Coca Cola HBC AG

LSE:CCH

Earnings Call Transcript 2019-Q3

[Operator]

Thank you for standing by, ladies and gentlemen, and welcome to the Coca-Cola HBC's Conference Call for the 2019 Third Quarter Trading Update. We have with us Mr. Zoran Bogdanovic, Chief Executive Officer; Mr. Michalis Imellos, Chief Financial Officer; and Ms. Joanna Kennedy, Investor Relations Director. [Operator Instructions] I must also advise that this conference is being recorded today, Wednesday, November 13, 2019. I now pass the floor to one of your speakers, Ms. Joanna Kennedy. Please go ahead.

[Joanna Sherratt Kennedy, Investor Relations Director]

Good morning, everyone. Welcome to our third quarter trading update call. Today, I am joined by our CEO, Zoran Bogdanovic; and our CFO, Michalis Imellos. Although we have added a webcast facility to our call for ease of access, there will be no slide presentation today as per our usual practice for trading updates. We will start with some brief opening marks from Zoran and then open the floor to your questions. [Operator Instructions] Finally, I must also remind everyone that this conference call contains various forward-looking statements, and these should be considered in conjunction with the cautionary statements in our trading update press release, which we published this morning. And with that, I'd hand the call over to Zoran.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Joanna. Good morning, everyone. This quarter, we have delivered solid results against a very challenging backdrop in which unusually bad weather impacted industry volumes in several of our key markets. We estimate the impact of this was a negative 1.7 percentage points on Q3 revenues, 1.5 percentage points on volume and a further 20 basis points on price/mix. Overall, third quarter revenue growth was 5% on a reported basis, 3.4% on a currency-neutral basis and 2.3%, excluding the impact of the acquisition of Bambi and FX. This is comprised of currency-neutral revenue per case growth of 2.4%, offset marginal 10 basis point decline in volumes. Our transactions are consistently growing ahead of volume across all major categories. Despite the challenging backdrop, we continue to execute successfully on our strategic priorities. We made strong progress on our key areas of strategic focus through the quarter, maintaining or gaining share in the majority of our markets. The pace of innovation in our portfolio continues to be strong, and our execution in the market is successfully getting debt portfolio into the hands of our consumers. Innovations contributed 3.7 percentage points of volume growth in the quarter. We continue to see positive development from several of our key categories, which will drive our performance, including Trademark Coke, Zeroes, Adult Sparkling and Energy. Our revenue growth management initiatives are driving improved pack, category and price/mix. And this quarter, the pace of expansion of price/mix accelerated by more than 1 percentage point to 2.4%, excluding the impact of Bambi and FX. We delivered this strong performance on price/mix despite the conscious actions we took in Nigeria to adjust pricing down. Excluding Nigeria, FX-neutral revenue per case expansion in the quarter was 3%, another indication that our revenue growth management and premiumization initiatives are working well. Turning to volumes. As I mentioned at the start, we witnessed a quite significant impact of poor weather in several of our key markets over the summer period. The industry as a whole saw volume declines in the third quarter of between low to high single digits in Austria, Switzerland, Poland, Hungary, Czech Republic, Slovakia and Russia, to name the most important ones impacting our results. While our volumes were clearly impacted by this, we are pleased to see that we still gained or maintained share in the majority of our markets. Let me now take you through the main drivers of FX-neutral revenue growth on a segmental basis. Established markets currency-neutral revenue grew by 1.5%, with volume growth of 1.2% and price/mix expansion of 30 basis points. We continue to deliver strong momentum in volume growth in Italy and Ireland, while volumes were weaker in the rest of the segment but with positive price/mix across the vast majority of markets. Developing markets currency-neutral revenue grew by 40 basis points as strong price/mix improvements of 4.6% offset a volume decline of 4%. Volume was impacted by challenging comparatives this quarter as well as poor weather this summer, which drove declines in the NARTD industry in our largest countries in the segment. Despite this, volumes are still growing on a high single-digit base in the quarter over the past 2 years. Price/mix development has been strong, driven by improved pack and category mix as well as pricing initiatives. Emerging markets currency-neutral revenue grew by 6.5% or by 3.9%, excluding impact of Bambi. Decomposing this 3.9% underlying revenue growth, we saw volume contribution of 80 basis points and price/mix of 3.1%. Strong volume growth in Romania and Ukraine as well as positive ongoing developments in Nigeria were partially offset by volume declines in Russia. The NARTD industry in Russia saw volume declines of just under 7% in the third quarter. Against this backdrop, we are pleased to have gained value share in sparkling and have succeeded in driving very strong price/mix in the quarter, which is now fully visible in our results after lapping the impact of Brown-Forman in the first half. More broadly, we are very encouraged to see similarly strong performance on price/mix across the segment, which was up 4.9%, excluding Nigeria. Now let me spend some time on Nigeria. The consumer environment in the country remains stable, albeit weak, while the competitive dynamic is intense. As you know, we started making pricing investments in the fourth quarter of 2018, initially in our returnable glass package type. And in September, we concluded that work with a further investment in PET pricing. We have been encouraged by the results from this strategy throughout the year, and the early signs from September's action are extremely positive with strong double-digit volume growth. We believe that with this investment, we have created a very solid base for growth in the fourth quarter and beyond. Innovation continues to play a strong role in driving growth. It is central to our strategy that our portfolio continues to improve and become more consumer and customer-centric. This portfolio is giving us the opportunity to go after additional high-value occasions and channels and is driving growth. New categories, brands, flavors and packages launched in the last 12 months represented 3.7 percentage points of volume growth in the quarter. The majority of these launches are new package types, which helped drive improvements in pack mix while providing the consumer with the right-sized, convenient choice they want. It is this type of innovation, together with our diligent execution focus on smaller packs of core categories, that is helping to drive 260 basis points of improvement in single serve mix in the quarter. Innovation is also giving the consumer more choice, be it new flavors or completely new brands, like AdeZ plant-based beverages which is now available in 17 of our markets, Smartwater now available in 11 markets or Coke Energy now available in 13 markets. More specifically on category growth, we saw higher growth in sparkling volumes increasing by 1.3%, with continued strong growth from our areas of strategic focus like Trademark Coke up 4%, low and no sugar variance up 21.4% and Adult Sparking up 7.7%. Still drink volumes declined by 40 basis points, with mixed performances from the key categories as you will have seen in the press release. In general, categories like water and ready-to-drink tea tend to be particularly sensitive to weather trends, and this has had an impact in the third quarter. We are making positive strides when it comes to sustainability and during the third quarter added Croatia as our fourth market to sell water bottled in 100% recycled PET packaging. We remain committed to having 35% of PET sourced from recycled PET by 2025. I'm very proud that Coca-Cola Hellenic has been named Europe's most sustainable beverage company by the Dow Jones Sustainability Index for the sixth time in 7 years. We remain focused on implementing and delivering our strategy, focusing on partnering with our customers and continuously strengthening our route to market with segmented execution to capture the growth opportunities in every channel while offering a product portfolio that is stronger, broader and more consumer and customer-centric than ever. This focus on the customer is central to the way we want to work at CCH, and our culture is evolving to meet this goal head on. In conclusion, we are pleased with the strategic progress we have made in the third quarter. Although the volume results were impacted by unusually poor weather dynamics, we are encouraged by the good performance on market shares in most of our markets and the acceleration of our price/mix development. This, together with the return to strong performance that we have seen across our territories as the weather impact normalizes, gives me confidence in an acceleration in Q4. Overall, we expect FX-neutral top line growth of 4% to 4.5%, including a 70 basis point benefit from Bambi, solid in light of the weather impact. We have benefited from a better-than-expected FX environment, and this combined with our continual to improve efficiency lead us to expect another year of good profit and margin expansion. With that, I will now hand over to the operator, and Michalis and I will take any questions you may have.

[Operator]

[Operator Instructions] We have the first question in the queue from the line of Sanjeet Aujla from Crédit Suisse.

[Sanjeet Aujla, European Beverages Analyst]

A couple of questions, please. My first one is really on Nigeria. Can you just articulate a little bit more how the strategy has evolved, what you've done with the price pack architecture and why you now have the confidence that the business has been reset for growth? Maybe if you take that one first, and then I'll follow-up with a couple more.

[Zoran Bogdanovic, CEO & Executive Director]

Yes. Thank you, Sanjeet. So in Nigeria, as I mentioned in my remarks, in Q4 of last year, we started with our investments in pricing initiatives on our returnable glass packaging. And we have seen that, that has really started giving good results. And we've seen that throughout the year, especially our focus was in Lagos where we have been recording very strong double-digit growth rates. Then significant part of the market is in PET, which has high competitive intensity, as I highlighted. And this is where, in September, we have done further investment in our pricing initiatives based on which we've seen very strong acceleration in -- at the start of Q4 that we also observed to date. So these are like the core of that. And I would highlight that our imperative is that we are competitive for our consumers. This is also enabled by our continuous very strong work on increasing the overall competitiveness and efficiency of our business, which is fueling and funding our initiatives to drive the top line growth. Therefore, I feel confident that Nigeria is going to have a quite strong Q4 based on these initiatives. And let me just add that also I expect some very exciting and strong marketing initiatives that will also start kicking in from Q4, which are done together with The Coca-Cola Company.

[Sanjeet Aujla, European Beverages Analyst]

Got it. And then my follow-up question is just on media discussions around the potential sugar and plastic tax in Italy. Can you just give us your take on the sort of likelihood of implementation of either of those and potential impact on the business as you said?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, thanks. So indeed there is this proposal in Italy related to one plastic tax, and the other part is related to sugar tax. You asked me my take, so I have to say that at this point, it's really hard to speculate. We know that because the magnitude of the proposed plastic tax is sizeable, and it affects quite wide the industry because it defines euro per kilo of plastic from wherever. The whole industry is in very intense discussions. It's all happening as we speak from various stakeholders who are discussing with government bodies, et cetera. So I think from the proposal, I have to say it's evident that this is a pure budget gap intention or to fund. However, I think that facts and arguments from not only beverage industry but broader industry that in plastic, which is pointing out what would be the consequences of such taxation, clearly pointing out that net-net, the economy would be in a low situation. So my take is that what is at the moment on the table, I would be very surprised that this ends up in such form or -- but I can't comment any further because it's really an estimate. However, let me just say that on the sugar tax, which we see based on what is at the moment on the table, it's half of the level of sugar tax that we've seen in Ireland. And you probably will recall from my remarks in previous calls that we have prepared very diligently, and we have been fully ready in Ireland when a similar situation has happened. Our teams in Italy have already fully gained all the learnings from the approach from Ireland, and we are ready for any such situation. And if you allow me, I would just highlight that if something like that happens on sugar, there are many steps that we do, from downsizing that we have done in Ireland, from on the existing package this can be different price between Regular Coke and Zero and Light, even upsizing Zero and Light for in-and-out promos and introducing wider variety of multipacks. In last year when sugar tax was introduced in Ireland, we grew sparkling almost 4%. And this year, this has continued even stronger. We are talking about mid-single digits plus. So we closely monitor. We are fully ready for whatever will come, and we are actively part of wide industry on finding solutions and protecting the industry and wider economy in Italy. Thank you.

[Sanjeet Aujla, European Beverages Analyst]

Got it. And my final question, one for my harvest, perhaps just on margins. You talked about another year of good margin expansion with where currencies have evolved. Can you just update us on your margin expectations for the year, please?

[Michalis Imellos, Chief Financial Officer]

Yes. Sanjeet, so we are guiding to date with small further improvement in FX. So in our previous call in August, we had guided to EUR 20 million negative impact. Now this has gone down to EUR 15 million. It's primarily transactional effects. So that will flow effectively as a benefit to the margin. So we had also spoken since the beginning of the year for a minimum of 40 basis points margin expansion organic plus the 10 basis points benefit from the consolidation of Bambi, and we absolutely stick to it. We feel very comfortable that, as a minimum, we can hit this 50 basis point improvement this year.

[Operator]

The next question comes from the line of Andrea Pistacchi from Deutsche Bank.

[Andrea Pistacchi, Research Analyst]

My first question is this, please. So you've had 2 quarters now below your 5% to 6% target now clearly held back by the weather. But besides the weather, has there been any other factor would you say that has held you back? Any other cause for you to be below this target? Anything different from what you would have expected when you set out this medium-term guidance back in July -- back in June?

[Zoran Bogdanovic, CEO & Executive Director]

Andrea, in short, no. We clearly see that the weather has been the key driver because the other elements of competition or macro environment across our territories has been fairly stable. In some places, maybe there has been just a little bit slower. In some cases, we've seen a little bit higher. That's why through our cyber analysis and review, we really see that this primarily is driven by the weather conditions as we have explained. And that's why when we are now coming in a normalized period, this is where everything that we do on the ground gives me personally confidence that we will see that also in our growth.

[Andrea Pistacchi, Research Analyst]

Okay. My second and follow-up question is one on Russia, please, if you could talk a bit about the dynamics in the Russian market. I think you said you gained share in sparkling. You didn't mention juices. There hasn't been a lot of -- you haven't delivered a lot of growth this year. I appreciate the weather comps. Would you be confident that next year, Russia should accelerate?

[Zoran Bogdanovic, CEO & Executive Director]

So let me first start with the end of your question, where I would really express my strong confidence in the plan and expectation of Russia for next year. This year, we have to acknowledge that Russia was cycling last year to a strong effect excellent summer. And we had really strong fee for activation, which brought more-than-expected tourists and all of that was happening in a perfect blend with a great weather. So our impact of last year was great. This year, indeed, we really had a bad summer. And probably among other countries, Russia was one of the most affected. So given that and acceleration that we see versus Q3 that will happen in Q4, I would even say that we are targeting to -- if possible to make Russia be marginally declined or even flat. Now I did mention that we have gained share in sparkling, which is led by very strong growth of Coca-Cola Trademark that gives excellent confidence. And this is a market where we expect for many, many, many years strong growth in sparkling but led by Trademark Coke. Also another thing that is working very well and will work even stronger is the whole adult proposition where even in such quarter as third quarter, we've been growing adult double digit. Juices, we are gaining share in a declining category. The team has been doing an excellent job not only this year, but also as a continuation from last year. So in a category that unfortunately is in a declining trend, the focus on premiumization, our strategic focus on immediate consumption and single-serve packages as well as with a smarter and our effectiveness in the promos, how we do them, has resulted that we have been gaining a sizable share. Similar happens in the Energy, where in a highly growing category, we are gaining share. So I know that our Russia team has a very strong Q4, and that gives me confidence that we will spice up the momentum for which I do expect it's going to continue in Q1 of next year and then throughout the next year.

[Operator]

The next question comes from the line of Stamatios Draziotis from Eurobank Equities.

[Stamatios Draziotis, Research Analyst]

Just one question from my side. I understand it's a bit early, but could you maybe provide us with some indication as to what you expect for next year in terms of raw material inflation, please?

[Michalis Imellos, Chief Financial Officer]

Stam, yes, as you say, it's early days. We are just finalizing the plans now. So we'll give a full update in February. However, early signs are, excluding the impact of coffee because obviously this year we have had coffee in the biggest part of the year, was at this point in time for next year, it's not going to be so pronounced. So excluding the impact of coffee and recycling, things don't look much different to what we have seen this year. So potentially towards a low single-digit increase. However, we'll come back, as I said, in February with a more detailed item.

[Operator]

The next question comes from the line of Nico Von Stackelberg from Liberum.

[Nico Von Stackelberg, Research Analyst]

Just regarding the acceleration that you've seen in Q4. Could you tell me a bit more about where you see those bright spots by country, please?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. So I already mentioned Nigeria, where I think I already explained that part. Also we see that Russia is going to do in Q4 fairly well. We also see acceleration in Poland. We also see it in Romania, Ukraine. So these are some of the largest markets. But based on also start of the Q4, I'm pleased that I can say that, overall, our performance has been on a wider territory has been quite good.

[Nico Von Stackelberg, Research Analyst]

Excellent. And could I get you to comment on the consensus expectations for EPS and free cash flow? So it's at EUR 1.34 per share for 2019 and free cash flow of EUR 527 million. I was just wondering if you think that's achievable and just where roughly you stand on consensus.

[Michalis Imellos, Chief Financial Officer]

Okay. We don't give guidance on free cash flow itself. But on the EPS comparability, yes, we expect to see another year of good growth in 2019. So yes, we are comfortable with consensus on a comparable EPS basis.

[Nico Von Stackelberg, Research Analyst]

Okay, excellent. And one last question, just thinking a little bit about the affordability initiatives that you're doing in Nigeria. I was wondering, have you ever sold sachets or very small pack sizes and perhaps more affordable price points within PET or maybe even like sort of like juice box format like Ribena? I know there's a lot of sachets of water going around in Nigeria and some of the more economically difficult parts of the country. I was just wondering if you can give more color around that, and I just wanted to understand a little bit more about how you're approaching the affordability issue.

[Zoran Bogdanovic, CEO & Executive Director]

Yes. Thank you, Nico. That's a good question. We haven't gone there yet. It's one possibility to explore. However, what we've been doing in light exactly of what you asked is that we've been downsizing a number of our packages across categories. We've done that in water. We've done that in also for a while in sparkling. We've done that also in juices. So we've been doing that and that remains, let's say, critical topic that we are constantly reviewing and finding new ways and solutions, whatever will help us. But the overall, downsizing to keep and play at critical price points is one of our focus areas.

[Operator]

The next question comes from the line of Ewan Mitchell from Barclays.

[Ewan Mitchell, Research Analyst]

Could you just give a little bit more color as to where you might have been in emerging and developing markets had you not had the very poor weather? It feels like the guidance has been hit by the weather. I'm just trying to work out where you might have come out if it had been a more normal year.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you, Ewan. So I mentioned in the remarks some of the countries that, for example, especially in the developing segment, we've seen Czechoslovakia, Poland, Hungary, really having the impact of the weather, which worked quite well last year. Also in the emerging, Russia was the biggest market with that impact. And we've seen in the category -- overall NARTD category, when we see what happened in Q3, what kind of slowdown happened versus H1, we see really a sizable deceleration. And I'm happy that to get such situations in majority of markets, we've been able to maintain or gain share.

[Ewan Mitchell, Research Analyst]

Okay. And the second one, on Romania and some of the other European markets where you're working on your pack prices. Can you just give a bit more color as to sort of how packs going there in some of the more premium package sizes, 1783 innovation, et cetera, the pricing that you've now got in Energy? It seems to be underlying growing very well, but any color on that would be helpful.

[Zoran Bogdanovic, CEO & Executive Director]

Yes, absolutely. Schweppes is one of our key engines of growth in the countries where we have it. And particularly in these countries that you mentioned, where we see that this adult segment, beauty of that is that there is such a huge value pool in the market. It also proves to be more resistant to weather conditions. And especially the markets like Romania, Bulgaria, Serbia, Croatia, Greece, Ukraine, these are all markets where we are having strong performance of Schweppes, both in volume but even more in the revenues. Because what has happened over the last few years is that we have been able to push the premiumness of Schweppes versus average of sparkling and even Coke. So it ranges between now between 15% to even 60% price premiumness. And that comes as a result of package changes, flavor combinations that we have introduced, very strong marketing, experiential, also activation and engagement with channels in the market, mixability efforts that we are doing across the markets. And we are also looking into 1783 in some more markets. We have started with that in Ireland and is performing very well. I'm really pleased that in the premium and even in super premium segment, we are continuously gaining share.

[Ewan Mitchell, Research Analyst]

And just to clarify, that 15% to 60% pricing, that's to sort of Trademark Coke why Schweppes is trading?

[Zoran Bogdanovic, CEO & Executive Director]

Yes. That's pretty similar to the average of sparkling. But I would say that in average, the price premium would range between 20%, 30%.

[Operator]

We have another question from the line of Sanjeet Aujla from Crédit Suisse.

[Sanjeet Aujla, European Beverages Analyst]

Just a quick follow-up on innovation really. The last couple of years, it feels like the pace of innovation across the group has really stepped up and just wanted to get your assessment of how things have gone, particularly on the new product development side, launching brands like Fuze, AdeZ. Maybe early to comment on Coke Energy. But yes, just love to get your take, some things it feels have worked, others haven't. Would love to hear your thoughts.

[Zoran Bogdanovic, CEO & Executive Director]

Thanks, Sanjeet. Innovation is one of our prioritized also organizational capabilities for growth. And together with Coca-Cola Company, we are paying huge attention, focus and investment of time behind this. And before I go into concrete details, I just want to say that I'm really pleased that the pipeline of innovation is very strong. It's a prioritized and disciplined approach to it that we are applying because it's not that everything goes everywhere at the same time, so we are pacing ourselves as we are expanding also our capacity and capabilities. So in Fuze, for example, that you mentioned, that's very important because this year, we started with our Zero variant. We have also our premium line that is also coming along the way. In AdeZ, we've also been playing with some new flavors, and there is more to come next year, which makes me personally very excited about this new category to us. And just to highlight that Italy is one of the markets that really shows us the way and shows how -- with patience but with the quality approach, how we are consistently making our strides in the market in this category. Coke Energy, even though it's new, I think that's one excellent example of what this innovation does for our consumers and customers because it's bringing in new consumers into energy category. It's leveraging very well the flagship trademark of Coca-Cola. And it's a great proposition for commerce because it helps to grow the pipe, and it's also increasing the value of the category because Coke Energy trades and has a price in average of 2x versus the average of the category. And I'm really pleased that by now, we are already with Coke Energy in 30 markets. And based on those who started first like Hungary, Romania, we already see some very, very good awareness both among, let's say, energy drinkers as well as SSD drinkers. So that's where we stand with some of these things that you asked me, but I would really highlight that the pipeline and innovation is a way we do business. And every year, this is a critical part of our growth algorithm. And to summarize, while we ramp up, embed and scale what we have introduced last year this year, we are also very selectively and with great lenses also choosing what are the next innovations to expand the categories, the brands, new packages, reformulations. And that's what's been driving the growth both of last year, this year, and it will continue to do that in the next years.

[Operator]

The next question comes from the line of Andrea Pistacchi Deutsche Bank.

[Andrea Pistacchi, Research Analyst]

Yes. I've got a quick follow-up, please. It's on bolt-on deals. You've done 2 bolt-ons this year. Do you have any more in the pipeline, i.e., over the medium term. Should we expect you to use your excess cash with bolt-ons?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, Andrea. With these 2 bolt-on acquisitions, we did not reduce the intensity of the work that we are doing. So we are quite busy, and we are exploring a number of things. So that's all I can say. And as always, it has to be the strategic fit as well as the fair price for our shareholders. And that's what makes then the marriage happen. But in short, yes, we are quite busy on that and exploring a number of things.

[Operator]

The next question comes from the line of Nico Von Stackelberg from Liberum.

[Nico Von Stackelberg, Research Analyst]

I think that we have a pretty clear understanding of how you mitigate sugar tax increases and how you reshape the portfolio. But I was just wondering, could you give a bit more color on if the Italian plastic tax were to go through, how you plan to mitigate that? Obviously, it probably has to do a lot with the pack format, and I'm just wondering how you assess that and how much capacity you have at your plants to produce a lot more glass and so forth. And just for technical, I was just wondering if you could give a comment on how many tons of plastic you produce per year.

[Zoran Bogdanovic, CEO & Executive Director]

Thank you. So like clearly, it's too early to say, but you already mentioned in Italy for the last few years, we've been -- glass has been one of the areas that we've been pushing and focusing behind a lot. And this type of possible taxation, and I'd say possible because really it's hard to believe that something like that could happen. However, this will only reinforce even further how we would focus on glass, both in single serve as well as also multi-serve because we do have that as well in Italy. And good thing is that we do have capacity and capability to do this type of things. So whatever might come our way, I'm confident that we will find solution to adjust and continue our growth journey in Italy.

[Nico Von Stackelberg, Research Analyst]

And I guess on the tons of plastic per year, is it maybe around 35,000 tons of plastic per year you produce over there? Or it's quite a big number.

[Zoran Bogdanovic, CEO & Executive Director]

Yes, yes. It is somewhere there like 33,000 and somewhere there, yes.

[Nico Von Stackelberg, Research Analyst]

Okay, okay. And so again, mitigation just comes back to you assessing the pack formats. And I guess in the event that you switched over as much as you could over to glass, do you have a rough view on how that could impact profitability in light of a reduced PET sales?

[Zoran Bogdanovic, CEO & Executive Director]

No. Look, it's glass, but also the cans. So we play with various types. However, glass is a profitable pack as well as can. So the beauty of that is that we can play a balanced portfolio. And with that, I'm confident that we find a solution that is not only volume sustainable but also economically and profitability-wise that will make sense.

[Nico Von Stackelberg, Research Analyst]

And finally, just so I understand the potential time line of this. This is still a draft bill, right? And do you have any understanding of potential time frames of when this could develop?

[Zoran Bogdanovic, CEO & Executive Director]

Yes, they said that by the end of the year, the budget needs to be finalized and done, which is good that I think by the end of the year, we will know. In case, anything in that area happens, we estimate that such law would start with implementation sometime Q2 or by end of June.

[Operator]

We have no further questions in the queue at the moment. [Operator Instructions] We have no further questions in the queue. So I will hand the call over to Ms. Joanna Kennedy.

[Joanna Sherratt Kennedy, Investor Relations Director]

Thank you for joining the call today and your questions. And as always, the rest of the IR team and I are at your disposal for any other queries that you may have. I wish you a very good day.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.