Coca-Cola Amatil (CCL) is lifting its dividend after returning to profit growth for the first time in three years in the year to December.
The group yesterday reported a 4.8% rise in full-year underlying net profit to $393.4 million for 2015, and is confident of continuing the improvement in coming years.
The result was struck on a 3.1% rise in group sales to $5.09 billion in 2015 from $4.94 billion in 2014, with some modest volume growth in its core brands that was partially offset by weaker prices.
But the improvement was really driven by an odd mixture of lower interest costs (which more than offset a higher tax bill) and a sharp improvement in its coffee and liquor businesses.
The returns from its core carbonated drinks division and food and services were weak to rotten.
Coca-Cola Amatil increased its final dividend by 1.5 cents a share to 23.5 cents, taking its full year payout to 43.5 cents, up 1 cent from 2014’s payout.
The shares rose 4.1% to $8.80 after jumping 5% in early trading in a burst of initial enthusiasm.
CCL 1Y – Coca Cola returns to profit
The net profit result exceeded consensus forecasts of around $386 million and compared with an underlying net profit of $375.5 million in 2014, which was the company’s lowest in eight years.
(The company reported $103.4 million in restructuring costs in 2014, taking the bottom line net profit a year ago to $272.1 million.)
Earnings before interest and tax edged up 1.4% to $660.6 million.
CCA said its core Australian operations stabilised in 2015, while Indonesia and Papua New Guinea markets returned to growth and profits grew strongly in alcoholic beverages and coffee, offsetting a sharp fall in food and services.
In Australia, non-alcoholic beverage volumes returned to growth for the first time since 2012. Volumes fell 1.5% in the second half, leaving volume growth for the year at just half a per cent, which was not convincing.
Average prices, or revenues per case, dropped 1.3%, dragging sales down 0.8% in Australia, as CCA continued to cut prices to match the price cutting from main rival, Asahi’s Schweppes/Pepsi.
“We delivered positive volume growth by focusing on our strategy of optimising our portfolio and product mix and improving our route to market execution,” CEO Allison Watkins said yesterday.
"The cost savings identified under our efficiency program and route to market transformation are being reinvested into the business to support our leadership position on price and to maintain a strong focus on brand development, innovation and technology."
CCA said it picked up market share in cola, lemonade, and flavours such as Fanta and Kirks, particularly in supermarkets, after spending more on marketing, promotions, new products and sales execution. But bottled water share slid following a price war in private label water.
Earnings fell in Indonesia, but the decline was offset by gains in Papua New Guinea while in New Zealand and Fiji earnings rose as higher volumes offset flat pricing.
The standout performer was the coffee and alcoholic beverages business, which includes Grinders, CCA’s spirits alliance with Beam/Suntory and the Australian Beer Co venture with Casella Wines. Earnings rose 32% and sales jumped 22% thanks to higher demand for coffee, beer and cider.
In food and services, including SPC Ardmona, earnings fell 42% on weaker sales and one-off restructuring costs.
But the result was in reality line ball with 2014 and not all that impressive once you net out the impact of the lower interest charge from the equity injection in Indonesia, plus some foreign exchange hedging profits, against a higher tax bill.
“The lower costs were mainly driven by TCCC’s US$500 million equity injection in Indonesia but also included some non-recurring foreign exchange hedging gains which improved profit attributable to CCA shareholders by around $6 million,” CCA said yesterday.
Operating profit after tax and interest but before impairments was $393.4 million, up from $375.5 million a year ago. The interest bill fell to $86.2 million from $121.9 million – a saving of more than $35 million.
The tax bill rose $18 million to $171 million. The $17 million difference accounted for nearly all the $17.9 million rise in earnings before impairments, which in a company with more than $5 billion in annual sales is immaterial. Not very good, No wonder CEO Allison Watkins was circumspect in her commentary in the report.
