Amatil flags lower FY earnings, but recent recovery may force bidder’s hand

Coca-Cola Amatil flags lower full-year earnings, but a late-year trading bounce could pressure takeover suitor to lift $9.3bn bid.

Coca-Cola Amatil CEO Alison Watkins. Picture: Ryan Osland

Giant international bottler Coca-Cola European Partners is under pressure to up its $9.3 billion takeover bid for Coca-Cola Amatil after it reported improving trading conditions at the back end of 2020 including a return to volume growth for its core Australian drinks arm.

CC European Partners will release its latest financial report next month with its takeover target CC Amatil working on the takeover documents as part of the offer that will include releasing the scheme booklet in March to investors that will include an independent experts report.

But the gap between the takeover offer price and CC Amatil’s share price is growing.

When CC European Partners launched its $12.75 per share bid for CC Amatil late last year it came as the bottler, along with other discretionary consumer companies, were struggling with the lockdowns and movement restrictions imposed by most states and which dulled sales.

This proved especially painful for CC Amatil whose range of soft drinks, energy drinks as well as beers and spirits were consumed at sporting events, live entertainment and pubs - most of which were shut down.

But now CC Amatil has revealed in a trading update on Friday that its volumes in Australia have roared back to strength and broken the run of three consecutive quarters of falling volumes for the key Australian market that drives around two thirds of CC Amatil’s group earnings.

Although the bottler revealed the turnaround and return to growth in some segments was patchy, with its Indonesian bottling business suffering the pain of the COVID-19 pandemic in that region, New Zealand flat and Fiji and Papua New Guinea still shrinking, volumes in Australia where the majority of group profits are made was positive.

Australian volumes of its Coca Cola brand as well as other soft drinks, non-alcoholic beverages and bottled waters, ended three quarters of consecutive falling sales, including a 15.6 per cent dive in the second quarter, to rack up a 0.4 per cent volume gain in the fourth quarter.

CC Amatil, the subject of a $12.75 per share takeover offer from Coca-Cola European Partners, will release its full-year results for calendar 2020 next month.

Shares in CC Amatil ended up 12 cents at $13.03 on Friday with the premium to the takeover bid widening since just before Christmas.

CC Amatil has also announced on Friday morning it will pay back the NZ$7.2 million government COVID-19 wage subsidy it received in New Zealand

The easing of restrictions and lockdowns, especially in Victoria, helped a turnaround of CC Amatil’s flagship Australian beverage arm although strong “at home” consumption as people drank at home saw sales weighted to the grocery channel for CC Amatil which typically has smaller margins.

CC Amatil said it is expecting it will deliver fiscal 2020 ongoing EBIT (before non-trading items) of $550.7 million, down 13.9 per cent on 2019 and 2020 ongoing net profit of $340.3 million. This preliminary result includes the delivery of $140m of cost savings in accordance with the efficiency initiatives announced by the company at the start of the COVID-19 pandemic.

“We delivered a strong trading performance in the all-important fourth quarter Christmas period in both Australia and New Zealand,” said chief executive Alison Watkins.

“We experienced strong demand in both markets, predominantly in the Australian Grocery channel, and more broadly across most channels in New Zealand.

“Whilst we are encouraged by recent trading in Australia and particularly in New Zealand, month to month volatility remains. This is particularly the case in Australia, where On-the-Go (OTG) trading can vary considerably by state depending on the prevailing COVID-19 restrictions and related sentiment at any given point in time.”

CC Amatil said fourth quarter volumes for the group were down 5.4 per cent compared to the prior corresponding period reflecting continued improvement in trading conditions in Australia and New Zealand since the peak of the pandemic in the second quarter. On a full year basis volumes were down 8.4 per cent on 2019 with the rate of improvement varying markedly across the group’s geographic operations.

In Australia, the biggest division, volumes for 2020 were up 0.4 per cent in the final quarter and down 4.2 per cent for 2020. The return to growth ended three consecutive quarters of falling volumes in Australia - down 1.2 per cent in the first quarter, 15.6 per cent in the second quarter and 2 per cent down in the third quarter, as more normal trading conditions returned as restrictions on movement and social distancing were eased.

From a category perspective, the Coca-Cola trademark delivered strong volume growth, up 4.6 per cent in the fourth quarter, led by demand for Coca-Cola No Sugar. The Coca-Cola trademark delivered volume growth over the full year of 1.9 per cent demonstrating the resilience of the brand, CC Amatil said.

Energy was another standout category with volumes up 14.9 per cent for the final quarter and 8 per cent for the full year.

“The change in channel mix that we experienced in fiscal 2020 is best evidenced by the fact that our volumes in the fourth quarter grew by 5 per cent in the grocery channel and by 6.7 per cent in convenience & petroleum compared to the fourth quarter of 2019, whilst our on-the-go volumes were down 8.3 per cent,” Ms Watkins said.

“On a full year basis we saw grocery volumes grow 4.3 per cent and convenience & petroleum volumes up 0.4 per cent whilst On-the-Go was down 16.3 per cent.”

Volumes were hit hard in Fiji, down 16.3 per cent for the year and down 18.2 per cent for 2020 in Indonesia.