Coca-Cola European Partners plc (CCEP) (ticker symbol: CCE)
today announces its interim results for the six months ended 1 July
2016 and affirms full-year 2016 earnings outlook
Highlights
- First-half diluted earnings per
share were €0.74 on a reported basis or €0.83 on a pro forma
comparable basis, including a negative currency translation impact
of €0.02.
- First-half reported revenue totaled
€3.5 billion. Pro forma comparable revenue was €5.2 billion, down 3
per cent, or down 1.5 per cent on a pro forma comparable and
fx-neutral basis. Volume declined 1.0 per cent on a comparable
basis.
- First-half reported operating profit
was €314 million; pro forma comparable operating profit was €603
million, down 2.5 per cent or flat on an fx-neutral basis.
- CCEP provides its full-year guidance
for 2016, including pro forma comparable, fx-neutral diluted
earnings per share growth in a mid-teen range, with flat revenue
growth and modest mid-single-digit operating profit
growth.
- CCEP remains on track to achieve
pre-tax savings of €315 million to €340 million through synergies
by mid-2019.
- CCEP declares initial quarterly
dividend of €0.17 per share.
“Since the creation of Coca-Cola European Partners nearly four
months ago, our strong belief in the future of our new company has
been reinforced,” said John F. Brock, chief executive officer. “We
are making significant progress to integrate the new business,
share best practices and become even more effective and
efficient.
“Our first-half results reflect the continued impact of a soft
consumer environment and persistent economic challenges,” Mr. Brock
said. “These conditions support our focus on executing against our
outstanding marketing programmes, improving our operational
effectiveness and integrating CCEP to capture synergies as we work
to reach our full-year 2016 performance objectives.”
“Ultimately, our focus remains on our most important goal -
continuing to drive shareowner value, while maintaining a strong
commitment to the communities we serve,” Mr. Brock said.
Note Regarding the Presentation of
Financial Information
Unless otherwise noted, the financial information included in
this interim management review is provided on a pro forma
comparable basis to allow investors to better analyse CCEP’s
business performance and allow for greater comparability. To do so,
we have given effect to the Merger as if it had occurred at the
beginning of the periods presented, thereby including the financial
results of Coca-Cola Enterprises, Inc. (“CCE”), Coca-Cola
Erfrischungsgetränke GmbH (“Germany”, “CCEG”) and Coca-Cola Iberian
Partners S.A.U. (“Iberia”, “CCIP”) and acquisition accounting
adjustments for the full periods presented. We have also excluded
items affecting the comparability of year-over-year financial
performance, including merger and integration costs, restructuring
costs, the out-of-period mark-to-market impact of hedges and the
inventory step-up related to acquisition accounting. See the
Supplementary Financial Information for a full reconciliation of
our reported results to our pro forma comparable results.
For purposes of this review, the following terms are defined as
follows:
‘As reported’ includes the financial results of CCE only,
as the accounting predecessor, for all periods prior to 27 May 2016
and combined CCEP (CCE, Germany and Iberia) for the period from 28
May 2016 through 1 July 2016.
‘Pro forma’ includes the results of CCE, Germany and
Iberia as well as the impact of the additional debt financing costs
incurred by CCEP in connection with the Merger for all periods
presented, as if the Merger had occurred at the beginning of the
period presented.
‘Pro forma Comparable’ represents the pro forma results
excluding the items impacting comparability during the periods
presented for CCE, Germany and Iberia.
‘Fx-Neutral’ represents the pro forma comparable results
excluding the impact of foreign exchange rate changes during the
periods presented.
Key Financial Measures
unaudited, FX impact calculated by
recasting current year results at prior year rates
Second Quarter Ended 1 July 2016 €
million % change
AsReported
Pro formaComparable
Fx-Impact
AsReported
Pro formaComparable
Fx-Impact
Pro
formaComparableFx-Neutral
Revenue 2,167 2,873 (61 ) 25.0 % (3.5
)
%
(2.0 )% (1.5
)%
Cost of sales 1,376 1,786 (35 ) 25.0 % (2.5
)
%
(2.0 )% (0.5
)%
Operating expenses 582 689 (16 ) 49.0 % (4.5
)
%
(2.0 )% (2.5
)%
Operating profit 209 398 (10 ) (14.5
)
%
(6.0
)
%
(3.0 )% (3.0
)%
Profit after taxes 151 273 (8 ) (3.5
)
%
5.5 % (2.0 )% 7.5 % Diluted earnings per share (€)
0.45 0.56 (0.01 ) (32.0
)
%
5.5 % (1.5 )% 7.0
%
Key Financial Measures
unaudited, FX impact calculated by
recasting current year results at prior year rates
Six Months Ended 1 July 2016 € million %
change
AsReported
Pro formaComparable
Fx-Impact
AsReported
Pro formaComparable
Fx-Impact
Pro
formaComparableFx-Neutral
Revenue 3,542 5,246 (89 ) 10.5 % (3.0
)
%
(1.5 )% (1.5
)%
Cost of sales 2,243 3,271 (55 ) 9.0 % (3.5
)
%
(1.5 )% (2.0
)%
Operating expenses 985 1,372 (21 ) 29.5 % (2.0
)
%
(1.5 )% (0.5
)%
Operating profit 314 603 (13 ) (17.5
)
%
(2.5
)
%
(2.5 )% — % Profit after taxes 210 405 (9 ) (11.5
)
%
10.0 % (3.0 )% 13.0 % Diluted earnings per share (€)
0.74 0.83 (0.02 ) (26.0
)
%
10.5 % (2.5 )%
13.0 %
Operational Review
“As we move forward, we are aware of the current marketplace
conditions that continue to impact our business,” said Damian
Gammell, chief operating officer. “CCEP provides a much stronger
foundation and enhances our ability to leverage our strong
portfolio of leading brands, generate new growth and create
significant operating synergies.”
“We have teams of talented, motivated employee groups working to
deliver against important brand and operating opportunities and
look forward to sharing more details with you in the future,” Mr.
Gammell said. “Importantly, we remain on track to deliver against
our goal of pretax savings of €315 million to €340 million by
mid-2019.”
“We are working to reignite growth, strengthen our operations,
and ultimately, create value for each of our stakeholders,
including our shareholders,” Mr. Gammell said.
Revenue
First-half reported revenue totaled €3.5 billion, or up 10.5 per
cent, driven by the inclusion of Germany and Iberia during the last
part of the second quarter. Pro forma revenue was €5.2
billion, down 3.0 per cent, or down 1.5 per cent on a pro forma and
fx-neutral basis. Revenue per unit case was flat on a pro forma
comparable and fx-neutral basis. Volume was down 1.5 per cent
on a pro forma basis. These results reflect poor weather conditions
throughout our territories during the second quarter and the impact
of a sustained, challenging consumer environment.
On a territory basis, Iberia revenues were up 1.5 per cent, as
revenue per unit case increased ahead of volume. Revenue in Germany
declined 0.5 per cent, in part due to the impact of a transition to
recyclable PET from returnable PET.
Great Britain revenues were down 10.5 per cent, driven by the
negative impact of an approximately 6.0 per cent decline for the
British pound versus the Euro when compared to prior
year. Great Britain revenue was also affected by temporary
supply chain disruptions related to the implementation of new
software programmes and processes and an ongoing competitive
environment. Additionally, Great Britain faced a challenging prior
year volume growth hurdle of 3.5 per cent versus the same period a
year ago.
Revenue in France declined 4.5 per cent, primarily due to volume
declines from challenging weather, the economic impact of the
decline in tourist travel and soft category conditions. Revenue in
the Northern European territories (Belgium, the Netherlands, Norway
and Sweden) declined approximately 0.5 per cent driven by revenue
declines in Belgium, due in part to the decline of tourist travel
in Belgium, and offset partially by revenue growth in Norway and
Sweden.
As for volume, total first-half comparable volume declined 1.5
per cent on a pro forma basis and was down 1.0 per cent on a pro
forma and comparable basis after adjusting for one fewer selling
day in the first quarter when compared to prior year. A challenging
consumer environment, difficult second quarter weather and other
operating factors highlighted above, combined to limit volume
results. Sparkling brands declined 1.5 per cent. Coca-Cola
trademark declined approximately 3.5 per cent, with approximate 6.5
per cent growth in Coca-Cola Zero Sugar offset by declines in other
trademark brands. Sparkling flavors and energy grew 5.0 per cent as
continued strong growth in energy offset low single-digit declines
in sparkling flavors. Energy is benefiting from year-over-year
comparisons as we have not yet lapped the newly acquired
distribution of Monster in Germany, Norway and Spain. Still brands
grew 1.0 per cent with water brands up 4.0 per cent and all other
stills down 1.5 per cent.
Cost of Sales
First-half reported cost of sales totaled €2.2 billion, up 9.0
per cent, driven by the inclusion of Germany and Iberia during the
last part of the second quarter. Pro forma comparable cost of sales
totaled €3.3 billion, down 3.5 per cent, or down 2.0 per cent on a
pro forma comparable and fx-neutral basis.
Cost of sales per unit case declined 1.0 per cent on a pro
forma, comparable and fx-neutral basis. This reflects the benefit
of favourable year-over-year costs in some key commodities,
principally sugar, partially offset by an increase of cost of sales
in Great Britain related to the supply chain disruption and the
shift in Germany from returnable to recyclable packages.
Although the recent cost environment is favourable, we continue
to execute our risk management strategy through the use of supplier
agreements and hedging instruments designed to mitigate our
exposure to commodity price volatility.
Operating Expense
First-half reported operating expenses totaled €1.0 billion, up
29.5 per cent, reflecting the inclusion of Germany and Iberia
during the last part of the second quarter. Pro forma
comparable operating expenses were €1.4 billion, down 2.0 per cent,
or down 0.5 per cent on a pro forma, comparable and fx-neutral
basis. This includes the early benefits of restructuring, the
impact of a modest decline in volume, incremental expense
associated with a supply chain disruption, incremental expense for
the Euro 2016 marketing programme and a continued focus on managing
operating expenses.
Outlook
For 2016, CCEP expects revenue to be flat with operating profit
growth in a modest mid-single-digit range and diluted earnings per
share in a mid-teen range, all on a comparable and fx-neutral
basis. In addition to operating profit growth, full-year 2016
diluted earnings per share growth is benefiting from differences in
interest and tax rates between pro forma comparable 2015 figures
and our 2016 outlook. Based on recent rates, currency translation
would negatively impact full-year 2016 diluted earnings per share
by approximately €0.07.
Weighted average cost of debt is expected to be approximately 2
per cent and the comparable effective tax rate for 2016 is expected
to be between 24 per cent and 26 per cent. Year-end 2016 net debt
to EBITDA is expected to be just over 3 times. CCEP does not expect
to repurchase shares in 2016.
Dividend
The CCEP Board of Directors today authorised the Company’s first
dividend since the Company’s inception in May of this year. In line
with its commitment to deliver long-term value to shareholders, and
the Company’s prior commitment to have an initial dividend pay-out
ratio of 30 per cent to 40 per cent of profit after taxes, the
Board has approved an initial quarterly dividend of €0.17,
equivalent to an annualised dividend of €0.68 per share. The
dividend will be paid 17 October 2016 to those shareholders of
record on 3 October 2016. The Company is pursuing arrangements
to pay the dividend in euros to shares held within the Euroclear
Netherlands. Other publicly held shares will be converted into
an equivalent US dollar amount using exchange rates issued by
WM/Reuters taken at 16:00 BST on 22 September 2016. This translated
amount will be posted on our website, www.ccep.com, under the
Investor/Shareowner Information section.
CCEP is committed to providing regular returns to shareholders
through quarterly dividends. The Board is also committed to
supporting CCEP’s strategy to achieve long-term, profitable growth
whilst maintaining an efficient and optimal capital structure.
Through disciplined investment and a continued focus on free cash
flow growth, CCEP targets long-term, mid-to-high single-digit EPS
growth and an increase in return on invested capital (ROIC) of 20
basis points or more annually.
Conference Call
CCEP will host a conference call with investors and analysts
today at 15:00 BST, 16:00 CEST and 10:00 a.m. EDT. The call can be
accessed through the Company’s website at www.ccep.com.
Financial Details
Financial details can be found in our full first-half 2016
filing, available at www.morningstar.co.uk/uk/NSM and on our
website, www.ccep.com, under the Investors tab. This document will
include pro forma, comparable income statements for first half 2015
and 2016, as well as second quarter 2015 and 2016 income
statements. There is also additional supplemental financial
information, such as volume and per unit case data. Additionally,
there are pro forma and comparable income statements for the third
and fourth quarters of 2015.
Formation of Coca-Cola European Partners plc
CCEP was formed on 28 May 2016 through the combination of CCE,
CCIP and CCEG. CCEP is a publicly traded UK domiciled company
listed on the Euronext Amsterdam, New York Stock Exchange, Euronext
London and various Spanish stock exchanges (ticker symbol: CCE).
CCEP is the world’s largest independent Coca-Cola bottler based on
revenue and serves over 300 million consumers across Western
Europe, including Andorra, Belgium, continental France, Germany,
Great Britain, Luxembourg, Monaco, the Netherlands, Norway,
Portugal, Spain and Sweden. Subsequent to the close of the merger,
CCEP acquired Vifilfell, the Icelandic Coca-Cola bottler per the
terms of the Merger agreement. With pro forma 2015 net revenue of
approximately €11 billion and pro forma comparable 2015 operating
profit of approximately €1.4 billion, CCEP is a leading consumer
packaged goods company in Europe.
CCEP represents the combination of three strong Coca-Cola
bottlers, each with their own unique strengths, operating
approaches and best practices. To capitalise on these individual
strengths and capture the synergies created by the combination we
are focused on developing new ways of operating. We are in the
early stages of this work and it will take some time to complete;
however, we are committed to delivering the full benefit of the
synergies associated with the formation of CCEP and have already
begun to share best practices across the organisation. Whilst going
through this transformation, we will continue to make the
appropriate level of investment in key marketing initiatives that
support business development and will seek to optimise the return
on our capital investment.
As The Coca-Cola Company’s (“TCCC”) strategic bottling partner
in Western Europe and one of the world’s largest independent
Coca-Cola bottlers, we also believe the creation of CCEP will drive
a new level of partnership with TCCC. We and TCCC understand that
winning in the marketplace requires us to act with a common vision,
one that includes clearly aligned growth targets, common priorities
and a commitment to execute seamlessly together. Our shared vision
requires aligned commitments to continuously develop our brands,
assets and capabilities to maximise performance and value.
About CCEP
Coca-Cola European Partners plc (CCEP) is a leading consumer
packaged goods company in Europe, selling, producing and
distributing an extensive range of nonalcoholic ready-to-drink
beverages and is the world’s largest independent Coca-Cola bottler
based on revenue. Coca-Cola European Partners serves a consumer
population of over 300 million across Western Europe, including
Andorra, Belgium, continental France, Germany, Great Britain,
Iceland, Luxembourg, Monaco, the Netherlands, Norway, Portugal,
Spain and Sweden. The Company is listed on Euronext Amsterdam, the
New York Stock Exchange, Euronext London and on the Spanish stock
exchanges, and trades under the symbol CCE. For more information
about CCEP, please visit our website at www.ccep.com and follow
CCEP on Twitter at @CocaColaEP.
Forward-Looking Statements
This document may contain statements, estimates or projections
that constitute “forward-looking statements”. Generally, the words
“believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,”
“plan,” “seek,” “may,” “could,” “would,” “should,” “might,” “will,”
“forecast,” “outlook,” “guidance,” “possible,” “potential,”
“predict” and similar expressions identify forward-looking
statements, which generally are not historical in nature.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from Coca-Cola European Partners plc’s (“CCEP”) historical
experience and its present expectations or projections. These risks
include, but are not limited to, obesity concerns; water scarcity
and poor quality; evolving consumer preferences; increased
competition and capabilities in the marketplace; product safety and
quality concerns; perceived negative health consequences of certain
ingredients, such as non-nutritive sweeteners and
biotechnology-derived substances, and of other substances present
in their beverage products or packaging materials; increased demand
for food products and decreased agricultural productivity; changes
in the retail landscape or the loss of key retail or foodservice
customers; an inability to expand operations in emerging or
developing markets; fluctuations in foreign currency exchange
rates; interest rate increases; an inability to maintain good
relationships with its partners; a deterioration in its partners’
financial condition; increases in income tax rates, changes in
income tax laws or unfavourable resolution of tax matters;
increased or new indirect taxes in its tax jurisdictions; increased
cost, disruption of supply or shortage of energy or fuels;
increased cost, disruption of supply or shortage of ingredients,
other raw materials or packaging materials; changes in laws and
regulations relating to beverage containers and packaging;
significant additional labeling or warning requirements or
limitations on the availability of its respective products; an
inability to protect its respective information systems against
service interruption, misappropriation of data or breaches of
security; unfavourable general economic or political conditions in
the United States, Europe or elsewhere; litigation or legal
proceedings; adverse weather conditions; climate change; damage to
its respective brand images and corporate reputation from negative
publicity, even if unwarranted, related to product safety or
quality, human and workplace rights, obesity or other issues;
changes in, or failure to comply with, the laws and regulations
applicable to its respective products or business operations;
changes in accounting standards; an inability to achieve its
respective overall long-term growth objectives; deterioration of
global credit market conditions; default by or failure of one or
more of its respective counterparty financial institutions; an
inability to timely implement their previously announced actions to
reinvigorate growth, or to realise the economic benefits it
anticipates from these actions; failure to realise a significant
portion of the anticipated benefits of its respective strategic
relationships, including (without limitation) The Coca-Cola
Company’s relationship with Monster Beverage Corporation; an
inability to renew collective bargaining agreements on satisfactory
terms, or it or its respective partners experience strikes, work
stoppages or labour unrest; future impairment charges; an inability
to successfully manage the possible negative consequences of its
respective productivity initiatives; global or regional
catastrophic events; and other risks discussed in the CCEP
prospectus approved by the UK Listing Authority and published on 25
May 2016 and the registration statement on Form F-4, which was
filed with the SEC by CCEP. You should not place undue reliance on
forward-looking statements, which speak only as of the date they
are made. CCEP does not undertake any obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise. CCEP assumes no
responsibility for the accuracy and completeness of any
forward-looking statements. Any or all of the forward-looking
statements contained in this filing and in any other of its
respective public statements may prove to be incorrect.
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