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Is this the beginning of the great Coca-Cola Amatil Ltd turnaround?

Today it has been confirmed that Coca-Cola Amatil Ltd (ASX: CCL) (“CCA”) will ramp up its expansion into Indonesia – the market that has long been dubbed CCA’s biggest growth opportunity – the company has also provided a rather upbeat update on its comprehensive strategic review.

The review was implemented in May by the Group’s new Managing Director, Ms Alison Watkins, as a way to identify ways of improving the business’ capital structure and overall productivity, and by all accounts it looks to have been successful thus far.

In fact, the company reported that it is still targeting savings of up to $100 million over the next three years while it is targeting “a return to mid single-digit growth in earnings per share over the next few years with no further decline expected after 2014”. Following years of underperformance, that’s like music to investors’ ears. That was also reflected in the company’s share price which rose 48 cents or 5.5% to be trading at $9.16 – its highest price since early September.

Here are some of the most important updates that you need to be aware of…

Australia and New Zealand division

The company will strive to strengthen its category leadership position by rebuilding brand equity in Coca-Cola while it will also direct innovation towards “better for you” products in light of changing consumer health trends. Together with its partner and major shareholder, The Coca-Cola Company (NYSE: KO), CCA will be “materially up-weighting marketing investment” while it will also release its new Coke Life product in April 2015 – its first new cola product since Coke Zero in 2006. More affordable products, such as the new 250mL can, will also be a key focus.

The company also confirmed that it is rolling out a next-generation digital technology platform which it expects will significantly enhance the route-to-market model and deliver a step change in customer service.

Indonesian growth

One of the biggest highlights from today’s update relates to the group’s plans in Indonesia. Although Indonesia has the potential to become one of CCA’s greatest markets (thanks to its enormous population and emerging middle class), CCA has thus far struggled to capitalise on the opportunity.

However, the company has committed to significant levels of investment in order to strengthen its position. This will involve The Coca-Cola Company acquiring a 29.4% or US$500 million ($541 million) equity ownership interest in the division. This additional support will be used by CCA to accelerate expansion of production, warehousing, and cold drink infrastructure in the market.

Pleasingly, CCA has set the objective for the Indonesian division to be able to self-fund growth from operating cash flows from 2020.

Alcoholic Beverage portfolio and SPC Ardmona

CCA said it will continue to build its alcoholic beverage portfolio by strengthening its product offering and will focus on building credibility by working well with existing partners. Meanwhile, a transformation plan is in place to revitalise the SPC brand portfolio, which will include heavily reducing costs and modernising its production facilities. A lower Australian dollar should also provide some much needed relief.

The financial outlook

As I mentioned above, CCA expects that there will be no further decline in earnings after 2014, thus giving investors a chance to catch their breath after a string of profit warnings. The company said “with free cash flow generation expected to remain strong, the business is well placed to target a dividend payout ratio of over 80% over the next three years. We expect to maintain a conservative balance sheet position which provides us with flexibility to fund future growth opportunities”.

In other words, investors can expect their dividends to remain safe!

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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.