Business Context and Reporting Period
Company: Coca-Cola European Partners Plc (CCEP)
Filing Type: Form 6-K (Interim Results)
Reporting Period: Third Quarter and Nine Months ended September 30, 2016
Context: This represents the first full quarter of operation following the merger of Coca-Cola Enterprises, Inc. (CCE), Coca-Cola Erfrischungsgetränke GmbH (Germany), and Coca-Cola Iberian Partners S.A.U. (Iberia). The company announced that Damian Gammell will succeed John F. Brock as Chief Executive Officer.
Key Financial Metrics
Third Quarter Ended September 30, 2016
| Metric | As Reported (€m) | Pro Forma Comparable (€m) | Pro Forma Comparable & FX-Neutral Growth |
|---|---|---|---|
| Revenue | 2,986 | 2,986 | 3.5% |
| Operating Profit | 405 | 459 | 7.0% |
| Profit After Taxes | 327 | 321 | 19.0% |
| Diluted EPS | €0.67 | €0.66 | 18.5% |
Nine Months Ended September 30, 2016
| Metric | As Reported (€m) | Pro Forma Comparable (€m) | Pro Forma Comparable & FX-Neutral Growth |
|---|---|---|---|
| Revenue | 6,528 | 8,232 | 0.0% |
| Operating Profit | 719 | 1,062 | 2.5% |
| Profit After Taxes | 537 | 723 | 8.0% |
| Diluted EPS | €1.34 | €1.48 | 8.5% |
Liquidity and Balance Sheet (as of Sept 30, 2016)
- Cash and Cash Equivalents: €347 million
- Total Borrowings: €6,403 million (€6,006 million non-current + €397 million current)
- Total Assets: €18,491 million
- Total Equity: €6,497 million
- Operating Cash Flow (9 months): €985 million
Material Changes vs. Prior Period
- Revenue Growth: Reported revenue increased 82.5% in Q3 and 35.0% for the nine months, primarily due to the inclusion of Germany and Iberia. On a pro forma comparable basis, Q3 revenue was flat, while the nine-month period declined 2.0%.
- Volume vs. Price: Pro forma volume increased 3.5% in Q3, driven by favorable weather and brand initiatives. However, revenue per unit case declined 0.5% on a pro forma comparable and FX-neutral basis.
- Geographic Performance:
- Iberia: Revenue up 6.5% (Q3) driven by volume and price/mix.
- Great Britain: Revenue down 13.0% (Q3), largely due to a 16% decline in the British pound vs. the Euro.
- Germany: Revenue down 1.0% (Q3) due to a transition to recyclable PET packaging and promotional plans.
- Cost Structure: Pro forma comparable operating expenses decreased 1.5% in Q3, reflecting early benefits of restructuring and volume growth.
Guidance, Outlook, and Risks
Full-Year 2016 Guidance (Pro Forma Comparable & FX-Neutral)
- Revenue: Flat growth.
- Operating Profit: Modest mid-single-digit growth.
- Diluted EPS: Mid-teen range growth.
- FX Impact: Expected negative currency impact of approximately 4.5%, resulting in a pro forma comparable diluted EPS range of €1.86 to €1.90.
Management Commentary
Management highlighted a "return to growth" driven by brand innovations, strong execution, and favorable weather. The company remains focused on integrating territories, enhancing customer service, and realizing synergies. CCEP does not expect to repurchase shares in 2016.
Synergies and Restructuring
- Target: Pre-tax savings of €315 million to €340 million by mid-2019.
- Q3 Charges: €53 million recorded in Q3, primarily for restructuring in Germany and headquarters transition.
- Future Actions: Additional restructuring proposals announced in October 2016 regarding supply chain optimization and facility rationalization.
Risks and Contingencies
- Foreign Exchange: Significant volatility in currency rates (e.g., GBP vs. EUR) materially impacts reported results.
- Consumer Environment: Management notes a "soft consumer environment" remains present.
- Operational Risks: Includes obesity concerns, water scarcity, evolving consumer preferences, and regulatory changes regarding packaging and ingredients.
Investor Verification Checklist
- Pro Forma Adjustments: Verify the reconciliation of reported results to pro forma comparable figures, specifically the treatment of merger costs, inventory step-up, and mark-to-market hedge impacts.
- Currency Sensitivity: Assess the impact of the 4.5% expected negative currency translation on full-year earnings guidance.
- Restructuring Progress: Monitor the execution of the €53 million Q3 charges and the October 2016 restructuring proposals to ensure synergy targets are met.
- Volume vs. Price Dynamics: Confirm if the 3.5% volume growth can be sustained despite the 0.5% decline in revenue per unit case.
- Leadership Transition: Evaluate the impact of the CEO succession from John F. Brock to Damian Gammell on strategic execution.