The Coca-Cola Amatil Ltd (ASX: CCL) share price soundly outperformed the market today, jumping nearly 5% as investors reacted to the company’s half-year result.
Coca-Cola Amatil is the Australian distributor and rights holder to the famous Coca-Cola brand, which is ultimately owned by the US parent Coca-Cola Company (NYSE:KO).
Coca-Cola Amatil started life in 1904 as British Tobacco Company. The ‘Amatil’ in its name started in 1977 when it was renamed as Allied Manufacturing and Trade Industries Limited (AMATIL).
It’s now one of the largest bottlers and distributors of ready-to-drink beverages in the Asia Pacific region, with brands like Mount Franklin, Powerade, Monster Energy and Kirks all under its banner.
What did Coca-Cola Amatil report?
In the 2020 half-year result, Coca-Cola Amatil revealed that challenging trading conditions led to a 9.2% decline in trading revenue, which fell to $2.2 billion.
During the half, the overall widespread outlet closures and restricted trading impacted the company’s high-margin immediate consumption channels. This resulted in volume transitioning to lower-margin channels and packs.
“Our Revenue broadly declined in line with Volume, however the impact on our Group margin percentages was much greater (particularly in Australia), reflecting the compound impact of reduced Volumes and marked shifts in channel and pack mix as consumers adapted to the COVID-19 restrictions,” said managing director Alison Watkins.
Coca-Cola’s ongoing EBITDA result also suffered, falling 19.4% to $370.5 million. Although the company was able to partially offset some of the decline by undertaking cost management initiatives, lower volumes and revenues resulted in a reduced capacity to absorb fixed costs like production, sales and support centres.
Looking at some of the individual segment results, Australian EBITDA fell 23.6% to $186.3 million, New Zealand & Fiji EBITDA dropped 4.2% to $80.7 million, and Indonesia & Papua New Guinea EBITDA decreased 27.2% to $71.9 million.
Despite the macroeconomic headwinds, Coca-Cola managed to achieve volume and value share gains in Australia and New Zealand, and also increased its share of the sparkling category in Indonesia.
However, Coca-Cola recognised a non-cash impairment of $176.6 million during the first half, which reflects the impact of COVID-19 on business valuations. As the infection rate rises in Indonesia, the company reported $143.4 million of impairments from the Indonesian business.
Including these write-downs, Coca-Cola reported a net loss after tax of $8.7 million, down from a profit of $168 million in 1H19.
Coca-Cola dividend
For the half year, the Coca-Cola board declared an unfranked interim dividend of 9 cents per share (cps). This is around 57% lower than the 21 cps interim dividend declared in 1H19 and represents a payout ratio of 58% of ongoing net profit after tax.
“We recognise the importance of dividends to our shareholders. We will continue to monitor market dynamics and intend to resume a higher dividend pay-out ratio as soon as possible,” said Ms Watkins.
Now what?
Ms Watkins said that as COVID restrictions have eased across each of the company’s markets, it is seeing signs of improvement. Trading in July has seen group volumes decline by roughly 5% on the prior corresponding period, while August volumes were down 3% in the first two weeks of the months. This is a marked improvement on the 33% decline Coca-Cola experienced in April.
Looking forward, Ms Watkins said: “Given the expected ongoing challenging environment, we remain focused in the immediate term on continuing to drive market share gains, growing our presence in e-commerce and on food aggregator platforms, and leveraging the global insights of The Coca-Cola System and our other major brand partners.”
In other news today, Afterpay Ltd (ASX: APT) upgraded its FY20 forecasts, sending shares nearly 7% higher, while Webjet Ltd (ASX: WEB) revealed the financial impact of COVID-19.
