Coca-Cola Amatil announces expected drop in earnings
Food and beverage company Coca-Cola Amatil (CCA) has announced it expects its group earnings before interest and tax for the first half of 2014 to decline by around 15 per cent compared to the prior comparable period.
CCA said the expected decline was due to comparative weakness in the Australian beverages category and in the Indonesian market.
The Company’s new Group Managing Director, Alison Watkins, said it was clear that CCA was “facing a number of immediate challenges, particularly in the Australian beverage and Indonesian markets”.
“At the full year result in February, we highlighted that we were concerned by the generally weak consumer confidence and spending environment in Australia and that we faced challenges in Indonesia with substantial cost inflation,” Ms Watkins said. “At this early stage of the year, expectations would be for challenging trading conditions to continue,” she said.
CCA said the Australian beverage business had had a “disappointing” start to the year across both the grocery and non-grocery channels.
“The grocery channel continues to be challenging with aggressive pricing activity, which has limited CCA’s ability to recover cost increases while consumer demand in the non-grocery channel has been soft in the first quarter and there has been a mix shift to lower margin customers,” Ms Watkins said.
CCA said it expects the Australian beverage business to deliver a decline in the first half EBIT consistent with the Group EBIT decline.
However, CCA said positive momentum had continued in New Zealand.
“Overall market conditions in New Zealand have continued to improve and our business has increased earnings and achieved market share gains,” said Ms Watkins.
Indonesia and Papua New Guinea
CCA said the PNG business had performed strongly in the first quarter delivering volume and earnings growth. While the Indonesian business continues to expect volume growth of over 10 per cent in 2014, CCA said the business is facing significant cost inflation resulting from the 20 per cent depreciation of the Rupiah in 2013, as well as legislated material increases in wages and fuel costs.
“The commercial beverage market continues to grow rapidly, however the competitive landscape is intensifying, limiting the ability to recover cost increases through pricing,” said Ms Watkins.
In light of the market challenges in Indonesia, CCA said it expected the Indonesia and PNG region to deliver only a modest positive contribution to Group earnings in the first half.
Meanwhile, CCA said strong consumer and retailer support for SPC Ardmona had continued since the announcement of Victorian State Government support for SPCA with sales revenue increasing by over 10 per cent in the first quarter. CCA said the business was on track to deliver an improvement in earnings which should see a result close to breakeven for the first half.
The Company said management was finalising details of the significant capital investment and innovation program and implementation will commence in the second half of the year.
Commencement of strategic review
The CCA Board has requested Ms Watkins lead a comprehensive review of the CCA Group strategy, which has already commenced.
“CCA has leading market positions in each of its businesses supported by a strong balance sheet,” Ms Watkins said. “We do however need to challenge our model thoroughly in light of the low growth and competitive markets in which we operate in order to deliver long-term sustainable growth,” she said.
“Over the next few months we will challenge and review our business plans and strategies across the Group to drive growth and value while targeting a step-change in our fixed costs and productivity,” Ms Watkins said. “We will provide further details on our approach at the AGM in May. I am excited by the opportunity we have to shape a strong future for CCA,” Ms Watkins said.