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CORRECTED-UPDATE 2-World No. 2 Coke bottler profit hit by austerity, costs
August 21, 2012 / 6:17 AM / 5 years ago

CORRECTED-UPDATE 2-World No. 2 Coke bottler profit hit by austerity, costs

(Corrects reference to PET prices in fourth paragraph from the end)

* H1 profit down 25 pct y/y, in line with forecasts

* Debt-laden Italy, Ireland, Greece, weigh on results

* Sticks to cash flow, investment guidance of 1.45 bln euros by end-2014

* Sees Italy, Russia as growth markets, praises Italian reforms

* Input costs seen easing in second half, forex to weigh

By Harry Papachristou

ATHENS, Aug 21 (Reuters) - Coca-Cola Hellenic (CCH) , the world’s second-largest bottler of Coca-Cola Co. soft drinks, shed 25 percent of profit in the first half as expected, hurt by austerity in debt-laden Italy, Ireland and Greece and higher commodity costs.

The Athens-based company with operations in 27 countries including Russia and Nigeria said comparable net income was 109 million euros ($134.5 million), against the average of 110.1 million euros forecast in a Reuters poll of analysts.

EU-IMF austerity measures have caused sales volumes to drop in Greece and Ireland as well as Italy, where the government is also curbing spending to cope with higher borrowing costs.

But the firm stuck to its guidance for free cash flow generation and investments of 1.45 billion euros by the end of 2014.

Chief Executive Dimitris Lois is betting on potential growth in markets such as Russia. The company also sees Italy as a long-term growth market, Lois said, praising the government there for making all the right moves to deal with a debt crisis.

“We are very happy to see the initiatives from (Italian Prime Minister Mario) Monti,” Lois told Reuters. “He has taken the right initiatives to balance austerity and growth,” he added, referring specifically to his decision to postpone an increase in value-added-tax (VAT) rates.

CCH’s total sales volumes dropped by 2 percent year-on-year to 1.01 billion cases. But sales rose for a fourth consecutive quarter by 1 percent to 3.43 billion euros.

The company took commercial and marketing initiatives, such as more creative packaging to squeeze more sales out of each case sold, Lois said. It has also been expanding for years into non-sparkling beverages such as tea and health drinks.

These moves helped the company maintain or increase its market volume share in sparkling beverages in most of its markets, including Italy, Switzerland, Austria, Russia, Ukraine, Romania and Bulgaria.

Some analysts, however, remain sceptical.

“The company will face adverse conditions in some basic markets under IMF programmes, such as Ukraine, Hungary and Greece,” said Iakovos Kourtesis, an analyst with National Securities who earlier this month downgraded his recommendation on the stock to “neutral”.

CCH’s shares were up 0.3 percent at 1235 GMT in Athens, underperforming a 1.8 percent rise in the general index.

An expected rise of the U.S. dollar versus the euro and the currencies of other crisis-hit European countries will likely offset any benefits from an easing in raw material costs, the company said.

Input prices will rise in mid-single digits instead of high-single digits as previously forecast, according to Lois, driven by lower prices of PET, a key raw material for plastic bottles.

In an effort to improve profitability, the company will slash personnel and management costs, doubling its restructuring expenses to 100 million euros this year, up from the 50 million euros it stated earlier in 2012.

Greece’s debt crisis has also fuelled speculation about the future of the company’s base in Greece, particularly its listing on the Athens Stock Exchange.

But Lois dismissed the concerns, saying that any possible downgrade of the local stock market would not take place before the middle of next year and that he would try to make use of the company’s other parallel listings in New York and London to make life easier for its investors.

$1 = 0.8103 euros Reporting by Harry Papachristou; Editing by David Cowell

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