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Squeezing out every last drop

20 Feb 2013 THE AGE
BY ELI GREENBLAT


COCA-COLA Amatil boss Terry Davis will attempt to squeeze even more savings from the beverage group over the next three years, using an ambitious target of $90 million in new efficiencies to bolster earnings at its flagship soft drink business and prepare for the rebirth of its brewing arm in December.

An extension of its successful Project Zero strategy, which embraced a $450 million investment to make its own bottles and introduce other cost-savings, the new target will also place CC Amatil in a stronger position to tackle weak consumer sentiment that has persisted for two years and dogged the company's trading performance in 2012.

"We are a good barometer for what happens out in the suburbs, and just the fear of job losses, the fear of what was happening in Europe, what policy was the federal government going to trot out next, and so I guess that it took longer for the drop in interest rates to start to manifest itself in increased spending," Mr Davis said.

"In the CBD the on-premise [cafes, restaurants etc] has been very strong, but out in the suburbs, the southern suburbs of Melbourne, the western suburbs of Sydney, some of the sales to quick-service restaurants, our coffee sales to cafes, has been down 10 or 15 per cent - but that can come back pretty quick too."

CC Amatil yesterday posted a 22.3 per cent fall in full-year net profit to $459.9 million in calendar 2012 as revenue from its portfolio of soft drinks, coffee, water and food products rose 6.3 per cent to $5.175 billion.

The result was affected by souring consumer sentiment during the year, with not even 100 basis points in official interest rate reductions pumping demand, as well as a decision to book another $146 million in write-downs on its SPC Ardmona packaged fruit business that is losing a battle against home-brand supermarket goods and the high Australian dollar.

In 2011, CCA wrote off $110.5 million in restructuring charges for SPC. Before the SPC charge, CC Amatil's after-tax profit increased 5 per cent to $558.4 million. CC Amatil would counter SPC's decline by focusing further on new packaging and marketing, highlighting to shoppers the iconic Australian heritage of the SPC brand.

Mr Davis said that while December, a key trading month, was strong for CC Amatil in terms of volumes, its margins were sliced by increased promotional spending due to the introduction of a new product by arch-rival Pepsi and highly competitive pricing.

Double-digit volume and earnings growth at its Indonesia and PNG business was driven by volume increases of 10.3 per cent and EBIT growth of 16.8 per cent. CC Amatil built on the increased popularity of its Fanta, Coke and Sprite brands, the fast-growing tea and juice categories, and the rollout of cold drink coolers.

Earnings in Australia increased 3.3 per cent to $627.4 million in 2012, and its New Zealand and Fiji division fell 11.8 per cent to $70.1 million.

CC Amatil lifted its partly franked final dividend to 32¢ a share, from 30.5¢. It will also pay a special dividend of 3.5¢.

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