Coca-Cola HBC AG

Good morning everyone and thank you for joining our call. We are happy to report a strong performance during the quarter, with several notable positives which give us confidence that we can achieve our plans for the year.

Let me share the highlights. Our revenue growth was up 4.7% on a currency-neutral basis driven by strong volume growth of 3.5% and a 1.1% expansion in currency neutral revenue per case.

This puts us on-track to deliver on our expectations for the year, given that in 2019, the sell-in for the Easter period shifts from the first into the second quarter, and that we still have the impact of the discontinuation of our distribution of the Brown Forman brands in Russia in our numbers in the first quarter. The negative impact of these two factors in the first quarter was 150 basis points, 90 basis points on volumes and 60 basis points on price mix.

Volume growth was broad-based across our markets and we saw growth from all our segments. Let me give you some detail.

Established markets volumes grew by 0.2% in the quarter. We are pleased with these results for the segment given the timing of Easter.

As well as ongoing good results from Ireland and Greece, we are particularly happy to have delivered another quarter of volume growth in Italy. We are seeing a positive impact from the changes we made to our pack/price architecture in Sparkling in the country, while improvements to our route to market, particularly in Out of Home, are driving strong performance from new categories and occasions in that channel.

FUZE tea continues to perform very well in Italy, more than doubling volumes compared to the prior year quarter. In the Developing markets, volumes grew by 2.6%.

As in the Established segment, the timing of Easter impacted volumes and we estimate that adjusting for this, volume growth would have been in excess of 4%. Growth was broad-based across the segment and particularly strong in Energy and Water.

Emerging markets volumes grew by 5.7%, with ongoing good growth in Russia, Romania and Ukraine, and a notable improvement in Nigeria in the quarter. We are seeing good results from our route to market changes in Nigeria.

At the same time, our competitive response, which includes a new widened pack price architecture, is protecting our performance in Sparkling. Stills volumes in Nigeria grew double-digits, with Juices continuing to benefit from the additional PET packs we launched in the market in 2018.

Turning now to price and mix, Price mix in the Established markets expanded by 1.2%, with positive impacts from package mix as well as selective price increases, including pricing taken to offset the Irish sugar tax. This was partially offset by negative country mix due to volume declines in Switzerland.

In the Developing markets we are seeing positive results from our plans to drive more revenue growth in this segment from price and mix, with the 3.8% expansion being a notable improvement compared to the prior year period. This was driven by broad-based improvement across the markets in the segment, and came from package and category mix, as well as price increases.

Price mix in the Emerging markets was up 1.1%, and was impacted by the discontinuation of our distribution of the Brown Forman brands in Russia. Excluding this impact Emerging segment price mix would have been up 2.5%.

We benefited from pricing in Russia, Ukraine and Serbia, while in Nigeria, our widened price architecture across our Sparkling brands, impacted price/mix in the quarter. Let me move on to some highlights by category.

We continue to see encouraging growth from Sparkling, with volumes up 2.8% in the quarter. Growth was led by strong trends in low- and no-sugar variants, which grew by 43%, while full sugar variants declined by 2.5%.

Coke Zero growth continues to have excellent momentum, with volumes expanding in all our markets leading to Group level volumes up 40%. This is the eight consecutive quarter of growth above 20% for the brand.

Schweppes, Kinley and Royal Bliss, which together comprise our Adult Sparkling portfolio, saw very good performance, with combined volumes for Adult Sparkling up 8.8%. These brands form an important part of our mixability programs across our markets, and they are complemented by the creation of dedicated teams in relevant markets, to serve premium hotels, restaurants, cafes and bars, which is helping to deliver these positive results.

The energy category continues to see strong growth with volumes up 31.8%. This is the 13th quarter of double-digit volume growth in the category.

Moving to Stills, volume growth of 4.3% is an acceleration from the pace of expansion in the prior year, which was up 0.4%. We are seeing strong volume growth in Water, which was up 7.3%, with volume growth in all of our segments.

However, Juice volumes declined by 0.8%. Ready-to-drink Tea declined in the quarter, down 5.1%, as we cycle the first few months of the pipeline which was built to allow for a successful launch of the FUZE brand last year.

The exit rate from the quarter is positive with volumes up 6.4% in March and we have an exciting year of new flavor and package launches in the category. So in short, we have had a good start to 2019, in line with our expectations, and we are energized by the plans we have in place.

This, combined with the fact that for the rest of the year we will leave behind the negative impacts of Easter phasing and the cycling of the Brown Forman distribution, give us confidence that we will see faster revenue growth for the rest of 2019. Having discussed our results let me turn to another topic.

You will have seen that today we have announced that the Board will be proposing a special dividend of €2 per share. We have been on an exciting journey over the last few years at CCH.

We restructured the company during the challenging years after the financial crisis, creating the right base for growth. Since then, with our increasingly consumer-centric portfolio, our customer focused execution, and the economic recovery in our markets, we have made significant progress towards our 2020 objectives.

Since we set out our 2020 objectives in 2016, we have grown currency neutral revenues at an average of 5% per annum and have expanded comparable EBIT margins by 270 basis points. The special dividend announced today reflects the value created by this excellent progress, our strong cash position and our financing plans.

I would like to take this opportunity to thank our shareholders for their trust and support of our company. With that, I will now hand over to the operator to take any questions you may have.

Thank you.

Hi, morning gents, the first question is around the special dividend. Should we interpret the special dividend as essentially less appetite for M&A, or transformational deals?

And you know how far could you stretch the balance sheet from a net debt to EBITDA perspective without losing investment grade?

Good morning Ed, thank you for the question. In short, the special dividend does not reduce our appetite and our eagerness for the right opportunities and possibilities that we could have in the M&A area, whether those are a bolt-on, or if along the way there would be any appropriate - transformational deal as you referred to it.

So in short, from my side, just to clarify that this does not eliminate our focus and work that we are having in this area. I will hand over to Michalis to clarify the other parts of your question.

Hi Ed, just to build on Zoran's response, from a technical perspective, as we said also in our February call, by the end of the year, after all the anticipated uses of cash, including bolt-on acquisitions and the special dividend, we will be around two times net debt to comparable EBITDA. And this leaves us with enough flexibility to temporarily go beyond this range, while at the same time maintaining comfortably investment grade rating.

And indeed we would consider doing this for the right exceptional transformational M&A opportunity that obviously would create value for the company and its shareholders, with the intention to get our leverage back towards the two times levels, after such a potential transaction. And you know I would really like to emphasize that such a stretch way beyond the two times would only be considered for such an exceptional opportunity if it was to come, not in the ordinary course of business.

Very clear, thank you, and my second question is around the confidence of seeing faster growth for the remainder of 2019, I think you flagged the 150 bps owing to Easter timing and also the Brown-Forman discontinuation. I appreciate the summer was very, very hot last year and you also had the World Cup, I was wondering whether you could share some of your thoughts as to why you're confident on faster revenue growth for the remainder of the year?

Yes Ed, that's true, while we do cycle World Cup, which was primarily Russia, last year we did say that we benefitted from very good weather in parts of our territory, which was the whole kind of North and more West part of our territories. However, South and East actually did not have good weather, especially July last year.

So that's why on one side we are cycling, on the other side it actually is an opportunity. On top of that we do have - I'm very confident with the plans, initiatives that we have for the period ahead of us.

We are embedding and increasing distribution, rate of sale of a number of innovations that we have launched last year and that was happening in the course of Q2, Q3. And that is materializing and has a rollover effect.

On top of that also this year is not going to be shy of new innovations that are happening in our - across our markets. You probably know that as well as in some other territories we have been launching for example Coca-Cola and Coffee, we are also one of the first markets that started with Coke Energy.

And there are a number of other flavor and pack innovations that we are doing in many of our markets. On top of that I'm really encouraged with the strong marketing plans that we have for these, especially two critical quarters ahead of us.

And on top of that our continuous work that we do on route to market enhancements in many of our markets that increases our capability and capacity to deal with increased portfolio across our territories, that gives me confidence that we are going to see accelerated revenue growth versus Q1 so far.

Very clear, thank you.

Morning everyone, thanks for the questions, I have a few as well. The first one on M&A, can you talk a bit about what Bambi will add to your capabilities in Serbia, and also if you're looking at other adjacent businesses like that in other countries as well?

Good morning Fernando, related to Bambi, I'd like to emphasize that this case is, we need to look at the Bambi acquisition as a unique case which blends strong, excellent, unique portfolio in Serbia and why we are doing that in Serbia itself, where our market position is quite strong with 70 plus share in Sparkling and 40 plus share in the whole non-alcohol ready to drink. So this is where we have recognized that through combining those two complementary portfolios we see an opportunity to drive further healthy growth, leveraging and exploiting complementarity across several occasions, where our portfolio and the Bambi portfolio actually play so well, from the breakfast and then snacking on the go, snacking at home, this is where we see the opportunity.

What Bambi also gives us in Serbia is stronger leverage and opportunity to serve better the fragmented trade and HoReCa parts of the market, because Bambi has a very strong distribution network, coverage of more than 16,000 direct customers. On top of that this gives us also the opportunity to have chilled distribution, which we didn't have so far in the country, because Bambi does have a chilled distribution network as their products also need to be delivered during summer in a preserved condition.

And that gives us, as you may appreciate, the possibility to think now also of the beverage solutions in the country that we couldn't do so far. And the last point, if I remember well, I said this is a unique case and we should look at it in such a way - all our M&A exploration and work is related to beverage opportunities and this does not reflect a shift in our strategy of where we do see bolt-ons going forward, but rather as a unique case for this particular market.

Very clear, thank you. And a second question maybe for Michalis on the balance sheet.

If you were to eventually reach a net leverage above the two times for that exceptional deal you mentioned, are there any potential divestments that you can have within CCH's current business?

Hi Fernando, yes, look I guess you are implying now how a potential transformational M&A deal might be structured. And of course there are many, many different options that we might have.

You know by definition we are not, as we've said many times in the past, we are not in the business of potentially selling different territories and so on, but clearly you know when it comes to a context of a big deal, you know potentially things can be discussed in the way that such a deal can be structured.

Great, thank you. And if I may just a last one on the trademark Coke brand, can you talk about the rollout of the new flavors and Coke Energy across your territories and if you can share some early results there please?

Yes, actually first of all let me just remind you that last year one of the reasons why we have very strong performance of the overall Coca-Cola trademark is because there are many avenues of innovation that are happening for the trademark, from lights and zero, expansion and reformulations that are happening, as well as many new flavors that we have launched last year and that we will also be doing this year, which create continuous relevance of the brand with consumers, with customers and we see that working very well. In that context also we are very excited and inspired with the pipeline that has also bought us Coca-Cola Plus Coffee, as well as Coke Energy that we started in Romania, Hungary and also in May we have started in Ireland.

It's too early to sell - sorry, you see I'm thinking about selling - it's too early to tell because it is early days. However, the first feedback from the markets, from customers, is actually very promising.

And I personally feel quite optimistic and confident about potentiality of such innovation, because in a perfect way they combine the strength of the brand with additional functionality that is given to consumers across various occasions. Does that answer your question?

Yes, very clear, thanks Zoran.

Yeah. Hi, guys.

Just on the timing of the special dividend, I guess why now, and is it the right interpretation that any potential transformational deal might just take longer?

Hi, Sanjeet. Look, the timing is purely driven by the fact that, the Board has just made a decision to propose this special dividend to the Annual General Meeting in June.

It's not linked in any way with any other uses of cash. We said back in February that we will be utilizing our own spare cash, and debt that we will raising this year from the market in five groups.

I would say, accelerate our general CapEx investment in the business - we have an accelerating trend starting in the last couple of years - and with particular focus on revenue generating investments, and that is coolers, new technology for innovation, production lines, logistics and so on. Secondly, selective bolt-on acquisitions with strong local equity.

We started with Bambi and, as we said, there are other considerations also in the pipeline with good possibility to materialize. The progressive organized dividend policy continues.

We also have some buybacks that we are doing to prevent dilution, and that is quite significant for 2018 and '19. We are nearly completing the program, and that's just under €200 million worth of buybacks.

We have just announced a special dividend today. And, clearly, as we said and reiterated, both Zoran and myself, we are open and we have a flexibility also to look at a transformational M&A if and when this comes forward by the Coca-Cola Company, and, of course, makes strategic and financial sense to our business.

And, Sanjeet, if I may add, you can appreciate the that in a number of opportunities that we are exploring in the M&A area, this is not something that we necessarily rush just for the sake of speed because the critical element is that there has to be proper strategic fit, and there has to be a proper and fair value. And that's why also we have the responsibility for our shareholders to balance them both, but in no way, in no way this special dividend, I want to enforce, does not reduce our firepower to do the right things for Coca-Cola Hellenic in the respect of any possible M&A.

Got it. Just to follow up, Michalis, are you able to just share an update on currencies and input costs at this stage of the year?

Yes, so back in February we said that, based on the spot rates at the time, and assuming a further depreciation of the naira to the dollar, to the levels of 380 from the current 360, we were seeing negative impact of around €50 million for the year. Things have progressed pretty much in line with what we were seeing back in February, maybe only slightly better on the Ruble front, and clearly the depreciation that we were expecting for the naira has not yet happened.

The elections are behind us. There is ongoing stability to the currency.

So, that is clearly good news. However, due to the seasonality of the results in Nigeria, what is now important for the FX impact to our results from Nigeria is Quarter 4 because that's the next seasonally material quarter.

So what is important is to see what the naira will be in Quarter 4 this year to be able to, let's say, bank these improvements to the €50 million that obviously will happen if the naira stays at 360. So far so good.

We stay at around €50 million based on where the rates are and the levels of hedging we have, and, potentially, we can have some good news from naira if things remain as they are today until the end of the year.

Got it. And, just to follow up, Zoran, on Nigeria - can you just elaborate a little bit on the route to market changes you're making there?

You talk about increasing direct outlet coverage, so I'd just like to learn a bit more about that.

Yeah, sure, Sanjeet. So, in Nigeria, what we've been doing now for almost more than a year and a half is that we've been structurally changing and enhancing and strengthening our route to market in a way that gives us better capacity and capability to directly cover our outlets which, of course, we have segmented based on the outlet performance and potential.

So, that means that we have people in the market who are directly visiting outlets, doing customer development, relationship building, introduction of new products, activating promotions, et cetera. And then, on the other side, we are working with a selective number of distributors who have also the capacity and capability to serve the business in a faster and more capable way, where also we are having our own customer development programs where our teams are working with those distributors, helping them building their own capability when it comes to warehousing, logistics and other aspects of the business.

So that brings us closer to the market, increases our ability to respond, react, or to penetrate new initiatives much faster in a much broader and scalable way based on our segmented approach what in each of the outlet segments needs to happen. Also in that context, we have also evolved our sales organization structure because I have mentioned a few times that, in Nigeria, while it's one country, actually, because of its demographics, social economic differences; there are actually several markets in the country itself.

That's why we have reorganized that there is a broader Lagos, and so the whole team, which is focused on Lagos and surrounding area, because this is the most competitive and most dynamic market in Nigeria. And then there is the rest of Nigeria where there are many other differences, and this is the second part of the team.

And we do see that, in such, more focused organizational set up, this gives us also a more focused, faster and responsive way to deal with challenges that we have and opportunities that we have in each part of Nigeria.

Great. Thanks.

Good morning. Thanks for the questions.

Firstly, can I ask one on margins? You've talked about another step up in margins this year.

I think, at the full year stage, you guided to at least 40 basis points, of expansion. Does that still hold and how should we think about that in terms of phasing H1 versus H2?

Hi, Nik. So, yes, we said in the previous call that we see another year of margin expansion in 2019.

Not as fast as the 70 basis points we saw last year. Indeed, 40 basis points is a good minimum that we would expect to hit this year in terms of margin growth, and we stand by this.

Now, in terms of the phasing, we expect that Half 1 growth will be a lot slower, if any, compared to half two, and that's because we have a number of one-offs that we cycled in the first half, and some good news that are happening in the second half. So in the first half this year, first of all, we are cycling the good news from the bad debt creation - bad debt provision elimination last year and also the partial recovery of the debt, which was a positive line last year, so, a negative for Half 1 this year.

We also have the sugar tax in Ireland which started in April and May of last year, and that means that, if you look at this year's first half, we have a significant boost in the revenue from the pricing that was taken to cover the sugar tax, but, obviously, no impact on the gross profit. So, that's bad news for six months of our EBIT margin this year, whereas, last year, we also had it from April, May.

We also cycled the Brown Forman discontinuation of the distribution contract in Russia, and that has also a negative impact this year in the first half, which normalizes after April this year. And in the second half, we have some good news which is going to boost the margin growth.

On one side, you recall that we are cycling a relatively slow quarter three last year in terms of revenue per case, and also we are going to have a small positive impact from the consolidation of Bambi in the second half. So, these are some reasons, structural reasons, why we expect to see a much, much slower progress in terms of margin in the first half compared to the second half.

But, on a full year basis, we reiterate that we can see a minimum of 40 basis points, expansion, into 2019.

Okay, that's very clear. Thank you.

Hi guys. Thank for the questions.

First one is on Nigeria and the good volumes you saw there this quarter. Can we expect that to continue?

And building on that, the price architecture and these volumes, how should we be thinking about that in terms of the profitability within Nigeria?

Thanks, Ewan. Yes, we should expect to see volume progression in Nigeria.

I, personally, believe that this Q1 was a very good start, and I expect, given today's visibility and adjustments that we have done, programs that we have, team strength that we have, I really expect nothing less than along the lines of what we've seen in Q1. Also, the price pack architecture that we have done serves a balanced purpose to be able to competitively respond with the most affordable proposition as well as the most premium proposition that we have in the category of Sparkling Beverages.

So, in glass, we have excellent affordable propositions that actually such pack types should have as a purpose, but, at the same time, in our PET packages, we do maintain and preserve our premiumness that we want to have leveraging, you know, one of a kind and strong marketing programs that we are doing in the country. So, it's a balanced approach which we are doing in a segmented way.

I would just add one more comment, which helps us in the profitability sense, is the hard and strong work that has happened over the last few years in terms of also doing the cost optimization and the reduction in Nigeria because the circumstances of the country economy, the whole market dynamic, are such that, simply, have pushed us even more, and the team has done an excellent job in doing significant improvements in our cost base, which is helping us to be more competitive and also to affect positively our profitability levels in Nigeria.

Thank you. That's very, very clear.

My second question is on Russia and the strong volumes there you saw, particularly in Energy. Where are you in terms of capacity?

How is that developing? And is that something that Coke Energy might be looking at next?

And how will that roll out, proceed?

Yeah. Russia continues with a strong growth and, specifically, your question on Energy, Energy is a very important part of that development where there is - there is another quarter where Energy, in Q1, in Russia, has been growing almost 45%, where we are leveraging and utilizing a two brand strategy with both Monster and Burn.

The team is doing an excellent job in increasing distribution, in activating this vibrant category which has a strong potential. Also, Coke Energy, yes, I would say, simply, that Coke Energy is an opportunity across the board.

It's just a matter of the timing and phasing. When is the right time to start with that?

So, I would really see that also happening in Russia. I just couldn't say specifically when is the timing, sometime this year or next year.

That depends on, you know, all other plans that we have in the market and that we will be reviewing and discussing together with the team.

Thank you.

Yes. Good morning.

I have two, please. First one is on Bambi.

Do you still expect Bambi to close in Q2? I think the numbers that you put in the press release of sales of around €80 million, and a margin of around close to three times your margin, so close to 30%, are these sort of numbers, €80 million sales and 30% margin, what we should be sort of incorporating for the first 12 months or are there any distorting factors which may affect this?

The second question is about the shape of your growth this year. You said you're reasonably confident that you can accelerate growth for the rest of the year and probably grow ahead of your medium-term target.

When you think about the shape, by division, in the light of Q1, is there anything different compared to what you had indicated at the Full Year in terms of regional expectations?

Thank you, Andrea. On Bambi, we do expect that all the regulatory approvals across the countries should be obtained during Q2.

So, we are pretty confident that that will close in that timeframe as we initially highlighted. So, we don't see anything that would be a barrier to that.

Obviously, we are still working on that, and that's in process, but with this estimate. The second thing is on the numbers that we highlighted on Bambi.

Those are the numbers, and we don't see anything that would impact those numbers. We do see that particularity in the territory with Kosovo, the team has done.

We see an excellent job in mitigating that particularity that happens in the trading conditions between Kosovo and Serbia, and the team has done an excellent job, and, as we see, they are progressing in line with expectations. On the other one, as we said, across all segments, there is nothing major that we would say is going to be dramatically different.

Definitely, we do expect that Emerging markets will have this kind of volume performance around mid-single digits, or even stronger driven by Russia and Nigeria. But, as well as other countries, in the Developing segment, we did say that we do see this year more of a balanced revenue generation between the volume and price mix.

And also in the Established, we do expect a growth year because also expectation is that Italy performance, not only in Q1 but also the previous quarter, is going to continue and that that is going to be an important contributor to the overall segment performance in this year.

And just two small technical points, clearly we will be consolidating Bambi this year as of the completion date, so we expect to have six months' worth of the results in our 2019 Full Year Results. And the margin is more around the 25% mark rather than the 30% which, probably, you were pointing towards.

Perfect. So, you should be, this year, approximately consolidating maybe around €10 million of EBIT from Bambi?

Is that fair?

Exactly. Roughly, that might be the right ballpark, yeah.

Thanks.

Thank you. Thank you all for joining our call today, and for your questions and discussion of our first quarter performance.

We have a clear roadmap for top-line growth and continued margin expansion, which is underpinned by the strategic initiatives to drive that. We continue to partner with our customers and strengthen our route to market to capture the growth opportunities in every channel.

I look forward to sharing more progress with you in the coming period. Thank you very much.