Across Premium Partner client accounts that have selected the “Income” Australian equity option, we have bought CCL. CCL is one of the largest bottlers and distributors of non-alcoholic and alcoholic ready-to-drink beverages in the Asia Pacific, and one of the world’s larger bottlers of The Coca-Cola Company (“TCCC”) range.  As both brand partner and brand owner, the company’s product range includes carbonated soft drinks, spring water, sports and energy drinks, fruit juices, iced tea, flavoured milk, coffee, tea, beer, cider, spirits and SPC packaged ready-to-eat fruit and vegetable snacks and products. Currently, CCL operates in Australia, Fiji, Indonesia, New Zealand, PNG & Samoa.

We are positive on the medium-term outlook for CCL for the following reasons:

  •  A new agreement with TCCC provides greater flexibility to innovate and compete in higher growth categories
  •  The domestic non-alcoholic ready to drink market is still growing, mitigating the need for irrational price competition
  •  Indonesia remains an attractive long-term growth opportunity with the company very underrepresented in the two largest drinks categories
  •  Modern competitive low-cost production capacity offers the potential for fixed cost operating leverage from increasing volumes
  •  It offers both a strong balance sheet and cash generation, enabling a sustainable high dividend payout ratio
  • Opportunities exist for further property divestments which will help offset accelerated investment costs

We do recognise that Coca-Cola Amatil is not without its challenges, primary amongst those is a product mix disproportionately skewed to sugary carbonated soft drinks which continue to face challenging demand conditions and declining volumes. Other challenges include the uncertain impact from the roll-out of the container deposit scheme (“CDS”) domestically, short-term economic headwinds in Indonesia which is pressuring overall industry volume trends and accelerated investment spend to help drive growth and improve price competitiveness which will weigh on near term earnings.

We are funding the purchase through the sale of QBE.  After a number of years of growth through acquisition QBE has in recent times had various problems with different businesses in different geographies.  Despite the potential for rehabilitation of the company outlook through the sale of businesses within their Portfolio, the recent significant cut in the dividend leads us to believe that CCL has the greater potential to deliver income returns for investors.

As always thank you for your ongoing support and trust.

If you have any queries, please contact Elston