Business Context and Reporting Period
Company: Coca-Cola Europacific Partners Plc (CCEP)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: May 11, 2021
Event: Announcement of the completion of the acquisition of Coca-Cola Amatil Ltd (CCL) via a Scheme of Arrangement on May 10, 2021. The filing details a virtual investor event and provides pro forma financial information for the combined entity for fiscal years 2019 and 2020.
Key Financial Metrics (Pro Forma)
The following metrics represent the combined business as if the acquisition had occurred at the beginning of the respective fiscal years.
| Metric | FY 2020 (€m) | FY 2019 (€m) |
|---|---|---|
| Revenue | 13,535 | 15,235 |
| Operating Profit (Comparable) | 1,492 | 2,038 |
| Adjusted EBITDA | 2,340 | 2,888 |
| Diluted EPS (€) | 2.17 | 2.99 |
| Net Debt to Adjusted EBITDA | 5.3x | Not Provided |
Debt and Liquidity:
- Acquisition-related borrowings: €5.7 billion.
- Weighted effective average interest cost on new debt: c.40 basis points.
- Overall average interest cost: 1.3%.
- Debt maturity profile: Average of 6.5 years with no financial covenants.
- Leverage at close: Approximately 5 times adjusted EBITDA.
- Credit Rating: Investment grade (Moody's Baa1, Fitch BBB+).
Material Changes and Segment Performance
The acquisition creates a new business unit, API (Australia, Pacific, and Indonesia), diversifying the portfolio to include alcohol and hot coffee.
- Revenue Mix (FY20 Pro Forma): Europe generated €10,606 million (78% of total), while the new API segment generated €2,929 million (22% of total).
- Operating Margins (Comparable): Europe reported a margin of 11.3%, while API reported 10.2% for FY20.
- Volume Trends: Total pro forma volumes for FY20 were 2,895 million unit cases (Europe: 2,277m; API: 618m).
- Efficiency Savings: CCEP estimates €60-80 million in efficiency savings over the next three years, weighted toward FY22 onwards, driven by procurement, supply chain, and group function synergies.
Guidance, Outlook, and Risks
Medium-Term Objectives:
- Low single-digit revenue growth.
- Mid-single-digit operating profit growth.
- Mid-single-digit diluted EPS growth (excluding buybacks).
- Free cash flow of at least €1.25 billion annually.
- Dividend payout ratio of c.50%.
- Target leverage of 2.5 to 3.0 times net debt to adjusted EBITDA within 3 years.
- ROIC improvement of c.40 basis points.
Management Commentary:
- CEO Damian Gammell highlighted the strategic fit, noting exposure to the world's fourth most populous market (Indonesia) and a wider portfolio including alcohol and hot coffee.
- Chairman Sol Daurella emphasized a diversified future with sustainability at the core across 29 markets.
- Immediate EPS accretion is expected, with ROIC projected to cover WACC in approximately 5 years.
Risks and Contingencies:
- Integration Risk: Potential difficulties in integrating CCL, including cultural clashes, retention of key personnel, and disruption to ongoing business.
- Macro Risks: Impact of the COVID-19 pandemic, UK-EU trade relationship uncertainties, and economic downturns.
- Operational Risks: Supply chain disruptions, packaging regulations, climate change legislation, and cyber security threats.
- Forward-Looking Statements: Actual results may differ materially from projections due to the uncertainties listed above.
Investor Verification Checklist
- Debt Servicing Capacity: Verify the ability to service €5.7 billion in new debt while maintaining investment-grade ratings and returning to target leverage (2.5-3.0x) within three years.
- Integration Execution: Monitor the realization of the estimated €60-80 million in efficiency savings and the successful cultural integration of the API business unit.
- Market Growth Assumptions: Assess the validity of growth projections for Indonesia (GDP growth >5%) and the expansion of non-alcoholic ready-to-drink and hot coffee categories.
- Pro Forma Adjustments: Review the reconciliation of pro forma financials to historical GAAP figures, specifically regarding inventory step-up costs and acquisition-related charges.
- Dividend Sustainability: Confirm that the c.50% dividend payout ratio remains sustainable given the increased leverage and capital expenditure requirements.