Latest Coca-Cola Amatil results show subdued consumer demand
Food and beverage company Coca-Cola Amatil (CCA) has released a trading update for the July 2013 to October 2013 trading period, saying that while there had been an improvement in its non-grocery business, an expected post-election uplift in consumer spending did not occur.
CCA said it expects 2013 full year Group EBIT to be within a range of a 5 per cent to 7 per cent decline on last year, before significant items. The updated guidance range factors in weaker than expected post-election consumer demand, more aggressive competitor activity in Australia as well as an estimated negative impact of almost 1 per cent to Group earnings due to the weaker Indonesian Rupiah and the PNG Kina.
“The non-grocery business has continued to grow volumes in the second half, however consumer demand has been more subdued than expected,” said Terry Davis, CCA Group Managing Director. “While we have seen some improved momentum in the Australian grocery channel, with the carbonated beverages returning to growth and an improvement in market share, the aggressive competitor pricing activity has continued which has limited price realisation in the half to date,” he said.
CCA said positive momentum had continued in New Zealand. It said overall market conditions in New Zealand had continued to improve since July 2013, and the business had delivered improved volumes, earnings and market share gains.
Indonesia and PNG businesses
As expected, third quarter demand slowed in Indonesia as the economy adjusted to higher levels of inflation, which CCA said impact consumer spending.
“The fundamental drivers of increased consumption per capita of commercial beverages remain strong and for 2013 we would expect the Indonesia business to deliver low double-digit volume and earnings growth,” Mr Davis said.
CCA said the Papua New Guinea (PNG) economy had shown no signs of improvement since July 2013, and demand is expected to remain soft for the remainder of 2013 as falling commodity prices and reduced mining activity and investment continue impact Government revenues and unemployment levels.
Alcohol, Food and Services
The Alcohol, Food and Services division is trading in line with expectations, according to CCA. The Beam portfolio continued to gain share in spirits and the alcoholic ready-to-drink category, while SPC Ardmona continued to expect a reduction in earnings in 2013.
“While the SPC Ardmona business continues to be challenging, we have secured commitment from our major customers to convert to 100 per cent Australian grown produce for multi-serve packaged fruit and the Anti-Dumping Commission has found that Italian tomatoes have been dumped into the Australian market, damaging our business, and has imposed an immediate tariff penalty on these imports,” said Peter Kelly, Managing Director SPC Ardmona.
“We are currently seeking Government support for co-investment with SPC Ardmona to ensure a stronger future for our business and fruit and vegetable growers in the region and we continue to pursue safeguards support through the Productivity Commission,” Mr Kelly said.
CCA said its cost out programme expected to deliver $30-$40 million in savings over the next three years by leveraging the investments made in production and IT infrastructure. The business continues to be on track to deliver $10-15 million in savings in the second half of 2013.
Long-term exclusive agreement to distribute Samuel Adams craft beer in Australia
CCA said further progress had been made in expanding its alcoholic beverages platform, announcing that it has entered into a long-term exclusive agreement to distribute in Australia the largest selling craft beer in the US, Samuel Adams. CCA will distribute the beer, made by The Boston Beer Company, in Australia from mid-December 2013.
“With just over a month left until CCA re-enters the beer and cider market in Australia, we are ready to hit the ground running with a great portfolio of beer and cider brands,” Mr Davis said. “Our line-up will include the Molson Coors premium beers including Blue Moon and Coors and a full range of Rekorderlig ciders in both bottled and draught from January 2014,” he said.
“We have also developed a number of our own products including Alehouse, an on-premise only premium draught beer in both mid and full strength, and Pressman’s cider, an Australian craft cider,” Mr Davis said.
CCA said it had also been making “great progress” on its revitalisation plan for Paradise Beverages in Fiji at both its beer and rum operations. It said capital upgrades were well advanced and the new product pipeline was “strong”.
“I believe the alcoholic beverages business will generate 1-2 per cent of incremental Group earnings growth in 2014,” Mr Davis said.
Update on search for new Group Managing Director
In March 2013, Mr Davis announced that he would be leaving the business at the end of August 2014. CCA said that since the announcement the Board had commenced a global search for his replacement and expects to announced the new Group Managing Director by 31 December 2013.
Outlook for the balance of 2013
CCA said the outcome for the full year result would be determined by the trading performance over the next eight weeks as the Australian beverage business represented around 70 per cent of Group earnings and generated around two-thirds of its second half earnings in November and December.
“While we have seen some improvement in momentum in the Australian grocery channel since July, the Australian beverage business is lapping 10 per cent volume growth from the fourth quarter of 2012 and post-election consumer spending is more subdued than expected,” Mr Davis said.
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