An unenthusiastic reaction from investors to yet more news of staff cuts and more cost reductions from Coca Cola Amatil (CCL).
That was perhaps more to the company’s admission in yesterday’s statement that trading conditions remain tough, although CEO Alison Watkins believes the company will improve in the second half of next year.
That means a weak second half and full year profit for 2014 and a weak first half in 2015.
Coca Cola Amatil said yesterday it will cut 260 “non-frontline” staff next year as a result of the lack of an expected improvement in trading conditions in the grocery channel supplying supermarkets etc.
But the company said it is still on track for underlying earnings in the first half of 2015 to top $316.7 million.
Despite that ‘assurance’ the shares eased in yesterday’s generally solid market to end at $9.10, down 1.7%.
CCL YTD – Coca Cola cuts another 260 staff
“This latest restructure, together with cost initiatives already in train, gives us a high level of confidence we will achieve our savings targets,” Ms Watkins said in a statement to the ASX.
The company noted that “trading conditions in Australia continue to be challenging”.
“While we have not yet seen the anticipated improvements in the grocery channel and operational accounts, we continue to expect second half group earnings before interest and tax to exceed first half earnings of $316.7 million, before significant items,” the company said.
In the statement to the ASX yesterday the company said it had “made solid progress in developing and implementing a range of initiatives to stabilise earnings and return to growth”.
Ms Watkins said, “Our Strategic Review announced in October was designed to address the structural challenges that CCA is facing and I am pleased to report that we are making good progress in implementing the initiatives identified as part of that Review with three priorities; strong category leadership, a step-change in productivity and in-market execution, and better alignment with The Coca-Cola Company (TCCC).
“In August we announced that we are targeting over $100 million in savings in Australia from procurement, reduced support costs and improved productivity from the significant investment made in the supply chain and in IT investment over the past five years.
"Since then we have finalised plans to restructure our back office support costs with a range of process improvement and automation initiatives. The restructure will lead to the reduction up to 260 non-frontline positions, with the majority taking effect in 2015.
"This latest restructure, together with cost initiatives already in train, gives us a high level of confidence we will achieve our savings targets.” CCA said it expects to report significant items charges related to restructurings this year."
Ms Watkins said, “The recent launch of the 250ml cans, supported by the #colouryoursummer campaign, is tracking above expectations in terms of ranging, transactions and most importantly, recruitment of the next generation of Coca-Cola consumers. We have a great line up of new product launches and marketing initiatives including the launch of Coke Life in the first half of 2015.”
"Trading conditions in Australia continue to be challenging. However Ms Watkins said, “While we have not yet seen the anticipated improvements in the grocery channel and operational accounts, we continue to expect second half Group earnings before interest and tax to exceed first half earnings of $316.7 million, before significant items.
"The Indonesian business is continuing to deliver strong volume growth and improvements in market share. Pricing and profitability remain under pressure due to the level of competition and ongoing cost pressures.
“We believe the joint system plan we have with TCCC will strengthen our competitive position in the rapidly-growing Indonesian beverage market and drive attractive shareholder returns. The proposed US$500 million equity injection from TCCC will support the capital investment in that market for the next 3-4 years.
"We are very focused on driving cost competitiveness through scale and less complexity, and transforming our route-to-market to cost-effectively reach a larger number of customers with a broader range of our products,” Ms Watkins said.
An Extraordinary General Meeting of shareholders will be held on February 17 next year to vote on the proposed equity injection from TCCC.
The Notice of Meeting, including the Explanatory Memorandum and Independent Expert’s Report, is expected to be lodged with the Australian Securities Exchange in mid to late December 2014.
