No wonder, they can't afford the sugar rofl Coke loses fizz as...

No wonder, they can't afford the sugar rofl


Coke loses fizz as sugar price doubles
Geoffrey Newman
February 10, 2006

SHARES in soft-drink bottler Coca-Cola Amatil went into an 8percent nosedive yesterday - their biggest drop in six years - after investor concern about soaring raw material prices overshadowed news of a strong profit increase.

CCA announced a 16 per cent lift in annual net profit to $320.5 million for the year to December with earnings in Indonesia jumping by almost 50 per cent in local currency terms.

The result was at the higher end of analysts' forecasts, which ranged between $308 million and $323 million. But news that costs could increase by up to 8 per cent this year stunned the market and sent the shares diving 57c or 7.5 per cent to $7.03.

"Higher commodity prices will result in increases in cost of goods sold per case of beverages of 6 to 7 per cent and 6 to 8 per cent for the food business," the company said.

CCA managing director Terry Davis said the company had performed well despite higher raw material prices, tough competition from companies such as Cadbury-Schweppes and high petrol prices, which had slashed discretionary spending.






"In that September-October period we saw some consumers just stop buying," Mr Davis said.

Raw sugar prices have more than doubled in the past year, as a surge in crude oil prices boosted demand for alternative fuels, including ethanol made from sugar. Sugar prices hit US19.73c a pound in New York this week, the highest in at least 24 years.

CommSec analyst Pierre Grobler said CCA's result was in line with expectations, but investors were concerned about the company's ability to hold on to its margins in the future.

"People are concerned about how much CCA can increase their prices in the future," he said. "That is how they have managed to maintain their margins."

However, chief financial officer John Wartig said the company had heavily hedged its exposure to sugar prices and they would have to rise significantly more to affect its 2006 results.

Earnings in Australia rose 5.3 per cent to $455.3 million while SPC Ardmona, which the company bought last year for $500 million, contributed $45.7 million in earnings before interest and tax.

The company's troubled South Korean operations lost $6.6 million but Mr Davis said the region was expected to return to profitability in 2006 underpinned by new products and a cost reduction program.

Additional reporting by AAP