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Coca-Cola Amatil reveals its strategy for returning to growth

Coca-Cola Amatil reveals its strategy for returning to growth

Coca-Cola Amatil Chairman Ilana Douglas has admitted to shareholders that the group's results "are not where the Board would like them to be", despite strong performances in New Zealand, Fiji and Alcohol & Coffee.

Douglas addressed Amatil's annual general meeting, saying: "Coca-Cola Amatil’s medium and long-term value is the main focus of the Board’s work. Our plan is for the business to return to mid-single digit growth in earnings per share from 2020." 

Australian Beverages underlying EBIT declined 8.8%, mainly driven by the reinvestment of an additional $40 million into the business in 2018 through its 'Accelerated Australian Growth Plan'.

According to MD Alison Watkins (pictured main), adjusting for this additional investment, "EBIT growth would have been positive for the year".

"However, we recognise that this investment is important in supporting the long-term growth of our business," she said. 

"Our performance for the year was also impacted by the NSW container deposit scheme, with NSW volumes down 3.4% compared to other states, which were down 0.4%." 

Watkins revealed Amatil's focus was in the "must-win" categories of cola and water.

"There were significant gains in both categories during the year, in particular, Coca-Cola volumes in Australia grew in the second half of 2018, driven by Coca-Cola No Sugar," she said. "This in-market success is a testament to the consumer trend toward low and no-sugar choices. It also reflects the success of our integrated marketing and execution strategies particularly around the key selling weeks."

She noted that the New Zealand and Fiji segment delivered another "stand-out performance" in 2018, with revenue up 6.9%, underlying EBIT up 6.5% on a constant currency basis, and volumes up 6.1%. This was off the back of strong performances in both markets.

Indonesia and Papua New Guinea delivered volume growth of 1% and modest revenue growth of 0.9% on a constant currency basis.

"While the numbers were positive, this was below our expectations for a growth segment," she said. "The result in Indonesia reflected soft market conditions, a 20-year low in the rupiah, and higher commodity prices.

Alcohol & Coffee delivers another strong result

Alcohol & Coffee saw 8% revenue growth and 12.1% underlying EBIT growth.

This is the third consecutive year of strong growth in this segment, with EBIT more than doubling from $25.8 million in 2014 to $55.7 million in 2018.

"We invested in the business to build capability and support our long-term growth initiatives and worked closely with our partners’ and our own brands to leverage opportunities across all categories," Watkins noted. 

"We are positioned for growth in Australian Beverages in 2020 with the completion of the additional $10 million investment in our Accelerated Australian Growth Plan to increase our salesforce and, with container deposit schemes in NSW and Queensland substantially embedded by the end of 2019."

In the coming year, New Zealand & Fiji, Papua New Guinea and Alcohol & Coffee are expected to deliver growth in line with Amatil's Shareholder Value Proposition. 

Watkins said the delivery of mid-single digit earnings per share growth from 2020 would depend on the success of revenue growth initiatives in Australia, Indonesian economic factors and regulatory conditions in each of our markets.

Amatil reported it had reversed a decline in beverage volumes in NSW by hiring 97 additional sales and business development staff to liaise with stores and give tips on increasing consumption of soft drinks, juice and bottled water.

Watkins said that volumes in the "immediate consumption" channel in metro NSW had risen 2% in the year to date after falling 11% in the year-earlier period.

She said most of the benefits from the nationwide rollout were expected to flow through in the second half.

Watkins also updated shareholders on the success of Amatil X, its emerging possibilities platform and AX Ventures, its corporate venturing program.

"Work undertaken by AX Ventures led to two minority share investments in Doshii and TabSquare – both tech start-ups delivering value to customers today and revenue growth for Amatil into the future," she said.