Coca-Cola Amatil 2007 Annual Report
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Disposal of the South Korean Business
CCA completed the sale of its South Korean business to LG Household &
Health Care Ltd (LGH&H) on 24 October 2007 for $520 million including
net debt. The final loss on disposal after income tax expense was
$49.4 million, or $46.3 million on a pre tax basis. This amount has been
recognised as a significant item for 2007. Of the net sale proceeds, an
amount of $38.6 million is held in escrow. In October 2008, the remaining
escrow amount, less any amounts attributable to unresolved claims, is to
be received by CCA and by April 2009, CCA will receive any remaining
escrow amount.
Acquisition of Bluetongue Brewery
On 5 December 2007, Pacific Beverages, CCA’s 50:50 alcohol joint venture
with SABMiller plc acquired Bluetongue Brewery. Bluetongue’s premium
beer brands include Bluetongue Premium Lager, Bluetongue Premium Light,
Bluetongue Traditional Pilsner, Bluetongue Alcoholic Ginger Beer and Bondi
Blonde. The acquisition of Bluetongue Brewery adds a fast-growing and
uniquely Australian premium beer brand to Pacific Beverages’ existing
portfolio of imported premium beers and fits perfectly with our strategy of
developing our presence in the Australian premium beer market.
Brewery Development
Pacific Beverages intends to establish a boutique premium brewery at
Warnervale in New South Wales in order to further accelerate its premium
beer strategy. The brewery site, when completed, will enable Pacific
Beverages to materially increase production of Bluetongue to meet
increased national demand, while also providing capacity for the potential
production of other Australian premium beer brands. The brewery, with a
capacity of 500,000 hectolitres, is expected to be completed during 2010
and will be jointly funded by CCA and SABMiller.
Off-Market Share Buy-Back
CCA successfully completed an off-market share buy-back on 29 January
2008. A total of 21.7 million shares, or approximately 2.9% of CCA’s issued
shares, were bought back at a price of $7.84, representing a maximum
14% discount to the applicable market price. Due to the positive tender
response, a significant scale-back of approximately 60% was applied.
Outlook for 2008
The priorities for 2008 will be the continued expansion of CCA’s non-
alcoholic and premium alcoholic beverage portfolio and further realising
the benefits of its Trans-Tasman business integration program. This will
be achieved through significant capital and technology investments in
Australia and New Zealand in cold drink equipment, automated
warehousing, systems infrastructure and increased beverage
production capacity.
We have some exciting new product launches in the pipeline for this year,
with our major new product for the year, Glacéau Vitamin Water, launched
in Australia in February. Glacéau has been a huge success in the United
States where it now leads the enhanced water category.
Higher aluminium and PET input costs will continue to drive higher
beverage Cost of Goods Sold (COGS) per unit case in 2008, albeit at a
lower rate of increase than for the previous two years. Based on current
forward commodity prices and CCA’s prevailing hedge book, CCA expects
the beverage COGS per unit case to moderate in 2008 with an increase by
approximately 4% on a constant currency basis. This also includes an
increase of approximately 1% to 2% due to mix for the full year as CCA’s
premiumisation strategy drives a higher value and higher cost product mix.
Capital expenditure for the full year 2008 is expected to be approximately
7% of revenue, including approximately 1% to 2% for infrastructure
expenditure related to the commencement of construction of the high-bay
warehouse at Eastern Creek and the SAP technology project.
The consumer spending environment will have challenges in 2008 with
interest rate rises, higher petrol prices and higher food inflation. However,
on the plus side, employment remains very strong and there are income tax
cuts legislated for July. With the sale of the South Korean business our
balance sheet is very strong and the 4.7 times EBIT interest cover is the
highest interest cover in over 10 years.
At this early stage, we expect to be able to once again achieve good
revenue growth in 2008. We remain optimistic that our strong performance
in 2007 has established a sound platform for 2008 and that the business is
in excellent shape to respond appropriately to changes in economic
conditions or consumer sentiment.
Terry Davis
Group Managing Director
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