Emerging markets boost for Coca-Cola brands

By Neil Merrett

- Last updated on GMT

Related tags Coca-cola

Emerging markets in Europe and Asia continue to boost the global
profitability of Coca-Cola's brands as two of its regional bottlers
yesterday posted optimistic growth expectations for the fiscal
year.

Beverage producers are increasingly being but under financial pressure from higher input costs and changing consumer demand, with new markets offering strong growth potential to offset the losses. Coca-Cola Hellenic Bottling Company (CCH), which manufactures the group's brands throughout Central and Eastern Europe, said it now expects volume growth of around five percentage points over the full year. It projects a further increase in profits by as much as nine percentage points for the period. CCH's improved fiscal outlook comes on the back of a strong performance in its operations company during the first half of the year. Sales for the six month period ending 29 June increased by 17 per cent to €3bn, In comparative terms operating profit was also up by 19 per cent to €331m over the same period last year. The second quarter in particular had helped drive growth according to Doros Constantinou, managing director of Coca-Cola HBC. "The second quarter also marked improved and sustainable margin expansion in the developing markets, continued strong profitability inBulgariaandRomaniapost EU accession,"​ he stated. The increases were driven by strong volume growth throughout its three operating divisions in the region. These divisions consist of emerging, developing and established markets. It was the later segment, which continued to lead the company's operational sales for the period at a value of €151m. This was attributed to the launch of its Coca-Cola Zero brand in key markets like Ireland, Greece, Austria and Switzerland during the six months, the company said. It also underlined favourable weather in the region for the hike in volumes, which were up 14 per cent compared the last year. However, operating profit growth remained unchanged for the half, as increased sales volumes, as well as a strategy to review prices, failed to offset increased materials costs and the affects of its investment on earnings. The investment strategy is expected to bring long-term stability to earnings within the segment, according to the group. In its emerging markets, operating profit was up by 31 per cent in comparable terms to €131.7m over the same period last year. The rise was driven in part by improved sales volumes, in the markets of Russia, Romania, Bulgaria and Ukraine. Russia alone posted lower double-digit volume growth, resulting from growing consumption of the group's ready-to-drink tea and juice brands, the company said. CCH experienced setbacks in its Nigerian operations though, where industrial action resulted in the loss of four days worth of production. Growth prospects for the company were strongest within its developing markets, as operating profit rose 84 per cent to €47.9m. The rise was part of a division-wide focus on improving costs efficiency in its production. Volume growth was up throughout the division's markets, with double-digit growth in Poland, the Czech Republic and Croatia. This was the result of continued high single digit sales of its carbonated soft drinks, and double-digit growth for alternative beverages like waters and juices. The group said it had also benefited from entering the higher-value energy drink market in Hungary during the half. CCH was not the only company to benefit from the strength of Coca-Cola's brands over the period. Australia-based bottler Coca-Cola Amatil (CCA), which boasts operations in a number of markets in the Asia Pacific region, was also expecting to drive high single digit profit growth for the full year. This, it said, would be helped by cost reduction measures and restructuring, including the possible sale of its South Korean operations. The prediction followed its own positive results for the semester. During the six months up to 29 June, the company posted a 13.3 per cent rise in operating profit to AUS$284.5m (€175m) on the back of sales growth in both its food and beverage operations. The group attributed the results to strong sales of its brands in Australia and New Zealand, and a turn around in its Indonesian operations over the period, helped by the further regional roll out of its Coca-Cola Zero brand. This resulted in a 4.7 per cent rise in revenue to AUS$1.8bn (€1.1bn) for the half year. Group managing director Terry Davis, said the performance of its operations over the half ensured the group remains on track to meet growth expectations. "This operating performance has been driven by a combination of improved pricing and product mix, and was achieved despite the continued impact of commodity input cost increases,"​ he stated. Davis added that a 15 per cent sales volume increase within Indonesia was a significant contributor to the performance, reflecting growth throughout all of its operations besides South Korea. In Australia, increased sales of leading brands like Coca-Cola Zero and Powerade Isotonic, along with new product launches like Goulburn Valley juice were key drivers for growth. Accordingly, sales were up 8.6 per cent. Revenues in the company's New Zealand and Fiji operations rose 8.7 per cent again of the strength of the group's key brands. The company posted improved revenues in Indonesia of 18.4 per cent, which along with greater cost efficiency drove a four-fold increase in earnings. The company said the performance was boosted by general economic recovery in the country. In South Korea, negative impacts related to an extortion attempt on the company's operations failed to prevent operating profit rising 8.6 per cent to (€5.4m) for the period. Nonetheless, the group said it will continue to restructure its operations in the region, with the proposed sale of it South Korean operations to LG Household and Health Care (LGH&H). CCA said it had entered into a non-binding agreement with LGH&H over the transaction, though added that it still has to iron out contractual agreements, before it could move ahead with any deal. Despite difficulties in the country, the group said it had also made some gains in significant items, having agreed an AUS$14m (€8.6m) insurance payout following the recalls after last years extortion attempt.

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