www.ubs.com/investmentresearch
This report has been prepared by UBS Securities Australia Ltd.
Global Research 18 February 2014
Coca-Cola Amatil LimitedWeak FY13 result as expected. Wat kin Alison do?
Event: Weak FY13 due to competition in Australian grocery segment
CCL reported a 7% fall in FY13 EBIT driven by ongoing price competition in the Australian grocery channel, unfavourable FX moves in Indonesia & PNG, and a weak performance from SPC Ardmona. NZ & Fiji, along with Alcohol were bright spots. The price premium of CCL products to Asahi/Schweppes (Australian Pepsi distributor) is now 49% (up from 43% in FY12) a level that needs defending.
Impact: Our FY14e EBIT lowered 4.4% to $839m (FY15e -6.4% to $866m)
We expect consensus EBIT to fall given today's result. We have taken the opportunity to cut our FY14 and FY15 numbers as well, despite being below consensus anyway. CCL's performance for FY14 will be determined in large part by whether or not CCL can get volume growth, without conceding too much price, in the Australian grocery channel. This depends in part on how deep Asahi/Schweppes's pockets are.
Action: Structural headwinds continue. Remain cautious. Waiting for new CEO.
This is clearly a disappointing result for outgoing CEO Terry Davis. CCL's strategy appears sensible, so we await commentary from the incoming CEO Alison Watkins to assess any changes made. Alison starts Monday 3rd March. We remain cautious on the stock given the headwinds of strong competition, consumer switching away from carbonated soft drinks and powerful customers in the Australian grocery channel.
Valuation: 12-mth PT lowered to $11.36/share (from $11.47). Stay with Neutral.
We have lowered our 12-month PT (SOTP-based) for CCL to $11.36/share (from $11.47) and maintain our Neutral rating on the stock. A lower Net Debt assumption for FY14e has been more than offset by our lower FY14e Group EBIT (-4.4%) and a drop in the EV:EBIT premium to the market we assume for the Australian business. We have moved this to 10% (from 15%) reflecting a more conservative stance.
Equities
Australia
Soft Drinks
12-month rating Neutral
12m price target A$11.36
Prior: A$11.47
Price A$11.22
RIC: CCL.AX BBG: CCL AU
Trading data and key metrics
52-wk range A$15.25-11.22
Market cap. A$8.57bn/US$8.18bn
Shares o/s 764m (ORD)
Free float 70%
Avg. daily volume ('000) 1,892
Avg. daily value (m) A$22.4
Common s/h equity (12/14E) A$1.78bn
P/BV (12/14E) 4.8x
Net debt / EBITDA (12/14E) 1.6x
EPS (UBS, diluted) (A$)
From To % ch Cons.
12/14E 0.70 0.67 -4.24 0.71
12/15E 0.74 0.69 -6.63 0.76
12/16E 0.78 0.71 -8.74 0.79
Craig Stafford, CFAAnalyst
[email protected]+61-2-9324 2277
Ben GilbertAnalyst
[email protected]+61-2-9324 2782
Highlights (A$m) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18ERevenues 4,856 5,139 5,084 5,341 5,582 5,806 6,017 6,211EBIT (UBS) 869 896 833 839 866 890 924 956Net earnings (UBS) 532 559 503 515 532 547 570 593EPS (UBS, diluted) (A$) 0.70 0.73 0.66 0.67 0.69 0.71 0.74 0.76DPS (A$) 0.53 0.60 0.59 0.59 0.55 0.57 0.59 0.61Net (debt) / cash (1,644) (1,609) (1,682) (1,758) (1,769) (1,825) (1,859) (1,871)
Profitability/valuation 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EEBIT margin % 17.9 17.4 16.4 15.7 15.5 15.3 15.4 15.4ROIC (EBIT) % 20.1 19.7 19.0 19.9 20.0 19.9 20.0 20.0EV/EBITDA (core) x 9.6 10.0 10.7 9.3 8.9 8.6 8.2 7.8P/E (UBS, diluted) x 16.6 17.6 19.8 16.7 16.2 15.8 15.2 14.7Equity FCF (UBS) yield % 3.3 6.2 3.4 3.9 4.9 4.4 4.8 4.9Net dividend yield % 4.5 4.6 4.5 5.2 4.9 5.1 5.3 5.4Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a share price of A$11.22 on 18 Feb 2014 17:41 EST
UBS 46
␣BELL POTTER SECURITIES LIMITED [email protected] ABN 25 006 390 772
WWW.BELLPOTTER.COM.AU AFS LICENCE NO. 243480
This report has been prepared by UBS Securities Australia Ltd and distributed by Bell Potter Securities Ltd ANALYST CERTIFICATION AND REQUIRED DISCLOSURES SECTION AT END OF REPORT. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
␣
http://www.ubs.com/investmentresearch
Craig Stafford, CFA, Analyst, [email protected], +61-2-9324 2277
Coca-Cola Amatil Limited 18 February 2014
Investment Thesis 12-month rating Neutral
Coca-Cola Amatil 12m price target A$11.36
Investment case
We see CCL as part way through a PE de-rate because:1. Capex has been growing faster than sales (ROIC is falling from 22% in FY10 to 17% in FY14e);2. Low hanging cost out opportunities appear harder to find;3. Price competition in the Australian supermarket channel still appears strong;4. Bottled water is a key growth market, but brand differentiation and therefore price premium remains difficult;5. Indonesia (12% EV) has been the main source of CCL Group growth in recent times but we expect growth to normalise as CCL appears to be losing share to low priced competitors. The main risk to our cautious call is: a) a value accretive beer deal (possible, but unlikely); and b) an easing of price based competition with Asahi/Schweppes.
Upside scenario
The upside scenario detailed below could conservatively deliver a 10% valuation upgrade to $12.62/share (from $11.47).1. A value accretive beer deal (possible but unlikely);2 An easing of price based competition with Asahi/Schweppes (less likely in the near term we feel);3. Accelerating price and volume growth via improving the hit rate of product innovation; and4. After spending a lot on capex in recent years, CCL ease off for a few years and generate significant uplift in FCF.
Downside scenario
A delay in the easing of higher than normal price based competition from Asahi/Schweppes by 2 years combined with a bigger loss in market share of carbonated soft drinks (CSDs) in the Australian beverage market could result in EPS downgrades of 10% and a de-rating of the PE that CCL trades on to reduce our valuation by around 15% to $9.75/share (from $11.47).
Upcoming catalysts
1. Mon 3 Mar 2014: New CEO, Alison Watkins due to start.2. Tue 13 May 2014: AGM.3. Late Aug 2014: FY14 half year result.4. Fri 29 Aug 2014: Outgoing CEO, Terry Davis expected to finish.
Business description
Coca-Cola Amatil (CCL) is the Australasian anchor bottler in the Coca-Cola system. CCL's portfolio of territories includes Australia, New Zealand, Fiji, Papua New Guinea and Indonesia (South Korea was divested in 2007), with Australia contributing approximately 72% of group earnings. CCL acquired SPC Ardmona in April 2005, which was a significant diversification move into food. In 2006, the company also expanded into spirits distribution and has a strategy of becoming the clear number three player in the Australian beer market by 2014.
Industry outlook
1. Market concentration in the Australia non-alcoholic beverage market is reasonably high, with CCL (#1) and Asahi/Schweppes (#2) controlling 66% by value.2. Continued high levels of price based competition between CCL & Asahi/Schweppes is keeping pressure on margin growth.3. Health trends are pushing demand away from carbonated soft drinks (CSDs) towards bottled water and other beverages with perceived (often not real) health value.4. New product innovation by industry participants continues in an attempt to stem the trend towards water.5. While CCL enjoys strong brands, the dominance of Coles and Woolworths in the grocery sector is limiting margin growth.
Revenues by division (FY14e, %)
EBIT by division (A$m)
FY10 FY11 FY12 FY13 FY14e FY15e FY16e
Australia 593 607 621 575 595 626 648
NZ & Fiji 81 80 70 80 88 94 100
Indonesia &
PNG75 88 103 104 95 108 123
Food & Services 94 93 95 89 98 98 98
Group 843 868 889 847 877 925 969
Source: CCL, UBS Estimates.
Australia58%
NZ & Fiji9%
Indonesia & PNG19%
Food & Services
14%
UBS 47
Coca-Cola Amatil Limited 18 February 2014
Result Summary
Figure 1: Coca-Cola Amatil (CCL) FY13 Result Summary
$m FY12 FY13 Change (%) UBSe Diff (%) Comment
Operating Revenue 5,139 5,084 -1.1% 5,072 -0.2% CCL struggling for top line growth
EBITDA 1,129 1,085 -3.9% 1101 1.5%
Depreciation & Amortisation -233 -252 7.8% -254 0.9%
+ Australia 621 566 -8.9% 575 1.6% Strong competition in Grocery, weak consumer, trend away from CSD
+ NZ & Fiji 70 83 18.0% 80 -3.5% Good result in NZ and Fiji, assisted by favourable FX
+ Indo & PNG 103 92 -11.0% 104 13.1% >10% Vol g from Indo, was hit by weak PNG Vol g and unfavourable FX
+ Food & Serv 95 93 -2.2% 89 -4.7% Strong result from Alcohol, offset by weak SPC Ardmona
+ Other 0 1 1 0.0%
= EBIT 895 833 -6.9% 847 1.7%
Net Interest -112 -125 11.5% -133 6.6%
Tax Expense -225 -205 -8.9% -199 -3.0%
Reported NPAT (ex one offs) 558 503 -10.0% 515 2.5%
Reported NPAT 460 80 -82.6% 506 533.5% $404m write down of SPC Ardmona business to c$300m
Core EPS 73.4 65.9 -10.2% 66.1 0.3%
DPS 59.5 58.5 -1.7% 59.9 2.4%
Source: CCL, UBS estimates
Cash flow and Dividends: Operating Cash Flow (OCF) came in at $733m 1%
below FY12 at $742m, representing an EBITDA conversion rate of 75% (73% for
FY12). The Dividend Pay-out Ratio (DPR) for FY13 was 89% in line with
expectations. We continue to model a 90% DPR going forward.
Capex: After a heavy capex program over the last 4 years. We expect capex to
drop to $350m for FY14 (in line with management guidance) and remain at a
similar level in FY15. Capex for the last 4 years has ranged from $361-464m with a
Capex / DA ratio of 1.6-2.0x. This capex has been primarily spent on 4 PET plants
in Australia as well as a significant fridge roll out program in Australia and
Indonesia (which will continue).
Gearing and Balance Sheet: CCL's Balance Sheet is in great shape with Net
Interest / EBIT of 6.7x (albeit down from 7.8x in FY12). Cash deposits are high at
$1.4b and will be used fund debt maturities to Mar-16.
UBS 48
Coca-Cola Amatil Limited 18 February 2014
Earnings Changes
Expect consensus numbers to come down: As usual earnings guidance for the
current year (FY14) will be provided at the AGM (13 May 2014). FY14 consensus
EBIT is $885m, which appears too optimistic given today's FY13 result of $833m.
Figure 2: Coca-Cola Amatil (CCL) Earnings Changes for FY14e, FY15e & FY16e
FY14e (A$m) Was Is Now Change %
Net revenue 5,345 5,341 -0.1%
EBIT 877 839 -4.4%
Reported NPAT 539 515 -4.4%
Core NPAT 539 515 -4.4%
Core EPS (cps) 70.3 67.3 -4.2%
DPS (cps) 61.2 58.7 -4.2%
FY15e (A$m) Was Is Now Change %
Net revenue 5,589 5,582 -0.1%
EBIT 926 866 -6.4%
Reported NPAT 571 532 -6.8%
Core NPAT 571 532 -6.8%
Core EPS (cps) 74.2 69.3 -6.6%
DPS (cps) 59.4 55.4 -6.6%
Source: GFF, UBS estimates
UBS Valuation for CCLFigure 3: CCL Sum-of-the-parts valuation
Segment3 year forward
EBIT CAGR (%)
FY14e EBIT
($m)
Premium / discount
vs market (%)
EBIT Multiple
(x)
Asset Valuation
($)
Australia (A$m) 1.4% 566 10% 12.7x 7,160
NZ / Fiji (A$m) 7.2% 83 5% 12.1x 999
Indonesia / PNG (A$m) 2.3% 92 15% 13.2x 1,211
Food & services (A$m) 2.3% 93 0% 11.5x 1,070
Other (A$m) 1 0% 11.5x 9
Total (A$m) 2.2% 834 10,449
Net Debt (FY14e, A$m) -1,758
Equity value (A$m) 8,691
Shares on issue (FY14e, m) 765
Per share valuation $11.36
Source: UBS Estimates
Valuation Sensitivities
If our FY14e EBIT forecast for the Australia division was 5% lower (say) and we
reduced the EV:EBIT premium that it trades on vs. the market (Median Ind ex-Fins)
to 5% (from 10%), our valuation falls by $0.87/share to $10.49 (from $11.36).
Figure 4: CCL Valuation sensitivity
EV:EBIT Premium to Market for CCL EBIT for Australia
$11.36 -5% 0% 5% 10% 15% 20%
-15% A$481m $8.87 $9.23 $9.59 $9.96 $10.32 $10.68
-10% A$509m $9.28 $9.66 $10.04 $10.42 $10.81 $11.19
-5% A$538m $9.68 $10.08 $10.49 $10.89 $11.30 $11.70
UBSe A$566m $10.08 $10.51 $10.93 $11.36 $11.78 $12.21
5% A$594m $10.49 $10.93 $11.38 $11.83 $12.27 $12.72
10% A$623m $10.89 $11.36 $11.83 $12.30 $12.76 $13.23
15% A$651m $11.30 $11.78 $12.27 $12.76 $13.25 $13.74
CC
L E
BIT
fo
rA
ust
rali
a (
A$m
)
Source: UBS Estimates
We expect consensus numbers to
come down
CCL SOTP valuation lowered by
$0.11/share to $11.36/share (from
$11.47), due to: 1) lower Net
Debt; and 2) 10% EV/EBIT
premium for Australia (down
from 15%).
A 5% cut to EBIT for Australia + a
5% EV:EBIT premium =
$0.87/share off our valuation
UBS 49
Coca-Cola Amatil Limited 18 February 2014
Divisional Summary
Australia (Rev. -2.7%, EBIT -9.4%, Margin -1.4pts)
A number of factors contributed to a weak result for the Australia division. 1)
ongoing and aggressive competition from major rival Asahi/Schweppes "AS"
(Pepsi and Schweppes distributor in Australia) saw the CCL price premium to AS
blow out to 49% from 43% in FY12. This is not sustainable and needed to be
defended; 2) An ongoing shift away from carbonated soft drinks (CSD's) towards
bottled water for health reasons; and 3) A still generally weak spending
environment with below-average consumer confidence. All of these trends are
likely to continue.
New Zealand & Fiji (Rev +12%, EBIT +18%, Margin +0.9pts)
NZ$ EBIT growth was 10% for FY13, and with the strong appreciation of NZ$ vs
the A$, EBIT for the division in A$ terms was an impressive +18%. Both countries
delivered improved performances, with volumes up 2.7% for FY13 (vs FY12).
Despite this good performance it is still worth noting that EBIT in NZ$ terms is still
below the levels delivered by the group in FY10 and FY11.
Figure 5: Australia division (A$) Figure 6: New Zealand & Fiji (A$)
Australia FY12 FY13 Growth FY14e Growth
Revenue (A$m) 3,028 2,947 -2.7% 2,992 1.5%
Volume (m litres) 349 338 -3.2% 343 1.5%
Revenue / Case (A$) A$8.67 A$8.71 0.5% A$8.72 0.0%
EBIT (A$m) 624 566 -9.4% 571 0.8%
Margin (%) 20.6% 19.2% -142bp 19.1% -13bp
NZ / Fiji FY12 FY13 Growth FY14e Growth
Revenue (A$m) 403 453 12.3% 511 12.9%
Volume (m litres) 59.9 61.5 2.7% 62.4 1.5%
Revenue / Case (A$) A$6.72 A$7.36 9.4% A$8.18 11.2%
EBIT (A$m) 70 83 18.0% 94 13.8%
Margin (%) 17.4% 18.3% 87bp 18.4% 14bp
Source: CCL, UBS Estimates Source: CCL, UBS Estimates
Indonesia & PNG (Rev -3.1%, EBIT -11%, Margin -0.9pts)
Despite Indonesia volumes growing by >10% and local FX EBIT +5%, this result is
still a far cry away from what the bulls have been expecting for this region.
Headwinds came from cost inflation (wages and fuel) as well as ongoing
competition from lower priced products. A weaker IDR did not help matters either,
nor did a weak performance from PNG both from an operational level as well as a
weaker FX. We continue to guess the split of this division between Indonesia and
PNG.
Alcohol, Food & Services (Rev -0.1%, EBIT -2.2%, Margin -0.2 pts)
SPC Ardmona's (SPCA) EBIT contribution probably cost the Group around 2% EBIT
growth. There was also a $404m (post tax and largely non-cash) write-down to the
carrying value of c$300m. This was made up of $277m goodwill, $40m write-
down in brands, and $87m for inventory, PP&E and onerous contracts. Over the
next 3 years $100m will be invested into the business ($78m CCL + $22m
Victorian Government) to drive productivity and innovation. SPCA has secured the
support of major customers, so we think getting this business on track is entirely
possible (albeit difficult).
The Alcohol business performed well and has a good portfolio of brands with
which to build earnings. According to management, EBIT from the Alcohol
business could be around the same as the Pacific Beverages JV in half the time. We
think this is achievable.
Australia weak, due to:
1. Price competition from AS;
2. A shift away from CSD; and
3. A weak spending environment.
A good turnaround for NZ helped
by a strong appreciation of the
NZ$
Indonesia is not the growth
engine the bulls will have you
believe.
A strong result from Alcohol was
offset by a weak SPCA result….
…Alcohol is set to deliver 1-2% to
Group EBIT over the coming years
UBS 50
Coca-Cola Amatil Limited 18 February 2014
Figure 7: Indonesia / PNG (A$m) Figure 8: Alcohol, Food & Services (A$m)
Indonesia / PNG FY12 FY13 Growth FY14e Growth
Revenue (A$m) 948 919 -3.1% 910 -1.0%
Volume (m litres) 167 179 6.8% 191 6.8%
Revenue / Case (A$) A$5.66 A$5.14 -9.2% A$4.77 -7.3%
EBIT (A$m) 103 92 -11.0% 82 -10.1%
Margin (%) 10.9% 10.0% -89bp 9.1% -91bp
Food FY12 FY13 Growth FY14e Growth
Revenue (A$m) 719 718 -0.1% 718 0.0%
EBIT (A$m) 95 93 -2.2% 91 -1.9%
Margin (%) 13.2% 13.0% -27bp 12.7% -25bp
Source: CCL, UBS Estimates Source: CCL, UBS Estimates
Cold Beverage Volumes and Sales Values by Category
The charts below show that Carbonated Soft Drink (CSD) as a category is losing
share vs. Bottled Still Water. We attribute this trend mostly to the health trends
driving consumer behaviour.
"Consumers' lives have changed beyond all recognition over the last few
decades, and the food industry will have to work hard to continue to
meet consumer needs in 2014. Health and ageing concerns and the
requirement for great portability has led to further innovation in
formulation, flavouring, packaging and labelling." www.Just-food.com
CSD manufacturers have been pulling hard on the price lever to maintain Sales
Value in the face of these volume declines, but there is a limit in our view.
Figure 9: Volume by Category Aust. Grocery Segment (%) Figure 10: Sales by Category in Aust. Grocery Segment
(%)
Source: Retail World, UBS estimates Source: Retail World, UBS estimates
Cold Beverage Volumes and Sales Values by Company
The charts below show that Private Label has been gaining volume share in the
Australian Grocery segment (+700bp), but has not done as well with Sales Value
(+210 bp). This has been at the expense of CCL (Volume -600 bp, Value -190 bp)
and Asahi/Schweppes (Volume -280 bp, Value -260bp).
In short Private Label is winning.
57.5% 57.1% 57.0% 56.0% 55.7% 53.8%
15.8% 15.7% 15.0% 15.2% 13.7% 12.7%
10.4% 10.6% 10.5% 11.4% 13.4% 15.5%
0.8% 1.2% 1.5% 2.1% 2.2% 1.9%
15.5% 15.4% 16.0% 15.3% 14.9% 16.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY08 CY09 CY10 CY11 CY12 CY13
Soft Drink Fruit Juice / Drink Still Water Energy Drink Other
53.5% 53.1% 53.9% 55.9% 53.6% 53.3%
17.5% 16.7% 15.5% 14.3% 14.4% 13.8%
7.1% 7.5% 7.1% 6.6% 7.4% 8.6%
4.3% 5.5% 6.3% 7.2% 8.0% 7.0%
17.6% 17.1% 17.2% 16.0% 16.7% 17.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY08 CY09 CY10 CY11 CY12 CY13
Soft Drink Fruit Juice / Drink Still Water Energy Drink Other
Carbonated Soft Drink (CSD) has
lost 370 bp of volume share over
the last 6 years while Bottled Still
Water has gained 510 bp....
….despite this volume trend CSD
has kept its Sales Value Share
over the same period,
highlighting CSD brands have
better pricing power vs. Bottled
Still Water, but there is a limit.
CCL lost 600 bp of volume share
over the last 6 years, vs
Asahi/Schweppes -280 bp while
Private Label +700 bp…...CCL saw
a smaller Sales decline (-190 bp)
vs. Asahi Schweppes (-260 bp) &
Private Label (+210 bp)
UBS 51
Coca-Cola Amatil Limited 18 February 2014
Figure 11: Volume by Company Aust. Grocery Segment
(%)
Figure 12: Volume by Company Aust. Grocery Segment
(%)
Source: Retail World, UBS estimates Source: Retail World, UBS estimates
42.4% 40.5% 41.4% 39.8% 39.4% 36.4%
29.2% 31.6% 31.0%26.7% 26.5% 26.4%
9.3% 10.0% 10.3%11.5% 14.0% 16.3%
19.1% 17.9% 17.3% 22.0% 20.1% 20.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY08 CY09 CY10 CY11 CY12 CY13
CCL Schweppes Private Label Other
45.8% 46.4% 47.2% 46.5% 46.8% 43.9%
25.0% 24.8% 24.7% 21.8% 21.7% 22.4%
5.2% 5.0% 5.0%5.3% 6.1% 7.3%
24.0% 23.8% 23.1% 26.4% 25.4% 26.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY08 CY09 CY10 CY11 CY12 CY13
CCL Schweppes Private Label Other
UBS 52
Coca-Cola Amatil Limited 18 February 2014
Coca-Cola Amatil Limited (CCL.AX)
Income statement (A$m) 12/11 12/12 12/13 12/14E % ch 12/15E % ch 12/16E 12/17E 12/18ERevenues 4,856 5,139 5,084 5,341 5.1 5,582 4.5 5,806 6,017 6,211Gross profit - 5,139 5,084 5,341 5.1 5,582 4.5 5,806 6,017 -EBITDA (UBS) 1,074 1,129 1,085 1,108 2.1 1,157 4.4 1,207 1,271 1,335Depreciation & amortisation (205) (233) (251) (269) 7.0 (290) 7.9 (317) (346) (378)EBIT (UBS) 869 896 833 839 0.7 866 3.3 890 924 956Associates & investment income 0 0 0 0 - 0 - 0 0 0Other non-operating income 0 0 0 0 - 0 - 0 0 0Net interest (128) (112) (125) (112) 10.4 (115) -3.0 (117) (119) (120)Exceptionals (incl goodwill) 0 0 0 0 - 0 - 0 0 0Profit before tax 741 784 709 727 2.6 751 3.3 773 805 836Tax (209) (225) (205) (211) -2.8 (218) -3.3 (224) (233) (243)Profit after tax 532 559 504 516 2.5 533 3.3 549 572 594Preference dividends 0 0 0 0 - 0 - 0 0 0Minorities 0 0 (1) (1) -71.43 (1) 0.00 (1) (1) (1)Extraordinary items 60 (98) (423) 0 - 0 - 0 0 0Net earnings (local GAAP) 592 460 80 515 544.5 532 3.3 547 570 593Net earnings (UBS) 532 559 503 515 2.4 532 3.3 547 570 593Tax rate (%) 28.2 28.7 28.9 29.0 0.2 29.0 0.0 29.0 29.0 29.0
Per share (A$) 12/11 12/12 12/13 12/14E % ch 12/15E % ch 12/16E 12/17E 12/18EEPS (UBS, diluted) 0.70 0.73 0.66 0.67 2.1 0.69 2.9 0.71 0.74 0.76EPS (local GAAP, diluted) 0.78 0.60 0.10 0.67 542.7 0.69 2.9 0.71 0.74 0.76EPS (UBS, basic) 0.70 0.73 0.66 0.67 2.1 0.69 2.9 0.71 0.74 0.76Net DPS (A$) 0.53 0.60 0.59 0.59 0.3 0.55 -5.6 0.57 0.59 0.61Cash EPS (UBS, diluted)1 0.97 1.04 0.99 1.02 3.7 1.07 4.5 1.12 1.18 1.25Book value per share 2.74 2.72 2.28 2.33 2.2 2.46 5.8 2.60 2.74 2.86Average shares (diluted) 757.83 760.76 762.97 765.09 0.3 768.09 0.4 771.09 774.09 777.84
Balance sheet (A$m) 12/11 12/12 12/13 12/14E % ch 12/15E % ch 12/16E 12/17E 12/18ETangible fixed assets 1,772 1,994 2,062 2,119 2.8 2,196 3.6 2,334 2,459 2,568Intangible fixed assets 1,507 1,534 1,265 1,265 0.0 1,265 0.0 1,265 1,265 1,265Investments 0 0 26 26 0.0 26 0.0 26 26 26Other assets 105 263 97 97 0.0 97 0.0 97 97 97Total fixed assets 3,385 3,791 3,450 3,507 1.7 3,584 2.2 3,722 3,847 3,956Net working capital 699 355 351 413 17.7 455 10.3 484 508 531Cash 665 1,178 1,426 1,100 -22.9 1,100 0.0 1,100 1,101 1,101Short term debt (107) (351) (731) (480) 34.3 (492) -2.4 (548) (582) (594)Long term debt (2,202) (2,436) (2,377) (2,377) 0.0 (2,377) 0.0 (2,377) (2,377) (2,377)Preferred shares 0 0 0 0 - 0 - 0 0 0Net (debt) / cash (1,644) (1,609) (1,682) (1,758) -4.5 (1,769) -0.7 (1,825) (1,859) (1,871)Other debt-deemed liabilities 0 0 0 0 - 0 - 0 0 0Provisions & non-debt deemed liabs (405) (458) (378) (378) 0.0 (378) 0.0 (378) (378) (378)Total equity 2,034 2,079 1,740 1,784 2.5 1,892 6.0 2,002 2,118 2,237Minority interests 0 (5) (6) (7) -19.4 (9) -16.2 (10) (11) (12)Common s/h equity 2,034 2,073 1,734 1,777 2.5 1,883 6.0 1,993 2,107 2,225Operating invested capital 3,679 3,688 3,396 3,515 3.5 3,635 3.4 3,801 3,950 4,082Total capital employed 3,679 3,688 3,422 3,542 3.5 3,661 3.4 3,828 3,977 4,108
Cash flow (A$m) 12/11 12/12 12/13 12/14E % ch 12/15E % ch 12/16E 12/17E 12/18ENet income (before pref divs) 592 460 80 515 544.5 532 3.3 547 570 593Depreciation & amortisation 205 233 252 269 7.0 290 7.9 317 346 378Net change in working capital 57 39 30 (99) - (41) 58.4 (40) (40) (38)Other operating - - 371 (3) - 6 - 5 7 6
Operating cash flow 642 742 733 681 -7.1 787 15.5 829 883 940
Tangible capital expenditure (358) (137) (391) (351) 10.5 (367) -4.7 (454) (471) (520)Intangible capital expenditure (12) (116) 0 0 - 0 - 0 0 0Net (acquisitions) / disposals 0 0 0 0 - 0 - 0 0 0Other investing (5) (125) 150 (3) - (6) - (6) (6) (6)
Investing cash flow (375) (378) (241) (354) -46.4 (373) -5.6 (460) (477) (526)
Equity dividends paid (379) (414) (473) (449) 5.1 (426) 5.2 (438) (456) (473)Share issues / (buybacks) 201 44 (339) 44 - 108 142.7 111 115 120Other financing 186 518 563 (247) - (95) 61.47 (42) (64) (92)Change in debt & pref shares - - - - - - - - - -Financing cash flow - - - - - - - - - -Cash flow inc/(dec) in cash - - - - - - - - - -FX / non cash items - - - - - - - - - -Balance sheet inc/(dec) in cash 280 513 248 (326) - 0 - 0 0 0Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.1Cash EPS (UBS, diluted) is calculated using UBS net income adding back depreciation and amortization.
UBS 53
Coca-Cola Amatil Limited 18 February 2014
Coca-Cola Amatil Limited (CCL.AX)
Valuation (x) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EP/E (local GAAP, diluted) 15.0 21.4 NM 16.7 16.2 15.8 15.2 14.7P/E (UBS, diluted) 16.6 17.6 19.8 16.7 16.2 15.8 15.2 14.7P/CEPS 12.0 12.4 13.2 10.9 10.5 10.0 9.5 9.0Equity FCF (UBS) yield % 3.3 6.2 3.4 3.9 4.9 4.4 4.8 4.9Net dividend yield (%) 4.5 4.6 4.5 5.2 4.9 5.1 5.3 5.4P/BV x 4.3 4.7 5.7 4.8 4.6 4.3 4.1 3.9EV/revenues (core) 2.1 2.2 2.3 1.9 1.9 1.8 1.7 1.7EV/EBITDA (core) 9.6 10.0 10.7 9.3 8.9 8.6 8.2 7.8EV/EBIT (core) 11.8 12.6 14.0 12.3 11.9 11.7 11.3 10.9EV/OpFCF (core) 12.1 14.5 13.2 11.2 12.7 11.7 9.4 10.6EV/op. invested capital 2.4 2.5 2.7 2.5 2.4 2.3 2.3 2.2
Enterprise value (A$m) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EMarket cap. 8,669 9,691 9,950 8,567 8,567 8,567 8,567 8,567Net debt (cash) 1,614 1,609 1,683 1,758 1,769 1,825 1,859 1,871Buy out of minorities 0 5 6 7 9 10 11 12Pension provisions/other 0 0 0 0 0 0 0 0
Total enterprise value 10,283 11,306 11,639 10,332 10,345 10,402 10,437 10,451Non core assets 0 0 0 0 0 0 0 0
Core enterprise value 10,283 11,306 11,639 10,332 10,345 10,402 10,437 10,451
Growth (%) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18ERevenue 5.4 5.8 -1.1 5.1 4.5 4.0 3.6 3.2EBITDA (UBS) 3.6 5.1 -3.9 2.1 4.4 4.3 5.3 5.0EBIT (UBS) 2.8 3.1 -6.9 0.7 3.3 2.7 3.8 3.5EPS (UBS, diluted) 4.5 4.6 -10.3 2.1 2.9 2.5 3.8 3.4Net DPS 8.2 13.3 -1.7 0.3 -5.6 2.5 3.8 3.5
Margins & Profitability (%) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EGross profit margin - NM NM NM NM NM NM -EBITDA margin 22.1 22.0 21.3 20.7 20.7 20.8 21.1 21.5EBIT margin 17.9 17.4 16.4 15.7 15.5 15.3 15.4 15.4Net earnings (UBS) margin 11.0 10.9 9.9 9.6 9.5 9.4 9.5 9.5ROIC (EBIT) 20.1 19.7 19.0 19.9 20.0 19.9 20.0 20.0ROIC post tax 14.4 14.0 13.5 14.1 14.2 14.1 14.2 14.7ROE (UBS) 27.5 27.2 26.4 29.3 29.1 28.2 27.8 28.9
Capital structure & Coverage (x) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18ENet debt / EBITDA 1.5 1.4 1.6 1.6 1.5 1.5 1.5 1.4Net debt / total equity 80.8 77.4 96.7 98.5 93.5 91.1 87.8 83.6Net debt / (net debt + total equity) 44.7 43.6 49.2 49.6 48.3 47.7 46.7 45.5Net debt/EV 16.0 14.2 14.5 17.0 17.1 17.5 17.8 17.9Capex / depreciation % 193.1 64.5 172.8 144.8 139.5 156.7 147.6 148.0Capex / revenue % 7.4 2.7 7.7 6.6 6.6 7.8 7.8 8.4EBIT / net interest 6.8 8.0 6.7 7.5 7.5 7.6 7.8 8.0Dividend cover (UBS) 1.3 1.2 1.1 1.1 1.3 1.3 1.3 1.2Div. payout ratio (UBS) % 74.8 81.0 88.8 87.2 80.0 80.0 80.0 80.1
Revenues by division (A$m) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EAustralia 2,911 2,958 2,958 3,003 3,093 3,171 3,250 3,331Indonesia & PNG 847 950 923 912 996 1,086 1,185 1,263Food Services 673 738 742 905 954 997 1,020 1,043Pacific 426 412 461 520 538 552 563 574South Korea 0 0 0 0 0 0 0 0Others 0 81 0 0 0 0 0 0
Total 4,856 5,139 5,084 5,341 5,582 5,806 6,017 6,211
EBIT (UBS) by division (A$m) 12/11 12/12 12/13 12/14E 12/15E 12/16E 12/17E 12/18EAustralia 607 621 566 571 582 590 611 633Pacific 80 70 83 94 98 102 105 107Food Services 93 95 93 91 96 99 100 101Indonesia & PNG 88 103 92 82 90 98 107 114South Korea 0 0 0 0 0 0 0 0Pacific Beverages - 0 0 0 0 0 0 0Others 1 6 0 0 1 1 1 1
Total 869 896 833 839 866 890 924 956Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.
UBS 54
Coca-Cola Amatil Limited 18 February 2014
Forecast returns
Forecast price appreciation +1.2%
Forecast dividend yield 5.0%
Forecast stock return +6.2%
Market return assumption 7.5%
Forecast excess return -1.3%
Statement of Risk
Exchange rate, political and economic risks associated with trading in Indonesia, PNG and New Zealand; changes in commodity prices especially sugar, aluminium and plastic resin; potential acquisition appetite of management; pricing pressure from competitors and a consolidated consumer base.
UBS 55
Coca-Cola Amatil Limited 18 February 2014 11
Required Disclosures
This report has been prepared by UBS Securities Australia Ltd, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.
For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission.
Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.
UBS Investment Research: Global Equity Rating Definitions
UBS 12-Month Rating
Definition Coverage1IB Services2
Buy FSR is > 6% above the MRA. 44% 36%Neutral FSR is between -6% and 6% of the MRA. 45% 35%Sell FSR is > 6% below the MRA. 11% 23%
UBS Short-Term Rating
Definition Coverage3IB Services4
BuyStock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.
less than 1%
less than 1%
SellStock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.
less than 1%
less than 1%
Source: UBS. Rating allocations are as of 31 December 2013.1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.
KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividendyield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months.
EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performancerecord, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.
Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, ifany, follows.
UBS Securities Australia Ltd: Craig Stafford, CFA; Ben Gilbert.
Coca-Cola Amatil Limited 18 February 2014 12
Company Disclosures
Company Name Reuters 12-month rating Short-term rating Price Price date
Coca-Cola Amatil Limited4, 5, 16, 18 CCL.AX Neutral N/A A$11.85 17 Feb 2014
Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date
4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.
5. UBS AG, Australia Branch or an affiliate expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.
16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18. UBS AG, Australia Branch is acting as Adviser and Broker in relation to Coca Cola Amatil Ltd's neutralisation of its
DRP, and will receive a fee for acting in this capacity.
Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.
Coca-Cola Amatil Limited (A$)
01
-Jan
-09
01
-Ap
r-0
9
01
-Ju
l-0
9
01
-Oct
-09
01
-Jan
-10
01
-Ap
r-1
0
01
-Ju
l-1
0
01
-Oct
-10
01
-Jan
-11
01
-Ap
r-1
1
01
-Ju
l-1
1
01
-Oct
-11
01
-Jan
-12
01
-Ap
r-1
2
01
-Ju
l-1
2
01
-Oct
-12
01
-Jan
-13
01
-Ap
r-1
3
01
-Ju
l-1
3
01
-Oct
-13
01
-Jan
-14
0.0
5.0
10.0
15.0
20.0
Price Target (A$) Stock Price (A$)
NeutralSell
No Rating
Source: UBS; as of 17 Feb 2014
UBS Global Disclaimer
This document has been prepared by UBS Securities Australia Ltd, an affiliate of UBS AG. UBS
AG, its subsidiaries, branches and affiliates are referred to herein as UBS.
This document is for distribution only as may be permitted by law. It is not directed to, or
intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to law or regulation or would subject UBS to any
registration or licensing requirement within such jurisdiction. It is published solely for information
purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial
instruments or to participate in any particular trading strategy. No representation or warranty,
either express or implied, is provided in relation to the accuracy, completeness or reliability of
the information contained in this document (‘the Information’), except with respect to Information
concerning UBS. The Information is not intended to be a complete statement or summary of the
securities, markets or developments referred to in the document. UBS does not undertake to
update or keep current the Information. Any opinions expressed in this document may change
without notice and may differ or be contrary to opinions expressed by other business areas or
groups of UBS. Any statements contained in this report attributed to a third party represent
UBS's interpretation of the data, information and/or opinions provided by that third party either
publicly or through a subscription service, and such use and interpretation have not been
reviewed by the third party.
Nothing in this document constitutes a representation that any investment strategy or
recommendation is suitable or appropriate to an investor’s individual circumstances or otherwise
constitutes a personal recommendation. Investments involve risks, and investors should
exercise prudence and their own judgement in making their investment decisions. The financial
instruments described in the document may not be eligible for sale in all jurisdictions or to
certain categories of investors. Options, derivative products and futures are not suitable for all
investors, and trading in these instruments is considered risky. Mortgage and asset-backed
securities may involve a high degree of risk and may be highly volatile in response to
fluctuations in interest rates or other market conditions. Foreign currency rates of exchange may
adversely affect the value, price or income of any security or related instrument referred to in the
document. For investment advice, trade execution or other enquiries, clients should contact their
local sales representative.
The value of any investment or income may go down as well as up, and investors may not get
back the full amount invested. Past performance is not necessarily a guide to future
performance. Neither UBS nor any of its directors, employees or agents accepts any liability for
any loss (including investment loss) or damage arising out of the use of all or any of the
Information.
Any prices stated in this document are for information purposes only and do not represent
valuations for individual securities or other financial instruments. There is no representation that
any transaction can or could have been effected at those prices, and any prices do not
necessarily reflect UBS's internal books and records or theoretical model-based valuations and
may be based on certain assumptions. Different assumptions by UBS or any other source may
yield substantially different results.
Research will initiate, update and cease coverage solely at the discretion of UBS Investment
Bank Research Management. The analysis contained in this document is based on numerous
assumptions. Different assumptions could result in materially different results. The analyst(s)
responsible for the preparation of this document may interact with trading desk personnel, sales
personnel and other parties for the purpose of gathering, applying and interpreting market
information. UBS relies on information barriers to control the flow of information contained in
one or more areas within UBS into other areas, units, groups or affiliates of UBS. The
compensation of the analyst who prepared this document is determined exclusively by research
management and senior management (not including investment banking). Analyst
compensation is not based on investment banking revenues; however, compensation may
relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales
and trading are a part.
For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates
or subsidiaries (excluding UBS Securities LLC) acts as a market maker or liquidity provider (in
accordance with the interpretation of these terms in the UK) in the financial instruments of the
issuer save that where the activity of liquidity provider is carried out in accordance with the
definition given to it by the laws and regulations of any other EU jurisdictions, such information
is separately disclosed in this document. For financial instruments admitted to trading on a non-
EU regulated market: UBS may act as a market maker save that where this activity is carried
out in the US in accordance with the definition given to it by the relevant laws and regulations,
such activity will be specifically disclosed in this document. UBS may have issued a warrant the
value of which is based on one or more of the financial instruments referred to in the document.
UBS and its affiliates and employees may have long or short positions, trade as principal and
buy and sell in instruments or derivatives identified herein; such transactions or positions may
be inconsistent with the opinions expressed in this document.
Australia: Distributed by Bell Potter Securities Limited (Holder of Australian Financial Services
License No. 243480). The Information in this document has been prepared without taking into
account any investor’s objectives, financial situation or needs, and investors should, before
acting on the Information, consider the appropriateness of the Information, having regard to their
objectives, financial situation and needs. If the Information contained in this document relates to
the acquisition, or potential acquisition of a particular financial product by a ‘Retail’ client as
defined by section 761G of the Corporations Act 2001 where a Product Disclosure Statement
would be required, the retail client should obtain and consider the Product Disclosure Statement
relating to the product before making any decision about whether to acquire the product.
UBS specifically prohibits the redistribution of this document in whole or in part without the
written permission of UBS, and UBS accepts no liability whatsoever for the actions of third
parties in this respect. Images may depict objects or elements that are protected by third-party
copyright, trademarks and other intellectual property rights. © UBS 2013. The key symbol and
UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
BELL POTTER SECURITIES LIMITED
GPO BOX 4718
MELBOURNE VIC 3001
AUSTRALIA
TOLL FREE 1800 804 816
WWW.BELLPOTTER.COM.AU
ABN 25 006 390 772
AFS LICENCE NO.243480
The following may affect your legal rights: Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior
approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or
in part to any persons in the two specified countries. This is general investment advice only and does not constitute personal advice to any person. Because this
document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives (‘relevant personal
circumstances’), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with
this report by arrangement with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment
decision is made on the basis of this document.
While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information
contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or
impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any
matter that subsequently comes to its notice, which may affect any of the information contained in this document and Bell Potter assumes no responsibility for updating
any advice, views, opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document
has been issued.
Except insofar as liability under any statute cannot be excluded, Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability
(whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect,
consequential or otherwise) suffered by the recipient of this document or any other person.
Disclosure of Interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may
receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly
share) and may from time to time hold interests in the securities referred to in this document.