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 28 September 2018
Business Overview: CCEP is the world's largest independent Coca-Cola bottler by net revenue, serving over 300 million consumers across Western Europe. The company announced a ticker symbol change from "CCE" to "CCEP" effective 7 November 2018.
Key Financial Metrics
Nine Months Ended 28 September 2018
| Metric | As Reported (€m) | Comparable (€m) | Change (Comparable) |
|---|
| Revenue | 8,724 | 8,724 | +4.0% |
| Operating Profit | 1,106 | 1,220 | +7.5% |
| Profit After Taxes | 775 | 860 | +8.0% |
| Diluted EPS | €1.58 | €1.76 | +8.0% |
| Free Cash Flow | 1,021 | N/A | N/A |
Third Quarter Ended 28 September 2018
| Metric | As Reported (€m) | Comparable (€m) | Change (Comparable) |
|---|
| Revenue | 3,289 | 3,289 | +11.0% |
| Operating Profit | 501 | 521 | +11.0% |
| Profit After Taxes | 358 | 371 | +11.5% |
| Diluted EPS | €0.73 | €0.76 | +11.5% |
Balance Sheet and Liquidity (as of 28 Sep 2018)
- Net Debt: €4,887 million (Total borrowings €5,339m less cash €486m).
- Credit Ratings: A3 (Moody's) and BBB+ (S&P) with Stable outlook.
- Weighted Average Cost of Debt: Expected to be approximately 2% for 2018.
Material Changes vs. Prior Period
- Revenue Growth: Driven by strong price and mix realization. Revenue per unit case grew 5.0% (9M) and 6.0% (Q3) on a comparable and fx-neutral basis. Approximately 2.0% (9M) and 3.0% (Q3) of this growth is attributed to incremental soft drinks industry taxes.
- Volume Trends: Nine-month volume decreased 0.5% on a comparable basis due to strategic portfolio decisions and new taxes, partially offset by favorable weather in Great Britain, Germany, and Northern Europe. Q3 volume increased 5.0% due to favorable weather and easy comparables.
- Profitability: Operating margins improved due to maintained gross margins and realization of post-merger synergy benefits. Restructuring charges of €118 million were recognized in the first nine months.
- Geographic Performance: Great Britain revenue grew 21.0% (Q3) and Germany 11.5% (Q3). Iberia (Spain/Portugal) saw softer trading in Spain due to weaker tourism trends.
Guidance, Outlook, and Management Commentary
Full-Year 2018 Outlook
- Revenue: Expected to grow 2.0% to 2.5% (comparable and fx-neutral), excluding the impact of incremental taxes which are expected to add 2.0% to 2.5%.
- Operating Profit: Expected to grow at the top end of the 6.0% to 7.0% range (comparable and fx-neutral).
- Diluted EPS: Expected in the range of €2.27 to €2.29, including currency translation and the impact of up to €500 million in share buybacks.
- Free Cash Flow: Expected to be approximately €1 billion.
- Capital Expenditures: Expected at the top end of the €525 million to €575 million range.
- Net Debt to Adjusted EBITDA: Expected to be towards the low end of the 2.5 to 3.0 times target range.
Capital Allocation
- Dividends: Declared Q4 interim dividend of €0.28 per share, implying an annualized payout ratio of approximately 50%.
- Share Buybacks: On track to return up to €500 million to shareholders in 2018 under the €1.5 billion program.
- Synergies: On track to achieve a pre-tax run rate of €315 million to €340 million by mid-2019; expects to realize at least 80% of the target by year-end 2018.
Risks and Contingencies
- Regulatory: Impact of new soft drinks taxes in Great Britain, France, Belgium, and Norway.
- Market Conditions: Softer trading in Spain and France; consumer preference shifts regarding health and sweeteners.
- Macroeconomic: Risks related to the UK's exit from the EU (Brexit) and currency exchange rate fluctuations.
Key Facts for Investor Verification
- Volume Decline: Verify the sustainability of revenue growth given the 0.5% year-to-date volume decline on a comparable basis.
- Tax Impact: Assess the long-term impact of incremental soft drinks taxes on both revenue (positive) and cost of sales (positive), and the net effect on margins.
- Restructuring Costs: Monitor the €118 million in restructuring charges recognized YTD and the timeline for achieving the full €315-340 million synergy target.
- Geographic Divergence: Review the contrast between strong performance in Great Britain/Germany versus softer trends in Spain/France.
- Debt Levels: Confirm the trajectory of net debt reduction to meet the 2.5x to 3.0x Adjusted EBITDA target given the €500 million buyback commitment.
