Coca-Cola Amatil Ltd. (CCL) Managing Director Terry Davis told investors he was sorry after a A$404 million ($367 million) writeoff at its packaged-foods unit SPC Ardmona drove profit to its lowest level since 1992.
“I apologize to not be able to bring you a better result,” Davis, who’s leaving the job March 3, told investors on a call today after announcing an 83 percent drop in net income to A$79.9 million for the year ended Dec. 31. “Hopefully we’ve turned the tide” with SPC, he said.
Sales volumes at Coca-Cola Amatil’s main Australian soft drinks business fell 3.2 percent to 338 million cases last year, cutting group revenue by 1.1 percent to A$5.08 billion, the first decline since 2006, according to data compiled by Bloomberg. Australia’s biggest beverage company fell 5.3 percent to A$11.22 at the close in Sydney, its lowest price since August 2011.
Australian food companies have been hurt by currency swings in recent years. The Australian dollar’s rise to a 29-year high of $1.11 in July 2011 lowered the cost of competing imports, and its subsequent decline to 90 cents has increased the price of raw materials.
Asahi Group Holdings Ltd. (2502)’s Schweppes Australia unit, which sells Pepsi in the country, raised prices for the first time in two years this month, Citigroup Inc. analyst Gino Rossi wrote in a Feb. 7 note to clients, driven by an estimated 3.5 percent increase in costs of imported ingredients.
That will lessen pricing pressure on Coca-Cola, which sells at a premium of more than 50 percent to Pepsi, according to Rossi.
“Aggressive competitor pricing” was responsible for the poor result from Coca-Cola Amatil’s Australian beverage unit, the company said today.
The results were a negative for Coca-Cola Amatil’s credit, Moody’s Investors Service senior vice president Ian Lewis wrote in an opinion after the announcement. It wouldn’t affect the company’s investment-grade ratings, which are stable at A3, he wrote.
“The high Australian dollar has enabled a flood of cheap imported product to be sold in Australia below the cost of production here while decimating SPCA’s export markets,” Coca-Cola Amatil said in a regulatory statement today. The company will pursue anti-dumping measures, changes to import tariffs, and enforcement of standards on ingredients, according to the statement.
Australia’s federal government, which has said it doesn’t believe in “corporate welfare,” on Jan. 30 turned down Coca-Cola Amatil’s request for a A$25 million grant to fund efficiency savings at SPC Ardmona. The government of Victoria state will instead provide A$22 million alongside A$78 million from the company, the parent company said Feb. 13.
The remaining book value of SPC Ardmona is “just north of A$300 million,” Alison Watkins, who will take over from Davis next month, told investors on the call. The state’s investment won’t eliminate Coca-Cola Amatil’s ability to exit the business if it continues to underperform, Davis said, without giving further details.
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