Coca Cola Amatil cops $404m writedown on SPC

Coca Cola Amatil has wiped $404 million off the value of SPC. Photo: Jason SouthCoca Cola Amatil has taken an axe to its struggling fruit cannery SPC Ardmona after booking a massive $404 million writedown on the division.

The beverage company is also facing intense pressure at its flagship Australian soft drink business and its once high-flying Indonesian arm has suffered an earnings slide.

CC Amatil confirmed the worst fears of investors when it released its full year results this morning, announcing in the wake of the bail out package from the Victorian government to restructure its SPC business it would be forced to write down the value of the underperforming asset.

CC Amatil said following an asset impairment test process, a decision had been made to writedown the carrying value of SPC by $404 million, reflecting the complete write off of all the goodwill left in the business of $277 million, a $39.7 million write down in the value of brand names and an $87.3 million charge covering write downs in inventory and property.

The huge value wipe out has pushed CC Amatil’s bottom line full year net profit down by 82.5 per cent to $79.9 million, against a profit of 457.8 million in 2012. It was the poorest profit result since 1994.

The decision to book writedowns against SPC comes as the state government agreed to pour $22 million of taxpayer funds into restructuring the business, helping to save regional jobs, with CC Amatil agreeing to invest $78 million of its own money to restructure the fruit company.

However, the writedowns are non-cash, with CC Amatil’s underlying net profit for the 2013 year down only 9.6 per cent to $502.8 million, from $556.3 million in 2012.

Revenue for the 2013 calendar year eased 1.2 per cent to $5.036 billion, with sales from non-alcoholic beverages (the bulk of its business and representing brands such as Coca-Cola) down by 1.4 per cent to $4.318 billion.

Earnings before interest and tax (EBIT) fell 6.9 per cent to $833.3 million.

The full-year result will be the last for current CC Amatil boss Terry Davis, who will step aside for former Graincorp CEO Alison Watkins.

CC Amatil declared a final ordinary dividend of 32 cents per share, franked at 75 per cent, and taking the total dividend payment for the year to 56 cents – in line with the payout for 2012.

Australian beverage market

CC Amatil said it waded through difficult trading conditions in the Australian grocery channel which resulted in a 9.3 per cent decline in Australian beverage earnings.  The bottler is facing continued price competition from rivals such as Schweppes.

Its business in leading supermarkets was hurt by aggressive competitor pricing, CC Amatil said, requiring higher levels of market support and promotional activity which pinched margins and profits.

It said the non-grocery channel  generated volume and earnings growth.

After a two-year absence, CC Amatil re-entered the Australian brewing market in December and has moved quickly to secure alcoholic beverage brands including distribution agreements for Rekorderlig cider, the Molson Coors premium beers range and the Boston Beer Company. CC Amatil said this morning it was targeting its expanded domestic beer, craft beer, cider and alcoholic beverage division to generate around 1 per cent in incremental earnings growth in 2014.

Indonesia and New Zealand

Once the high-flying premium growth part of the company, rapid cost inflation, currency depreciation and continued economic challenges in Papua New Guinea impacted earnings for its Indonesia and PNG region.

While Indonesia and PNG saw volumes rise by 6.8 per cent, it recorded an Australian dollar EBIT decline of 13.2 per cent. Indonesia volumes grew by more than 10 per cent and a small rise in local currency EBIT of 5 per cent, helped by the successful launch of new beverage products and strong growth for the water business.

There was a return to growth for its business across the Tasman, with local currency EBIT growing by 10 per cent in New Zealand. Combined with its small business in Fiji, CC Amatil said the combined NZ and Fiji arm delivered 18 per cent earnings growth