Report of independent registered public accounting firm
To the Shareholders and the Board of Directors of Coca-Cola European Partners plc
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial position of Coca-Cola European Partners plc (the Company) as of 31 December 2019 and 2018, the related consolidated statements of income, comprehensive income, statement of changes in equity and cash flows for each of the three years in the period ended 31 December 2019 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at 31 December 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of 31 December 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated 16 March 2020 expressed an unqualified opinion thereon.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
122Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
|
| |
| | Completeness and measurement of programmes and arrangements with customers recorded as deductions from revenue |
| Description of the matter | The Company participates in various programmes and arrangements with customers, referred to as “promotional programmes”, which are recorded as deductions from revenue. These totalled €3.2 billion for the year ended 31 December 2019. The types of promotional programmes are more fully described in Note 3 to the consolidated financial statements with details about accruals for the Company’s promotional programmes disclosed in Note 14 to the consolidated financial statements. Auditing the completeness and measurement of the promotional programmes’ liability was judgemental due to the level of subjectivity and uncertainty involved in management’s estimates of sales levels related to certain promotions to determine the liability. The cost of these promotional programmes was recognized as a deduction from revenue. |
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls, including IT controls, that address the risks of material misstatement relating to the completeness and measurement of the promotional programmes. For example, we tested controls over management’s determination of the accrued customer marketing cost balances, as well as management’s determination of the accrued balances prior to settling balances due to customers. To test the completeness and measurement of deductions from revenue and the associated unpaid accrued customer marketing costs, our audit procedures included, among others, reviewing post-period end settlements. We performed an historical analysis of prior period balance sheet amounts to amounts subsequently settled. We also tested settlement of promotional programme balances throughout the year on a sample basis. To evaluate the specific estimations that are inherent in the calculation of the accruals, we compared promotional programmes accruals to settlements and to executed contracts. We tested the assumptions utilised in the calculations, including consideration of any changes in the business environment that would warrant changes in the methodology. We performed specific analytical procedures around per unit rates to identify any potential outliers. We also tested completeness and accuracy of the underlying data, including the sales details. |
| | Carrying value of goodwill and indefinite lived intangibles |
| Description of the matter | At 31 December 2019, the carrying value of the Company’s goodwill and indefinite lived intangibles was €10,685 million and represented 57% of total assets. As discussed in Note 6 of the consolidated financial statements, goodwill and indefinite lived intangibles are tested for impairment at least annually, in the fourth quarter or whenever there is an indication of impairment. Goodwill is tested for impairment at the Cash Generating Unit (CGU) level. Auditing management’s annual impairment test was complex and judgemental as the directors’ assessment of ‘value in use’ of the Company’s CGUs involves judgement about the future results of the business, long term growth rates and the discount rates applied to future cash flow forecasts. In particular, management’s impairment models used to calculate the value in use estimate were most sensitive to the assumption around discount rates and the terminal growth rates. For those CGUs with lower headroom between the ‘value in use’ and the carrying value, the determination of these applicable rates was considered to be more judgemental. |
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls, including IT controls, in place within the impairment review process. This included evaluating controls over the Company’s budgetary and forecasting process used to develop the estimated future earnings and cash flows used in estimating the fair value of CGUs. We also tested controls over management’s determination of the data used in their valuation models and determination of the significant assumptions such as estimation of discount rates and terminal growth rates. We performed audit procedures on the impairment models relating to certain cash generating units that included, among others, assessing the methodologies, testing the assumptions discussed above used to develop the estimates of future earnings and cash flows and testing the completeness and accuracy of the underlying data. We compared the assumptions used by management to develop the discount rate and terminal growth rate to current industry and economic trends, and other guideline companies within the same industry. We involved our valuation specialists to assist in evaluating the valuation methodology and testing the discount rates and terminal growth rates. We assessed the historical accuracy of management’s estimates and forecasts and performed sensitivity analyses on the discount rate and terminal growth rates within the ‘value in use’ calculations for each CGU. We performed further testing on the Iberia CGU, based on size and lower headroom. For this CGU we performed additional procedures and sensitivity analyses on the projected financial information to assess the impact on the headroom if there were changes in certain assumptions. We assessed the related disclosures provided in the consolidated financial statements on changes in certain variables that could eliminate existing headroom. |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 123
|
| |
| | Accounting for uncertain tax positions and related disclosures |
| Description of the matter | The Company is subject to income tax in numerous jurisdictions and is routinely under audit by taxing authorities in the ordinary course of business as described in Note 20 and Note 22 of the consolidated financial statements. The potential outcomes of proceedings by the taxing authorities is assessed by the Company at the end of each reporting period and adjustments are made based on any new facts and circumstances that the Company believes will affect the outcome of the tax audit. Auditing the uncertain tax positions, including the potential tax associated with the purchase of concentrate, was challenging because the significant estimation of the provision is based on changing facts and circumstances and involves a certain level of uncertainty that may produce a number of different outcomes or ranges of outcomes. |
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls in place to evaluate the risks within the uncertain tax provision process. For example, we tested controls over management’s determination of inputs and calculations of these tax positions. To test the Company’s measurement of tax positions, we involved tax professionals with local knowledge to assess the tax positions taken by the Company in each significant jurisdiction in the context of local tax law and significant tax assessments. We also obtained an understanding of relevant facts by reading and evaluating the Company’s correspondence with the relevant tax authorities and third-party advice obtained by the Company. For example, we considered whether the level of tax exposures provided for was appropriate when compared to the maximum possible level of exposure and the assessment of the risk associated with the matter. We further assessed management’s positions by obtaining management’s assessment of risk from legal proceedings in relation to the tax position and obtained tax authority correspondence where available to support its positions. We also evaluated the related disclosures provided in the consolidated financial statements related to these tax matters. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
London, United Kingdom
16 March 2020
124Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Report of independent registered public accounting firm
To the Shareholders and the Board of Directors of Coca-Cola European Partners plc
Opinion on internal control over financial reporting
We have audited Coca-Cola European Partners plc’s internal control over financial reporting as of 31 December 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Coca-Cola European Partners plc (the Company) maintained, in all material respects, effective internal control over financial reporting as of 31 December 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of 31 December 2019 and 2018, the related consolidated statements of income, comprehensive income, statement of changes in equity and cash flows for each of the three years in the period ended 31 December 2019 and the related notes and our report dated 16 March 2020 expressed an unqualified opinion thereon.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Annual Report on Form 20-F. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
London, United Kingdom
16 March 2020
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 125
Consolidated income statement
|
| | | | | | | |
| | | Year ended |
| | | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | Note | € million |
| € million |
| € million |
|
| Revenue | | 12,017 |
| 11,518 |
| 11,062 |
|
| Cost of sales | 17 | (7,424 | ) | (7,060 | ) | (6,772 | ) |
| Gross profit | | 4,593 |
| 4,458 |
| 4,290 |
|
| Selling and distribution expenses | 17 | (2,258 | ) | (2,178 | ) | (2,124 | ) |
| Administrative expenses | 17 | (787 | ) | (980 | ) | (906 | ) |
| Operating profit | | 1,548 |
| 1,300 |
| 1,260 |
|
| Finance income | 18 | 49 |
| 47 |
| 48 |
|
| Finance costs | 18 | (145 | ) | (140 | ) | (148 | ) |
| Total finance costs, net | | (96 | ) | (93 | ) | (100 | ) |
| Non-operating items | | 2 |
| (2 | ) | (1 | ) |
| Profit before taxes | | 1,454 |
| 1,205 |
| 1,159 |
|
| Taxes | 20 | (364 | ) | (296 | ) | (471 | ) |
| Profit after taxes | | 1,090 |
| 909 |
| 688 |
|
| | | | | |
| Basic earnings per share (€) | 5 | 2.34 |
| 1.88 |
| 1.42 |
|
| Diluted earnings per share (€) | 5 | 2.32 |
| 1.86 |
| 1.41 |
|
The accompanying notes are an integral part of these consolidated financial statements.
126Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Consolidated statement of comprehensive income
|
| | | | | | | |
| | | Year ended |
| | | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | Note | € million |
| € million |
| € million |
|
| Profit after taxes | | 1,090 |
| 909 |
| 688 |
|
| Components of other comprehensive income (loss): | | | | |
| Items that may be subsequently reclassified to the income statement: | | | | |
| Foreign currency translations: | | | | |
| Pretax activity, net | | 94 |
| (35 | ) | (111 | ) |
| Tax effect | | — |
| — |
| — |
|
| Foreign currency translation, net of tax | | 94 |
| (35 | ) | (111 | ) |
| Net investment hedges: | | | | |
| Pretax activity, net | | — |
| — |
| — |
|
| Tax effect | | — |
| — |
| 27 |
|
| Net investment hedges, net of tax | 12, 20 | — |
| — |
| 27 |
|
| Cash flow hedges: | | | | |
| Pretax activity, net | | 11 |
| (17 | ) | — |
|
| Tax effect | | (2 | ) | 3 |
| — |
|
| Cash flow hedges, net of tax | 12, 20 | 9 |
| (14 | ) | — |
|
| | | 103 |
| (49 | ) | (84 | ) |
| Items that will not be subsequently reclassified to the income statement: | | | | |
| Pension plan remeasurements: | | | | |
| Pretax activity, net | | (79 | ) | 2 |
| 91 |
|
| Tax effect | | 12 |
| — |
| (18 | ) |
| Pension plan remeasurements, net of tax | 15, 20 | (67 | ) | 2 |
| 73 |
|
| | | (67 | ) | 2 |
| 73 |
|
| Other comprehensive loss for the period, net of tax | | 36 |
| (47 | ) | (11 | ) |
| Comprehensive income for the period | | 1,126 |
| 862 |
| 677 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 127
Consolidated statement of financial position
|
| | | | | |
| | | 31 December 2019 |
| 31 December 2018 |
|
| Note | € million |
| € million |
|
| ASSETS | | | |
| Non-current: | | | |
| Intangible assets | 6 | 8,506 |
| 8,384 |
|
| Goodwill | 6 | 2,520 |
| 2,518 |
|
| Property, plant and equipment | 7 | 4,205 |
| 3,888 |
|
| Non-current derivative assets | 12 | 3 |
| 2 |
|
| Deferred tax assets | 20 | 27 |
| 37 |
|
| Other non-current assets | 23 | 321 |
| 396 |
|
| Total non-current assets | | 15,582 |
| 15,225 |
|
| Current: | | | |
| Current derivative assets | 12 | 12 |
| 13 |
|
| Current tax assets | 20 | 18 |
| 21 |
|
| Inventories | 8 | 723 |
| 693 |
|
| Amounts receivable from related parties | 19 | 106 |
| 107 |
|
| Trade accounts receivable | 9 | 1,669 |
| 1,655 |
|
| Other current assets | 23 | 259 |
| 193 |
|
| Cash and cash equivalents | 10 | 316 |
| 309 |
|
| Total current assets | | 3,103 |
| 2,991 |
|
| Total assets | | 18,685 |
| 18,216 |
|
| LIABILITIES | | | |
| Non-current: | | | |
| Borrowings, less current portion | 13 | 5,622 |
| 5,127 |
|
| Employee benefit liabilities | 15 | 221 |
| 142 |
|
| Non-current provisions | 22 | 54 |
| 119 |
|
| Non-current derivative liabilities | 12 | 13 |
| 51 |
|
| Deferred tax liabilities | 20 | 2,203 |
| 2,157 |
|
| Non-current tax liabilities | 20 | 254 |
| 219 |
|
| Other non-current liabilities | | 47 |
| 45 |
|
| Total non-current liabilities | | 8,414 |
| 7,860 |
|
| Current: | | | |
| Current portion of borrowings | 13 | 799 |
| 491 |
|
| Current portion of employee benefit liabilities | 15 | 17 |
| 19 |
|
| Current provisions | 22 | 142 |
| 133 |
|
| Current derivative liabilities | 12 | 28 |
| 20 |
|
| Current tax liabilities | 20 | 95 |
| 110 |
|
| Amounts payable to related parties | 19 | 249 |
| 191 |
|
| Trade and other payables | 14 | 2,785 |
| 2,828 |
|
| Total current liabilities | | 4,115 |
| 3,792 |
|
| Total liabilities | | 12,529 |
| 11,652 |
|
| EQUITY | | | |
| Share capital | 16 | 5 |
| 5 |
|
| Share premium | 16 | 178 |
| 152 |
|
| Merger reserves | 16 | 287 |
| 287 |
|
| Other reserves | 16 | (449 | ) | (552 | ) |
| Retained earnings | | 6,135 |
| 6,672 |
|
| Total equity | | 6,156 |
| 6,564 |
|
| Total equity and liabilities | | 18,685 |
| 18,216 |
|
The accompanying notes are an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 16 March 2020. They were signed on its behalf by:
Damian Gammell, Chief Executive Officer
16 March 2020
128 Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Consolidated statement of cash flows
|
| | | | | | | |
| | | Year ended |
| | | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | Note | € million |
| € million |
| € million |
|
| Cash flows from operating activities: | | | | |
| Profit before taxes | | 1,454 |
| 1,205 |
| 1,159 |
|
| Adjustments to reconcile profit before tax to net cash flows from operating activities: | | | | |
| Depreciation | 7 | 587 |
| 461 |
| 443 |
|
| Amortisation of intangible assets | 6 | 52 |
| 51 |
| 47 |
|
| Share-based payment expense | 21 | 15 |
| 17 |
| 14 |
|
| Finance costs, net | 18 | 96 |
| 93 |
| 100 |
|
| Income taxes paid | | (270 | ) | (263 | ) | (247 | ) |
| Changes in assets and liabilities: | | | | |
| Decrease in trade and other receivables | | 5 |
| 72 |
| 108 |
|
| (Increase)/decrease in inventories | | (25 | ) | (45 | ) | 16 |
|
| (Decrease)/increase in trade and other payables | | (63 | ) | 297 |
| 142 |
|
| (Decrease)/increase in provisions | | (57 | ) | 9 |
| (67 | ) |
| Change in other operating assets and liabilities | | 110 |
| (91 | ) | (92 | ) |
| Net cash flows from operating activities | | 1,904 |
| 1,806 |
| 1,623 |
|
| Cash flows from investing activities: | | | | |
| Purchases of property, plant and equipment | | (506 | ) | (525 | ) | (484 | ) |
| Purchases of capitalised software | | (96 | ) | (75 | ) | (36 | ) |
| Proceeds from sales of property, plant and equipment | | 11 |
| 4 |
| 32 |
|
| Investments in equity instruments | | (8 | ) | — |
| — |
|
| Net cash flows used in investing activities | | (599 | ) | (596 | ) | (488 | ) |
| Cash flows from financing activities: | | | | |
| Proceeds from borrowings, net | 13 | 987 |
| 398 |
| 350 |
|
| Changes in short-term borrowings | 13 | 101 |
| (131 | ) | 250 |
|
| Repayments on third party borrowings | 13 | (625 | ) | (426 | ) | (1,160 | ) |
| Payments of principal on lease obligations | 13 | (128 | ) | (18 | ) | (20 | ) |
| Interest paid, net | | (86 | ) | (81 | ) | (94 | ) |
| Dividends paid | 16 | (574 | ) | (513 | ) | (489 | ) |
| Purchase of own shares under share buyback programme | 16 | (1,005 | ) | (502 | ) | — |
|
| Exercise of employee share options | | 26 |
| 25 |
| 13 |
|
| Other financing activities, net | | 2 |
| (11 | ) | (2 | ) |
| Net cash flows used in financing activities | | (1,302 | ) | (1,259 | ) | (1,152 | ) |
| Net change in cash and cash equivalents | | 3 |
| (49 | ) | (17 | ) |
| Net effect of currency exchange rate changes on cash and cash equivalents | | 4 |
| (2 | ) | (9 | ) |
| Cash and cash equivalents at beginning of period | 10 | 309 |
| 360 |
| 386 |
|
| Cash and cash equivalents at end of period | 10 | 316 |
| 309 |
| 360 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 129
Consolidated statement of changes in equity
|
| | | | | | | | | | | | | | |
|
|
| Share capital |
| Share premium |
| Merger reserves |
| Other reserves |
| Retained earnings |
| Total equity |
|
| Note |
| € million |
| € million |
| € million |
| € million |
| € million |
| € million |
|
| As at 1 January 2017 |
|
| 5 |
| 114 |
| 287 |
| (419 | ) | 6,474 |
| 6,461 |
|
| Profit after taxes |
|
| — |
| — |
| — |
| — |
| 688 |
| 688 |
|
| Other comprehensive income/(expense) |
|
| — |
| — |
| — |
| (84 | ) | 73 |
| (11 | ) |
| Total comprehensive income |
|
| — |
| — |
| — |
| (84 | ) | 761 |
| 677 |
|
| Issue of shares during the year | 16 |
| — |
| 13 |
| — |
| — |
| — |
| 13 |
|
| Equity-settled share-based payment expense | 21 |
| — |
| — |
| — |
| — |
| 11 |
| 11 |
|
| Share-based payment tax benefits | 20 |
| — |
| — |
| — |
| — |
| 14 |
| 14 |
|
| Dividends | 16 |
| — |
| — |
| — |
| — |
| (491 | ) | (491 | ) |
| As at 31 December 2017 |
|
| 5 |
| 127 |
| 287 |
| (503 | ) | 6,769 |
| 6,685 |
|
| Profit after taxes |
|
| — |
| — |
| — |
| — |
| 909 |
| 909 |
|
| Other comprehensive income/(expense) |
|
| — |
| — |
| — |
| (49 | ) | 2 |
| (47 | ) |
| Total comprehensive income |
|
| — |
| — |
| — |
| (49 | ) | 911 |
| 862 |
|
| Issue of shares during the year | 16 |
| — |
| 25 |
| — |
| — |
| — |
| 25 |
|
| Equity-settled share-based payment expense | 21 |
| — |
| — |
| — |
| — |
| 16 |
| 16 |
|
| Share-based payment tax effects | 20 |
| — |
| — |
| — |
| — |
| (7 | ) | (7 | ) |
| Dividends | 16 |
| — |
| — |
| — |
| — |
| (515 | ) | (515 | ) |
| Own shares purchased under share buyback programme | | — |
| — |
| — |
| — |
| (502 | ) | (502 | ) |
| As at 31 December 2018 |
|
| 5 |
| 152 |
| 287 |
| (552 | ) | 6,672 |
| 6,564 |
|
| Profit after taxes | | — |
| — |
| — |
| — |
| 1,090 |
| 1,090 |
|
| Other comprehensive income/(expense) | | — |
| — |
| — |
| 103 |
| (67 | ) | 36 |
|
| Total comprehensive income | | — |
| — |
| — |
| 103 |
| 1,023 |
| 1,126 |
|
| Issue of shares during the year | 16 |
| — |
| 26 |
| — |
| — |
| — |
| 26 |
|
| Equity-settled share-based payment expense | 21 |
| — |
| — |
| — |
| — |
| 13 |
| 13 |
|
| Share-based payment tax effects | 20 |
| — |
| — |
| — |
| — |
| 6 |
| 6 |
|
| Dividends | 16 |
| — |
| — |
| — |
| — |
| (574 | ) | (574 | ) |
| Own shares purchased under share buyback programme | 16 |
| — |
| — |
| — |
| — |
| (1,005 | ) | (1,005 | ) |
| As at 31 December 2019 | | 5 |
| 178 |
| 287 |
| (449 | ) | 6,135 |
| 6,156 |
|
The accompanying notes are an integral part of these consolidated financial statements.
130Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Notes to the consolidated financial statements
Note 1
General information and basis of preparation
Coca-Cola European Partners plc (the Company or Parent Company) was created through the Merger on 28 May 2016 of the businesses of Coca-Cola Enterprises, Inc. (CCE), Coca-Cola Iberian Partners, S.A. (CCIP) and Coca-Cola Erfrischungsgetränke GmbH (CCEG) (the Merger). The Company and its subsidiaries (together CCEP, or the Group) are a leading consumer goods group in Western Europe, making, selling and distributing an extensive range of non-alcoholic ready to drink beverages. The Group is the world’s largest independent Coca-Cola bottler based on revenue. CCEP serves a consumer population of over 300 million across Western Europe, including Andorra, Belgium, continental France, Germany, Great Britain, Iceland, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain and Sweden.
The Company has ordinary shares with a nominal value of €0.01 per share (Shares). CCEP is a public company limited by shares, incorporated under the laws of England and Wales with the registered number in England of 09717350. The Group’s Shares are listed and traded on Euronext Amsterdam, the New York Stock Exchange, London Stock Exchange and on the Spanish Stock Exchanges. The address of the Company’s registered office is Pemberton House, Bakers Road, Uxbridge, UB8 1EZ, United Kingdom.
The consolidated financial statements of the Group for the year ended 31 December 2019 were approved and signed by Damian Gammell, Chief Executive Officer on 16 March 2020 having been duly authorised to do so by the Board of Directors.
Basis of preparation
These consolidated financial statements reflect the following:
| |
| • | They have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB), IFRS as adopted by the European Union and in accordance with the provisions of the UK Companies Act 2006 (the Companies Act). There are no differences between IFRS as adopted by the European Union and IFRS as issued by the IASB that have an impact for the years presented. |
| |
| • | They have been prepared under the historical cost convention, except for certain items measured at fair value. Those accounting policies have been applied consistently in all periods, except for the adoption of new standards and amendments as of 1 January 2019, as described below under Accounting Policies. |
| |
| • | They are presented in euros, which is also the Parent Company’s functional currency and all values are rounded to the nearest € million except where otherwise indicated. |
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries. All subsidiaries have accounting years ended 31 December and apply consistent accounting policies for the purpose of the consolidated financial statements.
Subsidiary undertakings are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the Group’s power to direct the activities of the entity. All intercompany accounts and transactions are eliminated on consolidation.
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% to 50% of voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 131
Foreign currency
The individual financial statements of each subsidiary are presented in the currency of the primary economic environment in which the subsidiary operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each subsidiary are expressed in euros.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are remeasured to the functional currency of the entity at the rate of exchange in effect at the statement of financial position date with the resulting gain or loss recorded in the consolidated income statement. The consolidated income statement includes non-operating items which are primarily made up of remeasurement gains and losses related to currency exchange rate fluctuations on financing transactions denominated in a currency other than the subsidiary’s functional currency. Non-operating items are shown on a net basis and reflect the impact of any derivative instruments utilised to hedge the foreign currency movements of the underlying financing transactions.
The assets and liabilities of the Group's foreign operations are translated from local currencies to the euro reporting currency at currency exchange rates in effect at the end of each reporting period. Revenues and expenses are translated at average monthly currency exchange rates, with average rates being a reasonable approximation of the rates prevailing on the transaction dates. Gains and losses from translation are included in other comprehensive income. On disposal of a foreign operation, accumulated exchange differences are recognised as a component of the gain or loss on disposal.
Reporting periods
In these consolidated financial statements, the Group is reporting the financial results for the years ended 31 December 2019, 31 December 2018 and 31 December 2017.
Sales of the Group’s products are seasonal, with the second and third quarters accounting for higher unit sales of the Group’s products than the first and fourth quarters. The seasonality of the Group’s sales volume, combined with the accounting for fixed costs such as depreciation, amortisation, rent and interest expense, impacts the Group’s reported results for the first and second halves of the year. Additionally, year over year shifts in holidays, selling days and weather patterns can impact the Group’s results on an annual or half yearly basis.
The following table summarises the number of selling days for the years ended 31 December 2019, 31 December 2018 and 31 December 2017 (based on a standard five-day selling week):
|
| | | |
| | First Half | Second Half | Full Year |
| 2019 | 129 | 132 | 261 |
| 2018 | 130 | 131 | 261 |
| 2017 | 130 | 130 | 260 |
Note 2
Accounting policies
The accounting policies applied by the Group are included in the relevant notes herein. Effective 1 January 2019, the Group implemented the following new accounting policies, following changes in the related accounting standards. Refer to Note 25 for other significant accounting policies.
IFRS 16, “Leases”
On 1 January 2019, the Group adopted IFRS 16, “Leases” on a modified retrospective basis from 1 January 2019. The Group has not restated its 2018 financial statements as permitted under the specific transitional provisions in the standard. The impact from the new leasing standard is therefore recognised in the opening balance sheet on 1 January 2019. The adoption of IFRS 16 had a de minimis impact on the Group’s profit before tax for the year ended 31 December 2019.
Prior to the adoption of IFRS 16, the Group classified and accounted for each of its leases (as lessee) as either a finance lease or an operating lease under the principles of IAS 17, “Leases”. Finance leases were capitalised at the commencement of the lease at the inception date fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest and reduction of the lease liability. For operating leases, the leased asset was not capitalised and the lease payments were recognised as rent expense in the consolidated income statement on a straight-line basis over the lease term.
The objective of IFRS 16 is to ensure a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The lease liability was initially measured at the present value of lease payments, discounted using the Group’s incremental borrowing rate (IBR). The weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 1.30%. The lease term comprises the non-cancellable period of the contract, together with periods covered by an option to extend the lease whenever the Group is reasonably certain to exercise that option. Subsequently, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability and reducing it by lease payments made.
132Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
In adopting IFRS 16, “Leases”, the following expedients were applied:
| |
| • | The right of use asset is measured at the value of the lease liability, adjusted for any prepaid or accrued lease payments. |
| |
| • | A single discount rate is applied to a portfolio of leases with reasonably similar characteristics. |
| |
| • | On adoption, the Group used hindsight in determining lease term. |
| |
| • | Short-term lease exemption was applied to machinery and equipment and IT asset classes for leases expiring within 12 months of 1 January 2019. |
Reliance on previous assessments on whether leases were onerous immediately before the date of initial application.
The Group does not separate lease from non-lease components for each of its lease categories, except for property leases. For property leases, only base rent is included in the calculation of the right of use asset. All low value leases with total minimum lease payments under €5,000 are expensed on a straight-line basis. The assessment of low value for a leased asset is made on the basis of the value of an asset when it is (or was) new, regardless of whether the actual asset being leased is new.
For leases previously classified as finance leases, the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of adoption. The measurement principles of IFRS 16 are only applied after that date. This resulted in measurement adjustments of €6 million relating to non-lease components of finance leases that were included in the lease liability calculation for certain asset classes. The remeasurements to lease liabilities were recognised as adjustments to the related right of use assets immediately after the date of initial application.
Lease liabilities are included within Borrowings in our consolidated statement of financial position. The following tables summarise the reconciliation of the opening lease liability position under IFRS 16:
|
| | |
| | Total |
|
| Operating lease commitments disclosed as at 31 December 2018 (undiscounted) | € million |
|
| Within one year | 94 |
|
| After one year, but not more than five years | 169 |
|
| More than five years | 37 |
|
| Total minimum lease payments | 300 |
|
|
| | |
| | Total |
|
| | € million |
|
| Total minimum lease payments (discounted) | 290 |
|
| (Less): short-term and low value leases recognised on a straight-line basis as expense | (5 | ) |
| Add: adjustments as a result of a different treatment of extension and termination options | 32 |
|
| (Less): non-lease components for property leases | (5 | ) |
| Add: non-lease components for vehicle leases and other | 10 |
|
| Lease operating liability recognised as at 1 January 2019 | 322 |
|
| Add: finance lease liabilities recognised as at 31 December 2018 | 75 |
|
| Total lease liability recognised as at 1 January 2019 | 397 |
|
Right of use assets are included within property, plant and equipment and were initially measured at cost, comprising the initial measurement of the lease liability, plus any direct costs and an estimate of asset retirement obligations, less lease incentives. Subsequently, right of use assets are measured at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the term of the lease.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 133
The recognised right of use assets within property, plant and equipment, and related lease liability amounts recognised as at the adoption date relate to the following asset types:
|
| | | | |
| | Lease liability |
| Right of use asset |
|
| Right of use asset category | € million |
| € million |
|
| Buildings | 212 |
| 208 |
|
| Furniture and office equipment | 35 |
| 35 |
|
| Machinery and equipment | 5 |
| 5 |
|
| Vehicles | 145 |
| 145 |
|
| Total | 397 |
| 393 |
|
The Group’s activities as a lessor are not material and hence the Group determines there is no significant impact on its consolidated financial statements.
There is no impact on overall cash flows of the Group from the adoption of IFRS 16. However, cash outflows for lease payments are now included within cash flows used in financing activities, within payments of principal on lease obligations. Prior to adoption, cash flows relating to operating leases were included within cash flows from operating activities, and only finance leases cash flows were classified as financing activities. For consistent presentation, within financing activities, the amounts in 2018 and 2017 relating to payments of principal on finance leases are presented within payments of principal on lease obligations, in line with current year classification.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
In determining the lease term, the Group considers all facts and circumstances associated with exercising an extension or termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. As at 31 December 2019 the total value of lease extension and termination options was €34 million.
IFRIC Interpretation 23, “Uncertainty over Income Tax Treatment” (IFRIC 23)
IFRIC 23 addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and is effective for annual reporting periods beginning on or after 1 January 2019. An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The Group presents its uncertain tax positions within Non-current tax liabilities and Current tax liabilities.
The adoption of IFRIC 23 did not have a material impact on the measurement of the Group’s uncertain tax positions. Refer to Note 20 for further details regarding tax provisions.
Amendments to IAS 19, “Plan Amendment, Curtailment or Settlement” (IAS 19)
The amendments to IAS 19, which are applicable from 1 January 2019, specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:
| |
| • | Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. |
| |
| • | Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event and the discount rate used to remeasure that net defined benefit liability (asset). |
The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in the consolidated income statement. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income.
The amendments to IAS 19 did not have a material impact on the consolidated financial statements.
134Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Annual improvements 2015-2017 cycle (issued in December 2017)
The improvements applicable to the Group include:
IAS 12, “Income Taxes”
The amendments, effective 1 January 2019, clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.
Since the Group’s current practice is in line with these amendments, the Group did not record any effect on its consolidated financial statements.
IAS 23, “Borrowing Costs”
The amendments, effective 1 January 2019, clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. Since the Group’s current practice is in line with these amendments, the Group did not record any effect on its consolidated financial statements.
Note 3
Significant judgements and estimates
The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made in applying the Group’s accounting policies were applied consistently across the annual periods. The significant judgements and key sources of estimation uncertainty that have a significant effect on the amounts recognised in these financial statements are outlined below.
Significant estimates
Deductions from revenue and sales incentives
The Group participates in various promotional programmes with customers designed to increase the sale of products. Among the programmes are arrangements under which rebates, refunds, price concessions or similar items can be earned by customers for attaining agreed upon sales levels, or for participating in specific marketing programmes. Those promotional programmes do not give rise to a separate performance obligation. Where the consideration the Group is entitled to varies because of such programmes, the amount payable is deemed to be variable consideration. Management makes estimates on an ongoing basis for each individual promotion to assess the value of the variable consideration based upon historical customer experience, expected customer performance and/or estimated sales volumes. The related accruals are recognised as a deduction from revenue and are not considered distinct from the sale of products to the customer. Refer to Note 14 for further details.
Income tax
The Group is subject to income taxes in numerous jurisdictions and there are many transactions for which the ultimate tax determination cannot be assessed with certainty in the ordinary course of business. The Group recognises a provision for situations that might arise in the foreseeable future based on an assessment of the probabilities as to whether additional taxes will be due. In addition, the Group is involved in various legal proceedings and tax matters. Where an outflow of funds is believed to be probable and a reliable estimate of the outcome of the dispute can be made, management provides for its best estimate of the liability. Where the final outcome on these matters is different from the amounts that were initially recorded, such differences impact the tax provision in the period in which such determination is made. These estimates are subject to potential change over time as new facts emerge and each circumstance progresses. The evaluation of deferred tax asset recoverability requires estimates to be made regarding the availability of future taxable income in the jurisdiction giving rise to the deferred tax asset. Refer to Note 20 for further details regarding income taxes.
Intangible assets and goodwill
Determining whether goodwill and intangible assets with indefinite lives are impaired requires an estimation of the value in use or the fair value less costs to sell of the cash generating unit (CGU) to which the goodwill or intangible asset has been allocated. The value in use calculation requires management’s estimation of the future cash flows expected to arise from the CGU. Refer to Note 6 for further details about the judgement regarding the lives of bottling agreements, as well as the sensitivity analysis of the assumptions used in the impairment analysis of goodwill and intangible assets with indefinite lives.
Defined benefit plans
The determination of pension benefit costs and obligations are estimated based on assumptions determined with the assistance of external actuarial advice. The key assumptions impacting the valuations are the discount rate, salary rate of inflation and mortality rates. Refer to Note 15 for further details about the Group’s defined benefit pension plan costs and obligations.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 135
Significant judgements
Intangible assets and goodwill
The Group has assigned indefinite lives to its bottling agreements with The Coca-Cola Company (TCCC). This judgement has been made after evaluating the contractual provisions of the bottling agreements, the Group’s mutually beneficial relationship with TCCC and the history of renewals for bottling agreements.
The Group has allocated the goodwill associated with the Merger to the appropriate CGU. This judgement was based on estimated synergy benefits expected to be realised for each CGU.
Note 4
Segment information
Description of segment and principal activities
The Group evaluates its segmental reporting under IFRS 8, “Operating Segments”. The Group derives its revenues through a single business activity, which is making, selling and distributing non-alcoholic ready to drink beverages. The Group operates solely in developed markets in Western Europe and has a homogenous product portfolio across its geographic territories. Based on the governance structure of the Group, including decision making authority and oversight, the Group has determined that the Board is its Chief Operating Decision Maker (CODM). The Board, as the CODM, allocates resources and evaluates performance at a consolidated level and, therefore, the Group has one operating segment.
No single customer accounted for more than 10% of the Group’s revenue during the years ended 31 December 2019, 31 December 2018 and 31 December 2017.
Revenue by geography
The following table summarises revenue from external customers by geography, which is based on the origin of the sale:
|
| | | | | | |
| | Year ended |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| Revenue: | € million |
| € million |
| € million |
|
Iberia(A) | 2,784 |
| 2,670 |
| 2,706 |
|
| Germany | 2,432 |
| 2,335 |
| 2,218 |
|
| Great Britain | 2,412 |
| 2,280 |
| 2,026 |
|
France(B) | 1,897 |
| 1,775 |
| 1,803 |
|
| Belgium/Luxembourg | 1,002 |
| 983 |
| 919 |
|
| Netherlands | 602 |
| 580 |
| 526 |
|
| Norway | 437 |
| 439 |
| 416 |
|
| Sweden | 366 |
| 365 |
| 353 |
|
| Iceland | 85 |
| 91 |
| 95 |
|
| Total | 12,017 |
| 11,518 |
| 11,062 |
|
(A) Iberia refers to Spain, Portugal and Andorra.
(B) France refers to continental France and Monaco.
Assets by geography
Assets are allocated based on operations and physical location. The following table summarises non-current assets, other than financial instruments and deferred tax assets, by geography:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| Assets: | € million |
| € million |
|
Iberia(A) | 6,797 |
| 6,873 |
|
| Germany | 3,216 |
| 3,160 |
|
| Great Britain | 2,587 |
| 2,441 |
|
France(B) | 922 |
| 890 |
|
| Belgium/Luxembourg | 656 |
| 637 |
|
| Netherlands | 457 |
| 440 |
|
| Sweden | 396 |
| 404 |
|
| Norway | 261 |
| 259 |
|
| Iceland | 36 |
| 37 |
|
| Other unallocated | 224 |
| 45 |
|
| Total | 15,552 |
| 15,186 |
|
(A) Iberia refers to Spain, Portugal and Andorra.
(B) France refers to continental France and Monaco.
136Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 5
Earnings per share
Basic earnings per share is calculated by dividing profit after taxes by the weighted average number of Shares in issue and outstanding during the period. Diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities, principally share options, restricted stock units and performance share units. Share‑based payment awards that are contingently issuable upon the achievement of specified market and/or performance conditions are included in the diluted earnings per share calculation based on the number of Shares that would be issuable if the end of the period was the end of the contingency period.
The following table summarises basic and diluted earnings per share calculations for the years presented:
|
| | | | | | |
| | Year ended |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| Profit after taxes attributable to equity shareholders (€ million) | 1,090 |
| 909 |
| 688 |
|
Basic weighted average number of Shares in issue(A) (million) | 466 |
| 484 |
| 484 |
|
Effect of dilutive potential Shares(B) (million) | 3 |
| 4 |
| 5 |
|
Diluted weighted average number of Shares in issue(A) (million) | 469 |
| 488 |
| 489 |
|
| Basic earnings per share (€) | 2.34 |
| 1.88 |
| 1.42 |
|
| Diluted earnings per share (€) | 2.32 |
| 1.86 |
| 1.41 |
|
| |
| (A) | As at 31 December 2019, 31 December 2018 and 31 December 2017 the Group had 456,399,877, 474,920,066 and 484,586,428 Shares, respectively, in issue and outstanding. |
| |
(B) | For the year ended 31 December 2019 and 31 December 2018 there were no outstanding options to purchase Shares excluded from the diluted earnings per share calculation. For the year ended 31 December 2017, outstanding options to purchase 1.2 million Shares were excluded from the diluted earnings per share calculation because the effect of including these options in the computation would have been anti-dilutive. The dilutive impact of the remaining options outstanding, unvested restricted stock units and unvested performance share units was included in the effect of dilutive securities. |
Note 6
Intangible assets and goodwill
Intangible assets with indefinite lives
Intangible assets with indefinite lives acquired through business combination transactions are measured at fair value at the date of acquisition. These assets are not subject to amortisation but are tested for impairment annually at the CGU level or more frequently if facts and circumstances indicate an impairment may exist. In addition to the annual impairment test, the assessment of indefinite lives is also reviewed annually.
Franchise intangible assets
The Group’s bottling agreements contain performance requirements and convey the rights to distribute and sell products within specified territories. The Group’s agreements with TCCC for each of its territories have terms of 10 years and expire on 28 May 2026, with each containing the right for the Group to request a 10 year renewal. While these agreements contain no automatic right of renewal beyond that date, the Group believes that its interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by non-renewal ensure that these agreements will continue to be renewed and, therefore, are essentially perpetual. The Group has never had a bottling agreement with TCCC terminated due to non-performance of the terms of the agreement or due to a decision by TCCC to terminate an agreement at the expiration of a term. After evaluating the contractual provisions of bottling agreements, the Group’s mutually beneficial relationship with TCCC and history of renewals, indefinite lives have been assigned to all of the Group’s franchise intangible assets.
Goodwill
Goodwill is initially measured as the excess of the total consideration transferred over the amount recognised for net identifiable assets acquired and liabilities assumed in a business combination. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in the consolidated income statement as a bargain purchase. Goodwill is not subject to amortisation. It is tested annually for impairment at the CGU level or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill acquired in a business combination is allocated to the CGU that is expected to benefit from the synergies of the combination irrespective of whether a CGU is part of the business combination.
Intangible assets with finite lives
Intangible assets with finite lives are measured at cost of acquisition or production and are amortised using the straight-line method over their respective estimated useful lives. Finite lived intangible assets are assessed for impairment whenever there is an indication that they may be impaired. The amortisation period and method are reviewed annually.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 137
Internally generated software
The Group capitalises certain development costs associated with internally developed software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project and any such software acquired as part of a business combination. Development expenditure is recognised as an intangible asset only after its technical feasibility and commercial viability can be demonstrated. When capitalised software is not integral to related hardware it is treated as an intangible asset; otherwise it is included within property, plant and equipment. The estimated useful life of capitalised software is five to seven years. Amortisation expense for capitalised software is included within administrative expenses and was €44 million, €43 million and €38 million for the years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
Customer relationships
The Group acquired certain customer relationships in connection with the acquisitions of the Norway and Sweden bottling operations from TCCC in 2010 and the Merger with CCIP and CCEG in 2016. These customer relationships were recorded at their fair values on the date of acquisition, and they are amortised over an estimated economic life of 20 years. The fair values were determined using a “with and without” valuation technique, which compares the revenues with all assets of the business in place, to a “without” scenario, which assumes the customer relationship asset and related revenues do not exist and must be rebuilt over time. Amortisation expense for these assets is included within administrative expenses and was €8 million, €8 million and €9 million for the years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
Balances and movements in intangible assets and goodwill
The following table summarises the movements in the carrying amounts of intangible assets and goodwill for the periods presented:
|
| | | | | | | | | | | | |
| | Franchise intangible |
| Software |
| Customer relationships |
| Assets under construction |
| Total intangibles |
| Goodwill |
|
| Cost: | € million |
| € million |
| € million |
| € million |
| € million |
| € million |
|
| As at 31 December 2017 | 8,109 |
| 267 |
| 162 |
| 10 |
| 8,548 |
| 2,520 |
|
| Additions | — |
| 32 |
| — |
| 43 |
| 75 |
| — |
|
| Disposals | — |
| (4 | ) | — |
| — |
| (4 | ) | — |
|
| Transfers and reclassifications | — |
| 1 |
| — |
| (1 | ) | — |
| — |
|
Currency translation adjustments
| (25 | ) | 4 |
| — |
| — |
| (21 | ) | (2 | ) |
| As at 31 December 2018 | 8,084 |
| 300 |
| 162 |
| 52 |
| 8,598 |
| 2,518 |
|
| Additions | 1 |
| 30 |
| — |
| 64 |
| 95 |
| — |
|
| Disposals | — |
| (14 | ) | (1 | ) | — |
| (15 | ) | — |
|
| Transfers and reclassifications | — |
| 12 |
| — |
| (12 | ) | — |
| — |
|
| Currency translation adjustments | 80 |
| 5 |
| — |
| — |
| 85 |
| 2 |
|
| As at 31 December 2019 | 8,165 |
| 333 |
| 161 |
| 104 |
| 8,763 |
| 2,520 |
|
| Accumulated amortisation: | | | | | | |
| As at 31 December 2017 | — |
| (145 | ) | (19 | ) | — |
| (164 | ) | — |
|
| Amortisation expense | — |
| (43 | ) | (8 | ) | — |
| (51 | ) | — |
|
| Disposals | — |
| 3 |
| — |
| — |
| 3 |
| — |
|
| Currency translation adjustments | — |
| (2 | ) | — |
| — |
| (2 | ) | — |
|
| As at 31 December 2018 | — |
| (187 | ) | (27 | ) | — |
| (214 | ) | — |
|
| Amortisation expense | — |
| (44 | ) | (8 | ) | — |
| (52 | ) | — |
|
| Disposals | — |
| 13 |
| 1 |
| — |
| 14 |
| — |
|
| Currency translation adjustments | — |
| (4 | ) | (1 | ) | — |
| (5 | ) | — |
|
| As at 31 December 2019 | — |
| (222 | ) | (35 | ) | — |
| (257 | ) | — |
|
| Net book value: |
|
|
| |
|
|
| As at 31 December 2017 | 8,109 |
| 122 |
| 143 |
| 10 |
| 8,384 |
| 2,520 |
|
| As at 31 December 2018 | 8,084 |
| 113 |
| 135 |
| 52 |
| 8,384 |
| 2,518 |
|
| As at 31 December 2019 | 8,165 |
| 111 |
| 126 |
| 104 |
| 8,506 |
| 2,520 |
|
Impairment testing
Each CGU is tested for impairment annually in the fourth quarter or whenever there is an indication of impairment. The recoverable amount of each CGU is determined through a value in use calculation. To determine value in use for a CGU, estimated future cash flows are discounted to their present values using a pre-tax discount rate reflective of the current market conditions and risks specific to each CGU. If the carrying value of a CGU exceeds its recoverable amount, the carrying value of the CGU is reduced to its recoverable amount and impairment charges are recognised immediately within the consolidated income statement. Impairment charges other than those related to goodwill may be reversed in future periods if a subsequent test indicates that the recoverable amount has increased. Such recoveries may not exceed a CGU’s original carrying value less any depreciation that would have been recognised if no impairment charges were previously recorded.
138Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
The Group’s CGUs are based on geography and generally represent the individual territories in which the Group operates. For the purposes of allocating intangibles, each franchise intangible asset is allocated to the geographic region to which the agreement relates and goodwill is allocated to each of the CGUs expected to benefit from a business combination, irrespective of whether other assets and liabilities of the acquired businesses are assigned to the CGUs. The following table identifies the carrying value of goodwill and indefinite-lived intangible assets attributable to each significant CGU of the Group. In addition to the significant CGUs of the Group, as at 31 December 2019 the Group had other CGUs with total franchise intangible assets of €1,100 million and goodwill of €297 million, which includes €218 million related to goodwill allocated from the Merger.
|
| | | | | | | | | |
| | 31 December 2019 | | 31 December 2018 |
| | Franchise intangible |
| Goodwill |
| | Franchise intangible |
| Goodwill |
|
| Cash generating unit | € million |
| € million |
| | € million |
| € million |
|
| Iberia | 4,289 |
| 1,275 |
| | 4,289 |
| 1,275 |
|
| Great Britain | 1,716 |
| 200 |
| | 1,632 |
| 200 |
|
| Germany | 1,060 |
| 748 |
| | 1,060 |
| 748 |
|
The recoverable amounts of each CGU were determined through a value in use calculation, which uses cash flow projections for a five year period. The key assumptions used in projecting these cash flows were as follows:
| |
| • | Discount rate: A weighted average cost of capital was applied specific to each CGU as a hurdle rate to discount cash flows. The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The following table summarises the pre-tax discount rate attributable to each significant CGU. |
| |
| • | Growth rate: Cash flows were projected for five years based on the Group’s three year business plans approved by the Board. Cash flows for the fourth year were projected using compound annual growth rates over the preceding three years, and cash flows for a fifth year and beyond the five year period were projected using a terminal growth rate of 2%, consistent with prior year increases. |
| |
| • | Gross and operating margins: Gross and operating margins are based on the business plans approved by the Board. Key assumptions are made within these plans about volume, pricing, discounts and costs based on historical data, current strategy and expected market trends. |
|
| | | |
| | 31 December 2019 | | 31 December 2018 |
| Pre-tax discount rate |
| Cash generating unit | % | | % |
| Iberia | 9 | | 10 |
| Great Britain | 10 | | 10 |
| Germany | 9 | | 9 |
The Group did not record any impairment charges as a result of the tests conducted in 2019 and 2018. The Group’s Great Britain CGU has substantial headroom when comparing the estimated value in use calculation of the CGU versus the CGU’s carrying value.
For the Group’s Germany and Iberia CGUs, the headroom in the 2019 impairment analysis was approximately 110% and 50% of carrying value, respectively, which is representative of the fact that the net assets of Germany and Iberia were subject to acquisition accounting and fair valued based upon operating plans and macroeconomic conditions present at the time of the Merger. As a result, should operating results or macroeconomic conditions deteriorate versus those utilised to fair value the assets, an impairment of the acquired assets could result in the future.
The calculation of value in use is most sensitive to the discount rate and terminal growth rate assumptions. For the Iberia CGU, the Group estimates that a 2.5% increase in the discount rate, or a reduction in terminal growth rates of 3.5%, would eliminate existing headroom. The Group estimates that for the Germany CGU, an approximate 4.0% increase in the discount rate, or a 5.5% reduction in terminal growth rates, would eliminate existing headroom.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 139
Note 7
Property, plant and equipment
Property, plant and equipment is recorded at cost, net of accumulated depreciation and accumulated impairment losses, where cost is the amount of cash or cash equivalents paid to acquire an asset at the time of its acquisition or construction. Major property additions, replacements and improvements are capitalised, while maintenance and repairs that do not extend the useful life of an asset or add new functionality are expensed as incurred. Land is not depreciated, as it is considered to have an indefinite life. For all property, plant and equipment, other than land, depreciation is recorded using the straight-line method over the respective estimated useful lives as follows:
|
| | |
| | Useful life (years) |
| Category | Low | High |
| Buildings and improvements | 10 | 40 |
| Machinery, equipment and containers | 3 | 20 |
| Cold drink equipment | 5 | 12 |
| Vehicle fleet | 3 | 12 |
| Furniture and office equipment | 4 | 10 |
Gains or losses arising on the disposal or retirement of an asset are determined as the difference between the carrying amount of the asset and any proceeds from its sale. Leasehold improvements are amortised using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement.
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, an impairment test is performed to estimate the potential loss of value that may reduce the recoverable amount of the asset to below its carrying amount. Any impairment loss is recognised within the consolidated income statement by the amount which the carrying amount exceeds the recoverable amount. Useful lives and residual amounts are reviewed annually and adjustments are made prospectively as required.
For property, plant and equipment, the Group assesses annually whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, a previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised and only up to the recoverable amount or the original carrying amount net of depreciation that would have been incurred had no impairment losses been recognised.
140Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
The following table summarises the movement in net book value for property, plant and equipment for the periods presented:
|
| | | | | | | | | | | | | | | | |
| | Land |
| Buildings and improvements |
| Machinery, equipment and containers |
| Cold drink equipment |
| Vehicle fleet |
| Furniture and office equipment |
| Assets under construction |
| Total |
|
| | € million |
| € million |
| € million |
| € million |
| € million |
| € million |
| € million |
| € million |
|
| Cost: | | | | | | | | |
| As at 31 December 2017 | 312 |
| 1,453 |
| 2,428 |
| 1,203 |
| 118 |
| 177 |
| 180 |
| 5,871 |
|
| Additions | 9 |
| 30 |
| 129 |
| 104 |
| 12 |
| 14 |
| 242 |
| 540 |
|
| Disposals | (3 | ) | (10 | ) | (73 | ) | (87 | ) | (1 | ) | (12 | ) | — |
| (186 | ) |
| Transfers and reclassifications | — |
| 22 |
| 57 |
| 1 |
| — |
| 3 |
| (83 | ) | — |
|
| Currency translation adjustments | (1 | ) | (7 | ) | (8 | ) | (7 | ) | — |
| 1 |
| — |
| (22 | ) |
| As at 31 December 2018 | 317 |
| 1,488 |
| 2,533 |
| 1,214 |
| 129 |
| 183 |
| 339 |
| 6,203 |
|
Adjustment for adoption of IFRS 16(A) | — |
| 183 |
| — |
| — |
| 107 |
| 32 |
| — |
| 322 |
|
| Additions | 2 |
| 67 |
| 158 |
| 119 |
| 66 |
| 29 |
| 187 |
| 628 |
|
| Disposals | (6 | ) | (49 | ) | (102 | ) | (137 | ) | (14 | ) | (14 | ) | — |
| (322 | ) |
| Transfers and reclassifications | — |
| 51 |
| 191 |
| — |
| 1 |
| 2 |
| (245 | ) | — |
|
| Currency translation adjustments | 3 |
| 15 |
| 25 |
| 14 |
| 2 |
| 2 |
| (2 | ) | 59 |
|
| As at 31 December 2019 | 316 |
| 1,755 |
| 2,805 |
| 1,210 |
| 291 |
| 234 |
| 279 |
| 6,890 |
|
| Accumulated depreciation: | | | | | | | | |
| As at 31 December 2017 | — |
| (412 | ) | (820 | ) | (632 | ) | (67 | ) | (103 | ) | — |
| (2,034 | ) |
| Depreciation expense | — |
| (60 | ) | (232 | ) | (127 | ) | (18 | ) | (24 | ) | — |
| (461 | ) |
| Disposals | — |
| 2 |
| 70 |
| 85 |
| 1 |
| 12 |
| — |
| 170 |
|
| Currency translation adjustments | — |
| 3 |
| 4 |
| 4 |
| — |
| (1 | ) | — |
| 10 |
|
| As at 31 December 2018 | — |
| (467 | ) | (978 | ) | (670 | ) | (84 | ) | (116 | ) | — |
| (2,315 | ) |
| Depreciation expense | — |
| (106 | ) | (223 | ) | (158 | ) | (64 | ) | (36 | ) | — |
| (587 | ) |
| Disposals | — |
| 14 |
| 72 |
| 136 |
| 6 |
| 13 |
| — |
| 241 |
|
| Currency translation adjustments | — |
| 2 |
| (6 | ) | (17 | ) | (1 | ) | (2 | ) | — |
| (24 | ) |
| As at 31 December 2019 | — |
| (557 | ) | (1,135 | ) | (709 | ) | (143 | ) | (141 | ) | — |
| (2,685 | ) |
| Net book value: | | | | | | | | |
| As at 31 December 2017 | 312 |
| 1,041 |
| 1,608 |
| 571 |
| 51 |
| 74 |
| 180 |
| 3,837 |
|
| As at 31 December 2018 | 317 |
| 1,021 |
| 1,555 |
| 544 |
| 45 |
| 67 |
| 339 |
| 3,888 |
|
| As at 31 December 2019 | 316 |
| 1,198 |
| 1,670 |
| 501 |
| 148 |
| 93 |
| 279 |
| 4,205 |
|
| |
| (A) | Adjustment for the adoption of IFRS 16, “Leases” on 1 January 2019, as described in Note 2. |
The Group leases land, office and warehouse space, computer hardware, machinery and equipment and vehicles under non-cancellable lease agreements most of which expire at various dates through to 2028. Some lease agreements contain standard renewal provisions that allow for renewal at rates equivalent to fair market value at the end of the lease term.
The following table summarises the net book value of right of use assets included within property, plant and equipment:
|
| | | | |
| | 31 December 2019 |
| 1 January 2019 |
|
| | € million |
| € million |
|
| Buildings and improvements | 188 |
| 208 |
|
| Machinery, equipment and containers | 23 |
| 5 |
|
| Vehicle fleet | 140 |
| 145 |
|
| Furniture and office equipment | 33 |
| 35 |
|
| Total | 384 |
| 393 |
|
Total additions to the right of use assets during 2019 were €127 million.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 141
The following table summarises depreciation charges relating to right of use assets recognised in the consolidated income statement during 2019:
|
| | |
| | 31 December 2019 |
|
| | € million |
|
| Buildings and improvements | 39 |
|
| Machinery, equipment and containers | 5 |
|
| Vehicle fleet | 62 |
|
| Furniture and office equipment | 18 |
|
| Total | 124 |
|
During the year ended 31 December 2019, the total expense relating to low value and short-term leases was €10 million, which is primarily included in administrative expenses on the consolidated income statement.
The Group does not have any residual value guarantees in relation to its leases.
Note 8
Inventories
Inventories are valued at the lower of cost or net realisable value and cost is determined using the first-in, first-out (FIFO) method. Inventories consist of raw materials, supplies (primarily including concentrate, other ingredients and packaging) and finished goods, which also include direct labour, indirect production and overhead costs. Cost includes all costs incurred to bring inventories to their present location and condition. Spare parts are recorded as assets at the time of purchase and are expensed as utilised. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to complete and sell the inventory.
The following table summarises the inventory outstanding in the consolidated statement of financial position as at the dates presented:
|
| | | | |
| 31 December 2019 |
| 31 December 2018 |
|
| € million |
| € million |
|
| Finished goods | 408 |
| 378 |
|
| Raw materials and supplies | 232 |
| 234 |
|
| Spare parts | 83 |
| 81 |
|
| Total inventories | 723 |
| 693 |
|
Write downs of inventories to net realisable value totalled €25 million and €23 million during the years ended 31 December 2019 and 31 December 2018, respectively, which were included in cost of sales on the consolidated income statement. None of the write downs were subsequently reversed.
142Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 9
Trade accounts receivable
The Group sells its products to retailers, wholesalers and other customers and extends credit, generally without requiring collateral, based on an evaluation of the customer’s financial condition. While the Group has a concentration of credit risk in the retail sector, this risk is mitigated due to the diverse nature of the customers the Group serves, including, but not limited to, their type, geographic location, size and beverage channel. Collections of receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the consolidated statement of financial position date.
Trade accounts receivable are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment. Typically, accounts receivable have terms of 30 to 60 days and do not bear interest. The Group applies an expected credit loss reserve methodology to assess possible impairments. Balances are considered for impairment on an individual basis rather than by reference to the extent that they become overdue. The Group considers factors such as delinquency in payment, financial difficulties, payment history of the debtor as well as certain forward-looking macroeconomic indicators. The carrying amount of trade accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Credit insurance on a portion of the accounts receivable balance is also carried. Refer to Note 24 for further details on credit risk management.
The following table summarises the trade accounts receivable outstanding in the consolidated statement of financial position as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Trade accounts receivable, gross | 1,687 |
| 1,671 |
|
| Allowance for doubtful accounts | (18 | ) | (16 | ) |
| Total trade accounts receivable | 1,669 |
| 1,655 |
|
The following table summarises the ageing of trade accounts receivable, net of allowance for doubtful accounts, in the consolidated statement of financial position as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Not past due | 1,560 |
| 1,483 |
|
| Past due 1 - 30 days | 54 |
| 112 |
|
| Past due 31 - 60 days | 5 |
| 8 |
|
| Past due 61 - 90 days | 8 |
| 11 |
|
| Past due 91 - 120 days | 4 |
| 11 |
|
| Past due 121+ days | 38 |
| 30 |
|
| Total | 1,669 |
| 1,655 |
|
The following table summarises the change in the allowance for doubtful accounts for the periods presented:
|
| | |
| | Allowance for doubtful accounts |
|
| | € million |
|
| As at 31 December 2017 | (14 | ) |
| Provision for impairment recognised during the year | (4 | ) |
| Receivables written off during the year as uncollectible | 2 |
|
| As at 31 December 2018 | (16 | ) |
| Provision for impairment recognised during the year | (6 | ) |
| Receivables written off during the year as uncollectible | 4 |
|
| As at 31 December 2019 | (18 | ) |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 143
Note 10
Cash and cash equivalents
Cash and cash equivalents include cash and short-term, highly liquid investments with maturity dates of less than three months when acquired that are readily convertible to cash and which are subject to an insignificant risk of changes in value. Counterparties and instruments used to hold the Group’s cash and cash equivalents are continually assessed, with a focus on preservation of capital and liquidity. Bank overdrafts are classified as current portion of borrowings in the consolidated statement of financial position.
The following table summarises the cash and cash equivalents outstanding in the consolidated statement of financial position as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Cash at banks and on hand | 170 |
| 279 |
|
| Short-term deposits and securities | 146 |
| 30 |
|
| Total cash and cash equivalents | 316 |
| 309 |
|
Cash and cash equivalents are held in the following currencies as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Euro | 88 |
| 185 |
|
| US dollar | 27 |
| 6 |
|
| British pound | 124 |
| 33 |
|
| Norwegian krone | 44 |
| 26 |
|
| Swedish krona | 21 |
| 44 |
|
| Other | 12 |
| 15 |
|
| Total cash and cash equivalents | 316 |
| 309 |
|
There are no material restrictions on the Group’s cash and cash equivalents.
Note 11
Fair values
Fair value measurements
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy. This is described as one of the following, based on the lowest level input that is significant to the fair value measurement as a whole:
| |
| • | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| |
| • | Level 2 - Observable inputs other than quoted prices included in Level 1. The Group values assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. |
| |
| • | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The fair values of the Group’s cash and cash equivalents, trade accounts receivable, amounts receivable from related parties, trade and other payables and amounts payable to related parties approximate their carrying amounts due to their short-term nature.
The fair values of the Group’s borrowings are estimated based on borrowings with similar maturities and credit quality and current market interest rates. These are categorised within Level 2 of the fair value hierarchy as the Group uses certain pricing models and quoted prices for similar liabilities in active markets in assessing their fair values. Refer to Note 13 for further details regarding the Group’s borrowings.
The following table summarises the book value and fair value of the Group’s borrowings as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Fair value of borrowings | 6,720 |
| 5,739 |
|
| Book value of borrowings (Note 13) | 6,421 |
| 5,618 |
|
144Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
The Group’s derivative assets and liabilities are carried at fair value, which is determined using a variety of valuation techniques, depending on the specific characteristics of the hedging instrument, taking into account credit risk. The fair value of its derivative contracts (including forwards, options, cross currency swaps and interest rate swaps) is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and, therefore, the derivative contracts have been classified as Level 2. Inputs used in these standard valuation models include the applicable spot, forward and discount rates. The standard valuation model for the option contracts also includes implied volatility, which is specific to individual options and is based on rates quoted from a widely used third party resource. Refer to Note 12 for further details about the Group’s derivatives.
The following table summarises the fair value of the derivative assets and liabilities as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Assets at fair value: | | |
| Derivatives (Note 12) | 15 |
| 15 |
|
| Liabilities at fair value: | | |
| Derivatives (Note 12) | 41 |
| 71 |
|
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period. There have been no transfers between levels during the periods presented.
Note 12
Hedging activities
Derivative financial instruments
The Group utilises derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations. The primary risks that it seeks to manage through the use of derivative financial instruments include currency exchange risk, commodity price risk and interest rate risk. All derivative financial instrument assets and liabilities are recorded at fair value on the consolidated statement of financial position. The Group does not use derivative financial instruments for trading or speculative purposes and all hedge ratios are on a 1:1 basis. At the inception of a hedge transaction the Group documents the relationship between the hedging instrument and the hedged item, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking the derivative financial instrument designated as a hedging instrument to the specific asset, liability, firm commitment or forecasted transaction. Further information on the Group’s risk management strategy and objective can be found in Note 24. Both at the hedge inception and on an ongoing basis, the Group assesses and documents whether the derivative financial instrument used in the hedging transaction is highly effective in maintaining the risk management objective. Where critical terms match, the Group uses a qualitative assessment to ensure initial and ongoing effectiveness criteria. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement.
While certain derivative financial instruments are designated as hedging instruments, the Group also enters into derivative financial instruments that are designed to hedge a risk but are not designated as hedging instruments (referred to as an economic hedge or a non-designated hedge). The decision regarding whether or not to designate a hedge for hedge accounting is made by management considering the size, purpose and tenure of the hedge, as well as the anticipated ability to achieve and maintain the Group’s risk management objective.
The Group is exposed to counterparty credit risk on all of its derivative financial instruments. It has established and maintained strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better. It continuously monitors counterparty credit risk and utilises numerous counterparties to minimise its exposure to potential defaults. It does not require collateral under these agreements.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 145
The following table summarises the fair value of the assets and liabilities related to derivative financial instruments and the respective line items in which they were recorded in the consolidated statement of financial position as at the dates presented. All derivative instruments are classified as Level 2 within the fair value hierarchy. Discussion of the Group’s other financial assets and liabilities is contained elsewhere in these financial statements. Refer to Note 9 for trade accounts receivable, Note 14 for trade and other payables, Note 13 for borrowings and Note 19 for amounts receivable and payable with related parties.
|
| | | | | |
| | | 31 December 2019 |
| 31 December 2018 |
|
| Hedging instrument | Location – statement of financial position | € million |
| € million |
|
| Assets: | | | |
| Derivatives designated as hedging instruments: | | | |
| Foreign currency contracts | Non-current derivative assets | — |
| 1 |
|
| Commodity contracts | Non-current derivative assets | 3 |
| — |
|
| Foreign currency contracts | Current derivative assets | 6 |
| 9 |
|
| Commodity contracts | Current derivative assets | 4 |
| 3 |
|
| | Total | 13 |
| 13 |
|
| Derivatives not designated as hedging instruments: | | | |
| Commodity contracts | Non-current derivative assets | — |
| 1 |
|
| Commodity contracts | Current derivative assets | 2 |
| 1 |
|
| | Total | 2 |
| 2 |
|
| Total assets | | 15 |
| 15 |
|
| Liabilities: | | | |
| Derivatives designated as hedging instruments: | | | |
| Foreign currency contracts | Non-current derivative liabilities | 9 |
| 49 |
|
| Commodity contracts | Non-current derivative liabilities | 4 |
| 1 |
|
| Foreign currency contracts | Current derivative liabilities | 10 |
| 1 |
|
| Commodity contracts | Current derivative liabilities | 17 |
| 17 |
|
| | Total | 40 |
| 68 |
|
| Derivatives not designated as hedging instruments: | | | |
| Commodity contracts | Non-current derivative liabilities | — |
| 1 |
|
| Foreign currency contracts | Current derivative liabilities | 1 |
| — |
|
| Commodity contracts | Current derivative liabilities | — |
| 2 |
|
| | Total | 1 |
| 3 |
|
| Total liabilities | | 41 |
| 71 |
|
Cash flow hedges
The Group uses cash flow hedges to mitigate its exposure to changes in cash flows attributable to currency fluctuations and commodity price fluctuations associated with certain forecasted transactions, including purchases of raw materials, finished goods and services denominated in non-functional currencies, the receipt of interest and principal on intercompany loans denominated in non-functional currencies and the payment of interest and principal on debt issuances in non-functional currencies. Effective changes in the fair value of these cash flow hedging instruments are recognised as a component of other reserves on the consolidated statement of financial position. The effective changes are then recognised within the line item on the consolidated income statement that is consistent with the nature of the underlying hedged item in the period that the forecasted purchases or payments impact earnings. Any changes in the fair value of these cash flow hedges that are the result of ineffectiveness are recognised immediately in the line item on the consolidated income statement that is consistent with the nature of the underlying hedged item. Historically, the Group has not experienced, nor does it expect to experience material hedge ineffectiveness with the value of the hedged instrument equalling that of the hedged item.
The net notional amount of outstanding currency related cash flow hedges was €1.2 billion as at 31 December 2019 and €1.3 billion as at 31 December 2018. The net notional amount of outstanding commodity related cash flow hedges was €0.5 billion as at 31 December 2019 and €0.2 billion as at 31 December 2018. Outstanding cash flow hedges as at 31 December 2019 are expected to settle and affect profit or loss between 2020 and 2022.
146Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
The following table summarises the Group’s outstanding cash flow hedges by risk category as at the dates presented (all contracts denominated in a foreign currency have been converted into euros using the respective year end spot rate):
|
| | | | | | | | |
| | Notional maturity profile |
| | Total |
| Less than one year |
| 1 to 3 years |
| 3 to 5 years |
|
Cash flow hedges
| € million |
| € million |
| € million |
| € million |
|
| Foreign currency | 1,214 |
| 196 |
| 526 |
| 492 |
|
| As at 31 December 2017 | 1,214 |
| 196 |
| 526 |
| 492 |
|
| Foreign currency | 1,255 |
| 227 |
| 1,028 |
| — |
|
| Commodity | 237 |
| 212 |
| 25 |
| — |
|
| As at 31 December 2018 | 1,492 |
| 439 |
| 1,053 |
| — |
|
| Foreign currency | 1,211 |
| 643 |
| 568 |
| — |
|
| Commodity | 459 |
| 246 |
| 213 |
| — |
|
| As at 31 December 2019 | 1,670 |
| 889 |
| 781 |
| — |
|
The Group recognised within other comprehensive income €10 million net gains, €33 million net gains and €116 million net losses for the years ended 31 December 2019, 31 December 2018 and 31 December 2017 respectively, related to changes in the fair values of outstanding cash flow hedges. The amount of ineffectiveness associated with these cash flow hedges was not material during any year presented within these financial statements.
The following table summarises the net of tax effect for cash flow hedges that settled for the periods presented within the consolidated income statement:
|
| | | | | | | |
| | | Amount of (gain) loss reclassified from the hedging reserve into profit |
| | | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| Cash flow hedging instruments | Location – income statement | € million |
| € million |
| € million |
|
| Foreign currency contracts | Cost of sales | — |
| 4 |
| 7 |
|
| Commodity contracts | Cost of sales | (17 | ) | — |
| — |
|
Foreign currency contracts(A) | Non-operating items | 18 |
| 43 |
| (123 | ) |
| Total | | 1 |
| 47 |
| (116 | ) |
(A) The gain/(loss) recognised on these currency contracts is offset by the gain/(loss) recognised on the remeasurement of the underlying debt instruments; therefore, there is a minimal consolidated net effect in non-operating items on the consolidated income statement.
Non-designated hedges
The Group periodically enters into derivative instruments that are designed to hedge various risks but are not designated as hedging instruments. These hedged risks include those related to commodity price fluctuations associated with forecasted purchases of aluminium, sugar, components of PET (plastic) and vehicle fuel. At times, it also enters into other short-term non-designated hedges to mitigate its exposure to changes in cash flows attributable to currency fluctuations associated with short-term intercompany loans and certain cash equivalents denominated in non-functional currencies. Changes in the fair value of outstanding non-designated hedges are recognised each reporting period in the line item on the consolidated income statement that is consistent with the nature of the hedged risk.
The notional amount of outstanding non-designated commodity hedges was €30 million and €31 million as at 31 December 2019 and 31 December 2018, respectively. Outstanding commodity hedges as at 31 December 2019 are expected to settle and affect profit or loss during 2020.
The notional amount of outstanding non-designated short-term foreign currency contracts associated with intercompany loans and trade payables denominated in non-functional currencies was €11 million and €57 million as at 31 December 2019 and 31 December 2018, respectively. Outstanding non-designated foreign currency hedges as at 31 December 2019 are expected to settle and affect profit or loss during 2020.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 147
The following table summarises the gains (losses) recognised from non-designated derivative financial instruments in the consolidated income statement for the years presented: |
| | | | | | | |
| | | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| Non-designated hedging instruments | Location – income statement | € million |
| € million |
| € million |
|
| Commodity contracts | Cost of sales | — |
| 1 |
| 20 |
|
| Commodity contracts | Selling and distribution expenses | 5 |
| — |
| (2 | ) |
Foreign currency contracts(A) | Non-operating items | (2 | ) | (4 | ) | 13 |
|
| Total | | 3 |
| (3 | ) | 31 |
|
(A) The gain/(loss) recognised on these currency contracts is offset by the gain/(loss) recognised on the remeasurement of the underlying hedged items; therefore, there is a minimal consolidated net effect in non-operating items on the consolidated income statement.
Net investment hedges
Prior to the Merger, the Group entered into foreign currency forwards, options and foreign currency denominated borrowings designated as net investment hedges of its foreign subsidiaries. Changes in the fair value of these hedges resulting from currency exchange rate changes were recognised as a component of other reserves on the consolidated statement of financial position to offset the change in the carrying value of the net investment being hedged. All outstanding net investment hedges were settled prior to the Merger. Although the Group had no net investment hedges in place as at 31 December 2019 or 31 December 2018, it continues to monitor its exposure to currency exchange rates and may enter into future net investment hedges as a result of volatility in the functional currencies of certain of its subsidiaries.
As a result of US tax law changes, in 2017, the Group recognised a deferred tax benefit of €27 million in other reserves related to the deferred gain on net investment hedges.
148Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 13
Borrowings and leases
Borrowings
Borrowings are initially recognised at fair value, net of issuance costs incurred. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortisation of transaction costs, premiums and discounts is recognised as part of finance costs within the consolidated income statement.
Borrowings outstanding
The following table summarises the carrying value of the Group’s borrowings as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Non-current: | | |
| US$525 million 3.50% Notes 2020 | — |
| 456 |
|
| US$250 million 3.25% Notes 2021 | 221 |
| 216 |
|
| US$300 million 4.50% Notes 2021 | 266 |
| 261 |
|
€350 million Floating Rate Note 2021(A) | 350 |
| 350 |
|
| €700 million 0.75% Notes 2022 | 698 |
| 697 |
|
| €350 million 2.63% Notes 2023 | 348 |
| 348 |
|
| €500 million 1.13% Notes 2024 | 496 |
| 495 |
|
| €350 million 2.38% Notes 2025 | 347 |
| 346 |
|
| €250 million 2.75% Notes 2026 | 248 |
| 248 |
|
| €500 million 1.75% Notes 2028 | 493 |
| 493 |
|
| €400 million 1.50% Notes 2027 | 396 |
| 395 |
|
| €500 million 1.88% Notes 2030 | 495 |
| 495 |
|
| €500 million 1.13% Notes 2029 | 493 |
| — |
|
| €500 million 0.70% Notes 2031 | 495 |
| — |
|
Term loan 2019-2021(B) | — |
| 274 |
|
Lease obligations(C) | 276 |
| 53 |
|
| Total non-current borrowings | 5,622 |
| 5,127 |
|
| Current: | | |
| US$525 million 3.50% Notes 2020 | 467 |
| — |
|
| €350 million 2.00% Notes 2019 | — |
| 349 |
|
| EUR commercial paper | 221 |
| 120 |
|
Lease obligations(C) | 111 |
| 22 |
|
| Total current borrowings | 799 |
| 491 |
|
| |
| (A) | Floating rate calculated as 3 months Euribor plus 18 basis points with a minimum 0%. |
| |
| (B) | Between May and August 2019, there were a number of early repayments on the term loan prior to maturity. The term loan was fully repaid in August 2019. |
| |
| (C) | As at 31 December 2019, amounts represent the present value of the majority of the Group’s lease obligations, including the effects of adopting IFRS 16. Refer to Note 2 for further details. As at 31 December 2018, amounts only include the Group’s finance lease obligations. |
Borrowings are stated net of unamortised financing fees of €23 million and €24 million, as at 31 December 2019 and 31 December 2018, respectively.
Credit facilities
The Group has amounts available for borrowing under a €1.5 billion multi currency credit facility with a syndicate of ten banks. This credit facility matures in 2024 and is for general corporate purposes and supporting the Group’s working capital needs. Based on information currently available, there is no indication that the financial institutions participating in this facility would be unable to fulfil their commitments to the Group as at the date of this report. The Group’s current credit facility contains no financial covenants that would impact its liquidity or access to capital. As at 31 December 2019, the Group had no amounts drawn under this credit facility.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 149
Cash flows from financing activities
The following table provides a reconciliation of movements of liabilities to cash flows arising from financing activities:
|
| | | | | | |
| | Current portion of borrowings |
| Borrowings, less current portion |
| Total |
|
| | € million |
| € million |
| € million |
|
| As at 31 December 2017 | 274 |
| 5,474 |
| 5,748 |
|
| Changes from financing cash flows | | |
|
|
| Proceeds from third party borrowings, net | — |
| 398 |
| 398 |
|
| Changes in short-term borrowings | (131 | ) | — |
| (131 | ) |
| Repayments on third party borrowings | — |
| (426 | ) | (426 | ) |
Payment of principal on lease obligations(A) | (18 | ) | — |
| (18 | ) |
| Capitalised discount/premium | — |
| (2 | ) | (2 | ) |
| Other financing activities | — |
| (8 | ) | (8 | ) |
| Other non-cash changes | | |
|
|
| Amortisation of discount, premium and issue costs | — |
| 8 |
| 8 |
|
| Lease additions | 1 |
| 5 |
| 6 |
|
| Currency translation | 1 |
| 42 |
| 43 |
|
| Reclassifications | 364 |
| (364 | ) | — |
|
| Total changes | 217 |
| (347 | ) | (130 | ) |
| As at 31 December 2018 | 491 |
| 5,127 |
| 5,618 |
|
| Changes from financing cash flows | | | |
| Proceeds from third party borrowings, net | — |
| 987 |
| 987 |
|
| Changes in short-term borrowings | 101 |
| — |
| 101 |
|
| Repayments on third party borrowings | (350 | ) | (275 | ) | (625 | ) |
Payment of principal and interest on lease obligations(A) | (132 | ) | — |
| (132 | ) |
| Other non-cash changes | | | |
| Amortisation of discount, premium and issue costs | 1 |
| 9 |
| 10 |
|
| Lease additions | 20 |
| 102 |
| 122 |
|
Lease operating liability recognised as at 1 January 2019(B) | 92 |
| 230 |
| 322 |
|
| Currency translation | 9 |
| 9 |
| 18 |
|
| Reclassifications | 567 |
| (567 | ) | — |
|
| Total changes | 308 |
| 495 |
| 803 |
|
| As at 31 December 2019 | 799 |
| 5,622 |
| 6,421 |
|
| |
| (A) | As a result of the adoption of IFRS 16 on 1 January 2019, the majority of the Group’s lease obligations are now presented on the balance sheet as right of use (ROU) assets in property, plant and equipment. Cash outflows relating to operating leases had previously been presented in net cash flows from operating activities and, from 1 January 2019, these equivalent cash flows are now included as cash flows from financing activities. During the year ended 31 December 2019, total cash outflows from lease payments are payments of principal on lease obligations for €128 million and payments of interest charged on lease obligation for €4 million. In 2018, while our operating lease cash flows were presented as operating cash flows, our finance lease cash flows were included within financing activities. |
| |
| (B) | Adjustment for the adoption of IFRS 16, “Leases” on 1 January 2019, as described in Note 2. |
Cash flows from financing activities includes €36 million, €34 million and €36 million of cash received related to income on a cross currency swap for 2019, 2018 and 2017, respectively.
150Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 14
Trade and other payables
Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the reporting period, which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Trade payables are non-interest bearing and are normally settled between 30 to 60 days.
The Group participates in various programmes and arrangements with customers designed to increase the sale of our products. The costs of these programmes are recorded as deductions from revenue. Among the programmes are arrangements under which allowances can be earned by customers for attaining agreed upon sales levels or for participating in specific marketing programmes. When these allowances are paid in arrears, the Group accrues the estimated amount to be paid based upon historical customer experience, the programme’s contractual terms, expected customer performance and/or estimated sales volume. The costs of these off-invoice customer marketing costs totalled €3.2 billion, €3.0 billion and €2.9 billion for 2019, 2018 and 2017, respectively.
The following table summarises trade and other payables as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Trade accounts payable | 1,138 |
| 1,105 |
|
| Accrued customer marketing costs | 701 |
| 753 |
|
| Accrued deposits | 274 |
| 282 |
|
| Accrued compensation and benefits | 234 |
| 269 |
|
| Accrued taxes | 251 |
| 273 |
|
| Other accrued expenses | 187 |
| 146 |
|
| Total trade and other payables | 2,785 |
| 2,828 |
|
Note 15
Post-employment benefits
The cost of providing benefits is determined using the projected unit credit method with actuarial valuations being carried out at the end of each annual reporting period. All remeasurements of the defined benefit obligation, such as actuarial gains and losses and return on plan assets, are recognised directly in other comprehensive income. Remeasurements recognised in other comprehensive income are reflected immediately in retained earnings and are not reclassified to profit or loss. Service costs are presented within cost of sales, selling and distribution expenses and administrative expenses in the consolidated income statement. Past service costs are recognised immediately within cost of sales, selling and distribution expenses and administrative expenses in the consolidated income statement. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. Net interest cost is presented within finance costs or finance income, as applicable, in the consolidated income statement. The defined benefit obligation recognised in the consolidated statement of financial position represents the present value of the estimated future cash outflows, using interest rates of high quality corporate bonds which have terms to maturity approximating the terms of the related liability.
For termination benefits the Group recognises termination benefits at the earlier of the following dates: (1) when the Group can no longer withdraw the offer of those benefits and (2) when the Group recognises costs for a restructuring that is within the scope of IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for those benefits.
The following table summarises our non-current employee benefit liabilities as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Retirement benefit obligation | 178 |
| 89 |
|
| Other employee benefit liabilities | 43 |
| 53 |
|
| Total non-current employee benefit liabilities | 221 |
| 142 |
|
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 151
Defined benefit plans
The Group sponsors a number of defined benefit pension plans in Belgium, France, Germany, Great Britain, Luxembourg and Norway, of which the Great Britain plan (GB Scheme) and Germany plans (Pension Plan 1 and Pension Plan 2) are the most significant.
The GB Scheme’s defined benefit obligation includes benefits for current employees, former employees and current pensioners. The level of benefits provided (funded final salary pension) depends on the member’s length of service and salary at retirement age. Part of the pension may be exchanged for a tax free cash lump sum. The GB Scheme was closed to new members with effect from 1 October 2005 and is administered by a separate board of trustees, which is legally separate from the Group. The board of trustees is composed of representatives of both the employer and employees. The board of trustees is required by law to act in the interest of all relevant beneficiaries and is responsible for the investment policy with regard to the assets plus the day to day administration of the benefits.
A full actuarial valuation of the GB Scheme occurs on a triennial basis by a qualified external actuary, which is used as the basis of determining the Group’s future contributions to the plan. The latest triennial valuation was carried out as at 5 April 2019 and has been updated to 31 December 2019 to reflect our defined benefit obligation, for known events and changes in market conditions as allowed under IAS 19 “Employee Benefits”. Following the 2019 triennial actuarial results and in light of the funding status of the plan, it has been agreed between the Group and the trustees of the GB Scheme that the annual additional £13 million funding requirement, which had previously been determined as an outcome of the 2016 triennial valuation, will be discontinued.
Germany’s defined benefit pension plans are open to existing members but closed to new entrants. The defined benefit includes benefits for current employees, former employees and current pensioners. Pension Plan 1 has elements of a final salary pension for past service and a career average formula for new accruals. It is funded through a support fund administered by an insurance company. Pension Plan 2 is administered by the Group with the plan being covered by a Contractual Trust Arrangement (CTA) and a single reinsurance contract. The Group is responsible for paying obligations. There is no external board of trustees. The insurer shares some responsibility for plan assets, investment policy and administration. The latest annual valuation for Plan 1 was 31 December 2018 updated to the balance sheet date of these consolidated financial statements and for Plan 2 it was 31 December 2019.
Risks
The Group’s defined benefit pension schemes expose the Group to a number of risks, including:
| |
| • | Asset volatility - the plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, a deficit would occur. Some of our plans hold a significant proportion of growth assets (equities and property) which, though expected to outperform corporate bonds in the long term, create volatility and risk in the short term. The allocation to growth assets is monitored to ensure it remains appropriate given each scheme’s long-term objectives. |
| |
| • | Changes in bond yields - a decrease in corporate bond yields will increase the defined benefit liability, although this will be partially offset by an increase in the value of the plan’s bond holdings. |
| |
| • | Inflation risk - a significant proportion of our benefit obligations are linked to inflation and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. |
| |
| • | Life expectancy - the majority of our plans have an obligation to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the defined benefit liabilities. |
Benefit costs
The following table summarises the expense related to pension plans recognised in the consolidated income statement for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Service cost | 46 |
| 52 |
| 53 |
|
| Past service cost | 3 |
| — |
| (3 | ) |
| Net interest cost | 1 |
| 1 |
| 3 |
|
| Administrative expenses | 2 |
| 2 |
| 2 |
|
| Total cost | 52 |
| 55 |
| 55 |
|
152Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Other comprehensive income
The following table summarises the changes in other comprehensive income related to our pension plans for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Actuarial (gain)/loss on defined benefit obligation arising during the period | 282 |
| (120 | ) | 30 |
|
| Return on plan assets (greater)/less than discount rate | (203 | ) | 118 |
| (121 | ) |
| Net charge to other comprehensive income | 79 |
| (2 | ) | (91 | ) |
Benefit obligation and fair value of plan assets
The following table summarises the changes in the pension plan benefit obligation and the fair value of plan assets for the periods presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Reconciliation of benefit obligation: | | |
| Benefit obligation at beginning of plan year | 1,872 |
| 1,969 |
|
| Service cost | 46 |
| 52 |
|
| Past service cost | 3 |
| — |
|
| Interest costs on defined benefit obligation | 44 |
| 42 |
|
| Plan participants contribution | 26 |
| 47 |
|
| Actuarial loss/(gain) - experience | (13 | ) | (5 | ) |
| Actuarial loss/(gain) - demographic assumptions | 11 |
| (35 | ) |
| Actuarial loss/(gain) - financial assumptions | 284 |
| (80 | ) |
| Benefit payments | (111 | ) | (110 | ) |
| Administrative expenses | 2 |
| 2 |
|
| Currency translation adjustments | 72 |
| (10 | ) |
| Benefit obligation at end of plan year | 2,236 |
| 1,872 |
|
| Reconciliation of fair value of plan assets: | | |
| Fair value of plan assets at beginning of plan year | 1,804 |
| 1,898 |
|
| Interest income on plan assets | 43 |
| 41 |
|
Return on plan assets greater/(less) than discount rate | 203 |
| (118 | ) |
| Plan participants contributions | 26 |
| 47 |
|
| Employer contributions | 61 |
| 56 |
|
| Benefit payments | (111 | ) | (110 | ) |
| Currency translation adjustment | 70 |
| (10 | ) |
| Fair value of plan assets at end of plan year | 2,096 |
| 1,804 |
|
Timing of benefit payments
The weighted average duration of the defined benefit plan obligation as at 31 December 2019 is 22 years, out of which the GB Scheme represents 23 years and Germany plans represent 16 years.
Retirement benefit status
The following table summarises the retirement benefit status of pension plans as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Net benefit status: |
| |
| Present value of obligation | (2,236 | ) | (1,872 | ) |
| Fair value of assets | 2,096 |
| 1,804 |
|
| Net benefit status: | (140 | ) | (68 | ) |
| Retirement benefit surplus | 38 |
| 21 |
|
| Retirement benefit obligation | (178 | ) | (89 | ) |
The GB Scheme and Germany plans represented approximately 74.0% and 15.3% of the present value of the obligation and 75.2% and 16.8% of the fair value of assets as at 31 December 2019, respectively.
The surplus for 2019 and 2018, which is primarily related to Germany Pension Plan 2, is recognised on the balance sheet on the basis that the Group is entitled to a refund of any remaining assets once all members have left the plan. Refer to Note 23.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 153
Actuarial assumptions
The following tables summarise the weighted average actuarial assumptions used to determine the benefit obligations of pension plans as at the dates presented:
|
| | |
| | 31 December 2019 | 31 December 2018 |
| Financial assumptions | % | % |
| Discount rate | 1.7 | 2.5 |
| Rate of compensation increase | 2.9 | 3.1 |
| Rate of price inflation | 2.7 | 2.9 |
|
| | | | |
Demographic assumptions (weighted average)(A) | 31 December 2019 |
| 31 December 2018 |
|
| Retiring at the end of the reporting period | | |
| Male | 21.2 |
| 21.3 |
|
| Female | 23.8 |
| 23.9 |
|
| Retiring 15 years after the end of the reporting period | | |
| Male | 22.2 |
| 22.3 |
|
| Female | 24.9 |
| 25.0 |
|
| |
| (A) | These assumptions translate into an average life expectancy in years, post-retirement, for an employee retiring at age 65. |
The following table summarises the sensitivity of the defined benefit obligation to changes in the weighted average principal assumptions for the periods presented:
|
| | | | | | | | | | | |
| | Change in assumption |
| Impact on defined benefit obligation (%) |
| | Increase in assumption | | Decrease in assumption |
| Principal assumptions | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| Discount rate | 0.5 | % | (9.3 | ) | (8.6 | ) | | 10.6 |
| 9.8 |
|
| Rate of compensation increase | 0.5 | % | 2.4 |
| 2.4 |
| | (2.2 | ) | (2.2 | ) |
| Rate of price inflation | 0.5 | % | 7.6 |
| 8.1 |
| | (8.5 | ) | (6.6 | ) |
| Mortality rates | 1 year |
| 3.4 |
| 2.9 |
| | (3.5 | ) | (3.0 | ) |
The sensitivity analyses have been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation of one another.
Pension plan assets
There are formal investment policies for the assets associated with our pension plans. Policy objectives include (1) maximising long-term return at acceptable risk levels; (2) diversifying among asset classes, if appropriate, and among investment managers; and (3) establishing relevant risk parameters within each asset class. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate risk, including quality and diversification standards. Asset allocation targets are based on periodic asset liability and/or risk budgeting study results, which help determine the appropriate investment strategies for acceptable risk levels. The investment policies permit variances from the targets within certain parameters.
154Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
The following tables summarise pension plan assets measured at fair value as at the dates presented:
|
| | | | | | |
| | Total 31 December 2019 |
| Investments quoted in active markets |
| Unquoted investments |
|
| | € million |
| € million |
| € million |
|
Equity securities(A): | 1,024 |
| 1,024 |
| — |
|
Fixed-income securities(B): | | | |
| Corporate bonds and notes | 75 |
| 48 |
| 27 |
|
| Government bonds | 445 |
| 445 |
| — |
|
Cash and other short-term investments(C) | 20 |
| 20 |
| — |
|
| Other investments: | | | |
Real estate funds(D) | 329 |
| 34 |
| 295 |
|
Insurance contracts(E) | 203 |
| — |
| 203 |
|
| Total | 2,096 |
| 1,571 |
| 525 |
|
|
| | | | | | |
| | Total 31 December 2018 |
| Investments quoted in active markets |
| Unquoted investments |
|
| | € million |
| € million |
| € million |
|
Equity securities:(A) | 827 |
| 827 |
| — |
|
Fixed-income securities:(B) | | | |
| Corporate bonds and notes | 67 |
| 43 |
| 24 |
|
| Government bonds | 384 |
| 384 |
| — |
|
Cash and other short-term investments(C) | 7 |
| 7 |
| — |
|
| Other investments: | | | |
Real estate funds(D) | 293 |
| 27 |
| 266 |
|
Insurance contracts(E) | 226 |
| — |
| 226 |
|
| Total | 1,804 |
| 1,288 |
| 516 |
|
| |
| (A) | Equity securities are comprised of the following investment types: (1) ordinary shares; (2) preference shares; and (3) common trust funds and collective funds. Investments in ordinary and preference shares are valued using quoted market prices multiplied by the number of shares owned. Investments in common trust funds and collective funds are valued at the net asset value per share, which is calculated based on the underlying quoted investments market price, multiplied by the number of shares held as of the measurement date. |
| |
| (B) | Investments other than those held in common trust funds and collective funds are valued using a market approach. The value of such assets is primarily sourced from broker quotes in active markets. Bonds are held mainly in the currency of the geography of the plan. |
| |
| (C) | Cash and other short-term investments are valued at €1.00/unit, which approximates fair value. Amounts are generally invested in cash, actively managed common trust funds or interest bearing accounts. |
| |
| (D) | Real estate funds, mainly related to the GB Scheme, are valued at the net asset value per share. For quoted funds, the calculation is based on the underlying quoted investments market price, multiplied by the number of shares held as of the measurement date. For unquoted funds, this is calculated using the most recent partnership financial reports, adjusted, as appropriate, for any lag between the date of the financial reports and the measurement date (as of 31 December 2019, it is not probable that these investments will be sold at an amount other than net asset value). |
| |
| (E) | Insurance contracts exactly match the amount and timing of certain benefits, therefore the fair value of these insurance policies is deemed to be the present value of the related obligations. The significant majority of these are reinsurance contracts relating to benefit arrangements in Germany. |
Contributions
To support a long-term funding arrangement, during 2019 the Group entered into a partnership agreement with the GB Scheme, the CCEP Scottish Limited Partnership (the Partnership). Certain property assets in Great Britain, with a market value of £171 million were transferred into the Partnership and subsequently leased back to the Group’s operating subsidiary in Great Britain. The GB Scheme receives semi-annual distributions from the Partnership, increasing each year at a fixed cumulative rate of 3% through 2034. The Group exercises control over the Partnership and as such it is fully consolidated in these consolidated financial statements. Under IAS 19, the investment held by the GB Scheme in the Partnership does not represent a plan asset for the purposes of these consolidated financial statements. Similarly, the associated liability is not included in the consolidated statement of financial position, rather the distributions are recognised when paid as a contribution to the plan assets of the scheme.
Contributions to pension plans totalled €61 million, €56 million and €58 million during the years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively. Included within the 2019 contribution is €5 million relating to the Partnership agreement. The Group expects to make contributions of €53 million for the full year ending 31 December 2020.
Other employee benefit liabilities
In certain territories, the Group has an early retirement programme designed to create an incentive for employees, within a certain age group, to transition from (full or part time) employment into retirement before their legal retirement age. Furthermore, the Group also sponsors deferred compensation plans in other territories. The current portion of these liabilities totalled €17 million and €19 million as at 31 December 2019 and 31 December 2018, respectively, and is included within the current portion of employee benefit liabilities. The non-current portion of these liabilities totalled €43 million and €53 million as at 31 December 2019 and 31 December 2018, respectively, and is included within employee benefit liabilities.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 155
Defined contribution plans
The Group sponsors qualified defined contribution plans covering substantially all of our employees in Iceland, the Netherlands, Norway, Spain and certain employees in Great Britain. Contributions payable for the period are charged to the consolidated income statement as an operating expense for defined contribution plans. Contributions to these plans totalled €26 million, €27 million and €25 million during the year ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
Note 16
Equity
Share capital
As at 31 December 2019, the Company has issued and fully paid 456,399,877 Shares. Shares in issue have one voting right each and no restrictions related to dividends or return of capital.
|
| | | | |
| | Number of Shares |
| Share capital |
|
| | millions |
| € million |
|
| As at 1 January 2017 | 483 |
| 5 |
|
| Issuances of Shares | 2 |
| — |
|
| As at 31 December 2017 | 485 |
| 5 |
|
| Issuance of Shares | 3 |
| — |
|
| Cancellation of Shares | (13 | ) | — |
|
| As at 31 December 2018 | 475 |
| 5 |
|
| Issuance of Shares | 2 |
| — |
|
| Cancellation of Shares | (21 | ) | — |
|
| As at 31 December 2019 | 456 |
| 5 |
|
The share capital increased in 2019, 2018 and 2017 from the issue of 2,092,404, 2,763,238 and 1,510,032 Shares, respectively, following the exercise of share-based payment awards.
In connection with the share buyback programme that commenced in 2018, 20,612,593 and 12,429,600 Shares were cancelled in 2019 and 2018, respectively.
Share premium
The share premium account increased by cash received for the exercise of options by €26 million for 2019, €25 million for 2018 and €13 million for 2017.
Merger reserves
The consideration transferred to acquire CCIP and CCEG qualified for merger relief under the Companies Act. As such, the excess consideration transferred over nominal value was required to be excluded from the share premium account and recorded to merger reserves.
Share buyback programme
On 12 September 2018, the Company announced a share buyback programme of up to €1.5 billion. The maximum number of Shares authorised for repurchase at the Company’s 2018 Annual General Meeting was 48,507,819. The Company entered into agreements to purchase its own Shares as part of this share buyback programme.
For the year ended 31 December 2019, 20,612,593 Shares were repurchased by the Company and cancelled. The total cost of the repurchased Shares of €1,005 million, including €5 million of directly attributable tax costs, was deducted from retained earnings. As a result of the cancellation, €0.2 million was transferred from share capital to a capital redemption reserve (disclosed within other reserves), representing the nominal value of the Shares cancelled.
Other reserves
The following table summarises the balances in other reserves (net of tax) as at the dates presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Cash flow hedge reserve | (17 | ) | (26 | ) | (12 | ) |
| Net investment hedge reserve | 197 |
| 197 |
| 197 |
|
| Foreign currency translation adjustment reserve | (629 | ) | (723 | ) | (688 | ) |
| Total other reserves | (449 | ) | (552 | ) | (503 | ) |
Movements, including the tax effects, in these accounts through 31 December 2019 are included in the consolidated statement of comprehensive income.
156Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Dividends
Dividends are recorded within the Group’s consolidated financial statements in the period in which they are paid.
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
First half 2019 dividend: €0.62 per Share(A) | 290 |
| 252 |
| 286 |
|
Second half 2019 dividend: €0.62 per Share(B) | 284 |
| 261 |
| 203 |
|
| Total dividend on ordinary shares paid | 574 |
| 513 |
| 489 |
|
| |
| (A) | Dividends of €0.26 and €0.17 per Share were declared in the first quarter of 2018 and 2017, respectively. Dividends of €0.26 and €0.21 per Share were declared in the second quarter of 2018 and 2017, respectively. The dividend within the second quarter of 2017 was made up of two payments. |
| |
| (B) | Dividends of €0.26 and €0.21 per Share were declared in the third quarter of 2018 and 2017, respectively. Dividends of €0.28 and €0.21 per Share were declared in the fourth quarter of 2018 and 2017, respectively. |
In 2019, there was no additional accrual in relation to dividends for restricted stock units and performance share units. Additionally, €2 million was accrued in both 2018 and 2017.
Note 17
Total operating costs
The following table summarises the significant cost items by nature within operating costs for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Cost of inventory recognised as an expense | 5,147 |
| 4,901 |
| 5,021 |
|
| Write down of inventories (Note 8) | 25 |
| 23 |
| 25 |
|
Employee costs(A) | 1,771 |
| 1,768 |
| 1,719 |
|
| Distribution costs | 664 |
| 637 |
| 595 |
|
| Depreciation of property, plant and equipment, excluding restructuring | 549 |
| 446 |
| 426 |
|
| Amortisation of intangible assets (Note 6) | 52 |
| 51 |
| 47 |
|
| Out of period mark-to-market effects on undesignated derivatives | (2 | ) | 8 |
| (6 | ) |
| Merger related costs | — |
| — |
| 4 |
|
Restructuring charges, including accelerated depreciation(B) | 130 |
| 274 |
| 235 |
|
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| (A) Employee costs | € million |
| € million |
| € million |
|
| Wages and salaries | 1,370 |
| 1,360 |
| 1,317 |
|
| Social security costs | 289 |
| 290 |
| 290 |
|
| Pension and other employee benefits | 112 |
| 118 |
| 112 |
|
| Total employee costs | 1,771 |
| 1,768 |
| 1,719 |
|
Directors’ remuneration information is disclosed in the Directors’ Remuneration Report.
The average number of persons employed by the Group (including Directors) for the periods presented were as follows:
|
| | | | | | |
| | 2019 |
| 2018 |
| 2017 |
|
| | No. in thousands |
| No. in thousands |
| No. in thousands |
|
| Commercial | 7.6 |
| 7.7 |
| 7.7 |
|
| Supply chain | 13.1 |
| 13.1 |
| 13.5 |
|
| Support functions | 2.6 |
| 2.7 |
| 2.3 |
|
| Total average staff employed | 23.3 |
| 23.5 |
| 23.5 |
|
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
(B) Restructuring | € million |
| € million |
| € million |
|
| Increase in provision for restructuring programmes (Note 22) | 80 |
| 236 |
| 186 |
|
| Amount of provision unused (Note 22) | (15 | ) | (23 | ) | (22 | ) |
| Accelerated depreciation and non-cash costs | 39 |
| 22 |
| 33 |
|
Other cash costs(A) | 26 |
| 39 |
| 38 |
|
| Total restructuring costs | 130 |
| 274 |
| 235 |
|
| |
| (A) | Other cash costs primarily relate to professional fees, which include consultancy costs, legal fees and other costs associated with restructuring. |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 157
Restructuring costs charged in arriving at operating profit for the years presented include restructuring costs arising under the following programmes and initiatives:
Transformation of cold drink operations
During 2019, the Group commenced a transformation project relating to our cold drink operations aimed at delivering a modern, differentiated and versatile equipment fleet to optimise net cooler placements throughout our markets. As part of this strategy, capital expenditure on cold drink equipment will focus on the introduction of a new, more cost effective cooler, whilst reducing maintenance and refurbishment support spending on our older equipment. As a result of the operational impact of the strategic changes, a restructuring charge was recognised in the period of €53 million, primarily relating to the write down and accelerated depreciation of aged cold drink equipment assets.
Supply chain site closure in Iberia
In 2016, as required by a Supreme Court ruling, CCIP created a new logistics centre (COIL) in Fuenlabrada, Spain and re-employed many of the workers who had been subject to a 2014 collective dismissal process at the same location. Following subsequent discussions with employee representatives, in November 2018 a COIL shutdown agreement was signed which effected the closure of the facility. For the year ended 31 December 2018, the Group recorded a related restructuring expense of €112 million, primarily related to severance costs. No further expenses were recognised in 2019.
Supply chain site closure in GB
In January 2018, as part of productivity initiatives in Great Britain, the Group announced proposals to close its manufacturing site in Milton Keynes and distribution centre in Northampton. The closures occurred during 2019. During the years ended 31 December 2019 and 31 December 2018, the Group recorded total expense of €20 million, primarily related to severance costs and accelerated depreciation, partially offset by gain on sale of the manufacturing site in Milton Keynes. As at 31 December 2019 the programme is substantially complete.
Commercial restructuring initiatives
In 2018, commercial restructuring initiatives were announced in Germany relating to the full service vending business and in, 2019, commercial and supply chain restructuring initiatives relating to operational productivity. During the year ended 31 December 2019, the Group recorded expenses of €24 million in Germany for these initiatives, primarily related to severance costs. Total costs of these programmes are expected to be €40 million and these programmes will be substantially completed by 31 December 2020.
CCEP integration and synergy programme
In 2016, the Group announced several restructuring proposals to facilitate and enable the integration of CCE, CCIP and CCEG following the Merger. Restructuring activities included those related to supply chain improvements such as network optimisation, productivity initiatives, continued facility rationalisation in Germany and end to end supply chain organisational design. Restructuring plans also included transferring Germany transactional related activities to the Group’s shared service centres in Bulgaria and other central function initiatives. The Group also initiated the relocation of Atlanta based headquarters roles to Europe. In 2017, the Group announced additional restructuring proposals, including the optimisation of manufacturing, warehouse and labour productivity, cold drink operational practices and facilities, further facility rationalisation in Germany and supply chain organisational design improvements such as route to market. These proposals also included the transfer of additional activities to the Group’s shared service centres in Bulgaria and other central function initiatives. The programme was completed during 2019.
Auditor’s remuneration
Audit and other fees charged in the income statement concerning the statutory auditor of the consolidated financial statements, Ernst & Young LLP, were as follows: |
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € thousand |
| € thousand |
| € thousand |
|
Audit of Parent Company and consolidated financial statements(A) | 2,737 |
| 2,401 |
| 2,383 |
|
| Audit of the Company’s subsidiaries | 3,430 |
| 3,719 |
| 4,167 |
|
| Total audit | 6,167 |
| 6,120 |
| 6,550 |
|
Audit-related assurance services(B) | 1,106 |
| 976 |
| 1,187 |
|
| Other assurance services | 236 |
| 101 |
| 115 |
|
| Total audit and audit-related assurance services | 7,509 |
| 7,197 |
| 7,852 |
|
All other services(C) | 123 |
| 1,180 |
| 90 |
|
| Total non-audit or non-audit-related assurance services | 123 |
| 1,180 |
| 90 |
|
| Total audit and all other fees | 7,632 |
| 8,377 |
| 7,942 |
|
| |
| (A) | Fees in respect of the audit of the accounts of the Company, including the Group's consolidated financial statements. |
| |
| (B) | Includes professional fees for interim reviews, reporting on internal financial controls, services related to the transaction entered into with CCE, TCCC, CCIP and CCEG, issuance of comfort letters for debt issuances, regulatory inspections, certain accounting consultations and other attest engagements. |
| |
| (C) | Represents fees for all other allowable services. |
158Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 18
Finance costs
Finance costs are recognised in the consolidated income statement in the period in which they are incurred, with the exception of general and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Borrowing costs are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised within the consolidated income statement in the period in which they are incurred based upon the effective interest rate method. Interest income is recognised using the effective interest rate method.
The following table summarises net finance costs for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
Interest income(A) | 49 |
| 47 |
| 48 |
|
Interest expense on external debt(A) | (137 | ) | (134 | ) | (141 | ) |
Other finance costs(B) | (8 | ) | (6 | ) | (7 | ) |
| Total finance costs, net | (96 | ) | (93 | ) | (100 | ) |
| |
| (A) | Includes interest income and expense amounts, as applicable, on cross currency swaps used to hedge USD debt. Interest swap income amounts to €36 million, €34 million and €36 million for 2019, 2018 and 2017, respectively. Refer to Note 12 for further details. |
| |
| (B) | Other finance costs principally include amortisation of the discount on external debt. |
Note 19
Related party transactions
For the purpose of these consolidated financial statements, transactions with related parties mainly comprise transactions between subsidiaries of the Group and the related parties of the Group.
Transactions with TCCC
TCCC exerts significant influence over the Group, as defined by IAS 24, “Related Party Disclosures”. As at 31 December 2019, 19.3% of the total outstanding Shares in the Group were owned by European Refreshments, a wholly owned subsidiary of TCCC. The Group is a key bottler of TCCC products and has entered into bottling agreements with TCCC to make, sell and distribute products of TCCC within the Group’s territories. The Group purchases concentrate from TCCC and also receives marketing funding to help promote the sale of TCCC products. Bottling agreements with TCCC for each of the Group’s territories extend through to 28 May 2026, with terms of 10 years, with each containing the right for the Group to request a 10 year renewal. Additionally, two of the Group’s 17 Directors are nominated by TCCC.
The Group and TCCC engage in a variety of marketing programmes to promote the sale of TCCC products in territories in which the Group operates. The Group and TCCC operate under an incidence based concentrate pricing model and funding programme, the terms of which are tied to the terms of our bottling agreements.
TCCC makes discretionary marketing contributions under shared marketing agreements to CCEP’s operating subsidiaries. Amounts to be paid to the Group by TCCC under the programmes are generally determined annually and are periodically reassessed as the programmes progress. Under the bottling agreements, TCCC is under no obligation to participate in the programmes or continue past levels of funding in the future. The amounts paid and terms of similar programmes with other franchises may differ.
Marketing support funding programmes granted to the Group provide financial support principally based on product sales or on the completion of stated requirements and are intended to offset a portion of the costs of the programmes.
Payments from TCCC for marketing programmes to promote the sale of products are classified as a reduction in cost of sales, unless the presumption that the payment is a reduction in the price of the franchisors’ products can be overcome. Payments for marketing programmes are recognised as product is sold.
The following table summarises the transactions with TCCC that directly impacted the consolidated income statement for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
Amounts affecting revenue(A) | 66 |
| 59 |
| 61 |
|
Amounts affecting cost of sales(B) | (2,962 | ) | (2,860 | ) | (2,829 | ) |
Amounts affecting operating expenses(C) | (22 | ) | (18 | ) | (1 | ) |
| Total net amount affecting the consolidated income statement | (2,918 | ) | (2,819 | ) | (2,769 | ) |
(A) Amounts principally relate to fountain syrup and packaged product sales.
(B) Amounts principally relate to the purchase of concentrate, syrup, mineral water and juice, as well as funding for marketing programmes.
(C) Amounts principally relate to certain costs associated with new product development initiatives.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 159
The following table summarises the transactions with TCCC that impacted the consolidated statement of financial position for the periods presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Amounts due from TCCC | 103 |
| 101 |
|
| Amounts payable to TCCC | 233 |
| 166 |
|
Terms and conditions of transactions with TCCC
Outstanding balances on transactions with TCCC are unsecured, interest free and generally settled in cash. There have been no guarantees provided or received for any TCCC receivables or payables. Receivables from TCCC are considered to be recoverable and no expense was incurred as a result of outstanding receivables due from TCCC for the years ended 31 December 2019, 31 December 2018 and 31 December 2017.
Transactions with Cobega companies
Cobega, S.A. (Cobega) exhibits significant influence over the Group, as defined by IAS 24, “Related Party Disclosures”. As a result of the consummation of the Merger, Cobega, who previously owned 56% of CCIP, indirectly owned 20.4% of the total outstanding Shares in the Group as at 31 December 2019 through its ownership interest in Olive Partners, S.A.. Additionally, five of the Group’s 17 Directors, including the Chairman, are nominated by Olive Partners, three of whom are affiliated with Cobega.
The principal transactions with Cobega are for the purchase of packaging materials, juice concentrate and maintenance services for vending machines. The following table summarises the transactions with Cobega that directly impacted the consolidated income statement for the years presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
Amounts affecting revenue(A) | 1 |
| 3 |
| 3 |
|
Amounts affecting cost of sales(B) | (68 | ) | (85 | ) | (80 | ) |
Amounts affecting operating expenses(C) | (10 | ) | (14 | ) | (16 | ) |
| Total net amount affecting the consolidated income statement | (77 | ) | (96 | ) | (93 | ) |
(A) Amounts principally relate to packaged product sales.
(B) Amounts principally relate to the purchase of packaging materials and concentrate.
(C) Amounts principally relate to certain costs associated with maintenance and repair services.
The following table summarises the transactions with Cobega that impacted the consolidated statement of financial position for the periods presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| | € million |
| € million |
|
| Amounts due from Cobega | 3 |
| 6 |
|
| Amounts payable to Cobega | 16 |
| 25 |
|
There are no significant transactions with other related parties in the periods presented.
Transactions with key management personnel
Key management personnel are the members of the Board of Directors and the members of the Executive Leadership Team. The following table summarises the total remuneration paid or accrued during the reporting period related to key management personnel:
|
| | | | | | |
| 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
Salaries and other short-term employee benefits(A) | 35 |
| 23 |
| 18 |
|
| Post-employment benefits | 1 |
| 1 |
| 1 |
|
| Share-based payments | 9 |
| 9 |
| 8 |
|
| Total | 45 |
| 33 |
| 27 |
|
(A) Short-term employee benefits include wages, salaries and social security contributions, paid annual leave and paid sick leave, paid bonuses and non-monetary benefits (such as medical care and cars).
The Group did not have any loans with key management personnel and was not party to any other transactions with key management personnel during the periods presented.
160Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 20
Income taxes
Current income tax
Current income tax for the period includes amounts expected to be payable on taxable income in the period together with any adjustments to taxes payable in respect of previous periods, and is determined based on the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is determined by identifying the temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax for the period includes origination and reversal of temporary differences, remeasurements of deferred tax balances and adjustments in respect of prior periods.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
| |
| • | when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or |
| |
| • | in respect of taxable temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future. |
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised, except:
| |
| • | when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or |
| |
| • | in respect of deductible temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. |
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Income tax is recognised in the consolidated income statement. Income tax is recognised in other comprehensive income or directly in equity to the extent that it relates to items recognised in other comprehensive income or in equity.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 161
2019, 2018 and 2017 results
The following table summarises the major components of income tax expense for the periods presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Current income tax: | | | |
| Current income tax charge | 330 |
| 315 |
| 294 |
|
| Adjustment in respect of current income tax from prior periods | (20 | ) | 4 |
| — |
|
| Total current tax | 310 |
| 319 |
| 294 |
|
| Deferred tax: | | | |
| Relating to the origination and reversal of temporary differences | 45 |
| 21 |
| 196 |
|
| Adjustment in respect of deferred income tax from prior periods | 6 |
| (6 | ) | (3 | ) |
| Relating to changes in tax rates or the imposition of new taxes | 3 |
| (38 | ) | (16 | ) |
| Total deferred tax | 54 |
| (23 | ) | 177 |
|
| Income tax charge per the consolidated income statement | 364 |
| 296 |
| 471 |
|
The following table summarises the taxes on items recognised in other comprehensive income (OCI) and directly within equity for the periods presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Taxes charged (credited) to OCI: | | | |
| Deferred tax on net gain/loss on revaluation of cash flow hedges | 2 |
| (3 | ) | — |
|
| Deferred tax on net gain/loss on net investment hedges | — |
| (41 | ) | (27 | ) |
| Current tax on net gain/loss on net investment hedges | — |
| 41 |
| — |
|
| Deferred tax on net gain/loss on pension plan remeasurements | (12 | ) | — |
| 18 |
|
| Total taxes charged (credited) to OCI | (10 | ) | (3 | ) | (9 | ) |
| Taxes charged (credited) to equity: | | | |
| Deferred tax charge (credit): share-based compensation | (2 | ) | 12 |
| (12 | ) |
| Current tax charge (credit): share-based compensation | (4 | ) | (5 | ) | (2 | ) |
| Total taxes charged (credited) to equity | (6 | ) | 7 |
| (14 | ) |
The effective tax rate was 25.0%, 24.6% and 40.6% for the years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively. The parent company of the Group is a UK company. Accordingly, the following tables provide reconciliations of the Group’s income tax expense at the UK statutory tax rate to the actual income tax expense for the periods presented:
|
| | | | | | |
| | 31 December 2019 |
| 31 December 2018 |
| 31 December 2017 |
|
| | € million |
| € million |
| € million |
|
| Accounting profit before tax from continuing operations | 1,452 |
| 1,205 |
| 1,159 |
|
| Tax expense at the UK statutory rate | 276 |
| 229 |
| 223 |
|
Taxation of foreign operations, net(A) | 89 |
| 81 |
| 86 |
|
| Non-deductible expense items for tax purposes | 4 |
| 30 |
| 7 |
|
Rate and law change benefit, net(B)(C)(D)(E)(F) | 3 |
| (38 | ) | (16 | ) |
| Deferred taxes not recognised | 6 |
| (4 | ) | 174 |
|
| Adjustment in respect of prior periods | (14 | ) | (2 | ) | (3 | ) |
| Total provision for income taxes | 364 |
| 296 |
| 471 |
|
(A) This reflects the impact, net of income tax contingencies, of having operations outside the UK, which are taxed at rates other than the statutory UK rate of 19% (2018: 19%, 2017: 19.25%), with the benefit of some income being fully or partially exempt from income taxes due to various operating and financing activities.
(B) In 2019, France enacted two law changes that decelerated the trajectory of the rate reduction from 33.33% to 25% effective for tax years beginning on or after 1 January 2019. The Group recognised a net deferred tax expense of €1 million to reflect the impact of these changes. In 2017, the Group had previously recognised a deferred tax benefit of €11 million to reflect the incremental rate reduction ultimately reaching 25% effective 1 January 2022.
(C) In 2018, the Netherlands enacted a staggered reduction in the tax rate from 25% in 2018 to 20.5% in 2021 and deferred tax balances were adjusted accordingly. The Group recognised a deferred tax benefit of €9 million to reflect the impact of the rate reduction. In 2019, the ultimate level to which the rate will reduce was increased to 21.7%. The Group has recognised a deferred tax expense of €2 million to reflect the impact of this amendment.
(D) In 2018, the Basque territory enacted a law change which reduced the rate of tax from 28% in prior years, to 26% in 2018 and 24% from 2019. Additionally, the rules relating to the use of tax credits changed. The Group recognised a deferred tax benefit of €23 million to reflect the impact of this change.
(E) In 2017, Belgium enacted an incremental corporate income tax rate reduction from 34%, ultimately reaching 25%, effective 1 January 2020. As a result, the Group recognised a deferred tax benefit of €20 million to reflect the impact of this change.
(F) In 2018, Sweden enacted an incremental corporate income tax rate reduction from 22%, ultimately reaching 20.6%, effective 1 January 2021. As a result, the Group recognised a deferred tax benefit of €5 million to reflect the impact of this change.
162Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Deferred income taxes
The following table summarises the movements in the carrying amounts of deferred tax liabilities and assets by significant component during the period presented:
|
| | | | | | | | | | | | | | | | |
| | Franchise and other intangible assets |
| Property, plant and equipment |
| Financial assets and liabilities |
| Tax losses |
| Employee and retiree benefit accruals |
| Tax credits |
| Other, net |
| Total, net |
|
| | € million |
| € million |
| € million |
| € million |
| € million |
| € million |
| € million |
| € million |
|
| As at 31 December 2017 | 1,997 |
| 237 |
| 31 |
| (14 | ) | (83 | ) | (28 | ) | 41 |
| 2,181 |
|
| Amount charged/(credited) to income statement (excluding effect of tax rate changes) | (3 | ) | (23 | ) | 28 |
| 10 |
| (9 | ) | 11 |
| 1 |
| 15 |
|
| Effect of tax rate changes on income statement | (40 | ) | (1 | ) | — |
| — |
| — |
| 4 |
| (1 | ) | (38 | ) |
| Amounts charged/(credited) directly to OCI (excluding effect of tax rate changes) | — |
| — |
| (44 | ) | — |
| — |
| — |
| — |
| (44 | ) |
| Amount charged/(credited) to equity (excluding effect of tax rate changes) | — |
| — |
| — |
| — |
| 11 |
| 1 |
| — |
| 12 |
|
| Effect of movements in foreign exchange | (5 | ) | (1 | ) | — |
| — |
| — |
| — |
| — |
| (6 | ) |
| As at 31 December 2018 | 1,949 |
| 212 |
| 15 |
| (4 | ) | (81 | ) | (12 | ) | 41 |
| 2,120 |
|
| Amount charged/(credited) to income statement (excluding effect of tax rate changes) | 2 |
| 10 |
| (10 | ) | — |
| 36 |
| 9 |
| 4 |
| 51 |
|
| Effect of tax rate changes on income statement | 2 |
| 1 |
| — |
| — |
| — |
| — |
| — |
| 3 |
|
| Amounts charged/(credited) directly to OCI | — |
| — |
| 2 |
| — |
| (12 | ) | — |
| — |
| (10 | ) |
| Amount charged/(credited) to equity | — |
| — |
| — |
| — |
| (2 | ) | — |
| — |
| (2 | ) |
| Effect of movements in foreign exchange | 13 |
| 1 |
| — |
| — |
| — |
| — |
| — |
| 14 |
|
| As at 31 December 2019 | 1,966 |
| 224 |
| 7 |
| (4 | ) | (59 | ) | (3 | ) | 45 |
| 2,176 |
|
The total net deferred tax liability of €2,176 million at 31 December 2019 is presented in the consolidated statement of financial position as deferred tax assets of €27 million and deferred tax liabilities of €2,203 million. Other net deferred tax liabilities as at 31 December 2019 include a €45 million liability arising on assets capitalised under IFRS but expensed for tax, and a €22 million liability related to purchase accounting on earlier transactions in an acquired entity.
Unrecognised tax items
The utilisation of tax losses and temporary differences carried forward, for which no deferred tax asset is currently recognised, is subject to the resolution of tax authority enquiries and the achievement of positive income in periods which are beyond the Group’s current business plan, and therefore this utilisation is uncertain. In respect of unused tax losses and other attributes carried forward, deferred tax assets of €493 million, €544 million and €569 million have not been recognised as at 31 December 2019, 31 December 2018 and 31 December 2017, respectively. As at 31 December 2019, the net recognised tax losses carried forward totalled €4 million. Of these, €3 million expire between 2026 and 2029. As at 31 December 2019, the Group recognised tax credits carried forward totalling €3 million, which expire between 2043 and 2049.
As at 31 December 2019, there are no taxable temporary differences associated with investments in subsidiaries.
Tax provisions
The Group is routinely under audit by tax authorities in the ordinary course of business. Due to their nature, such proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, settlements between affected parties and/or governmental actions. The probability of outcome is assessed and accrued as a liability and/or disclosed, as appropriate. The Group maintains provisions for uncertainty relating to these tax matters that it believes appropriately reflect its risk. As at 31 December 2019, the carrying value of these provisions is included in Non-current tax liabilities, with the exception of €9 million, which is included in Current tax liabilities.
The Group reviews the adequacy of these provisions at the end of each reporting period and adjusts them based on changing facts and circumstances. Due to the uncertainty associated with tax matters, it is possible that at some future date, liabilities resulting from audits or litigation could vary significantly from the Group’s provisions.
The Group has received tax assessments in certain jurisdictions for potential tax related to the Group’s purchases of concentrate. The value of the Group’s concentrate purchases is significant, and therefore, the tax assessments are substantial. The Group strongly believes the application of tax has no technical merit based on applicable tax law, and its tax position would be sustained. Accordingly, the Group has not recorded a tax liability for these assessments, and is vigorously defending its position against these assessments.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 163
Note 21
Share-based payment plans
The Group has established share-based payment plans that provide for the granting of share options and restricted stock units, some with performance and/or market conditions, to certain executive and management level employees. These awards are designed to align the interests of its employees with the interests of its shareholders.
The Group recognises compensation expense equal to the grant date fair value for all share-based payment awards that are expected to vest. Expense is generally recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award.
During the years ended 31 December 2019, 31 December 2018 and 31 December 2017, compensation expense related to our share-based payment plans totalled €15 million, €17 million and €14 million, respectively.
Share options
Share options (1) are granted with exercise prices equal to or greater than the fair value of the Group’s stock on the date of grant, (2) generally vest in three annual tranches over a period of 36 months and (3) expire 10 years from the date of grant. Generally, when options are exercised, new Shares will be issued rather than issuing treasury Shares, if available. No options were granted during the years ended 31 December 2019, 31 December 2018 and 31 December 2017. All options outstanding as at 31 December 2019, 31 December 2018 and 31 December 2017 were valued and had exercise prices in US dollars.
The following table summarises our share option activity for the periods presented:
|
| | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | Shares |
| Average exercise price |
| | Shares |
| Average exercise price |
| | Shares |
| Average exercise price |
|
| | thousands |
| US$ |
| | thousands |
| US$ |
| | thousands |
| US$ |
|
| Outstanding at beginning of year | 6,542 |
| 26.51 |
| | 8,579 |
| 23.58 |
| | 9,435 |
| 23.03 |
|
| Granted | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Exercised | (1,722 | ) | 17.33 |
| | (2,037 | ) | 14.16 |
| | (842 | ) | 17.48 |
|
| Forfeited, expired or cancelled | (5 | ) | 19.23 |
| | — |
| — |
| | (14 | ) | 24.61 |
|
| Outstanding at end of year | 4,815 |
| 29.80 |
| | 6,542 |
| 26.51 |
| | 8,579 |
| 23.58 |
|
| Options exercisable at end of year | 4,815 |
| 29.80 |
| | 6,542 |
| 26.51 |
| | 8,417 |
| 23.28 |
|
The weighted average Share price during the years ended 31 December 2019, 31 December 2018 and 31 December 2017 was US$52.73, US$41.91 and US$39.24, respectively.
The following table summarises the weighted average remaining life of options outstanding for the periods presented:
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Range of exercise prices | Options outstanding |
| Weighted average remaining life |
| | Options
outstanding |
| Weighted average remaining life | | Options
outstanding |
| Weighted
average
remaining life |
| US$ | thousands |
| years |
| | thousands |
| years | | thousands |
| years |
| 5.00 to 15.00 | — |
| — |
| | 713 |
| 0.84 | | 1,987 |
| 1.37 |
| 15.01 to 25.00 | 1,681 |
| 2.31 |
| | 2,459 |
| 2.94 | | 2,882 |
| 3.98 |
| 25.01 to 40.00 | 3,134 |
| 4.59 |
| | 3,370 |
| 5.84 | | 3,710 |
| 6.85 |
| Total | 4,815 |
| 3.79 |
| | 6,542 |
| 4.21 | | 8,579 |
| 4.62 |
164Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Restricted Stock Units (RSUs) and Performance Share Units (PSUs)
RSU awards entitle the participant to accrue dividends, which are paid in cash only if the RSUs vest. They do not give voting rights. Upon vesting, the participant is granted one Share for each RSU. They generally vest subject to continued employment for a period of at least 36 months. Unvested RSUs are restricted as to disposition and subject to forfeiture.
There were 0.3 million, 0.3 million and 0.4 million unvested RSUs outstanding with a weighted average grant date fair value of US$42.06, US$39.51 and US$44.05 as at 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
PSU awards entitle the participant to the same benefits as RSUs. They generally vest subject to continued employment for a period of at least 36 months and the attainment of certain performance targets. There were 1.2 million, 1.2 million and 1.3 million of unvested PSUs with weighted average grant date fair values of US$42.53, US$42.66 and US$44.19 outstanding as at 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
The 2015 PSUs contained only performance and service conditions and were paid out at 100% of the target award in 2019. In 2016, there was no award of PSUs.
The PSUs granted in 2017, 2018 and 2019 vest after three years and are subject to two equally weighted performance conditions: compound annual growth rate of earnings per share, and return on invested capital (ROIC), both measured over a three year period.
Key assumptions for grant date fair value
The following table summarises the weighted average grant date fair values per unit:
|
| | | | |
| Restricted Stock Units and Performance Share Units | 2019 |
| 2018 |
|
| Grant date fair value - service conditions (US$) | 48.60 |
| 41.62 |
|
| Grant date fair value - service and performance conditions (US$) | 47.74 |
| 41.76 |
|
Note 22
Provisions, contingencies and commitments
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When some or all of a provision is expected to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated income statement, net of any reimbursement.
Asset retirement obligations are estimated at the inception of a lease or contract, for which a liability is recognised. A corresponding asset is also created and depreciated.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 165
Provisions
The following table summarises the movement in each class of provision for the periods presented:
|
| | | | | | | | |
| Restructuring provision |
| Decommissioning provision |
| Other provisions(A) |
| Total |
|
| | € million |
| € million |
| € million |
| € million |
|
| As at 31 December 2017 | 216 |
| 13 |
| 13 |
| 242 |
|
| Charged/(credited) to profit or loss: | | | | |
| Additional provisions recognised | 236 |
| 4 |
| 2 |
| 242 |
|
| Unused amounts reversed | (23 | ) | — |
| — |
| (23 | ) |
| Utilised during the period | (206 | ) | (1 | ) | (2 | ) | (209 | ) |
| As at 31 December 2018 | 223 |
| 16 |
| 13 |
| 252 |
|
| Charged/(credited) to profit or loss: | | | | |
| Additional provisions recognised | 80 |
| 2 |
| 1 |
| 83 |
|
| Unused amounts reversed | (15 | ) | — |
| (2 | ) | (17 | ) |
| Utilised during the period | (121 | ) | (1 | ) | (1 | ) | (123 | ) |
| Translation | 1 |
| — |
| — |
| 1 |
|
| As at 31 December 2019 | 168 |
| 17 |
| 11 |
| 196 |
|
| Non-current | 35 |
| 17 |
| 2 |
| 54 |
|
| Current | 133 |
| — |
| 9 |
| 142 |
|
| As at 31 December 2019 | 168 |
| 17 |
| 11 |
| 196 |
|
| |
| (A) | Other provisions primarily relate to property tax assessment provisions and legal reserves and are not considered material to the consolidated financial statements. |
Restructuring provision
Restructuring provisions are recognised only when the Group has a constructive obligation, which is when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs and an appropriate timeline, and the employees affected have been notified of the plan’s main features. These provisions are expected to be resolved by the time the related programme is substantively complete.
Refer to Note 17 for further details regarding our restructuring programmes, including expected completion date, total costs incurred and expected costs to be incurred.
Decommissioning provisions
Decommissioning liabilities relate to contractual or legal obligations to pay for asset retirement costs. The liabilities represent both the reinstatement obligations when the Group is contractually obligated to pay for the cost of retiring leased buildings and the costs for collection, treatment, reuse, recovery and environmentally sound disposal of cold drink equipment. Specific to cold drink equipment obligations, the Group is subject to, and operates in accordance with, the EU Directive on Waste Electrical and Electronic Equipment (WEEE). Under the WEEE, companies that put electrical and electronic equipment (such as cold drink equipment) on the EU market are responsible for the costs of collection, treatment, recovery and disposal of their own products. Where applicable, the WEEE provision estimate is calculated using assumptions including disposal cost per unit, average equipment age and the inflation rate, to determine the appropriate accrual amount.
The period over which the decommissioning liabilities on leased buildings and cold drink equipment will be settled ranges from 1 to 10 years and 4 to 12 years, respectively.
Contingencies
Legal proceedings and tax matters
The Group is involved in various legal proceedings and tax matters and is routinely under audit by tax authorities in the ordinary course of business. Due to their nature, such legal proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, settlements between affected parties and/or governmental actions. The probability of loss for such contingencies is assessed and accrued as a liability and/or disclosed, as appropriate.
Guarantees
In connection with ongoing litigation in certain territories, guarantees of approximately €325 million have been issued to the authorities. The Group was required to issue these guarantees to satisfy potential obligations arising from such litigation. In addition, we have approximately €50 million of guarantees issued to third parties through the normal course of business. The guarantees have various terms, and the amounts represents the maximum potential future payments that we could be required to make under the guarantees. No significant additional liabilities in the accompanying consolidated financial statements are expected to arise from guarantees issued.
166Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Commitments
Commitments beyond 31 December 2019 are disclosed herein but not accrued for within the consolidated statement of financial position.
Purchase agreements
Total purchase commitments were €0.3 billion as at 31 December 2019. This amount represents non-cancellable purchase agreements with various suppliers that are enforceable and legally binding, and that specify a fixed or minimum quantity that we must purchase. All purchases made under these agreements have standard quality and performance criteria. In addition to these amounts, the Group has outstanding capital expenditure purchase orders of approximately €175 million as at 31 December 2019. The Group also has other purchase orders raised in the ordinary course of business which are settled in a reasonably short period of time.
Lease agreements
As at 31 December 2019, the Group had committed to a number of lease agreements that have not yet commenced. The minimum lease payments for these lease agreements totalled €15 million.
Note 23
Other assets
The following table summarises the Group’s other current assets as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| Other current assets | € million |
| € million |
|
| Prepayments | 65 |
| 47 |
|
| VAT receivables | 44 |
| 17 |
|
| Miscellaneous receivables | 132 |
| 114 |
|
| Assets held for sale | 18 |
| 15 |
|
| Total other current assets | 259 |
| 193 |
|
The following table summarises the Group’s other non-current assets as at the dates presented:
|
| | | | |
| | 31 December 2019 |
| 31 December 2018 |
|
| Other non-current assets | € million |
| € million |
|
| VAT receivables | 201 |
| 318 |
|
| Retirement benefit surplus | 38 |
| 21 |
|
| Other | 82 |
| 57 |
|
| Total other non-current assets | 321 |
| 396 |
|
VAT receivables
As at 31 December 2019, included within other non-current assets, the Group has a VAT receivable of €201 million, relating to the dispute that began in 2014 between the Spanish tax authorities and the regional tax authorities of Bizkaia (Basque Region) as to the responsibility for refunding the VAT to CCEP.
During the year ended 31 December 2019, the Group was refunded VAT of €126 million (including interest) related to 2018 and 2019. Those periods were blocked by the Spanish tax authorities but not subject to the Arbitration Board ruling. Under relevant tax laws in Spain, conflicts between jurisdictions are ruled by a special Arbitration Board and the refund of the VAT is mandated following the resolution of the issue at the Arbitration Board. However, to date, the Arbitration Board has not ruled on the issue and Spanish legislation offers limited mechanisms for a taxpayer to force the expedition of matters before the Arbitration Board. The outstanding VAT receivable as at 31 December 2019 remains classified as non-current due to the continued delay in the resolution of the matter by the Arbitration Board. We believe it remains a certainty that the amount due plus interest will be refunded to CCEP once the Arbitration Board rules.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 167
Note 24
Financial risk management
Financial risk factors, objectives and policies
The Group’s activities expose it to several financial risks including market risk, credit risk and liquidity risk. Financial risk activities are governed by appropriate policies and procedures to minimise the uncertainties these risks create on the Group’s future cash flows. Such policies are developed and approved by the Group’s treasury and commodities risk committee, through the authority delegated to it by the Board.
Market risk
Market risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market prices and includes interest rate risk, currency risk and other price risk such as commodity price risk. Market risk affects outstanding borrowings, as well as derivative financial instruments.
Interest rates
The Group is subject to interest rate risk for its outstanding borrowings. To manage interest rate risk, the Group maintains a significant proportion of its borrowings at fixed rates. Approximately 91% and 87% of the Group’s interest bearing borrowings was comprised of fixed rate borrowings at 31 December 2019 and 31 December 2018, respectively. The Group has not entered into any interest rate swap agreements or other such instruments to hedge its interest rate risk during the periods presented.
If interest rates on the Group’s floating rate debt were adjusted by 1% for the years ended 31 December 2019, 31 December 2018 and 31 December 2017, the Group’s finance costs and pre-tax equity would change on an annual basis by approximately €4 million, €6 million and €12 million, respectively. This amount is determined by calculating the effect of a hypothetical interest rate change on the Group’s floating rate debt. This estimate does not include the effects of other actions to mitigate this risk or changes in the Group’s financial structure.
Currency exchange rates
The Group’s exposure to the risk of changes in currency exchange rates relates primarily to its operating activities denominated in currencies other than the functional currency, euro. To manage currency exchange risk arising from future commercial transactions and recognised monetary assets and liabilities, foreign currency forward and option contracts with external third parties are used. Typically, up to 80% of anticipated cash flow exposures in each major foreign currency for the next calendar year are hedged using a combination of forward and option contracts with third parties.
The Group is also exposed to the risk of changes in currency exchange rates between US dollar and euro relating to its US denominated borrowings. The following table demonstrates the sensitivity of the Group’s profit before income taxes and pre-tax equity as a result of changes in the value of outstanding debt instruments due to reasonable movements in the US dollar against the euro, with all other variables held constant. This does not take into account the effects of derivative instruments used to manage exposure to this risk. Movements in foreign currencies related to the Group’s other financial instruments do not have a material impact on profit before income taxes or pre-tax equity.
|
| | | | | |
| | Change in currency rate | € strengthens against US$ |
| € weakens against US$ |
|
| Effect on profit before tax and pre-tax equity | % | € million |
| € million |
|
| Year ended 31 December 2019 | 10 | 87 |
| (95 | ) |
| Year ended 31 December 2018 | 10 | 85 |
| (93 | ) |
| Year ended 31 December 2017 | 10 | 81 |
| (89 | ) |
Commodity price risk
The competitive marketplace in which the Group operates may limit its ability to recover increased costs through higher prices. As such, the Group is subject to market risk with respect to commodity price fluctuations, principally related to its purchases of aluminium, PET (plastic, including recycled PET), steel, sugar and vehicle fuel. When possible, exposure to this risk is managed primarily through the use of supplier pricing agreements, which enable the Group to establish the purchase price for certain commodities. Certain suppliers restrict the Group’s ability to hedge prices through supplier agreements. As a result, commodity hedging programmes are entered into and generally designated as hedging instruments. Refer to Note 12 Hedging activities for more information. Typically, up to 80% of the anticipated commodity transaction exposures for the next calendar year are hedged using a combination of forward and option contracts executed with third parties. The Group estimates that a 10% change in the market price of these commodities over the current market prices would affect operating profit during the next 12 months by approximately €31 million. This does not take into account the effects of derivative instruments used to manage exposure to this risk or pricing agreements in place.
168Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Credit risk
The Group is exposed to counterparty credit risk on all of its derivative financial instruments. Strict counterparty credit guidelines are maintained and only financial institutions that are investment grade or better are acceptable counterparties. Counterparty credit risk is continuously monitored and numerous counterparties are used to minimise exposure to potential defaults. Collateral is not required under these agreements. The maximum credit risk exposure for each derivative financial instrument is the carrying amount of the derivative.
Credit is extended in the form of payment terms for trade to customers of the Group, consisting of retailers, wholesalers and other customers, generally without requiring collateral, based on an evaluation of the customer’s financial condition. While the Group has a concentration of credit risk in the retail sector, this risk is mitigated due to the diverse nature of the customers the Group serves, including, but not limited to, their type, geographic location, size and beverage channel. Collections of receivables are dependent on each individual customer’s financial condition and sales adjustments granted. Trade accounts receivable are carried at net realisable value. Typically, accounts receivable have terms of 30 to 60 days and do not bear interest. Exposure to losses on receivables is monitored, and allowances for potential losses or adjustments are maintained. Allowances are determined by: (1) evaluating the ageing of receivables; (2) analysing the history of adjustments; and (3) reviewing high risk customers. Past due receivable balances are written off when the Group’s efforts have been unsuccessful in collecting the amount due. Credit insurance on a portion of the accounts receivable balance is also carried.
Liquidity risk
Liquidity risk is actively managed to ensure that the Group has sufficient funds to satisfy its commitments. The Group’s sources of capital include, but are not limited to, cash flows from operations, public and private issuances of debt and equity securities and bank borrowings. The Group believes its operating cash flow, cash on hand and available short-term and long-term capital resources are sufficient to fund its working capital requirements, scheduled borrowing payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations and dividends to its shareholders. Counterparties and instruments used to hold cash and cash equivalents are continuously assessed, with a focus on preservation of capital and liquidity. Based on information currently available, the Group does not believe it is at significant risk of default by its counterparties.
The Group has amounts available for borrowing under a €1.5 billion multi currency credit facility with a syndicate of 10 banks. This credit facility matures in 2024 and is for general corporate purposes, including serving as a backstop to its commercial paper programme and supporting the Group’s working capital needs. Based on information currently available, the Group has no indication that the financial institutions participating in this facility would be unable to fulfil their commitments as at the date of these financial statements. The current credit facility contains no financial covenants that would impact the Group’s liquidity or access to capital. As at 31 December 2019, the Group had no amounts drawn under this credit facility.
The table below analyses the Group’s non-derivative financial liabilities and net settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows:
|
| | | | | | | | | | |
| Total |
| Less than 1 year |
| 1 to 3 years |
| 3 to 5 years |
| More than 5 years |
|
| Financial liabilities | € million |
| € million |
| € million |
| € million |
| € million |
|
| 31 December 2019 | | | | | |
| Trade accounts payable | 2,332 |
| 2,332 |
| — |
| — |
| — |
|
| Amounts payable to related parties | 249 |
| 249 |
| — |
| — |
| — |
|
| Borrowings | 6,530 |
| 772 |
| 1,676 |
| 957 |
| 3,125 |
|
| Derivatives | 41 |
| 28 |
| 13 |
| — |
| — |
|
| Lease liabilities | 396 |
| 115 |
| 152 |
| 62 |
| 67 |
|
| Total financial liabilities | 9,548 |
| 3,496 |
| 1,841 |
| 1,019 |
| 3,192 |
|
| 31 December 2018 |
|
| | | | |
| Trade accounts payable | 2,327 |
| 2,327 |
| — |
| — |
| — |
|
| Amounts payable to related parties | 191 |
| 191 |
| — |
| — |
| — |
|
| Borrowings | 5,543 |
| 469 |
| 1,557 |
| 1,045 |
| 2,472 |
|
| Derivatives | 71 |
| 20 |
| 51 |
| — |
| — |
|
| Finance lease liabilities | 83 |
| 22 |
| 27 |
| 12 |
| 22 |
|
| Total financial liabilities | 8,215 |
| 3,029 |
| 1,635 |
| 1,057 |
| 2,494 |
|
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 169
Capital management
The primary objective of the Group’s capital management is to ensure a strong credit rating and appropriate capital ratios are maintained to support the Group’s business and maximise shareholder value. The Group’s credit ratings are periodically reviewed by rating agencies. Currently, the Group’s long-term ratings from Moody’s and Standard & Poor’s (S&P), are A3 and BBB+, respectively. The ratings outlook from Moody’s and S&P are stable. Changes in the operating results, cash flows or financial position could impact the ratings assigned by the various rating agencies. The credit rating can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions, capital management activities of TCCC and/or changes in the credit rating of TCCC. Should the credit ratings be adjusted downward, the Group may incur higher costs to borrow, which could have a material impact on the financial condition and results of operations.
The capital structure is managed and, as appropriate, adjustments are made in light of changes in economic conditions and the Group’s financial policy. The Group monitors its operating performance in the context of targeted financial leverage by comparing the ratio of net debt with Adjusted EBITDA. Net debt is calculated as being the net of cash and cash equivalents and currency adjusted borrowings. Adjusted EBITDA is calculated as EBITDA and adjusting for items impacting comparability.
Refer to Note 11 for the presentation of fair values for each class of financial assets and financial liabilities and Note 12 for an outline of how the Group utilises derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations.
Refer to the Strategic Report included within this Integrated Report for disclosure of strategic, commercial and operational risk relevant to the Group.
Note 25
Other significant accounting policies
IFRS 15 “Revenue recognition and deductions from revenue” (IFRS 15)
The Group derives its revenues by making, selling and distributing ready to drink beverages. The revenue from the sale of products is recognised at the point in time at which control passes to a customer, typically when products are delivered to a customer. A receivable is recognised by the Group at the point in time at which the right to consideration becomes unconditional.
The Group uses various promotional programmes under which rebates, refunds, price concessions or similar items can be earned by customers for attaining agreed upon sales levels or for participating in specific marketing programmes. Those promotional programmes do not give rise to a separate performance obligation. Where the consideration the Group is entitled to varies because of such programmes, it is deemed to be variable consideration. The related accruals are recognised as a deduction from revenue and are not considered distinct from the sale of products to the customer. Variable consideration is only included to the extent that it is highly probable that the inclusion will not result in a significant revenue reversal in the future normal commercial terms.
Financing elements are not deemed present in our contracts with customers as the sales are made with credit terms not exceeding normal commercial terms. Taxes on sugared soft drinks, excise taxes and taxes on packaging are recorded on a gross basis (i.e. included in revenue) where the Group is the principal in the arrangement. Value added taxes are recorded on a net basis (i.e. excluded from revenue). The Group assesses these taxes and duties on a jurisdiction by jurisdiction basis to conclude on the appropriate accounting treatment.
Standards issued but not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
170Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Note 26
Significant events after the reporting period
In January 2020, in Germany we announced proposals to close five distribution centres during the course of 2020, subject to full consultation with employees and their representatives. The closures of these facilities would result in restructuring charges primarily made up of severance costs and accelerated depreciation. The impacted activities would be transferred within our network of facilities throughout Germany or transferred to third parties. We are unable to provide an estimate of these charges should the proposals be accepted as we are in consultation with the relevant works councils and labour representatives.
In February 2020, we repaid prior to maturity US$255 million of outstanding US$1,075 million borrowings.
After the balance sheet date, we have seen significant macro-economic uncertainty as a result of the coronavirus (COVID-19) outbreak. The scale and duration of this development remains uncertain and could impact our earnings and cash flow.
Note 27
Group companies
In accordance with section 409 of the Companies Act 2006, a full list of the Company’s subsidiaries, partnerships, associates, joint ventures and joint arrangements as at 31 December 2019 is disclosed below, along with the country of incorporation, the registered address and the effective percentage of equity owned at that date. Unless otherwise stated, each entity has a share capital comprising a single class of ordinary shares and is wholly owned and indirectly held by Coca-Cola European Partners plc.
|
| | | |
| Name | Country of incorporation | % equity interest | Registered address |
| Agua De La Vega Del Codorno, S.L.U. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
| Aguas De Cospeito, S.L.U. | Spain | 100% | Crta. Pino km. 1 - 2, 27377, Cospeito (Lugo), Spain |
| Aguas De Santolin, S.L.U. | Spain | 100% | C/ Real, s/n 09246, Quintanaurria (Burgos) |
| Aguas Del Maestrazgo, S.L.U. | Spain | 100% | C/ Monasterio de las huelgas, 7, Pol.ind.Alcalde Caballero, 50014 (Zaragoza) |
| Aguas Del Toscal, S.A.U. | Spain | 100% | Ctra. de la Pasadilla, km. 3- 35250, ingenio (Gran Canaria) |
| Aguas Vilas Del Turbon, S.L.U. | Spain | 100% | C/ Monasterio de las huelgas, 7, Pol.ind.Alcalde Caballero, 50014 (Zaragoza) |
| Aitonomi AG | Switzerland | 15% | Rue Technopôle 10, 3960 Sierre
|
| Amalgamated Beverages Great Britain Limited | United Kingdom | 100%(D) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| BBH Investment Ireland Limited | Ireland | 100% | 6th Floor, 2 Grand Canal Square (Dublin 2) |
| Bebidas Gaseosas Del Noroeste, S.L.U. | Spain | 100% | Avda. Alcalde Alfonso Molina, s/n- 15007 (A Coruña) |
| Beganet, S.L.U. | Spain | 100% | Avda. Paisos Catalans, 32 – 08950 (Esplugues de Llobregat) |
| BH Holdings Lux Commandite SCS | Luxembourg | 100%(B) | 2, Rue des Joncs, L-1818, Howald |
| BH Holdings Luxembourg SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| BH Luxembourg SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| BH SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| Birtingahúsið ehf. | Iceland | 34.5% | Laugavegur 174, 105, (Reykjavík) |
| BL Bottling Holdings UK Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Bottling Great Britain Limited | United Kingdom | 100%(D) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Bottling Holdings (Luxembourg) SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| Bottling Holdings (Netherlands) B.V. | Netherlands | 100% | Watermanweg 30, 3067 GG (Rotterdam) |
| Bottling Holdings Europe Limited | United Kingdom | 100%(A)(E) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Bottling Holding France SAS | France | 100% | 9, chemin de Bretagne, 92784 (Issy-les-Moulineaux) |
| CC Digital GmbH | Germany | 50% | Stralauer Allee 4, 10245 (Berlin) |
| CC Erfrischungsgetränke Oldenburg Verwaltungs GmbH | Germany | 100% | Sandkruger, Straße 234, 26133 (Oldenburg) |
| CC Iberian Partners Gestion S.L. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
| CC Verpackungsgesellschaft mit beschraenkter Haftung | Germany | 100% | Schieferstraße 20 06126 Halle (Saale) |
| CCEP Group Services Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| CCEP Holdings Norge AS | Norway | 100% | Robsrudskogen 5, 1470 (Lørenskog) |
| CCEP Holdings Sverige AB | Sweden | 100% | Dryckesvägen 2 C, 136 87 (Haninge) |
| CCEP Holdings UK Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| CCEP Ventures Europe Limited | United Kingdom | 100%(A) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| CCEP Ventures UK Limited | United Kingdom | 100%(A) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| CCIP Soporte, S.L.U. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 171
|
| | | |
| Name | Country of incorporation | % equity interest | Registered address |
| Classic Brand (Europe) Designated Activity Company | Ireland | 100% | 4th Floor, 25-28 Adelaide Road, D02 RY98 (Dublin 2) |
| Cobega Embotellador, S.L.U. | Spain | 100% | Avda Paisos Catalans, 32 - 08950 (Esplugues de Llobregat) |
| Coca-Cola European Partners (Initial LP) Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Coca-Cola European Partners (Scotland) Limited | United Kingdom | 100% | 52 Milton Road, College Milton, East Kilbride, Scotland, G74 5DJ |
| Coca-Cola European Partners Belgium SPRL | Belgium | 100% | Chaussée de Mons 1424, 1070 (Brussels) |
| Coca-Cola European Partners Deutschland GmbH | Germany | 100%(F) | Stralauer Allee 4, 10245 (Berlin) |
| Coca-Cola European Partners France SAS | France | 100%(G) | 9, chemin de Bretagne, 92784 (Issy-les-Moulineaux) |
| Coca-Cola European Partners Great Britain Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Coca-Cola European Partners Holdings Great Britain Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Coca-Cola European Partners Holdings US, Inc. | United States | 100%(A) | Corporation Trust Center, 1209 Orange Street, Wilmington 19801 (Delaware) |
| Coca-Cola European Partners Iberia, S.L.U. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
| Coca-Cola European Partners Ísland ehf. | Iceland | 100% | Studlahals 1, 110 (Reykjavik) |
| Coca-Cola European Partners Luxembourg SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| Coca-Cola European Partners Nederland B.V. | Netherlands | 100% | Watermanweg 30, 3067 GG (Rotterdam) |
| Coca-Cola European Partners Norge AS | Norway | 100% | Robsrudskogen 5, 1470 (Lørenskog) |
| Coca-Cola European Partners Pension Scheme Trustees Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Coca-Cola European Partners Portugal Unipessoal, LDA | Portugal | 100% | Quinta da Salmoura - Cabanas, 2929- 509, Azeitão (Setúbal) |
| Coca-Cola European Partners Services Bulgaria EOOD | Bulgaria | 100% | 48, Sitnyakovo Blvd, Serdika Center, Office Building, floor 5, 1505 (Sofia) |
| Coca-Cola European Partners Services Europe Limited | United Kingdom | 100% | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Coca-Cola European Partners Services SPRL | Belgium | 100%(C) | Chaussée de Mons 1424, 1070 (Brussels) |
| Coca-Cola European Partners Sverige AB | Sweden | 100% | Dryckesvägen 2 C, 136 87 (Haninge) |
| Coca-Cola European Partners US II, LLC | United States | 100% | Corporation Trust Center, 1209 Orange Street, Wilmington 19801 (Delaware) |
| Coca-Cola European Partners US, LLC | United States | 100% | Corporation Trust Center, 1209 Orange Street, Wilmington 19801 (Delaware) |
| Coca-Cola Immobilier SCI | France | 100%(G) | 9, chemin de Bretagne, 92784 (Issy-les-Moulineaux) |
| Coca-Cola Production SAS | France | 100% | Zone d’entreprises de Bergues, Commune de Socx, 59380 (Bergues) |
| Compañía Asturiana De Bebidas Gaseosas, S.L.U. | Spain | 100% | C/ Nava, 18-3ª (Granda) Siero - 33006 (Oviedo) |
| Compañía Castellana De Bebidas Gaseosas, S.L. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
| Compañía Levantina De Bebidas Gaseosas, S.L.U. | Spain | 100% | Av. Real Monasterio de Sta. María de Poblet, 36, 46930 (Quart de Poblet) |
| Compañía Norteña De Bebidas Gaseosas, S.L.U. | Spain | 100% | C/ Ibaizábal, 57 - 48960 Galdakao (Bizkaia) |
| Compañía Para La Comunicación De Bebidas Sin Alcohol, S.L.U. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
172Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
|
| | | |
| Name | Country of incorporation | % equity interest | Registered address |
| Conversia IT, S.L.U. | Spain | 100% | C/ Ribera del loira, 20-22, 2ª Planta - 28042 (Madrid) |
| Developed System Logistics, S.L.U. | Spain | 100% | Av. Henry Ford, 25, Manzana 19, Complejo Pq. Ind. Juan Carlos I , 46220 Picassent (Valencia) |
| GBH Investment Ireland Limited | Ireland | 100% | 6th Floor, 2 Grand Canal Square (Dublin 2) |
| GR Bottling Holdings UK Limited | United Kingdom | 100%(A) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Herdt Verwaltungsgesellschaft mit beschränkter Haftung i.L | Germany | 100% | Karl-Herdt-Weg 100, 63075 (Offenbach) |
| Infineo Recyclage SAS | France | 49%(H) | Sainte Marie la Blanche – 21200 (Dijon) |
| Instelling voor Bedrijfspensioenvoorziening Coca-Cola European Partners Belgium/Coca-Cola European Partners Services – Bedienden-Arbeiders OFP | Belgium | 100% | Bergensesteenweg 1424 – 1070 (Brussels) |
| Instelling voor Bedrijfspensioenvoorziening Coca-Cola European Partners Belgium/Coca-Cola European Partners Services – Kaderleden OFP | Belgium | 100% | Bergensesteenweg 1424 – 1070 (Brussels) |
| Iparbal, 99 S.L. | Spain | 100% | C/ Ibaizábal, 57 – 48960 Galdakao (Bizkaia) |
| IPARSOFT, 2004 S.L. | Spain | 100% | C/ Ibaizábal, 57 – 48960 Galdakao (Bizkaia) |
| KOL SAS | France | 25% | 12 rue d'Anselme, 93400 Paris, France |
| Kollex GmbH | Germany | 25% | Torstraße 155, 10115 (Berlin) |
| Lusobega, S.L. | Spain | 100% | C/ Ibaizábal, 57 – 48960 Galdakao (Bizkaia) |
| Madrid Ecoplatform, S.L.U. | Spain | 100% | C/Pedro Lara, 8 Pq. Tecnológico de Leganes- 28919 (Leganes) |
| Peña Umbria, S.L.U. | Spain | 100% | Av. Real Monasterio de Sta. María de Poblet, 36 - 46930 (Quart de Poblet) |
| Refecon Águas S.A. | Portugal | 100% | Quinta da Salmoura - Cabanas-2929- 509 Azeitão (Setúbal) |
| Refrescos Envasados Del Sur, S.L.U. | Spain | 100% | Autovía del Sur A-IV, km.528- 41309 La Rinconada (Sevilla) |
| Refrige Sgps, S.A. | Portugal | 100% | Quinta da Salmoura- Cabanas, 2929-509 (Azeitão) |
| Roalba, S.L.U. | Spain | 100% | C/ Ibaizábal, 57 – 48960 Galdakao (Bizkaia) |
| Solares y Edificios Norteños, S.L.U. | Spain | 100% | C/ Ibaizábal, 57 – 48960 Galdakao (Bizkaia) |
| Svenska Brettbolaget AB | Sweden | 19.6% | Greg Turegatan 9, 114 46, (Stockholm) |
| WB Investment Ireland 2 Limited | Ireland | 100% | 6th Floor, 2 Grand Canal Square (Dublin 2) |
| WB Investment Ireland Limited | Ireland | 100% | 6th Floor, 2 Grand Canal Square (Dublin 2) |
| WBH Holdings Luxembourg SCS | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| WBH Luxembourg SARL | Luxembourg | 100% | 2, Rue des Joncs, L-1818, Howald |
| WIH UK Limited | United Kingdom | 100%(A) | Pemberton House, Bakers Road, Uxbridge, UB8 1EZ |
| Wir Sind Coca-Cola GmbH | Germany | 100% | Stralauer Allee 4, 10245 (Berlin) |
| |
| (A) | 100% equity interest directly held by Coca-Cola European Partners plc. |
| |
| (B) | Class A and B ordinary shares. |
| |
| (C) | Class A, B and C ordinary shares. |
| |
| (D) | Including preference shares issued to the Group. |
| |
| (E) | 38.3% equity interest directly held by Coca-Cola European Partners plc (100% of A ordinary shares in issue). |
| |
| (F) | 10% equity interest directly held by Coca-Cola European Partners plc. |
| |
| (G) | Group shareholding of 99.99% or greater. |
| |
| (H) | Class A and B shares. The Group holds 49% of Class B shares. |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 173
Risk factors
This section examines the risks Coca-Cola European Partners (CCEP) faces as a business. These risks may change over time.
Packaging
Waste and pollution, and the legal and regulatory responses to these issues, could adversely impact our business.
Waste and pollution - particularly plastic and packaging waste - is a global issue affecting our business. Although the vast majority of our packaging is fully recyclable, it is not always collected for recycling across our territories, and can end up as litter or marine litter. Concern over litter, marine litter and the environmental impacts of our packaging has led to laws and regulations that aim to increase the collection and recycling of our packs, reduce packaging waste and littering and introduce specific design requirements related to our packaging. For example, circular economy legislation has been introduced in France that requires a 50% reduction in the number of single use plastic bottles by 2030 and the phasing out of single use plastic packaging entirely by 2040, and in GB there are various regulatory proposals related to packaging, including the introduction of deposit return schemes and a move towards extended producer responsibility.
If we fail to engage sufficiently with stakeholders to address concerns about packaging and recycling, it could result in higher costs through packaging taxes, producer responsibility reform, damage to corporate reputation or investor confidence and a reduction of consumer acceptance of our products and packaging.
New recycling technologies may not work or may not be developed quickly enough.
We are exploring innovative ways to achieve the packaging targets that we have set ourselves and those imposed by legislation and regulation, for example by using plastic that has been recycled via enhanced/chemical recycling technologies. There is a risk that these new technologies may not be developed quickly enough or may not work as well as intended, which could limit our ability to mitigate the impact of restrictions on single use plastics. Also, these technologies may be more expensive than current solutions, potentially reducing our profitability.
Perceived health impacts of our beverages and ingredients, and changing consumer preferences
Health concerns could reduce consumer demand for some of our products, impacting our financial performance.
There is continued public concern about the public health consequences of obesity, particularly among young people. Researchers such as health advocates and dietary guidelines suggest that consumption of sugar sweetened beverages is a cause of increased obesity rates, and are encouraging consumers to reduce or eliminate consumption of such products. In addition, governments have introduced stronger regulations around the marketing, labelling, packaging, or sale of sugar sweetened beverages. These concerns and regulations could reduce demand for, or increase the cost of, our sugar sweetened beverages.
Health and wellness trends among consumers have also led to an increased demand for low-calorie soft drinks, water, enhanced water, isotonics, energy drinks, teas, coffees and beverages with natural sweeteners. If we fail to meet this demand by not providing a broad enough range of products, this could adversely affect our business and financial results.
Legal, regulatory and tax change
Legislative or regulatory changes (including changes to tax laws) that affect our products, distribution, or packaging could reduce demand for our products or increase our costs.
CCEP’s business model depends on making our products and packages available in multiple channels and locations. Laws that restrict our ability to do this could negatively impact our financial results. These include laws affecting the promotion and distribution of our products, laws that require deposit return schemes (DRS) to be introduced for certain types of packages, or laws that limit our ability to design new packages or market certain packages. The Packaging and Climate change and water risk factors discuss global issues such as climate change, resource scarcity, marine litter and water scarcity further.
186Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
In addition, taxes or other charges imposed on the sale of our products could increase costs or cause consumers to purchase fewer of them. Many countries in Europe, including countries in which CCEP operates, are looking into implementing or increasing such taxes. Such taxes may relate, for example, to the use of non-recycled plastic in beverage packaging, or the use of sugar or other sweeteners in our beverages (see also the risk factors regarding Packaging and Perceived health impacts of our beverages and ingredients, and changing consumer preferences).
For example, now that the EU Single Use Plastics Directive has been adopted, member states are in the process of adopting implementing regulations to comply with the obligations in the Directive. The obligations include a 90% collection target for plastic bottles by 2029, a requirement that plastic bottles contain at least 30% recycled content by 2030 and a requirement for plastic beverage bottles to include tethered closures by 2024. Some member states go further than the minimum requirements of the Directive and have adopted stricter regulations.
In addition to legislative initiatives at EU level, several countries in which we operate also have or are planning other legislative or regulatory measures to reduce the use of single use plastics, including plastic beverage bottles, and/or to increase plastic collection and recycling. Such measures may include implementing a DRS under which a deposit fee is added to the consumer price, which is refunded to them if and when the bottle is returned. Other measures may include rules on recycled content, individual collection or recycling targets, or a ”plastic tax”. In Great Britain, as part of our producer responsibility obligations, we are required to purchase Packaging Recovery Notes (PRN) to show that we have met our responsibilities for the recycling and recovery of packaging waste. Over the last year we have seen significant price volatility in PRN and continued volatility could increase costs for our business in the future.
DRS for plastic beverage bottles currently exist in some of the countries in which we do business, such as in Norway (which is part of the EEA but is not an EU member state), the Netherlands, Germany and Sweden. Other countries will be issuing binding regulations for DRS for beverage packaging in the near future (such as Scotland) or have adopted legislation paving the way for DRS (such as Portugal and, more recently, the UK). Some countries are considering extending their existing schemes (such as the Netherlands).
In addition to the regulations on packaging, plastic and waste in general, concern over climate change has led to more environmental legislative and regulatory initiatives at an EU and national level. These include areas such as greenhouse gas (GHG) emissions, water use and energy efficiency. At the EU level, as part of the EU Green Deal, a European Climate law with a binding climate neutrality target for 2050 and a proposed new ambition to reduce GHG emissions in 2040 by 55% (versus 1990) is being debated. Also, at a national level, we have already seen a number of countries in which we operate introduce, or start the process of introducing, legislation and regulation promoting net zero emissions, including the UK, France, Norway and Sweden. Others, such as Iceland, also have policy positions on this topic.
Additional taxes levied on CCEP could harm our financial results.
CCEP’s tax filings for various periods are subject to current or future audit by tax authorities in some of the countries in which we do business. These audits may result, or have resulted, in assessments of additional taxes, as well as interest and/or penalties, and could adversely affect our financial results.
For example, the US Internal Revenue Service (IRS) may seek to examine the Merger between Coca-Cola Enterprises, Inc. (CCE), Coca-Cola Iberian Partners, S.A. (CCIP) and Coca-Cola Erfrischungsgetränke GmbH (CCEG), and may not agree with our positions, potentially causing material adverse tax consequences. The US tax returns for that period were filed in 2017 and the IRS have a three year period to enquire into the submitted tax returns. Although we believe that our positions with respect to the Merger are consistent with relevant authorities, there can be no assurance that the IRS will not take a contrary view.
Changes in tax laws, regulations, court rulings, related interpretations, and tax accounting standards in countries in which we operate, or if we are unsuccessful in defending our tax positions, may adversely affect our financial results.
Additionally, amounts we may need to repatriate for the payment of dividends, share buybacks, interest on debt, salaries and other costs may be subject to additional taxation when repatriated.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 187
CCEP may be exposed to risks in relation to compliance with anti-corruption laws and other key regulations and economic sanctions programmes.
CCEP and its subsidiaries are required to comply with the laws and regulations of the various countries in which they conduct business, as well as certain laws of other countries, including the US. In particular, our operations are subject to anti-corruption laws such as the US Foreign Corrupt Practices Act of 1977 (the FCPA), the UK Bribery Act 2010 (UKBA), the Spanish and Portuguese Criminal Codes and Sapin II and other key regulations such as the corporate criminal offence provisions of the UK Criminal Finances Act 2017 and the General Data Protection Regulation (GDPR). We are also subject to economic sanction programmes, including those administered by the United Nations, the EU and the Office of Foreign Assets Control of the US Department of the Treasury (OFAC), and regulations set forth under the US Comprehensive Iran Accountability Divestment Act.
In Europe, GDPR requirements came into force on 25 May 2018. A GDPR data breach could lead to fines of up to 4% of our global annual turnover, as well as negatively affect our reputation.
The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage (active bribery). In our business dealings we may deal with both governments and state owned business enterprises, the employees of which are considered foreign officials for the purposes of the FCPA.
The provisions of the UKBA extend beyond bribery of foreign public officials, covering both public and private sector bribery. They are more onerous than the FCPA in a number of respects, including jurisdiction, non-exemption of facilitation payments, the receipt of bribery (passive bribery), penalties and in some cases imprisonment.
We do not currently operate in jurisdictions that are subject to territorial sanction imposed by OFAC or other relevant sanction authorities. However, such economic sanction programmes will restrict our ability to engage or confirm business dealings with certain sanctioned countries and with sanctioned parties.
Violations of the above, including GDPR, anti-corruption, economic, sanctions, competition law or other applicable laws and regulations are punishable by civil and sometimes criminal penalties for individuals and companies. These penalties can vary from fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts) to revocations or restrictions of licences, as well as criminal fines and imprisonment. Potentially any violation within one of these compliance risk areas could have a negative impact on our reputation and consequently on our ability to win future business.
Having effective compliance programmes in place can never give the assurance that related policies or procedures will be followed at all times, or always detect and prevent violations of the applicable laws by our employees, consultants, agents or partners.
Legal changes could affect our status as a foreign corporation for US federal income tax purposes, or limit the US tax benefits we receive from engaging in certain transactions.
In general, for US federal income tax purposes, a corporation is considered a tax resident in the jurisdiction of its organisation or incorporation. Because CCEP is incorporated under the laws of England and Wales, it would generally be classified as a non-US corporation (and therefore a non-US tax resident) under these rules. However, section 7874 of the US Internal Revenue Code (IRC) of 1986, as amended, provides an exception under which a non-US incorporated entity may, in certain circumstances, be treated as a US corporation for US federal income tax purposes.
Under current law, CCEP expects to be treated as a non-US corporation for US federal income tax purposes. However, section 7874 of the IRC and the related US Treasury regulations are complex and there is limited guidance as to their application. In addition, changes to section 7874 of the IRC or the US Treasury Regulations could adversely affect CCEP’s status as a foreign corporation for US federal tax purposes, and any such changes could have prospective or retroactive application. If CCEP were to be treated as a US corporation for US federal income tax purposes, it could be subject to materially greater US tax liability than as a non-US corporation.
188Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Future changes to US, UK and other tax laws to which CCEP is subject could adversely affect our business.
In the US, and in the UK and other countries in which CCEP and its affiliates do business, government agencies such as the US Congress and HM Revenue & Customs are looking into a number of issues related to the taxation of multinational corporations. One key area of focus is “base erosion and profit shifting”, where multinational groups artificially shift profits from a higher tax jurisdiction to a lower tax jurisdiction. As a result, tax laws in these countries could change on a prospective or retroactive basis. Any such changes could adversely affect our business and its affiliates, and there is no assurance that we would be able to maintain any particular worldwide effective corporate tax rate.
Our business may be subject to US federal tax withholding as a result of the subscription for CCEP Shares in exchange for property.
If certain US Treasury regulations applied, our business could be treated as having received a distribution as a result of the subscription for CCEP Shares by a US company. The amount of such deemed distribution could be substantial, and would be subject to US withholding tax (at a rate of 5%) under the United Kingdom-United States Tax Treaty.
We do not believe that such regulations apply under the particular facts and circumstances of the Merger. However, there can be no assurance that the US Internal Revenue Service will not take a contrary view.
Market
We may not be able to respond successfully to changes in the marketplace.
CCEP operates in the highly competitive beverage industry and faces strong competition from other general and speciality beverage companies. Our response to continued and increased competitor and customer consolidations and marketplace competition may result in lower than expected net pricing of our products. In addition, external factors such as the widespread outbreak of infectious disease (e.g. coronavirus (COVID-19)) may adversely affect the market.
Changes in our relationships with large customers may adversely impact our financial results.
A significant amount of our volume is sold through large retail chains, including supermarkets and wholesalers. Many of these customers are becoming more consolidated, or forming buying groups, which increases their purchasing power. They may, at times, seek to use this to improve their profitability through lower prices, increased emphasis on generic and other private label brands, or increased promotional programmes and payment of rebates.
Competition from hard discount retailers and online retailers continues to challenge traditional retail outlets. This can increase the pressure on all customer margins, which may then be reflected in pressure on suppliers such as CCEP.
In addition, from time to time a customer or customers choose(s) to temporarily stop selling some of our products as a result of disputes we may have with them.
These factors, as well as others, can have a negative impact on the availability of CCEP’s products, and our profitability.
Cyber and social engineering attacks
Cyber attacks, or a deficiency in CCEP’s cybersecurity or a customer’s or supplier’s cybersecurity, could negatively impact our business.
As our reliance on technology increases, so will the risks posed to our internal and third party systems from cyber incidents.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our data or information systems. It could involve gaining unauthorised access to systems, either unintentionally or through an intentional attack (such as a criminal attack, hacking or a computer virus) to disrupt operations, corrupt data, steal confidential information or threaten our employees.
A cyber incident could disrupt our operations, compromise or corrupt private data, or damage our brand image. Like many companies, hackers target us, our customers and suppliers with social engineering attacks. While we have procedures and training in place to protect us against these types of attacks, they can be successful, which could also disrupt our operations, compromise or corrupt private data, or damage our brand image. All of these outcomes could negatively impact our financial results.
Competitiveness and transformation
CCEP may not identify sufficient initiatives to realise its cost saving goals to stay competitive.
Following the completion of our integration plan and delivery of the committed synergy savings, we continue to assess potential opportunities for continuous improvements as part of the ongoing business strategy. This strategic objective is to ensure our competitiveness in the future and encompasses three areas: technology transformation, supply chain and commercial improvements, and working efficiently with our partners and franchisors. The focus of these initiatives is to offset potential future increases in costs, such as material or headcount, and to allow investment in potential growth areas.
The initiatives are complex due to their multi functional and multi country nature which cover many parts of our business. Ineffective coordination and control over the single initiatives and interdependent initiatives could result in us failing to realise the expected benefits. Continuous change might trigger change fatigue among our people or social unrest in the event that such changes result in industrial action.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 189
Restructuring could cause labour and union unrest.
We have implemented restructuring across all countries and functions since CCEP was established, resulting in a combination of redeployment and redundancies. While we continue to look at potential opportunities to enable CCEP to maintain and improve its position within the market, this might have negative impact on employee representatives and social partners before any final decision is made. Industrial action has been kept to a minimum through constructive social dialogue and has not impacted our ability to meet its objectives. We would ensure that any subsequent industrial unrest was mitigated through the same process and, where appropriate, subject to resource planning for the future.
Miscalculation of CCEP’s need for infrastructure investment could impact its financial results.
To support revenue growth we are investing in our infrastructure, including cold drink, fleet, technology, sales force, digital capability and production equipment.
There is a risk that these investments do not generate the projected returns, either because of market or technological changes, ineffective adoption of capabilities, or because the projected requirements of these investments may differ from actual levels if product demands do not develop as anticipated.
Our infrastructure investments are anticipated to be long term in nature, and it is possible that they may not generate the expected return due to future changes in the marketplace. This could adversely affect CCEP’s financial results.
Technology failures could disrupt our operations and negatively impact our business.
CCEP relies extensively on information technology (IT) systems to process, transmit, store and protect electronic information. For example, our production and distribution facilities and inventory management all use IT to maximise efficiencies and minimise costs. Communication between our employees, customers, and suppliers also depends, to a large extent, on IT.
Our IT systems may be vulnerable to interruptions due to events that may be beyond our control. These include, but are not limited to, natural disasters, telecommunications failures and security issues. We have IT security processes and disaster recovery plans in place, but they may not be adequate or implemented effectively enough to ensure that our operations are not disrupted.
We continually invest in IT to ensure our technology solutions are current and up to date. If we miscalculate the level of investment needed, our software, hardware and maintenance practices could become out of date, and this could result in disruptions to our business.
In addition, when we implement new systems or system upgrades (such as SAP), there is a risk that our business may be temporarily disrupted during the implementation period.
We may not be able to execute our strategy to pursue suitable acquisitions or may have difficulty integrating acquired businesses.
Our strategy involves, in part, pursuing disciplined and attractive investments, which are intended to create a positive net present value for total shareholder return. Our efforts to execute this strategy may be affected by our ability to identify suitable acquisition targets and negotiate and close acquisition and development transactions. Further, to the extent that we are able to identify suitable investments, there are risks that integration of those investments does not proceed as anticipated or that management attention is diverted by such opportunities, and there is no guarantee that these investments will support the growth of CCEP or achieve the intended return.
Climate change and water
Global issues such as climate change, resource scarcity and water scarcity, and the legal and regulatory responses to these issues, could adversely impact our business.
Climate change - caused by greenhouse gas (GHG) emissions in part from businesses such as ours - is resulting in global average temperature increases and extreme weather conditions around the world. This has an adverse impact on our business. CCEP’s products rely heavily on water, and climate change may exacerbate water scarcity and cause a deterioration of water quality in affected regions. It could also decrease agricultural productivity in certain regions of the world, which could limit the availability or increase the cost of key raw materials that we use to produce our products. More frequent extreme weather events, such as storms or floods in our territories, could disrupt our facilities and distribution network, further impacting our business.
Concern over climate change has led to legislative and regulatory initiatives aimed at limiting GHG emissions. Policy makers continue to consider proposals that could impose mandatory requirements on GHG emissions reduction and reporting. Other climate laws could affect other areas of our business, such as production, distribution, packaging or the cost of raw materials. This in turn could negatively impact our business and financial results.
Water is the primary ingredient in all of our products. It is also vital to our manufacturing processes and is needed to produce the agricultural ingredients that are essential to our business. Water scarcity and a deterioration in the quality of available water sources in our territories or to our supply chain, even if temporary, may result in increased production costs or capacity constraints. This could adversely affect our ability to produce and sell our beverages, and increase our costs.
190Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
As part of our commitment to addressing our climate change impacts, we are investing in technologies that improve the energy efficiency of our operations and reduce GHG emissions related to our packaging, cold drink equipment and transportation. In general, the cost of these investments is greater than investments in less energy efficient technologies, and the period of return is often longer. Although we believe these investments will provide long-term benefits, there is a risk that we may not always achieve our desired returns.
Economic and political conditions
The deterioration of global and local economic conditions could adversely affect CCEP’s business performance and share price.
Our performance is closely linked to the economic cycle in the countries, regions and cities where we operate. Normally, strong economic growth in these areas results in greater demand for our products, while slow economic growth or economic contraction decreases demand and drives down sales.
For example, adverse economic conditions may result in consumers choosing to purchase cheaper private label brands, or avoiding buying beverage products altogether. Those consumers who do continue to buy our products may shift away from higher margin products and packages. A weak economic climate could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of accounts being deemed uncollectable. In addition, external factors such as the widespread outbreak of infectious disease (e.g. coronavirus (COVID-19)) could adversely impact economic conditions. Each of these factors could adversely affect our business, operational results, financial condition and share price.
Economic growth, globally and in the EU, faces a slowdown and markets continue to be volatile, which could have a material adverse effect on our financial results. Concerns remain about future interest rate changes, and there is continuing uncertainty around the Eurozone. Sovereign debt concerns in certain territories, whether real or perceived, could result in the availability of capital being limited, which may restrict our liquidity.
Even in the absence of a market downturn, CCEP is exposed to substantial risk from volatility in areas such as consumer spending and capital markets conditions, which adversely affect the business and economic environment. This in turn may adversely affect our business performance and share price.
Beyond the international economic situation, there is growing political uncertainty stemming from increased polarisation, the emergence of political forces with alternative economic priorities in EU member states, and concerns about independence movements within the EU. This uncertainty could affect the economic situation in the Eurozone, which could negatively impact our business and financial results.
Increases in costs, limitation of supplies, or lower than expected quality of raw materials could harm our financial results.
The cost of our raw materials, ingredients or packaging materials could increase over time. If that happens, and if we are unable to pass the increased costs on to our customers in the form of higher prices, our financial results could be adversely affected.
We use supplier pricing agreements and derivative financial instruments to manage volatility and market risk for certain commodities. Generally, these hedging instruments establish the purchase price for these commodities before the time of delivery. These pricing positions are taken in line with the Board’s agreed risk policy and the impact of these positions is known and forecasted in our financial results. This may lock CCEP into prices that are ultimately greater or lower than the actual market price at the time of delivery.
We continue to experience volatility in commodity prices mainly driven by political uncertainty, increased protectionist policies and volatility impacts of capital markets.
Our suppliers could be adversely affected by a number of external events. These could include strikes, adverse weather conditions, speculation, abnormally high demand, governmental controls, new taxes, national emergencies, natural disasters, health crises, such as a pandemic, and insolvency. If this happens, and we are unable to find an alternative source for our materials, our cost of sales, revenues, and ability to manufacture and distribute products could be adversely affected.
The quality of the materials or finished goods delivered to us could be lower than expected. If this happens, we may need to substitute those items for ones that meet our standards, or replace underperforming suppliers. This could disrupt our operations and adversely affect our business.
Changes in interest rates or our debt rating could harm our financial results and financial position.
CCEP is subject to interest rate risk, and changes in our debt rating could have a material adverse effect on interest costs and debt financing sources. Our debt rating can be materially influenced by a range of factors, including our financial performance, acquisitions, and investment decisions, as well as the capital management activities of The Coca-Cola Company (TCCC) and changes in the debt rating of TCCC.
Changes in the stability of the euro could significantly impact our financial results and ultimately hinder our competitiveness in the marketplace.
There are concerns regarding the short and long-term stability of the euro and pound sterling and the euro’s ability to serve as a single currency for a number of individual countries. These concerns could lead individual countries to revert, or threaten to revert, to local currencies. In more extreme circumstances, they could exit from the EU, and the Eurozone could be dissolved entirely.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 191
Should this occur, the assets we hold in a country that reintroduces local currency could be subject to significant changes in value when expressed in euros. Furthermore, the full or partial dissolution of the euro, the exit of one or more EU member states from the EU or the full dissolution of the EU could cause significant volatility and disruption to the global economy. This could affect our ability to access capital at acceptable financing costs, the availability of supplies and materials, and demand for our products, all of which could adversely impact our financial results.
Finally, if it becomes necessary for us to conduct our business in additional currencies, we would be subjected to additional earnings volatility as amounts in these currencies are translated into euros.
The UK’s exit from the EU could impact our profits.
We continue to face potential risks associated with the UK's exit from the EU and its negotiations over the terms of its leaving.
The risks associated with Brexit may adversely affect our operational, regulatory, currency, insurance and/or tax regimes. There has been a concern that Brexit could also result in prolonged uncertainty regarding aspects of the UK economy, which in turn may damage customers’ and investors’ confidence.
If regulation differs post Brexit, this could lead to costs arising from additional friction at borders and from implementing different regulatory regimes. Were all these risks to materialise, the effect could be an increase in our operating costs, restrictions on the movement of capital and the mobility of personnel, which may materially and adversely affect our tax position, business results and financial position if not mitigated.
Political instability could negatively impact our operations and profits.
We continue to be exposed to risks associated with political instability in different parts of our territories. For example, the instability in Catalonia impacting the Spanish economy and the “Gilet Jaunes” movement in France impacting the French economy.
Such instability could result in prolonged political, economic and operational uncertainty for our business, our customers and consumers, with potential impacts on tourism, private consumption and regulation.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur losses.
We are exposed to the risk of default by, or failure of, counterparty financial institutions with which we do business. This risk may be heightened during economic downturns and periods of uncertainty in the financial markets.
If one of our counterparties became insolvent or filed for bankruptcy, our ability to recover amounts owed from or held in accounts with the counterparty may be limited. In this event we could incur losses, which could negatively impact our results and financial condition.
The relationship with TCCC and other franchisors
Our business success, including our financial results, depends on our relationship with TCCC and other franchisors.
More than 90% of our revenue for the year ended 31 December 2019 was derived from the distribution of beverages under agreements with TCCC. We make, sell and distribute products of TCCC through fixed term bottling agreements with TCCC, which typically include the following terms:
| |
| • | We purchase our entire requirement of concentrates and syrups for Coca-Cola trademark beverages (sparkling beverages bearing the trademark “Coca-Cola” or the “Coke” brand name) and allied beverages (beverages of TCCC or its subsidiaries that are sparkling beverages, but not Coca-Cola trademark beverages or energy drinks) from TCCC. Prices, terms of payment, and other terms and conditions of supply are determined from time to time by TCCC at its sole discretion. |
| |
| • | There are no limits on the prices that TCCC may charge for concentrate. TCCC maintains current effective concentrate incidence at the same levels that CCE, CCIP and CCEG had in place before the Merger, provided certain specific mutually agreed metrics are achieved. |
| |
| • | Much of the marketing and promotional support that we receive from TCCC is at TCCC’s discretion. Programmes may contain requirements, or be subject to conditions, established by TCCC that we may not be able to achieve or satisfy. The terms of most of the marketing programmes do not and will not contain an express obligation for TCCC to participate in future programmes or continue past levels of payments into the future. |
| |
| • | Our bottling agreements with TCCC are for fixed terms, and most of them are renewable only at the discretion of TCCC at the conclusion of their terms. A decision by TCCC not to renew a fixed term bottling agreement at the end of its term could substantially and adversely affect our financial results. |
| |
| • | We are obligated to maintain sound financial capacity to perform our duties, as required and determined by TCCC at its sole discretion. These duties include, but are not limited to, making certain investments in marketing activities to stimulate the demand for products in our territories and making infrastructure improvements to ensure our facilities and distribution network are capable of handling the demand for these beverages. |
Disagreements with TCCC concerning business issues may lead TCCC to act adversely to our interests with respect to these relationships.
192Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Product quality
Our business could be adversely affected if CCEP, TCCC or other franchisors and manufacturers of the products we distribute are unable to maintain a positive brand image as a result of product quality issues.
Our success depends on our products, and those of TCCC and other licensors, having a positive brand image among customers and consumers. Product quality issues, whether real or perceived, or allegations of product contamination, even if false or unfounded, could tarnish the image of our products and result in customers and consumers choosing other products.
Product liability claims or product recalls could also negatively impact our brand image and business results. We could be liable if the consumption of our products causes injury or illness. We could also be required to recall products if they become or are perceived to become contaminated, or are damaged or mislabelled.
Adverse publicity around health and wellness concerns, water usage, customer disputes, labour relations, product ingredients, packaging recovery, and the environmental impact of products could negatively affect our overall reputation and our products’ acceptance by our customers and consumers. This could happen even when the publicity results from actions occurring outside our territory or control. Similarly, if product quality issues arise from products not manufactured by us but imported into one of our territories, our reputation and consumer goodwill could be damaged.
Opinions about our business, including opinions about the health and safety of our products, can spread quickly through social media. If we fail to respond to any negative opinions effectively and in a timely manner, this could harm the perception of our brands and damage our reputation, regardless of the validity of the statements, and negatively impact our financial results.
Other risks
Our business is vulnerable to products being imported from outside its territories, which adversely affects our sales.
The territories in which we operate are susceptible to the import of products manufactured by bottlers from countries outside our territories. When these imports come from members of the European Economic Area (EEA), we are generally prohibited from taking action to stop such imports.
Adverse weather conditions could limit the demand for our products.
Our sales are significantly influenced by weather conditions in the markets in which we operate. In particular, due to the seasonality of our business, cold or wet weather during the summer months may have a negative impact on the demand for our products and contribute to lower sales. This could have an adverse effect on our financial results.
Global or regional catastrophic events could negatively impact our business and financial results.
Our business may be affected by major IT outages, large scale natural disasters or terrorist acts, especially those occurring in our territories or other major industrialised countries. Other catastrophic events that could affect our business include the loss of key employees, shortages of key raw materials, the outbreak or escalation of armed hostilities or widespread outbreaks of infectious disease such as coronavirus (COVID-19).
Such events in the geographic regions where we do business could have a material adverse impact on our sales volume, cost of sales, earnings, and overall financial condition.
Legal claims against our vendors could affect their ability to provide us with products and services, which could negatively impact our financial results.
Many of our vendors supply us with products and services that rely on certain intellectual property rights or other proprietary information, and are subject to other third party rights, laws and regulations. If these vendors face legal claims brought by third parties or regulatory authorities, they could be required to pay large settlements or even cease providing us with products and services as well as exposing CCEP to risk.
These outcomes could require us to change vendors or develop replacement solutions or be subject to third party claims. This could result in business inefficiencies or higher costs, which could negatively impact CCEP’s financial results.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 193
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
CCEP is a party to various litigation claims and legal proceedings. We evaluate these claims and proceedings to assess the likelihood of unfavourable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves or disclose the relevant claims or proceedings, as appropriate.
These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgement. As a result, actual outcomes or losses may differ materially from those in the current assessments and estimates.
We have bottling and other business operations in markets with strong legal compliance environments. Our policies and procedures require strict compliance with all laws and regulations that apply to our business operations, including those prohibiting improper payments to government officials. Those policies are supported by leadership and are ingrained in our business through our compliance culture and training. Nonetheless, we cannot guarantee that our employees will always ensure full compliance with all applicable legal requirements.
Improper conduct by our employees could damage our reputation or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines as well as disgorgement of profits.
Increases in the cost of wages and employee benefits, including pension retirement benefits, could impact our financial results and cash flow.
The 2019 collective bargaining agreements were negotiated and concluded within budget. Wage increases and other employee benefit costs above what we have budgeted for would be detrimental to our operating income.
TCCC and Olive Partners, S.A. (Olive Partners) hold significant shareholdings in CCEP and their views may differ from those of our public shareholders.
Around 19% and 36% of CCEP’s Shares are owned by European Refreshments (ER, a wholly owned subsidiary of TCCC) and Olive Partners respectively. As a result of their shareholdings, TCCC and Olive Partners can influence (or, potentially, control the outcome of) matters requiring shareholder approval, subject to our Articles of Association and the Shareholders’ Agreement. The views of TCCC and Olive Partners may not always align with each other or our other shareholders.
194Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Other Group information
Shareholder information
The Company was incorporated in England and Wales on 4 August 2015, as a private company under the Companies Act 2006 (the Companies Act). On 4 May 2016, the Company was reregistered as a public company limited by shares and changed its name from Coca-Cola European Partners Limited to Coca-Cola European Partners plc. It is registered at Companies House, Cardiff, under company number 9717350. The business address for Directors and senior management is Pemberton House, Bakers Road, Uxbridge, UB8 1EZ, England.
The Company is resident in the UK for tax purposes. Its primary objective is to make, sell and distribute ready to drink beverages.
Annual General Meeting
The Company’s 2020 Annual General Meeting (AGM) will be held at Pemberton House, Bakers Road, Uxbridge, UB8 1EZ in May 2020.
Registered shareholders will be sent a Notice of AGM, or notice of availability of the Notice of AGM, closer to the time of the meeting.
Investor calendar
|
| |
Ex-dividend date for interim H1 dividend(A) | 21 May 2020 |
Record date for interim H1 dividend(A) | 22 May 2020 |
Interim H1 dividend payment date(A) | 4 June 2020 |
| AGM | May 2020 |
Ex-dividend date for H2 interim dividend(A) | 16 November 2020 |
Record date for interim H2 dividend(A) | 17 November 2020 |
Interim H2 dividend payment date(A) | 1 December 2020 |
| |
| (A) | Subject to Board approval. |
Directors and senior management
Biographies of the Board of Directors and senior management are set out on pages 60 to 66. Sol Daurella and Alfonso Líbano Daurella are first cousins.
Service contracts and loss of office arrangements
It is the Remuneration Committee’s policy that there should be no element of reward for failure. When considering payments in the event of a loss of office, it takes account of the individual circumstances, including the reason for the loss of office, Group and individual performance, contractual obligations of both parties as well as share and pension plan rules.
Service contracts for Executive Directors provide for a notice period of not more than 12 months from CCEP and not more than 12 months from the individual. The standard Executive Director service contract does not confer any right to additional payments in the event of termination. However, it does reserve the right for the Group to impose garden leave (i.e. leave with pay) on the Executive Director during any notice period. In the event of redundancy, benefits would be paid according to CCEP’s redundancy guidelines for GB prevailing at that time. Executive Directors may be eligible for a pro rata bonus for the period served, subject to performance, but no bonus will be paid in the event of gross misconduct. The treatment of unvested long-term incentive awards is governed by the rules of the relevant plan and depends on the reasons for leaving. The cost of legal fees spent on reviewing a settlement agreement on departure may be provided where appropriate. The Company also reserves the right to pay for outplacement services as appropriate.
The Non-executive Directors (NEDs), including the Chairman of the Board, do not have service contracts but have letters of appointment. NEDs are not entitled to compensation on leaving the Board.
Directors and senior management interest in shares
Other than Sol Daurella, Alfonso Líbano Daurella and José Ignacio Comenge Sánchez-Real, who indirectly owned 7.1% (32,551,890 Shares), 1.4% (6,534,845 Shares), and 1.7% (7,787,663 Shares) of the Shares outstanding as of 28 February 2020, respectively, no Director or member of senior management individually owned more than 1% of the Company’s Shares as of 28 February 2020.
Table 1 shows the number of share options held by Directors and other members of senior management as at 28 February 2020, including the applicable exercise price and the date when the applicable exercise period ends.
Other employee related matters
Note 17 to the consolidated financial statements provides a breakdown of employees by main category of activity. As at 31 December 2019, we had around 23,300 employees, of whom one was located in the US. A number of our employees in Europe are covered by collectively bargained labour agreements, most of which do not expire. However, wage rates must be renegotiated at various dates throughout 2020. We believe we will be able to renegotiate these wage rates with satisfactory terms.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 195
Table 1
Share options held by Directors and other members of senior management as at 28 February 2020
|
| | | | | |
| Name | Grant date | Expiry date | Exercise price | Total number of Shares subject to outstanding options including exercisable and unvested options |
|
| Damian Gammell | 5 November 2015 | 5 November 2025 | $39.00 | 324,643 |
|
| Stephen Moorhouse | 3 November 2011 | 3 November 2021 | $19.68 | 17,155 |
|
| Stephen Moorhouse | 31 October 2013 | 31 October 2023 | $31.46 | 11,446 |
|
| Stephen Moorhouse | 30 October 2014 | 30 October 2024 | $32.51 | 1,476 |
|
| Stephen Moorhouse | 30 October 2014 | 30 October 2024 | $32.51 | 9,598 |
|
| Lauren Sayeski | 31 October 2013 | 31 October 2023 | $31.46 | 1,517 |
|
| Lauren Sayeski | 31 October 2013 | 31 October 2023 | $31.46 | 1,661 |
|
Nature of trading market
The Company has one class of ordinary shares. These shares are traded on the New York Stock Exchange (NYSE), London Stock Exchange (LSE), Euronext Amsterdam and the Spanish Stock Exchanges.
|
| |
| Listing information | |
| Ticker symbol (all exchanges) | CCEP |
| ISIN code | GB00BDCPN049 |
| Legal entity identifier | 549300LTH67W4GWMRF57 |
| CUSIP | G25839104 |
| SEDOL number | BDCPN04 |
Share capital
The Articles of Association of the Company (the Articles) contain no upper limit on the authorised share capital of the Company. Subject to certain limitations under the Shareholders’ Agreement, the Board has the authority to offer, allot, grant options over or otherwise deal with or dispose of shares to such persons, at such times, for such consideration and upon such terms as the Board may decide, only if approved by ordinary resolution of our shareholders.
As of 31 December 2019 the Company had 456,399,877 Shares issued and fully paid. As of 28 February 2020, the Company had 455,960,558 Shares issued and fully paid.
Under the Shareholders’ Agreement and the Articles, the Company is permitted to issue, or grant to any person rights to be issued, securities, in one or a series of related transactions, in each case representing 20% or more of our issued share capital, only if approved in advance by special resolution of our shareholders.
Pursuant to this authority, our shareholders have passed resolutions allowing a maximum of a further 325,442,330 Shares (as of 28 February 2020) to be allotted and issued, subject to the restrictions set out below:
| |
| 1. | pursuant to a shareholder resolution passed on 26 May 2016, the Board is authorised to grant rights to subscribe for or to convert any security into, and/or allot and issue, shares up to an aggregate maximum of 18,000,000 Shares in connection with the assumption or replacement by the Company of equity awards granted under certain CCE share plans, of which 7,342,391 have been issued as of 28 February 2020; |
| |
| 2. | pursuant to a shareholder resolution passed on 29 May 2019 regarding the authority to allot new shares, the Board is authorised to allot shares and to grant rights to subscribe for or convert any security into shares: |
| |
| a. | up to a nominal amount of €1,573,923.60 (representing 157,392,360 Shares; such amount to be reduced by any allotments or grants made under paragraph 2(b) below in excess of such sum); and |
| |
| b. | comprising equity securities (as defined in the Companies Act) up to a nominal amount of €3,147,847.21 (representing 314,784,721 Shares; such amount to be reduced by any allotments or grants made under paragraph 2(a) above) in connection with an offer by way of a rights issue: |
| |
| i. | to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and |
| |
| ii. | to holders of other equity securities as required by the rights of those securities or as the Board otherwise considers necessary, |
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and
196Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
| |
| 3. | pursuant to a shareholder resolution passed on 29 May 2019 regarding authority to disapply pre-emption rights, the Board is authorised to allot equity securities (as defined in the Companies Act) for cash under the authority given by the shareholder resolution described in paragraph 2 above and/or to sell shares held by the Company as treasury shares for cash as if section 561 of the Companies Act did not apply to any such allotment or sale, such power to be limited: |
| |
| a. | to the allotment of equity securities and sale of treasury shares in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph 2(b) above, by way of a rights issue only): |
| |
| i. | to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and |
| |
| ii. | to holders of other equity securities, as required by the rights of those securities, or as the Board otherwise considers necessary, |
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and
| |
| b. | in the case of the authority granted under paragraph 2(a) above and/or in the case of any sale of treasury shares, to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph 3(a) above) up to a nominal amount of €236,088.54 (representing 23,608,854 Shares). |
Shares not representing capital
None.
Shares held by CCEP
We are not permitted under English law to hold our own Shares unless they are repurchased by us and held in treasury. At our 2019 AGM, our shareholders passed a special resolution that allows us to buy back our own Shares in the market as permitted by the Companies Act. On 12 September 2018, the Board announced a €1.5 billion share buyback programme, to begin as soon as possible, subject to trading volumes. This buyback programme completed in 2019. On 13 February 2020, the Board announced a further share buyback programme of up to €1 billion. All Shares repurchased as part of the buyback programmes have been cancelled. Details of the Shares bought back are provided under share buyback programmes below.
Share-based payment awards
Table 2 on page 198 shows the share-based payment awards outstanding under each of the CCE 2010 Incentive Award Plan (2010 Plan) and the Long-Term Incentive Plan 2016 (CCEP LTIP) as at 31 December 2019 and 28 February 2020. For more details about the share plans and awards granted, see Note 21 to the consolidated financial statements on pages 164 to 165.
History of share capital
Table 3 on page 199 sets out the history of our share capital for the period from 1 January 2017 until 28 February 2020.
Share buyback programmes
Table 4 on page 199 sets out details of our share buyback programmes from 1 January 2019 until 28 February 2020.
US shareholders
To the knowledge of the Company, 213 holders of record with an address in the US held a total of 455,886,403 Shares (or 99.98% of the total number of issued Shares outstanding) as at 28 February 2020. However, some Shares are registered in the names of nominees, meaning that the number of shareholders with registered addresses in the US may not be representative of the number of beneficial owners of Shares resident in the US.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 197
Table 2
Outstanding share-based payment awards |
| | | | | | | | | |
| Plan | Date of award (dd/mm/yy) | Type of award(A) | Total number of Shares awarded to employees outstanding as at 31 December 2019 |
| Total number of Shares awarded to employees outstanding as at 28 February 2020(B) |
| Price per Share payable on exercise/ transfer ($) |
| Expiration date (dd/mm/yy) |
| 2010 Plan | 04/11/10 | Option | 20,496 |
| 9,849 |
| 18.40 |
| 04/11/20 |
| | 04/11/10 | Option | 17,127 |
| 17,127 |
| 18.40 |
| 15/01/21 |
| | 12/11/10 | Option | 7,950 |
| 5,300 |
| 18.80 |
| 12/05/20 |
| | 03/11/11 | Option | 778,260 |
| 500,796 |
| 19.68 |
| 03/11/21 |
| | 14/11/11 | Option | 11,550 |
| 11,550 |
| 19.82 |
| 14/05/21 |
| | 05/11/12 | Option | 429 |
| — |
| 23.21 |
| 28/05/20 |
| | 05/11/12 | Option | 9,048 |
| 9,048 |
| 23.21 |
| 15/01/21 |
| | 05/11/12 | Option | 836,326 |
| 835,826 |
| 23.21 |
| 05/11/22 |
| | 31/10/13 | Option | 382 |
| — |
| 31.46 |
| 28/05/20 |
| | 31/10/13 | Option | 827 |
| 827 |
| 31.46 |
| 31/05/20 |
| | 31/10/13 | Option | 955 |
| 955 |
| 31.46 |
| 01/09/20 |
| | 31/10/13 | Option | 109,452 |
| 109,452 |
| 31.46 |
| 30/09/20 |
| | 31/10/13 | Option | 6,835 |
| 6,835 |
| 31.46 |
| 15/01/21 |
| | 31/10/13 | Option | 382 |
| 382 |
| 31.46 |
| 30/06/21 |
| | 31/10/13 | Option | 806,836 |
| 805,802 |
| 31.46 |
| 31/10/23 |
| | 30/10/14 | Option | 371 |
| — |
| 32.51 |
| 28/05/20 |
| | 30/10/14 | Option | 737 |
| 737 |
| 32.51 |
| 31/05/20 |
| | 30/10/14 | Option | 923 |
| 923 |
| 32.51 |
| 01/09/20 |
| | 30/10/14 | Option | 117,412 |
| 117,412 |
| 32.51 |
| 30/09/20 |
| | 30/10/14 | Option | 6,920 |
| 6,920 |
| 32.51 |
| 15/01/21 |
| | 30/10/14 | Option | 769 |
| 769 |
| 32.51 |
| 30/06/21 |
| | 30/10/14 | Option | 1,071,209 |
| 1,069,381 |
| 32.51 |
| 30/10/24 |
| | 05/11/15 | Option | 1,009,881 |
| 1,009,881 |
| 39.00 |
| 05/11/25 |
| | 27/03/17 | PSU | 3,044 |
| 2,875 |
| Nil |
| 27/03/20 |
| CCEP LTIP | 03/10/16 | RSU | 16,667 |
| 16,667 |
| Nil |
| 03/10/20 |
| | 27/03/17 | PSU | 356,279 |
| 354,252 |
| Nil |
| 27/03/20 |
| | 27/03/17 | RSU | 87,552 |
| 85,356 |
| Nil |
| 27/03/20 |
| | 01/09/17 | RSU | 8,874 |
| 8,874 |
| Nil |
| 01/09/20 |
| | 12/03/18 | PSU | 296,351 |
| 293,749 |
| Nil |
| 12/03/21 |
| | 12/03/18 | RSU | 83,051 |
| 80,449 |
| Nil |
| 12/03/21 |
| | 15/06/18 | PSU | — |
| 794 |
| Nil |
| 27/03/20 |
| | 15/06/18 | RSU | 3,651 |
| 3,651 |
| Nil |
| 27/03/20 |
| | 15/06/18 | RSU | 2,614 |
| 2,614 |
| Nil |
| 13/03/21 |
| | 15/06/18 | PSU | 3,408 |
| 2,614 |
| Nil |
| 15/06/21 |
| | 01/03/19 | PSU | 422,690 |
| 414,752 |
| Nil |
| 01/03/22 |
| | 01/03/19 | RSU | 42,312 |
| 40,671 |
| Nil |
| 01/03/22 |
| | 11/12/19 | RSU | 8,685 |
| 8,685 |
| Nil |
| 27/03/20 |
| | 11/12/19 | RSU | 9,396 |
| 9,396 |
| Nil |
| 12/03/21 |
| | 11/12/19 | PSU | 15,276 |
| 15,276 |
| Nil |
| 01/03/22 |
| | 11/12/19 | RSU | 7,597 |
| 7,597 |
| Nil |
| 01/03/22 |
| |
| (A) | PSU is performance share unit. RSU is restricted stock unit. |
| |
| (B) | When an employee leaves CCEP, the expiration date of their options is shortened so options with a new expiration date may appear between the year end and the later reporting date. These are not new options but options that have been moved from another row in the table. |
198Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Table 3
Share capital history
|
| | | | | |
| Period | Nature of Share issuance | Number of Shares |
| Consideration | Cumulative balance of issued Shares at end of period |
| 1 January 2017 | Opening balance | 483,076,396 |
| N/A | 483,076,396 |
| 1 January to 31 December 2017 | Shares issued in connection with the exercise of stock options | 838,486 |
| Exercise price per Share ranging from $5.09 to $32.51 | 483,914,882 |
| 1 January to 31 December 2017 | Shares issued in connection with the fulfilment of RSU and PSU share-based payment awards | 671,546 |
| Nil | 484,586,428 |
| 1 January to 31 December 2018 | Shares issued in connection with the exercise of stock options | 2,022,729 |
| Exercise price per Share ranging from $5.09 to $39.00 | 486,609,157 |
| 1 January to 31 December 2018 | Shares issued in connection with the fulfilment of RSU and PSU share-based payment awards | 740,509 |
| Nil | 487,349,666 |
| 1 January to 31 December 2018 | Shares cancelled as part of buyback programme | (12,429,600 | ) | €500 million (see table 4 for more details) | 474,920,066 |
| 1 January to 31 December 2019 | Shares issued in connection with the exercise of stock options | 1,741,820 |
| Exercise price per Share ranging from $9.89 to $39.00 | 476,661,886 |
| 1 January to 31 December 2019 | Shares issued in connection with the fulfilment of RSU and PSU share-based payment awards | 350,584 |
| Nil | 477,012,470 |
| 1 January to 31 December 2019 | Shares cancelled as part of buyback programme | (20,612,593 | ) | €1 billion | 456,399,877 |
| 1 January to 28 February 2020 | Shares issued in connection with the exercise of stock options | 297,581 |
| Exercise price per Share ranging from $9.89 to $32.51 | 456,697,458 |
| 1 January to 28 February 2020 | Shares issued in connection with the fulfilment of RSU and PSU share-based payment awards | — |
| N/A | 456,697,458 |
| 1 January to 28 February 2020 | Shares cancelled as part of buyback programme | (736,900 | ) | €38 million
| 455,960,558 |
Table 4
Share buyback programmes
|
| | | | | | | | |
| Period | (a) Total number of Shares purchased |
| (b) Average price paid per Share (€) |
| (c) Total number of Shares purchased as part of publicly announced plans or programmes(A) |
| (d) Approximate value of Shares that may yet be purchased under the plans or programmes(A) (€ million) |
|
| 1 to 31 January 2019 | — |
| — |
| 12,429,600 |
| 1,000 |
|
| 1 to 28 February 2019 | 1,079,800 |
| 41.220023 |
| 13,509,400 |
| 956 |
|
| 1 to 31 March 2019 | 2,427,200 |
| 43.440465 |
| 15,936,600 |
| 850 |
|
| 1 to 30 April 2019 | 2,021,151 |
| 46.054759 |
| 17,957,751 |
| 757 |
|
| 1 to 31 May 2019 | 2,225,310 |
| 49.341490 |
| 20,183,061 |
| 647 |
|
| 1 to 30 June 2019 | 2,009,525 |
| 50.760539 |
| 22,192,586 |
| 545 |
|
| 1 to 31 July 2019 | 1,866,307 |
| 50.892373 |
| 24,058,893 |
| 450 |
|
| 1 to 31 August 2019 | 2,542,400 |
| 49.387181 |
| 26,601,293 |
| 325 |
|
| 1 to 30 September 2019 | 2,609,300 |
| 50.533407 |
| 29,210,593 |
| 193 |
|
| 1 to 31 October 2019 | 3,098,600 |
| 50.963202 |
| 32,309,193 |
| 35 |
|
| 1 to 30 November 2019 | 733,000 |
| 46.927113 |
| 33,042,193 |
| 0 |
|
| 1 to 31 December 2019 | — |
| — |
| 33,042,193 |
| — |
|
| 1 to 31 January 2020 | — |
| — |
| 33,042,193 |
| — |
|
| 1 to 28 February 2020 | 976,900 |
| 50.224742 |
| 34,019,093 |
| 951 |
|
| |
| (A) | On 12 September 2018, the Company announced a share buyback programme of up to €1.5 billion to reduce the Company’s share capital. The total number of Shares acquired under this buyback programme in 2018 was 12,492,600 and in 2019 was 20,612,593. On 13 February 2020, the Company announced a further share buyback programme of up to €1 billion. The total number of Shares purchased under this buyback programme to 28 February 2020 was 976,900. The share buyback programmes have been carried out in accordance with the authorities granted by shareholders at the 2018 and 2019 AGMs. The maximum number of Shares authorised for purchase at the 2019 AGM was 43,333,647 Shares, representing 10% of the issued Shares at 2 April 2019, reduced by the number of Shares purchased, or agreed to be purchased, between 2 April and 29 May 2019. The existing authority to buy back Shares will expire at the 2020 AGM. We intend to seek shareholder approval to renew the authority to buy back Shares. |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 199
Marketing
CCEP relies extensively on advertising and sales promotions to market its products. TCCC and other franchisors advertise in all major media to promote sales in the local areas we serve. We also benefit from regional, local and global advertising programmes conducted by TCCC and other franchisors. Certain advertising expenditures by TCCC and other franchisors are made pursuant to annual arrangements.
CCEP and TCCC engage in a variety of marketing programmes to promote the sale of TCCC’s products in territories in which we operate. The amounts to be paid to us by TCCC under the programmes are determined annually and are periodically reassessed as the programmes progress. Marketing support funding programmes entered into with TCCC provide financial support, principally based on our product sales or on the completion of stated requirements, to offset a portion of the cost of our marketing programmes. Except in certain limited circumstances, TCCC has no specified contractual obligation to participate in expenditures for advertising, marketing and other support in our territories. The terms of similar programmes TCCC may have with other licensees and the amounts paid by TCCC under them could differ from CCEP’s arrangements.
We take part in various programmes and arrangements with customers to increase the sale of products. These include arrangements under which allowances can be earned by customers for attaining agreed sales levels or for participating in specific marketing programmes.
Dependence on franchisors
As a franchise business, CCEP’s business success, including its financial results, depends upon our relationships with TCCC and its other franchisors. For more about our relationships with franchisors, see the Risk factors on page 192.
Competition
CCEP competes mainly in the manufacturing, sale and distribution of non-alcoholic ready to drink (NARTD) beverages industry and adjacencies, including squashes/cordials, hot beverages and premium spirits. CCEP competes in the Western Europe segment, and primarily manufactures, sells and distributes the products of TCCC, as well as those of other franchisors such as Monster Energy and Capri Sun AG.
CCEP competes mainly with:
| |
| • | NARTD and non-alcoholic, non-ready to drink (for example squashes/cordials and hot beverages) brand and private label manufacturers, sellers and distributors |
| |
| • | Alcoholic beverage manufacturers, sellers and distributors - in the sense that some of their products may be considered to be substitutes to CCEP’s own products for certain consumer occasions |
A small number of such companies may also be contracted by CCEP as manufacturers (e.g. co-packers) or commercial partners (e.g. on behalf of which CCEP sells and/or distributes, or which sells and/or distributes on CCEP’s behalf).
CCEP sells and distributes to a wide range of customers, including both physical and online food and beverage retailers, wholesalers and out of retail customers. The market is highly competitive and all CCEP customers and consumers may choose freely between products of CCEP and its competitors. Many of CCEP’s customers are under increasing competitive pressure, including with the increasing market share of discounters, the growth of e-commerce food and beverage players, and customer consolidation.
CCEP competes with respect to a wide range of commercial factors, including brand awareness, product and packaging innovations, supply chain efficacy, customer service, sales strategy, marketing, and pricing and promotions.
The level of competition faced by CCEP may be affected by, for example, changing customer and consumer product, brand, and packaging preferences; shifts in customers’ industries; competitor strategy shifts; new competitor entrants; supplier dynamics; the weather; and social, economic, political or other external landscape shifts.
Key factors affecting CCEP’s competitive strength include, for example, CCEP’s strategic choices; investments; partnerships (e.g. with customers, franchisors and suppliers); people management; asset base (e.g. property, plant, fleet, and equipment); technological sophistication; and processes and systems.
Impact of governmental regulation
Our business is sensitive to the economic and political action and conditions in our countries of operation. The risks this can pose to our business are set out in our Principal risks on pages 44 to 49 and in our Risk factors on pages 186 to 194. By responding to these challenges positively we can gain a competitive advantage.
Material contracts
There have been no material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the Group is a party, for the two years immediately preceding the publication of this document.
Articles of Association
For a summary of certain principal provisions of the Company’s Articles of Association (the Articles), see Other Information - Other Group information - Articles of Association of the 2018 Annual Report on Form 20-F, filed on 14 March 2019. A copy of the Company’s Articles has been filed as Exhibit 1 to this Form 20-F.
200Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Documents on display
CCEP is subject to the information requirements of the US Securities Exchange Act of 1934 (the Exchange Act), as amended, applicable to FPIs. In accordance with these requirements, we file our Annual Report on Form 20-F and other related documents with the US Securities and Exchange Commission (SEC). It is possible to read and copy documents that we have filed with the SEC at the SEC’s office. Please call the SEC at 1-800-SEC-0330 for information about using their public reference rooms and their copy charges. Filings with the SEC are also available to the public from commercial document retrieval services, and from the website maintained by the SEC at www.sec.gov.
Our Annual Report on Form 20-F is also available on our website at www.cocacolaep.com/about-us/governance. Shareholders may also order a hard copy, free of charge - see Useful Addresses on page 219.
Exchange controls
Other than those individuals and entities subject to economic sanctions that may be in force from time to time, we are not aware of any other legislative or legal provision currently in force in the UK, the US, the Netherlands or Spain restricting remittances to non-resident holders of CCEP’s Shares or affecting the import or export of capital for the Company’s use.
Taxation information for shareholders
US federal income taxation
US federal income tax consequences to US holders of the ownership and disposition of CCEP Shares
This section summarises the material US federal income tax consequences of owning shares as capital assets for tax purposes. It is not, however, a comprehensive analysis of all the potential US tax consequences for such holders, and it does not discuss the tax consequences of members of special classes of holders which may be subject to other rules, including, but not limited to: tax exempt entities, life insurance companies, dealers in securities, traders in securities that elect a mark-to-market method of accounting for securities holdings, investors liable for alternative minimum tax, holders that, directly or indirectly, hold 10% or more (by vote or by value) of the Company’s stock, holders that hold shares as part of a straddle or a hedging or conversion transaction, holders that purchase or sell shares as part of a wash sale for US federal income tax purposes, or holders whose functional currency is not the US dollar. In addition, if a partnership holds shares, the US federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership and may not be described fully below. This summary does not address any aspect of US taxation other than US federal taxation (such as the estate and gift tax, the Medicare tax on net investment income or US state or local tax).
Investors should consult their tax advisors regarding the US federal, state, local and other tax consequences of owning and disposing of shares in their particular circumstances.
This section is based on the Internal Revenue Code of 1986, as amended (the IRC), its legislative history, existing and proposed regulations, published rulings and court decisions, and on the United Kingdom-United States Tax Treaty, all of which are subject to change, possibly on a retroactive basis.
A US holder is a beneficial owner of CCEP Shares that is, for US federal income tax purposes, (i) a citizen or individual resident of the US, (ii) a US domestic corporation, (iii) an estate whose income is subject to US federal income taxation regardless of its source, or (iv) a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust. A non-US holder is a beneficial owner of shares that is neither a US holder nor a partnership for US federal income tax purposes.
Taxation of dividends
Subject to the passive foreign investment company (PFIC) rules discussed below, a US holder is subject to US federal income taxation on the gross amount of any dividend paid by CCEP out of the Company’s current or accumulated earnings and profits (as determined for US federal income tax purposes). Dividends paid to a non-corporate US holder will generally constitute “qualified dividend income” and be taxable to the holder at a preferential rate, provided that the holder has a holding period in the shares of more than 60 days during the 121 day period beginning 60 days before the ex-dividend date and meets other holding period requirements.
For US federal income tax purposes, a dividend must be included in income when the US holder actually or constructively receives the dividend. Dividends paid by CCEP to corporate US holders will generally not be eligible for the dividends received deduction allowed to US corporations in respect of dividends received from other US or foreign corporations, unless such corporate US holder holds 10% or more (by vote or by value) of the Company’s stock. For foreign tax credit purposes, dividends will generally be income from sources outside the US and will, depending on a US holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to a US holder.
The amount of a dividend distribution on shares that is paid in a currency other than the US dollar will generally be included in ordinary income in an amount equal to the US dollar value of the currency received on the date such dividend distribution is includible in income, regardless of whether the payment is, in fact, converted into US dollars on such date. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date the payment is converted into US dollars will be treated as ordinary income or loss and will not be eligible for the preferential tax rate on qualified dividend income. Generally, the gain or loss will be income or loss from sources within the US for foreign tax credit purposes.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 201
Distributions in excess of CCEP’s earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in its shares and thereafter as capital gain, subject to taxation as described below.
Taxation of capital gains
Subject to the PFIC rules discussed below, a US holder will generally recognise gain or loss on any sale, exchange, redemption or other taxable disposition of shares in an amount equal to the difference between the US dollar value of the amount realised on the disposition and the US holder’s tax basis, determined in US dollars, in the shares. Any such capital gain or loss will generally be long-term gain or loss, subject to tax at a preferential rate for a non-corporate US holder, if the US holder’s holding period for such shares exceeds one year. Any gain or loss recognised by a US holder on the sale or exchange of shares will generally be treated as income or loss from sources within the US for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations.
PFIC status
Currently, we do not believe that CCEP Shares will be treated as stock of a PFIC for US federal income tax purposes. However, we review this annually, and therefore this conclusion is subject to change. If CCEP was to be treated as a PFIC, unless a US holder elects to be taxed annually on a mark-to-market basis with respect to its shares, any gain realised on the sale or exchange of such shares would in general not be treated as capital gain. Instead, a US holder would be treated as if he or she had realised such gain ratably over the holding period for shares and generally would be taxed at the highest tax rate in effect for each such year to which the gain was allocated. In this case, an interest charge in respect of the tax attributable to each such year would apply. Certain distributions would be similarly treated if CCEP were treated as a PFIC. In addition, distributions made by a PFIC generally do not constitute qualified dividend income and are not eligible for the preferential tax rate applicable to such income.
Information reporting and backup withholding
In general, information reporting requirements will apply to dividends received by US holders of CCEP Shares, and the proceeds received on the disposition of Shares effected within the US (and, in certain cases, outside the US), in each case, other than US holders that are exempt recipients (such as corporations).
Backup withholding may apply to such amounts if the US holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent or the US holder’s broker) or is otherwise subject to backup withholding.
Dividends with respect to CCEP Shares and proceeds from the sale or other disposition of Shares received in the US or through certain US related financial intermediaries by a non-US holder, may be subject to information reporting and backup withholding unless such non-US holder provides to the applicable withholding agent the required certification showing its non-US status, such as a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI, or otherwise establishes an exemption, and otherwise complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a holder’s US federal income tax liability, if any, provided the required information is given to the IRS on a timely basis.
US federal income tax consequences to non-US holders of the ownership and disposition of CCEP Shares
In general, a non-US holder of CCEP Shares will not be subject to US federal income tax or, subject to the discussion above under Information reporting and backup withholding, US federal withholding tax on any dividends received on CCEP Shares or any gain recognised on a sale or other disposition of shares including any distribution to the extent it exceeds the adjusted basis in the non-US holder’s shares unless:
| |
| • | the dividend or gain is effectively connected with such non-US holder’s conduct of a trade or business in the US (and, if required by an applicable tax treaty, is attributable to a permanent establishment maintained by the non-US holder in the US); or |
| |
| • | in the case of gain only, such non-US holder is a non-resident alien individual present in the US for 183 days or more during the taxable year of the sale or disposition, and certain other requirements are met. |
Special rules may apply to a non-US holder who was previously a US holder and who again becomes a US holder in a later year.
A non-US holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable tax treaty) on its effectively connected earnings and profits for the taxable year, as adjusted for certain items.
202Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
UK taxation consequences for US holders
The following summarises certain UK tax consequences of the ownership and disposition of CCEP Shares for US holders who are not resident in the UK for tax purposes and to whom split year treatment does not apply, who do not carry on a trade, profession or vocation through a permanent establishment or branch or agency in the UK, and who are the absolute beneficial owners of their CCEP Shares and hold such shares as a capital investment.
This information is a general discussion based on UK tax law and what is understood to be the practice of HMRC, all as in effect on the date of publication, and all of which are subject to differing interpretations and change at any time, possibly with retroactive effect. It is not a complete analysis of all potential UK tax considerations that may apply to a US holder. In addition, this discussion neither addresses all aspects of UK tax law that may be relevant to particular US holders nor takes into account the individual facts and circumstances of any particular US holder. Accordingly, it is not intended to be, and should not be construed as, tax advice.
Distributions on CCEP Shares
No UK tax is required to be withheld from cash distributions on shares paid to US holders. In addition, US holders will not be subject to UK tax in respect of their receipt of cash distributions on their shares.
Sale, exchange, redemption or other dispositions of CCEP Shares
US holders will not be subject to UK tax on capital gains in respect of any gain realised by such US holders on a sale, exchange, redemption or other disposition of their shares. Special rules may apply to individual US holders who have ceased to be resident in the UK for tax purposes and who make a disposition of their shares before becoming once again resident in the UK for tax purposes.
While shares are held within the DTC clearance system, and provided that DTC satisfies various conditions specified in UK legislation, electronic book entry transfers of such shares should not be subject to UK stamp duty, and agreements to transfer such shares should not be subject to Stamp Duty Reserve Tax (SDRT). Confirmation of this position was obtained by way of formal clearance by HMRC. Likewise, transfers of, or agreements to transfer, such shares from the DTC clearance system into another clearance system (or into a depositary receipt system) should not, provided that the other clearance system or depositary receipt system satisfies various conditions specified in UK legislation, be subject to UK stamp duty or SDRT.
In the event that CCEP Shares have left the DTC clearance system, other than into another clearance system or depositary receipt system, any subsequent transfer of, or agreement to transfer, such shares may, subject to any available exemption or relief, be subject to UK stamp duty or SDRT at a rate of 0.5% of the consideration for such transfer or agreement (in the case of UK stamp duty, rounded up to the next multiple of £5). Any such UK stamp duty or SDRT will generally be payable by the transferee and must be paid (and any relevant transfer document duly stamped by HMRC) before the transfer can be registered in the books of the Company. In the event that CCEP Shares that have left the DTC clearance system, other than into another clearance system or depositary receipt system, are subsequently transferred back into a clearance system or depositary receipt system, such transfer or agreement may, subject to any available exemption or relief, be subject to UK stamp duty or SDRT at a rate of 1.5% of the consideration for such transfer (or, where there is no such consideration, 1.5% of the value of such shares). Notwithstanding the foregoing provisions of this paragraph, a transfer of listed securities may in certain circumstances be subject to UK stamp duty or SDRT based on the value of the relevant securities if this is higher than the amount of the consideration for the relevant transfer.
THIS SUMMARY IS NOT EXHAUSTIVE OF ALL POSSIBLE TAX CONSEQUENCES. IT IS NOT INTENDED AS LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF SHARES AND SHOULD NOT BE SO CONSTRUED. HOLDERS OF SHARES SHOULD CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 203
Selected financial data
The following selected financial data has been extracted from, and should be read in conjunction with the consolidated financial statements of the Group and their accompanying notes.
Coca-Cola European Partners plc was created through the Merger on 28 May 2016 of the businesses of CCE, CCIP and CCEG. As part of the Merger, in July 2016, the Company completed the acquisition of Vifilfell hf., the Coca-Cola bottler in Iceland. Upon the consummation of the Merger, the historical consolidated financial statements of CCE became CCEP’s historical financial statements as CCE was deemed to be the predecessor to CCEP. Therefore, the financial results presented here for the year ended 31 December 2015 and for the period from 1 January 2016 to 27 May 2016 refer to CCE and its consolidated subsidiaries, and the periods subsequent to 28 May 2016 refer to the combined financial results of CCEP.
For all periods up to and including the year ended 31 December 2015, CCE prepared and published its consolidated financial statements in accordance with US GAAP. As part of first time adoption of IFRS for CCEP and to provide comparative period information, the financial statements of CCE for 2015 were prepared in accordance with IFRS. The date of transition to IFRS was 1 January 2014, at which date an opening IFRS statement of financial position was prepared.
The financial information presented here has been prepared in accordance with IFRS as issued by the IASB and adopted by the EU. There are no differences between IFRS as issued by the IASB and IFRS as adopted by the EU that have an impact for the years presented.
|
| | | | | | | | | | |
| | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
|
| Income statement | € million |
| € million |
| € million |
| € million |
| € million |
|
| Revenue | 12,017 |
| 11,518 |
| 11,062 |
| 9,133 |
| 6,329 |
|
| Cost of sales | (7,424 | ) | (7,060 | ) | (6,772 | ) | (5,584 | ) | (4,017 | ) |
| Gross profit | 4,593 |
| 4,458 |
| 4,290 |
| 3,549 |
| 2,312 |
|
| Selling and distribution expenses | (2,258 | ) | (2,178 | ) | (2,124 | ) | (1,615 | ) | (919 | ) |
| Administrative expenses | (787 | ) | (980 | ) | (906 | ) | (1,083 | ) | (634 | ) |
| Operating profit | 1,548 |
| 1,300 |
| 1,260 |
| 851 |
| 759 |
|
| Finance income | 49 |
| 47 |
| 48 |
| 31 |
| 24 |
|
| Finance costs | (145 | ) | (140 | ) | (148 | ) | (154 | ) | (134 | ) |
| Total finance costs, net | (96 | ) | (93 | ) | (100 | ) | (123 | ) | (110 | ) |
| Non-operating items | 2 |
| (2 | ) | (1 | ) | (9 | ) | (5 | ) |
| Profit before taxes | 1,454 |
| 1,205 |
| 1,159 |
| 719 |
| 644 |
|
| Taxes | (364 | ) | (296 | ) | (471 | ) | (170 | ) | (131 | ) |
| Profit after taxes | 1,090 |
| 909 |
| 688 |
| 549 |
| 513 |
|
204Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
|
| | | | | | | | | | |
| | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
|
| Statement of financial position | € million |
| € million |
| € million |
| € million |
| € million |
|
| Non-current assets | 15,582 |
| 15,225 |
| 14,880 |
| 15,143 |
| 5,113 |
|
| Current assets | 3,103 |
| 2,991 |
| 3,314 |
| 3,425 |
| 1,883 |
|
| Total assets | 18,685 |
| 18,216 |
| 18,194 |
| 18,568 |
| 6,996 |
|
| Non-current liabilities | 8,414 |
| 7,860 |
| 8,222 |
| 8,355 |
| 4,119 |
|
| Current liabilities | 4,115 |
| 3,792 |
| 3,287 |
| 3,752 |
| 2,006 |
|
| Total liabilities | 12,529 |
| 11,652 |
| 11,509 |
| 12,107 |
| 6,125 |
|
| Total equity | 6,156 |
| 6,564 |
| 6,685 |
| 6,461 |
| 871 |
|
| Total equity and liabilities | 18,685 |
| 18,216 |
| 18,194 |
| 18,568 |
| 6,996 |
|
| | | | | | |
| Capital stock data | | | | | |
| Number of shares (in millions) | 456 |
| 475 |
| 485 |
| 483 |
| 227 |
|
| Share capital (in € million) | 5 |
| 5 |
| 5 |
| 5 |
| 3 |
|
| Share premium (in € million) | 178 |
| 152 |
| 127 |
| 114 |
| 2,729 |
|
| | | | | | |
| Per share data | | | | | |
| Basic earnings per share (€) | 2.34 |
| 1.88 |
| 1.42 |
| 1.45 |
| 2.23 |
|
| Diluted earnings per share (€) | 2.32 |
| 1.86 |
| 1.41 |
| 1.42 |
| 2.19 |
|
Dividends declared per share (€)(A) | 1.24 |
| 1.06 |
| 0.84 |
| 0.86 |
| 1.01 |
|
Dividends declared per share ($)(A) | n/a |
| n/a |
| n/a |
| 0.97 |
| 1.12 |
|
| |
| (A) | As a result of the Merger, dividends declared in 2016 may be viewed in two separate categories: dividends declared by CCEP in euros and dividends declared by CCE in US dollars. Dividends declared by CCE in 2016 in US dollars have been converted to euro from US dollars to provide an annualised dividend amount for 2016 using the average exchange rate for the respective period. Similarly, dividends declared by CCEP in euros in 2016 have been converted to US dollars to provide an annualised dividend amount for 2016 using the average exchange rate for the respective period. All dividends declared prior to 2016 were declared in US dollars and have been converted to euro using the average exchange rate for each respective period. |
Operations review
Revenue
Revenue increased by €0.5 billion, or 4.5%, from €11.5 billion in 2018 to €12.0 billion in 2019. Refer to the Business and financial review for a discussion of significant factors that impacted revenue in 2019, as compared to 2018.
2018 vs 2017
Refer to Other Information - Other Group information - Operations review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Volume
Refer to the Business and financial review for a discussion of significant factors that impacted volume in 2019, as compared to 2018.
2018 vs 2017
Refer to Other Information - Other Group information - Operations review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Cost of sales
On a reported basis, cost of sales increased 5.0%, from €7.1 billion in 2018 to €7.4 billion in 2019. Refer to the Business and financial review for a discussion of significant factors that impacted cost of sales in 2019, as compared to 2018.
2018 vs 2017
Refer to Other Information - Other Group information - Operations review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Selling and distribution expenses and administrative expenses
The following table presents selling and distribution expenses and administrative expenses for the periods presented: |
| | | | |
| | 2019 |
| 2018 |
|
| | € million |
| € million |
|
| Selling and distribution expenses | 2,258 |
| 2,178 |
|
| Administrative expenses | 787 |
| 980 |
|
| Total | 3,045 |
| 3,158 |
|
On a reported basis, total operating expenses decreased by 3.5% from €3.2 billion in 2018 to €3.0 billion in 2019, including restructuring costs.
Selling and distribution expenses increased by €80 million, or 3.5%, versus 2018, primarily due to higher restructuring charges from the transformation of cold drink operations and other restructuring activities.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 205
Administrative expenses decreased by €193 million, or 19.5%, versus 2018 mainly reflecting the higher restructuring activity in 2018 primarily related to the supply chain site consolidation in Iberia.
On a comparable basis, total operating expenses increased by €11 million, or 0.5%, driven mainly by our continued spending for the future, such as expanding our field sales teams, offset by synergy benefits and a continued focus on managing expenses.
2018 vs 2017
Refer to Other Information - Other Group information - Operations review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Finance costs, net
Finance costs, net totalled €96 million and €93 million in 2019 and 2018, respectively. The following table summarise the primary items impacting our interest expense during the periods presented: |
| | | | |
| | 2019 |
| 2018 |
|
| Average outstanding debt balance (€ million) | 6,399 |
| 5,674 |
|
| Weighted average cost of debt | 1.5 | % | 1.6 | % |
| Fixed rate debt (% of portfolio) | 91 | % | 87 | % |
| Floating rate debt (% of portfolio) | 9 | % | 13 | % |
Other non-operating items
Other non-operating items represented an expense of €2 million in 2018 and an income of €2 million in 2019. Our other non-operating expense is primarily made up of remeasurement gains and losses related to currency exchange rate fluctuations on financing transactions denominated in a currency other than the subsidiary’s functional currency. Non-operating items are shown on a net basis and reflect the impact of any derivative instruments utilised to hedge the foreign currency movements of the underlying financing transactions.
Tax expense
In 2019, our reported effective tax rate was 25.0%. This includes a €3 million deferred tax expense due to the enactment of deceleration of corporate income tax rate reductions in France and the Netherlands.
In 2018, our reported effective tax rate was 24.6%. This includes the impact of an €11 million non-recurring tax expense related to the continuing impact assessment of the US Tax Act enacted in 2017. Our 2018 reported effective tax rate also reflected a deferred tax benefit of €38 million due to the enactment of corporate income tax rate reductions and rule changes in the Basque region, the Netherlands and Sweden. In addition, our 2018 reported effective tax rate also includes a €24 million deferred tax expense reflecting a change in tax basis related to the simplification of our debt and capital structure.
Cash flow and liquidity review
Liquidity and capital resources
Our sources of capital include, but are not limited to, cash flows from operating activities, public and private issuances of debt and equity securities and bank borrowings. Based on information currently available, we do not believe we are at significant risk of default by our counterparties.
The Group satisfies seasonal working capital needs and other financing requirements with operating cash flow, cash on hand, short-term borrowings and a line of credit. At 31 December 2019, the Group had €688 million in third party debt maturities in the next 12 months, €221 million of which was in the form of short-term commercial paper and €467 million of US dollar denominated notes. In addition to using operating cash flow and cash in hand, the Group may repay its short-term obligations by issuing more debt, which may take the form of commercial paper and/or longer term debt. Further details regarding the level of borrowings at the year end are provided in Note 13 of the consolidated financial statements.
In line with our commitments to deliver long-term value to shareholders, in April and October 2019, the Board declared interim dividends of €0.62 per Share, an increase of 17% versus 2018. For the year ended 31 December 2019, dividend payments totalled €574 million (2018: €513 million).
In September 2018, the Company announced a €1.5 billion share buyback programme. For the year ended 31 December 2019, 20,612,593 Shares were repurchased by the Company and cancelled under this programme. The total cost of the repurchased Shares of €1,005 million, including €5 million of directly attributable tax costs, was deducted from retained earnings. This programme was completed in November 2019. For further details of the share buyback programme refer to Note 16 of the consolidated financial statements.
On 13 February 2020, CCEP announced its intention to commence a new €1 billion share buyback programme, in accordance with the general authority to repurchase Shares granted by shareholders at the Company’s AGM in 2019, and subject to further shareholder approval at the AGM in 2020. The value of the programme may be adjusted depending on economic, operating, or other factors, including acquisition opportunities.
206Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Credit ratings and covenants
The Group’s credit ratings are periodically reviewed by rating agencies. Currently, the Group’s long-term ratings continue to be investment grade with stable outlook. Changes in the operating results, cash flows or financial position could impact the ratings assigned by the various rating agencies. The credit rating can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions, and capital management activities of TCCC, and/or changes in the credit rating of TCCC. Should the credit ratings be adjusted downward, the Group may incur higher costs to borrow, which could have a material impact on the financial condition and results of operations.
Summary of cash flow activities
2019
During 2019, our primary sources of cash included: (1) €1,904 million from operating activities, net of cash payments related to restructuring programmes of €147 million and contributions to our defined benefit pension plans of €61 million and cash receipts of €126 million relating to the ongoing VAT dispute with the Spanish tax authorities and the regional tax authorities of Bizkaia (Basque Region); and (2) proceeds of €1,089 million from the issuance of €493 million 1.125% notes due in 2029, €495 million 0.7% notes due in 2031 and €101 million net issuances of short-term borrowings.
Our primary uses of cash were: (1) repayments on borrowings of €753 million (refer to Financing activities below) and net interest payments of €86 million; (2) dividend payments of €574 million; (3) purchases of Shares under our share buyback programme of €1,005 million; and (4) spend on property, plant and equipment of €506 million and software of €96 million.
2018
During 2018, our primary sources of cash included: (1) €1,806 million from operating activities, net of cash payments related to restructuring programmes of €245 million and contributions to our defined benefit pension plans of €56 million; and (2) proceeds of €398 million from the issuance of €400 million 1.5% rate notes due in 2027.
Our primary uses of cash were: (1) payments on debt of €444 million (refer to Financing activities below); (2) dividend payments of €513 million; and (3) payments related to the share buyback programme of €502 million; (4) capital spend on property, plant and equipment of €525 million and on software of €75 million; (5) net changes in short-term borrowings of €131 million; and (6) net interest paid of €81 million.
The discussion of our 2017 cash flow activities has not been included as this can be found under Other Information - Other Group information - Cash flow and liquidity review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Operating activities
2019 vs 2018
Our cash derived from operating activities totalled €1,904 million in 2019 versus €1,806 million in 2018. This increase was primarily due to higher profit before tax achieved for the year, a reduction in restructuring cash outflows of €98 million as well as the classification of payments of principal on lease obligations as a financing activity resulting from the adoption of IFRS 16 on 1 January 2019.
2018 vs 2017
Refer to Other Information - Other Group information - Cash flow and liquidity review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Investing activities
Capital asset investments represent a primary use of cash for our investing activities.
The following table summarises the capital investments for the periods presented: |
| | | | |
| | 2019 |
| 2018 |
|
| | € million |
| € million |
|
| Supply chain infrastructure | 382 |
| 409 |
|
| Cold drink equipment | 120 |
| 109 |
|
| Fleet and other | 4 |
| 7 |
|
| Total capital asset investments | 506 |
| 525 |
|
Investments in supply chain infrastructure relate to investments in our manufacturing and distribution facilities.
In addition, during 2019 the Group spent €96 million (2018: €75 million) on capitalised development activity, primarily in relation to the business capability programme. No significant other investing activities took place during the years ended 31 December 2019 and 2018.
During 2020, we expect our capital expenditures to be in a range of €650 million to €700 million, including payments of principal on lease obligations, and to be invested in similar categories as those listed in the table above. We believe our operating cash flow, cash in hand and available short-term and long-term capital resources are sufficient to fund these plans.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 207
The discussion of our 2017 investing activities has not been included as this can be found under Other Information - Other Group information - Cash flow and liquidity review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Financing activities
Our net cash used in financing activities totalled €1,302 million in 2019, versus €1,259 million in 2018.
The following table summarises our financing activities related to the issuances of and payments on debt for the periods presented (in € millions): |
| | | | | | | | |
| Issuances of debt | Maturity date |
| Rate |
| 2019 |
| 2018 |
|
| €400 million notes | November 2027 |
| 1.5 | % | — |
| 398 |
|
| €500 million notes | April 2029 |
| 1.1 | % | 493 |
| — |
|
| €500 million notes | September 2031 |
| 0.7 | % | 495 |
| — |
|
| Net issuances of short-term borrowings | — |
| (A) |
| 101 |
| — |
|
| Total issuances of debt, net of issuance costs | | | 1,089 |
| 398 |
|
|
| | | | | | | | |
| Payments on debt | Maturity date |
| Rate |
| 2019 |
| 2018 |
|
| Term loan | May 2018-2021 |
| floating |
| (275 | ) | (425 | ) |
| €350 million notes | December 2019 |
| 2.0 | % | (350 | ) | — |
|
| Payments of other non-current borrowings | — |
| 6.7 | % | — |
| (1 | ) |
| Net payments of short-term borrowings | — |
| (A) |
| — |
| (131 | ) |
| Total payments on debt | | | (625 | ) | (557 | ) |
| |
| (A) | These amounts represent short-term euro commercial paper with varying interest rates. |
Our financing activities during 2019 included dividend payments totalling €574 million. These included two dividend payments, each based on a dividend rate of €0.62 per Share. In 2018, dividend payments totalled €513 million.
In September 2018, the Company announced a €1.5 billion share buyback programme. For the year ended 31 December 2019, 20,612,593 Shares were repurchased by the Company and cancelled under this programme. The total payments under this programme in 2019 were €1,005 million (including €5 million of directly attributable tax costs). This compares to total payments of €502 million relating to Shares that were repurchased in 2018. The programme was completed in November 2019.
During 2019 and 2018, €60 million and €5 million, respectively, were drawn against a credit facility and subsequently repaid prior to 31 December.
Lease obligations
Cash outflows relating to operating leases had previously been presented in net cash flows from operating activities. From 1 January 2019, these equivalent cash flows are included as cash flows from financing activities. During the year ended 31 December 2019, total cash outflows from payments of principal on lease obligations were €128 million. In 2018, while our operating lease cash flows were presented as operating cash flows, our finance lease cash flows were included within financing activities and amounted to €18 million.
The discussion of our 2017 financing activities has not been included as this can be found under Other Information - Other Group information - Cash flow and liquidity review of the 2018 Annual Report on Form 20-F, filed on 14 March 2019.
Raw materials
CCEP purchases concentrates and syrups from TCCC and other franchisors to manufacture products. In addition, the Group purchases sweeteners, juices, coffee, mineral waters, finished product, carbon dioxide, fuel, PET (plastic) preforms, glass, aluminium and plastic bottles, aluminium and steel cans, pouches, closures, post-mix and packaging materials. The Group generally purchases raw materials, other than concentrates, syrups and mineral waters, from multiple suppliers. The product licensing and bottling agreements with TCCC and agreements with some of our other franchisors provide that all authorised containers, closures, cases, cartons and other packages, and labels for their products must be purchased from manufacturers approved by the respective franchisor. The principal sweetener we use is sugar derived from sugar beets. Our sugar purchases are made from multiple suppliers. The Group does not separately purchase low-calorie sweeteners because sweeteners for low-calorie beverage products are contained in the concentrates or syrups we purchase.
The Group produces most of its plastic bottle requirements within the production facilities using preforms purchased from multiple suppliers. The Group believes the self manufacture of certain packages serves to ensure supply and to reduce or manage costs. The Group does not use any materials or supplies that are currently in short supply, although the supply and price of specific materials or supplies are, at times, adversely affected by strikes, weather conditions, speculation, abnormally high demand, governmental controls, new taxes, national emergencies, natural disasters, price or supply fluctuations of their raw material components, and currency fluctuations.
208Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Off-balance sheet arrangements
The Group does not have any off-balance sheet arrangements, as defined by the SEC in Item 5.E of Form 20-F, that have or are reasonably likely to have a current or future effect on the Group's financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual obligations
The following table reflects the Group's contractual obligations as at 31 December 2019: |
| | | | | | | | | | |
| | Total |
| Less than 1 year |
| 1 to 3 years |
| 3 to 5 years |
| More than 5 years |
|
| | € million |
| € million |
| € million |
| € million |
| € million |
|
Borrowings(A) | 6,034 |
| 688 |
| 1,535 |
| 844 |
| 2,967 |
|
Lease obligations(B) | 421 |
| 128 |
| 158 |
| 67 |
| 68 |
|
Interest obligations(C) | 495 |
| 84 |
| 140 |
| 113 |
| 158 |
|
Purchase agreements(D) | 295 |
| 216 |
| 64 |
| 10 |
| 5 |
|
| | 7,245 |
| 1,116 |
| 1,897 |
| 1,034 |
| 3,198 |
|
| |
| (A) | These amounts represent the Group’s scheduled debt maturities, excluding lease obligations. Refer to Note 13 of the consolidated financial statements for further details about the borrowings of CCEP. |
| |
| (B) | These amounts represent the Group’s minimum lease payments (including amounts representing interest), obligations related to lease agreements committed to but not yet commenced and lease payments due under non-cancellable short-term or low value lease agreements. |
| |
| (C) | These amounts represent estimated interest payments related to the Group’s long-term debt obligations, excluding leases. Interest on fixed rate debt has been calculated based on applicable rates and payment dates. Interest on variable rate debt has been calculated using the forward interest rate curve. Refer to Note 24 of the consolidated financial statements for further details about financial risk management within CCEP. |
| |
| (D) | These amounts represent non-cancellable purchase agreements with various suppliers that are enforceable and legally binding and that specify a fixed or minimum quantity that we must purchase. All purchases made under these agreements have standard quality and performance criteria. In addition to these amounts, the Group has outstanding capital expenditure purchase orders of approximately €175 million as at 31 December 2019. The Group also has other purchase orders raised in the ordinary course of business which are settled in a reasonably short period of time. These are excluded from the table above. The Group expects that the net cash flows generated from operating activities will be able to meet these liabilities as they fall due. |
The above table does not reflect the impact of derivatives and hedging instruments, other than for long-term debt, which are discussed in Note 24 of the consolidated financial statements.
The above table also does not reflect employee benefit liabilities of €238 million, which include current liabilities of €17 million and non-current liabilities of €221 million as at 31 December 2019. Refer to Note 15 of the consolidated financial statements for further information.
Properties
The Group’s principal properties include production facilities, distribution and logistics centres, shared service centres, business unit headquarter offices and corporate offices.
The table below summarises the main properties which the Group uses as at 31 December 2019:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Great Britain |
| France |
| Belgium/ Luxembourg |
| Netherlands |
| Norway |
| Sweden |
| Germany |
| Iberia |
| Iceland |
| Total |
|
Production facilities(A) | | | | | | | | |
| | Leased | 5 |
| — |
| — |
| — |
| — |
| — |
| 2 |
| 1 |
| — |
| 8 |
|
| | Owned | — |
| 5 |
| 3 |
| 1 |
| 1 |
| 1 |
| 16 |
| 11 |
| 2 |
| 40 |
|
| Total | 5 |
| 5 |
| 3 |
| 1 |
| 1 |
| 1 |
| 18 |
| 12 |
| 2 |
| 48 |
|
| Distribution and logistics facilities | | | | | | | | |
| | Leased | 1 |
| — |
| 3 |
| — |
| — |
| — |
| 22 |
| 4 |
| — |
| 30 |
|
| | Owned | — |
| — |
| — |
| — |
| — |
| — |
| 7 |
| 5 |
| — |
| 12 |
|
| Total | 1 |
| — |
| 3 |
| — |
| — |
| — |
| 29 |
| 9 |
| — |
| 42 |
|
| Corporate offices and business unit headquarters | | | | | | |
| | Leased | 2 |
| 1 |
| 1 |
| 1 |
| — |
| — |
| 1 |
| 3 |
| — |
| 9 |
|
| | Owned | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total | 2 |
| 1 |
| 1 |
| 1 |
| — |
| — |
| 1 |
| 3 |
| — |
| 9 |
|
| |
| (A) | All production facilities are a combination of production and warehouse facilities. |
The Group uses two shared service centres, both located in Bulgaria.
The Group’s principal properties cover approximately 4.8 million square metres in the aggregate of which 0.7 million square metres is leased and 4.1 million square metres is owned. The Group believes that its facilities are adequately utilised and sufficient to meet its present operating needs.
At 31 December 2019, the Group operated approximately 13 thousand vehicles of various types, the majority of which are leased. The Group also owned approximately 1.2 million pieces of cold drink equipment, principally coolers and vending machines.
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 209
Disclosure controls and procedures
Evaluation of disclosure controls and procedures
The Group maintains “disclosure controls and procedures”, as defined in Rule 13a-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarised and reported within the time periods specified in the US SEC’s rules and forms, and that such information is accumulated and communicated to the Group’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Group’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Group’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as at 31 December 2019. Based on that evaluation, the Group’s Chief Executive Officer and Chief Financial Officer have concluded that the Group’s disclosure controls and procedures were effective.
Management’s report on internal control over financial reporting
The Group’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group, as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of the principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Group’s consolidated financial statements for external reporting purposes in accordance with IFRS issued by the IASB. The Group’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Group’s transactions and dispositions of assets; (2) are designed to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Group’s consolidated financial statements in accordance with IFRS, and that receipts and expenditures are being made only in accordance with authorisations of management and the Directors of the Group; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Group’s assets that could have a material effect on the Group’s consolidated financial statements. Internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Group’s internal control over financial reporting as at 31 December 2019, using the criteria set forth in the Internal Control-Integrated Framework issued by The Committee of Sponsoring Organisations of the Treadway Commission. Based on this assessment, management has determined that the Group’s internal control over financial reporting as at 31 December 2019 was effective. Ernst & Young LLP, the Group’s independent registered public accounting firm, has issued an attestation report on the Group’s internal control over financial reporting as at 31 December 2019, which is set out on page 125.
Changes in internal control over financial reporting
There has been no change in the Group’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during 2019 that has materially affected, or is reasonably likely to materially affect, the Group’s internal control over financial reporting.
210Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Principal accountants’ fees and services
The Audit Committee has established policies and procedures for the engagement of the independent registered public accounting firm, Ernst & Young LLP (EY), to render audit and certain assurance and tax services. The policies provide for pre-approval by the Audit Committee of specifically defined audit, audit-related, tax and other services that are not prohibited by regulatory or other professional requirements. EY is engaged for these services when its expertise and experience of CCEP are important. Most of this work is of an audit nature.
Under the policy, pre-approval is given for specific services within the following categories: advice on accounting, auditing and financial reporting matters; internal accounting and risk management control reviews (excluding any services relating to information systems design and implementation); non-statutory audit; project assurance and advice on business and accounting process improvement (excluding any services relating to information systems design and implementation relating to CCEP’s financial statements or accounting records); due diligence in connection with acquisitions, disposals and arrangements in which two or more parties have joint control (excluding valuation or involvement in prospective financial information); income tax and indirect tax compliance and advisory services; employee tax services (excluding tax services that could impair independence); provision of, or access to, EY publications, workshops, seminars and other training materials; provision of reports from data gathered on non-financial policies and information; and assistance with understanding non-financial regulatory requirements. The Audit Committee has delegated authority to the Chairman of the Audit Committee to approve permitted services provided that the Chairman reports any decisions to the Committee at its next scheduled meeting. Any proposed service not included in the approved service list must be approved in advance by the Audit Committee Chairman and reported to the Committee, or approved by the full Audit Committee in advance of commencement of the engagement.
The Audit Committee evaluates the performance of the auditor each year. The Committee keeps under review the scope and results of audit work and the independence and objectivity of the auditor. The audit fees payable to EY are reviewed by the Committee for cost effectiveness each year. External regulation and CCEP policy requires the auditor to rotate its lead audit partner every five years. (See Note 17 of the consolidated financial statements for details of fees for services provided by the auditor.)
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 211
Form 20-F table of cross references
|
| | | | |
| | | | | Page |
| Part 1 | | | | |
| Item 1 | | Identity of Directors, Senior Management and Advisors | | n/a |
| Item 2 | | Offer Statistics and Expected Timetable | | n/a |
| Item 3 | | Key Information | | |
| | | A - Selected financial data. | | 204-205 |
| | | B - Capitalization and indebtedness. | | n/a |
| | | C - Reasons for the offer and use of proceeds. | | n/a |
| | | D - Risk factors. | | 186-194 |
| Item 4 | | Information on the Company | | |
| | | A - History and development of the company. | | 26, 195, 131-132, 201, 207 |
| | | B - Business overview. | | 4-9, 18-19, 26-33, 131-132, 136, 192-193, 200, 208 |
| | | C - Organizational structure. | | 131-132, 171-173 |
| | | D - Property, plants and equipment. | | 140-142, 207, 209 |
| Item 4A | | Unresolved Staff Comments | | n/a |
| Item 5 | | Operating and Financial Review and Prospects | | |
| | | A - Operating results. | | 26-33, 136, 157-158, 161-163, 171, 186-194, 205-206 |
| | | B - Liquidity and capital resources. | | 31-33, 144, 149-150, 156-157, 206-208, 209 |
| | | C - Research and development, patents and licences, etc. | | 137-139 |
| | | D - Trend information. | | 26-33, 171 |
| | | E - Off-balance sheet arrangements. | | 208 |
| | | F - Tabular disclosure of contractual obligations. | | 209 |
| | | G - Safe harbor. | | 220 |
| Item 6 | | Directors, Senior Management and Employees | | |
| | | A - Directors and senior management. | | 59-66, 195-196 |
| | | B - Compensation. | | 87-107, 151-156, 160 |
| | | C - Board practices. | | 59-76, 81-107, 195 |
| | | D - Employees. | | 20-23, 157, 195 |
| | | E - Share ownership. | | 22, 102-103, 195-196 |
| Item 7 | | Major Shareholders and Related Party Transactions | | |
| | | A - Major shareholders. | | 109 |
| | | B - Related party transactions. | | 159-160 |
| | | C - Interests of experts and counsel | | n/a |
| Item 8 | | Financial Information | | |
| | | A - Consolidated Statements and Other Financial Information. | | 33, 126-173, 204-211 |
| | | B - Significant Changes. | | n/a |
| Item 9 | | The Offer and Listing. | | |
| | | A - Offer and listing details. | | n/a |
| | | B - Plan of distribution. | | n/a |
| | | C - Markets. | | 196 |
| | | D - Selling shareholders. | | n/a |
| | | E - Dilution. | | n/a |
| | | F - Expenses of the issue. | | n/a |
212Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
|
| | | | |
| | | | | Page |
| Item 10 | | Additional Information. | | |
| | | A - Share capital. | | 196-199 |
| | | B - Memorandum and articles of association. | | 200 |
| | | C - Material contracts. | | 200 |
| | | D - Exchange controls. | | 201 |
| | | E - Taxation. | | 201-203 |
| | | F - Dividends and paying agents. | | n/a |
| | | G - Statement by experts. | | n/a |
| | | H - Documents on display. | | 201 |
| | | I - Subsidiary Information. | | 171-173 |
| Item 11 | | Quantitative and Qualitative Disclosures about Market Risk. | | 145-148, 168-170 |
| Item 12 | | Description of Securities Other than Equity Securities. | | |
| | | A - Debt Securities. | | n/a |
| | | B - Warrants and Rights. | | n/a |
| | | C - Other Securities. | | n/a |
| | | D - American Depository Shares. | | n/a |
| Part II | | | | |
| Item 13 | | Defaults, Dividend Arrearages and Delinquencies. | | n/a |
| Item 14 | | Material Modifications to the Rights of Security Holders and Use of Proceeds. | | n/a |
| Item 15 | | Controls and Procedures. | | 125, 210 |
| Item 16A | | Audit committee financial expert. | | 68, 82 |
| Item 16B | | Code of Ethics. | | 68 |
| Item 16C | | Principal Accountant Fees and Services. | | 85, 158, 211 |
| Item 16D | | Exemptions from the Listing Standards for Audit Committees. | | n/a |
| Item 16E | | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. | | 110, 197, 199 |
| Item 16F | | Change in Registrant’s Certifying Accountant. | | n/a |
| Item 16G | | Corporate Governance. | | 68 |
| Item 16H | | Mine Safety Disclosure | | n/a |
| Part III | | | | |
| Item 17 | | Financial Statements. | | 126-173 |
| Item 18 | | Financial Statements. | | n/a |
| Item 19 | | Exhibits. | | 214 |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 213
Exhibits
The following documents, which form a part of this Annual Report on Form 20-F, have been filed with the US Securities and Exchange Commission (SEC) via its EDGAR system and can be viewed on the SEC’s website at www.sec.gov.
|
| |
| Articles of Association of CCEP (incorporated by reference to Exhibit 99.1 to CCEP’s Form 6-K filed with the SEC on May 30, 2019). |
| Description of rights attached to each class of CCEP securities registered under Section 12 of the Exchange Act as at 31 December 2019. |
| Shareholders’ Agreement by and among the Company, Olive Partners, S.A., European Refreshments, Coca-Cola GmbH and Vivaqa Beteiligungs GmbH & Co. KG (incorporated by reference to Annex C to the proxy statement/prospectus contained in CCEP’s Form F-4/A registration statement filed with the SEC on April 11, 2016). |
| Form of Bottler’s Agreement entered into between The Coca-Cola Company and the bottling subsidiaries of CCEP (incorporated by reference to Exhibit 10.7 to the Company’s Form F-4/A registration statement filed with the SEC on April 7, 2016). |
| Coca-Cola European Partners plc Long-Term Incentive Plan 2016 (incorporated by reference to Exhibit 4.1 to CCEP’s Form S-8 registration statement filed with the SEC on June 1, 2016). |
| Rules of the Coca-Cola Enterprises Belgium/Coca-Cola Enterprises Services Belgian and Luxembourg Share Savings Plan (incorporated by reference to Exhibit 4.3 to CCEP’s Form S-8 registration statement filed with the SEC on June 1, 2016). |
| Trust Deed and Rules of Coca-Cola Enterprises UK Share Plan (incorporated by reference to Exhibit 4.2 to the Company’s Form S-8 registration statement filed with the SEC on June 1, 2016). |
| The Coca-Cola Enterprises, Inc. 2010 Incentive Award Plan (As Amended Effective February 7, 2012) (incorporated by reference to Exhibit 99.1 to Coca-Cola Enterprises, Inc.’s Current Report on Form 8-K filed on February 9, 2012). |
| Deed of Assumption and Replacement relating to Equity Awards of Coca-Cola Enterprises, Inc. (incorporated by reference to Exhibit 4.3 to the Company’s Post-Effective Amendment No. 1 on Form S-8 to Form F-4 registration statement filed with the SEC on June 1, 2016). |
| List of Subsidiaries of the Company (included in Note 27 of the consolidated financial statements in this Annual Report on Form 20-F). |
| Rule 13a-14(a) Certification of Damian Gammell |
| Rule 13a-14(a) Certification of Nik Jhangiani |
| Rule 13a-14(b) Certifications |
| Consent of Ernst & Young LLP, UK |
| Exhibit 101.INS | XBRL Instance Document |
| Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document |
| Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
The total amount of long-term debt securities of the Company and its subsidiaries authorised under any one instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish copies of any or all such instruments to the SEC on request.
214Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Signatures
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign the Annual Report on Form 20-F on its behalf.
Coca-Cola European Partners plc
/s/ Damian Gammell
Damian Gammell
Chief Executive Officer
16 March 2020
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 215
Glossary
Unless the context otherwise requires, the following terms have the meanings shown below.
|
| |
| 2010 Plan | CCE 2010 Incentive Award Plan |
| Admission | the date of the Company’s admission to the UK market (28 May 2016) |
| AGM | Annual General Meeting |
| ARR | Annual report on remuneration |
| Articles | Articles of Association of Coca-Cola European Partners plc |
| BCM | business continuity management |
| BEIS | UK Department for Business, Environment and Industrial Strategy |
| Board | Board of Directors of Coca-Cola European Partners plc |
| BPF | Business Performance Factor |
| BPT | business process and technology |
| Brexit | the departure of the UK from the EU |
| BU | a business unit of the Group |
| CCE or Coca-Cola Enterprises | Coca-Cola Enterprises, Inc. |
| CCEG or Coca-Cola Erfrischungsgetränke | Coca-Cola Erfrischungsgetränke GmbH (which changed its name to Coca-Cola European Partners Deutschland GmbH from 22 August 2016) |
| CCEP or the Group | Coca-Cola European Partners plc (registered in England and Wales number 9717350) and its subsidiaries and subsidiary undertakings from time to time |
| CCEP LTIP | CCEP Long-Term Incentive Plan 2016 |
| CCIP or Coca-Cola Iberian Partners | Coca-Cola Iberian Partners, S.A. (which changed its name to Coca-Cola European Partners Iberia S.L.U. from 1 January 2017) |
| CDP | Climate Disclosure Project, formerly known as the Carbon Disclosure Project |
| CEO | Chief Executive Officer (of Coca-Cola European Partners plc) |
| CFO | Chief Financial Officer (of Coca-Cola European Partners plc) |
| CGU | cash generating unit |
| Chairman | the Chairman of Coca-Cola European Partners plc |
| Cobega | Cobega, S.A. |
| Coca-Cola system | comprises The Coca-Cola Company and around 225 bottling partners worldwide |
| CoC | Code of Conduct |
| CODM | chief operating decision maker |
| Committee(s) | the five committees with delegated authority from the Board: the Audit, Remuneration, Nomination, Corporate Social Responsibility and Affiliated Transaction Committees |
| Committee Chairman/Chairmen | the Chairman/Chairmen of the Committee(s) |
| Committee member(s) | member(s) of the Committees |
| Companies Act | the UK Companies Act 2006, as amended |
| Company or Parent Company | Coca-Cola European Partners plc |
| Company Secretary | Company Secretary (of Coca-Cola European Partners plc) |
| CSR | Corporate Social Responsibility |
| CTA | Contractual Trust Arrangement |
| Defra | UK Department for Environment, Food and Rural Affairs |
| Deloitte | Deloitte LLP |
| Director(s) | a (the) director(s) of Coca-Cola European Partners plc |
| DRS | deposit return scheme(s) |
| DTRs | the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority |
| EBITDA | earnings before interest, tax, depreciation and amortisation |
| EEA | European Economic Area |
| EIR | effective interest rate |
| EPS | earnings per share |
| ERM | enterprise risk management |
| EY | Ernst & Young LLP |
| ESP | GB Employee Share Plan |
| EU | European Union |
| European Refreshments or ER | European Refreshments, a wholly-owned subsidiary of TCCC |
| Exchange Act | the US Securities Exchange Act of 1934 |
216Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
|
| |
| Executive Leadership Team or ELT | the CEO and his direct senior leadership reports |
| E&C | ethics and compliance |
| FCPA | US Foreign Corrupt Practices Act of 1977 |
| FIFO | first-in, first-out method |
| FMCG | fast moving consumer goods |
| FPI | foreign private issuer, a term that applies to a company under the rules of the New York Stock Exchange that is not a domestic US company |
| FRC | the Financial Reporting Council |
| FRS | Financial Reporting Standards |
| FTSE4Good | a series of ethical investment stock market indices launched in 2001 by the FTSE Group |
| GAAP | Generally Accepted Accounting Principles |
| GB Scheme | the Great Britain defined benefit pension plan |
| GHG | greenhouse gas |
GHG Protocol or WRI/WBCSD GHG Protocol
| the GHG Protocol is the internationally recognised, standard framework for measuring greenhouse gas (GHG) emissions from private and public sector operations and their value chains |
| GRC | governance, risk and compliance |
| Group or CCEP | Cola-Cola European Partners plc and its subsidiaries and subsidiary undertakings from time to time |
| HMRC | Her Majesty’s Revenue and Customs, the UK’s tax authority |
| IAS | International Accounting Standards |
| IASB | International Accounting Standards Board |
| IAS Regulations | International Accounting Standards (IAS) Regulations relate to the harmonisation of the financial information presented by issuers of securities in the European Union |
| IBR | incremental borrowing rate |
| IEA | International Energy Agency |
| IFRIC | International Financial Reporting Interpretations Committee |
| IFRS | International Financial Reporting Standards |
| IGD | Institute of Grocery Distribution in the UK |
| INEDs | independent non-executive directors of Coca-Cola European Partners plc |
| IPF | Individual Performance Factor |
| IRC | the US Internal Revenue Code of 1986, as amended |
| IRS | US Internal Revenue Service |
| ISAE 3000 | International Standard on Assurance Engagements 3000 |
| ISO | International Organisation for Standardisation |
| IT | information technology |
| Listing Rules or LRs | the Listing Rules of the UK Financial Conduct Authority |
| LSE | London Stock Exchange |
| LTI | long-term incentive |
| LTIP | Long-Term Incentive Plan |
| Merger | the formation of Coca-Cola European Partners plc on 28 May 2016 through the combination of the businesses of Coca-Cola Enterprises, Inc., Coca-Cola Iberian Partners, S.A. and Coca-Cola Erfrischungsgetränke GmbH |
| NARTD | non-alcoholic ready to drink |
| NEDs | non-executive directors of Coca-Cola European Partners plc |
| NGO | non-governmental organisation |
| NYSE | New York Stock Exchange |
| NYSE Rules | the corporate governance rules of the NYSE |
| OCI | other comprehensive income |
| OFAC | Office of Foreign Assets Control of the US Department of the Treasury |
| Official List | the Official List is the list maintained by the Financial Conduct Authority of securities issued by companies for the purpose of those securities being traded on a UK regulated market such as London Stock Exchange |
| Olive Partners | Olive Partners, S.A. |
| PACS | public affairs, communications and sustainability |
| Parent Company or Company | Coca-Cola European Partners plc |
| Paris Agreement | the agreement on climate change resulting from UN COP21, the UN Climate Change Conference, also known as the 2015 Paris Climate Conference |
| Partnership | the partnership agreement entered into between the Group, the GB Scheme and CCEP Scottish Limited Partnership to support a long-term funding arrangement |
| Pension Plan 1 and Pension Plan 2 | the Germany defined benefit pension plans |
| PET | polyethylene terephthalate |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 217
|
| |
| PFIC | passive foreign investment company |
| QESH | quality, environmental, safety and health |
| Remuneration policy | the remuneration policy as approved by shareholders at the Company’s AGM held on 22 June 2017 |
| rPET | recycled PET |
| PRN | Packaging Recovery Notes |
| PSU | performance share unit |
| ROIC | return on invested capital |
| ROU | right of use |
| RSU | restricted stock unit |
| SBTi | Science Based Targets initiative |
| SAGP | Sustainable Agriculture Guiding Principles |
| SDRT | stamp duty reserve tax |
| SGP | Supplier Guiding Principles |
| SDG | UN Sustainable Development Goals |
| SEC | Securities Exchange Commission of the US |
| Shareholders’ Agreement | the shareholders’ agreement dated 28 May 2016 between Coca-Cola European Partners plc and Olive Partners, S.A., European Refreshments, Coca-Cola GmbH and Vivaqa Beteiligungs Gmbh & Co. KG |
| Shares | ordinary shares of €0.01 each of Coca-Cola European Partners plc |
| SI | strategic imperative |
| SID | Senior Independent Director |
| SOX or the Sarbanes-Oxley Act | the US Sarbanes-Oxley Act of 2002 |
| S&P | Standard & Poor’s |
| the Spanish Stock Exchanges | the Barcelona, Bilbao, Madrid and Valencia Stock Exchanges |
| SPO | Sustainable Packaging Office |
| SVA | source water vulnerability assessment |
| SWPP | source water protection plan |
| TCCC | The Coca-Cola Company |
| TCFD | Task Force on Climate-related Financial Disclosures |
| TSR | total shareholder return |
| UK Accounting Standards | Financial Reporting Standards issued by the Accounting Standards Board |
| UKBA | UK Bribery Act 2010 |
| UKCGC | UK Corporate Governance Code 2018 |
| UNESDA | Union of European Soft Drinks Associations |
| unit case | approximately 5.678 litres or 24 eight ounce servings, a typical volume measurement unit |
| US GAAP | the US Generally Accepted Accounting Principles |
| US Tax Act | US Tax Cuts and Jobs Act 2017 |
| VAT | value added tax |
| WEEE | EU Directive on Waste Electrical and Electronic Equipment |
| WRI/WBCSD GHG Protocol or GHG Protocol | the GHG Protocol is the internationally recognised, standard framework for measuring greenhouse gas (GHG) emissions from private and public sector operations and their value chains |
218Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
Useful addresses
|
| |
| Registered office | |
Coca-Cola European Partners plc Pemberton House Bakers Road Uxbridge UB8 1EZ Registered in England and Wales Company number: 9717350 +44 (0)1895 231313 | |
| Share registration | |
| US shareholders: | Shareholders in Europe and outside the US: |
Computershare 462 South 4th Street Suite 1600 Louisville KY 40202 1-800-418-4223 | Computershare The Pavilions Bridgwater Road Bristol BS99 6ZZ +44 (0)370 702 0003 |
| Report ordering | |
| Shareholders who would like a paper copy of the Integrated Report, which will be despatched from around 16 April 2020, can make their request by post to the Company Secretary, Pemberton House, Bakers Road, Uxbridge UB8 1EZ, United Kingdom or by making a request via www.cocacolaep.com/financial-reports-and-results/integrated-reports or by sending an email to sendmaterial@proxyvote.com or by making a request via www.proxyvote.com or by phoning (in the US) 1-800-579-1639 or (outside the US) +1-800-579-1639. |
| Agent for service of process in the US | |
The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 | |
Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F 219
Forward-looking statements
This document contains statements, estimates or projections that constitute “forward-looking statements” concerning the financial condition, performance, results, strategy and objectives of Coca-Cola European Partners plc and its subsidiaries (together “CCEP” or the “Group”). Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “plan,” “seek,” “may,” “could,” “would,” “should,” “might,” “will,” “forecast,” “outlook,” “guidance,” “possible,” “potential,” “predict,” “objective” and similar expressions identify forward-looking statements, which generally are not historical in nature.
Forward-looking statements are subject to certain risks that could cause actual results to differ materially from CCEP’s historical experience and present expectations or projections. As a result, undue reliance should not be placed on forward-looking statements, which speak only as of the date on which they are made. These risks include but are not limited to those set forth in the “Risk Factors” section of this 2019 Annual Report on Form 20-F, including the statements under the following headings: Packaging (such as marine litter); Perceived health impacts of our beverages and ingredients, and changing consumer preferences (such as sugar alternatives); Legal, regulatory and tax change (such as the development of regulations regarding packaging, taxes and deposit return schemes); Market (such as disruption due to customer negotiations, customer consolidation and route to market); Cyber and social engineering attacks; Competitiveness and transformation; Climate change and water (such as net zero emission legislation and regulation, and resource scarcity); Economic and political conditions (such as continuing developments in relation to the UK’s exit from the EU); The relationship with TCCC and other franchisors; Product quality; and Other risks (such as widespread outbreaks of infectious disease).
Due to these risks, CCEP’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, expectations and guidance set out in CCEP’s forward-looking statements. Additional risks that may impact CCEP’s future financial condition and performance are identified in filings with the SEC which are available on the SEC’s website at www.sec.gov. CCEP does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required under applicable rules, laws and regulations. CCEP assumes no responsibility for the accuracy and completeness of any forward-looking statements. Any or all of the forward-looking statements contained in this filing and in any other of CCEP’s respective public statements may prove to be incorrect.
220Coca-Cola European Partners plc / 2019 Integrated Report and Form 20-F
