CC Amatil looks for cost savings as profits fall 22%
He has set an ambitious target of $90 million in efficiencies to bolster earnings growth 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 so the company could make its own bottles and introduce other cost-saving initiatives, the new target will also place CC Amatil in a stronger position to tackle the weak consumer sentiment that has persisted for two years and dogged the company's trading performance last year.
"We are a good barometer for what happens out in the suburbs," Mr Davis said. "It took longer for the drop in interest rates to start to manifest itself in increased spending.
"In the CBD, the on-premise [cafes and restaurants have] 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."
On Tuesday, CC Amatil 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 fruit business.
SPC is losing a battle against home brand supermarket goods and the high Australian dollar.
In 2011, CC Amatil wrote off $110.5 million in restructuring charges for SPC. Before the charge, CC Amatil's after tax profit increased 5 per cent to $558.4 million.
CC Amatil said it would counter SPC's decline by focusing on new packaging and marketing, highlighting to shoppers the Australian heritage of the SPC brand.
Mr Davis said that while the key trading month of December was strong for CC Amatil in terms of volumes, margins were sliced by increased promotional spending due to the introduction of a new product by Pepsi and highly competitive pricing.
Double-digit volume and earnings growth at its Indonesia and Papua New Guinea business was driven by volume increases of 10.3 per cent and earnings before interest and tax 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 roll-out of a cold drink coolers.
Mr Davis said CC Amatil had kicked off an efficiency program to target $30 million to $40 million of additional gains and cost cutting initiatives to be delivered over the next three years.
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¢, to help compensate for a decline in its franking rate.
Frequently Asked Questions about this Article…
Coca‑Cola Amatil posted a 22.3% fall in full‑year net profit to $459.9 million for calendar 2012, while revenue rose 6.3% to $5.175 billion. For everyday investors, that mix — growing sales but falling profit — signals margin pressure and one‑off charges that are squeezing returns, so it's important to dig into the causes behind the headline numbers.
The profit decline was driven by weaker consumer sentiment, promotional and competitive pricing pressures (particularly in December), and significant write‑downs at its SPC Ardmona fruit business. The company also increased promotional spending in response to a new Pepsi product, which dented margins even when volumes were strong.
Management has set an ambitious target of $90 million in efficiencies over the next three years as an extension of its Project Zero program (which previously included a $450 million investment to make bottles in‑house). The plan builds on past cost‑savings and aims to bolster earnings by cutting costs across the soft drinks, coffee, water and food portfolio.
CC Amatil booked a further $146 million write‑down on the SPC Ardmona fruit business, citing pressure from supermarket own‑brand competition and a high Australian dollar. SPC has previously faced restructuring charges (including a $110.5 million write‑off in 2011). Management plans to counter the decline with new packaging, marketing and by highlighting SPC’s Australian heritage.
CC Amatil reported double‑digit growth in Indonesia and Papua New Guinea: volumes increased 10.3% and earnings before interest and tax grew 16.8%. Growth was driven by stronger demand for Fanta, Coke and Sprite, fast‑growing tea and juice categories, and the rollout of cold drink coolers.
Yes. CC Amatil lifted its partly franked final dividend to 32 cents a share (from 30.5 cents) and also announced a special dividend of 3.5 cents to help offset a decline in its franking rate. This is relevant for income investors assessing yield and franking credits.
Although December volumes were strong, margins were reduced by increased promotional activity and highly competitive pricing following the launch of a new Pepsi product. That combination boosted sales volumes but squeezed profitability in the key trading month.
Yes. In addition to the $90 million efficiency target, management has kicked off a separate efficiency program targeting $30–40 million of additional gains and cost cuts to be delivered over the next three years. Together these initiatives aim to support earnings recovery amid weak suburban consumer sentiment.
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