REG - Coca-Cola EP PLC - Letter to Shareholders

Coca-Cola Europacific PartnersAnnouncement

16/05/2022 12:00

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RNS Number : 6002L  Coca-Cola Europacific Partners plc  16 May 2022

Coca-Cola Europacific Partners plc (CCEP or the Company)

 

16 May 2022

 

Dear Shareholder of Coca-Cola Europacific Partners plc:

We are asking for your support in voting "FOR" all resolutions, as recommended
by the Board of Directors, at our upcoming 2022 Annual General Meeting on 27
May 2022.

We have recently received certain proxy advisory services reports from Glass,
Lewis & Co. (Glass Lewis) and Institutional Shareholder Services (ISS).
While Glass Lewis recommend a "FOR" vote in respect of each recommendation,
ISS recommend voting "AGAINST" Resolution 2 (Approval of the Directors'
Remuneration Report), Resolution 23 (Waiver of mandatory offer provisions set
out in Rule 9 of the Takeover Code) and Resolutions 3 (regarding the
re-election of Manolo Arroyo) and Resolution 15 (regarding the re-election of
Mario Rotllant Solá). Consequently, we believe it is important to provide
additional context regarding these resolutions beyond that in our Notice of
Meeting.

Resolution 2 (Approval of the Directors' Remuneration Report)

The report from Glass, Lewis & Co. (Glass Lewis) recommends a vote "FOR"
Resolution 2 while Institutional Shareholder Services (ISS) recommends a vote
"AGAINST".

The report from ISS recommends a vote "AGAINST" Resolution 2 and states:

·    The Committee exercised discretion by determining a vesting level of
45 percent of maximum for the FY2019 LTIP awards despite a formulaic outcome
of zero. This use of discretion is not in line with UK best practice.

·    The impact of discretion has been significant, with the vested LTIP
equivalent to 2.35 times the CEO's salary and constituting 36 percent of his
single-total figure for FY2021.

On the other hand,  the report from Glass Lewis recommends a vote "FOR" and
concluded that:

·    "We recognise the positive shareholder and employee experience in
recent years despite the impact of the COVID-19 pandemic. In addition, we
acknowledge the limited use of Government support schemes over the period. As
such, while somewhat concerned by a discretionary payout under the LTI for the
second year running, we believe shareholders can be reasonably satisfied that
final outcomes were broadly in line with Company performance and the wider
stakeholder experience over the period. Further, we acknowledge the
committee's rationale for this use of discretion and recognise its value with
respect to the ongoing incentivisation of executives. Consequently, we do not
believe that this issue necessarily warrants shareholder action at this time.
Nonetheless, we will continue to monitor the utilisation of discretion moving
forward, and expect the committee to continue to justify outcomes in the
context of broader company performance and the wider stakeholder experience
more generally."

For the Remuneration Committee, a key challenge was to ensure that
remuneration outcomes for our people continued to reflect our underlying
philosophy. In particular, incentive schemes should deliver outcomes which
align with business performance (in the context of COVID-19) and appropriately
reflect the experiences of shareholders and wider stakeholders, whilst also
continuing to act as an incentive to engage our people to deliver the best
possible results. All of our incentive schemes utilise stretching performance
targets, set at the start of the relevant period and are designed to drive
performance in the context of prevailing expectations for the business. At the
same time, in line with best practice, our schemes all include discretionary
provisions which allow the Committee to adjust the formulaic result to ensure
that the outcome delivered to participants is a fair and appropriate
reflection of performance over the period.

More generally the Remuneration Committee is confident that the discretion
applied to the CEO's 2019 LTIP was appropriate reflecting the range of factors
outlined in the Statement from the Remuneration Committee Chairman on pages
92-93 of the 2021 Integrated Report and in the Annual Report on Remuneration
on pages 98-99 of the 2021 Integrated Report. This also includes detail on the
application of discretionary provisions by the Committee in previous years. It
should be noted that the Committee has exercised discretionary provisions to
reduce incentive outcomes below the formulaic result in two of the four
financial years since CCEP's listing, and to increase incentive outcomes only
once (under the 2018 LTIP, as reported last year, to fairly reward performance
through the global pandemic). We recognise that the application of upward
discretion is relatively unusual in the UK market, however 2021 presented a
truly exceptional set of circumstances and we are happy to discuss this
further with you.

The CCEP Board and management firmly believe the remuneration decisions made
during the year were in the best interests of shareholders, aligned incentive
outcomes for all participants to reflect performance through the COVID-19
crisis and enabled CCEP to continue to deliver long-term shareholder value.
Accordingly, the Board and management of CCEP recommend voting "FOR"
Resolution 2.

Resolution 23 (Waiver of mandatory offer provisions set out in Rule 9 of the
Takeover Code)

The report from Glass, Lewis & Co. (Glass Lewis) recommends a vote "FOR"
Resolution 23. The report from Institutional Shareholder Services (ISS)
recommends a vote "AGAINST" Resolution 23. Both Glass Lewis and ISS have
recommended voting "FOR" Resolutions 27 and 28 (Authorities to purchase own
shares).

Resolution 23 is a standing item at each Annual General Meeting of the Company
to enable CCEP to give effect to Resolutions 27 and 28.  Therefore, a share
repurchase cannot occur unless Resolution 23 is approved and  a vote
"AGAINST" Resolution 23 will have the same effect as a vote "AGAINST"
Resolutions 27 and 28.

The report from Glass Lewis states:

·    "We believe the terms of this proposal are reasonable. The Takeover
Code was instituted as a shareholder safeguard in the event that a major
shareholder sought a larger stake in the Company, possibly to the detriment of
other shareholders.

·    In this case, we note that following a repurchase of shares or
exercising of options, the concert party may increase their ownership stake in
the Company but may not gain control of it without triggering a full takeover
bid. Further, we note that the waiver will not apply to an acquisition of
ordinary shares.

·    We do not believe that this proposal is connected with any sort of
takeover attempt by this party, and thus, we do not believe this proposal
should warrant shareholder concern at this time. We will, however, monitor the
concert party's beneficial ownership in the event that a takeover attempt
becomes more likely."

On the other hand, ISS recommends voting "AGAINST" Resolution 23 based on the
application of its standard policy as a result of undefined "concerns over
creeping control". This fails to take into account the purpose of Resolution
23 and Olive Partners, S.A.'s (Olive) stated intentions.

Rule 9 of the Takeover Code applies when any entity holds 30% or more of the
voting rights of a company. When a company purchases its own voting shares,
any resulting increase in the percentage of shares carrying voting rights will
be an acquisition for the purpose of Rule 9. CCEP currently has one
shareholder, Olive, which owns approximately 36.4% of our outstanding shares
and so any share repurchase would automatically trigger Rule 9 of the Takeover
Code and result in an obligation on Olive to make a general offer to
shareholders for all the remaining equity share capital of CCEP. Therefore,
the intention of Resolution 23 is to enable CCEP to make share repurchases
without triggering any obligation on Olive to make a general offer for the
Company.

In the Notice of Meeting, Olive has confirmed that it has no intention of
changing its approach with respect to CCEP as a result of any increase in its
shareholding due to any share repurchase. It has no intention to seek any
change to the general nature or any other aspect of the Company's business.
Given Olive's stated position, we believe that any concerns over "creeping
control" are therefore unfounded.

As noted above, a share repurchase will not occur unless Resolution 23 is
approved.

The CCEP Board and management firmly believe these resolutions are in the best
interests of shareholders as they provide the ability to return cash to
shareholders, enabling CCEP to continue to deliver long-term shareholder
value. Accordingly, the Board and management of CCEP recommend voting "FOR"
Resolutions 23, 27 and 28, consistent with the recommendation of Glass Lewis.

Resolution 3 (re-election of Manolo Arroyo) and Resolution 15 (re-election of
Mario Rotllant Solá)

The report issued by Glass Lewis recommends voting "FOR" Resolution 3 (the
re-election of Manolo Arroyo) and Resolution 15 (the re-election of Mario
Rotllant Solá). The report generated by ISS notes that its policy requires
remuneration committees to be comprised solely of independent directors. It
therefore recommends a vote "AGAINST" the re-election of Mr Arroyo and Mr
Rotllant Solá as non-independent members of CCEP's Remuneration Committee.

The CCEP Board and the Remuneration Committee Chairman, Christine Cross, are
of the opinion that the re-elections of Mr Arroyo and Mr Rotllant Solá is
appropriate because:

·    the terms of reference of the Remuneration Committee stipulate that
it must be composed of a majority of INEDs, including for quorum requirements;

·    the Remuneration Committee comprises a majority of Independent
Non-executive Directors (INEDs), notwithstanding the presence of Mr Arroyo and
Mr Rotllant Solá; and

·    Mr Arroyo and Mr Rotllant Solá are appointed representatives of the
Company's two largest shareholders - it is natural that these shareholders
would want a say on the remuneration of senior executives and there is no
conflict of interest with other shareholders.

The CCEP Board and management firmly believe this resolution is in the best
interests of shareholders and recommend voting "FOR" Resolutions 3 and 15,
consistent with the recommendation of Glass Lewis.

We would be glad to discuss the our recommendations in relation to Resolutions
2, 3, 15 and 23 further with you, should you wish. If you have any questions,
or need assistance in submitting your proxy to vote your shares, please
contact us at shareholders@ccep.com.

Thank you for your support.

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