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Coca-ColaEnterprises Inc., (NYSE:CCE)

2008Outlook Conference Call

December12, 2007 10:00 am ET

Executives

JohnBrock – President & CEO

BillDouglas – Sr. Vice President & CFO

TerryMarks – Executive Vice President, President North America Group

StevenCahilane – Executive Vice President, President European Group

ThorErickson – Director, Investor Relations

Analysts

MarkSwatzberg – Stifel Nicolaus

BillPecoriello – Morgan Stanley

LaurenTorres – HSBC

Robertvan Brugge – Bernstein Research Group

BonnieHerzog – Citigroup

JohnFaucher – J.P. Morgan

JustinHunt – Bear Sterns

ChristineFarkas – Merrill Lynch

JudyHong – Goldman Sachs

KaumilGajrawala – USB Warburg

Operator

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

Thor Erickson

[blank audio - 27 seconds] as well as thedetailed cautionary statements found inour third quarter 10-K. Our earnings release also contains areconciliation of thenon-GAAP comparable figures referenced inthis call. A copy ofthis information is available on our website atwww.cokecce.com. This morning’s preparedremarks will be madeby John Brock our CEO. Bill Douglas our CFO, Terry Marks our President of NorthAmerica Group and Steve Cahilane President of our European Group arealso with us on thecall this morning. Following theprepared remarks we will open thecall for your questions. Now I will turn thecall over to John Brock.

John Brock

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

We believe our news release this morning demonstrates an encouraging outlookfor Coca-Cola Enterprises. It’s built on a combination of top line growth,operating expense savings and bottom line growth. First, we increased ourcomparable 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 ourrestructuring and operating expense initiatives. Even as we hurdle these higherthan anticipated results, we will deliver solid comparable 2008 earnings pershare growth very much in line with our long-term objective of high, singledigit 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 acompany that will deliver consistent quality earnings growth despite theuncertainties of an ever-changing marketplace. At the core of this multi yeartransition is an unrelenting progress on our global operating framework and thethree key strategic objectives that are the foundation of that framework.

First, strengthening our brand portfolio by growing the value of our existingbrands and expanding our portfolio. Second, transforming our go to market modeland improving effectiveness and efficiency and third, establishing a winning inclusiveculture as we attract, develop and retain a highly talented and diverse workforce.

In 2007 we made significant progress against each of these objectives inlarge part because our people, who represent the most skilled, talented workforce in the industry, have embraced these concepts fully. They understand theimportance of our vision, which is to be the best beverage sales and customerservice company and they are working diligently to make that vision become areality. This has created a real sense of progress as well as momentum amongemployees at every level of our company. A tangible asset that’s essential toour long term success. In fact, a key lesson I’ve learned in my 18 months asCEO, is that when our people have the tools they need and the brands thatconsumers 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 ourstrategic objectives and how that work is going to translate into sustainablegrowth across our entire system in 2008.

First, we have made tremendous strides in expanding, strengthening and developingour brand and product portfolio. This progress reflects our own commitment toachieve a leadership position by being either number one, or strong number twoin every beverage category in which we choose to compete. And importantly, thecommitment of The Coca-Cola Company to broaden our systems product portfolio.In sparkling drinks we’ve worked successfully to maximize the value ofCoca-Cola Zero which continues to enjoy strong growth in North America andplays an increasingly vital role in our growth in Europe.Coca-Cola Zero is at the core of our successful Red, Black and Silver initiativewhich is maximizing the marketplace impact of the world’s most valuable softdrink brand, Coca-Cola. This initiative continues to enable our core Colabrands 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 strengthto our presence in the category. Clearly the addition of glaceau holdstremendous potential and we look forward to working with The Coca-Cola Companyto take full advantage of this opportunity. It’s our job to build glaceaubrands at the ground level. I’m confident our people and our system arewell-suited for this job. In fact since we began the North Americanintroduction in November, we’ve achieved solid results and we’ve begun tovalidate the value of bringing this important brand into our distributionsystem. Through the hard work and skill of our employees we have veryeffectively introduced 35 glaceau skews in only six or seven weeks withexcellent penetration rates in both large and small stores.

So, as you see, we’ve made real progress in developing and expanding ourbrand portfolio and as you’ve listened to a description of this expansion, I’mhopeful that you’ve picked up on the vital role our relationship with TheCoca-Cola Company has played in this expansion. Now more than ever, we aretogether 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 Europeand North America it is absolutely key that we workdiligently with The Coca-Cola Company to reinvigorate the sparkling category. Wealso 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 substantiallybroaden our entire still drink portfolio throughout Europe.I’m confident that together CCE and The Coca-Cola Company will meet thesechallenges and successfully build on the tremendous opportunities created thisyear through acquisitions and brand expansions.

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

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

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

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

In North America we will grow volume and revenue as we build on the additionof the glaceau, FUSE and Campbell’sbrands. The success of our Red, Black and Silver initiative and the continuedgrowth of our water, sports drink and energy portfolios. This combination ofgrowth is an important transition for our North American portfolio as stilldrinks in 2008 will represent more than 20% of our total volume, up from about15% in 2006. Because these new beverages are primarily single serve productswith higher prices and higher costs, this transition is going to create a miximpact and that will push reported pricing per case and cost of goods per casehigher. Excluding this mix impact, pricing per case will trail cost per case in2008 as core costs for [inaudible] cartons are up, PET and aluminum increaseahead of historical averages.

In Europe we have a very strong business plan inplace for 2008. It will result in balanced volume and pricing growth. We’llcreate 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 ourstill portfolio. Pricing growth in Europe will reflect amoderate commodity cost environment. Together these operating results willgenerate consolidated performance levels very much in line with our clearlystated long term objectives. We expect that revenue in fact in 2008 will grow abit above our long term targets, at a high single digit rate driven by thechange in mix that I described in North America.Additional investments against sparkling brand and then our operations willpartially 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% to6%. And as I mentioned earlier, earnings per share will increase very much inline with our stated long term range of high single digits. This range also reflectsthe beneficial impact of earlier than expected gains from operating expensecontrol and restructuring initiatives that are captured in our 2007 results.

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

Going forward, we know one thing is certain, reaching our long term targetsnot only in 2008 but also on a consistent basis for years to come is essentialif we are to reach to our most important goal which is clearly improvingshareowner value. A vital step in creating that value is returning more cash toshareowners and because of the success of our operating initiatives and debtreduction efforts, we are actively finalizing plans to accomplish this. We lookforward to sharing plans with you regarding our direction in this area in thefirst half of 2008.

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

Thank you again for joining us this morning and now we will be glad to takeyour 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 ofcost of sales per case next year what level of percentage growth are youexpecting 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 youhedged 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 withthe commodity environment. If you look at our overall commodities in North America, at this juncture we’re looking at a circa 5% increaseoverall in commodities ’08 versus ’07. The largest driver of that is going tobe HFCS. The second impact is going to be PET. The most volatility in our costoutlook for ’08 remains PET with the impact of [wool] and the various suppliedmaterials for PET which we can’t hedge PET, hedge the volatility. And thenaluminum, we’re seeing up modestly year over year as well, even though the spotmarket is down, I’d just like to remind everybody we did have about 15% of ouraluminum volume in ’07 under caps. So, all that having been said, at thisjuncture, we see a plus or minus 5% from a commodity perspective. The otherthing I would mention is at this point in time we’re covered about two-thirdson HFCS in aluminum from a hedging perspective for ’08.

In Europe, the environment is more benign; we don’thave the same issue with aluminum or HFCS and I would expect that at thisjuncture, we’re looking at commodity environment of about 1%. And then lastlyfrom a concentrate perspective, we’re looking at approximately 2% in bothmarkets.

Mark Swatzberg – Stifel Nicolaus

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

Bill Douglas

We are assuming that PET will be up at this point mid single digits with abarrel 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 NorthAmerica for ’08, your implied guidance looks like even if you exclude theglaceau, FUSE and Campbell’s, that you’re looking for your core volume to be upas much as 1% and I wanted to get behind your confidence in that. You talkedabout reinvesting in sparkling, so you’re assuming that you’re going to gainmarket share in the category due to that reinvestment. Also how the innovationpipeline is looking on the core, are you expecting a halo affect as you addglaceau to the distribution system and just wanted to get behind thatconfidence.

John Brock

I will make one broad stroke comment on that Bill and then I’ll pass it overto Terry who can I think provide you a bit more perspective. If you do look atthe 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 thatif you look at the balance of our total portfolio excluding those, we also doexpect a little bit of growth in total when you put it all together, so you’vegot that about right when you said it looked like we were trying to drive ourentire portfolio even without the acquisitions and that is in fact broadlycorrect.

In terms of the sparkling category, let me ask Terry to give you a bit moreperspective 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 beingfueled 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 thecategory would be down in 2008, low single digits. We do expect to outperformthe 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 businessbefore 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 acombination both of what you know to be the innovation pipeline, packaginginnovation as well as the relative pricing as you’re lagging the COGSincreases.

Terry Marks

Yeah, I’m not sure how meaningful the pricing will be overall in theequation. We expect to take pricing in sparkling in the area of 2% to 3% in2008; we’ve been pretty consistent about that. But I do think we have somemomentum with our Red, Black, Silver focus that we’ve had in place throughout2007. We are increasingly encouraged by the performance of Coke Zero and Ithink that’s what’s really driving our optimism as we go into 2008. There willbe innovations for sure, we’ll be piloting some different packagingconfigurations that we are confident some will play out and will prove toappeal more affectively to different usage occasions. Those things ultimatelywill 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 inthat 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 intonext year on these operating expense controls and restructuring initiatives, Iwas 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 becoming 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 everythingwe’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 askBill Douglas to provide a bit more perspective on the whole program, where itstands and where it’s going.

Bill Douglas

Good morning Lauren. If you look at what we said initially, we still arevery [comp] with that as John mentioned. We’re looking at total operatingexpense savings over the period ’07 ’08 ’09 of approximately $300 million witha charge over that period of time of a similar amount. At the end of ’07 wewill have shed about 2,000 net jobs with the vast majority of that in North America. That’s against our originally stated target ofapproximately 3,500 jobs or 5% of our work force. We are still very much ontrack with that and we’ll continue to make significant progress against the netjob reduction in 2008. At this juncture a lot of the job reductions have comethrough attrition and we hope that will continue to be the case as we movethrough 2008 and I think the level of progress that we make in ’08 will besimilar or slightly more from an annual run rate perspective than we had in2007. About 75%-80% of the benefit in ’07 has come in North America.We have had some savings in Europe and that will be morebalanced as we go through ’08. And then the majority of the incremental savingsin ’09 will come out of Europe. From an impact to theP&L, I think in the neighborhood of $60 million to $80 million collectivelyis what we’ve achieved to date in 2007.

Lauren Torres – HSBC

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

Bill Douglas

Well we’ve already started reinvesting a small part of that, but in ’08 thereinvestment is going to accelerate as we complete the roll out of our go tomarket 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 sellingcapability on the street given the number of new skews that we’re handling andthe fact that most of them are immediate consumption oriented which requires alot of [touch] so we expect to continue to see the savings realized inproductivity and we’ll invest selectively in incremental selling capability onthe 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 carefulof what we do from a social program point of view. Steve, comment on a littlebit on Europe and the programs there.

Steve Cahilane

We’ve got several initiatives in Europe. We’re at thestage now where we’re talking to our social partners through the EuropeanWorks’ Council and will be fully developing business cases that we take forwardto them early in the new year which will allow us to get to the savings and theefficiencies 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 – BernsteinResearch Group

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

John Brock

Robert, I’d say the simple answer to that question is no. We have had and dohave ongoing discussions with The Coca-Cola Company on a whole variety ofthings that had to do with our business, pricing, funding, marketing programsand all of those discussions have been positive ones and continue to bepositive but I think I would describe 2008 overall approach to the business isnot materially different than 2007.

Robert von Brugge – BernsteinResearch Group

Great and then also if I can ask a question on Europe, it seems that yourtrends are picking up nicely there, is this mostly coming from continentalEurope or are you also seeing an improvement in the U.K.? Also when you look out for next year, how doyou 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 justthe continent. We’re seeing a pick up across the board. Steve, provide a bitmore perspective.

Steve Cahilane

In the fourth quarter obviously we’re coming off a very poor third quarterperformance 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 andDecember; so a nice turnaround in Great Britainand a balanced performance in both Franceand [inaudible] countries. In terms of 2008 obviously we are cycling the CokeZero launch but Coke Zero has a lot of momentum. Our Red, Black and Silverstrategy is clearly working for us so we’re optimistic that we’ll be able tolap those numbers in 2008.

Robert von Brugge – BernsteinResearch 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 toexpand the glaceau portfolio with The Coca-Cola Company to the European, so Iguess I was wondering if you could give us an idea of the time frame of yourplan for doing this? I’m also wondering if you would need to make anymodification to either the current portfolio given the [inaudible] base in Europeand/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 simplysaying, yeah we are in very active discussions with The Coca-Cola Company aboutour strategy for glaceau in Europe, so it’s still verymuch 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 Britainas being the first market that we would look at to make that work in Europebut you know, I wouldn’t look for any material differences to our 2008performance visa vie glaceau in 2008. But it’s something that we believe from aconsumer standpoint can work very well and will be one part of our GD waterstrategy which clearly needs addressing in 2008 and which we aim to address in2008.

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 sparklingcategory over the next couple of years, you know obviously you’re talking alittle less pricing than COGS inflation this year, what’s the longer termalgorithm 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 pricinggrowth at the same? Is that how we should look at the category? As you look torevitalize it over the next couple of years with the extra profitability comingfrom the non-carb portfolio, should we continue to maybe expect pricing alittle 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 exactlywhat’s going to happen in ’09 and ’10 in the sparkling category. I guess we areI’ll call it guardedly optimistic, about the direction in which we see thingsgoing. When you look at where that category has gone over the last severalyears, 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’sgood 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 alsoworking. It’s not spending as much time on introducing you know the flavor ofthe month. And we’re having to [lap] some of those of course which arebeginning to disappear and that’s a good thing. And then it’s all about productand packaging innovation which we’re working on hand in hand with The Coca-ColaCompany. 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, ifeverything 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 wecertainly aren’t, we’re not putting that into our business plan quite yet. Andthen longer term, yeah we remain committed to the category; it’s still asignificant part of our total business, a really significant part of our totalbusiness. Through product packaging and brand renovation and innovation weexpect 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 intoanything, 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 withthat 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 questionagain is when. We certainly would like to see, you know, in the sparklingcategory if we had a COGS environment that was typical of the past 25 yearsthat would certainly help and that could well be the case in 2009. That wouldbe a good thing.

John Faucher – J.P. Morgan

Is any of the research that you guys do jointly with The Coca-Cola Companyshowing you that the pricing is becoming less of an issue? Does that give youany 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 bea little bit less elastic than it was say three to five years ago. But I thinkone of the important things that we see in the category is that the number ofpeople that use the category hasn’t declined dramatically over the last five toten years, but the frequency with which they use the category has so and that’snot difficult to understand when you think about the emergence of nichecategories and smaller categories that may appeal more intensely to variousneed states than soft drinks have. I think the opportunity is to continue toinvest in packaging innovation, insure that consumer messaging and imagery isconnected all the way from mainstream media to what the consumer sees in theoutlets and all of those things are in a mix in the number of pilots that we’llbe executing in 2008 and I think out of that, the seeds for growing thecategory 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 solidresults, 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 Iwould, North America would obviously be the crux of it.

John Brock

Well certainly, when you look at glaceau and FUSE and Campbell’s too, thatin North America it is a significant contributor to our business set of resultsin 2008 so we are reinvesting some of the proceeds from glaceau and buildingcapabilities and we have already said we’re going to be taking carbonated orsparkling pricing in the 2% to 3% range which doesn’t fully offset the cost ofgoods that both Terry and Bill have talked about. So we’re reinvesting, not aninsignificant amount of the gross profit that we make from glaceau, but clearlysome of the glaceau volume will result in increased operating profit and that’swhy we can sit here today and say that we can confidently talk about 2008results that are inline with long term volume and revenue and profit and EPSprojections. It has made a material difference, glaceau has, to the confidencewe have in achieving those results. On a European basis, again let me just echowhat Steve said, we’re keenly interested in expanding it into Europe and we andThe Coca-Cola Company are working on that, but that will certainly not have anykind of a positive impact on our profitability in Europein 2008. It would be broadly neutral or maybe even require some investmentdollars to get it off and running. So, no, there will be no profit contributionfrom glaceau in Europe no matter what we do. It’s allcoming from the United States.

Justin Hunt – Bear Sterns

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

John Brock

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

Bill Douglas

Hi Justin, the fundamental areas in which we’re spending CapEx aren’tchanging dramatically. If you look at the key areas that we’re going to bespending on in ’08 it’s going to continue to be cold drink equipment both inthe United States and in Europe.In the U.S.obviously will be rolling out some cold drink equipment dedicated to glaceaubrands. In Europe, we’ll be expanding our [inaudible] concept significantly in Great Britain so we’ll be fitting a lot of cold drink equipmentin Great Britain.And then we will be adding manufacturing capability in the United States tosupport Disani, small PET bottles and also continuing to upgrade ourdistribution warehouse system in the United States as we have the complexity ofthese incremental [SKVs] coming onboard but it is an evolution in our capitalspend 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 fromCoca-Cola, if you could contract that with a year ago where the gross numberwas higher but it was funded back or netted back to you the bottler, can yougive 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 acceleratedoperating savings, based on your progress and your plans for ’08, can you giveus an indication of for example the leverage in ’08 versus ’07. Should thatcontinue at the same pace or accelerate or slow based on what you’ve alreadyseen 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 ’08and the algorithm that we’ve laid out and then when focusing on North Americanow, pricing up 2% to 3%, COGS going at a little bit higher rate than thatdelivering a gross profit number, we do expect from a total company perspectiveour OpEx to grow at a lower rate than the gross profit. So we are continuing tohave 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 anoutstanding job in controlling operating expenses in 2007 in both Europe and inNorth America, but with all of the increased business, the skews, the volume,obviously operating expenses are going to have to go up to support thatincreased volume but Bill’s point is a good one. We will continue to have verytight controls in place and so we will have operating expenses going up lessthan the other elements in the P&L which means, you know, it’s a goodthing.

Christine Farkas – Merrill Lynch

Yeah, that’s exactly right. The leverage in ’07 was tremendous and justgiven the business model in ’08 I’m curious if that leverage could continue atthe 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 justour business model’s going to be a little bit different because we’ve got somuch more volume to deal with and some of the volume, a large part of thevolume we have is a different kind of business – very much a single serve andfrankly 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 sparklingcategory in the U.S.next year. As you aspire to gain share in the category, how do you envision thecompetitive environment unfolding? Do you think that the cost pressure isenough to kind of keep the private labels and your other competitor to takeprices up a bit more aggressively or do you think that you could see thecompetitive environment getting a bit worse in terms of everyone trying to gainshare and in that situation are you willing to step up spending or resources tocontinue to look for share growth?

John Brock

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

Terry Marks

The only thing I would say Judy, we expect a rational pricing environment in2008 that has marginally been the case in 2007. As I had said earlier, we doexpect to grow share in the category however we’re not looking at driving sharethrough price in the category. We think that any share growth that we realizein 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 categoryover time and 2008 however, we will not grow unit margins but we do expect apricing environment to be rational.

Judy Hong – Goldman Sachs

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

Bill Douglas

Well clearly if the spot rates were to stay where they are today for thefull year, there would be some notable FX up-sided EPS line. I think at thisjuncture it’s a little too early to predict it but we’ll clearly give updatesas we go through quarter by quarter of what currency benefit we have gained todate and what our perspective is. As we go through the year we would actuallystart including the anticipated currency in any guidance that we may give. I’lltry 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 andthe market reacting today, I’d like to see a little bit more time and see howall these central bank actions are interpreted in the spot prices. I wouldexpect there to be sub-currency up-side before the years over but it’s way tooearly 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 glaceauprocess can you talk a little bit behind what you’re investing it in. Obviouslyyou’re not taking pricing up as much as COGS, but if there’s some other thingsin 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 littlebit more to that?

Terry Marks

Just what John said, specifically as I mentioned earlier, we’re going tolook for opportunities to increase selling capabilities strategically,principally around our immediate consumption business. So the contribution fromglaceau affords us a little bit more flexibility in that regard than wouldotherwise 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’sjust the coolers and the vending itself would specifically show up on our CapExbut the people that will be out there selling the placements and selling thespace, 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 theinventory situation with glaceau as you transitioned it?

Terry Marks

Well the transition has gone relatively smoothly. Glaceau has been a goodpartner and the transition, and some markets transitioned more smoothly thanothers which is not unexpected in a fragmented distribution environment fromwhich the glaceau business is coming. But I would say with a few smallexceptions, the business has transitioned rather well. We did, and you may havenoticed this, take some of the promotional pressure out of the market on a yearover year basis during the transition in order to ensure that the supply chainwas in a position to keep our customers in stock during that period of time. I’mpleased 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 ustoday. We’re pleased that you took time to be with us. We wish all of you avery happy holiday season and end of year.

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