Mother helps Coca-Cola Amatil deliver record result

Posted by Daniel Palmer on 12th February 2009

Coca-Cola Amatil Limited, Australia’s largest soft drink producer, has recorded a record net profit after tax for the 2008 full year of $404.3 million, 10.4% up on 2007.

CCA’s Group Managing Director, Mr Terry Davis, was delighted with the results considering the prevailing market conditions. “CCA has delivered a record profit result against a backdrop of the most challenging economic and trading environment we have experienced for many years,” he said. “The achievement of this result came through the continued strong performance of the Australian and New Zealand beverage businesses, an excellent result from Indonesia and PNG, and the increasingly important contribution from our premium alcoholic beverages business.”

CCA, which recently resisted a takeover bid by Lion Nathan, noted that the past couple of years had seen substantial consolidation in the beverages sector but they have “not experienced any impact on its business operations as a result of this consolidation.”

Mr Davis said the decision to refuse the Lion Nathan approach was based on an opinion that the $7.6b offer was around $1 billion short of being acceptable. “The price was unrealistically low given what Kirin had recently paid for lesser quality assets. Most analysts have placed a minimum of $1 to $1.50 per share or a $1 billion shortfall in the price offered,” he told reporters on a teleconference. “I believe Lion could have approached this merger in any number of ways, for instance offering to acquire 70 per cent of CCA shares not held by TCCC. “But no – they specifically rejected all other structures in their proposal and … created the position that led to the negotiation failing.”

Last year saw a number of successful new product launches, with Glacéau Vitamin Water and 500ml Mother energy drink the two that provided the greatest sales boost. The addition of these new products helped grow CCA’s market share of non-carbonated beverages.

Glacéau, which launched in February, was the largest non-carbonated beverage launch in CCA’s history and sold over two million unit cases, achieving over 40% penetration in the immediate consumption channel and outperforming their forecasts by 70%. The reformulated Mother energy drink in a larger 500ml can was profitably launched in July and has seen the company finally make inroads into the increasingly lucrative energy drink sector. Volume of almost 1.8 million unit cases was realised as it quickly captured over 25% of the highly competitive energy market in the grocery channel. CCA advised that Nielsen data showed its share had risen from just 4.0% in June to 27.5% by December, placing downward pressure on the shares of Red Bull and V.

Coke cans

Australia delivered a record result with EBIT growth of 9.5%. Higher commodity input costs, driven by improved mix as well as higher aluminium and PET resin costs, continued to impact beverage COGS per unit case, which increased by 3.9%. However, despite the challenging trading environment, COGS increases were fully recovered as revenue per unit case increased by 5.0% due to “strong price realisation and a positive mix impact as the business continued to benefit from increased sales of higher margin single-serve products.”

CCA’s premium alcoholic beverages business contributed approximately 17% of 2008 profit growth in Australia, while their Food & Services division (SPC Ardmona) achieved EBIT growth of 4.4%, “which was a commendable result given the business continued to be impacted by the severe drought.”

In carbonated beverages, Coca-Cola (2%), Sprite and Fanta all achieved volume growth, while in non-carbonated beverages, Nestea achieved excellent volume growth of almost 20% and Pump delivered volume growth of 6%.

Goulburn Valley fresh flavoured milk continued to perform well, achieving strong volume growth and growing market share in Western Australia and SA, where it was launched during the year. CCA will now launch Goulburn Valley fresh flavoured milk in NSW, Victoria and Queensland during the coming year.

The distributor of Coca-Cola products in Australia reported that customer service capabilities in its key markets had improved as their major infrastructure capital investment program, “Project Zero”, delivered on its cost savings and customer service targets. Expenditure in 2008 included:
• $20 million in Australia and New Zealand on the SAP technology platform,
• $44 million in Australia for automated warehousing at Northmead and Eastern Creek, and
• $50 million on increased production capability in Australia, New Zealand and Indonesia.

The first phase of the SAP systems solution was successfully commissioned in Australia during the second half, with key financial, back-office and equipment service systems now operating successfully on the new platform. The next phase in 2009 will include Australian Supply Chain planning and execution systems, and customer accounting systems, as well as the commencement of the roll-out for the New Zealand operations.

“Whilst no business is immune to changes in the economic cycle, we have maintained our focus on extending our customer service leadership position and bringing innovative new products to the market,” Mr Davis said.

CCA added that the start of the year had been positive as hot temperatures create above average demand. A “softness” in demand from restaurants and cafés has been offset by greater demand from quick-service restaurants. “There has also been no discernable evidence of consumers trading down to lower value products or packs in foodstores,” the company reported.

“CCA is well placed to take advantage of opportunities that may arise as a result of the changed market conditions,” they concluded.