CC Amatil looks for cost savings as profits fall 22%

THE group managing director of Coca-Cola Amatil, Terry Davis, will attempt to squeeze even more savings from the beverage group over the next three years.

THE group managing director of Coca-Cola Amatil, Terry Davis, will attempt to squeeze even more savings from the beverage group over the next three years.

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.

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