Errington’s outspoken attack came during a conference call on Wednesday with Alison Watkins, who was only installed as CCA group MD in March, and has herself criticised the company’s 2013 strategy.
CCA reported a 15.6% decline in net profit for the half year to June 30 to AUD $182.3m ($169.9m) despite a modest uptick in revenue to AUD $2.34bn – with investors warned to expect lower FY 2014 earnings.
Admitting “difficult and disappointing result for shareholders”, Watkins reeled off the problems: difficult trading in Australia, cost inflation, competition and currency depreciation in Indonesia, flat earnings in New Zealand and Fiji. All weighed on CCA’s bottom line.
Aussie cuts ‘made absolutely no economic sense’
Errington listed what Watkins admits were, in hindsight, operational errors made in the crucial Australian business (which accounted for 72% of profits in H1) before her time – she replaced Terry Davis in February – including sales staff cuts, less frequent calls on customers and fewer promotions.
The analyst said that CCA made these cuts “when it made absolutely no economic sense” and expressed shock at the company’s H1 results – even accusing the company of overstating its earnings in FY 2013 in pursuit of short-term gains at shareholder expense.
“They compromised the business to make short-term earnings targets, which is pretty much what you alluded to. That to me really smacks in the face of a really poor culture of a company to deliver long-term shareholder value,” Errington said.
Urging Watkins to shake up CCA’s company culture as part of a strategic review in Australia slated for an October finish, Errington asked for assurances that such actions would never happen again.
CCA desperate to ‘make Coke cool again’
Watkins replied that she though Errington’s comments a “fair enough observation” and said that in hindsight CCA management would probably agree that the wrong decisions were taken.
“When you’re running a company it is about striking a balance between striving for short-term results and making decisions for the long term. We’re determined to make the right decisions for the long-term,” she said.
CCA’s turnaround plan – as glossed by Australia non-alcoholic beverage MD Barry O’Connell – involves upping brand marketing spend, while it expects the operational review to boost sales and cut costs from 2015.
The company is desperate to, in his words, “make Coke cool again” – introducing a single-serve 250ml can for AUD $2 for Coke, Fanta and Sprite to meet the demand for smaller portion sizes at sharper price points.
CCA has extended its Kirks soda range with no artificial flavors or colors, O’Connell (who was appointed last month) while Deep Spring mineral waters now feature organic juice.
June launch Barista Brothers iced coffee-flavored milk forms part of what O’Connell said was a strategy to “focus on a smaller number of higher-value potential segments of the beverage market”.