What: Shareholders of Coca-Cola Amatil Ltd (ASX: CCL) are facing the prospect of another difficult year after Australia's largest non-alcoholic beverage bottler announced a net profit of just $182.3 million for its first-half operations. This was down 15.6% compared to the same period last year. Following the result, Coca-Cola Amatil's shares were trading 44 cents or 4.5% lower at $9.30, reversing any gains made in recent weeks.
So What: The overall report was quite disappointing, although it was largely in line with the market's expectations as well as guidance provided by the company in April 2014. While its Australian soft-drink division remains in a retail price war with primary rival Schweppes, post-budget weak consumer sentiment also affected the company's results locally.
The company said: "Promotional activity yielded disappointing results and rate realisation continued to be under pressure due to weaker consumer demand, aggressive competitor pricing and private label activity in both water and carbonated beverages."
Investors will also be concerned with the company's struggles in Indonesia. While Indonesia has been flagged as a huge growth area for Coca-Cola Amatil, the level of competition in the area is intensifying while substantial cost inflation is also impacting earnings. The Indonesia and PNG division recognised volume growth of 22.2% for the period, but EBIT of just $5.2 million compared to last year's $31.4 million.
Meanwhile, a weather-affected start to the year impacted the performance of the New Zealand market which saw non-alcoholic ready-to-drink beverage volumes decline. Earnings in NZ and Fiji grew by 12% for the period in Australian dollars, but remained flat in local currency terms.
Here are some of the other highlights from the report.
- Earnings before interest, tax, depreciation and amortisation (EBITDA) were $448.1 million, a decline of 10.1% compared to last year.
- EBIT dropped by 15.3% to $316.7 million.
- Net debt declined by $34 million to $1.89 billion.
- Interim dividend of 20 cents, franked to 75%. This compares to last year's 24 cent interim dividend.
Now What: Given the headwinds facing the business, investors should not hope for a quick fix. The issues need be dealt with properly and are a key focus of CEO Alison Watkins, who recently implemented a strategic review of the overall business.
The review is expected to be complete by the end of October and is targeting annual cost reductions of $100 million over three years. These savings should be reinvested into cutting prices, greater marketing and new product development which should all strengthen its competitive position – especially in the local Australian market.
A better bet than Coca-Cola Amatil
I have faith in the business to deliver strong shareholder returns in the long term. I bought shares a couple of months ago when they were trading at $9.39 and am still considering increasing my stake at some stage in the near future.
