Coca-Cola Amatil profit halves as Covid hits soft drink, bottled water consumption

Coca-Cola Amatil’s annual profit has more than halved as COVID-19 severely disrupted consumption of soft drinks and bottled water.

Coca-Cola Amatil said the impact of COVID-19 impacted all parts of the business in 2020. Photographer: Adam Yip

Coca-Cola Amatil delivered a 30 per cent cut to its final dividend in what could be the bottler’s last dividend to shareholders before it is swallowed up in a takeover by Coca-Cola European Partners.

The slimmer payout was driven by a dive in its full-year profit by more than half with volumes for its popular brands of soft drinks and bottled water evaporating as consumers turned away from Coca-Cola, Fanta and Mount Franklin at shuttered venues, instead opting for multi-packs, which carry much smaller profit margins, for home consumption.

This was especially punishing for CC Amatil’s earnings in the first six months of calendar 2020 as lockdowns and social distancing restrictions crunched volumes, but the bottler confirmed on Thursday that improving trading conditions witnessed from June had progressed into the new year.

The bottler also booked $203m in impairments and costs relating to a grab bag of initiatives and restructures, including impairments of $143.4m for its Indonesian business, impairment of $16.8m in the South Pacific arm and other expenditures on its “fighting fit” program to restructure the business and improve efficiencies.

CC Amatil, the target of a $9.8bn takeover bid from the European bottler, reported full-year net profit slumped 51.9 per cent to $179.9m as revenue for the group fell 6.1 per cent to $4.8bn. Volumes for its beverages were down 8.4 per cent.

The dividend was an immediate victim of the profit drop. CC Amatil declared a final dividend of 18c fully franked, down from 26c in the previous corresponding period and against market expectations of a flat or slight fall. The dividend will be paid on April 30. The value of the final dividend for 2020 will be deducted from the total cash consideration per share of $13.50 offered by Coca-Cola European Partners this week.

Ms Watkins said she remained optimistic about the economy and company’s outlook for 2021 as the COVID-19 vaccine was rolled out, however a big question mark remained over consumers’ level of confidence as economic stimulus measures are removed.

“I think we are certainly in a better position as far as the economic outlook goes and how our business is performing than we thought we would have been six months ago, no doubt about that,” Ms Watkins told The Australian.

“There is still a lot of uncertainty out there, a lot of volatility in our business in different states performing in different weeks, different channels performing, snap lockdowns and so forth.

“So while it is great we have the vaccine coming and I think that will add some confidence, I do think we need to remain pretty cautious and remember we are in still in the midst of this pandemic globally.”

This volatility was playing though CC Amatil’s business where it was enjoying a rebound in its flagship Australian and New Zealand arms, with volumes improving towards Christmas, against tougher times in Indonesia where the COVID-19 pandemic was yet to peak.

A key indicator for CC Amatil fortunes, as well as the broader Australian economy, would be the behaviour and confidence of consumers in coming months.

“So we have also got the withdrawal of the government stimulus coming through with JobKeeper ending at the end of March and while consumers still have a lot of money in the bank I think we just have to wait and see if they are willing now to start spending or whether there is caution … and it leads to a period of restraint.”

But she believed CC Amatil’s strong portfolio of well-known beverages would help insulate it from the worst of any sharp deterioration in consumer confidence and spending.

“For our business I think we are quite lucky to be diversified across channels. We are well diversified geographically so you are able to find one of our beverages wherever you are, whatever you are doing. And tough times do tend to play to our strengths in some ways. We are stronger in regional Australia for example, where brand Coke is doing well. People seem to like familiar brands in these tougher times so we are not too worried.”

Meanwhile, at its core Australian business over 2020, which generates around two thirds of group earnings, CC Amatil delivered a strong trading performance in the fourth quarter, continuing the recovery experienced in the third quarter. Fourth-quarter volumes were up 0.4 per cent, despite some targeted COVID-19 restrictions in parts of metropolitan NSW and limits on interstate travel. Strong momentum in Australia carried into January 2021 trading, the bottler said.

On a full-year basis, volumes were down 4.2 per cent and revenue was down 3.5 per cent with a more pronounced decline in ongoing EBITDA, down 8.7 per cent to $502.3m, due to changes in channel and pack mix as consumer behaviour responded to COVID-19 lockdown measures. This saw a switch of shopping patterns to buying up beverages at the supermarkets — where margins are smaller — rather than closed venues, restaurants and cafes.

At its Indonesia and Papua New Guinea operations, challenging trading conditions in 2020 hurt volumes, which were down 16.2 per cent and revenue down 18 per cent to $955.5m. Ongoing EBIT was down 36.3 per cent to $61.3m.