Poor weather in Australia, weaker returns from the previously strongly performing Indonesian soft drinks operation, adverse currency movements and increased competition saw Coca Cola Amatil (CCL) post what can only be described as a poor set of figures for the year to December 31, continuing what was a weak first half.
But the standout in yesterday’s report was the massive $404 million writedown in the value of the SPC Ardmona canning business, which was rescued last week by the Victorian Government ($22 million) and CCL ($78 million) with a $100 million aid package.
It wasn’t the best way to farewell retiring CEO Terry Davis, at the end of a 15 year reign at the company.
But seeing the SPC Ardmona takeover a decade ago was a $500 million deal driven by Mr Davis – the subsequent poor returns and financial losses and write downs are probably an appropriate way to say goodbye.
It does mean the new CEO Alison Watkins from GrainCorp has her work cut out for the rest of this year and into 2015 fixing problems.
In fact she’s got to oversee yet another review of the company’s Australian operations and there will no doubt be job losses to come, judging by the tone of a a paragraph buried in yesterday’s report.
"Following the disappointing result in 2013, the business shall undertake a comprehensive review of the operating cost structure to adapt to a more competitive landscape. This review will be in addition to the major operational efficiency programme announced in February 2013 and will seek to right-size the business to lower the cost of production and distribution while better leveraging the investments made over the past few years on state-of-the-art production and IT infrastructure," directors said.
CCL 1Y – Coca Cola Amatil’s clean up costs hides weak annual result
Revenue for the 2013 financial year fell 1.2% to $5.036 billion, with sales from non-alcoholic beverages (the bulk of its business and representing brands such as Coca-Cola, Fanta, Diet Coke, etc) down by 1.4% to $4.318 billion.
First half sales were off 3.5%, so the second half did see some sales growth, but not much to reverse what was a weak performance.
Earnings before interest and tax (EBIT) fell 6.9% to $833.3 million, another good indicator of the underlying lack of earnings zing for the year. Seeing they were down 6.9% in the first half, it indicates the company had a flat second half.
CC Amatil said that following an asset impairment test process, the carrying value of SPC was cut 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 $500 million spent a year ago buying SPCArdmona has been destroyed.
The huge one off loss pushed CC Amatil’s net result down 82.5% to $79.9 million, against a profit of $457.8 million in 2012.
It was the poorest profit result since 1994. But the impairment losses were what were called ‘non cash items’ so the impact on the company’s ability to pay a dividend wasn’t affected.
CC Amatil declared a final ordinary dividend of 32c a share, franked at 75%, and taking the total dividend payment for the year to 56 cents.
That was a small drop on 2012.
"The final ordinary dividend has been maintained at 32.0 cents per share, franked at 75%, taking total full year ordinary dividends to shareholders to 56c per share, which is in line with last year. Total dividends of 58.5c per share, including special dividends, represents a 1.7% decline on last year," the company said yesterday.
CC Amatil said the difficult trading conditions in the Australian grocery channel (now reported to be have eased with an ending of a price war with Pepsi) resulted in a 9.3% slide in Australian beverage earnings.
That was a slightly better outcome than the 10.1% fall seen in the first six months of 2013.
On top of the domestic weakness, the company’s fastest growing business – Indonesia, went off the boil in 2013 as the emerging markets financial crisis started and the Indonesian economy slowed markedly, with the country’s currency falling sharply. PNG also felt the pressure from weak currency and poor demand, as well as marketing difficulties.
While Indonesia and PNG saw combined volumes rise by 6.8%, the Australian dollar earnings before interest and tax (EBIT) fell 13.2%.
It’s not that Indonesia didn’t perform well in volume terms – they were up more than 10%, and reported a 5% rise in a local currency EBIT of 5%.
But that was not enough to offset the slide in the currency against the Aussie dollar, and wasn’t anywhere near the rate of growth seen earlier in year of 15%. EBIT growth slowed from the 12.5% first half rate.
In the strongly growing NZ economy though there was a different story with local currency EBIT growing by 10%. CC Amatil said the combined NZ and Fiji saw an 18% rise in EBIT.
Investors looked through the headlines and saw the weak underlying performance and marked down the company’s shares by more than 5% to $11.22.
