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Coca-Cola Enterprises, Inc. (NYSE:CCE)

Q1 2012 Earnings Call

April 26, 2012 10:00 a.m. ET

Executives

Thor Erickson – Vice President of Investor Relations

John F. Brock – Chairman and Chief Executive Officer

William W. Douglas III – Executive Vice President and Chief Financial Officer

Hubert Patricot – Executive Vice President and President, European Group

Analysts

Judy Hong – Goldman Sachs

Steve Powers – Sanford C. Bernstein & Co.

Kaumil Gajrawala – UBS

Bill Schmitz – Deutsche Bank

Ian Shackelton – Nomura

Bonnie Herzog – Wells Fargo

Mark Swartzberg – Stifel Nicolaus

Bryan Spillane – Bank of America/Merrill Lynch

John Faucher – JPMorgan

Operator

Good day, and welcome to the Coca-Cola Enterprises First 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 this morning to discuss our first quarter 2012 results and our outlook for the remainder of 2012.

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 earnings 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 Will Douglas, our CFO. Hubert Patricot, President of our European Group is also with us on this call this morning. Following the 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 will turn the call over to John Brock.

John Brock

Thank you, Thor and thanks to each of you for joining our conference call and webcast. As we discuss our results for the first quarter of 2012 and review our outlook for the remainder of this year. As you saw in our news release this morning we managed to achieve continued growth and made good progress toward our full-year financials goals in spite of a challenging operating environment.

Comparable earnings per diluted common share totaled $0.36 up 9%. Revenue grew 5% and comparable operating income grew 6% both on a currency neutral basis. Net pricing per case increased 2.5%, while strong comparisons from the prior year and the impact of the excise tax increase in France were to limit volume, which declined a 0.5% including a modest decline in France.

Trademark Coca-Cola volume for the quarter grew 1% and the energy category grew more than 30%. Still beverages declined in a mid-single-digit range as we hurdled the impact of 2011 brand expansion as well as new products particularly in Great Britain.

While we’re never content with even the modest decline in volume, it is important to remember that the first quarter is our smallest. Looking forward we’re confident that our operating strategies, promotions, and marketplace execution leave us well positioned to achieve our targets for the full-year.

As you know we have plans to maximize the benefits of key marketplace opportunities this year including the London 2012 Olympic and Paralympic Games and the Euro 2012 Soccer Championship.

We’ve made excellent progress in activating these events, which include the Olympic torch relay. This 70-day event begins less than a month from now on May 19th, and will come within one hour of 95% of the UK population.

Of the 8,000 torchbearers, 1,300 will be future flames a group of outstanding young people selected by Coca-Cola for their inspirational lives. We’re also playing a key part in making these the Greenest Olympic Games ever.

We’re using environmentally friendly production, transportation and cooling processes along with the focus and sustainable packaging and recycling to reach our low carbon zero waste Olympic goal.

Our Olympic programming, which will feature the Coca-Cola POWERADE and vitamin water brands, is a significant opportunity for us. As we partner with key retailers create a solid platform from, which to engage consumers and continue to build our relationships with our customers.

In addition to Olympic related events we have other marketing activation in place like a renewed emphasis and campaigning free beverages and later in the year a tie end would be new James Bond’s film called Skyfall. We will also work to enhance the performance of our sparkling flavor portfolio and that includes energy. This will include new sweetener alternatives such as stevia and new Fanta flavors such as mango and passion fruit. Still beverages which provided more than 10% of our growth last year will benefit from both new flavors and packaging for Capri Sun, Oasis and POWERADE. Additionally, a new vitamin water flavor was created from suggestions by consumers through Facebook and we will also create a renewed focus in the tea category with the Nestea brand which is now being relaunched in France and Belgium.

Beyond product innovation we also have new packaging initiatives including a new 375 milliliter packet size bottle and 250 ml cans both targeted to meet specific consumer demands. We also continue to enhance consumer, I’m sorry, customer relationships to create even higher levels of execution.

For example, we’re working in Great Britain to improve in store displays and fixtures with an increased focus on brand presentation. In France we’re further enhancing our go-to-market strategies by improving sales versus productivity as well as our ability to monitor the effectiveness of our promotions. These opportunities and our commitment to world class execution are driving our 2012 business performance.

As we’ve discussed our full year outlook is inlined with or above our long term objectives with earnings per share growth of about 10% driven by operating income growth and a mid single digit range and continued execution of our current share repurchase program. Most importantly by reaching our 2012 targets and creating sustained growth we will continue to enhance value for our share owners, which is our ultimate goal.

Already in 2012, we’ve enacted a substantial 23% increase in our dividend and continue to move forward with share repurchase. Our goal for this year is to repurchase at least $500 million worth of our shares with a $150 million in repurchases in the first quarter we are on target to achieve that goal. These are meaningful actions and we remain committed to increasing share owner returns with a long term.

In closing, let me share some key thoughts, first rebuilding on a consistent track record Western Europe and we have confidence in our ability to deliver another year of growth. Second, while ongoing macro economic challenges persists, we continue to demonstrate our ability to manage our business to deliver that growth.

We believe the CCE way, which is a combination of our operating philosophy and our marketplace approach will continue to enable us to maximize the benefits of the growth and the value creation opportunities that we see ahead.

Third, we have one of the worlds most recognized brand portfolios with growing core brands led by the Coca-Cola trademark and a significant presence in emerging categories like energy.

And finally, our partner of Coca-Cola Company shares our commitment to our customers, to our brands and to refreshing consumers everyday. All of this comes together through the talent and dedication of our people they are a highly talented and skilled team that understands how to succeed in the marketplace. This team is a vital element in reaching almost important goal and that is driving increasing levels of shareowner value.

Thank you for your continued interest in our company as well as your participation today. Now I’ll turn it over to Bill.

William Douglas III

Thanks John. And thanks to each of you for joining us this morning I know it’s a busy day for many of you. Now I’d like to turn to our first quarter results, which represent a good start to the year.

On a reported basis first quarter diluted earnings per common share were $0.35 and on a comparable basis earnings per share were $0.36 up from $0.33 in the same quarter last year.

Currency translation had a negative impact of $0.02 per share, compared to the prior year results. Revenue was $1.87 billion up 1.5%. Organic revenue grew approximately 2.5%, while the French excise tax increase also contributed 2.5% for a combined overall currency neutral revenue growth of 5%.

Inclusive of the French tax first quarter net pricing per case was up 5 % and cost of sales per case grew by 6.5%. However, excluding the French excise tax impact net pricing per case increased 2.5% and cost of goods per case also increased 2.5%.

As John, mentioned volume decline slightly in the quarter as a result of strong comps from a year ago as well as the impact from the French excise tax increase. The quarter benefited from positive conditions late in the quarter notably from favorable weather as well as the timing of the Easter holiday. Comparable operating income was $175 million up 6% on a currency neutral basis.

This growth reflects volume declines in operating expense timing and controls. During the first quarter we move forward with our share repurchase program completing purchases of $150 million.

We continue to expect at least $500 million in repurchases by the end of this year. The share repurchase demonstrates our commitment to deliver shareowner value. As John mentioned earlier this year, we increased our dividend by 23% to $0.16 per share quarterly or $0.64 per share on an annualized basis. As a reminder, this is more than doubled the dividend that we paid in 2009.

Turning to the full-year this morning in our news release we reaffirmed our guidance, this guidance calls for approximately 10% growth in earnings per diluted common share with revenue up in a high single-digit range and operating income increasing at a mid single-digit range.

Each of these ranges are comparable and currency neutral and include the impact of the French excise tax increase. Although it is really to predict the currency impact on the full-year based on recent rates currency translation would decrease full-year earnings per share by approximately 6%. The targets above are inline with our exceeded or long-term objectives and we expect solid business results and share repurchase to drive full-year EPS growth above our long-term objective.

We continue to expect free cash flow in a range of $500 million to $525 million and capital expenditures in a range of $400 million to $425 million. Our weighted average cost of debt will be approximately 3% and our effective tax rate is expected to be in a range of 26% to 28%.

As previously communicated we anticipate our growth will be weighted toward the back half of the year. Looking at phasing it is important to highlight four factors. First, at recent rates, currency translation would happen by negative impact on the second quarter and transition to a negligible impact in the fourth quarter.

Second, even with the solid marketing program as John described, we expect volume will continue to be challenged in the second quarter due to several items. In addition to a challenging prior year hurdle and the Easter timing, we continue to expect volume will be impacted as the retail prices in France will fully reflect the excess tax increase.

Further though our first quarter benefited from excellent weather in March, April has had very poor weather. Third, we expect operating expenses to increase leading up to and around our planned summer initiatives. And finally, when compared to prior year our fourth quarter will benefit from a one extra selling day though the full-year impact of this will be negligible.

Importantly, today yet again we affirmed our full-year guidance of operating income growth in a mid-single digit range and EPS growth of approximately 10% both on a comparable and currency neutral basis. That said given the facing factors noted, we continue to expect currency neutral first half operating income growth to be positive with growth accelerating in the second half. Including the negative impact of currency translation, we expect our first half comparable EPS to be up in low single digits.

So overall, we are encouraged by our first quarter results. Success in the summer selling season remains essential and we do remain cautiously optimistic about the opportunities and plans we have in place in support of our full-year outlook.

As John mentioned, there are several factors behind our optimism including our successful brand portfolio, our operating plans, as well as our talented skill team that understands how to succeed and win in the marketplace. In addition, we have a capital structure that will enable us to seize opportunities and continue to return cash to share owners.

As noted we have challenging, yet obtainable financial targets continuing to meet or exceed these targets consistently over the long-term will enable us to achieve our most important goal, delivering value to share owners.

Thanks again for joining us and now John, Hubert and I will be happy to open the line up for your questions. Operator?

Question-And-Answer Session

Operator

[Operator Instructions]. Our first question comes from Judy Hong of Goldman Sachs. Please go ahead.

Judy Hong – Goldman Sachs

Thanks. Hi, everyone.

William Douglas III

Hi, Judy.

Judy Hong – Goldman Sachs

First just the volume commentary, I guess the weather and the Easter impacting in Q1, is there a sort of a way to quantify that and then your comment about April. If you can just sort of parse out the weather, the Easter comp timing and then if you can give us a little bit more color just in terms of what you’re seeing in France as it relates to the elasticity on the price – the tax driven pricing there?

John Brock

Yeah let me ask Hubert to address that, but just a couple of comments just kind of frame that. As we’ve said, we continued to think that volume growth for the year in all of our territories will be positive. As you heard us say before, what we are principally aiming and doing as driving revenue growth and we don’t have specific volume targets, we look at volume price and mix is all three very important letters to use in driving revenue growth, which of course drives OI growth.

So we remain again optimistic that we’ll do that for the year. And I can ask Hubert to comment a little bit more on the French excise tax increase. I would say in terms of again throughout Europe, we started off the first quarter with some challenging comps from a year ago Jan and Feb. And then moved into April, where we had a better comps and frankly much better weather. And so the net result was very solid first quarter in spite of all the things we’ve talked about.

The weather in April has not been good as I think most of you know, so we’ve got a slow start onto the second quarter. On the other hand, we’ve got some great programs out there that are going to be kicking in as we go through the quarter. So, Hubert, why don’t you comment on specifically the French situation.

Hubert Patricot

Yeah, the increase again Jan 1st, as we increased our price at that time combining both the excise tax and our own tax increase. And we saw that retail pricing in France progressively increased during this quarter, as the customer, we are selling their existing inventory. The volume net on the first quarter was down modestly as we are having a solid previous year growth.

In France the elasticity is history is fairly low and it moderated probably the impact. But it’s fair to say that the impact has not been fully reflected in the market yet. So some customer have delayed the full implementation of that cost increase and so we will see the full impact probably in the months to come. But, as John said, we remain wontedly [ph] optimistic that we can grow the full year volume in France too.

Judy Hong – Goldman Sachs

Hubert, just following up on that, is there some more clarity just in terms of how France and progressed, so you had modes volume decline in Q1, but I’d imagine that as price increases one is a more full of effect you saw the volume decline perhaps intensify. So is there sort of first half kind of a second half volume trajectory that you could give us or if you have any clarity in terms of the outlooks that have actually implemented the full pricing what sort of volume impact you’re seeing in those markets?

Hubert Patricot

Yeah, I think it’s too early to answer to that specific question Judy. What we will see in front is that we had also led promotional activities this quarter because the negotiation were probably more complex and challenging that they use to be due to this unprecedented level of price increase combining excise tax and our size increase. However, we are now a very solid plan along the right – what we called the 180 days of sports which start with the Euro and the Olympics. So I don’t think the trajectory would be as brutal as you say and again there is a respond to price increase from the consumer in this past as been probably less stronger as you can imagine the market. So too early to say about the exact level of demand, response and again on the full year basis still confidence for to show some growth at the end of the year.

Judy Hong – Goldman Sachs

Okay, great. Just a quick question for Bill, is your COGS per case outlook still 4% at the tax impact?

William Douglas III

Yes Judy, as I said on the call back in February current outlook is 3.5 to 4 that still the case today, nothing is really moved significantly. I will highlight that we do have pretty significant commodity coverage in place from a hedging perspective it would be slightly higher than what we had at this same time last year. So we feel pretty good about the full year outlook in that range.

Judy Hong – Goldman Sachs

Okay, so Q1 was just more of the timing issue because it was up 2.5%, so…

William Douglas III

Exactly.

Judy Hong – Goldman Sachs

Okay.

William Douglas III

There are some timing issues year-over-year within the quarterly split.

Judy Hong – Goldman Sachs

Okay, great. Thank you.

Operator

Our next question comes from Steve Powers of Sanford Bernstein. Please go ahead.

Steve Powers – Sanford C. Bernstein & Co.

Thanks. Just building on the volume discussion, it sounds like as you put all the moving parts together when you think about you’re trying to grow until full year but looking at Q2 specifically it seems like a fair assumption might be Q2 volumes negative again like Q1 before you see the pick up as you get to the easier comps in the back half, is that a fair base case?

John Brock

That could happen, again we don’t have specific volume targets we’re driving revenue. The quarter has started off I think it’s fair to say with some very tough weather in April but as well as some tough comps from last year. So we’re again, guardedly optimist for May and particularly June is all of our Euro 2012 and Olympics programs kick in. So I think the best way to look at it, is our volume. Our revenue and volume will accelerate as we go through the balance of the year, because of programs as well as because of the comps we have from last year.

Steve Powers – Sanford C. Bernstein & Co.

Great. Great and any update you can provide on your efforts in Norway as sort of progressing to the recyclable packaging and third-party/warehouse delivery?

John Brock

The program is totally on track and very – we’re very excited about it. I’ll ask Hubert to give a little bit more color commentary, but yes it’s progressing just fine.

Hubert Patricot

Yeah, we are on track with the program. We are excited about the packaging options that we will be able to bring to consumer. And we are pleased to report that the CEO of [inaudible] group which is a number one customer in Norway, in its earnings release and interview last week stated move as good for the – for logistical reasons, but also good to grow the category. So we are really encouraged by the progress we made in the last week in Norway.

Steve Powers – Sanford C. Bernstein & Co.

Okay, great. And Bill, just lastly, trade receivables came in higher this quarter is relative to what we would have expected. Anything specific going on there that we should be thinking about?

William Douglas III

Well I think it’s all timing issues, Steve. And the two things that I would highlight was, the really strong volume that we had in March is the weather improved as well as the timing of Easter, it was two weeks earlier this year, while its fell into the month of April most of the trade volume because we have an indirect system in Europe fell into Q1 in March, whereas most of it felt unto early April last year. So those are the two items that are responsible for that tick up in AR.

Steve Powers – Sanford C. Bernstein & Co.

Okay great. That make sense. Thanks.

John Brock

Okay.

Operator: Our next question comes from Kaumil Gajrawala of UBS. Please go ahead.

Kaumil Gajrawala – UBS

Hey guys.

John Brock

Hi Kaumil.

Kaumil Gajrawala – UBS

There has been a lot of talk about some heavier promotional activity in the UK earlier in the year. Can you comment on that and has it subsided as you move through the quarter and maybe just your view on promo activity and pricing through over the course of the year.

John Brock

Hubert, would you like to answer that one?

Hubert Patricot

Yes. First this quarter we had to implement our tight increase and this was fully deliver in GB. At the same time, our focus remains under long-term growth and margins held. Our competition has been predictably quite active with promotional activity. As you mentioned, it started at in the last quarter of last year, it has continued through Q1, but we are not entering the heart of our marketing calendar in Q2 and Q3 headlining as said by John by the Olympics and Paralympics, the Euro 2012 not to mention would be given for GB which is a Queen Jubilee in June.

So although we expect the pricing environment to remain pretty rational even as we expands as we do I would say every year, some prior years have been increased plan promotional activities. So our performance will be probably impacted by the timings, the depths of our promotion, but again a lot of investment on this quarter, not only in promotion but also in marketing and the media around this event, the prior year comparables, the weather and of course the career activities.

We also continue to invest as John said on the immediate consumption, marked occasions and we’re just launched in GB and we’re going to launch in other countries. The 375 milliliter PET bottle which is a tough exit for the meal deal in [inaudible]. So we see the category as growing and expandable and especially in Q2 and Q3 with this program we have all the element to capture any growth opportunity in May, June and July.

Kaumil Gajrawala – UBS

Okay got it and then if I could ask about SG&A it could just simply be timing, but it looks like there is about a $9 million reduction this year versus the same quarter last year, anything we should know about – we should know on that?

William Douglas III

Hi Kaumil, it’s Will. I think you hit the nail on the head, it’s a combination of being a small quarter on the one hand and timing as well as a little FX impact. So we would not encourage you to read that through the full-year, I would go back to the full-year guidance we have talked about earlier on operating income, but we work really hard knowing that Q1 was going to be challenging on OpEx control. We will continue to do that through the reminder of the year, but I think the year-over-year impact from those initiatives is going to be most dramatic in Q1.

Kaumil Gajrawala – UBS

Okay, got it. Thank you everybody.

William Douglas III

Thank you.

Operator

Our next question comes from Bill Schmitz of Deutsche Bank. Please go ahead.

Bill Schmitz – Deutsche Bank

Thanks, Good morning guys.

William Douglas III

Good morning.

Bill Schmitz – Deutsche Bank

Can you talk about the – this gross margin progression as the year goes on, I don’t know if you don’t want to do that, maybe the commodity side of things, because it’s kind of disconnected with a lot of the other names that are reported so far, so it sounded like the first quarter was kind of the peak of the commodity inflation and then that kind of eases the year progress. So is it just an issue with some of the timing of hedges or something else going on there?

William Douglas III

Hi, Bill I will take that one. It’s really timing of our hedge positions and some commodities are more hedged than others and if you look at the progression, we really are focused on the full-year and I think given the success that Hubert and the teams have had and getting our pricing in the marketplace and given where we are on our hedging and our full-year guidance, we’re optimistic excluding the excise tax that we’re going to get pricing at or around the commodity or COGS inflation. So there’ll a little bit of blip quarter-by-quarter, but we would expect given the full-year guidance or the reminder of the year to be higher than the 2.5% that we posted for Q1.

Bill Schmitz – Deutsche Bank

Got you. Is there downside risk that 3.5% to 4% of the current spot commodity rate hold or is it so protective from hedging perspective that probably won’t be the case?

William Douglas III

You know if everything went absolutely perfect could it round down to three maybe, but that would be absolute windfall.

Bill Schmitz – Deutsche Bank

Okay got you. And then just one follow-up on the tax in France I mean you already sort of hinted at it, but the Nelson data obviously shows that the pricing was probably half of what you guys sort of said you’re going to take in France. So is the trade just eating the Delta until they kind of pass it through?

Hubert Patricot

Well it varies by customer and it’s a bit related to their promotional program and the timing of the promotion as well as their own competitive tactics I would say. So what we are saying clearly that the increase is now progressing by the backend of last quarter and in the month of April. So we should have I would say a more stabilized situation in the weeks to come. So that would allow us to really measure the impacts on the consumer demand in the next quarter.

Bill Schmitz – Deutsche Bank

Okay there so the 8% pricing should be entirely in effect by now is that fair?

Hubert Patricot

Well there was a combination of the tax, which was 7% to 8% plus our own tariff increase so it’s not 7% to 8% in total as we are looking for. But again our customer decide about the retail pricing so we don’t control what the exact level of pricing will be impacted to the customer, to the consumer in the market. What we’re saying is for example at a private label has taken probably the full, close to the full impact of the tax increase it’s not the same further moment on the A brands, but we’re seeing it’s progressing and again weeks to come and months to come we should see again an exenteration of this price increase.

Bill Schmitz – Deutsche Bank

Great, thank you very much.

Operator

Our next question comes from Ian Shackelton of Nomura. Please go ahead.

Ian Shackelton – Nomura

Yes, good morning gentlemen, two questions. Firstly, is it possible to quantify is that how much Easter did benefit Q1? And secondly, can you give us some idea of what happened to market shares in the key markets of GB in France before volume valued in the Q1?

William Douglas III

On the first one of those let me just say there are so many different moving parts trying to quantify the shifting of one holiday is just not possible particularly when you add all the other things that are impacting our results including the weather and promotional programs and prior year comps. So that we can’t do that unfortunately. On the second, let me ask Hubert to comment.

Hubert Patricot

Yeah. If you look at other competitive landscape it’s fair to say that our program are most Q2 and Q3 and we had a slight decrease in market share in the first quarter. But again, we are again banking a lot now about the Euro and the Olympic activation to reverse the trend and it varied by countries also but overall it was slight decrease.

Ian Shackelton – Nomura

Okay, thanks very much.

John Brock

Thank you.

Operator

Our next question comes from Bonnie Herzog of Wells Fargo. Please go ahead.

Bonnie Herzog – Wells Fargo

Good morning.

John Brock

Good morning Bonnie.

Bonnie Herzog – Wells Fargo

I’ve a question on great, could you just give us a little more color on your volume there, of course, recognizing the tough comps and then talk a little bit about the pricing environment in Great Britain in terms of your pricing and then the branded competition?

John Brock

Hubert, will you take that one?

Hubert Patricot

Yes. Again as I said, our first task was to implement our first half price increase in GB, which we did. We had some competitive activity on commercial programs. And as we said, we are most focused now towards Q2 and Q3 in support of the very strong marketing program. And you mentioned the difficult comparable from last year, which was above 6%.

So looking forward, we continue our IFRS both under gross return and the immediate consumption in GB. We have just launched new product – the new package the 375, which will alert and which is well received by the customer, which we will be including in most combo melding in GB. And we have now a lot of marketing effort from advertising campaign, I will take their full traction.

So we are entering Q2 and Q3 with a very strong program. We had a pickup with the sales region last week and they are all committed to deliver on growth any opportunity will be captured by the GB team. And clearly the program, if you compare the program of this year compared to last year, it’s more skewed toward May, June, and July. As you remember, last year we are the – in April, the Royal Wedding now the Jubilee is more in June and again the kick up of the Torch Relay, which is a big occasion for us to activate both the grocery channel and we’re way from them will start May the 19th, and then you will have the Euro in June and then the full speed Olympic started end of July. So it’s an incredible, I would say, marketing plan for GB to deliver and capture any growth opportunity in the weeks to come. And the timing as you understood is a big difference than what we are last year.

Bonnie Herzog – Wells Fargo

Okay, thank you.

Operator

Our next question comes from Mark Swartzberg of Stifel Nicolaus. Please go ahead.

Mark Swartzberg – Stifel Nicolaus

Yeah, thanks good morning guys.

William Douglas III

Good morning.

Mark Swartzberg – Stifel Nicolaus

Bill, could you give us an update on just a debt profile in terms of the mix by geography or currency and how that mix compares to what you’re targeting?

William Douglas III

Sure, I guess I’ll start by talking about the maturities, we don’t have any maturities this year we have modest maturities next year so we don’t have much stress on that from a refinancing perspective. Having said that, could we choose to be opportunistic given for the debt markets on the very favorable fashion possibly. If you look at where we are, we are principally in dollars and that’s given where the debt markets have been in the last two years since we did the transaction, the U.S. debt markets have been much more favorable than the European debt markets. We have swap some of that back to Euros but the vast majority of our debt is in dollars presently. And I would also highlight that the vast majority of that is also fixed given the very low rate environment. But overall about three quarters of our gross debt would be in dollars.

Mark Swartzberg – Stifel Nicolaus

Okay, great. And any thoughts on that trend you just mentioned although it’s small putting more of that dollar denominated swapping it into Euro or pound denominated debt?

William Douglas III

Absolutely, I think as we go forward in the markets could stabilize between U.S. and Euro, we would look to be given them more balanced portfolio of European and sterling debt to dollars. But that’s going to be done opportunistically to ensure that we have the overall lowest cost to debt for our entire portfolio.

Mark Swartzberg – Stifel Nicolaus

Great, and relating to that shared repo 150 in the quarter at least 500 for the year, cash flow tends to be healthier as you come into and out of the second half, is it reasonable to think that 150 is kind of a minimum in itself from a quarterly perspective?

William Douglas III

Well, I think 150 a quarter is not inconsistent with at least $500 million I’ll let you make your own judgment and we’ll give update on that as we go through the year and further update in July.

Mark Swartzberg – Stifel Nicolaus

Okay, great. Thanks Bill.

William Douglas III

Okay. Operator, we have time for one more question.

Operator

Our final question comes from Bryan Spillane, Bank of America. Please go ahead.

Bryan Spillane – Bank of America/Merrill Lynch

Hi good morning.

William Douglas III

Good morning.

Bryan Spillane – Bank of America/Merrill Lynch

Just two follow-ups. First, in terms of the volume in Continental Europe being flat. What was it without Norway and Sweden?

William Douglas III

I’m not sure we have that answer right at our finger tips, Bryan, you would tackle that one offline or can you come up with that number. Down slightly is the answer, just very in fact I see the number very, very slightly.

Bryan Spillane – Bank of America/Merrill Lynch

Okay. And then in terms of just thinking through the phasing or modeling out the quarters. Is there anything that we should factor, I guess, between second and third quarter as you ramp up for the Olympics. Will there be any spending that you have to incur in the second quarter to get things set up and but the revenues don’t happen until the third quarter or same thing shipment wise.

Will you be maybe shipping a little extra product into the trade into third quarter in order to be prepared for – or during the second quarter in order to be prepared for the Olympics. Just is there anything timing wise that that we should be considering there?

William Douglas III

I think the first on from an OpEx perspective will be a little bit the case. Our OpEx was really good management in Q1. So as we said in our comments and earlier answers that that’s going to be ramping up as we go through the year. So there will be a little bit of advanced funding particularly in June as we get into the Olympics in July and August. I think from a supplying the trade not so much, because we’re already in kind of peak season year-over-year in June, July anyway. So I would say it’s a little bit more of a drag from the OpEx perspective, if I were going to comment on those two items you mentioned.

Bryan Spillane – Bank of America/Merrill Lynch

Okay.

John Brock

The other comment I would make is, if you think back the last year, clearly the month that had the worst weather was July. And as a result, our third quarter last year even though it ended up being okay, it was not as strong as it could have been because of a really tough weather we had in July. So as you look at our quarters this year and then you put on top of all of this, the programs we have, certainly our expectation is the third quarter is going to be a very successful quarter.

Bryan Spillane – Bank of America/Merrill Lynch

Okay. And then just…

John Brock

We have – we actually – I’m sorry, do you have a follow-up?

Bryan Spillane – Bank of America/Merrill Lynch

I would yeah I was just – well I’ll let you finish first.

William Douglas III

No, that’s it. I was finished.

Bryan Spillane – Bank of America/Merrill Lynch

Okay.

William Douglas III

I was going to say we could take one more question, but you go ahead and then we’ll take one more beyond on that.

Bryan Spillane – Bank of America/Merrill Lynch

Okay, just lastly just as you, Doug I just want to make sure I understood I guess to the response to Bill Smith’s questions just in terms of the pricing, the price increases we start to look at France pretty much most of the pricing that’s in the – that was required or the retailer is seeing most of the pricing at this point. So as we start tracking the Nielsen data, we’ll get a pretty good idea of what the full elasticity is going forward, is that right?

William Douglas III

Yes, just to be clear the pricing to the customer is in place and the customer is lack of a better term believing the pricing into the marketplace. I think you will see that consistently go up as you get Nielsen data to the second quarter and we would expect it to be fully in place on the shelf by the end of the second quarter at the latest.

Bryan Spillane – Bank of America/Merrill Lynch

Okay, great. Thank you.

William Douglas III

Okay and operator one more question.

Operator

And our final question comes from John Faucher of JPMorgan. Please go ahead.

John Faucher – JPMorgan

Thanks and thanks for taking my question. I realize that the bigger impacts in the excise tax at least from a percentage standpoint is on the future consumption piece, but your price point and immediate consumption are relatively high. And so can you talk about whether you’ve seen any impact on the immediate consumption piece from a further price increase, sort of how the retailers there handling the tax and I realize the weather is probably having a bigger impact, they are even on the take home piece. But any thoughts on immediate consumption in France and how that’s being impacted in your bluestones [ph]?

Hubert Patricot

Yes, first an overall comment about this, because this is a trend we have seen in the past two years as you probably remember which is in this tough time, a sheet of consumption from immediate or I would say away from home to grocery channel which is not such a big impact for us, because we have also satisfying margin in grocery as you know. In truth, under short-term we are mostly, relatively resurgence of the away from home consumption pattern. And what we see is that the traffic remains probably the same, but the people and our customer are offering a lot of pretty attractive commercial like we mention three pounds a meal deal well things like that, which are capturing the attraction of the customer. It’s true in GB, it’s true in France, so in short we did not notice a gravitation of the situation in away from home and as you mentioned the price point already pretty high in France and I guess most of our customer will be pretty reasonable in the management of their pricing to there on consumer, so no impact for them.

Bryan Spillane – Bank of America/Merrill Lynch

Great, Thank you.

John Brock

Okay. Well let me just say one more time thanks to all of you for joining us today. We appreciate your interest and have a great day. Good bye.

Operator

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

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