U.S. Markets close in 1 hr 11 mins

Edited Transcript of CCL.AX earnings conference call or presentation 22-Aug-19 1:30am GMT

Half Year 2019 Coca-Cola Amatil Ltd Earnings Call

Sydney Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Coca-Cola Amatil Ltd earnings conference call or presentation Thursday, August 22, 2019 at 1:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alison Mary Watkins

Coca-Cola Amatil Limited - Group MD & Executive Director

* Ana Metelo

Coca-Cola Amatil Limited - IR Advisor

* Martyn J. Roberts

Coca-Cola Amatil Limited - Group CFO

* Peter West

Coca-Cola Amatil Limited - MD of Australian Beverages

================================================================================

Conference Call Participants

================================================================================

* Ben Gilbert

UBS Investment Bank, Research Division - Executive Director and Analyst

* Craig John Woolford

Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team

* David Errington

BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia

* Larry Gandler

Crédit Suisse AG, Research Division - Director

* Morana McGarrigle

Macquarie Research - Analyst

* Richard Barwick

CLSA Limited, Research Division - Research Analyst

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Ana Metelo, Coca-Cola Amatil Limited - IR Advisor [1]

--------------------------------------------------------------------------------

Good morning, everyone. Thank you for joining the conference call and webcast for our 2019 half year results. This is Ana Metelo from Investor Relations. On the call this morning we have Alison Watkins, our Group Managing Director; Martyn Roberts, our Group Chief Financial Officer; and Peter West, our Managing Director for Australian Beverages.

Slide 2 shows our standard disclaimer for presentations.

Turning to Slide 3, the agenda for this morning. Alison will present the group performance and provide a result of review including how we are progressing against our shareholder value proposition. Peter will discuss Australian Beverages performance and give an update on progress against our Accelerated Australian Growth Plan. Martyn will take you through the business performance and our financials. And Alison will then conclude with comments on our sustainability agenda and outlook. As always, there will be time at the end for questions.

I'll turn the call over to Alison.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [2]

--------------------------------------------------------------------------------

Good morning, everyone. Thank you for joining the call this morning. As Ana noted, I'll start by taking you through the group performance, so turning to Slide 5.

Group revenue increased strongly for the half rising by 5.2%. This reflects the successful outcomes from strategic initiatives in several of our businesses. Statutory earnings before interest and tax increased to $273.5 million, up 4.7% and statutory net profit after tax increased to $168 million, up 6.3%. Statutory earnings per share grew by 6.4% while ongoing EPS declined by 4%. Ongoing EBIT was $289.9 million and ongoing NPAT was $173.3 million representing declines of 3.8% and 3.9%, respectively, in line with our expectations. There was a strong cash flow result with ongoing free cash flow before lease accounting changes improving by $86.2 million on the previous period. In addition, we received a further $40 million as proceeds from the sale of the SPC business.

The total dividend for the half is $0.25 which is unfranked. This comprises an interim dividend of $0.21 per share and a special dividend of $0.04 per share following the SPC business sale. Overall, this half year result is a solid financial performance for the group.

Looking at our businesses, the Australian Beverages results show accelerated volume growth in several categories offset by impacts from the Queensland Container Refund Scheme, additional investment in Feet On The Street and the cycling of a one-off $10 million EBIT credit from the first half of '18 relating to the New South Wales Container Deposit Scheme. There was volume growth in diet and no sugar colas led by Coca-Cola No Sugar which, again, proved to be a market success. Energy and dairy were also sturdy performers.

New Zealand delivered an excellent all-around performance continuing robust momentum from previous years. And Fiji achieved solid profit growth despite challenging economic conditions.

Indonesia delivered encouraging single-digit volume and revenue growth. As expected, the EBIT result reflected additional marketing spend with The Coca-Cola Company and unfavorable FX impacts on commodities. Papua New Guinea delivered double-digit volume and revenue growth as we put the operational issues of 2018 behind us.

Alcohol & Coffee achieved modest revenue growth and double-digit EBIT growth following a further successful expansion of our spirits and craft beer portfolio in Australia and in New Zealand. Corporate and Services recorded a $6 million loss in line with the FY '19 earnings guidance for the segment.

I'll briefly highlight a few additional developments. On the 28th of June, we successfully completed the sale of the SPC business to Shepparton Partners Collective Pty Ltd. for a consideration of $40 million. A profit on sale of $14 million was recorded upon completion. We're proud of the contribution we've made to SPC over the last 14 years, and we wish its new owners all the very best as they take the business forward.

Our corporate venturing platform, Amatil X, entered its second year with a major expansion into Indonesia, with Jakarta becoming an important startup hub in Asia. The Indonesia program kicked off in April with a pilot partnership between Coca-Cola Amatil Indonesia and Digitaraya, an accelerated local -- a local accelerated program. We made further progress in sustainability in keeping with consumer and customer demand for sustainable packaging and business operations.

Progress in Australia included our announcement that from 2020, 7 out of 10 of our plastic bottles in Australia will be made from 100% recycled materials. This has more than doubled our use of recycled plastic in bottles and secured our position as a market leader in recycled packaging. I'll provide more details on our progress in sustainability later in the presentation.

Finally, we made significant and continued progress in the rationalization of our property portfolio, including progressing the sales of lots 2 and 3 of our former bottling facility in Thebarton, South Australia.

I know you're all familiar with our shareholder value proposition, it's what we said you should hold us accountable for. Our performance in many areas is strong. We're confident that we're on track to return to our mid-single-digit earnings per share growth as we complete our transition phase over the next few months.

This slide provides an overview of the EBIT contribution for each of our businesses. We'll start off with the Australian Beverages business, and I'll ask Peter West, our Managing Director for the business, to provide an update before Martyn takes you through some commentary on the other businesses and on the financials. I'll now turn the call over to Peter West.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [3]

--------------------------------------------------------------------------------

Thank you, Alison, and good morning, everybody. I'd sum up the Australian Beverages result as a solid performance with more to do in the second half. As this slide shows, we experienced a slight decline in net revenue and a volume decline of 1.2%, which was largely driven by the implementation of the Queensland container refund scheme. Excluding Queensland, total volumes declined by 0.3%. Trading revenue per unit case was 0.7% higher, comprising 1.5% increase from Container Deposit Scheme charges; a net 0.4% decrease from investment in realized price; and a 0.4% decrease from changes in product and channel mix.

Underlying EBIT was down. Alison mentioned the impact of the Queensland CDS on that number as well as cycling a one-off $10 million CDS credit for New South Wales in half 2018. Additional impacts include the previously announced investment in Feet On The Street; additional commissioning cost at Richlands in both distribution and manufacturing; and a $4.6 million benefit from the introduction of new lease accounting standards.

Turning to our 4 category focus areas. Our focus in each section is to drive sustainable value. In Must Win, we delivered price realization in both water and cola with some mixed progress on volumes. Diet and light colas achieved mid-single-digit volume growth, mostly offsetting a small decrease in Classic Coca-Cola. This is on top of low single-digit volume growth in the Coca-Cola brand in the second half of last year. Underlying volumes in water was solid, given we've ceased sales of the low-value and low-margin Peats Ridge in Officeworks in September of 2018. This reduced net water volume sales by 1 million unit cases. We also experienced a further 6 months of Mount Franklin Everyday Low Pricing, cycling a high-low pricing strategy in grocery in the prior year.

There were some excellent results in our Double Down categories with energy and value-added dairy showing double-digit volume growth and gaining value and volume share. This result also builds on some good numbers for volume and value share growth in the previous half. The portfolio was further enhanced with the launch of Nutriboost in May. It's a flavored milk drink with a 5-star health rating that's already proving popular.

In energy, we expanded the portfolio with the commencement of Coca-Cola Energy in late June, and we'll see the impact of this major product launch over the second half of this year. The results also show there's more work to do in our stabilized category. Adult and flavored sparkling volumes declined as a consequence of changed pricing and ranging strategies. We're making progress on this, and we're working closely with our customers on getting this price strategy right for the next half.

We commenced distributing MOJO kombucha during the half, representing our first foray into the growing beverage category. It's too early to draw many conclusions from the numbers on kombucha, which are listed in Other Stills on the slide.

The next slide shows the volume performance by channel. We've prioritized grocery as one of our Must Win channels, and we're highly disciplined in our revenue management strategy in the last 2 halves. Successful price realization was achieved in colas and water, with some volume impact in the short term as consumers adjust. As I said earlier, our water result was impacted by the cessation of low sales -- our low-value, low-margin water in Officeworks.

In convenience and petrol, we delivered good volume growth driven by the Double Down categories of energy and value-added dairy, which offer the greatest potential for growth in this channel. We have delivered significant trajectory improvements in volumes On-The-Go, which includes national and state operational accounts, restaurants and cafés and license. In restaurants and cafés, we maintained volume growth from full year '18, including channel-specific product launches. We also grew our customer base by 2.3% compared with the half 1 of 2018.

One strategic initiative of the Accelerated Australian Growth Plan is the Feet On The Street, which has nearly doubled our sales force in the state immediate consumption channel. That's delivered a real step change in the quality and frequency of customer visits. The rollout is ongoing but we're seeing some excellent results, particularly in Sydney and Adelaide, where the program is most advanced.

The charts on the screen show the improvements in volume trajectory in this channel in these 2 markets, and where we're at with the program overall. In the Sydney area, we changed our volume sales in state immediate consumption from a negative 7% a year ago to a positive 1.5% for this half. And in Adelaide, a smaller but still significant gain from a negative 4.2% to flat. It's a great set of results but it's early months of the program.

Next, a few call-outs on the Container Deposit Scheme on volumes in Queensland and on our CDS rates. Whilst it's not possible to isolate the impact of these schemes as they come online, we did see Queensland volume for the half decline by 3.8% compared to a nationwide change in volume, excluding Queensland, of negative 0.3%. This also compares to a 1.3% decline in New South Wales for the same period last year as that state was embedding their scheme. While volume reduction is never a good thing, it's worth comparing our results with the figures in the recent Queensland productivity commission interim report on the CRS, which found that beverage volume statewide were down on average by 6.3%. So clearly, we're tracking better than some of our competitors, which is a testament to the strength of our portfolio.

From the 5th of August, we increased our CDS charges in New South Wales and the ACT from $0.1091 excluding GST per eligible container to $0.1182 excluding GST. This is due to a rising cost base for the ACT and New South Wales Container Deposit Schemes as those schemes mature.

The next CDS to come online will be WA in June 2020. This state represents around 10% of our total volumes, so we're not expecting a significant impact from this CDS when it comes online. As in other states, we've been appointed scheme coordinator for the WA CDS, and we'll aim to administer an effective recycling system while keeping costs as low as possible.

I trust that was a useful breakdown of our performance for the half. I might now say a few words on strategy and then hand over to Martyn. You've seen this slide before outlining the objectives and categories of the Australian Accelerated Growth Plan. I probably don't need to go through this in detail again, but I'm happy to take questions at the end of the presentation.

This slide outlines some of the building blocks within the plan which we believe underpin volume and revenue momentum in the second half. In terms of categories. First, for the first time since 2011, we will launch a Share a Coke campaign in partnership with The Coca-Cola Company, providing consumers the opportunity to provide -- to find hundreds of different names to celebrate with our famous brand. We see this as a very strong building block for both Christmas and summer trading. Second, we expect stabilization of cola volumes in grocery as price realization is embedded.

Third, we'll build on the launches of Nutriboost and Coca-Cola Energy and Energy No Sugar to extend our growth in the Double Down categories that I mentioned earlier. Fourth, we will have left the high-low price strategy in Mount Franklin multipacks in grocery which should remove the impact of this issue on volume sales. Fifth, we'll benefit from the commencement of distribution of the Made brands, Rokeby Farms and Impressed Juice for which we acquired distribution rights earlier this year. Sixth, we'll -- again to capitalize on the trend toward better for you beverages with extended distribution of MOJO kombucha. And seventh, we will look to grow sales in Powerade Active, our new No Sugar Sports Water which was launched in July this year.

Our channel strategy is also expected to advance in the second half, with further benefits from the Feet On The Street across all states. We have strong plans to improve retail execution by bringing store merchandising back in-house and a laser-like focus on key selling weeks. For example, Footy Finals and Christmas. There are also some key enablers that will deliver our category and channel plans and optimize the business. These include price normalization for Flavour 24 pack cans back to high-low promotions and an implementation of key revenue management initiatives including the recent launch of the 20-pack mini cans in grocery in New South Wales.

We are confident that our Richlands commissioning will be on track from the third quarter of this year. We're also making further progress toward sugar reductions and sustainability both, which are key selling points with customers and consumers.

In summary, the Accelerated Growth Plan has delivered a solid result for Australia with some good growth trajectories in Must Win and Double Down. There's more to do in some areas with detailed plans for this which we will deliver in half 2. We're working hard to reach our growth targets for Australian Beverages and contributing to the group target of mid-single-digit EPS growth from 2020. Thanks, and I'll hand over to Martyn.

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [4]

--------------------------------------------------------------------------------

Thanks very much, Peter, and good morning, everybody. Looking at our other businesses now.

I'm pleased to report that our New Zealand & Fiji segment had an excellent start to 2019, achieving strong revenue and volume growth as well as double-digit EBIT growth. In New Zealand, we achieved a particularly good result with continued momentum from 2018.

Indonesia and Papua New Guinea. This segment delivered excellent revenue growth with delivery against our strategies and operational improvements in PNG. In Indonesia, we demonstrated that we can deliver robust result in a challenging market. Disciplined execution of our Accelerate to Transform strategy produced pleasing growth in sparkling, water and value-added dairy categories and rate realization across the portfolio. Furthermore, we had solid growth across all channels, particularly in traditional trade which grew by double digits.

This result is a credit to the important changes implemented in the market in the past few years, which built our channel relevance and route to market. We gained overall volume share in NARTD, particularly in sparkling, where we grew volume and value share driven by effective promotions, outstanding festive execution, new products and customer-centric marketing. As expected, Indonesia's EBIT result reflected planned additional marketing spend and an unfavorable FX impact on commodities. The highlight in Papua New Guinea was achieving double-digit revenue and volume growth following the successful resolution of the operational issues experienced in FY '18.

Alcohol & Coffee achieved modest revenue growth and double-digit EBIT growth. New Zealand returned a strong result benefiting from the strength of the Beam Suntory Premix & Spirits portfolio. In Australia, the business grew share in bourbon, gin, rum and vodka. Canadian Club, Jim Beam White, Roku Gin and Maker's Mark all delivered increased volumes.

Grinders Coffee drove revenue and profit growth in its segment, primarily through increased grocery sales. Other developments included strong growth in the Feral craft beer portfolio, and the new distribution agreement with New Zealand-based brewer, Fortune Favours.

Corporate and Services recorded reduced earnings in line with the outlook provided in 2018. This was a result of lower rental and services earnings and investment in group capabilities and IT platforms.

Now moving on to the financials. From an accounting perspective, there have been some adjustments to the financial statements as a result of the introduction of the AASB 16 lease accounting standard. We've provided an explanation of these impacts in the appendix to this presentation. Please note that we have followed the modified retrospective approach in adopting the standard, which means it has been applied to the current period only and there's no restatement of the financial statements of prior years including the first half of 2018.

What we've done in our financial report is provide note disclosures with the financial statements and other note disclosures to assist you in understanding the impact of the changes in our result. Additionally, consistent with our approach of the 2018 full year result, SPC has been treated as a discontinued operation in these results and is not included in the segment performance of the presentation or the operating and financial report.

Our half year 2019 statutory NPAT increased 6.3% as a result of lower nontrading items than in the prior year. NPAT adjusted to exclude nontrading items declined by 3.9%, which is in line with the 3.8% decline in ongoing EBIT. Net finance costs were lower by 4.9% than last year despite a $7.1 million increase due to the introduction of the new lease accounting standard. This decline in net finance costs was due to increased interest income on deposits held in Indonesia and Papua New Guinea as a result of increased interest rates.

Taxation expenses declined in line with reduced ongoing EBIT, with an effective tax rate of 28.8%. In line with our stated business strategy, we had a total of $11.5 million in nontrading items after tax, mostly associated with restructuring programs in Australia. We reported a decrease in working capital of $61 million due to improved debtor collections and receivables management in the Australian business and [cycling] extended customer credit in Indonesia during Ramadan in the first half of 2018.

Property, plant and equipment was largely unchanged. The intangible asset increase of $41.1 million was driven by the acquisition of the Rekorderlig Australian distribution rights and foreign exchange translation impacts. Current and deferred tax liabilities decreased by $13.4 million due to the tax benefit associated with the 2018 SPC impairment. The Other assets net increase of $52.7 million reflected investments in the Made Group, Amatil X and Container Deposit Schemes in New South Wales and Queensland, together with the transfer of Thebarton site assets into assets held for sale. The new lease accounting standard had an impact of $450 million in capital employed. This translated into a lower return on capital employed, however adjusting for this impact, return on capital employed was still strong at 19.3%. CapEx at the half year was lower than the first half 2018 by $28 million at $98 million due to the timing of spend in Australia and New Zealand.

The largest capital requirements came from the Australian Beverages, Indonesia and Papua New Guinea and Corporate and Services segments. We spent $23 million in the Australian Beverages business, and equipment at Richlands, solar panel installations at 3 facilities and investment in technology to support sales, customer service programs and automation. In Indonesia, we allocated capital towards the affordable small sparkling line in Surabaya and operational and production efficiencies. Papua New Guinea spend was on the construction of a new warehouse in Lae and upgrade of a can line. Corporate and Services CapEx spend is primarily in relation to cold drink equipment investment in Australia.

For the 2019 financial year, we anticipate capital investment requirements to be approximately $300 million, which is slightly lower than full year 2018 capital spend of $334 million. We increased our ongoing free cash flow before lease accounting charges by $86.2 million for the half, reflecting our rigorous approach to cash and working capital management. Other contributors to increased free cash flow include a decline in tax payments in Australia due to a lower installment rate applied by the Australian Taxation Office and a refund received in relation to the 2018 year; and reduced capital expenditure through completion of significant projects carried out in 2018. This was partially offset by the impact of PET resin prepayments in Indonesia to secure better pricing outcomes. Our ongoing cash realization, before lease accounting changes, was 96.9% representing an improvement of 17.6 points on the first half of 2018.

Our balance sheet remains strong and continues to provide a long-term funding platform to support our growth aspirations. Our net debt balance has been increased by $491.5 million due to the introduction of the new lease accounting standard. Excluding this impact, we increased our EBIT interest cover from 8.8x in FY '18 to 10.3x and reduced our net debt. This was driven by strong cash flow result, which included a cash benefit from the sale of SPC.

We continue holding a significant proportion of our cash assets in Indonesia and in Papua New Guinea. We are exploring opportunities to repatriate some of the cash from Indonesia, and it is pleasing to note the Kina balance held in Papua New Guinea has remained flat over the past 12 months as we gain more access to foreign currency to pay suppliers. We also recently paid a small dividend back to Australia. Our total available debt facilities at 28th of June 2019 amounted to a total of $2.6 billion with an average maturity of 5.6 years.

So with that, I will now hand back to Alison to talk you through the sustainability updates and the outlook for 2019 and beyond.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [5]

--------------------------------------------------------------------------------

Thank you, Martyn. As with previous results, I'd like to take a moment to highlight a couple of areas of progress in the half against our sustainability goals before I move on to our outlook.

Our approach to sustainability underpins our future commercial performance. Our focus is across 4 pillars in the areas where we can have the greatest impact: our people, well-being, the environment and our community. Progress in each of these areas is critical to our relationship with customers and our ability to tailor our portfolio to changing consumer trends.

In the first half of 2019, we continued to make progress against all of our sustainability goals including sugar reduction, energy consumption and sustainable packaging. I've spoken to you on several occasions in relation to our role in addressing the obesity challenge across our community and our consumer-driven approach to sugar reduction, choice and information. We recognize and welcome the opportunity to play our part in reducing obesity, for example, through more diet and no-sugar beverages, smaller-pack sizes and new products in different categories.

Together with the Coca-Cola Company, we've committed to reducing sugar across our Australia and New Zealand portfolio of sales by 10% by 2020 and by a net 20% by 2025. We're pleased to confirm we're making good progress. At the end of this half, we'd achieved a 7% reduction in sugar content in Australia and a 4.1% reduction in New Zealand since the baseline of 2015.

In addition to these milestones, we're progressing our sugar reduction agenda in other markets. In Indonesia, we've achieved a 7.8% reduction in sugar across the portfolio of beverages sold since 2015. We're looking forward to continuing this progress as we roll out new lower-sugar beverages this year, including Sprite Waterlymon, which has a lower sugar content than Sprite.

In relation to energy consumption, we're progressing towards 60% renewable or low-carbon energy use across our operations. To this end, we've already installed more than 10,000 solar panels in 3 different locations in Australia, and we have one of the largest rooftop solar installations in Southeast Asia underway at our Cibitung facility in Jakarta.

We're also facing up to our responsibilities on plastics. We've heard the community message loud and clear: unnecessary plastic packaging is unacceptable, and we need to do our part to reduce it. We've made strong progress in that direction in this half in response to customer and consumer demand for more sustainable production and a reduction in single-use materials.

All our bottles and cans have been 100% recyclable for some time however, this, on its own, isn't enough. That's why in the last half we've committed to make 7 out of 10 of our plastic bottles in Australia and 6 out of 10 in New Zealand from 100% recycled materials by next year. We've ceased distribution of plastic straws from our portfolio and replaced them with durable biodegradable paper alternatives. We've signed a partnership with Keep Australia Beautiful to support adequate recycling facilities at litter hotspots nationwide. And we've maintained our support of Mission Pacific, Fiji's long-standing collection scheme.

Our step-change commitment to significantly increasing our number of bottles made from 100% plastic in Australia and New Zealand includes what we believe is the world's first carbonated beverages in 100% recycled plastic, a technical innovation achieved this half by our team in Australia and now being rolled out across our Australian and New Zealand single-serve range.

This last commitment is significant because it very much secures our leadership in the use of recycled materials in Australia and New Zealand. The switch to 100% recycled materials will be a central factor in addressing consumer and customer demand for recycling and renewability in the range of products we sell. In partnership with The Coca-Cola Company, we'll be making sure that customers and consumers are aware of progress through communication such as the following, which will appear in social media from today. And we're very excited about this campaign because our research tells us it's going to resonate very strongly with consumers.

(presentation)

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [6]

--------------------------------------------------------------------------------

Thank you. Let me move on to outlook. The end of 2019 will mark the completion of a 2-year transition period for the group. Australian Beverages is positioned for growth in 2020, with the completion of the additional investments in our Accelerated Australian Growth Plan and with Container Deposit Schemes in New South Wales and Queensland substantially embedded by the end of 2019.

In Indonesia, we're encouraged by the growth we've achieved since April 2018, and we'll continue to deliver our Accelerate to Transform strategy with additional marketing expenditure in 2019 as we navigate soft macroeconomic conditions, a weak Indonesian Rupiah and subdued market growth.

New Zealand and Fiji, Papua New Guinea and Alcohol & Coffee are expected to deliver growth in line with our shareholder value proposition. Corporate and Services is expected to record an EBIT loss of approximately $12 million, in line with the outlook we've previously provided. We anticipate one-off costs of up to $30 million as part of ongoing cost optimization processes across the group. We're pursuing opportunities to dispose of surplus properties, which would result in one-off gains in 2019 and partially offset the one-off costs.

We remain committed to our shareholder value proposition and targeted return to the delivery of mid-single digits earnings per share growth from 2020. As we've said before, achieving this target will depend on the success of our revenue growth initiatives in Australia, Indonesian economic factors and the regulatory conditions in each of our markets.

Capital expenditure for 2019 is expected to be approximately $300 million. We continue to target a medium-term dividend payout ratio of over 80%. Amatil dividends are expected to return to being franked in 2021. And at that stage, depending on the mix of earnings between Australia and other countries, we expect the level of franking to be above 50%. Finally, we expect our balance sheet to remain conservative with flexibility to fund future growth opportunities. We're expecting to maintain a strong return on capital employed and we'll seek to maximize value for our shareholders by pursuing additional sales of surplus properties.

Thank you, and we're happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Your first question is from David Errington from Merrill Lynch.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [2]

--------------------------------------------------------------------------------

Alison, I don't know whether this is best for you or Peter or Martyn but my question is on the Australian Beverage business. And going forward, it's not a short-term question, it's looking at the business, say, for the next 2 to 3 years because you basically sound as though you're trying to draw the line in the sand after '19 and saying, look, judge us on 2020 because there's been a lot of stuff going on. We're still restructuring. We're putting people on the street, et cetera. So my question is going forward, if you're going to meet your mid-single-digit EPS shareholder promise, we need at least probably 3% to 5% EBIT growth coming out of Australia.

Now Peter gave a great overview on his strategy today. He gave a lot of detail, but if we can get to the nuts and bolts as to what the investment thesis is on Australia, because the last 5 years I think volumes have been in decline. You've had price declines. And every year EBIT's going backwards by $20 million, $30 million just because it's been tough. So I'm trying to get my head around, as an investment case, as to what the Australian beverage business should look like. What should a decent high-quality beverage business be in terms of volume growth, what sort of volume growth? Can you get price growth? And what can you limit your cost growth so that you can give us 3% to 5% EBIT growth so that then you can meet your shareholder prospective target?

Because without 3% to 5% EBIT growth out of Australia, that 3% to 5%, you're just going to have to sell assets of profits to get there, Alison. But for the business to get there on a sustainable basis, we need 3% to 5% EBIT growth out of Australia, and it hasn't done that for a long time. So can Peter explain under his strategy, what does it lead to in terms of volume growth pricing and cost-outs? Just so -- the simple metrics.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [3]

--------------------------------------------------------------------------------

Okay. No. It's a great question, David, and I will hand over to Peter. I'll just make a couple of comments overall. And I think our shareholder value proposition for our mature markets like Australia envisages more like a sort of a 3% type earnings growth. And I think in bringing Peter on board, we've brought an operator, who's very experienced in mature markets, mature categories.

We also come into -- we've brought him into a market that's growing so there is growth, good growth in the beverages market with obviously some choppiness over the last couple of years as we've seen the impact of container deposit schemes. But fundamentally, the beverages market is growing at, say, at 3% per annum. So there's some good underlying growth there for us to work with. And as you know, you've been on the journey with us, over recent years, a lot of changes going on around the categories in the beverages market and also to our customers and channel. So therefore, I think the investment that we put against repositioning both our portfolio as well as the resources that we've got directed against our channels and our customers has been a very, very important period of investment that will pay dividends because we are now really well positioned to serve that market. But Peter, I might just hand over to you.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [4]

--------------------------------------------------------------------------------

Before you jump to Peter, Alison, just to clarify. So it's 3% from Australian Beverages, probably some recovery in Indo, Alcohol & Coffee, Shane keeps giving us double digit and that'll get us to that 5%. That's sort of like the metric that you're pulling at. Is that right?

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [5]

--------------------------------------------------------------------------------

Yes. And if you look at the -- our -- the decomposition of our shareholder value proposition, which breaks down the sort of -- because we do have the diversity of markets so we do need those higher growth markets like Indonesia and PNG and Alcohol & Coffee can return, and we have higher expectations that we set those businesses. New Zealand has probably been outperforming versus what you might expect. But Australia and New Zealand it's more like that 3%, and we believe that we can deliver sustainably a mid-single-digit earnings per share growth from that composition. Okay, Peter, would you like to comment...

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [6]

--------------------------------------------------------------------------------

Yes, good afternoon, David. So let me just add in. I think if we want to be a growth business, you've got to be in a growth category. So I think drinks is a wonderful category because you get 2.5% to 3% growth. I think the key transition that we're phased into is the impact of container deposits on the last. It's a big deal, the New South Wales implementation in Queensland. So to be at the back of that is very significant because of its impact on volume. And I think the other key thing that we've seen from an overall marketplace was the explosion of water a number of years ago was quite big so it became nearly 30% of volume and 13% of value. And we've seen that slow down.

So we're sort of getting more growth now coming from sort of value-added rather than commodity-based like water. If you sort of split it into its parts, I think the unique advantage of this business is the reach of distribution that we've had, and that's what we really wanted to make sure that we've kept really vital for the long-term stability. And that's what we can take from the New Zealand business on the success that's underpinned Chris' performance in New Zealand. So what we've done is we've changed the structure of our sales organization. So we created the On-The-Go is one Sales Director, and for our national accounts, there's another and that creates aimed alignment from what we're doing at account level right through to the field, so there's total consistency.

We used to have a state-based structure. So I'd say our executional capability is really enhanced. And if we go to the immediate consumption, this is the sort of heartland of our business. We're talking food and pita shops and fish and chip shops and lots of these sort of great outlets that sell lots of beverages. And to see the sort of volume improvement that we've seen gives us a lot of confidence. And then, with grocery, we have a really strong relationship with our grocery partners. We're the largest food and beverage supplier. We're really good at joint business planning. But at the heart of that is very much around the revenue growth management principles that we put in place. So we've got a really good pack and price architecture that we're implementing over the next few years. And I think that really gives us a lot of confidence as we move into next year.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [7]

--------------------------------------------------------------------------------

So to get to 3%, Peter, what's sort of -- I mean what's the arithmetic because volume growth, pricing, cost-containment, what's the arithmetic to get you there to 3%.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [8]

--------------------------------------------------------------------------------

Yes. In any order we can get it would be the answer, David. So clearly we like volume. The challenge if it's just volume and you're going through heavy discounting, then that doesn't help. So that's why you've seen changes in price in the marketplace because we do need to see some price realization into the business. And then we just manage the volumes accordingly. And then I'd say cost productivity as just part of the game in sort of developed markets in packaged goods. And that's something that's very strong on our agenda.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [9]

--------------------------------------------------------------------------------

So we can expect 3%-ish EBIT growth -- I mean Martyn will jump in I know and cut me off here, but we can expect 3% from Australia from '20 on. Is that a fair expectation that we can look at?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [10]

--------------------------------------------------------------------------------

I can fulfill your request, David. So yes, I'd refer back to what Alison said of our shareholder value proposition. So over time, we've said low single-digit earnings growth from Australia and New Zealand and double-digit earnings growth from our other markets.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question is from Shaun Cousins from JPMorgan.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [12]

--------------------------------------------------------------------------------

Maybe just another one for Peter just in terms of the Feet on the Street program. Can you just confirm -- obviously the route trade is the highest gross margin. With the extra costs, is that also the highest EBIT margin channel for your business? And then how has that $10 million being spent across the first half? Will it all get spent in the second half? Or will some tip into the first half '20, please?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [13]

--------------------------------------------------------------------------------

Thanks, Shaun. So that's a question. So this sector for us -- On-The-Go in total is 40% of our volume and the immediate consumption channel is 12% of our volume as Aus Bev. When you then look at the performance on that, we'd expect -- there's sort of 2 ways that we look at payback: the one is the volume decline that we're experiencing if that continued, how quickly is the payback? And the answer is it comes pretty quickly as you improve volume.

And then we look at the payback in terms of -- as it comes from a year-on-year expenditure, therefore, the payback doesn't come until next year on that way. We've spent over $3 million in the first half because if you look at the rollout, we didn't put the Feet on the Street into the field until March. So they were March into Sydney, March into Adelaide. We went May into Victoria and Brisbane and June into Perth. And so our full year, we'll spend something like $7.5 million with another $2.5 million into next year. So I would say that we're really pleased with the impact that we're seeing in the market.

We were calling on our customer base there, essentially 70% of our customers were being called upon monthly or more and what we're seeing is that 70% of our customers are being called on weekly to fortnightly. And we're really seeing an impact in the way that we appear in-store. And our focus isn't just about putting additional resources, it's also the quality of what we execute. What we would have had 12 months ago is when we were calling on those stores and getting to on a monthly, we probably had an over-reliance on new products and innovation. And what we're doing is making sure that we really execute the core portfolio that makes the biggest difference to our retailers and ourselves. Since we've put that onboard, we have seen something like 11,000 to 12,000 distribution points of our core items, our top 20 items that really matter. But we still got a long way to go before we're satisfied with that.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [14]

--------------------------------------------------------------------------------

And sorry, the comment on the margin mix. How does this channel compare to the other...?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [15]

--------------------------------------------------------------------------------

Yes, it's much higher net contribution to the business. And I think the reason I see the importance of it is that in delivery of our red truck fleet, you tend to have a high fixed cost nature of the business. And so as you put more volume on it, it's a dramatic impact. And then, the impact of this channel, in particular, is it does support then the volume for our other channels that go on the back of it. So when we talk to a national customer, and we can talk about national reach, we can talk about national reach off the back of this customer base. So it is really important in terms of just underpinning the volume on our red truck fleet.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [16]

--------------------------------------------------------------------------------

Right, okay. And my second question is [for lapping into] Indonesia and PNG, maybe just the double-digit EBIT growth I think at PNG, does that make sort of PNG maybe sort of half of that sort of divisional EBIT split? I know you've made some comments in the past, and just around the Indonesian $7 million to $8 million sort of marketing spend. How did that skew first half, second half? Just conscious given Ramadan in the first half, it might be a little bit more in the first half. But maybe if you would sort of clarify how that Ramadan -- sorry how that marketing spend skewed first half, second half, please.

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [17]

--------------------------------------------------------------------------------

Hi, Shaun, it's Martyn. Yes, so the first part of your question. So Papua New Guinea made a bit more than Indonesia in the first half as you can probably work out as we said, as you quite rightly said last year, we said it was about the same. So given it had double-digit growth, it was a bit more than Indonesia, thanks to all the operational improvements that we've put in place there and some terrific volume growth. So they're already back in business now which is great to see. In terms of the additional $7 million to $8 million of marketing, it was probably just a little bit less than half of that late in the first half. Yes, Ramadan's in the first half but we've got some new product launches in the second half which we've held some of that advertising back for to put into the second half.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [18]

--------------------------------------------------------------------------------

Great. And sorry just final bit, just on Richlands. What happened with Richlands and what impact did it have on EBIT in the first half in Australian Beverages, please?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [19]

--------------------------------------------------------------------------------

Yes. So the year-on-year impact of Richlands was $4.6 million. The Richlands investment, when we hit business case, it's going to be a wonderful site. What we had -- historically we had a distribution center that was off the main location, rented facility. In the Richlands investment, that warehouse is now on site. And there's 2 levels of automation that exists. So it comes across from the factory and then it goes into a high-crane automatic system. And then the second as we pick for the route trade, it also has an automation. So both of those have had a startup curve. Not unusual when you're dealing with new technology like this. I'd say in my experience on these, it takes about 12 months to get to the levels that you require. When complete, this will be a really great facility and we expect to be on track in the warehouse in the third quarter. And then we also have the glass line that we moved obviously, out of Thebarton to there, and again a new line going in. So we've had the additional commissioning costs. And the reason that we incur the costs is that we just want to make sure that we continue to deliver high service. And as you deliver high service, it requires, therefore, weekend overtime when you're not hitting your requirements. So that was the investment that we put into Richlands.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Your next question is from Craig Woolford from Citigroup.

--------------------------------------------------------------------------------

Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [21]

--------------------------------------------------------------------------------

Just wanted to understand the Australian revenue drivers a bit more. It's pleasing to see the information released on mix. And what does surprise me a little bit is that mix effect continues to be slightly negative. In the result, there was very strong growth in frozen volumes. If we could get a bit more color to understand why there. And then also a bit more color as to what drove the growth in energy and dairy. Was it new SKUs or additional reach?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [22]

--------------------------------------------------------------------------------

Yes. Good afternoon, Craig. So frozen you're right, and we saw a really strong frozen performance which also has an impact on your mix. Sometimes it's sort of strange that you call out particular events, but a good movie season can actually change the mix of frozen as consumers move to blockbuster cinema events. So we did see that impact really come through in the second quarter. Within energy, the innovation that we have consistently brought to the market worked really well. And that's a combination of our partnership with Monster and then recently with the launch of Coca-Cola Energy.

I'd say the track record for Monster bringing innovation to the market has really worked for us and we've been driving terrific growth with them as a partner. Within dairy, we've continued to perform well on Barista Bros. and very early days is the launch of Nutriboost. I think Nutriboost, we're also seeing the ability to achieve some off location display in ambient rather than just relying on the facings that you find in a fridge because this is a sort of a product that's got more of a take-home element to it. It allows us to do that versus how we execute Barista Bros.

So I'd say we're really [buoyant] by the performance there. And this is where I'd say the nuance to David's earlier question is sometimes to win by channel requires a real nuance. So if you want to win in petrol and convenience, the #1 category is energy, the #2 is dairy. And so to be a credible player for those customers, you've really got to have active innovation and they're categories that we're really bringing significant innovation to market.

--------------------------------------------------------------------------------

Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [23]

--------------------------------------------------------------------------------

And my second question just on the COGS impact both for Australia and Indo, there is a comment in the release or the count that says that the COGS inflation was minimal in Australia. I think from November last year, there was some issue that you were [flagging] about some COGS pressure particularly PET resin. Has something changed there? And can you give us a sense of the COGS inflation for Indo in the first half?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [24]

--------------------------------------------------------------------------------

Yes. Craig, it's Martyn. So yes, obviously COGS were inflated by container deposit charges in Australia, so that flows through to what you'll see for the whole group. But underlying that, COGS inflation from commodities probably wasn't as bad as we called out in November. We had some increases in aluminum but offset by some reductions in sugar and PET hedging. So all in all, commodities was reasonably benign and probably will be for the rest of the year. We're pretty much hedged for the rest of the year now. So the Aussie dollar rate was slightly lower but -- the U.S. dollar rate, sorry. So commodities wasn't that much. But as Peter called out, Richlands did have an impact on COGS in Australia. So that was probably one of the bigger drags there.

In Indonesia, similar story. I think we called out in November that it would be sort of another year of double-digit commodities in rupiah. The rupiah rate that we've locked in for this year is about 6% higher than 2018. And then, on top of that, as I said, we've got some pretty good hedging rates on some of our commodities. So the commodities actually probably nets off. So rather than double digit, it's more like a 6% kind of COGS commodities inflation. But of course commodities is only about 1/3 of our COGS, so it's not what drives the whole thing. And we do have production efficiencies in both markets to kind of offset some of that as well.

--------------------------------------------------------------------------------

Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [25]

--------------------------------------------------------------------------------

All right. So just in terms of the hedging policy there and around that, was it just the brilliant CFO that's got his timing right around hedging or was there -- has there been a bit of change there? It just feels like we're more short-term hedged if you -- in November, you should have had a 6-month visibility around COGS [even] in hedges.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [26]

--------------------------------------------------------------------------------

Yes. We do have a great treasury team who do a fantastic job when it comes to hedging. And we did avoid the big spike in the rupiah, for example, when it went to a 20-year low, we kind of avoided a lot of that through our hedging. Similarly with aluminum as well. So we have got some of our timing right. You may get it wrong in some areas, for example, I think we called out last year in PET resin when we'd finally got to finding a hedging instrument, the market price dropped after we hedged. So you don't get it right all the time but I think all things being equal, the treasury team have done a good job this year.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Your next question is from Richard Barwick from CLSA.

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

My first question is for Martyn. I just wanted to -- I note your update on the Kina cash situation, so thank you for that. Can you give us an update on the USD 500 million balance that's locked away for the Indonesian CapEx, where -- how that's sitting?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [29]

--------------------------------------------------------------------------------

Yes. So it's probably down around $400 million at the moment. We're kind of cash neutral in Indonesia currently. So we have started some conversations with The Coke Company around potentially repatriating some of that money. We're looking at the regulatory requirements. It can take up to 12 months to get tax approval for those kind of things. So we've done a bit of intercompany loans and those kind of things. But I think over time, we will look to repatriate some of those funds. But I wouldn't expect anything in the next 12 months because it does take quite a long time to do that kind of stuff, probably via a capital reduction or something like that. So we're investigating that looking forward.

PNG is always hard to predict, we have a new Prime Minister, a new government there. So we have had more foreign currency, we've been really, really working hard with our relationships over there with the banks, with the central bank to try and get access to as much foreign currency as we can. But that's really going to depend on how big and how quick the gas projects come online over there. And the Prime Minister will be quite influential in that, so we'll watch that space. But we did get approval for a very small dividend which we just paid in August, which was pleasing because you have to get central bank approval for that. So we're taking whatever opportunities we can.

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [30]

--------------------------------------------------------------------------------

Okay. And just to clarify, the $400 million Indonesia is that -- you're talking U.S. or Aussie dollars?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [31]

--------------------------------------------------------------------------------

U.S.

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

U.S. Okay. And the last question for Alison if we can. Alison, I think it's pretty clear you've got some good people arguably nipping at your heels. You've been in the role for over 5 years now. Are you prepared to make a comment on what your intentions are regarding just the further tenure in your current role?

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [33]

--------------------------------------------------------------------------------

No, I don't have any comment. We have -- we've got a great team, you're absolutely right, and we've all got our head down. We're focused on getting the business back to mid-single-digit earnings per share growth which we are very confident about from 2020.

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

So does that mean, hitting 2020, is that the mood or the tone from your [end might change]?

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [35]

--------------------------------------------------------------------------------

I'm just focused on getting back to that 2020 target. That's my goal. And I'm really fortunate to have such a capable team alongside me to make that happen.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Your next question is from Ben Gilbert from UBS Investment Bank.

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [37]

--------------------------------------------------------------------------------

Just the first question for me, just interested around the relationship with KO and particularly the co-investment that they've been making sort of over the last 6 months and then the last 18 months and how you're thinking about that going forward.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [38]

--------------------------------------------------------------------------------

Ben, you're referring particularly to Australia?

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [39]

--------------------------------------------------------------------------------

Yes, yes. Right. To Australia specifically.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [40]

--------------------------------------------------------------------------------

Yes. Okay well maybe, Peter, you might want to comment on how we're working with our partners.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [41]

--------------------------------------------------------------------------------

Yes. Good afternoon, Ben. So I would say the critical element is making sure we're aligned on strategy. So having the accelerated growth plan, which is something that we have built together, has been very important in sort of unifying the way we work. So we're consistently aligned. I think before I arrived, the renegotiation to the incident model ensured that we're both then financially aligned behind that model, which has proven, I think, to be very powerful.

We've had to work to make sure that our processes between our organizations work, and I'd say that's improved a lot over the last 12 months. And in the area that we've tried to make sure that we really build upon is the concept of idea conflict not social conflict. I don't think anyone wants to go to work with an environment of social conflict. That we want to have really good conflict on ideas to make sure that we really drive growth. And I think there's a raft of initiatives that we've got in the second half that really demonstrate the way that's working. So I feel the partnership's working really well. And I think the fundamental role of being a bottler for me is working well with a brand partner. And I think that's in sync and I think it's got the appropriate tension on both sides to drive high performance.

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [42]

--------------------------------------------------------------------------------

So as we look into 2020, their level of co-investment around these initiatives, and obviously in some base pricing, [happened a] while ago, that doesn't change does it? It's in the base. And then to your point, potentially if there's new projects you can look at, the investment is going to be incremental. So there's no step down in the level of support you're expecting from them going forward?

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [43]

--------------------------------------------------------------------------------

Ben, Alison here. I'll comment on that. I mean when we put together our Accelerated Australian Growth Plan back in 2017, we went through an exercise to make sure that not only did we have the strategic alignment, which as Peter said, is incredibly important, but also that we had our financial incentives and our organizational model as set up to succeed and create the right incentives and behaviors as possible. And so we do have a good set of economic arrangements, which really get us focused through -- particularly through our incidents-based price approach, which rewards us all for growth essentially. So yes, there's a good level of commitment from both sides of the partnership to executing the plan and achieving the growth, and I'm looking forward actually to going to Atlanta shortly, and Peter and Martyn will be joining as well as Chris Litchfield and Kadir from Indonesia, where we will have the opportunity to spend a couple of days with The Coca-Cola Company to meet with James Quincy, the CEO, and really just to make sure that we're continuing that sort of very close alignment at the most senior levels with our Board joining us for that trip.

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [44]

--------------------------------------------------------------------------------

Okay. And final one for me, just interested in -- and obviously that change in countdown put through over in New Zealand recently around requiring ID in Made's energy drinks. Obviously, not over material to you guys, but interested in the way you're seeing the regulatory risk and how that level sits in the Australia at the moment. I think obviously the election outcome was probably helpful. But just what's happening in the background there, views around petrol, sugar tax and any further regulation.

--------------------------------------------------------------------------------

Alison Mary Watkins, Coca-Cola Amatil Limited - Group MD & Executive Director [45]

--------------------------------------------------------------------------------

Yes. Look I mean we are very committed to taking leadership ourselves on the areas that we think matter to customers, to consumers and to governments and for us absolutely sugar is front and center and packaging is front and center. So in relation to a sugar tax, we don't believe -- and there's a lot of evidence that supports it around the world, that a sugar tax works in addressing obesity. The causes of obesity are complex and manyfold, and a sugar tax is an action sometimes I think the governments take to be seen to be doing something. But the actual evidence that it makes any difference in the bigger scheme of things is clearly lacking.

So I think our approach is to say look, let's work hard to respond to the clear imperative to play our part in the obesity issue that we have here in Australia, and that's through reformulating our products, making sure that we've got smaller pack sizes, that there's great disclosure on our packs. And look, so far I think that the governments here and in New Zealand have recognized that leadership. And I think everyone recognizes that a tax is a blunt instrument that ultimately hurts consumers. So if we can avoid it and do our bit without needing to go that route, that's much better for everyone. So that continues to be our approach. The major parties do not have a policy in favor of a sugar tax at this stage. And so we'll keep running hard to make sure that there's no imperative for that kind of instrument.

Generally speaking, I think we're very focused on making sure that we operate in line or exceed community expectations. We're fortunate to be able to rely on and draw from the experience of our brand partners, The Coca-Cola Company, Monster Energy Corporation as well as our alcohol partners. So we're very aware of our social responsibility when it comes to responsible consumption of our beverages, and that includes energy drinks. So we do -- we're very avert that we encourage -- we do not encourage excessive consumption of energy drinks. We're very focused on our advertising to be make sure that we are not advertising to kids basically. And we really hold ourselves to account and our partners hold us to account for walking the talk on all of those things. So we will be very obviously conscious of those risks. But at the moment, I think our approach, which is one of leadership, is enabling us to make progress and hopefully having a good influence on the industries overall.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Your next question is from Larry Gandler from Crédit Suisse.

--------------------------------------------------------------------------------

Larry Gandler, Crédit Suisse AG, Research Division - Director [47]

--------------------------------------------------------------------------------

My question I guess pertains to Australia and I'm pretty comfortable with perhaps next year you guys might get some volume growth as you cycle Queensland, get [paid in] [deposit and the Peats Ridge termination of the contract there at Officeworks. But with regards to channel mix and just general price realization, what can you say about 2020 that those line items might be in the black, might be positive.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [48]

--------------------------------------------------------------------------------

Okay. So good afternoon, Larry. So I'll start with our grocery business this year that we've managed fairly significant change to the depth of our pricing on 24-pack and 30-pack cans so that's been a pretty significant mix to the market. I think that making sure that we hit sort of optimal price points and it's got a degree of sophistication because the answer to that is it depends on what week. But in general, if you were at the front end of a store 12 months ago you would've seen -- been seeing 50% offs, and this year you're seeing 40% offs. And that's quite a dramatic change to bring to the market. So having already made that step this year, we then see that flow through for next year as a business as normal. So you have to phase into volume impact this year. We've also got some -- a raft of innovation that we will bring to the market when it comes to pack and price. And I think we've got a very good understanding about which weeks of the year are important and how we manage that. So there's a real nuance, and there's a lot of great learnings from The Coca-Cola Company who have a program called Revenue Growth Management 2.0 that tries to [bed] in all of the global learnings that are to do with pack and price. So that's been a very useful exercise that we have embedded into our go-forward plans.

And then in terms of our other channels, I think we'll start to see the benefit of the momentum that we put in place this year both with innovation and with our channel model. And I'd say the thing that I probably underestimated was that in going to a channel structure away from the state-based structure, we've really got much better coordination between our call center and the call center does inbound calls and outbound calls, but there's just a total synergy now of what they're doing and what the person who calls on the store. So that level of coordination is really making a big difference. We've got fantastic technology where in a call center they can see the fridge that sits in a store through our Trax data. They know that -- what we're trying to affect and so the coordination of both. So I think we're seeing a real improved effectiveness at the way that we go to market.

--------------------------------------------------------------------------------

Larry Gandler, Crédit Suisse AG, Research Division - Director [49]

--------------------------------------------------------------------------------

And it sounds like, from the way you're talking, unlike 2019, 2020 you're expecting price and channel mix, product mix to be positive. I think 2019, you guys went into the year knowing container deposit there was going to competitive and it was pretty much going to be a dog fight. It sounds like next year, you're thinking those line items need to be positive.

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [50]

--------------------------------------------------------------------------------

Well, I think the key one from a transition year is the impact of CDS is significant in the year that you do it. We do see that normalizes as a behavior then that people move on. So having Queensland has played a big impact on the half. And then as we look at WA, I think that we now understand a lot more about how to manage that by state by having gone through it. And it's only 10% of our volume. I think the bigger impact has really been for us some of the pricing decisions that were being made this year that don't come through next year and you enjoy the full year benefit of some of those decisions.

--------------------------------------------------------------------------------

Larry Gandler, Crédit Suisse AG, Research Division - Director [51]

--------------------------------------------------------------------------------

Okay. A couple of other questions. Martyn, on COGS, I didn't get the Indonesia 6% comment, I just missed that. And also as I think about the raw materials, aluminum, sugar and PET and maybe even the fact that the rupiah is strengthened as well now against the USD. I would be thinking in 2H '20 and then in '21, we might be looking at, at least the raw material line, being a tailwind for you guys in 2H '20 and '21. And then the 6% comment, if you could just repeat that.

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [52]

--------------------------------------------------------------------------------

Yes. The 6% was on the rupiah rate that we've got hedged to this year versus the rupiah rate we had last year.

--------------------------------------------------------------------------------

Larry Gandler, Crédit Suisse AG, Research Division - Director [53]

--------------------------------------------------------------------------------

6% disadvantageous? Or advantageous?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [54]

--------------------------------------------------------------------------------

Yes, disadvantageous, correct. And obviously, I mean we've only got about 30% hedge, hedged for next year in terms of rupiah but it's probably reasonably flat on what we're experiencing this year from a rupiah perspective. But plenty of time to go and it can be pretty volatile, that I wouldn't want to give you a number for next year yet, it's too early to say. And then on commodities as I said, it's pretty much been a wash so far this year with increases in some and decreases in other.

--------------------------------------------------------------------------------

Larry Gandler, Crédit Suisse AG, Research Division - Director [55]

--------------------------------------------------------------------------------

And without necessarily giving me a projection, but is the momentum -- is the momentum I see in such a way that it would be a tailwind for you in 2H '20 and '21?

--------------------------------------------------------------------------------

Martyn J. Roberts, Coca-Cola Amatil Limited - Group CFO [56]

--------------------------------------------------------------------------------

No. I'm not seeing any tailwind at this stage.

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

Your next question is from Morana McGarrigle from Macquarie.

--------------------------------------------------------------------------------

Morana McGarrigle, Macquarie Research - Analyst [58]

--------------------------------------------------------------------------------

Just a follow-up from an earlier question on the state immediate consumption channel. You said you're seeing a number of encouraging early signs. Are you able to please quantify these? So perhaps what the sales uplift has been in those stores, or any other metric that you look at. And then on that, just given that the investment doesn't target a specific region, particularly on metro, is there a plan to make a similar investment in other stores and regions? Or are you comfortable that you're making the investment in the right mix of stores?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [59]

--------------------------------------------------------------------------------

Yes. So thanks for the question. We're very confident that the most competitive area that we had to invest in was in metro areas. And that's obviously where from a population and impact that we see the greatest. I would say there's a real strength to Amatil about our regions. We already do a really good job and it differs a little bit by region as to how we structured some of them. We actually have combined representation where they do multichannel, and that works highly effectively.

So the numbers that were presented today, I think the Sydney one is a good illustration which takes the greater Sydney area that last year was declining at some 7% and seeing 1.5% growth. When you look at that, the resources went into the field in March, so you really see the benefit coming through March, April, May and June. And to see some volume growth come through has been really significant for us based upon the level of decline. As I said earlier, it's partly, you'd say, the level of resource of what you can influence when you're back calling on these customers weekly and fortnightly. And the impact that you make -- beverage is really critical to these people's business and profitability, and when they see uplifts, it's really significant to them. And I think that really cements the relationship that we have.

So the focus for us is on how we tailor the range by outlet. So what sells in a pita shop versus a sushi shop or a gym, so we're very nuanced about what we execute under segmented execution. But having the right items within that -- those shops makes a real big difference. So the example would be [instead] of immediate consumption, that we experienced a decline on 600-ml Coke up till May and then we saw growth in June and July. And that is about making sure that, that brand is available in the right space because if that fridge is too crowded then it runs out of stock during peak times. And as we get it right, then we see the volume impact. So to see volume growth come back in the 600-ml Coke is a good example of the benefit we're seeing of putting the right range back into those stores.

--------------------------------------------------------------------------------

Morana McGarrigle, Macquarie Research - Analyst [60]

--------------------------------------------------------------------------------

Sure. Okay. That's helpful. And then just another one on Aussie beverages and the Coke brand. Obviously, majority of the volume growth is now coming from diet and light, and you've said that classic is still declining. Can you just provide some more color on those trends and just an update on the overall consumer perceptions of the Coke brand?

--------------------------------------------------------------------------------

Peter West, Coca-Cola Amatil Limited - MD of Australian Beverages [61]

--------------------------------------------------------------------------------

Yes. So the decline overall was -- is predominantly a pricing decision. As I said, it's the change from running half price promotions as being the most significant impact on that. If you exclude that, then you get a different answer. But if you break the brand apart, we're seeing growth. And I would say really pleasingly for us, mid-single-digit growth when you take the combination of no sugar and zero from last year. There was a really big effort on our behalf to bringing no sugar to market because we believed it best replicated the taste of brand Coke. There was some advantage that you think -- if you think about 12 months ago where you have dual ranging, you actually have more presence in-store. So to back that up and to get mid-single-digit growth on that I think has been really [committable] for us. And we take a lot of confidence from its performance.

I think if you fast forward over time, we would reflect that the classic part of the brand will be flat, and the growth will come from no sugar, and we'll experience more of that into the future would be our expectation. And that's very much reflective of consumer expectations, but I think it's also reflective now that we've got something that tastes so good and it's the one that's closest in taste to brand Coke.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

Thank you. There are no further questions at this time.

--------------------------------------------------------------------------------

Ana Metelo, Coca-Cola Amatil Limited - IR Advisor [63]

--------------------------------------------------------------------------------

Thanks again to everyone for joining the results briefing this morning. Looking forward to seeing many of you over the next few days.