“Difficult trading conditions in the Australian business resulted in a 14.1% decline in Australian beverage earnings…, “ Coca-Cola’s operational results commentary stated.
CCA’s group managing director, Alison Watkins, noted, “It is clear that CCA is facing a number of immediate challenges, particularly in the Australian beverage and Indonesian markets. In mid-April we provided a trading update to the market outlining that we expected first half 2014 Group EBIT before significant items to decline by around 15% over the prior comparable period.”
That it was a tough year for CCA was embedded in every paragraph of the operational results summary: “Trading conditions were challenging across all channels. Volumes and earnings in operational accounts declined as we experienced a continued shift to national chains and quick service restaurants. This decline was exacerbated by reduced promotional activity to the channel, a decline in sales headcount and reduction in outlet call frequency during 2013 which resulted in below required service standards, issues which are being actively addressed. In the grocery channel, while volumes grew by 3.7%, this was a weak result in the context of the business cycling a 14.5% volume decline in the first half of last year. Promotional activity yielded disappointing results and rate realisation continued to be under pressure due to weaker consumer demand, aggressive competitor pricing and private label activity in both water and flavoured carbonated beverages.”
CCA’s earnings in Indonesia were a battle between rapid cost inflation, currency depreciation and increased competition versus strong volume growth and market share gains in key categories.
New Zealand & Fiji earnings increased by 12.0% in Australian dollars but earnings were flat in local currency terms. The ready-to-drink category got off to a poor start due to adverse weather conditions. The volume declines were partly offset by improved momentum and a return to growth in the second quarter, however. Strong share gains were made in juice, water and energy categories, But declines in the carbonated beverage category and aggressive competitor activity in the sports category offset these gains.
The core brand, Coca-Cola, in particular, and CCA's soft drink range in general, have not been quietly soldiering on in adversity. Coca-Cola has been exploring the powers that packaging advances hold to reinvigorate market share in Australia. Read our stories about skinny cans here and Share-a-Coke here.
Financial results? The numbers show decline, but the message is positive.
“First half earnings are in line with guidance provided on 11 April 2014. Cash flow generation was strong, supporting the payment of an interim dividend of 20.0 cents per share representing a payout ratio of 83.8%, which is above the stated target payout ratio of 70-80%.
- Earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 10.1% over the prior comparative period to $448.1 million, before significant items.
- Earnings before interest and tax (EBIT) declined by 15.3% to $316.7 million, before significant items.
- Net profit after tax declined by 19.0%, before significant items, and by 15.6% to $182.3 million, after significant items.”
