CCA expects first half decline because of ‘grocery channel difficulty’
Coca-Cola Amatil Limited (CCA) announced at its Annual General Meeting on 7 May 2013 that it expected to see a decline or 8 to 9 per cent in earnings before interest and tax (EBIT) for the first half of the 2013 financial year.
Speaking at the meeting, Terry Davis, CCA’s Group Managing Director, said the first four months of trading had delivered “mixed results”, but that the Company expected to see a return to earnings growth in the second half.
“In Australian beverages, the grocery channel has experienced a very difficult start to the year due to the continuation of higher levels of competitor discounting and the impact to volume from lower retailer inventory levels,” Mr Davis said.
“In addition, SPC Ardmona earnings have been materially impacted by increased importing of private label packaged fruit by retailers,” Mr Davis added.
Australian Food News reported earlier in May 2013 that SPC Ardmona had called on the Australian government to put in place emergency tariffs on cheap imported fruit and tomatoes in an attempt to save the local industry.
Despite the challenges, CCA said its outlook was positive.
“CCA is in a great financial position and its balance sheet is strong. Our businesses are in good shape and well balanced. We have great confidence in the future of the Company,” Mr Davis said.
Beverages under pressure
CCA said its Australian grocery business, which generates around 50 per cent of the Company’s Australian beverage earnings, had experienced a substantial increase in the level of price competition from its major competitor since December 2012. The Company said the retail price gap had widened by over ten percentage points compared to the first half period in 2012.
In addition, CCA said category growth had been generally weak as consumer confidence and spending continued to be subdued and grocery retailers had been reducing non-alcoholic beverage inventory levels since Christmas.
Despite the stronger non-grocery business performance, CCA said the overall consolidated Australian beverages business expected to report a decline in volume and earnings for the first half due to the poorer grocery channel performance.
“When we see competitors discounting more aggressively, we take appropriate action to protect our market position with additional market support and increased promotion activity,” Mr Davis said. “Whilst this has an impact on short-term price realisation and hence profitability, we believe that in the medium to long-term, it is the right course of action,” he said.
The Company said the Australian beverages business is expected to return to earnings growth in the second half as it will be cycling a period of lower prices and is also expected to deliver an additional $10-15 million in cost savings and efficiency gains from “Project Zero” campaigns that commenced in the first quarter.
CCA said SPC Ardmona had experienced a decline in volume and earnings as the high Australian dollar continued to materially impact on its competitiveness against imported retailer private label packaged fruit and vegetables. CCA reported that the shelf prices of many imported private label products are being sold “at levels well below the cost of Australian grown packaged fruit” and if the retail trading outlook does not improve in the second half, the SPC Ardmona earnings decline is expected to lower Group earnings by between 2-3 per cent for 2013.
Restructuring of the SPC Ardmona business is set to continue, according to CCA, with initiatives in place to materially reduce its cost of doing business.
At the same time as requesting the Australian Government apply a temporary provisional safeguard tariff on imported canned tomato and multi-serve fruit products, CCA said the business will seek longer-term relief in the form of anti-dumping duties on imported packaged fruit products.
Alcoholic Beverages strong projections
CCA said its alcoholic beverages business remained on track to deliver earnings growth from both the Beam portfolio and Paradise Beverages (Fiji and Samoa). In addition, it said material progress had been made in developing opportunities in beer and cider for CCA’s re-entry into the Australian beer market in December 2013.
“We are well advanced in our discussions with a number of international brewers and would expect to make further announcements at the half year results on our beer business. I have no doubt we will have a strong portfolio of international beer brands to kick off in 2014,” Mr Davis said.
Capital expenditure outlook
For 2013, CCA said it expects a reduction in Group capital expenditure to around $400 million with around $200 million to be invested in Indonesia and Papua New Guinea to material increase production capacity and cold drink cooler penetration in those countries.
Based on current forecasts, CCA said capital expenditure is expected to further reduce to around $300 million per annum in 2014 and 2015.