Oct 26, 2012
Executives
John F. Brock - Chairman and CEO William W.
Douglas III - EVP and CFO Hubert Patricot -EVP and President, European Group Thor Erickson – VP, Investor Relations
Analysts
Kaumil Gajrawala - UBS Warburg Stephen Powers - Sanford C. Bernstein & Co.
Caroline Levy – CLSA Judy Hong - Goldman Sachs Bill Schmitz - Deutsche Bank Ian Shackleton – Nomura Lauren Torres – HSBC Priya Ohri-Gupta - Barclays Capital John Faucher – JP Morgan Mark Swartzberg - Stifel Nicolaus Andrew Holland - Societe Generale Bryan Spillane – Bank of America
Operator
Good day, and welcome to the Coca-Cola Enterprises third-quarter 2012 conference call. At the request of Coca-Cola Enterprises, this conference call is being recorded for instant-replay purposes.
At this time, I would like to turn the call -- conference over to Mr. Thor Erickson, Vice President of Investor Relations.
Please go ahead, sir.
Thor Erickson
Thank you and good morning, everybody. We appreciate you joining us today to discuss our third quarter 2012 results and our outlook for the remainder of 2012.
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.
This morning’s prepared remarks will be made by John Brock, our CEO, and Bill Douglas, our CFO. Hubert Patricot, President of our European Group is also with us on the call this morning.
Following prepared remarks, we will open the call for your questions. In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question, and we will take follow-up questions as time permits.
Now, I will turn the call over to John Brock.
John F. Brock
Thank you, Thor and thanks to each of you for joining us today as we discuss our third quarter results and our outlook for the remainder of 2012. As Thor said, I’m joined today by Bill Douglas and Hubert Patricot.
In our news release this morning, we reported comparable earnings of $0.71 per share as net sales grew 2.5% on a currency neutral basis and excluding the impact of the French excise tax. Comparable currency neutral operating income declined 1%.
Our results today reflect the impact of unfavorable weather early in the quarter, gross margin favorability and higher operating expenses due to the impact of promotional timing, notably for the London Olympics. They also demonstrate our ability to manage each of the levers of our business and the strength of our balance sheet to deliver sustained earnings growth.
Despite ongoing marketplace challenges, we continue to have confidence in our ability to deliver long term growth and to increase value for our share owners. We continue to focus on our key operating strategies, outstanding execution, increasing effectiveness and cost control that have enabled us to deliver growth even in a highly challenging macroeconomic environment.
A demonstration of this focus is the business transformation program that we announced today. These initiatives are designed to maximize the effectiveness of go-to-market strategies as well as back office functions and to better align our operating structure with an evolving marketplace.
This program, subject to consultation with works councils, is expected to have non-recurring charges of about $200 million through 2014 and to generate about $100 million of ongoing benefits by 2015. This focus structure will improve our platform for long term sustainable growth as we continue to strategically invest in our business.
Regrettably, the program is expected to result in a reduction of our workforce, but this necessary step will ultimately position our company to deliver long term growth. Now let’s look at the results for the third quarter.
Our volume grew 0.5% with growth in sparkling flavored beverages, energy drinks and stills. Key brand results included double digit growth for Coca Cola Zero and Monster and solid growth for Capri-Sun, reformulated Nestea with Stevia, and Schweppes Abbey Well and Chaudfontaine waters.
We achieved pricing per case growth of 2.5% with the cost of sales per case increase of 2%, both excluding the impact of the French excise tax. Both of these numbers are comparable and currency neutral.
Operating expenses increased 4% in the quarter as a result of timing and planned marketplace initiatives. These include our important work in the London Olympic and Paralympics games.
We established several key goals for the games, including meeting the unique operational demands and opportunities, maximizing the benefits of our presence with our customers and consumers and importantly, making this the greenest Olympics games ever. We met or exceeded each of our goals in large part due to the skill and dedication of our people.
Longer term, we believe our role in the Olympics will have sustained benefits for our business, including strengthened customer relationships. Additionally, we’ve clearly demonstrated our commitment to the environment, in the process establishing new standards and practices that will benefit our company and the communities we serve for years to come.
In short, we’re proud of our work and value the opportunity to play such an important role in this once in a lifetime event. Now looking at the full year, as you saw in our release, we now expect earnings per diluted share in the range of $2.20 to $2.24 with currency reducing comparable earnings by about 8% at recent rates.
We now expect comparable and currency neutral net sales and operating income to grow in a low to mid single digit range. Bill will discuss this outlook with you in detail in a few minutes, but let me note that this modest decrease in our full year outlook is driven by a combination of factors.
First, we are continuing discussions with key customers in France as we navigate through the ongoing impact of the French excise tax increase on the beverage category. Our focus remains on how to optimize the significant opportunity that our category represents over the long term in France.
Second, we’ve seen some renewed competitive pressures on category pricing in Great Britain and particularly in colas. Over the years, we have developed effective strategies to respond based on the value of our brands and our customer service and we will continue to implement and refine these strategies.
Finally, as you know, overall macroeconomic conditions remain soft and we really don’t anticipate significant improvement in the short term. Though we expect these factors to be a headwind for operating income growth for the rest of 2012, we are able to leverage our balance sheet to drive EPS growth modestly above our long term objectives on a comparable and currency neutral basis.
Importantly, longer term we continue to believe we will deliver sustained earnings per share growth in line with our long term objectives and ultimately drive shareowner value. A key factor is our commitment to returning cash to shareowners as demonstrated by dividend increases over the past two years and our commitment to share repurchase.
In the fourth quarter we will complete our current share repurchase program. Combined with our prior program completed in 2011, this represents approximately $1.8 billion or 65 million shares repurchased.
As a result, by the end of the year, we will have returned approximately $2.3 billion to shareowners since 2010 through share repurchase and regular dividends. This total increases to some $5.7 billion when cash returned as a result of the transaction of the Coca Cola Company is included.
Let’s be clear that our goal continues to be increasing value for our shareowners. We remain well positioned to achieve that goal even as we face the persistent marketplace challenges created by current macroeconomic conditions.
We believe that creating value requires a sharp, consistent focus throughout our organization, coupled with teamwork, individual employee skill and dedication. Importantly, our operating framework continues to provide clarity on the key elements of our business.
We continue to offer to our customers a product portfolio that meets an increasing number of consumer needs and importantly, includes the world’s most beloved beverage brands. Also we have an extremely talented and skilled group of employees each of whom is dedicated to delivering results each day.
Our brand, strategies and people create a valuable combination and we look forward to the opportunities ahead. I also want to share with you news on our commitment to our communities and to the environment.
We recently completed our annual CRS in Action week, a demonstration of our commitment to sustainability at a time when our entire category and industry is under scrutiny. As we discuss with our employees, our leadership in this area is demonstrated by us recently being named the number one beverage company for environmental, social and governance performance by Goldman Sachs.
We are proud of this recognition and believe there continue to be a solid business case for our CRS work. We are investing in our business and the communities we serve with initiatives such as our French and Great Britain recycling joint ventures.
Importantly, we’re seeing benefits in several areas, including efficiency and innovation, employee engagement and advocacy, customer service and bolstering our place in the community. Now let me share a few final thoughts.
Despite persistent difficult operating conditions, it’s important to note that we remain confident about our ability to drive long term value for our shareowners. We can and will continue to position our company for growth.
We have a solid, flexible balance sheet and as you can see from today’s business transformation program announcement, we have the ability to evolve our operations to align with a dynamic marketplace. Putting it simply, we will not stand still, especially in difficult times.
We remain confident in the ability of our team to manage through these challenges. We will build on our history of solid and balanced growth by managing each element of our business and executing against our strategic priorities.
This will deliver growth in line with our long term objectives in creating increasing value for our shareowners. Thank you for your time and interest and now I’ll turn it over to Bill for more detail on our financial results and our outlook.
William W. Douglas III
Thanks, John and thanks to each of you for taking the time to be with us this morning on what I’m sure is a busy day for a lot of you and we’re happy to talk about our third quarter results as well as other developments in our business. Looking at our news release this morning, our results per volume, net sales and operating income growth continued to reflect the challenges of unfavorable weather early in the third quarter, sustained macroeconomic weakness and other marketplace issues that John just discussed.
Third quarter diluted earnings per share were $0.89 or $0.71 on a comparable basis. For the quarter, net sales totaled $2.1 billion, up 2.5% over prior year on a currency neutral basis and excluding the impact of the French excise tax increase.
Comparable operating income was $306 million, down 8.5% on a comparable basis and down 1% on a comparable and currency neutral basis. Excluding the impact of the French excise tax, net pricing per case increased 2.5% while cost of sales per case increased 3%.
Operating expenses increased 4% and reflect the impact of promotional timing, including the London Olympics and other planned marketplace initiatives. Each of the above numbers is comparable and currency neutral.
As noted in our release, having repurchased accumulative total of 59 million shares through the third quarter, we now expect to reach the board authorized cumulative cap for our current and previous share repurchase programs of 65 million shares by the end of this year. Now, let’s look at our outlook.
In the fourth quarter, we continue to expect year-over-year operating income growth with modest improvement in our outlook for cost of goods sold. For the full year, we now expect cost of goods sold per case to increase in a range of 2.5% to 3%.
Additionally, while our business modestly improved during the latter part of the third quarter as a result of planned promotions and more normal weather patterns, our outlook reflects marketplace challenges, including ongoing customer discussions in France, the competitive environment in Great Britain and overall macroeconomic softness. Based on these factors, we now expect both net sales and operating income to grow in the low to mid single digit range on a comparable and currency neutral basis for the full year 2012.
These factors, combined with our ability to leverage the strength of our balance sheet, the expected operating income growth in the fourth quarter and our revised currency translation expectations are all reflected in our updated full year EPS guidance. We now expect our EPS outlook for the year to be in the range of $2.20 to $2.24, including a negative currency impact of approximately 8% based on recent rates.
We continue to expect 2012 free cash flow in a range of $475 million to $500 million with capital expenditures in a range of $375 million to $400 million. Again both of these are on recent currency rates.
For the full year, weighted average cost of debt is expected to be approximately 3% and our effective tax rate continues to be expected in a range of 26% to 28% for the full year. Looking ahead, I would like to provide some comments on a couple of key topics.
First, while our primary focus is investing in our core business to ensure we’re optimally equipped for growth, we continue to carefully evaluate our capital structure. We remain fully committed to driving shareowner value through a combination of business growth, dividends and share repurchases.
Our business continues to generate significant free cash flow that is essential to returning cash to shareowners and we will continue to evaluate the best method for accomplishing this goal. Whether we ultimately invest in value creating M&A, return cash to shareowners or a combination of the two, the route we choose will be focused on driving maximum value for our shareowners.
Next, given the current marketplace conditions already highlighted, we are working closely with our customers and are focused on long term category growth. Though we see some of these factors as a headwind, we continue to leverage our balance sheet to drive EPS growth in line with or modestly above our long term objectives.
Finally, we expect to continue to face a tough commodities environment and expect a rate of commodity or cogs inflation in 2013 to be above that in recent years, driven principally by the cost of European sugar. We look forward to providing more detail on these factors in our 2013 outlook in mid December.
As we work to create value, it is vital that our company’s operating model continue to adapt to current economic and marketplace conditions. To this end, we have announced a business transformation program which is designed to enable us to accomplish three key goals.
First, to restructure our sales and marketing organization to better align central and field sales into standardized channel focus organizations across each of our territories. Second, to streamline and reduce the cost structure of our finance support functions, including the establishment of a new centralized shared services center; and third, to continue improvements in the efficiency and effectiveness of certain aspects of our operations, including service activities related to our cold drink equipment.
These programs are subject to consultation with the works council and is expected to incur some $200 million in restructuring charges. Of these charges, approximately 10% or $20 million are expected to be non-cash.
Importantly, we expect this effort to create ongoing benefits of approximately $100 million by 2015. While any prospect of reducing our workforce is difficult to contemplate, this program is a necessary step for our business that will allow us to build on our platform for growth and optimize the marketplace opportunities before us.
This program will allow us to continue to provide high levels of customer service and support the priorities of our global operating framework, including being our customers most valued supplier. It also reinforces our belief that we could continue to generate the sustained profitable growth necessary to enhance shareowner value.
We remain committed to our long term growth targets and we look forward to sharing with you more details about our long term plans and specifically our 2013 outlook on our normal call in mid December. Thanks again for joining us and now John, Hubert and I will be happy to open the line up for questions.
Operator?
Operator
Thank you. (Operator instructions).
Our first question comes from Kaumil Gajrawala with UBS Warburg. Please go ahead with your question.
Kaumil Gajrawala - UBS Warburg
If I can ask first on Great Britain. This is the first time we’ve seen the competitiveness, maybe not the first time but it’s the first time in a little bit where we’ve seen the market get as competitive as it is.
Is this a onetime one quarter promotional item? Or do you think something structurally may have changed?
John F. Brock
Hubert, would you like to talk about Great Britain?
Hubert Patricot
Yes. In GB and throughout our territories, our focus remains on long term profit growth, growing the category value and margin health.
We regularly see values of planned promotional activity and 2012 has been no different. That said, as you mentioned, specifically in the cola segment, competitive promotional activity has been quite volatile and what we saw during the Olympics is that the price were increasing from the competition in particular and we were kind of expecting that that would continue in the full and post the event.
It's fair to say that it has not materialized and we see again pretty intense competitive promotional activity in the cola segment for the moment. But as we say, our focus remains on the value creation journey and we are engaging our customer along this line.
So I think for the moment we see it continuing this quarter. I’m not sure it will continue for the long term.
I think at the end of the day what is essential is to have both the topline and bottom line growth.
John F. Brock
Yeah. Well said Hubert.
I just would like to add to that, again our strategy always remains focusing on value and not on sure volume and at the same time we’re confident that we have the levers in our business that enable us to respond appropriately regardless of what the competitive environment is.
Kaumil Gajrawala - UBS Warburg
Guys, so is the plan to have matched them? Or are you holding and then hoping that over time the promotions proceed to some degree?
Hubert Patricot
Our plan is never to match them. Our plan is to deliver again value growth with our customer and moving forward in 2013 we will continue to work this way and I think our three year plan with most of our customers is what matters to us.
It’s true that there has been this intense promotional, but it's also about packaging differentiation and managing for the long term again the category growth and I think at the end of the day that will prevail.
Kaumil Gajrawala - UBS Warburg
Understood. Thank you.
Operator
Our next question comes from Stephen Powers of Sanford Bernstein. Please go ahead with your question.
Stephen Powers - Sanford C. Bernstein & Co.
Thanks. Good morning.
I guess building on that a bit, lots of moving parts in today’s release. On the one hand you’ve accelerated the pace and increased the overall magnitude of the buybacks this year and FX has sequentially improved.
On the other hand you’ve essentially maintained that EPS guidance given the more modest top line outlook and there’s a number of factors there. There’s weather involved.
But also the macro environment seemingly softening, market conditions in France as consumers adjust to the tax affected pricing as well as the competitive conditions in Great Britain that you just talked about. I guess really if you could maybe expand on those and help us decompose them a bit further in terms of quantifying just which of those issues have gotten, have hurt most relative to you outlook in July and which of them you expect to continue versus get worse versus could vastly improve as you look ahead.
John F. Brock
Let me give you I think our overall view. You’re right, there are a lot of moving parts here.
The two items that we have specifically noted that have caused us to have a revised outlook are in fact the competitive activity, promotional activity, particularly on colas and specifically in Great Britain. That’s very real and we’ve noted that.
The other is the fact that we have some ongoing issues and challenges with our customers in France, largely the result of the excise tax. But again we’re managing through those challenges also because France has historically been as you know what we call the land of opportunity.
We have consistently grown our business in France over the last several years. 2012 has been a challenge largely because of those two items I just mentioned.
Those really are the two things that are different. The macroeconomic environment we continue to monitor it.
Obviously we’d like to see some improvement, but we wouldn’t characterize it as any worse than it’s been. We managed through the downturn in 2008 just fine and frankly the macroeconomics we’re looking at today and that we’re looking at in the fourth quarter are not any worse.
They’re just not any better and we’re obviously guardedly optimistic that the macroeconomics will improve over time. But again, to answer your question, there are two principle differences and that’s cola competitive activity in GB and the customer challenges that we’ve had to deal with in France.
Stephen Powers - Sanford C. Bernstein & Co.
All right. That helps a lot.
Thank you. And I guess just, but the restructuring that was announced today, can you talk a little bit about how you approach sizing and scoping that effort and maybe where it will be focused geographically?
And then I guess in that context, what portion of the $200 million in charges do you expect to be cash versus non-cash and the cadence of them over time. Does that make sense?
I had a similar question on the progress of savings over the course of the program.
John F. Brock
Let me make a couple of general comments on the program and then ask Bill to give a little bit more color commentary. Let me first qualify by saying all of these initiatives that we’re talking about are proposed initiatives which will certainly go through consultation, appropriate consultation with the works councils.
And so it’s important for us to always remember that. We have been studying this situation for a number of months.
This is not any kind of an immediate reaction. Frankly we have known that there are a number of opportunities for us as well as challenges and what has emerged here is a series of initiatives as a result of a very in depth and long term study.
The first part of it was a finance transformation again which Bill can give you more details on, but which we announced earlier and then separately we have some field sales and marketing and sales organization changes that we’re making which are based in many ways of what we’ve done in Belgium and Luxembourg several years ago, very successfully by moving to instead of a geographic organization, moving to much more of a channel focus in our selling organization. So we’ve done it successfully in Belgium and Luxembourg and now we’re doing it in our other territories.
So we’ve also moved to a European-wide supply chain. Again that was a significant transformation.
We did it successfully several years ago. And so in many ways what you’re seeing here that we’re doing today is based on studies, but also patterns which we established in previous moves that we made.
Bill, let me ask you to comment on the numbers.
William W. Douglas III
Sure. Steve, I think the essence of the question that you asked, firstly if you look at the approximately $200 million in charges, about 90% of that would be cash and about 10% or $20 million would be non-cash.
If you look at the timing of that, the charges will clearly be in advance of the benefits. The charges will principally be balanced over ’13 and ’14 with the benefits accruing effectively ratably a third in 2013, another third of two thirds in 2014 and the full hundred benefit run rate will be in 2015.
Stephen Powers - Sanford C. Bernstein & Co.
Okay. And then the savings, it sounds like this is, as you described John, something that’s in the works, just an organic development.
So I guess this is par for the course and most of those savings we should expect to be reinvested in business growth versus necessarily dropping to the bottom line or something.
John F. Brock
Well, the kinds of areas we anticipate being able to focus on more as a result of having this business, this proposed business transformation are areas like digital technology where we definitely need to invest. Well, we’re already investing but we’d like to invest more in areas like again making sure we are state of the art in revenue growth management and then also and finally making sure that we have our public affairs and communications teams absolutely organized state of the art level in Europe to deal with what is an increasingly challenging regulatory and political environment in Europe.
So those are all initiatives which will be better funded because of these initiatives, this business transformation program.
Stephen Powers - Sanford C. Bernstein & Co.
Okay, great. Thank you very much.
Operator
Our next question comes from Caroline Levy with CLSA. Please go ahead with your question.
Caroline Levy – CLSA
Good morning everybody. I was actually going to ask about the regulatory environment.
So it’s interesting that you mentioned it because I guess even Dr. Pepper in North America called out increased fees in dealing with public policy issues I guess.
So could you outline amongst the regulatory issues, is it largely focused on taxation in Europe or are there issues around labeling, serving sizes? What are the issues you’re dealing with?
John F. Brock
Well, there are a variety of issues. I don’t think you could sum it up as simply saying it’s simply tax.
But in the tax arena we have some recently proposed amendments which would talk about an excise tax on energy drinks. We’re obviously monitoring that carefully and there have been some other discussions about increased taxes in France.
So we are well aware of those and dealing we think effectively with them. In Belgium there have been some discussions of a packaging tax.
There have been in the past on packaging, but we don’t think there’s anything right now that is an issue. And then in Norway, as part of their annual budget discussion there is some discussion about a tax on a variety of product categories which could impact us.
So those are issues that we’re effectively dealing with and again that’s why we want to make sure we’ve got state of the art public affairs team that’s dealing with those. We and the Coca-Cola company are working hand in hand or doing that.
Are there other issues? Certainly there continues to be items from time to time like questions around aspartame, or BPA.
But again we are very vigilant and remain very focused on making sure that proper science is understood and in fact it was pretty interesting to see the results yesterday of a study that was indicating that there was problem with aspartame and then this affiliate of Harvard concluded that the study was not scientifically done and in fact aspartame is not implicated by this study. I think aspartame is the most widely studied and tested ingredient honestly in history.
We remain very convinced of its total safety, but we have to be very clear and communicate. So, I guess that’s a bit of a walk around the forest.
It’s taxes, regulatory issues and then occasional issues around ingredients that are the focus of most of our efforts.
Caroline Levy - CLSA Limited
Thank you. Could you mind on the French retailer issue also just explaining what the issue actually is?
John F. Brock
Yeah. Let me ask Hubert to comment on that.
Hubert, if you would like to talk about the tax and then the implications that it’s had on our relationships and discussions with retailers.
Hubert Patricot
Yes, Caroline. As you remember very well we took the price increase on January 1 to cover the excise tax in addition to our new all price increase in 1Q.
Regarding the impact on share price, as you know the resell price is fixed by our retailer but we can note that year to date, at the end of September, the pricing per liter for the category was up almost 9%. And this unprecedented price increase and this is really from the category, our price was more in the 5% to 6%.
And this unprecedented price increase combined with adverse weather and very challenging macroeconomic environment has been as you imagine a significant challenge for our customers and this is what is driving the situation where we are discussing. So we are continuing to work with them because as John said, the potential for growth in France is huge and we need to resume our value creation model with them.
Once we have, I would say absorbed and once the tax will have been normalized in the retail selling price, which is not the case yet but should I think in the coming months evaluate in the right direction. We know that back to school period is always a very active period in terms of price activity for our retailers.
We hope that in the next months it will be more normalized and then building on that we are going to resume our value creation story. But again, it has been a very tough period, it is still a very tough period for our retailers as the market is not growing in volume as you can imagine.
We are getting share on the sparking market. But again, we look forward to a more normalized pricing situation to resume the value creation story in prompt.
Caroline Levy - CLSA Limited
Thank you.
Operator
Our next question comes from Judy Hong of Goldman Sachs. Please go ahead with your question.
Judy Hong - Goldman Sachs
Thanks. So, just kind of going back to the broader question about your outlook and then just kind of thinking about BTP, or the Business Transformation Program, within that context.
So John, when you laid your targets when CC became purely a European company. Am sure some of the challenging conditions, whether it’s from a macro perspective or tax perspective or others, probably weren’t foreseen when you laid out the 46% revenue growth, 68% kind of operating profit growth target.
So, when you kind of kind of think about sort of medium term targets for CCE. You’ve got some of these cost savings that are coming through.
Are they basically – should we view them as prepensely giving your cushion to get to that 6% to 8% or given some of the changes that we’ve seen from a macro perspective is it really necessary for you to kind of get to that 6% to 8%.
John F. Brock
Let me just – first, we remain confident that the financial objectives which we described as our long term financial objectives upon formation of new CCE remain very much intact. You are right there are a number of macro issues out there which are challenging and which provide headwinds, but we’ve continued to navigate and negotiate considering the number of levels that we have in our business.
To achieve the results that we think are pretty attractive in what is a very challenging market place. So we remain committed to the long term financial objectives.
Those don’t change at all. In terms of the near term, I think what this business transformation project will do is frankly make us first and foremost more effective.
It is obviously an efficiency move also but it will make our sales and marketing teams much more effective at doing what they do and working with our customers both locally and nationally to drive value for us mutually. We will receive some savings from this project and as I said earlier, I think it does one thing, it allows us to invest in some of these initiatives that are so important to our future, importantly, digital.
Does it also give us a bit of a de-risking of our program going forward? The answer is absolutely yes.
And it will be up to us to figure out how to manage exactly where the money is invested.
Judy Hong - Goldman Sachs
Okay. And then Bill, just the comment about the share repurchase plans that you like to update us on in December.
Realistically, could you make that decision independent of sort of your capital structure, looking at value enhancing M&A opportunity?
William W. Douglas III
We’ll, I think with our strong free cash flow is it possible that we could both? I think the answer is that as yes.
And I think what you are going hear in December is more specifically articulating where we anticipate be net debt to EBITDA at the end of 2012, and in the past that would get us to a point at the end of 2013 where we would get into our targeted range of at least two and half times net debt to EBITDA and could it be share repurchase, M&A or a combination of the two? That’s the type of path discussion that we anticipate having with you in mid-December.
Judy Hong - Goldman Sachs
But the timing-wise, could you talk about the past before you decide on how to get to that sort of leverage in terms of what you would do?
William W. Douglas III
I am sorry, could you repeat that?
Judy Hong - Goldman Sachs
So, I guess in terms of – you can talk about your target leverage by the end of 2013. But can you actually quantify how much would be share buyback for 2013 without making a decision on the other options?
William W. Douglas III
Yeah. I think we can put some parameters around that in December.
They are not mutually exclusive.
Judy Hong - Goldman Sachs
Okay. Alright.
Thank you.
Operator
Our next question comes from Bill Schmitz of Deutsche Bank. Please, go ahead with your question.
Bill Schmitz - Deutsche Bank
On France, because the day that we have on the market share stuff, I think you said market share was up. We just have the Nielsen data.
It looks like there's pretty significant market share losses both for the current period and for the far month end for the quarter. And then it also looks like Cadbury, or Schweppes, isn’t taking any pricing.
So are they not subject to the excise tax or they are just using to sort of eat the price increase? And I have a follow up if you don’t mind.
William W. Douglas III
Hey, Bill. We missed the first part of your question.
Was it about France specifically at you were…
Bill Schmitz - Deutsche Bank
Just France. And I was just talking about France and market shares and some of the scan challenges.
Obviously your business is much broader than that. It’s obviously a big sort of on-premise market.
But if you look just through the Nielsen scan data it looks like you lost a fair bit of the market share and it also looks like the Schweppes, the Orangina business isn't taking really any pricing.
John F. Brock
Allow me to respond to this Schweppes, Orangina. All the beverages in France are subject to excise tax.
So and it was on the unit basis. So it was applicable to all of us, so just to be clear.
Let me ask Hubert to comment on your other question about market share and related topics.
Hubert Patricot
It may depend on which data but if you look at the dissyndicated data including our discounters, which is a broader definition that maybe the one you have looked at. Where are gaining market share year to date, about 0.4%, 0.5% in volume.
It’s leveraging some of the segment you mentioned. To comment on what John said, Orangina being taken price up.
They have probably reinvested more in promotional of activity and hence what you see net combining share price and promotional being flat versus last year.
Bill Schmitz - Deutsche Bank
Okay. Got you.
And then can we just move to U.K. again, because it seems like -- again using the same data.
It seems like your price premium now per survey and to Pepsi is about 49% or 48%. I mean is that sort of attainable going forward or do you think you might sort of adjust some of their pricing down?
Hubert Patricot
Again, this is – you have to look at the combination between shelf price and promotional activity. On shelf price the gap is still about 10% to 15%.
The promotional activity as I highlighted has been pretty intense by our competitors and we say pretty continuous since the beginning of the year since the beginning of the year, which is not our case. We are more in high and low promotional activity which we know is the right thing to do for the health of the category.
And we intend to continue again to go that way. Having said that we will also building our plan in 2013, have the right approach between permanent shelf price, promotional pricing, new pack introduction to diversify the offer to our retailer and to our consumer to be even more effective in the market.
Bill Schmitz - Deutsche Bank
Okay. Good.
That’s really helpful. And then Bill, just a follow up on the $100 million of savings.
Are those gross saving or is that net of any reinvestment you guys plan on doing?
William W. Douglas III
We’ll, those will be the gross savings that are being generated from those initiatives I think from an investment perspective. That’s what John’s been articulating.
On the one hand, it will de-risk our overall ability to hit our long term target and then we are specifically looking at how and where we should invest that to fuel our growth engine and he mentioned two specific areas earlier.
Bill Schmitz - Deutsche Bank
Okay. Got you.
Thanks guys it very helpful.
Operator
Our next question comes from Ian Shackleton, with Nomura. Please, go ahead with your question.
Ian Shackleton – Nomura
Yes. Good morning gentlemen.
I am strictly interested around the recent French budget and what implication that might have for your business. I guess from the specific P&L point of view.
Does it increase tax rates for example, but also from the wider business aspect as well?
John F. Brock
We’ll, of course at this stage the French budget is simply a proposed French budget and as I indicated earlier there are some items in there that we are remaining very carefully focused on. There’s one item which is around taxes on energy drinks.
There are also some discussions in various arenas about an increase in the beverage excise tax. But all of those are simply points of discussion at this point in time.
The new budget is really some distance away from being approved. I’ll ask Hubert to comment on that.
Hubert Patricot
Yeah. Again, I think the proposal of the budget are being presented to the parliament.
As John said it’s going to be voted till the end of the year. So it’s still I think two months of discretion.
For the moment, the only clear amendment that have been pushed forward by the government is regarding potential energy tax, which wouldn’t increase the price by around 10% but still to be voted. For the remainder there is nothing in the budget regarding excise tax increase and that’s the situation as we speak.
Ian Shackleton – Nomura
Thank you, Hubert. If I could just follow up on your comments around the pricing composition in the U.K.
You made the comment that it may not – there’s a long term. Is that a comment really thinking that if the great big bomb merger happens, you’d see a faster normalization competitive activity?
Hubert Patricot
Again, what you mention has to be materialized first and then it would be about speculation. What is true is that this type of promotional activities for the long run is pretty new and so in the past it has always been turned into more regular, more rational pricing activities.
So what less potential measure could play a role? No, it was not my comment.
Ian Shackleton – Nomura
Okay. Thanks so much.
Operator
Our next question comes from Lauren Torres, from HSBC. Please, go ahead with your question.
Lauren Torres – HSBC
John, I am just trying to get a better sense with some of your comments with respect to your business transformation program. As far as my history with the company you’ve always been an efficient company and rather lean I think.
So, it almost appears this is a reactionary move to the market environment. So, I guess just thinking out longer term is there something that you just need to pull back now and then when things firm up the money has to go back in or truly feel that these are savings that could continue to flow through.
I am just trying to get a sense of where those benefits are coming from that are sustainable.
John F. Brock
Yeah. It’s clearly not a reaction but let me ask Hubert to comment on that.
Hubert Patricot
Yeah. And John tackled it a bit already.
What we are trying to do there in all our countries is to be more efficient and to setup common practices. And it starts with a central organization where we need to leverage our scale much better and our customer landscape has evolved and is evolving.
You are talking with the growth of our discounters. The impact in the market as we change, our route to market in some countries have changed.
And again, we are very pragmatic. So we used to be a very regional organization with regional offices and back offices in the regions and we see that now the need in the market is to move to a more relevant organization to our customer with higher speed of action and execution.
And this is exactly what we stated in the general in the past two years and we saw the benefit in term of customer valuation, displays and things like that. That’s what we are putting in place now in all our countries including France and GB.
So moving from a regional, this is still a proposal. Again, it has to be decided at the work council level but this is what we are going to propose.
And at the same time we will unlock the resources to be much better with our much – we already some level of performance which are good. In shopper marketing, digital and revenue growth management.
So it’s really adapting ourselves and transforming ourselves as we have done frankly, in the past in other areas to be able vary a landscape of our customer.
Lauren Torres – HSBC
And then I think you mentioned that there’s efficiencies on the cold drink side. Could you talk about what those maybe?
Hubert Patricot
We’ll, we are continuing to enhance our capabilities in term of data, management, data exchange with our customer, which most of the case are wholesaler. We don’t deliver directly.
So having the right data in due time is really critical. But then we are putting in place new technology like photo recognitions and we are equipping our sale force with more better equipment like i-phone to again be much more reacted.
So it’s a case for investment but it’s also about working with them better. At the same time, we are functionalizing the same way we did supply chain.
We are functionalizing our cooler services department. We have close to 600,000 equipment in the field and again here we want to go the CC way, leverage our scale to have the right saving available of performance to our customer.
Lauren Torres – HSBC
Great. And if I can just ask one other question.
I am not sure if you gave the detailed number as far as what your Still versus sparkling decline and our growth were in the quarter?
John F. Brock
We’ll give you that offline if you don’t mind.
Lauren Torres – HSBC
Okay. Thank you.
Operator
Our next question comes from Priya Ohri-Gupta, with Barclays Capital. Please, go ahead with your question.
Priya Ohri-Gupta - Barclays Capital
I had a question about your sort of evaluation of capital structure alternative. How should we think about the high end of your previously stated leveraged target?
Could we see that moving up as a result of this? And then secondly, could you just remind us of what your long term credit rating objective is?
Thank you.
John F. Brock
Okay. Bill, I am just going to ask to you…
William W. Douglas III
Sure. I’ll start with the second part of your question.
Our current credit ratings are generally based on what we’ve been articulating consistently for the past couple of years that we intend to operate within the two and a half to three times net debt to EBITDA. So while we’ve been operating below that, generally the conversation with the credit rating agencies are based on the fact that over time we are going up into that range.
So individually, they treat the actual versus the targets slightly differently but I think it’s safe to say that generally we envision operating in the triple B plus range. With the first part of your question, I didn’t follow it completely but again we’ve stated that our long term net debt to EBITDA range is two and half to three times and we would like to get to that by the end of 2013.
We would operate within that range over time if we had a meaningful M&A opportunity, could we exceed that three times for a short period of time and then let the cash flow from the business inclusive of the acquisition bring us back down into that range? That would be the way we would envision that.
We don’t see it as a hard cap but neither do we see ourselves exceeding that three times and then just staying above it and continuing to grow for a meaningful period of time. Did that address your question?
Priya Ohri-Gupta - Barclays Capital
Yes. It was perfect.
Thank you very much.
Operator
Our next question comes from John Faucher, with JP Morgan. Please, go ahead with your question.
John Faucher – JP Morgan
Thanks. I am going to follow up on this French retailer question again because I guess I am trying to figure out how this will position itself over the next let’s say 6 to 12 months.
Is there something where we should expect more over the excise tax pricing impact to roll though therefore hitting in volume or is it something where we should expect maybe a greater push back on pricing for 2013 in which case you may have a little bit of de-levering on the gross margin line if you can’t the pricing through or is it something else from that standpoint?
John F. Brock
Hubert?
Hubert Patricot
John, what we expect is to see an improvement in the sense that another increase in the pricing will be the end the year but again, as you also know yearly negotiation in France are always pretty important and pretty intense. So it’s always around that negotiation but I think the bulk of the pricing should have been absorbed now in the next three to six months.
It doesn’t mean that we will not have some discretion with the trade because again, the market has been tough so far. But it would be a bit of a combination of them having taken I hope and it’s based on the latest figures, you can see the market some more pricing but it is about to resuming.
There is a joint value creation story on the market which still has a huge potential. We really think the consumer are ready to accept some higher level of pricing as long as we come with the right marketing activity which we plan to do for next year.
So, yes as always the round of negotiation with the French trade with probably a difficult moment to pass but I think we have the right plan and the right innovations to come to overcome this period
John Faucher – JP Morgan
Okay. Great.
Thank you. And then we did see a sequential change in Coke’s price mix performance from Q2 to Q3.
So you were down about 600 basis points sequentially. You talked a lot about channel, package etcetera.
You guys didn’t really see that bigger of an impact in the third quarter. Is there something that’s less impacting your parts of Europe?
John F. Brock
The simple answer is yes, we did not see a significant impact.
John Faucher – JP Morgan
Okay. Thank you.
William W. Douglas III
I’ll just jump back in operator. John, I was going back through the key which will be releasing and we do disclose in there and actually in a little bit more detail than the question you asked.
But overall, sparkling was down about 2 percentage points and the Still was up about 13.5 percentage points benefiting from water on the one hand, partially as a result of the Olympics, and then Capri Sun performed very well in Great Britain with the market disruption that we took advantage of during the quarter. So, I hope that answers your question.
John F. Brock
Okay, operator lets go to the next question.
Operator
Our next question comes from Mark Swartzberg, with Stifel Nicolaus. Please, go ahead with your question.
Mark Swartzberg - Stifel Nicolaus
Yeah. Thanks.
Good morning guys. It’s actually a follow up to the comment you just made, Bill.
The Stills performance, the 13.5, can you talk about how you see that looking out. Whether this kind of double digit performance is sustainable.
How much of that water in the Olympics is the factor. Talk a little bit about the sustainability of this kind of strength that is Still?
William W. Douglas III
We’ll, I‘ll give a couple of comments and then maybe Hubert would want to add to that as well. Quite frankly, it was a little bit of an opportunistic situation of third quarter both with Schweppes Abbey Well being highlighted in the Olympic activity in GB.
It obviously got boost there, and as I mentioned Capri Sun did very well in GB also because of the market disruption at the product proof sheets being pulled from market for a number of weeks. So, are we going to be able to benefit from that same level of opportunity in the fourth quarter in 2013?
I think not. Having said that, I think it’s an opportunity for consumers to have experienced our product and hopefully it will be an opportunity that we can leverage going forward to maintain some growth but to extrapolate double-digit growth going forward probably a little aggressive.
John F. Brock
Hubert, you want to add to.
Hubert Patricot
Just to add on what Bill said, we have been very pleased with the impact of the Olympics on our Still portfolio especially on Glaceau, and especially in GB we have seen an acceleration of our equipment, an acceleration of our growth and I think the bulk of that will stay in the last quarter because we have attached new consumer for the brand and the same can be said for Abbey Well. But again, the one shot on Capri in GB will not repeat itself.
However, we can say that we see a very positive trend on the Continent of Capri-Sun but probably not to the level we have enjoyed in Q3.
Mark Swartzberg - Stifel Nicolaus
That’s great. And if I could follow on I guess a related question.
I may have missed it but are you guys comfortable telling us how trends have performed and more recently on a total CC basis in October?
John F. Brock
Just, I think what we’d say is the business is performing in line with our if you want to call it revised expectations and I think that’s probably about as much as we could say now it’s as we expected.
Mark Swartzberg - Stifel Nicolaus
Okay. And then finally on the works' council’s process, I don't know much about it.
It characterizes a long process. I guess simple question, the folks that are represented, the employees of CC who are represented by these work’s councils’.
Are they also represented by bottlers of Coke products in non-CCE territories? In other words is there a factor here where you are kind of working with Coke Cola because it’s not only a purely CCE territory issue?
Hubert Patricot
No. these are purely CCE employees and CCE employee’s representative and it has not interaction with neither any of the Coke bottler or the Coca Cola Company.
So, it’s pure CCE matter inside this who are council.
Mark Swartzberg - Stifel Nicolaus
Okay. Great.
Thank you guys.
Operator
Our next question comes from Andrew Holland, of SG. Please, go ahead with your question.
Andrew Holland - Societe Generale
Hi. Just final clarification if I may on the $100 million.
You talked about the phasing is that? Can I just be clear that you don’t expect any of that to drop to the bottom line?
All of that has been earmarked for reinvestment. Is that the case?
John F. Brock
No. what we said is that we’ll generate on a ratable basis.
A third, a third, a third over each of those years and we will use those funds I think as we see best fit to do so whether it’s reinvesting in the business, de-risking our P&L or frankly dropping it into the bottom line. All of those are opportunities that we will consider and we will do it as we move forward.
William W. Douglas III
But I think Andrew; it is fair to assume that the totality of it would not drop to bottom line. Incremental.
John F. Brock
Absolutely.
Andrew Holland - Societe Generale
Yes, now I certainly understand that. And you’ve been very clear on that.
I am just – my impression was that none of it would drop to the bottom line. You now seem to be suggesting that some it might.
Can you give an idea of how much of it might?
John F. Brock
No. we are in a position to do that because again it’s going to be really depending on how our business is performing.
What the macroeconomics are looking like. How much do we want invest in various technologies that Hubert talked about.
So no, it will be a year-by-year choice.
William W. Douglas III
As we continue to move forward both in implementing our plans and the passage of time, we’ll be more clearer about how much of any of that is going to be dropping to the bottom line on an annual ongoing basis.
Andrew Holland - Societe Generale
Okay. Thank you.
And just going back to an issue that was raised by Ian a little earlier on the Briffick Bar merger. He was asking specifically about pricing.
I just wonder if there’s any other possible impacts positive or negative for your business that you would anticipate as a result of that merger assuming it goes through.
John F. Brock
I don’t really we’d be in a position to comment on that. That merger of course we’ve read about.
They ask for more time and they’ve gotten it and we’ll see if it goes through. We view ourselves as a very significant and successful competitor in that market and we have two significant competitors and if they combine we will have one and we’ll do just as well going forward as we have in the past.
Now, we would not want to speculate on what would change because we tend to spend most of our time thinking offensively, not trying to react to what competition’s doing.
Andrew Holland - Societe Generale
Okay. Thank you.
John F. Brock
And operator, we’ve got time for one more question.
Operator
Our final question comes from Bryan Spillane, of Bank of America. Please go ahead with your question.
Bryan Spillane – Bank of America
Hi. Good morning and thank you for taking the question.
I have got a follow up I guess to Judy’s question earlier about just how the change in the macro environment might be affecting the way you are thinking about investment. I guess more specifically M&A, to the extent that you are contemplating expansion in Europe; you are contemplating M&A.
How does just the change in the macro environment and kind of what we are dealing with today versus what the outlook was and what the macro environment was when CC in its current form was formed. Has that affected at all the way you think about M&A, the way you think about risk, pricing risk.
Just any color on that at all would be helpful.
John F. Brock
We’ll, let me just say our view about M&A and our discipline approach to it hasn’t changed. We’ve had the same view all along and we will continue to have that kind of very thoughtful disciplined careful approach.
There’s not just one metric we look, as we've, I think, indicated before there are a whole host of items that would enter into our basket of considerations and at the end of the day the most important question would be can we create value for our shareholders going forward. It is really is about that simple.
There’s the macroeconomic situation dramatically changing anything? The answer is categorically no.
Is it one more factor that we have to put it into our basket of consideration particularly when you consider the other things that could happen because of macroeconomic challenges? Then the answer is sure.
It would be one more thing that we would need to look at but again I think the simple answer to your question is macroeconomics in general it does not change our disciplined approach but it would be one consideration that we would factor into the basket.
Bryan Spillane – Bank of America
Great. Thank you.
John F. Brock
Okay. And thanks to all of you for joining us today.
We really appreciated you taking the time to be part of this discussion. And we wish you a very good day.
Thanks.
Operator
Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the conference.
You may now disconnect. Good day.