Business context and reporting period
Coca-Cola Europacific Partners plc (CCEP) filed its annual report on Form 20-F for the fiscal year ended December 31, 2021. The filing reports under IFRS as issued by the IASB. CCEP makes, sells and distributes beverages across Europe and, following its May 10, 2021 acquisition of Coca-Cola Amatil (CCL), Australia, the Pacific and Indonesia (API).
Because API was consolidated only from the acquisition date, reported 2021 results are not directly comparable with 2020. CCEP also provides pro forma comparable measures that assume API was included from the start of each period; these are non-GAAP, illustrative measures and exclude specified comparability items.
Key financial metrics
| Metric | FY 2021 | Comparison / context |
|---|---|---|
| Reported revenue | €13.763 billion | Up 30.0% reported; pro forma comparable revenue was €14.819 billion, up 9.5% (7.5% currency-neutral). |
| Volume and revenue per unit case | Pro forma comparable volume up 4.5%; currency-neutral revenue per unit case up 3.0% | Recovery in away-from-home sales and consumer mobility supported growth. |
| Reported operating profit | €1.516 billion | Up 86.5% reported. Pro forma comparable operating profit was €1.886 billion, up 26.0% (23.5% currency-neutral). |
| Profit after tax | €988 million reported | €498 million in 2020. Comparable diluted EPS was €2.83, up 57%; reported diluted EPS was €2.15. |
| Cash flow | Operating cash flow €2.117 billion; free cash flow €1.460 billion | Operating cash flow was €1.490 billion and free cash flow €924 million in 2020. CCEP defines free cash flow after capital expenditure and interest paid. |
| Capital expenditure | €446 million | Includes property, plant and equipment, capitalised software and lease principal, under CCEP’s definition. |
| Debt and leverage | Total borrowings €13.140 billion; net debt €11.607 billion | Net debt was €5.700 billion at year-end 2020. Pro forma net debt to adjusted EBITDA was 4.3x; the acquisition-period reported ratio was 4.7x. |
| Liquidity | Cash and equivalents €1.407 billion; short-term investments €58 million | Undrawn €1.95 billion committed multi-currency facility, maturing in 2025; no financial covenants affecting liquidity or access to capital. |
| Dividend | €1.40 per share; €638 million paid | Approximately 50% payout ratio; no share repurchases in 2021. |
Material changes versus the prior comparable period
- The CCL acquisition materially expanded the business and its balance sheet. Consideration transferred was €5.752 billion; acquisition financing and acquired borrowings contributed to the increase in net debt.
- Pro forma comparable revenue rose 9.5%, with volume up 4.5% and revenue per unit case up 3.0% currency-neutral. Pro forma comparable operating profit rose 26.0%, despite higher commodity, concentrate, labour and logistics costs.
- Reported operating profit and earnings also reflect unusual and acquisition-related items. CCEP reported €153 million of restructuring charges, €49 million of acquisition and integration costs, €48 million of inventory fair-value step-up costs and €15 million of flood-related costs.
- The reported effective tax rate was 28.5%. Tax expense included €127 million from enacted tax-rate and tax-law changes, principally the UK increase effective in 2023.
- Operating cash flow and free cash flow increased year over year, supported by API’s inclusion and the recovery from pandemic disruption. Dividends increased from €386 million in 2020 to €638 million in 2021.
Outlook, commentary, risks and unusual items
- Management described recovery in away-from-home demand, value-share gains, margin expansion and strong cash generation, while noting that Omicron slowed the fourth-quarter recovery and restrictions returned in some markets.
- Management identified pricing, mix, procurement and efficiency programmes as levers to address near-term inflation and supply-chain pressures. It also plans continued investment in the portfolio, people, digital capabilities and sustainability. No specific quantified 2022 revenue or earnings guidance is provided in the filing text.
- CCEP expects 2022 capital expenditure to be invested in broadly similar categories to 2021; the filing does not provide a clear total 2022 capex forecast. It says the multi-year efficiency and combination-benefit programme remains on track, with approximately 65% of commitments delivered.
- Key risks include commodity and energy inflation, supply-chain disruption, COVID-19 effects, customer and channel changes, competition, cyber incidents, regulation and taxes on packaging or sugar, water scarcity, climate impacts, product-quality issues, and reliance on TCCC and other franchisors.
- At year-end, €223 million of assets held for sale mainly comprised acquired beverage brands expected to be sold to TCCC. In February 2022, CCEP agreed to sell certain acquired Australia and New Zealand brands for approximately A$275 million, with completion expected in the first half of 2022. CCEP also repaid €700 million of notes in January 2022.
- Management noted that the conflict in Ukraine created significant macroeconomic uncertainty and could affect earnings and cash flow; its scale and duration were uncertain. CCEP also disclosed approximately €340 million of guarantees related to litigation and a continuing dispute over royalties in Queensland; the filing says no significant additional liability from the guarantees is expected.
- CCEP reported four employee fatalities in 2021—one in Belgium and three in Indonesia—and one further fatality in early 2022. Management said the incidents were investigated and safety procedures were being improved.
- EY issued an unqualified opinion on the consolidated financial statements and on internal control over financial reporting. CCL was excluded from the 2021 internal-control assessment under SEC acquisition-transition guidance; it represented 33.8% of total assets and 15.8% of revenue.
Important facts for investors to verify
- Reconcile reported results with pro forma comparable measures and review the definitions, adjustments and acquisition assumptions behind the non-GAAP measures.
- Track integration, synergies and API performance, including progress toward deleveraging from year-end net debt of €11.607 billion and pro forma leverage of 4.3x.
- Review the final purchase-price allocation: acquired asset and liability fair values were provisional at year-end and scheduled to be finalised by May 9, 2022.
- Assess the sustainability of cash generation and dividends alongside inflation, working-capital requirements, capital investment and debt maturities.
- Monitor the planned brand sale to TCCC, tax exposures and assessments, the Queensland royalty proceedings, and the effects of Ukraine-related uncertainty and currency controls on Papua New Guinea cash and investments.