Coca-Cola Amatil says Australian beverage sales under pressure from CDS

Sue Mitchell
May 16 2018
AFR

Record-breaking temperatures have failed to offset a decline in soft drink and bottled water sales triggered by the launch of the container deposit scheme in NSW last December.

Coca-Cola Amatil group managing director Alison Watkins told shareholders on Wednesday the container deposit scheme, which forced bottlers to raise prices by about 15¢ per container, has had a negative impact on volumes in CCA’s biggest division, Australian Beverages..

Ms Watkins also confirmed that earnings from Australian Beverages would come under pressure this calendar year as the bottler reinvested $40 million from cost savings into marketing, sales, cold drink equipment and digital technology under an accelerated investment program unveiled last November.

Ms Watkins said trading in Indonesia and PNG over the last few months had been ‘subdued’, but New Zealand and Fiji were performing ahead of expectations and revenues in the alcohol and coffee business were growing in line with expectations.

The trading update is likely to disappoint some shareholders, who had hoped record-breaking temperatures between January and April would boost soft drink and water sales and offset the negative impact of the CDS.

Returns or redemptions under the CDS have been lower than expected and analysts believed CCA had fared better than rivals because price rises to cover refunds have had a bigger impact on cheaper brands and private label bottled water.

“Industry feedback suggests the CDS has had a negative impact on volumes but the headwind has been smaller than anticipated and we believe the warmer than usual autumn weather should have benefited the Australian beverages business,” said Deutsche Bank analyst Michael Simotas.

Shareholders had also hoped that strong growth in Indonesia and PNG would offset weaker earnings in Australian Beverages in the June-half.

Despite the subdued trading update, CCA shares rose 1.6 per cent to $9.11 in early trade.

CCA raised prices on all beverages captured by the CDS by 13.59¢ plus GST (1.3¢) in November to fully recoup the cost of the 10¢ refund and handling, administration and compliance costs.

Under the scheme, which came into effect in NSW on December 1, consumers receive a 10¢ refund when they return eligible drink containers to approved collection points. The refund applies to containers between 150 millilitres and three litres and excludes plain milk, juice and wine. 

Ms Watkins told shareholders that while redemptions under the CDS to date had been lower than anticipated, returns would steadily increase as more collection points were established.

“In the meantime, we are working with our customers to evaluate opportunities, such as additional promotions and discounts, to better reflect the actual redemptions experience in the early stages of the scheme,” she said. 

“There are many factors impacting beverage sales (such as weather, promotions and competition) which mean we cannot isolate a CDS effect. However, we can certainly see there has been a negative impact on volumes from the CDS-related impost.” 

Board changes

Soft drink volumes have also come under pressure in recent years from changing consumer tastes and a shift away from sugar consumption.

Coca-Cola Amatil’s new chairwoman, Ilana Atlas, said CCA was committed to reducing the sugar content across its portfolio in Australia and New Zealand by 10 per cent by 2020.

In partnership with The Coca-Cola Co’s marketing arm, Coca-Cola South Pacific, the bottler had reformulated and reduced sugar and kilojoules in 22 products in Australia since 2015 and every major carbonated soft drink brand now included a low- or no-sugar variant.

Coca-Cola No Sugar was launched in Australia and New Zealand last year and a new version of Coca Cola Stevia No Sugar, which is 100 per cent sweetened with stevia, was launched in New Zealand earlier this month.

Ms Atlas, who took the chair from David Gonski last year, flagged further board renewal.

Non-executive director Catherine Brenner – who quit as chairman of embattled financial services group AMP last month – has told the board she will not seek re-election at the AGM next year. 

The Australian Shareholders Association had called on Ms Brenner, who has been on the CCA board for ten years, to stand down because of he role in the AMP scandal. 

However, Ms Atlas said with five relatively new non-executive directors, Ms Brenner’s continued role over the next 12 months would allow for an orderly transition as CCA looked for new directors.

“It is important for shareholders to know that the Board has considered Catherine’s position on this Board following her decision to step down from her position as Chairman of AMP,” she said. 

“The board’s view is that Catherine remaining on the Coca-Cola Amatil board is in the interests of shareholders. Catherine is our longest serving director, with a deep understanding of the company’s business and people. She has been committed, hardworking and diligent throughout her term on the board.” 

“Her corporate finance and mergers and acquisitions experience has been valuable to the company in its many corporate actions over the past 10 years (and) as chairman of the risk and sustainability committee she has driven the continual improvement of our risk framework and its implementation,” she said.

“Over the next twelve months, we will continue to analyse the skills and experience on the board and what we require in the future, to maintain the right mix following Catherine’s retirement.”

CCL