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Drinks slump sees more than $30m wiped off Coke’s earnings

After having more than $30 million of its earnings slashed due to a decline in soft drink volumes, Coca-Cola Amatil is trying to mitigate the damage by cutting costs and investing in new beverage lines.

The beverage giant has experienced its first decline in annual earnings for more than 10 years and chief executive, Terry Davis, said a slide in soft drink volumes cut more than $30 million off CCA's Australian earnings in the June half of the year.

According to the AFR, Davis said the iconic Coca-Cola beverage was as strong as ever, but heavy discounting by Schweppes, retailer destocking and weaker consumer demand have put pressure on CCA's Australian beverages business, which represents 75 percent of the group's profits.

CCA's underlying net profit dropped 8.5 percent to $225.1 million, exceeding market forecasts of $220 million, with bottom-line profits falling 12.3 percent to $215.9 million.

The company expects full year earnings to be stagnant or drop four percent.

Davis criticised CCA's competitor, Schweppes, for forces prices down by heavily discounting its Pepsi Next product, the market share of which has dropped from seven percent to one percent in just 10 months, while Coke's volume in grocery stores has dropped 14 percent.

In order to cut costs, CCA closed its Peats Ridge water plant, consolidating its NSW operations and culling 77 jobs.

CCA has also been investing in new beverage lines, particularly alcoholic beverages, entering into a joint venture with popular cider brand, Rekorderlig, last year, as well as striking a deal with Molson Coors, the world's seventh largest brewer, to distribute a number of its beers in the Australian market.

Last year the company also invested $46 million in the Australian Beer Company.

CCA expects alcoholic beverages to generate close to $9 million in 2014, once its current restraints on selling, distributing or manufacturing beer in Australia are lifted. 

 

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