Coca-Cola HBC AG, the soft-drink bottler that switched its primary listing to the London Stock Exchange today, expects profitability to rebound this year as sugar and oil prices rise at a slower pace than previous years.
Commodity costs will increase at a “low single-digit” pace, after climbing 14 percent in 2011 and 6 percent in 2012, Chief Executive Officer Dimitris Lois said in an interview at the London bourse. Cost reduction measures such as consolidating some office processes will also boost margins, helping offset a slowdown in revenue growth, Lois said.
Rising prices for commodities have presented an additional challenge for food and drink makers in recent years as they struggle to contend with weakening consumer demand. Coca-Cola HBC’s operating margin declined to 6.4 percent of sales in its 2012 fiscal year from 10.8 percent in 2007. Lois said today that he expects the margin to return to levels seen before the European financial crisis, without giving a timeframe. European markets show few signs of stabilization, he also said.
“It’s a bit of a challenge,” the CEO said. “At some stage this year we’ll be able to look back and say that probably the worst is behind us, but it’s still a tough year.”
Coca-Cola HBC shares traded at 1,737 pence at 4:17 p.m. on their first day of London trading, giving the company a market value of about 6.1 billion pounds ($9.5 billion). The bottler said in October it would move its primary listing from Athens to London, fleeing the epicenter of Europe’s debt crisis. It also switched its domicile to Zug, Switzerland.
The listing process was “innovative and quite complex,” and “made the company known to a wider audience who aren’t particularly knowledgeable about the Coke bottling system,” Lois said. The move will make Coca-Cola HBC eligible for inclusion in London’s benchmark FTSE 100 Index in September.
Cost reduction measures such as consolidating finance and human resources into one center will reduce expenses by about 65 million euros this year, Chief Financial Officer Michalis Imellos said in the same interview.
Revenue, excluding currency shifts, will grow at a slower pace than last year’s 2 percent, Lois said, as austerity measures in the Eurozone weigh on improvements elsewhere. He declined to comment on whether the volume of products sold would increase after being unchanged last year.
Coca-Cola HBC operates in countries with lower per-capita consumption of sparkling drinks than the rest of the Eurozone, which will help in boosting volume growth, Lois said.
Coca-Cola HBC buys concentrate from Coca-Cola Co. and blends, bottles and sells the products in European countries including Greece and Italy. Lois said he’s optimistic about the emerging markets of Russia and Nigeria this year. Sales of Coca-Cola in Russia were helped by a government ban on selling beer at freestanding kiosks, he said.
“We still have a lot of consumers to recruit,” Lois said, noting that per-capita consumption in most of its markets for sparkling beverages is lower than the Eurozone average. He cited Italy, one of the country’s biggest markets, which has a 20 percent lower per-capita consumption of sparkling beverages than Serbia, and 40 percent lower consumption than Bulgaria.
The company expects to sell bonds in the next six-to-nine months, the CEO said, as it seeks to refinance about 1 billion euros of debt due by 2014. Coca-Cola HBC will sell bonds in euros and seek an average debt maturity of about 5 years. It’s not looking to raise money for acquisitions and isn’t interested in buying Coca-Cola’s German bottling operations, Lois said.
Coca-Cola Enterprises Inc., another bottler of the bestselling soft drink, said April 25 that it let a right to buy Coca-Cola’s German bottling operations lapse.