Coca-Cola is perhaps one of the most acknowledged word/ brand in the contemporary world, merely because it has established itself as an adored label with products used (and loved!) world-wide. Let us begin by acquainting ourselves with some interesting facts about the brand:
- 133 years old, The Coca-Cola Company is the world’s leading non-alcoholic beverage company;
- It offers over 500 brands in more than 200 countries and territories;
- The company is currently working to reduce its environmental impact by replenishing water and promoting recycling, and has made solid progress on its World Without Waste goals (2025 goal- 100% recyclable packaging globally);
- With its bottling partners, the company employs over 700,000 people globally;
- In 2018, ~600 new products were launched across the Coca-Cola System;
- In Q319, the company registered strong revenue growth and value share gains globally, with net revenues up by 8% to $9.5 billion, and sales of $31.9 billion.
Now that we have your attention to Coca-Cola’s solid stance at a global level, let us indulge ourselves to its Australian bottling partner and one of its largest bottling partners in the Asia-Pacific region - Coca-Cola Amatil Limited (ASX: CCL), as it has positioned itself for growth in 2020, post completing the second year of its two-year transition program:
CCL prepares, packages, sells and distributes beverages (over 140 brands) across a diverse group of mature and high-growth geographies (6 countries). The company aims to be a regional beverages powerhouse in the ASEAN and Oceania regions, and believes that it has a a clear growth platform.
Its largest shareholder, supplier and brand partner is The Coca-Cola Company, which catalyses CCL’s access to a broad portfolio of leading brands in a diverse range of categories, backed by best-in-class marketing and product innovation.
The partnership, governed by the Bottlers Agreements, supports CCL via a new level of financial and strategic alignment, positioning it towards growth. In 2016, CCL renewed its Australian Bottling Agreement for 10 years.
What Has Worked in Coca-Cola Amatil’s favour?
CCL’s solid relationship with The Coca-Cola Company gives it an unrivalled portfolio, wherein it leverages significant business benefits. Let us look at the other factors that have positioned CCL on a growth trajectory currently, along with paving the way for a better future:
- CCL’s mature businesses operate in stable economic, political and social environments (both Australia and New Zealand have stable country ratings from S&P Global with a GDP growth rate of over 2%);
- The prospects for Indonesia seem positive over the medium term, given the favorable age demographics;
- The company has paced the implementation of the Regional Beverages Powerhouse strategy through the divestment of the SPC business and the integration of the Alcohol & Coffee business;
- CCL has been simplifying its operations and strengthening the customer focus (route-to-market), and strengthened its sustainability commitments in 2018, with targets set to be achieved by 2020;
- Key focus of sugar reduction and packaging seem to be making good progress;
- The company claims to have saved over $210 million of costs in Australia alone since 2014 (annual cost savings of $2.5 million);
(Source: CCL’s Investor Presentation)
CCL’s 2020 Commitments
Coca-Cola Amatil firmly believes that it is on track to meet its 2020 People Commitments to implement and embed its Human Rights Policy, have a zero-harm workplace and at least 30% of Board, Senior Executive and Management positions held by women. Currently, the company is ranked in the Global Top 100 for gender equality.
On the consumer’s well being and community side, CCL’s 2020 commitments includes reduction of sugar intensity by 10% in both Australia and New Zealand, screen 80% of supplier spend using responsible sourcing criteria and allocate the equivalent of 1% of EBIT to community investment programs.
CCL has already made sound progress on sugar reduction in Australia and New Zealand with product reformulation with 7% reduction in Australia and 4% in New Zealand (since 2016). Moreover, Papua New Guinea and the Pacific Islands are progressing with sugar reduction initiatives, with a recorded reduction of 7.8% (since 2016).
The company affirmed in its recent Investor Day Presentation (released 15 November 2019 on the ASX) that it is well ahead of its environmental commitments of 2020, which are to:
- Improve water intensity for non-alcoholic beverages to achieve no more than 1.95L/L and target a 25% improvement in water efficiency for alcoholic beverages (compared to 2013) and food (compared to 2010). Since 2013, water efficiency for alcoholic beverages has improved by 13.8%.
- Reduce the carbon footprint of the 'drink in your hand' by 25% (compared to 2010);
- Use 60% renewable and low-carbon energy in its operations;
- Develop the business case for a weighted average of 50% recycled plastic in PET containers across the Australian portfolio (including carbonated soft drinks).
Adding on to the environmental front, CCL strives to minimise the impact of plastic packaging in each phase of the plastic loop through waste reduction, education, packaging innovation, and collaboration with other industry participants. It states that By the end of 2019, 7 out of 10 plastic bottles in Australia will be made of 100% recycled plastic, and over 95% of its packaging is recyclable.
The company has been actively involved in operating container deposit schemes in Australia for over 40 years, and last year, supported the Australian 2025 National Packaging Targets, developed in conjunction with APCO and governments.
Why is Coca-Cola Amatil Well-Positioned to Grow?
As inferred from the above pointers, CCL does seem to be on a steady growth trajectory, with a robust pipeline of customers and backed by strategic partnerships. The Coca-Cola Trademark is in growth globally and in the markets. The company is well-positioned to grow in the days to come as:
- It has efficiently concluded its step-up investments in Australia, Indonesia and Corporate & Services;
- Container Deposit Schemes now cover ~62% of the Australian population with WA to implement in 2020 and TAS in 2022;
- Australian Beverages Volume and Trading Revenue has recorded positive growth compared to the prior year for the half to date, with the biggest six weeks of the year to come;
- Indonesia seems to be a huge plus point, growing consistently since 2Q 2018 despite soft market conditions;
- The engagement score in Australian Beverages, New Zealand and Indonesia have reportedly been attractive (71%, 83% and 81%, respectively).
Group Managing Director Alison Watkins stated that the end of 2019 will mark the completion of a two-year transition period, with the company committed to its Shareholder Value Proposition targeting a return to mid-single digit EPS growth from 2020. The Australian Beverages business is on a growth trajectory for 2020 with completion of the supplementary $10 million investment in CCL’s Accelerated Growth Plan along with the container deposit schemes in Queensland and NSW embedded in 2019.
NZ & Fiji, Alcohol & Coffee and PNG are likely to grow in line with CCL’s Shareholder Value Proposition. The Corporate & Services is likely to report an EBIT loss of ~$12 million. The company expects pre-tax one-off costs in 2019 of around $40 million, as part of the cost optimisation programs across the Group, partially offset by one-off gains of ~$14 million from property sales primarily being the sale of the Thebarton site.
The Group capex is likely to be ~$250 million in 2019 and $300 million in 2020. The medium-term dividend payout ratio of over 80 per cent will be targeted, and dividends are expected to return to being franked in 2021.
Share Price Information
On 18 November 2019, CCL settled the day’s trade at $11.43, up by 4.862%, with a market cap of $7.89 billion. The stock has a P/E ratio of 26.55x and its annual dividend yield is 4.31%. It has generated a YTD return of 34.07% and 1-year return of 6.01% (as on 15 November 2019).
This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.