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Coca-Cola Enterprises (NYSE:CCE)

Q4 2012 Earnings Call

February 07, 2013 10:00 am ET

Executives

Thor Erickson

John F. Brock - Chairman, Chief Executive Officer, Member of Executive Committee and Member of Corporate Responsibility & Sustainability Committee

William W. Douglas - Chief Financial Officer and Executive Vice President

Hubert Patricot - Executive Vice President and President of The European Group

Analysts

Wendy Nicholson - Citigroup Inc, Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Lauren Torres - HSBC, Research Division

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Damian Witkowski - Gabelli & Company, Inc.

Operator

Good day, and welcome to the Coca-Cola Enterprises Fourth Quarter 2012 Conference Call. At the request of Coca-Cola Enterprises, 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.

Thor Erickson

Thank you, and good morning, everybody. We appreciate you joining us today to discuss our fourth quarter and full year 2012 results, along with our outlook for 2013.

Before we begin, I'd like to remind you of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook for future periods. These comments should be considered in conjunction with the cautionary language contained in this morning’s release, as well as the detailed cautionary statements found in our most recent annual report on Form 10-K and subsequent SEC filings. A copy of this information is available on our website at www.cokecce.com.

This morning's prepared remarks will be made by John Brock, our CEO; and Bill Douglas, our CFO. Hubert Patricot, President of our European Group, is also with us on the call this morning. Following prepared remarks, we will open the call for your questions. In order to give as many people as possible, the opportunity to ask questions, please limit yourself to one question, and we will take follow-up questions as time permits. Now, I'll turn the call over to John Brock.

John F. Brock

Thank you, Thor, and we welcome each of you as we discuss our results for the fourth quarter and full year 2012 and review our outlook for 2013. Before we begin to discuss some of the specifics, I want to discuss the key factors behind the results and the outlook we're sharing with you today. First, we will continue to manage each element of our business, sales, cost of goods, expenses, productivity and our balance sheet, to move this business forward. We have continued to achieve substantial progress in building our business for the future, despite sustained macroeconomic softness and unique external challenges, most notably, the increased excise tax in France in 2012.

More specifically, our business will benefit from 2 key initiatives started in 2012. Our Business Transformation Program, as well as the reconfiguration of our business in Norway. Our Business Transformation Program includes a commercial restructuring that would improve alignment of our field sales organization into a more effective and efficient customer service model. This work would also enhance the structure of our finance function, including the creation of a new shared services center. In Norway, we are transforming our business from direct store delivery to third party and customer warehouse delivery, and transitioning from refillable to recyclable, nonrefillable packaging, which means better aligning to customer and consumer needs and preferences. Both of these efforts are on track, and we will continue to remain focused on maximizing our performance in every area of our business in order to deliver our expectations for this year.

Second, we continue to demonstrate our commitment to creating value through ongoing efforts to return cash to our share owners. In a little more than 2 years, CCE has returned approximately $2.2 billion to share owners through share repurchase and dividends, and that's not including the $3.4 billion cash distribution as part of the transaction creating our company. This is a very positive record of accomplishments and reflects 2 of our objectives: optimizing our capital structure and driving shareholder value. Going forward, our long-term commitment to shareholder value remains as strong as ever, and we will continue to weigh each business decision, including merger and acquisition opportunities, against returning cash to share owners.

And third, we believe that our business, the nonalcoholic ready-to-drink beverage business, will continue to offer substantial long-term growth opportunities. We believe that CCE, and highly popular brands and effective world-class operating structure and the benefits of the great partnership with the Coca-Cola company, is uniquely positioned to seize those opportunities. Demonstrating this belief, we recently reconfirmed our commitment to our established long-term growth objectives.

Now as we review our results for full year 2012, we achieved comparable earnings per diluted share of $2.26, including a negative currency impact of about $0.16. Comparable, currency-neutral operating income grew 2.5% and currency-neutral revenue grew 3%. Volume declined 3%, driven by the key factors we've discussed with you throughout the year. Though we benefited from key programs such as the London Olympics, this was not enough to overcome the headwinds from unfavorable weather, the ongoing impact of the French excise tax increase, continuing price competition in Great Britain, ongoing macroeconomic softness in Europe.

Full year Sparkling volume declined 3.5%, while Still beverage volume was essentially flat. In the Sparkling category, we again saw Coca-Cola Zero maintain momentum, with growth of 6.5% for the year, while Energy grew over 15%, led by growth of nearly 50% from Monster brands. In Stills, our water portfolio with Chaudfontaine and Abbey Well grew 4%, and both Capri-Sun and Nestea achieved growth.

Now let's take a look at our expectations for 2013. As we discussed with you a few weeks ago, there continues to be a range of scenarios for 2013. Let me emphasize that while our primary focus is investing in our core business to ensure we're optimally equipped for growth, we will also carefully evaluate other high-return investment opportunities, including potential acquisitions. Any M&A opportunity will be evaluated against a range of strategic and financial criteria and against the alternative of returning cash to share owners. We will update you on any decisions in these areas and their related impact on our expectations for the year as appropriate.

Today, we've affirmed our guidance for 2013, including earnings per diluted share growth of about 10%. This growth reflects mid single-digit growth in both net sales and operating income, as well as the ongoing benefits of share repurchase. These figures are comparable and currency-neutral.

Capital expenditures are expected to be approximately $350 million. We also expect solid free cash flow of approximately $450 million to $500 million, and that's after including a year-over-year increase in cash restructuring expenses of about $125 million. This solid free cash flow is central to our ongoing focus of returning cash to share owners.

As mentioned earlier, we are moving forward with a new $1.5 billion share repurchase program, and we expect to repurchase at least $500 million of our shares this year. In addition, we also recently increased our 2013 dividend payout to an annual rate of $0.80, which is an increase of 25% from our 2012 annual rate. This marks the sixth consecutive year of dividend increases.

Achieving our 2013 plans will require meaningful brand and marketplace initiatives, increasing effectiveness and day-to-day execution. We have excellent brand and marketing strategies in place that emphasize core brands and includes solid support for Coca-Cola Zero , as well as a new campaign highlighting the 30th anniversary of Coke Light and Diet Coke. We will also improve our package mix through targeted packaging, such as 375 ml bottles for the Cold Channel, and 1.75 liter for future consumption. We are adding brand extensions such as Coca-Cola Zero Cherry, and increasing the use of natural sweeteners such as Stevia with Sprite and vitaminwater.

We also have initiatives in place to further tailor our go-to-market strategies channel-by-channel and customer-by-customer. We are utilizing enhanced shopper insights to match product and package offerings to customer and consumer preferences, as we continue to focus on our goal of being our customers' most valued supplier. An important element of these customer service efforts is the Business Transformation Program that we discussed with you earlier.

Now before I turn the call over to Bill, let me leave you with a few key points. First, we continue to have confidence in our ability to deliver long-term growth and to capitalize on the opportunities before us. We are, of course, realistic about the difficult realities of today's marketplace. Yet we believe our brands, our strategies, our strong flexible balance sheet and the talented, dedicated teams of employees that make up this company, create an outstanding formula for long-term success. Second, we remain fully committed to growing in a sustainable, environmentally responsible way. Corporate responsibility and sustainability is ingrained in the foundation of our company and is essential for our future growth. And finally, each of our efforts and strategies is designed to enable us to reach our most important goal, driving value for our share owners.

Thank you for joining us today. And now, I'll turn it over to Bill.

William W. Douglas

Thank you, John, and we appreciate everyone being with us today as we review our fourth quarter and full year 2012 results. For the fourth quarter, we achieved comparable earnings per diluted share of $0.45. Reported net sales grew 1% or 2% on a currency-neutral basis, again, while volume declined 5.5%. Volume in Continental Europe declined 5.5%, and volume in Great Britain declined 6%. These volume results reflect ongoing challenging conditions and the impact of hurdling strong growth from the same quarter a year ago. On a comparable currency-neutral basis and excluding the impact of the French excise tax increase, net pricing per case grew 4%, and cost of sales per case increased 3.5% in the fourth quarter. We also benefited from lower SG&A expense in the quarter, down 4.5%, as a result of volume declines combined with focused expense controls. The fourth quarter of 2012 also benefited from 1 extra selling day, when compared to the fourth quarter of 2011.

For 2012, we reported earnings per diluted share of $2.25, or $2.26 on a comparable basis. This includes a negative full year currency impact of $0.16 per share. Full year 2012 comparable currency-neutral operating income grew 2.5%. Total reported net sales declined 2.5% and increased 3% on a currency-neutral basis. These results reflect the operating and marketplace difficulties during the year that John discussed with you earlier. Our ability to manage the levers of our business, including the tight management of expenses, cost of goods sold, capital expenditures, while combined with our balance sheet, were essential to delivering these results.

Full year net pricing per case grew 3%, and cost of sales per case increased 2.5%. Again, both of these are excluding the impact of the French excise tax increase. Full year operating expenses were flat, driven by volume declines and cost controls, which offset the additional cost associated with our support of the London Olympic Games. Again, these figures are comparable and currency-neutral.

We completed the year with strong free cash flow of $582 million. This is slightly above the guidance that we provided to you on our last conference call in December. This variance is primarily the result of favorable working capital at year end. We ended the year with capital expenditures of $378 million, again, very much in line with what we expected and communicated in December.

Continued strong free cash flow is an essential element of our work to drive value for share owners. This cash flow, coupled with the flexibility of our balance sheet, is enabling us to return significant cash to share owners. Last year, we completed a second share repurchase program, and we have already begun a new $1.5 billion program with the goal of repurchasing at least $500 million of our shares in 2013.

Before I move to our outlook for this year, let me address the balance sheet. We ended 2012 with a net debt-to-EBITDA ratio of just over 2x, which as you know is below our targeted ratio of 2.5x to 3x. However, as we said previously, we plan to end 2013 with a net debt-to-EBITDA ratio of at least 2.5x. We expect to achieve this through potential merger and acquisition activity, increasing return of cash to share owners, or a combination of the 2. Let me emphasize that any action that we ultimately take will meet one vital criterion: it will be designed to create share owner value.

Now I'd like to turn to our outlook for 2013. As you saw in our release this morning, we have affirmed our prior guidance. This guidance includes comparable currency-neutral earnings per diluted share growth of approximately 10%, above actual 2012 results. We expect net sales and operating income to grow at a mid single-digit range, again, both on the comparable and currency-neutral basis. Based on recent rates, we believe currency translation would benefit full year earnings per share in a range of 2% to 3%. Our guidance reflects an anticipated decline in gross margins, with expected net pricing per case growth lower than an above-average cost of sales per case growth in 2013. Additionally, overall gross margins will be negatively impacted in 2013, as we transition from refillable to recyclable non-refillable packaging in Norway. We expect operating income to be down modestly, and net income margins are also expected to plunge slightly, driven by increased interest and tax expense.

We remain committed to preserving or expanding margins over time. However, given the current sustained macroeconomic weakness and challenging marketplace conditions, we are taking a more modest approach to pricing in 2013. Weighted average cost of debt is expected to be approximately 3%, and the effective comparable tax rate for '13 will be in a range of 26% to 28%. Again, all of this outlook is comparable and currency-neutral.

We expect this year's capital expenditures to be approximately $350 million, and free cash flow in a range of $450 million to $500 million. This level of free cash flow, as John mentioned, is after an expected increase in cash restructuring cost of approximately $125 million. These costs are funding our Business Transformation Program, as well as the reorganization of our business in Norway. Again, both initiatives are on track for implementation.

Our Business Transformation Program will deliver an annualized benefit of approximately $100 million by 2015, some of which is expected to be reinvested in our business. This effort is reorganizing our sales and marketing organization to better align central and field sales, improving the efficiency and effectiveness of certain aspects of our operations and service activities related to our cold drink equipment, and streamlining and restructuring the cost of our finance back-office functions.

Now a couple of final modeling notes on our 2013 outlook. As for selling days, there is 1 less selling day in the first quarter of this year, and 1 additional selling day in the fourth quarter as compared to last year. As for currency, at recent rates, the largest favorable impact would be during the summer selling season. Given these factors, restructuring timing, prior year hurdles and our overall outlook, we expect operating income growth to start modestly and be weighted to the back half of the year.

In closing, we recognize that overall marketplace conditions remain difficult. Yet, we are committed to the marketing and operating plans we have in place and in our ability to utilize the levers of our business to deliver our financial objectives. We continue to be encouraged by the solid support for our brands, and we are positioned to capture the growth opportunities that lie ahead. Importantly, we also know that throughout our territories, we have teams of dedicated and skilled employees ready to seize the business opportunities ahead, to drive customer service and in the end, create value for each of our stakeholders.

Thanks for joining us today, and now John, Hubert and I will be happy to take your questions. Operator, we'll open up the line.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Wendy Nicholson of Citi.

Wendy Nicholson - Citigroup Inc, Research Division

If you could just speak specifically to the volume trends, maybe in France in the quarter versus the rest of Continental Europe, and then also, just generally, about the competitive environment. With the weaker volumes, are you still holding and gaining share in most markets?

John F. Brock

Wendy, let me ask Hubert to address that one. Hubert?

Hubert Patricot

Yes, Wendy. In Continental Europe, volume decline was primarily driven by the impact of the excise tax increase in France, which notably impacted the pricing -- put pressure on the customer margin and created a high previous year hurdle. December was very strong last year in France, with some loading in view of the tax, and initially, also the in the Benelux we are cycling, a strong previous year hurdle. In term of share, in France, we have been gaining share because we have been making some progress, especially in the [indiscernible]. So we have been gaining volume share in France. But overall in Europe, we are slightly losing share in -- both in volume and value.

Wendy Nicholson - Citigroup Inc, Research Division

Okay. And so -- and as we look then into 2013, I heard your comments on [indiscernible] with regard to the quarterly flow. But the volume weighting, do you expect the continued volume weakness to persist into the first quarter? Or is that going to be more sort of normalized over the course of the year? I know we've got some comp issues as well.

John F. Brock

Again, let me ask Hubert to answer that one.

Hubert Patricot

So looking ahead for 2013, we have solid operating and marketing plans in place to activate our brands and packages. This will include new launches, designed to target the consumer need and drive frequency. So for example, for France and GB, we're going to introduce the 1.75-liter bottle in GB, a 1-liter PET in France. And on top of that, we'll have new product and flavor introductions. [indiscernible] light Coke in GB, Cherry Coke Zero in GB and France and [indiscernible] in France, too. At the same time, we're going to push to a lower entry-points package, which are pretty important in the current environment. And we're going to enlarge the distribution of the 375 ml pack and IC [ph] pack to France and Benelux. So these are the reasons which make us say that we cannot return to volume growth starting in France, but in Europe and Benelux [ph].

John F. Brock

I'll just add one more comment. As we look through the fourth quarter of last year, we actually had some sequential improvement as we went from October through to December, and that level of improvement has continued as we moved into the beginning of 2013. So at this juncture, while it's really early and don't want to really comment on progress to date. It's in line with our expectations.

Operator

Our next question comes from John Faucher of JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

Just -- in looking at the consumer environment in France and your ability to pass through pricing, can you talk a little bit about where you think retail pricing will be to the French consumer, in terms of more of the excise tax flowing through in 2013, relative to the pricing that you're going to be able to take at the wholesale level?

John F. Brock

Hubert, why don't you talk to pricing in France? And perhaps, you can comment on pricing throughout our territories.

Hubert Patricot

Yes. So after a year, the French excise tax increased. We know that the first Kantar data, basically, our pricing has increased by around 7%, which is about 2/3 of the excise tax. And then we discussed previously, some customer have strategically chosen to delay the price increase, which has put pressure on the margin structure. And from this year as also, we had already announced it, we are taking a more modest approach on our pricing, and we have started to engage with our customer about the annual tariff negotiation and we anticipate this annual price increase to be implemented sometime in Q1, Q2, in line with the customary timeline. And again, moving forward, we will measure our performance, again in 2012, now that we have cycled the initial increase of the excise tax. Regarding the rest of Europe, I am pleased to report that we have concluded our pricing negotiation in GB and Sweden, and in GB, it's going to be -- it is implemented in Q1, and it will be implemented in Q2 in Sweden. And for Benelux and Norway, it will be in Q3.

Operator

Our next question comes from Judy Hong of Goldman Sachs.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Bill, I may have missed this, but if the share buyback -- can you tell us how much you bought back stock year-to-date in the first quarter? And then just in terms of how your guidance is -- what your guidance is assuming in terms of the phasing of the said -- at least $500 million buyback for the year?

William W. Douglas

Hey, Judy, you did not miss it. We haven't commented on the phasing, as we did not comment last year. I think there'll be a reasonable indication of what the phasing is going to look like at the end of April, when we report our Q1. But we haven't been articulated that at this juncture and we don't plan to today.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. And then maybe John or Hubert, just -- if you think about your business over time, clearly I think we had the impression that the Sparkling category is underpenetrated in Europe, and that it will be a growth category. And obviously, we've been in a pretty challenging macro environment. But as you look out in a more normalized environment, is there anything that you could call out that may have changed your thinking about the Sparkling category's growth potential, and how you think about the portfolio expansion opportunity if the consumers are a bit shying away more from Sparkling, whether because of health issues or et cetera?

John F. Brock

Well, let me just say, we remain convinced that the Sparkling category is, and will be, a growth category for the future. Clearly, 2012 was a challenging year for a whole host of factors which we've been over time and time again, including the wettest and coldest summer and, perhaps, in history. So we are lapping 2012, which is a good place to start. But I think even more importantly, it's just the realization we have, that when you put together per capita consumption throughout our territories and then add to it the business model we have and then the programs, the plans and programs in place, we remain very confident that the Sparkling category will grow in Europe, in our territories. And there's clearly macroeconomic issues, the consumer fragility issues, it doesn't matter. We're in a great category, and we think it'll return to growth in 2013 and beyond.

Operator

Our next question comes from Lauren Torres of HSBC.

Lauren Torres - HSBC, Research Division

I guess at this early start of the year and early time of the year, I do appreciate this modest approach you have to your guidance and how you're thinking about 2013. But at the same time, with the Business Transformation Program, with some pricing initiatives, even though albeit more modest, and also maybe a commodity outlook, I don't know if, Bill, if there's any details you can provide on your visibility on commodities. But just directionally, I'm trying to get a sense if you are being a bit conservative and if we see some upside with these components. Maybe margins could be flattish or even up, if they [ph] actually work a bit better than initially expected.

John F. Brock

Let me ask Bill to comment on that one

William W. Douglas

Well, I think the starting point, Lauren, is what we said in our remarks and what we said in December about our cautious approach to pricing, and that margins will in fact contract. I mean, we're pretty confident that's going to be the case. We're well on our way, as Hubert mentioned earlier, and the conversation with John about where we are with our pricing initiatives. So that is going in, and we have a pretty good line of sight on what that price realization is going to be. From a COGS perspective, I'll give a little bit more detail on that. At this juncture, as you would expect, we have a fairly significant amount of line of sight on COGS and commodities. And specifically, we are about 75% hedged at this juncture, which is typical to maybe a little bit above normal. We also have the impact from the packaging change in Norway. So all that factored in, our internal guidance and the external guidance that we're giving is for a all-in COGS-per-case inflation of about 4% for 2013. And that's including, roughly, a 75 basis-point impact from the packaging change in Norway. And again, we're going to be getting price realization a little bit less than that. So when you factor all of that in, we feel like our guidance is fairly down the middle. We have great weather and the volume comes through, and that's probably the biggest opportunity for meaningful upside, but it's way too early for us to feel comfortable about that level of variability yet.

Lauren Torres - HSBC, Research Division

That's helpful. And if I could also just ask on the Business Transformation Program, the benefits that you gave us that that's through -- or up to 2015. I don't know if there's anything with respect to the benefit we may see this year. So is there anything to quantify for a benefit in 2013?

William W. Douglas

Sure. We mentioned this in December. We haven't really reinforced that this morning. But what we are expecting is that run rate in 2015 of $100 million on an annualized basis, that that would be realized circa of 1/3, 1/3, 1/3. So we would get somewhere in the neighborhood of $33 million of benefit on that in 2013. However, that's already baked into our guidance. And importantly, that's going to be back-end loaded, as you would imagine, because we just started these initiatives in early '12 -- or sorry, late '12.

Operator

Our next question comes from Steve Powers of Bernstein.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Just a quick question to start off. It looks like, probably both Stills and Sparkling, were eased down about 5% to 6% in the quarter. Is that about right, or is my math off?

John F. Brock

Stills and Sparkling down 5% to 6%, yes, that is correct.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And I guess that in -- generally, in the plan for '13 to return to volume growth, are there any key assumptions that we should be aware of, beyond presumably a normalization of either -- does that -- does there seem any competitive easing in the U.K., any improvement with retailers in France? And I guess, have there been any developments in those 2 areas, since we spoke in December?

John F. Brock

Well, let me just say that as we look in 2013, clearly, we're coming off, again, the wettest and coldest summer we had in 100 years. We're kind of -- we're not expecting a spectacular weather -- summer, but we're hoping for a normal one. And the rest of our strategies, I think, assume that we're going to continue to make progress in both Great Britain and France. We understand the competitive environment in GB is significant. We're not frankly assuming anything dramatically different in the change there. But obviously, we'd like to hope that there might be some more rational approaches to pricing in that market. And I think in France, again, we're guardedly optimistic. The French excise tax, at least a significant portion of it, is behind us. And we are in ongoing discussions right now with our customers. And again, we continue -- when you look at the history in France, this has been our most vibrant and growing market over the past 6 or 7 years, off, again, the lowest per capita consumption in Europe. We continue to think France is really a land of opportunity. We had a bit of a hiccup in 2012 because of the misguided French excise tax. But that's largely behind us. And frankly, we think we're going to see things picking up again in 2013.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Okay, great. And then just lastly, unless I missed it, on the COGS per case inflation, is the 3.5% number we talked about in December still reasonable?

William W. Douglas

You missed it. I said it was going to be approximately 4%, and that's including, roughly, a 75 basis-point impact from our packaging change in Norway. And Steve, just to follow up, I double-checked the detailed numbers on the volume growth that you had asked about originally. Sparkling was down circa 6%, as you said, suggested. Still was actually down circa of 3.5%. Remember, however, that Sparkling represents about 85% of our total volume, and Still represents only about 15% of the total volume.

Operator

Our next question comes from Bill Schmitz of Deutsche Bank.

William Schmitz - Deutsche Bank AG, Research Division

The accounts receivable in the last couple of quarters seems like it's increased quite a bit year-over-year. Is that trend that's going to continue, or is there something -- an anomaly in that back half?

William W. Douglas

Overall, Bill, we were actually really pleased with where our working capital ended up. There is some FX in that, as the euro strengthened up to -- can't remember what the spot rate was at the end of the year, but clearly, that had an impact on it. And we did have, as I mentioned earlier, an acceleration of our business as it moves through the year. So even the Q4 volume was down as we articulated earlier. December was the strongest volume, and we had a reasonably higher amount of receivables outstanding as we went into the Christmas, New Year's. We look at receivables growing in line with the overall sales from a modeling strategic perspective on managing working capital. So we're not experiencing -- or expecting anything structurally, that would deliver what you were concerned about.

William Schmitz - Deutsche Bank AG, Research Division

Got you. And then the free cash flow, if you kind of pro forma for the restructuring charge, the cash restructuring charges, it looks it's kind of, in up the line with sales. Shouldn't it be a little bit better than that?

William W. Douglas

We're are still having a little bit of headwinds, if you look at our cash conversion from net income, with respect to cash taxes and restructuring and depreciation. But over time, i.e. 2014, I think your assertion is accurate.

William Schmitz - Deutsche Bank AG, Research Division

Okay. Then last one is, kind of a shift by the retailers, I think especially in France from carbonated soft drinks to beer, is that largely done after the excise tax and then beer? So do you're going to get some of that shelf space back?

Hubert Patricot

Well, Bill, it's pretty early in the year, and that the lot of the detail on the beer inventory at the end of last year. But what we see in this Kantar data [indiscernible] for the moment is a kind of around 10% price increase. And as you remember, the excise tax increase is above 20%. So currently, that would be around halfway.

William Schmitz - Deutsche Bank AG, Research Division

Yes, so there will be a benefit don't you think from getting more stuff back from beer if the [indiscernible] rises with the 20% as excise tax. Is that fair?

Unknown Executive

Maybe.

Hubert Patricot

Maybe.

Operator

Our next question comes from Ian Shackleton of Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

I'm not sure if there's anything more you can say around Germany. There's nothing in the statement. But I just wonder from a wider perspective, how you see the opportunity for new territory expansion like Germany versus possibly new product expansion. Particularly, I'm thinking about the GSK announcement yesterday on the Ribena and Lucozade brands?

John F. Brock

Yes, well, on -- Ian, on Germany, our position is the same as it's been for some time, which is we evaluate any and all acquisition, potential acquisition opportunities very carefully and thoroughly. And they are all investigated from the standpoint of shareholder return. And when we have something to say, we will certainly say it. In terms of the GSK situation, it's an interesting development that we saw, just like you did. But at this stage of the game, I think it'd be too early to say anything significant. From a portfolio standpoint, I can -- we're always looking at how we can strengthen our portfolio. And that we have already the best beverage portfolio of anybody out there, and that's a good place to be, but we certainly are always looking for anything that we could do to make it stronger.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

If I can just ask a follow-up. I think last time we spoke, you were sounding incredibly relaxed around the regulatory situation, particularly in the U.K. There's been a lot more commentary in the last few weeks. Do you still remain quite confident on that?

John F. Brock

On the regulatory front, I think it's fair to say, we continue to be very diligent with the -- working hand-in-hand with the Coca-Cola Company on any and all developments that are taking place. We certainly are aware some of the recent proposals that have been put on the table, not only in GB, but in other countries in Europe. And we're aggressively moving to defend our position and to make sure that regulatory authorities and governments, who are frankly, consistently looking for ways of increasing taxes and getting more money. We're being very proactive in ensuring that they understand the entire picture. We think if you compare where we are today, again, hand-in-hand with the Coca-Cola Company, and compared to where we were 18 months ago, when the French excise tax was originally put into place, we're in a much stronger position to be able to defend and make sure that those people who are thought leaders in the systems out there understand what's really going on. So we're diligent. We're methodical. We're going to be very aggressive, and you can assume we'll be there fighting our battles.

Operator

Our next question comes from Mark Swartzberg of Stifel, Nicolaus.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Hubert or John, also on France. It seems like you were kind of in the penalty box last year in terms of promotions and displays. Given the level of price increase, are you seeing the opportunity for kind of a nice rebound there in terms of retailer support for increased display space and promotion this year?

John F. Brock

Hubert?

Hubert Patricot

Well, we are really encouraged by the fact that, again, the value of the category has rebounded as we said, so the price have increased. And just talking, as I mentioned, of annual tariff negotiation with the trade in France, again, we are the -- a very strong trajectory of showing value creation with the retail line front. We turned the soft drink category into the #1 category in 10 years. So we have some credential there. And we have a strong marketing and innovation plan for this year, including a very strong summer promotion which is Cherry Coke. So although it's too early to say that, again, these negotiations are concluded, we think we have some strong elements in our plans to convince the trend to resume our joint value creation on the category.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

So is that a -- that could be determined? In other words, you're still inking these arrangements or you know enough to say that there will be an improvement?

Hubert Patricot

The timing in France [indiscernible] that you negotiate in the first quarter. So it's too early to say that we have not concluded the negotiation, and each combination of price increase, CMA and, again, marketing and innovations. But again, I'm encouraged because the reaction to our marketing plan being on Diet Coke and Coke Light or Coke Zero, all these big promotions are quite encouraging.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then, Bill, just on the COGS side, I may have missed this, but when you look at your hedges and the spot market, prices were different than what's out there, how much risk in either direction, if you will, to that 4% do you think there is to your view?

William W. Douglas

Just a broad brush, and maybe 0.5% either way. Most of the exposure is going to be on oil and related products i.e. PET, and that risk will decline as we drive through the year.

Operator

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

Bryan D. Spillane - BofA Merrill Lynch, Research Division

I've got 2 questions relative to advertising and consumer spending plans for 2013. I guess the first one is just if you weren't able to aggregate just the total amount of spending that's planned for 2013, both between yourselves and the Coca-Cola Company, is the aggregate amount equal to last year more or less? And I guess, and what I'm thinking through, is just it's a volume-oriented plan. Last year, there were some spending related to the Olympics, which presumably, with a higher level of spend. So are we actually spending, in aggregate, the same amount or less than last year?

John F. Brock

Hubert, go ahead.

Hubert Patricot

Yes, again, it's about resuming growth and we plan to increase our spending, both, I'd say, on both sides, both in promotion and in advertising, to ensure the plans I just described will be successful.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Okay, so there's no -- there's no step down or no reduction in the total amount of money that's being spent against the top line this year?

Hubert Patricot

No. None at all.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Okay. And then just a follow-up to that, just -- and I guess it's tough because it's hard to, really for us at least, to discern how much of the volume weakness has been weather and how much of it is just the consumer and the price elasticity. But are you doing anything materially different in terms of the way you're positioning or approaching the consumer now, just because of the macro weakness and the price elasticity? I guess what I'm driving at, is there anything, any sort of change to your tactics or strategy to try to, more pointedly, address the consumer, who may be feeling a little bit more cash-strapped?

Hubert Patricot

Well, I would say 2 points. The first one is the packaging initiatives, targeting lower entry-points in the market. It called for the 375 -- for example, small PET we have launched in GB at 99p, and this will be repeated in France and Benelux. We have also launched small cans in Holland, again, on a lower entry-point. And these are the good type of any initiatives we are doing. We are also having a 175-liter PET launch in GB, so below the 2 liter at 179p. Again, the customer at the end, decide of the pricing, but this is today, where you could see it in the market. So we have this kind of initiatives to reflect what you say, and the way the shoppers are shopping now, which is more frequency, but slightly less average basket size.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

So fair to say that the plan is better aligned with maybe where the consumer is today versus maybe where you were a year ago?

Hubert Patricot

Well, we permanently reflect on the consumer and shopper evolutions. Again, so that's why this plan is coming. But it's going to be a combination. We said, we continue to invest in advertising, the company will invest. So it would be a well-balanced plan between package initiatives, more personal activities, advertising. And we are pretty encouraged by the reaction of our customer to this turn [ph].

Operator

Our final question comes from Damian Witkowski of Gabelli & Company.

Damian Witkowski - Gabelli & Company, Inc.

I know that you're actively working with governments, making sure that others don't follow France's example on the excise tax. But I'm just wondering, if you look at France, are you still actively working with a new one in terms of actually reversing the excise tax that was put in place, whenever, 18 months ago, whenever it was. What do you think is the likelihood of that happening, actually is?

John F. Brock

Well, we always are looking for any kind of an opportunity for an opening when we could do what you just suggested. I think from a reality standpoint, it's pretty unlikely that that's going to happen. One of the points we made, is as bad an idea as the French excise tax was, the fact is that the taxes in France were among the lowest in Europe. And so, I think when the French authorities look at where they are now, I think it'd be unlikely, and I'm just being very realistic. It's pretty unlikely that that's going to get reversed. We always would see a breadth of development, and if we ever see an opportunity, we would certainly jump in and see what we could do. But unlikely.

Damian Witkowski - Gabelli & Company, Inc.

And then just lastly on, I'm not sure if I missed it. But Energy drinks, I know they did well in 2012. Any thoughts going into 2013?

John F. Brock

We continue to be very excited and pleased with Energy. Hubert, just add a little color commentary to that.

Hubert Patricot

Yes, it's still a relatively small part of our portfolio. It's around 3%, but it continues to perform well. You mentioned 8% -- up 15% in '12. This year in '12, the segment itself grew 8%, in volume, 9%. And we grew share by 1 point in volume and 1 point, too, in value. So we are doing well from a small basis, and we are pretty encouraged to grow at least at the same speed in the year 2013.

Operator

Our final question comes from John Faucher of JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

I just want to follow up on the cadence of the volume during the quarter. Looking at where you finished to get sequential acceleration, that would imply maybe sort of down high-singles. And I guess the question is, were you still down low-singles as you exited the quarter? Or was that more of a flat to positive number?

William W. Douglas

I think directionally, John, were you started is accurate, high singles, medium singles, low singles, towards flat as we were exiting the quarter.

John F. Brock

Okay. And let me say, thanks, again, to all of you for joining us today. We appreciate it. And we hope that you all have a very nice day. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.

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