Coca-Cola Amatil's profits crunched in supermarkets battle

Sue Mitchell
August 20, 2014
The Age
Coca-Cola Amatil is facing its second consecutive year of lower earning after first-half net profit fell. Weaker sales in convenience stores and petrol stations and pricing pressure in supermarkets crunched margins in its earnings engine room, the Australian beverages business.
Net profit fell 15.6 per cent to $182.3 million in the six months ended June 30 from $215.9 million in the year-earlier period, the company said. Earnings before interest and tax in Australia, which generates more than 80 per cent of profits, fell 14.1 per cent to $226.5 million, while earnings in Indonesia plunged 83.4 per cent to $5.2 million, dragging group EBIT down 15.3 per cent to $316.7 million.
The net profit was ahead of consensus forecasts of around $177 million, while the 15.3 per cent drop in EBIT was in line with the company’s profit warning in April, when new chief executive Alison Watkins warned that June-half earnings would fall 15 per cent and warned that 2015 would “not be an easy year.”
Ms Watkins, who took the helm from long-serving chief Terry Davis in March, has flagged major restructuring and a “step-change” in fixed costs and productivity, saying Australia’s largest non-alcoholic beverage bottler is facing structural issues that are challenging its business model and its ability to deliver long-term sustainable growth.
“It is clear that CCA is facing a number of immediate challenges, particularly in the Australian beverage and Indonesian markets,” Ms Watkins said on Wednesday after unveiling the result.
CCA cut its interim dividend by 4¢ to 20¢ a share.
Analysts believe CCA needs to cut costs by at least $100 million a year, reinvest the savings into price, marketing and new product development, close bottling lines, reduce the number of stock keeping units (SKUs) or products and possibly outsource its merchandise field force to reduced fixed costs.
Most of the details of the strategic review, which could involve major job cuts, are expected to be unveiled in October.
CCA shares have fallen 19 per cent this year, from $12.03 to $9.74 on Tuesday, underperforming the market.
Analysts say CCA has erred in the last few years by ignoring changing consumer drinking habits, raising soft drink prices every year and failing to bite the bullet on its troubled SPC Ardmona fruit and vegetable business, which has been losing sales to cheap imported packaged fruit and ­vegetables.
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