Coca-Cola Hellenic Bottling Company Earnings Call NUGGETS: Free Cash Flow Guidance, Iffy Italy
On Tuesday, Coca-Cola Hellenic Bottling Company S.A. ADR (NYSE:CCH) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Free Cash Flow Guidance
Jonathan Fell – Deutsche Bank: Can I go straight to the guidance for free cash flow? I tried to (total) what consensus was forecasting for free cash for the next three years and it’s about €1.2 billion. So I’m wondering if you’ve got any idea where consensus is too pessimistic about your business and it does seem that to hit that sort of target, you got to have a significant uplift in profitability in the next couple of years. Is that going to come do you think from volume leverage and return to volume growth or can you get there through cost cutting and pricing alone?
Michalis Imellos – CFO: Jon, it’s Michalis. We do reiterate the guidance for the free cash flow of the €1.45 billion for the 2012 to 2014 period. As you correctly pointed out, this cash flow generation is more back faced towards the later part of these three years. In addition to the profitability, we also have important elements such as the working capital improvement, the working capital management which continue to deliver incremental cash flow year-over-year and this is a key focus for our business particularly in this volatile environment. We also maintained the CapEx guidance that we have provided in terms of the €1.45 billion for the next three year and this is in line with more or less the industry average of around 6% of revenue and it is the plans that are going to allow us to continue to grow and verify that we continue to invest behind our brands. Now in terms of the profitability going forward, maybe not obviously for the balance of the year or early next year, but eventually as I said, the cash flow is back faced towards the later part of this year three year period, so we expect some easing and some improvement in this area to, and that is what drives overall the €1.45 billion cash.
Jonathan Fell – Deutsche Bank: I am not expecting you to give us really explicit guidance about input cost for the next couple of years, but within that guidance, are you expecting that at some point you’ll get a following wind from input cost, i.e., they will drop again from obviously at very high levels at the moment?
Michalis Imellos – CFO: Well, John at this point we reiterate the fact that we see some input cost year-over-year growth easing for the balance of the year so, from the high single-digit to mid single-digit. We certainly expect that as things are at the moment for 2013 that we will have a further relative easing but certainly still growth. I think it is too early to project 2014 at this point in time, let’s not forget also that we have an active hedging policy in place in terms of certain key commodities. So, this plays a role in stabilizing overall the growth that we experienced year-over-year. So this is if you like at this point in time the visibility that we can share in terms of input costs.
Stamatis Draziotis – Eurobank: Just a couple of questions from my side. First one relates to the Q2 deterioration in Italy. I remember you were careful after the Q1 results not to let people get carried away by the relatively good results. I was just wondering if we could have some more color on how we should approach this market for the remainder of the year and whether we have seen any sort of further deterioration in consumer confidence so far in Q3?
Dimitris Lois – CEO: With regards to Italy we expect a volatile trading and economic environment in the remaining of the year. Consumer confidence is already much lower than the EU average, and of course depending on the developments, it can deteriorate further. We have seen the private consumption going down and it’s expected that it will decline approximately 2.5% in 2012, affected by a number of strict austerity measures. Probably, you will recall the property tax induction, salary and pension cuts, changes in the labor. Now, on a positive note, we welcome Prime Minister Monti’s decision to balance I would say austerity and growth measures by postponing the 2 percentage points increase in VAT that was scheduled for September this year and this has been postponed to Q3 next year. Now, as far as our strategy is concerned, I would like to share with you the four key pillars behind our strategy. I’ll start with winning in the marketplace and growing both volume and value shares. Obviously, sparkling beverages is a top priority. Second, I will refer to the revenue growth management, and here, obviously, OBPPC plays a key role. Then, our cost control, exploiting further assistance, looking at our infrastructure and obviously, in our route to market and eventually very strict working capital management and focus on cash flow, so those are the four pillars for the remainder of the year and obviously for 2013 looking at the volatile trading and economic environment in Italy.
Stamatis Draziotis – Eurobank: Thanks for that. Could I just ask another question on cost savings, you referred to another €10 million of cost savings for this year and even more in 2013. I was just wondering in which areas did you identify this cost savings and maybe, which region will be impacted the most by these additional saving and, if you could elaborate on how many of these savings for 2012 will flow through in the remainder of the year?
Michalis Imellos – CFO: Stamatis, it’s Michalis. So, first of all the – you are talking, you are referring to the restructuring actions and these are across the board, so it is a number to different initiatives. It’s not anything very focused on one particular area and across a number of countries. Obviously we cannot at this point in time disclose specifically country-by-country the different plans. As you said, also and as I said earlier in my remarks, the benefits in 2012, so for this year are accelerated by about €10 million, so we gave previously a guidance of €40 million and now we estimate the benefit for 2012 to be €50 million. That’s from actions taken in 2012 and also actions that were taken in 2011. And this extra €10 million is effectively helping us to mitigate those strong currency headwinds that I mentioned earlier that we see for the balance of the year and they started around late May early June.