Is Coca-Cola Amatil Ltd ready to win in Indonesia in 2015?

It’s been a tough year shareholders in Coca-Cola bottler and distributor Coca-Cola Amatil Ltd (ASX: CCL).

With earnings per share falling and its share price down 26% for the year, shareholders have felt the pain of intense competition with rival bottler Schweppes, as well as an ongoing price war between supermarket giants Coles and Woolworths.

Whilst the Australian business accounts for over 58% of CCA’s revenues, it’s in Indonesia where shareholders are hoping the company can generate sustainable long-term growth.

Unfortunately in Indonesia things haven’t played out as planned and CCA hasn’t achieved the success it wants. In FY13 the Indonesian business achieved strong sales despite revenue per unit case reducing by 2%. However significant wage and cost inflation have taken their toll on earnings.

Is this a turnaround in the making?

In the wake of CEO Alison Watkins’ operational review, which included running the scalpel across the entire group, CCA’s parent and substantial shareholder, The Coca-Cola Company, has decided to inject $US500 million for a 29.4% equity stake in the Indonesian business.

The new capital will help strengthen its market leadership position and enable the company to ramp up its capital expenditure to approximately $150 million per annum over the next three to four years. Infrastructure expansion and a broadening of its product offering (including a greater range of affordable packages) are the proposed uses. It’ll be able to self-fund growth until 2020.

Today CCA announced to the ASX that The Coca-Cola Company has received applicable board approvals to proceed with its investment. Despite the requirement for Indonesian regulatory approvals and CCA non-associated shareholder approval, it seems investors can finally be optimistic about the group’s future in Asia.

Buy, Hold, or Sell?

If CCA can deliver on its $100 million savings target and its new marketing campaign in Australia and in Indonesia, its stock will look very cheap at today’s prices. Indeed with a prominent brand and the backing of one of the world’s best companies, it could be worthy of further consideration in 2015.

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Motley Fool Contributor Owen Raszkiewicz is long June 2016 $5.41 warrants in Coca-Cola Amatil. You can follow Owen on Twitter @ASXinvest.

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