Coca-Cola Amatil sales smashed by coronavirus shutdowns

ELI GREENBLAT

MAY 26, 2020

The Australian

Coronavirus lockdowns delivered a hit to Coca-Cola Amatil sales across all its markets, from Indonesia to New Zealand and Australia, just as the bottler looked forward to peak trading linked to Easter, Anzac Day and Ramadan.

Some of the bottler’s markets experienced as much as a 70 per cent decline in volumes, with sales of Coca-Cola or bottled water often hit hardest at petrol stations as consumers stayed home, although CC Amatil detected an improvement in volumes into May as home isolation rules were relaxed.

Ahead of its “virtual” AGM in Sydney on Tuesday, CA Amatil said in a trading update that while it outperformed the drinks sector, volumes for the business declined 33 per cent in April and 26 per cent in the first three weeks of May.

It also reported declines in margins given shifts in channels and its portfolio mix, particularly in Australia, with the impact on cash flow and pre-tax earnings partially mitigated by tight cost control and reduced capital expenditure.

The company didn’t offer specific guidance for the rest of the financial year, but said it anticipates having a clearer view at its half-year result in August.

CC Amatil, which sells soft drinks, juices and alcoholic beverages in supermarkets, pubs, hotels, convenience stores and at sports events, was earlier this year forced to walk away from its profits forecasts as the COVID-19 pandemic forced people to stay home and shut down outdoor events like concerts, football games and other activities.

With sales squeezed, CC Amatil in March withdrew its earlier guidance of single-digit earnings per share growth in 2020.

In Tuesday’s trading update, it reported modest improvements in May as lockdown restrictions eased, with volume in the first three weeks of the month down 26 per cent compared to April’s 33 per cent slump.

CC Amatil chief executive Alison Watkins said at the time of her last COVID-19 update the bottler noted significant volatility as the impacts of the pandemic took effect.

“This has continued. Since April 1, 2020 we have traded through the tighter COVID-19 lockdown restrictions, whilst simultaneously cycling the traditionally peak Easter and Ramadan trading periods,’’ Ms Watkins said.

“With many customers remaining closed or operating at significantly reduced capacity, there has been unprecedented disruption to trade.

“Despite these challenges, our business has demonstrated resilience and the ability to partially mitigate the adverse impact of the disruptions through our flexible routes to market, diverse channels, disciplined financial management and the strength of our brands.

“As the lockdown restrictions begin to ease and local economies begin a protracted recovery, we are seeing signs of modest improvement in trading conditions.”

Ms Watkins said she was confident CC Amatil’s strong balance sheet, ample liquidity, robust cashflows and solid credit ratings placed it in a strong position financially and operationally to emerge a stronger and better business.

But April in particular was a challenging month.

Whilst the specifics in each market differed, store closures and restricted trading hurt the high-margin, immediate consumption channels, meaning volumes transitioning to lower margin channels and packs. This had had a significant effect on margin percentages, particularly in the Australian business.

“Whilst revenue since the start of April has broadly declined in line with volume, the impact on our group margin percentages has been much greater, reflecting marked shifts in channel and package mix, particularly in Australia,” Ms Watkins said.

“This adverse impact has been compounded by the loss of scale in Indonesia resulting in a pronounced impact on EBIT, despite cost savings being realised through lower marketing spend and other initiatives including leave utilisation and reduced recruitment and discretionary spend.”

Australia, which delivers the bulk of CC Amatil’s earnings, had seen a decline of about 30 per cent in volumes in its non-alcoholic ready to drink (NARTD) category in April, compared to April 2019. This decline reflected not only COVID-19 lockdown restrictions, but also changes in buying patterns in the grocery channel.

On-the-go volumes in April were down about 55 per cent on the previous corresponding period, while convenience and petroleum volumes were down about 20 per cent. In the grocery channel, volume declined approximately 10 per cent as panic buying abated and consumers shopped less frequently.

The alcohol business also experienced a decline in April, with a 35 per cent fall in volume reflecting closures and soft Easter and Anzac Day trading.

“Whilst the trading performance of our Australian business worsened in April – in particular in terms of margin erosion as volume transitioned from high margin state immediate consumption and hotel, restaurant and catering channels to lower margin packs and channels such as grocery and quick service restaurants – this needs to be taken in the context of the performance of the NARTD sector as a whole, with Amatil growing its market share during this period,” Ms Watkins said.

Tight lockdowns in New Zealand in April meant about 75 per cent of the company’s on-the-go customers were closed, resulting in volumes and revenues for the month both declining by about 35 per cent. Volumes at petrol stations were down as much as 70 per cent.

The Indonesian business was hit hard in early April, with volume down approximately 50 per cent due to social distancing measures during the traditionally heavy trading period in the lead up to Ramadan.

Ramadan, held this year in May, is traditionally a significant period for CC Amatil’s Indonesian business, but COVID-19 restrictions made gatherings impossible. As a result,

volume decline in May by about 40 per cent.

Papua New Guinea reported declines of about 26 per cent in volume and 25 per cent in revenue in April, largely because of disruption to trade caused by a State of Emergency declaration.