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

2008 Outlook Conference Call

December 12, 2007 10:00 am ET

Executives

John Brock – President & CEO

Bill Douglas – Sr. Vice President & CFO

Terry Marks – Executive Vice President, President North America Group

Steven Cahilane – Executive Vice President, President European Group

Thor Erickson – Director, Investor Relations

Analysts

Mark Swatzberg – Stifel Nicolaus

Bill Pecoriello – Morgan Stanley

Lauren Torres – HSBC

Robert van Brugge – Bernstein Research Group

Bonnie Herzog – Citigroup

John Faucher – J.P. Morgan

Justin Hunt – Bear Sterns

Christine Farkas – Merrill Lynch

Judy Hong – Goldman Sachs

Kaumil Gajrawala – USB Warburg

Operator

Welcome to the 2007 Outlook and 2008 Guidance conference call. (Operator Instructions) Now I will turn the meeting over to Mr. Thor Erickson, Director of Investor Relations. Sir you may begin.

Thor Erickson

[blank audio - 27 seconds] as well as the detailed cautionary statements found in our third quarter 10-K. Our earnings release also contains a reconciliation of the non-GAAP comparable figures referenced in this call. A copy of this information is available on our website atwww.cokecce.com. This morning’s prepared remarks will be made by John Brock our CEO. Bill Douglas our CFO, Terry Marks our President of North America Group and Steve Cahilane President of our European Group are also with us on the call this morning. Following the prepared remarks we will open the call for your questions. Now I will turn the call over to John Brock.

John Brock

Thank you Thor and good morning everyone and thanks for taking the time to join us. We welcome the opportunity to discuss with you our improved full year outlook for 2007 as well as our expectations for solid growth in 2008.

We believe our news release this morning demonstrates an encouraging outlook for Coca-Cola Enterprises. It’s built on a combination of top line growth, operating expense savings and bottom line growth. First, we increased our comparable 2007 earnings per diluted share guidance to a range of $1.36 to $1.39, in part due to earlier than expected operating benefits from our restructuring and operating expense initiatives. Even as we hurdle these higher than anticipated results, we will deliver solid comparable 2008 earnings per share growth very much in line with our long-term objective of high, single digit growth.

Given the challenging operating conditions that we faced as we began 2007, this outlook indicates real progress in our effort to transition CCE into a company that will deliver consistent quality earnings growth despite the uncertainties of an ever-changing marketplace. At the core of this multi year transition is an unrelenting progress on our global operating framework and the three key strategic objectives that are the foundation of that framework.

First, strengthening our brand portfolio by growing the value of our existing brands and expanding our portfolio. Second, transforming our go to market model and improving effectiveness and efficiency and third, establishing a winning inclusive culture as we attract, develop and retain a highly talented and diverse work force.

In 2007 we made significant progress against each of these objectives in large part because our people, who represent the most skilled, talented work force in the industry, have embraced these concepts fully. They understand the importance of our vision, which is to be the best beverage sales and customer service company and they are working diligently to make that vision become a reality. This has created a real sense of progress as well as momentum among employees at every level of our company. A tangible asset that’s essential to our long term success. In fact, a key lesson I’ve learned in my 18 months as CEO, is that when our people have the tools they need and the brands that consumers want, they can and they will accomplish great things.

So, now let’s look at some of the key elements of our 2007 work against our strategic objectives and how that work is going to translate into sustainable growth across our entire system in 2008.

First, we have made tremendous strides in expanding, strengthening and developing our brand and product portfolio. This progress reflects our own commitment to achieve a leadership position by being either number one, or strong number two in every beverage category in which we choose to compete. And importantly, the commitment of The Coca-Cola Company to broaden our systems product portfolio. In sparkling drinks we’ve worked successfully to maximize the value of Coca-Cola Zero which continues to enjoy strong growth in North America and plays an increasingly vital role in our growth in Europe. Coca-Cola Zero is at the core of our successful Red, Black and Silver initiative which is maximizing the marketplace impact of the world’s most valuable soft drink brand, Coca-Cola. This initiative continues to enable our core Cola brands to meaningfully out perform the category.

In still drinks we’ve made tremendous progress with the addition of glaceau, FUSE and Campbell’s in North America. While in Europe the [inaudible] and Oasis add strength to our presence in the category. Clearly the addition of glaceau holds tremendous potential and we look forward to working with The Coca-Cola Company to take full advantage of this opportunity. It’s our job to build glaceau brands at the ground level. I’m confident our people and our system are well-suited for this job. In fact since we began the North American introduction in November, we’ve achieved solid results and we’ve begun to validate the value of bringing this important brand into our distribution system. Through the hard work and skill of our employees we have very effectively introduced 35 glaceau skews in only six or seven weeks with excellent penetration rates in both large and small stores.

So, as you see, we’ve made real progress in developing and expanding our brand portfolio and as you’ve listened to a description of this expansion, I’m hopeful that you’ve picked up on the vital role our relationship with The Coca-Cola Company has played in this expansion. Now more than ever, we are together in our direction and in our commitment to achieving meaningful, significant brand and product expansion across all categories.

It’s important to note, there’s more work to do. For example, in both Europe and North America it is absolutely key that we work diligently with The Coca-Cola Company to reinvigorate the sparkling category. We also must meaningfully enhance our presence in teas with a tea strategy in North America. We have to create a successful water strategy in Great Britain. And we need to substantially broaden our entire still drink portfolio throughout Europe. I’m confident that together CCE and The Coca-Cola Company will meet these challenges and successfully build on the tremendous opportunities created this year through acquisitions and brand expansions.

Throughout 2007 we’ve also made excellent progress in executing against our second objective; driving improved customer service by transforming our go to market model and at the same time improving efficiency and effectiveness. We’ve done this with several key programs both in North America and in Europe. In North America we’re making significant progress against this objective while raising the level of our customer service through what is called our customer centered excellence initiative. This program is helping create a world class supply chain, which better integrating customer service functions such as selling, delivery and merchandising. It is driving increasing levels of service and when it’s combined with our ongoing efforts to control operating expenses at absolutely every level of the company, it’s generating bottom line results as well.

In Europe, we’re moving forward with initiatives to restructure components of our operations across our territories. This includes stronger integration of CCE Europe’s supply chain functions, also rationalizing our full service vending program, in a manner that benefits both our customers as well as our company. These brand and go to market improvements are coupled with our third strategy that is our commitment to attract, develop and attain a highly talented diverse work force.

For example, a vital component of North America’s customer centered excellence program is the creation of consistent clear responsibilities for employees at ever level in the operation. This is working to reduce discrepancies and work responsibilities from territory to territory; sales center to sales center and at the same time creates more advancement opportunities for our employees. In addition we’ve made key leadership appointments that demonstrate our commitment to this objective with dedicated and experienced professionals now leading our Human Resources effort as well as our significant diversity initiatives.

Throughout 2007 we’ve made positive strides against each of our objectives yet there’s clearly much more we can accomplish. Our key challenges include successfully completing our restructuring programs, building on the brand opportunities that lie ahead and further [restricting] our portfolio and then at the same time, fully implementing all of our operating and go to market initiatives. Even as we meet these challenges, we’ve begun to see important progress in each of our markets.

In North America we will grow volume and revenue as we build on the addition of the glaceau, FUSE and Campbell’s brands. The success of our Red, Black and Silver initiative and the continued growth of our water, sports drink and energy portfolios. This combination of growth is an important transition for our North American portfolio as still drinks in 2008 will represent more than 20% of our total volume, up from about 15% in 2006. Because these new beverages are primarily single serve products with higher prices and higher costs, this transition is going to create a mix impact and that will push reported pricing per case and cost of goods per case higher. Excluding this mix impact, pricing per case will trail cost per case in 2008 as core costs for [inaudible] cartons are up, PET and aluminum increase ahead of historical averages.

In Europe we have a very strong business plan in place for 2008. It will result in balanced volume and pricing growth. We’ll create volume growth by building again on our Red, Black and Silver initiative, utilizing the strength of Coca-Cola Zero and we’ll continue to [ex] against our still portfolio. Pricing growth in Europe will reflect a moderate commodity cost environment. Together these operating results will generate consolidated performance levels very much in line with our clearly stated long term objectives. We expect that revenue in fact in 2008 will grow a bit above our long term targets, at a high single digit rate driven by the change in mix that I described in North America. Additional investments against sparkling brand and then our operations will partially offset the impact of this revenue increase on operating income. Operating income will increase at the upper end of our long term range of 5% to 6%. And as I mentioned earlier, earnings per share will increase very much in line with our stated long term range of high single digits. This range also reflects the beneficial impact of earlier than expected gains from operating expense control and restructuring initiatives that are captured in our 2007 results.

In 2008 we also expect improved return on invested capital in line with long term goals. We expect strong free cash flow of greater than $700 million and we project capital expenditures at about $1 billion. The tax rate for ’08 is expected to be 29% to 30%. All of our guidance numbers are currency neutral and comparable and our release this morning carries more detailed price and cost ranges for our territories.

Going forward, we know one thing is certain, reaching our long term targets not only in 2008 but also on a consistent basis for years to come is essential if we are to reach to our most important goal which is clearly improving shareowner value. A vital step in creating that value is returning more cash to shareowners and because of the success of our operating initiatives and debt reduction efforts, we are actively finalizing plans to accomplish this. We look forward to sharing plans with you regarding our direction in this area in the first half of 2008.

Let me close by making one key point. Throughout 2007 we have made significant progress and we’re pleased with the results of our strategic initiatives so far. However, we are not content and we recognize that there is much, much more that we can do. In fact we believe we’ve only begun to unlock the full potential of this company and its many assets, including of course our powerful distribution system, our partnership with The Coca-Cola Company and the skill, dedication and talent of our people.

Thank you again for joining us this morning and now we will be glad to take your questions.

Question-and-Answer Session

Operator

Our first questions comes from Mark Swatzberg – Stifel Nicolaus

Mark Swatzberg – Stifel Nicolaus

Good morning everyone, John or Bill, I might have missed it but in terms of cost of sales per case next year what level of percentage growth are you expecting and then more as you know, if you see movement in the spot market on (a) PET, (b) aluminum and then (c) basically sweetener, to what extent are you hedged on any move on each of those items for ’08 and even looking into ’09?

John Brock

Okay, I’ll ask Bill to answer that question.

Bill Douglas

Hey Mark, it’s going to be a little bit of a challenge to look at that in ’08 given the mix that we talked about, the mix change, but I’ll start out with the commodity environment. If you look at our overall commodities in North America, at this juncture we’re looking at a circa 5% increase overall in commodities ’08 versus ’07. The largest driver of that is going to be HFCS. The second impact is going to be PET. The most volatility in our cost outlook for ’08 remains PET with the impact of [wool] and the various supplied materials for PET which we can’t hedge PET, hedge the volatility. And then aluminum, we’re seeing up modestly year over year as well, even though the spot market is down, I’d just like to remind everybody we did have about 15% of our aluminum volume in ’07 under caps. So, all that having been said, at this juncture, we see a plus or minus 5% from a commodity perspective. The other thing I would mention is at this point in time we’re covered about two-thirds on HFCS in aluminum from a hedging perspective for ’08.

In Europe, the environment is more benign; we don’t have the same issue with aluminum or HFCS and I would expect that at this juncture, we’re looking at commodity environment of about 1%. And then lastly from a concentrate perspective, we’re looking at approximately 2% in both markets.

Mark Swatzberg – Stifel Nicolaus

Great, very helpful and one follow-up on North America PET being the most volatile because as you say you can’t get the hedges, what’s your assumption regarding PET next year?

Bill Douglas

We are assuming that PET will be up at this point mid single digits with a barrel of oil in the mid to upper 80s range.

Mark Swatzberg – Stifel Nicolaus

Gotcha. Okay thank you.

Operator

Your next question is from Bill Pecoriello – Morgan Stanley

Bill Pecoriello – Morgan Stanley

Good morning everybody. My question is on the core volume growth in North America for ’08, your implied guidance looks like even if you exclude the glaceau, FUSE and Campbell’s, that you’re looking for your core volume to be up as much as 1% and I wanted to get behind your confidence in that. You talked about reinvesting in sparkling, so you’re assuming that you’re going to gain market share in the category due to that reinvestment. Also how the innovation pipeline is looking on the core, are you expecting a halo affect as you add glaceau to the distribution system and just wanted to get behind that confidence.

John Brock

I will make one broad stroke comment on that Bill and then I’ll pass it over to Terry who can I think provide you a bit more perspective. If you do look at the new brands that we have in the system, glaceau, FUSE and Campbell’s, obviously that is fueling a significant amount of the growth. Having said that if you look at the balance of our total portfolio excluding those, we also do expect a little bit of growth in total when you put it all together, so you’ve got that about right when you said it looked like we were trying to drive our entire portfolio even without the acquisitions and that is in fact broadly correct.

In terms of the sparkling category, let me ask Terry to give you a bit more perspective on what it looks like as well as what the pipeline is holding.

Terry Marks

Yes Bill, to John’s point the core business, the growth is really being fueled by categories that we’ve seen growth from in recent years from water, sports drinks and energy. With respect to sparkling we’d expect that the category would be down in 2008, low single digits. We do expect to outperform the category and the net of that along with the performance of energy, water, sports drinks and others should result in some growth to our base business before including the new brands that don’t have the [basis] cycle.

Bill Pecoriello – Morgan Stanley

Terry, I guess the share gains you’re expecting in sparkling is a combination both of what you know to be the innovation pipeline, packaging innovation as well as the relative pricing as you’re lagging the COGS increases.

Terry Marks

Yeah, I’m not sure how meaningful the pricing will be overall in the equation. We expect to take pricing in sparkling in the area of 2% to 3% in 2008; we’ve been pretty consistent about that. But I do think we have some momentum with our Red, Black, Silver focus that we’ve had in place throughout 2007. We are increasingly encouraged by the performance of Coke Zero and I think that’s what’s really driving our optimism as we go into 2008. There will be innovations for sure, we’ll be piloting some different packaging configurations that we are confident some will play out and will prove to appeal more affectively to different usage occasions. Those things ultimately will be, I think, more meaningful to results in the long term. With respect to ’08, I think it’s the core sparkling business with the focus we’ve had on Red, Black, Silver and the continued strong performance specifically of Coke Zero in that environment.

Bill Pecoriello – Morgan Stanley

Thank you.

Operator

Your next question comes from Lauren Torres – HSBC

Lauren Torres – HSBC

Good morning, John you talked about gains this year and I guess even into next year on these operating expense controls and restructuring initiatives, I was hoping you could talk about where you are with respect to those efforts. Also as we look over the next couple of years, cost savings, where we’ll be coming from and any sense of how much and where they’ll be.

John Brock

Yeah, let me just say we are very much online and in track with everything we’ve said since the very beginning on our restructuring program and in fact, as I indicated, we may be just a little bit ahead, which is helping. Let me ask Bill Douglas to provide a bit more perspective on the whole program, where it stands and where it’s going.

Bill Douglas

Good morning Lauren. If you look at what we said initially, we still are very [comp] with that as John mentioned. We’re looking at total operating expense savings over the period ’07 ’08 ’09 of approximately $300 million with a charge over that period of time of a similar amount. At the end of ’07 we will have shed about 2,000 net jobs with the vast majority of that in North America. That’s against our originally stated target of approximately 3,500 jobs or 5% of our work force. We are still very much on track with that and we’ll continue to make significant progress against the net job reduction in 2008. At this juncture a lot of the job reductions have come through attrition and we hope that will continue to be the case as we move through 2008 and I think the level of progress that we make in ’08 will be similar or slightly more from an annual run rate perspective than we had in 2007. About 75%-80% of the benefit in ’07 has come in North America. We have had some savings in Europe and that will be more balanced as we go through ’08. And then the majority of the incremental savings in ’09 will come out of Europe. From an impact to the P&L, I think in the neighborhood of $60 million to $80 million collectively is what we’ve achieved to date in 2007.

Lauren Torres – HSBC

Okay and how do we think about flowing through these savings as opposed to reinvestment?

Bill Douglas

Well we’ve already started reinvesting a small part of that, but in ’08 the reinvestment is going to accelerate as we complete the roll out of our go to market initiatives and Terry, you may want to touch on that a little bit more.

Terry Marks

Yeah, we’ve been really focused on ensuring that we have adequate selling capability on the street given the number of new skews that we’re handling and the fact that most of them are immediate consumption oriented which requires a lot of [touch] so we expect to continue to see the savings realized in productivity and we’ll invest selectively in incremental selling capability on the street throughout 2008 as appropriate.

John Brock

And Steve perhaps you’d like to comment on Europe. Obviously in Europe we have to be and are very careful of what we do from a social program point of view. Steve, comment on a little bit on Europe and the programs there.

Steve Cahilane

We’ve got several initiatives in Europe. We’re at the stage now where we’re talking to our social partners through the European Works’ Council and will be fully developing business cases that we take forward to them early in the new year which will allow us to get to the savings and the efficiencies that Bill outlined in 2008 and in 2009 as well.

Lauren Torres – HSBC

Great thank you.

Operator

Your next question comes from Robert von Brugge – Bernstein Research Group

Robert von Brugge – Bernstein Research Group

Good morning, I was wondering if there’s going to be any major change in the funding that you’ll be receiving from Coca-Cola in 2008, either in a structure or dollar amount.

John Brock

Robert, I’d say the simple answer to that question is no. We have had and do have ongoing discussions with The Coca-Cola Company on a whole variety of things that had to do with our business, pricing, funding, marketing programs and all of those discussions have been positive ones and continue to be positive but I think I would describe 2008 overall approach to the business is not materially different than 2007.

Robert von Brugge – Bernstein Research Group

Great and then also if I can ask a question on Europe, it seems that your trends are picking up nicely there, is this mostly coming from continental Europe or are you also seeing an improvement in the U.K.? Also when you look out for next year, how do you see yourself cycling the roll out of Coke Zero in continental Europe?

John Brock

Steve, to comment on that, I’ll tell you the overall situation is not just the continent. We’re seeing a pick up across the board. Steve, provide a bit more perspective.

Steve Cahilane

In the fourth quarter obviously we’re coming off a very poor third quarter performance largely caused by a terrible summer in Europe; a lot of wet days. But we are seeing good performance and it is very balanced. We are seeing a very good performance in Great Britain, a strong performance in immediate consumption in large stores in November and December; so a nice turnaround in Great Britain and a balanced performance in both France and [inaudible] countries. In terms of 2008 obviously we are cycling the Coke Zero launch but Coke Zero has a lot of momentum. Our Red, Black and Silver strategy is clearly working for us so we’re optimistic that we’ll be able to lap those numbers in 2008.

Robert von Brugge – Bernstein Research Group

Great thanks.

Operator

Your next question comes from Bonnie Herzog – Citigroup

Bonnie Herzog – Citigroup

Good morning everyone. John you’ve mentioned recently that you plan to expand the glaceau portfolio with The Coca-Cola Company to the European, so I guess I was wondering if you could give us an idea of the time frame of your plan for doing this? I’m also wondering if you would need to make any modification to either the current portfolio given the [inaudible] base in Europe and/or how you plan to bring the product to the marketplace.

John Brock

Let me ask Steve again to comment on that one and again I’d preface it by simply saying, yeah we are in very active discussions with The Coca-Cola Company about our strategy for glaceau in Europe, so it’s still very much work in progress but Steve can give you a bit more perspective.

Steve Cahilane

We’re very optimistic that the glaceau consumer proposition works in Europe. I think you could logically think about Great Britain as being the first market that we would look at to make that work in Europe but you know, I wouldn’t look for any material differences to our 2008 performance visa vie glaceau in 2008. But it’s something that we believe from a consumer standpoint can work very well and will be one part of our GD water strategy which clearly needs addressing in 2008 and which we aim to address in 2008.

Bonnie Herzog – Citigroup

Okay thank you.

Operator

Your next question comes from John Faucher – J.P. Morgan

John Faucher – J.P. Morgan

Good morning, I was wondering if you guys sort of look out on the sparkling category over the next couple of years, you know obviously you’re talking a little less pricing than COGS inflation this year, what’s the longer term algorithm that you guys are using for the sparkling category in North America? Do you think you can get to a combination of slight volume and slight pricing growth at the same? Is that how we should look at the category? As you look to revitalize it over the next couple of years with the extra profitability coming from the non-carb portfolio, should we continue to maybe expect pricing a little bit below COGS inflation looking out the next couple of years? Thanks.

John Brock

We are principally looking at 2008 as opposed to trying to project exactly what’s going to happen in ’09 and ’10 in the sparkling category. I guess we are I’ll call it guardedly optimistic, about the direction in which we see things going. When you look at where that category has gone over the last several years, and I’m particularly talking about North America here but Great Britain is somewhat in the same category, we’ve seen some meaningful declines and those declines are lessening. That’s good and I think it’s a whole variety of things; it’s Red, Black and Silver, which is working. It’s focus on really the key trademarks which is also working. It’s not spending as much time on introducing you know the flavor of the month. And we’re having to [lap] some of those of course which are beginning to disappear and that’s a good thing. And then it’s all about product and packaging innovation which we’re working on hand in hand with The Coca-Cola Company. We still think the category is going to be down a little bit in 2008, as Terry has already said, and we expect to gain share so, you know, if everything absolutely worked perfectly and we hit a few balls out of the park, our aspiration is for us to be flat in the sparkling category in ’08 but we certainly aren’t, we’re not putting that into our business plan quite yet. And then longer term, yeah we remain committed to the category; it’s still a significant part of our total business, a really significant part of our total business. Through product packaging and brand renovation and innovation we expect it to start growing again, I think it’s just a question of when.

John Faucher – J.P. Morgan

So it sounds like, looking longer term and I’m not trying to tie you into anything, you think you can probably get a little bit of volume growth, assuming COGS trends come down to what you expect them to be longer term with that much pricing to be able to offset COG, is that a fair statement?

John Brock

It’s not an unreasonable assumption. I think that’s right. I think the question again is when. We certainly would like to see, you know, in the sparkling category if we had a COGS environment that was typical of the past 25 years that would certainly help and that could well be the case in 2009. That would be a good thing.

John Faucher – J.P. Morgan

Is any of the research that you guys do jointly with The Coca-Cola Company showing you that the pricing is becoming less of an issue? Does that give you any sense of optimism in that regard?

John Brock

I’ll let Terry comment on that.

Terry Marks

I think what we’re seeing John is that pricing is; the category seems to be a little bit less elastic than it was say three to five years ago. But I think one of the important things that we see in the category is that the number of people that use the category hasn’t declined dramatically over the last five to ten years, but the frequency with which they use the category has so and that’s not difficult to understand when you think about the emergence of niche categories and smaller categories that may appeal more intensely to various need states than soft drinks have. I think the opportunity is to continue to invest in packaging innovation, insure that consumer messaging and imagery is connected all the way from mainstream media to what the consumer sees in the outlets and all of those things are in a mix in the number of pilots that we’ll be executing in 2008 and I think out of that, the seeds for growing the category longer term will emerge.

John Faucher – J.P. Morgan

Okay great thank you.

Operator

Your next question comes from Justin Hunt – Bear Sterns

Justin Hunt – Bear Sterns

First question, on the new guidance you mentioned vitamin water having solid results, do you, does that guidance assume any sort of profitability in ’08?

John Brock

Are you talking about in the United States?

Justin Hunt – Bear Sterns

In total, but since we haven’t heard anything about a roll out globally I would, North America would obviously be the crux of it.

John Brock

Well certainly, when you look at glaceau and FUSE and Campbell’s too, that in North America it is a significant contributor to our business set of results in 2008 so we are reinvesting some of the proceeds from glaceau and building capabilities and we have already said we’re going to be taking carbonated or sparkling pricing in the 2% to 3% range which doesn’t fully offset the cost of goods that both Terry and Bill have talked about. So we’re reinvesting, not an insignificant amount of the gross profit that we make from glaceau, but clearly some of the glaceau volume will result in increased operating profit and that’s why we can sit here today and say that we can confidently talk about 2008 results that are inline with long term volume and revenue and profit and EPS projections. It has made a material difference, glaceau has, to the confidence we have in achieving those results. On a European basis, again let me just echo what Steve said, we’re keenly interested in expanding it into Europe and we and The Coca-Cola Company are working on that, but that will certainly not have any kind of a positive impact on our profitability in Europe in 2008. It would be broadly neutral or maybe even require some investment dollars to get it off and running. So, no, there will be no profit contribution from glaceau in Europe no matter what we do. It’s all coming from the United States.

Justin Hunt – Bear Sterns

And one more quick one John, even though we’re at historic levels on CapEx can you tell us maybe some of the new major initiatives for ’08 now, CapEx is evolving?

John Brock

I’ll ask Bill to comment on that. We’re going to be spending broadly at the same percentage of sales but of course our total revenues have gone up and so on an absolute dollar amount, it’s going to go up. Bill can give you a little color commentary here on the pieces of it.

Bill Douglas

Hi Justin, the fundamental areas in which we’re spending CapEx aren’t changing dramatically. If you look at the key areas that we’re going to be spending on in ’08 it’s going to continue to be cold drink equipment both in the United States and in Europe. In the U.S. obviously will be rolling out some cold drink equipment dedicated to glaceau brands. In Europe, we’ll be expanding our [inaudible] concept significantly in Great Britain so we’ll be fitting a lot of cold drink equipment in Great Britain. And then we will be adding manufacturing capability in the United States to support Disani, small PET bottles and also continuing to upgrade our distribution warehouse system in the United States as we have the complexity of these incremental [SKVs] coming onboard but it is an evolution in our capital spend and not a revolution ’08 versus the past couple of years.

Justin Hunt – Bear Sterns

Thank you.

Operator

Your next question comes from Christine Farkas – Merrill Lynch

Christine Farkas – Merrill Lynch

A follow-up question John if I could on the concentrate price increase from Coca-Cola, if you could contract that with a year ago where the gross number was higher but it was funded back or netted back to you the bottler, can you give us an indication of the net number to CCE?

John Brock

The net number, you mean for 2008.

Christine Farkas – Merrill Lynch

For 2008.

John Brock

Yeah it’s 2%.

Christine Farkas – Merrill Lynch

It is 2%. Okay and then just on the operating savings or the accelerated operating savings, based on your progress and your plans for ’08, can you give us an indication of for example the leverage in ’08 versus ’07. Should that continue at the same pace or accelerate or slow based on what you’ve already seen in ’07?

John Brock

I’ll ask Bill to deal with that one.

Bill Douglas

Hi Christine, I think that the headline is if you look at our P&L in ’08 and the algorithm that we’ve laid out and then when focusing on North America now, pricing up 2% to 3%, COGS going at a little bit higher rate than that delivering a gross profit number, we do expect from a total company perspective our OpEx to grow at a lower rate than the gross profit. So we are continuing to have operating leverage yet in that high end of our operating income range 5% to 6%.

John Brock

But just to be clear, our operating expenses will go up and we did an outstanding job in controlling operating expenses in 2007 in both Europe and in North America, but with all of the increased business, the skews, the volume, obviously operating expenses are going to have to go up to support that increased volume but Bill’s point is a good one. We will continue to have very tight controls in place and so we will have operating expenses going up less than the other elements in the P&L which means, you know, it’s a good thing.

Christine Farkas – Merrill Lynch

Yeah, that’s exactly right. The leverage in ’07 was tremendous and just given the business model in ’08 I’m curious if that leverage could continue at the same pace. I understand the direction but just curious of the pace.

John Brock

I think it will continue, we’ll continue to really focus on it, it’s just our business model’s going to be a little bit different because we’ve got so much more volume to deal with and some of the volume, a large part of the volume we have is a different kind of business – very much a single serve and frankly highly profitable business.

Christine Farkas – Merrill Lynch

Thank you very much.

Operator

Your next question comes from Judy Hong – Goldman Sachs

Judy Hong – Goldman Sachs

Good morning, John or Terry, I had a follow-up question on the sparkling category in the U.S. next year. As you aspire to gain share in the category, how do you envision the competitive environment unfolding? Do you think that the cost pressure is enough to kind of keep the private labels and your other competitor to take prices up a bit more aggressively or do you think that you could see the competitive environment getting a bit worse in terms of everyone trying to gain share and in that situation are you willing to step up spending or resources to continue to look for share growth?

John Brock

First of all, let me just say I think, you know in terms of pricing strategies for competition, you probably ought to ask them what they plan to do. We’ll certainly follow what happens in the marketplace carefully. We’ve got a plan laid out which we believe is the right one. We obviously always reserve the right to make modifications to our strategy, particularly our pricing strategy, if we see things happening in the marketplace that require action. We believe we have a pretty good handle on again, the whole pricing algorithm and can make adjustments quickly if we need to do so. Terry you want to add any further perspective on competition?

Terry Marks

The only thing I would say Judy, we expect a rational pricing environment in 2008 that has marginally been the case in 2007. As I had said earlier, we do expect to grow share in the category however we’re not looking at driving share through price in the category. We think that any share growth that we realize in 2008 will be principally a result of our continued focus on Red, Black, Silver. We do plan, we do expect to grow margins in the soft drink category over time and 2008 however, we will not grow unit margins but we do expect a pricing environment to be rational.

Judy Hong – Goldman Sachs

Okay and Bill, just quickly do you have early projections on currency benefits in ’08?

Bill Douglas

Well clearly if the spot rates were to stay where they are today for the full year, there would be some notable FX up-sided EPS line. I think at this juncture it’s a little too early to predict it but we’ll clearly give updates as we go through quarter by quarter of what currency benefit we have gained to date and what our perspective is. As we go through the year we would actually start including the anticipated currency in any guidance that we may give. I’ll try and be a little bit more specific in February when we do our year-end call, but at this juncture you know, with the FED just adjusting rates yesterday and the market reacting today, I’d like to see a little bit more time and see how all these central bank actions are interpreted in the spot prices. I would expect there to be sub-currency up-side before the years over but it’s way too early to predict it.

John Brock

We have time for one more question.

Operator

Your last question comes from Kaumil Gajrawala – UBS Warburg

Kaumil Gajrawala – UBS Warburg

Good morning everybody. The first thing on the reinvestment of the glaceau process can you talk a little bit behind what you’re investing it in. Obviously you’re not taking pricing up as much as COGS, but if there’s some other things in there that you could talk about.

John Brock

It’s investing in capabilities and through out operational excellence, customer centered excellence programs. Terry do you want to just add a little bit more to that?

Terry Marks

Just what John said, specifically as I mentioned earlier, we’re going to look for opportunities to increase selling capabilities strategically, principally around our immediate consumption business. So the contribution from glaceau affords us a little bit more flexibility in that regard than would otherwise be the case.

Kaumil Gajrawala – UBS Warburg

Would this mean more coolers, more vending…

Terry Marks

That will be the outcome of having the sales people on the streets. That’s just the coolers and the vending itself would specifically show up on our CapEx but the people that will be out there selling the placements and selling the space, that’s really what we’ll be investing in.

Kaumil Gajrawala – UBS Warburg

Okay and then next question, if you could just give us an update on the inventory situation with glaceau as you transitioned it?

Terry Marks

Well the transition has gone relatively smoothly. Glaceau has been a good partner and the transition, and some markets transitioned more smoothly than others which is not unexpected in a fragmented distribution environment from which the glaceau business is coming. But I would say with a few small exceptions, the business has transitioned rather well. We did, and you may have noticed this, take some of the promotional pressure out of the market on a year over year basis during the transition in order to ensure that the supply chain was in a position to keep our customers in stock during that period of time. I’m pleased to say that that went well also.

Kaumil Gajrawala – UBS Warburg

Okay thank you.

John Brock

Well let me just say one more time, thanks to all of you for joining us today. We’re pleased that you took time to be with us. We wish all of you a very happy holiday season and end of year.

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Source: Coca-Cola Enterprises Inc., 2008 Outlook Call Transcript
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