The company raised prices to offset higher aluminium and other commodity prices in 2007, and Managing Director Terry Davis told Reuters he expects to be able to do the same again in 2008 even if the economy cools.
He said an expected increase in input costs of 3-4% this year was low compared with many other food and drinks firms: “That gives me some confidence we’ll be able to pass those through,” Davis said in a telephone interview.
The price of a bottle of Coca Cola in Australia rose 4-5% in 2007. Analysts said Coca-Cola Amatil was in a strong position even if consumers trim spending.
“We see modest upgrades to forecasts. They are well positioned (as) beverage isn’t a highly discretionary consumer item. It’s reasonably defensive,” said Ausbil Dexia portfolio manager, John Grace. Its shares rose as much as 4.2% to A$9.16.
Coca-Cola Amatil, which is 30% owned by the Coca-Cola Co, said 2007 net profit before one-offs rose to A$366.3 million ($330 million) from A$323.5 million a year ago. That was above market expectations of A$360.3 million, according to a Reuters Estimates survey of nine analysts.
Davis said good sales in December helped the company outperform its own forecast of 10-11% growth, as well as improved pricing and a shift to premium products. He also noted economic headwinds.
“It does look like high interest rates, high petrol prices and high food inflation will be a fact of life in 2008. These rises must at some point create pressure points on household incomes,” he said.
Coca-Cola Amatil said the cost of goods sold increased by 6.3%, mainly due to higher aluminium costs, but the growth was expected to slow to 3-4% this year.
Moving away from fizzy drinks
The firm has diversified away from fizzy drinks, which now account for 62% of revenues, down from 95% in 2001. Sales of Pump and Mt Franklin bottled water rose 10% and sports drink Powerade rose 7%. A new vitamin water called Glaceau was launched on Wednesday.
Amatil has set its sights on becoming the number three player in beer in Australia through its Pacific Beverages joint venture with SABMiller Plc, which markets and distributes Peroni Nastro Azzurro and Miller Genuine Draft.
Davis said the company was likely to focus on organic growth rather than making major acquisitions – even though high industry multiples had become more reasonable lately.
“We’ve got enough on our plate over next 12 months to not have to worry about that,” he said. “Vendors are becoming more realistic in their price expectations, but you’ve got a double whammy. The cost of funding an acquisition has gone up, and it hasn’t absolutely sunk in that asset values need to come down as a result of that.”
© FoodBev Media Ltd 2022
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