Coca ColaAmatilLimited 10 Jan 2013 2230 1

Equities: Coca-Cola Amatil Limited
10 January 2013 ASX Code: CCL Food & Beverage
Blame it on Mother
Event
We consider the positive impact of Bureau of Meteorology (BOM) weather
forecasts and the negative impact of the continuing colonisation of shelf
space by Energy drinks. The latter appears more crucial for CCLs earnings
outlook.
Underweight
(from Neutral)
Price target
$13.20 (from $13.35)
Share price
52-week range
Forecast price return
Forecast dividend return
Forecast total return
Market cap
$13.80
$11.47 - $14.08
-4.3%
4.3%
-0.1%
$10,517m
Implication
Forecasts and ratios
Weather improving, but has failed to shine on CCL. BOM is no longer
Year end Dec
forecasting an El Nio to develop this year, however the weather has

normalised against the damp and cold summer of 2011/12. This should be a
positive driver of high-margin convenience products and chilled single-serve
beverages. CCLs 12 December 2012 downgrade suggests other structural
factors are at play.
Carbonated drinks losing share across channels to Energy. Our channel

checks suggest that carbonated soft drinks are continuing to lose fridge
space in supermarkets and convenience channels. The shelf space is being
lost predominantly to Energy drinks (a category which CCL is relatively
weaker in), putting CCLs high-margin single-serve/convenience sales at risk.
Adverse earnings impact could be much stronger than sales impact. The
higher-margin convenience/single-serve products are a greater risk for CCL
from the expanding market share of Energy drinks. This suggests a
disproportionate impact on earnings compared with sales possibly well
beyond our expectations.
Pricing in perfect weather? The recent share price spike coinciding with the
heat wave overcapitalises a short-term weather event and presents a good
opportunity to sell the stock.
Earnings and valuation revisions
EBIT $m
10
11
12f
13f
14f
845
869
890
932
983
NPAT $m
507
532
554
583
610
EPS c
68.2
70.2
72.9
76.6
80.2
EPS Growth %
12.8
2.9
3.8
5.1
4.7
P/E x
15.9
16.4
18.5
18.0
17.2
EV/EBIT x
11.7
12.1
13.5
13.2
12.6
DPS c
48.5
52.5
55.0
59.0
65.5
Dividend Yield %
4.5
4.6
4.1
4.3
4.7
Franking %
100
100
100
100
100
Price relatives Starting index and share price rebased to 100

120.0
118.0
116.0
114.0
112.0
110.0
108.0
106.0
104.0
102.0
100.0
98.0
96.0
94.0
Jan 12
Apr 12
Jul 12
Oct 12
S&P/ASX 200
CCL
We have downgraded CY13 EPS by -3.0% and CY14 by -7.7%. Valuation

-1.2% $12.50; Price target -1.1% to $13.20.
Figure 1: Earnings and valuation revisions
FY12f
FY13f
New
Old
Change
New
Old
NPAT ($m)
554.4
554.4
0.0%
582.9
EPS (cps)
72.9
72.9
0.0%
76.6
FY14f
Change
New
Old
Change
601.0
-3.0%
610.4
661.1
-7.7%
78.9
-3.0%
80.2
86.8
-7.7%
Source: CBA estimates
Investment view
Heightened risk to earnings demands multiple reduction. CCLs earnings
have become more sensitive due to its exposure to higher-margin formats,
which are now threatened by Energy drinks. Consequently, CCLs 12%
premium to market is unsustainable at current levels. We downgrade our
recommendation to Underweight.
Andrew McLennan T. +612 9118 1199

E. andrew.mclennan@cba.com.au
Sam Teeger, CFA T. +612 9118 1184
E. sam.teeger@cba.com.au
Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at
www.research.commbank.com.au. This report is published, approved and distributed solely by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CBA is not
registered as a broker-dealer under the U.S. Securities Exchange Act of 1934 and is not a member of the Financial Industry Regulatory Authority, Inc. or any U.S. self-regulatory
organization.
Global Markets Research
Financials
Profit & Loss
FY10
FY11
FY12f
FY13f
FY14f
Company Information
Revenue
4609
4856
5185
5538
5943
Financial Year End Date
Expenses
3574
3783
4070
4360
4697
Share Price
13.80
1.5
0.9
0.0
0.0
0.0
Price Target
13.20
EBITDA (inc assoc)
1036.8
1074.1
1114.5
1177.8
1245.8
Depreciation & Amort
191.9
205.2
224.9
245.4
262.6
Associates
31 Dec
12.50
Valuation
Underweight
Recommendation
EBIT
844.9
868.9
889.6
932.5
983.2
Net Interest
134.4
127.8
110.3
111.5
123.5
Operating Metrics (%)
FY10
FY11
FY12f
FY13f
Profit Before Tax
710.5
741.1
779.3
821.0
859.7
EBITDA margin
23.1
22.4
21.6
21.4
21.1
Tax
203.9
209.1
224.9
238.1
249.3
EBIT margin
18.8
18.1
17.3
16.9
16.6
Minorities
NPAT
Specific Items
Reported Profit
Other
FY14f
0.0
0.0
0.0
0.0
0.0
ROIC (NOPLAT)
17.7
17.0
16.4
16.4
16.5
506.6
532.0
554.4
582.9
610.4
Return on Equity
29.5
27.5
26.3
25.9
25.4
-9.3
59.8
0.1
0.0
0.0
87
90
92
99
95
497.3
591.8
554.5
582.9
610.4
1689.4
1742.9
1768.1
1791.9
1853.7
0.0
0.0
0.0
0.0
0.0
CBA Profit
506.6
532.0
554.4
582.9
610.4
Growth Rates (%)
FY10
FY11
FY12f
FY13f
FY14f
OCF pre I&T / EBITDA

Net Debt (m)
Net Debt / EBITDA (x)
Net Debt / Net Debt + Equity
EBITDA interest cover (x)
Effective Tax Rate
1.6
1.6
1.6
1.5
1.5
48.0
46.1
44.8
43.5
42.9
6.7
7.7
7.7
8.6
8.4
28.8
28.2
28.9
29.0
29.0
Sales
1.2
6.9
7.3
6.9
7.4
EBITDA
7.7
3.6
3.8
5.7
5.8
Per Share Data (c)
FY10
FY11
FY12f
FY13f
FY14f
EBIT
7.3
2.8
2.4
4.8
5.4
EPS Shares (m)
742.9
758.1
760.9
761.3
761.3
12.8
2.9
3.8
5.1
4.7
Reported EPS
66.9
78.1
72.9
76.6
80.2
Normalised EPS
68.2
70.2
72.9
76.6
80.2
Dividends
48.5
52.5
55.0
59.0
65.5
Normalised EPS
Balance Sheet
FY10
FY11
FY12f
FY13f
FY14f
Liquid Assets
385
665
935
1012
950
Dividend Yield (%)
Net Receivables
772
864
851
896
967
Payout Ratio (%)
Inventories
735
752
757
794
856
Franking (%)
95
363
111
111
111
Free Cash Flow Yield (%)
1987
2644
2654
2813
2884
Net Tangible Assets
Other
Current Assets
Investments
75
123
123
123
Property, Plant & Equipment
1595
1772
1954
2126
2266
Net intangibles
1489
1507
1525
1526
1526
132
105
110
110
110
3291
3385
3712
3885
4025
569
736
776
842
911
Other
Non Current Assets
Trade Creditors
Book Value
Multiples (x)
4.5
4.6
4.1
4.3
4.7
71.1
74.8
75.5
77.1
81.7
100.0
100.0
100.0
100.0
100.0
2.6
3.1
4.3
3.8
3.9
46
69
85
106
124
243
268
286
306
324
FY10
FY11
FY12f
FY13f
FY14f
9906.1
10487.8
12007.8
12298.1
12359.9
EV / Sales
2.2
2.2
2.3
2.2
2.1
EV / EBITDA
9.6
9.8
10.8
10.4
9.9
Enterprise Value (m)
Borrowings
127
108
226
226
126
EV / EBIT
11.7
12.1
13.5
13.2
12.6
Provisions
165
145
105
114
121
Reported P/E
16.2
14.7
18.5
18.0
17.2
Current Liabilities
1202
1388
1480
1556
1532
Normalised P/E
15.9
16.4
18.5
18.0
17.2
Borrowings
1944
2300
2478
2578
2678
PEG
5.5
4.3
3.6
3.8
5.1
Provisions
202
166
169
169
169
Non Current Liabilities
2242
2606
2710
2810
2910
Segment EBIT ($m)
FY10
FY11
FY12f
FY13f
FY14f
Shareholder Capital
2180
2218
2239
2239
2239
Australia Beverages
593
607
623
634
653
Retained earnings
-289
-76
64
221
355
New Zealand & Fiji
81
80
67
70
76
-58
-108
-128
-128
-128
Indonesia & PNG
75
88
105
130
152
Total Equity
1833
2034
2175
2332
2467
Alcohol, Food & Services
94
93
95
98
102
Cash Flow
FY10
FY11
FY12f
FY13f
FY14f
FY14f
899
966
1022
1161
1182
Operating Profit
Dividends Received
Net Interest Received
-137
-118
-125
-111
-123
Other operating
-177
-206
-208
-229
-242
585
642
690
821
817
-373
-361
-457
-418
-403
-12
-14
226
-385
-375
-231
-418
-403
Dividends Paid
-260
-344
-394
-426
-476
Net Borrowings
-419
349
202
100
Other financing
Operating Cash Flow

Capex
Payments for Investments
Other investing
Investing Cash Flow
Capital Raisings
Financing Cash flow
-678
-192
-326
-476
Total Cash Change
-481
283
271
76
-62
Cash at End of Year
382
665
935
1012
950
FY10
FY11
FY12f
FY13f
AUD/NZD (P&L)
Currency Assumptions
1.27
1.31
1.27
1.26
1.26
AUD/IDR (P&L)
8361
9058
9333
9319
9360
Credit Metrics
Adj. Gross Debt / EBITDA
Other
5x
4x
3x
2x
1x
BBG
MYR
WES
GFF
DJS
WOW
CCL MTS
JBH PBG
PMV
HVN
TWE
0x
0
0.05
0.1
Dispersion of EBITDA (12-month forward) (x 100 = %)
0.15
Source: Company data, CBA estimates
Weather impact a short-term positive, being diluted

El Nio off the cards, but weather has improved
The Bureau of Meteorology (BOM) recently updated its fortnightly El Nio-Southern Oscillation
wrap-up. BOM no longer forecasts that an El Nio will develop this year.
BOMs outlook confidence is related to how consistently the Pacific and Indian oceans affect
rainfall. After hovering around El Nio thresholds during winter, tropical Pacific temperatures have
retreated to neutral levels over the past few months. Climate models surveyed by BOM suggest
sea surface temperatures in the tropical Pacific Ocean are likely to stay at neutral levels during
early 2013.
This means that in contrast to the two prior summers, Australian rainfall and temperatures are
unlikely to be strongly influenced by ENSO. Given current conditions and outlooks, this will be the
first ENSO-neutral summer since 200506.
As has been seen recently, the wet and cold conditions of the prior two summers have not been
repeated in 2012.
Figure 2: Southern Oscillation Index (SOI)
30
SOI
20
10
0
-10
-20
-30
Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
Source: BOM, CBA
Weather has been and should remain a net positive for carbonated soft drinks
Even before the current heat wave, temperatures have been moving up in Australia. BOM data
shows the averages for the quarter to December in Australia are running a couple of a percent
above average. BOM anticipates above-average temperatures to prevail over the March quarter,
particularly along the eastern seaboard.
Rainfall experienced over the December quarter has been below average on the eastern seaboard
and above average in the less populated west. BOM expects this regional skew to continue over
the March quarter, with the eastern seaboard to continue to experience above-average
temperatures.
Glob
bal Markets Ressearch
Equ
uities: Coc
ca-Cola Am
matil Limitted
Figu
ure 3: Mean ttemperature anomaly, De
ec quarter 201
12
Figu
ure 4: Median
n max temperrature foreca
ast, Mar quarrter
Sourrce: BOM
Sourc
rce: BOM
Figu
ure 5: Rainfall anomaly, Dec
D quarter 2012
Figu
ure 6: Median
n rainfall foreccast, Mar qu
uarter
Sourrce: BOM
Sourc
rce: BOM
bu
ut failed to shine in 2H
H12 for CCL
L
Priorr to CCLs 12 December 2
2012 downgra
ade, our expe
ectations for C
CCL were ba
ased on a
norm
malisation of weather con
nditions over the
t next 12 months.
m
Receent updates frrom BOM
sugg
gest the weather has actuaally been hottter and drier in the more p
populated reg
gions of Austrralia.
The fact
f
that CCL
L has
downgraded earn
nings
pite this supp
portive
desp
weatther condition
ns
sugg
gests there m
may be
other factors at p
play
Thesse are positive

e trends for th
he sale of carbonated soft drinks (CSD
D), particularly
y the highermarg
gin chilled single-serve bevverages. The
e fact that CCL has downggraded earnin
ngs despite th
his
supp
portive weather conditionss suggests there may be other
o
factors aat play, which
h are more th
han
offse
etting the pos
sitive weatherr impact.
We suspect
s
these
e issues are d
directly relate
ed to the struc
ctural changee taking place
e in the beverrage
mark
ket, or indirec
ctly, from the response fro
om CCL to mitigate these aadverse trend
ds.
Coke Amatil running out of Energy?

We have performed a top-down analysis of the beverage industry where we have analysed trends
for the major beverage categories. Our key conclusions are:
1. The Energy drinks category continues to outperform the wider beverage sector.
2. In recent years, Energy has increasingly penetrated the convenience sector. We expect this
trend to continue. We also expect the single-serve supermarket channel (which CCL has
developed successfully) to become increasingly penetrated by Energy.
3. The single-serve supermarket channel and the convenience channel are both highly important
to CCL, given they generate significantly higher margins relative to the in-home supermarket
channel.
Background on the beverage and energy drink market

The Australian beverage market is served through the supermarket and convenience retail
channels and the hospitality service channel. Our analysis looks primarily at the retail channels,
which represent at least 70% of the total non-alcoholic beverage market, by value.
In 2012, Australian non-alcoholic beverage sales through supermarkets were estimated at $3.62b
and $660m though the convenience channel. The value of sales picked up in 2012, mostly due to
price and mix growth, rather than volume growth.
Figure 7: 2012 beverage sales, Supermarket channel
4.1%
Figure 8: 2012 beverage sales, Convenience channel

1.0% 0.5%
2.2%
8.5%
2.9%
Energy
1.6%
Soft drinks
Still water
15.1%
56.3%
3.8%
7.8%
35.4%
4.7%
Energy
Soft drinks
Still water
9.0%
Sports
Sports
Fruit
Fruit
Tea
Tea
15.7%
Mineral waters
Mineral waters
Mixers
Mixers
31.5%
Source: Retail World, CBA
Source: Convenience World, CBA
In volume terms over 2012, the supermarket channel accounted for approximately 2.14b litres of
beverage sales, whereas the convenience channel accounted for relatively modest 126m litres.
This implies average revenue per litre of $1.69 through the supermarket channel, compared to
$5.23 per litre through the convenience channel.
Clearly, the convenience market is capable of achieving a vastly higher average selling price
(ASP) than the take-home product (which represents the majority of sales through
supermarkets). This is an important fact, which CCL has taken full advantage of in recent years
to expand margins through a chilled single-serve/convenience offer with the supermarket
channel. This previous success also creates a risk to CCL as the Energy category colonises
the high-value and high-margin channels to market.
The Energy market has been high growth for a number of years and, based on global trends and
local market feedback, will continue to take share over the medium term. Energy represents a
relatively modest 8.5% of value within the supermarket channel, equating to $306m in annual
sales.
Energy continues to outperform the wider beverage sector

For a number of years, Energy drinks have been the darling of the soft drink category with strong
unit growth over consecutive years. While this is reason enough for retailers to allocate shelf
space to Energy drinks, the story becomes more compelling when we consider the impact of
ASPs.
Energy drinks have a much higher ASP compared to other CSD products, even on a chilled,
single-serve basis. Unit growth, high ASP and higher sales productivity provide three huge
incentives for the supermarket and convenience channels to allocate more and more space to
Energy drinks, and we believe this is becoming significant enough to detract from CCLs sales
and earnings growth ambitions.
Figure 9: Price per litre trends
Price per litre
(2010)
Price per litre

(2011)
Price per litre Price per litre Price per litre

(2012) (2011 change) (2012 change)
Category
In home
Single-serve
1.44
3.97
1.48
4.18
1.50
4.28
3.2%
5.4%
1.2%
2.4%
Energy category
Energy (total)
Energy single-serve
6.84
7.02
6.31
7.19
6.35
7.33
-7.7%
2.5%
0.5%
1.9%
It should come as no surprise that our channel checks suggest CSDs are continuing to lose shelf
and fridge space in supermarkets and convenience channels to Energy drinks. This is consistent
with recent trends in industry data (as shown in Figure 10) and global beverage trends.
Figure 10: Market share changes between 2010 and 2012 (supermarket channel)
Tea
Mineral water
Sports drinks
Mixers
Still wtaer
Energy drinks
Fruit juice
Soft drinks
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
CCL is adversely affected by structural change towards energy

Shelf space is being lost to categories which CCL is relatively weaker in such as energy drinks,
mineral water, iced tea and still water. This loss of space is more significant to CCLs earnings
than the category numbers suggest, once the impact on higher-margin single-serve market is
taken into account.
Figure 11: CCL market shares in key beverage categories (supermarket channel)
CCL Share
Other Share
100%
80%
37%
47%
65%
60%
82%
87%
97%
40%
63%
53%
20%
35%
18%
14%
0%
Soft Drinks
3.5%
Fruit Juice
-0.5%
Still water
5.3%
Tea
8.4%
Sports Drinks
6.0%
Energy
16.6%
2 year CAGR (2010 - 2012)
CCL is the number #3 player in Energy, but it is losing share

The leader in the energy drink segment is Frucor (owned by Japans Suntory) which produces V,
closely followed by Red Bull. CCL is the third player through Mother and Powerade Fuel+.
However, over the last two years, CCL conceded market share to Frucor and Schweppes, the
latter having the Australian distribution licence for Monster Energy. The Other players, including
Rockstar energy drink and Wicked energy drink, are also capturing market share.
Figure 12: Energy drink sector market shares 2012
(supermarket channel)
Figure 13: Energy drink sector market share changes

2010 to 2012 (supermarket channel)
Other
CCL,
18.0%
Lucozade
Schweppes
, 7.5%
Red Bull,
33.4%
Lucozade,
1.3%
Frucor,
35.5%
Other,
4.1%
Schweppes
CCL
Red Bull
Frucor
-3.0% -2.0% -1.0%
0.0%
1.0%
2.0%
3.0%
The big prize: The single-serve supermarket channel

Single-serve drinks have significantly higher price points than take-home packs, on a per-litre
basis. The higher price point is partly driven by the cost of making a single-serve product and
partly due to being refrigerated and conveniently located close to the cashier, which provides a
differentiated product available for immediate consumption, similar to that found in the
convenience channel. The higher price points generate materially higher gross profit dollars
compared to take-home packs.
Supermarket single-serve market as large as convenience channel
The materially higher gross profit dollars in the single-serve market has enabled CCL to effectively
expand the size of the single-serve market and materially enhanced ASP and margins for CCL
Glob
bal Markets Ressearch
Equ
uities: Coc
ca-Cola Am
matil Limitted
(and the superma

arket) in the p
process. It has
s also enabled retailers to generate gre
eater gross profit
s
metre opportunitiess to the retailler.
per square
Esse
entially, CCL has
h created a convenience offering witthin the superrmarket chan
nnel that now
rivalss the tradition
nal convenien
nce channel. Compared
C
to
o the convenieence channe
el sales of $66
60m
in 20
012, the single
e-serve markket within the supermarkett channel acccounts for 17..4% of total
supe
ermarket beve
erage sales, o
or $629m.
Figure 14: Retail beverage sa
ales, by channel and functtion
Sourc
ce: CBA
Supe
ermarket sing
gle-serve cha
annel outperrforming in ho
ome channell
In rec
cent years, th
he single-servve market has been outpe
erforming the in-home marrket in the
supe
ermarket chan
nnel. As a ressult, the pene
etration of single-serve bevverages has increased
i
to
17.4%
% in 2012 (from 16.4% in 2010).
Figure 15: Single-serve penettration increa
asing
3.5
I home (LHS)
In
Single
e serve (LHS)
Single serve penetratiion (RHS)
18.0%
3.0
2.5
2.99
2.8
88
2.81
17.5%
2.0
17.0%
1.5
1.0
0.5
16.5%
0.55
0.58
3
0.63
0.0
16.0%
V
($b)
2010 Value
201
11 Value ($b)
2012 Value ($b

b)
Sourc
ce: Retail Worl
rld, CBA
This above-mentioned trend in

n isolation is a positive for CCL, given iit has a 52.4%
% market sha
are in
5.7% market share for the in-home cattegory. Howe
ever, within th
he
single-serve compared to a 45
nnel, Energy h
has been grow
wing significa
antly. This is a negative fo
or CCL given its
single-serve chan
ng position in the single-seerve market but
b relatively weaker posittion in the Energy market.
stron
Figure 16: Energy is a significant part of the single-serve market, but growth stabilising
0.8
Energy SS (LHS)
Single serve - ex energy (LHS)
24.0%
Energy SS penetration (RHS)
23.0%
0.6
0.44
0.49
0.45
22.0%
0.4
21.0%
0.2
20.0%
0.11
0.13
0.14
2010 Value ($b)
2011 Value ($b)
2012 Value ($b)
0.0
19.0%
As CCL and the supermarkets developed the chilled, single-serve category, it enabled a
significantly positive mix shift towards vastly higher ASP formats. In 2012, a litre of take-home
beverage achieved an ASP of $1.50, compared to a single-serve price per litre of $4.28.
Single-serve supermarket channel now at risk to Energy
Energy drink sales within the convenience channel represent 35.4% of beverages and are now
exceeding the CSD by value.
Despite the reduction in Energys penetration rate of single-serve in 2012, we are confident from
industry feedback and global trends that the increase in penetration will continue.
We estimate energy drinks represent 22.3% of single-serve supermarket channel. We expect this
to increase to 39.3% by 2020, given the higher ASP and gross profit dollars (GPD) are strong
incentives for supermarket retailers to allocate greater space to Energy (at the expense of CSD),
particularly in the highly profitable refrigerated shelf space previously dominated by CCLs brands.
In its most recent conference call, management at Monster Beverage Corporation (MNST.US)
indicated that Energy now has more than 26% of the convenience beverage channel in the US.
This is clearly a global trend towards Energy drinks.
CCLs massive market share in Australia (57.7% of CSD, 80.8% of cola in supermarkets, and
46% and 91.5% respectively in convenience) makes CCLs earnings more susceptible to the
growth of Energy drinks.
Energy a more lucrative option than CSD

MNST is a publicly-listed beverage corporation specialising in Energy drinks. We have compared
the operating metrics between MNST and CCL to determine the difference in metrics at the
product level and group P&L.
Figure 17: Comparative metrics, per case (AUD)
Per case metrics
Revenue
Cost
EBIT
MNST
CCL Aust
9.85
7.21
2.64
8.52
6.73
1.79
On a per-case basis, in 2011, MNST generated $9.85 per case in wholesale revenues and $2.64 in
EBIT. This infers a total cost (COGS and CODB) of $7.21 per case.
In contrast, in 2011, CCLs Australian division generated $8.52 in revenue per case and $1.79
EBIT. Cost per case for CCL Australia was $6.73. While inputs, scale and distribution models
differ between the CCL and MNST, the key reason for the greater EBIT at MNST is higher gross
margin.
We are confident the stronger margins at MNST are a more extreme demonstration of the relative
profitability between convenience/single-serve and take-home formats. While our data cannot
confirm margins at retail level, industry feedback suggests the margin % available on Energy
drinks are also larger for retailers.
Figure 18: Comparative profit metrics, 2011
MNST.US
CCL group
CCL Aust
1703
894
52.5%
456
26.8%
4801
2116.9
44.1%
868.9
18.1%
2880.7
Sales
GP
Margin
EBIT
Margin
607.2
21.1%
There are two implications from this analysis:
We can infer from this analysis that CCLs convenience and single-serve sales provide higher
margins than take-home, and have enabled CCL to expand margins from mix changes as the
sales of the convenience formats have taken market share. However,
Energy is a more profitable and increasingly popular alternative replacement to CSDs that is
expected to continue to take share from incumbent products, putting the most profitable
channels to market at risk for CCL.
We forecast that Energy drinks will represent 14.5% of supermarket beverage sales by 2020, from
6.7% in 2010.
Figure 19: Supermarket beverage sales, 2010
29.0%
CSD market - ex
Energy
Figure 20: Supermarket beverage sales, 2020f
26.4%
CSD market - ex
Energy
Energy
Energy
Still
Still
59.1%
6.7%
64.3%
14.5%
Risks that energy drinks might be banned by health authorities

While energy drinks have received their fair share of negative publicity relating to adverse health
impacts, any product bans appear unlikely at this stage. FDA incident reports in the US into
several deaths that may have occurred following the consumption of energy drinks could not
prove that the energy drinks caused the deaths.
100mL of a generic energy drink contains approximately 32 milligrams of caffeine. This compares
to an espresso coffee (60mL) at ~85mg and filter coffee (240mL) at ~150mg.
New Scientist claims that a lethal dose of caffeine is about 5 grams for adults. Therefore, one
would need to drink over 15 litres of energy drink to get to the lethal dose level. Other ingredients
such as taurine and guarana have not yet been properly studied.
10
CCL earnings growth at greater risk than sales

CCL dominates the CSD market in Australia. Figures 21 and 22 below demonstrate the split of
supermarket beverage sales by category and the same split for CCL in Australia.
While the companys domination of the CSD category demonstrates a strength, it also poses a
risk over the long term if Energy continues to take market share. Beyond the pure profit motive for
Energy drink manufacturers and retailers, the longer-term trends also appear to be well supported
by the significant skew of Energy drink consumption amongst younger generations.
Figure 21: 2012 beverage sales, Supermarket channel
Figure 22: CCL supermarket sales mix, by category
3.7% 1.6% 0.1%
Energy
2%
8.5%
Fruit Juice
1%
CSD
0.6%
Juice
Water
Energy
Sports
60.4%
Soft Drinks
86%
Still water
6%
Tea
1%
Sports
Drinks
4%
Ice tea
other
5.1%
Earnings impact
CCL remains a resilient business with dominant market share, pricing power, product innovation
and a staple product offering. As such, we continue to believe the company will have predictable
earnings characteristics over the foreseeable future.
However, the key issue for earnings is that the companys core CSD offering is struggling to
maintain share and CCLs ability to respond in the Energy market is limited. The impact to
earnings is exacerbated by the groups sensitivity to the highly profitable singleserve/convenience market.
Mother, CCLs energy product, is the number three player in the Energy market, but declining
against the stronger market share positions of the two distinct leaders (V and Red Bull) and
aggressive new market entrants (Monster and Rockstar).
We have reduced our forecast sales and earnings expectations from the Australian division to
reflect our view that CCL will underperform the market over the medium term. This translates into
Australian sales growth in the order of 2-4% pa and EBIT growth marginally less than this as mix
shift exacerbates the impact.
11
Figure 23: Estimated Supermarket EBIT distribution, 2012
Figure 24: Forecast Supermarket EBIT distribution, 2020
5.1%
7.3%
22.6%
26.5%
Take home
Take home
Single serve
Single serve
Energy
Energy
68.4%
70.1%
The ability to forecast the impact of the shift to Energy on CCL is difficult; however, the heavy
reliance on the high-profit single-serve format will have a disproportionate impact on earnings if
market share continues to be lost to Energy.
Valuation and recommendation

The slower growth environment from the core Australian division makes it that much harder for
CCL to return to its historical Group EBIT growth rate of 9-10% (three-year EBIT CAGR to FY10)
experienced prior to the La Nina weather event of 2011.
Despite improving outlook for weather, we forecast three-year EBIT CAGR of 2.6% for the
Australian division and 5.2% for Group EBIT over the period to CY15.
Relative PE
Against this earnings growth outlook, we believe CCLs current market premium of 12% (ASX200
Industrials ex Financials) is unlikely to be sustained in the medium term as the outlook for earnings
comes into focus from the market. Over the past five years, CCL has traded at an average PE
premium of 14% to the market. We now believe a 5%-10% premium to market is now warranted
for CCL. This would imply a fair value for CCL of $12.00-$12.50ps.
DCF/Sum-of-the-parts
Based on a combined DCF and sum-of-the-parts method, we value CCL at $12.50ps, and
forecast a 12-month price target of $13.20ps.
Figure 25: CCL Relative PE, 12m forward
1.50
1.40
1.30
+1 std dev
1.20
1.10
-1 std dev
1.00
0.90
31-Jan-05
31-Jan-07
31-Jan-09
31-Jan-11
12
Relative to global peers

Trading at 10.2x EV/EBITDA, CCL is not expensive against its global peers which trade at 10.4x.
However, the majority of CCLs bottler peers are trading in the 9-10x EBITDA range, suggesting
CCL is not cheap either.
Based on the lack of clear value and potential medium-term earnings risks, we are downgrading
our recommendation on CCL to Underweight.
Figure 26: Global peer comparison
PE ratio
Company
Currency
THE COCA-COLA COMPANY

CC FEMSA
COKE ENTERPRISES
CC HELLENIC
PEPSICO
MONSTER BEVERAGE
DR PEPPER SNAPPLE GROUP
Average
Coca-Cola Amatil
Last year-end Price (LC)
USD
MXN
USD
EUR
USD
USD
USD
31-Dec-11
31-Dec-11
31-Dec-11
31-Dec-11
31-Dec-11
29-Feb-12
29-Feb-12
37.03
194.41
32.95
17.60
70.01
50.33
45.70
AUD
31-Dec-11
13.80
FY1
FY2
EV /
EBITDA
FY1 FY2
18.5
29.3
14.7
22.0
17.2
21.4
14.3
19.6
12,008 18.5
17.0
26.1
13.2
18.5
15.9
17.3
13.2
17.3
17.5
13.8
13.7
9.3
9.8
10.6
12.9
8.5
11.2
10.8
EV (LCm)
183,129
374,824
12,405
8,488
130,881
8,794
11,610
12.5
12.3
8.9
8.6
9.7
10.8
8.1
10.1
10.2
EBIT margin
ND / EBITDA
FY1
FY1
24.8%
14.7%
12.4%
6.7%
14.7%
27.5%
18.9%
17.1%
17.3%
1.2
0.3
2.1
1.9
1.8
-1.3
1.9
1.1
1.6
13
Current recommendation definitions

CBA Institutional Equities investment recommendations are determined by the covering analyst and reflect the analysts assessment of a stocks expected total
shareholder return (TSR). Stock expected TSR is calculated as the difference between the analysts 12-month price target and the current share price plus the forecast
dividend yield.
Overweight: Stocks with an Overweight recommendation represent the most attractive stocks under the analysts coverage. They are generally forecast to generate
higher TSR compared to the rest of the analysts coverage.
Neutral: Stocks with a Neutral recommendation are less attractive than stocks with an Overweight recommendation. They are generally forecast to generate lower
TSR compared to stocks with an Overweight recommendation in the analysts coverage.
Underweight: Stocks with an Underweight recommendation are the least attractive stocks. They are generally forecast to generate lower TSR compared to stocks
with a Neutral recommendation in the analysts coverage.
Note: CBAs previous recommendations prior to 9 November 2012 were:
Buy: Stocks with a Buy recommendation represent the most attractive stocks under the analysts coverage. They are forecast to generate significantly positive
expected total shareholder returns.
Hold: Stocks with a Hold recommendation are less attractive than stocks with a Buy recommendation. They are forecast to generate flat to slightly positive expected
total shareholder returns.
Sell: Stocks with a Sell recommendation are the least attractive stocks. They are forecast to generate flat or negative expected total shareholder returns.
CBAs previous recommendations prior to 25 January 2010 were:
Short term (over 6 months): Buy appreciate by >10%, Accumulate increase between 2% and 10%, Reduce increase by less than 2% or fall by up to 5%,Sell fall
by >5%.
Long term (24 months) Outperform (O / P) exceed market return by >5%, Market Perform (M / P) be in line with market return, +/-5%, Under Perform (U / P) be
less than market return by >5%.
One year history of price target and recommendation changes

CCL
Price Target
14.0
13.0
12.0
Source:
Price Target ($)
Recommendation
22/02/2012
15/05/2012
22/08/2012
9/11/2012
12/12/2012
10/01/2013
13.00
13.45
13.40
13.40
13.35
13.20
HOLD
HOLD
HOLD
NEUTRAL
NEUTRAL
UNDERWEIGHT
Dec 12
Nov 12
Oct 12
Sep 12
Aug 12
Jul 12
Jun 12
May 12
Apr 12
Mar 12
Feb 12
Jan 12
11.0
Date
CBA Equities, IRESS
14
Disclosure and Disclaimer Appendix

Companies Mentioned
Company Name
Coca-Cola Amatil Limited
CCL, AUD13.80, Underweight, AUD13.20
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Coca ColaAmatilLimited 10 Jan 2013 2230 1

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Equities: Coca-Cola Amatil Limited

10 January 2013 ASX Code: CCL Food & Beverage

$13.20 (from $13.35)

Forecasts and ratios

Weather improving, but has failed to shine on CCL. BOM is no longer

Year end Dec

forecasting an El Nio to develop this year, however the weather has

Carbonated drinks losing share across channels to Energy. Our channel

Earnings and valuation revisions

Price relatives Starting index and share price rebased to 100

We have downgraded CY13 EPS by -3.0% and CY14 by -7.7%. Valuation

Source: CBA estimates

Andrew McLennan T. +612 9118 1199

Global Markets Research

Equities: Coca-Cola Amatil Limited

Financial Year End Date

EBITDA (inc assoc)

Depreciation & Amort

Operating Metrics (%)

Profit Before Tax

Growth Rates (%)

OCF pre I&T / EBITDA

Per Share Data (c)

EPS Shares (m)

Dividend Yield (%)

Payout Ratio (%)

Free Cash Flow Yield (%)

Net Tangible Assets

Property, Plant & Equipment

Enterprise Value (m)

Non Current Liabilities

Segment EBIT ($m)

New Zealand & Fiji

Indonesia & PNG

Alcohol, Food & Services

Operating Cash Flow

Financing Cash flow

Total Cash Change

Cash at End of Year

Adj. Gross Debt / EBITDA

Source: Company data, CBA estimates

Global Markets Research

Equities: Coca-Cola Amatil Limited

Weather impact a short-term positive, being diluted

Source: BOM, CBA

Thesse are positive

Global Markets Research

Equities: Coca-Cola Amatil Limited

Coke Amatil running out of Energy?

Background on the beverage and energy drink market

Figure 8: 2012 beverage sales, Convenience channel

Source: Retail World, CBA

Source: Convenience World, CBA

Global Markets Research

Equities: Coca-Cola Amatil Limited

Energy continues to outperform the wider beverage sector

Price per litre

Price per litre Price per litre Price per litre

Source: Retail World, CBA

Source: Retail World, CBA

CCL is adversely affected by structural change towards energy

Global Markets Research

Equities: Coca-Cola Amatil Limited

2 year CAGR (2010 - 2012)