Hedging reserve
The hedging reserve reflects changes in the fair values of derivatives accounted for as cash flow hedges, net of the deferred tax related to such balances. The movement for 2015 relates to the movement in cash flow hedges of €14.7m loss, net of deferred tax income of
€5.6m (2014: €0.4m loss, net of deferred tax expense of €6.8m).
Tax-free and statutory reserves
The tax-free reserve includes investment amounts exempt from tax according to incentive legislation, and other tax-free income or income taxed at source. During 2015 there was no movement in tax-free reserves, while in 2014 tax-free reserves of €4.0m were offset against tax losses carried forward and €74.0m was allocated to retained earnings as a result of the transformation of 3E (Cyprus) Limited Greek Branch into a Greek single-member limited company, named Coca-Cola HBC Service MEPE.
Statutory reserves are particular to the various countries in which the Group operates. The amount of statutory reserves of the parent entity, Coca-Cola HBC, is €nil. During 2015, an amount of €3.0m (2014: €0.3m increase) was reclassified to statutory reserves relating to the establishment of additional reserves. Additionally, in 2014 an amount of €60.3m was allocated from statutory reserves to retained earnings, due to cancellation of the statutory reserve in Czech Republic (€4.7m) and the transformation of 3E (Cyprus) Limited Greek Branch described above (€55.6m).
Other reserves
Other reserves are particular to the various countries in which the Group operates and include shares held for the Group’s employee stock purchase plan, which is an equity compensation plan in which eligible employees may participate.
Stock option reserve
The stock option reserve represents the cumulative charge to the income statement for employee stock option and performance share awards. The movement for the stock option reserve for 2015 was a €8.8m increase (2014: €12.1m increase).
Available-for-sale financial assets valuation reserve
The available-for-sale financial assets valuation reserve reflects changes in the fair values of available-for-sale financial assets. Amounts in this reserve are reclassified to profit or loss upon sale or impairment of the related investments. The movement for the available-for-sale financial assets valuation reserve for 2015 was a €0.1m gain, net of deferred tax expense of €0.1m including €0.1m share of other comprehensive income from equity method investments (2014: €0.4m loss, net of deferred tax income of €0.2m) and relates to the revaluation impact of listed and unlisted equities held.
19. Total operating costs
Total operating costs for the years ended 31 December comprised:
2015
€ million 2014
€ million
Operating expenses 1,855.2 1,901.4
Restructuring costs 54.0 55.2
Total operating costs 1,909.2 1,956.6
(a) Operating expenses
2015
€ million 2014
€ million
Selling expenses 851.8 908.9
Delivery expenses 531.7 564.4
Administrative expenses 462.9 416.0
Stock option and performance shares expense (refer to Note 25) 8.8 12.1
Operating expenses 1,855.2 1,901.4
In 2015, operating expenses included net losses on disposal of property, plant and equipment of €1.8m (2014: €1.8m net gains).
Notes to the Consolidated Financial Statements continued
19. Total operating costs continued
(b) Restructuring costs
As part of the effort to optimise its cost base and sustain competitiveness in the marketplace, the Company undertook restructuring initiatives in 2015 which amounted to €54.0m (2014: €55.2m) before tax. During 2015, the Company recorded €23.9m (2014: €25.6m),
€9.0m (2014: €7.3m) and €21.1m (2014: €22.3m) of restructuring charges in its established, developing and emerging markets respectively.
The restructuring concerns mainly employees’ costs (see Note 16) and impairment of property, plant and equipment (see Note 5).
(c) Staff costs
Staff costs included in the income statement in operating expenses, restructuring costs and in cost of goods sold are analysed as follows:
2015
€ million 2014
€ million
Wages and salaries 760.8 766.5
Social security costs 151.5 168.8
Pension and other employee benefits 131.3 135.5
Termination benefits 26.2 33.1
Total staff costs 1,069.8 1,103.9
Staff costs included in operating expenses and restructuring costs amounted to €814.1m in 2015 (2014: €844.5m).
Staff costs included in cost of goods sold amounted to €255.7m in 2015 (2014: €259.4m).
The average number of full-time equivalent employees in 2015 was 33,311 (2014: 36,362).
(d) Fees and other services of the statutory auditor
Audit and other fees charged in the income statement concerning the statutory auditor of the consolidated financial statements, PricewaterhouseCoopers S.A. and affiliates, were as follows, for the years ended 31 December:
2015
€ million 2014
€ million
Audit fees 5.0 5.7
Audit related fees 0.5 0.4
Other fees 0.1 0.1
Total audit and all other fees 5.6 6.2
20. Finance costs
Net finance costs for the years ended 31 December comprised:
2015
€ million 2014
€ million
Interest income 9.5 10.0
Interest expense (59.4) (59.3)
Other finance costs (1.9) (1.9)
Net foreign exchange remeasurement losses (7.5) (10.9)
Finance charges paid with respect to finance leases (8.9) (8.4)
Finance costs (77.7) (80.5)
Loss on net monetary position – (2.4)
Total finance costs (77.7) (82.9)
Total finance costs, net (68.2) (72.9)
Other finance costs include commitment fees on loan facilities, and not drawn down and other similar fees.
Belarus was considered to be a hyperinflationary economy from the fourth quarter of 2011 up to 31 December 2014. During this period hyperinflation accounting was applied in accordance with IAS 29. The restatement was based on conversion factors derived from the Belarusian Consumer Price Index (CPI), as compiled by the National Statistical Committee of the Republic of Belarus. The conversion factor used for December 2014 was 1.145 which resulted in a net monetary loss for 2014 of €2.4m. However, since 1 January 2015 hyperinflation accounting has been discontinued, as Belarus ceased to meet the criteria of a hyperinflationary economy. All amounts expressed in the measuring unit as at 31 December 2014 were treated as the basis for the carrying amounts as at 1 January 2015.
21. Tax
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:
2015
€ million 2014
€ million
Profit before tax 357.1 352.0
Tax calculated at domestic tax rates applicable to profits in the respective countries 88.6 59.9
Additional local taxes in foreign jurisdictions 11.7 7.6
Tax holidays in foreign jurisdictions (1.5) (1.1)
Expenses non-deductible for tax purposes 14.1 19.8
Income not subject to tax (28.3) (31.5)
Changes in tax laws and rates (10.1) 1.4
Current year tax losses not recognised 3.7 3.6
Recognition of previously unrecognised post-acquisition tax losses (2.6) (0.7)
Other 0.8 (1.2)
Income tax charge per the income statement 76.4 57.8
Non-deductible expenses for tax purposes include marketing and advertising expenses, service fees, bad debt provisions, entertainment expenses, certain employee benefits and stock options expenses and other items that, partially or in full, are not deductible for tax purposes in certain of our jurisdictions.
The income tax charge for the years ended 31 December is as follows:
2015
€ million 2014
€ million
Current tax charge 93.2 80.5
Deferred tax charge (refer to Note 8) (16.8) (22.7)
Total income tax charge 76.4 57.8
22. Earnings per share
The calculation of the basic and diluted earnings per share attributable to the owners of the parent entity is based on the following data:
2015
€ million 2014
€ million
Net profit attributable to the owners of the parent (€ million) 280.3 294.8
Weighted average number of ordinary shares for the purposes of basic earnings per share (million) 363.7 364.3
Effect of dilutive stock options (million) 1.5 1.3
Weighted average number of ordinary shares for the purposes of diluted earnings per share (million) 365.2 365.6
Basic and diluted earnings per share (€) 0.77 0.81
Outstanding stock options that have an anti-dilutive effect and are therefore excluded from diluted earnings per share in 2015 were €4.5m (2014: €5.8m).
23. Components of other comprehensive income
The components of other comprehensive income for the years ended 31 December comprise:
2015 2014
Before-tax
€ million
Tax (expense)/
income
€ million Net-of-tax
€ million Before-tax
€ million
Tax (expense)/
income
€ million Net-of-tax
€ million
Available-for-sale financial assets 0.1 (0.1) – (0.6) 0.2 (0.4)
Cash flow hedges (20.3) 5.6 (14.7) 6.4 (6.8) (0.4)
Foreign currency translation (65.8) – (65.8) (322.0) – (322.0)
Actuarial gains/(losses) 11.1 (2.9) 8.2 (38.7) 6.6 (32.1)
Share of other comprehensive income
of equity method investments (0.2) – (0.2) – – –
Other comprehensive income (75.1) 2.6 (72.5) (354.9) – (354.9)
Notes to the Consolidated Financial Statements continued
24. Shares held for equity compensation plan
The Group operates a stock purchase plan, the Employee Stock Purchase Plan, which is an equity compensation plan, administered by a Plan Administrator, in which eligible employees may participate. Under the terms of this plan, employees have the opportunity to invest 1%
to 15% of their salary in ordinary Coca-Cola HBC shares by contributing to the plan monthly. Coca-Cola HBC will match up to a maximum of 3% of the employee’s salary by way of contribution. Employer contributions are used to purchase matching shares on a monthly basis on the open market, which is the London Stock Exchange. Matching shares vest one year after the purchase. Forfeited shares may be used to meet Plan expenses or for any other purposes relevant to the Plan. Dividends received in respect of shares under the Plan are used to purchase additional shares and are immediately vested to the employees. Shares are held under the Plan Administrator.
In order to adapt the plan to the Greek legal framework Coca-Cola HBC matches the contribution of employees resident in Greece with an annual employer contribution, made in December, of up to 5% of the employee’s salary, and matching shares purchased in December vest immediately.
During 2015, 266,261 shares were purchased by Coca-Cola HBC (2014: 287,214) as matching shares to employee investments.
The charge to the income statement totalled €4.8m (2014: €4.3m). The cost of unvested matching shares held by the trust at the end of December 2015 was €4.6m (2014: €3.8m). The total number of shares held under the plan as at 31 December 2015 was 2,417,413 (2014: 2,472,937). The total contributions made by employees to the plan during 2015 were €5.5m (2014: €5.3m).
No provision is made for any increase or decrease in value of these shares, as they will vest to employees, and the risks and rewards of fluctuations of the share price are borne by those employees.
25. Stock option and performance share compensation plans
The Group operates an employee stock option plan as an equity compensation plan, under which senior managers are granted awards of stock options, based on performance, potentiality and level of responsibility. Options are granted at an exercise price equal to the closing price of the Company’s shares trading on the London Stock Exchange on the day of the grant. Options vest in one-third increments each year for three years and can be exercised for up to ten years from the date of award. When the options are exercised, the proceeds received, net of any transaction costs, are credited to share capital (at the nominal value) and share premium. The Group has not issued any new stock options in 2015.
The following table summarises information regarding outstanding stock options exercisable at 31 December 2015:
Exercise price
(EUR) Exercise price (GBP)
Vesting status as at
31 Dec 2015 Vesting dates for
further increments End of
option period
Number of stock options outstanding
2005 December grant 13.19 11.24 fully vested – – 31.12.20201 250,001
2006 March grant 14.23 12.13 fully vested – – 20.03.2016 50,001
2006 December grant 16.37 13.95 fully vested – – 12.12.2016 844,103
2007 December grant 26.41 22.51 fully vested – – 12.12.2017 1,202,200
2008 December grant 9.02 7.69 fully vested – – 10.12.2018 970,934
2009 December grant 15.70 13.38 fully vested – – 09.12.2019 1,412,000
2010 December grant 19.31 16.46 fully vested – – 08.12.2020 1,633,768
2011 March grant 18.53 15.79 fully vested – – 15.03.2021 18,334
2011 December grant 11.98 10.21 fully vested – – 15.12.2021 1,261,006
2013 June grant – 15.00 two-thirds 21.06.2016 – 20.06.2023 1,475,664
2013 December grant – 16.99 two-thirds 10.12.2016 – 09.12.2023 1,609,163
2014 December grant – 13.33 one-third 10.12.2016 10.12.2017 09.12.2024 1,610,332
Total 12,337,506
1. Relates to stock options granted under the previous stock option plan which expire at the end of December 2020.
A summary of stock option activity in 2015 under all plans is as follows:
Number of stock options 2015
Weighted*
average exercise price 2015 (EUR)
Weighted average exercise price 2015 (GBP)
Outstanding at January 1 12,925,795 18.51 14.49
Exercised (322,050) 15.47 11.40
Expired (35,062) 22.52 16.60
Forfeited (231,177) 20.14 14.84
Outstanding at December 31 12,337,506 19.76 14.56
Exercisable at December 31 10,276,017 19.73 14.54
A summary of stock option activity in 2014 under all plans is as follows:
Number of stock options 2014
Weighted*
average exercise price 2014 (EUR)
Weighted average exercise price 2014 (GBP)
Outstanding at January 1 11,580,884 17.22 14.63
Granted 1,720,500 17.03 13.33
Exercised (129,022) 11.46 8.97
Expired (155,567) 20.02 15.67
Forfeited (91,000) 21.04 16.47
Outstanding at December 31 12,925,795 18.51 14.49
Exercisable at December 31 9,047,310 18.32 14.34
* For convenience purposes, the prices are translated at the closing exchange rate.
The related weighted average share price during the period of exercise was £15.08 (2014 : £14.17).
The total charge to the income statement for employee stock option awards for 2015 amounted to €8.7m (2014: €12.1m).
Equity-settled share-based payments are measured at fair value at the date of grant using a Monte Carlo simulation stock option valuation model. For the year of 2014, inputs into the model are as follows:
2014
Weighted average share price £13.33
Weighted average fair value of options granted £3.50
Risk-free interest rates 1.80%
Expected volatility 30.00%
Dividend yield 2.10%
Expected life 7.6 years
The weighted average remaining contractual life of share options outstanding under the stock option compensation plans at 31 December 2015 was 5.3 years (2014: 6.3 years).
During 2015 the Group adopted a performance share plan, under which senior managers are granted performance share awards, which have a three-year vesting period and are linked with Group-specific key performance indicators. Performance share awards are granted at a price equal to the closing price of the Company’s shares trading on the London Stock Exchange on the day of the grant.
The number of performance shares granted in 2015 and outstanding as at 31 December 2015 was 652,159.
The fair value for the 2015 performance shares plan is £13.84m. Relevant inputs into the valuation are as follows:
2015
Weighted average share price £14.70
Dividend yield 2.0%
Weighted average vesting period 3.3 years
The total charge to the income statement for employee performance shares awards for 2015 amounted to €0.1m (2014: nil).