Coca-Cola Amatil boss Alison Watkins has joined calls for governments to ease lockdown restrictions after revealing a 50 per cent drop in demand for bottled water, juice and soft drinks in on-the-go outlets this month.
Australia's largest non-alcoholic beverage bottler is slashing costs by about $140 million this year, reducing capex by $100 million to $200 million and may cut its dividend to preserve cash as the COVID-19 pandemic decimates sales at fast-food chains, cafes, restaurants, bars, cinemas, stadiums and gyms.
"We've done a great job here in Australia in suppressing the spread of the virus and we need to make sure we go about lifting or changing the measures so that businesses can get back to business but we don't create conditions inadvertently that allow the virus to rear its head again," Ms Watkins told The Australian Financial Review.
"A staged easing and risk-based approach that protects vulnerable people and lets some of our retail outlets ... get going again with the right social distancing, and manufacturing businesses [to restart] with strict and proven hygiene procedures and shift rotations," she said.
In a trading update on Friday, Ms Watkins said the COVID-19 crisis had caused unprecedented volatility across all CCA's markets and channels as international and domestic travel ground to a halt, hotels, bars, gyms and entertainment venues were forced to close, restaurants and cafes were restricted to takeaway and consumers were urged to stay at home.
Beverage volumes rose in low single digits in the March quarter – despite disruption from the bushfires – and were up about 5 per cent in the month of March as consumers stockpiled bottled water and carbonated soft drinks.
However, earnings fell 15 per cent in the quarter as consumption shifted away from high-margin on-the-go and hospitality channels, which account for about 40 per cent of volumes but as much as 50 per cent of profits, to the lower-margin supermarket channel.
Indonesia hit hardest
Group volumes then plunged about 30 per cent in the first two weeks of April as lockdown laws took hold in Australia, New Zealand, Indonesia and Papua New Guinea.
Indonesia was worst affected, with volumes dropping about 50 per cent as social distancing measures and lockdowns dented demand in the lead-up to Ramadan, normally a peak trading period.
In Australia, non-alcoholic beverage volumes fell about 15 per cent in April, dragged down by a 50 per cent drop in on-the-go volumes. Alcohol volumes fell about 20 per cent as higher at-home consumption failed to offset a drop in volumes as hotels and bars closed.
CCA shares, which have fallen in line with the market in the past two months, lost 6.7 per cent to $8.57.
The board will make a decision on the 2020 interim dividend before the first-half results are released in August.
Citigroup's head of research, Craig Woolford, believes dividends, a key driver of CCA's share price, could fall to 42¢ a share from 51¢ in 2019.
"There could be downside to a 42¢ dividend and at a 5 per cent yield that is a spot share price of $8.40," Mr Woolford said in a report earlier this week.
$140m in savings
Ms Watkins said CCA had strong foundations to weather the pandemic and sufficient liquidity, including enough funds to repay about $305 million of debt due this year.
“Our strong balance sheet, ample liquidity and solid credit ratings mean we are in a strong position financially and operationally not only to trade through the pandemic but to also emerge a stronger and better business," she said.
CCA, which has cut costs by more than $100 million over the past few years, had identified another $140 million in savings achievable this year.
These include reducing marketing expenditure by $20 million, cutting sales and management incentives by $40 million, freezing recruitment ($10 million), asking staff to reduce annual and long-service leave balances ($20 million) and minimising discretionary spend such as travel and conferences ($50 million).
CCA was also working with customers on recovery plans post the pandemic, including ramping up online sales, halting new product launches and making sure its portfolio of drinks suited trading conditions.
"The biggest question is what the demand environment will look like and whether the consumer will have the discretionary money to spend to the same extent," she said.
"If we see a period of prolonged economic downturn, higher unemployment, we'll need to make sure we are offering the right kind of value to consumers."