Good day, and welcome to the Coca-Cola European Partners Fourth Quarter 2017 Conference Call. At the request of Coca-Cola European Partners, this conference is being recorded for instant replay purposes. At this time, I'd like to turn the conference over to Mr. Thor Erickson, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and thanks to everyone for being on our call today. We appreciate your interest and for joining us to discuss our fourth quarter full-year 2017 results, as well as our outlook for full-year 2018. Before we begin, I would like to remind you of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook for future periods. These comments should be considered in conjunction with the cautionary language contained in this morning's release, as well as the detailed cautionary statements found in reports filed with the 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 prepared remarks, we'll open your call for 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 if time permits. Now, I'll turn the call over to Damian Gammell.

Thank you, Thor, and many thanks to everyone joining us today to discuss our full-year preliminary 2017 results and our outlook for our 2018. We are very encouraged by the progress we've made in our first full-year as Coca-Cola European Partners. At the heart of a rationale for creating CCEP is our plan to build a strong platform for long-term profitable growth and focusing on delivering value for all our shareholders. In 2017, we continue to laid out foundations and have started to see the benefits of this transactions coming through. We are pleased today to have modestly exceeded our initial guidance for revenue, operating profit, diluted earnings per share and most notably free cash flow. This was driven by solid gains and our revenue per unit case growth in our sugar-free portfolio, a strong innovation pipeline and a continued focus on joint by the creation for all of our customers across all of our channels. Our performance in 2017 has enabled us to accelerate investments behind our brand portfolio, our field sales teams, our route to market, and most importantly our digital capabilities. Investing in our people is also a key priority for us and I am proud that nearly 500 of our leaders will have participated in a proprietary accelerated performance leadership program by the end of April, 2018. This program was designed to embed our new culture, deepen the understanding of our strategy, and ultimately improve execution in the marketplace. Approximately 2,500 additional associates will participate in local variants as we roll out the program later this year across CCEP. This has been critical in bridging that gap between strategy and execution throughout 2017 and into 2018. We are confident of making further progress underpinned by number of exciting growth opportunity ahead of us and with continued…

Thank you, Damian, and thanks to each of you for taking the time to be with us today to discuss our full-year 2017 preliminary results in our outlook for 2018. So for 2017 on a reported basis, full-year diluted earnings per share was €1.41 or €2.12 on a comparable basis. Currency translation reduced earnings per share by approximately €0.04. Before I go to more details I want to highlight one main modeling point on our comparability adjustments. As stated in our release we have now completed the push down of our acquisition accounting adjustments in the fourth quarter which has had an impact on our comparable results in 2016 and 2017. These adjustments include the impact of acquisition accounting on the final fair value asset, the related impact on the depreciation and amortization expenses as well as other one-time acquisition accounting adjustments. Importantly, these final adjustments do not impact cash or our IFRS reported results, but mainly impact comparable depreciation expense. The net impact on comparable diluted earnings per share is a reduction of €0.04 in 2016 and a reduction of €0.02 in 2017. While these adjustments are small they do have an impact on our 2017 quarterly phasing, particularly Q1 and Q4. We've provided a full set of revised comparable quarterly financial information for 2017 and 2016 in our release today. These adjustments should allow for better comparability in our financial results going forward and establish the final comparable days for CCEP post the acquisition accounting. Now returning to the fourth quarter, revenue increased 4% on a comparable and currency neutral basis. This was mainly driven by revenue per unit case which increased 3% willing to favorable price promotion and channel mix. Volume increased by a 0.5% with letting solid field sales execution and the benefits of marketing and…

Thank you. [Operator Instructions] Our first question comes from Steve Powers with Deutsche Bank. You may begin.

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

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

Excellent. And just maybe a follow-up on that. So with what you see in GB and with the incremental actions in France and Norway, maybe just a question for Nik. Are you still holding to the 2% to 3% adverse profit growth impact from all sort of taxes at the confounded level that you called out last quarter as you think about your 2018 guidance or are the reasons to think that that outlook is now better or worse?

Well I think as we talked about this in November, we gave you our best estimate and we continue to refine that and add in some of the incremental risk from a topline perspective, primarily volume in France and to a lesser extent in Norway. So I think our guidance is what we feel confident in being able to achieve with all those in place and just by way of estimate we probably see that probably towards that top end of that range that we had previously guided towards of 2% to 3%.

Okay. Great. Thank you very much. See you next week.

Again, just remember that a lot of estimates that go into that, so we will continue to keep you guys posted and updated. And remember, the France one - Norway has come into effect. GB goes in April, and then France goes in July.

Thanks.

Thank you. Our next question comes from Ali Dibadj with Bernstein. You may begin.

Hey guys. Just to build on that a little bit. Your 2018 guidance looks a little bit less inspired relative to consensus. And you talked about a sugar tax for sure. But still it sounds like in that 2% to 3% hit of EBIT range. And it also looks like you're already taking a lot of pricing certainly in GB. And so two of those, Nik maybe assumptions that you're making what are your elasticity assumptions are you assuming that the retailer is going to pass it through it's only the Nielsen data suggests that it's already happening I mean GB at least. And either way is there an incremental pain here we should think about from your EPS guidance perspective unrelated to sugar tax around your commodities or the CapEx you mentioned or something else. Can still feel like to fill that lower than I think many would have anticipated for 2018 the guidance.

So the first thing I would say Ali, I'm not quite sure how many you're talking about because when we look at the numbers I would say what we're guiding towards is not significantly lower it's pretty much in line and obviously it's early in the year we haven't seen truly any of this impact come through. I think from your standpoint in terms of what you're seeing through some of the scanner data in GB it is positive, but remember this is much more what we're doing in terms of a continuation of what you've seen in 2017 in relation to promotional activity and pulling back on that which is the right thing for the longer-term in the business. Clearly the sugar tax implications will only hit the shelves as of April when that is introduced and our assumption today is that the retailers will pass that on to the consumer and there will be some initial sticker shock that just comes from a higher shelf price, but I think we're managing that as Damian said with a variety of different initiatives including what we're going on non-sugar cola range what we're going to terms of our pack architecture on the sugar products and I think we will continue to provide updates during the course of the year.

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

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

I think that the simple answer, but Ali is known, we've put a lot of priority of free cash flow generation as we created CCEP. As we've talked about in earlier calls we changed and center plans reflect that. So we're very confident that strong free cash flow and our balance sheet allows us to achieve both of the objectives you stated. So we don't see our improved dividend in anyway impacting our ability to execute M&A if and when it becomes available to us.

And I'd just build on that from a capital structure perspective, as I've that highlighted we've continued to be lever faster than we had planned in 2017 and we will continue to see that trend into 2018 as well. I think capacity wise if the right transaction comes along we're not in any way constrained from a capital structure perspective. And in terms of returns to shareowners. We have consistently talked over the last year plus around the fact that we will increase our dividend payout ratio steadily towards the 50%. I think this is a continuation of that strategy. And as we've said very clearly, we will continue to evaluate, absent other opportunities, what we do with the excess cash. So nothing really changed from our angle. And I think it just continues to signal even in a year where we do see some challenges, we feel confident in our cash flow generation capabilities.

Thanks very much.

Thank you. Our next question comes from Robert Ottenstein with Evercore ISI. You may begin.

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

Hi, Robert and so there's no significant one-offs in the numbers you're seeing in the quarter and if you look actually for the full-year, I support the key driver of it has been a price per case realization and that's something we talked about back in 2016 and in terms of having a focus around quality revenue growth. And that's what we've seen to coming through the business throughout 2017. The fourth quarter was particularly strong. And one factor and that was a lot of the changes we made in our promotional strategy, obviously had a bigger impact in the second and third quarter and then in markets for example like France, we saw our promotional strategy to - started to embed coming out of the third quarter. We got the full benefit of that with our retailers in Q4. So it's been really about executing our focus on our pack strategy. It has been about the headline price increases. We took at the beginning of 2017, obviously flowed all the way through the year another benefit in Q4 and it was about our promotional strategy being fully implemented in the quarter and most of those are all of those will continue to benefit as you move into 2018. And if you look at some of the scanner data across our markets particularly Germany, GB, Belgium, and France where we did make the change you're seeing promotional pricing increases on the both 5% to 6% in all of those markets and that's something good news for retailers because it supports their margin objectives. And we believe it's more sustainable pricing for our P&L and ultimately I think the value in our brand to consumers - are paying those prices. So it's overall good news.

Very good.

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

Right, that's what I was remarkable given that the tough comps, so you're attributing it primarily to your execution, not necessarily a pickup with the consumer?

I think obviously all that revenue ends up in driven by consumers by buying a product at a higher price. So clearly consumers have adapted to our new promo pricing in the quarter. So it's probably a combination of both. I think you can't really separate. We did execute our plan solidly through 2017. We saw bumps in the road in the first couple quarters, which you recall with some of our larger customers. We stuck to our strategy. We've taken significant volume impact in Germany and France throughout 2017. They're in a numbers already. We have delisted some brands that were not profitable that certainly helped us coming into the quarter, so a combination of all of those really delivering a very strong quarter, on the back of a strong quarter in 2016 as well.

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

I can't - I don't give you specific percentages, but just to comment to that point. Most of the price realization on per case level is coming from the promotional and pricing decisions we made on large packaging. Because that's we saw a big opportunity to move away from what we felt were value-disrupting promotions for our customers and for ourselves. So when you look at our price realization per case and a large amount of that's coming from headline price. The next component is coming from better promotional pricing execution and the third component is the one, for your reference Robert which is a better mix because of smaller packs are growing faster than our large packs. That is continuing and we are seeing are away-from-home channels growing faster going to retail channels which is also a benefit for mix. So none of those components are nearly end of the opportunity and we would see those factors being in play over the coming years for CCEP. We haven't given guidance against each of those individually, but we would see all three of them playing a role in our 2018 guidance, but beyond into 2019 and 2020 there is still a lot of opportunity in those three areas.

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

Terrific. Thank you very much.

Thank you. Our next question comes from Bonnie Herzog with Wells Fargo. You may begin.

Thank you. Hello.

Hi, Bonnie.

Hello.

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

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

Makes sense. Thank you.

Thank you. Our next question comes from Kevin Grundy with Jefferies. You may begin.

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

Thanks Kevin. I need to go back and go through all of my transcripts because I don't think I've ever called out a 40% share target for energy, but if I did, I stand corrected. But I'm looking at it. I don't think I did. But anyway, I think that's academic. I think we believe energy is definitely a category that we're winning in and we can win bigger in going forward. And you raise some interesting points just on the space conversation as we called out a lot of our capital is going into coolers, and particularly with the Monster brand, we're ensuring that we're placing a lot of Monster coolers to make sure at least in the channels where we sell the beverages cold. We're not cannibalizing our existing sparkling business and more importantly we create space for what is a very high value category for sales and our customers. So we're very focused on that. In retail, and if you look at our share today, it's around 20% in the energy segment, so the space that we're gaining is generally coming from within the energy segment and from competitors and including retailer brands and branded. So we are seeing the Monster brand in particular being able to commend share from within the existing category space. So that's good news and obviously that's supporting our goal. And we still see that the energy segment being quite dynamic in terms of high revenue growth figures similar to what you've seen in 2017. That's generally on the back of really strong consumer demand. And sugar free varieties are offering a lot more choice to consumers. Some smaller multi-packs are now playing a bigger role in the portfolio. They didn't exist previously, and obviously, the Monster Company continue to bring a lot of innovation and great marketing to the brand. So those four elements give us a lot of confidence that it's a category we continue to grow in and take share in its. It's one of the unique categories for us really where we are coming from a position of being the number two in most of our markets and growing share quickly, but doing that with the right strategy, so not dividing the category or our margins and that's something. That's why we never talk about a share goal because I think if you set your targets based on share, in the short-term you may do a lot of things that destroy profitability long-term. So we're quite happy with our rate of share growth and if that leads to leadership or not over time for us that's an outcome rather than an objective. We want to make sure we can continue to use the brands that we have to drive profit and cash and that's what we've seen in 2017 and we'll see the same in 2018.

That's great. Thanks guys. Good luck.

Thank you. And thank you for the 40% flow, so that's interesting.

Thank you. Our next question comes from Judy Hong with Goldman Sachs. You may begin.

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

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

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

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

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

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

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

Got it, okay. Thank you.

Thank you. Our next question comes from Richard Withagen with Kepler. You may begin.

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

Hi, Richard. So from a integration of merger perspective, obviously we're very, very pleased where we are overall. So not just on synergy capture, but in terms of the momentum we've seen in the business on the topline and bottom line I think we're all very pleased and in fact from an integration perspective, well and truly through that and now we're operating as one business. So the merger and integration in some ways is close. The synergy capture, we hope to close that early in 2019 as well. And when we look at the synergies we're delivering broadly in line with our plan, I have to say. And so I think the pre-planning work that was done prior to the deal closing turned out to be very solid and has delivered what we expected. I suppose going back to early on in the process. We did see a slight creep up in the cash cost to achieve early on in the process, but that is now more or less level than what we expected. So we're in good shape there. Once we deliver our synergies obviously like every business in our field we will continue to focus on productivity and efficiency. So while we will deliver the energies, we will move forward then on a more regular drumbeat around productivity and synergies in our business, so no real surprises. I don't know Nik, is there any you want to add?

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

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

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

All right. Thank you.

Thank you. Our next question comes from Bryan Spillane with Bank of America. You may begin.

Hey, good morning, everyone.

Good morning.

Two questions, one, first on the free cash flow guidance for 2018, Nik I guess €850 to €900 a little bit below what you delivered in 2017 and the idea of that some point trying to get - trying to which strive to achieve to 100% of net income. So if you could just talk about what's driving free cash flow in 2018 to be may be a little bit lower than that?

Well, the first thing I would remind you about was the fact that we had guided to a much lower number in 2017 and we've made much better strides in three areas. One was obviously significantly higher delivery in terms of our focus on working capital. And I think that's something that we're continuing to 2019. Two, we also with strongly focused on the CapEx spend and made sure that we challenged and looked at every year that we're going back into the business. And then thirdly, as we both referenced earlier with strongly focused on managing the cash cost to achieve the synergies as well. So I think that continues into 2018 clearly we're going to be lapping a very strong working capital base from which we will continue to deliver some more benefits and we continue to be hopeful to over deliver against that, but at this point I think we feel very confident in that number and we'll update you as appropriate during the course of the year.

Okay.

And just add to that - we retain free cash flow and a management incentive plan and in 2017. So there's definitely no change in terms of the focus of attention it's getting from the leadership team.

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

Yes, great question and obviously we try to do as much as we can from a modeling perspective. But remember we're lapping a very strong second quarter from 2017 if you remember we had a tremendously early and warm summer in 2017 in Q2. And then in Q3 we actually were down because we were lapping a 2016 very strong third quarter. So I think with both GB sugar tax and France sugar tax coming to ahead in Q2 for GB and Q3 for France those are clearly be the quarters that would be under more pressure. But I think we'll be able to provide you some more guidance as we continue to see how that plays out during the course of the year. But our full-year still remains very much in line with what we just guided to.

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

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

Okay. Great. Thank you.

Thank you. Our next question comes from Lauren Lieberman with Barclays. You may begin.

Thanks. Good morning. And it's going back in the call a little bit, but I was curious if you guys could offer any kind of commentary around transaction growth in GB and in France in particular, and I guess Germany as well, but it has moved away from the large PET promotions and you are thinking that shift toward smaller packaging if transaction growth is outpacing reported volume growth? Thanks.

Hi Lauren. Yes, simple answer. We've seen in all of those markets as we've roll back some of those heavy discount promotions and reprioritize smaller more affordable tax in some cases. We are doing transactions and we are seeing more consumers participate in our brands as result. So it's good news and it helps us obviously on the revenue side, but it also gives us confidence in this kind of longer term health of the brands. And as I think transactions are really good measure of the health of the brand, so we've seen transactions growing in GB, France, and Germany.

Our transaction is up for trademark Coke?

Yes.

Okay. Great. And then one quick, other piece was on tea. So you mentioned that Fuze has now been launched everywhere and this is going into some new markets, but just curious with the Nestea partnership ending, have you maintained shelf space and just kind of floating your own brands where you have the Nestea co-brands previously?

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

Will Fuze be more - I think Nestea this is some degree like large PET in the higher promoted packaging. One is that correct? And two, for Fuze will you be launching in the same kind of architecture or will it be much more single-served oriented?

We've taken the opportunity to try and reshape the tea category because you're absolutely right. There was an over index particularly on Nestea in some markets like Germany in large 1.5 liters PET through discounters. So we launched Fuze across Europe in 400 ml to the 500 ml and it was launched in 1.25 liters instead of 1.5 liter. And they were conscious decision that we were also launching it in glass. So to take its opportunity to rebuild value particular for our consumers and for ourselves and what we think is still a category with a lot of headwind for growth. And that's been received well, so all of those listing have talked about are on those new pack sizes. And consumers don't - made any real comments since early days, but we haven't heard anything back from consumers the packaging is great, so I think they're overall.

Good. Thank you so much.

Thanks, Lauren.

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

Hi. I'm kind of just take you back to an earlier on today in relation to the UK. You said that the change is connected to the sugar tax were happening now. Can I take that to mean the you have already introduced smaller pack sizes and adjusted prices ahead of the tax or should we expect just sort of walk into as that goes on the April 1 and see all the changes to pack sizes and prices happening at that time?

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

Okay. But the price to the consumer will only change when the tax becomes effective in April?

Yes, correct.

Okay.

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

Just to give a bit more clarity, I mean you have seen consumer prices and other brands and pack that outside of Coke trademarks changing already. As normal as you would expect in Q1, so that has happened. But particularly in trademark Coke it will happen when the tax hits.

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

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

The only call that I would make at Damian's point is while we did see similar trends. GB had strong volume growth. But also remember. We did have a supply chain issues related to a whole SAP implementation of the year before. So in some ways we were lapping some of that. But GB was probably the strongest some of our volume growth perspective and the pricing as revenue case realization as well.

So one market we saw strong revenue realization, but GB probably have the strongest volume, but lapping from weaker comps.

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

Yes, but you're looking at - you're looking at on a currency adjusted basis.

Okay.

Focus on a currency neutral basis.

Okay. That's helpful. Thank you.

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

Thank you so much for keeping the call going and congrats, and hi Damian and Nik; my question is just about a snap back in volumes on third quarter to fourth quarters quite unseal. Congratulations on that in particular in France. Maybe you could just talk about how that happened? Where do you think the total CCEP can maintain shelf space in 2018 as these sugar taxes come into play? Are there newer and other brands or they're competitive brands that are making an argument to take any shelf space, so just to the general conversation around value.

Yes, so just I mean I think if we go back to 2017, we benefited from good weather momentum in Q2 and we know in Q3 we didn't and we were quite explicit that we had the impact of weather on the opposite side in Q3 and obviously that made the delta that's new fall of very strong. But if you look at that - we still had a very good fourth quarter, if you look at quarter-over-quarter, going back to 2016. In France in particular and we probably made the bravest moves in a promo strategy in France, and that definitely impacted our key results in our Q2. We were back more or less on full promotional participation in France with most of our big retailers in Q4. So that definitely supported our revenue growth in France. So that's probably the biggest factor there. To your comment on shelf space and we are very conscious that we talk with our retailers about the amount of value and both in terms of profit, but also in terms of cash that we generate for them. And if you look at the any or to the category and sparkling it's still showing remarkably strong revenue growth. And I'm talking about the category and our sales obviously leading the category. So we still remain a very relevant category for the retailer and we're getting more relevant as we innovate. Whether that's on tea, whether that's on sugar free, whether that's on pack sizes. So that in itself helps us to protect and grow shelf space. It's not a given and I think your question is well made with something we're very focused on. And it's also something we're focused on beyond shelf so as we launch all of these new packaging initiatives and new brand we have to support our cooler placements and make sure we don't cannibalize ourselves. And it's also a hot topic first and so far in the resets that we've seen from retailers made in or generally growing our shelf space which is encouraging for there are something we're very focused on.

That's great news and your CapEx of €550 to €575 was higher than we anticipated some of that is coolest do you think that's a new kind of a run rate that you will be having to do with selling CapEx increasingly as we move forward?

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

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

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

Great. Thank you so much.

I think we have a time for just one last question unfortunately. So operator?

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

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

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

And it sounds like I mean it's a little too early to know whether - because that was one of the big problems or retailers didn't follow you is that's a little too early, but the intent is to be more aligned within go around.

Absolutely. Well, I think there's more time to plan for it too. Remember the last time around in 2012 it came around in November and went through in January. So there was a big rush and there was - in some ways a different environment that you were dealing with in France too even from a political perspective which I think should work well to hopefully support us doing the right thing and then doing the right thing. And in some ways while they've been referencing the fact that it's not like the GB tax you know the tax on the sweetness is significantly lower it's about an eighth of what it would be on the sugar drinks. So there is still a big opportunity from a perspective of what's more play in terms of the low to no sugar variance in the portfolio which of you remember last time it was a flat tax across pretty much the whole category. Setting that some differences and there's some more time for us to work through it in the right way with the retailers. I think they suffered a lot from it too. I think hopefully lessons learned for them too that they don't want to go into the same situation again.

Very helpful. Thank you, guys.

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

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