COCA-COLA EUROPEAN PARTNERS PLC — 2019 FORM 20-F
Period and scope: Annual report for the fiscal year ended December 31, 2019—not a standalone Q4 filing. The filing is for Coca-Cola European Partners plc; the supplied text does not provide clear standalone fourth-quarter financial results. CCEP made, sold and distributed non-alcoholic ready-to-drink beverages across 13 Western European countries. Figures are in euros unless stated otherwise. The company reports under IFRS.
Financial performance
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Revenue | €12.017bn | €11.518bn | +4.5%, reported and comparable; about 1 percentage point of growth reflected incremental soft-drink taxes |
| Volume | 2.521bn unit cases | 2.493bn | +1.0%; revenue per unit case rose 3.0% to €4.77 |
| Operating profit | €1.548bn reported; €1.676bn comparable | €1.300bn reported; €1.582bn comparable | +19.0% reported; +6.0% comparable |
| Profit after tax | €1.090bn reported; €1.185bn comparable | €0.909bn reported; €1.120bn comparable | +20.0% reported; +6.0% comparable |
| Diluted EPS | €2.32 reported; €2.53 comparable | €1.86 reported; €2.30 comparable | Comparable EPS +10.0% |
| Operating cash flow | €1.904bn | €1.806bn | +5.0%; included a €126m Spanish VAT refund and was affected by IFRS 16 lease classification |
| Free cash flow | €1.099bn | €1.111bn | Down €12m; 2018 was recast under the company’s amended definition, which includes lease principal payments |
| Capital expenditure | €602m | €600m | Includes property, plant, equipment and capitalised software |
| ROIC | 10.3% | 9.9% | Up 40 basis points |
Debt and liquidity
- Net debt was €6.111bn at year-end, versus €5.333bn in 2018; net debt to adjusted EBITDA was 2.68x, compared with 2.57x.
- Adjusted EBITDA was €2.277bn, up from €2.079bn. Total borrowings were €6.421bn and cash and cash equivalents were €316m.
- CCEP had no drawings under its €1.5bn revolving credit facility, which matures in 2024 and has no financial covenants that would affect liquidity or access to capital. Moody’s rated the company A3 and S&P BBB+, both with stable outlooks.
- About 91% of interest-bearing borrowings were fixed rate. The company reported €688m of third-party debt maturities due within 12 months of year-end.
Material changes versus 2018
- Revenue growth reflected 1.0% volume growth and 3.0% growth in revenue per unit case, supported by price and package mix, innovation and soft-drink taxes. Comparable operating profit increased 6.0%.
- Comparable cost of sales rose 5.5%, faster than revenue, reflecting taxes, product and package mix, higher co-packing costs and concentrate costs. Comparable operating expenses increased 0.5%; restructuring costs fell from €250m in 2018 to €130m.
- Reported net income increased partly because 2018 results included greater restructuring charges. The 2019 charge included €47m of accelerated depreciation for older cold-drink equipment.
- IFRS 16 adoption brought most operating leases onto the balance sheet. It added €322m of lease liabilities at transition and changed cash-flow classification; management said the standard had a de minimis impact on 2019 profit before tax.
- CCEP repurchased €1.005bn of shares in 2019, completing its €1.5bn buyback programme. It paid €574m in dividends; the annual dividend was €1.24 per share, up 17%.
Outlook, commentary, risks and unusual items
- Outlook: Management said the Western European non-alcoholic ready-to-drink beverage category could grow by an average 2%–3% annually over the next 10 years. The filing does not provide clear near-term revenue or earnings guidance. Planned 2020 capital expenditure was €650m–€700m, including lease principal payments.
- Management priorities: Profitable organic revenue growth, product and portfolio diversification, price and mix, away-from-home sales, small packs, customer service, digital capabilities and supply-chain investment. Management reported €1.1bn of 2019 free cash flow and almost €600m of capital expenditure.
- COVID-19: The report, signed March 16, 2020, said the outbreak’s scale, duration and financial impact were uncertain. Management said it was monitoring developments and prioritising employee wellbeing and mitigation planning.
- Other subsequent events: In January 2020, CCEP proposed closing five German distribution centres, subject to consultation; it could not estimate related charges. In February, it repaid US$255m of borrowings ahead of maturity and announced a proposed new €1bn share-buyback programme, subject to shareholder approval and possible adjustment.
- Contingencies: A €201m Spanish VAT receivable remained classified as non-current pending an arbitration ruling; CCEP said it expected repayment with interest. It also disclosed substantial tax assessments relating to purchases of concentrate, which it is contesting and for which it recorded no liability. Guarantees of about €325m related to litigation and €50m to ordinary business were outstanding; management did not expect significant additional liabilities from them.
- Principal risks: Packaging regulation and collection costs; changing health preferences and sugar taxes; customer and market competition; cyber incidents; execution of transformation and cost initiatives; climate change and water scarcity; commodity prices and economic or political disruption; product quality; and dependence on The Coca-Cola Company and other franchisors. More than 90% of 2019 revenue came from beverages distributed under TCCC agreements.
- Unusual concentration and estimates: Customer promotional programmes reduced revenue by €3.2bn, with a €701m accrued customer-marketing balance at year-end. Goodwill and indefinite-lived intangibles totalled €10.685bn, 57% of total assets; annual impairment testing recorded no charge, but Iberia and Germany headroom is sensitive to assumptions.
- Audit: The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included customer-promotion accruals, goodwill and indefinite-lived intangible impairment, and uncertain tax positions.
Key facts for investors to verify
- Confirm the distinction between reported and comparable results, including the effects of restructuring, taxes and IFRS 16 on year-over-year comparisons and free cash flow.
- Track net debt and leverage, near-term maturities, planned capital spending, dividends and the proposed €1bn buyback against cash generation and the company’s investment-grade ratings.
- Monitor the €201m Spanish VAT dispute and developments in contested concentrate-purchase tax assessments.
- Assess COVID-19’s effects on demand, channels, operating costs and cash flow; the filing states that the impact was not yet clear.
- Review progress and costs tied to proposed German distribution-centre closures, packaging rules and targets, and water and climate commitments.
- Evaluate the sensitivity of the €10.685bn goodwill and indefinite-lived intangible balance to assumptions, especially for Iberia and Germany, and consider CCEP’s dependence on TCCC bottling and marketing arrangements.