coca cola european - credit suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

15 September 2016Europe/Netherlands

Equity ResearchBeer & Alcoholic Beverages

Coca Cola European Partners (CCE.AS / CCE.N) INITIATION Rating NEUTRAL [V]

Price (13 Sep 16, €) 35.75Target price (€) 37.00Market Cap (€ m) 17,119.3Enterprise value (€ m) 23,077.7Secondary RIC CCE.NPrice (13 Sep 16, US$) 39.75Rating NEUTRAL [V]Target price (US$) 41.40*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.¹Target price is for 12 months.[V] = Stock Considered Volatile (see Disclosure Appendix)

Research AnalystsSanjeet Aujla

44 20 7888 [email protected]

Laurent Grandet212 538 7901

[email protected]

Pavan Daswani44 20 7883 0539

[email protected]

Clay Crumbliss, CFA212 538 1076

[email protected]

Cost synergies offset by weak category growth■ Initiate coverage with Neutral rating, TP €37: Our FY16-18E EPS

estimates are 3-4% below consensus, driven by a weaker topline outlook due to soft category growth, potential macro-risk (UK) and regulatory pressures. Synergies give some degree of earnings visibility; however, we don’t expect upside to targets, and balance sheet activity is unlikely until FY18. We prefer Coca-Cola HBC (CCH, see our upgrade report).

■ Weak topline outlook: We believe CCEP is a stronger business following the merger with the German and Iberian bottlers, however we expect organic growth to be at the low-end of the 'low single-digit' guidance (CSe c1-1.5%) noting; i) 83% of CCEP's volumes are from CSDs, which remain in decline ii) CCEP has been losing share in CSDs across its major markets (except Germany) iii) potential further regulatory headwinds as the sugar debate intensifies across Europe.

■ No upside to synergy target: CCEP's €315-340m net cost synergy target gives some earnings visibility over the next few years; however, we see little upside; i) our analysis suggests the targets are in line with historical bottling deals, ii) we acknowledge further restructuring potential in Germany (8% margin v peers at mid-teens), however legacy issues will limit some of the potential. Furthermore, CCEP may require more investment if the weak market conditions persist.

■ Balance sheet support from FY18: We expect little balance sheet activity in the near term given leverage at 3x FY16E net debt/EBITDA. However, we acknowledge management's strong cash return track record and from FY18 we expect CCEP to return cash to shareholders (buybacks are 4-5% EPS accretive), or further consolidate the Coke network, with potential opportunities across Europe and North/West Africa.

■ Valuation: CCEP's FY17E P/E of 16.3x does not appear demanding versus peers; however this is flattered by its higher leverage and low cost of debt. Its 15x EV/EBIT is at a premium to other Coke bottlers. We prefer CCH, given its stronger growth and potential balance sheet catalysts.

Share price performance

CCE.A S A M ST ERD A M EXCH A N GE IN D EX

Ju n - 1 6 Ju l - 1 6 A u g - 1 6 Sep - 1 63 0

3 2

3 4

3 6

3 8

The price relative chart measures performance against the AMSTERDAM EXCHANGE INDEX which closed at 442.6 on 13/09/16On 13/09/16 the spot exchange rate was €1/Eu 1.- Eu.89/US$1

Performance 1M 3M 12MAbsolute (%) 3.2 7.4Relative (%) 5.6 1.4

Financial and valuation metricsYear 12/15A 12/16E 12/17E 12/18ERevenue (€ m) 10,976.0 10,704.0 10,725.9 10,854.6EBITDA (€ m) 1,825.0 1,825.9 1,974.5 2,101.3Adjusted net income (€ m) 856.00 955.76 1,074.44 1,170.87CS EPS (adj.) (€) 1.75 1.95 2.20 2.45ROIC (%) 6.3 6.7 7.4 7.9P/E (adj.) (x) 20.4 18.3 16.3 14.6P/E rel. (%) 113.6 99.1 106.1 109.8EV/EBITDA (x) 12.9 12.5 11.2 10.7

Dividend (12/16E, €) 0.59 Net debt/equity (12/16E,%) 58.5Dividend yield (12/16E,%) 1.6 Net debt (12/16E, € m) 5,778.2BV/share (12/16E, €) 20.5 IC (12/16E, € m) 15,654.8Free float (%) 33.3 EV/IC (12/16E, (x) 1.5Source: Company data, Thomson Reuters, Credit Suisse estimates

https://plus.credit-suisse.com/u/RIBgpR

15 September 2016

Coca Cola European Partners (CCE.AS / CCE.N) 2

Coca Cola European Partners (CCE.AS)Price (13 Sep 2016): €35.75; Rating: NEUTRAL [V]; Target Price: €37.00; Analyst: Sanjeet AujlaIncome statement (€ m) 12/15A 12/16E 12/17E 12/18ERevenue 10,976 10,704 10,726 10,855EBITDA 1,825 1,826 1,974 2,101Depr. & amort. (417) (417) (429) (434)EBIT 1,408 1,408 1,545 1,667Net interest exp. (161) (134) (113) (106)Associates - - - -PBT 1,237 1,274 1,433 1,561Income taxes (149) (287) (301) (352)Profit after tax 856 956 1,074 1,171Minorities - - - -Preferred dividends - - - -Associates & other 0 0 0 0Net profit 856 956 1,074 1,171Other NPAT adjustments (418) (96) (172) (115)Reported net income 438 860 902 1,056Cash flow (€ m) 12/15A 12/16E 12/17E 12/18EEBIT 1,408 1,408 1,545 1,667Net interest (161) (134) (113) (106)Cash taxes paid - - - -Change in working capital - - - -Other cash and non-cash items (72) 123 70 (32)Cash flow from operations 1,175 1,397 1,502 1,529CAPEX 0 (557) (536) (532)Free cashflow to the firm 1,175 840 966 997Acquisitions - - - -Divestments - 20 20 20Other investment/(outflows) 0 (35) 0 0Cash flow from investments 0 (572) (516) (512)Net share issue/(repurchase) - 0 0 (1,000)Dividends paid 0 (253) (283) (318)Issuance (retirement) of debt - - - -Cashflow from financing 0 (253) (283) (1,318)Changes in net cash/debt (6,389) 611 703 (301)

Net debt at start - 6,389 5,778 5,075Change in net debt 6,389 (611) (703) 301Net debt at end 6,389 5,778 5,075 5,376Balance sheet (€ m) 12/15A 12/16E 12/17E 12/18EAssetsTotal current assets 3,524 3,436 3,377 3,408Total assets 22,160 22,226 22,254 22,363LiabilitiesTotal current liabilities 3,253 3,241 3,309 3,330Total liabilities 12,992 12,349 11,694 11,996Total equity and liabilities 22,160 22,226 22,254 22,363Per share 12/15A 12/16E 12/17E 12/18ENo. of shares (wtd avg.) (mn) 489 489 489 478CS EPS (adj.) (€) 1.75 1.95 2.20 2.45Prev. EPS (€)Dividend (€) 0.53 0.59 0.66 0.73Free cash flow per share (€) 2.40 1.72 1.97 2.09Key ratios and valuation 12/15A 12/16E 12/17E 12/18EGrowth/Margin (%)Sales growth (%) - (2.5) 0.2 1.2EBIT growth (%) 0.0 9.7 7.9Net income growth (%) 11.7 12.4 9.0EPS growth (%) - 11.6 12.4 11.6EBITDA margin (%) 16.6 17.1 18.4 19.4EBIT margin (%) 12.8 13.2 14.4 15.4Pretax profit margin (%) 11.3 11.9 13.4 14.4Net income margin (%) 7.8 8.9 10.0 10.8Valuation 12/15A 12/16E 12/17E 12/18EEV/Sales (x) 2.1 2.1 2.1 2.1EV/EBITDA (x) 12.9 12.5 11.2 10.7EV/EBIT (x) 16.7 16.3 14.4 13.5Dividend yield (%) 1.47 1.64 1.84 2.06P/E (x) 20.4 18.3 16.3 14.6Credit ratios (%) 12/15A 12/16E 12/17E 12/18ENet debt/equity (%) 69.7 58.5 48.1 51.9Net debt to EBITDA (x) 3.5 3.2 2.6 2.6Interest coverage ratio (x) 8.7 10.5 13.7 15.7

Company BackgroundCoca-Cola Enterprises is one of the world's largest Coca-Cola bottlers manufacturing, bottling and marketing Coca-Cola products in eight territories in Western Europe.

Blue/Grey Sky Scenario

Our Blue Sky Scenario (€) 48.00We assume (i) c3.5% organic growth – higher end of the low-single digit organic growth forecast guidance, driven by revenue synergies and innovation in non-carbonate categories ii) Margin improvement from 25% additional cost synergies (vs €315-340 official target).

Our Grey Sky Scenario (€) 28.00We assume i) -1% organic growth driven by regulation and sugar/soft drink taxes (UK, France and Spain over the next few years), further market share losses in carbonates ii) Lower margin improvement from 25% of cost savings being re-invested back into the business due to a weaker topline growth

Share price performance

CCE.AS AMSTERDAM EXCHANGE INDEX

Jun- 16 Jul- 16 Aug- 16 Sep- 1630

32

34

36

38

The price relative chart measures performance against the AMSTERDAM EXCHANGE INDEX which closed at 442.6 on 13/09/16On 13/09/16 the spot exchange rate was €1/Eu 1.- Eu.89/US$1

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates

15 September 2016


Key ChartsFigure 1: We estimate CCEP category weighted growth has lagged the market by 100-150bps

Figure 2: CCEP is too skewed to the carbonated soft drinks (CSDs) category, which is declining

CCEP category weighted volume growth v overall market - % CCEP and market volume split by category- %

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015

CCEP category weighted growth Market growth

83%

29%

8%

26%

7%

43%

2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CCEP Market

Energy

Water

Stills

CSDs

Source: Canadean, Credit Suisse research Source: Company data, Canadean, Credit Suisse research

Figure 3: Regulatory pressures are intensifying across CCEP's markets

Figure 4: We see little upside to synergy targets, which are in line with historical bottling transactions

Regulation scorecard by market Coke bottling cost synergies as % target net salesCarbonates PCC (litres)

Obesity rate (%) - 18+

Diabetes Prevalence (%)

Budget Balance (% GDP)

Tax-GDP ratio

Belgium 94 22% 6% -2.6 48%France 46 26% 8% -3.5 48%Germany 95 23% 7% 0.7 39%Netherlands 57 22% 6% -1.8 38%Norway 93 25% 7% 5.7 39%Portugal 36 22% 9% -4.4 37%Spain 76 27% 9% -5.1 34%Sweden 65 22% 7% 0 44%United Kingdom 77 30% 8% -4.4 34%Mexico 156 28% 10% -3.5 20%South Africa 71 26% 10% -4.2 26%

Complentary footprint

Country Date announcedSynergies as a %

of salesArca - Continental Yes Mexico Jan-11 7.8%KOF - Tampico/Cimsa/FoQue Yes Mexico Jun-11 6.6%Andina - La Polar No Chile / Brazil Mar-12 5.3%KOF - Yoli Yes Mexico Jan-13 3.6%KOF - Fluminense Yes Brazil Jun-13 8.2%Andina - Ipiranga No Brazil Jul-13 1.4%KOF - Spaipa Yes Brazil Aug-13 3.6%Arca-Lindley No Peru Sep-15 3.2%Average 5.0%

Coca-Cola European Partners No Spain/Germany Aug-16 5.3%

Source: WHO Diabetes Country Profiles 2016, Canadean, Eurostat Source: Company data, Credit Suisse research

Figure 5: We expect CCEP to further deploy its balance sheet from FY18 through buybacks (c4-5% EPS accretive) or M&A (across Europe and Africa)

Figure 6: CCEP's P/E looks attractive, but is flattered by high leverage/low finance costs – its EV/EBIT is in line with other Coca-Cola bottlers

CCEP net debt/EBITDA - x CCEP 2017E EV/EBIT - x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

15.1 14.9 14.614.3

13.412.8 12.8

10.0

11.0

12.0

13.0

14.0

15.0

16.0

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

15 September 2016


Table of contentsKey Charts 3

Executive summary 5

SWOT analysis ........................................................................................................6

Introduction 7

Organic growth outlook 9

Market growth ..........................................................................................................9

CCEP has weak category mix................................................................................10

CSD market share has been declining...................................................................13

Opportunities in other categories ...........................................................................15

Regulatory pressures .............................................................................................17

Pricing environment remains difficult .....................................................................21

Margin potential 23

Limited upside to synergy targets ..........................................................................24

Balance sheet potential 29

Cash return potential ..............................................................................................29

M&A opportunities..................................................................................................30

Forecasts 36

Q2 preview 37

Valuation 39

Adjusted Present value - €37 target price ..............................................................40

Upside/Downside risk (blue sky/grey sky)..............................................................41

Credit Suisse HOLT® 42

Company overview 44

Management ..........................................................................................................44

Credit Suisse PEERs .............................................................................................45

Financial Model 46

15 September 2016


Executive summaryWeak category growth We believe newly formed Coca-Cola European Partners (CCEP) is a stronger business following the 3-way merger with the Iberian and German bottlers, however overall growth remains lacklustre – we estimate the business delivered 0% pro-forma organic revenue in both FY14-15. There are further opportunities for CCEP in growth categories such as Water, Energy and Iced Tea, which the company is starting to explore. However, we estimate CCEP's category weighted growth is lagging behind the market by 100bps, as it is over-indexed to the declining CSD category (83% of volumes v c30% for the total market).

Potential regulatory headwindsThe sugar debate is intensifying across Europe, given growing concerns over obesity and diabetes, combined with fiscal pressures - the UK is planning a soft drinks tax on added sugar in 2018, whilst there are some proposals in France to treble the soda tax implemented in 2012. Furthermore, our scorecard suggests other markets in CCEP's territories such as Spain could follow suit. Evidence from France and Mexico show such taxes led to a mid-single-digit volume decline in the year of implementation – in the case of Mexico, volumes have grown back to pre-tax levels within a few years.

Earnings visibility from cost synergies, but little upsideCCEP guides to €315-340m of net cost synergies (post re-investment) from the integration which gives a good degree of earnings growth visibility over the next three years. However, contrary some investor perceptions, we see little upside risk to these cost synergies, noting the targets are in line with historical Coca-Cola bottling transactions and potential further re-investment requirements if the weak market conditions persist.

Expect further balance sheet activity through buybacks or M&AWe acknowledge CCEP's strong cash return profile in the recent years prior to the merger, when the company returned 150% on average of net income per annum, and incorporate share buybacks in our estimates from FY18 (c4-5% EPS accretive) by which time net debt/EBITDA is below 2.5x (v target 2.5-3x). However, we also acknowledge CCEP's appetite to participate further in Coca-Cola bottling consolidation. The most obvious deal is for CCEP to consolidate the contiguous markets owned by CCHBC across Europe; however, perhaps less obvious is the potential to consolidate the Coke bottling network in North and West Africa, where its largest shareholder Cobega (Spanish bottling network) owns bottling assets – this could change the growth profile of the business longer term.

15 September 2016


SWOT analysisFigure 7: CCEP SWOT analysis

- Coca Cola is one of the most recognised brands in the world - Interbrand ranks it as the 3rd most valuable brand and the number one Food and

Beverage brand

- Benefits from marketing funded by the Coca-Cola Company

- Largest Coke bottler in Europe with a strong market position (c53% market share) - this provides benefits of scale

- Better alignment with the Coca-Cola Company given increased focused on revenues than volumes and a new real-time incidence model

- More diversified business following the the addition of German and Iberian bottlers

- Over-indexed to the slower growth CSD category (c.83% of CCEP volumes versus c29% for the broader market)

- Exposure to high CSD per capita consumption markets, which have been recently declining

- Limited pricing opportunities given weak consumer backdrop and high retailer concentration

- Limited brand ownership as c95% of portfolio is licensed from the Coca-Cola Company

- Cost synergies - through procurement, supply chain and sharing best practices

- M&A opportunities - potential consolidator of further Coke bottling territories in Europe or Africa

- Innovation in faster growing categories - light/diet variants, Energy (Monster), Iced Tea (Honest tea)

- Regulatory risks across Eurooe with the increased scrutiny on sugar consumption

- UK (21% of sales) macro environment could be weaker post Brexit vote and added sugar tax (proposed for April 2018)

- Consumer perception could deteriorate as Millennials continue to turn their back on big "manufactured" brands

Opportunities

Weaknesses

Strengths

Threats

Source: Credit Suisse research, Company data

15 September 2016


IntroductionCCEP is the second largest independent Coca-Cola bottler by volumeThe three-way merger between Coca-Cola Enterprises, Coca-Cola Iberian Partners (Spain and Portugal) and Coca-Cola Erfrischungsgetränke GmbH (Germany) closed in May 2016 to form Coca-Cola European Partners, the second largest independent Coca-Cola bottler globally by volume (largest by revenue), and the largest bottler in Europe. With The Coca-Cola company taking an 18% stake in the combined business (through the divestment of Germany), we estimate CCEP is now the most significant contributor to The Coca-Cola company's share of profits from associates and joint ventures.

The closer relationship between CCEP and The Coca-Cola Company is also supported by the announcement of a new real-team incidence pricing model (for legacy CCE and Iberia, with Germany to follow), whereby the interests for both parties are now more aligned on driving profitable revenue growth and facilitates quicker decision making as there is no lag.

Figure 8: CCEP is the second largest bottler by volume outside the US

Figure 9: KO's 18% stake in CCEP is the biggest component of its equity income from bottlers

Bottler share of Coca-Cola volumes ex US - % Coca-Cola share of net income from bottlers – US$m

Bottler 2015Coca-Cola FEMSA 17%Coca-Cola European Partners 11%Coca-Cola HBC 8%ArcaContal 7%Coca-Cola Icecek 5%Swire (ex US) 4%Coca-Cola Beverages Africa 4%Andina 3%Coca-Cola Amatil 3%Coca-Cola Japan (East & West) 2%Castel 2%Others 35%

Equity partner Stake - %Share of 2017E net income - US$m

CCEP 18% 217FEMSA 28% 197Monster 17% 152Coca-Cola HBC 24% 106Coca-Cola Amatil 29% 93Arca Continental 9% 51Coca-Cola Icecek 20% 32Andina 15% 27

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

CCEP is more diversified post dealThe addition of Iberia and Germany has created a more diversified business across Europe, with GB and France representing 21% and 16% of revenues respectively, down from 37% and 29%.

Figure 10: The old CCE business was dominated by GB and France…

Figure 11: The business is now more diversified following the addition of Germany and Spain

Legacy CCE revenue split (2015) - % Pro-forma CCEP revenue split (2015) - %

Great Britain37%

France29%

Belgium15%

Netherlands8%

Norway6%

Sweden5%

Great Britain21%

France16%

Belgium9%Netherlands

5%Norway

3%

Sweden3%

Spain & Portugal

22%

Germany21%

Source: Company data Source: Company data

15 September 2016


We structure this initiation report into five parts

■ Organic growth outlook

■ Margin and cost synergy potential

■ Balance sheet outlook – cash returns v M&A potential

■ Forecasts – where we differ v consensus

■ Valuation – versus other bottlers and staples, as well as Credit Suisse HOLT® analysis

15 September 2016


Organic growth outlookPro-forma CCEP would have missed targets in past two yearsCCEP has guided to low single digit organic revenue growth over the medium term, which we interpret to be 1-3%, materially lower than the legacy CCE guidance of 4-6%, which the business struggled to meet in recent years. However, for FY16, growth is expected to be 'modest low-single digit', although the company has warned of tough trading conditions in recent months since then.

Whilst some investors believe these growth expectations to be realistic and perhaps conservative, we believe the risks could be to the downside due to the weaker economy in the UK post Brexit and regulatory headwinds.

Furthermore, we note even on a pro-forma basis, factoring in the higher growth Iberian and German businesses, CCEP would not have met its medium-term guidance in FY14-15, as shown below.

Figure 12: The old CCE business struggled to meet its medium-term guidance in the past 4 years

Figure 13: We note estimate pro-forma CCEP would not have met the current guidance over the past two years

Coca-Cola Enterprises (old CCE) organic growth v target - % Pro-forma CCEP organic growth v target - %

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2010 2011 2012 2013 2014 2015

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2014 2015

Source: Company data Source: Company data, Credit Suisse research

We consider CCEP's topline outlook in the following

Market growth and macro environment

CCEP category mix

CCEP market share trends

Regulatory environment

Pricing environment

Market growthSoft drinks market recovered in FY15, but lags behind GDP growthWe note the soft drinks category across CCEP's markets returned to 1.6% volume growth in 2015 after a period of decline in 2012-14; however, this recovery has been led by non-carbonated soft drinks categories, whilst the performance of carbonated soft drinks (CSDs) has remained weak.

15 September 2016


As show in Figure 15, there is a strong directional correlation between market growth and weighted real GDP growth. However, over the past four years, CCEP's weighted market growth has lagged real GDP by c100bps.

Looking out to FY17, we expect real GDP growth to decelerate across most of CCEP's markets, and note risks to the UK business following Brexit and subsequent weakness in consumer confidence.

Figure 14: Market volume growth in CCEP's regions has lagged real GDP by c100bps in recent years

Figure 15: There is a strong directional correlation between market growth and weighted real GDP growth (ex 2007 and 2009)

CCEP market growth v weighted real GDP growth - % CCEP market growth v real GDP growth correlation

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Weighted Real GDP Weighted Market growth

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse research

Figure 16: Real GDP growth is expected to slow in most markets in 2017

Figure 17: UK consumer confidence has deteriorated since the Brexit vote

2016-17E real GDP growth by CCEP markets - % UK consumer confidence index

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2016 2017-12

-10

-8

-6

-4

-2

0

2

4

6

8

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Source: IMF, Credit Suisse estimates Source: Thomson Reuters

CCEP has weak category mixCCEP's category weighted growth lags the marketWhilst market growth has improved, the issue for CCEP is that it generates 83% of its volumes in CSDs (with the Coca-Cola trademark alone representing 65% of total volumes), which is higher than any other bottler. This compares to the broader market, where CSDs represents c29% of total volumes.

15 September 2016


Figure 18: CCEP generates 83% of volumes in Carbonated beverages v the market at c30%

Figure 19: CCEP brand portfolio overview by category

CCEP and market volume split by category- %

83%

29%

8%

26%

7%

43%

2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CCEP Market

Energy

Water

Stills

Sparkling

Source: Canadean, Credit Suisse research Source: Company data

As CCEP is over-indexed to the CSD category, which has not participated in the soft drinks recovery, we estimate CCEP's category weighted volume growth has underperformed market growth by c100-150bps in the past couple of years, as shown in Figure 20.

Figure 20: We estimate CCEP's pro-forma category weighted volume growth has declined in recent years and underperformed the market by 100-150bps in the past couple of years

Figure 21: Market growth is being driven by non-Carbonated growth, whilst CSDs continue to underperform

CCEP category weighted volume growth v overall market - % Market growth split between CSD v non-CSD categories - %

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015

CCEP category weighted growth Market growth

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2008 2009 2010 2011 2012 2013 2014 2015

CSD Non-CSD Market growth

Source: Canadean, Credit Suisse research Source: Canadean, Credit Suisse research

Figure 22: The decline in CSDs has been reasonably broad-based across CCEPs markets in the recent years

Figure 23: More recently, only the CSDs category in Iberia is back to growth

CSD volume growth by market - % CSD volume growth by market - %

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2009-12 2013-15

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2014 2015


15 September 2016


As show in Figure 24, CSD per capita consumption in CCEP's markets is already significantly higher versus other European markets and has been declining. This is even the case in France, where CSD per capita consumption is much lower than other markets.

Figure 24: Per capita consumption in CCEP's biggest markets (ex-France) is above the European average

Figure 25: Carbonated per capita consumption CCEP's major markets has been declining, even in France

CSD per capita consumption (litres) v GDP per capita at purchasing power parity (US$)

CSD per capita consumption trends – litres

Belarus

Bosnia-Herzegovina

Bulgaria

Croatia

Czech Republic

Estonia

Hungary

LatviaLithuania

Macedonia

Poland

Romania

Russia

SerbiaSlovak Republic

Slovenia

Turkey

Ukraine

Austria

Belgium

Denmark

Finland

France

Germany

GreeceItaly

Netherlands

Norway

Portugal

Republic of IrelandSpain

SwedenSwitzerland

United Kingdom

R² = 0.2777

0

20

40

60

80

100

120

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Carb

onat

es PC

C (lit

res)

GDP Per Capita (PPP)

UK

France

Germany

Spain

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


We believe a big part of the CSD category underperformance across CCEP's markets is related to health and wellness concerns, in particular the relationship between sugar intake and obesity/diabetes. A consumer survey conducted by AC Nielsen shows that amongst those respondents changing their diet to lose weight, 66% in Europe planned to cut down on sugar. This was also higher than other regions, with the global average at 62%.

Figure 26: Increased sugar availability has been associated with increased diabetes prevalence

Figure 27: 66% of respondents in Europe who planned to change their diets intend to cut down on sugar, higher than the global average of 62%

Relationship between sugar and diabetes prevalence Proportion of participants cutting down sugar intake - %

Source: Basu et al, Plos ONE 8(2): e57873 Source: Nielsen Global Health & Wellness Survey, Q3 2014

15 September 2016


CSD market share has been decliningCCEP's CSD market share is already quite highWe estimate that CCEP has a c54% weighted market share in the CSD category across its markets (or 66% excluding private label), which has generally declined in recent years. We believe at high existing market share levels, CCEP will struggle to sustainably gain market share across its markets.

Figure 28: CCEP already has a c54% market share in the Carbonated category (or 66% ex private label)

Figure 29: CCEP has been losing share in most of its markets in recent years

CCEP CSD market share - % 2013-15 change in CSD market share - %

0%

10%

20%

30%

40%

50%

60%

70%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%


UK – Pepsi taking shareCCEP has been losing share to Pepsi (bottled by Britvic) in recent years This has been driven by Pepsi Max as more customers moving to low/no sugar alternatives (c60% of Pepsi's volumes is in no sugar), combined with an aggressive pricing strategy.

Spain – private label taking shareWhilst the CSD category returned to growth in 2015, CCEP has been losing market share to private label, which is closely linked to the rapid growth of discounters (such as Dia).

France – CCEP The CSD market in France has been stable over the last few years, and CCEP has been growing in line with the market (underperforming branded players offset by outperforming private label). Pepsi, who is still a relatively small player in CSDs in France (c6% market share) has been growing double-digits.

GermanyThe German market has been a success story for Coca-Cola since consolidating its bottler network in 2008, with the business returning to growth in 2010. CCEP has steadily grown market share in the CSD category over the last few years (currently 42%) through re-investment, however this is still below its 45%+ market share pre-2006.

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Figure 30: In the UK, CCEP is losing share to Pepsi (bottled by Britvic)

Figure 31: In Spain, CCEP has been losing share to private label

CSD volume growth in the UK - % CSD volume growth in Spain - %

-6%

-4%

-2%

0%

2%

4%

6%

2011 2012 2013 2014 2015

CCEP Britvic AG BArr

CCEP

Pepsi

Private label

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015


Figure 32: In France, CCEP is maintaining market share (losing to Pepsi, but gaining v private label)

Figure 33: The German business has been a bright spot, gaining share since consolidation of the bottler network

CSD volume growth in France - % CCEP Germany CSD market share - %

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2011 2012 2013 2014 2015

CCEP OranginaSchweppes PepsiCo France34%

36%

38%

40%

42%

44%

46%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


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Opportunities in other categoriesNon-CSD growth is led by Energy, Water and Iced TeaThe Energy, Iced Tea and Water categories have been driving market growth in the past couple of years, and CCEP is stepping up its participation.

Figure 34: Within non-CSD, growth has been led by Energy, Water and Iced Tea in the past couple of years

Figure 35: In particular, the water category has posted strong growth

2013-15 category volume growth across CCEP markets - % Water category volume growth across CCEP markets - %

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2007 2008 2009 2010 2011 2012 2013 2014 2015


Energy strategy – growth potentialEnergy represents c2% of CCEP's portfolio and we estimate the category accounts for c4% of net sales. Across CCEP's markets, we estimate the category has grown by c7% per annum over the past few years, a slowdown from double-digit growth rates in previous years.

Figure 36: The energy category is growing mid-high single digit across CCEP's markets

Figure 37: However growth has slowed in the past 3 years in almost all markets

Energy category growth in CCEP markets - % Energy category growth in CCEP markets - %

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2009 2010 2011 2012 2013 2014 2015

-5%

0%

5%

10%

15%

20%

25%

30%

2009-15 2012-15


We estimate CCEP has a c22% market share in the energy category across its markets, and has been gaining share in recent years. The company has recently gained the Monster franchise in Spain and Germany, which has been growing strongly. The company expects Energy to be a big revenue and profit contributor for the business – we estimate that if CCEP can grow its energy business at c15-20% CAGR (v market c10%), it could contribute c60-80bps to group organic revenue growth.

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Figure 38: CCEP has a c22% market share in the energy category

Figure 39: CCEP has been gaining share within energy across most of its markets helped by Monster

CCEP Energy market share and market position- % 2012-15 CCEP Energy market share trends (including Monster) - %

2

1

2

2

2

2

2

2

3

0%5%

10%15%20%25%30%35%40%45%50%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Water strategy – potential to build on UK smartwater successCCEP has a very selective participation in the water category. Smartwater was launched in the UK in 2014 and has had a successful start, benefiting from category growth and market share gains (currently 4% value share). Opportunities for further growth include distribution expansion (currently in 68% of the Nielsen off-trade universe) and continuation of the same-store sales growth momentum. Additionally, there is potential for Smartwater Carbonated (currently in the US), to leverage off the brand's success and distribution in Great Britain. CCEP is exploring to leverage the Smartwater success in the UK across the other markets.

However, we acknowledge the strength of Danone and Nestle in the European water market, and also note their recent increased emphasis on flavoured water through established brands such as Volvic and San Pellegrino, which could be a competitive threat to categories such as CSDs (where CCEP is dominant) as the health and wellness debate intensifies.

Figure 40: Smartwater continues to take share in the UK, now being led by same store growthUK Smartwater value market share - %

0.0%

1.0%

2.0%

3.0%

4.0%

Distribution led m/s Same store sales m/s

Source: AC Nielsen, Credit Suisse research

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Iced Tea – more to do?CCEP bottles Nestea in several European markets for Beverage Partners Worldwide, a joint venture between The Coca-Cola Company and Nestle SA.. The category has been growing at mid-single-digit levels in the past few years - CCEP currently has a c37% market share across its regions, however this is heavily weighted towards Spain, where it has a c68% market share. There remains significant scope in CCEP's other markets including Germany and France (11% and 9% market shares respectively) and UK, Belgium and Netherlands (<5% market share), where Lipton Iced Tea (Pepsi) dominates. In addition to Nestea, CCEP has recently launched the Honest Tea brand in the UK, although we don’t expect this to have a material impact in the near-to-medium term.

Figure 41: CCEP market share in Iced Tea remains low outside of SpainIced/RTD tea CCEP market share - %

0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: Company data, Credit Suisse research

Regulatory pressuresSoft drinks regulation is intensifyingAs highlighted in the Credit Suisse Research Institute's detailed publications on Healthy Living (November 2015), Fat: The New Health Paradigm (September 2015) and Sugar: Consumption at a crossroads (September 2013), regulation is intensifying in both developed and emerging markets. In this section, we focus on CCEP's main regions and refer to case studies of recent regulations for other markets.

UK proposed sugar tax could hit volumes in the short termIn the March 2016 UK Budget, the Chancellor proposed a levy on soft drinks that contain added sugar from April 2018 with the aim of raising £520m in 2018-19 (however this figure is anticipated to fall as soft drinks companies re-formulate their products). The proposed levy is in the form of two bands, which will only be decided upon after consultation with the industry over the summer.

Based on the target £520m revenue, the Office for Budget Responsibility (OBR) estimates the bands to be;

18p per litre for total sugar content of 5-8 grams per 100ml

24p per litre for total sugar content above 8 grams per 100ml

The OBR assumes the levy will be passed entirely on to consumers, and volumes decline by 0.8% for every 1% increase in price. We estimate this impacts 55% of CCEP's portfolio, on which the company would have to pass on a 10% price increase to completely offset (which implies a c5% price increase across its total UK portfolio).

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Figure 42: We estimate c50% of CCEP's UK portfolio is made up of added-sugar products, higher than peers

Figure 43: We estimate CCEP will require a c10% price increase across the brands exposed to the tax or 5% across the whole portfolio

% of UK volumes exposed to added sugar tax - % Potential price increase across UK portfolio - %

0%

10%

20%

30%

40%

50%

60%

CCEP Britivic AG Barr0%

2%

4%

6%

8%

10%

12%

Added sugar products Total portfolio

Source: Canadean, Credit Suisse research Source: Credit Suisse estimates

Risk of further tax hikes in FranceIn June 2016, a parliamentary report in France put forward proposals to increase its soda tax by 3x, from €0.07 per litre to €0.21 per litre. If this was implemented, we estimate over 90% of CCEP's portfolio in France would be impacted by this tax, suggesting a required 7% price increase across the portfolio. The proposals will be debated in the Finance Bill in Autumn 2016, and if approved, could come into force in January 2017.

Case Study of recent experiencesIn Figure 44, we outline the pricing and volume impact from the recent sugar taxes implemented in France and Mexico, which led to a 5%-6% volume impact from an 8%-10% price increase, implying a price elasticity on soft drinks of 0.6x.

However, the volume impact tends to be short-lived – in the case of Mexico, volumes started to grow again and eventually went back to levels prior to the tax being introduced.

Figure 44: Recent sugar tax in France and Mexico led to mid-single digit volume declinesFrance and Mexico sugar tax case studies

Period Tax Price increase Volume impact

France 2012

€0.07 per litre tax drinks containing added sugar or artificial sweetners, including fruit drinks and flavoured waters

Price of taxed products increased by c8% in 2012-13

Volumes on taxed products decline by c5% over the period

Mexico 20141 peso per litre tax on soft drinks with added sugar

Price of taxed products increased by c10%

c6% volume impact on taxed products

Source: Company data, Credit Suisse estimates

Risks in other marketsThe motivation for government action against soft drinks has been centred around the correlation between sugar availability and increased obesity and diabetes prevalence, as

15 September 2016


highlighted in the Sept 2013 Credit Suisse Research Institute publication on sugar (Sugar Consumption at a crossroads). Soft drinks are only a small proportion of total sugar intake (e.g. c15% for UK adults aged 19-641), however, CSDs in particular are more easily taxable given their limited nutrition content compared to other sources of daily sugar intake (juices, dairy, table sugar).

Government action can take several forms - stricter regulation on packaging, marketing and distribution (e.g. nutritional labeling, pack sizes, advertising messages or slogans), increased activity to inform and educate the public/schools, or taxes.

To assess the government's likelihood of enforcing/increasing regulation in CCEP's markets, in Figure 45, we benchmark CSD per capita consumption, obesity rates and diabetes prevalence. With some taxes focused on all sodas, and not just those with added sugar (e.g. France, Belgium), we also gauge the monetary objective of introducing such taxes by looking at the country's budget balance in addition to the country's reliance on taxable income.

Figure 45: According to our scorecard, Spain could follow UK and France in introducing regulation on soft drinksRegulation scorecard – darker highlights indicate a higher likelihood

Carbonates PCC (litres)

Obesity rate (%)

Diabetes Prevalence (%)

Budget Balance (% GDP)

Tax-GDP ratio

Belgium 94 22% 6% -2.6 48%France 46 26% 8% -3.5 48%Germany 95 23% 7% 0.7 39%Netherlands 57 22% 6% -1.8 38%Norway 93 25% 7% 5.7 39%Portugal 36 22% 9% -4.4 37%Spain 76 27% 9% -5.1 34%Sweden 65 22% 7% 0 44%United Kingdom 77 30% 8% -4.4 34%Mexico 156 28% 10% -3.5 20%South Africa 71 26% 10% -4.2 26%

Source: WHO Diabetes Country Profiles 2016, Canadean, Eurostat

1 Sugar Reduction – The evidence for action (October 2015) – UK Public Health

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Figure 46: Regulatory Outlook Summary across CCEP marketsCountry Soft Drinks Regulatory Outlook Summary

UK

The UK sugar tax levy, announced in March, will be introduced in April 2018 (18p per litre for 5-8g of sugar and 24p per litre for above 8g of sugar, per 100ml). We estimate CCEP will have to raise prices of its UK portfolio by 5% to pass this on to customers. We do not expect any additional levies until this has come to fruition.

France

Currently France has €0.07 tax on all sodas (approx. 2.5 cents for a can), which was introduced in 2012. A parliamentary report with the proposal to increase soft drinks tax to €0.21 per litre was put forward (we estimate c7% price increase for CCEP). The proposal will be debated in the Finance Bill in Autumn 2016, and if approved, could come into force as soon as January 2017.

SpainSpain has the highest prevalence of diabetes across CCEP markets, and its obesity rate is second only to the UK. As such, we believe that a sugar/soft drinks tax is likely, particularly as this could have a positive effect on Spain's budget deficit.

Germany

Germany is in the lower range of Obesity and prevalence of Diabetes across CCEPs markets. The Ministry of Food and Agriculture has highlighted its opposition against a tax on soft drinks/sugar in the past to tackle obesity, with the minister (Christian Schmidt) re-affirming this post the UK sugar tax announcement, according to an article from Die Welt (March 2016).

Belgium

From the 1st Jan 2016, Belgium has introduced a tax on sweetened soft drinks and alcohol - for soft drinks, this is €0.03 per litre (c1 cent per can), with the intent to reduce sugar and fat in diets and products deemed bad for health (alcohol, tobacco). With Belgium on the lower range of Obesity and Diabetes across the CCEP markets, we do not envisage an increase in soft drink taxes.

Netherlands

Netherlands has the one of the lowest obesity and diabetes rates across the CCEP markets. Given its long history of favouring self-regulation as opposed to imposing rules through law, the Dutch government and soft drinks companies have agreed to target a reduction of calories by 10% in 2020 (vs 2012). This is being done through development of low calorie products in addition to promoting smaller packaging. We would not expect the Dutch government to enforece regulation unless we see evidence that progress is not on track.

Sweden

Similar to Netherlands, Sweden also has the one of the lowest obesity and diabetes rates across CCEP markets. The Health department has previously been opposed to a sugar/soft drinks tax, with the health minister (Gabriel Wikström) affirming this post the UK sugar tax announcement in March. However, the government has launched a project with the Public Health Agency (Folkhälsomyndigheten) focussed on reducing health problems related to obesity and physical inactivity. Currently, regulation has been focussed on labelling, through nutritional declaration and avoiding confusing messages (e.g. Coca-Cola can no longer market products with the words "sweeteners from natural sources").

Norway

Norway first introduced a tax on sugar-sweetened drinks 35 years ago (1981). The tax rate in 2016 is NOK 7.66 per kg of sugar (from NOK 7.47 in 2015), with additional taxes on finished non-alcoholic drinks (NOK 3.27 per litre from NOK 3.19 in 2015) and concentrate (NOK 19.92 per litre) - this means that approx. 6% of the price (per 100ml) of the Coca-cola trademark brand relates to soft drink/sugar taxes. We expect this to only increase marginally, as has been done historically, with little need for a material change given the country's strong budget balance.

Portugal

Portugal's diabetes prevalence rates are amongst the highest across the CCEP regions (although Obesity is amongst the lowest) and a levy would contribute positively to Portugal's budget deficit. There have been reports, referencing the Portuguese Secretary of state for Health (Fernando Araújo), that a tax will be imposed next year, however the precise amount or nature has not been revealed as yet.

Source: Credit Suisse research

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Pricing environment remains difficultDeflationary environmentInflation across CCEP's markets remains relatively low but is expected to accelerate over the next few years. We note CCEP's price/mix has lagged inflation historically.

Figure 47: Inflation across CCEP's markets has been weak in recent years – we expect this to pick up slightly, but remain below average

Figure 48: Old CCE's price/mix has lagged CPI by 150bps over the past 3 years and by c70bps over the past decade

CCEP weighted CPI - % CCE price/mix v weighted CPI - %

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CCEP Price/mix CPI

Source: Credit Suisse estimates, IMF Source: Credit Suisse estimates, IMF

Figure 49: Pricing across key European staples companies remains negativeOrganic price growth in Europe, excluding mix - %

Source: Company data, Credit Suisse estimates. Note: Nestlé changed definition in 2015 to include parts of Eastern Europe

Retailer concentrationWe note that the modern trade and discounter channels account for c45% and c18% of CCEPs volumes, and have been growing significantly in recent years.

Furthermore, the modern trade channel across CCEP's major markets is highly consolidated, which further limits its bargaining power. For example, we note Suntory recently warned of a tougher retailer pricing environment in France, leading to a loss of shelf space on its Orangina and Oasis brands.

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Figure 50: CCEP has big exposure to the modern trade and discounters

Figure 51: The modern trade channel is well consolidated across CCEP's markets

CCEP channel mix - % Market share of the Top 5 retailers - %

Large Modern trade46%

Convenience6%

Discount18%

Traditional Retail 6%

On-trade20%

Other4%

0% 20% 40% 60% 80%

RomaniaPolandRussia

UkraineItaly

Czech RepublicGreat Britain

SlovakiaSpain

GreeceIreland

NetherlandsFrance

HungaryGermanyPortugal

SwitzerlandAustria

LuxembourgDenmark

SwedenBelgiumFinlandNorway

Source: Canadean, Credit Suisse research Source: Metro retail compendium

More focus on price/mixWith the Coca-Cola Company now more focused on sales growth (recently incorporated in short and long term management remuneration targets), and a new incidence model with CCEP, we believe there is better alignment on revenue growth between the two parties than in the past. As such, we expect a bigger focus on improving mix, in particular with more focus on the immediate consumption channel as well as smaller pack sizes. Such revenue management initiatives have led to improved price/mix in North America in the past 18 months.

Figure 52: Coke has seen improved price/mix in North America from recent revenue management initiativesCoca-Cola North America price/mix - %

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2013 2014 2015 H1 16

Source: Company data

We expect CCEP to also exploit mix improvement from leveraging best practice from Spain and Germany. For example;

■ The German business is best-in-class at servicing the discount channel

■ The Spanish business is best-in-class at servicing the HoReCa channel (hotels, restaurants and Cafes)

We believe the old CCE markets can potentially benefit from implementing many of these best practice approaches across its markets.

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Margin potentialCCEP has a good margin track recordWhilst the topline backdrop has been more challenging in recent years, the legacy CCE business worked harder on the cost side, thereby delivering strong organic margin expansion in the past two years.

In October 2012, the company announced the Business Transformation Programme, which targeted and achieved $110m in gross cost savings by 2015 (equivalent to c130bps of margin) from i) streamlining and reducing the cost structure of the finance support function, including the establishment of a centralised share services centre and ii) restructuring sales & marketing function and iii) improving efficiency and effectiveness of cold-drink equipment, iv) optimising route to market as channel mix has evolved. Part of these savings were planned to be re-invested back into the business, particularly in digital marketing.

Figure 53: Legacy CCE has a good margin track record

Figure 54: The Business Transformation Programme has led to a c12% reduction in headcount

Legacy CCE organic margin expansion - bps CCE headcount (ex-Germany and Spain) – number of employees

12.2%

13.6%

+50bps-10bps +15bps

+45bps

+40bps

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

2010 EBITmargin

2011 2012 2013 2014 2015 2015 EBITmargin

10,500

11,000

11,500

12,000

12,500

13,000

2012 2015

Source: Company data, Credit Suisse research Source: Company data

Figure 55: CCEP's margins are in line with the KO bottling universeEBIT margins across Coca-Cola bottling network (2015) - %

0%2%4%6%8%

10%12%14%16%18%20%


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Cost synergies to drive margin expansion over FY16-19ECCEP targets to deliver €315-340m of net cost synergies over the three years following the transaction, which is equivalent to 280-300bps of margin (or c5% of the cost base excluding concentrate costs) – it is important to note this target is after assuming re-investment into the business, and so therefore should drop through to the bottom line.

In its December proxy report, CCEP outlined $457m (or €410m/380bps of margin) of cost synergies which are gross of re-investment and 'other factors' – on this basis, we infer the proposed re-investment to be €70-95m, of c20% of the gross synergies.

Around 40% of the cost synergies are 'in-flight' (mainly in Germany and Spain), which are based on existing cost saving projects which would have been carried out regardless of the transaction, with the 60% balance from combination synergies associated with the transaction (e.g. procurement, supply chain, share best practice). In terms of phasing, CCEP expects the in-flight synergies to be a little more front-end loaded, and the combination synergies more evenly split over the three years. Furthermore, around c70% are related to supply chain benefits (procurement and network optimisation), with the rest coming from general & admin expenses.

Figure 56: 40% of the targets savings are 'in-flight', with the balance from combination synergies

Figure 57: 70% of the targets savings are from supply chain, with the balance from general & admin costs.

CCEP cost synergy split - % CCEP cost synergy split - %

In-flight40%

Combination60%

Supply chain70%

G&A30%


Limited upside to synergy targetsWe note the investor perception is that these synergies are relatively conservative. However, we believe there is limited upside to these synergy targets.

Targeted synergies are in line with previous bottling transactionsAs discussed above, CCEP targets €410m in gross synergies (pre re-investment), of which 60% is related to combination synergies – we estimate this represents 5.3% of target sales (Germany and Spain), which already compares favourably to historical Coca-Cola bottling deals – our analysis suggests on average cost synergies in historical transactions of 5% of sales. Furthermore, the synergies tend to be smaller where there is no complementary footprint, as in the case of CCEP.

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Figure 58: CCEP's synergy target is in line with recent KO bottler merger synergiesCost synergies as % target net sales

Complentary footprint

Country Date announcedSynergies as a %

of salesArca - Continental Yes Mexico Jan-11 7.8%KOF - Tampico/Cimsa/FoQue Yes Mexico Jun-11 6.6%Andina - La Polar No Chile / Brazil Mar-12 5.3%KOF - Yoli Yes Mexico Jan-13 3.6%KOF - Fluminense Yes Brazil Jun-13 8.2%Andina - Ipiranga No Brazil Jul-13 1.4%KOF - Spaipa Yes Brazil Aug-13 3.6%Arca-Lindley No Peru Sep-15 3.2%Average 5.0%

Coca-Cola European Partners No Spain/Germany Aug-16 5.3%


Upside in Germany but some structural barriers will remainThe German business makes gross margins of 43% but its EBIT margin of c8% is 500-700bps below legacy CCE and Iberia.

Figure 59: Germany has above average gross margins

Figure 60: However, EBIT Margins in Germany are 500-700bps below CCE and Spain

CCEP gross margin by region - % CCEP EBIT margin by region - %

32%

34%

36%

38%

40%

42%

44%

46%

Spain CCE Germany0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Spain CCE Germany


In 2007, the Coca-Cola Company acquired the remaining seven independent bottlers across Germany and began integrating them, which has cost $1.1bn in restructuring charges and led to the number of plants coming down to 23 from 28, as well as significant headcount reduction (12k to 9.5k). In its 2014 annual report, Coca-Cola mentioned it "is currently reviewing other restructuring opportunities within the German bottling and distribution operations… However, as of December 31, 2014, the Company had not finalized any additional plans."

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Figure 61: The German bottling network consolidated in 2008

Figure 62: The Coca-Cola company has spent $1.1bn on restructuring charges since the bottler consolidation although there are further opportunities available

Coca-Cola Germany consolidation timeline Coca-Cola Germany restructuring charges – US$m

1,127

21110

9467

148

187

208

292

0

200

400

600

800

1,000

1,200


Figure 63: Coca-Cola reduced the number of plants from 28 to 23… Figure 64: …and headcount by c20%Coca-Cola Germany number of plants Coca-Cola Germany headcount

0

5

10

15

20

25

30

2007 20150

2,000

4,000

6,000

8,000

10,000

12,000

2007 2015


Despite the recent restructuring, Germany has some of the lowest efficiency metrics in the European Coke system. As outlined in Figure 66, we note that;

■ Germany has the lowest volume per plant ratio, despite having one of the highest population densities (229 people per sq. km) – this suggests the company can do more to optimise its plant network across the country

■ Germany also has the lowest volume per employee ratios – we note Germany handles 72k cases per employee, significantly lower than other Western European markets.

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Figure 65: At first glance, the German business appears to have a relatively inefficient structure versus other parts of EuropeCoca-Cola network efficiency metrics (2015)

Volume - m cases # Plants

# cases per plant -

m

Population density (per

Sq km)#

Employees# cases per employee

Germany 680 23 30 229 9,500 72Spain 556 16 35 97 5,057 110CCE 1,248 17 73 110 11,500 109CCH established markets 621 14 44 147 6,642 94


As such, we believe there is more work to be done in terms of rationalising the production network and headcount in the country; however, we don’t believe Germany will reach the same metrics as other markets, noting;

■ A legacy network: As former Coca-Cola CEO Neville Isdell outlined in his book 'Inside Coca-Cola' published in 2011, the German bottling system had been developed after World War II, when "smaller bottling plants made sense because there was a shortage of investment capital and many of the roads and bridges were still bomb-damaged…. The cost of distribution could actually outweigh the cost of production, so the solution had been to build many smaller bottling plants throughout the country". Therefore, we believe given so many legacy small bottling plants, it will be difficult for Germany to get to the same levels of network efficiency as other markets – the cost of closing plants which are fully depreciated and re-building mega-plants would outweigh the benefits.

■ Higher direct distribution: The German soft drinks market has a high prevalence of returnable packaging, which makes direct store distribution (DSD) more important. As such, given this structural difference, it is not completely accurate to compare Germany's employee efficiency metrics versus other CCEP markets and set those as a benchmark, as DSD models require headcount.

Nevertheless, assuming Germany can reach an efficiency level of 90 cases per employee, close to the CCH established markets but below the other CCEP markets, this would suggest potential headcount reduction of another c20% (2k employees). Assuming staff costs are €60k per person, we estimate this could deliver savings of €120m, which represents c70% of the targeted 'in-flight' synergies. On this basis, EBIT margins in Germany would rise by c540bps to 13.8%, in line with the other CCEP markets. However, we believe this is sufficiently captured in the guidance and we see little further upside.

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Figure 66: We estimate restructuring in Germany can achieve €120m of savings and restore margins to in line with legacy CCECCEP Germany restructuring potential - €m

# cases per

employeeVolume - m cases

# Employees

Current 72 680 9,500Potential 90 680 7,522chge - % 26% -21%

Headcount reduction 1,978Est Germany avg personnel expense - € 60,000Potential savings - €m 119as % gross synergy target 29%as % gross 'in-flight' synergy target 72%

Coca-Cola Germany EBIT margin - %Current 8.4%Potential 13.8%Difference - bps 544

Source: Credit Suisse estimates

Re-investment requirementsAt the Q1 results, CFO Nik Jhangiani commented that the company is committed for the targeted net cost synergies to drop through to the bottom line, unless there are other compelling investment opportunities. We believe there is a risk that if the group continues to cede market share it could be forced to re-invest more of the cost synergies than originally outlined.

15 September 2016


Balance sheet potentialBalance sheet de-leveragingFollowing the disposal of the US business to The Coca-Cola Company in 2010, legacy CCE gradually levered up its balance sheet through share buybacks and raising its dividend payout ratio. The company targets net debt/EBITDA in a range of 2.5-3.0x . We estimate CCE's balance sheet will de-lever by 0.5x per annum, leaving room to increase cash returns or participate in M&A from FY18.

We expect capex to be initially above the medium-term range of 4-5% of net sales and restructuring charges due to the integration (1.5x targeted synergies); we expect this to be offset partly by working capital synergies and benefit from lower cash tax over the next couple of years.

Figure 67: CCEP's balance sheet will de-lever by around 0.5x net debt/EBITDA per annum

Figure 68: We expect FCF conversion of 85-90% over the next 3 years, dragged down by restructuring costs (1.5x targeted cost synergies)

CCEP pro-forma net debt/EBITDA - x CCEP free cashflow breakdown - %

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

2016E 2017E 2018EEBITDA 1,826 1,974 2,101Change in working capital 76 127 -10Restructuring costs -128 -230 -153Other 20 20 20Net cash from operations 1,795 1,892 1,959Net interest -134 -113 -106Cash tax -264 -277 -324Net cash from operating activities 1,397 1,502 1,529Capex -557 -536 -532Asset disposals 20 20 20Free cashflow 860 986 1,017Adjusted net profit 956 1,074 1,171FCF conversion - % 90% 92% 87%

Net debt - opening 6,389 5,778 5,075Free cashflow 860 986 1,017Dividends -253 -283 -318Other 39Net debt - ending 5,743 5,075 4,376EBITDA - x 1,826 1,974 2,101Net debt/EBITDA - x 3.1 2.6 2.1


Cash return potentialCCE paid out on average 150% of net income annually to shareholder, mostly through share buybacks. The new entity has set-out a dividend policy of 30-40% payout ratio - we assume the low-end of this range given the current leverage. Given the consistency of the legacy CCE's cash return profile, we assume the company starts share buybacks from FY18. We assume a €1bn annual buyback programme, which is c5% EPS accretive assuming the shares are bought back at the current valuation multiple and c2% cost of debt.

15 September 2016


Figure 69: The legacy CCE business returned c150% of net income back to shareholders per annum through dividends and buybacks

Figure 70: We assume a €1bn annual share buyback from FY18, which is c5% EPS accretive

CCE dividends and buybacks as % of adjusted net income - % 2018-20 CCEP CAGR EPS growth breakdown - %

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2011 2012 2013 2014 2015

Dividends Share buybacks

1%

4%

1%

5%

11%

0%

2%

4%

6%

8%

10%

12%

Sales Margin Financialleverage

ShareBuybacks

EPS


M&A opportunitiesCCEP is a potential consolidator of Europe We expect CCEP to participate in further consolidation of the Coke bottler network over the coming years.

We believe it makes strategic sense for CCEP to consolidate a number of Western and Central European territories, which are currently held by Coca-Cola HBC. In our view, the most obvious markets include Ireland (Republic and Northern); Austria; Switzerland, Poland, and Czech Republic, which are bordered or located next to CCEP's existing territories.

However, we do not rule out broader consolidation, which would include Italy (one of CCH's largest market), Greece and other Central European assets (Romania and Hungary being the largest, followed by Serbia and Bulgaria).

Furthermore, there could also be opportunities to consolidate Denmark and Finland, where the Coca-Cola bottling operations are currently distributed by Carlsberg.

15 September 2016


Figure 71: Coca-Cola bottling landscape across Europe Coca-Cola European bottling network

Month Day, YearLEGAL ENTITY, department or author (Click Insert | Header & Footer)

Great Britain

Portugal

Spain

France

Belgium

Netherlands

Germany

Switzerland

Italy

Norway

Sweden

Finland

Denmark

Greece

Ireland

Iceland

Luxembourg

Austria

Czech Rep.Slovakia

SloveniaHungary

Poland

Lithuania

Latvia

Estonia

Ukraine

Belarus

Moldova

Romania

Russia

Croatia

Bosnia & Herz.

Montenegro

Serbia

KosovoMacedonia

Bulgaria

Turkey

Kazakhstan

ArmeniaAzerbaijan

SyriaIraq


We note historical transaction multiples in the soft drinks bottling space have averaged c11x EBITDA. The Coke bottlers currently trade on a calendarised 2017E 10x EBITDA multiple, with CCH trading on 9x.

15 September 2016


Figure 72: Historical bottling transactions have averaged 10.5x EBITDA

Figure 73: Coke bottlers currently trade on 10x EBITDA

Historical bottling EV/EBITDA transaction multiple - x 2017E calendarised EV/EBITDA - x

Acquiror TargetEBITDA multule - x

Feb-06 Blackstone & Lion Capital Cadbury Schwepes Europe 9.0Dec-08 Asahi Cadbury AUS 15.2Dec-08 Arca Argentina 9.7Apr-09 Pepsi PBG 7.9Apr-09 Pepsi PAS 8.7Sep-09 CCE Coke Nordic interests 8.3Feb-10 Coke CCE US assets 8.9Sep-10 Arca EBC 7.1Jun-11 Arca Continental 11.5Jun-11 FEMSA Tampico 9.6Sep-11 FEMSA Cimsa 10.0Mar-12 FEMSA FoQue 9.7Mar-12 Andina La Polar 11.0Sep-12 Andina Sorocaba 8.9Dec-12 FEMSA Philippines (51%) 13.5Jan-13 Coke Sacremento Bottling Co 9.0Jan-13 FEMSA Yoli (Mexico) 10.8Jun-13 FEMSA Fluminense (Brazil) 11.2Jul-13 Andina Ipiranga (Brazil) 10.8Aug-13 FEMSA Spaipa (Brazil) 13.8Jul-16 Cobega CCIP 12.4Sep-15 Arca Lindley (Peru) 13.2AVERAGE 10.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Source: Company data, Credit Suisse research Source: Credit Suisse estimates

In our hypothetical M&A analysis below, we assume;

■ A transaction multiple of 11x EBITDA

■ Cost synergies equivalent to 3% net sales over 3 years

■ 100% debt funded transaction at 2.5% cost of debt, slightly higher than CCEP's current blended net finance coupon of c2%

On this basis;

■ Assuming CCEP acquires the bottling rights to border markets currently owned by CCH Ireland, Switzerland, Austria, Poland and Czech republic, we estimate a deal would be 10% EPS accretive.

15 September 2016


Figure 74: An acquisition of CCH territories bordering existing CCEP markets would be 8-10% EPS accretiveCCEP pro-forma financials on potential acquisition of CCH border markets - €m

2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020ENet revenue 10,726 10,855 11,017 11,205 1,705 1,725 1,746 1,767 12,431 12,580 12,763 12,971 16% 16% 16% 16%EBITDA 1,974 2,101 2,182 2,264 248 257 266 275 2,222 2,358 2,448 2,539 13% 12% 12% 12%Depreciation -429 -434 -441 -448 -80 -81 -82 -83 -509 -515 -522 -531EBIT 1,545 1,667 1,742 1,816 168 176 184 192 1,714 1,843 1,926 2,009Synergies 17 34 51 51 17 34 51 51Net finance costs -113 -96 -81 -64 -68 -68 -68 -68 -181 -164 -149 -133Other 0 0 0 0 0 0 0 0 0 0 0 0Adjusted PBT 1,433 1,571 1,661 1,752 117 142 167 175 1,550 1,713 1,828 1,927 8% 9% 10% 10%Undelrying tax expense -358 -393 -415 -438 -29 -36 -42 -44 -387 -428 -457 -482Underlying tax rate - % 25.0% 25.0% 25.0% 25.0% 25% 25% 25% 25% 25.0% 25.0% 25.0% 25.0%Adjusted net income 1,074 1,178 1,246 1,314 88 107 125 132 1,162 1,285 1,371 1,445 8% 9% 10% 10%Average number of shares - diluted 489 489 489 489 489 489 489 489 489 489 489 489Adjusted EPS - diluted 2.20 2.41 2.55 2.68 0.18 0.22 0.26 0.27 2.38 2.63 2.80 2.95 8% 9% 10% 10%

Leverage analysisNet debt - end 5,075 4,376 3,582 2,773 2,726 2,726 2,726 2,726 7,801 7,102 6,308 5,499EBITDA 1,974 2,101 2,182 2,264 265 291 317 326 2,239 2,392 2,499 2,590Net debt/EBITDA - x 2.6 2.1 1.6 1.2 3.5 3.0 2.5 2.1

Finance costsTransaction value 2,726 2,726 2,726 2,726Net finance expenses 68 68 68 68Net finance cost - % 2.5% 2.5% 2.5% 2.5%

Margin/ROIC analysisEBIT margin post synergies - % 14.4% 15.4% 15.8% 16.2% 10.9% 12.2% 13.5% 13.8% 13.9% 14.9% 15.5% 15.9%chge - bps 95 45 40 132 130 31 100 57 39

ROIC 5.1% 5.8% 6.5% 6.7%

CCEP (ex buyback) CCH border markets Combined Difference - %

Source:, Credit Suisse estimates

CCEP could also be part of broader consolidation in AfricaWe note the Coca-Cola bottling landscape could soon change in Africa if the Coca-Cola Company exercises its change of control provision on Coca-Cola Beverages Africa (CCBA) – the bottler accounts for c40% Coca-Cola volumes across the continent, focused on South and East Africa.

Figure 75: We expect the Africa Coke bottling network to further consolidateCoca-Cola African volumes by bottler (2015) - %

CCBA40%

Castel20%

CCHBC Nigeria11%

ECCBC10%

Other16%

Heineken 3%


15 September 2016


We note in May 2016, the Coca-Cola company announced a new structure for its international business:

■ First, the European division would combine with the Eurasia and Africa division to form Europe, Middle East and Africa (EMEA).

■ Second, within Africa, the company has split the continent into two business units, with the formation of a South and East Africa unit and a West Africa unit, which more closely aligns its operations with the current bottling structure. This replaces a structure which included Central, East and West Africa (CEWA), Middle East and North Africa (MENA) and South Africa.

This suggests that Coca-Cola's approach to Africa could be to consolidate the continent in two parts, with an anchor bottler for South and East Africa (Coca-Cola Beverages Africa) and another bottler for Western Africa.

Whilst it is not yet clear where the Coca-Cola Beverages Africa business ends up, we believe CCEP could be part of consolidation in North and West Africa.

We note CCEP already has indirect interests in Africa – its largest shareholder, the Spanish bottling network (34% stake), is majority owned by Cobega (an investment vehicle of the Daurella family, which separately holds c8% of CCEP), which is also the majority owner of Equatorial Coca-Cola Bottling company (ECCBC, with a 70% stake) - this bottler operates in 13 countries in North and West Africa and controls 10% of the Coca-Cola system on the continent. Sol Daurella, Chairman of CCEP, is on the board of ECCBC, whilst Alfonso Libano Daurella, Chairman of ECCBC (and CEO of Cobega) is on the board of CCEP.

Therefore, given the connections, we believe ECCBC could potentially be consolidated into CCEP, which could then be a consolidator across Northern and Western Africa. In October 2015, a Bloomberg article (click here for link) reported that ECCBC is interested in consolidating bottlers in Africa, including Nigeria (owned by Coca-Cola HBC) and Egypt (a joint venture between TCCC and MAC Beverages Group), as well as smaller bottlers in countries where it already has a presence.

As shown in Figure 78 ECCBC generated €520m of net sales in 2015, and €70m EBITDA, below peak EBITDA of €95m in 2012 (we suspect in part due to FX pressures).

Figure 76: Cobega has significant influence in CCEP and is also the majority shareholder of ECCBC in Africa

Figure 77: ECCBC generates c80% of its volumes from Morocco and Algeria, with the balance from Western Africa

CCEP and ECCBC shareholder structure - % ECCBC volume split by market (2013) - %

Morocco46%

Algeria31%

Ghana11%

Others12%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

http://www.bloomberg.com/news/articles/2015-10-01/coca-cola-bottler-equatorial-said-to-weigh-mergers-in-africa

15 September 2016


Figure 78: ECCBC generates c€520m of net sales and c€70m of EBITDA (v 2012 peak of €95m)ECCBC net sales (€m) v EBITDA margin (%)

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013 2014 2015

Net sales EBITDA margin - %


15 September 2016


ForecastsModel overviewWe highlight our key modelling assumptions below;

■ 0%/1%/1.2% organic revenue growth in FY16/17/18, towards the low-end of management guidance of low-single digit, which we infer to be 1-3%.

■ We model organic margin expansion of 45bps/125bps/95bps in FY16/17/18, driven entirely by €340m of net cost synergies, the high-end of CCEP's guidance range.

■ This drives 4%/11%/8% organic EBIT growth in FY16/17/18.

■ Our EPS estimates are c3-4% below consensus given the weaker topline growth outlook.

Figure 79: CCEP model assumptionsCCEP forecasts - €m

2015 2016E 2017E 2018E

Organic growth -0.1% 1.0% 1.2%Selling days 0.0% 0.0% 0.0%M&A 0.0% 0.0% 0.0%FX -2.4% -0.8% 0.0%Total -2.5% 0.2% 1.2%

Net sales 10,976 10,704 10,726 10,855EBITDA 1,825 1,826 1,974 2,101EBITDA margin - % 16.6% 17.1% 18.4% 19.4%

D&A -417 -417 -429 -434as % net sales 3.8% 3.9% 4.0% 4.0%

EBIT 1,408 1,408 1,545 1,667EBIT margin - % 12.8% 13.2% 14.4% 15.4%Organic chge - bps 46 125 95Reported chge - bps 33 125 95

Organic EBIT 3.5% 10.6% 7.9%M&A 0.0% 0.0% 0.0%FX -3.5% -0.9% 0.0%Total 0.0% 9.7% 7.9%


15 September 2016


Q2 previewCCEP reports its first set of results (Q2 2016) as an integrated business on 22 September 2016. At a conference in September 2016, the company announced that 'operating conditions have softened,' which is consistent with Nielsen data.

Exploring the recent AC Nielsen data in further detail:

■ UK - market volumes for CSDs in Q2 were down 6%, slightly worse than the -3% in Q1. CCEP continued to lag the category by 300-400bps, with volumes declining by 9% in Q2; however, this rebounded in early Q3 trading, with CCEP growing in line with the category at +7% on an easy comparative

■ France – the CSD market declined by 5%, with CCEP in line with market growth, as Pepsi continues to gain share from Private Label – this trend continued in early Q3 trading. Growth across CCEP's portfolio was -2% in Q2, in line with Q1, as declines in CSD were slightly offset by double-digit volume growth in stills and energy.

■ Germany – CSD volumes declined by 2% in Q2. CCEP continued its above-market growth in Germany, recently gaining share from Pepsi in Q2 +(4% vs -2%), as private label continued to lose share to the branded players. This is supported by robust growth in water and energy, growing in mid-single digits and double digits, respectively.

■ Spain – CCEP volumes in carbonates declined by 3% in Q2, in line with the market, after underperforming over the last year (losing share to Schweppes and private label). Across CCEP's portfolio, the CSD declines were slightly offset by market share gains in the water category.

Figure 80: CCEP's CSDs volumes in the UK have lagged market growth by 300-400bps over the first 2 quarters; volumes are now growing in line

Figure 81: In France, CCEP has grown in line with the category, as PepsiCo continues to gains share from Private Label

Volume growth in carbonates - % Volume growth in carbonates - %

-20%

-15%

-10%

-5%

0%

5%

10%

15%

4WK

S 1

6.08

.14

4WK

S 1

3.09

.14

4WK

S 1

1.10

.14

4WK

S 0

8.11

.14

4WK

S 0

6.12

.14

4WK

S 0

3.01

.15

4WK

S 3

1.01

.15

4WK

S 2

8.02

.15

4WK

S 2

8.03

.15

4WK

S 2

5.04

.15

4WK

S 2

3.05

.15

4WK

S 2

0.06

.15

4WK

S 1

8.07

.15

4WK

S 1

5.08

.15

4WK

S 1

2.09

.15

4WK

S 1

0.10

.15

4WK

S 0

7.11

.15

4WK

S 0

5.12

.15

4WK

S 0

2.01

.16

4WK

S 3

0.01

.16

4WK

S 2

7.02

.16

4WK

S 2

6.03

.16

4WK

S 2

3.04

.16

4WK

S 2

1.05

.16

4WK

S 1

8.06

.16

4WK

S 1

6.07

.16

4WK

S 1

3.08

.16

TOTAL CARBONATED FLAVOURED DRINKS COCA COLA COMPANY

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

4WKS TO24/01/16

4WKS TO21/02/16

4WKS TO20/03/16

4WKS TO17/04/16

4WKS TO15/05/16

4WKS TO12/06/16

4WKS TO10/07/16

4WKS TO07/08/16

CSD Market CCEP Schweppes Pepsico Private Label

Source: AC Nielsen Source: AC Nielsen

15 September 2016


Figure 82: CCEP has recently taken share from PepsiCo in Germany so far this year

Figure 83: CCEP has started to close the gap with the market in Spain after recent share losses

Volume growth in carbonates - % Volume growth in carbonates - %

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

CSD Market CCEP PepsiCo

-15%

-10%

-5%

0%

5%

10%

Jun2015

Jul2015

Aug2015

Sep2015

Oct2015

Nov2015

Dec2015

Jan2016

Feb2016

Mar2016

Apr2016

May2016

Jun2016

CSD Market CCEP Pepsico

Source: AC Nielsen Source: AC Nielsen

15 September 2016


ValuationShares have performed in line since the European listingCCEP has performed in line with European consumer staples since its European listing, after its initial underperformance following Brexit – the stock trades on a calendarised 2017E P/E of 16.3x, 12% below other Coke bottlers and 17% below European staples.

Figure 84: CCEP has performed in line with European staples since its listing in Europe, following some initial underperformance post Brexit

Figure 85: On a P/E basis, CCEP looks relatively cheap versus other Coca-Cola bottlers and European staples

CCEP share price performance versus European consumer staples (May = 100)

2017E calendarised P/E multiples - x

80

85

90

95

100

105

110

CCEP European staples

21.0

19.6

16.3

18.5

10

12

14

16

18

20

22

Source: Thomson Reuters Source: Credit Suisse estimates

However, we also note that CCEP's P/E multiple is lowered by its relatively higher leverage and low cost of debt – if we strip out capital structure differences, then its 2017E calendarised EV/EBIT multiple is c15x, slightly higher than peers.

Figure 86: However, this is in part due to CCEP's more leveraged balance sheet and relatively low cost of debt

Figure 87: Stripping out these capital structure differences, CCEP trades on a EV/EBIT multiple more in line with its peer group

2016E net debt/EBITDA - x 2017E calendarised EV/EBIT multiples - x

3.2

2.62.1

1.71.3 1.3 1.1

0.00.51.01.52.02.53.03.5

15.1 14.9 14.614.3

13.412.8 12.8

10.0

11.0

12.0

13.0

14.0

15.0

16.0

Source: Credit Suisse estimates Source: Credit Suisse estimates

15 September 2016


Adjusted Present value - €37 target priceOur target price of €37 is based on an adjusted present value (APV) methodology, a hybrid DCF that calculates the operating cash flows discounted at the cost of equity separately from the tax shield (discounted at the cost of debt).

We use a three-stage model: In Phase 1, we take our explicit forecasts from our model out to FY20 (Year 5). In Phase 2, the transition period, we fade our growth forecast to a terminal growth rate in FY30 (Year 15). In Phase 3, the end period, we estimate a terminal value.

Our assumptions include:

■ Cost of equity: We assume 8.0%, in line with other European consumer staples companies

■ Revenue growth: Based on our explicit forecast 1-2% p.a. up to FY20, after which the growth rate remains at 2%

■ Working capital: We assume CCEP's working capital declines in 2016 and 2017 due to a decrease in trade receivables and increase in payables from synergies/better economies of scale and then moderates in line with sales growth up to FY30

■ EBIT margin: c60bps average underlying margin expansion p.a. to 16.0% in FY20. In the transition phase, we fade the margin expansion to 15bps in FY30

■ Capex/depreciation: Declines from 1.41x to 1.18x in our explicit forecast period, and then fades to 1.15x in the transition period

■ Tax rate: Stays at 23% for FY16-18 in part of the explicit period due to cash tax synergies, before settling at 25% up to FY30

■ Balance sheet: We value the tax shield based on net debt/EBITDA remaining constant at 2.75x after the explicit forecast, in line with its target and historical capital structure.

Our analysis yields a fair value of €37, which we set as our target price, indicating c3% potential upside.

Figure 88: APV suggests €37 target price in €millions, unless otherwise stated

AssumptionsCost of equity 8.0%Perpetuity growth rate 2.0%Cost of debt 2.0%Tax rate 25.0%Cost of debt (post tax) 1.5%Capex/depreciation - x 1.15

Adjusted present valueFree cash flow NPV 12,011Terminal value 10,073Value of tax shield 2,535Enterprise value 24,618Net debt (calendarised) -6,208Pension liability -247Equity value - €m 18,163Number of shares 489Equity value per share - € 37.1Current share price 35.8Upside/(downside) - % 3%


15 September 2016


Upside/Downside risk (blue sky/grey sky)Upside Risks/Blue Sky For our blue sky scenario, we derive a fair value of €48 assuming:

■ c3.5% organic growth – the higher end of the low-single-digit organic growth guidance, driven by revenue synergies, innovation in the fast-growing non-CSD categories (e.g. expanding Smartwater and Honest Tea outside the UK). We also assume incremental revenue contribution from an acquisition of bordering territories once CCEP's balance sheet de-levers in FY18E.

■ Further cost synergies (c25% higher than base case) driving better margin expansion . Synergies are phased using the same assumption as our base case– i.e. for 15% to be delivered in FY16E, 40% in FY17E, 30% in FY18E and 15% in FY19E.

Downside Risks/Grey SkyFor our grey sky scenario, we derive a fair value of €27 assuming:

■ 1% decline in organic growth driven by further category declines, market share losses and increased regulation. We assume further declines in CSDs to particularly impact CCEP (c83% of vols), with additional market share losses from competitive pressures (UK – aggressive pricing, Spain – further share losses to private label) and macro risks (particularly in the UK post Brexit). On regulation, we assume an increased soft drinks tax in France and an introduction of a soft drinks/sugar tax in Spain (with our base case already factoring in the UK tax impact).

■ Lower margin improvement as we assume a further 25% of the cost savings are invested back into the business due to weaker topline growth.

15 September 2016


Credit Suisse HOLT®Based on our forecasts in Credit Suisse HOLT®, we derive a warranted price of €35.0 per share for CCEP, indicating c3% downside potential.

The CFROI® chart at the top of Figure 90 is a reflection of our forecasts for sales, margins and asset turns. Our assumptions result in a 2016 CFROI of 8.7%, before rebounding to 10.5% by FY20. This is driven by a steady increase in EBITDA margins and asset turns.

Figure 90 shows our model for CCEP in terms of sales, margins and turns. Our estimates indicate a long-term topline growth rate increasing at a steady rate up to c2% growth in 2030. We expect EBITDA margins to grow steadily over the explicit period reaching 20% by FY20, with margin expansion fading down to 15bps in FY30, and asset turns to consistently improve over this period, to pre-acquisition levels.

Beyond the 15-year window, HOLT, by default, assumes the CFROI and discount rate fade to 6.0%, while the asset growth fades to 2.5%,—incorporating the economic reality of competition and causing high returns and growth to regress to the mean. This compares to our APV, where we grow free cash flows at 2%, in- line with sales. In a scenario where we reduce the fade at a rate of 5% (vs 10% default) to align closer to our model, we derive a warranted value of €35.48 a share in- line with our valuation and the market price.

By sensitivity, a 1% parallel shift in sales growth and EBITDA margins result in 13% potential upside to the target price.

15 September 2016


Figure 89: CCEP in Credit Suisse HOLT

Current Price: EUR 36.01 Warranted Price: EUR 35.00 Valuation date: 12-Sep-16

Sales Growth (parallel % point change to forecasts) Dec 15A Dec 16A Dec 17E Dec 18E Dec 19EEUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % -15.2 72.7 0.1 1.2 1.5

EBITDA Mgn, % 17.0 17.1 18.3 19.2 19.6

Asset Turns, x 0.78 0.8 0.8 0.8 0.8

CFROI®, % 9.7 8.7 9.0 9.8 10.2

Disc Rate, % 4.6 4.1 3.8 3.8 3.8

Asset Grth, % -11.3 71.9 -1.8 -0.7 -0.8

Value/Cost, x 2.4 2.6 2.9 2.9 2.8

Economic PE, x 24.4 29.7 32.3 29.4 27.2

Leverage, % 28.6 29.0 37.3 38.6 40.1

More than 10%

downsideWithin 10% More than

10% upside

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

56%

1.0% -20% -8% 7% 24% 44%

2.0% -12% 2% 17% 35%

2% 19%

0.0% -29% -17% -3% 13%

HO

LT

- C

redi

t Sui

sse

Ana

lyst

Sce

nari

o D

ata

COCA-COLA EUROPEAN PARTNERS (CCE)

EBIT

DA M

argi

n (p

aral

lel %

poi

nt c

hang

e

to fo

reca

sts)

-2.0% -46% -35% -23% -9%

32%

7%

-1.0% -37% -26% -13%

-20

-15

-10

-5

0

5

10

15

20

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Sales Growth (%)

0

5

10

15

20

25

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

EBITDA Margin

0.00.10.20.30.40.50.60.70.80.9

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Asset Turns (x)

0

2

4

6

8

10

12

14

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030Historical CFROI Historical Transaction CFROIForecast CFROI Forecast CFROICFROI Discount Rate

CFROI & Discount Rate (in %)

-10-8-6-4-202468

10

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Historical Asset Growth Rate Forecast GrowthForecast Growth RAGRNormalised Growth Rate

Asset Growth (in %)

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

15 September 2016


Company overviewFigure 90: Coca-Cola European Partners Company Overview in €millions, unless otherwise stated (2015)

Company description

FY 2015 (y/e Dec) Spain & Portugal GermanyCoca Cola Enterprises Great Britain France Belgium Netherlands Norway Sweden Total

Total volume (mhl) 556 680 1,248 510 368 155 96 50 69 2,484% of total volume 22% 27% 50% 21% 15% 6% 4% 2% 3%Revenue 2,480 2,181 6,315 2,337 1,831 947 505 379 316 10,976% of total revenue 23% 20% 58% 21% 17% 9% 5% 3% 3%

CompetitorsPepsi, Schweppes,

Sumol + Compal PepsiBritvic (Pepsi),

AG Baar

Pepsi, OranginaSchwe

ppes

Pepsi, Schweppes Pepsi

Ringnes (Pepsi)

Carlsberg Sverige (Pepsi)

EBIT% of total EBIT

Total volume (m litres)% of total volume

Germany Coca-Cola Enterprises

Total2,484

Water1747%

CCEP is formed from the combination of Coca Cola Enterprises, Iberian, and German. It is the largest independent Coca Cola bottler based on net sales and serves over 300m consumers, selling, producing and delevering c2.5bn unit cases.

Regional Split

Category Split

Shareholder StructureCCEP is listed in Euronext Amsterdam (CCE.AS), NYSE, Euroenext London and Spanish stock exchange. Cobega (Spanish bottlers) own 34% and TCCC (The Coca Cola Company) owns 18%, with 48% free-float.

TOTAL COMPANY OVERVIEWEBIT by region Volume by category

1,40828% 13%

183

8%65%

Revenues by region

Coca-Cola Trademark1,615

Sparkling flavours & energy49720%

Stills199

83559%

EBIT SplitSpain & Portugal Total

390

Spain & Portugal

22%

Germany20%

Great Britain

21%

France17%

Belgium9%

Netherlands5%

Norway3%

Sweden3% Spain &

Portugal28%

Germany13%

Coca-Cola Enterprises

59%Coca-Cola Trademark

65%

Sparkling flavours &

energy20%

Stil ls8%

Water7%


ManagementFigure 91: Management teamTitle Name Previous experienceChief Executive Officer John F. Brock CCE (CEO), Inbev (CEO), Cadbury Schweppes (COO)Chief Operating Officer Damian Gammell CCE (COO), Anadolu Efes (CEO), CCH, Amatil, Coca-Cola Bottlers (CEO, Germany)Chief Financial Officer Manik Jhangiani CCE (CFO), Bharti Enterprises (CFO), CCH (CFO), Coca-Cola Co. Chief Integration Officer Victor Rufart CCI (GM), Cobega (GM)Chief Human Resources Officer Pamela O. Kimmet CCE, Bear Stearns, Lucent TechnologiesChief Supply Chain Officer Ronald J. Lewis CCE, Coca-Cola Co.Chief Information Officer Esat Sezer CCE, Whirlpool Corporation, Colgate-PalmoliveGM, France Ben Lambrecht CCE (GM, France - previously BeNeLux), Coca-Cola Co.GM, Germany Ulrik Nehammer Coca-Cola Bottlers (CEO, Germany), CCH, Coca-Cola Co. GM, Northern Europe Stephen Moorhouse CCE, Swire Group GM, Great Britain Leendert den Hollander CCE, Young's seafood (CEO), Findus Group, Procter & GambleGM, Iberia Francisco Cosano CCI (GM), Grupo Leche Pascual, Anglo Espanola de Distribution, Cobega

Source: Company data

15 September 2016


Credit Suisse PEERsPEERs is a global database that captures unique information about companies within the Credit Suisse coverage universe based on their relationships with other companies – their customers, suppliers and competitors. The database is built from our research analysts’ insight regarding these relationships. Credit Suisse covers over 3,000 companies globally. These companies form the core of the PEERs database, but it also includes relationships on stocks that are not under coverage.

Figure 92: Coca-Cola European Partners PEERs map

Source: Credit Suisse PEERs

15 September 2016


Financial ModelFigure 93: Coca-Cola European Partners segments in € millions, unless otherwise stated

2016E 2017E 2018EOrganic growth -0.1% 1.0% 1.2%Selling days 0.0% 0.0% 0.0%M&A 0.0% 0.0% 0.0%FX -2.4% -0.8% 0.0%Total -2.5% 0.2% 1.2%

Net sales 10,704 10,726 10,855EBITDA 1,826 1,974 2,101EBITDA margin - % 17.1% 18.4% 19.4%

D&A -417 -429 -434as % net sales 3.9% 4.0% 4.0%

EBIT 1,408 1,545 1,667EBIT margin - % 13.2% 14.4% 15.4%Organic chge - bps 46 125 95Reported chge - bps 33 125 95

Organic EBIT 3.5% 10.6% 7.9%M&A 0.0% 0.0% 0.0%FX -3.5% -0.9% 0.0%Total 0.0% 9.7% 7.9%

Organic growth - %CCE -1.6% -0.2% 0.5% - UK -2.6% -1.5% -1.5% - Continental Europe -1.1% 0.5% 1.5%CCIP 2.5% 2.5% 2.0%CCEAG 1.5% 2.0% 2.0%Total -0.1% 0.9% 1.2%


15 September 2016


Figure 94: Coca-Cola European Partners P&L forecasts in € millions, unless otherwise stated

2016E 2017E 2018ENet sales 10,704 10,726 10,855EBITDA 1,826 1,974 2,101Depreciation & amortisation -417 -429 -434EBIT 1,408 1,545 1,667Exceptional items -128 -230 -153Reported EBIT 1,281 1,316 1,514Net finance costs -134 -113 -106Other 0 0 0Adjusted PBT 1,274 1,433 1,561PBT 1,147 1,203 1,408Undelrying tax expense -319 -358 -390Tax on exceptionals 32 57 38Total tax expense -287 -301 -352Underlying tax rate - % 25.0% 25.0% 25.0%Tax rate - % 25.0% 25.0% 25.0%Adjusted net income 956 1,074 1,171Net income 860 902 1,056

Number of shares 483 483 460Average number of shares - basic 483 483 471Average number of shares - diluted 489 489 478

Adjusted EPS - diluted 1.95 2.20 2.45Adjusted EPS - basic 1.98 2.23 2.48


Figure 95: Coca-Cola European Partners cashflow forecasts in € millions, unless otherwise stated

2016E 2017E 2018EEBITDA 1,826 1,974 2,101Change in working capital 76 127 -10Restructuring costs -128 -230 -153Other 20 20 20Net cash from operations 1,795 1,892 1,959Net interest -134 -113 -106Cash tax -264 -277 -324Net cash from operating activities 1,397 1,502 1,529Capex -557 -536 -532Asset disposals 20 20 20Free cashflow 860 986 1,017Adjusted net profit 956 1,074 1,171FCF conversion - % 90% 92% 87%

Net debt - opening 6,389 5,778 5,075Free cashflow 860 986 1,017Dividends -253 -283 -318Share buybacks 0 0 -1,000Other 39 0 0Net debt - ending 5,743 5,075 4,376EBITDA - x 1,826 1,974 2,101Net debt/EBITDA - x 3.1 2.6 2.1


15 September 2016


Companies Mentioned (Price as of 13-Sep-2016)Britvic (BVIC.L, 630.0p)Carlsberg (CARLb.CO, Dkr612.5)Carrefour (CARR.PA, €22.24)Casino Guichard (CASP.PA, €43.01)Coca Cola European Partners (CCE.AS, €35.75, NEUTRAL[V], TP €37.0)Coca Cola Icecek (CCOLA.IS, TL37.06)Coca-Cola Amatil (CCL.AX, A$9.84)Coca-Cola Andina (AND_pb.SN, CLP$2458.9)Coca-Cola Femsa SAB de CV (KOFL.MX, MXN139.13)Coca-Cola HBC (CCH.L, 1649.0p)Cott Corporation (COT.N, $14.87)Monster Beverage Corp (MNST.OQ, $143.92)Morrison Supermk (MRWSY.PK, $15.49)Ocado Plc (OCDO.L, 278.0p)PepsiCo, Inc. (PEP.N, $104.59)Refresco Group (RFRG.AS, €14.74)Sainsbury (JSAIY.PK, $16.635)Suntory Beverage & Food (2587.T, ¥4,310)Tesco (TSCO.L, 160.65p)The Coca-Cola Company (KO.N, $42.28)

Disclosure AppendixImportant Global Disclosures I, Sanjeet Aujla, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activitiesAs of December 10, 2012 Analysts’ stock rating are defined as follows:Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

15 September 2016


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings DistributionRating Versus universe (%) Of which banking clients (%)Outperform/Buy* 53% (50% banking clients)Neutral/Hold* 29% (24% banking clients)Underperform/Sell* 18% (44% banking clients)Restricted 0%*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.htmlCredit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Target Price and RatingValuation Methodology and Risks: (12 months) for Coca Cola European Partners (CCE.AS)

Method: Our target price (€37) is based on an adjusted present value (APV) methodology, a hybrid DCF that calculates the operating cash flows discounted at the cost of equity separately from the tax shield (discounted at the cost of debt). We use a three-stage model: In Phase 1, we take our explicit forecasts from our model to FY21 (Year 5). In Phase 2, the transition period, we fade our growth forecast to a terminal growth rate in FY30 (Year 15). In Phase 3, the end period, we estimate a terminal value. Our assumptions include an 8% cost of equity in line with other European Consumer Staples, revenue growth based on our explicit forecast of -3% to 1.5% p.a. to FY21, beyond which the growth rate fades to 1.5% in FY30, and a c70-80bps underlying margin expansion p.a. to 16.1% in FY20. In the transition phase, we fade the margin expansion to 15bps in FY30 and capex/depreciation declines from 1.28x to 1.13x in our explicit forecast period, and then fades to 1.1x in the transition period. Our TP leads us to a Neutral rating

Risk: Risks to our target price (€37) and Neutral rating include: (i) competitive pressures from Pepsi and local players, (ii) consumer behaviour towards soft drinks, which CCEP is overindexed in, (iii) uncertainty of sugar/soft drinks taxes, particularly given the increased scrutiny and regulation (iv) increased input cost rises squeezing margins, (v) Revenue synergies or variation in the amount of cost synergies re-invested back into the business

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (CCE.AS, CCH.L, KOFL.MX, KO.N, CCL.AX, PEP.N, CCOLA.IS, AND_pb.SN, COT.N, RFRG.AS, CARR.PA, CASP.PA, MNST.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.Credit Suisse provided investment banking services to the subject company (CCE.AS, CCH.L, KOFL.MX, KO.N, COT.N, RFRG.AS, CARR.PA, CASP.PA) within the past 12 months.Credit Suisse provided non-investment banking services to the subject company (COT.N, CARR.PA, CASP.PA) within the past 12 monthsCredit Suisse has managed or co-managed a public offering of securities for the subject company (CCH.L, KO.N, RFRG.AS) within the past 12 months.Credit Suisse has received investment banking related compensation from the subject company (CCE.AS, CCH.L, KOFL.MX, KO.N, COT.N, RFRG.AS, CARR.PA, CASP.PA) within the past 12 monthsCredit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CCE.AS, CCH.L, KOFL.MX, KO.N, CCL.AX, CARLb.CO, PEP.N, 2587.T, CCOLA.IS, AND_pb.SN, COT.N, RFRG.AS, CARR.PA, CASP.PA, TSCO.L, MNST.OQ) within the next 3 months.Credit Suisse has received compensation for products and services other than investment banking services from the subject company (COT.N, CARR.PA, CASP.PA) within the past 12 monthsAs of the date of this report, Credit Suisse makes a market in the following subject companies (CCE.AS, KO.N, PEP.N, MNST.OQ).For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=247624&v=-6bqmzh2rv96dc9i9xjek4jys1 . Important Regional Disclosures Laurent Grandet was formerly employed by Pepsico Inc. within the past 12 months and received compensation from the company during that period.Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

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15 September 2016


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15 September 2016


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Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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