Coca-Cola Amatil invests in 'exciting' Indonesia as group predicts return to growth

By Rachel Arthur contact

- Last updated on GMT

Coca-Cola Amatil's offer in Indonesia includes CSD, tea, and water
Coca-Cola Amatil's offer in Indonesia includes CSD, tea, and water

Related tags: Coca-cola

Coca-Cola Amatil will devote more energy to its Indonesian business - a bright spot in its 2014 full year results - hoping strengthened market leadership in the country will help the group return to growth. 

The company saw 17% volume growth in the country, and claims to have re-established its market leadership position in carbonated soft drinks with a 58% share of the market.

It comes as its Australian beverage business earnings declined 21.3%, due to declines in carbonated beverages; while the New Zealand earnings remained flat in a ‘sluggish’ market.

Trading revenue for the Coca-Cola Amatil (CCA) group dropped 1.9% to $4.94bn AUD ($3.86bn USD) for the year ending December 31 2014. Earnings before interest and tax declined 21.8% to $651.5m ($509.2m USD), before significant items.

CCA covers Australia, New Zealand, Indonesia, Fiji, and Papua New Guinea. Coming up to her first full year leading the group, Alison Watkins, group managing director, acknowledged the results were "disappointing"​ but consistent with guidance issued last year.

But CCA vows there will be "no further decline’​"in earnings per share in 2015. It believes its strategies to strengthen market leadership in its two major markets – Australia and Indonesia – will enable a return to growth.

Demand from an emerging middle class

Volume sales in Indonesia saw a 17.6% rise in 2014, up to 210.1m unit cases. However, earnings plummeted 65.2%, from $91.6m ($75.1m USD) to $31.9m ($24.9m USD) (before significant items). Trading revenue was up 0.9%, from $919.2m ($713 USD) to $927.5m ($724.9m USD).

Watkins said CCA has re-established its market leadership position in CSD in Indonesia, and has gained market share across other key categories.

CCA Indonesia 2014:

  • Water: 29% growth
  • Tea: 40% growth
  • Dairy: 80% growth
  • Carbonated beverages in PET bottles: 35% growth
  • Decline in returnable glass bottle CSD (consumer preference for PET and cans)
  • Price increases implemented in juice, tea, water, and some carbonated beverage packs. 

“For Indonesia, we’re targeting to expand our market presence to realize the market’s potential. Indonesia is an exciting growth market for CCA,” ​she said. 

“With consistent growth in demand from Indonesia’s emerging middle class, we now have the opportunity to increase our appeal to a broader range of consumers to ensure we continue to be a leading player in the market over the long term.”

In Indonesia CCA offers CSDs, still beverages such as tea and juice, water, and energy drinks. Brands include Coca-Cola, Fanta, Sprite, Minute Maid, Powerade, Aquarius, and Frestea (RTD tea).  

Investment for 2015

CCA will invest significantly in the country to capitalize on the growing demand, Watkins said. The Coca-Cola Company (TCCC) will inject US$500m into CCA Indonesia, taking a 29.4% equity interest in CCA Indonesia (as announced in October 2014). 

The company will fund the expansion of production, warehousing, and cold drink infrastructure.

frestea
Frestea

It will launch new products in the country, target new consumption occasions, offer a bigger range of affordable packs, and change its route-to-market model to increase availability to traditional trade and broaden its customer base. It will also improve productivity and efficiency in production and logistics with economies of scale.

However, Watkins warns it has to overcome several big challenges in Indonesia, and cited intense competition, cost inflation (in particular with a legislated increase in wages and fuel costs) and the decline in the Indonesian Ruphiah.

“2014 was a challenging year for Indonesia, we are, however, pleased with the progress we’ve made in broadening the reach of our product portfolio and the improvements in market share we’ve recorded across categories," ​she said.

“The operating landscape continues to be challenging with recent increases in inflation impacting consumption, however, we are confident that we will continue to deliver strong volume growth and improved earnings for 2015.”

Indonesian capital investment is expected to be around A$170 m ($132.9m) per annum for the next three years, supported by TCCC’s US$500m capital injection.

Alison Watkins - website version
Alison Watkins

A year of transition

Trading revenue for the CCA group dropped 1.9% to $4.94bn AUD ($3.86bn USD) for the year ending December 31 2014. Earnings before interest and tax declined 21.8% to $651.5m ($509.2m USD), before significant items.

CCA cut its 2014 dividend to shareholders by 31.3%, to 22 cents a share.

Watkins said the group’s earnings have come under significant pressure over recent years, thanks to structural changes in the marketplace.

She added that, although 2014 has been a year of transition, solid progress has been made in initiatives to stabilize earning and return the business to growth. 

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