Business context and reporting period
Coca-Cola European Partners plc (CCEP) filed this annual report on Form 20-F for the fiscal year ended December 31, 2020. The company makes, sells and distributes ready-to-drink beverages in 13 Western European countries; it reported one operating segment and used IFRS as issued by the IASB. The period was materially affected by COVID-19, particularly restrictions on away-from-home consumption.
Financial performance and liquidity
| Metric | 2020 | Change versus 2019 |
|---|---|---|
| Revenue | €10.606 billion | Down 11.5% reported; down 11.0% comparable and FX-neutral |
| Comparable volume | 2.277 billion unit cases | Down 10.0% |
| Revenue per unit case | €4.69 | Down 1.5% comparable and FX-neutral |
| Reported operating profit | €813 million | Down 47.5% |
| Comparable operating profit | €1.194 billion | Down 29.0% |
| Reported profit after tax | €498 million | Down from €1.090 billion |
| Comparable diluted EPS | €1.80 | Down 29.0%; down 28.5% comparable and FX-neutral |
| Net cash from operating activities | €1.490 billion | Down 22.0% |
| Free cash flow | €924 million | Down from €1.099 billion |
| Cash and cash equivalents | €1.523 billion | Up from €316 million |
| Total borrowings / net debt | €7.187 billion / €5.700 billion | Borrowings up from €6.421 billion; net debt down from €6.111 billion |
| Net debt / adjusted EBITDA | 3.19x | Up from 2.68x |
| ROIC | 7.6% | Down 270 basis points |
Operating cash flow included €205 million of restructuring cash outflows. Capital expenditure on property, plant and equipment and capitalised software was €408 million, down from €602 million, after non-critical projects were deferred. CCEP issued €1.6 billion of debt during the year. Its €1.5 billion revolving credit facility, maturing in 2025, was undrawn at year-end and has no financial covenants affecting liquidity. The reported effective tax rate was 28.3%, versus 25.0% in 2019.
Material changes and unusual items
- Comparable away-from-home volume fell 27.5%, while home-channel volume grew 1.5%. Comparable volume in hydration declined 34%; energy volume grew 13%, including 15.5% growth for Monster.
- Discretionary operating expenditure savings were approximately €260 million; deferred or reduced capital expenditure was approximately €200 million. Lower volumes also reduced variable costs, but cost of sales per unit case rose 2.5% on a comparable, FX-neutral basis, reflecting fixed-cost under-recovery and mix.
- Reported results included €368 million in restructuring charges, including €202 million for the Accelerate Competitiveness programme. The programme includes proposed facility closures and wider efficiency measures; total programme costs were expected to be approximately €380 million and substantially complete by the end of 2022.
- CCEP paid a full-year dividend of €0.85 per share (€386 million total), maintaining a payout ratio of approximately 50%. It suspended its €1 billion share-buyback programme in March 2020 after purchasing €129 million of shares.
- No impairment charge was recorded after 2020 goodwill and indefinite-lived intangible asset tests. However, Iberia CGU headroom fell to about 25% of carrying value, from 50% in 2019; management identified adverse recovery, margin or discount-rate changes as potential triggers for impairment.
Outlook, risks and contingencies
Management said the duration and effects of the pandemic remained uncertain. It expected to focus on profitable growth, cost efficiency, digital capabilities and portfolio expansion, including coffee and hard seltzers; the filing does not provide clear numeric 2021 financial guidance. The Directors concluded CCEP had adequate resources for the 12 months following approval of the accounts and a reasonable expectation of viability over three years, based on cash generation, liquidity access and stress testing.
At the filing date, the proposed acquisition of Coca-Cola Amatil (CCL) remained subject to shareholder, court and regulatory approvals. CCEP expected cash consideration of A$7.4–9.0 billion, funded with new borrowings and existing cash, and had arranged an undrawn acquisition term facility of up to €4.4 billion. Management cited potential growth and expanded reach, while flagging financing, foreign-exchange, integration, execution and stakeholder risks. The proposed transaction could increase leverage and affect credit ratings; Moody’s and S&P had placed ratings under review or negative watch in connection with the plan.
Other material risks include continuing COVID-19 restrictions, customer and channel changes, commodity and currency volatility, packaging regulation and costs, climate and water stress, cybersecurity, health-related shifts in consumer preferences, dependence on The Coca-Cola Company and other franchisors, and tax disputes. The company disclosed €310 million of guarantees relating to litigation and €45 million of ordinary-course guarantees, with no significant additional liabilities expected from them. It had not recorded a liability for substantial tax assessments concerning concentrate purchases and said it was defending its position. Auditors issued unqualified opinions on the financial statements and internal controls.
Most important facts to verify
- How quickly away-from-home demand and tourism recover, and whether home-channel growth persists.
- Actual restructuring charges, cash costs, savings and facility-closure execution under Accelerate Competitiveness.
- Completion, final consideration, funding mix, resulting leverage and credit-rating effects of the CCL acquisition.
- Impairment headroom and assumptions for Iberia and Germany, particularly recovery timing, margins and discount rates.
- Exposure and outcomes of concentrate-related tax assessments, packaging rules and associated producer costs.