15 September 2016 Europe/Netherlands Equity Research Beer & Alcoholic Beverages Coca Cola European Partners

(CCE.AS / CCE.N) Rating NEUTRAL [V] Price (13 Sep 16, €) 35.75 INITIATION Target price (€) 37.00 Market Cap (€ m) 17,119.3 Cost synergies offset by weak category growth Enterprise value (€ m) 23,077.7 Secondary RIC CCE.N ■ Initiate coverage with Neutral rating, TP €37: Our FY16-18E EPS Price (13 Sep 16, US$) 39.75 estimates are 3-4% below consensus, driven by a weaker topline outlook due Rating NEUTRAL [V] to soft category growth, potential macro-risk (UK) and regulatory pressures. Target price (US$) 41.40 *Stock ratings are relative to the coverage universe in each Synergies give some degree of earnings visibility; however, we don’t expect analyst's or each team's respective sector. upside to targets, and balance sheet activity is unlikely until FY18. We prefer ¹Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix) Coca-Cola HBC (CCH, see our upgrade report). Research Analysts ■ Weak topline outlook: We believe CCEP is a stronger business following Sanjeet Aujla the merger with the German and Iberian bottlers, however we expect organic 44 20 7888 0353 growth to be at the low-end of the 'low single-digit' guidance (CSe c1-1.5%) [email protected] noting; i) 83% of CCEP's volumes are from CSDs, which remain in decline ii) Laurent Grandet CCEP has been losing share in CSDs across its major markets (except 212 538 7901 [email protected] Germany) iii) potential further regulatory headwinds as the sugar debate Pavan Daswani intensifies across Europe. 44 20 7883 0539 ■ No upside to synergy target: CCEP's €315-340m net cost synergy target [email protected] gives some earnings visibility over the next few years; however, we see little Clay Crumbliss, CFA upside; i) our analysis suggests the targets are in line with historical bottling 212 538 1076 [email protected] 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 Financial and valuation metrics

3 8 Year 12/15A 12/16E 12/17E 12/18E Revenue (€ m) 10,976.0 10,704.0 10,725.9 10,854.6 3 6 EBITDA (€ m) 1,825.0 1,825.9 1,974.5 2,101.3 3 4 Adjusted net income (€ m) 856.00 955.76 1,074.44 1,170.87 3 2 CS EPS (adj.) (€) 1.75 1.95 2.20 2.45 3 0 ROIC (%) 6.3 6.7 7.4 7.9 Ju n - 1 6 Ju l- 1 6 A u g - 1 6 Sep - 1 6 P/E (adj.) (x) 20.4 18.3 16.3 14.6 P/E rel. (%) 113.6 99.1 106.1 109.8 CCE.A S A M ST ERD A M EXCH A N GE IN D EX EV/EBITDA (x) 12.9 12.5 11.2 10.7

The price relative chart measures performance against the Dividend (12/16E, €) 0.59 Net debt/equity (12/16E,%) 58.5 AMSTERDAM EXCHANGE INDEX which closed at 442.6 Dividend yield (12/16E,%) 1.6 Net debt (12/16E, € m) 5,778.2 on 13/09/16 BV/share (12/16E, €) 20.5 IC (12/16E, € m) 15,654.8 On 13/09/16 the spot exchange rate was €1/Eu 1.- Free float (%) 33.3 EV/IC (12/16E, (x) 1.5 Eu.89/US$1 Source: Company data, Thomson Reuters, Credit Suisse estimates Performance 1M 3M 12M Absolute (%) 3.2 7.4 Relative (%) 5.6 1.4

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 2016

Coca Cola European Partners (CCE.AS) Price (13 Sep 2016): €35.75; Rating: NEUTRAL [V]; Target Price: €37.00; Analyst: Sanjeet Aujla Income statement (€ m) 12/15A 12/16E 12/17E 12/18E Company Background Revenue 10,976 10,704 10,726 10,855 Coca-Cola Enterprises is one of the world's largest Coca-Cola EBITDA 1,825 1,826 1,974 2,101 bottlers manufacturing, bottling and marketing Coca-Cola products Depr. & amort. (417) (417) (429) (434) in eight territories in Western Europe. EBIT 1,408 1,408 1,545 1,667 Net interest exp. (161) (134) (113) (106) Blue/Grey Sky Scenario Associates - - - - PBT 1,237 1,274 1,433 1,561 Income taxes (149) (287) (301) (352) Profit after tax 856 956 1,074 1,171 Minorities - - - - Preferred dividends - - - - Associates & other 0 0 0 0 Net profit 856 956 1,074 1,171 Other NPAT adjustments (418) (96) (172) (115) Reported net income 438 860 902 1,056 Cash flow (€ m) 12/15A 12/16E 12/17E 12/18E EBIT 1,408 1,408 1,545 1,667 Net 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 1,529 CAPEX 0 (557) (536) (532) Free cashflow to the firm 1,175 840 966 997 Acquisitions - - - - Divestments - 20 20 20 Other investment/(outflows) 0 (35) 0 0 Cash flow from investments 0 (572) (516) (512) Net share issue/(repurchase) - 0 0 (1,000) Dividends paid 0 (253) (283) (318) Our Blue Sky Scenario (€) 48.00 Issuance (retirement) of debt - - - - We assume (i) c3.5% organic growth – higher end of the low-single Cashflow from financing 0 (253) (283) (1,318) digit organic growth forecast guidance, driven by revenue synergies Changes in net cash/debt (6,389) 611 703 (301) and innovation in non-carbonate categories ii) Margin improvement from 25% additional cost synergies (vs €315-340 official target). Net debt at start - 6,389 5,778 5,075 Change in net debt 6,389 (611) (703) 301 Our Grey Sky Scenario (€) 28.00 Net debt at end 6,389 5,778 5,075 5,376 We assume i) -1% organic growth driven by regulation and Balance sheet (€ m) 12/15A 12/16E 12/17E 12/18E sugar/soft drink taxes (UK, France and Spain over the next few Assets years), further market share losses in carbonates ii) Lower margin Total current assets 3,524 3,436 3,377 3,408 improvement from 25% of cost savings being re-invested back into Total assets 22,160 22,226 22,254 22,363 the business due to a weaker topline growth Liabilities Total current liabilities 3,253 3,241 3,309 3,330 Share price performance Total liabilities 12,992 12,349 11,694 11,996 Total equity and liabilities 22,160 22,226 22,254 22,363 38 Per share 12/15A 12/16E 12/17E 12/18E No. of shares (wtd avg.) (mn) 489 489 489 478 36 CS EPS (adj.) (€) 1.75 1.95 2.20 2.45 Prev. EPS (€) 34 Dividend (€) 0.53 0.59 0.66 0.73 Free cash flow per share (€) 2.40 1.72 1.97 2.09 32

Key ratios and valuation 12/15A 12/16E 12/17E 12/18E 30 Growth/Margin (%) Jun- 16 Jul- 16 Aug- 16 Sep- 16 Sales growth (%) - (2.5) 0.2 1.2 EBIT growth (%) 0.0 9.7 7.9 Net income growth (%) 11.7 12.4 9.0 CCE.AS AMSTERDAM EXCHANGE INDEX EPS growth (%) - 11.6 12.4 11.6 EBITDA margin (%) 16.6 17.1 18.4 19.4 The price relative chart measures performance against the AMSTERDAM EBIT margin (%) 12.8 13.2 14.4 15.4 EXCHANGE INDEX which closed at 442.6 on 13/09/16 Pretax profit margin (%) 11.3 11.9 13.4 14.4 On 13/09/16 the spot exchange rate was €1/Eu 1.- Eu.89/US$1 Net income margin (%) 7.8 8.9 10.0 10.8 Valuation 12/15A 12/16E 12/17E 12/18E EV/Sales (x) 2.1 2.1 2.1 2.1 EV/EBITDA (x) 12.9 12.5 11.2 10.7 EV/EBIT (x) 16.7 16.3 14.4 13.5 Dividend yield (%) 1.47 1.64 1.84 2.06 P/E (x) 20.4 18.3 16.3 14.6 Credit ratios (%) 12/15A 12/16E 12/17E 12/18E Net debt/equity (%) 69.7 58.5 48.1 51.9 Net debt to EBITDA (x) 3.5 3.2 2.6 2.6 Interest coverage ratio (x) 8.7 10.5 13.7 15.7 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates

Coca Cola European Partners (CCE.AS / CCE.N) 2 15 September 2016

Key Charts

Figure 1: We estimate CCEP category weighted Figure 2: CCEP is too skewed to the carbonated soft growth has lagged the market by 100-150bps drinks (CSDs) category, which is declining CCEP category weighted volume growth v overall market - % CCEP and market volume split by category- %

2.5% 100% 2% 2% 7% 90% 2.0% 8% 80% 1.5% 43% 70% 1.0% 60% Energy 0.5% 50% Water 0.0% 40% 83% 26% Stills 2007 2008 2009 2010 2011 2012 2013 2014 2015 -0.5% 30% CSDs

-1.0% 20% 29% -1.5% 10% CCEP category weighted growth Market growth 0% CCEP Market

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

Figure 4: We see little upside to synergy targets, Figure 3: Regulatory pressures are intensifying which are in line with historical bottling across CCEP's markets transactions Regulation scorecard by market Coke bottling cost synergies as % target net sales Carbonates Obesity rate Diabetes Budget Balance Tax-GDP Complentary Synergies as a % Country Date announced PCC (litres) (%) - 18+ Prevalence (%) (% GDP) ratio footprint of sales Belgium 94 22% 6% -2.6 48% Arca - Continental Yes Mexico Jan-11 7.8% France 46 26% 8% -3.5 48% KOF - Tampico/Cimsa/FoQue Yes Mexico Jun-11 6.6% Germany 95 23% 7% 0.7 39% Andina - La Polar No Chile / Brazil Mar-12 5.3% Netherlands 57 22% 6% -1.8 38% KOF - Yoli Yes Mexico Jan-13 3.6% Norway 93 25% 7% 5.7 39% KOF - Fluminense Yes Brazil Jun-13 8.2% Portugal 36 22% 9% -4.4 37% Andina - Ipiranga No Brazil Jul-13 1.4% Spain 76 27% 9% -5.1 34% KOF - Spaipa Yes Brazil Aug-13 3.6% Sweden 65 22% 7% 0 44% Arca-Lindley No Peru Sep-15 3.2% United Kingdom 77 30% 8% -4.4 34% Average 5.0% Mexico 156 28% 10% -3.5 20% South Africa 71 26% 10% -4.2 26% 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 Figure 6: CCEP's P/E looks attractive, but is balance sheet from FY18 through buybacks (c4-5% flattered by high leverage/low finance costs – its EPS accretive) or M&A (across Europe and Africa) EV/EBIT is in line with other Coca-Cola bottlers CCEP net debt/EBITDA - x CCEP 2017E EV/EBIT - x

4.0 16.0 15.1 14.9 3.5 14.6 15.0 14.3

3.0 14.0 13.4 12.8 12.8 2.5 13.0

2.0 12.0

1.5 11.0

1.0 10.0

0.5

0.0 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

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

Coca Cola European Partners (CCE.AS / CCE.N) 3 15 September 2016

Table of contents

Key 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

Coca Cola European Partners (CCE.AS / CCE.N) 4 15 September 2016

Executive summary Weak 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 headwinds The 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 upside CCEP 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&A We 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.

Coca Cola European Partners (CCE.AS / CCE.N) 5 15 September 2016

SWOT analysis

Figure 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 Strengths - 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 Weaknesses - 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 Opportunities - 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 Threats - 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

Source: Credit Suisse research, Company data

Coca Cola European Partners (CCE.AS / CCE.N) 6 15 September 2016

Introduction CCEP is the second largest independent Coca-Cola bottler by volume The 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 Figure 9: KO's 18% stake in CCEP is the biggest volume outside the US component of its equity income from bottlers Bottler share of Coca-Cola volumes ex US - % Coca-Cola share of net income from bottlers – US$m Bottler 2015 Share of 2017E net Coca-Cola FEMSA 17% Equity partner Stake - % income - US$m Coca-Cola European Partners 11% CCEP 18% 217 Coca-Cola HBC 8% ArcaContal 7% FEMSA 28% 197 Coca-Cola Icecek 5% Monster 17% 152 Swire (ex US) 4% Coca-Cola HBC 24% 106 Coca-Cola Beverages Africa 4% Coca-Cola Amatil 29% 93 Andina 3% Arca Continental 9% 51 Coca-Cola Amatil 3% Coca-Cola Japan (East & West) 2% Coca-Cola Icecek 20% 32 Castel 2% Andina 15% 27 Others 35%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research CCEP is more diversified post deal The 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 Figure 11: The business is now more diversified GB and France… following the addition of Germany and Spain Legacy CCE revenue split (2015) - % Pro-forma CCEP revenue split (2015) - %

Sweden Norway 5% Germany 6% 21% Netherlands Great Britain 8% 21%

Great Britain 37% Spain & Belgium Portugal France 15% 22% 16%

Sweden Belgium France 3% NorwayNetherlands 9% 29% 3% 5%

Source: Company data Source: Company data

Coca Cola European Partners (CCE.AS / CCE.N) 7 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

Coca Cola European Partners (CCE.AS / CCE.N) 8 15 September 2016

Organic growth outlook Pro-forma CCEP would have missed targets in past two years CCEP 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 13: We note estimate pro-forma CCEP would Figure 12: The old CCE business struggled to meet not have met the current guidance over the past two its medium-term guidance in the past 4 years years Coca-Cola Enterprises (old CCE) organic growth v target - % Pro-forma CCEP organic growth v target - %

7% 3.5%

6% 3.0% 5% 2.5% 4% 2.0% 3%

2% 1.5%

1% 1.0%

0% 0.5% 2010 2011 2012 2013 2014 2015 -1% 0.0% -2% 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 growth Soft drinks market recovered in FY15, but lags behind GDP growth We 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.

Coca Cola European Partners (CCE.AS / CCE.N) 9 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 15: There is a strong directional correlation Figure 14: Market volume growth in CCEP's regions between market growth and weighted real GDP has lagged real GDP by c100bps in recent years growth (ex 2007 and 2009) CCEP market growth v weighted real GDP growth - % CCEP market growth v real GDP growth correlation

5% 4.0% 4% 3.0% 3%

2% 2.0% 1% 1.0%

0% 0.0% -1% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% -1.0% -2%

-3% -2.0%

-4% -3.0% -5% -4.0% Weighted Real GDP Weighted Market growth -5.0%

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

Figure 16: Real GDP growth is expected to slow in Figure 17: UK consumer confidence has most markets in 2017 deteriorated since the Brexit vote 2016-17E real GDP growth by CCEP markets - % UK consumer confidence index

4.0% 8 3.5% 6 3.0% 2.5% 4 2.0% 2 1.5% 0 5 5 6 5 5 6 5 6 5 6 5 5 6 6 5 6 5 6 1.0% 5 5 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------l l t r r -2 r r v y y c p n n b b n n g g u u

0.5% c a a p p o a a e a a e u u e e u u J J A A O J J J J M M F F S N A A D 0.0% -4 M M -6 -8 -10 2016 2017 -12

Source: IMF, Credit Suisse estimates Source: Thomson Reuters

CCEP has weak category mix CCEP's category weighted growth lags the market Whilst 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.

Coca Cola European Partners (CCE.AS / CCE.N) 10 15 September 2016

Figure 18: CCEP generates 83% of volumes in Figure 19: CCEP brand portfolio overview by Carbonated beverages v the market at c30% category CCEP and market volume split by category- %

100% 2% 2% 7% 90% 8% 80% 43% 70% 60% Energy 50% Water 40% 83% 26% Stills 30% Sparkling 20% 29% 10% 0% CCEP Market

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 Figure 21: Market growth is being driven by non- years and underperformed the market by 100- Carbonated growth, whilst CSDs continue to 150bps in the past couple of years underperform CCEP category weighted volume growth v overall market - % Market growth split between CSD v non-CSD categories - %

2.5% 3.0%

2.0% 2.5%

1.5% 2.0% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015 -0.5% -0.5% -1.0% -1.0%

-1.5% -1.5% CCEP category weighted growth Market growth 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 Figure 23: More recently, only the CSDs category in years Iberia is back to growth CSD volume growth by market - % CSD volume growth by market - %

4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0%

-1.0% -1.0%

-2.0% -2.0% -3.0% -3.0% -4.0% -4.0% -5.0%

-6.0% -5.0% 2009-12 2013-15 2014 2015

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

Coca Cola European Partners (CCE.AS / CCE.N) 11 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 Figure 25: Carbonated per capita consumption biggest markets (ex-France) is above the European CCEP's major markets has been declining, even in average France CSD per capita consumption (litres) v GDP per capita at purchasing CSD per capita consumption trends – litres power parity (US$)

120 100 Germany Denmark 100 Belgium Germany 90 Bulgaria Norway ) s 80 e UK r United Kingdom t

i Spain l 80

( Republic of Ireland

C

C Romania Switzerland P

Hungary Austria

s Macedonia Sweden e Czech Republic t 60 a Serbia Spain n Slovak Republic Netherlands o 70 b

r Poland Finland a C Croatia Latvia Bosnia-Herzegovina Greece France 40 Lithuania Italy Turkey Portugal Russia 60 Estonia Slovenia Belarus 20 Ukraine 50 France R² = 0.2777 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 40

GDP Per Capita (PPP) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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

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 27: 66% of respondents in Europe who Figure 26: Increased sugar availability has been planned to change their diets intend to cut down on associated with increased diabetes prevalence 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

Coca Cola European Partners (CCE.AS / CCE.N) 12 15 September 2016

CSD market share has been declining CCEP's CSD market share is already quite high We 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 Figure 29: CCEP has been losing share in most of in the Carbonated category (or 66% ex private label) its markets in recent years CCEP CSD market share - % 2013-15 change in CSD market share - %

70% 3.0%

60% 2.0% 50%

40% 1.0%

30% 0.0% 20%

10% -1.0%

0% -2.0%

-3.0%

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

UK – Pepsi taking share CCEP 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 share Whilst 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. Germany The 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.

Coca Cola European Partners (CCE.AS / CCE.N) 13 15 September 2016

Figure 30: In the UK, CCEP is losing share to Pepsi Figure 31: In Spain, CCEP has been losing share to (bottled by Britvic) private label CSD volume growth in the UK - % CSD volume growth in Spain - %

6% 10% Private label 4% 8%

6% 2% 4% 0% 2011 2012 2013 2014 2015 2% -2% CCEP 0% 2012 2013 2014 2015 -4% -2% Pepsi

-6% -4%

CCEP Britvic AG BArr -6%

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

Figure 33: The German business has been a bright Figure 32: In France, CCEP is maintaining market spot, gaining share since consolidation of the share (losing to Pepsi, but gaining v private label) bottler network CSD volume growth in France - % CCEP Germany CSD market share - %

30% 46%

25% 44% 20%

15% 42%

10% 40% 5% 38% 0% 2011 2012 2013 2014 2015 -5% 36% -10% 34% CCEP OranginaSchweppes PepsiCo France 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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

Coca Cola European Partners (CCE.AS / CCE.N) 14 15 September 2016

Opportunities in other categories Non-CSD growth is led by Energy, Water and Iced Tea The 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 Figure 35: In particular, the water category has years posted strong growth 2013-15 category volume growth across CCEP markets - % Water category volume growth across CCEP markets - %

8.0% 5%

4% 6.0% 3% 4.0% 2%

2.0% 1%

0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1% -2.0% -2%

-4.0% -3%

Source: Canadean, Credit Suisse research Source: Canadean, Credit Suisse research Energy strategy – growth potential Energy 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 Figure 37: However growth has slowed in the past 3 single digit across CCEP's markets years in almost all markets Energy category growth in CCEP markets - % Energy category growth in CCEP markets - %

18% 30%

16% 25%

14% 20% 12% 15% 10% 10% 8% 5% 6%

4% 0%

2% -5%

0% 2009 2010 2011 2012 2013 2014 2015 2009-15 2012-15

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

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.

Coca Cola European Partners (CCE.AS / CCE.N) 15 15 September 2016

Figure 39: CCEP has been gaining share within Figure 38: CCEP has a c22% market share in the energy across most of its markets helped by energy category Monster CCEP Energy market share and market position- % 2012-15 CCEP Energy market share trends (including Monster) - %

50% 1 14.0% 45% 12.0% 2 40% 10.0% 35% 8.0% 30% 6.0% 25% 2 2 20% 4.0% 2 2 15% 2.0% 2 3 10% 2 0.0% 5% -2.0% 0% -4.0% -6.0% -8.0%

Source: Canadean, Credit Suisse research Source: Canadean, Credit Suisse research Water strategy – potential to build on UK smartwater success CCEP 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 growth UK Smartwater value market share - %

4.0%

3.0%

2.0%

1.0%

0.0%

Distribution led m/s Same store sales m/s

Source: AC Nielsen, Credit Suisse research

Coca Cola European Partners (CCE.AS / CCE.N) 16 15 September 2016

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 Spain Iced/RTD tea CCEP market share - %

80% 70% 60% 50% 40% 30% 20% 10% 0%

Source: Company data, Credit Suisse research

Regulatory pressures Soft drinks regulation is intensifying As 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 term In 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).

Coca Cola European Partners (CCE.AS / CCE.N) 17 15 September 2016

Figure 42: We estimate c50% of CCEP's UK portfolio Figure 43: We estimate CCEP will require a c10% is made up of added-sugar products, higher than price increase across the brands exposed to the tax peers or 5% across the whole portfolio % of UK volumes exposed to added sugar tax - % Potential price increase across UK portfolio - %

60% 12%

50% 10%

40% 8%

30% 6%

20% 4%

10% 2%

0% 0% CCEP Britivic AG Barr Added sugar products Total portfolio

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

Risk of further tax hikes in France In 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 experiences In 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 declines France and Mexico sugar tax case studies Period Tax Price increase Volume impact €0.07 per litre tax drinks containing added sugar or Price of taxed Volumes on taxed France 2012 artificial sweetners, including products increased by products decline by c5% fruit drinks and flavoured c8% in 2012-13 over the period waters Price of taxed 1 peso per litre tax on soft c6% volume impact on Mexico 2014 products increased by drinks with added sugar taxed products c10%

Source: Company data, Credit Suisse estimates Risks in other markets The motivation for government action against soft drinks has been centred around the correlation between sugar availability and increased obesity and diabetes prevalence, as

Coca Cola European Partners (CCE.AS / CCE.N) 18 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 drinks Regulation scorecard – darker highlights indicate a higher likelihood Carbonates Obesity rate Diabetes Budget Balance Tax-GDP PCC (litres) (%) Prevalence (%) (% 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

Coca Cola European Partners (CCE.AS / CCE.N) 19 15 September 2016

Figure 46: Regulatory Outlook Summary across CCEP markets Country Soft Drinks Regulatory Outlook Summary 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 UK portfolio by 5% to pass this on to customers. We do not expect any additional levies until this has come to fruition. 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 France 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. Spain has the highest prevalence of diabetes across CCEP markets, and its obesity rate is second only to the Spain 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 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 Germany obesity, with the minister (Christian Schmidt) re-affirming this post the UK sugar tax announcement, according to an article from Die Welt (March 2016). 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 Belgium 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 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 Netherlands 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. 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 Sweden 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 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% Norway 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'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 Portugal 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

Coca Cola European Partners (CCE.AS / CCE.N) 20 15 September 2016

Pricing environment remains difficult Deflationary environment Inflation 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 Figure 48: Old CCE's price/mix has lagged CPI by been weak in recent years – we expect this to pick 150bps over the past 3 years and by c70bps over up slightly, but remain below average the past decade CCEP weighted CPI - % CCE price/mix v weighted CPI - %

3.5% 5.0%

3.0% 4.0%

2.5% 3.0%

2.0% 2.0%

1.5% 1.0%

1.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.5% -1.0% 0.0% -2.0% CCEP Price/mix CPI

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

Figure 49: Pricing across key European staples companies remains negative Organic 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 concentration We 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.

Coca Cola European Partners (CCE.AS / CCE.N) 21 15 September 2016

Figure 50: CCEP has big exposure to the modern Figure 51: The modern trade channel is well trade and discounters consolidated across CCEP's markets CCEP channel mix - % Market share of the Top 5 retailers - %

Other Norway 4% Finland Belgium On-trade Sweden 20% Denmark Luxembourg Austria Switzerland Portugal Large Modern Germany Traditional trade Hungary France Retail 46% Netherlands 6% Ireland Greece Spain Slovakia Discount Great Britain 18% Czech Republic Convenience Italy 6% Ukraine Russia Poland Romania 0% 20% 40% 60% 80%

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

More focus on price/mix With 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 initiatives Coca-Cola North America price/mix - %

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0% 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.

Coca Cola European Partners (CCE.AS / CCE.N) 22 15 September 2016

Margin potential CCEP has a good margin track record Whilst 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 54: The Business Transformation Figure 53: Legacy CCE has a good margin track Programme has led to a c12% reduction in record headcount Legacy CCE organic margin expansion - bps CCE headcount (ex-Germany and Spain) – number of employees

14.0% 13,000 13.6% 13.5% +40bps 12,500

+45bps 13.0% 12,000 -10bps +15bps 12.5% +50bps 12.2% 11,500

12.0% 11,000

11.5% 2010 EBIT 2011 2012 2013 2014 2015 2015 EBIT 10,500 margin margin 2012 2015

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

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

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: Company data, Credit Suisse research

Coca Cola European Partners (CCE.AS / CCE.N) 23 15 September 2016

Cost synergies to drive margin expansion over FY16-19E CCEP 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 57: 70% of the targets savings are from Figure 56: 40% of the targets savings are 'in-flight', supply chain, with the balance from general & with the balance from combination synergies admin costs. CCEP cost synergy split - % CCEP cost synergy split - %

G&A 30%

In-flight 40%

Combination 60%

Supply chain 70%

Source: Company data Source: Company data

Limited upside to synergy targets We 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 transactions As 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.

Coca Cola European Partners (CCE.AS / CCE.N) 24 15 September 2016

Figure 58: CCEP's synergy target is in line with recent KO bottler merger synergies Cost synergies as % target net sales Complentary Synergies as a % Country Date announced footprint of sales Arca - 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: Company data, Credit Suisse estimates

Upside in Germany but some structural barriers will remain The 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 Figure 60: However, EBIT Margins in Germany are margins 500-700bps below CCE and Spain CCEP gross margin by region - % CCEP EBIT margin by region - %

46% 18%

16% 44% 14% 42% 12%

40% 10%

38% 8% 6% 36% 4% 34% 2%

32% 0% Spain CCE Germany Spain CCE Germany

Source: Company data Source: Company data

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."

Coca Cola European Partners (CCE.AS / CCE.N) 25 15 September 2016

Figure 62: The Coca-Cola company has spent $1.1bn on restructuring charges since the bottler Figure 61: The German bottling network consolidation although there are further consolidated in 2008 opportunities available Coca-Cola Germany consolidation timeline Coca-Cola Germany restructuring charges – US$m

1,200 1,127

1,000 292

800 208 600 187

400 148 67 200 94 110 0 21

Source: Company data Source: Company data

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

30 12,000

25 10,000

20 8,000

15 6,000

10 4,000

5 2,000

0 0 2007 2015 2007 2015

Source: Company data Source: Company data

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.

Coca Cola European Partners (CCE.AS / CCE.N) 26 15 September 2016

Figure 65: At first glance, the German business appears to have a relatively inefficient structure versus other parts of Europe Coca-Cola network efficiency metrics (2015) # cases Population Volume - per plant - density (per # # cases per m cases # Plants m Sq km) Employees employee

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

Source: Company data, Credit Suisse research

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.

Coca Cola European Partners (CCE.AS / CCE.N) 27 15 September 2016

Figure 66: We estimate restructuring in Germany can achieve €120m of savings and restore margins to in line with legacy CCE CCEP Germany restructuring potential - €m # cases per Volume - # employee m cases Employees Current 72 680 9,500 Potential 90 680 7,522 chge - % 26% -21%

Headcount reduction 1,978 Est Germany avg personnel expense - € 60,000 Potential savings - €m 119 as % 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 requirements At 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.

Coca Cola European Partners (CCE.AS / CCE.N) 28 15 September 2016

Balance sheet potential Balance sheet de-leveraging Following 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 68: We expect FCF conversion of 85-90% Figure 67: CCEP's balance sheet will de-lever by over the next 3 years, dragged down by around 0.5x net debt/EBITDA per annum restructuring costs (1.5x targeted cost synergies) CCEP pro-forma net debt/EBITDA - x CCEP free cashflow breakdown - %

4.0 2016E 2017E 2018E EBITDA 1,826 1,974 2,101 3.5 Change in working capital 76 127 -10 Restructuring costs -128 -230 -153 3.0 Other 20 20 20 Net cash from operations 1,795 1,892 1,959 2.5 Net interest -134 -113 -106 Cash tax -264 -277 -324 2.0 Net cash from operating activities 1,397 1,502 1,529 Capex -557 -536 -532 1.5 Asset disposals 20 20 20 Free cashflow 860 986 1,017 1.0 Adjusted net profit 956 1,074 1,171 0.5 FCF conversion - % 90% 92% 87%

0.0 Net debt - opening 6,389 5,778 5,075 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Free cashflow 860 986 1,017 Dividends -253 -283 -318 Other 39 Net debt - ending 5,743 5,075 4,376 EBITDA - x 1,826 1,974 2,101 Net debt/EBITDA - x 3.1 2.6 2.1 Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Cash return potential CCE 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.

Coca Cola European Partners (CCE.AS / CCE.N) 29 15 September 2016

Figure 69: The legacy CCE business returned c150% of net income back to shareholders per Figure 70: We assume a €1bn annual share buyback annum through dividends and buybacks from FY18, which is c5% EPS accretive CCE dividends and buybacks as % of adjusted net income - % 2018-20 CCEP CAGR EPS growth breakdown - %

200% 12% 11% 180% 160% 10% 140% 5% 8% 120% 100% 6% 1% 80% 60% 4% 40% 4% 20% 2% 0% 1% 2011 2012 2013 2014 2015 0% Sales Margin Financial Share EPS Dividends Share buybacks leverage Buybacks

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

M&A opportunities CCEP 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.

Coca Cola European Partners (CCE.AS / CCE.N) 30 15 September 2016

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

Iceland

Finland

Norway Russia Sweden Estonia

Latvia Denmark Ireland Lithuania

Great Britain Belarus Netherlands Kazakhstan Poland Belgium Germany

Luxembourg Czech Rep. Ukraine Slovakia

France Switzerland Austria Moldova Hungary Slovenia Romania Croatia Serbia Portugal Azerbaijan Bosnia & Herz. Armenia Bulgaria Spain Montenegro Kosovo Italy Macedonia LEGAL ENTITY, department or author (Click Insert | Header & Footer) TurkeMyonth Day, Year

Greece Iraq Syria

Source: Company data, Credit Suisse research

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.

Coca Cola European Partners (CCE.AS / CCE.N) 31 15 September 2016

Figure 72: Historical bottling transactions have Figure 73: Coke bottlers currently trade on 10x averaged 10.5x EBITDA EBITDA Historical bottling EV/EBITDA transaction multiple - x 2017E calendarised EV/EBITDA - x EBITDA Acquiror Target multule - x Feb-06 Blackstone & Lion Capital Cadbury Schwepes Europe 9.0 12.0 Dec-08 Asahi Cadbury AUS 15.2 10.0 Dec-08 Arca Argentina 9.7 Apr-09 Pepsi PBG 7.9 8.0 Apr-09 Pepsi PAS 8.7 Sep-09 CCE Coke Nordic interests 8.3 6.0 Feb-10 Coke CCE US assets 8.9 4.0 Sep-10 Arca EBC 7.1 Jun-11 Arca Continental 11.5 2.0 Jun-11 FEMSA Tampico 9.6 Sep-11 FEMSA Cimsa 10.0 0.0 Mar-12 FEMSA FoQue 9.7 Mar-12 Andina La Polar 11.0 Sep-12 Andina Sorocaba 8.9 Dec-12 FEMSA Philippines (51%) 13.5 Jan-13 Coke Sacremento Bottling Co 9.0 Jan-13 FEMSA Yoli (Mexico) 10.8 Jun-13 FEMSA Fluminense (Brazil) 11.2 Jul-13 Andina Ipiranga (Brazil) 10.8 Aug-13 FEMSA Spaipa (Brazil) 13.8 Jul-16 Cobega CCIP 12.4 Sep-15 Arca Lindley (Peru) 13.2 AVERAGE 10.5

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.

Coca Cola European Partners (CCE.AS / CCE.N) 32 15 September 2016

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

CCEP (ex buyback) CCH border markets Combined Difference - % 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E Net 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 -531 EBIT 1,545 1,667 1,742 1,816 168 176 184 192 1,714 1,843 1,926 2,009 Synergies 17 34 51 51 17 34 51 51 Net finance costs -113 -96 -81 -64 -68 -68 -68 -68 -181 -164 -149 -133 Other 0 0 0 0 0 0 0 0 0 0 0 0 Adjusted 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 -482 Underlying 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 489 489 489 489 489 489 489 489 489 489 489 489 Adjusted 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 analysis Net debt - end 5,075 4,376 3,582 2,773 2,726 2,726 2,726 2,726 7,801 7,102 6,308 5,499 EBITDA 1,974 2,101 2,182 2,264 265 291 317 326 2,239 2,392 2,499 2,590 Net debt/EBITDA - x 2.6 2.1 1.6 1.2 3.5 3.0 2.5 2.1

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

Margin/ROIC analysis EBIT 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%

Source:, Credit Suisse estimates

CCEP could also be part of broader consolidation in Africa We 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 consolidate Coca-Cola African volumes by bottler (2015) - %

Heineken 3% Other 16%

CCBA 40% ECCBC 10%

CCHBC Nigeria 11% Castel 20%

Source: Company data, Credit Suisse research

Coca Cola European Partners (CCE.AS / CCE.N) 33 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 Figure 77: ECCBC generates c80% of its volumes and is also the majority shareholder of ECCBC in from Morocco and Algeria, with the balance from Africa Western Africa CCEP and ECCBC shareholder structure - % ECCBC volume split by market (2013) - %

Others 12%

Ghana 11%

Morocco 46%

Algeria 31%

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

Coca Cola European Partners (CCE.AS / CCE.N) 34 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 (%)

600 25%

500 20%

400 15% 300 10% 200

5% 100

0 0% 2008 2009 2010 2011 2012 2013 2014 2015

Net sales EBITDA margin - %

Source: Company data, Credit Suisse research

Coca Cola European Partners (CCE.AS / CCE.N) 35 15 September 2016

Forecasts Model overview We 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 assumptions CCEP 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 10,855 EBITDA 1,825 1,826 1,974 2,101 EBITDA margin - % 16.6% 17.1% 18.4% 19.4%

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

EBIT 1,408 1,408 1,545 1,667 EBIT margin - % 12.8% 13.2% 14.4% 15.4% Organic chge - bps 46 125 95 Reported 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% Source: Company data, Credit Suisse estimates

Coca Cola European Partners (CCE.AS / CCE.N) 36 15 September 2016

Q2 preview CCEP 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 Figure 81: In France, CCEP has grown in line with lagged market growth by 300-400bps over the first 2 the category, as PepsiCo continues to gains share quarters; volumes are now growing in line from Private Label Volume growth in carbonates - % Volume growth in carbonates - %

15% 20%

10% 15%

5% 10%

0% 5%

-5% 0%

-10% -5% -15% -10% -20%

4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 -15% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ...... 8 9 0 1 2 1 1 2 3 4 5 6 7 8 9 0 1 2 1 1 2 3 4 5 6 7 8 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 ......

6 3 1 8 6 3 1 8 8 5 3 0 8 5 2 0 7 5 2 0 7 6 3 1 8 6 3 -20% 1 1 1 0 0 0 3 2 2 2 2 2 1 1 1 1 0 0 0 3 2 2 2 2 1 1 1

S S S S S S S S S S S S S S S S S S S S S S S S S S S 4WKS TO 4WKS TO 4WKS TO 4WKS TO 4WKS TO 4WKS TO 4WKS TO 4WKS TO K K K K K K K K K K K K K K K K K K K K K K K K K K K

W W W W W W W W W W W W W W W W W W W W W W W W W W W 24/01/16 21/02/16 20/03/16 17/04/16 15/05/16 12/06/16 10/07/16 07/08/16 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

TOTAL CARBONATED FLAVOURED DRINKS COCA COLA COMPANY CSD Market CCEP Schweppes Pepsico Private Label

Source: AC Nielsen Source: AC Nielsen

Coca Cola European Partners (CCE.AS / CCE.N) 37 15 September 2016

Figure 82: CCEP has recently taken share from Figure 83: CCEP has started to close the gap with PepsiCo in Germany so far this year the market in Spain after recent share losses Volume growth in carbonates - % Volume growth in carbonates - %

25% 10%

20%

15% 5%

10%

5% 0%

0% -5% -5%

-10% -10% -15%

-15% Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2015 2015 2015 2015 2015 2015 2015 2016 2016 2016 2016 2016 2016 CSD Market CCEP Pepsico

CSD Market CCEP PepsiCo

Source: AC Nielsen Source: AC Nielsen

Coca Cola European Partners (CCE.AS / CCE.N) 38 15 September 2016

Valuation Shares have performed in line since the European listing CCEP 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 Figure 85: On a P/E basis, CCEP looks relatively European staples since its listing in Europe, cheap versus other Coca-Cola bottlers and following some initial underperformance post Brexit European staples CCEP share price performance versus European consumer staples 2017E calendarised P/E multiples - x (May = 100)

110 22 21.0 105 19.6 20 100 18.5 18 95 16 16.3

90 14

85 12

80 10

CCEP European staples

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 Figure 87: Stripping out these capital structure more leveraged balance sheet and relatively low differences, CCEP trades on a EV/EBIT multiple cost of debt more in line with its peer group 2016E net debt/EBITDA - x 2017E calendarised EV/EBIT multiples - x

3.5 3.2 3.0 16.0 2.6 15.1 14.9 2.5 14.6 2.1 15.0 14.3 1.7 2.0 14.0 1.3 1.3 13.4 1.5 1.1 12.8 12.8 13.0 1.0 12.0 0.5 0.0 11.0 10.0

Source: Credit Suisse estimates Source: Credit Suisse estimates

Coca Cola European Partners (CCE.AS / CCE.N) 39 15 September 2016

Adjusted Present value - €37 target price Our 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 Assumptions Cost 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 value Free cash flow NPV 12,011 Terminal value 10,073 Value of tax shield 2,535 Enterprise value 24,618 Net debt (calendarised) -6,208 Pension liability -247 Equity value - €m 18,163 Number of shares 489 Equity value per share - € 37.1 Current share price 35.8 Upside/(downside) - % 3% Source: Credit Suisse estimates

Coca Cola European Partners (CCE.AS / CCE.N) 40 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 Sky For 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.

Coca Cola European Partners (CCE.AS / CCE.N) 41 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.

Coca Cola European Partners (CCE.AS / CCE.N) 42 15 September 2016

Figure 89: CCEP in Credit Suisse HOLT

COCA-COLA EUROPEAN PARTNERS (CCE) 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 19E

EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % -15.2 72.7 0.1 1.2 1.5

e

g EBITDA Mgn, % 17.0 17.1 18.3 19.2 19.6

n -2.0% -46% -35% -23% -9% 7% a

h Asset Turns, x 0.78 0.8 0.8 0.8 0.8 c

t n i

o -1.0% -37% -26% -13% 2% 19% p

) CFROI®, % 9.7 8.7 9.0 9.8 10.2 s % t

l s e a l l

c Disc Rate, % 4.6 4.1 3.8 3.8 3.8 a e 0.0% -29% -17% -3% 13% 32% r r a o f

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

(

o t n i g

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

M Value/Cost, x 2.4 2.6 2.9 2.9 2.8

A

D Economic PE, x 24.4 29.7 32.3 29.4 27.2 T

I 2.0% -12% 2% 17% 35% 56% B

E Leverage, % 28.6 29.0 37.3 38.6 40.1 a t

a More than More than Sales Growth (%) D 10% Within 10% 20 10% upside o downside i 15 r

a 10 n

e 5 c CFROI & Discount Rate (in %) S

0 t

s 14 -5 y l -10 a 12 n -15 A

10

e -20

s 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

s 8 i u

S 6

t EBITDA Margin i 4 25 d e r 2 20 C

-

0 15 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 T Historical CFROI Historical Transaction CFROI L Forecast CFROI Forecast CFROI 10 O CFROI Discount Rate H 5 Asset Growth (in %) 0 10 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 8 6 4 Asset Turns (x) 0.9 2 0 0.8 -2 0.7 -4 0.6 -6 0.5 -8 0.4 -10 0.3 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 0.2 Historical Asset Growth Rate Forecast Growth 0.1 Forecast Growth RAGR Normalised Growth Rate 0.0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

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.

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

Coca Cola European Partners (CCE.AS / CCE.N) 43 15 September 2016

Company overview

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

Company description Shareholder Structure CCEP is formed from the combination of Coca Cola Enterprises, Iberian, and German. It is the largest CCEP is listed in Euronext Amsterdam (CCE.AS), NYSE, Euroenext independent Coca Cola bottler based on net sales and serves over 300m consumers, selling, producing London and Spanish stock exchange. Cobega (Spanish bottlers) own 34% and delevering c2.5bn unit cases. and TCCC (The Coca Cola Company) owns 18%, with 48% free-float.

TOTAL COMPANY OVERVIEW Revenues by region EBIT by region Volume by category

Sweden Water Netherlands Norway Spain & 3% Spain & 7% 5% 3% Portugal Portugal Stills 22% Belgium 28% 8% 9%

Sparkling flavours & energy Coca-Cola France 20% Enterprises 17% 59% Germany Germany Coca-Cola 20% 13% Trademark Great 65% Britain 21%

Regional Split Coca Cola FY 2015 (y/e Dec) Spain & Portugal Germany 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% Pepsi, Carlsberg Pepsi, Schweppes, Britvic (Pepsi), Pepsi, Ringnes Competitors Pepsi OranginaSchwe Pepsi Sverige Sumol + Compal AG Baar Schweppes (Pepsi) ppes (Pepsi) EBIT Split Spain & Portugal Germany Coca-Cola Enterprises Total EBIT 390 183 835 1,408 % of total EBIT 28% 13% 59% Category Split Coca-Cola Trademark Sparkling flavours & energy Stills Water Total Total volume (m litres) 1,615 497 199 174 2,484 % of total volume 65% 20% 8% 7%

Source: Company data, Credit Suisse estimates

Management

Figure 91: Management team Title Name Previous experience Chief 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 Technologies Chief Supply Chain Officer Ronald J. Lewis CCE, Coca-Cola Co. Chief Information Officer Esat Sezer CCE, Whirlpool Corporation, Colgate-Palmolive GM, 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 & Gamble GM, Iberia Francisco Cosano CCI (GM), Grupo Leche Pascual, Anglo Espanola de Distribution, Cobega

Source: Company data

Coca Cola European Partners (CCE.AS / CCE.N) 44 15 September 2016

Credit Suisse PEERs PEERs 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

Coca Cola European Partners (CCE.AS / CCE.N) 45 15 September 2016

Financial Model

Figure 93: Coca-Cola European Partners segments in € millions, unless otherwise stated 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 10,704 10,726 10,855 EBITDA 1,826 1,974 2,101 EBITDA margin - % 17.1% 18.4% 19.4%

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

EBIT 1,408 1,545 1,667 EBIT margin - % 13.2% 14.4% 15.4% Organic chge - bps 46 125 95 Reported 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% Source: Credit Suisse estimates

Coca Cola European Partners (CCE.AS / CCE.N) 46 15 September 2016

Figure 94: Coca-Cola European Partners P&L forecasts in € millions, unless otherwise stated 2016E 2017E 2018E Net sales 10,704 10,726 10,855 EBITDA 1,826 1,974 2,101 Depreciation & amortisation -417 -429 -434 EBIT 1,408 1,545 1,667 Exceptional items -128 -230 -153 Reported EBIT 1,281 1,316 1,514 Net finance costs -134 -113 -106 Other 0 0 0 Adjusted PBT 1,274 1,433 1,561 PBT 1,147 1,203 1,408 Undelrying tax expense -319 -358 -390 Tax on exceptionals 32 57 38 Total tax expense -287 -301 -352 Underlying tax rate - % 25.0% 25.0% 25.0% Tax rate - % 25.0% 25.0% 25.0% Adjusted net income 956 1,074 1,171 Net income 860 902 1,056

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

Adjusted EPS - diluted 1.95 2.20 2.45 Adjusted EPS - basic 1.98 2.23 2.48 Source: Credit Suisse estimates

Figure 95: Coca-Cola European Partners cashflow forecasts in € millions, unless otherwise stated 2016E 2017E 2018E EBITDA 1,826 1,974 2,101 Change in working capital 76 127 -10 Restructuring costs -128 -230 -153 Other 20 20 20 Net cash from operations 1,795 1,892 1,959 Net interest -134 -113 -106 Cash tax -264 -277 -324 Net cash from operating activities 1,397 1,502 1,529 Capex -557 -536 -532 Asset disposals 20 20 20 Free cashflow 860 986 1,017 Adjusted net profit 956 1,074 1,171 FCF conversion - % 90% 92% 87%

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

Coca Cola European Partners (CCE.AS / CCE.N) 47 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 Appendix Important 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 activities As 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.

Coca Cola European Partners (CCE.AS / CCE.N) 48 15 September 2016

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

Global Ratings Distribution Rating 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.html Credit 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 Rating Valuation 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 months Credit 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 months Credit 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 months As 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.

Coca Cola European Partners (CCE.AS / CCE.N) 49 15 September 2016

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Coca Cola European Partners (CCE.AS / CCE.N) 50 15 September 2016

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