Thor Erickson - Vice President of Investor Relations John Franklin Brock - Chairman, Chief Executive Officer, Member of Executive Committee and Member of Corporate Responsibility & Sustainability Committee Manik H.

Jhangiani - Chief Financial Officer and Senior Vice President Hubert Patricot - Executive Vice President and President of the European Group.

John A. Faucher - JP Morgan Chase & Co, Research Division Judy E. Hong - Goldman Sachs Group Inc., Research Division Stephen Powers - UBS Investment Bank, Research Division Ali Dibadj - Sanford C.

Bernstein & Co., LLC., Research Division William Schmitz - Deutsche Bank AG, Research Division Bonnie Herzog - Wells Fargo Securities, LLC, Research Division Ian Shackleton - Nomura Securities Co. Ltd., Research Division Nik Modi - RBC Capital Markets, LLC, Research Division Bryan D. Spillane - BofA Merrill Lynch, Research Division Robert E.

Ottenstein - ISI Group Inc., Research Division Kevin M. Grundy - Jefferies LLC, Research Division Caroline S. Levy - CLSA Limited, Research Division.

Good day, and welcome to the Coca-Cola Enterprises Third Quarter 2014 Conference Call. At the request of Coca-Cola Enterprises, this conference is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Thor Erickson, Vice President of Investor Relations. Please go ahead, sir..

Thank you, and good morning, everybody. We appreciate you joining us today to discuss our third quarter results and our outlook for 2014. Before we begin, I'd like to remind you of the 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 our most recent annual report on Form-10k and subsequent SEC filings. A copy of this information is available on our website at www.cokecce.com.

This morning's prepared remarks will be made by John Brock, our CEO; and Nik Jhangiani, our CFO. Hubert Patricot, President of our European Group, is also with us on the call this morning. Following prepared remarks, we will open the call for your questions.

In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question, and we will take follow-up questions as time permits. Now I'll turn the call over to John Brock..

first, to lead category value growth; second, to serve our customers with world-class capabilities; and third, to drive an inclusive and passionate culture. And finally, our solid balance sheet and free cash flow continued to provide the cash to opportunistically pursue mergers or acquisitions and return cash to shareowners.

Long-term, we will utilize each of our assets to accomplish our number one objective, creating increasing levels of value for our shareowners. We believe our strategies, brands and people will enable us to reach this goal. Now, I'll turn the call over to Nik for more details on our financial results, as well as our full year outlook..

Thank you, John. And we appreciate each of you taking the time to be with us today, as I discuss our third quarter financial results and our outlook for 2014 in a bit more detail. On a reported basis, the third quarter earnings per diluted share were $0.96 or $0.92 on a comparable basis, up from $0.82 in the same quarter a year ago.

Currency translation had a beneficial impact of $0.03 per share compared to prior year results. Net sales were $2.1 billion, a decline of 3.5% on a currency-neutral basis, and volume declined 4%. Net pricing per case was flat, and cost of sales per case declined 1%.

For the quarter, comparable and currency-neutral operating expenses decreased 3%, reflecting the volume decline, our continuing focus on cost and effectiveness and timing of current and prior year expenses. Comparable operating income was $338 million, up 2.5% on a currency-neutral basis. Now let's take a look at our 2014 full year guidance.

As John discussed, challenging marketplace conditions including persistent macroeconomic softness, a difficult retail environment and poor weather had a significant impact on our quarterly results.

Unfortunately, we expect many of these factors to continue and this is reflected in our revised outlook, which is slightly lower than the guidance we provided in early September. For the full year, we continue to expect comparable and currency-neutral earnings per diluted share growth of approximately 10%.

At recent rates, currency translation would be a benefit of approximately 3%. Net sales are now expected to be essentially flat with operating income growth in a low single-digit range, both on a comparable and currency neutral basis. Looking at our fourth quarter outlook. I'd like to highlight a couple of modeling notes.

With respect to currency translation, while year-to-date this has been a benefit based on recent rates, currency translation would be a 7% to 8% headwind to our comparable EPS during the fourth quarter. Also, as a reminder, we do have one extra selling day in the fourth quarter.

Now continuing with our full year outlook, we continue to expect 2014 of free cash flow of approximately $650 million, with capital expenditures now expected at approximately $325 million. Our weighted average cost of debt is expected to be approximately 3%, and the comparable effective tax rate for 2014 is expected to be approximately 27%.

We expect cost of sales per case to be flat to down slightly for the full year as commodity costs have continued to ease, most notably for PET and sugar. Our revised cost of sales outlook has provided pricing flexibility, and we continue to adjust our operating plans to respond to the dynamic nature of the marketplace.

Importantly, with our operating plans and expense controls, we expect to achieve modest gross and operating margin expansion this year. Through the third quarter, we have repurchased $800 million in our shares, reaching our previously disclosed full year target.

Our balance sheet remains solid and absent meaningfully merger -- meaningful merger and or acquisition opportunities, we're committed to operating within our long-term net debt-to-EBITDA target range of 2.5x to 3.5x, and returning excess cash to shareowners.

Although, our top-line performance remains soft, our commitment to managing our business effectively, the strength of our balance sheet and our focus on driving cash from operations will allow us to create value for our shareowners. As we seek ways to grow and generate cash, we will continue to evaluate opportunities for creating additional value.

This year, through a combination of share repurchase and dividends, we anticipate the return of over $1 billion to shareowners. Since the 2010 transaction that formed new CCE, we will have returned approximately $8 billion to shareowners by the end of 2014. This is something that we're extremely proud of, and we intend to continue building on it.

We are in the process of developing our business plans for next year, with a clear focus on value-building growth. We are positioning our company to capture the opportunities before us. That said, while too early to provide details, let me just give you some color. We expect current operating challenges to remain into 2015, limiting our revenue growth.

Further, while our commodities cost outlook has improved, we have seen some benefits coming in, in 2014. So this is likely to limit the impact on 2015. And finally, at recent rates, currency translation would be a headwind. Now we continue to work through our plans and importantly, remain focused on delivering shareowner value.

We will, of course, provide a more detailed 2015 outlook in December. As I close, I would like to emphasize a few key points. We remain realistic about the challenging environment and expect it to persist for the near term. And while we may adapt our plans to meet these challenges, we always remain focused on delivering shareowner value.

Thank you for your time, and now, John, Hubert and I will be happy to take your questions.

Operator?.

[Operator Instructions] Our first question is from John Faucher of JP Morgan..

I was wondering if you can just go into a little bit more detail about the competitive environment that you've been seeing there that you mentioned.

And is it straight on discounting? Is it primarily just on the sparkling side or across the entire portfolio? And is it something that you see is short-term in nature or is this something where we should expect a more competitive environment over a longer period of time?.

Hubert, would you like to talk about the competitive environment?.

Yes, John, overall, we see -- as we shared at the last earnings call, a quite competitive environment, especially in GB, we did not see any significant change this quarter, and this competition is, especially, taking place on the large PET. And we see again, in most of our countries a relatively competitive environment in terms of pricing.

Answer to that is to broaden our offer in term of package, that's a sense as our 1.75 in production in GB, coupled with a 4.1 25-liter, as well as coming with some innovation into the market. And again, we had this quarter in September, the launch of the smartwater in GB and Coke Life in GB and Sweden.

So we still see value and value growth in this market, and we're looking towards a right balance between our promotional spending, innovation and our pack in production..

Got it. So if I can follow-up on that, it sounds as though, you're sort of taking a two-pronged approach on this, which is -- you do need to tighten the price points, but you feel like you can sort of float above the fray, with some of the other product launches you have.

Is that kind of -- and that's how you're going be able to offset some of it?.

Yes, John..

Yes, that's absolutely..

Our next question is from Judy Hong of Goldman Sachs..

Nik, I guess I want to just kind of go back to your comment about the importance of cash usage to create shareholder value. And I ask that in the context of obviously, the operating environment is pretty challenging and will continue to remain challenged.

So is there a sort of more sense of urgency and more willingness to use cash or use your balance sheet more aggressively? How does that kind of impact your decision to do further buyback versus M&A? And just in terms of 2014 guidance, I know you've completed the $800 million of share buybacks, how are you thinking about sort of the fourth quarter? And if you're willing to do additional buyback in the fourth quarter?.

Hi, Judy. I think we are continuing to challenge ourselves on our full year outlook, but more importantly, on our free cash flow generation and our leverage. And I think as you rightfully said, we've been very focused on shareowner value and that continues to remain our core focus.

So we've got a real drive within the organization to focus on free cash flow generation, and we will do what we need to do to make sure that we're unlocking that value. So again, as you rightly said, we've repurchased $800 million of our shares, reaching our previously disclosed target.

And as we've regularly stated, I think share repurchases may be adjusted depending on economic, operating and other factors, and that doesn't change in terms of our thoughts for Q4, as well. So nothing that I could update you on as of now, but we remain focused on it..

And what's happening in terms of the macro environment and effects? I mean, in terms of how you're thinking at the use of cash flow so -- obviously, you're very focused on the cash generation but the use of cash decision -- does that get impacted by what's happening within terms of the operating environment?.

Well, yes, clearly. So I think in terms of our use of cash, in terms of investments that we're making in the business, we're challenging the returns.

So we're getting on every one of those and saying, are those really essential today? Can we delay some of those? I think you asked around M&A, I think we continue to be focused on M&A but it has to be value-creating M&A.

And clearly, if that's not happening, you're not going to see any M&A activity, and we're going to be focused on then using that cash that we generate by being very disciplined in terms of our investments, in terms of our working capital management. I think those types of -- our focus are even getting sharper for us as we speak..

Got it, okay.

And then if I can just follow up on your cost outlook, it sounded like, you clearly this year, you've been seeing more benefits and it sounds like maybe 2015, you're not expecting as much of an economic [ph] on the cost side, can you just give us a little bit more color, what's been helping your cost this year, and where do you see, maybe a little bit of pressure or the benefit lessening as you get into 2015, and how does that kind of impact your decision on looking at your pricing strategy?.

Yes. So I think if you're recalling, we started out the year -- we were looking at a COGS increase that was significantly higher than when we've come out.

Now, I think as a part of our procurement team's efforts who have been very focused on what we can do to take the opportunities, particularly, on the areas of PET and sugar, and I would say on the latter, with the EU sugar regime changing, taking that opportunity to kind of renegotiate and reopen some of our contracts.

And so we've seen some of that benefit starting to flow through to us in 2014. So that in effect, just limits what we will see in '15 because there will be kind of -- that pricing, that has already kind of been factored into our numbers for the second half of the year. So that's where we are.

I can't really say too much, this is competitive for us and it's also an area that we're continuing to work on our contracts and we're not really fully closed. So I will be able to give you much more in December..

Our next question is from Steve Powers of UBS..

I guess maybe building on that, just stepping back from the quarter and picking up on mixed comments regarding the continued challenges. If we go back to 2010 and that transaction with Coke that created new CCE, your organic growth has struggled really to get above kind of 1%, and volumes have been effectively flat.

I guess those numbers are actually a little bit weaker since 2011.

So as we look forward, given those still difficult operating environment and arguably less capital structure flexibility, which has definitely helped you over the last couple of years, at what point do you -- maybe need to rethink those longer-term financial targets, or the reasons why you're still more optimistic, with respect to underlying demand or cost opportunities or otherwise?.

Yes, Steve, it's John. We think you've got a good question there, and it something that we constantly challenge ourselves on. We had a particularly good run at achieving our financial targets for several years before -- in Europe, several years before the transaction and for the first 18 months or so after the transaction.

Even during some pretty economically challenging circumstances. And you're absolutely right, since then, getting top-line growth has been challenging. And so we are continuing to challenge ourselves about what is the proper set of financial objectives for us to have.

At some point, if we conclude that, in fact, there's a different set of metrics that we should be using, we'll certainly come front and center and say that. Right now, we continue to believe that we have a robust value creation model, and that the kinds of things, the kinds of success we've had in the past we can have again.

We do have obviously, some challenging macros out there, I mean, the customers landscape is as challenging as it's been in a long time and the consumer fragility in Europe continues.

But we also think that with the kind of products, packages and marketing programs and in-market execution, opportunities that we offer, that we can create value for both ourselves and our customers and get back on the kind of growth algorithm we had in the past.

But I can tell you, we constantly are challenging ourselves, and if we have -- if we come to a view that, in fact, we should have a different set of objectives, that we'll certainly communicate it..

That's fair. And I guess, I -- If I could just follow up on a different topic, maybe your favorite topic of Germany, again, it seems from at least my vantage point, that negotiations between you and Coke are now really about price on that asset. They seem determined to get a certain value for CCE AG and you seem to think that value is too high.

So I guess first, would you view that as a fair assessment of where things stand? And then, second, to the extent that it is fair, should we view -- should we be viewing that as each side simply standing on its ground before, ultimately meeting in the middle or is this more of a true stalemate.

And I ask that question in part in the context of your 2015 pricing negotiations with Coke, because I find it hard to believe that those 2 issues don't become conflated if they're not already, and just any -- if you can be certain on that, that'll be great..

Yes, if there was anything we could say publicly about Germany, you can rest assured we would say it. I think Germany falls in the same category as any other potential acquisition for us and, that is, we've been very clear from the outset of new CCE that we're very interested in expanding our bottling footprint in Europe.

We have a very clear and disciplined process, we're evaluating possible acquisitions and Germany falls in the same category of any other potential acquisition, it's got to create value. So now -- there's really nothing specific I could say about Germany.

All I could say is we remain very interested in looking at ways of expanding our footprint, but what you can assume is, if we choose to do so, it will be in a way that it's gone through a very rigorous and analytical M&A process and it will create value for our shareowners..

And on the incidence pricing tie-in?.

Well, we have an incidence pricing agreement, which is in place through next year. And we and Coke will, certainly, sit down and talk about it at the appropriate point in time. We've been pleased with the fact that we put in place this agreement at the time, we memorialized it, at the time of the transaction.

And I think it deserved both us and the Coca-Cola Company well, and we will certainly, be talking in good faith with them about the future and are there any changes that we should make that would make it better for both of us. But we're very happy with the program and agreement we've had.

And I'm sure that we'll mutually come up with a new program, if there's any reason to change anything. Obviously, we could just have the current one continue for another 5 years. I think it's a reasonable assumption that we'll talk about ways we could improve it..

Our next question is from Ali Dibadj of Sanford Bernstein..

So I think, like most people, I'm reacting to the algorithm of growth we've seen so far, it's a kind of flat top line. The guidance below single-digit operating profit, double-digit EPS. And that particular gap between low single-digit operating profit and pretty good EPS growth is certainly a place of focus.

But I guess, I'm trying to take a little bit of a step back and say, if you think about all the levers you have to pull, what do you see getting better, and what do you see getting worse? So macro's tough, tough to call, but your views there.

It's only weather in some areas, France, tough to call, Italy, [indiscernible] tough to call too, or France and for you guys.

But do you expect your cost base to go lower, particularly, with this -- this price discussion you're going to have, do expect your leverage to get higher, do you expect better opportunities from an M&A perspective? Like if you look forward, what are you seeing that's actually getting better of all the levers, so we can kind of do the puts and takes on this..

Let me make a couple of macro comments there and then I'll ask Nik to give a little bit more color. We continue to think that our based business model in the countries in which we play is a good one. And we have a very disciplined focus on Ownership Cost Management. We've done a terrific job over the years of managing OpEx in tough times.

And I think a reasonable person would assume that we'll continue to do that. I think you've heard us say before, I don't think there's a mega event out there that would cause us to a say, gee, there's a way of having a paradigm shifting move in OpEx. But I think you could assume, we're going to continue to manage it incredibly, tightly.

Beyond that, I think the cost of goods environment is certainly, been one positive tailwind that we've had. And as Nik said, the year-to-year improvement, probably is not going to be good quite as big in '15, as it was in '14. But we still think the whole cost of goods environment compared to where it was 2 years and 3 years ago, it's in a good place.

And then, I'd say beyond that, the whole situation around our license to operate, which is under a huge amount of attack a couple of years ago and resulted in the French putting in a really negative excise tax, which has taken us and our customers some 18 months to get over but we've gotten over it.

I think the good news is we and the Coca-Cola Company are better prepared and are more diligent to deal with this kind of situation, not to suggest that it's never going to happen again. You've got governments out there that are looking for money, but I think the good news is we are in a better state of preparedness.

We have our ear to the ground, and we think most of the governments, in fact, around understand that taxes on discriminatory taxes are not a good idea. So those are some of the macro kinds of things we're doing. Let me ask Nik, if he wants to add a little bit of input..

I would just add a few more points. I think one, obviously, I talked about the COGS environment and John just referenced to that as well. And I think importantly, that really gives us some pricing flexibility. And we can continue to look at our plans and adjust our plans to respond to whatever dynamics we're seeing in the marketplace.

I think that's a key for us to help us as we think about 2015 at least, that's one. I think as John rightfully said, we're relentlessly focused on our cost base. And I think we've got a very good mentality within the organization around really, how we're spending our OpEx and how are we tightly managing that.

And then the third thing I would say to you is really free cash flow. So I think as we've continued to leverage our balance sheet, I think we will continue to look at ways whether there's more opportunity there, but more importantly, we've got a laser focus on free cash flow generation.

So it's all about how do we create more value, ultimately, for our shareowners. That's what I would add..

That's very helpful. It's a very helpful layout. It sounds like a lot of this is part of the track record you already have, whether be it for free cash flow or OpEx.

The one that keyed in that you mentioned a couple of times now, it feels like you're leaning heavier I guess, on inflection and commodities, is that really the biggest thing that's inflecting for you? Because everything else it seems like you're already doing, right? So I'm trying to think of what the incremental positive you're going to see going forward, it feels like it's commodities following any macro shifts, is that a fair playback of what you just said?.

No. I mean, I would just -- I would say to you my playback to would be around free cash flow generation and value, right? And I think that's not to say we haven't had that, I think we have an even more laser focus on that today, whether it be through working capital or our investment model. So to me, that's the biggest piece.

The COGS environment, I think is important because it provides us the flexibility to be competitive in the marketplace but that, to your point, that's always been the case, and we have to always adjust our plans for that..

Okay, that's great.

And I just -- one other one if I could throw in, in terms of what you -- what we all recently heard from Atlanta in terms of Coca-Cola's new plan for cost cutting and so many changes are going into effect, how do you think that affects the bottler relationships, broadly, given your guys' broad experience at different bottlers around the world.

Does it have an effect on the bottler relationships or system, broadly? And then, in particular, what you anticipate it having in terms of an impact on your business, if at all?.

Well, I would say we have a -- as you've heard me say before, we have an excellent relationship with the Coca-Cola Company and have since the day of the transaction which is now 4.5 years, 4-plus years ago.

And in terms of what they're doing to strengthen their overall business and to get it more efficient, more effective, we're very supportive of anything they could do to do that.

Our view is pretty simple and that is, we and they will have a good working relationship regardless of what kinds of moves they make to either change their organization or to reduce cost. There's nothing in there that we see, either in our ongoing private conversations with them or the discussions they had publicly this week.

There's nothing in there at all that gives us cause for concern, we remain positive and enthused about the relationship we have with them and look forward to continuing to build on. I don't see anything in there that they're doing that would suggest that it should impact our relationship, certainly, not in a negative fashion..

Do you don't think they'll have to lean in more on the bottlers?.

No, I don't think so. I think our -- you've heard me say this before, our business model is a pretty clear one.

I think the strength of the franchise system is -- it has been demonstrated over 125 years, and it works beautifully when we do what we do well, and they do what they do well, and we spend 80% or more of our time really working together in a positive fashion and then, occasionally when we have some modest percentage that we challenge each other, that's a good thing, and that's what makes this system so incredibly strong.

And so no, I don't think anything they're doing would suggest there's anymore leaning in or leaning out. I think we will maintain our relationship and as long as we can keep the vast majority of our discussions and actions positive as we have and will, that's a good thing for us and for them..

Our next question is from Bill Schmitz of Deutsche Bank..

A couple of questions. So on the U.K., how much is the softness do you think is that -- like very, very significant share gains from Lidl and Aldi? And then, what's kind of the post-mortem of the packaging changes, like would growth there would have been better or worse, if you didn't make those packaging changes? And then I have a follow-up..

Okay, Hubert, you want to comment on Great Britain, specifically..

Yes, there are clearly some change in the consumption pattern of the British shoppers, moving more to online sales, moving more to towards smaller basket and some extent, moving more to the discounter's channel.

And for the first time, I think we see a kind of decoupling between the improvement in the economy, the GDP growth, unemployment decreasing and what we see in the shopper spending. So it is a difficult environment. I would not put Aldi as a reason as a main factor compared to the others.

If it comes to us, again, we had a massive change at the end of the first quarter with the introduction of the shift from the 2-liter straight [indiscernible] into the 1.75 pack.

But as I explained, it was more than that, it was also offering a multipack of 4.4x 1.5-liter, the launch in this environment, of a 1-liter PET with the lower price point and the acceleration of the 250ml can, again, with the lower price point. So it's a vast risk configuration of our packaging offer.

And I'm really -- and we are really encouraged by the fact that this quarter, despite this tough environment, we have been gaining share both in volume and in value on the NARTD category. And in addition of that, we are coming with new news for the British consumers, so we are balancing our promotional efforts in a competitive environment.

We saw, also, some clear innovation. And as John said, we are really encouraged so far, by the way that both the shopper, the customer have welcomed Coke Life, which was in the market -- in the market in September and smartwater. So it's too early, again, to declare victory.

We are still building the distribution for our buzz brand, especially for smartwater. And as you understand, with smartwater, we're targeting the icy pop of the water business, because this is where value is and this is where CCE is after..

Okay, great. That's really helpful. And then just -- I know Energy is a very small component of your sales now, but is there anything changed tactically now that Coke took the stake in Monster.

So in terms of incremental growth and contribution overall company, will this be any sort of inflection or step change and how Energy sort of fits into the portfolio, broadly?.

Well, as I said in my comments, we've welcomed this intended partnership between Coke and Monster, and I think it's nothing but good news. We've had a really good run with Monster in our system. And now that there's a very solid and strengthened relationship between the Coca-Cola Company and Monster, I think it's nothing but good news.

And we're working long and hard with the Monster team on an Energy strategy. As you pointed out, Energy is a relatively smaller category in Europe compared to the United States but that's great news, because we think it provides a good example of the kind of growth that we could have in Energy in coming years.

So net-net, we are very pleased with this partnership, and we think it offers good opportunities for growth for us in the future..

And how does it change relative to what it was, now that Coke has the stake and obviously their brands went to Monster, the other Coca-Cola brands in Energy, does it -- I mean, how does it really change the algorithm?.

It's simply, I think most importantly, a qualitative change. We all think about these brands now as Coca-Cola brands, Coca-Cola system and Monster brands, they're all part of the same family. And honestly, that's a big difference. We recognize that there is a -- it's not quantitative as much as it is qualitative, but I think it's very real.

We're all members of the family now and that's huge..

Got you. And then Nik, just one last follow-up. How much of that cash restructuring is coming out in 2015.

So what do you envision the cash restructuring charges to be in '14? And now much the benefit is that going to be in '15?.

Well, again, I think this is a part of our total BTP transformation, and we had indicated the fact, total number is going to be about $240 million. And we had about 1/3 each of that $110 million coming through in benefits in '13, '14 and '15. So nothing has really changed from that angle.

And I think if you look at our spend, year-to-date, the substantial part of it from a cash angle has already come through. So you're not going to see a big element of that in our 2015 number, which also supports my earlier comments around free cash flow..

Got you.

So just remind me, what was the cash restructuring in '14, and what do you think it's going to be in '15?.

I think soon we'll provide you that detail off-line, if that's okay..

Our next question is from Bonnie Herzog of Wells Fargo..

I have a follow-on question on Ali's question on Coke but from a different angle, it's regarding your pricing strategy, in light of what Coke has been saying, or I guess will be focusing on, as you're aware, Coke's focus and priority in develop markets is more towards price growth versus volume growth.

So I'd be curious to hear how you're planning to execute on this in your key markets to drive net price realization most effectively, again, without causing too much of a negative impact on your volume?.

Let me just say, we've said for a long time that our focus in driving our businesses on revenue growth, which is a combination of volume, price and mix, that's not going to change. As we work with Coke in our markets and I guess you would characterize us as a developed market.

But we're very positive on the concept, I think it even brings us closer together. As we and they work through our plans and our programs where there's more of a focus on pure revenue growth as opposed to outright volume growth.

I think that's a good thing, it puts us in a closer working relationship and will be good for us and for them and for the system as we move forward..

Okay.

And then I just have another quick question on Coke Life and then maybe smartwater, could you just drill down a little bit more for us in terms of how they've been performing and how they have been incremental? How much traction they're gaining in some of your markets?.

Hubert?.

Yes, Bonnie, it's a bit early to draw some definitive conclusion. What we can say is that it's clearly on expectation or above expectation. Coke Life, in particular, has been very well-received. We had a very strong impact on shelves with this new pack, new color. And frankly, both the PRC pack [ph] and customer and shopper are really encouraging.

But it's too early to tell, because we need to see what the net-net cannibalization will be on the rest of the range. We are now offering a big choice, a good choice to our shoppers, but we're really encouraged. And as John said, we're going to expand the brand now in all our categories starting with France mid-December.

So again, it's very encouraging. But again, after the first effect of trial and curiosity, we need to see on the mid- and long-term and, Bonnie, we don't have the data yet. For smartwater, we need again, to build bit more distribution for the brand.

We're already quite available but we know we're going to get even more distribution this month and by the end of the year and then early next year. And frankly, it's a new field for us because clearly, we were practically not present in this icy water market in GB on the high end of the market.

But here again, we had a very solid launch, leveraging [indiscernible] here in GB. The endorsement of Jennifer Aniston for our billboard campaign. So again, encouraging but too early to tell for the mid- and long-term..

Bill, before you -- Operator, before we take another question, Bill you were asked about the restructuring, just want to make sure I got the right numbers for you. So of the $240 million that we've talked about in terms of total restructuring, the cash impact of that it is about $220 million.

And through 3Q '14, we spent about $190 million of that $220 million. So there'll be a little more coming in through Q4, so you can see the impact in 2015, really quite minimal..

Our next question is from Ian Shackleton of Nomura..

John, I mean, you have referenced the difficult retail environment within GB. Obviously, it's been another holiday for Tesco today. Well, I was wondering -- does this change the timing of the negotiations you have with some of the big customers, both in GB about facility in the European market.

So is it just the same sort of timing that we normally have?.

Hubert?.

Yes. I don't think this will affect at all on negotiation. As you know, clearly, there is some change is taking place with this customer. If we broaden the discussion outside Tesco, we just concluded our pricing -- headline pricing negotiation in the Benelux third quarter as usual, we're gonna start pretty soon, probably early Jan.

The global negotiation both in France and in GB was clearly the will to conclude by the end of the first quarter of that. No change in this area in terms of time and [indiscernible].

And so you kind of -- you've been looking at just -- follow up, really, reference in the Business Transformation Program which obviously, runs through next year, but also talk about looking at OpEx.

I mean, are we like to see an extension of that program or is just cost cutting becoming a way of life going forward?.

Well, we always look for ways of cutting costs, when we launched this Business Transformation Program some 3 years ago, we had spent some 6 months working on it and really did decide that it was a moment in time where we needed to make a bit of a paradigm shift, both in our sales and marketing operations, as well as in our finance and our back office operations.

And now, in retrospect, I think it's fair to say, it was well-planned, well-executed and the benefits are coming through as we intended..

Tough operating cost management is a way of life here. We call it OCM, and that's not going to change. Is there -- at some point in the future going to be an opportunity to do a major restructuring again, and not something we could comment on today.

We always remain vigilant and are always looking at the way our business model works, and are always thinking about whether there's something substantial that we should do. Obviously, right now, there's nothing in that game to talk about and if there is, some point in the future, we'll tell you about it..

Our next question is from Nik Modi of RBC Capital Markets..

I was just curious if you could help to think us think about pricing in 2015, I mean just given what's going on with at least the U.K. retailers in terms of a lot of deflationary activity, and how important the beverage industry is to foot traffic. Just curious how we should we thinking about that in 2015.

And then, just a second question, on innovation, if you can just give us an idea as you think about next year, how we should think about innovation buckets in terms of non-carb, carb, packaging innovation, if you could provide us some context without getting into too much detail. Obviously, because you probably don't what to do that..

Yes, that -- your last sentence is right on target. This race around pricing is not one we can talk about or would want to talk about at this juncture. We pretty consistently said that we're all always focused on revenue, growth and that's a mix of the 3 pricing, volume and mix.

And as we are developing our plans for 2015, we really wouldn't want to talk about what our pricing strategy is going to be for a whole host of reasons at this juncture.

I mean, I think you can take a look at the fact that we have a broadly speaking, a good cost of goods environment that give us some flexibility that some years we don't have, that's a reality and that's a positive reality. But in terms of our pricing strategy versus the volume strategy, that's something we'll talk about at a later date.

Innovation, we and the Coca-Cola Company are always working on innovation. Again, Hubert and I have both said, we're going to be rolling out Coke Life in -- basically, all of our markets and are very excited about it beyond Great Britain and Sweden. And I can also say we're working on a whole host of other things.

But again, for the same reason that we can't really talk about pricing. We can't really talk about what's coming for competitive reasons. But I can assure you, we've got a very active agenda that we and Coke are working on for 2015..

Great. And just following up on that point, John, I mean, the -- it looks like you've over the last year to 2 years have been really focusing more on the non-carb area.

And I'm just curious when we think about next year, is that a concerted strategy, to kind of diversify and kind of have a more balanced carb, non-carb portfolio?.

No, not in and of itself. I mean, we are very, very focused on a percentage basis on the sparkling business, and we have to grow our sparkling business, we have to grow our My Coke business. And yes, we think the still arena offers some big opportunities as we've just talked about including smartwater.

But I certainly wouldn't say that we are overly focused on growing our still business. We think it has to be doing a lot of things right for us to succeed and we've got to keep in mind that some 85% of our business is in fact, sparkling. So we will not take our eye off that ball at all..

Our next question is from Bryan Spillane of Bank of America..

I just had 2 -- just 2 points of clarification or follow-ups. First, I guess, just following the comments that were made about COGS, cost of goods sold and input cost, I guess, into next year and some of the answers given to the questions about Judy and Ali.

I just want to make sure I understood, COGS inflation or commodity cost input inflation this year turned out to be more favorable than originally expected.

But looking out into '15, it may not be as favorable, if anything it may be a little bit inflationary, and I'm assuming that's just because you got a big benefit in sugar [ph] this year that might not flow through to next year, Am I hearing that right?.

Yes, you got that right. And again, please keep in mind, our COGS number is not just about commodities, right? So while we might see some additional benefits in commodities there are other elements of our COGS, concentrate being one of them and our manufacturing cost.

And again, even if we look at the commodities area, half of that is roughly actual real commodity piece and there's a piece of conversion as well. So again, I think I'll just, I'll say at this point, it's too early for us to be specific with you because we're still finalizing those, and we'll give you a lot more color in December..

All right, that's perfect. And then the second question, just following up on John Faucher's question at the start of the call, in terms of the pricing environment, and I guess this is more specific to GB although, it may be relative in another markets.

But I guess could you just -- is it -- has there been any sort of issue with that, I do know if that's the right word. But introducing a 1.75 sort of allowed you -- was a different pricing strategy, I think, that maybe some of your competitors might have been thinking about or talking about or doing over the course of this year.

So it is part of the issue in terms of price competition that you've been taking that action, the competitor hasn't, and so there's maybe a value discrepancy that the consumer is seeing and maybe there's some things that might need to be done [ph] to execute that differently, or is that not really been an issue?.

Hubert, you want to talk to them..

I think they're all right. Part of the equation is a packaging strategy, but also the promotional and pricing strategy. I think it's fair to say that it was a big change for both ourself, our customer and our shopper. A new bottle, a new size, new pricing, new pricing architecture.

As I said, we are encouraged now by the result of this last quarter, where we see more traction behind the 1.75, And we also see more traction before the 4x 1.5-liter. And remember, we are not in a country where the multipack is part of the consumer or the shopper behavior.

So we are also trying to install this new behaviors, and it's also by a dialogue with our customer. So again, we are encouraged by the recent trends, it's important by promotional activities targeted to our shoppers.

But again, it's a broader picture than the -- this large PET is also targeting the small basket, which is growing -- which are growing in GB and all our countries with the 1-liter it's targeting lower price point with the 250ml. So we need clearly, to be better on managing the rate and the mix in all our countries and especially in GB..

Hubert explained that very well. Let me just to add to it that we, in retrospect, really are pleased with the packaging strategy in Great Britain, and I think it was a bit of a challenge for consumers and customers as we first introduced it. But as we now look at it, it's working.

And one of the big benefits particularly, at the 1.75 is it removes that direct comparison, 2-liter to 2-liter. So we're pleased with it, and I think the consumers as well as our customers are getting comfortable with it..

Is it fair to say as we sort of generalize or generically talk about price competition or pricing activity or competitive activity, part of it is you took an action that your competitors didn't, and there was a little bit of an adjustment period, if you will.

But now that that's occurred, it actually gives you a little different flexibility or way to sort of manage pricing that you had before, so it's -- you take a step back to go forward type of thing, is that the way to think about it?.

Yes, you said it very well..

Absolutely..

Our next question is from Robert Ottenstein of ISI..

Guys, you called out in the press release that most of the weather issues were early in the quarter, and I'm just wondering, you had lowered tweaked down guidance September 3, you're tweaking down guidance a little bit again now.

Just kind of wondering what you're seeing out there since September 3 that's caused you to do the second tweak down?.

It's just the fact that we've got the entire third quarter behind us now, honestly.

The weather was worst, you're right, in July, and we had sequential improvement in our business as we went through the quarter, which is good news but the fact is, that there is -- there are continuing challenges out there whether it's macroeconomics, whether it's customers, I mean, if you can take a look at what's going on with our principal customer in Great Britain and some continuing consumer apprehension.

So it's all of those collectively put together that have caused us to have just a very modest pullback in our outlook..

Terrific. And then just lastly. Obviously, very tough macro headwinds obviously, issues with the weather. Coca-Cola in their press release, there was a bit of a shout out, right? That they need to -- execution needs to improve and they singled out Europe for that and they singled out execution.

In any sense in terms of precisely what they are looking at, and how did you read that shout out?.

I think, it's a view that we need to collectively work together even better and have better programs around all aspects of our business. I think there were some discussion that they provided in terms of consumer communication needs to be better. There were some communication about in-market execution needs to be better. We agree with all of that.

I mean, we can always get better and we're pretty good but we can always get better. And so we would never suggest that there aren't some things that we could do, and we can do collectively better. So absolutely..

Our next question is from Kevin Grundy of Jefferies..

I'll be brief because I know the call has gone long here, but just to confirm here on the transformation project, the 110 number has not changed, its roughly 1/3, 1/3, 1/3, so that $35 million roughly, number for this year, that's a hard number than you fully expect to realize in offset commodity pressure, is that correct?.

Absolutely..

Okay, that's helpful. And then GB pricing for carbonated soft drinks was down pretty sharply for you guys.

Just -- and I know this topic has been beat up quite a bit, what should we expect now going forward and I guess understanding in a bit better, how much of this was to support sort of Coke Life? How much of this was corrective pricing action, because you guys have been ceding a little bit of share.

And then just to sort of tie that in now, what should we expect in Q4 with respect to pricing, are you comfortable with where you are? Do you need to promote further, et cetera?.

I think we are comfortable where we are but clearly, we have to have the right balance between promotional support on large PET and then new innovation, new activity, Coke Life, you mentioned, needs to be supported and we launch it in the market. So it's a balancing act in a relatively competitive environment, let's be clear, also.

We are still facing a competitive environment in GB. And again, encouraged by the fact that activating this levers, we have been able to gain both volume but also value share in the last quarter..

And, Kevin, this has all been factored into our revised outlook that we've given to you for the full year and some color I gave you on Q4 as well..

Got it, understood. Just one more if I may, John.

With respect to M&A, just say, Germany, you guys, you and Coke kind of come to agreement on a price, what's your level of comfort with integrating multiple deals within some reasonable amount of time whether that's 6, 12, 24 months or something like that? Say other assets become available whether that be in Europe or outside of Europe?.

Yes. Well, let me just say, we wouldn't do a transaction of any kind whether it's 1 deal or a 3. Unless we were persuaded that it could be handled from an integration standpoint. So that is all part of an M&A process that we would go through.

And frankly, again, it doesn't matter whether it's 1, 2 or 3 or more, that's all part of the exploration of the potential value creation because as you all know, in so many M&A deals, they fall apart not because they're strategically incorrect but because they don't get integrated right.

And so all I can say is you should have assurance that any kind of transaction that we're a part of, whether it's singular or multiple, we will have very carefully thought through the integration. Challenges and opportunities and we'll make sure they are realizable..

Our next question comes from Caroline Levy of CLSA..

My question is around media spending.

Coke did reference that they had actually underspent on supporting their brands, consumer marketing in 2012 and '13, I'm wondering if your market year-to-date has seen any benefits from them picking up their marketing investment and if you think there might be benefits going forward, if your markets are some of the ones that will see the benefit of higher investments then by Coke?.

Well, let me just say, we and Coke consistently talk about what they're going to do in terms of advertising, both the quality and amount they invest, as well as what we're gonna do in market execution, and as they look to the future, anything they can do to generate more funds to put into direct marketing expenditures, consumer media, we're totally supportive of that.

I think it will be a difficult for me to talk about our markets specifically, I would just say, we welcome what they are talking about doing in terms of efficiency capture and then, using some of that to get even better and stronger contacts with consumers. We applaud that..

And then just on the customer situation, it is tough in Europe as you mentioned, and the U.K.

And I'm just wondering from a working capital standpoint inventories, payment times, if you've seen any negative impact from what's going on with some of your customers?.

Nik?.

Carolyn, this is a strong focus area for us as I mentioned. And I think inventories, we continue to be doing very well and seems that our best-in-class if I think about where we are from the Europe perspective, but we clearly have an opportunity in terms of our AR management.

I haven't necessarily seen this deteriorate significantly in that current environment. In fact, if anything, I would say, there's a lot that we can do without even changing payment terms with our customers in terms of our own internal processes to really extract and unlock some of that value that's tied up. So that's what we're focused in on.

But nothing really changed to date..

Final question would just be, I'm sure you have dialogue with I don't know if the word is regulators but industry people about the sugar, the pressure on sugar holders and so on and Coke Life would, certainly, be addressing that, smartwater would be addressing that.

But can you just update us as to whether you think the climate for your products is the same as it was 6 months ago? Better? Worse?.

Well, it's I think it's pretty obvious, there's been a huge focus on sugar in Great Britain from NGOs and to some degree, from the government. I think honestly, as we look to where we are today, and we look to the future, we're guardedly optimistic about where we're headed.

I think the kinds of products we've introduced, which Hubert has talked about whether it's Coke Life or smartwater, clearly are in the right direction.

The fact that we have some greater than 1/3 of our total products are low-calorie and no calorie products and, in fact, that we've stepped up our whole efforts to deal with regulatory agencies and with NGOs. That's all very good. I mean, we just had a sustainability summit in London a couple of weeks ago.

We had 300 major thought leaders there to talk about, sustainability and how it all plays out.

And again, we had a number of regulators and NGOs there, who historically have been pretty negative on our category and who I think are very pleased that we're willing to have open and candid discussions and talk about how we can be part of the solution rather than part of the problem.

So I think we're in a -- again, a situation where we view the future guardedly positive. And you can assume, we're going to remain very vigilant to do everything we can to both introduce the right kind of products as well as to be good corporate citizens..

Our next question is from Feza Ali of Deutsche Bank..

So on that note, let me simply say thanks to all of you, we really appreciate you taking time out of your schedules to join us today, and we wish that you, all, have a great day. Thank you..

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