Coca-Cola Europacific Partners(CCEP) - 2019 Q4 - Annual Report

Strategic Report Performance Indicators In 2019, the company delivered strong financial and sustainability performance, highlighted by a 4.5% increase in revenue to €12.0 billion and a 6.0% growth in comparable operating profit to €1.7 billion 2019 Key Financial Performance Indicators | Indicator | 2019 Value | Change vs 2018 | Key Drivers | | :--- | :--- | :--- | :--- | | Revenue | €12.0 billion | +4.5% | Solid growth in revenue per unit case, improved price/mix, and 1% volume increase | | Operating profit (comparable) | €1.7 billion | +6.0% | Revenue increase and continued focus on operating costs | | Diluted EPS (comparable) | €2.53 | +10.0% | Growth in operating profit and completion of a €1.5 billion share buyback program | | Free cash flow | €1.1 billion | -1.1% | Strong cash generation, in line with medium-term objective of at least €1 billion annually | | Return on capital invested (ROIC) | 10.3% | +40 bps | Continued drive for capital efficiencies | 2019 Key Sustainability Performance Indicators | Indicator | 2019 Value | Change vs 2018 | Notes | | :--- | :--- | :--- | :--- | | Lost time incident rate | 1.07 | -6.1% | Per 100 full-time equivalent employees | | % Sugar reduction (since 2015) | 12.9% | from 11.1% | Achieved through reformulation and providing more low/no sugar options | | % PET from recycled PET | 30.5% | from 27.6% | Target of at least 50% recycled content brought forward from 2025 to 2023 | | Water use ratio | 1.60 L/L | from 1.61 L/L | Litres of water per litre of product produced | | % GHG emissions reduction (since 2010) | 52.0% | - | Core business operations emissions fell 2.7% between 2018 and 2019 | Our Portfolio The company is evolving into a total beverage company, offering a wide range of drinks for every occasion, with Coca-Cola Zero Sugar volume growing by 13.0% in 2019 - The Coca-Cola® trademark portfolio saw transactions increase by 2.0%, driven by a significant 13.0% volume growth in Coca-Cola Zero Sugar[24] - The company expanded its energy drink offerings with the launch of Coca-Cola Energy across all markets and the introduction of Monster Reign, a fitness-focused beverage[26] - The Ready-to-Drink (RTD) teas and coffees category continued to build momentum with the growth of Fuze Tea and the extension of the RTD coffee range to include Costa Coffee and Monster Espresso[29][30] Our Operations CCEP emphasizes its local business model, with significant investments in manufacturing and distribution within its operating countries, including a €14 million new can line in the Netherlands and a €30 million returnable glass line in Germany - The company operates as a local business, with approximately 91% of the drinks sold being produced in the country of consumption[33][43] - Significant investments were made to improve manufacturing capabilities, including a €14 million investment in a new can line and KeelClip™ machine in the Netherlands to reduce plastic usage[35] - A €30 million investment was made in a new returnable glass line in Mannheim, Germany, capable of filling up to 60,000 bottles per hour, supporting sustainability efforts[42] Conversation with our Chairman and CEO The Chairman and CEO highlighted a solid 2019 with 4.5% revenue growth and €1.1 billion in free cash flow, emphasizing the strategy of becoming a total beverage company driven by innovation and strategic investments - In 2019, CCEP delivered solid revenue growth of 4.5% and generated strong free cash flow of €1.1 billion, while investing almost €600 million in capital expenditures[48] - The company returned value to shareholders through a full-year dividend of €1.24 per share (up 17% YoY) and the completion of a €1.5 billion share buyback program, with €1 billion executed in 2019[50] - CCEP is accelerating its sustainability targets, committing to achieve at least 50% recycled content in plastic bottles by 2023 (two years early) and aiming for 100% recycled or renewable materials in the future[55] - The strategic alignment with The Coca-Cola Company (TCCC) has strengthened, enabling rapid execution on new products like Costa Coffee RTD, which launched within five months of TCCC's acquisition[58] Succeeding in a Changing Landscape The company is actively adapting to key market trends by diversifying its portfolio, investing in customer service and digital technology, and advancing its sustainability agenda - CCEP is responding to the evolving customer environment by investing in its customer service model, segmenting customers more closely with consumer behavior, and investing in technology, particularly for the growing away-from-home channel[63] - To meet evolving consumer demands for variety, the company is diversifying its portfolio with new recipes and expanding into new categories like ready-to-drink organic teas and coffees[63] - The company is investing in digital technology to better serve customers and employees, launching initiatives like the 'My CCEP' online portal to streamline ordering and provide business insights[68][70] Our Strategy CCEP's strategy is guided by five key imperatives focused on delivering sustainable shareholder returns, including profitable revenue growth, world-class customer execution, cost competitiveness, sustainability, and a diverse workplace - The company's core strategy is to drive profitable revenue growth by offering a diverse beverage portfolio and creating value through a segmented approach to consumer environments[73] - A key imperative is to be competitive across the market, cost base, and supply chain to drive both growth and operational efficiency[73] - Sustainability is central to the strategy, with the 'This is Forward' action plan guiding actions on key global issues like climate and packaging[73][76] - Fostering a diverse, modern workplace where people are empowered to succeed and adopt an entrepreneurial mindset is a critical component of the overall strategy[73] Business Model CCEP's business model is centered on collaboration with a wide range of stakeholders across its value chain, including franchisors, 17,000 suppliers, 23,300 employees, and a diverse customer base - The company operates under bottling agreements with TCCC and other franchisors, purchasing concentrates and syrups to make, sell, and distribute packaged beverages[43][77] - CCEP works with a network of about 17,000 suppliers, with around 86% of its 2019 spend (excluding concentrate) being with suppliers in its countries of operation[77] - The business model is customer-centric, with a 6,000-strong sales force aiming to be the preferred partner for customers, generating €433 million more revenue for grocery customers in 2019 compared to 2018[81][85] Our People CCEP's people strategy focuses on creating a supportive, inclusive, and safe work environment, launching 'Me@CCEP' in 2019 and achieving 35.5% women in management positions - The company launched 'Me@CCEP', a new people and culture strategy focused on six pillars: being well, connected, valued, developed, rewarded, and inspired[90][91][92] - CCEP is committed to diversity, aiming for at least 40% of management positions to be held by women by 2025, reaching 35.5% in 2019, up from 35.2% in 2018[94][106] Workforce Diversity in 2019 | Category | Male % | Female % | Male Count | Female Count | | :--- | :--- | :--- | :--- | :--- | | Total employees | 74.9% | 25.1% | 17,498 | 5,859 | | Board of Directors | 76.5% | 23.5% | 13 | 4 | | Leadership | 64.5% | 35.5% | 1,489 | 818 | - Workplace health and safety remains a priority, with the lost time incident rate falling to 1.07 per 100 full-time equivalent employees in 2019, a 6.1% reduction from the previous year[90][108] Operating with Integrity CCEP operates with a strong ethics and compliance program, underpinned by its Code of Conduct, committing to human rights, zero-tolerance for modern slavery, and providing channels for raising concerns - The company's ethics and compliance program is centered around its Code of Conduct (CoC), which requires all employees to undergo training and ensures business is conducted lawfully and ethically[113][116] - CCEP has a zero-tolerance policy for modern slavery and is committed to respecting human rights throughout its operations and supply chain, aligned with the UN Guiding Principles on Business and Human Rights[116] 2019 Code of Conduct Reports by Category | Category | Number of Reports | % of Total | | :--- | :--- | :--- | | Creating an inclusive and respectful workplace | 25 | 28% | | Integrity of our business records | 29 | 31% | | Using our assets responsibly - non-financial | 16 | 17% | | Working in a safe and healthy environment | 15 | 16% | | Grand total | 93 | 100% | Business and Financial Review For the fiscal year 2019, CCEP reported strong financial results, with revenue totaling €12.0 billion, a 4.5% increase year-over-year, and comparable operating profit growing by 6.0% to €1.7 billion Key Financial Measures (Year ended Dec 31, 2019) | Metric | As Reported | Comparable | % Change vs PY (Comparable) | | :--- | :--- | :--- | :--- | | Revenue | €12,017 million | €12,017 million | 4.5% | | Operating Profit | €1,548 million | €1,676 million | 6.0% | | Profit After Taxes | €1,090 million | €1,185 million | 6.0% | | Diluted EPS (€) | €2.32 | €2.53 | 10.0% | Revenue by Geography (2019) | Geography | % of Total Revenue | Revenue % Change vs 2018 | | :--- | :--- | :--- | | Iberia | 23.0% | 4.5% | | Germany | 20.5% | 4.0% | | Great Britain | 20.0% | 6.0% | | France | 16.0% | 7.0% | | Belgium/Luxembourg | 8.5% | 2.0% | | Northern Europe (Other) | 12.0% | ~1.5% | Comparable Volume by Brand Category (2019) | Brand Category | % of Total Volume | Volume % Change vs 2018 | | :--- | :--- | :--- | | Sparkling | 86.0% | 1.5% | | Coca-Cola trademark | 63.5% | 1.5% | | Flavours, mixers and energy | 22.5% | 1.0% | | Stills | 14.0% | (0.5)% | | Hydration | 8.5% | (3.0)% | | RTD teas, coffees, juices | 5.5% | 4.0% | - The company generated €1.1 billion in free cash flow and increased its Return on Invested Capital (ROIC) by 40 basis points to 10.3%[132][166] - CCEP returned significant value to shareholders, paying dividends totaling €574 million and completing a €1.5 billion share buyback program by repurchasing €1.0 billion of shares in 2019[190][191] Sustainability - This is Forward CCEP's sustainability strategy, 'This is Forward', is an integrated action plan focusing on six key areas: drinks, packaging, society, water, climate, and supply chain, aligning with UN Sustainable Development Goals and setting ambitious targets - 'This is Forward' is the Group's sustainability action plan, created with TCCC and focusing on six key social and environmental areas: Drinks, Packaging, Society, Water, Climate, and Supply Chain[199][200] Action on Drinks The company is committed to reducing sugar content and increasing sales of low/no calorie drinks, with a 12.9% sugar reduction since 2015 and 46% of sales from low/no calorie options in 2019 Progress on Drinks Commitments | Metric | 2019 Progress | 2018 Progress | | :--- | :--- | :--- | | Reduction in avg. sugar/litre since 2015 | 12.9% | 11.1% | | Reduction in avg. sugar/litre since 2010 | 17.6% | 15.8% | | % of sales from low or no calorie drinks | 46% | 45% | - The company is committed to ensuring 50% of its sales come from low and no calorie drinks by 2025[205] Action on Packaging CCEP is accelerating its packaging sustainability goals, achieving 30.5% recycled PET in 2019 and aiming for 50% by 2023, while also transitioning to 100% recyclable cardboard for multi-pack cans Progress on Packaging Commitments | Metric | 2019 Progress | 2018 Progress | | :--- | :--- | :--- | | Primary packaging that is recyclable or reusable | 98.3% | 97.9% | | Recycled plastic (rPET) in our PET bottles | 30.5% | 27.6% | - CCEP has accelerated its packaging targets, aiming for at least 50% recycled content in plastic bottles by 2023 (from 2025) and working towards 100% recycled or renewable plastic in the future[215] - The company is replacing hard-to-recycle shrink wrap with 100% recyclable cardboard for multi-pack cans, which will remove around 4,000 tonnes of single-use plastic per year[219] Action on Society The company is advancing diversity, with 35.5% of management positions held by women in 2019, and increased community contributions and employee volunteering, dedicating €8.8 million and 25,839 hours respectively - The company aims for at least 40% of leadership positions to be held by women by 2025, with the figure reaching 35.5% in 2019, an increase from 35.2% in 2018[229][236] - In 2019, CCEP contributed €8.8 million (0.60% of pre-tax profit) to community initiatives, including programs to support disadvantaged young people[240] - Employee volunteering increased by 116% since 2018, with employees dedicating 25,839 hours in 2019, supported by a new policy allowing two paid volunteering days per year[243] Action on Water CCEP is improving water efficiency, achieving a water use ratio of 1.60 L/L in 2019, and actively replenishing water in stressed areas, exceeding its 100% target by replenishing 160% Progress on Water Commitments | Metric | 2019 Progress | 2018 Progress | | :--- | :--- | :--- | | Water use ratio (litres of water/litre of product) | 1.60 | 1.61 | | Water replenishment in areas of water stress | 160% | 141% | - The company aims to reduce water use in manufacturing by 20% by 2025 (vs 2010 baseline) and replenish 100% of the water used in areas of water stress[252] Action on Climate The company is committed to significant GHG emission reductions, achieving 100% renewable electricity in 2019, and setting science-based targets to cut core business emissions by 50% by 2025 - CCEP has set science-based targets to cut greenhouse gas (GHG) emissions from its core business by 50% and across its entire value chain by 35% by 2025 (vs 2010 baseline)[262] - In 2019, 100% of electricity purchased was from renewable sources, meeting its RE100 commitment ahead of the 2020 target[263][269] GHG Emissions (tonnes CO2e) | Scope | 2019 | 2018 (Restated) | | :--- | :--- | :--- | | Scope 1 (Direct emissions) | 238,046 | 232,630 | | Scope 2 (Indirect - market based) | 6,573 | 5,382 | | Scope 3 (Core business operations) | 949,319 | 988,770 | | Total Scope 1, 2, 3 (Core business) | 1,193,938 | 1,226,782 | | Scope 3 (Ingredients & packaging) | 2,538,033 | 2,528,956 | | Total GHG Emissions (Full value chain) | 3,731,971 | 3,755,738 | Action on Supply Chain CCEP is enhancing supply chain sustainability, with 97% of spend covered by Supplier Guiding Principles and 96% of sugar sourced from compliant suppliers in 2019, aligning with its sustainable sourcing commitment Progress on Supply Chain Commitments | Metric | 2019 Progress | 2018 Progress | | :--- | :--- | :--- | | % Spend with suppliers covered by SGPs | 97% | 91% | | % Sugar sourced from suppliers compliant with SAGPs | 96% | 88% | - CCEP has a joint commitment with TCCC to ensure 100% of its main agricultural ingredients and raw materials are sourced sustainably[299] Principal Risks The company employs a comprehensive enterprise-wide risk management program to identify, measure, and manage risks, including packaging regulations, consumer health preferences, legal changes, market competition, and cybersecurity threats - The company's enterprise risk assessment identified ten principal risks that could materially affect the business[321] - Key external and strategic risks include: Packaging (scrutiny on single-use plastics), Perceived health impact of beverages, Legal, regulatory and tax changes, Market competition, Economic and political conditions (including Brexit), and Relationships with TCCC and other franchisors[325][330] - Key operational and event-driven risks include: Cyber and social engineering attacks, Competitiveness and transformation initiatives, Climate change and water scarcity, and Product quality[325][334][344] Viability Statement The Directors have assessed the Group's prospects over a three-year planning cycle, confirming a reasonable expectation that the Group will continue operations and meet all liabilities after robust risk review and stress tests - The Directors assessed the company's viability over a three-year period, aligning with the Group's planning cycle[359] - The assessment included stress testing scenarios incorporating the potential downside impact of principal risks such as changing consumer preferences, packaging regulations, and cyber attacks[361] - Based on the assessment, the Directors confirmed a reasonable expectation that the Group can continue in operation and meet its liabilities over the three-year period[362] Non-Financial Information Statement This statement confirms that the Integrated Report contains the non-financial information required by the UK Companies Act 2006, providing cross-references to sections covering environmental, employee, social, human rights, and anti-corruption matters - The report provides a cross-reference table indicating where to find required non-financial information on topics such as environmental matters, employee issues, human rights, and anti-corruption policies[364][365] Section 172(1) Statement from the Directors The Directors confirm they have acted in good faith to promote the long-term success of CCEP, considering all key stakeholders, with engagement informing decisions on people strategy, customer service, and sustainability commitments - The Board engaged with employees through town halls and engagement surveys, which informed decisions on the people strategy, a new Inclusion and Diversity Policy, and the implementation of an all-employee share purchase plan[375] - Engagement with customers and franchisors, including meetings with TCCC leadership, led to Board approval of capability developments and digital innovations to improve customer offerings and collaboration[377] - Investor feedback was considered in decisions to move the UK listing to the London Stock Exchange, continue the share buyback program, and introduce a new sustainability metric into the Long-Term Incentive Plan (LTIP)[379] Governance and Directors' Report Chairman's Introduction to Governance The Chairman emphasizes CCEP's commitment to high standards of corporate governance as the foundation for sustainable growth, with key focus areas in 2019 including sustainability, stakeholder engagement, and the UK listing transfer - CCEP voluntarily applies the 2018 UK Corporate Governance Code (UKCGC) on a comply-or-explain basis to demonstrate its commitment to good governance[387] - Key governance focus areas for 2019 included sustainability commitments, stakeholder engagement, the transfer of its UK listing to the London Stock Exchange, and the people agenda with a focus on inclusion and diversity[385] - For 2020, the Board will focus on embedding a strong, positive, and inclusive culture, continuing succession planning to ensure diversity, and aligning management's long-term incentives with sustainability metrics[389][390][392] Board of Directors The CCEP Board of Directors is composed of diverse and experienced individuals, with 9 out of 16 members being independent, ensuring comprehensive oversight across key areas like the Coca-Cola system, customer/retail, and finance - The Board consists of 16 directors, of whom 9 are determined to be independent[394] - The Board possesses a diverse range of skills and experience critical to the business, including deep knowledge of the Coca-Cola system, bottling industry, customer/retail, marketing, sustainability, and finance[394] Senior Management The Executive Leadership Team (ELT), led by CEO Damian Gammell, comprises experienced executives responsible for key corporate functions and primary business units, ensuring effective management across the company - The Executive Leadership Team (ELT) is composed of the CEO and senior executives overseeing core corporate functions and geographic business units[426] Corporate Governance Report CCEP voluntarily complies with the 2018 UK Corporate Governance Code, with minor explained deviations, and delegates authority to five key committees: Audit, Remuneration, Nomination, CSR, and Affiliated Transaction, ensuring robust oversight - CCEP follows the UK Corporate Governance Code (UKCGC) on a comply-or-explain basis, with explained deviations including the Chairman not being independent upon appointment and a staggered re-election schedule for Independent Non-Executive Directors post-merger[439] - As a Foreign Private Issuer, CCEP is exempt from most NYSE governance rules but discloses significant differences, such as director independence tests and committee composition requirements[444] - The Board's governance framework delegates specific responsibilities to five committees: Affiliated Transaction, Audit, Corporate Social Responsibility (CSR), Nomination, and Remuneration[447] Nomination Committee Report In 2019, the Nomination Committee focused on Independent Non-executive Director and senior management succession, embedding corporate culture, and enhancing its people-related oversight, increasing female board representation to 23.5% - The committee's remit was expanded to formally include responsibilities for culture and workforce matters in line with the 2018 UKCGC[488] - The committee managed the succession of three INEDs in 2019, appointing Nathalie Gaveau, Dagmar Kollmann, and Lord Mark Price, which increased female representation on the Board to 23.5% from 17.6% in 2018[499] - The committee oversaw succession for the Executive Leadership Team, including the appointment of José Antonio Echeverria as the new Chief Customer and Supply Chain Officer[499] Audit Committee Report The Audit Committee provided oversight on financial reporting integrity, risk management, and internal controls in 2019, focusing on IFRS 16 implementation, IT/cybersecurity risks, and significant financial judgments, while overseeing the external auditor - The committee dedicated significant time to overseeing the implementation of the new accounting standard, IFRS 16, "Leases", which had a significant impact on the reporting of assets and liabilities[514][518] Significant Reporting Matters Considered by the Audit Committee | Accounting Area | Key Financial Impacts (2019) | Audit Committee Considerations | | :--- | :--- | :--- | | Deductions from revenue | Cost: €3.2 billion; Accrual: €701 million | Reviewed significant estimates related to contractual terms, customer performance, and sales volume for promotional programs | | Tax accounting | Tax expense: €364 million; ETR: 25.0% | Evaluated legislative developments, risks related to tax provisions, deferred tax inventory, and transfer pricing exposure | | Asset impairment analysis | Indefinite life intangibles: €8.2 billion; Goodwill: €2.5 billion | Reviewed and challenged key assumptions in the value-in-use calculation, such as discount rates and terminal growth rates, for each Cash Generating Unit (CGU) | | Restructuring accounting | Cost: €130 million; Provision: €168 million | Received regular updates on new restructuring initiatives, including the cold drink equipment transformation, and reviewed key assumptions for related provisions | - The committee reviewed the effectiveness and independence of the external auditor, Ernst & Young LLP, and recommended their reappointment to the Board[527] Directors' Remuneration Report This report details the company's remuneration policy and its implementation for 2019, with a revised policy to be presented for shareholder approval in 2020, including a two-year post-vesting holding period for LTIP awards Statement from the Remuneration Committee Chairman The Remuneration Committee Chairman announced a revised policy for 2020, including a two-year post-vesting holding period for LTIP awards, and highlighted the CEO's 2019 bonus payout at 43.7% of maximum and the 2017 LTIP vesting at 118% of target - A revised remuneration policy will be presented at the 2020 AGM, with minor changes to align with best practice, including a two-year post-vesting holding period for LTIP awards[538][541] - The 2019 annual bonus achieved an overall Business Performance Factor of 98% of target, resulting in a total bonus payment to the CEO of 43.7% of maximum (157% of salary)[538] - The 2017 LTIP award, vesting in March 2020, achieved an overall vesting level of 118% of target based on strong EPS and ROIC performance over the three-year period[545][546] - For LTIP awards made in 2020, a sustainability measure focused on the reduction of greenhouse gas emissions (CO2e) will be included with a 15% weighting[549] Remuneration Policy The remuneration policy aims to attract and retain talent through competitive fixed and variable pay, with the CEO required to hold 300% of base salary in company shares and annual bonus and LTIP opportunities up to 360% and 500% of salary respectively Executive Director Remuneration Policy Summary | Element | Purpose & Link to Strategy | Maximum Opportunity | | :--- | :--- | :--- | | Base Salary | Provide competitive fixed salary to attract/retain talent | No prescribed maximum, but normally aligned with general workforce increases | | Benefits | Provide competitive and market-aligned benefits | No stated maximum as some depend on individual circumstances (e.g., relocation) | | Pension | Provide retirement income consistent with other local employees | Current max employer contribution is £30,000 (inclusive of social security) | | Annual Bonus | Incentivize delivery of the annual business plan | 360% of salary | | LTIP | Reward delivery of long-term performance and align with shareholder interests | 500% of salary | - The CEO is required to hold 300% of base salary in company shares, which must be met within five years of appointment and retained for one year post-employment[588] Annual Report on Remuneration The annual remuneration report details the CEO's 2019 total remuneration of €10.0 million, reflecting a 98% achievement of the annual bonus target and a 118% vesting of the 2017 LTIP award based on strong EPS and ROIC performance CEO Single Figure of Remuneration (Damian Gammell) | Year | Salary (£'000) | Benefits (£'000) | Annual Bonus (£'000) | Long-term Incentives (£'000) | Pension (£'000) | Total (£'000) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 2019 | 1,151 | 127 | 1,806 | 6,894 | 26 | 10,004 | | 2018 | 1,121 | 128 | 2,546 | 0 | 26 | 3,821 | 2019 Annual Bonus Performance vs. Targets | Measure | Weighting | Target | Actual Outcome | Multiplier Achieved | | :--- | :--- | :--- | :--- | :--- | | Operating Profit | 50% | €1,728m | €1,705m | 0.91x | | Revenue | 30% | €12,167m | €12,208m | 1.11x | | Operating Free Cash Flow | 20% | €1,572m | €1,559m | 0.96x | | Total BPF | 100% | | | 0.98x | 2017-2019 LTIP Vesting Performance | Measure | Weighting | Target | Actual Performance | Final Vesting Level | | :--- | :--- | :--- | :--- | :--- | | EPS (CAGR) | 50% | 8.7% p.a. | 9.0% p.a. | 1.11x | | ROIC (2019) | 50% | 10.4% | 10.7% | 1.26x | | Total Vesting | | | | 1.18x | Directors' Report This report provides statutory disclosures as required by UK law, covering director appointments, indemnities, share capital, and significant shareholdings, while confirming the completion of a €1.5 billion share buyback program in 2019 and the announcement of a new €1 billion program in February 2020 Significant Shareholdings (as at year-end) | Shareholder | % of Total Voting Rights Notified | | :--- | :--- | | Cobega, S.A. (via Olive Partners) | 36.1% | | TCCC (via European Refreshments) | 19.01% | | The Capital Group Companies, Inc. | 5.0266% | - The company completed its €1.5 billion share buyback program in 2019 and announced a new €1 billion program on February 13, 2020[726] - In 2019, the company purchased and cancelled 20,612,593 of its own shares for a total of €1 billion as part of its buyback program[726] Directors' Responsibilities Statement The Directors confirm their responsibility for preparing the Integrated Report and financial statements in accordance with applicable laws and IFRS, stating that the report as a whole is fair, balanced, and understandable - The Directors are responsible for preparing financial statements in accordance with IFRS as adopted by the European Union and the UK Companies Act 2006[729][730] - The Directors confirm that the Integrated Report and financial statements are fair, balanced, and understandable, providing necessary information for shareholders to assess the company's position, performance, business model, and strategy[734] Financial Statements Independent Auditor's Reports The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and internal controls, identifying critical audit matters related to revenue deductions, goodwill/intangibles, and uncertain tax positions - The auditor, Ernst & Young LLP, issued an unqualified opinion, concluding that the financial statements are presented fairly in all material respects and conform with IFRS[739] - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[745] - Critical audit matters identified during the audit were: * Completeness and measurement of programmes and arrangements with customers recorded as deductions from revenue * Carrying value of goodwill and indefinite-lived intangibles * Accounting for uncertain tax positions and related disclosures[741][743][744] Consolidated Financial Statements The consolidated financial statements present the Group's financial performance and position for the year ended December 31, 2019, with revenue of €12.0 billion, operating profit of €1.5 billion, and total assets of €18.7 billion Consolidated Income Statement The Consolidated Income Statement shows 2019 revenue of €12.0 billion, gross profit of €4.6 billion, operating profit of €1.5 billion, and profit after taxes of €1.1 billion Consolidated Income Statement Summary (€ millions) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenue | 12,017 | 11,518 | 11,062 | | Cost of sales | (7,424) | (7,060) | (6,772) | | Gross profit | 4,593 | 4,458 | 4,290 | | Operating expenses | (3,045) | (3,158) | (3,030) | | Operating profit | 1,548 | 1,300 | 1,260 | | Profit before taxes | 1,454 | 1,205 | 1,159 | | Taxes | (364) | (296) | (471) | | Profit after taxes | 1,090 | 909 | 688 | Consolidated Statement of Financial Position The Consolidated Statement of Financial Position as of December 31, 2019, reports total assets of €18.7 billion, with €11.0 billion in intangible assets and goodwill, and total equity of €6.2 billion Consolidated Statement of Financial Position Summary (€ millions) | Account | As at Dec 31, 2019 | As at Dec 31, 2018 | | :--- | :--- | :--- | | Total non-current assets | 15,582 | 15,225 | | Intangible assets & Goodwill | 11,026 | 10,902 | | Property, plant and equipment | 4,205 | 3,888 | | Total current assets | 3,103 | 2,991 | | Total assets | 18,685 | 18,216 | | Total non-current liabilities | 8,414 | 7,860 | | Borrowings, less current portion | 5,622 | 5,127 | | Total current liabilities | 4,115 | 3,792 | | Total liabilities | 12,529 | 11,652 | | Total equity | 6,156 | 6,564 | | Total equity and liabilities | 18,685 | 18,216 | Consolidated Statement of Cash Flows The Consolidated Statement of Cash Flows indicates net cash from operating activities of €1.9 billion, net cash used in investing activities of €599 million, and net cash used in financing activities of €1.3 billion in 2019 Consolidated Statement of Cash Flows Summary (€ millions) | Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash flows from operating activities | 1,904 | 1,806 | 1,623 | | Net cash flows used in investing activities | (599) | (596) | (488) | | Net cash flows used in financing activities | (1,302) | (1,259) | (1,152) | | Net change in cash and cash equivalents | 3 | (49) | (17) | | Cash and cash equivalents at end of period | 316 | 309 | 360 | Notes to the Consolidated Financial Statements The notes provide detailed disclosures on accounting policies and financial figures, including the adoption of IFRS 16 'Leases', the composition and impairment testing of €11.0 billion in intangible assets and goodwill, and transactions with related parties - The Group adopted IFRS 16 'Leases' on January 1, 2019, recognizing a total lease liability of €397 million and right-of-use assets of €393 million upon transition[759][761][763] - As of December 31, 2019, the Group held €8.5 billion in intangible assets (primarily franchise agreements) and €2.5 billion in goodwill, with annual impairment tests showing significant headroom for key Cash Generating Units[780][783] - Total borrowings as of December 31, 2019, were €6.4 billion, with €5.6 billion classified as non-current, and the Group also has an undrawn €1.5 billion multi-currency credit facility maturing in 2024[809] - Transactions with The Coca-Cola Company (TCCC), a related party, are significant, with purchases of concentrate and other items affecting cost of sales totaling €2.96 billion in 2019[832][833] Other Information Risk Factors This section details the principal risks facing the company, including regulatory and consumer pressure on packaging, changing consumer preferences, legal and tax changes, market competition, cybersecurity threats, and its crucial relationship with The Coca-Cola Company - The company faces significant risk from increasing scrutiny and regulation of packaging, especially single-use plastics, which could lead to higher costs from taxes, deposit return schemes, and damage to corporate reputation[866] - Changing consumer preferences and health concerns regarding sugar-sweetened beverages could reduce demand, and failure to innovate and expand the portfolio of low-calorie and alternative drinks could adversely affect business results[866] - The business is highly dependent on its relationship with The Coca-Cola Company, from which it derives over 90% of its revenue, with TCCC determining concentrate pricing and providing discretionary marketing support, and bottling agreements being for fixed terms[883] - Economic and political conditions, including the UK's exit from the EU (Brexit) and the COVID-19 outbreak, pose risks of market volatility, supply chain disruption, and reduced consumer spending[870][881] Other Group Information This section provides supplementary corporate information, including shareholder matters, trading market details, and share capital history, confirming the completion of a €1.5 billion share buyback program in 2019 and the announcement of a new €1 billion program in February 2020 - The company's shares trade on the NYSE, LSE, Euronext Amsterdam, and Spanish Stock Exchanges under the ticker CCEP[893] Share Buyback Program Details (Jan 2019 - Feb 2020) | Period | Total Shares Purchased | Average Price Paid (€) | Approximate Value Remaining (€ million) | | :--- | :--- | :--- | :--- | | 2019 (Full Year) | 20,612,593 | ~48.51 | 0 (for €1.5B program) | | Jan-Feb 2020 | 976,900 | 50.22 | 951 (for new €1B program) | - Management concluded that the Group's disclosure controls and procedures, as well as its internal control over financial reporting, were effective as of December 31, 2019[940]