NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Note 1
GENERAL INFORMATION AND BASIS OF PREPARATION
Coca-Cola European Partners plc (“CCEP”, the “Company”, the “Group”) was formed on 28 May 2016 through the Merger of the legacy businesses of Coca-Cola Enterprises, Inc., (“CCE”), Coca-Cola Iberian Partners (“Iberia”, “CCIP”) and Coca-Cola Erfrischungsgetränke (“Germany”, “CCEG”). 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. CCEP serves a consumer population of over 300 million across Western Europe, including Andorra, Belgium, continental France, Germany, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain and Sweden. CCEP is a public limited company incorporated in the United Kingdom (“UK”), where it is domiciled. The Company’s shares are listed and traded on the Euronext Amsterdam, the New York Stock Exchange, the Euronext London (Standard Listing) and various Spanish stock exchanges. The address of the Company’s registered office is Coca-Cola European Partners plc, Bakers Road, Uxbridge, Middlesex UB8 1EZ, United Kingdom.
CCEP operates in the highly competitive beverage industry and faces strong competition from other general and specialty beverage companies. The Company’s financial results are affected by a number of factors, including, but not limited to, consumer preferences, cost to manufacture and distribute products, foreign currency exchange rates, general economic conditions, local and national laws and regulations, raw material availability and weather patterns.
Upon the consummation of the Merger, the historical financial statements of CCE became CCEP’s historical financial statements. Therefore, the financial results presented herein for
2014
,
2015
and
2016
prior to the date of the Merger relate to CCE and its consolidated subsidiaries and the period after the Merger refers to the financial results of CCEP. CCE was incorporated in the United States of America (“U.S.”), where it was domiciled. Its main registered office was 2500 Windy Ridge Parkway, Atlanta, Georgia 30339, United States of America.
Refer to Note 2 for further details about th
e Merger to form CCEP.
Basis of Preparation
The
interim financial statements
of CCEP and its consolidated subsidiaries have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (“FCA”) and with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”). For all periods up to and including the year ended
31 December 2015
, CCE, as the predecessor to the Company, previously prepared its financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). For the financial year ended
31 December 2016
, CCEP will prepare its first annual consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, which will include financial information prior to the Merger for the predecessor. There are currently no substantial differences between IFRS as adopted by the European Union and IFRS as issued by the International Accounting Standards Board. The Company’s date of transition to IFRS was 1 January 2014 (“transition date”), at which date the Company prepared its opening IFRS statement of financial position. The financial information presented herein is unaudited and has been prepared in accordance with the Company’s accounting policies based on IFRS that are expected to apply for the year ended
31 December 2016
. Refer to Note 18 for further details of how CCE adopted IFRS.
The
interim financial statements
were authorised for issue by the Directors on 22 September
2016
and reflect a presentation of the operating results of the Company and its subsidiaries for the periods presented. These
interim financial statements
do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The information as at
1 January 2014
and for the years ended
31 December 2015
and
31 December 2014
are the results of operations and financial position of CCEP’s predecessor, CCE, which was incorporated in the U.S.
Reporting Periods
In this interim financial report, CCEP, as the successor company to CCE, is reporting the results from operations of CCE for the period
1 January 2014
to 27 May 2016 and the results of operations for CCEP from
28 May 2016
to
1 July 2016
.
The Company’s financial year ends on
31 December
. For interim half-yearly reporting convenience, the first six month period closes on the Friday closest to the end of the interim calendar period. There was one less selling day in the
six months ended 1
July 2016
versus the
six months ended 3 July 2015
, and there will be one additional selling day in the second
six months
of
2016
versus the second
six months
of
2015
(based upon a standard
five
-day selling week).
The following table summarises the number of selling days for the first six months and the second six months of the years ended
31 December 2016
and
2015
(based on a standard five-day selling week):
|
|
|
|
|
|
|
|
|
|
|
First Six Months
|
|
Second Six Months
|
|
Full Year
|
2016
|
131
|
|
|
130
|
|
|
261
|
|
2015
|
132
|
|
|
129
|
|
|
261
|
|
Change
|
(1
|
)
|
|
1
|
|
|
0
|
|
Trading Seasonality
Operating results for the first half of 2016 may not be indicative of the results expected for the year ending
31 December 2016
as sales of the Company’s products are seasonal, with the second and third quarters accounting for higher unit sales of the Company’s products than the first and fourth quarters. The seasonality of the Company’s sales volume, combined with the accounting for fixed costs such as depreciation, amortisation, rent and interest expense, impacts the Company’s results for the first half of the year. Additionally, year-over-year shifts in holidays, selling days and weather patterns can impact the Company’s results on an annual or half-yearly basis.
Going Concern Basis
The Company meets its day-to-day working capital requirements through cash flows from operations, public and private issuances of debt and its euro commercial paper programme. The Company’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Company expects to be able to operate within the level of its current facilities. After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the
interim financial statements
.
Accounting Policies
The accounting policies described within the Company’s
interim financial statements
have been adopted consistently for the periods presented, except as noted below.
|
|
•
|
A number of elections were made as part of first-time adoption of IFRS as at
1 January 2014
that resulted in some differences in the application of accounting policies compared to the policies described elsewhere in the Company’s
interim financial statements
. Refer to Note 18 for further details about the Company’s IFRS Transition Elections.
|
|
|
•
|
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.
|
Significant Judgments and Estimates
The preparation of the
interim financial statements
requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these
interim financial statements
, the significant judgments made in applying the Company’s accounting policies and the key sources of estimation uncertainty were applied consistently across the annual and interim periods, with the exception of changes in estimates that are required in determining the provision for income taxes.
The principal estimates and judgments that have a significant effect on the amounts recognised in the
interim financial statements
are as follows:
Defined Benefit Pension Plan Cost and Obligation
The determination of the pension and other post-retirement benefits cost and obligation is based on assumptions determined with independent actuarial advice. The assumptions include discount rate, salary rate of inflation, mortality rates, retirement patterns and turnover rates. Refer to Note 10 for further details about the Company’s defined benefit pension plan cost and obligation.
Customer Marketing Programmes and Sales Incentives
The Company participates in various programmes and arrangements with customers designed to increase the sale of products. Among the programmes are arrangements under which allowances can be earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programmes.
Under customer programmes and arrangements that require sales incentives to be paid in advance, the Company amortises the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, the Company accrues the estimated amount to be paid based on the programme’s contractual terms, expected customer performance and/or estimated sales volume.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When some or all of a provision is expected to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the
Condensed Consolidated Interim Income Statement
net of any reimbursement. Refer to Note 15 for further details about provisions recorded.
Useful Lives of Franchise Intangible Assets
The Company has assigned indefinite lives to its franchise agreements with The Coca-Cola Company (“TCCC”) after evaluating the contractual provisions of the franchise agreements, the Company’s mutually beneficial relationship with TCCC and the history of renewals for franchise agreements. Refer to Note 5 for further details about the judgment regarding the lives of franchise agreements.
Impairment of Intangible Assets and Goodwill
Determining whether goodwill and intangible assets with indefinite lives are impaired requires an estimation of the value in use of the cash-generating units (“CGU”) to which the goodwill or intangible asset has been allocated. The value in use calculation requires an estimate of the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value. Refer to Note 5 for further details about the impairment of goodwill and intangible assets with indefinite lives.
Taxes
The Company operates in many countries and is subject to taxes in numerous jurisdictions. Significant judgment is required in determining the provision for taxes as the tax treatment is often by its nature complex and cannot be finally determined until a formal resolution has been reached with the relevant tax authority which may take several years to conclude. Amounts provided are accrued based on management’s interpretation of country specific tax laws and the likelihood of settlement. Actual liabilities could differ from the amount provided which could have a consequent adverse impact on the financial information of the Company. Further significant judgment is required in determining whether a deferred tax asset is recoverable and thus recognised. This is based on management’s expectations with regard to taxable temporary differences and forecasts of future taxable profits. Refer to Note 13 for further details about income taxes.
Business Combinations
On the acquisition of a company or business, a determination of the fair value of the assets acquired and liabilities assumed, and the useful life of intangible assets and property, plant and equipment acquired is performed, which requires the application of judgment. Future events could cause assumptions to change which could have a significant impact on the Company’s financial results. Refer to Note 2 for further details about accounting for business combinations.
Note 2
BUSINESS COMBINATION
On
28 May 2016
, the Company acquired
100 per cent
of the issued and outstanding shares of CCE, CCIP, the bottling partner for TCCC for Spain, Portugal and Andorra and CCEG, a formerly wholly-owned subsidiary of TCCC, representing TCCC’s strategic bottling partner in Germany. The Merger was performed for strategic and growth opportunities. As at
28 May 2016
, each share of CCE common stock issued and outstanding immediately prior to the Merger was canceled and converted into the right to receive (1)
US$14.50
in cash, without interest and (2) one CCEP share. On a fully diluted basis, CCE shareholders received approximately
48 per cent
of issued CCEP shares. CCIP and CCEG shareholders received
34 per cent
and
18 per cent
, respectively, of the outstanding total CCEP shares.
The business combination is being accounted for under IFRS 3, “Business Combinations,” using the acquisition method. CCE was deemed to be the accounting acquirer, and CCIP and CCEG were deemed to be the accounting acquirees. Although CCE is the accounting acquirer, CCEP is the legal acquirer since CCEP issued shares to effect the Merger. Accordingly, the acquisition is being accounted for as a reverse acquisition whereby the assets acquired and liabilities assumed from CCIP and CCEG are recorded at fair value on the acquisition date, and the historical capital structure of CCE, the accounting acquirer, is restated to align with CCEP’s legal structure. Refer to Note 11 for further details about th
e equity accounts of CCEP.
The following table outlines the number of shares and total consideration transferred to CCIP and CCEG in exchange for their businesses, which was calculated based on the closing stock price of CCE common stock immediately prior to the acquisition date adjusted for the
US$14.50
return of capital to CCE shareholders and converted to Euro:
|
|
|
|
|
|
|
|
|
|
|
CCIP
|
|
CCEG
|
|
Total
|
CCEP shares issued (rounded, millions of shares)
|
166
|
|
|
88
|
|
|
254
|
|
CCE adjusted stock price as at 27 May 2016 (€)
|
33.33
|
|
|
33.33
|
|
|
33.33
|
|
Total consideration (€ million)
|
5,537
|
|
|
2,932
|
|
|
8,469
|
|
The provisional fair values of the assets and liabilities acquired as a result of the Merger are outlined in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
CCIP
|
|
CCEG
|
|
Total
|
|
|
€ million
|
|
€ million
|
|
€ million
|
Intangible assets
|
|
4,091
|
|
|
1,340
|
|
|
5,431
|
|
Goodwill
|
|
1,182
|
|
|
979
|
|
|
2,161
|
|
Property, plant and equipment
|
|
884
|
|
|
1,380
|
|
|
2,264
|
|
Deferred tax assets
|
|
91
|
|
|
—
|
|
|
91
|
|
Other non-current assets
|
|
5
|
|
|
23
|
|
|
28
|
|
Current tax assets
|
|
7
|
|
|
12
|
|
|
19
|
|
Inventories
|
|
198
|
|
|
177
|
|
|
375
|
|
Amounts receivable from TCCC
|
|
13
|
|
|
34
|
|
|
47
|
|
Trade accounts receivable
|
|
410
|
|
|
384
|
|
|
794
|
|
Cash and cash equivalents
|
|
135
|
|
|
14
|
|
|
149
|
|
Other current assets
|
|
210
|
|
|
21
|
|
|
231
|
|
Capital lease obligations, less current and other financial liabilities
|
|
(30
|
)
|
|
(40
|
)
|
|
(70
|
)
|
Employee benefit liabilities
|
|
(3
|
)
|
|
(89
|
)
|
|
(92
|
)
|
Non-current provisions
|
|
(7
|
)
|
|
(80
|
)
|
|
(87
|
)
|
Deferred tax liabilities
|
|
(1,110
|
)
|
|
(393
|
)
|
|
(1,503
|
)
|
Other non-current liabilities
|
|
(1
|
)
|
|
(2
|
)
|
|
(3
|
)
|
Capital lease obligations, current and other financial liabilities
|
|
(4
|
)
|
|
(17
|
)
|
|
(21
|
)
|
Current provisions
|
|
—
|
|
|
(148
|
)
|
|
(148
|
)
|
Current tax liabilities
|
|
(17
|
)
|
|
(1
|
)
|
|
(18
|
)
|
Amounts payable to TCCC
|
|
(57
|
)
|
|
(157
|
)
|
|
(214
|
)
|
Trade and other payables
|
|
(460
|
)
|
|
(505
|
)
|
|
(965
|
)
|
Net assets acquired
|
|
5,537
|
|
|
2,932
|
|
|
8,469
|
|
Intangible assets include franchise intangible assets, customer relationships and capitalised software. The franchise intangible assets were valued using an income approach (discounted cash flow analysis). Whilst the agreements related to franchise intangible assets contain no automatic right of renewal, the Company believes that the interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by non-renewals ensures that these agreements will continue to be renewed and, therefore, are essentially perpetual. After evaluating the contractual provisions of the bottling agreements, the mutually beneficial relationship with TCCC and history of renewals, the Company has assigned indefinite lives to all such franchise intangible assets. Refer to Note 5 for further details about the Company’s intangible assets and goodwill.
Goodwill is attributable to the synergies of the combined business operations, new growth opportunities and workforce, and it is not expected to be deductible for tax purposes.
The operations of the acquired businesses are extensive and complex, and the initial accounting for the Merger is provisional at the end of the current reporting period. The Company is in the process of finalising the fair values for certain acquired assets, including inventory, property, plant and equipment and certain intangible assets. In addition, the Company is still gathering information about income taxes and deferred income tax assets and liabilities and other accrued liabilities based on facts that existed as at the date of the acquisition. Accordingly, the Company has recognised provisional amounts for these items. During the measurement period, which will not extend beyond
28 May 2017
, the Company will adjust the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as at the acquisition date that, if known, would have affected the measurement of the amounts recognised as at that date.
The fair value of acquired trade accounts receivable, net is
€410 million
and
€384 million
for CCIP and CCEG, respectively. The gross contractual amount related to these receivables is
€439 million
for CCIP, of which
€29 million
is expected to be uncollectible. The gross contractual amount for trade accounts receivable, net due is
€389 million
for CCEG, of which
€5 million
is expected to be uncollectible.
The Company recorded a fair value adjustment to increase the finished goods on hand at the time of the Merger by
€37 million
. This adjustment is included within cost of sales in the
Condensed Consolidated Interim Income Statement
for the
six months ended 1 July 2016
as the inventory was sold during the period. Additionally, the Company recorded a
€10 million
decrease to spare parts inventory, which is reflected in cost of sales as the related inventory is utilised.
CCIP contributed revenue of
€300 million
and
profit
of
€47 million
to the Company for the period from
28 May
to
1 July 2016
. CCEG contributed revenue of
€226 million
and a
loss
of
€13 million
to the Company for the period from
28 May
to
1 July 2016
. If the Merger had taken place at the beginning of the year, pro forma revenue and profit for CCEP for the
six months ended 1 July 2016
would have been
€5.2 billion
and
€43 million
, respectively.
Merger-related exceptional costs of
€78 million
and
€5 million
are included in administrative expenses and finance costs, respectively, in the
Condensed Consolidated Interim Income Statement
for the
six months ended 1 July 2016
. Cash payments for merger-related exceptional costs are included in operating cash flows in the
Condensed Consolidated Interim Statement of Cash Flows
.
Note 3
OPERATING SEGMENT
Description of Segment and Principal Activities
The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”), who evaluates performance and allocates resources. For management reporting purposes, the Company operates in one industry and has one operating segment. This segment derives its revenues from selling, producing and distributing beverages. The chief operating decision maker’s evaluation of this segment is based on consolidated results as presented in the
Condensed Consolidated Interim Income Statement
and
Condensed Consolidated Interim Statement of Comprehensive Income
. No single customer accounted for more than
10 per cent
of the Company’s revenue during the
six months ended 1 July 2016
and
3 July 2015
and for the years ended
31 December 2015
and
31 December 2014
.
The following table summarises revenue from external customers by geography, which is based on the origin of the sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
1 July 2016
|
|
3 July 2015
|
|
31 December 2015
|
|
31 December 2014
|
Revenue:
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Great Britain
|
1,018
|
|
|
1,139
|
|
|
2,364
|
|
|
2,139
|
|
France
|
926
|
|
|
968
|
|
|
1,817
|
|
|
1,841
|
|
Belgium/Luxembourg
|
443
|
|
|
466
|
|
|
914
|
|
|
943
|
|
Iberia
|
300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The Netherlands
|
250
|
|
|
251
|
|
|
491
|
|
|
516
|
|
Germany
|
226
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Norway
|
200
|
|
|
205
|
|
|
405
|
|
|
431
|
|
Sweden
|
179
|
|
|
170
|
|
|
338
|
|
|
347
|
|
Total
|
3,542
|
|
|
3,199
|
|
|
6,329
|
|
|
6,217
|
|
Segment Assets
Segment assets are allocated based on the operations of the segment and the physical location of the assets. The following table summarises non-current assets, other than financial instruments and deferred tax assets by geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2016
|
|
31 December 2015
|
|
31 December 2015
|
|
1 January 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Iberia
|
6,162
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Germany
|
3,724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Great Britain
|
2,291
|
|
|
2,579
|
|
|
2,491
|
|
|
2,386
|
|
France
|
761
|
|
|
759
|
|
|
750
|
|
|
735
|
|
Belgium/Luxembourg
|
578
|
|
|
579
|
|
|
591
|
|
|
605
|
|
Sweden
|
414
|
|
|
422
|
|
|
409
|
|
|
432
|
|
The Netherlands
|
331
|
|
|
325
|
|
|
312
|
|
|
307
|
|
Norway
|
270
|
|
|
257
|
|
|
272
|
|
|
293
|
|
Other unallocated
|
89
|
|
|
89
|
|
|
85
|
|
|
70
|
|
Total
|
14,620
|
|
|
5,010
|
|
|
4,910
|
|
|
4,828
|
|
Note 4
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing profit after taxes by the weighted average number of ordinary shares in issue and outstanding during the period. Diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities, principally stock options and restricted share units. Share-based payment awards that are contingently issuable upon the achievement of a specified market and/or performance conditions are included in the diluted earnings per share calculation in the period in which the condition is satisfied.
Antidilutive securities are excluded from the calculation of diluted earnings per share.
The following table summarises basic and diluted earnings per ordinary share calculations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
1 July 2016
|
|
3 July 2015
|
|
31 December 2015
|
|
31 December 2014
|
Profit after taxes attributable to equity shareholders (€ million)
|
210
|
|
|
237
|
|
|
513
|
|
|
484
|
|
Basic weighted average number of ordinary shares in issue
(A)
|
276
|
|
|
233
|
|
|
231
|
|
|
247
|
|
Effect of dilutive potential ordinary shares
|
7
|
|
|
4
|
|
|
4
|
|
|
5
|
|
Diluted weighted average number of ordinary shares in issue
(A)
|
283
|
|
|
237
|
|
|
235
|
|
|
252
|
|
Basic earnings per share (€)
|
0.76
|
|
|
1.01
|
|
|
2.23
|
|
|
1.96
|
|
Diluted earnings per share (€)
|
0.74
|
|
|
1.00
|
|
|
2.19
|
|
|
1.92
|
|
___________________________
|
|
(A)
|
The increase of the basic and diluted weighted average number of ordinary shares in issue as at
1 July 2016
is due to the share allocation to CCIP and CCEG of
34 per cent
and
18 per cent
, respectively, of the outstanding total CCEP shares. As at
1 July 2016
, the Company had
482,551,977
shares in issue and outstanding.
|
Note 5
INTANGIBLE ASSETS AND GOODWILL
Intangible Assets with Indefinite Lives
Intangible assets with indefinite lives acquired through business combination transactions are initially measured at fair value at the date of acquisition. These assets are not subject to amortisation but are tested for impairment at least annually at the CGU level or more frequently if facts and circumstances arise that would indicate an impairment may exist.
Franchise Intangible Assets
The Company’s franchise agreements contain performance requirements and convey the rights to distribute and sell products within specified territories. The Company’s agreements with TCCC for each of its territories have terms of
10
years and expire on
28 May 2026
, with each containing the right for the Company to request a
10
-year renewal. Whilst these agreements contain no automatic right of renewal beyond that date, the Company believes that its interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by nonrenewal ensure that these agreements will continue to be renewed and, therefore, are essentially perpetual. The Company has never had a franchise agreement with TCCC terminated due to nonperformance of the terms of the agreement or due to a decision by TCCC to terminate an agreement at the expiration of a term. After evaluating the contractual provisions of franchise agreements, the Company’s mutually beneficial relationship with TCCC and history of renewals, indefinite lives have been assigned to all of the Company’s franchise intangible assets.
Goodwill
Goodwill is initially measured as the excess of the total consideration transferred over the amount recognised for net identifiable assets acquired and liabilities assumed in a business combination. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in the
Condensed Consolidated Interim Income Statement
as a bargain purchase. Goodwill is not subject to amortisation; rather, it is tested annually for impairment at the CGU level or more frequently if events or changes in circumstances indicate that it might be impaired.
Intangible Assets with Finite Lives
Intangible assets with finite lives are measured at cost of acquisition or production and are amortised using the straight-line method over their respective estimated useful lives. Finite lived intangible assets are assessed for impairment whenever there is an indication that they may be impaired.
Internally Generated Software
The Company capitalises certain development costs associated with internally developed software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project, and any such software acquired as part of a business combination. When capitalised software is not integral to related hardware it is treated as an intangible asset; otherwise it is included within property, plant and equipment. The estimated useful lives of capitalised software is
5 to 10
years,
and the average remaining amortisation period is
5
years. Amortisation expense for capitalised software is included within administrative expenses and was
€13 million
and
€12 million
for the
six months ended 1 July 2016
and
3 July 2015
, respectively, and
€25 million
and
€19 million
for the years ended
31 December 2015
and
31 December 2014
, respectively.
Customer Relationships
The Company acquired certain customer relationships in connection with the acquisitions of the Norway and Sweden bottling operations from TCCC in 2010 and the acquisitions of CCIP and CCEG during the
six months ended 1 July 2016
. These customer relationships were recorded at their fair values on the date of acquisition, and they are amortised into administrative expenses over a life of 20 years. The average remaining useful life of the Company’s customer relationships as at
1 July 2016
is
19
years. Amortisation expense for these assets was
€2 million
and
€0.7 million
for the
six months ended 1 July 2016
and
3 July 2015
, respectively, and
€1 million
for each of the years ended
31 December 2015
and
31 December 2014
.
Impairment Testing
Each CGU is tested for impairment at least annually as at the first day of the fourth quarter or whenever there is an indication of impairment. At each testing date, each CGU’s recoverable amount, the greater of value in use and fair value less costs to sell, is compared to its carrying value. To determine value in use for a CGU, estimated future cash flows are discounted to their present values using a pre-tax discount rate reflective of the current market conditions and risks specific to each CGU. If the carrying value of a CGU exceeds its recoverable amount, the carrying value of the CGU is reduced to its recoverable amount. Impairment charges other than those related to goodwill may be reversed in future periods if a subsequent test indicates that the recoverable amount has increased. Such recoveries may not exceed a CGU’s original carrying value less any depreciation that would have been recognised if no impairment charges were previously recorded. The Company has not recorded an impairment charge as a result of the
tests conducted in accordance with IAS 36, “Impairment of Assets”.
The following table summarises the movement in net book value for intangible assets and goodwill during the
six months ended 1 July 2016
:
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
Goodwill
|
|
|
€ million
|
|
€ million
|
Opening book value as at 1 January 2016
|
|
3,202
|
|
|
81
|
|
Additions
|
|
17
|
|
|
—
|
|
Additions - CCIP from the Merger
|
|
4,091
|
|
|
1,182
|
|
Additions - CCEG from the Merger
|
|
1,340
|
|
|
979
|
|
Amortisation expense
|
|
(15
|
)
|
|
—
|
|
Currency translation adjustments
|
|
(247
|
)
|
|
1
|
|
Closing book value as at 1 July 2016
|
|
8,388
|
|
|
2,243
|
|
Note 6
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Major property additions, replacements and betterments are capitalised, whilst maintenance and repairs that do not extend the useful life of an asset or add new functionality are expensed as incurred. Land is not depreciated, as it is considered to have an indefinite life. For all property, plant and equipment, other than land, depreciation is recorded using the straight-line method over the respective estimated useful lives as follows:
|
|
|
Building and improvements
|
10 to 50 years
|
Machinery, equipment and containers
|
3 to 30 years
|
Cold-drink equipment
|
3 to 13 years
|
Vehicle fleet
|
3 to 20 years
|
Furniture and office equipment
|
3 to 10 years
|
Gains or losses arising on the disposal or retirement of an asset are determined as the difference between the carrying amount of the asset and any proceeds from its sale. Major refurbishment costs are capitalised as part of total acquisition cost. Routine
maintenance and repair costs are expensed as incurred. Leasehold improvements are amortised using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement.
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, an impairment test is performed to estimate the potential loss of value that may reduce the recoverable amount of the asset to below its carrying amount. Useful lives and residual amounts are reviewed annually, and adjustments are made prospectively as required.
For property, plant and equipment, the Company assesses annually whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, a previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised and only up to the recoverable amount or the original carrying amount net of depreciation that would have been incurred had no impairment losses been recognised.
T
he following table summarises the movement in net book value for property, plant and equipment during the
six months ended 1 July 2016
:
|
|
|
|
|
Total
|
|
€ million
|
Opening net book value at 1 January 2016
|
1,692
|
|
Additions
|
162
|
|
Additions - CCIP from the Merger
|
884
|
|
Additions - CCEG from the Merger
|
1,380
|
|
Disposals
|
(8
|
)
|
Depreciation expense
|
(118
|
)
|
Currency translation adjustments
|
(65
|
)
|
Closing net book value at 1 July 2016
|
3,927
|
|
Note 7
FAIR VALUES
Fair Value Measurements
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
|
|
•
|
Level 1—Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2—Observable inputs other than quoted prices included in Level 1. The Company values assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; or
|
|
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
The fair values of the Company’s cash and cash equivalents, trade accounts receivable, amounts receivable from TCCC, trade and other payables and amounts payable to TCCC approximate their carrying amounts due to their short-term nature.
The fair values of the Company’s borrowings are estimated based on borrowings with similar maturities and credit quality and current market interest rates. These are categorised within Level 1 of the fair value hierarchy as the Company uses quoted market prices in assessing their fair values. The total fair value of borrowings as at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
,
was
€7.1 billion
,
€3.6 billion
,
€3.4 billion
and
€2.8 billion
, respectively. This compared to the carrying value of total borrowings as at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
of
€6.9 billion
,
€3.5 billion
,
€3.3 billion
and
€2.8 billion
, respectively. Refer to Note 9 for further details regarding the Company’s borrowings.
The Company’s derivative assets and liabilities are carried at fair value, which is determined using a variety of valuation techniques, depending on the specific characteristics of the hedging instrument, taking into account credit risk. The fair value of its derivative contracts (including forwards, options, cross-currency swaps and interest rate swaps) is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and, therefore, the derivative contracts have been classified as Level 2. Inputs used in these standard valuation models include the applicable spot, forward and discount rates. The standard valuation model for the option contracts also includes implied volatility, which is specific to individual options and is based on rates quoted from a widely used third-party resource. As at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
,
the total value of derivative assets was
€42 million
,
€42 million
,
€67 million
and
€10 million
, respectively. As at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
,
the total value of derivative liabilities was
€13 million
,
€68 million
,
€60 million
and
€64 million
, respectively. Refer to Note 8 for further details about the Company’s derivatives.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the end of each reporting period. There have been no transfers between Level 1 and Level 2 during the periods presented.
Note 8
HEDGING ACTIVITIES
Derivative Financial Instruments
The Company utilises derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations. The primary risks that it seeks to manage through the use of derivative financial instruments include currency exchange risk, commodity price risk and interest rate risk. All derivative financial instruments are recorded at fair value on the
Condensed Consolidated Interim Statement of Financial Position
. The Company does not use derivative financial instruments for trading or speculative purposes. Whilst certain of the derivative financial instruments are designated as hedging instruments, the Company also enters into derivative financial instruments that are designed to hedge a risk but are not designated as hedging instruments (referred to as an “economic hedge” or a “non-designated hedge”). Changes in the fair value of these non-designated hedging instruments are recognised in the line item on the
Condensed Consolidated Interim Income Statement
that is consistent with the nature of the hedged risk. The Company is exposed to counterparty credit risk on all of its derivative financial instruments. It has established and maintained strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better. It continuously monitors counterparty credit risk and utilises numerous counterparties to minimise its exposure to potential defaults. It does not require collateral under these agreements.
Cash Flow Hedges
The Company uses cash flow hedges to mitigate its exposure to changes in cash flows attributable to currency fluctuations associated with certain forecasted transactions, including purchases of raw materials, finished goods and services denominated in non-functional currencies, the receipt of interest and principal on intercompany loans denominated in non-functional currencies and the payment of interest and principal on debt issuances in a non-functional currency. Effective changes in the fair value of these cash flow hedging instruments are recognised in the hedging reserve on the
Condensed Consolidated Interim Statement of Financial Position
. The effective changes are then recognised in the period that the forecasted purchases or payments impact earnings within the line item on the
Condensed Consolidated Interim Income Statement
that is consistent with the nature of the underlying hedged item. Any changes in the fair value of these cash flow hedges that are the result of ineffectiveness are recognised immediately in the line item on the
Condensed Consolidated Interim Income Statement
that is consistent with the nature of the underlying hedged item. Cash flows from the cash flow hedges in relation to the foreign currency contracts as at
1 July 2016
are expected to occur and affect profit or loss between
2016
and
2021
.
Non-designated Hedges
The Company periodically enters into derivative instruments that are designed to hedge various risks but are not designated as hedging instruments. These hedged risks include those related to commodity price fluctuations associated with forecasted purchases of aluminium, sugar, components of PET (plastic) and vehicle fuel. At times, it also enters into other short-term non-designated hedges to mitigate its exposure to changes in cash flows attributable to currency fluctuations associated with short-term intercompany loans and certain cash equivalents denominated in non-functional currencies. Changes in the fair value of outstanding non-designated hedges are recognised each reporting period in the line item on the
Condensed Consolidated Interim Income Statement
that is consistent with the nature of the hedged risk.
Net Investment Hedges
The Company has entered into foreign currency forwards, options and foreign currency denominated borrowings designated as net investment hedges of its foreign subsidiaries. Changes in the fair value of these hedges resulting from currency exchange rate changes are recognised in equity on the
Condensed Consolidated Interim Statement of Financial Position
to offset the change in the carrying value of the net investment being hedged. Any changes in the fair value of these hedges that are the result of ineffectiveness are recognised immediately after operating profit on the
Condensed Consolidated Interim Income Statement
. All outstanding net investment hedges were settled prior to the Merger. Although the Company has no net investment hedges in place as at
1 July 2016
, it continues to monitor its exposure to currency exchange rates and may enter into future net investment hedges as a result of volatility in the functional currencies of certain of its subsidiaries.
The following table illustrates the derivative instruments outstanding and their respective location in the
Condensed Consolidated Interim Statement of Financial Position
as at the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2016
|
|
31 December 2015
|
|
31 December 2014
|
|
1 January 2014
|
Hedging Instrument
|
|
Location – Statement of Financial Position
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Non-current derivative assets
|
|
9
|
|
|
16
|
|
|
—
|
|
|
—
|
|
Foreign currency contracts
|
|
Current derivative assets
|
|
30
|
|
|
17
|
|
|
45
|
|
|
4
|
|
Total
|
|
|
|
39
|
|
|
33
|
|
|
45
|
|
|
4
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Non-current derivative assets
|
|
—
|
|
|
6
|
|
|
—
|
|
|
5
|
|
Foreign currency contracts
|
|
Current derivative assets
|
|
1
|
|
|
2
|
|
|
20
|
|
|
—
|
|
Commodity contracts
|
|
Current derivative assets
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
Total
|
|
|
|
3
|
|
|
9
|
|
|
22
|
|
|
6
|
|
Total Assets
|
|
|
|
42
|
|
|
42
|
|
|
67
|
|
|
10
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Non-current derivative liabilities
|
|
—
|
|
|
2
|
|
|
10
|
|
|
32
|
|
Foreign currency contracts
|
|
Current derivative liabilities
|
|
1
|
|
|
25
|
|
|
21
|
|
|
18
|
|
Total
|
|
|
|
1
|
|
|
27
|
|
|
31
|
|
|
50
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Non-current derivative liabilities
|
|
—
|
|
|
6
|
|
|
—
|
|
|
5
|
|
Commodity contracts
|
|
Non-current derivative liabilities
|
|
4
|
|
|
13
|
|
|
4
|
|
|
—
|
|
Foreign currency contracts
|
|
Current derivative liabilities
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
Commodity contracts
|
|
Current derivative liabilities
|
|
8
|
|
|
22
|
|
|
7
|
|
|
9
|
|
Total
|
|
|
|
12
|
|
|
41
|
|
|
29
|
|
|
14
|
|
Total Liabilities
|
|
|
|
13
|
|
|
68
|
|
|
60
|
|
|
64
|
|
All derivative instruments are classified as Level 2 within the fair value hierarchy.
Note 9
BORROWINGS AND FINANCE LEASES
Borrowings
Borrowings are recognised at amortised cost, net of issuance costs incurred, using the effective interest rate method. Amortisation of transaction costs, premiums and discounts is recognised as part of finance costs within the
Condensed Consolidated Interim Income Statement
.
Finance Leases
Finance leases are recognised when the Company leases property, plant and equipment and has substantially all the risks and rewards of ownership. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments. The corresponding lease obligations, net of finance charges, are included in borrowings, and the interest element of the finance cost is charged to finance costs within the
Condensed Consolidated Interim Income Statement
over the lease period. Property, plant and equipment acquired in connection with a finance lease is depreciated over the shorter of the useful life of the asset or the lease term. The Company’s interests in assets acquired under finance leases are included in property, plant and equipment and primarily relate to buildings and fleet assets. Amortisation of finance lease assets is included in depreciation expense.
Borrowings Outstanding
The following table summarises the Company’s borrowings as at the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2016
|
|
31 December 2015
|
|
31 December 2014
|
|
1 January 2014
|
|
|
Balance
|
|
Rates
(A)
|
|
Balance
|
|
Rates
(A)
|
|
Balance
|
|
Rates
(A)
|
|
Balance
|
|
Rates
(A)
|
|
|
€ million
|
|
%
|
|
€ million
|
|
%
|
|
€ million
|
|
%
|
|
€ million
|
|
%
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Eurobond notes
(B,D)
|
|
4,312
|
|
|
1.6
|
|
2,132
|
|
|
2.4
|
|
|
1,635
|
|
|
2.6
|
|
1,386
|
|
|
2.5
|
Unsecured U.S. Dollar bond notes
|
|
958
|
|
|
3.7
|
|
980
|
|
|
3.7
|
|
|
1,084
|
|
|
3.4
|
|
1,297
|
|
|
3.1
|
Term loan
(C)
|
|
996
|
|
|
0.7
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Finance lease obligations
(G)
|
|
78
|
|
|
n/a
|
|
10
|
|
|
n/a
|
|
|
12
|
|
|
n/a
|
|
15
|
|
|
n/a
|
Other borrowings
|
|
1
|
|
|
n/a
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Total non-current borrowings
|
|
6,345
|
|
|
|
|
3,122
|
|
|
|
|
2,731
|
|
|
|
|
2,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured U.S. Dollar bank notes
(E,F)
|
|
225
|
|
|
2.0
|
|
230
|
|
|
2.0
|
|
|
392
|
|
|
2.1
|
|
73
|
|
|
0.6
|
Short-term borrowings
|
|
77
|
|
|
0.1
|
|
183
|
|
|
0.6
|
|
|
121
|
|
|
0.5
|
|
—
|
|
|
—
|
Credit facility
|
|
200
|
|
|
0.3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Finance lease obligations
(G)
|
|
25
|
|
|
n/a
|
|
5
|
|
|
n/a
|
|
|
10
|
|
|
n/a
|
|
8
|
|
|
n/a
|
Other borrowings
|
|
2
|
|
|
n/a
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Total current borrowings
|
|
529
|
|
|
|
|
418
|
|
|
|
|
523
|
|
|
|
|
81
|
|
|
|
___________________________
|
|
(A)
|
These rates represent the weighted average interest rates or effective interest rates on the balances outstanding, as adjusted for the effects of interest rate swap agreements, if applicable.
|
|
|
(B)
|
To finance the return of capital to CCE shareholders in connection with the Merger, the Company issued
€2.2 billion
Eurobond notes with a weighted-average interest rate of
0.9 per cent
due between
November 2017 and May 2028
. Unamortised discounts and capitalised financing fees related to these borrowings totaled
€12 million
and
€10 million
as at
1 July 2016
, respectively.
|
|
|
(C)
|
To finance the return of capital to CCE shareholders in connection with the Merger, the Company obtained a
€1 billion
,
floating rate
bank term loan with annual payments due each May until
2021
. Unamortised capitalised financing fees related to these borrowings totaled
€4 million
as at
1 July 2016
.
|
|
|
(D)
|
In
March 2015
, CCE issued
€500 million
,
1.9 per cent
notes due
2030
.
|
|
|
(E)
|
In September 2015,
US$475 million
,
2.1 per cent
CCE notes matured and were paid in full.
|
|
|
(F)
|
In February 2014,
US$100 million
,
floating
-rate notes matured and were paid in full.
|
|
|
(G)
|
These amounts represent the present values of the Company’s minimum finance lease obligations.
|
Credit Facilities
The Company has amounts available for borrowing under a
€1.5 billion
multi-currency credit facility with a syndicate of
ten
banks. This credit facility matures in
2021
and is for general corporate purposes, including serving as a backstop to the Company’s commercial paper programme and supporting the Company’s working capital needs. Based on information currently available, there is no indication that the financial institutions participating in this facility would be unable to fulfill their commitments to the Company as at the date of this report. The Company’s current credit facility contains no financial covenants that would impact its liquidity or access to capital. At
1 July 2016
, the Company had
€200 million
drawn on its credit facility. CCE previously held a multi-currency credit facility for
US$1 billion
with a syndicate of eight banks, which was terminated prior to the Merger. The Company did not have any amounts drawn on this facility for any period presented in the Company’s
Condensed Consolidated Interim Statement of Financial Position
.
Covenants
The credit facility, term loan and outstanding notes as at
1 July 2016
contain no financial covenants.
Prior to the Merger, CCE’s credit facility and outstanding notes contained various provisions that, among other things, required limitations to the incurrence of certain liens or encumbrances in excess of defined amounts. Additionally, the credit facility required compliance with a minimum interest coverage ratio. CCE was in compliance with these requirements as at
31 December 2015
,
31 December 2014
and
1 January 2014
.
Note 10
EMPLOYEE BENEFIT PLANS
The cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. All remeasurements of the defined benefit obligation such as actuarial gains and losses and return on plan assets are recognised directly in other comprehensive income. Remeasurements recognised in other comprehensive income are reflected immediately in retained earnings and will not be reclassified to profit or loss. Service costs are presented within cost of sales, selling and distribution expenses and administrative expenses in the
Condensed Consolidated Interim Income Statement
. Past service costs are recognised immediately within cost of sales, selling and distribution expenses and administrative expenses in the
Condensed Consolidated Interim Income Statement
. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan asset. Net interest cost is presented within finance costs or finance income, as applicable, in the
Condensed Consolidated Interim Income Statement
. The defined benefit obligation recognised in the
Condensed Consolidated Interim Statement of Financial Position
represents the present value of the estimated future cash outflows using interest rates of high quality corporate or government bonds, depending on whether or not there is a deep market for corporate bonds in the relevant country, which have terms to maturity approximating the terms of the related liability.
Benefit Costs
The Company sponsors a number of defined benefit pension plans. The following table summarises the expense related to pension plans recognised in the
Condensed Consolidated Interim Income Statement
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
1 July 2016
|
|
3 July 2015
|
|
31 December 2015
|
|
31 December 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Service cost
|
25
|
|
|
26
|
|
|
51
|
|
|
42
|
|
Past service cost
|
—
|
|
|
1
|
|
|
3
|
|
|
—
|
|
Net interest cost (income)
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Administrative expenses
|
1
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Total cost
|
27
|
|
|
28
|
|
|
57
|
|
|
43
|
|
Retirement Benefit Status
The following table summarises the retirement benefit status of pension plans as at the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2016
|
|
31 December 2015
|
|
31 December 2014
|
|
1 January 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Net benefit status:
|
|
|
|
|
|
|
|
Defined benefit obligation
|
(1,711
|
)
|
|
(1,493
|
)
|
|
(1,335
|
)
|
|
(1,079
|
)
|
Fair value of assets
|
1,576
|
|
|
1,369
|
|
|
1,265
|
|
|
1,067
|
|
Net benefit status
|
(135
|
)
|
|
(124
|
)
|
|
(70
|
)
|
|
(12
|
)
|
Retirement benefit surplus
|
11
|
|
|
—
|
|
|
33
|
|
|
58
|
|
Retirement benefit obligation
|
(146
|
)
|
|
(124
|
)
|
|
(103
|
)
|
|
(70
|
)
|
The change in the benefit status of the Company’s plans from
31 December 2015
to
1 July 2016
was mainly due to the acquisition of CCEG’s pension plan through the Merger (refer to Note 2). Approximately
€146 million
of our net pension liability as at 1 July 2016 is in a non-current liability balance and included within the Employee Benefit Liabilities on the
Condensed Consolidated Interim Statement of Financial Position
.
Contributions
Contributions to pension plans totaled
€20 million
and
€22 million
during the
six months ended 1 July 2016
and
3 July 2015
and
€47 million
and
€38 million
for the years ended
31 December 2015
and
31 December 2014
, respectively. The Company expects to make contributions of
€43 million
for the full year ending
31 December 2016
.
Other Employee Benefit Liabilities
In Germany, the Company also has an early retirement programme designed to create an incentive for employees, within a certain age group, to transition from (full or part-time) employment into retirement before their legal retirement age. The non-current portion of these liabilities totaled
€90 million
and is included within Employee Benefit Liabilities on the
Condensed Consolidated Interim Statement of Financial Position
.
Note 11
EQUITY
Share Capital
The Company is authorised to issue
643,098,494
ordinary shares of CCEP and has
482,551,977
shares in issue and outstanding as at
1 July 2016
. Shares in issue have one voting right each and no restrictions related to dividends or return of capital.
Immediately prior to the Merger on
28 May 2016
, there were
228,244,244
shares of
US$0.01
par value of CCE ordinary shares, which included net issuances of
908,456
related to share-based payment awards from
1 January 2016
through
27 May 2016
. In connection with the Merger as described in Note 2, all CCE shares were canceled and replaced with ordinary shares of CCEP. Additionally, CCEP issued
166,128,987
and
87,950,640
ordinary shares to CCIP and CCEG, respectively, as consideration to acquire their bottling operations. As at
1 July 2016
, ordinary shares have a nominal value of
€0.01
per share. Subsequent to the Merger, the Company issued an additional
228,106
shares related to share-based payment awards.
Share Premium
Under the Companies Act of 2006, the amount reflected in share premium for a reverse acquisition is equal to the total consideration transferred in excess of nominal value for the accounting acquirer. As all shares of CCE were canceled and replaced with shares in CCEP, amounts recorded to the share premium account represent the excess over nominal value of
€0.01
for the
228,244,244
issued to CCE shareholders on
28 May 2016
based on the adjusted closing price of CCE ordinary shares of
€33.33
at the time of the Merger. As CCE is the accounting acquirer, its net assets remain at book value; therefore, the Company recorded a corresponding reduction to reverse acquisition reserves for this amount. Furthermore, on 22 June 2016, the Company received approval from the UK High Court of Justice to convert
€7.5 billion
of its undistributable profits into distributable profits. This resulted in the reduction to the share premium account of
€7.5 billion
and a corresponding increase to retained earnings.
Merger Reserves
The consideration transferred to acquire CCIP and CCEG qualified for merger relief under the UK Companies Act of 2006. As such, the excess consideration transferred over nominal value was required to be excluded from the share premium account and recorded to merger reserves. The cumulative balance of
€8.47 billion
includes the consideration transferred in excess of nominal value of
€0.01
for CCIP and CCEG of
€5.54 billion
and
€2.93 billion
, respectively.
Reverse Acquisition Reserves
As noted above CCE is the accounting acquirer and the Company established a reverse acquisition reserves account to ensure that CCE’s net assets remained at net book value. The balance in reverse acquisition reserves reflects reductions to equity for the consideration transferred to CCE shareholders, which includes CCEP share issuances of
€8 billion
and the return of capital to CCE shareholders in the form of a cash payment of
€3 billion
in connection with the Merger.
Other Reserves
The following table outlines the balances in other reserves as at the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July 2016
|
|
31 December 2015
|
|
31 December 2014
|
|
1 January 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Cash flow hedge reserve
|
15
|
|
|
(3
|
)
|
|
(14
|
)
|
|
(6
|
)
|
Net investment hedge reserve
|
170
|
|
|
214
|
|
|
126
|
|
|
—
|
|
Foreign currency translation adjustment reserve
|
(545
|
)
|
|
(391
|
)
|
|
(206
|
)
|
|
—
|
|
Total other reserves
|
(360
|
)
|
|
(180
|
)
|
|
(94
|
)
|
|
(6
|
)
|
Included within other reserves are derivatives and foreign currency translation reserves. Key movements, including the tax affects, in these accounts from the
1 January 2014
through
1 July 2016
are included within the
Condensed Consolidated Interim Statement of Comprehensive Income
.
Dividends
During the
six months ended 1 July 2016
, two dividend payments were made on previously outstanding CCE ordinary shares totaling
US$136 million
, or
€122 million
based on a dividend rate of
US$0.30
per share. As at the date of this report, the CCEP Board of Directors authorised a dividend of €0.17 to be paid to CCEP shareholders in October 2016.
Treasury Shares
Immediately prior to the Merger, CCE had authorisations from the CCE Board of Directors to repurchase ordinary shares up to
US$1 billion
. CCE completed its planned share repurchases during the second half
of 2015
and no additional repurchases were made in
2016
. As part of the Merger agreement, the
128,993,430
shares held in treasury on the acquisition date, with a total cost of
€3.3 billion
, were canceled. Since the Merger, there have been no share repurchases and there has been no resolution approved by the Directors to repurchase outstanding ordinary shares of CCEP.
Note 12
RELATED PARTY TRANSACTIONS
Transactions with TCCC
As at
1 July 2016
,
18 per cent
of the total outstanding ordinary shares in the Company were indirectly owned by TCCC and TCCC exhibits significant influence over the Company, as defined by IAS 24, “Related Party Disclosures”. The Company is a key bottler of TCCC products and has entered into licensing agreements with TCCC to sell, produce and distribute products of TCCC within the Company’s territories. The Company purchases concentrate from TCCC and also receives marketing funding to help promote the sale of TCCC products. Franchise agreements with TCCC for each of the Company’s territories extend through
28 May 2026
, with terms of
10
years, with each containing the right for the Company to request a
10
-year renewal. Additionally, two of the Company’s seventeen Directors were nominated by, and are employees of, TCCC.
The following table summarises the transactions with TCCC that directly impacted the
Condensed Consolidated Interim Income Statement
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
1 July 2016
|
|
3 July 2015
|
|
31 December 2015
|
|
31 December 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Amounts affecting revenue:
|
|
|
|
|
|
|
|
Fountain syrup and packaged product sales
|
14
|
|
|
6
|
|
|
13
|
|
|
13
|
|
Amounts affecting cost of sales:
|
|
|
|
|
|
|
|
Purchases of concentrate, syrup, mineral water and juice
|
(1,031
|
)
|
|
(932
|
)
|
|
(1,777
|
)
|
|
(1,746
|
)
|
Purchases of finished products
|
(17
|
)
|
|
(21
|
)
|
|
(36
|
)
|
|
(37
|
)
|
Marketing support funding earned
|
104
|
|
|
88
|
|
|
181
|
|
|
167
|
|
Total amounts affecting cost of sales
|
(944
|
)
|
|
(865
|
)
|
|
(1,632
|
)
|
|
(1,616
|
)
|
Marketing Support Funding Earned
The Company and TCCC engage in a variety of marketing programmes to promote the sale of TCCC products in territories in which the Company operates. Amounts to be paid to the Company by TCCC under the programmes are generally determined annually and are periodically reassessed as the programmes progress. Under the licensing agreements, TCCC is under no obligation to participate in the programmes or continue past levels of funding in the future. The amounts paid and terms of similar programmes with other franchises may differ. Marketing support funding programmes granted to the Company provide financial support principally based on product sales or upon the completion of stated requirements and are intended to offset a portion of the costs of the programmes.
Repayment of Acquired Loan
At the time of the Merger, the Company assumed a non-interest bearing loan with Atlantic Industries, a subsidiary of TCCC, for the amount of
€73 million
. This loan was fully repaid prior to
1 July 2016
.
Terms and Conditions of Transactions with TCCC
Outstanding balances are unsecured, interest free and are generally settled in cash. There have been no guarantees provided or received for any TCCC receivables or payables. Receivables from TCCC are considered to be recoverable and no expense was incurred as a result of outstanding receivables due from TCCC for the
six months ended 1 July 2016
,
six months ended 3 July 2015
or years ended
31 December 2015
and
31 December 2014
.
Transactions with Cobega Companies
As a result of the consummation of the Merger, Cobega S.A., who previously owned 56 per cent of CCIP, indirectly owned
19 per cent
of the total outstanding ordinary shares of the Company as at
1 July 2016
. Additionally, five of the Company’s seventeen Directors, including the Chairman, were nominated by CCIP, three of whom are affiliated with Cobega S.A. As such, Cobega exhibits significant influence over the Company, as defined by IAS 24, “Related Party Disclosures”
.
During the
six months ended 1 July 2016
,
€1 million
,
€7 million
and
€1 million
were recognised within revenue, cost of sales and operating expenses, respectively, related to transactions with Cobega, S.A.
Transactions with Key Management Personnel
The following table summarises the amounts recognised as an expense during the reporting period related to key management personnel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
1 July 2016
|
|
3 July 2015
|
|
31 December 2015
|
|
31 December 2014
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Salaries and other short-term employee benefits
|
9.9
|
|
|
9.0
|
|
|
17.2
|
|
|
24.8
|
|
Post-employment benefits
|
0.2
|
|
|
0.3
|
|
|
0.4
|
|
|
0.2
|
|
Share-based payments
|
0.5
|
|
|
3.0
|
|
|
24.6
|
|
|
13.9
|
|
Termination benefits
|
5.5
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
Total
|
16.1
|
|
|
12.3
|
|
|
44.6
|
|
|
38.9
|
|
The Company did not have any loans with key management personnel and was not party to any other transactions with the key management personnel during the periods presented.
Note 13
TAXES
Income tax is determined by using the comprehensive balance sheet method of accounting for income taxes which recognises current and future tax consequences of transactions and events, and future tax consequences of future recovery or settlement of the carrying amount of assets and liabilities.
Current Income Tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be paid to or recovered from taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Company and/or its subsidiaries operate.
Current income tax relating to items recognised directly in equity is not recognised in the
Condensed Consolidated Interim Income Statement
. The Company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred Tax
Deferred tax is determined by identifying the temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except:
|
|
•
|
When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
|
|
|
•
|
In respect of taxable temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled by the Company and/or its subsidiaries and it is probable that the temporary differences will not reverse in the foreseeable future.
|
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised, except:
|
|
•
|
When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
|
|
|
•
|
In respect of deductible temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
|
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
The effective tax rate was
16 per cent
and
27 per cent
for the
six months ended 1 July 2016
and
3 July 2015
, respectively, and
20 per cent
and
26 per cent
for the years ended
31 December 2015
and
31 December 2014
, respectively.
Note 14
SHARE-BASED PAYMENT PLANS
CCE maintained and CCEP has established share-based payment plans that provide for the granting of non-qualified share options and restricted share units, some with performance and/or market conditions, to certain executive and management level employees. The Company believes that these awards better align the interests of its employees with the interests of its shareowners.
The Company recognises compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest. Expense is generally recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award. Grant-date fair value of share-based payment awards for each separately vesting tranche is determined using a Black-Scholes model, unless the awards are subject to market conditions, in which case a binomial-lattice model (e.g., Monte Carlo simulation model) is used. The Monte Carlo simulation model utilises multiple input variables to estimate the probability that market conditions will be achieved.
Share Options
Share options (1) are granted with exercise prices equal to or greater than the fair value of the Company’s stock on the date of grant; (2) generally vest in three annual tranches over a period of
36 months
and (3) expire
10 years
from the date of grant. Generally, when options are exercised, new shares will be issued rather than issuing treasury shares, if available. At the time of the Merger,
7,462,690
options to purchase CCE ordinary shares were converted to
9,900,496
options to purchase CCEP ordinary shares. The number of options, exercise price and grant date fair value were converted to ensure no change in the option holders’ intrinsic values or total cost to exercise. No changes were made to any option’s vesting schedule and no additional compensation expense was recognised as a result of this conversion.
Restricted Share Units
Restricted share units generally vest upon continued employment for a period of at least
36 months
and the attainment of certain market conditions and/or performance targets. Restricted share unit awards entitle the participant to hypothetical dividends, which are paid only if the restricted share units vest, but not voting rights. Unvested restricted share units are restricted as to disposition and subject to forfeiture. Upon completion of the Merger, each restricted share unit of CCE ordinary shares was converted into a cash payment of US$14.50 and one restricted share unit of CCEP ordinary shares. The cash payment and restricted share unit both vest concurrently and under the same schedule as the original CCE restricted share unit. These awards do not contain a net settlement feature for employee taxes; therefore, the liability of
€21 million
for tax withholdings on unvested restricted share units as at the Merger was reclassified into equity. Further, the Company determined that the total fair value of the cash payment and the new restricted share unit immediately after the Merger equaled the fair value of the original restricted share unit immediately prior to the Merger; thus no incremental expense was recognised. As at
1 July 2016
, the total accrued portion of the cash payment reclassified from equity and included within accrued compensation was
€16 million
. Additionally, CCE had a pre-existing deferred share based payment plan that was terminated in connection with the Merger. This resulted in the plan being converted and reclassified from an equity-settled plan to a cash-settled plan and shortly after the Merger approximately
€27 million
was distributed to the plan participants.
Note 15
PROVISIONS, COMMITMENTS AND CONTINGENCIES
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When some or all of a provision is expected to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the
Condensed Consolidated Interim Income Statement
net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Contingencies
The Company is involved in various legal proceedings and tax matters. Due to their nature, such legal proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and/or governmental actions. The probability of loss for such contingencies is assessed and accrued as a liability and/or disclosed, as appropriate.
Provisions
Movements in each class of provision during the
six months ended 1 July 2016
are set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Provision
|
|
Decommissioning Provision
|
|
Other Provisions
(A)
|
|
Total
(A)
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
Balance as at 1 January 2016
|
19
|
|
|
17
|
|
|
1
|
|
|
37
|
|
Acquired - CCIP from the Merger
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
Acquired - CCEG from the Merger
|
228
|
|
|
—
|
|
|
—
|
|
|
228
|
|
Charged/(credited) to profit or loss:
|
|
|
|
|
|
|
|
Additional provisions recognised
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Unused amounts reversed
|
(3
|
)
|
|
(1
|
)
|
|
—
|
|
|
(4
|
)
|
Utilised during the period
|
(46
|
)
|
|
(1
|
)
|
|
—
|
|
|
(47
|
)
|
Translation
|
3
|
|
|
(1
|
)
|
|
—
|
|
|
2
|
|
Balance as at 1 July 2016
|
266
|
|
|
14
|
|
|
8
|
|
|
288
|
|
Non-current
|
64
|
|
|
14
|
|
|
7
|
|
|
85
|
|
Current
|
202
|
|
|
—
|
|
|
1
|
|
|
203
|
|
Balance as at 1 July 2016
|
266
|
|
|
14
|
|
|
8
|
|
|
288
|
|
___________________________
|
|
(A)
|
Other provisions primarily relate to tax assessment provisions and legal reserves and are not considered material to these
interim financial statements
.
|
Non-current Provisions
Decommissioning Provisions
Decommissioning liabilities relate to contractual or legal obligations to pay for asset retirement costs. The liabilities represent both the reinstatement obligations when the Company is contractually obligated to pay for the cost of retiring leased buildings and the costs for collection, treatment, reuse, recovery and environmentally sound disposal of cold-drink equipment. Specific to cold-drink equipment obligations, the Company is subject to, and operates in accordance with, the EU Directive on Waste Electrical and Electronic Equipment (“WEEE”). Under the WEEE Directive, companies that put electrical and electronic equipment (such as cold-drink equipment) on the EU market are responsible for the costs of collection, treatment, recovery and disposal of their own products.
The period over which the decommissioning liabilities on leased buildings and cold-drink equipment will be settled ranges from
2
to
20
years and
5
to
13
years, respectively.
Current Provisions
Restructuring Provision
Restructuring provisions are recognised only when the Company has a constructive obligation, which is when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs and an appropriate timeline and the employees affected have been notified of the plan’s main features.
In the second half of 2015, CCE announced the relocation and restructuring of certain production operations in Belgium designed to optimise the efficiency and effectiveness of its supply chain. The Company expects to be substantially complete with this programme by the end of
2016
and anticipates nonrecurring charges of approximately
€29 million
, primarily comprised of severance costs. During the
six months ended 1 July 2016
, the Company recorded
€22 million
related to the provision for this programme.
At the time of the Merger, the Company assumed ongoing restructuring initiatives in Germany that principally relate to improving the efficiency and effectiveness of the supply chain organisation. On 1 March 2016, CCEG announced its intent to close two production sites, six distribution sites and to phase out a refillable PET production line. In addition, CCEG announced its intent to restructure parts of its finance, human resources, marketing and sales departments. The costs associated with these restructuring plans are estimated to approximate €134 million and will primarily relate to severance costs.
Furthermore, the Company has begun to incur restructuring expenses related to the integration of CCE, CCIP and CCEG to work to achieve synergies across the merged Company, including expenses related to the transition of Atlanta-based headquarter roles to Europe. During the
six months ended 1 July 2016
the Company recorded
€16 million
and
€25 million
related to the provisions for its German and Merger-related integration restructuring programmes, respectively.
The Company also incurs certain non-cash costs, such as accelerated depreciation, which are related to our restructuring programmes but are not included within the restructuring provision due to their nature. The total amount of such costs recorded related to all restructuring programmes during the six months ended
1 July 2016
was
€72 million
.
Commitments
Commitments beyond
1 July 2016
are disclosed herein but not accrued for within the
Condensed Consolidated Interim Statement of Financial Position
.
Purchase Agreements
The Company has noncancelable purchase agreements with various suppliers that specify a fixed or minimum quantity that must be purchased. All purchases made under these agreements are subject to standard quality and performance criteria. Total purchase commitments were
€236 million
,
€220 million
,
€277 million
and
€386 million
as at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
Operating Lease Commitments
The Company leases land, office and warehouse space, computer hardware, machinery and equipment and vehicles under noncancelable operating lease agreements expiring at various dates through
2027
. Some lease agreements contain standard renewal provisions that allow for renewal at rates equivalent to fair market value at the end of the lease term. Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term. Under lease agreements that contain rent holidays, rent expense is recorded on a straight-line basis over the entire lease term, including the period covered by the rent holiday.
Rent expense under noncancelable operating lease agreements totaled
€34 million
and
€31 million
during the
six months ended 1 July 2016
and
3 July 2015
, respectively, and
€62 million
and
€65 million
during the
year ended 31 December 2015
and
year ended 31 December 2014
, respectively.
Total lease payments due under noncancelable operating leases were
€301 million
,
€212 million
,
€229 million
and
€283 million
as at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
. The change is primarily due to new operating lease commitments acquired in the Merger.
Note 16
FINANCIAL RISK MANAGEMENT
Financial Instruments Risk Management Objectives and Policies
The Company’s activities expose it to several financial risks including market risk, credit risk and liquidity risk. Financial risk activities are governed by appropriate policies and procedures to minimise the uncertainties these risks create on the Company’s future cash flows. Such policies are developed and approved by the Company’s Treasury and Commodities Risk Committee through the authority provided to it by the Directors.
Market Risk
Market risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market prices and includes interest rate risk, currency risk and other price risk such as commodity price risk. Market risk affects outstanding borrowings, as well as derivative financial instruments.
Interest Rates
The Company is subject to interest rate risk for its outstanding floating-rate borrowings. To mitigate this risk, a large portion of fixed-rate to floating-rate borrowings is maintained. Approximately
74 per cent
,
95 per cent
,
96 per cent
and
97 per cent
of the
Company’s interest-bearing borrowings was comprised of fixed-rate borrowings at
1 July 2016
,
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively. From
1 January 2014
through
1 July 2016
, the Company did not enter into interest rate swap agreements or other such instruments to hedge its interest rate risk related to floating-rate borrowings.
Currency Exchange Rates
The Company’s exposure to the risk of changes in currency exchange rates relates primarily to its operating activities denominated in foreign currencies. To manage currency exchange risk arising from future commercial transactions and recognised monetary assets and liabilities, foreign currency forward and option contracts with external third parties are utilised. Typically, between
20 per cent
and
80 per cent
of anticipated cash flow exposures in each major foreign currency for the next calendar year are hedged using a combination of forward and option contracts with third parties. Prior to the Merger, CCE utilised forward and option contracts to hedge the currency exchange risk related to its net investments in foreign subsidiaries. All net investment hedges were settled prior to the Merger. CCEP continues to monitor its exposure to currency exchange rates and execute cash flow and net investment hedges in line with its hedge strategy, as needed, due to volatilities in anticipated cash flow exposures and the functional currencies of certain of its subsidiaries.
Commodity Price Risk
The competitive marketplace in which the Company operates may limit its ability to recover increased costs through higher prices. As such, the Company is subject to market risk with respect to commodity price fluctuations principally related to its purchases of aluminium, steel, PET (plastic), sugar and vehicle fuel. When possible, exposure to this risk is managed primarily through the use of supplier pricing agreements, which enable the Company to establish the purchase price for certain commodities. Certain suppliers restrict the Company’s ability to hedge prices through supplier agreements. As a result, at times, non-designated commodity hedging programmes are entered into. Typically, between
20 per cent
and
80 per cent
of the anticipated commodity transaction exposures for the next calendar year are hedged using a combination of forward and option contracts executed with third parties.
Credit Risk
The Company is exposed to counterparty credit risk on all of its derivative financial instruments. Strict counterparty credit guidelines are maintained and only financial institutions that are investment grade or better are acceptable counterparties. Counterparty credit risk is continuously monitored and numerous counterparties are utilised to minimise exposure to potential defaults. Collateral is not required under these agreements. The maximum credit risk exposure for each derivative financial instrument is the carrying amount of the derivative.
Credit is extended to customers of the Company, consisting of retailers, wholesalers and other customers, generally without requiring collateral, based on an evaluation of the customer’s financial condition. Whilst the Company has a concentration of credit risk in the retail sector, this risk is mitigated due to the diverse nature of the customers the Company serves, including, but not limited to, their type, geographic location, size and beverage channel. Collections of receivables are dependent on each individual customer’s financial condition and sales adjustments granted. Trade accounts receivable are carried at net realisable value. Typically, accounts receivable have terms of
30
to
60
days and do not bear interest. Exposure to losses on receivables is monitored, and allowances for potential losses or adjustments are maintained. Allowances are determined by (1) evaluating the aging of receivables; (2) analysing the history of adjustments and (3) reviewing high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Credit insurance on a portion of the accounts receivable balance is also carried.
Liquidity Risk
Liquidity risk is actively managed to ensure that the Company has sufficient funds to satisfy its commitments. The Company’s sources of capital include, but are not limited to, cash flows from operations, public and private issuances of debt and equity securities and bank borrowings. The Company believes its operating cash flow, cash on hand and available short-term and long-term capital resources are sufficient to fund its working capital requirements, scheduled borrowing payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations and dividends to its shareholder. Counterparties and instruments used to hold cash and cash equivalents are continuously assessed, with a focus on preservation of capital and liquidity. Based on information currently available, the Company does not believe it is at significant risk of default by its counterparties.
The Company has amounts available for borrowing under a
€1.5 billion
multi-currency credit facility with a syndicate of
ten
banks. This credit facility matures in
2021
and is for general corporate purposes, including serving as a backstop to its commercial paper programme and supporting the Company’s working capital needs. Based on information currently available, the Company has no indication that the financial institutions participating in this facility would be unable to fulfill their commitments as at the date of the filing of this report. The current credit facility contains no financial covenants that would impact the Company’s liquidity or access to capital. At
1 July 2016
, the Company had
€200 million
drawn on its credit facility. CCE previously held a multi-currency credit facility for
US$1 billion
with a syndicate of eight banks, which was terminated prior to the Merger. CCE did not have any amounts drawn on this facility for any period presented in the
Condensed Consolidated Interim Statement of Financial Position
.
Capital Management
The primary objective of the Company’s capital management is to ensure strong credit rating and appropriate capital ratios are maintained in order to support the Company’s business and maximise shareholder value. The capital structure is managed and, as appropriate, adjustments are made in light of changes in economic conditions and the requirements of the Company’s financial covenants. To maintain or adjust the capital structure, adjustments may be made to the dividend payment, capital may be returned to shareholders or new shares may be issued.
Capital is monitored using a net borrowings to EBITDA ratio. The Company has a goal to reduce net debt to EBITDA to approximately 2.5x by 2017 and to maintain a ratio thereafter between 2.5x and 3.0x.
Note 17
OTHER SIGNIFICANT ACCOUNTING POLICIES
Revenue
Revenue is recognised when all of the following conditions are met: 1) the amount of revenue can be reliably measured; (2) it is probable that future economic benefits will flow to the Company; and (3) the significant risks and rewards of ownership of the products have passed to the buyer, usually on delivery of the goods. For product sales, these conditions generally occur when the products are delivered to or picked up by customers and, in the case of full-service vending, when cash is collected from vending machines. Revenue is stated net of sales discounts and marketing and promotional incentives paid to customers.
Value added taxes are recorded on a net basis (e.g., excluded from revenue) and record excise taxes and taxes on packaging on a gross basis (e.g., included in revenue).
Franchisor Support Arrangements
The Company participates in various funding programmes supported by TCCC or other franchisors whereby it receives funds from the franchisor to support customer marketing programmes or other arrangements that promote the sale of the franchisors’ products. Under these programmes, certain costs incurred by the Company are reimbursed by the franchisor. Payments from TCCC and other franchisors for marketing programmes and other similar arrangements to promote the sale of products are classified as a reduction in cost of sales, unless the presumption that the payment is a reduction in the price of the franchisors’ products can be overcome. Payments for marketing programmes are recognised as product is sold.
Refer to Note 12 for further details about the Company’s transactions with TCCC.
Shipping and Handling Costs
Shipping and handling costs related to the movement of finished goods from the Company’s manufacturing locations to the Company’s sales distribution centres are included in cost of sales on the
Condensed Consolidated Interim Income Statement
. Shipping and handling costs incurred to move finished goods from sales distribution centres to customer locations are included in selling and distribution expenses on the
Condensed Consolidated Interim Income Statement
. Customers do not pay separately for shipping and handling costs.
Currency Exchange Translation
The assets and liabilities of the Company’s foreign operations are translated from local currencies into the Euro reporting currency at currency exchange rates in effect at the end of each reporting period. Gains and losses from the translation of results are included in other reserves on the
Condensed Consolidated Interim Statement of Financial Position
. Revenues and expenses are translated
at average monthly currency exchange rates. Gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in foreign currency exchange gains (losses), net on the
Condensed Consolidated Interim Income Statement
. Refer to Note 18 for further details about the treatment of cumulative currency translation differences upon initial adoption of IFRS.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term, highly liquid investments with maturity dates of less than three months when acquired that are readily convertible to cash and which are subject to an insignificant risk of changes in value. Counterparties and instruments used to hold the Company’s cash and cash equivalents are continually assessed, with a focus on preservation of capital and liquidity. Bank overdrafts are classified as current portion of borrowings in the
Condensed Consolidated Interim Statement of Financial Position
.
Trade Accounts Receivable
The Company sells its products to retailers, wholesalers and other customers and extends credit, generally without requiring collateral, based on an evaluation of the customer’s financial condition. Whilst the Company has a concentration of credit risk in the retail sector, this risk is mitigated due to the diverse nature of the customers the Company serves, including, but not limited to, their type, geographic location, size and beverage channel. Collections of receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date.
Trade accounts receivable are carried at net realisable value. Typically, accounts receivable have terms of
30
to
60
days and do not bear interest. Recoverability of trade accounts receivable is reviewed on an ongoing basis. The carrying amount of trade accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognised in the
Condensed Consolidated Interim Income Statement
. Credit insurance on a portion of the accounts receivable balance is also carried.
Inventories
Inventories are valued at the lower of cost or net realisable value and cost is determined using the first-in, first-out (“FIFO”) method. Inventories consist of raw materials and supplies (primarily including concentrate, other ingredients and packaging) and finished goods, which also include direct labour and indirect production and overhead costs. Cost includes all costs incurred to bring inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to complete and sell the inventory.
Trade and Other Payables
These amounts represent liabilities for goods and services provided prior to the end of period which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, as needed.
Standards Issued But Not Yet Effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of these financial statements, are disclosed below. These standards will be adopted, if applicable, when they become effective. The impact the standards will have on the Company’s
interim financial statements
is being evaluated.
IFRS 9,
“
Financial Instruments”
In July 2014, the IASB issued the final version of IFRS 9, “Financial Instruments”
that replaces IAS 39 “Financial Instruments: Recognition and Measurement” and all previous versions of IFRS 9. IFRS 9 brings together all three
aspects of the accounting for financial instruments project: classification and measurement, impairment and
hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early
application permitted.
IFRS 15,
“
Revenue from Contracts with Customers”
In May 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers” that establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.
IFRS 16,
“
Leases”
In January 2016, the IASB issued IFRS 16, “Leases”. The new standard supersedes IAS 17 and its objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases and to account for those two types of leases differently. IFRS 16 is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted.
IFRS 2, “Share-based Payments”
In June 2016, the IASB issued the narrow-scope amendments to IFRS 2, “Share-based Payments”. The amendments clarify how to account for certain types of share-based payment transactions including cash-settled share-based payments and share-based payment transactions with a net settlement feature for withholding tax obligations. The amendments also modify
the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Companies are required to apply the amendments for annual periods beginning on or after 1 January 2018. Earlier application is permitted.
Note 18
FIRST-TIME ADOPTION OF IFRS
The financial statements as at and for the
six months ended 1 July 2016
are the first CCEP has prepared in accordance with IFRS. As described in Note 1, for the periods up to and including the
year ended 31 December 2015
, CCE, the predecessor of CCEP, prepared its financial statements in accordance with U.S. GAAP. Accordingly, the financial statements are prepared in accordance with IFRS as at and for the
six months ended 1 July 2016
together with the CCE comparative period data for the
six months ended 3 July 2015
, and years ended
31 December 2015
and
31 December 2014
, as described in other notes. In preparing the financial statements, CCE’s opening statement of financial position was prepared as at
1 January 2014
, the date of transition to IFRS (“transition date”).
The principal adjustments to restate CCE’s U.S. GAAP financial statements are included in the U.S. GAAP to IFRS reconciliations of the consolidated statement of financial position as at
31 December 2015
,
31 December 2014
and
1 January 2014
, and statement of comprehensive income for the years ended
31 December 2015
and
31 December 2014
and for the
six months ended 3 July 2015
. The transition from U.S. GAAP to IFRS did not have a material impact on CCE’s statement of cash flows.
Transition Elections
IFRS 1 requires retrospective application of all IFRS effective as at and for the
six months ended 1 July 2016
, except for certain allowed exemptions. CCE selected the following optional exemptions from the retrospective application of certain requirements under IFRS.
Share-based Payments
|
|
•
|
Elected to apply IFRS 2, “Share-based payments,” to all unvested share-based payment awards as at the transition date.
|
Cumulative Currency Translation Differences
|
|
•
|
Elected to reset to zero all cumulative currency translation, net investment hedge and pension amounts previously recognised directly in equity as at the transition date.
|
Business Combinations
|
|
•
|
Elected to apply IFRS 3, “Business Combinations,” prospectively to business combinations that occurred after the transition date. Business combinations that occurred prior to the transition date have not been restated.
|
Summary of Differences and Elections
The following is a summary of the differences between U.S. GAAP and IFRS that impact CCE’s consolidated statement of financial position as at
31 December 2015
,
31 December 2014
and
1 January 2014
and statement of comprehensive income for the years ended
31 December 2015
and
31 December 2014
and for the
six months ended 3 July 2015
. The difference in valuation of certain assets and liabilities under IFRS as compared to U.S. GAAP was recorded directly into equity as at the transition date.
Defined Benefit Pension Plans
With respect to defined benefit pension plans, the identified differences between U.S. GAAP and IFRS related to the recognition of actuarial gains and losses, prior service costs and interest costs. These differences impacted both the valuation of the defined benefit obligation as well as the timing and measurement of expenses related to the pension plans.
Recognition of Actuarial Gains and Losses
Under U.S. GAAP, actuarial gains and losses are initially deferred in accumulated other comprehensive income and subsequently recognised as part of net periodic benefit cost using the corridor approach. Under IFRS, the effects of actuarial gains and losses are recorded in reserves immediately as they arise and are not subsequently recycled into the income statement.
Recognition of Prior Service Cost
Under U.S. GAAP, prior service costs are recognised in accumulated other comprehensive income at the adoption date of a plan amendment and subsequently amortised into net periodic benefit cost over the expected future service period. Under IFRS, all prior service costs are immediately recognised in net periodic benefit cost when an amendment to an employee benefit plan occurs.
Calculation of Net Interest Cost
Under U.S. GAAP, two of the primary components of the calculation of net periodic benefit cost are expected long-term return on assets (“EROA”) and interest cost. Under IFRS, the concept of EROA and interest cost does not exist. Alternatively, CCE calculated a net interest cost by applying the discount rates by reference to market yields on high-quality long-term corporate bonds in the same currency as the benefits to be paid, with durations that are similar to those of the benefit obligation.
Discount Rates
Under U.S. GAAP, when determining the appropriate discount rate to be used when valuing CCE’s benefit obligation, reference is made to market yields on high-quality, long-term corporate bonds that mature in a pattern similar to the expected payments to be made under the plan. When a deep market in high-quality corporate bonds does not exist, a hypothetical high-quality corporate bond yield based on a spread added to representative government bond yields is used. Under IFRS, when a deep market in corporate high-quality corporate bonds does not exist, reference should be made to government bond yields when determining discount rates.
Employer Contribution Taxes
Under U.S. GAAP, contribution taxes are recognised as a component of net periodic benefit cost in the period in which the contribution is made. Under IFRS, taxes payable by the plan on contributions are included in actuarial assumptions for the calculation of the defined benefit obligation.
Refer to Note 10 for further details about pension plan accounting under IFRS.
Share-Based Payment Plans
With respect to share-based payment plans, CCE identified certain differences between U.S. GAAP and IFRS. These differences impacted the classification of shares withheld to satisfy an employee's tax obligation and the timing and amount of recognition of any excess tax benefits on share-based compensation awards.
Bifurcation of Stock Awards
Prior to the Merger, CCE’s restricted share unit and performance share unit awards were subject to a net settlement arrangement by which shares necessary to satisfy an employee's tax obligation at settlement were withheld. CCE did not withhold amounts in excess of the minimum statutory withholding. Accordingly, all awards were treated as equity-settled under U.S. GAAP. Under IFRS, the award must be bifurcated between equity-settled and cash-settled, with the portion of an award withheld for taxes treated as cash-settled. Cash-settled awards are recorded as a liability and adjusted to their fair values at each reporting date, which results in a difference in the compensation expense recorded for share-based payment awards under IFRS. Upon completion of the Merger, CCEP no longer has a net settlement feature for employee taxes on these awards.
Excess Tax Benefits
Under U.S. GAAP, the tax benefits received in excess of an award's recorded deferred tax asset at the time the award becomes deductible for tax purposes (i.e., upon settlement) is recorded into equity. Under IFRS, a deferred tax asset is required to be recorded based on the estimated future tax deduction at the end of each reporting period. This results in a difference in the deferred tax asset recorded for share-based payment awards as at the transition date and on a go-forward basis under IFRS. Refer to Note 14 for further details about accounting for share-based payment awards under IFRS.
Property, Plant and Equipment
U.S. GAAP requires capitalised property, plant and equipment to be carried at historical cost less accumulated depreciation and impairment losses. Although IFRS allows the remeasurement of fixed assets to fair value, CCE elected to continue to record its property, plant and equipment at historical cost.
IFRS requires each part of an item of property, plant and equipment be depreciated separately that has a cost that is significant in relation to the cost of the item. Under U.S. GAAP, significant components of property, plant and equipment are accounted for and depreciated separately over a range of useful lives, as determined by management. As a result, no further segregation of property, plant and equipment was required upon the transition from U.S. GAAP to IFRS. Further, as allowed under IFRS, CCE elected to continue to depreciate property, plant and equipment on a straight-line basis over the estimated useful life of the asset class consistent with its treatment under U.S. GAAP. Refer to Note 6 for further details about the Company’s property, plant and equipment.
Software Costs Classification
All capitalised software costs were recorded by CCE as property, plant and equipment, as allowed under U.S. GAAP. Under IFRS, software that is not integral to the hardware to which it relates is classified as an intangible asset.
Borrowing Issuance Costs Classification
Under U.S. GAAP, issuance costs related to long-term borrowings were recorded as other non-current assets. Under IFRS, borrowing issuance costs are presented in the statement of financial position as a direct deduction from the carrying value of the associated borrowing.
Recoverability of Intangible Assets
Under U.S. GAAP, a qualitative assessment of franchise intangible assets and goodwill was performed for each reporting unit as at the last reporting day of October of each respective year. The results of the qualitative impairment assessment of these assets indicated whether it was more likely than not that the estimated fair value of these assets was less than their respective carrying values at each testing date.
IFRS requires a quantitative assessment be performed for each CGU, or the smallest identifiable asset or group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. For each CGU identified, quantitative impairment tests were performed as at the transition date and the first day of the fourth quarter of fiscal years 2015 and 2014. The results of these tests determined that the recoverable amount of each CGU exceeded its carrying value and thus no impairment charges were recorded as at
31 December 2015
,
31 December 2014
and
1 January 2014
. Refer to Note 5 for further details about the Company’s intangible assets.
Reconciliation of Statement of Financial Position as Reported Under U.S. GAAP to IFRS
The effect of the changes to CCE’s accounting basis from U.S. GAAP to IFRS on the statement of financial position as at
31 December 2015
,
31 December 2014
and
1 January 2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
31 December 2015
(A)
|
|
31 December 2015
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
31 December 2015
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Franchise license intangible assets, net
|
3,383
|
|
|
3,115
|
|
|
13
|
|
|
74
|
|
(G)
|
3,202
|
|
Intangible assets
|
Goodwill
|
88
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Goodwill
|
Property, plant, and equipment, net
|
1,920
|
|
|
1,766
|
|
|
—
|
|
|
(74
|
)
|
(G)
|
1,692
|
|
Property, plant and equipment
|
Other noncurrent assets
|
174
|
|
|
162
|
|
|
(80
|
)
|
|
(47
|
)
|
(D) (K)
|
35
|
|
Other non-current assets
|
-
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Non-current derivative assets
|
-
|
—
|
|
|
—
|
|
|
45
|
|
|
36
|
|
(H) (I)
|
81
|
|
Deferred tax assets
|
Total non-current assets
|
5,565
|
|
|
5,124
|
|
|
—
|
|
|
(11
|
)
|
|
5,113
|
|
Total non-current assets
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
Inventories
|
336
|
|
|
311
|
|
|
—
|
|
|
60
|
|
(D)
|
371
|
|
Inventories
|
Amounts receivable from TCCC
|
56
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
Amounts receivable from TCCC
|
Trade accounts receivable, less allowances
|
1,314
|
|
|
1,210
|
|
|
—
|
|
|
—
|
|
|
1,210
|
|
Trade accounts receivable
|
Cash and cash equivalents
|
170
|
|
|
156
|
|
|
—
|
|
|
—
|
|
|
156
|
|
Cash and cash equivalents
|
Other current assets
|
170
|
|
|
152
|
|
|
(34
|
)
|
|
(57
|
)
|
(D) (H)
|
61
|
|
Other current assets
|
-
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Current derivative assets
|
-
|
—
|
|
|
—
|
|
|
14
|
|
|
(1
|
)
|
(F)
|
13
|
|
Current tax assets
|
Total current assets
|
2,046
|
|
|
1,881
|
|
|
—
|
|
|
2
|
|
|
1,883
|
|
Total current assets
|
Total assets
|
7,611
|
|
|
7,005
|
|
|
—
|
|
|
(9
|
)
|
|
6,996
|
|
Total assets
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Debt, less current portion
|
3,407
|
|
|
3,136
|
|
|
—
|
|
|
(14
|
)
|
(K)
|
3,122
|
|
Borrowings, less current portion
|
Noncurrent deferred income tax liabilities
|
854
|
|
|
784
|
|
|
—
|
|
|
(15
|
)
|
(H) (I)
|
769
|
|
Deferred tax liabilities
|
Other noncurrent liabilities
|
236
|
|
|
215
|
|
|
(167
|
)
|
|
—
|
|
|
48
|
|
Other non-current liabilities
|
-
|
—
|
|
|
—
|
|
|
129
|
|
|
13
|
|
(L)
|
142
|
|
Employee benefit liabilities
|
-
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Non-current provisions
|
-
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Non-current derivative liabilities
|
Total non-current liabilities
|
4,497
|
|
|
4,135
|
|
|
—
|
|
|
(16
|
)
|
|
4,119
|
|
Total non-current liabilities
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
Current portion of debt
|
454
|
|
|
418
|
|
|
—
|
|
|
—
|
|
|
418
|
|
Current portion of borrowings
|
Amounts payable to TCCC
|
102
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
94
|
|
Amounts payable to TCCC
|
Amounts payable and accrued expenses
|
1,601
|
|
|
1,475
|
|
|
(111
|
)
|
|
19
|
|
(J) (L)
|
1,383
|
|
Trade and other payables
|
-
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Current provisions
|
-
|
—
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Current derivative liabilities
|
-
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
44
|
|
Current tax liabilities
|
Total current liabilities
|
2,157
|
|
|
1,987
|
|
|
—
|
|
|
19
|
|
|
2,006
|
|
Total current liabilities
|
Total liabilities
|
6,654
|
|
|
6,122
|
|
|
—
|
|
|
3
|
|
|
6,125
|
|
Total liabilities
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
Common stock
|
4
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Share capital
|
Additional paid-in capital
|
4,032
|
|
|
2,947
|
|
|
(218
|
)
|
|
—
|
|
|
2,729
|
|
Share premium
|
Accumulated other comprehensive loss
|
(997
|
)
|
|
(525
|
)
|
|
338
|
|
|
7
|
|
(I) (J) (L) (M (N)
|
(180
|
)
|
Other reserves
|
Common stock in treasury
|
(4,411
|
)
|
|
(3,307
|
)
|
|
—
|
|
|
—
|
|
|
(3,307
|
)
|
Treasury shares
|
Reinvested earnings
|
2,329
|
|
|
1,765
|
|
|
(120
|
)
|
|
(19
|
)
|
(F) (I) (J) (L) (M) (N)
|
1,626
|
|
Retained earnings
|
Total shareowners’ equity
|
957
|
|
|
883
|
|
|
—
|
|
|
(12
|
)
|
|
871
|
|
Total equity
|
Total liabilities and shareowners’ equity
|
7,611
|
|
|
7,005
|
|
|
—
|
|
|
(9
|
)
|
|
6,996
|
|
Total equity and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
31 December 2014
(A)
|
|
31 December 2014
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
31 December 2014
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Franchise license intangible assets, net
|
3,641
|
|
|
3,009
|
|
|
13
|
|
|
64
|
|
(G)
|
3,086
|
|
Intangible assets
|
Goodwill
|
101
|
|
|
84
|
|
|
—
|
|
|
—
|
|
|
84
|
|
Goodwill
|
Property, plant, and equipment, net
|
2,101
|
|
|
1,737
|
|
|
—
|
|
|
(64
|
)
|
(G)
|
1,673
|
|
Property, plant and equipment
|
Other noncurrent assets
|
240
|
|
|
198
|
|
|
(86
|
)
|
|
(45
|
)
|
(D) (K)
|
67
|
|
Other non-current assets
|
-
|
—
|
|
|
—
|
|
|
73
|
|
|
57
|
|
(H) (I)
|
130
|
|
Deferred tax assets
|
Total non-current assets
|
6,083
|
|
|
5,028
|
|
|
—
|
|
|
12
|
|
|
5,040
|
|
Total non-current assets
|
Current:
|
|
|
|
|
|
|
|
|
|
Current:
|
Inventories
|
388
|
|
|
321
|
|
|
—
|
|
|
53
|
|
(D)
|
374
|
|
Inventories
|
Amounts receivable from TCCC
|
67
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Amounts receivable from TCCC
|
Trade accounts receivable, less allowances
|
1,514
|
|
|
1,252
|
|
|
—
|
|
|
—
|
|
|
1,252
|
|
Trade accounts receivable
|
Cash and cash equivalents
|
223
|
|
|
184
|
|
|
—
|
|
|
—
|
|
|
184
|
|
Cash and cash equivalents
|
Other current assets
|
268
|
|
|
222
|
|
|
(91
|
)
|
|
(78
|
)
|
(D) (H)
|
53
|
|
Other current assets
|
-
|
—
|
|
|
—
|
|
|
69
|
|
|
(2
|
)
|
(E)
|
67
|
|
Current derivative assets
|
-
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Current tax assets
|
Total current assets
|
2,460
|
|
|
2,035
|
|
|
—
|
|
|
(27
|
)
|
|
2,008
|
|
Total current assets
|
Total assets
|
8,543
|
|
|
7,063
|
|
|
—
|
|
|
(15
|
)
|
|
7,048
|
|
Total assets
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Non-current:
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Debt, less current portion
|
3,320
|
|
|
2,745
|
|
|
—
|
|
|
(14
|
)
|
(K)
|
2,731
|
|
Borrowings, less current portion
|
Noncurrent deferred income tax liabilities
|
977
|
|
|
809
|
|
|
—
|
|
|
(19
|
)
|
(H) (I)
|
790
|
|
Deferred tax liabilities
|
Other noncurrent liabilities
|
207
|
|
|
170
|
|
|
(135
|
)
|
|
—
|
|
|
35
|
|
Other non-current liabilities
|
-
|
—
|
|
|
—
|
|
|
104
|
|
|
15
|
|
(L)
|
119
|
|
Employee benefit liabilities
|
-
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Non-current provisions
|
-
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Non-current derivative liabilities
|
Total non-current liabilities
|
4,504
|
|
|
3,724
|
|
|
—
|
|
|
(18
|
)
|
|
3,706
|
|
Total non-current liabilities
|
Current:
|
|
|
|
|
|
|
|
|
|
Current:
|
Current portion of debt
|
632
|
|
|
523
|
|
|
—
|
|
|
—
|
|
|
523
|
|
Current portion of borrowings
|
Amounts payable to TCCC
|
104
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|
85
|
|
Amounts payable to TCCC
|
Amounts payable and accrued expenses
|
1,872
|
|
|
1,547
|
|
|
(107
|
)
|
|
2
|
|
(H) (J) (L)
|
1,442
|
|
Trade and other payables
|
-
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
Current provisions
|
-
|
—
|
|
|
—
|
|
|
48
|
|
|
(2
|
)
|
(E)
|
46
|
|
Current derivative liabilities
|
-
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Current tax liabilities
|
Total current liabilities
|
2,608
|
|
|
2,155
|
|
|
—
|
|
|
—
|
|
|
2,155
|
|
Total current liabilities
|
Total liabilities
|
7,112
|
|
|
5,879
|
|
|
—
|
|
|
(18
|
)
|
|
5,861
|
|
Total liabilities
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
EQUITY
|
Common stock
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Share capital
|
Additional paid-in capital
|
3,958
|
|
|
2,882
|
|
|
(171
|
)
|
|
—
|
|
|
2,711
|
|
Share premium
|
Accumulated other comprehensive loss
|
(714
|
)
|
|
(375
|
)
|
|
276
|
|
|
5
|
|
(I) (J) (L) (M)
|
(94
|
)
|
Other reserves
|
Common stock in treasury
|
(3,807
|
)
|
|
(2,781
|
)
|
|
—
|
|
|
—
|
|
|
(2,781
|
)
|
Treasury shares
|
Reinvested earnings
|
1,991
|
|
|
1,455
|
|
|
(105
|
)
|
|
(2
|
)
|
(I) (J) (L) (M)
|
1,348
|
|
Retained earnings
|
Total shareowners’ equity
|
1,431
|
|
|
1,184
|
|
|
—
|
|
|
3
|
|
|
1,187
|
|
Total equity
|
Total liabilities and shareowners’ equity
|
8,543
|
|
|
7,063
|
|
|
—
|
|
|
(15
|
)
|
|
7,048
|
|
Total equity and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
1 January 2014
(A)
|
|
1 January 2014
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
1 January 2014
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
ASSETS
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Non-current:
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Franchise license intangible assets, net
|
4,004
|
|
|
2,914
|
|
|
14
|
|
|
52
|
|
(G)
|
2,980
|
|
Intangible assets
|
Goodwill
|
124
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Goodwill
|
Property, plant, and equipment, net
|
2,353
|
|
|
1,712
|
|
|
—
|
|
|
(52
|
)
|
(G)
|
1,660
|
|
Property, plant and equipment
|
Other noncurrent assets
|
476
|
|
|
346
|
|
|
(208
|
)
|
|
(40
|
)
|
(D) (K)
|
98
|
|
Other non-current assets
|
-
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Non-current derivative assets
|
-
|
—
|
|
|
—
|
|
|
189
|
|
|
27
|
|
(H) (I)
|
216
|
|
Deferred tax assets
|
Total non-current assets
|
6,957
|
|
|
5,062
|
|
|
—
|
|
|
(13
|
)
|
|
5,049
|
|
Total non-current assets
|
Current:
|
|
|
|
|
|
|
|
|
|
Current:
|
Inventories
|
452
|
|
|
329
|
|
|
—
|
|
|
45
|
|
(D)
|
374
|
|
Inventories
|
Amounts receivable from TCCC
|
89
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Amounts receivable from TCCC
|
Trade accounts receivable, less allowances
|
1,515
|
|
|
1,102
|
|
|
—
|
|
|
—
|
|
|
1,102
|
|
Trade accounts receivable
|
Cash and cash equivalents
|
343
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Cash and cash equivalents
|
Other current assets
|
169
|
|
|
123
|
|
|
(28
|
)
|
|
(41
|
)
|
(D) (H)
|
54
|
|
Other current assets
|
-
|
—
|
|
|
—
|
|
|
8
|
|
|
(3
|
)
|
(E)
|
5
|
|
Current derivative assets
|
-
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Current tax assets
|
Total current assets
|
2,568
|
|
|
1,869
|
|
|
—
|
|
|
1
|
|
|
1,870
|
|
Total current assets
|
Total assets
|
9,525
|
|
|
6,931
|
|
|
—
|
|
|
(12
|
)
|
|
6,919
|
|
Total assets
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Non-current:
|
|
|
|
|
|
|
|
|
|
Non-current:
|
Debt, less current portion
|
3,726
|
|
|
2,711
|
|
|
—
|
|
|
(13
|
)
|
(K)
|
2,698
|
|
Borrowings, less current portion
|
Noncurrent deferred income tax liabilities
|
1,103
|
|
|
803
|
|
|
—
|
|
|
(21
|
)
|
(H) (I)
|
782
|
|
Deferred tax liabilities
|
Other noncurrent liabilities
|
221
|
|
|
161
|
|
|
(125
|
)
|
|
—
|
|
|
36
|
|
Other non-current liabilities
|
-
|
—
|
|
|
—
|
|
|
73
|
|
|
10
|
|
(L)
|
83
|
|
Employee benefit liabilities
|
-
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
Non-current provisions
|
-
|
—
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
37
|
|
Non-current derivative liabilities
|
Total non-current liabilities
|
5,050
|
|
|
3,675
|
|
|
—
|
|
|
(24
|
)
|
|
3,651
|
|
Total non-current liabilities
|
Current:
|
|
|
|
|
|
|
|
|
|
Current:
|
Current portion of debt
|
111
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Current portion of borrowings
|
Amounts payable to TCCC
|
145
|
|
|
106
|
|
|
—
|
|
|
—
|
|
|
106
|
|
Amounts payable to TCCC
|
Amounts payable and accrued expenses
|
1,939
|
|
|
1,410
|
|
|
(114
|
)
|
|
11
|
|
(H) (J) (L)
|
1,307
|
|
Trade and other payables
|
-
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Current provisions
|
-
|
—
|
|
|
—
|
|
|
30
|
|
|
(3
|
)
|
(E)
|
27
|
|
Current derivative liabilities
|
-
|
—
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
Current tax liabilities
|
Total current liabilities
|
2,195
|
|
|
1,597
|
|
|
—
|
|
|
8
|
|
|
1,605
|
|
Total current liabilities
|
Total liabilities
|
7,245
|
|
|
5,272
|
|
|
—
|
|
|
(16
|
)
|
|
5,256
|
|
Total liabilities
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
EQUITY
|
Common stock
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Share capital
|
Additional paid-in capital
|
3,899
|
|
|
2,837
|
|
|
(138
|
)
|
|
—
|
|
|
2,699
|
|
Share premium
|
Accumulated other comprehensive loss
|
(331
|
)
|
|
(242
|
)
|
|
230
|
|
|
6
|
|
(L) (M)
|
(6
|
)
|
Other reserves
|
Common stock in treasury
|
(2,868
|
)
|
|
(2,087
|
)
|
|
—
|
|
|
—
|
|
|
(2,087
|
)
|
Treasury shares
|
Reinvested earnings
|
1,577
|
|
|
1,148
|
|
|
(92
|
)
|
|
(2
|
)
|
(I) (J) (L) (M)
|
1,054
|
|
Retained earnings
|
Total shareowners’ equity
|
2,280
|
|
|
1,659
|
|
|
—
|
|
|
4
|
|
|
1,663
|
|
Total equity
|
Total liabilities and shareowners’ equity
|
9,525
|
|
|
6,931
|
|
|
—
|
|
|
(12
|
)
|
|
6,919
|
|
Total equity and liabilities
|
___________________________
|
|
(A)
|
Historical audited statement of financial position under U.S. GAAP as at
31 December 2015
,
31 December 2014
and
1 January 2014
.
|
|
|
(B)
|
Historical audited statement of financial position under U.S. GAAP as at
31 December 2015
,
31 December 2014
and
1 January 2014
has been translated from U.S. Dollars to Euros at the exchange rate of
0.9206
,
0.8266
and
0.7276
, respectively, with the exception of equity, which has been translated at historical rates.
|
|
|
(C)
|
Certain line items of the historical audited statement of financial position prepared under U.S. GAAP have been reclassified to be presented in conformity with the IFRS financial statement presentation.
|
The following adjustments represent the differences between U.S. GAAP and IFRS to present CCE’s historical audited statement of financial position in accordance with IFRS:
|
|
(D)
|
Spare parts
- Adjustment reflects a reclassification of
€27 million
,
€22 million
and
€18 million
of spare parts from other current assets to inventories and
€33 million
,
€31 million
and
€27 million
of spare parts from other non-current assets to inventories as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(E)
|
Cross-currency swaps
- Under U.S. GAAP, interest on cross-currency swap agreements is presented on a gross basis. Under IFRS, interest on these instruments is presented on a net basis. This adjustment reduces current derivative assets and liabilities by
€2 million
and
€3 million
each as at
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(F)
|
Prepaid taxes
- Adjustment reflects a
€1 million
decrease to current tax assets and a
€1 million
decrease to retained earnings to remove certain prepaid taxes that are immediately expensed under IFRS as at
31 December 2015
.
|
|
|
(G)
|
Software
- Adjustment reflects a reclassification of
€74 million
,
€64 million
and
€52 million
in software from property, plant and equipment to intangible assets as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(H)
|
Deferred tax assets and liabilities classification
- Under U.S. GAAP, deferred tax assets and liabilities must be classified on the statement of financial position as current and noncurrent, consistent with the classification of the related asset or liability. Under IFRS, deferred tax assets and liabilities are classified on the statement of financial position as non-current. This adjustment reflects reclassifications from other current assets of
€30 million
,
€56 million
and
€23 million
and from trade and other payables of
€8 million
and
€4 million
as at
31 December 2014
and
1 January 2014
, respectively, to the appropriate deferred tax asset and deferred liability accounts based on the relevant tax jurisdictions in which CCE operates. As a result of these adjustments, deferred tax assets increased by
€18 million
,
€40 million
and
€7 million
and deferred tax liabilities decreased by
€12 million
,
€8 million
and
€12 million
as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(I)
|
Valuation of deferred taxes
- With respect to CCE’s deferred tax position, under IFRS (1) certain of CCE’s historical U.S. GAAP assets and liabilities are not recognised as a temporary difference; (2) deferred taxes on share-based payment awards are valued based on changes in an award's intrinsic value rather than its grant date fair value and (3) deferred taxes on defined benefit pension plans are based on different actuarial valuations than U.S. GAAP. The net impact of these differences results in an increase of
€18 million
,
€17 million
and
€20 million
to deferred tax assets, a decrease of
€3 million
,
€11 million
and
€9 million
to deferred tax liabilities and an increase to retained earnings of
€17 million
,
€24 million
and
€29 million
as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively. Additionally, other reserves increased by
€3 million
as at
31 December 2015
and
31 December 2014
, respectively, as a result of these adjustments.
|
|
|
(J)
|
Share-based compensation plans
- Under U.S. GAAP, share-based payment awards subject to a net settlement arrangement are classified as equity-settled if the amount withheld does not exceed the minimum statutory withholding. Under IFRS, awards with a net settlement arrangement must be bifurcated between equity-settled and cash-settled with the portion of an award withheld for taxes treated as cash-settled. This adjustment reflects an increase to trade and other payables of
€21 million
,
€13 million
and
€19 million
and a decrease to retained earnings of
€19 million
,
€11 million
and
€19 million
, as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively. Additionally, CCE’s share-based payment plans were denominated in U.S. Dollars; therefore, these adjustments resulted in a decrease to other reserves as a result of foreign currency translation of
€1 million
and
€2 million
as at
31 December 2015
and
31 December 2014
, respectively.
|
|
|
(K)
|
Borrowing issuance costs
- Under U.S. GAAP, borrowing issuance costs are presented on the statement of financial position on a gross basis separate from the underlying instrument; however, under IFRS, these costs are presented on a net basis and reduce the carrying value of the borrowing. This adjustment reflects a reclassification of
€14 million
,
€14 million
and
€13 million
of borrowing issuance costs from other non-current assets to borrowings, less current portion as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(L)
|
Defined benefit pension plans
- With respect to defined benefit pension plans, under U.S. GAAP (1) actuarial gains and losses and prior service cost are initially deferred in equity and subsequently recognised as part of net periodic benefit cost; (2) discount rates are calculated using high-quality corporate bond yields; (3) interest cost is determined using the discount rate; (4) expected return on assets is judgmental and estimated based on asset allocation and expected performance over time and (5) contribution taxes are not included in the calculation of the defined benefit obligation. Under IFRS, (1) actuarial gains and losses are permanently deferred in equity; (2) discount rates are calculated using government bond yields; (3) net interest cost (including return on assets) is based on market yields of high-quality long-term corporate bonds; (4) prior service costs are immediately recognised in net periodic benefit cost and (5) taxes payable by the plan on contributions are included in the calculation of the defined benefit obligation. The net impact of these differences resulted in an increase of
€13 million
,
€15 million
and
€10 million
to employee benefit liabilities, a decrease of
€2 million
,
€3 million
and
€4 million
to trade and other payables, an increase to retained earnings of
€10 million
,
€8 million
and
€11 million
and a decrease to other reserves due to foreign currency translation of
€21 million
,
€19 million
and
€17 million
as at
31 December 2015
,
31 December 2014
and
1 January 2014
, respectively.
|
|
|
(M)
|
Equity account reset -
As noted above, CCE elected to reset to zero all cumulative currency translation, pension and net investment hedge activity recorded directly within equity as at the transition date. Cumulatively, this resulted in an increase of
€23 million
to other reserves and a decrease of
€23 million
to retained earnings for each of the periods presented.
|
|
|
(N)
|
Option bifurcation
- Adjustment reflects an increase to other reserves and a corresponding decrease to retained earnings of
€3 million
as at
31 December 2015
for the impact of separating the intrinsic value and time value of options designated as hedging instruments.
|
Reconciliation of Shareowners Equity as Reported Under U.S. GAAP to IFRS as at 3 July 2015
The effect of the changes to CCE’s accounting basis from U.S. GAAP to IFRS on the Company’s shareowners’ equity as at
3 July 2015
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
3 July 2015
(A)
|
|
3 July 2015
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
3 July 2015
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
EQUITY
|
Common stock
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Share capital
|
Additional paid-in capital
|
3,996
|
|
|
2,914
|
|
|
(189
|
)
|
|
—
|
|
|
2,725
|
|
Share premium
|
Accumulated other comprehensive loss
|
(807
|
)
|
|
(370
|
)
|
|
265
|
|
|
6
|
|
(D) (E) (F) (G)
|
(99
|
)
|
Other reserves
|
Common stock in treasury
|
(4,312
|
)
|
|
(3,219
|
)
|
|
—
|
|
|
—
|
|
|
(3,219
|
)
|
Treasury shares
|
Reinvested earnings
|
2,133
|
|
|
1,583
|
|
|
(76
|
)
|
|
(21
|
)
|
(D) (E) (F) (G)
|
1,486
|
|
Retained earnings
|
Total shareowners’ equity
|
1,013
|
|
|
911
|
|
|
—
|
|
|
(15
|
)
|
|
896
|
|
Total equity
|
___________________________
|
|
(A)
|
Historical unaudited statement of equity under U.S. GAAP as at
3 July 2015
.
|
|
|
(B)
|
Historical unaudited statement of equity under U.S. GAAP as at
3 July 2015
has been translated from U.S. Dollars to Euros using historical exchange rates.
|
|
|
(C)
|
Certain line items of the historical audited statement of financial position prepared under U.S. GAAP have been reclassified to be presented in conformity with the IFRS financial statement presentation.
|
The following adjustments represent the differences between U.S. GAAP and IFRS to present CCE’s historical audited statement of financial position in accordance with IFRS:
|
|
(D)
|
Valuation of deferred taxes
- With respect to CCE’s deferred tax position, under IFRS (1) certain of CCE’s historical U.S. GAAP assets and liabilities are not recognised as a temporary difference; (2) deferred taxes on share-based payment awards are valued based on changes in an award's intrinsic value rather than its grant date fair value and (3) deferred taxes on defined benefit pension plans are based on different actuarial valuations than U.S. GAAP. The net impact of these differences to equity is an increase to retained earnings of
€22 million
and an increase of
€3 million
to other reserves as at
3 July 2015
.
|
|
|
(E)
|
Share-based compensation plans
- Under U.S. GAAP, share-based payment awards subject to a net settlement arrangement are classified as equity-settled if the amount withheld does not exceed the minimum statutory withholding. Under IFRS, awards with a net settlement arrangement must be bifurcated between equity-settled and cash-settled with the portion of an award withheld for taxes treated as cash-settled. This adjustment reflects a decrease to retained earnings of
€11 million
and an increase to other reserves as a result of foreign currency translation of
€1 million
as at
3 July 2015
.
|
|
|
(F)
|
Defined benefit pension plans
- With respect to defined benefit pension plans, under U.S. GAAP (1) actuarial gains and losses and prior service cost are initially deferred in equity and subsequently recognised as part of net periodic benefit cost; (2) discount rates are calculated using high-quality corporate bond yields; (3) interest cost is determined using the discount rate; (4) expected return on assets is judgmental and estimated based on asset allocation and expected performance over time and (5) contribution taxes are not included in the calculation of the defined benefit obligation. Under IFRS, (1) actuarial gains and losses are permanently deferred in equity; (2) discount rates are calculated using government bond yields; (3) net interest cost (including return on assets) is based on market yields of high-quality long-term corporate bonds; (4) prior service costs are immediately recognised in net periodic benefit cost and (5) taxes payable by the plan on contributions are included in the calculation of the defined benefit obligation. The net impact of these differences resulted in a decrease of
€9 million
to retained earnings and a decrease to other reserves as a result of foreign currency translation of
€21 million
as at
3 July 2015
|
|
|
(G)
|
Equity account reset -
As noted above, CCE elected to reset to zero all cumulative currency translation, pension and net investment hedge activity recorded directly within equity as at the transition date. Cumulatively, this resulted in an increase of
€23 million
to other reserves and a decrease of
€23 million
to retained earnings as at
3 July 2015
.
|
Reconciliation of Statement of Comprehensive Income as Reported Under U.S. GAAP to IFRS
The effect of the changes to CCE’s accounting basis from U.S. GAAP to IFRS on the statement of comprehensive income for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
31 December 2015
(A)
|
|
31 December 2015
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
31 December 2015
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
Net sales
|
7,011
|
|
|
6,329
|
|
|
—
|
|
|
—
|
|
|
6,329
|
|
Revenue
|
Cost of sales
|
(4,441
|
)
|
|
(4,011
|
)
|
|
—
|
|
|
(6
|
)
|
(D)
|
(4,017
|
)
|
Cost of sales
|
Gross profit
|
2,570
|
|
|
2,318
|
|
|
—
|
|
|
(6
|
)
|
|
2,312
|
|
Gross profit
|
Selling, delivery and administrative expenses
|
(1,704
|
)
|
|
(1,538
|
)
|
|
1,538
|
|
|
—
|
|
|
—
|
|
-
|
-
|
—
|
|
|
—
|
|
|
(914
|
)
|
|
(5
|
)
|
(D)
|
(919
|
)
|
Selling and distribution expenses
|
-
|
—
|
|
|
—
|
|
|
(624
|
)
|
|
(10
|
)
|
(D) (F)
|
(634
|
)
|
Administrative expenses
|
Operating income
|
866
|
|
|
780
|
|
|
—
|
|
|
(21
|
)
|
|
759
|
|
Operating profit
|
Interest expense, net
|
(118
|
)
|
|
(107
|
)
|
|
107
|
|
|
—
|
|
|
—
|
|
-
|
-
|
—
|
|
|
—
|
|
|
22
|
|
|
2
|
|
(D)
|
24
|
|
Finance income
|
-
|
—
|
|
|
—
|
|
|
(129
|
)
|
|
(5
|
)
|
(D) (E)
|
(134
|
)
|
Finance costs
|
Other nonoperating (expense) income
|
(4
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Non-operating items
|
Income before income taxes
|
744
|
|
|
668
|
|
|
—
|
|
|
(24
|
)
|
|
644
|
|
Profit before taxes
|
Income tax expense
|
(148
|
)
|
|
(132
|
)
|
|
—
|
|
|
1
|
|
(G)
|
(131
|
)
|
Taxes
|
Net income
|
596
|
|
|
536
|
|
|
—
|
|
|
(23
|
)
|
|
513
|
|
Profit after taxes
|
Components of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss):
|
-
|
|
|
|
|
|
|
|
|
|
Items that may be subsequently reclassified to the income statement:
|
Currency translations
|
|
|
|
|
|
|
|
|
|
Foreign currency translations:
|
Pretax activity, net
|
(337
|
)
|
|
(185
|
)
|
|
—
|
|
|
—
|
|
|
(185
|
)
|
Pretax activity, net
|
Tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax effect
|
Currency translations, net of tax
|
(337
|
)
|
|
(185
|
)
|
|
—
|
|
|
—
|
|
|
(185
|
)
|
Foreign currency translations, net of tax
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
Pretax activity, net
|
163
|
|
|
131
|
|
|
—
|
|
|
3
|
|
(E)
|
134
|
|
Pretax activity, net
|
Tax effect
|
(57
|
)
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
(46
|
)
|
Tax effect
|
Net investment hedges, net of tax
|
106
|
|
|
85
|
|
|
—
|
|
|
3
|
|
|
88
|
|
Net investment hedges, net of tax
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
Pretax activity, net
|
16
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Pretax activity, net
|
Tax effect
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Tax effect
|
Cash flow hedges, net of tax
|
11
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Cash flow hedges, net of tax
|
-
|
|
|
|
|
|
|
|
|
|
Items that will not be subsequently reclassified to the income statement:
|
Pension plan adjustments
|
|
|
|
|
|
|
|
|
|
Pension plan adjustments:
|
Pretax activity, net
|
(76
|
)
|
|
(74
|
)
|
|
—
|
|
|
15
|
|
(D)
|
(59
|
)
|
Pretax activity, net
|
Tax effect
|
13
|
|
|
14
|
|
|
—
|
|
|
(5
|
)
|
(D)
|
9
|
|
Tax effect
|
Pension plan adjustments, net of tax
|
(63
|
)
|
|
(60
|
)
|
|
—
|
|
|
10
|
|
|
(50
|
)
|
Pension plan adjustments, net of tax
|
Other comprehensive income (loss), net of tax
|
(283
|
)
|
|
(149
|
)
|
|
—
|
|
|
13
|
|
|
(136
|
)
|
Other comprehensive loss for the period, net of tax
|
Comprehensive income
|
313
|
|
|
387
|
|
|
—
|
|
|
(10
|
)
|
|
377
|
|
Comprehensive income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
3 July 2015
(A)
|
|
3 July 2015
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
3 July 2015
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
Net sales
|
3,559
|
|
|
3,199
|
|
|
—
|
|
|
—
|
|
|
3,199
|
|
Revenue
|
Cost of sales
|
(2,286
|
)
|
|
(2,055
|
)
|
|
—
|
|
|
(3
|
)
|
(D)
|
(2,058
|
)
|
Cost of sales
|
Gross profit
|
1,273
|
|
|
1,144
|
|
|
—
|
|
|
(3
|
)
|
|
1,141
|
|
Gross profit
|
Selling, delivery and administrative expenses
|
(840
|
)
|
|
(755
|
)
|
|
755
|
|
|
—
|
|
|
—
|
|
-
|
-
|
—
|
|
|
—
|
|
|
(463
|
)
|
|
(2
|
)
|
(D)
|
(465
|
)
|
Selling and distribution expenses
|
-
|
—
|
|
|
—
|
|
|
(292
|
)
|
|
(3
|
)
|
(D)
|
(295
|
)
|
Administrative expenses
|
Operating income
|
433
|
|
|
389
|
|
|
—
|
|
|
(8
|
)
|
|
381
|
|
Operating profit
|
Interest expense, net
|
(61
|
)
|
|
(55
|
)
|
|
55
|
|
|
—
|
|
|
—
|
|
-
|
-
|
—
|
|
|
—
|
|
|
12
|
|
|
1
|
|
(D)
|
13
|
|
Finance income
|
-
|
—
|
|
|
—
|
|
|
(67
|
)
|
|
(1
|
)
|
(D)
|
(68
|
)
|
Finance costs
|
Other nonoperating (expense) income
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-operating items
|
Income before income taxes
|
373
|
|
|
334
|
|
|
—
|
|
|
(8
|
)
|
|
326
|
|
Profit before taxes
|
Income tax expense
|
(101
|
)
|
|
(90
|
)
|
|
—
|
|
|
1
|
|
(G)
|
(89
|
)
|
Taxes
|
Net income
|
272
|
|
|
244
|
|
|
—
|
|
|
(7
|
)
|
|
237
|
|
Profit after taxes
|
Components of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss):
|
-
|
|
|
|
|
|
|
|
|
|
Items that may be subsequently reclassified to the income statement:
|
Currency translations
|
|
|
|
|
|
|
|
|
|
Foreign currency translations:
|
Pretax activity, net
|
(180
|
)
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Pretax activity, net
|
Tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax effect
|
Currency translations, net of tax
|
(180
|
)
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Foreign currency translations, net of tax
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
Pretax activity, net
|
123
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Pretax activity, net
|
Tax effect
|
(43
|
)
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
Tax effect
|
Net investment hedges, net of tax
|
80
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Net investment hedges, net of tax
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
Pretax activity, net
|
(4
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Pretax activity, net
|
Tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax effect
|
Cash flow hedges, net of tax
|
(4
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Cash flow hedges, net of tax
|
-
|
|
|
|
|
|
|
|
|
|
Items that will not be subsequently reclassified to the income statement:
|
Pension plan adjustments
|
|
|
|
|
|
|
|
|
|
Pension plan adjustments:
|
Pretax activity, net
|
14
|
|
|
12
|
|
|
—
|
|
|
(11
|
)
|
(D)
|
1
|
|
Pretax activity, net
|
Tax effect
|
(3
|
)
|
|
(2
|
)
|
|
—
|
|
|
1
|
|
(D)
|
(1
|
)
|
Tax effect
|
Pension plan adjustments, net of tax
|
11
|
|
|
10
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
Pension plan adjustments, net of tax
|
Other comprehensive income (loss), net of tax
|
(93
|
)
|
|
7
|
|
|
—
|
|
|
(10
|
)
|
|
(3
|
)
|
Other comprehensive loss for the period, net of tax
|
Comprehensive income
|
179
|
|
|
251
|
|
|
—
|
|
|
(17
|
)
|
|
234
|
|
Comprehensive income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
IFRS
|
|
|
31 December 2014
(A)
|
|
31 December 2014
(B)
|
|
Presentation Reclassifications
(C)
|
|
IFRS Adjustments
|
|
31 December 2014
|
|
U.S. GAAP Line Items
|
$ million
|
|
€ million
|
|
€ million
|
|
€ million
|
|
€ million
|
IFRS Line Items
|
Net sales
|
8,264
|
|
|
6,217
|
|
|
—
|
|
|
—
|
|
|
6,217
|
|
Revenue
|
Cost of sales
|
(5,291
|
)
|
|
(3,985
|
)
|
|
—
|
|
|
(2
|
)
|
(D)
|
(3,987
|
)
|
Cost of sales
|
Gross profit
|
2,973
|
|
|
2,232
|
|
|
—
|
|
|
(2
|
)
|
|
2,230
|
|
Gross profit
|
Selling, delivery and administrative expenses
|
(1,954
|
)
|
|
(1,468
|
)
|
|
1,468
|
|
|
—
|
|
|
—
|
|
-
|
-
|
—
|
|
|
—
|
|
|
(942
|
)
|
|
(2
|
)
|
(D)
|
(944
|
)
|
Selling and distribution expenses
|
-
|
—
|
|
|
—
|
|
|
(534
|
)
|
|
(5
|
)
|
(D) (F)
|
(539
|
)
|
Administrative expenses
|
Operating income
|
1,019
|
|
|
764
|
|
|
(8
|
)
|
|
(9
|
)
|
|
747
|
|
Operating profit
|
Interest expense, net
|
(119
|
)
|
|
(90
|
)
|
|
90
|
|
|
—
|
|
|
—
|
|
-
|
-
|
|
|
|
—
|
|
|
31
|
|
|
3
|
|
(D)
|
34
|
|
Finance income
|
-
|
—
|
|
|
—
|
|
|
(121
|
)
|
|
(2
|
)
|
(D)
|
(123
|
)
|
Finance costs
|
Other nonoperating (expense) income
|
(7
|
)
|
|
(8
|
)
|
|
8
|
|
|
—
|
|
|
—
|
|
Non-operating items
|
Income before income taxes
|
893
|
|
|
666
|
|
|
—
|
|
|
(8
|
)
|
|
658
|
|
Profit before taxes
|
Income tax expense
|
(230
|
)
|
|
(173
|
)
|
|
—
|
|
|
(1
|
)
|
(G)
|
(174
|
)
|
Taxes
|
Net income
|
663
|
|
|
493
|
|
|
—
|
|
|
(9
|
)
|
|
484
|
|
Profit after taxes
|
Components of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss):
|
-
|
|
|
|
|
|
|
|
|
|
Items that may be subsequently reclassified to the income statement:
|
Currency translations
|
|
|
|
|
|
|
|
|
|
Foreign currency translations:
|
Pretax activity, net
|
(482
|
)
|
|
(206
|
)
|
|
—
|
|
|
—
|
|
|
(206
|
)
|
Pretax activity, net
|
Tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax effect
|
Currency translations, net of tax
|
(482
|
)
|
|
(206
|
)
|
|
—
|
|
|
—
|
|
|
(206
|
)
|
Foreign currency translations, net of tax
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
Pretax activity, net
|
256
|
|
|
194
|
|
|
—
|
|
|
—
|
|
|
194
|
|
Pretax activity, net
|
Tax effect
|
(90
|
)
|
|
(68
|
)
|
|
—
|
|
|
—
|
|
|
(68
|
)
|
Tax effect
|
Net investment hedges, net of tax
|
166
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
126
|
|
Net investment hedges, net of tax
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
Pretax activity, net
|
(15
|
)
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Pretax activity, net
|
Tax effect
|
4
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Tax effect
|
Cash flow hedges, net of tax
|
(11
|
)
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Cash flow hedges, net of tax
|
-
|
|
|
|
|
|
|
|
|
|
Items that will not be subsequently reclassified to the income statement:
|
Pension plan adjustments
|
|
|
|
|
|
|
|
|
|
Pension plan adjustments:
|
Pretax activity, net
|
(79
|
)
|
|
(60
|
)
|
|
—
|
|
|
2
|
|
(D)
|
(58
|
)
|
Pretax activity, net
|
Tax effect
|
23
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Tax effect
|
Pension plan adjustments, net of tax
|
(56
|
)
|
|
(45
|
)
|
|
—
|
|
|
2
|
|
|
(43
|
)
|
Pension plan adjustments, net of tax
|
Other comprehensive income (loss), net of tax
|
(383
|
)
|
|
(133
|
)
|
|
—
|
|
|
2
|
|
|
(131
|
)
|
Other comprehensive loss for the period, net of tax
|
Comprehensive income
|
280
|
|
|
360
|
|
|
—
|
|
|
(7
|
)
|
|
353
|
|
Comprehensive income for the period
|
___________________________
|
|
(A)
|
CCE’s historical audited consolidated statement of comprehensive income under U.S. GAAP for the years ended
31 December 2015
and
31 December 2014
and CCE’s unaudited consolidated statement of comprehensive income for the
six months ended 3 July 2015
.
|
|
|
(B)
|
CCE’s historical audited consolidated statement of comprehensive income under U.S. GAAP for the years ended
31 December 2015
and
31 December 2014
and its historical unaudited consolidated statement of comprehensive income for the
six months ended 3 July 2015
has been translated from U.S. Dollars to Euros at the average exchange rate for each respective period.
|
|
|
(C)
|
Certain line items of CCE’s historical audited consolidated statement of comprehensive income prepared under U.S. GAAP have been reclassified to be presented in conformity with its IFRS financial statement presentation.
|
The following adjustments represent the differences identified between U.S. GAAP and IFRS to present CCE’s historical consolidated statement of comprehensive income in accordance with IFRS:
|
|
(D)
|
Defined benefit pension plans
- IFRS differs from U.S. GAAP with respect to the recognition of actuarial gains and losses and prior service costs, the calculation of the discount rate for the defined benefit obligation, the calculation of net interest cost and the recognition of contribution taxes. The impacts of these differences to the statement of income for the year ended
31 December 2015
, for the
six months ended 3 July 2015
and for the year ended
31 December 2014
were: (1) an increase to cost of sales of
€6 million
,
€3 million
and
€2 million
, respectively; (2) an increase to selling and distribution expenses of
€5 million
,
€2 million
and
€2 million
, respectively; (3) an increase to administrative expenses of
€8 million
,
€3 million
and
€3 million
, respectively; (4) an increase to finance income of
€2 million
,
€1 million
and
€3 million
, respectively and (5) an increase to finance costs of
€2 million
,
€1 million
and
€2 million
, respectively.
|
Additionally, these differences resulted in the following changes to the pension component of other comprehensive income: an increase of
€15 million
(
€10 million
net of tax) for the year ended
31 December 2015
, a decrease of
€11 million
(
€10 million
net of tax) for the
six months ended 3 July 2015
and an increase of
€2 million
for the year ended
31 December 2014
.
|
|
(E)
|
Options designated as hedging instruments
- Adjustment reflects increases of
€3 million
to finance costs and the net investment hedge component of other comprehensive income for the impact of separating the intrinsic value and time value of options designated as hedging instruments for the year ended
31 December 2015
.
|
|
|
(F)
|
Share-based compensation plans
- Adjustment reflects additional compensation cost of
€2 million
as a result of separating the share-based payment awards between equity- and cash-settled components under IFRS for both the years ended
31 December 2015
and
31 December 2014
.
|
|
|
(G)
|
Income tax expense
- The total changes in CCE’s tax position from the adjustments between U.S. GAAP and IFRS resulted in a decrease to income tax expense of
€1 million
for both the year ended
31 December 2015
and for the
six months ended 3 July 2015
and an increase to income tax expense of
€1 million
for the year ended
31 December 2014
.
|
Note 19
NON-OPERATING ITEMS
Non-operating items consist principally of foreign exchange gains and losses due to remeasurement of transactions that do not occur in the functional currency of the entity to which it pertains and are generally not material to the Company’s
Condensed Consolidated Interim Income Statement
.
Note 20
EVENTS AFTER THE REPORTING PERIOD
On 29 July 2016, the Company completed its acquisition of Vifilfell, the Icelandic Coca-Cola bottler for
€35 million
. This acquisition was provided for in the terms of the Merger agreement. The Vifilfell acquisition is not expected to have a material impact on the Company’s operating profit.
During September 2016, the United Kingdom substantively enacted a corporate income tax rate reduction of 1 per cent, effective 1 April 2020. As a result, we expect to recognise a deferred tax benefit of approximately
€20 million
during the third quarter of 2016 to reflect the impact of this change.