Coca Cola Amatil’s growth outside Australia offsets poor Australian results, but alcohol to drive improved future

Posted by AFN Staff Writers on 23rd February 2012

Coca Cola Amatil (CCA),  the publicly listed group that owns the Coke franchise in Australia and the Asia Pacific, has reported increased net profit after tax ( up 19.0 percent) ,  increased total sales (up 6.9 percent) and increased earnings per share (up 18.3 percent) for its financial year ended 31 December 2011 compared with the previous 12 months.

Figures for the Australian market alone, however, were not as pleasing. CCA’s revenue from soft drink and non-alcoholic drinks in Australia rose only 2.2 percent while Australian-based earnings before tax were up only 2.4 percent.

Alcohol, food and services sector

CCA’s Alcohol, Food and Services sector reported an increase in sales of 42.7 percent overall. Notwithstanding this, however, the sector suffered a loss of 1.2 percent in earnings before tax.

The lack of real growth came at a time of wind-back for SPC Ardmona (SPCA) from unprofitable manufacturing activities that were impacted adversely by the high Australian dollar affecting exports and supermarket private labels undercutting SPCA’s branded products. Export sales of SPCA products fell 20 percent in 2011 as SPCA experienced tough competition from cheap imported products, especially those carrying retailer private labels. CCA did, however, benefit from higher sales in fruit snacks and the introduction of new snack products through successful promotions of its packaged fruit products.

Alcohol expands

The bad news of CCA’s decline in food sales was partially offset by growth in the Alcohol sector and CCA has plans to expand this further.

In March 2011, CCA signed a 10 year Agreement with Beam Global Spirits and Wine Inc (Beam) for CCA to manufacture and distribute, as principal rather than agent, the Beam premium spirits portfolio in Australia.

While acknowledging that CCA will not be able to re-enter the Australian Beer market until December 2013 because of the sale of its shareholding in Pacific Beverages (CCA’s joint venture beer operation in Australia and NZ) to SAB Miller, CCA’s managing director Mr Terry Davis commented that this would not restrict CCA from growing their alcohol business in other markets and he expects “to be back in the beer business in Australia in early 2014”.

The SAB Miller transaction provides CCA with the opportunity to acquire Foster Groups Australian Spirit’s, ARTD and non-alcoholic beverages business as well as the Fiijan liquor, non-alcoholic beverages and Fijian brewery businesses of the Group. The total estimated cost is $200 million with any planned acquisition to be completed by mid 2012. Negotiations are continuing.

Soft Drinks and other alcohol-free beverages

Australia

In Australia, earnings were said to have been adversely affected by the Queensland Floods in early 2011 and the impacts of Cyclone Yasi, resulting in sales growth of only 2.2 percent over the 12 months. The bright spots for CCA in non-alcohol sales were increases in earnings for Coffee which grew by 30 percent from the corresponding period in 2010, Frozen Coke which grew by around 15 percent and Mount Franklin which grew by nearly 10 percent.  The launch of the Goulburn Valley Quencher range, which mixes natural spring water and fruit juice, in October 2011 improved market share in the juice drink division. The “Share a Coke” campaign, which was launched in the second half of 2011, and personalized each Coca-Cola bottle or can, appeared to be popular among consumers and resulted in immediate market growth.

New Zealand and Fiji

Despite the Christchurch earthquakes and the record rainfall in the North Island, earnings growth for New Zealand was reported at 3 percent. A range of products were launched and were marketed as part of the Rugby World Cup promotional campaign. New products in the Powerade drinks division, Fuel Plus and Powerade Black, contributed to Powerade’s 3.5 percent growth.

Coke Zero grew by 8 percent, iconic brand Lemon & Paeroa grew by 5 percent, and products in the energy drink category, such as Mother, has volumes increased by over 18 percent. Due to challenging trading conditions and a decline in tourism, the Fiji business, which recorded less than one percent of the company’s earnings, reported a downturn in local currency earnings.

Indonesia and PNG

The Indonesian business reported a 17.5 percent increase in earnings before interest and tax from the same period in the previous year. One-way-pack (OWP) products grew in Indonesia, as brands such as Coca-Cola, Sprite and Fanta in OWG grew by 25 percent. The report highlighted the volume growth of Minute Maid Pulpy Juice, which grew by almost 25 percent. Due to increased mining investment and higher commodity prices, and economic growth, the PNG business reported volume growth and strong earnings for 2011. The highlight for the PNG business was Coca-Cola, which grew by 15 percent in the region.

Other plans for 2012:

According to the CCA, furtherance of the Project Zero programme will be on the top of the agenda for 2012. Project Zero includes an initiative to market PET plastic beverage bottles, a product which CCA says reduces the carbon footprint in each bottle by 22 percent (as reported by Australian Food News late last year). The promotion of its new self-manufactured PET bottles will, according to CCA, be a major marketing project for 2012.

CCA’s managing director, Mr Terry Davis, reinforced the dominant position of his company.

“The rollout of the Project Zero programme – particularly the investment in the self-manufacture of PET bottles across the Group – continues to support earnings growth and strengthen our leadership position,” he said.

Following the good results for its markets in Indonesia and PNG in the 2011 period, CCA is now planning to invest more capital in these countries and is bearing in mind a forecast 6 percent GDP growth in 2012 in these areas, which has been cited by CCA as an encouraging factor for investment.

CCA remains concerned about the weak consumer spending in Australia and New Zealand but             hopes that its promotional programmes (including being a primary sponsor for the upcoming Olympic Games) will assist in delivering volume and revenue growth in the Australian market for the coming period.