugar tax around your commodities or the CapEx you mentioned or something else? Because it still feels like it's a little bit lower than I think many would have anticipated for 2018, the guidance.

So the first thing I would say, Ali, is I'm not quite sure how many you're talking about. Because when we look at the numbers, I would say, what we're guiding towards is not significantly lower. It's pretty much in line. And obviously, it's early in the year. We haven't seen truly any of this impact come through. I think from your standpoint in terms of what you're seeing through some of the scanner data in GB, it is positive. But remember, this is much more what we're doing in terms of a continuation of what you've seen in '17 in relation to our promotional activity and pulling back on that, which is the right thing for the longer term in the business. Clearly, the sugar tax implications will only hit the shelves as of April when that is introduced. And our assumption today is that the retailers will pass that on to the consumer. And there will be some initial sticker shock that just comes from a higher shelf price, but I think we're managing that, as Damian said, with a variety of different initiatives, including what we're doing on our non-sugared color range, what we're doing in terms of our pack architecture on the sugared products. And I think we will continue to provide updates during the course of the year.

And Ali, just to maybe build on Nik's comments. One of the other mitigation or offset strategies that we talked about when we created CCEP, actually was also we benefit from having a large amount of our revenue and volume outside of classical retail. And obviously, when you look at the price points in away-from-home and HoReCa, that does help us in some ways because it allows the percentage increase to the consumer is slightly less than you find in classical retail. And if you look at our 2017 results, across all our BUs, we've seen strong growth in our smaller packs and in our away-from-home business. So that's something we will continue to focus on. And it's supported by some of that capital that you mentioned predominantly on the cooler side. So again, that along with a plan for retail, we believe puts us in a good position to get through what will be some disruption in April in GB. And as Nik said, we will all be a lot wiser by the time we get to certainly the end of the second quarter. We'll be happy to update everyone on how we see retail pricing led by the customers progressing and how we see the impact on our business. As Nik said, we put a lot of time into that estimate. We believe it's realistic from where we are today. I would say though we are very pleased with our actions to date in getting ready for it. And I'd like to commend certainly our GB team for the work they've done with The Coca-Cola Company to get us ready. And as I said, we'll update you after April.

Okay, okay. That's helpful. A different question. Dividend is up a lot, again, which is great. Does that change anything about your outlook on M&A prospects for a potential, in any way, in terms of having dividend go up so much? I know it's not a strain, but do you see anything differently from a return of cash to shareholders' perspective, given what you see from an M&A prospects perspective?

I think that the simple answer to that, Ali, is no. We've put a lot of priority on free cash flow generation as we created CCEP. As we've talked about on earlier calls, we've changed and certain plans reflect that. So we are very confident that strong free cash flow and our balance sheet allows us to achieve both of the objectives you stated. So we don't see our improved dividend in any way impacting our ability to execute M&A, if and when it becomes available to us.

And I would just build on that from our capital structure perspective. As I've highlighted, we've continued to delever faster than we had planned in '17, and you will continue to see that trend into '18 as well. So I think, capacity-wise, if the right transaction comes along, we're not in any way constrained from a capital structure perspective. And in terms of returns to shareowners, we have consistently talked over the last year plus around the fact that we will increase our dividend payout ratio steadily towards the 50%. I think this is the continuation of that strategy. And as we've said very clearly, we will continue to evaluate, absent other opportunities, what we do with the excess cash. So nothing really changed from our angle. And I think it just continues to signal even in a year where we do see some challenges, we feel confident in our free cash flow generation capabilities.

Our next question comes from Rob Ottenstein with Evercore ISI.

Could you give us a little bit of sense -- the top line came in a good bit better than we had modeled, and I think a lot of people had modeled. And I know it's a small quarter. Can you give us any sense in terms of -- is this a result of one-offs, better execution, the consumer getting better? Just a little bit of feel of what's going on, on the commercial side, please.

Robert, so there's no significant one-offs in the numbers you're seeing in the quarter. And if you look actually for the full year, I suppose the key driver of it has been our price per case realization, and that's something we talked about back in '16 in terms of having a focus around quality revenue growth. And that's what we've seen coming through the business throughout '17. The fourth quarter was particularly strong. And one factor in that was a lot of the changes we've made in our promotional strategy, obviously, had the bigger impact in the second and third quarter. And then in markets, for example, like France, we saw our promotional strategy to embed -- started to embed coming out of the third quarter. We got the full benefit of that with our retailers in Q4. So it's been really about executing our focus on our pack strategy. It has been about the headline price increases we took at the beginning of '17, obviously, flowed all the way through the year and had a benefit in Q4. And it was about our promotional strategy being fully implemented in the quarter. Most of those -- sorry, all of those will continue to benefit as we move into 2018. And if you look at some of the scanner data across our markets, particularly Germany, GB, Belgium and France, where we did make the changes you're seeing, promotional pricing increases of above 5% to 6% in all of those markets. That's obviously good news for our retailers because it supports their margin objectives. We believe it's more sustainable pricing for our P&L. And ultimately, I think the value in our brands to consumers are paying those prices now. So it's overall good news.

And I think, Robert, just to your point, it is a small quarter. But just to highlight for you, the fact that there's nothing one-off in nature, from a volume perspective, we're lapping strong growth from the fourth quarter of last year, which is 1.5%. And we actually grew our volume 0.5. But more impressively I think for us, back to Damian's point, our revenue per case is up 3% in the quarter, lapping 1.5% growth too. So clearly, we're not about easier comps or anything here, it's really about solid execution and our strategy continuing to play out well.

Right. That's why it was remarkable given the tough comps. So you're attributing it primarily to your execution, not necessarily a pickup with the consumer?

Well, I think, obviously, all that revenue ends up being driven by consumers buying our products at a higher price. So clearly, consumers have adapted to our new promo pricing in the quarter. So it's probably a combination of both. I think you can't really separate it. And we did execute our plan solidly through '17. We saw bumps in the road in the first couple of quarters, which you'll recall with some of our larger customers. We stuck to our strategy. We've taken significant volume impacts in Germany and France throughout '17. They're in our numbers already. We have delisted some brands that were not profitable. That's certainly helped us coming into the quarter. So a combination of all of those really delivering a very strong quarter on the back of a strong quarter in '16 as well. So yes, overall positive.

And so we can get a sense of how much further potential there may be long term on revenue management in price per case realization. Can you give us any thoughts in terms of what percentage of your business now is in the smaller cans, the more transaction packs, as Coca-Cola Company talks about them? And how fast that part of the business is growing? And how much more upside there is there?

I can't give you specific percentages, but just 2 comments to that point. Most of the price realization on a per case level is coming from the promotional and pricing decisions we made on large packaging, because that's where we saw a big opportunity to move away from what we felt were value-disrupting promotions for our customers and for ourselves. So when you look at our price realization per case, a large amount of that's coming from headline price. The next component is coming from better promotional price execution and the third component is the one you referenced Robert, which is better mix because our smaller packs are growing faster than our large packs. That is continuing. And we're seeing our away-from-home channels growing faster than our retail channels, which is also a benefit from mix. So none of those components are near the end of their opportunity. And we would see those factors being in play over the coming years for CCEP. We haven't given guidance against each of those individually. But we would see all 3 of them playing a role in our '18 guidance, but beyond into '19 and '20, there's still a lot of opportunity in those 3 areas.

And Robert, just to give you some feel. Cans, glass, small PET were all up in 2017 across each of the markets. And it's only large PET echoing what Damian just said that is down and that's pretty consistent across all our market, in line with our strategy.

Our next question comes from Bonnie Herzog with Wells Fargo.

I had a pressure or a question on some of the pressure you've been seeing on your Coke trademark volumes, which appears to be moderating a bit. So just wanted to see if you guys could drill down a little further on what's working better right now? And what your expectations are for the brand this year? And then I'm also curious to hear how incremental Coke Zero Sugar has been? And what your initial thoughts and expectations are for new Diet Coke flavors and packaging?

So I would say linking back to my previous answer, Bonnie, I think we're particularly pleased with how the Coke trademark has held up in 2017. Because the majority of the promotional pricing changes we've made, obviously, had the biggest impact on Coke Regular, because that was the brand generally that ourselves and our retailers were leading those deep Coke PET promotions with. So as we changed our strategy, the brand that got impacted the most was Coke Classic. So in that context and along with some of the other headwinds the brand was facing, I think its 2017 performance has been very encouraging. What's also helping is as we have moved out of those large PET promotions, we are putting more emphasis around smaller packaging on Coke Classic, building on a lot of the insights out of North America. So if you're in the market in Europe, now you'll see mini cans. You'll see glass packaging and retail, where we're trying to create more premium and specialness around the brand. And that's leading to better price and revenue realization for ourselves and our retailers. So overall, it was a very good year for Coke Classic and, therefore, for the Coke trademark. And Coke Zero Sugar continues to perform well. I'm also excited that what you've seen in the U.S., you'll start to see in Europe now, which is a renewed energy around Diet Coke and Coke Life. That has been a brand that, I believe, we haven't unlocked the potential of in the last number of years. Primarily we put a lot of effort behind Coke Zero Sugar. It's working. But there is a huge consumer franchise for Diet Coke and Coke Life in Europe. And I'm happy to say with the Coke company, again, you'll see a lot of what you're seeing in North America around new packaging and new advertising and new flavors coming on Diet Coke and Coke Life. So that will also support the Coke trademark growth in 2018. So you'll see a better performance in Coke Classic, continued growth in Coke Zero Sugar. And we're optimistic that we may pick up a few more points of growth on Diet Coke and Coke Life that we haven't seen in the recent years. So that's pretty much how we're seeing it. And again, if you take into account on top of all of that, most of the promo hit came on large PET, that Nik referenced. And most of that came on Coke Classic, and that's in the base there.

Our next question comes from Kevin Grundy with Jefferies.

Damian, I wanted to ask a question on energy in the category. So specifically, in prior conversations you've suggested attaining 40% market share with the Monster brand, which is similar to levels it has in the U.S., was very attainable in your territory. So a few questions related to that. One, has anything changed in your view that makes you any less optimistic that you can reach 40% market share in your territories with Monster? Two, where do you think energy is generally taking shelf space? Would it largely be CSDs? And the third question would be, how do you try to execute to ensure that you're taking shelf space with energy from your competitors and not cannibalizing shelf space from other brands in the portfolio?

Thanks, Kevin. I need to go back and go through all of my transcripts because I don't think I've ever called out a 40% share target for Energy. But if I did, I stand corrected. But I'm looking for it, I don't think I did. And but anyway I think that's academic. I think we believe energy is definitely a category that we're winning in and we can win bigger in going forward. You raised some interesting points, just on the space conversation. As we've called out, a lot of our capital is going into coolers, particularly with the Monster brand, we're ensuring that we're placing a lot of Monster coolers to make sure at least in the channels where we sell the beverages cold, we're not cannibalizing our existing sparkling business, and more importantly we create space for what is a very high-value category for ourselves and our customers. So we're very focused on that. In retail, if you look at our share today, it's around 20% in the energy segment. So the space that we're gaining is generally coming from within the energy segment and from competitors, including retailer brands and branded. So we are seeing the Monster brand in particular being able to command share from within the existing category space. So that's good news and obviously that's supporting our growth. And we still see the energy segment being quite dynamic in terms of high revenue growth figures, similar to what you've seen in '17. That's generally on the back of really strong consumer demand. And sugar-free varieties are offering a lot more choice to consumers. Some smaller multipacks are now playing a bigger role in the portfolio. They didn't exist previously. And obviously, the Monster company continued to bring a lot of innovation and great marketing to the brand. So those 4 elements give us a lot of confidence that it's a category we continue to grow in, take share in. It's one of the unique categories for us, really, where we are coming from a position of being a #2 in most of our markets and growing share quickly, but doing it at the right -- with the right strategy, so not devaluing the category or our margins and that's something. So we're -- that's why we never talk about a share goal, because I think if you set your targets based on share, in the short-term you maybe do a lot of things that destroy profitability long term. So we're quite happy with our rate of share growth. If that leads to leadership or not all the time, for us, that's an outcome rather than an objective. We want to make sure we can continue to use the brands that we have to drive profit and cash, and that's what we've seen in '17 and we'll see the same in '18. And thank you for the 40% goal. That's interesting.

Our next question comes from Judy Hong with Goldman Sachs.

So first is just following up on the guidance before for 2018. So the way that you're showing the tax impact, it looks like it's more profit impact as opposed to revenue impact, as low single-digit revenue growth guidance seems pretty much in line with your guidance long term and what happened in 2017. So maybe just a little bit of clarity on kind of the reconciliation of profit versus revenue, as it relates to tax impact.

Judy, we've actually -- we've looked at that impact across the P&L. So first of all, we started, from a consumer perspective with the Coke company and looked at what impact it would have on transactions and volume, then we reflected that back into revenue and then, obviously, we reflected that back into operating income. I suppose what you could say is if the year didn't contain the impact of sugar tax, we believe that our revenue growth would be accelerating in 2018 ahead of 2017. So I suppose the good news is we can keep our guidance at the level we've given for 2018 in spite of a sugar tax impact in GB. So it's definitely included in our volume assumptions and in our revenue and in our profit. And I suppose the positive for us is the momentum in the other BUs that we're seeing coming out of '17 is allowing us to deliver some solid revenue growth targets despite the sugar tax in 2018. Nik, I don't know if you want to add anything?

Was there anything in particular you were trying to understand more on the guidance, Judy?

I think it was just like when we would think about the guidance and how tax impact would show up, you would think that you would assume more of a volume impact, which would flow-through more revenue as opposed to just a margin implication. So I just wanted to see if there was anything that I can reconcile, but it sounds like maybe the (inaudible) the revenue...

Well, I mean, there will -- yes, there will be a volume impact offset by strong price and mix, that overall we feel confident of that low single-digit revenue growth. Clearly, there will be the implication from an accounting perspective of grossing up for the sugar tax in both revenue and COGS. What you're really going to see that volume impact, which then has that impact on our operating profit because you have some deleveraging that comes from the lower volume and our infrastructure that we have, right, which clearly we see as much more of a short on implication because we do expect over time those volumes will return. So that's kind of how I would think about it. And happy to help with anything more off-line if you need it.

Yes. No, that makes sense. And then just following up on your capital structure and kind of capital allocation comments. So I guess given that you are already within your guidance of below 3x, I'm just wondering why wait until you get further deleveraged as opposed to maybe even announcing a share buyback or other cash return sooner rather than later?

Yes. And I think it's a fair question, Judy. And I think quite honestly, given our continued focus on free cash flow delivery, the fact that we've increased our dividends, but also the fact that we're going into a year with some uncertainty, I think we just want to continue to see how the year goes. And as we've said, Damian and myself along with the board will continue to evaluate what's the right form of potentially maintaining that leverage and doing something that continues to be shareowner-friendly.

Our next question comes from Richard Withagen with Kepler.

If you look at your synergies target that already dates back actually from 2015, and in the meantime, the integration has been going on for about 1.5 years, I think. Can you give some more details about the positive and negative surprises that you encountered during the integration? And is the EUR 315 million, the EUR 340 million target still a realistic one? Or are you targeting to do more?

Richard. So from a integration and merger perspective, obviously, we're very, very pleased with where we are overall, so not just from synergy capture but in terms of the momentum we've seen in the business on the top line and bottom line, I think we're all very pleased. And in fact, from an integration perspective, we're well and truly through that and now we're operating as one business. So the merger and integration in some ways is closed. The synergy capture we hope to close out early in '19 as well. And when we look at the synergies we're delivering, broadly in line with our plan I'd have to say. So I think the preplanning work that was done prior to the deal closing turned out to be very solid and has delivered what we expected. I suppose going back to early on in the process, we did see a slight creep up in the cash cost to achieve early on in the process, but that has now more or less leveled out with what we expected. So we're in good shape there. Once we deliver our synergies, obviously like every business in our field, we will continue to focus on productivity and efficiency. So while we'll deliver the synergies, we will move forward then on a more regular drumbeat around productivity and synergies in our business. So no real surprises. I don't know, Nik, is there anything you want to add?

No, no. Actually, I think you're spot on. And just to make sure that there is no misunderstanding, we're still comfortable with the EUR 315 million to EUR 340 million, and that's what we will deliver.

And as a follow-up perhaps back to the energy drinks, I mean, there's been, over here in Europe, some talk about supermarkets banning the sales of these energy drinks to -- especially to young people. Any views from you on that?

No, that's something, obviously, we're engaged with our customers and regulators on and, obviously, with the Monster company. We've seen that. We've also introduced smaller packaging because in some cases, retailers wanted to offer less than a 500 mL serving, which we felt was responsible. So in a lot of our markets, we've brought in a smaller can size. And we believe that makes the category more sustainable and, obviously, the sugar-free also plays a role. So it's something we're monitoring. And it's something with the retailers, we'll continue to make changes in our business to accommodate them. It hasn't had any significant impact. But it's obviously something that we're very close to.

Our next question comes from Bryan Spillane with Bank of America.

Two questions. One, first on the free cash flow guidance for 2018. Nik, I guess EUR 850 million to EUR 900 million is a little bit below what you delivered in '17. And the idea of at some point trying to get towards -- trying to strive to achieve to 100% of net income. So if you could just talk about what's driving free cash flow in '18 to maybe be a little bit lower than that.

Well, you know, the first thing I would remind you about was the fact that we had guided to a much lower number in '17 and we've made much better strides in 3 areas. One was, obviously, significantly higher delivery in terms of our focus on working capital. And I think that's something that will continue into '18. Two, we also -- we're strongly focused on the CapEx spend and made sure that we challenged and looked at every euro that was going back into the business. And then thirdly, as we both referenced earlier, we're strongly focused on managing the cash cost to achieve the synergies as well. So I think that continues into '18. Clearly, you're going to be lapping a very strong working capital base from which we will continue to deliver some more benefits, and we continue to be hopeful to overdeliver against that. But at this point, I think we feel very confident in that number. And we'll update you as appropriate during the course of the year.

And just to add to that. We've retained free cash flow in our management incentive plan as in '17. So there's definitely no change in terms of the focus and attention it's getting from the leadership team.

Okay. And then the second question I had was just as we think about phasing the year, you know that the GB tax goes in in April and then whatever the effect will be in France, I guess, that goes in the middle of the year. So in terms of where the compression is the most, I guess, on profitability, would it be in 2Q and 3Q? Or is it more in the second half? Just trying to get some sense of how to shape things with those factors out in the horizon.

Yes. Great question. And obviously, we've tried to do as much as we can from a modeling perspective. But remember, we're lapping a very strong second quarter from 2017. If you remember we had a tremendously early and warm summer in 2017 in Q2. And then in Q3, we actually were down because we were lapping a '16 very strong third quarter. So I think with both GB sugar tax and France sugar tax coming to a head in Q2 for GB and Q3 for France, those will clearly be the quarters that would be under more pressure. But I think we'll be able to provide you some more guidance as we continue to see how that plays out during the course of the year. But our full year still remains very much in line what we just guided to, so (inaudible)

And then just one last one related to that. The phasing is just -- how are you thinking about or is there any potential that there would be any sort of pull forward or interchange between the first and the second quarter in the GB? Meaning, will retailers try to buy product ahead of time? Or is there anything we should think about in terms of the implementation of the tax that might affect the phasing of shipments or timing of promotions or anything?

We're trying to manage that as closely as possible because clearly the tax really only gets put onto the invoice as of the time the sugar tax is passed through. So obviously, it's a complicated supply chain to be able to manage that, but we're doing our best to ensure that there isn't too much pre-loading or pre-buying in Q1.

Our next question comes from Lauren Lieberman with Barclays.

It's going back in the call a little bit, but I was curious if you guys could offer any kind of commentary around transaction growth. In GB and in France in particular, knowing -- and I guess Germany as well, but if just moved away from those large PET promotions and you're seeing some of that shift towards smaller packaging, if transaction growth is outpacing reported volume growth?

Lauren, yes, simple answer. We've seen in all of those markets as we've rolled back some of those heavy discounts, promotions and reprioritized small and more affordable packs in some cases, we are growing transactions and we're seeing more consumers participate in our brands as a result. So it's good news and it helps us, obviously, on a revenue side, but it also gives us confidence in the kind of longer-term health of the brands, as I think transactions are a really good measure of the health of the brand. So we've seen transactions growing in GB, France and Germany.

Are transactions up for trademark Coke?

Yes.

Okay, great. And then one quick other piece was on tea. So you mentioned that Fuze has now been launched everywhere and Honest is going into some new markets. But just curious with the Nestea partnership ending, have you maintained shelf space? And just kind of float in your own brand, where you had the Nestea cobrand previously?

Yes. I mean we've spent, obviously, a lot of time working with Nestea as well to manage the transition professionally to make sure from their perspective, our perspective and our customers perspective that there was no disruption. That's worked really well. And where we've had our own proprietary space or space allocated like in coolers, et cetera, obviously, that transition has happened. And by and large, across all of the big customers, you now see Fuze on shelf in the tea category across all our markets. And it's not exactly where Nestea was because as you can appreciate the new brand, it's going to take time to get full listings in all our retailers. But we factored that into our plans anyway. We knew it would take a bit of time, but the reaction to Fuze has been better than we expected in the early days. And so overall, we're very pleased with the way the transition has gone and we're very pleased with the reaction to the brand.

Will Fuze be -- I think Nestea, there was some degree like largely PET and higher promoted packaging. One, is that correct? And two, for Fuze, will you be launching in the same kind of architecture? Or will it be much more single-serve oriented?

No, we've taken the opportunity to try and reshape the tea category, because you're, obviously, right, there was an over index, particularly on Nestea in some markets like Germany in large 1.5 liters PET.

Through discounters...

Through discounters. And so we've launched Fuze across Europe in 400 mL instead of 500 mL, and we've launched in 1.25 liter instead of 1.5 liter. And they were cautious decisions and we're also launching it in glass. So to take this opportunity to rebuild value, particularly for our customers and for ourselves in what we think is still a category with a lot of headroom for growth, and that's being received well. So all of those listings I talked about are in those new pack sizes. And consumers don't -- haven't made any real comments. It's early days. But we haven't heard anything back from consumers. The packaging looks great. So I think they're overall pleased.

Our next question comes from Andrew Holland with Société Générale.

Can I just take you back to an earlier answer, Damian, where in relation to the U.K., you said that the changes connected to the sugar tax were happening now. Can I take that to mean that you have already introduced smaller pack sizes and adjusted prices ahead of the tax? Or should we expect to sort of walk into a test goes on the 1st of April and see all the changes to pack sizes and prices happening at that time?

I would love to have the confidence to wait till the last date to see all the changes, but obviously, from a supply chain perspective, our customer supply chain and ours, we will start delivering new packaging as we speak now at the moment. So you will see, not different price points, because, obviously, the pricing at the time of the tax will change in April and, obviously, that's up to the customer, but we'd expect the pricing on the new packaging, you'll see today, will be, obviously, without the tax impact. And you'll start to see those, Andrew, coming through particularly in March, and we'd expect all of our retailers to have the new pack formats on shelf at the beginning of April, so when the prices change, our strategy and what we've been discussing with the customers will be on shelf by then. So you will start to see smaller pack sizes on trademark Coke feeding into the supply chain at the moment. And it'll be different slightly by customer, as you can appreciate, some customers have a longer lead time in their central warehouses, et cetera. So it won't be uniform, but all the customers will end up in the same place by the time the tax hits the market.

Okay, but the price to the consumer will only change when the tax becomes effective in April?

Yes.

Correct. And you will probably start seeing most of the packages kind of start going through depending -- as Damian said, managing our supply chain kind of mid-March type of timeframe.

And just to give a bit more clarity, I mean we -- you have seen consumer prices on other brands and packs outside of Coke trademark changing already as normal, as you would expect in Q1, so that has happened. But particularly on trademark Coke, it'll happen when the tax hits.

Okay. Okay. And just one last and unrelated is as you look across your territories, obviously, you've got a modest volume growth or rather a better price mix growth in the year just gone. Can you give me an idea where the best volume performance was across your territories?

I think if you look at it across our territories, collectively we got very good volume growth in away-from-home. So we're very pleased that our focus on the sales force and some of the changes we've made there are paying out. We got very good growth in small packages. So we saw that the large PET, as Nik referenced, again I'm talking for all our territories, Andrew, pretty much was the one that declined in absolute volume. So I think pretty good across all of the business units. And hard to call out one in particular on volume. They all seem to have similar dynamics around the channels that are growing, the packs that are growing and the brands that are growing. So overall, it's encouraging across all of the business units.

Yes. The only color I would make to add to Damian's point is while we did see similar trends, GB had strong volume growth. But also remember, we did have some supply chain issues related to our whole SAP implementation the year before. So in some ways, we were lapping some of that, but GB was probably the strongest from a volume growth perspective and the pricing revenue per case realization as well. So in all markets we saw strong revenue realization, but GB will probably had the strongest volume, but lapping some weaker comps.

I mean, as I'm looking at the breakdown, the revenue change in Great Britain was minus 2.5, which doesn't seem to...

Yes. But you're looking at it on a currency adjusted basis, quite honestly, they're focused on a currency neutral basis.

Yes. Very solid growth in GB pounds, very solid.

Our next question comes from Caroline Levy with Macquarie.

My question is just about the snapback in volumes of third quarter to fourth quarter is quite unusual. And congratulations on that, but in particular in France, maybe you can just talk about how that happened. And where do you think the total CCEP can maintain shelf space in 2018 as these sugar taxes come into play? Are there newer and other brands? Are there competitive brands that are making an argument to take any shelf space? So just sort of a general conversation around volume.

Yes, Caroline. So just, I mean, I think if we go back to '17, we benefited from good weather momentum in Q2. And we know in Q3, we didn't, and we were quite explicit that we had the impact of weather on the opposite side in Q3. And obviously, that made the delta in Q4 look very strong. And -- but if you look at it, we still had a very good fourth quarter if you look at quarter-over-quarter going back to '16. In France in particular, we probably made the bravest moves in our promo strategy in France, and that definitely impacted our key results in our Q2. We were back more or less on full promotional participation in France with most of our big retailers in Q4. So that definitely supported our revenue growth in France. So that's probably the biggest factor there. To your comment on shelf space, we are very conscious that we talk with our retailers about the amount of value both in terms of profit but also in terms of cash that we generate for them. And if you look at the NARTD category and sparkling, it's still showing remarkably strong revenue growth. And I'm talking about the category and ourselves, obviously, leading the category. So we still remain a very relevant category for the retailer, and we're getting more relevant as we innovate, whether that's on tea, whether it's on sugar-free, whether it's on pack sizes. So that in itself helps us to protect and grow shelf space. It's not a given. And I think your question is well-made. It's something we're very focused on. And it's also something we're focused on beyond shelf. So as we launch all of these new packaging initiatives and new brands, we have to support our cooler placements to make sure we don't cannibalize ourselves. And -- so it's also hot topic for us. And so far in the resets that we've seen from our retailers in '18, we're generally growing our shelf space, which is encouraging but again it's something we are very focused on.

That's great news. And your CapEx of EUR 550 million to EUR 575 million was higher than we'd anticipated, some of that is coolers. Do you think that's a new kind of a run rate that you will be having to do, selling CapEx increasingly as we move forward?

No, I don't think so. I think there's a -- in our CapEx guidance, obviously, we've got some synergy CapEx that will go away. So that will definitely help going forward. Our cooler run rate is pretty stable. I don't expect that to step up. I am pleased that in that CapEx guidance is a significant increase in our IT expenditures. So as a company, as we've looked at our longer-term strategy, we do want to continue to provide a better infrastructure for our customers and employees in the area of digital and that's in that number. But again, that's something that we believe is the right thing to do for the business and for our customers. But on the cooler, to answer your question, we don't see that creeping up.

Great. Just a last question, we're always hearing how tough the retailers are in Europe and the discounters and just the moving parts there. In terms of your -- as you rank your risks going forward, is that still a major factor that you consider? And is there anywhere else where sugar taxes look like they could be imminent in your territory?

So I mean, we look at all of our retailers. And obviously, we work collaboratively with all of them. It isn't always collaborative. For sure there are times when some of our pricing strategy decisions may not fit exactly with the retailers' view on timing. But overall, when you look at the value and cash we generate and we model that by customer with them, we're a significant driver of their profitability and their growth. So that obviously leads to more positive discussions, and we'd expect that to continue. Whether that's a definition of tough or not, I don't know, but ultimately, we believe that's good for our long-term growth. We're always looking out for further risks on sugar tax. And I think Nik called out what's in our guidance. And that's what we see as being pretty much baked in for 2018. Beyond that, we don't see anything at the moment. But I do think it's something we're very conscious of. We are reformulating anyway. And in the absence of a sugar tax, we believe it's the right thing to do. So nothing new on the horizon at the moment.

Our last question is from Mark Swartzberg with Stifel.

France, they sure like taxing soft drinks. I wonder if you could tell us a little bit more about how this tax compares to the last one and how you think your experience with the last one, which seems to have created more of a challenge in that market, a more enduring challenge than I or I think you all expected at the time. So lessons learned, so to speak, and how you can apply them to the coming tax?

Yes. I think everybody, including our retailers, is still very much aware of what happened after the last tax change. So -- and if you look at the amount of time it took for both ourselves and our retailers to come out of that, I think everybody's very focused on applying the new learnings. Again, from a competitive perspective, I won't talk too much detail about what we're planning specifically. We are expecting, obviously, that the tax will be applied from the 1st of July, and it will be a sliding scale tax. And so we're very clear on the mechanic and it'll apply to added sweeteners and sugar drinks. So it's quite different than what we're seeing in the U.K. And in some ways they're pros and cons to that, obviously, depending on your point of view. From a government perspective, they in -- France have looked apply to added sugar and to sweeteners. So we are factoring in the learnings. We think we're much better prepared. We think our retailers are also very much aware of the opportunity at risk if we get it wrong. We'll probably be able to talk a lot more on our first quarter call about the specifics, because by then a lot of what we're planning to do will be in the public domain and in the market. So I can just say, we are as conscious as you mentioned of what happened before. We're well prepared, but obviously, we're not taking anything for granted. But I'll be able to share a bit more color on the specific actions on our next call.

And it sounds like that means it's a little too early to know whether -- because that was one of the big problems, the retailers didn't follow you. It's just a little too early, but the intent is to be more aligned with them this go around.

Absolutely.

And I think there's more time to plan for it too. Remember the last time around in '12, it came around in November and went through in January. So there was a big rush and there was, in some ways, a different environment that you were dealing with in France too, even from a political perspective, which I think should work well to hopefully support us doing the right thing and them doing the right thing. And in some ways, while they've been referenced to the fact that it's not like the GB tax. The tax on the sweeteners is significantly lower. It's about an eighth of what it would be on the sugar drinks. So there is still a big opportunity from a perspective of what's more at play in terms of the low to no sugar variants in the portfolio, which if you remember last time, it was a flat tax across pretty much the whole category. So I think there are some differences and there's some more time for us to work through it in the right way with the retailers. I think that they suffered a lot from it too. I think, hopefully, lessons learned for them too that they don't want to go into the same situation again.

Thank you. So again, I just want to thank everybody for taking the time to join us today. 1.5 years post-merger, as you've heard, we are well on track to realize the synergy benefits and complete our integration. Looking ahead, we are very excited about the opportunities, and we look forward to sharing our journey with you as we move through 2018. I also wanted to end by taking this opportunity to remind you that we will be presenting at CAGNY next Wednesday, the 21st of February at 10 a.m. Eastern Time. The presentation will be webcast through our website, and we will provide more details on the growth opportunities ahead. So on behalf of myself, Nik and Thor, thank you, again, for joining us. And we hope you have a great day. Thank you.

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