Thor Erickson - Coca-Cola European Partners Plc Damian Paul Gammell - Coca-Cola European Partners Plc Manik H. Jhangiani - Coca-Cola European Partners Plc.

Judy E. Hong - Goldman Sachs & Co. Lauren Rae Lieberman - Barclays Capital, Inc. Bonnie L. Herzog - Wells Fargo Securities LLC Stephen R. Powers - UBS Securities LLC Ali Dibadj - Sanford C. Bernstein & Co.

LLC Richard Withagen - Kepler Cheuvreux SA (Netherlands) Brett Cooper - Consumer Edge Research LLC Stoyko Moev - JPMorgan Securities Plc Robert Ottenstein - Evercore Group LLC Mark Swartzberg - Stifel, Nicolaus & Co., Inc. Bryan D. Spillane - Bank of America Merrill Lynch Andrew Holland - Société Générale SA (UK) Kevin Grundy - Jefferies LLC.

Good day and welcome to the Coca-Cola European Partners First 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 would 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. We appreciate your interest and for joining us to discuss our first quarter 2017 results and our outlook for full year 2017. 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 the conjunction with the cautionary language contained in this morning's release as well as detailed cautionary statements found in reports filed with the UK, 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 these prepared remarks, we'll open the call to your questions. In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question and we'll take follow-up questions as time permits.

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

Thank you, Thor, and again, I'd just like to thank everybody for joining us this morning and this afternoon as we discuss our results for first quarter of 2017. As you will see in our news release today, our results include comparable diluted earnings per share of €0.31 including a negative currency impact of a €0.01.

We achieved the revenue growth of 1.5% and volume growth of 0.5% with a 15% growth in operating profit, all on a comparable and currency-neutral basis. Given CCEP was created in late May of last year, these growth numbers represent the combined performance of each of our territories as if CCEP had existed in the first quarter of 2016.

Now, as we look closer at our first quarter results, our sparkling portfolio was flat with a 0.5% decline in our Coca-Cola trademark brands. Coca-Cola Zero Sugar continued to perform extremely well with growth of 16% and we will continue to expand and build on this success throughout the summer and across our territories.

Sparkling flavors, which include energy grew 1.5%, led by Fanta with a growth of 2% during the quarter. Energy was up more than 20% as we continue to execute our multi-brand strategy, and we achieved solid gains from Monster and benefited from distribution in Spain, which began in February of 2016.

Our still brands portfolio grew 3.5%; sports drinks grew 2%, primarily through the Aquarius brand; and water grew 1%, reflecting our focus on value and reflecting growth in Aquabona, Chaudfontaine, and Vio. During the quarter, we also continued to make important progress towards our stated goal of €315 million to €340 million in synergies by 2019.

We remain very focused and diligent in working towards this goal as we enhance the effect of the sub-operations (03:25). We're very happy to continue to share best practices and work to improve our efficiency across all functions and territories, allowing all of our markets and people to learn from each other as we continue to build and grow CCEP.

Each of these factors contributed to a solid first quarter results, with a combination of volume and revenue per unit growth benefiting both revenue and, obviously, our operating profit. We did see our gross margins decline during the quarter, largely due to some one-off factors, which Nik will discuss with you in a moment.

So, given our results to-date and our effort for the year, we've affirmed our operating targets for the full year 2017. However, as always, it is important to remember that the first quarter is our smallest and we firmly are aware that much work lies ahead of us as we move into our key summer selling season.

Reaching our full-year goals will continue to require spending execution at the field level and a continued focus on achieving our synergy objectives. We are confident in our approach yet realistic about the months that lie ahead and the challenges we continue to face.

Our results to-date support our confidence that we have the initiative in place to achieve our full-year goals. For example, we are committed to continue to make bold moves on package innovations with a focus on smaller convenience packaging including the new Fanta Twist bottle and the 250ml can for Schweppes sparkling juice.

We continue to invest in our digital capabilities, and we are improving our execution, merchandizing, and displays to ensure our products flow through our supply chain more efficiently and, critically, are presented to the consumer more effectively in all our outlets.

We also have a solid program of brand innovation expansion in conjunction with The Coca-Cola Company and our other partners. This was highlighted by the Coca-Cola Zero Sugar launch, new Monster flavors, low- and no-calorie products, and initiatives such as Vio, which is proving very successful in our German business.

We also have excellent plans in place across our other categories in stills, tea, water, with initiatives for Aquarius expansion, Honest Tea expansion, and continued innovation with our Capri-Sun brand, and we will continue to build on the success we've seen with our Smartwater proposition.

And as I mentioned earlier, we are entering the critical and very important summer selling season. We are excited about the new joint campaigns with The Coca-Cola Company like the evolution of the Share a Coke campaign, which now focuses on dream holiday packs across all our business units.

This marketing is expected to reach more than 255 million consumers across Europe, fully supported by great interval (06:10) execution and partnership with our customers across CCEP. Now, as we work towards achieving our objectives for the rest of the year, we firmly believe it's important we maintain a sharp focus on three key areas.

First, we must continue to execute every day at the highest levels. We have great brands, we support them with marketing programs, and outstanding field execution, all focused on driving value for our customers and satisfaction for our consumers.

Our people, who are the most talented in the business and are highly modeled to win every day, have proven their ability to accomplish this. Secondly, we must continue to deliver on our synergy objectives, which includes as I stated earlier, a pre-tax goal of €315 million to €340 million by mid-2019.

We're making good progress, and importantly, we're realizing the benefits in our results. And finally, we must continue to work in and partnership with The Coca-Cola Company to deliver sustainable, profitable growth. Our two companies have shared goals on the consistency of the marketplace.

We both want to create sustainable, long-term growth through a focus on revenue and profit, and we're working diligently together to reach that vision. Now, in closing, before I hand over to Nick, let me share some key thoughts.

As I stated before, we have a compelling business combination with the world's best brands in categories that offers significant opportunities for profitable growth. We continue to be realistic about the environment, but we remain confident about our ability to capitalize in all these opportunities.

We have a talented experience leadership team and employees who, with the excellent support of our board of directors, are driven to achieve success. We have a company that has important operating assets and advantages that are second to none across Europe and create excellent opportunities for enhanced effectiveness.

Importantly, we are on track to deliver synergy objectives and achieve the full potential of our new company, CCEP. We are committed to creating a workplace that is dedicated to the shared success of all our stakeholders.

This requires a diverse and inclusive culture that inspires the personal growth potential for each of more than our 24,000 employees. It also requires and builds on our continued pledge to do this sustainably, which remains a key part of our business proposition for our employees, our customers, our consumers, and our communities.

And importantly, CCEP has a commitment to driving increasing levels of shareholder value, building on a strong heritage and a track record of success. This commitment was at the very heart of the decision to create this company and it remains a key focus of our work. So, thank you very much for your time.

I'll now turn over the call to Nik, who will share us some more details on our financial results, and I look forward to answering some of your questions after Nik. Thank you..

continuing to drive shareowner value. Thanks for your time. And now, Damian and I will be happy to take your questions.

Operator?.

Thank you. Your first question comes from the line of Judy Hong with Goldman Sachs..

Thank you. Good morning, or hi, everyone..

Hello..

Hi, Judy..

So, Damian, I guess I was hoping to get a little bit more color just in terms of the competitive environment, the share performance in GB. It looks like it was a good quarter, but obviously, you're lapping an easy compare there.

So, just wanted to get a better sense of what you're seeing from an underlying perspective, and the pricing environment as, I think, some of the UK grocers are obviously starting to see more inflation coming through?.

Thanks, Judy. Yeah. We have seen I think towards the end of 2016 and into this year improving performance in GB. Obviously, as we talked about before, Nielsen doesn't cover all of our business in GB, but where it does track, we've seen a recovery. I think that's been on the back of a couple of initiatives that I mentioned during the call.

One, GB was the first market where we launched Zero Sugar Coca-Cola, and that was the segment in which a lot of our share challenges had been in, in the sugar-free cola segment. So, that was a good, solid response to that opportunity and that's working well. We also see our flavor business performing well in GB, that's supporting our share as well.

So, a number of the marketing initiatives that we brought in at the end of 2016 have definitely help shore up and grow our share in 2017. On your second point, we have seen retailers, obviously, on their own discretion making moves around promo pricing.

And you'll see a number of the offers which traditionally, for example, in their case, a number of retailers would have promoted two 1.75 liters for £2. We have seen throughout Q1 a number of cases where that has now gone up for £2.50 for two 1.75 liters. So, signification inflation in the promo price, and that seems to be continuing into Q2.

So, some inflationary moves on promo pricing, not so much on the shelf price. They remain pretty constant, but as you know in GB, a lot of the product and volumes sold on promotion, so the promo price really is the biggest read-through for inflation in value in GB.

So, they're the two factors that are in play and we would expect both of those to continue into Q2 and into the summer..

Okay. Thank you. And, Nik, if I can just follow-up on the gross margin performance, and I know there was that the onetime impact, but can you just sort of bridge the impacts from that onetime item, how much the cost savings offset that, and just a little bit more color on the bridge in gross margin? Thank you..

Yeah. So, Judy, if you look at the cost savings piece, remember it's roughly that 55%-45% in terms of the split between COGS and OpEx, so you have an indication of what impact that had on the first quarter.

If you actually exclude the onetime impact that had 2016 up, it essentially would say our gross margin was slightly down, but I would say very slightly down, but we would continue to see that normalizing over the course of the year.

And more importantly, I think there will be some noise, as I said, as we just cycle through some of the first half of 2016, but the full year is very much intact to have a slight growth margin improvement, which obviously includes the benefits of synergies as well..

Okay.

And the lower sugar prices, at this point, are you embedding any of that into your outlook on the commodity piece?.

Most of our – are you referring to Q4 2017?.

Yeah..

Yeah. I mean, everything that we have guided to – remember, the main areas that were open for us was essentially PET, and we had some element of aluminum open, and that's what's really driven now with at least in the aluminum and currency fully covered.

The sugar benefits that we had, we also were benefiting in prior years, because as the whole sugar regime was in the face of been dismantled, we did get some favorable pricing in 2016 as well. But I think our COGS outlook today, outside of again the one variable being PET, I think we're pretty comfortable with that..

Got it. Thank you..

Your next question comes from Lauren Lieberman with Barclays..

Great. Thanks. Good morning or good afternoon..

Hello..

Hi. If you could just talk a little bit again about price mix. So, I know, Nik, you guys shared that it was all elements of what you would hope will be driving pricing mix, but anything specific on price pack architecture versus product mix and portfolio mix that could help us understand some of the positive claim? Thanks..

Thanks, Lauren. I mean, we – as we stated on earlier calls, and as we talked about coming out of 2016, you're seeing a number of common initiatives in play across all of our markets. Firstly, maybe I'll just talk about headline pricing.

So, we were able to meet our pricing plans as we moved into 2017, so that obviously supports some of our revenue growth. Secondly, we have been spending a lot of time on investing with our customers on driving pack mix benefits, smaller packaging, and looking at – actually building on some of the learnings out of the U.S.

from our learning trip there last year, looking at diversifying particularly in growths here (22:32) around smaller packaging and taking some of the pressure off large multi-pack, particularly PET and cans. That's starting to play a role, but I would caution that that is – that's quite a journey.

That's not something that gets transformed within a quarter, for sure. But it's the right thing to do to build a more sustainable consumer franchise and adapt to a more choice. That's helping. We are seeing, again from a mix perspective, continued strength across our sparkling portfolio, I called out Fanta, obviously Coca-Cola Zero Sugar.

So, that continues to support good margin. So again, each market has slightly different dynamics given where we're coming from, but those three factors of headline price, package mix, product mix, are definitely contributing to the revenue figures that Nik shared with you.

Over a longer period of time, we are very much focused and also channel mix and building our business and continue to leverage our strength outside of top end retail. I think that's one of the strengths of this business. We have got good businesses in – up and down the street in HoReCa.

Clearly, that's a mix benefit as well, that's in our business going forward. So the first three really are playing 2017, the fourth one is something that we're – we believe is a strategic advantage and we'll continue to cherish going forward.

Thor or Nik, do you want to add anything?.

No, I would just say, just keep in mind, obviously, I think if you look at the first quarter, remember, the rate increases particularly in some of the larger markets will start coming through more going forward, because depending on timing, it's either February or March type of an impact.

So, we did had some good brand and pack mix that supported those numbers as well. So, it's really is a good combination..

Okay. That's great. In Germany, I know it's hard to disaggregate Easter shift and so on, but it did look like revenue in Germany maybe is under a little bit of pressure this quarter.

Is it just a slow start to the year or is there anything kind of more specific around that market?.

No, no, nothing specific. I mean, if you recall, when we talked about our full year results in March, we did call out that January was a bit of a slow start. You can see that from the Nielsen data particularly in Germany. So, there was definitely a function of a slow start. We were not as intensively active on promotions in Q1 in Germany.

Two factors have played there. One, we were in discussions with our customers around some pricing moves and, obviously there, I suppose in those cases, you're just not featured as much. And then secondly, Easter is a huge holiday for us in Germany as in all of our markets. So, the traditional promotional activity, some of that's set into Q2.

So, they were the two reasons at play for Germany and, certainly, we're happy where that business is at going forward for the rest of 2017..

Okay. Great. Thank you so much..

And keep in mind, Lauren, we did have both volume and value-share growth in Germany in the first quarter..

Yeah..

And that reinforces Damian's point that we're doing the right thing..

Yeah. Okay. Great..

Your next question comes from Bonnie Herzog with Wells Fargo..

Hi, everyone..

Hey, Bonnie..

Hey, Bonnie..

I have a question on France. With the election coming this weekend, there is certainly a lot of uncertainty about the outcome, But it seems kind of Le Pen is able to win, France's withdrawal from euros is really a foregone conclusion, which certainly has implications on the euro more broadly.

So, I'm just curious if you guys could comment on how that may potentially impact your business, maybe in the near-term, what ways if any you're preparing for that possibility? And then, perhaps broader long-term implications of the eurozone breakup?.

Well, that's a CNN question, Bonnie..

I couldn't resist..

Well....

It's dangerous to ask Damian, that is what he is saying..

No, let me take the question. I mean, clearly, we like I'm sure as you are and everybody else is watching intently with what decisions the French people will make over the weekend. Clearly, if it wants to go the way that you've articulated, which again, I mean, none of us are (27:10). So we can debate what the probability of left or right is.

We've factored in both eventualities. So, we thought about what happens. Clearly, it would be still subject to a referendum. So, we'd still have to go to the French people regardless of the margin of victory. So, we would wait and see.

I mean, we clearly would like to see stability across all of our markets and, obviously, the political environment contributes to consumer confidence and stability. So, we'll watch with intense, but again, it would be remiss of me to really comment on what I think will happen.

I think you'd know what we would like to happen, but I think if we bring politics into these calls, they may last two or three hours going forward. So, we have it in mind. We are confident that our business there is performing well. Clearly, coming into an election, there is a degree of uncertainty.

But likewise, as you come out of it, then I think France will have a clear path forward over the coming years, and I think that would be a good benefit for us going into the summer season. So, we'll watch as I'm sure you will with intent at the weekend..

And we hope all the French continue to celebrate with lots of Coke..

Yeah..

Good point. And then if I may ask a broader question on the macro environment, which I guess on the margin things seem to be improving.

So, I'd like to get a sense from you guys if you're actually seeing this, and if you're now more confident you'll able to hit your low single-digit top line growth guidance for the year? And then, if you could maybe drill down a little bit on the markets that are improving; you called out, for instance, improvements in local market conditions in Iberia, and then maybe touch on some markets that are still pressured.

Thank you..

Well, as we've said on the call, we've reaffirmed our guidance for the full year. So, I think that reflects our confidence in achieving our revenue targets for the full year. Where we're particularly happy about is as we look at our performance coming through the first quarter, all of our markets have continued to performance well.

So – and as we stated, there were reasons for a couple of them being slightly behind just in terms of absolute revenue growth, but again, we factored that into our full-year guidance. So, I think we're pretty confident that all of the markets will contribute to our revenue growth objectives, profit and margin objectives, for the full-year.

It's challenging to call out any one that stands out either on the upside or on the downside. I mean, I think in Iberia, we did talk about a slow start to the year, as we did in Germany, but both of those markets have responded extremely strongly through the back-end of the quarter, and into the second quarter.

So, both of those issues have been addressed. So, overall, pretty consistent growth across markets. I mean, there are pockets of some brands doing better here or there, some packages doing better here or there, but overall, it's a pretty consistent picture for us.

Nik, anything to add?.

No. No. You said it all..

All right. Thank you..

Your next question comes from Stephen Powers with UBS..

Hey, guys. Thanks..

Hey, Stephen..

Hey, Stephen..

I just had a – it's, I guess, a little bit of a bigger picture question. Thinking about your CAGE presentation and other interactions with us in the last couple of months, you definitely prioritized growth – new growth priorities not only across colas but also across sparkling flavors and energy juices, teas, waters, et cetera.

And at the same time, we've heard from The Coca-Cola Company about them also thinking more about leveraging the total portfolio for growth, elevating innovation outside of CSD, they're really trying to break down historical barriers preventing speed to market.

And so, I'd love just a general update for you on your optimism on portfolio growth initiatives broadly, but specifically, in terms of whether there are valid reasons for incremental optimism just based on some of the changes occurring at Coke aims at making the system overall more agile, and if that's something that you're encouraged by and if there are some tangible examples as to how it's playing through? Thank you..

Yeah. I mean, clearly, with James moving into the CEO role, James had the key role to play in the creation of CCEP. He was operating in this region prior to moving into his previous role. So, I think, clearly, we know that James understands the opportunities across Western Europe. I think that's a positive for us.

Beyond that, though, obviously, the company's strategic intent around total beverages, speed to market, productivity and cost saving, we believe supports a very similar objective to the one that we articulated on the creation of CCEP. So, obviously, having aligned objectives really helps us make faster decisions and win together.

I would want to come back to your comment on growth. So, I mean, we see value creation as being the primary objective of profitability. So, while we will look across all of those categories, it will be with a view to where can we make a good return rather than where can we just grow.

And I think a testament to that is most of the initiatives that we've taken on water, whether it's Smartwater; on tea, Honest Tea; on energy, we have and will continue to prioritize areas where we believe will contribute long-term to value creation. And, therefore, all of those brands are only sold in immediate consumption of small packs.

Because I know there is a question out there on with the levels of revenue guidance we're giving, why is it not higher? Well, a lot of the new initiatives we're launching, we deliberately kept them in profitable segments of those categories, so we can build a more sustainable, long-term value business.

That ties back into the Coke Company's objective. And as you know, we're on a incidence pricing model, so obviously, that fits with their revenue goal as well. So I think, it's very much aligned and we're looking forward to continue to expand a portfolio with the Coke Company.

You'll see that throughout 2017, you'll see that into 2018, we're having those conversations already. But I'd go back to my point, I mean, we will do it in a way that makes sense for our shareholders and in a way that we can create value. And I think that requires alignment and, thankfully, that's what we have now at the Coke Company..

Yeah. That's great.

Is it too early to cite some examples of where there have been improvements in speed to market and agility, or can you offer some?.

No. I think, to be fair, the Coke Company has been on that agenda with Muhtar for a number of years and I think they have restructured their operations with a view to being faster to market, with a view to funding more innovation. So, in some ways, I think it's an acceleration of that strategy that was articulated by James last week.

So, we have seen benefits. And obviously creating CCEP in Western Europe took three decision entities in the bottling system to one. And, obviously, that's allowed us to be more efficient on the bottling side with the Coke Company as well.

So, I don't think, we would be where we are without that and that really goes back to decisions that were taken in 2016. So, clearly, we look forward to seeing the acceleration of that under James. But it has been a theme of the company strategy for a number of years and, yeah, as I said, we look forward to continuing..

Great. Thank you..

Your next question comes from Ali Dibadj with Bernstein..

(35:43) follow-up with a larger one. Just the two smaller ones, you mentioned just a second ago and also in the prepared remarks that in water you're going to "focus on the value." Just want to understand what that means. I think I know what that means, I think that means IC, but I just want to understand more.

And then on the UK, would love to just learn more about what you think kind of a normalized, whatever that means, market growth should be volumetrically. I mean, this quarter, you're clearly lapping some of the IT issues you had last year.

But on a more – and I would have thought volume would have come back even more so, but just on a normalized basis, what do you think the volume is there?.

So, hi, Ali. Just on your first point, I think a good example is our Smartwater proposition where we've kept it in IC. We've just broadened that whole proposition into sparkling recently, and we're now moving into sparkling flavors.

So also, on constant zero for (36:42) Chaudfontaine, again, we prioritize IC and glass on that water business, because they are the packages that command generally a higher consumer price and then, therefore, we share a higher margin with the retailer.

So, when we talk about value, it is really about where we can make sustainable, good margin by focusing on packages and increasing on channels that just generates higher revenue for us and the retailers and we both share that.

And that's less on large, bulk pack waters sold in retail at very competitive value prices – I mean, or very competitive low prices. That's not a business that we believe, one, we can add a lot of value to for our retailers, and secondly, it's not a business that we think is, kind of, good for our shareholders over the longer term.

So, it is about IC as you mentioned, it is about glass, and it is about packaging and channel innovation. On GB, again, we're focused much more on revenue than volume. We certainly had a good comp quarter in GB, that's fair. We had the SAP issues, we talked about last year in Q1.

We haven't given any guidance for revenue growth by market, but clearly, we'd expect GB to participate in our overall guidance, probably slightly ahead given that we had some issues last year. So, we do get a slightly benefit from that in 2017, but that's all factored in already.

So, again, that low single-digit revenue guidance that we've given for the whole business pretty much fits all of our markets consistently..

Okay. That helpful. And the bigger question is more of a kind of organizational question, and I'm just trying to think about how taxing it is on the organization to actually do integrations. So, clearly, lots of integrations right now in bringing the bottlers in Iberia and Snapple (38:41) Germany, et cetera.

How taxing is that on the organization? So, structurally, is there kind of a different integration team, kind of, a separate team? Is there a synergy PMO, and what's the infrastructure, if any, because sometimes you need one and sometimes you don't to integrate? And I guess I'm asking that question in the context of how stretched do you think your organization is from a human resources perspective or could it, in short order, integrate you in more territories without too much stress on the company?.

That's a good question. I've been involved in a number of integrations and this by far in a way has been the best planned and best executed that I've been involved in. Clearly, there was a lot of work. I think the most important aspect to that is we started very early.

So, if you recall, when we talked about the creation of CCEP, we obviously were planning for that for quite a while. We took us, a lot of our key executives, throughout the end of 2015 and into 2016 to work on planning the integration and the pre-prepare for a lot of the process work that we needed to do.

So we definitely brought forward a lot of the work. Because of that, certainly, the integration has gone extremely well. The synergy capture is on track.

We've maintained a very small, but very lean team just to complete some of the longer-term aspects of the integration, but again, as I said, it's very small, it's very lean, it doesn't interfere with the business, as you can see, from our results in Q1 and in the second half of last year.

On a positive note, certainly what we've learned would help us integrate other businesses even better. So, we have a model that we know works for the bottling business.

We have people that have led this integration and are part of our senior leadership team and, clearly, we would advocate that that would give us a lot of benefits if and when we have the opportunity to acquire more territories, if that comes to that..

Are you pre-preparing anything now?.

(40:53)..

Well, we're always prepared, Ali. It's just that other people are..

Okay. Thanks very much, guys..

Your next question comes from Richard Withagen with Kepler..

Yes. Good afternoon. Can I ask if you can give us an update on the sugar taxes in Spain.

I think the Catalan region has implemented tax on the 1st of May and how do you plan to react to this specific tax? And also the country-wide tax seems to be on hold for now in Spain, but perhaps could you give us the status of that tax?.

Yeah. So, we are working with the Spanish team and obviously the Spanish authorities to look at the structure and mechanics of that tax. Clearly, we have some learnings from what we've gone through in GB. We've had previous experience in France and Portugal.

So, as far as the most important thing is we're applying that learning and knowledge back into our Catalan business, and we will respond in accordance as we've talked about before with obviously passing on the tax and looking at package differentiation to maintain affordability and relevance to the consumer.

We have already been accelerating our non- or low-sugar products and variance, so that obviously minimizes the impact to the tax. And, obviously, we're as interested as I think all of our competitors and customers are around what will the national governments do based on the regional tax. So, it's in our plans. We're responding to it.

Clearly, like all of these taxes, we would question the viability and whether they will really change behavior. We don't believe it will. We think there are other ways to deal with this challenge. Having said that, they've made a decision. Obviously, we'll honor that and would execute against the law.

And within that, it really puts more emphasis on us to diversify faster in packaging and product, and we're doing that in GB, we're doing that in Portugal, we're doing it in Spain, and we'll see how the consumers respond to that as we move through the summer, but it's clearly on its way..

And can I also ask on Honest Tea, I mean, how is that performing in the UK right now? And I've seen in a couple of other European countries, have you introduced it now across all countries or still in a selected number of (43:32).

We're being quite selective. I think if you look over the medium-term and our objective would be to have a multi-brand tea strategy in all our markets, and we're working with The Coca-Cola Company to understand market-by-market what's relevant. You've obviously seen the announcement regarding our association – or the company's association with Nestea.

And so, we will roll out Honest. We're happy. We think it's a brand that has got relevance, its organic platform, its products are great. But I suppose it's also a category with consumers and with customers that when you need to be segmented, that's the nature of that brand and, two, you need to be patient.

And we're applying both of those principles, so you will not find it everywhere. Hopefully, you'll find it somewhere, but you won't find it everywhere. And again, in the interest of long-term value creation, we want to make sure that we prioritize channels and customers that generate a reasonable selling price for that product.

That's what we've done in GB, it's worked well. And we're looking at new variants and new flavors that we can bring in to support that brand. But overall, the response from retailers and consumers have been very positive. And as I said, over the next 18 months, you will see that brand move across all of our territories..

All right. Thanks..

Your next question comes from Brett Cooper with Consumer Edge..

Thanks, guys. Can you just talk about your capacity, both from an infrastructure standpoint and then from a people standpoint to begin, putting more brands or more launches through the business, I guess on the heels of Coke is planning to invest more, you guys – your desire to diversify your portfolio? Thanks..

Yeah. We feel well-positioned to add more. I think one of the great things about the bottling business is, we have a fixed cost base, we have a sales force of over 4,500 people in Europe. We've great customer relationships and we've got a great route to market. So, all of those assets are expandable to take out more brands and more packages.

So it's something we welcome. Clearly, you got to do it in a way that both our customers and our people can absorb. So, planning with the Coke Company and phasing in is something that we're very focused on. On the manufacturing side, a lot of the innovation is coming in packaging formats that run on our existing lines. So, smaller cans, smaller PET.

We have existing accepted capacity. So, a lot of these new still products are on accepted; we have capacity. In 2016, we upgraded a number of our production lines particularly on energy, so to in-house Monster, so we have that capacity in place. So, certainly manufacturing is not a barrier.

We believe our customer relations are an asset, because clearly we are operating in a category that's growing, So if you look at any RTD, it's growing revenue. So, from a consumer goods perspective, we're in a right space in terms of the category we operate within. They're looking for innovation and looking for new products.

They're looking for lower sugar, which again we can clearly deliver. And then from a sales force perspective, if you look at our existing sales force, we have expanded our association with Salesforce.com and we've rolled out proprietary technology to all of our sales reps, which we're seeing driving increased engagement.

So, our sales force are happier to be working on tablets. We're seeing a lot of productivity because we've simplified processes, we've taken away bureaucracy, and we've enabled them with a state-of-the-art software solution. And as a result of that, they've got extra capacity.

So, without increasing €0.01 of OpEx, we're generating incremental sales capacity and that allows us to filter in some of these new products and packs. So, certainly, not a barrier for us and clearly it's about phasing. In our CapEx numbers, we've also reflected the need for extra cold space for all these new products.

So, when Nik talks about our CapEx guidance in the full year, baked into that is an expectation that some of these new products will require incremental cold space and that's also factored into our CapEx guidance. So, overall, it's an exciting journey with the Coke Company.

I'll just come back to my second point, probably from a leadership perspective, what we've just got to do is be very smart about phasing in those initiatives. So, we give people time to adapt and our customers to except new products and packs. So, that's probably the art and the science, and that's something we're very focused on..

Great. Thank you..

Your next question comes from Stoyko Moev with JPMorgan..

Yeah. Good morning, gentlemen, and thank you for taking my questions. I've got two if I may. So, firstly, I noticed a relatively weak performance in France.

I appreciate your comment in the press release on the timing of promotions, but I was wondering whether you could provide a bit more color in terms of to what degree that was driven by industry weakness and to what degree these are kind of CCEP-specific issues? And then secondly a follow-up question on GB.

You provided some color on your performance, but I was wondering whether you have seen a bit more rationale pricing from your key competitor in the market, especially more recently, and whether they have mirrored your price increases? And also in GB, last year you launched your biggest marketing campaign behind Coke Zero.

Should we expect you to continue to support the brand to quite a significant degree this year? Thank you..

Okay. Thank you. You did a good job of fitting three questions into one there so congratulations. I'll start with – in reverse order. As I said, we're extremely happy with the Zero Sugar performance. So, that's a long-term investment from us and the Coke Company behind that brand. So, that will continue and it is continuing in 2017.

And as I said, we're bringing that format and taste profile to all our markets. So, we're very happy and we'll continue to investment behind that brand.

I don't know what our competitors have done on pricing in GB, and all I can do is look at what our retailers have done on pricing, and certainly, as I mentioned earlier, we've seen retailers taking up pricing on our their promotions. That seems to be reflected across the category.

So, I think you're seeing overall the category promo pricing levels rise in GB since January, end of January, and that's kind of – that has been the case through Easter, which is probably the first – was the first big holiday event.

And so, we're seeing that being maintained, but again, that's fully up to the retailers' discretion, but it seems to be across category. It's certainly happening on our brands, because we know that, and if we look at names, then we would see that's also the case across the other brand. So, that seems to be the dynamic they're playing.

We obviously believe it's a good way for the retailers to create more value in the category and we would support that. So, I think that's good news. On France, we did talk on our last call about changing our promo strategy in France.

We have in Q1 not just reduced some of the promotions with Easter moving, but we also have started to promote smaller packages. So, if you – in our French business, we have for a number of years, have a very dependent volume around large PET packages.

We believe there's a bigger opportunity with smaller packaging, smaller PET, smaller can sized, and we've redirected some of our support into those packages. Clearly, in the short-term, they don't generate the absolute volume or absolute revenue given the selling prices of the large PET packs.

But it is, we believe, the right thing to do for the long-term and, clearly, that was the big change with some of our retailers. And candidly like all of these changes, when you change pricing or promo, there is a period of disruption in the market. That's what occurred in January, we talked about that.

And we're happy when we looked at our price realization in France on a per case level, it's reflecting that strategy. But clearly, through the summer, we'll get a better understanding of how the consumer responds to the new offers. But again, it was a conscious decision and we believe the right one for the long-term health of the business..

Okay. Thank you..

Your next question comes from Robert Ottenstein with Evercore..

Great. I want to follow-up on some of the answers that you gave in terms of capacity for new products, and specifically, sparkling water and sparkling Smartwater, do you see that as having more geographic potential than just plain Smartwater, which has largely been a UK product? So, that's question – or part one.

Innocent; do you believe that you have the capacity in terms of the cold storage, whatever you need, on the logistic side for innocent and any plans to get that? And then, third, in the Coke system, Coke in Japan is starting to introduce more premium Coca-Cola variance that have a health and wellness angle with added ingredients.

Do you see that as something that may make sense in your markets? Thank you..

Hi, Robert. Thank you for the question. So, on Smartwater, yeah, simple answer is yes. I mean, actually in some of our markets, particularly like Germany, we know that carbonated water is the preferred choice. So, we would expect that over time having a carbonated and a flavored and a still variant on Smartwater makes sense.

We launched it first in GB because that's where we've had the longest experience with Smartwater. We've got a good consumer franchise. So, we'll see how it goes, but from a consumer perspective, if you look at our other markets, it is easy to see a path to expansion over the next couple of years.

But it's early days on sparkling flavored, so we just got in. So we'd probably be able to give you more color around that in the second half of the year. On innocent, that's currently not in our plans.

That's something that we continue to reflect on with The Coca-Cola Company in terms of what's right for that brand and can CCEP add a lot of value to that proposition and can innocent add a lot of value to our shareholders. That's our number one question. It's quite a different business, as you mentioned, it's chilled.

So, I think if it was the right decision for the system, the aspects of the supply chain that we would need to address are not that complex. As you called out, it's really about chilled distribution that's readily available in Western Europe through partnerships. So, I don't think that would be a barrier.

I think the real question is, given where that brand is at and its success and the level of investments that goes behind that success, is it a brand that would add value to CCEP? We continually reflect on that with the Coke company, but at the moment we don't have any plans to build that chilled capability at CCEP. That may change in the future.

I'm aware, but you probably know more than I do if I'm being honest about what's going on in Japan. But, clearly, we've – we have a session with The Coca-Cola Company coming up with all of the large bottlers. As part of that conversation, we'll look at what innovations are working across the globe and what can we take back into Europe.

And I've now added what you've told me to my list of questions. So I'll know more by the end of May and that may be something that would work well in Europe. But I've got to learn a bit more about – I have heard about it, but I haven't seen any results.

(55:56) there might be something that would work well given the similar demographics in Western Europe..

Terrific. Thank you very much..

Your next question comes from Mark Swartzberg with Stifel, Nicolaus..

Good afternoon, gentlemen. Thanks for taking the questions. I had two.

One, Damian, Iberia specifically, I know there's – the one fewer selling day, but it looks like even after you adjust for that, there was a slowdown in organic revenue growth in the quarter after either by comparison to last year entirely or by comparison to the second half of last year where you had a nice pick-up in growth.

So, am I interpreting that correctly? And if I am, what's going on there? And then my second question is for either you or Nik, it does – in spite of Iberia which seems very manageable, it looks like you're in a position where you could have some earnings upside as you move through the year.

If that were to be the case, is your emphasis – I'm trying to get a sense of where the priority might be, is it to put more money against a particular part of your sparkling portfolio, is it to put more money against this emphasis on water or this greater emphasis on being properly positioned in water, just trying to get a sense on where the priorities are there for that?.

So, just on the Iberia, Mark, I mean, there's nothing really to read through on the quarter in Iberia. And as you said yourself, Iberia had a really strong year last year with a good quarter four, Easter moved, we did have a slow January in Iberia but that's really it. I mean, there's nothing else going on in Iberia.

In fact, it's a fantastic business and it continues to deliver solid revenue growth over a number of quarters. So I think probably the biggest factor is the selling day, that gets you back to around flat. Easter, again is a big factor, so we're not concerned at all about Iberia..

Sorry, just to be clear, with the one additional selling day, we actually are up about 1%. It's flat on a reported basis..

Yeah. Sorry. Yeah. So – and again as you said....

Yeah..

Go ahead. Sorry..

No, go ahead, Damian. Sorry..

So, as I just said, it's a slight slowdown from where it was, but again, I wouldn't underestimate slow January, but overall still a good quarter, and when you take Easter out, I think we're very happy with Iberia..

And are you saying it's only Easter because I see a 1% and then I see a 3.5% last year, and I look at the second half, which implies of course the first half was an easier compare, so it makes me think it's more than Easter, so I'm just – and more than January.

So is that all it is or is there something else going on?.

That's all it is..

That's all it is. And also there's an impact from Portugal, remember, we have a sugar tax that has an impact....

Yeah..

Fair enough..

...in terms of the volume and revenue piece..

Yeah. Now, there's a – I mean, in fact, if we look at our execution metrics, if we look at our channel mix in Iberia and if we look at our renovation pipeline with The Coca-Cola Company, that business is performing very well. So, nothing else going on there..

And we actually had a strong Q1 2016 hurdle as well in Iberia. Remember, obviously, it wasn't a part of the group, but we did talk about what Q1 looked like too. So, I think all those factors and, as Damian said, there's nothing outside of that that we see. We actually continue to be very pleased with the performance there..

Great. Great..

And maybe you could just....

We got so caught up in the first one, we forgot your second question..

Yeah.

So, your second question, if you could restate it, please, Mark?.

I apologize. He's no longer in the queue..

I think, Mark, I think your question was in relation to, if the business performs better how would we be thinking about potential opportunities. And I think, one, keep in mind again, it's only the first quarter, we still got the summer selling season ahead of us. We've got some tough comps in Q3 and Q4 to hurdle as well.

So, we don't want to get ahead of ourselves. Obviously, we continue to look at things that we would like to do jointly at the system to think about reinvigorating and sustaining that top-line growth. And if and when that arises, we will update you..

Operator, next question please. Thank you..

Thank you. And your next question comes from Bryan Spillane with Bank of America Merrill Lynch..

Hi. Good morning, everyone..

Good morning..

Just one question about cash flow.

Can you – Nik, can you maybe update us on your thinking in terms of sort of how you're thinking about returning cash to shareholders and, especially, putting aside if there is the possibility for M&A just how you'll think about like excess cash flow, the bias towards share repurchases or dividends, just kind of where you're thinking as you're getting closer to that point where maybe you'll be in a position to return more cash to shareholders?.

No closer than we were last quarter a couple of months ago, Bryan, so – or maybe a couple of months closer. No, but listen, I think, in all fairness, a couple of things I would say to you and, again, this is obviously absent other investment opportunities including M&A.

First thing is obviously, we continue to want to steadily increase the dividend payout ratio, and I think I indicated that last time as well. We had planned to move towards that 40% dividend payout which we did with the increase to €0.21 a share per quarter. But we're probably still at the lower end of our peer range in terms of dividend payouts.

So, I think that would be a steady increase there; nothing big or dramatic.

Second is, obviously, as we get down towards that leverage range and with the interest of wanting to continuing to maintain flexibility for opportunities going forward, but at the same time, optimizing that capital structure, we would do some form of return if that was appropriate.

Again, I think, I'll reiterate what I said last time, there is no bias or preference for a special dividend versus a share repo. The board would need to consider that. We have talked about that. I don't think there's anything that precludes us from doing either one.

And what form it ultimately takes will be the decision of the board and could be a combination thereof. So, our thinking continues to be in the same direction as we've had since day one..

Okay. Thanks, Nik..

Your next question comes from Andrew Holland with Société Générale..

Yeah. Hi.

Given the success that you're having with Zero Sugar in the UK, can you give us an update on the proportion of your GB volume that you would expect to be captured by the sugar tax when that comes in next year? And related to that, could you give us your estimate of what the retail prices will have to do if that tax is passed on in full, given the sort of channel mix and brand mix of your business?.

Hi, Andrew. So, directionally, it will be less than half of our range or of our volume, let's say, more in terms of range would fall into that tax spend. So, if you look at some of the data from last year, we are really accelerating our low and non-sugar (01:04:00) or maybe even higher than that.

So – but, clearly, we understand what's coming and, therefore, if we look at reformulation and investment by brand, et cetera, we continue to grow our non-sugar and low-sugar variance much faster. So, that mix is just going to go one way, but at the moment, would be less than half.

On your second question, it's too early, I mean, at the moment, we're just looking at what will the tax means, what will it mean by customer, by channel, by pack. We've been doing a lot of modeling.

I suppose the only commitment we will make is we're committed to pass on the tax to the consumer and to the – or to the customer and then we would expect the customer to pass on to the consumer, but again, that's their choice.

The reason I can't be more specific is obviously from a competitive perspective, we are looking at pack sizes and variance and affordability concerns, and only when we really finalize those we'll be able to kind of be clear on what it may mean in terms of potential selling prices.

So, we will do that as we move through the year, but at the moment, it's still work in progress. So, hopefully, you can appreciate that..

Okay. And just pressing a bit on your less than half a volume, less than half could be 10%, it could be 49%, might it be sort of 40% to 50%.

Is it in that sort of range that you're expecting?.

Yeah. I think to be fair, we've been hitting, we've been over 50% non-sugar in GB coming out of the last quarter, and if you take our growth rate, you kind of guessed exactly into the range of what you're – what you've just said. Absolutely..

Okay. Thank you..

And again, keep in mind, as we've always said, it will just be two products red Coke and Monster Green, that would be... (01:05:45).

So, we have a little reformulated all other brands and varieties below the sugar tax level. So as Nik said, it will be Coke classic and our Green energy Monster brand. So, from a products perspective, then obviously, the percentages are a lot different but from a volume perspective, it lands within the range that you said.

So, I think, we've got time for one more question..

All right. And your next question comes from Kevin Grundy with Jefferies..

Hey. Good morning, guys..

Morning..

Question for Nik on mix implications on margins as you look out, so not just for just year, Nik, but as you look out like the next three to five years. And given the puts and takes from a geography perspective where Germany clearly lags other regions pack and channel strategies, which you guys have spoken a lot about.

And then product perspective with two-thirds of the portfolio still levered to trademark Coke, but trends there weaken and that's likely to persist particularly given sort of a de-emphasis from The Coca-Cola Company now.

So understanding, Nik, that synergies are going to be the key margin driver here over the next few years, as we think about those moving parts, what's your expectations as you kind of pull all those pieces together for mix on margins kind of on a per annum basis? Any sort of help there would be great. Thanks..

Sure. Tough one to give you really straight direction on, but I think you've hit the highlights.

There will be obviously markets such as Germany that are bit more of a drag given their lower margin structure, but I think we're doing a lot of things that are right in that marketplace both from a restructuring as well as what Damian even highlighted from a pricing promotional plan perspective.

That should help over time continue to drive margins up in that market. Our focus is clearly to be able to get a favorable pack architecture mix coming through, channel mix, with a lot more focus around the cold immediate consumption channel.

And obviously with new product introductions, a lot of what we're looking at would be much more in the IC space, which over time should continue to have a positive impact on our mix as well. And when I say over time, because clearly there will be some early cost associated to invest behind those brands.

But net-net, we would continue to see, over time, mix to be a positive..

Okay. Thank you. Good luck..

Thank you. So, again, thank you, everybody, for taking the time to join us. Just wanted to share to you some closing thoughts before we end the call. Clearly, as you've heard from Nik and I, we're very pleased with a solid start to 2017.

Again, we'd like to emphasis, it is our smallest quarter and our focus in the near-term is really preparing the organization for our key summer selling season and working particularly with The Coca-Cola Company on product brand innovation to build and sustain long-term shareholder value for all of the shareholders at CCEP.

So, we look forward to talking to you again during the year updating you on our progress. And, again, thank you very much for taking the time. Good-bye..

This does concludes today's conference call. You may now disconnect..