Coca-Cola Enterprises (CCE) CEO John Brock has lashed out at French government plans for an ‘unjust and unfair’ soda tax, and pointed to the firm’s strong track record in defeating similar US proposals.
The US-based bottler posted top line growth in the third quarter (Q3) of 2011 to reach a $2.1bn turnover (+11% on pro forma 2010 results) and saw an operating income of $330m (up 35% year-on-year on a recorded basis and 3.5% up on Q3 2010 on a comparable and currency-neutral basis).
CCE (which is the Coca-Cola Company third-largest marketer, producer and distributor) ascribed a sluggish 1 per cent volume increase for the quarter to “new product and promotional hurdles and poor weather in July”.
During a later earnings call, CLSA analyst Caroline Levy asked Brock and CFO Bill Douglas about CCE’s French tax outlook, with the prospect of VAT on soft drinks increasing from 5.5% to 19.6% from January 2012.
Price hikes to cover tax
Prior to Levy’s question, Douglas had warned: “As far as CCE is concerned, the current proposal would impact virtually all of our French product portfolio and would result in an additional 8% to 9% price increase just to cover the tax alone.”
Levy said: “If it were to go through, and I know you are fighting it aggressively, and in the US you’ve been very successfully at fighting [similar proposals] … do you have a US perspective on this?
She added: “Is it very different in Europe the way they look at things, because here I guess historically you’ve been able to prove the volume impact and the impact on the blue collar worker, and so bad that why would you do it. Is it different here?”
Brock replied by pointing out that CCE had been “very successful in the US in defeating most of these tax proposals” due to industry-wide opposition.
US industry had successfully convinced Washington authorities, state and regional governments that such taxes were “regressive and unfair”, as well as a not particularly logical or effective way of raising revenues.
“And the good news is that most of them have gotten that in the course of time,” Brock said.
Energy growth continues
Brock said CCE would continue to work with the Coca-Cola Company and the industry to convince French officials that the tax was not the best way forward.
“What you can assume is that we’re working hard to make sure that our trade associations in Europe are going to be similarly effective going forward, and that we have success in winning most if not all of these battles,” he said.
CCE's one per cent volume growth globally reflected a 2% increase in Great Britain and a 0.5% increase within continental Europe.
CCE cited “ongoing solid results” for core Coca-Cola trademark sparkling brands across all territories, and continued growth in energy drinks – up more than 35%, with growth in Monster brands and the roll-out of Powerade Energy.
However, still beverage volumes fell around 5 per cent despite growth for CCE's Powerade sports drink and Ocean Spray, with the firm blaming soft segment demand for still beverages and timing of promotions.