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.
This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.
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