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  Communiqué de la société COCA-COLA EUROPEAN du 08/08/2019

  08/08/2019 - 08:00

CCEP Half-year Report 28 June 2019


COCA-COLA EUROPEAN PARTNERS

Results for the six months ended 28 June 2019

Good first-half, reaffirming full-year 2019 guidance

H1 2019 Metric [1] As Reported   Comparable   Change vs H1 2018
  As Reported   Comparable   Comparable Fx-Neutral
Volume (m unit cases)[2] 1,214         2.0 %   3.0 %    
Revenue[3] (€M) 5,802     5,802     7.0 %   7.0 %   7.0 %
Cost of sales [4] (€M) 3,594     3,597     7.5 %   8.5 %   8.5 %
Operating expenses (€M) 1,482     1,435     (0.5 )%   1.0 %   1.0 %
Operating profit (€M) 726     770     20.0 %   10.0 %   10.5 %
Profit after taxes (€M) 508     541     22.0 %   10.5 %   11.0 %
Diluted EPS (€) 1.07     1.14     25.5 %   14.0 %   14.0 %
Revenue per unit case [3] (€)     4.78             4.5 %
Cost of sales per unit case [4] (€)     2.96             6.5 %
Free cash flow (€M) 437                  
Capital Returns:                  
Interim Dividend per share[5] (€) 0.62         +19.0% versus H1 2018    
Share buyback[6] (€M) 550         Year-to-date    

DAMIAN GAMMELL, CHIEF EXECUTIVE OFFICER, SAID:

“We are one of the world's largest beverage companies with both a solid track record of performance as well as an exciting future, supported by a 24,000 strong team of talented and engaged people. We are fortunate to have the world's best non-alcoholic ready-to-drink brands where we have a leading position within our dynamic and growing market. We are taking the decisions today to invest in the capabilities that we know we will need to win tomorrow. All underpinned by an aligned relationship with The Coca-Cola Company and a strong sustainability agenda, particularly around packaging, where we are taking action and leading innovation.

“We have delivered a good first-half performance, reflecting our continued focus on driving profitable revenue growth through price and mix realisation and solid in market execution, alongside the successful closure of our merger commitments. We remain focused on building this momentum, albeit following a strong third quarter last year, including scaling up on some of our exciting innovations like Coke Energy and the recently launched Costa ready-to-drink coffee in Great Britain.

“We are today reaffirming our full-year guidance for 2019. We remain confident in our annual growth objectives over the mid-term, which make for an attractive investment story underpinned by a strong and flexible balance sheet. This, alongside healthy dividend growth and the continuation of our share buyback programme, collectively demonstrate our focus on delivering sustainable value for our shareholders.”

___________________________

[1] Refer to ‘Note Regarding the Presentation of Alternative Performance Measures' for further details

[2] Unit Case = approximately 5.678 litres or 24 8-ounce servings

[3] Includes the impact of 2.0% related to incremental soft drinks taxes introduced during 2018 in Great Britain and France

[4] Includes the impact of 3.0% related to incremental soft drinks taxes introduced during 2018 in Great Britain and France

[5] Declared at Q1, paid June 2019

[6] €455m for H1 2019

FIRST-HALF HIGHLIGHTS[1]

Revenue (+7.0%)

• Comparable volume +3.0% reflecting solid execution partly offset by the impact of last year's soft drinks tax changes

• Revenue per unit case +4.5%[2],[3] benefiting from favourable underlying price & package mix (e.g. small cans volume +17.0%)

• Transactions[4] outpaced volume growth

• Multiple portfolio launches including Light Cola flavours; Coca-Cola Energy; Monster Espresso; Aquarius Enhanced Water; Honest Lemonade

Profit

• Comparable operating profit of €770m, +10.5%[5] (Reported +20.0%) reflecting revenue growth & merger synergies of €55m (€330m cumulative close out of programme)

• Comparable diluted EPS of €1.14[5], +14.0% (Reported +25.5%)

Capital returns

• First-half interim dividend, +19.0% versus last year, maintaining annualised dividend payout ratio of c.50%

• Returned further €550m (11.6m shares) year-to-date via share buyback of previously announced €1.5bn programme (cumulative now €1.05bn; 24.1m shares)

Other

• Reaffirming Full-Year guidance for 2019 (see below)

• Joined the Main Market of London Stock Exchange (standard listing)

• Announced transition to 100% recycled plastic (rPET) for Honest, Smartwater & Chaudfontaine brands by 2020

REAFFIRMING FULL-YEAR 2019 GUIDANCE[1]

• Revenue growth in the low single-digit range excluding the impact of incremental soft drinks taxes of approximately 1.0%[5]

• Cost of sales per unit case growth of approximately 2.5% excluding the impact of incremental soft drinks taxes of approximately 1.5%[5]

• Operating profit growth between 6-7%[5]

• Comparable tax rate of approximately 25%

• Diluted earnings per share growth between 10-11%[5],[6]

• Share buyback of up to €1bn

• Free cash flow in the range of €1-1.1bn[7]

• Capital expenditures of approximately €525-575m

• Return on invested capital (ROIC) to improve by approximately 40 basis points

___________________________

[1] Refer to ‘Note Regarding the Presentation of Alternative Performance Measures' for further details; Change percentages against prior year equivalent period

[2] Fx-Neutral

[3] Includes the impact of 2.0% related to incremental soft drinks taxes introduced during 2018 in Great Britain and France

[4] Defined as the serving container ultimately used directly by the consumer. It can be a standalone container or one part of a multipack

[5] Comparable Fx-Neutral

[6] Assumes share buybacks of €1 billion in 2019

[7] Please refer to ‘Supplemental Financial Information - Free Cash Flow' for a description of the change to the definition of the measure to ensure consistency following the adoption of IFRS 16 on 1 January 2019

First-half Revenue Performance by Geography

All values are unaudited, changes versus H1 2018

  As reported   Fx-Neutral
  € million   % of Total   % change   % change
Great Britain 1,151     20.0 %   11.0 %   10.5 %
France[1] 967     16.5 %   10.5 %   10.5 %
Germany 1,171     20.5 %   5.5 %   5.5 %
Iberia[2] 1,282     22.0 %   6.0 %   6.0 %
Northern Europe[3] 1,231     21.0 %   2.0 %   3.5 %
Total 5,802     100.0 %   7.0 %   7.0 %

___________________________

[1] France refers to continental France & Monaco.

[2] Iberia refers to Spain, Portugal & Andorra.

[3] Northern Europe refers to Belgium, Luxembourg, Netherlands, Norway, Sweden & Iceland.

Great Britain

• Revenue +4.5% excluding the impact of incremental soft drinks taxes

• Good volume growth supported by Light Colas, Fanta, Schweppes & Monster, partially offset by unfavourable Q2 weather

• Revenue/UC[1] growth supported by positive price & priority small packs[2] volume growth (e.g. small cans +28.5% driven by Schweppes mixers, Appletiser & Coca-ColaTM)

France

• Revenue +6.0% excluding the impact of incremental soft drinks taxes

• Solid volume growth driven by Coca-Cola Zero Sugar, Fanta, Fuze Tea, Monster, Tropico & resolution of last year's customer dispute

• Revenue/UC[1] growth supported by recent pack changes for Coca-ColaTM & priority small packs[2] volume growth (e.g. small glass +6.5% driven by Fuze Tea & Coca-ColaTM)

Germany

• Good volume growth led by the discounter channel & solid growth in Cola-Cola Zero Sugar, Sprite & Monster, partially offset by unfavourable Q2 weather

• Fuze Tea & Honest Tea continue to gain distribution

• Revenue/UC[1] growth supported by positive price & priority small packs[2] volume growth (e.g. small cans +11.0% driven by Monster & Coca-ColaTM)

Iberia

• Solid volume growth reflecting soft weather-driven comparables, improving market trends & solid execution

• Volume growth led by Coca-Cola Classic, Coca-Cola Zero Sugar, Fanta, Monster & Aquarius

• Revenue/UC[1] growth supported by positive price & priority small packs[2] volume growth (e.g. small cans +23.5% driven by Cola-ColaTM)

Northern Europe

• Driven by revenue growth in Belux (+2.5%), Netherlands (+5.0%) & Norway (+4.5%)

• Volume growth led by Coca-Cola Zero Sugar, Monster & Fuze Tea offset by unfavourable Q2 weather

• Revenue/UC[1] growth supported by positive price & priority small packs[2] volume growth (e.g. small cans +12.5% driven by Cola-ColaTM)

___________________________

[1] Revenue/UC = Revenue per Unit Case

[2] Priority small packs = PET & Glass < 1litre; Cans <33cl

Note: All values are unaudited, changes versus H1 2018 & Fx-Neutral

First-half Volume Performance by Category

Comparable volumes, changes versus H1 2018

    % of Total % Change
Sparkling   86.0 % 3.0 %
Coca-ColaTM   63.5 % 3.0 %
Flavours, Mixers & Energy   22.5 % 4.0 %
Stills   14.0 % 1.5 %
Hydration   8.5 % (1.0 )%
RTD Tea, RTD Coffee, Juices & Other[1]   5.5 % 4.5 %
Total   100.0 % 3.0 %

Coca-ColaTM

• Transactions +3.5%

• Classic -0.5% reflecting the impact of last year's soft drinks taxes

• Lights +9.0% with robust growth across all markets driven by Zero Sugar & new flavours, e.g.

– Zero Sugar Raspberry

– Diet Coke Twisted Strawberry

Flavours, Mixers & Energy

• Fanta +3.5% reflecting higher distribution of Zero & new flavours (e.g. Grape Zero)

• Energy +17.0% with strong performance of the Monster Mango Loco & Ultra ranges; Encouraging initial customer reaction to Coca-Cola Energy, now in all markets

• Schweppes +6.5% with growth in both Mixers & Lemonade. Schweppes 1783 & Royal Bliss continued to grow distribution

Hydration

• Reflecting reduced low value promotions & unfavourable Q2 weather in Northern Europe & Germany

• Encouraging initial customer reaction to Aquarius Enhanced Water, launched in Germany, GB & the Netherlands

• Isotonic drinks +3.0% led by growth in Iberia, France & Germany

RTD Tea, RTD Coffee, Juices & Other[1]

• Solid share gains in the RTD tea category as Fuze Tea continues to gain scale

• Honest brands saw solid growth reflecting distribution gains across all markets

• Launched Monster Espresso with good initial customer reaction

___________________________

[1] RTD refers to Ready-To-Drink

Conference Call

• 8 August 2019 at 12:30 BST, 13:30 CEST and 7:30 a.m. EDT; via www.ccep.com

• Replay & transcript will be available at www.ccep.com as soon as possible

Financial Calendar

• Third-quarter trading update: 29 October 2019

• Full 2019 calendar available here: http://ir.ccep.com/financial-calendar

Results & Presentations

• Previous results and presentations available here: http://ir.ccep.com/results-and-presentations/recent-results-and-presentations

Contacts

 

Investor Relations
 
           
Sarah Willett   Claire Michael   Joe Collins   Email
+44 7970 145 218   +44 7528 251 033   +44 7583 903 560   ccepir@ccep.com
             
Media Relations
 
           
Shanna Wendt   Nick Carter   Email    
+44 7976 595 168   +44 7979 595 275   comms@ccep.com    

 

About CCEP

Coca-Cola European Partners plc is a leading consumer goods company in Western Europe, making, selling and distributing an extensive range of non-alcoholic ready-to-drink beverages and is the world's largest Coca-Cola bottler based on revenue.

Coca-Cola European Partners serves a consumer population of over 300 million across Western Europe, including Andorra, Belgium, continental France, Germany, Great Britain, Iceland, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain and Sweden. The Company is listed on Euronext Amsterdam, the New York Stock Exchange, London Stock Exchange and on the Spanish Stock Exchanges, trading under the symbol CCEP.

For more information about CCEP, please visit our website at www.ccep.com and follow CCEP on Twitter at @CocaColaEP.

Forward-Looking Statements

This document contains statements, estimates or projections that constitute “forward-looking statements” concerning the financial condition, performance, results, strategy and objectives of Coca-Cola European Partners plc and its subsidiaries (together “CCEP” or the “Group”). Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “plan,” “seek,” “may,” “could,” “would,” “should,” “might,” “will,” “forecast,” “outlook,” “guidance,” “possible,” “potential,” “predict,” “objective” and similar expressions identify forward-looking statements, which generally are not historical in nature.

Forward-looking statements are subject to certain risks that could cause actual results to differ materially from CCEP's historical experience and present expectations or projections. As a result, undue reliance should not be placed on forward-looking statements, which speak only as of the date on which they are made. These risks include but are not limited to those set forth in the “Risk Factors” section of CCEP's 2018 Integrated Report/Annual Report on Form 20-F, including the statements under the following headings: Changing consumer preferences and the health impact of soft drinks (such as sugar alternatives); Legal and regulatory intervention (such as the development of regulations regarding packaging and taxes); Packaging and plastics (such as climate change, resource scarcity, marine litter and water scarcity); Competitiveness and transformation; Cyber and social engineering attacks; The market (such as customer consolidation and route to market); Economic and political conditions (such as continuing developments in relation to the UK's exit from the EU); The relationship with TCCC and other franchisors; Product quality; and Other risks.

Due to these risks, CCEP's actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, expectations and guidance set out in CCEP's forward-looking statements. Additional risks that may impact CCEP's future financial condition and performance are identified in filings with the SEC which are available on the SEC's website at www.sec.gov. CCEP does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required under applicable rules, laws and regulations. CCEP assumes no responsibility for the accuracy and completeness of any forward-looking statements. Any or all of the forward-looking statements contained in this filing and in any other of CCEP's respective public statements may prove to be incorrect.

Note Regarding the Presentation of Alternative Performance Measures

We use certain alternative performance measures (non-GAAP performance measures) to make financial, operating and planning decisions and to evaluate and report performance. We believe these measures provide useful information to investors and as such, where clearly identified, we have included certain alternative performance measures in this document to allow investors to better analyse our business performance and allow for greater comparability. To do so, we have excluded items affecting the comparability of period-over-period financial performance as described below. The alternative performance measures included herein should be read in conjunction with and do not replace the directly reconcilable GAAP measure.

For purposes of this document, the following terms are defined:

‘‘As reported'' are results extracted from our condensed consolidated interim financial statements.

‘‘Comparable'' is defined as results excluding items impacting comparability, such as restructuring charges, out of period mark-to-market impact of hedges and net tax items relating to rate and law changes. Comparable volume is also adjusted for selling days.

‘‘Fx-neutral'' is defined as comparable results excluding the impact of foreign exchange rate changes. Foreign exchange impact is calculated by recasting current year results at prior year exchange rates.

‘‘Free cash flow'' is defined as net cash flows from operations, less capital expenditures, payments of principal on lease obligations and interest paid, plus proceeds from capital disposals. Please refer to Supplemental Financial Information - Free Cash Flow for a description of the change to the definition of the measure following the adoption of IFRS 16 on 1 January 2019.

Free cash flow is used as a measure of the Group's cash generation from operating activities, taking into account investments in property, plant and equipment and non-discretionary lease and interest payments.

‘‘Adjusted EBITDA'' is calculated as Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), after adding back items impacting the comparability of year-over-year financial performance. Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments. Further, Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs, and although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised are likely to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements.

‘‘Net Debt'' is defined as the net of cash and cash equivalents less currency adjusted borrowing. We believe that reporting Net Debt is useful as it reflects a metric used by the Group to assess cash management and leverage. In addition, the ratio of net debt to Adjusted EBITDA is used by investors, analysts and credit rating agencies to analyse our operating performance in the context of targeted financial leverage.

‘‘Capex'' or “Capital expenditures'' is defined as payments for purchases of property, plant and equipment plus purchases of capitalised software less proceeds from disposals of property, plant and equipment. Capex is used as a measure to ensure that the cash spending is in line with the Group's overall strategy for the use of cash.

‘‘ROIC'' is defined as comparable operating profit after tax divided by the average of opening and closing invested capital for

the year. Invested capital is calculated as the addition of borrowings and equity less cash and cash equivalents. ROIC is used as a measure of capital efficiency and reflects how well the Group generates comparable operating profit relative to the

capital invested in the business.

‘‘Dividend Payout Ratio'' is defined as dividends as a proportion of comparable profit after tax.

Additionally, within this document, we provide certain forward-looking non-GAAP financial Information, which management uses for planning and measuring performance. We are not able to reconcile forward-looking non-GAAP measures to reported measures without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact or exact timing of items that may impact comparability throughout 2019.

Unless otherwise stated, percent amounts are rounded to the nearest 0.5%.

Supplementary Financial Information - Income Statement

The following provides a summary reconciliation of CCEP's reported and comparable results for the periods presented:

First Six Months 2019
Unaudited, in millions of € except per share data which is calculated prior to rounding
As Reported   Items Impacting Comparability   Comparable
CCEP   Mark-to-market effects[1] Restructuring Charges[2]   CCEP
Revenue 5,802           5,802  
Cost of sales 3,594     (1 ) 4     3,597  
Gross profit 2,208     1   (4 )   2,205  
Operating expenses 1,482     4   (51 )   1,435  
Operating profit 726     (3 ) 47     770  
Total finance costs, net 49           49  
Non-operating items (1 )         (1 )
Profit before taxes 678     (3 ) 47     722  
Taxes 170     (1 ) 12     181  
Profit after taxes 508     (2 ) 35     541  
             
Diluted earnings per share (€) 1.07       0.07     1.14  
     
Diluted weighted average shares outstanding   475

 

First Six Months 2018
Unaudited, in millions of € except per share data which is calculated prior to rounding
As Reported   Items Impacting Comparability   Comparable
CCEP   Mark-to-market effects[1] Restructuring Charges[2]   CCEP
Revenue 5,435           5,435  
Cost of sales 3,341     (3 ) (25 )   3,313  
Gross profit 2,094     3   25     2,122  
Operating expenses 1,489     5   (71 )   1,423  
Operating profit 605     (2 ) 96     699  
Total finance costs, net 45           45  
Non-operating items            
Profit before taxes 560     (2 ) 96     654  
Taxes 143     (1 ) 23     165  
Profit after taxes 417     (1 ) 73     489  
             
Diluted earnings per share (€) 0.85       0.15     1.00  
     
Diluted weighted average shares outstanding   489  

___________________________

[1] Amounts represent the net out-of-period mark-to-market impact of non-designated commodity hedges.

[2] Amounts represent restructuring charges related to business transformation activities. For the six months ending 28 June 2019, this includes costs in relation to the commencement of a transformation project relating to our cold drink operations aimed at delivering a modern, differentiated and versatile equipment fleet in order to optimise net cooler placements throughout our markets. As part of this strategy, our capital expenditure on cold drink equipment will focus on the introduction of a new, more cost effective cooler into our markets, whilst reducing maintenance and refurbishment support spending on our older equipment. We began rolling out the new commercial strategy during the first half of 2019. As a result of the operational impact of these strategic changes, we incurred a non-cash restructuring charge in the period of €24 million relating to the write down and accelerated depreciation of aged cold drink equipment assets. We expect the majority of the aged cold drink equipment assets to be removed from customer locations over a reasonable period of time and replaced with newer equipment.

Supplemental Financial Information - Revenue

 

Revenue
In millions of €, except per case data which is calculated prior to rounding. FX impact calculated by recasting current year results at prior year rates.
Second-Quarter Ended   Six Months Ended
28 June 2019 29 June 2018 % Change   28 June 2019 29 June 2018 % Change
As reported 3,218   3,057   5.5 %   5,802   5,435   7.0 %
Adjust: Total items impacting comparability     %       %
Comparable[1] 3,218   3,057   5.5 %   5,802   5,435   7.0 %
Adjust: Impact of fx changes 7   n/a %   6   n/a %
Comparable and fx-neutral 3,225   3,057   5.5 %   5,808   5,435   7.0 %
               
Revenue per unit case[1] 4.85   4.67   4.0 %   4.78   4.58   4.5 %

___________________________

[1] The change in revenue and revenue per unit case includes the impact of 1.0% and 2.0% for the second-quarter and six months ended 28 June 2019, respectively, related to incremental soft drinks taxes introduced during 2018 in Great Britain and France.

Revenue by Geography
In millions of €
Second Quarter Ended 28 June 2019   Six months ended 28 June 2019  
As reported Reported
% change
Fx-Neutral
% change
  As reported Reported
% change
Fx-Neutral
% change
 
 
Iberia[1] 745   8.0 % 8.0 %   1,282   6.0 % 6.0 %  
Germany 643   3.0 % 3.0 %   1,171   5.5 % 5.5 %  
Great Britain 622   6.0 % 6.0 %   1,151   11.0 % 10.5 %  
France[2] 525   11.0 % 11.0 %   967   10.5 % 10.5 %  
Northern Europe[3] 683   % 1.5 %   1,231   2.0 % 3.5 %  
Total 3,218   5.5 % 5.5 %   5,802   7.0 % 7.0 %  

___________________________

[1] Iberia refers to Spain, Portugal & Andorra.

[2] France refers to continental France & Monaco.

[3] Note 3 to the condensed consolidated interim financial statements provides further detail on revenue by geography.

Comparable Volume - Selling Day Shift
 
In millions of unit cases, prior period volume recast using current year selling days
Second-Quarter Ended   Six Months Ended
28 June 2019 29 June 2018 % Change   28 June 2019 29 June 2018 % Change
Volume 665   655   1.5 %   1,214   1,188   2.0 %
Impact of selling day shift n/a   n/a   n/a (7 ) n/a
Comparable volume - Selling Day Shift adjusted 665   655   1.5 %   1,214   1,181   3.0 %

 

Comparable Volume by Brand Category
Adjusted for selling day shift
Second-Quarter Ended   Six Months Ended
28 June 2019 29 June 2018 Volume % Change   28 June 2019 29 June 2018 % Change
% of Total % of Total % of Total % of Total
Sparkling 85.5 % 85.0 % 2.0 %   86.0 % 85.5 % 3.0 %
Coca-ColaTM 62.5 % 62.0 % 2.5 %   63.5 % 63.5 % 3.0 %
Flavours, Mixers & Energy 23.0 % 23.0 % 1.5 %   22.5 % 22.0 % 4.0 %
Stills 14.5 % 15.0 % (1.0 )%   14.0 % 14.5 % 1.5 %
Hydration 9.0 % 7.5 % (4.0 )%   8.5 % 7.0 % (1.0 )%
RTD Tea, RTD Coffee, Juices & Other[1] 5.5 % 7.5 % 3.5 %   5.5 % 7.5 % 4.5 %
Total 100.0 % 100.0 % 1.5 %   100.0 % 100.0 % 3.0 %

___________________________

[1] RTD refers to Ready-To-Drink.

Supplemental Financial Information - Cost of Sales and Operating Expenses

Cost of Sales

Cost of Sales
In millions of €, except per case data which is calculated prior to rounding. FX impact calculated by recasting current year results at prior year rates.
  Six Months Ended
  28 June 2019 29 June 2018 % Change
As reported   3,594   3,341   7.5 %
Adjust: Total items impacting comparability   3   (28 ) 1.0 %
Comparable[1]   3,597   3,313   8.5 %
Adjust: Impact of fx changes   4   n/a %
Comparable & fx-neutral   3,601   3,313   8.5 %
         
Cost of sales per unit case[1]   2.96   2.79   6.5 %

___________________________

[1] The change in cost of sales and cost of sales per unit case includes the impact of 3.0% for the six months ended 28 June 2019 related to incremental soft drinks taxes introduced during 2018 in Great Britain and France.

Reported cost of sales were €3,594 million, up 7.5 percent. Comparable cost of sales were €3,597 million, up 8.5 percent on a both a comparable and a comparable and fx-neutral basis. Cost of sales per unit case increased by 6.5 percent on a comparable and fx-neutral basis. This reflects brand mix, higher concentrate costs through the incidence pricing model given revenue per unit case growth, as well as the impact of incremental soft drinks taxes introduced during 2018 in Great Britain and France.

Operating Expenses

Operating Expenses
In millions of €
  Six Months Ended
  28 June 2019 29 June 2018 % Change
As reported   1,482   1,489   (0.5 )%
Adjust: Total items impacting comparability   (47 ) (66 ) 1.5 %
Comparable   1,435   1,423   1.0 %
Adjust: Impact of fx changes     n/a %
Comparable & fx-neutral   1,435   1,423   1.0 %

Reported operating expenses were €1,482 million, down 0.5 percent. Comparable operating expenses were €1,435 million, up 1.0 percent on both a comparable and a comparable and fx-neutral basis. This reflects our continued investments for the future partially offset by synergy benefits and a continued focus on managing expenses.

Supplemental Financial Information - Free Cash Flow
Free Cash Flow
In millions of €
  Six Months Ended  
  28 June 2019   29 June 2018  
Net cash flows from operating activities   844     621    
Less: Purchases of property, plant and equipment   (260 )   (207 )  
Less: Purchases of capitalised software   (44 )   (13 )  
Less: Interest paid, net   (53 )   (61 )  
Add: Proceeds from sales of property, plant and equipment   11     3    
Less: Payments of principal on lease obligations[1]   (61 )   (10 )  
Free Cash Flow   437     333    

_________________________

[1]As a result of the adoption of IFRS 16 on 1 January 2019, the majority of the Group's lease obligations are now presented on the balance sheet as Right Of Use (ROU) assets within Property, Plant and Equipment.

Cash outflows relating to operating leases had previously been presented in Net cash flows from operating activities and, from 1 January 2019, these equivalent cash flows are now included as cash flows from financing activities. During the six months ended 28 June 2019, total cash outflows from payments of principal on lease obligations were €61 million.

Our lease obligations are operating in nature and so we believe it is appropriate to include the related cash outflows in our Free Cash Flow measure. The Group has thus elected to amend its definition of Free Cash Flow and now includes cash outflows from lease obligations. This change is commensurate with the overall objective of the Non-GAAP measure, being a measure of the Group's cash generation from operating activities and taking into account our investing activities and non-discretionary interest payments.

In 2018, whilst our operating lease cash flows were presented as operating cash flows, our finance lease cash flows were included within financing activities and not adjusted for within Free Cash Flow. In amending our Free Cash Flow definition in 2019, our Free Cash Flow for the comparative 2018 period has been reduced by €10 million, to €333 million.

Supplemental Financial Information - Borrowings

 

Net Debt
In millions of €
As at   Credit Ratings
As of 7 August 2019
       
28 June 2019   31 December 2018     Moody's   Standard & Poor's
Total borrowings[1] 6,296     5,618     Long-term rating   A3   BBB+
Add: fx impact of non-EUR borrowings 18     24     Outlook   Stable   Stable
Adjusted total borrowings 6,314     5,642     Note: Our credit ratings can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions and working capital management activities of TCCC and/or changes in the credit rating of TCCC. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
Less: cash and cash equivalents (382 )   (309 )  
Net debt 5,932     5,333    

___________________________

[1]As a result of the adoption of IFRS 16 on 1 January 2019, Borrowings now include the majority of the Group's leasing obligations. As at 28 June 2019, lease obligations included within Total borrowings totalled €375 million. For the comparative period, only finance lease obligations of €75 million were included within Total borrowings.

Supplemental Financial Information - Adjusted EBITDA

 

Adjusted EBITDA
In millions of €
  Six Months Ended
  28 June 2019   29 June 2018
Reported profit after tax   508     417  
Taxes   170     143  
Finance costs, net   49     45  
Non-operating items   (1 )    
Reported operating profit   726     605  
Depreciation and amortisation[1]   314     253  
Reported EBITDA   1,040     858  
         
Items impacting comparability        
Mark-to-market effects[2]   (3 )   (2 )
Restructuring charges[3]   22     87  
Adjusted EBITDA   1,059     943  

______________________

[1] Depreciation in 2019 includes the effects relating to the adoption of IFRS 16 on 1 January 2019. For the 6 months ended 28 June 2019, depreciation related to ROU assets capitalised under IFRS 16 was €59 million.

[2] Amounts represent the net out-of-period mark-to-market impact of non-designated commodity hedges.

[3]Amounts represent restructuring charges related to business transformation activities, excluding accelerated depreciation included in the depreciation and amortisation line.

Principal Risks

The Directors recognise that the Group's risk management programme is essential to understand the nature, scope, potential likelihood and impact of enterprise-wide risks and to manage them effectively, responding appropriately to the changing risk profile of our operating environment. The Directors believe a strong risk culture with a clear risk management programme in CCEP will ensure well-informed business decisions are taken and risks are actively managed throughout the Group.

The following is a summary of the Group's Principal Risks that are included in our 2018 Integrated Report and Form 20-F for the year ended 31 December 2018:

• Changing consumer preferences and the health impact of soft drinks

• Legal and regulatory intervention

• Packaging and plastic

• Competitiveness and transformation

• Cyber and social engineering attacks

• Market

• Economic and political conditions

• Relationship with The Coca-Cola Company (TCCC) and other franchisors

• Product quality

Our principal risks have not changed materially in the first 6 months of 2019 and represent our principal risks for the remaining six months of the year. For further details of our principal risks please refer to pages 40 - 43 and for the risk factors please refer to pages 162 - 168 of our 2018 Integrated Report and Form 20-F.

Related Parties

Related party disclosures are presented in Note 10 of the Notes to the condensed consolidated interim financial statements contained in this interim management report.

Going Concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of 12 months from the date of signing these accounts. Accordingly, the condensed consolidated interim financial statements have been prepared on a going concern basis.

Responsibility Statement

The Directors of the Company confirm that to the best of their knowledge:

• The Condensed Consolidated Interim Financial Statements for the six months ended 28 June 2019 have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting', as adopted by the European Union and issued by the International Accounting Standards Board.

• The interim management report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority (DTR) 4.2.7 R and DTR 4.2.8 R as follows:

• DTR 4.2.7 R: an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• DTR 4.2.8 R: related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period; and any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

The Directors of the Company are shown on pages 50-54 in the 2018 Integrated Report and Form 20-F for the year ended 31 December 2018, save for the following changes:

• L. Phillip Humann and Curtis R. Welling stepped down as directors at the end of the AGM on 29 May 2019

• Dagmar Kollmann and Lord Mark Price were appointed as directors with effect from the end of the AGM on 29 May 2019

A list of current directors is maintained on CCEP's website: www.ccep.com.

On behalf of the Board

Damian Gammell Manik Jhangiani
Chief Executive Officer Chief Financial Officer

8 August 2019

Independent Review Report to Coca-Cola European Partners plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 June 2019 which comprises condensed consolidated interim income statement, condensed consolidated interim statement of comprehensive income, condensed consolidated interim statement of financial position, condensed consolidated interim statement of cash flows, condensed consolidated interim statement of changes in equity and the related explanatory notes 1 - 14. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as issued by the International Accounting Standards Board and IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board and as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the International Accounting Standards Board and as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

8 August 2019

Coca-Cola European Partners plc

Condensed Consolidated Interim Income Statement (Unaudited)

      Six Months Ended
      28 June 2019   29 June 2018
  Note   € million   € million
Revenue 3   5,802     5,435  
Cost of sales     (3,594 )   (3,341 )
Gross profit     2,208     2,094  
Selling and distribution expenses     (1,101 )   (1,070 )
Administrative expenses     (381 )   (419 )
Operating profit     726     605  
Finance income     26     23  
Finance costs     (75 )   (68 )
Total finance costs, net     (49 )   (45 )
Non-operating items     1      
Profit before taxes     678     560  
Taxes     (170 )   (143 )
Profit after taxes     508     417  
           
Basic earnings per share (€) 4   1.08     0.86  
Diluted earnings per share (€) 4   1.07     0.85  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Coca-Cola European Partners plc

Condensed Consolidated Interim Statement of Comprehensive Income (Unaudited)

    Six Months Ended
    28 June 2019   29 June 2018
    € million   € million
Profit after taxes   508     417  
Components of other comprehensive income (loss):        
Items that may be subsequently reclassified to the income statement:        
Foreign currency translations:        
Pretax activity, net   (16 )   (11 )
Tax effect        
Foreign currency translation, net of tax   (16 )   (11 )
Cash flow hedges:        
Pretax activity, net       (8 )
Tax effect   1     1  
Cash flow hedges, net of tax   1     (7 )
Other comprehensive loss for the period, net of tax   (15 )   (18 )
Comprehensive income for the period   493     399  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Coca-Cola European Partners plc

Condensed Consolidated Interim Statement of Financial Position (Unaudited)

      28 June 2019   31 December 2018   29 June 2018
  Note   € million   € million   € million
ASSETS              
Non-current:              
Intangible assets 5   8,392     8,384     8,363  
Goodwill 5   2,521     2,518     2,521  
Property, plant and equipment 6   4,184     3,888     3,793  
Non-current derivative assets     3     2     7  
Deferred tax assets     41     37     62  
Other non-current assets 12   286     396     78  
Total non-current assets     15,427     15,225     14,824  
Current:              
Current derivative assets     10     13     22  
Current tax assets     8     21     26  
Inventories     945     693     815  
Amounts receivable from related parties 10   114     107     101  
Trade accounts receivable     1,974     1,655     1,966  
Other current assets     230     193     497  
Cash and cash equivalents     382     309     368  
Total current assets     3,663     2,991     3,795  
Total assets     19,090     18,216     18,619  
LIABILITIES              
Non-current:              
Borrowings, less current portion 8   5,676     5,127     5,289  
Employee benefit liabilities     134     142     150  
Non-current provisions 13   116     119     67  
Non-current derivative liabilities     40     51     77  
Deferred tax liabilities     2,160     2,157     2,253  
Other non-current liabilities     280     264     233  
Total non-current liabilities     8,406     7,860     8,069  
Current:              
Current portion of borrowings 8   620     491     395  
Current portion of employee benefit liabilities     18     19     20  
Current provisions 13   74     133     139  
Current derivative liabilities     21     20     3  
Current tax liabilities     157     110     114  
Amounts payable to related parties 10   379     191     235  
Trade and other payables     3,080     2,828     2,814  
Total current liabilities     4,349     3,792     3,720  
Total liabilities     12,755     11,652     11,789  
EQUITY              
Share capital     5     5     5  
Share premium     167     152     135  
Merger reserves     287     287     287  
Other reserves     (567 )   (552 )   (521 )
Retained earnings     6,443     6,672     6,924  
Total equity     6,335     6,564     6,830  
Total equity and liabilities     19,090     18,216     18,619  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Coca-Cola European Partners plc

Condensed Consolidated Interim Statement of Cash Flows (Unaudited)

      Six Months Ended
      28 June 2019   29 June 2018
  Note   € million   € million
Cash flows from operating activities:          
Profit before taxes     678     560  
Adjustments to reconcile profit before tax to net cash flows from operating activities:          
Depreciation 6   289     229  
Amortisation of intangible assets 5   25     24  
Share-based payment expense     8     7  
Finance costs, net     49     45  
Income taxes paid     (82 )   (92 )
Changes in assets and liabilities:          
Decrease/(increase) in trade and other receivables     (321 )   (234 )
Decrease/(increase) in inventories     (254 )   (166 )
Increase/(decrease) in trade and other payables     265     315  
Increase/(decrease) in provisions     (62 )   (36 )
Change in other operating assets and liabilities     249     (31 )
Net cash flows from operating activities     844     621  
Cash flows from investing activities:          
Purchases of property, plant and equipment     (260 )   (207 )
Purchases of capitalised software     (44 )   (13 )
Proceeds from sales of property, plant and equipment     11     3  
Net cash flows used in investing activities     (293 )   (217 )
Cash flows from financing activities:          
Proceeds from borrowings, net of issuance costs     492      
Changes in short-term borrowings     50     (78 )
Repayments on third party borrowings     (175 )    
Payments of principal on lease obligations     (61 )   (10 )
Interest paid, net     (53 )   (61 )
Dividends paid     (290 )   (252 )
Purchase of own shares under share buyback programme     (457 )    
Exercise of employee share options     15     8  
Other financing activities, net     1     (2 )
Net cash flows used in financing activities     (478 )   (395 )
Net change in cash and cash equivalents     73     9  
Net effect of currency exchange rate changes on cash and cash equivalents         (1 )
Cash and cash equivalents at beginning of period     309     360  
Cash and cash equivalents at end of period     382     368  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Coca-Cola European Partners plc

Condensed Consolidated Interim Statement of Changes in Equity (Unaudited)

      Share capital   Share premium   Merger reserves   Other reserves   Retained earnings   Total equity
  Note   € million   € million   € million   € million   € million   € million
Balance as at 31 December 2017     5     127     287     (503 )   6,769     6,685  
Profit after taxes                     417     417  
Other comprehensive income / (expense)                 (18 )       (18 )
Total comprehensive income                 (18 )   417     399  
Issue of shares during the period         8                 8  
Equity-settled share-based payment expense                     7     7  
Share-based payment tax benefits                     (16 )   (16 )
Dividends                     (253 )   (253 )
Balance as at 29 June 2018     5     135     287     (521 )   6,924     6,830  
                           
                           
Balance as at 31 December 2018     5     152     287     (552 )   6,672     6,564  
Profit after taxes                     508     508  
Other comprehensive income / (expense)                 (15 )       (15 )
Total comprehensive income                 (15 )   508     493  
Issue of shares during the period         15                 15  
Equity-settled share-based payment expense                     8     8  
Share-based payment tax benefits                     2     2  
Dividends 9                   (290 )   (290 )
Own shares purchased under share buyback programme                     (457 )   (457 )
Balance as at 28 June 2019     5     167     287     (567 )   6,443     6,335  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Notes to the Condensed Consolidated Interim Financial Statements

Note 1

GENERAL INFORMATION AND BASIS OF PREPARATION

Coca-Cola European Partners plc (the Company) and its subsidiaries (together CCEP, the Group) are a leading consumer goods group in Western Europe making, selling and distributing an extensive range of non-alcoholic ready-to-drink beverages. The Group 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, Iceland, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain and Sweden. CCEP is a public company limited by shares, incorporated under the laws of England and Wales with the registered number in England of 09717350. The Group's shares are listed and traded on Euronext Amsterdam, the New York Stock Exchange, London Stock Exchange and on the Spanish Stock Exchanges. The address of the Company's registered office is Pemberton House, Bakers Road, Uxbridge, Middlesex UB8 1EZ, United Kingdom.

These condensed consolidated interim financial statements do not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. They have been reviewed but not audited by the Group's auditor, unless otherwise stated. The statutory accounts for the Company for the year ended 31 December 2018, which were prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB), IFRS as adopted by the European Union and in accordance with the provisions of the Companies Act 2006, have been delivered to the Registrar of Companies. The auditor's opinion on those accounts was unqualified and did not contain a statement made under section 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial statements of the Group for the six months ended 28 June 2019 were approved and signed by Damian Gammell, Chief Executive Officer on 8 August 2019 having been duly authorised to do so by the Board of Directors.

Basis of Preparation and Accounting Policies

The condensed consolidated interim financial statements of the Group have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34, “Interim Financial Reporting” (IAS 34) and should be read in conjunction with our 2018 Consolidated Financial Statements. The 2018 Consolidated Financial Statements were prepared in accordance with IFRS as issued by the IASB, IFRS as adopted by the European Union and in accordance with the provisions of the Companies Act 2006.

The 2018 Consolidated Financial Statements include a full description of the Group's accounting policies. The same accounting policies and methods of computation have been used as described in the 2018 Consolidated Financial Statements, with the exception of taxes on income and the adoption of IFRS 16, “Leases” as set out in Note 2. Taxes on income in interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

For consistent preparation, the amount within the Condensed Consolidated Interim Statement of Cash Flows for the six months ended 29 June 2018 relating to payments of principal on lease obligations has been presented in line with current year classification. There has been no change in our net cash flows from financing activities for the six months ended 29 June 2018.

Reporting periods

Results are presented for the interim period from 1 January 2019 to 28 June 2019.

The Group's financial year ends on 31 December. For 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 28 June 2019 versus the six months ended 29 June 2018, and there will be one more selling day in the second six months of 2019 versus the second six months of 2018 (based upon a standard five-day selling week).

The following table summarises the number of selling days, for the years ended 31 December 2019 and 31 December 2018 (based on a standard five-day selling week):

    Half year   Full year
2019   129   261
2018   130   261
Change   -1   0

Trading seasonality

Operating results for the first half of 2019 may not be indicative of the results expected for the year ended 31 December 2019 as sales of the Group's products are seasonal, with the second and third quarters accounting for higher unit sales of the Group's products than the first and fourth quarters. The seasonality of the Group's sales volume, combined with the accounting for fixed costs such as depreciation, amortisation, rent and interest expense, impacts the Group's results for the first half of the year. Additionally, year-over-year shifts in holidays, selling days and weather patterns can impact the Group's results on an annual or half-yearly basis.

Exchange rates

The Group's reporting currency is the Euro. CCEP translates the income statements of non-Euro functional currency subsidiary operations to the Euro at average exchange rates and the balance sheets at the closing exchange rate as at the end of the period.

The principal exchange rates used for translation purposes in respect of one Euro were:

    Average for the Six Months Ended   Closing as at
    28 June 2019   29 June 2018   28 June 2019   31 December 2018   29 June 2018
UK Sterling   1.14     1.14     1.12     1.12     1.13  
US Dollar   0.89     0.83     0.88     0.87     0.86  
Norwegian Krone   0.10     0.10     0.10     0.10     0.11  
Swedish Krone   0.10     0.10     0.09     0.10     0.10  
Icelandic Krone   0.01     0.01     0.01     0.01     0.01  

Note 2

IFRS 16 LEASES

On 1 January 2019, the Group adopted IFRS 16, “Leases” on a modified retrospective basis from 1 January 2019. The Group has not restated its 2018 financial statements as permitted under the specific transitional provisions in the standard. The impact from the new leasing standard is therefore recognised in the opening balance sheet on 1 January 2019.

Prior to the adoption of IFRS 16, the Group classified and accounted for each of its leases (as lessee) as either a finance lease or an operating lease under the principles of IAS 17, “Leases”. Finance leases were capitalised at the commencement of the lease at the inception date fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest and reduction of the lease liability. For operating leases, the leased asset was not capitalised and the lease payments were recognised as rent expense in the statement of profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under Prepayments and Trade and other payables, respectively.

The objective of IFRS 16 is to ensure 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. The lease liability was initially measured at the present value of lease payments, discounted using the Group's incremental borrowing rate (IBR). The weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 1.30 percent. The lease term comprises the non-cancellable period of the contract, together with periods covered by an option to extend the lease whenever the Group is reasonably certain to exercise that option. Subsequently, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability and reducing it by lease payments made.

In adopting IFRS 16 Leases, the following expedients were applied:

• The right of use asset is measured at the value of the lease liability, adjusted for any prepaid or accrued lease payments.

• A single discount rate applied to a portfolio of leases with reasonably similar characteristics.

• On adoption, the Group used hindsight in determining lease term.

• Short-term lease exemption applied to Machinery & Equipment and IT asset classes for leases expiring within 12 months of 1 January 2019.

• Reliance on previous assessments on whether leases were onerous immediately before the date of initial application.

The Group does not separate lease from non-lease components for each of its lease categories, except for property leases. For property leases, only base rent is included in the calculation of the right of use asset. All low value leases with total minimum lease payments under €5,000 are expensed on a straight line basis. The assessment of low value for a leased asset is made on the basis of the value of an asset when it is (or was) new, regardless of whether the actual asset being leased is new.

For leases previously classified as finance leases, the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of adoption. The measurement principles of IFRS 16 are only applied after that date. This resulted in measurement adjustments of €6 million relating to non-lease components of finance leases that were included in the lease liability calculation for certain asset classes. The remeasurements to lease liabilities were recognised as adjustments to the related right of use assets immediately after the date of initial application.

Lease liabilities are included within Borrowings in our Statement of Financial Position. The following tables summarise the reconciliation of our opening lease liability position under IFRS 16:

Operating lease commitments disclosed as at 31 December 2018 (undiscounted)   Total
  € million
Within one year   94  
After one year but not more than five years   169  
More than five years   37  
Total minimum lease payments   300  

 

    Total
  € million
Total minimum lease payments (discounted)   290  
(Less): short-term and low value leases recognised on a straight-line basis as expense   (5 )
Add: adjustments as a result of a different treatment of extension and termination options   32  
(Less): non-lease components for property leases   (5 )
Add: non-lease components for vehicle leases and other   10  
Lease operating liability recognised as at 1 January 2019   322  
Add: finance lease liabilities recognised as at 31 December 2018   75  
Total lease liability recognised as at 1 January 2019   397  
Of which are:    
Current lease liabilities   147  
Non-current lease liabilities   250  

Right of use assets are included within Property, Plant and Equipment and were initially measured at cost, comprising the initial measurement of the lease liability, plus any direct costs and an estimate of asset retirement obligations, less lease incentives. Subsequently, right of use assets are measured at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight line basis over the term of the lease.

The recognised right of use assets within Property, Plant and Equipment, and related lease liability amounts recognised as at the adoption date relate to the following asset types:

Right of Use Asset category   Lease Liability   Right of Use Asset
    € million   € million
Buildings   212     208  
Furniture and office equipment   35     35  
Machinery and equipment   5     5  
Vehicles   145     145  
Total   397     393  

The Group's activities as a lessor are not material and hence the Group determines there is no significant impact on its condensed consolidated interim financial statements.

The adoption of IFRS 16 had a diminimus impact on the Group's profit before tax for the period ended 28 June 2019.

There is no impact on overall cash flows on the Group from the adoption of IFRS 16. However, cash outflows for lease payments are now included within cash flows used in financing activities, within payments of principal on lease obligations. Prior to adoption, cash flows relating to our operating leases were included within cash flows from operating activities, and only finance leases cash flows were classified as financing activities.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

In determining the lease term, the Group considers all facts and circumstances associated with exercising an extension or termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

Note 3

OPERATING SEGMENT

The Group evaluates its segmental reporting under IFRS 8, “Operating Segments”. The Group derives its revenues through a single business activity, which is making, selling and distributing ready-to-drink beverages. The Group operates solely in developed markets in Western Europe and has a homogenous product portfolio across its geographic territories. Based on the governance structure of the Group, including decision making authority and oversight, the Group has determined that the Board is its Chief Operating Decision Maker (CODM). The Board, as the CODM, allocates resources and evaluates performance at a consolidated level and, therefore, the Group has one operating segment.

The following table summarises revenue from external customers by geography, which is based on the origin of the sale:

Revenue by Geography   Six Months Ended
    28 June 2019   29 June 2018
    € million   € million
Iberia[1]   1,282     1,210  
Germany   1,171     1,112  
Great Britain   1,151     1,035  
France[2]   967     874  
Belgium/Luxembourg   493     482  
Netherlands   295     281  
Norway   218     212  
Sweden   184     184  
Iceland   41     45  
Total revenue   5,802     5,435  

[1] Iberia refers to Spain, Portugal & Andorra.

[2] France refers to continental France & Monaco.

Note 4

EARNINGS PER SHARE

Basic earnings per share is calculated by dividing profit after taxes by the weighted average number of 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 share options, restricted stock units and performance 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 based on the number of shares that would be issuable, if the end of the period was the end of the contingency period.

The following table summarises basic and diluted earnings per share calculations for the periods presented:

    Six Months Ended
    28 June 2019   29 June 2018
Profit after taxes attributable to equity shareholders (€ million)   508     417  
Basic weighted average number of shares in issue (million)   472     485  
Effect of dilutive potential shares (million)   3     4  
Diluted weighted average number of shares in issue (million)   475     489  
Basic earnings per share (€)   1.08     0.86  
Diluted earnings per share (€)   1.07     0.85  

As at 28 June 2019 and 29 June 2018, the Company had 466,671,427 and 486,108,000 shares in issue and outstanding, respectively.

For the six months ended 28 June 2019, there were no outstanding options to purchase shares excluded from the diluted earnings per share calculation. For the six months ended 29 June 2018, outstanding options to purchase 0.7 million shares were excluded from the diluted earnings per share calculation because the effect of including these options in the computation would have been antidilutive. The dilutive impact of the remaining options outstanding and unvested restricted share units was included in the effect of dilutive securities.

Note 5

INTANGIBLE ASSETS AND GOODWILL

The following table summarises the movement in net book value for intangible assets and goodwill during the six months ended 28 June 2019:

    Intangible assets   Goodwill
    € million   € million
Net book value as at 31 December 2018   8,384     2,518  
Additions   43      
Amortisation expense   (25 )    
Currency translation adjustments   (10 )   3  
Net book value as at 28 June 2019   8,392     2,521  

Note 6

PROPERTY, PLANT AND EQUIPMENT

The following table summarises the movement in net book value for property, plant and equipment during the six months ended 28 June 2019:

    Total
  € million
Net book value as at 31 December 2018   3,888  
Adjustment for adoption of IFRS 16[1]   322  
Additions   293  
Disposals   (31 )
Depreciation expense   (289 )
Currency translation adjustments   1  
Net book value as at 28 June 2019   4,184  

[1] Adjustment for the adoption of IFRS 16, “Leases” on 1 January 2019, as described in Note 2.

During the period the Group commenced a transformation project relating to our cold drink operations aimed at delivering a modern, differentiated and versatile equipment fleet in order to optimise net cooler placements throughout our markets. As part of this strategy, our capital expenditure on cold drink equipment will focus on the introduction of a new, more cost effective cooler into our markets, whilst reducing maintenance and refurbishment support spending on our older equipment. We began rolling out the new commercial strategy during the first half of 2019. As a result of the operational impact of the strategic changes, we incurred a non-cash restructuring charge in the period of €24 million relating to the write down and accelerated depreciation of aged cold drink equipment assets. We expect the majority of the aged cold drink equipment assets to be removed from customer locations over a reasonable period of time and replaced with newer equipment.

Note 7

FAIR VALUES AND FINANCIAL RISK MANAGEMENT

Fair Value Measurements

All assets and liabilities for which fair value is measured or disclosed in the condensed consolidated interim financial statements are categorised in the fair value hierarchy as described in our 2018 Consolidated Financial Statements.

The fair values of the Group's cash and cash equivalents, trade accounts receivable, amounts receivable from related parties, trade and other payables, and amounts payable to related parties approximate their carrying amounts due to their short-term nature.

The fair values of the Group's borrowings are estimated based on borrowings with similar maturities and credit quality and current market interest rates. These are categorised in Level 2 of the fair value hierarchy as the Group uses certain pricing models and quoted prices for similar liabilities in active markets in assessing their fair values. The total fair value of borrowings as at 28 June 2019 and 31 December 2018, was €6.6 billion and €5.7 billion, respectively. This compared to the carrying value of total borrowings as at 28 June 2019 and 31 December 2018 of €6.3 billion and €5.6 billion, respectively. Refer to Note 8 for further details regarding the Group's borrowings.

The Group'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 our derivative contracts (including forwards, options, cross-currency swaps and interest rate swaps) are 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 28 June 2019 and 31 December 2018, the total value of derivative assets was €13 million and €15 million, respectively. As at 28 June 2019 and 31 December 2018, the total value of derivative liabilities was €61 million and €71 million, respectively.

For assets and liabilities that are recognised in the condensed consolidated interim financial statements on a recurring basis, the Group 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.

Financial Instruments Risk Management Objectives and Policies

The Group'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 over the Group's future cash flows. Such policies are developed and approved by the Group's Treasury and Commodities Risk Committee through the authority provided to it by the Group's Board of Directors. There have been no changes in the risk management policies since the year end.

Note 8

BORROWINGS AND LEASES

Borrowings Outstanding

The following table summarises the Group's borrowings as at the dates presented:

    28 June 2019   31 December 2018
    € million   € million
Non-current:        
US$525 million 3.50% Notes 2020   460     456  
US$250 million 3.25% Notes 2021   218     216  
US$300 million 4.50% Notes 2021   262     261  
 €350 million Floating Rate Note 2021   350     350  
 €700 million 0.75% Notes 2022   698     697  
 €350 million 2.63% Notes 2023   348     348  
 €500 million 1.13% Notes 2024   496     495  
 €350 million 2.38% Notes 2025   346     346  
 €250 million 2.75% Notes 2026   248     248  
 €400 million 1.50% Notes 2027   395     395  
 €500 million 1.75% Notes 2028   493     493  
 €500 million 1.125% Notes 2029 [1]   492      
 €500 million 1.88% Notes 2030   495     495  
Term loan 2018-2021[2]   100     274  
Lease obligations[3]   275     53  
Total non-current borrowings   5,676     5,127  
         
Current:        
 €350 million 2.00% Notes 2019   350     349  
EUR commercial paper   170     120  
Lease obligations[3]   100     22  
Total current borrowings   620     491  

___________________________

[1] In April 2019, the Group issued €500 million, 1.125% notes due 2029.

[2] In May and June 2019, €175 million due in 2020 and 2021 were repaid prior to maturity. As at 28 June 2019, €100 million of the term loan remains outstanding with annual repayments due 2021.

[3] As at 28 June 2019 these amounts represent the present value of the majority of the Group's lease obligations, including the effects of adopting IFRS 16. Refer to Note 2 for further details. As at 31 December 2018 these amounts only included the Group's finance lease obligations.

Note 9

EQUITY

Share Capital

As at 28 June 2019, the Company had 466,671,427 fully paid ordinary shares of €0.01 each in issue. Shares in issue have one voting right each and no restrictions related to dividends or return of capital. During the six months ended 28 June 2019, 1,514,347 shares were issued in connection with share-based payment awards.

Share buyback programme

In connection with the share buyback programme, the Company entered into agreements to purchase €455 million of its own shares during the six months ended 28 June 2019. In this period, 9,762,986 shares were repurchased by the Company and cancelled. The total cost of the repurchased shares of €457 million, including €2 million of directly attributable tax costs, was deducted from retained earnings. As a result of the cancellation, €0.1 million was transferred from share capital to a capital redemption reserve, representing the nominal value of the shares cancelled.

Since the current share buyback programme commenced in 2018, a total of 22,192,586 shares have been repurchased and cancelled.

Dividends

On 30 April 2019, the Company declared a first half interim dividend of €0.62 per share, which was paid on 6 June 2019.

Note 10

RELATED PARTY TRANSACTIONS

For the purpose of these condensed consolidated interim financial statements, transactions with related parties mainly comprise transactions between subsidiaries of the Group and the related parties of the Group.

Transactions with The Coca-Cola Company (TCCC)

TCCC exhibits significant influence over the Group, as defined by IAS 24, “Related Party Disclosures”. As at 28 June 2019, 18.9% of the total outstanding ordinary shares in the Group were owned by European Refreshments, a wholly owned subsidiary of TCCC. The Group is a key bottler of TCCC products and has entered into bottling agreements with TCCC to sell, make and distribute products of TCCC in the Group's territories. The Group purchases concentrate from TCCC and also receives marketing funding to help promote the sale of TCCC products. Bottling agreements with TCCC for each of the Group's territories extend through 28 May 2026, with terms of 10 years, with each containing the right for the Group to request a 10-year renewal. Additionally, two of the Group's 17 Directors were nominated by TCCC, one of whom is also an employee of TCCC.

The principal transactions with TCCC are for the purchase of concentrate, syrup and finished product. The following table summarises the transactions with TCCC that directly impacted the Condensed Consolidated Interim Income Statement for the periods presented:

    Six Months Ended
    28 June 2019   29 June 2018
    € million   € million
Amounts affecting revenue[1]   31     29  
Amounts affecting cost of sales[2]   (1,610 )   (1,429 )
Amounts affecting operating expenses[3]   (10 )   2  
Total net amount affecting the Consolidated Income Statement   (1,589 )   (1,398 )

[1] Amounts principally relate to fountain syrup and packaged product sales.

[2] Amounts principally relate to the purchase of concentrate, syrup, mineral water and juice as well as funding for marketing programmes.

[3] Amounts principally relate to certain costs associated with new product development initiatives.

The following table summarises the transactions with TCCC that impacted the Consolidated Statement of Financial Position as at the dates presented:

    28 June 2019   31 December 2018
    € million   € million
Amount due from TCCC   108     101  
Amount payable to TCCC   356     166  

Transactions with Cobega companies

Cobega exhibits significant influence over the Group, as defined by IAS 24, “Related Party Disclosures”. Cobega S.A. indirectly owned 19.8% of the total outstanding ordinary shares of the Group as at 28 June 2019 through its ownership interest in Olive Partners S.A. Additionally, five of the Group's 17 Directors, including the Chairman, were nominated by Olive Partners S.A., three of whom are affiliated with Cobega S.A.

The principal transactions with Cobega are for the purchase of juice concentrate, packaging materials and mineral water. The following table summarises the transactions with Cobega that directly impacted the Condensed Consolidated Interim Income Statement for the periods presented:

    Six Months Ended
    28 June 2019   29 June 2018
    € million   € million
Amounts affecting revenues[1]   1      
Amounts affecting cost of sales[2]   (37 )   (39 )
Amounts affecting operating expenses[3]   (8 )   (7 )
Total net amount affecting the Consolidated Income Statement   (44 )   (46 )

[1] Amounts principally relate to packaged product sales.

[2] Amounts principally relate to the purchase of concentrate, mineral water and packaging materials.

[3] Amounts principally relate to certain costs associated with maintenance and repair services and rent.

The following table summarises the transactions with Cobega that impacted the Consolidated Statement of Financial Position as at the dates presented:

    28 June 2019   31 December 2018
    € million   € million
Amount due from Cobega   6     6  
Amount payable to Cobega   23     25  

There are no significant transactions with other related parties in the periods presented.

Note 11

TAXES

The same accounting policies and methods of computation have been used as described in the 2018 Consolidated Financial Statements, with the exception of taxes on income. Taxes on income in interim periods are accrued using the tax rate that would be applicable to the expected total annual profit or loss.

The effective tax rate was 25 percent and 26 percent for the six months ended 28 June 2019 and 29 June 2018, respectively, and 25 percent and 41 percent for the year ended 31 December 2018 and 31 December 2017, respectively.

Tax Provisions

The Group is routinely under audit by taxing authorities in the ordinary course of business. Due to their nature, such proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, settlements between affected parties and/or governmental actions. The probability of outcome is assessed and accrued as a liability and/or disclosed, as appropriate. The Group maintains provisions for uncertainty relating to tax matters that it believes appropriately reflect its risk, the carrying amount of which as at 28 June 2019 is included in other non-current liabilities on the Statement of Financial Position.

The Group reviews the adequacy of these provisions at the end of each reporting period and adjusts them based on changing facts and circumstances. Due to the uncertainty associated with tax matters, it is possible that at some future date, liabilities resulting from audits or litigation could vary significantly from the Group's provisions.

The Group has received tax assessments in certain jurisdictions for potential tax related to the Group's purchases of concentrate. The value of the Group's concentrate purchases is significant, and therefore, the tax assessments are substantial. The Group strongly believes the application of tax has no technical merit based on applicable tax law, and its tax position would be sustained. Accordingly, the Group has not recorded a tax liability for these assessments, and is vigorously defending its position against these assessments.

Note 12

OTHER NON-CURRENT ASSETS

As at 28 June 2019, included within other non-current assets, the Group has a VAT receivable of €198 million, relating to the dispute that began in 2014 between the Spanish Tax Authorities and the Regional Tax Authorities of Bizkaia (Basque Region) as to the responsibility for refunding the VAT to CCEP.

During the six months ended 28 June 2019, the Group was refunded VAT of €126 million (including interest) related to 2017 and 2018. Those periods were blocked by the Spanish Tax Authorities but not subject to the Arbitration Board ruling. The outstanding VAT receivable remains classified as non-current due to the continued delay in the resolution of the matter by the Arbitration Board. We believe it remains a certainty that the amount due plus interest will be refunded to CCEP once the Arbitration Board rules.

Note 13

PROVISIONS, COMMITMENTS AND CONTINGENCIES

The following table summarises the movement of provisions for the periods presented:

    Restructuring Provision   Other Provisions[1]   Total
    € million   € million   € million
Balance as at 31 December 2018   223     29     252  
Charged/(credited) to profit or loss:            
Additional provisions recognised   21     1     22  
Unused amounts reversed   (12 )       (12 )
Utilised during the period   (71 )       (71 )
Translation       (1 )   (1 )
Balance as at 28 June 2019   161     29     190  

______________________

[1] Other provisions primarily relate to decommissioning provisions, property tax assessment provisions and legal reserves.

During the six months ended 28 June 2019, the Group recorded new provisions totalling €21 million in connection with restructuring activities. These restructuring activities were primarily related to labour productivity and commercial re-organisation programmes in Germany.

Commitments

There have been no significant changes in commitments since 31 December 2018. Refer to Note 20 of the 2018 Consolidated Financial Statements for further details about the Group's commitments.

Contingencies

There have been no significant changes in contingencies since 31 December 2018. Refer to Note 20 of the 2018 Consolidated Financial Statements for further details about the Group's contingencies.

Note 14

EVENTS AFTER THE REPORTING PERIOD

On 31 July 2019, €100 million of the term loan due in 2021 was repaid prior to maturity.