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Executives

Basak Kotler – IR

Dimitris Lois – CEO

Michalis Imellos – CFO

Analysts

Olivier Nicolai – UBS

Edward Mundy – Nomura Securities

Adam Spielman – Citi

Tristan van Strien – Deutsche Bank

Henry Davies – Bank of America

Gabriela Malczynska – Barclays

Andrew Holland – Societe Generale

Charles Pick – Numis Securities

Coca-Cola HBC AG ADR (CCH) Q1 2014 Earnings Conference Call May 16, 2014 4:00 AM ET

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Coca-Cola HBC’s Conference Call for the 2014 First Quarter Results. We have with us Mr. Dimitris Lois, Chief Executive Officer; Mr. Michalis Imellos, Chief Financial Officer; and Ms. Basak Kotler, Investor Relations Director. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must also advise that this conference is being recorded today, Friday, 16 May, 2014.

I would now pass the floor to one of your speakers, Ms. Basak Kotler. Please go ahead.

Basak Kotler

Good morning. Thank you for joining our call today to discuss Coca-Cola Hellenic Bottling company’s results for the first quarter of 2014. Today, I’m joined by our Chief Executive Officer, Dimitris Lois; and our Chief Financial Officer, Michalis Imellos. Following the presentation by Dimitris and Michalis, we will open the floor to questions.

Before we get started, I would like to remind everyone that this conference call contains various forward-looking statements. These should be considered in conjunction with the cautionary statements contained in our press release and Coca-Cola HBC AG’s most recent filings, copies of which can be found on our website at www.coca-colahellenic.com.

Now let me turn the call over to Dimitris.

Dimitris Lois

Thank you, Basak. Good morning, everyone, and thank you for joining our call. Today, I would like to take couple of minutes to go through the highlights of the first quarter before Michalis takes you through our financial performance. I will then discuss our operational performance and the outlook for the remainder of 2014.

In the quarter, we gained or maintained share in volume and value in 15 markets out of 23 Sparkling beverages and in 13 markets out of 21 in NARTD. We accelerated the improvement in currency neutral net sales revenue per case growing for the 11th consecutive quarter. These were supported by the implementation of incidence rate related pricing and the successful progress we have made in our revenue growth management initiatives.

The volume was our biggest challenge in the quarter. We were affected by Easter phasing, our value-accretive volume initiatives in Poland and Czech Republic and country-specific issues in Ukraine and Nigeria, which we will come to in a minute.

In addition, specifically in Italy, the pricing initiatives I just mentioned resulted in occasional rebuying in the fourth quarter which distorted the volume in the seasonally small first quarter.

Continued solid growth in Russia offset sample, this shortfall. In a seasonally small quarter, the combination of the negative operational leverage from lower volume, the one-off operational expense items and the high negative volume exchange effect had an exaggerated effect on the bottom-line leading to a negative comparable EBIT.

Our focus on improving operational efficiency as well as working capital continues. This is reflected in the reduction of both comparable OpEx in absolute terms and lower working capital balance sheet position on a year-on-year basis.

Finally, I would like to add that we have now taken measures to mitigate the incremental foreign exchange effect. Looking at the remainder of the year, our expectations for the full year remain unchanged.

With that, I will now turn the call over to Michalis.

Michalis Imellos

Thank you, Dimitris. Hello everyone. In line with our practice, as I take you through our financial results for the first quarter, I will refer to comparable figures which exclude the impact of restructuring costs, the mark-to-market valuation impact of commodity hedges and specific nonrecurring items.

As Dimitris pointed out, our volume declined by 4% in the first quarter. The ongoing challenging macroeconomic and trading conditions across our territories combined with a phasing of Easter, one-off items and timing issues of some of our major markets, resulted in a weak performance in the quarter.

Net sales revenue declined by 7% negatively affected by the significant currency headwind, particularly in our emerging market segment as well as the weak volume performance. Currency neutral net sales revenue per unit case grew by 2% in the quarter, supported by positive pricing and favorable pack mix.

The rate of improvement in costs of goods sold helped by the favorable input cost environment was offset by the top-line performance leading to a small contraction of the gross profit margin in the quarter.

Our operating expenses continued to improve year-on-year on an absolute basis. On the other hand, the combination of certain operational one-off items and low operational leverage led to 190 basis points deterioration in operating expenses as percent of revenue.

The benefits from our revenue growth initiatives and the favorable input cost environment were more than offset by the significant unfavorable currency movements, higher concentrate costs, one-off operational expense items and the lower volume. As a result, comparable operating loss reached €27 million in the quarter compared to the €1 million loss in the prior year period leading to 190 basis points deterioration in comparable operating profit margin.

Specifically on the negative foreign exchange impact, in the first quarter, we incurred the heat of €19 million, €17 million of which was transactional.

Our comparable loss per share was €0.10, compared to a €0.04 loss in the prior year quarter. We incurred free cash outflow of €81 million which will then to €41 million deterioration compared to the prior year. They key drivers were an increase in the cash outflow from working capital and the decrease in EBITDA.

The increase in the working capital outflow is mainly related to the slowdown in the pace of improvement in the working capital balance sheet position, as the working capital balance continued to improve substantially year-over-year. We are committed to continuous working capital balance improvements also in the remainder of the year.

Let’s take a closer look at our top line performance during the first quarter, focusing on the evolution of currency neutral net sales revenue per case, currency neutral revenue per case increased by 2% in the first quarter in line with our expectations. Positive price mix supported by pricing related fee incidence rate increase as well as pack mix supported the growth.

In our established markets, currency neutral net sales revenue per case was marginally negative in the quarter. Unfavorable price and channel mix more than offset the benefits for favorable pack mix.

Developing markets posted the biggest improvement in currency neutral net sales revenue per case, increasing by 6% in the first quarter, supported by benefits of improved package, price and channel mix.

The emerging market segment maintained the growth trend with currency neutral net sales revenue per case increasing by approximately 4% in the quarter, driven by the positive price and package mix.

Turning to input costs. Currency neutral input costs per case declined by 4% in the quarter. The key drivers for this decline were lower EU and manual sugar prices in line with expectations, lower sugar consumption in the mix and favorable PET price.

Given the better unexpected PET price in recent months, and the updated favorable forecast for the rest of the year, note in glove that this is a material that we do not actively hedge, we now expect full year currency neutral input cost per case to decline by low-single digits compared to the prior year.

Comparable operating expenses, as a percent of net sales revenue, deteriorated this quarter, increasing by 190 basis points year-on-year. Despite operating expenses improving on an absolute basis, certain one-off expense items and low operational leverage negatively impacted comparable OpEx as a percent of net sales revenue.

Sales and marketing expenses were the main drivers of the deterioration, more than offsetting the improvement in warehousing and distribution expenses.

On a segmental basis, the main negative contributors were the established and emerging markets, was deteriorated by approximately 220 basis points each. In our developing markets, comparable operating expenses as percent of net sales revenue marginally decreased.

Our initiatives to reduce operating expenses remain a key priority. We are confident that progress in operating expenses as a percent of net sales revenue will resume over the course of the year, leading to better operational efficiency across our business.

Turning to comparable operating performance, in the first quarter, we recorded an operating loss of €27 million, compared to an operating loss of €1 million in the prior year.

Let me give you some color on this. Overall, the combination of the highly negative foreign exchange impact, the negative operational leverage from lower volumes increased concentrate costs and certain one-off operational expense items more than offset the positive impact from our revenue growth initiatives and favorable input cost environment.

Turning to the comparable EBIT performance of the three deporting segments in the first quarter. Our established markets deteriorated by €17 million year-over-year. Benefits from the restructuring initiatives, tighter operating expense management and lower input costs were not enough to offset the lower volume, higher concentrate costs, negative price mix and the impact of certain one-off operating expense items.

Our developing markets improved by €6 million compared to the prior year. Favorable price mix and lower input costs and operating expenses more than offset the impact from weaker volume and higher concentrate costs.

Emerging markets deteriorated by €14 million compared to the same period last year. Price mix improvement and lower input costs were not enough to compensate the significant negative currency impact, higher operating expenses and higher concentrate costs.

In the first quarter, we incurred restructuring charges of €6.8 million mainly in established markets. As communicated before, we have identified certain restructuring opportunities for 2014, which are expected to cost on a full-year basis approximately €35 million with the expected annualized benefit reaching €25 million from 2015 onwards.

Given the above, we expect that the total benefits from 2013 and 2014 initiatives, we reached €33 million in 2014.

Turning now to the free cash flow, this was negatively affected by weak operational performance and the slowing down in the pace of working capital balance improvement. In the first quarter, we incurred free cash outflow of €81 million, €41 million higher than the prior period.

Cash outflow from working capital reached €87 million in the first quarter, a €30 million deterioration versus the first quarter of 2013. However, this is in line with our expectations and largely attributed to the diminishing phase of working capital improvements, given our significant accomplishments in this area in the last few years.

Our disciplined working capital management remains intact and the variant in the working capital balance sheet position which continued to improve substantially year-over-year.

We are confident in our ability to generate strong free cash flow and are committed to continuous improvements in working capital balance in the remainder of the year as well.

Let me now touch upon the financing of our business. Total net financing costs increased by €0.8 million during the first quarter of 2014 reaching €20.5 million. The benefit in financing costs from the successful bond refinancing that took place last year was more than offset by the unrealized foreign exchange re-measurement losses of approximately €5 million arising mainly from the sharp depreciation of the Ukrainian hryvnia.

Looking ahead for the full year, we expect that the annual savings and our financing costs of approximately €18 million will be partially offset by foreign exchange re-measurement losses depending on the developments with primarily the Ukrainian hryvnia.

Overall, we remain committed to maintaining a conservative and diversified financial profile, translating to a net debt to comparable EBITDA ratio in the range of 1.5 to 2.

I would now like to sum up with our financial outlook. Based on current trends across our territories and despite persistent challenges in some of our key countries, we expect currency neutral net sales revenue per case to continue to grow year-over-year at a higher rate than 2013.

We now expect a more favorable input cost environment for 2014, with currency neutral input cost per case declining by low-single digits versus the prior year. This improvement is based on an assumption of more favorable rise in prices going forward, although this material carries increased rates given that we cannot hedge it in the market.

Regarding ForEx, we started the year with the expectation of the full year impact of foreign exchange volatility would be 60% to 120% more than the €32 million shift that was experienced in 2013.

Taking into account our hedge positions, the current spot rates and the increased currency volatility now in the emerging market segment, we currently expect the full year ForEx impact to be in the region of €90 million to €100 million.

In response, we have initiated additional pricing and cost cutting initiatives primarily in Russia and Ukraine, which are expected to fully mitigate the incremental €20 million to €30 million impact compared to the upper end of our original expectations for the year.

Taking into account, the accounting mix across our territory, we still expect a comparable effective tax rate in the 24% to 26% range. Our annual capital expenditure over the medium term is still expected to range between 5.5% and 6.5% of net sales revenue.

We expect that increased operational efficiency as well as favor improvement in royalty capital will support solid pick-up flow generation in the medium term. During the 2013, 2015 three-year period, we continue to expect to generate cumulative free cash flow of approximately €1.3 billion.

And with that, let me now pass the floor to Dimitris, who will give you some more color on our operational performance in the quarter.

Dimitris Lois

Allow me now to take you through the top-line developments in our business. Overall, volume declined by 4% in the quarter, cycling a stable performance.

As mentioned earlier, trading in the quarter was impacted by phasing issues as well as a number of country specific issues which I will discuss in few minutes.

The established markets had a slow start to the year, declining by 7% following a similar decline in the prior year. Performance in the quarter was impacted by the refining of Easter in the number of countries in the segment, as well as a difficult macroeconomic and phasing environment in Italy.

The development markets declined by 9% cycling and 3% decline in the prior year, reflecting the ongoing challenges in this segment and our focus on sustainable value accretive volume in certain markets.

In the emerging markets, volume was stable overall, cycling 7% growth in the same period last year. On a country by country basis, performance was mixed with strong performance in Russia, Serbia and Belarus, offset by volume declines in Romania, Ukraine and Nigeria.

We are leaders in Sparkling beverages in 23 out of 24 of our markets, and we continue to improve our leadership position in the majority of our countries. Specifically Q1, we grew and maintained our volume and value share in Sparkling beverage category in 16 out of 22 of our markets, including most of our key markets while we gain or maintained value shares in the overall non-alcoholic ready-to-drink market in 13 out of 21 of our markets as measured by Neilson.

Sparkling beverages and trademark Coca-Cola product declined by 6% and 7% respectively, in the quarter mainly driven by the Czech Republic, Italy, Poland and Romania. These countries were impacted by a combination of factors, such as negative underlying market trend, timing issues and issued decisions.

Temporarily disruptions in supply in Nigeria due to the roll-out of FAD also played a significant part.

Coca-Cola Zero continued to grow strongly across all segments. Volume in the juice category improved by 2% with volume expansion was driven by emerging markets with strong growth in key countries such as Belarus, Romania and Russia.

Volume in the water category reversed its recent decline growing by 1% in the quarter, supported by strong performance in the emerging and developing segments. Bulgaria, Greece and Serbia were the key growth drivers. Overall, Czech Republic, Italy and Ukraine continued a negative performance reflecting the weak underlying trends in most of these markets as well as our strategy to rationalize our SKU.

While the rationalization slowdown our volume growth in water category, packaged mix improved for the 13th consecutive quarter across all segments.

Our energy brands continued to grow, marking the 16th consecutive quarter of volume expansion in the category. The positive performance in the quarter was driven by strong growth in the Czech Republic, Greece, Hungary, Italy and Slovakia.

Ready-to-drink tea products declined by 3% cycling a 6% growth than the prior year period. The strong performance in the established markets was not enough to offset the continued decline in the developing markets and the marginal decline in the emerging markets.

Turning now to each of our reporting segments. The volume in our established market segment declined by 7% in the quarter. In Italy, the underlying trading environment remained challenging. This quarter, trading was further impacted by the combination of Easter timing and the pre-buying at the end of 2013 when we announced forthcoming price increases.

Additionally, we have seen some impact on our business from the liquidity constraints in the market. Our customers have tightened the working capital by distorting while we have tightened our credit policies.

We continue to expect 2014 to be another challenging year for Italy, particularly in view of the record high unemployment rate and the continued pressures in disposable income.

In Greece, we achieved volume growth in the quarter following two consecutive years of heightened declined in the respective prior year quarters. Sparkling continued to show a sequential improvement in the rate of decline while all of our other categories grew strongly.

While we are pleased to see volume in Greece turning positive, we remain cautious as trading conditions remained tough, characterized by near record high unemployment levels of 28% and disposable income which is forecast to contract further in ‘14.

In Switzerland, volume decline in all key categories with the exception of ready-to-drink tea. The decline was mainly driven by strong Easter related promotion in the organized trade in the prior year. In the Sparkling category, Fanta and Sprite grew by 13% and 6% respectively supported by increased activation and improved distribution.

In our developing markets, we registered a 9% volume decline in the first quarter, following a 3% decline in the prior year quarter. Macroeconomic and trading environment in Central Europe remained challenging.

In Poland, underlying trading conditions remained challenging with volume declines in all categories except for water. Again, this market backdrop and with the additional impact of Easter phasing, our overall volume declined by high-single digit in the first quarter cycling mid-single digit decrease in the prior year period.

Our strategic decision to focus on sustainable and value accretive volume in an environment which is highly driven by discomforts, also contributed to this decline. We will continue to focus on our OBPPC implementation to strengthen our net sales revenue per case, while also drive operational efficiency and maintaining a tight cost control.

Volume in Hungary declined marginally. The rate decline in Sparkling decelerated driven by Coca-Cola Zero, Fanta and Sprite. At the same time, Sparkling package mix improved by 3.6 percentage points driven by low-double digit growth in single served packages.

Overall, although we are pleased to have seen the sequential improvement in the rate of decline, we remain cautious as underlying saving conditions remained tough with unemployment increasing to 11.2% and consumer confidence seen at low levels.

In the Czech Republic, volumes were negatively impacted by Easter phasing and our decision to write out our value accretive volume initiatives. The decline was across all key categories with the exception of juice and energy categories.

Coca-Cola Zero grew by 14% while energy grew by low teens reflecting the strong performance in both Burn and Monster. Overall, packaged mix improved in our developing markets, more than Sparkling and the Water category. These reflect our continued focus on OBPPC implementation in the segment as a team to address the market and consumer dynamics.

Volume in our emerging market segment was stable in the first quarter cycling a 7% growth in the prior year. Russia was the segment’s key growth driver, offset by volume decline in Romania, Ukraine and Nigeria.

Russia continued its strong volume performance with cycling at test competitive of approximately 8% growth in the prior year. We delivered growth in all key beverage categories, with the exception of energy was declined marginally.

Strong activation across Russia during the torching of Olympic Games and our ongoing OBPPC execution were the key volume drivers. With strong growth coming from both our mainstream brand Dobry as well as premium brand Rich we expanded our volume and value share in juice.

Looking ahead, we continue to expect Russia to grow, yet at moderate pace compared to the trends seen over the last couple of quarters. This is due to our expectations that currency pressures and decelerating macroeconomic growth will filter through to consumer spending.

In Nigeria, SAP waves two implementations in January was an important milestone and there is no doubt that it is bringing significant improvements to the capabilities of the business.

While implementation was very successful, the temporary disruptions to supply in promotions resulted in volume decline. The high-double digit growth rate in the prior year will exaggerate the rate of decline. Overall, underlying macroeconomic and trading conditions remained robust.

The growth in April, gives us confidence that Nigeria will remain one of our key volume growth drivers in 2014. In addition, we have further volume acceleration planned in place for the remainder of the year such as the FIFA World Cup and shared Coke Campaigns.

We continue to focus on expanding further distribution and volume per outlet for our Coke brands driving availability across the board and finally selectively introducing OBPPC initiatives.

Romania, declined by high-single digit as performance continues to be negatively affected by the disciplined phasing environment as well as competitive promotional pressures.

Volume declined in all key categories with the exception of juice which was supported by the launch of Cappy Pulpy. Overall, we remain cautious as domestic demand and consumer confidence remain under pressure. In Q1, we gained volume and value market share in both Sparkling and overall NARTD.

In closing, I would like to reiterate that we remain committed to strengthening our business and manage it for the long term, with a focus on investing in our brands.

For the remainder of the year, we expect the prevailing economic and trading conditions to remain unchanged in most of our territories. We continue to focus on implementing our strategic priorities while mitigating the ongoing headwinds in some of our markets.

We are encouraged by the recovery we have seen in our volumes in April. This confirms our belief that as we go through the year, we expect some of the Easter timing and other one-off issues to subside leading to more normalized volume trends. As such, our expectations for the full year remained unchanged.

And with that, I will now hand over to the operator, and Michalis and I will take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Olivier Nicolai. Please ask your question.

Olivier Nicolai – UBS

Hi, good morning. I’ve got three questions please. First of all on Nigeria, so you think some disruption on volumes on SAP implementation. So, is it something which is going to continue in Q2 or even the rest of the year, or is it just a one-off in Q1?

Then, just on the trying to quantify the impact from the Easting timing in established markets, I mean, I know it’s always very difficult but if we were to include April, what would have been the volumes in established markets, volumes have been down 7% in Q1, would that be like low-single digit to mid-single digit decline if we were to include April?

And then the last question, just on your free cash flow guidance. Does it include any disposals? Thank you.

Dimitris Lois

I’ll take your first two questions, with regards to Nigeria and the overall Easter phasing and then Michalis will take your third one. So, on Nigeria, the answer is yes, the SAP waves two implementation, has a temporary result and this temporary result all is in Q1. So, we do not expect this to continue in Q2.

Now, with regards to Easter, overall for the group, the effect is about one third of the 4% decline. What we have seen in April is that we have resumed the volume so that’s why we are absolutely encouraged that with what we have seen in April, we remained confident on our whole year expectation. And I will turn now to Michalis for the free cash flow question.

Michalis Imellos

Yes, in terms of whether the free cash flow guidance includes any disposals, I would say that we always look for opportunities with regard to ideal assets for any disposals. But I would say that this is not going to have a major impact overall on the free cash flow, it’s more opportunistic than a specific plan.

Olivier Nicolai – UBS

Perfect. Thank you very much.

Operator

Thank you. Our next question comes from the line of Andrew Holland. Please ask your question. Sorry, I think Andrew has himself on mute. So, our next question will come from the line of Edward Mundy. Please ask your question.

Edward Mundy – Nomura Securities

Good morning, gents. I have a couple of questions this end. First on the concentrate pricing, with your 2013 full year results. You indicated that total impact to the group level of approximately 50 basis points and it would appear in Q1, concentrate as a proportion itself is gone up by 200 basis points. And could you help me, perhaps understand the difference here?

Secondly, on the interest slide, Michalis, could you perhaps just go over again what you said about the €18 million savings being offset by negative ForEx, what that implies for sort of interest for the full year?

And thirdly on your comments on improved trading into Q2, does that imply the volumes wouldn’t be positive or just net-net, just less negative?

Dimitris Lois

Ed, let me take your third question with regards to the volume in April. And the answer is yes, that was positive. And let me now give the floor to Michalis to take your other two questions and the interest rates and the concentrate?

Michalis Imellos

Yes, hi, Ed. On the concentrate, I would not look at quarter by quarter, the year-over-year development because the comparison came here little bit distorted. On a full-year basis, if you look at the development, definitely the 50 basis points recovery through pricing will be there. And that will be the impact on the cost in terms of the concentrate price increase.

In terms of your second question on the interest, the €18 million saving will be there, in fact in the first quarter we do see the improvement in our results. The re-measurement loss is directly linked to the Ukrainian hryvnia developments. We had a massive depreciation in quarter one, and that’s what drove this €5 million shift.

We would like to hope that this will not continue in terms of the hryvnia depreciation so dramatically in the rest of the year. And therefore we don’t expect a very big further loss in this respect. Clearly, if the situation is such for the hryvnia spread, then some of this loss will be recovered.

Edward Mundy – Nomura Securities

Okay. Thank you. And just as a quick follow-up, your updated current guidance; and clearly, that captures the translational, but does it also capture the transactional impact from the negative impact on hard currency-denominated input costs?

Michalis Imellos

Yes, as always, it’s more translation than transaction put together.

Edward Mundy – Nomura Securities

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Adam Spielman. Please ask your question.

Adam Spielman – Citi

Hi, yes. Thank you. Some of my questions have already been answered, but one remained. You said you will in response to the worst FX hit increased prices in Russia I understand that clearly, but also reduce costs further. And I’m just wondering if you can expand on that a little bit given how much cost cutting you’ve already done throughout Coca-Cola Hellenic? Thank you.

Dimitris Lois

Yes, now there are two elements there. Obviously, we are, this additional effect comes from the two countries and that’s Russia and Ukraine. So, of those two countries we are taking additional pricing throughout the year, and we have already executed cost initiatives. Those cost initiatives broadly cover two areas, one area is the route-to-market, and the other area is back-office on both countries. So those are already executed. And those are focused only on those two countries.

Adam Spielman – Citi

Thank you, thank you very much.

Operator

Thank you. Our next question comes from the line of Tristan van Strien. Please ask your question.

Tristan van Strien – Deutsche Bank

Good morning. Thank you for taking the question. Three for you. One, you speak about value-accretive volume. Can you just help me understand that; what that means in terms of your packs or does that also have a channel or brand focus?

The second bit is about you talk about winning or maintaining market share in 15 out of your 23, I think it was. How much of that is winning and how much of that is maintaining? And then the third bit is I just want to know if the activities of Boko Haram in Nigeria have had any impact on your operations in Nigeria?

Dimitris Lois

Okay, let me start with your first one, with regards to value accretive initiatives. Now, this is part of our wider OBPPC strategic too. And obviously with that we’re aiming to address the characteristics of each specific market and standard.

Let me focus a bit on Poland, being 40% of the segment, of the development segment. Now in Poland, we have seen in the last couple of years, there are some structural sites I would say, structural shifts with discounters being the only growing channel. Recently, we have seen that the market is starting to rationalize in a sense that the growth rate of the discounters has been decelerating while both sharper consumer habits have been shifting towards smaller backlit in local and convenient store.

We have therefore been tailoring our package and price offering to capture this opportunity, obviously with a main to increase the average net sales per revenue. And as you have seen, this has been reflective both in the improvement in the packaged mix in the segment.

While we have seen these developing segments, the total package mix improving by 3 percentage points. And that is obviously reflecting this.

Now, going to your second question, with regards to winning in the marketplace, what we have seen in Q1 is 15 out of 23. Now if you want to reach more quarter for market shares to be really meaningful, while in this particular Q1, the timing of Easter in the Catholic countries have played a significant role.

Now, looking April, getting into Q2, with our customers, they’re all out the Easter promotions supporting premium brands, we have already seen a significant swing in the market. So, overall we remain very confident in our ability to continue to grow the markets in both, in Sparkling and also in NARTD.

Your third question, well obviously and not has been a territory of challenge for I would say more than a year and half now. We, at this point of time, we stay very focused on all the developments. But this has not been something that we will attribute any volume at this point of time.

Tristan van Strien – Deutsche Bank

Okay, just a follow-up on the first one. Are you actively removing unprofitable SKUs from your lineup when you’re doing this?

Dimitris Lois

Well, if that’s the case with regards to our OBPPC, absolutely yes.

Tristan van Strien – Deutsche Bank

Thank you.

Operator

Thank you. Our next question comes from the line of Henry Davies. Please ask your question.

Henry Davies – Bank of America

Hi, thank you. Yes, I’ve got three questions, please. First, you’ve mentioned that your full-year expectations are unchanged. Can I just check, does this, are you referring to the comments you made at the full-year stage which were volumes down but less than the decline last year, revenue per case growth higher than last year and margins up or if not, can you please give us an update on those?

Second, your FX impact; €90 million to €100 million, can you give us a rough idea of how much is transactional versus translational? And then thirdly, you’re taking higher pricing than usual this year, partly due to the concentrate hike. I’m just wondering what’s the reaction been from both the competition and from the consumer.

I think historically, you’ve been relatively cautious on price increases given the weak consumer and affordability issues. So I’m just wondering now that you are taking a higher level of pricing what the kind of early read is in the market? Thank you.

Dimitris Lois

Let me start with your third question, and yes, what we have communicated back in February, is that we are working towards revenue per case on a fixed year basis, growing faster than 2013, which was 1%. And we have seen in Q1 the growth being 1.9%, part of which reflects the incidence rate increase.

Now, what I would like to highlight is that the revenue per case has three pillars. So what we have seen as an NFX neutral revenue per case has three pillars contributing to a one-numbered.

The first pillar, is the single-cell contribution and the single-cell contribution means single-cell and single-cell multiples. The second pillar is the overall OBPPC and what we do within multi-cell with packages like the one-little contributing more than what this has been in the past.

And the third is pricing, so I would like us all to consider all three when we translate this revenue per case and as we have seen from very small quarter, and that’s Q1, we have been consistently over the last quarter also over Q1 have been improving the package mix. And that was obvious in all segments, in both sparkling and water.

In reference to your third question, I’ll go to the first question and then Michalis will cover your second question. So, yes, remains our expectation remained unchanged translate to the three elements we mentioned. We are working to achieve deceleration in the negative trends, revenue per case FX neutral growing at faster pace than what we have seen in 2013 and also working to expand further margins.

And with that let me turn to Michalis for the FX.

Michalis Imellos

Yes, hi, Henry. The total full-year share that we talked about, the €90 million to €100 million, you should single it being 70% transactional, 30% translation.

Henry Davies – Bank of America

Thanks. Can I just ask two quick follow-ups? Just first on your expectations. Since you gave that volume expectations clearly, Ukraine has gone into crisis, and that’s got to have some knock-on effects on Russia. So, is there somewhere else that’s getting better to offset that or is it maybe just that the targets are a little bit more challenging now?

And then secondly, I understand there’s three pillars to your revenue per case, but I’m guessing if we isolate price given the concentrate hike, is it right that you’re taking more pricing. And if it is, my question was more about how the consumer, and how the competition, is responding whether you think that can continue, whether you can continue to take a higher level of price if it is higher this year? Thanks.

Dimitris Lois

No, on your first question, with regards to the volume just to give a perspective, Ukraine is a bit less than 4% of the total volume. So although we at this point of time expect the weak overall performance in Ukraine, obviously reflecting the development, we do not expect that this will materially change growth.

Now, with regards to pricing and the additional pricing, I think that it’s fair to focus a lot more on those two countries because the additional prices that we have been referring mainly cover those two countries, so if those two countries, we don’t believe at this point of time that the additional pricing will have a material effect.

Henry Davies – Bank of America

Okay. Thanks for that; and maybe one final one. Do you have either an expectation of what Ukraine volumes will do for the full year, or maybe how the year-on-year trends are progressing so far in the second quarter, just so we can gauge the kind of impact that the situation is having? Thanks.

Dimitris Lois

We don’t give specific for the country specific. But what we have seen right now, which is negative teens, mid-teens. We don’t see that materially changing.

Henry Davies – Bank of America

Okay, great. Thanks very much.

Operator

Thank you. Our next question comes from the line of Gabriela Malczynska. Please ask your question.

Gabriela Malczynska – Barclays

Hi, actually my questions have been asked already. Thank you.

Operator

Thank you. In that case, our next question comes from the line of Andrew Holland. Please ask your question.

Andrew Holland – Societe Generale

Yes, sorry, I wasn’t around earlier. Just to enlarge on a couple of questions and answers, firstly in respect to Poland, can you say, is it the case that you’ve actually been de-listed from some of these discounters?

And when you’re talking about this sort of new approach to the discount chain, is this going to last forever, is this a permanent decision, if you like, not to supply the hard discounters, if that is what you’ve been doing?

And then just coming back to the volumes, if we look at the most recent trends, if you were to include April and do a sort of four-month year-on-year comparison, how would your volumes look? You’ve said you were positive in April, but for that four-month period rather than the three-month period, would your volumes have been positive?

Dimitris Lois

Andrew, let me answer your second question, April not being a very big month compared to 4% decline in the quarter, we’re still negative. Going in your first question, with regards to our value accretive, now, you referred to de-listing, we are seeing of course with this value accretive initiatives, which leads to discussions. And that’s our commercial negotiation, in the normal course of business.

Now, the outcome maybe de-listed. Mutual agreement or temporary disruption, all of these are part of the portion of doing business. So, that’s the umbrella of value accretive volume initiatives and this is something we have communicated couple of quarters, once in Q3 and Q4 and we are staying with course with that.

Andrew Holland – Societe Generale

Okay, thank you.

Operator

Thank you. Our final question comes from the line of Charles Pick. Please ask your question.

Charles Pick – Numis Securities

Good morning, gentlemen. I’ve got several questions, I’m afraid. Firstly on Italy, is it possible to give us a feel as to the underlying volume trend there in terms of rate of decline adjusted for those various factors that affected matters in the first quarter?

Similarly, with Russia, high single-digits growth in volume in Q1, but obviously, you had the Winter Olympics benefit. Is it possible to sort of disentangle that for Q1? In terms of the extra FX adverse impact of €20 million to €30 million that you’re seeking to offset, is it possible to split that between the price moves vis-à-vis the cost base moves please?

And finally on the higher marketing and sales expenses in the first quarter, was there some sort of permanent change to how you’re phasing the AMP in that period or what, I was a bit surprised that you’ve said that the OpEx to sales ratio, OpEx to sales ratio was actually marginally down in the emerging markets given the Russian Winter Olympic spend?

Dimitris Lois

Okay. Let me start with Italy overall, I would like to split Italy. First of all, it’s the Easter effect and the phasing. Then, we have an element of pre-loading, and this element of pre-loading has to do with the announced price increase in December, that’s the second element. And the third element are the liquidity.

Now, liquidity has two angles, the first angle is what our customers have been doing within the quarter to distort? And the second is our efforts to increase and have a far more tight credit management. Now, overall the external environment is very challenging and we have seen mid-single digit negative development in Q1. So, those are the underlying factors behind Italy.

Now, moving to your second question, and that has to do with Russia. And we grew in Russia mid-single digits. What we have in Spain is that we expect Russia to continue to grow. And we expect Russia to continue to grow at far moderate pace than what we have seen in Q4 and in Q1.

Eventually, what we have seen in the market, which is both macro the GDP decelerating in couple of quarters as well as the effects. Eventually that will filter through to the consumer. So that’s why we expect to see the trends that we have seen so far moderating.

Going to your third question, with regards to marketing, what we have seen in Q1, in principle reflects to a great extent, the Winter Olympics in Russia, so obviously this is I would call it once off element that we will not refer in Q2. You had another question on the extra effect, and Michalis will take care of that.

Michalis Imellos

Yes. I think you should think obviously that’s been quite balanced between pricing and cost initiatives, maybe slightly more on the pricing side. There isn’t an exact number but single data more less 50-50.

Charles Pick – Numis Securities

All right. Okay. Thank you. And the OpEx to sales ratio, I think it was said that it was 220 basis points worse in the developed and the established markets, and marginally better in the emerging markets. So why would it be marginally better in the emerging markets given the Russian Winter Olympic spend?

Michalis Imellos

Yes, it’s not only the marketing expenses, they’re not actually the biggest part of the whole composition of the OpEx. There are obviously some other dynamics really say that particularly in this quarter, there were quite a few one-off operating expense items, which actually skewed the performance.

And in fact, maybe this is an opportunity to highlight the fact that looking at the whole quarter and the fact that we were €26 million of prior year in terms of EBIT. I would say that €12 million of that would be attributable to this one-off operating expense items, which actually accumulated in quarter one and therefore had a disproportional impact year-over-year.

And the rest of the GAAP, I would say the Easter phasing which Dimitris analyzed earlier, which is already recovered effectively in April, volume wise and profit wise. And of course the sharp Foreign Exchange, which clearly was not offset yet in quarter one, because all these extra initiatives that we talked about primarily in Russia and Ukraine, are designed to come into effect in the year to go and recover the extra ForEx shift on a full-year basis.

So, this whole €26 million is explained from the one-offs, which are planned to be recovered in the year to go. The deeper phase in impact which is recovered already, and the extra ForEx shift which hit us in quarter one, but will also be fully recovered in the year-to-go through the extra activities.

Charles Pick – Numis Securities

Right. Thank you very much.

Operator

Thank you. (Operator Instructions). Thank you. Our next question comes from the line of Charles Pick. Please ask your question.

Charles Pick – Numis Securities

Sorry. Just one more. How far ahead are you hedged in respect of input costs where you can undertake such hedging?

Michalis Imellos

Okay, so, looking up 2014 specifically, in terms of sugar, we are pretty much hedged. So, for easy sugar we haven’t yet contracted. And we are 100% covered. In terms of world sugar, the two main countries being Russia and Nigeria, we are fully covered in Russia and around 80% of Nigeria needs.

Raising a material that we cannot hedge in the market, so given the also the year-to-date actuals, I would say and any stock that we have here around 35% covered on a full-year basis. And when it comes to aluminum, we are 84% more or less hedged. And so, we have some pretty good visibility on everything other than the resign.

That’s why we’ve said earlier that even though we have revised downwards our expectations in terms of the price, of PEP in the market, this material carries significant risk and trade volatility in the year to go cannot be excluded.

Charles Pick – Numis Securities

Thank you.

Operator

Thank you. There are currently no further questions. Mr. Dimitris Lois, would you like to continue?

Dimitris Lois

Thank you, operator. I want to thank all of you for joining us today. And for all the great questions that facilitate a good discussion around our first quarter results. As a final remark, let me reiterate that we are confident that we have the right strategy to successfully respond to the challenge in the marketplace.

We continue to focus on the elements we control, becoming strong, leaner and more efficient. This is our strategy. It is clear and we know that when executed with excellence, it works, winning at the point of sale, every date and in every occasion, growing currency neutral revenue per case consistently while continuing to address affordability.

Cost leadership in every aspect of our business as we work on improving efficiencies and optimizing our cost base. And finally, focusing on working capital improvement and continuing to generate strong free cash flow. Thank you. And we look forward to speaking with you again soon.

Operator

Thank you very much. That does conclude our conference for today. You may all now disconnect.

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