Sydney, May 16, 2008 (ABN Newswire) - The market got a taste for the earnings outlook for Coca-Cola Amatil yesterday after shareholders at the AGM were told to expect "high single digit growth in net profit" for the 2008 financial year.

"Based on current trading conditions, CCA expects to deliver high single digit growth in net profit after tax for both the first half and the full year," CCA group managing director Terry Davis told AGM in Sydney.



The shares jumped 45c to $8.40, rising in the afternoon, despite the earnings guidance being somewhat short of what the company actually achieved in 2007.

CCA lifted earnings before interest and tax from continuing operations 15.3% to $648.5 million in the year to December, and net after tax profits 17% to $376 million.
Yesterday's guidance was before significant items and on a continuing operations basis, so growth in earnings will be around half that of last year, when the company battled to cover a rapid rise (8.5%) in the cost of goods sold.

That's expected to slow this year as aluminium and glass prices slow; but oil prices will still be high. But the cool, wet weather in NSW and Queensland in the March quarter, plus intensive price cutting by Pepsi, has hit Coca Cola's revenues and earnings.

Mr Davis said the beverages company continued to focus on managing its main variables of volume, price and mix with the target of maintaining group operating margins.

He said turmoil in global financial markets had hit consumer confidence and a material increase in global commodity prices had led to higher prices in many food and beverage products in Australia and New Zealand.

"We expect that continuing higher petrol prices and higher interest rates will impact on overall consumer demand throughout the balance of 2008," Mr Davis said.

"Fortunately, as we are now at the lower end of the cost curve in respect of costs of goods increases, the price realisation through our various revenue management strategies has been strong and this has offset the lower volumes in the first half."

He said although the trading environment was not quite as robust as it had been at the corresponding point last year, Coca-Cola Amatil expected another strong performance in 2008.

"Providing we do not see a worsening of current market conditions and with the tax cuts coming through in July, which will benefit demand, we would be targeting a high single digit earnings growth outcome for the second half," Mr Davis said.

He said this was expected to come from better volume and pricing as well as the flow-on effects from cost-cutting measures the company had introduced in the first half.

With food prices rising sharply, CCA seems to be playing its part: the company said yesterday "The Australian business is expected to deliver high single digit earnings growth in the first half, driven by a solid improvement in case rates and despite weaker volumes experienced in the first four months of the year.

"Price increases taken in January as well as the benefit of mix improvements are expected to drive a case rate increase of between 4% and 5% in the first half of 2008.

"A highlight for the first half has been the successful launch of Glacéau Vitamin Water. The launch has exceeded expectations with customer uptake, repeat purchase patterns and price realisation all very strong. The launch of Glacéau has bolstered our offering in the new and growing enhanced water segment where our existing offering of "pumped" flavours continues to grow the "pump" brand volumes by over 10%.

"The trading landscape has been affected by a number of issues in the first four months of the year.

"The poor weather in the key markets of New South Wales and Queensland throughout the high demand summer season has meant that volumes did not reach the strong post Coke Zero growth rates achieved in the first half of 2007. In addition, the Australian business has been impacted by substantial discounting by our major competitor in the grocery channel. The frequency and depth of competitor promotional activity has led to a substantial increase in the average retail price gap to brand Coca-Cola.

"Notwithstanding weaker volumes in January and February, given the success of our strong revenue management initiatives, the revenue for the first half of 2008 has recovered and will be in line with last year. At this stage, we also expect a better volume outcome in the second half, with volumes expected to show modest growth on last year."
Mr Davis said "New Zealand has had a strong start to the year with good volume and revenue growth, buoyed by a hot and dry summer as well as improved pricing and mix. The New Zealand and Fiji result is expected to deliver strong earnings growth for the half and full year.

"In Indonesia, the region has experienced a solid start to the year in terms of both volumes and revenue despite a longer than usual rainy season and the cycling of a strong first half 2007 result. The Indonesian operations continue to drive the shift into the more defensive and higher margin modern foodstores channel.

"In the year to date the Indonesian business has achieved significant market share gains in hypermarkets through the growth in one way pack formats, a strong new product launch program, new outlets and the placement of cold drink equipment. Coke Zero was launched this year and to date has significantly exceeded expectations. At this stage, the region expects to grow its earnings for both the half and full year.

"The Indonesian consumer is however experiencing pressure on disposable income from price increases in fuel, rice and cooking oil, which may slow volume growth in the second half," Mr Davis said in the trading update statement.

"SPC Ardmona's international division continues to achieve good growth, driven by the addition of a number of new large customers and increased ranging, with the business successfully achieving category captaincy status in key supermarkets in the United Kingdom. The strength of the international business has helped offset the continued impact of the drought on the Australian business.

"The Food & Services Division has begun the restructure of its Australian operations, resulting in the redundancy of approximately 65 permanent employees across the Division, including 34 from SPC Ardmona. Grinders continues to achieve strong growth with volumes up 15% in the first four months and Quirks and Neverfail have both delivered solid performances. At this stage, the division is expected to generate modest earnings growth for the half and full year."

"I can report the growth of our premium beer business, including the Peroni and Bluetongue brands, in the first quarter has been outstanding – with total beer revenues more than doubling over last year. This growth is being fuelled in particular by Peroni, and the successful launch of Miller Chill in November.

"And I'm also very pleased to advise that from Monday, we began the sales and distribution of the Grolsch brand in Australia. This adds another significant premium beer brand to our growing premium beer portfolio and bodes well for the future of our beer business."

Mr Davis also said that CCA will invest an additional $40-45 million in the development of the Bluetongue brewery through the Pacific Beverages joint venture, for the acquisition of the sales and distribution rights to Grolsch in Australia and the recently acquired iconic Coke sign in Sydney's Kings Cross.

He says the Federal Government should lift taxes on all alcoholic products, not just alcopops. CCA is making itself into a major producer and distributor of alcohol, including the so-called RTDs (Ready To Drink) alcopops.


 

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