Coca-Cola Enterprises Inc. (NYSE:CCE)
Q4 2015 Earnings Conference Call
February 11, 2016, 10:00 AM ET
Thor Erickson - Vice President, Investor Relations
John Brock - Chairman and Chief Executive Officer
Manik Jhangiani - Senior Vice President and Chief Financial Officer
Hubert Patricot - Executive Vice President and President, European Group
Ali Dibadj - Bernstein
Steve Powers - UBS
Caroline Levy - CLSA
Ian Shackleton - Nomura
Kevin Grundy - Jefferies
Judy Hong - Goldman Sachs
Robert Ottenstein - Evercore ISI
Bryan Spillane - Bank of America
Good day, and welcome to the Coca-Cola Enterprises fourth quarter 2015 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.
Thank you. We appreciate you joining us today to discuss our fourth quarter and full year 2015 results and our outlook for 2016.
Before we begin, I would like to remind you of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook for future periods. These comments should be considered in conjunction with the cautionary language contained in this morning's release as well as the detailed cautionary statements found in our most recent Annual Report on form 10-K and subsequent SEC filings. A copy of this information is available on our website at www.cokecce.com.
Additionally, it is important to highlight that statements made about Coca-Cola European Partners or CCEP, and the proposed merger on today's call, are made with full recognition that this is subject to regulatory approvals and other conditions of closing, that until closing of the transaction, we are operating our businesses separately and independently.
Today's prepared remarks will be made by John Brock, our CEO; and Nik Jhangiani, 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'll turn the call over to John Brock.
Thank you, Thor, and we thank each of you for joining us, as we review our results for the fourth quarter and full year 2015. Before I begin, I wanted to mention that Damian Gammell, our COO, will not be on the call with us today. However, he is looking forward to being with us and you at CAGNY next week.
In 2015 we continue to face the impact of a softer than expected consumer goods sector. As we work through this environment, we continued to manage each element of our business to drive value. Through this work, for the full year, we delivered slightly positive operating income growth, earnings per share growth of 8.5% and solid free cash flow, all in line with our guidance from a year ago. Nik will provide more details on our financial results in a few minutes.
Total 2015 volume declined 0.5%. This reflects a 1.5% decline for sparkling drinks and a 2% decline for Coca-Cola trademark brands, even as Coca-Cola Zero contributed solid growth of 5% for the year. Sparkling flavors grew 0.5%, driven primarily by growth of over 10% in our energy portfolio. Monster brands grew more than 17%. Still beverages grew 4%.
Juices were up 2% with double-digit growth in Capri Sun, achieved through flavor and packaging innovation as well as expansion into Sweden. Water was up 12%, driven by continued expansion of smartwater in Great Britain and growth in Chaudfontaine.
Now, let's take a look at our outlook for 2016. Today we affirmed our financial guidance for 2016, including a slight growth in net sales. This guidance reflects the impact of ongoing softness in the consumer sector.
We're not content with this level of performance, and we remain fully committed to strengthening our outlook, enhancing margins and growing our business. Ultimately, we believe that renewed growth, our focus on cash generation and our ability to manage the levers of our business will enable us to achieve our most important objective, continuing to drive shareholder value.
For 2016, we will benefit from several key brand, package and marketing initiatives. For example, we will benefit from our relationship with the Euro 2016 Championship, which is Europe's biggest soccer event. We already are implementing targeted programs with key customers and will build on in-store execution and opportunities through much of the year.
We'll also introduce new brand extensions and packaging in each of our territories. As an example, we're adding immediate consumption packs for Coca-Cola Zero Cherry. We're continuing the rollout of new zero-calorie Monster Ultra flavors and we're adding new flavors for Capri Sun.
New packaging includes six bottle packs for smartwater, multi-pack cans for Finley and more effective product displays to enhance in-store execution. In addition, we'll also expand our emphasis on cold drink with expanded vendor placements.
We're also excited about implementing the Coca-Cola Company's new initiative, Taste the Feeling. This effort builds on the joint work we have done to unify Coca-Cola, Coca-Cola Light and Diet Coke, Coca-Cola Zero and Coca-Cola Life, all under one iconic Coca-Cola brand. We've already seen important synergies and benefits and we look forward to executing Taste the Feeling this year in all of our markets.
Now, I'd like to briefly review the timing of the transaction to create Coca-Cola European Partners or CCEP, and take a look at the progress we've made. As you'll recall, we signed the agreement on August 6. Since then, we've secured European Union Commission approval and we filed a preliminary proxy statement Form F-4 prospectus with the Securities and Exchange Commission.
Working together with CCIP, CCEAG and the Coca-Cola Company, we're moving forward with the preparation of a European prospectus to affect the listing of CCEP shares in Europe. Once the proxy statement Form F-4 is declared effective by the SEC, it will be mailed to CCE shareowners and a special meeting of CCE shareowners will be held to approve the proposed merger.
The transaction remains on track to close by the end of the second quarter of this year. Securing a timely close and the successful launch of the merger remains vital. To that end, teams at CCE, CCIP, CCEAG and the Coca-Cola Company are working to ensure that CCEP is ready to go on day one.
Importantly, collectively, we continue to have confidence in the future of CCEP and the benefits it brings to our businesses. This is particularly true in the current macroeconomic environment, as CCEP strengthens the Coca-Cola system's ability to adapt and respond to changing business conditions.
Through shared best practices, CCEP also enhances our ability to innovate, to make our supply chain more effective and to greater products and packages that meet changing customer needs and consumer preferences. These shared learnings also help us provide all of our people, the core of our business, with the tools, technology and leadership to enable them to succeed.
Overtime, we believe the benefits of a strong relationship with the Coca-Cola Company, coupled with new opportunities and synergies created by the formation of CCEP will enable us to improve our outlook. In fact, we believe the creation of CCEP will usher in a new era of collaboration with the Coca-Cola Company in Western Europe.
Overtime, we expect this will reignite growth, drive value for customers and consumers, and importantly, create shareowner value. In short, this is the right transaction at the right time for our business and for our shareowners.
Now, before I close, I want to share with you some announcements regarding CCE's senior leadership team, as we work to launch Coca-Cola European Partners. First of all, Pam Kimmet, Ron Lewis and Esat Sezer are scheduled to join Damian, Nik and me at CCEP as Chief Human Resources Officer, Chief Supply Chain Officer and Chief Information Officer, respectively. Each of these individuals brings deep expertise in their fields and a true passion for seeing our brands win in the marketplace. We look forward to their continued contributions.
Two other members of CCE's current leadership team have elected to leave the company. John Parker, our Senior Vice President, General Counsel and Strategy, has elected to retire at the end of the year. Importantly, John will continue to lead our efforts toward a successful close of the CCEP transaction, and we'll benefit from his leadership and strength as a strategic advisor. John has been a trusted colleague and mentor throughout his career and we look forward to his continued leadership this year.
Laura Brightwell, Senior Vice President, Public Affairs and Communications, has decided, with my support, to return to the U.S. this summer. Laura has held a range of leadership roles through her 25-year career and has led the CCE Public Affairs team since 2010. Laura will continue to lead the Public Affairs team through the close of the transaction. Both John and Laura have made lasting contributions to CCE and the Coca-Cola system and we wish them well in the future.
Finally, I would like to thank Hubert Patricot, who has previously announced he will retire in 2016. Hubert has been instrumental in the success of Coca-Cola Enterprises, both before and after the 2010 transaction, and has brought both great leadership and skill to our organization. Throughout his 30-year career, he's made lasting contributions to CCE and to the Coca-Cola system and created a legacy of excellence. I want to thank Hubert for his dedication and his friendship and we wish him all the best in the future.
Now, let me share some closing thoughts. First, even as we work together with CCIP, CCEAG and the Coca-Cola Company to launch CCEP, the people of Coca-Cola Enterprises are fully engaged in the day-to-day work of executing their business plans, seizing opportunities to grow, improving service to their customers and strengthening our foundation for the future.
Second, we are realistic about and will continue to manage through this challenging consumer environment. All of us at CCE and those working to finalize the creation of CCEP are focused on renewing growth and driving shareholder value.
Third, the creation of Coca-Cola European Partners represents an important new chapter for our business, as we better utilize each of our assets and abilities to improve effectiveness and drive growth. Importantly, CCEP represents an opportunity to leverage the best practices of three leading bottlers and to build on our solid strategic partnership with the Coca-Cola Company.
We have a shared vision of the future of our business, a shared belief in the long-term growth potential of our markets and a shared commitment to work closely to fully realize that potential. Ultimately, CCEP will have the right strategies, brands and people, and together we will work to accomplish our number one objective, creating value for our shareowners.
Now, I'll turn the call over to Nik.
Thank you, John, and thank you to each of you for joining our call. Let me start by taking you through some of the highlights for 2015. For the fourth quarter, CCE achieved comparable earnings per diluted share of $0.53, including a negative currency impact of $0.07.
Reported net sales declined 15.5% or 6% on a currency neutral basis, while comparable currency neutral operating income declined 3%. Both net sales and operating income results reflect the impact of four fewer selling days in the quarter versus the same quarter in the prior year, as well as the challenging consumer environment that John referenced to.
Fourth quarter volumes declined 1% with a 3% decline in Great Britain and a growth of 0.5% on the continent. For the full year, we reported diluted earnings per share of $2.54 or $2.58 on a comparable basis, up 8.5% on a comparable and currency neutral basis.
Full year 2015 comparable operating income declined 13.5% or increased 1.5% on a comparable and currency neutral basis. Reported net sales declined 15% or 1.5% on a currency neutral basis. Net pricing per case for the full year declined 1%, but cost of sales per case declined 2.5%. Operating expenses increased approximately 1%. All these figures are comparable and currency neutral.
Once again, we were able to achieve moderate gross margin improvement, as we continued to balance a favorable cost of goods environment with a competitive marketplace of programs that we initiated. We also achieved strong free cash flow in 2015 of approximately $630 million, a number which includes cash costs of $25 million related to the transaction to create Coca-Cola European Partners.
During the year, as part of our commitment to shareowner value, we also repurchased $600 million of our shares and paid out $257 million in dividends. This focus on driving shareowner value has enabled us to return approximately $9 billion to shareowners since our transaction in 2010.
Now, let's review our outlook for 2016. As John reviewed with you, today we affirmed our 2016 guidance for CCE with full year comparable and currency neutral net sales to be up slightly. We also expect full year 2016 free cash flow in a range of $500 million to $550 million, after expected CCEP transaction cash costs of $75 million to $100 million.
Capital expenditures are expected to be approximately $325 million. Our weighted average cost of debt is expected to be approximately 3%. And the comparable effective tax rate for 2016 is expected to be between 26% and 28%. As reminder, CCE does not expect to repurchase shares in 2016, given the pending merger transaction.
Now, let's look specifically at the first quarter. As we communicated in December, given expense timing and one fewer selling day, we expect first quarter 2016 comparable and currency neutral operating income and diluted earnings per share growth to be down slightly. Based on recent rates, currency translation would negatively impact first quarter 2016 diluted earnings per share by approximately 5%.
Let me add a bit of background on our 2016 guidance. It's important to note that, as John said, we believe a challenging marketplace condition will continue and persist throughout the year. However, even as we work together with CCIP, CCEAG and the Coca-Cola Company to close the transaction and create CCEP, our operating plans will continue to reflect a focus on improving topline growth.
We continue to work with our customers to execute our innovation and marketing initiatives in mutually beneficial ways. As for CCEP, all three companies continue to make solid progress towards closing the transaction, integrating the three companies and ensuring CCEP's position to capture the opportunities ahead.
In the coming months, we will continue to keep you informed of our progress, as we work through the CCE shareowner vote, the CCEP planned European listing and the launch of the new company. Importantly, we continue to believe this is the right transaction at the right time for our business and our shareowners.
So in closing, let me summarize with some key thoughts. First, we remain realistic about the environment, as overall conditions do remain difficult. That said, today we have affirmed our full year guidance for net sales growth and will continue to manage the levers of our business to deliver against this objective.
Second, we have a history of and a commitment to generating cash and delivering shareowner value. And finally, we're on track to close CCEP by the second quarter. Teams from all three companies are focused on ensuring that we realize the new opportunities ahead, created by the formation of CCEP and our stronger strategic partnership with the Coca-Cola Company.
Together with the new CCEP management team, we are focused on improving our growth outlook, creating consistent long-term profitable growth and continuing to deliver increasing levels of shareowner value.
Thank you for joining us today. And now, John, Hubert and I will be happy to answer your questions. Operator?
[Operator Instructions] Our first question is from Ali Dibadj with Bernstein, you may begin.
I want to drill down on two things. One is, clearly from a topline perspective you are maintaining this semi-positive comparable and currency neutral sales growth. But you haven't gotten there over the past several years, three years at least here. And 2015 was tough and you still say the environment is going to be tough. So I'm trying to get a better understanding of how you're actually going to get that inflection to happen in 2016?
In that context, is energy drinks, I mean, it's been pretty volatile on energy drinks. So if you can give us a sense of the growth rate perhaps you're expecting there? Is Germany and Iberia seeing the same type of issues from a growth perspective or are they better? So really just trying to drill down on the topline. That's question one.
Question two is, on gross margin, the expansion that we've seen and it's an interplay I guess with the topline, but what should we expect going forward? We understand that some of the commodity costs, obviously, have been lower, sugar cost, PET. But you're starting to lap that very soon, so what should we think about gross margin as well? And again, it's tied a little bit to the first question on topline. Thanks.
I'll comment a little bit on the first question, and then ask Hubert to add a bit of perspective, and then on gross margins Nik will answer that question. First of all, let me say, you specifically mentioned Germany and Spain, we're not going to talk about those today beyond of course the results that we passed out back in December. You will hear more color about that as we go forward and we'll be prepared to give a bit more color on that in CAGNY.
In terms of CCE, though, I would say our plan for 2016 and driving our revenues to the degree we've outlined them is a whole combination of activities, many of which I described, but which Hubert can give in a little bit more detail. We have a pretty substantial innovation program and we're pleased with the programs that the Coca-Cola Company has come up in that arena, both product and packaging. We're also excited about the Euro 2016 and we're pleased about the new Taste the Feeling campaign. So those are a few of the highlights.
Hubert, you want to say a little bit more about the reason we have some confidence here in terms of our revenue plans for 2016?
Thank you, John. Ali, I think the algorithm for growth for us next year is a combination of different factors. First, are the way a strong focus on execution daily and with some advanced tools in term of tracking of the performance. But more importantly, probably, it's a combination of innovation, as John just said, both in packaging. We're going to go for smaller size. We're going to go for alu bottles, for example, which will be a new news in the market, new multi-pack for our water business. And in addition, new range, new product launches.
You mentioned the energy category, it's clearly a growth driver for us. We are continuing to target double-digit growth on energy, driven by Monster. And very encouraged more recently by the launch of Monster Ultra, which is a zero-calorie launch, which has been a tremendous success in the U.S. We also have quite a few innovations on Capri Sun, which has been growing double-digit last year. And we're going to push Coke Cherry, for example, in the GB and Swedish market.
But in addition, and John mentioned it also, it's fair to say that cycling last year, both Share a Coke and the World Cup in Brazil was a bit challenging. This year the good news is that we have the Euro '16, which is going to be a major event. We have five countries qualified for the event and we will have all array of activation around the event.
The impact being maybe something which is not familiar in the U.S., but the timing of [inaudible], which are very strong will be unpacked in France and Belgium, and a lot of, again as I say, new pack like alu bottles. So pretty encouraged by that and that's the main reason behind our slightly positive view on topline growth in 2016.
Thanks, Hubert. Nik?
Ali, on your question around margins, a couple of things that I would say, one, as you're aware, we moved to the new incidence model starting January 1, 2016, with the Coca-Cola Company. And I think it's important from a perspective of both topline as well as what this means for our margins, because it is a program that allows us to be much better aligned and helps us position winning in the marketplace to create value, because we are really focused on the right packs, where we both make money as opposed to divergence that we currently have or had in the past, when we had the model that wasn't really looking at it at a more granular level. So I think that's one thing just to keep in mind, as you look at our business going forward.
From a perspective of our hubs outlook, I think you are right in terms of the fact that we are lapping obviously some very favorable benign COGS environment in the last couple of years. But fortunately I would say for the most part, we continue to see that benign commodity cost environment in 2016 as well, particularly with where oil prices are. So overall with our concentrate elements built into that we expect cost of sales to be up modestly versus prior year, again, on a comparable and currency neutral basis.
We have similar coverage in place from a hedging perspective. So I think we're in good shape with that number, other than PET, as you know that we have a tougher time hedging. And so our expectation with our focus around manufacturing efficiencies is to continue to have some modest gross margin expansion, both in 2016, but overtime as well.
Our next question is from Steve Powers with UBS, you may begin.
John, I want to focus on Great Britain, and we've talked about it before and you've taken consistently a long-term view, and somewhat in my view at least kind of downplayed some of the competitive issues that are currently going on with Britvic and Pepsi. But we continue to see the volume under pressure and the market shares slide, at least from the data that we can track.
So I know that obviously the company worked hard to establish that price premium that you currently maintain. But at the same time, it seems to be, again, in my view, kind of the primary enabler of competitive encroachment, so your perspective on that? At what point do you take more aggressive action to stabilize share?
Do you think that share can really stabilize within a couple years now within the pricing structure that you've got or perhaps it's acceptable to see the shares decline near-term and take a long-term view that when the economy improves, your relative position will improve naturally. Just more clarity as to how you're thinking about the business in GB, specifically.
We remain optimistic on GB as a significant market for us and one that we believe is critical to our medium and long-term success. Given our leadership position there and the size and the growth we have, frankly, we think we're going to still have opportunities to grow the business in a rational way, as well as to partner with our customers to grow their business also.
But we also understand it's been a challenging market. It's never acceptable from our end, frankly, to not be able to continue over time to grow market share. That's exactly what we wanted to do. But at the same time, we think it's important to do so in a long-term, sustainable fashion in a way that also drives profit.
So Hubert, let me ask you to give a little bit more color commentary, but I thought I'd just give you a macro point of view that we do think we've got a good position and we recognize it's a competitive market. So Hubert, add a little more color to the perspective.
Steve, while CCE lagged the category, as you said both in volume and value growth this year; we don't see this as a long-term trend. We have reasons to believe that our plans for this year are strong. We are now discussing with our customers about it, but again, strongly driven by the euro, for which both England and Wales are qualified.
We have quite a lot of innovation coming to the market, as I was mentioning, both in a cold sparkling with Coke Zero Cherry and we're going to also improve the formulation on Coke Life, and the energy, which is an area where we're clearly winning. And the water, smartwater has been an incredible success on this market and we're going to continue to build distributions with some key customers in GB. So it's managing our portfolio probably with a broader presence on [ph] steels, but on the core business refocusing also with the new campaign.
We strongly believe in the new Coke campaign, Taste the Feeling, which has strong support also on Coke Zero, which frankly is still underdeveloped in GB. We are pushing a lot on the Coke zero, too. This will be the reasons for us to see growth, and again, to stabilize their share on the cold sparkling business.
Our next question is from Caroline Levy with CLSA, you may begin.
I was wondering, John, if you could update us on the regulatory environment in the U.K. and in Europe and where you see -- what the developments have been. And I can see that you and the Coca-Cola Company are shifting how you market and even how you package product to be lower sugar content. Do you see needing to maybe get back into bigger packages of water again? I know you're playing water very, very profitably, but is there a way to get bigger in water? And how much upside do you think there is in the diet CSD category in your market?
You got several questions there, Caroline, so thank you for that. I'd say on the regulatory front, we certainly are aware of the various pressures that are at work in Great Britain, and particularly, the situation around sugar. We continue to work very carefully with the authorities, as well as the NGOs there, to help them recognize that there are more effective ways of tackling some of the issues that they are trying to tackle, rather than a sugar tax or a tax on soft drinks.
We remain, I would say, guardedly optimistic that they will continue to take that point of view, although we recognize that's certainly a challenging environment in which we find ourselves around that particular issue.
You probably know in Belgium, there was an increase in excise taxes on soft drinks. That's all built into our plans and programs for 2016. And frankly, we are monitoring the rest of Europe. You asked about the whole of it. We don't see anything else from a regulatory or tax standpoint, throughout Europe that is imminent, but we obviously remain very diligent in our monitoring of what's going on.
In terms of really focusing more on smaller sizes and multi-packs and giving consumers the packages they want, absolutely, that's a critical part of our business going forward. We in the Coca-Cola Company are totally in sync on that and are driving hard to give consumers the right sized packages for the right occasion at the right time at the right price. So yes, I think you're going to see a lot more of that in days to come and a continuing focus on that, not only in GB, but throughout Europe.
On diets and water, yes, water has been a very big success for us, as Hubert just mentioned. Smartwater in GB is a very significant player from nowhere two years ago. Chaudfontaine continues to grow in Belgium. And would we like to be in water in other markets in a bigger way? And the answer is, yes, if we could do so profitably. You can rest assured we are constantly, with the Coca-Cola Company, looking at that. But it's a category that it's very important, I think, to be with the right product, the right package and the right channel. Otherwise, you have a lot of volume, but don't make any money.
In terms of diets and low-calorie products, absolutely, those are going to continue to be the centerpiece of what we're doing. You just heard Hubert say that Coke Zero, which is so successful in a number of our markets is a bit underdeveloped in Great Britain, so you're going to see us really focusing more on that brand, particularly, in GB, and throughout the whole of our markets we will continue to be pushing diets and low-calorie products as a pivotal part of our total program.
So that's a bit of a walk through the whole of Europe answering several questions, but yes, all of those are critical components of our success program going forward.
Our next question is from Ian Shackleton with Nomura, you may begin.
Going back to the original question around a bit of revenue growth this year, it sounded from your answer that you would be more focused on better volumes rather than better price mix in what is still a fairly deflationary environment. But I wondered whether you can give us a little bit of an update about some of the negotiations with retailers, who clean the key marks GB and France on pricing.
Let me frame that answer for a second and then ask Hubert to talk about individual countries. Ian, as you well know, one of the things we think is pivotal for our algorithm on revenue is the whole volume price mix combination. And one of the things were always very careful to do is not frankly, spend a lot of time and effort telling people in advance what we plan to do because those are the levers that we like to control as the year goes on.
And frankly, we think we're in the best position to control, to generate the kind of revenue growth that we want to generate. So clearly, as you look at our plans for 2016, it's a combination of those, which we'll adjust as the year goes on. Hubert, do you want to comment a little bit on the various negotiations and where they stand?
Ian, all pricing negotiations are either on track or been executed according to the customary timelines, which mean that we completed our pricing negotiations last September in Belgium, the Netherlands and Norway. We are currently engaged in this negotiation, which includes both headline price increase and customer marketing programs, both in GB, France and Sweden. And as you know, the overall environment remains difficult. It's never an easy task.
But our focus remains, as John said, about joint value creation. And to do so, we are really combining both the innovation I was mentioning and this year, very, very solid marketing program. And frankly, we are encouraged by the first reaction of our customer to this marketing program. But it's not done yet, and we will keep you posted, as we progress, and as always, then we may want to adjust some of our promotional and business plan regarding the marketplace dynamics.
Could I just follow-up as well, I think Hubert talked about the reformatting of Coca-Cola Life. My understanding is that will move more to South American formula, i.e. less sugar, perhaps you can confirm that? And are there any of the other formulations that you are looking at changing, particularly, I guess, there given the GB market at the moment?
Yes, Coke Life, you're right, with the formulation we are -- Coke Life has been a good growth engine for us in the past few years.
But we think we can improve the formulation, being more bullish in terms of calorie reduction, and you are right, the formula is not the South American you mentioned, it's a 45% less calorie formula, and that's for the moment, the one we are going for in GB.
And are there similar re-formulations planned, as well, in other products?
Not for the moment.
Our next question is from Kevin Grundy with Jefferies, you may begin.
So I wanted to come back to CCEP. Can you just confirm it seems like your preference today is not to comment either qualitatively or quantitatively with respect to the outlook as you did in mid-December. Just if you could confirm that, number one. And number two, should we expect to get a greater level of detail at CAGNY next week?
I think, for today, we would suggest that the information we passed on in December is, in fact, the information that you should be taking into consideration, as you think about those other markets, because this really is a CCE discussion today. And yes, we'll be in a position to give a little bit more bit more information about those markets at CAGNY.
But again, I think you can assume that this is going to be kind of a rolling program where, as we continue to get closer to close, go through CAGNY, go through CAGE and other events, that there will be more granular information and more color commentary that we'll be in a position to talk about.
Kevin, just as a reminder, you do recall that in the nine months you did see that both Germany and CCIP had low single-digit top-line growth.
Can you guys just for today, today's purposes, at least with respect to consumer and category trends, little change since mid-December. I don't want to put words in your mouth, is that a fair characterization?
I think you can say that that's broadly the case, yes.
And then one more from me and then I'll pass it on. The question is on trade spending where it seems that you guys have made an investment in price and understanding that the environment is very difficult, but you haven't gotten the sort of topline payback that you had hoped for. Has that caused you to sort of take a step back and maybe pause a bit and consider reallocating these to other types of programs or even letting it flow through to earnings, because it doesn't seem like you're getting the kind of volume pick up that you'd hoped for.
Frankly, that's an ongoing discussion and debate and challenging of the algorithm. I don't think there's a simple answer to that question. Obviously, when we become more price competitive in the market, one of the things we'd like to see is a volume bump from it. When we don't see the kind of volume results that we'd like, we have to reevaluate the whole set of circumstances. So I don't think there's a simple answer to that to say that we haven't seen the kind of results we wanted, so therefore, we're going to take a different approach.
That is an iterative kind of thing that we do, literally every month and even more granular than that, obviously, on occasion and something we have to adjust as the year goes on. So you can assume we will. We will be doing the best to balance the algorithm. And again, that's what we think, hopefully, we do better than anybody else.
Our next question is from Judy Hong with Goldman Sachs, you may begin.
I know you're not talking in details about the CCEP, but when I look at the December proxy and the growth synergy numbers that you've provided us at that point of the $457 million versus the prior synergy targets that you've given, can you just clarify the differences, really just your intention to reinvest that difference into either brands or marketing, et cetera?
Nik, you want to comment?
That's a fair assumption, Judy. We have guided the markets, as you recall, when we first met in August towards the $350 million to $375 million set of numbers in terms of synergies, which included both the in-flight as well as the combination synergies. And if you look at what's in the proxy that you reviewed in December, you have a higher number, but that is based on us continuing to work with the company to want to reinvest in the business.
Also, keep in mind that this was, obviously, a management's set of numbers that we used with our Board just to talk about what the potential opportunity was. It's not truly a forecast, but I would say to you, to the extent that we're able to continue delivering over and above what we see falling to the bottom line, the focus is to grow the topline. And if we need to reinvest to do that, that's the right thing that we'll do for the business.
And then just completely on an unrelated note, just the energy drink trends that you're seeing in the marketplace, it seems like GB is still a little bit choppy. I know we had the poor weather in the third quarter and trends seem to have gotten a little bit better in the fourth quarter, but just kind of taking a longer-term view, it seems like that market is a little bit choppy. So any color just in terms of what you're seeing in GB specifically for energy drinks?
And then it sounds like you've got some innovations with the Ultra flavors, but you have the Ultra smaller packaging going into the on-premise channel. So can we expect to see a much better [technical difficulty] with about 2016 from a lot of these innovations that we expect to see?
Hubert, you want to comment on it?
Judy, we remain very positive on the energy drink category as such. It's still pretty much underdeveloped all over Europe, less the case in GB. It's true that we have seen some variation in the growth rate, especially in GB, but we remain again positive starting with this quarter with the launch of Ultra.
You know that we have been outperforming the category for the last four to five years, and we are gaining both in volume and value. So there's a bit of a slowdown, but we remain optimistic on the category, even in GB, which is the most developed area for Europe in term of energy drink.
Let me just add to that, Judy. Energy is a category that we continue to think represents an opportunity, a big opportunity for us, because, not only in GB, which is the most developed market, but across the whole of Europe, energy is meaningfully underdeveloped, compared to, say, the United States. So we think it's a big opportunity. We think we've got a terrific portfolio strategy that's working well with the energy team at Coca-Cola.
Monster, obviously, is the driver, but having those other brands, like we have with Relentless, Burn and Nalu, really gives us a multi-brand strategy, which I think we're now collectively managing in a far better way than we have in the past. And I think you're going to see some pretty significant growth in the energy category, continuing growth across the whole of Europe, as we work again with the energy team to drive growth there.
And Judy, to John's point there, keep in mind that energy today is only about 2% of our total volume mix. So there is an opportunity for that segment to grow quite well for CCE.
Our next question is from Robert Ottenstein with Evercore ISI, you may begin.
Two questions, first a follow-up on the energy category and Monster. You mentioned that you'll be rolling out some new SKUs. And I'm just wondering how you're thinking about cooler space and how you're making those decisions in terms of, if you're putting Monster in and adding, obviously, new lines, what's leaving and how that calculus is being considered? And also whether you're considering adding separate standalone energy drink or Monster drink coolers in certain locations?
It includes both. First, overall, at CCE in the past three years now, including now this year again, we are placing much more equipment, cold drink equipment, than we used to do. But we are accelerating the placements of coolers, overall, in which you would find probably one of two Monster SKUs. But then in addition, and in close collaboration with Monster, as you said, we are now placing Monster dedicated energy coolers.
And when we say Monster dedicated, includes that now that Monster is managing the totality of the energy portfolio, you would find in this coolers, it could be Monster, but you find also in the coolers Burn, Nalu, which are part of our portfolio. So it's a combination of both, having some energy SKUs in our soft drink coolers, I would say, but also more and more, I would say dedicated Monster coolers, which are really impactful, which our customer likes very much.
And then second, can you talk a little bit about the water business and maybe remind us what percentage of your total volumes come from water and how you would split those volumes between bulk water and value-added water and smartwater?
Well, essentially, all of our water business is value-added and profitable and skewed substantially toward immediate consumption. It's not all immediate consumption, but clearly, if you look at our Chaudfontaine business and our smartwater business, again, we have been very targeted and very selective in going into the category and it, as I've said earlier, is all profitable. In terms of a specific number, Hubert?
It's approximately 4% of our value mix is water, Robert.
And then can you give us a sense of what percentage of the water is smartwater?
It's now the number one -- number two brand after Chaudfontaine, but lagging far behind still again, so it's growing fast, but on a very small basis. We've just grown some other volumes, so the bulk of the volume would be Chaudfontaine still, and then the second now is smartwater, but clearly, far, far below that but with a strong growth, with a very strong growth though [Multiple speakers].
And it's all in the U.K., is that correct?
Smartwater is only in GB, yes. And just to put it into perspective, smartwater, again, which we have only recently launched and is growing very well is about 10% of that mix of that 4% volume overall.
Operator, we have time for one more question.
Our last question is for Bryan Spillane with Bank of America, you may begin.
I think for, Nik, just a follow-up or a clarification to Judy Hong's question. Just on that question about the growth to net synergies, just want to make sure I heard it right. The difference is not the potential savings identified, it's just the amount of reinvestment and that reinvestment is discretionary, right? If you were going choose to invest in something like marketing or some other investment in the business, it's not offsetting some expected cost, it's truly just a discretionary decision whether or not you guys decide to reinvest that or not?
Yes. To Bryan, let me just make sure everybody is on the same page. The number that you've seen in the prospectus in the F4, which was the $457 million was management's estimate at the time in July /August when we were positioning everything with the Board and looking at the transaction. Clearly, we feel comfortable in terms of the delivery of the $350 million to $375 million, which is what we've committed to the market.
To your point, we would look to reinvest, if we see the opportunity to grow the topline and there's a return on that investment that leads to profitable growth over time as well. So to that point, it is discretionary and more details are being worked through as we lay out pre-closing a five-year plan with the Coca-Cola Company for CCEP.
End of Q&A
Well, thanks to all of you for joining us today. We appreciate your time and attention and have a great day.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.
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