Coca-Cola HBC AG

Good afternoon, everyone, and thank you for joining the call today to discuss Coca-Cola HBC's results for the first half of 2019. I'm joined today by our CEO, Zoran Bogdanovic; and our CFO, Michalis Imellos.

Zoran and Michalis will present our results to you. And following that, we will open up the floor to your questions.

As always, we will ask that you ask your questions one at a time and that you wait for us to answer each question before you ask the next one. Rest assured that we will keep your line open until we have answered all of your questions.

Before we get started, I would like to remind everyone, this conference call contains various forward-looking statements. These should be considered in conjunction with the cautionary statements on the screen.

This information can also be viewed on our press release issued today. Now, let me turn the call over to Zoran.

Thank you, Joanna. Good morning, everyone, and thank you for joining our 2019 half year results call.

I will start by giving an overview for the first six months. Michalis will then take you through our financial performance, before I discuss our operational performance and outlook for 2019.

We delivered currency neutral revenue growth of 3.4% in the first half, a pleasing result in the context of a tough competitive period for volume growth and a backdrop of unusually cold and wet weather for most of the second quarter, which impacted all of our segments. Volumes grew in all three of our geographic segments, up 2.2% overall, with a good momentum in Sparkling and Energy, up 2.9% on a combined basis.

Innovation continues to be core focus. In all, 4.5 percentage points of our volume growth was attributable to new launches.

This first half was a busy one for innovation with several lunches and announcements, which we are excited about and which I will discuss in more detail later. Currency neutral revenue per case growth of 1.2% in the first half was driven by an improvement in the second quarter, compared to the first, as price increases category and package mix continued to drive sustainable improvements.

Better price/mix is visible across our markets with the exception of Nigeria. To give you a sense of the underlying improvement elsewhere in the portfolio, excluding Nigeria, price/mix would have been up 2.5% in the first half.

We delivered a 50 basis point improvement in comparable operating cost as a percentage of revenues and our comparable EBIT margin improved by 10 basis points. With that, I will turn the call over to Michalis to take you through the financial results.

Thank you, Zoran. Hello, everyone.

In line with our practice, as I take you through our financial results for the first half of the year, I will refer to comparable figures which exclude the impact of restructuring costs, the mark-to-market valuation impact of commodity hedges and specific non-recurring items. Here you can see the key lines and driving our revenue growth and margin expansion.

As Zoran mentioned, we achieved volume growth of 2.2% in the first half. This, combined with a currency neutral revenue per case growth of 1.2%, drove 3.4% currency neutral revenue growth.

The impact of foreign exchange translation on revenues was positive by 40 basis points, driven by favorable movements of both the Swiss franc and the Nigerian naira versus the euro, resulting in reported revenue growth of 3.8%. Our gross profit margin declined by 40 basis points, mainly as a result of the adverse transactional foreign exchange impact of 60 basis points.

Comparable operating expenses as a percentage of revenue improved by 50 basis points, of which 20 basis points was due to one-off benefits and the other 30 basis points was driven by operational leverage, as we maintained cost discipline while growing revenues. Comparable operating profit increased by 4.7% in the first half compared to the prior year period.

We had a €19 million currency headwind to our EBIT from currency depreciation, mainly associated with the weakening of the Russian ruble versus the U.S. dollar.

€20 million of this was transactional and impacted margin by 60 basis points, as I mentioned earlier. The combined effect of the gross profit margin decline of 40 basis points and the OpEx as a percent of revenue improvement of 50 basis points, led to an EBIT margin improvement of 10 basis points.

Financing cost increased by €14 million compared to the prior year period, due to higher interest expense resulting mainly from higher overall gross debt and the increased lease liability from the adoption of IFRS 16. Comparable EPS reached €0.61, 1.5% higher than the prior year period.

A slower pace of EPS expansion compared to operating profit growth is the result of higher financing costs, while the tax rate in the first half was stable. We generated solid free cash flow of €79.3 million in the first half.

Turning to input costs, currency neutral input cost per case was up by 1.8% in the first half of the year in line with the guidance we gave in February. PET resin cost increased in the first half in line with expectations.

Our sugar cost fell, despite a tighter sugar market in Europe, as we benefited from our hedging positions which fully cover our requirements for 2019. Sugar markets in the rest of the world remained stable.

Aluminum cost decreased slightly, keeping the trend of quarter four 2018 and stabilizing at levels lower than prior year. Turning to our OpEx performance in more detail.

Comparable operating expenses closed at 27.5% of revenue, a 50 basis point improvement compared to the prior year. We continue to use our infrastructure effectively and to invest in technology to increase our efficiency while growing the top line.

In the first half of the year, this well controlled and lean cost base allowed operational leverage to contribute positively to our OpEx ratio by 30 basis points while the other 20 basis points of the improvement was one-off in nature. Let me walk you through the key drivers: Underlying sales expenses, as a percent of revenue, decreased by 20 basis points.

In addition, we had a 10 basis point negative impact from cycling the one-off benefit of the partial recovery of bad debt in Croatia. The combined impact of these two effects was a 10 basis point improvement in sales expenses as a percent of revenue.

Underlying marketing expenses, as a percent of revenue, decreased by 20 basis points. In addition we saw a 30 basis point reduction as we cycled last year's FIFA-related commercial activities.

The combined impact of these two effects was a 50 basis point improvement in marketing expenses as a percent of revenue. Warehouse and distribution expenses, as a percent of revenue, decreased by 10 basis points, administration and other effects-related cost as a percent of revenue increased by 20 basis points.

Turning now to the key financial drivers on a segmental basis. In our Established markets, currency neutral revenue growth of 1.9% was driven by 0.4% volume growth and 1.5% expansion in price/mix.

This price/mix improvement is partly the result of passing through the sugar tax implementation in Ireland, as well as small price increases taken selectively in other markets. We have also experienced positive category mix from strong growth in the ready-to-drink tea and energy categories together with favorable package mix from strong execution of our revenue growth management strategy, particularly in Italy, Switzerland and Ireland.

In terms of margin delivery, the positive impacts from operating leverage from this top line growth, OpEx improvements and a positive foreign exchange impact from a stronger Swiss franc were offset by higher input costs and the adverse impact of the sugar tax implementation in Ireland. This drove comparable EBIT growth of €2.4 million and stable EBIT margin of 9.1%.

In developing markets, currency neutral revenues grew 5.3%, with volume up 1.4% and price/mix growth of 3.9%. The segment saw strong category mix, partly helped by the slowdown in water volume growth as well as improved package mix across most countries.

The impact of price increases in Poland, Hungary and the Czech Republic also had a positive impact on organic growth in the segment. In terms of margin delivery, the main impact here is the cycling of the one-off benefits from the Croatian bad debt partial recovery.

Overall in the Developing segment, we saw a €2 million decline in comparable EBIT and a 70 basis points decline in the segment's margin to 8.5%. The Emerging markets saw currency neutral revenue growth of 4% with volumes up 3.4% while price/mix grew by 0.6%.

There are two effects to be aware of here. First, the impact of the changes to pack/price architecture we have made in Nigeria to respond to a more competitive environment drove negative price/mix in the country.

Second, the impact from the discontinued Brown-Forman contract in Russia, which still impacts the first half. Meanwhile, improvements in input cost per case and operating expenses as a percentage of revenue drove margin improvement.

This was only partially offset by the foreign exchange impact of a weaker ruble. Overall, comparable EBIT was up by €14.2 million and EBIT margin expanded by 50 basis points.

Moving on to restructuring, in the first half, we incurred restructuring costs of €30 million, mostly focused on the Established markets. We do not anticipate any significant restructuring opportunities for the rest of 2019.

We expect the restructuring initiatives already undertaken in 2019 to yield savings of €19 million in annualized benefits from 2020 onwards. Turning now to free cash flow, we generated €79.3 million in the half year, a decline from the prior year period.

This lower cash flow generation was due to the phasing of certain working capital payments which we expect to normalize over the course of the year. It was also due to the timing of capital expenditure which meant that CapEx was up 9.7% in the first half.

Again, this impact will normalize by year-end. And therefore we maintain our guidance of annual CapEx as a percentage of revenue between 6.5% and 7.5%.

We continue to invest in the business to support growth. The key area of faster increase in capital expenditure was the Emerging segment specifically Nigeria, Ukraine and Romania.

In May 2019, we issued two new bonds and partially refinanced another. We raised the total of €1.3 billion of gross debt in two tranches: one €700 million euro-denominated fixed rate bond maturing in May 2027; and another €600 million euro-denominated fixed rate bond maturing in May 2031.

We used part of the proceeds of this new issue to repay €236.6 million of our €800 million 2020 bond benefiting from the lower spreads on our new bonds. As a result of this new issue our average effective interest rate on our debt improved to 2.1% from 2.7%.

This new debt and the early redemption of the part of the old as well as the adoption of the IFRS 16 accounting standard on leases led to first half financing costs increasing year-on-year by €13.7 million to €33 million. Looking ahead, we now expect net financing costs for the full year to reach €70 million approximately €10 million less than our expectation at the beginning of the year.

Finally, a few words on margin delivery and our second half expectations. The first half achievement of 10 basis points of comparable EBIT margin expansion was in line with our expectations.

As I outlined on our last results call, we had expected margin delivery to be weighted to the second half of 2019. Let me reiterate why this is the case.

First of all on the transactional FX impact. Based on the current favorable spot rates, we expect this impact in the second half to be minimal compared to the €20 million adverse impact in the first half which drove a 60 basis point drag in the first half margin.

Secondly, we will be consolidating Bambi in the second half of the year which is expected to contribute positively to margins by 20 basis points in the second half and 10 basis points in the full year. Finally since we expect an acceleration of volume in the second half, this will drive faster margin expansion through operational leverage.

In light of these factors, we are reiterating our guidance for another year of EBIT margin expansion, although as we have said before not at the pace of the last couple of years. With that, let me now pass the floor to Zoran, who will take you through the operational performance for the year.

Thank you, Michalis. Overall first half volume was up 2.2% with growth in all three segments.

As is said, weather was a headwind this quarter. And as you know we were cycling a tough comparative period, particularly on the volume front in the second quarter.

In this context, we are pleased with this result which leaves us on track to meet our targets. Now looking at the segments, in our Established markets volume growth of 0.4% was a very solid result.

And we have observed some really encouraging trends in key categories. We are pleased to see faster growth in Sparkling, up 80 basis points and Trademark Coke growing by 2.3% with ongoing strong results on Coke Zero and a return to growth in Coke Regular in Ireland.

Energy continues to grow double-digit and ready-to-drink tea is seeing high single-digit growth, while colder wetter weather impacted water volumes which declined. Developing markets grew volumes by 1.4% lapping a very strong result of 8.9% growth in the prior year period.

Here again, Sparkling is growing faster than the segment, up 1.7% with Trademark Coke up 3.5%. We are also pleased to see ongoing momentum in Adult Sparkling with Schweppes up 3.3%.

Water and Ready-to-drink Tea both faced challenging comps. In the Emerging markets volumes were up 3.4%.

We are seeing strong results from Trademark Coke in the segment which was up 6.5% contributing to 3.5% volume growth in sparkling. Water volumes were up mid-single digits, driven by strong results from the category in Nigeria, while juice volume is, declined mostly due to our decision to focus, on the premium end of the market, in Russia.

And this strategy is generating revenue growth. Looking at our performance by category, on the group level now, sparkling volumes excluding energy increased by 2.4%, growing across all three of our segments.

We are encouraged, to see transactions up 2% and currency neutral revenues up 3.2%, in the category. Trademark Coke continues to do very well, with volumes up 4.5%.

And ongoing excellent results from Coke Zero, which was up by 35%, in the first half. This 35% growth is on the base of 25%, growth the prior year.

So we have seen very strong momentum from the brand. And in fact, Zero and no sugar variants are driving volume growth throughout the sparkling category, with growth of 36%.

We are also particularly pleased that the adult sparkling portfolio is, growing faster than the overall category with volume up 6%. Schweppes contributed volume growth of 7%, with an excellent performance in Russia, Romania and Ukraine, where our premiumization strategy continues to drive results.

One of the categories that we are most excited about is energy. In the last three years we have delivered a volume CAGR of 26% in the category.

And the first half saw similarly strong results with volumes up 28%. The energy category is ripe for innovation, and the further segmentation to really unlock its vast potential.

In the first half we made several exciting steps in this regard, including launching Coke Energy, in the premium segment, and Predator, at the more affordable end of the market. Water volumes grew by 2.2%, driven by the Emerging segment.

In the developing segments we are cycling very strong growth of over 21%, in the prior year period. And this year volume growth was stable year-on-year, while volumes in the Established segments declined slightly.

Juice volumes declined by 2.5%. We are seeing growth in the category in the Developing segment.

However, it was more than offset by volume declines in the Established and Emerging segments. Ready-to-drink tea volumes declined by, 6.2%.

Strong growth in the Established segment continues with volumes up, 8.6% in the first half. In the Developing and Emerging segments however, volumes declined.

Our acceleration programs including a new visual identity. And new disruptive packagings are being, rolled out across our markets.

Let me also give you an update on innovation, which continues to contribute an important part of our growth. In the first half of 2019, we sold 49 million cases of new products, flavors and packages.

Representing 4.5 percent points of our first half volume growth. Let me pull out a few examples to give you a flavor.

In the first half of 2019, we launched two new variants of Coca-Cola. These were Coca-Cola Energy in three markets and Coca-Cola Plus, Coffee in six markets.

We also launched new flavor variations in all the key sparkling brands and a premium packaging in FUZE. I'm also proud, to say, that we launched 100% recycled PET packaging in water brands in three of our markets, as well as 50% recycled PET packaging in Coke and Coke Zero, in Switzerland and Austria.

We won't stop here. You can expect more developments in that regard, as we progress towards achieving our 2025 sustainability commitments.

We also announced in May, that we will be launching Costa Coffee, in a variety of formats throughout our markets, starting with 10, in 2020. We are excited about the opportunity to leverage the expertise our teams have developed, in coffee to sell these great brands.

Turning now to our performance by, segment and focusing on some of the bigger countries. As I said at the start, we are seeing some very encouraging trends within the Established segment, which increased our confidence in the future.

If we look at Italy first, volume grew by low single digits. We are achieving stable volumes in sparkling after several years of decline.

As well as growth in value of the overall category, a significant increase in transactions, improvement in revenue per case. And value share gain.

We believe that this positive performance is due to the changes we have made to our pack/price architecture in the country, in the second half of last year. And from changes we made to our route-to-markets to focus on improving our coverage in out-of-home.

This improved coverage, when combined with some of our premium offerings. And the broader portfolio particularly, with the introduction brands like FUZE Tea, is having a very positive effect.

FUZE Tea alone is up 60% since last year. Now clearly, it's early days for the turnaround in Italy.

But we are very encouraged by this ongoing positive momentum. And that we can pinpoint the driver of the performance to actions we have taken.

In Greece, volumes continued to recover, up by low-single digits in the first half. Both the sparkling and energy categories continue to show strong momentum, which is spurred by new flavor and variant launches including Coca-Cola Plus Coffee, Coke Zero Lemon and a range of exciting flavors in Schweppes including bergamot hibiscus lemon and pink grapefruit.

Switzerland had a very wet start to the summer. Actually it was the wettest May on record.

And this had a dampening effect on growth. We introduced a new pack/price architecture at the start of the year which is yielding good results so far.

Overall we saw an improvement in revenue per case in the country, while volumes declined by mid-single digits. Turning to our Developing markets, in Poland volume grew by low single digits.

We are cycling our water acceleration plan from the first half of 2018 which presented a challenging comparative. At the same time, we have dealt with adverse weather conditions.

Nevertheless, we are quite pleased with the overall currency neutral revenue growth we are generating in Poland. Our successful execution of our revenue growth management strategy, including pack/price architecture changes in Sparkling in the first half of 2019 helped to drive a 6.4 percentage point improvement in single-serve mix in the country.

This as well as pricing taken in the third quarter of 2019 drove very good revenue per case expansion and mid-single-digit currency neutral revenue growth. Volume in Hungary increased by low single digits in the period.

We saw growth in all categories apart from Water and Ready-to-drink tea which are more sensitive to weather. Trademark Coke is seeing strong growth up 6.6% very much supported by strong performance from the flavors launched in Zero formulations.

On the topic of innovations, Hungary is one of the three markets where we launched Coke Energy this quarter. Early indications show that the product is attracting new consumers to the category which is a powerful proof point that this premium brand is doing what we intended.

This launch helped to drive high single-digit volume growth in energy. We took some price increases at the start of the year in the Czech Republic which are helping to drive good revenue per case expansion in the country, although volume declined by mid-single digits in the first half.

We saw volume decline in Sparkling overall. But Coca-Cola Zero and Fanta continued to put up good growth numbers and we also saw strong performance from energy which was up mid-teens.

Focusing now on our Emerging markets. In Russia, where we are cycling a strong prior year volume performance which benefited from the FIFA World Cup combined with good weather volumes were up by low single digits.

We are pleased with the mid-single-digit volume increase we are seeing in the Trademark Coke. And at the same time Adult Sparkling continues to have very strong momentum with Schweppes up double digits.

We are also seeing healthy improvements in currency neutral revenue per case, up mid-single digits if we strip out the impact of the discontinued contract with Brown-Forman. Moving to Nigeria.

We are pleased to see another quarter of volume growth in the mid-single digits. The environment in Nigeria is extremely competitive and we are seeing aggressive pricing actions from both local and international players.

Since the end of 2018 we made a decision to adjust our pack/price architecture across our Sparkling brands to ensure we have offerings at every price point. This change is driving a decline in our price/mix in the country.

We believe though that it is a necessary decision to maintain our long-term position in the market. And we are able to do it profitably given the significant work on efficiency we have done in Nigeria combined with our inherent scale advantages.

Volume in the Romania increased by low single digits. We are cycling a very strong prior year growth rate in Romania and also had a headwind of poor weather in the second quarter.

Nevertheless sparkling volume grew by mid-single digits with strong growth from Zeros and low-teens growth from Schweppes where our premiumization strategy continues to drive results. Romania was one of the markets where we launched Coke Energy in the second quarter with positive early results.

In the second half of 2019, we expect to see an improvement in revenue growth compared to the first half in all three segments and especially in Emerging. We would anticipate this improvement to be driven by faster volume growth in all segments while the growth in revenue per case on a currency neutral basis is expected to continue at the pace of the first half.

We expect input cost per case to increase at low single digits in line with our previous guidance. We have seen slightly more stable currencies than anticipated during the first half period.

And for this reason and taking into account our hedge positions and current favorable spot rates, we believe that the adverse impact from foreign exchange movements in our P&L in the full year will be €20 million, €30 million lower than originally guided. We will take advantage of this more benign FX environment to support our topline growth.

With all this taken into account looking forward we expect to deliver currency neutral revenue growth within the range of 5% to 6% with another year of margin expansion. And we believe 2019 will be another year where revenue growth and EBIT margin expansion will put us on track to deliver against our longer-term commitments to the market.

With that I will now hand over to the operator. And Michalis and I will be happy to take your questions.

Thank you.

Hi. Good morning.

Given that you're guiding to an acceleration in volume growth in H2, I was wondering, if you could elaborate slightly on what gives you confidence in achieving that? Is it sort of broad-based rather than specific brands or innovation launches that will drive that growth?

That's my first question.

Good morning, Richard. Thank you.

It's a combination of practically of all the factors that you have mentioned. We know that we are in several of our markets cycling more favorable easier comps in the second half versus the first half, namely Nigeria is the leading market where we have that situation then also Italy.

And then also we expect Romania to continue with the solid growth and actually to have a better rest of the year than what we have seen in the Q2. Also the fact that we have done a number of launches end of Q1 and Q2 from which we expect bigger impact.

Third element is that we also have more launches to come in the rest of the year across a number of markets. And I have to say also that we have a quite loaded marketing and trade calendar, which even more got beefed up because of our Q2 challenge with weather that we have faced.

So with all of that, I'm pretty confident that in the second half, we will be seeing stronger performance and improved growth because of all these reasons.

Great. Thank you.

And then my follow-up is on Nigeria. Can you please comment on your market share performance specifically in the sparkling category since you widened your pack/price architecture?

Have those changes you made -- made it easier to defend your market share, or are you still under a little bit of pressure in sparkling?

We are still under pressure in sparkling when it comes to market share. And we know that this type of dynamics happen when we see that sometimes like in this case competitors are doing very aggressive price actions or interventions.

We know that and we don't want to follow that to that extent. However, we are course-correcting our game plan.

And with that in mind, we have already done one wave of activities to be very concrete. For example, on our glass packages since the beginning of the year we have done pack/price adjustments to be more affordable and to be more competitive, which is now actually giving us very strong results especially in Lagos where we are seeing very strong double-digit growth to be concrete.

We do see also that we will be increasing our promo intensity when it comes to also PET packages. So we do expect that in the months ahead of us, we will be seeing a recovery also on the share front.

Great. And my third and final question then on the Costa Coffee announcement.

Could you elaborate a little bit on the strategy you're taking that brand to market? In particular what kind of channels and formats are you going to be looking at?

Absolutely. Very happy to discuss that.

Let me just say how really excited and thrilled we are about this great opportunity that Coca-Cola Company has brought on the table. And that for us was both logical as well as exciting to partner with.

So as we speak our teams have started really working on a thorough detailed planning of the overall model approach for all the markets that we will start with the next year. And that's at least 10 as we have announced.

But we definitely see this rolling out across all of our territories in a phased approach. Our approach will be that we will be doing that across practically all channels and formats, which means from the retail from HoReCa at work leveraging also Costa Express coffee machines which are really one-of-a-kind and we definitely want to see that as well as ready-to-drink options, which as a matter of fact, we already started in Poland from July so one month ago.

So that's in a nutshell. And all of that will be rolling out during the first half and will start from the first half -- during the first half of next year.

Great. Thank you very much.

Hi, Zoran and Michalis. Just a follow-up on Nigeria.

Are you just able to just give a bit more clarity on the competitive dynamics in the PET? Where are the price gaps at the moment?

How big are those price gaps versus the competition? And with the increased promo intensity in the second half, would you equivalize those price gaps, or do you still anticipate there to be a premium?

That’s my first question.

Good morning, Sanjeet. Thank you.

So, specifically, on the PET packages, depending on the flavor variant, but let's say that this can be all the way from 40%, 50%, 60% premium versus the competitors. Now we think that we are doing and will be doing.

I don't see ourselves going and be directly, because this is not who we are. With the brand equity and marketing that the teams are doing on the ground, I'm very confident that we always can trade at a premium level.

Now, obviously, that premium level at a given moment cannot be at that level where we are now. So that's why we are doing certain activities, a combination of many, where we will be reducing this premiumness.

However, to which extent level, I would reserve that for our finalized planning and activities to happen in the market. But it's fair to say and be as open what I just said.

Just, Sanjeet, to say, even though you said on PET, it's important to say that in the category, it's also important what we are doing in the glass package. Because that's a package that only Pepsi and us are playing.

And that's a pack with which, for almost any other player, it's very hard to enter, because of very capital-intensive as well as route-to-market. And this is where we really are leveraging this more.

And this is a type of market where this type of pack has a huge potential and opportunity and role to play. And we see that very well this year, because what also we do with glass also impact the performance of the overall PET package.

So that's why, I just need to make it more complete in terms of understanding how the interplay in the category goes with both packages.

Understood. Okay.

And just on that glass point, if the price premium on PET is 40% 60%, when you sort of factor in the glass packaging against the PET from competition, is that premium smaller today than the 40%, 60%?

Absolutely, yes. That pack actually plays its role to be the most affordable pack in the market.

And that's why, as in the previous call, I have said that our pack price, as well as brand proliferation, is taking us to be from most affordable proposition in the market to also most premium one. Glass plays that role to be the most affordable, to deliver on that role.

And that's why we are really seeing how the scaling of the volume is helping. And that's a very good game plan that we see working quite well.

Got it. Thanks of that clarity.

And just one for Michalis on the balance sheet please. Can you just talk about leverage targets between now and the end of the year, where you'd expect the balance sheet to be and how you're thinking about bolt-on M&A going into the second half?

Yes. Hi, Sanjeet.

So our target for net debt to comparable EBITDA of 1.5 to 2 remains. We expect that by the end of the year with some additional activities linked to potentially further debt issuance and also potentially some M&A activity we will be at the upper end of this 1.5 to 2.

So practically depending on timing of those activities, if not, by the end of the year, certainly next year we will be at the upper end of this range. And as we have said also in previous calls and in the Capital Markets Day, we have a good pipeline of potential bolt-on targets.

So over the next 12 to 18 months, we expect that some of this can materialize.

Thanks. And just a final one there's been some speculation in the press about a sugar tax being proposed in Romania in recent days.

Can you just give us your thoughts on likelihood of that being implemented and what you can do to mitigate any impact?

Yes, indeed that's something that came very recent. However, it's really too early to speculate and to have any precise impact because we do see that there are various options being considered.

And you can appreciate that any option can really have a different type of impact. We know that the Cabinet is meeting these days to discuss.

And I know that we as also as industry have been laying out facts which have been I believe useful in understanding all the possible implications that this can have. I can only say that we have experienced both within Coca-Cola Hellenic and even within Coca-Cola system with such situations.

You know very well what we went through in Ireland, which is for us a benchmark case of how we have prepared. And it's needless to say that our teams are leveraging on all the learnings and approach that has been done in Ireland, which we know is not one-dimensional, but rather includes then a number of actions if this will happen.

Because of this is not only about passing on whatever the levy would be through pricing but it's about much faster reformulations with formulations that are ready with different tax sizes various other innovations. So that there are many tools that we can deploy and use.

However, I'm very confident that depending whatever ends up here and it's really too early to speculate we will be ready for whatever it comes. Let me just remind that very often in these type of situations we do see with all the actions that we do that this can only be very short-term impact because you see in Ireland ever since the introduction of sugar tax because of all the actions that were done we have been achieving a quite solid growth rate and even the regular Coke has returned to growth as you see now in Q2.

Thank you.

Hi, Zoran and Michalis. Thanks for taking the question.

I have two please – the first one, on the improvement that you're expecting on the top-line in the second half just to be clear the guidance includes Bambi, right?

Yes, it does.

Is it fair to say that if we look at the let's say underlying improvement ex Bambi, you're expecting FX neutral top-line to grow circa 4% to 5% in the second half which would compare to 3.4% you delivered in H1? Is that the right way to think about it?

Well, Fernando just to decompose the impact of Bambi and to be very clear on this. Obviously it has a bearing only on the second half as we are starting to consolidate now from July.

In terms of volume Bambi in the second half we expect that it will have roundabout 1.3 percentage points of growth impact in the second half. So in the full year that means approximately 70 bps of growth to the volume as a result of Bambi.

When it comes to revenue per case currency neutral I would say no real bearing. It's pretty similar to the overall group revenue per case.

So it's not going to have an impact. So if you combine the two yes the 5% to 6% that we are guiding for the full year in 2019 includes the impact that I just mentioned of Bambi.

Okay, very clear. And then second question on the innovation right driving 4.5 percentage points of volume growth.

I'm curious to know what are -- what's the repeat purchase you've seen so far in those big launches that you mentioned like Coke Energy Coke Coffee and the flavors? And also I mean that growth implies that your core business would be down circa 2.2% 2.3%.

So I'm just curious where the decline was more prominent as well.

Yes. So now with innovation as -- this becomes actually something constant of -- that we are discussing because innovation and having a pipeline is a way of doing business and is a critical driver of the growth.

That's why we do see that it's normal that as we innovate both on flavors and packages and sub-variants within brands that will drive growth, there is going to be something that is going to drop from the list. So in the case of innovations this year, I want to highlight that big chunk of that before I talk about Coke Energy et cetera are further reformulations that we are doing in the area of Zero and Light, not only in sparkling where we went after Coke where we have Coke Zero, we went through Fanta and Sprite.

We also are doing the same with -- in the FUZE Tea. So that's a very important piece that drives growth.

Then there are a number of flavor innovations, for example, Coca-Cola Vanilla in Russia, which is doing really well. And then you have a number of other variants whether that's lemon or lime or peach or cinnamon cherry, et cetera.

So these also flavor -- flavor extensions are something that makes the whole category more interesting and vibrant to consumer preferences of today. And then Coke Energy, which we started in Q2, we can only say that it's still quite early.

However, results -- what we see in the market are very encouraging. We see that they are coming as incremental to the category of energy, exactly as we hope because the positioning is a unique one both as a proposition, taste brand as well as the pricing proposition.

Coca-Cola Plus Coffee also started only in some cases a few weeks ago or maybe one or two months ago. That's why I highlighted that for the remainder of the year, we do see and we expect more impact from that in the markets.

Now what are some of the lower performing things? Possibly these are some of the other flavors that we are phasing out or we have a challenging performance in Sprite in several of the markets.

So in net-net, we do see that innovations are pulling and driving our top-line growth. And we see that as this has been over the last two years, this is going to the case not only for this year, but as well for the years to come.

And let me just conclude by saying that I'm very confident knowing how the pipeline of innovation, propositions is full and it's just a matter of a proper prioritization and sequencing that we are doing, how do we take that to the market. Thank you, Fernando.

Thanks, Zoran.

Hi, Zoran. Hi, Michalis.

Two questions for me. The first is around the weather.

I'm just wondering whether you're able to quantify impact from adverse weather in Q2 and then perhaps explain whether weather has been better as you got off to Q3.

Hi Ed. Well, I definitely can say that the impact that we had in Q2 all the way from a soft Easter or both Easters all the way to majority of June, I can't say from top of my head what would be the percent.

However I'm sure that we are talking at least 1.5, two percentage points of growth. That's easy because especially May for us was very hard month, which really didn't resemble anything, which looked like spring or early start of the summer.

We really had complete absence of usual weather. So in short, I would say 1.5% to 2% of growth for sure.

And weather in Q3 so far, any comments on that?

Look start of Q3 was I would say good, solid positive within the bracket that we are shooting for. I have to say that, could I have wished for a better weather and even stronger growth?

Absolutely yes. But on the other side, I also have to admit that I cannot be unhappy with how we started.

But it's not as with a fully normal summer.

Great, thank you. And then the second is perhaps for Michalis.

I think traditionally you've indicated that roughly 20% of the FX impact is translation and 80% is transaction. I mean clearly you're changing your guidance on FX.

Is that 20/80 split still appropriate for this year?

Hi, Ed, specifically for this year, first of all what we've seen in the first half is that pretty much all of the FX adverse impact was transactional. In fact the total FX adverse impact in the first half was €19 million, transactional was €20 million and translational was positive €1 million.

And we see pretty much that this is going to be the case for the full year as well. So based on the current spot rates, which are quite favorable at the moment, I have to say, and all the hedges that we have in place, we see that the total FX adverse impact in the year will be €20 million.

All of it is going to be transactional and translational will be pretty much flat.

Got it. Fine and just the final question is on Costa.

Is there any more sort of color you're able to provide at this stage around the structure of the agreement with Costa through Coca-Cola Company? Are you sort of partnering through an incidence pricing model reaching a JV?

Is there anything you can add at this stage on that?

Yeah, Ed. As I said, we are, as we speak fully into discussions collaborations, which are progressing very well and both teams are super excited.

One of the elements is also how do we structure the overall model? We do see that more resembling what we have on our stills models rather than incidence model on sparkling.

So that means more of a kind of a if you will virtual JV type of thing, a model where it's more -- almost like 50-50 sharing that we have on the stills.

Great, thank you. And just finally on Costa again, I think you mentioned you've got Lavazza in other five markets so far.

Are you pretty confident that as that rolls off and Costa comes on it will be a net positive for the overall business?

I have no doubt. I have no doubt.

Ed, I just need to reiterate that obviously we are not here for something, and for us this is not a 100-meter sprint. We are really with Costa for a healthy marathon.

That's why we, first of all, want to get ready properly. We will be in a market-by-market starting in the course of first half of next year.

And we want to do it right, meaning we really want to segment analyze approach, a market in the right way. That's why we will not be seeing probably incremental effect in year one, because we need to take into account that in three -- in five markets we've been there for almost -- depending for three years.

However, I have no doubt that in the second year and third year, this is going to be continuously growing not only because we will be expanding this to more and more markets across our territories, but we will be seeing the organic growth within each of the markets. I don't have any doubts about that, because Costa Coffee is a high-quality coffee, and we are very excited with -- the more we'll learn and see through the preparations, I can only say that the more excited encouraged and confident we are.

Thank you.

Great, thank you.

Hi, Zoran. Hi, Michalis.

Thank you for the questions. Two for me.

First of all, in your prepared remarks you said that you had negative price/mix in Nigeria. I think we've kind of gone through that quite a bit.

I just wondered when the focus on glass starts to lap out. I know that you mentioned this is now the most affordable price point in the market.

When will you start to kind of lap that effect? And so when can we start to see slightly more stable price/mix in Nigeria?

Thanks, Ewan. So, the thing that we’ve done on glass, practically will lap – well, will lap end of the year, because in Q4 last year, which means second -- end of November and December is when we have done immediately PET price adjustments.

So, as we enter Q4, we will start seeing some lapping in that respect. But to be fair and realistic, that's why we say that for the second half of the year, we do see price/mix like in the neighborhood or being roughly similar to the first half that we've seen in Nigeria.

And if anything happens, in terms of price moves that sooner or later will happen, I mean in a positive sense in Nigeria, then we can only be better. But we are adjusting our game plan to be actually resilient for this intense gain that we already see for a while there.

Sure. And just the follow-up one, when we do see that lapping, which sounds like it will be much more 2020, will we be talking sort of flat price/mix or we'd still be in the negative territory?

It's hard to tell now. Definitely we would aspire to have a positive price/mix.

After all we need to remind ourselves it's a real inflationary economy. And anyone not following with price/mix, we know that we all leave money on the table.

However, we also need to be mindful that we are in a competitive game there. And we also need to protect our position, because we are not in Nigeria just for this and next year.

So that's why it's hard to say from today. In short, we would aspire definitely for a positive price/mix.

However, we will be very alert to do whatever is right to win in the market, and do whatever is needed in that respect.

Okay. Excellent.

And secondly, can you just do some more – give us some more color on your performance in Russia? You were lapping low single-digit volume growth and you've kind of mentioned the tailwinds that that had in terms of weather and the World Cup last year.

You did the same this year, in terms of low single-digit volume without those tailwinds. Should we be reading this as an underlying acceleration and kind of positivity within the market?

Yeah. You picked it up, exactly right.

I need to reiterate that last year, we really had a fantastic strong combination of two big factors FIFA World Cup, which proved to be more successful World Cup in every sense, visitors' activation, mood et cetera. And that definitely had a very tangible impact on our business.

And on top of that, we really had unprecedented weather last year. It was continuously sunny, dry, a perfect storm.

So this year, of course absence of the World Cup, but weather has been very different extremely wet. I've been there in June.

It was very cold. So in spite of that, reporting low single digits for first half, I really find as very pleasing.

And on top of that, I'm very pleased with our price/mix in Russia. Let's forget now Brown-Forman, which we have finished cycling end of March beginning of April.

And we really see that, we are having quite solid price/mix in Russia which is a very, very important. That's why in combination, we are seeing a healthy mid-single-digit FX neutral revenue.

And I'm pretty confident with the work that the team is doing in Russia. So as soon as, let's say, we get just a normal weather or we are out of this weather connotations I have no doubt that the work being done on the ground is going to yield very solid results, because the programs are there, revenue growth management activities that the team has crafted and is implementing in the market are giving clear results, which is visible also in our share gains, route-to-market evolution that is one of the things that the team is working more and more on pipeline of innovations, segmented execution based on segmentation of the market knowing that St.

Pete and Moscow have a different type and approach versus the rest of Russia, and quality of people which sometimes we don't mention but is very important source of confidence. So all-in-all, I'm confident about Russia's performance this year and for the years to come.

Okay. Thank you very much.

Hi, there. Thanks for the questions guys.

What percentage of your pricing have you already taken for this year? Hello?

Yeah. Look, we have taken some pricing already in the Established and the Developing markets.

So I would say that, for them it's pretty much done. There has been some pricing also late half one in Russia.

So I would say that, in the vast majority of the cases the pricing is already taken. And we are to see the full effect of that coming into the second half.

Okay, wonderful. And I appreciate there's some phasing with regard to the working capital.

But I was wondering if you could provide me with a rough guide for the full year in terms of where working capital might come out? Thanks.

Our objective for working capital is to stay triple-digit negative and not to have a positive or a negative impact year-over-year on a full year basis. Clearly, with all the challenges that we are discussing here on the top line, the priority here is to ensure that the work we are doing in receivables primarily and to some extent also on inventories is such that will enable the business, but also obviously will not affect negatively year-over-year the cash generation.

Okay. Thank you, guys.

Appreciate it.

Good morning. Three questions from me.

So, the first one, I'm sorry to do this, but another one on Nigeria. Last year, Nigeria moved back into positive profit growth.

But listening to all the comments, it sounds like you're basically not making any money at the moment. Is that a fair assumption?

No. Because I mentioned also that over the last few years as well as last year, especially also there was another wave end of last year.

And we are doing more this year that whole efficiency productivity and cost optimization is a huge piece of work that we are doing in Nigeria. And over this continuous sequence of years, we've been doing not incremental, but truly sizable optimizations especially knowing that for the reasons of -- to secure that this business is a profitable one.

Okay. That was very clear.

Thank you. Just a second one, on your energy category, you now have a wonderful pricing ladder really from affordable to the premium in Coca-Cola Energy.

Just practically, in the market, in your shell sets, in your category management in your channels how does that work? Does Coke Energy sit next to the Monster in an energy fridge, or how do you maintain that premium presentation and execution beyond just price points?

What do you actually do in Hungary and Romania for people to understand there's a premium or a discount on Predator -- on price?

Yes, excellent question. And first of all, it's actually when you see the energy category which is so vibrant, dynamic and growing, the more we learn every year we see how various segments play their own role.

So, that's why from two brands that we have so far which is Monster and Burn, when you see now, Coke Energy it clearly sits at the premium. Now, what does it mean?

First of all, it goes into energy segment. It goes on the shelf where the energy brands are.

And ideally, it goes where strongest or leading brands are let's say next to the Red Bull on one side and then Monster will be on the other side. So, it leverages the fact that it carries the name of Coca-Cola and consumers immediately connotate a premiumness with that.

Second thing is that it delivers taste-wise and product proposition-wise it delivers on that promise that the brand name carries. And we do see that reaction both from consumers as well as from customers which have been extremely well receptive to the whole proposition.

Going forward because, let me remind you, we only started. Coca-Cola Company has a very strong marketing plans tailored specifically for this brand that we will be deploying, leveraging various platforms that we will see more and more in the market which simply I wouldn't talk about them now for obvious reasons.

However, there is a whole suite of the things that follow that price premium positioning. On the other side, you see Predator, which is at the lower end of the market, which fights exactly with those brands, which are at that tier.

We only started with that, in few markets, a few weeks ago. And also we see that initial, reactions are very good.

It's very encouraging to see from customers, to whom our teams are selling those propositions, that they very well understand in which segments of energy category we are tapping into, as those have profiled themselves quite clearly. What additionally helps is that, for the energy category, we're having more and more coolers out there, which have a dedicated energy portfolio for themselves, that's important.

And then each brand has their own activations in respective channels, either at HoReCa or various properties like Monster has with Motocross or Formula One or celebrities like Lewis Hamilton. So a number of them have their own story.

So Tristan, I hope that answered your question.

That's very clear. But then maybe just maybe -- so if I'm a retailer, you would prefer that, I don't have one of your fridges.

Or you would prefer me to put this next basically with the energy drinks, rather than putting it next to Coke Zero or Coca-Cola. Would that be a fair way of looking at it?

Yes, yes, in the energy.

Okay, the energy.

The energy.

Very clear, okay. And then, maybe just a third one, and maybe a little bit of a technical question to Michalis, when I look at your strong performance in Coca-Cola the Trademark, I would have expected that your third-party transactions with The Coca-Cola Company actually would have gone up as a share of revenue.

And when I look at that, it's actually gone down, this half. Is that a technical impact in terms of cash payments, or is something else in play here at the moment?

No. It's exactly what you said, it's cash payments…

Yeah.

It has nothing to do with P&L basis.

Okay.

So it's really phasing.

Will it be fair, just as we think about this more on a broad -- on a longer timeframe that obviously as you get to revenue mix benefits of your Coca-Cola expansions that your incidence rate should go up as, part of the program?

Not the incidence rate, per se. I mean that is affected by mix.

And it can go any way depending on country mix, brand mix, part mix, channels, and so on.

Yeah, yeah.

If you are talking about, absolute level of spend, yes as the business grows, you should expect to see the absolute amount going up.

Thank you very much, very clear.

Well, thank you everyone for joining our call today, your questions and the discussion. Let me leave you with a few final thoughts.

We are pleased with this solid first half, given a challenging comparative period for volume growth, combined with adverse weather conditions in the second quarter of the year. As we look to the rest of 2019, we are encouraged by both the exit rate from this quarter, positive recent trading.

And our strong plans for the rest of the year. We are pleased to confirm our expectations for the year.

Thanks again to all of you. And we look forward to speaking to you for the next quarter.

Thank you.