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Thursday, February 09, 2006

Coca-Cola Amatil Profit Up 15%,Costs Worry Market

MELBOURNE (Dow Jones)--Asia-Pacific drinks and food group Coca-Cola Amatil Ltd. (CCL.AU) Thursday said 2005 net profit rose 15%, but the stock dived due to investor concern about rising sugar and aluminum prices.

Coca-Cola, which operates in Australia, Indonesia, South Korea and New Zealand, said annual earnings rose to A$320.5 million from A$276.6 million in 2004.

The results were slightly above consensus estimates, driven by strong earnings from its core beverage brands. But a lower tax rate, comments about higher raw material prices, and a lack of specific 2006 guidance sent the shares 57 cents or 8% lower to A$7.03. The company is about 32%-owned by Atlanta's Coca-Cola Co. (KO).

"Coca-Cola has delivered a strong result for the business against the backdrop of higher cost of goods sold, softer economic conditions and a more competitive marketplace," said chief executive Terry Davis.

Analyst Scott Marshall, head of industrial research at Shaw Stockbroking, said the lack of specific guidance weighed heavily on the stock.
"They were talking about double digit gains in 2005, now they're just talking about solid EBIT (earnings, before, interest and taxes) growth," he said.

Marshall said he also expects Coca-Cola Amatil will need another price increase this year to recover rising costs, despite the company's strong hedging profile.
Revenue rose 18% to A$4.15 billion from A$3.53 million, with strong gains in Indonesia, while Australian volumes were slightly softer.

The company is pinning its hopes of regaining profit momentum in Australia, which generates around half the company's revenues, with the launch of its new sugar-free drink, Coke Zero.

"I think the guts of it is that core volumes in Australia are down 0.3% and that's not a great sign, because that's their driver," a senior institutional trader said.
Davis said the response so far to the launch of Coke Zero, which is primarily aimed at men, had been significantly better than the launch of the vanilla flavored brand and sales indicate the product had "reignited the cola category".
The company said the costs of good sold was expected to increase by 6% to 7% per case of beverages in 2006, and by 6% to 8% for the food business.
The loss-making South Korean business is expected to return to profitability in 2006, driven by growth in the Minute Maid juice brand, after reporting a 2005 EBIT loss of A$6.6 million.

The company, which also produces Mount Franklin bottled water, bought the SPC Ardmona packaged fruit business last February, which contributed A$45.7 million in EBIT in its first 10 months.

Susan Murdoch,
Dow Jones Newswires

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