Soft drink bottler Coca-Cola Amatil has played down the impact of credit rating downgrades by ratings agencies Moody’s and Standard & Poor’s in the wake of Friday’s shock profit warning.
CCA says the credit downgrades will have no impact on its interest costs or ability to refinance debt in the short to medium term.
The ratings agencies cut their credit ratings or downgraded the credit outlook for CCA after the bottler shocked investors on Friday by warning that June-half earnings were expected to fall by 15 per cent.
Moody’s long term A3 rating has been maintained, but the outlook has changed from stable to negative. Standard & Poor’s reduced its long-term rating from A- to BBB+ but affirmed CCA’s short-term rating at A-2.
CCA said on Tuesday it has maintained an investment grade credit rating with both agencies and the changes to its credit rating are not expected to have any short to medium term impact on the company.
CCA has pre-funded maturing debt for approximately two years. All of the debt maturing in 2014 and 2015 has already been refinanced with cash held on term deposits at margins above associated borrowing costs.
According to CCA’s annual report, the bottler had $3.1 billion of interest-bearing debt at the end of 2013 but cash on hand and short term deposits totalling $1.4 billion.
The report also showed that former chief executive Terry Davis, who stepped down in March, took a 53 per cent pay cut last year after CCA’s underlying earnings fell 10 per cent.
Mr Davis’s base pay rose from $2.3 million to $2.7 million, but he received no short term bonus (vs $2.42 million in 2012) and superannuation benefits on short term incentives fell from $947,562 to $338,351.
In addition, long term incentives were reversed by $99,282 (vs long term incentives worth $1.14 million in 2012) after performance hurdles were not achieved.
Mr Davis’s total remuneration fell from $7.9 million to $3.7 million.
None of CCA’s senior management team, with the exception of NZ managing director Barry O’Connell, received their short term bonus.
CCA’s new chief executive, Alison Watkins, has launched a broad-based strategic review and flagged a “step-change” in CCA’s fixed costs and productivity in the wake of the profit decline.
CCA has been unable to recover higher costs in Australia because of aggressive pricing in supermarkets and weaker sales in the higher-margin route trade.
Earnings in Indonesia are also expected to fall this year because of increased competition from new rivals such as Big Cola, rising labour and fuel costs and currency depreciation.
Broker CIMB says CCA could cut costs by more than $100 million a year by culling excess stock keeping units or SKUs, closing bottling plants and reducing its merchandise field force.
Brokers such as Deutsche Bank and Morgan Stanley believe CCA needs to cut prices to better compete against Schweppes, which bottles Pepsi, and come up with new products to satisfy changing consumer tastes.
Standard & Poor’s says CCA’s operating expertise should enable it to arrest the volume and earnings decline in its Australian business in the next two years.
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