Coca-Cola Amatil braces for $190m first-half hit

Coca-Cola Amatil faces an impairment charge of up to $190m, mainly due to the pandemic’s impact on its Indonesian arm.

“We remain cautious,” says Coca-Cola Amatil boss Alison Watkins. Picture Ryan Osland

Coca-Cola Amatil will be forced to book impairments of as much as $190 million in its first half as it counts the cost of the coronavirus pandemic, with its Indonesian arm stung by the health and economic crisis.

Although there has been a recovery in volumes in some parts of Australia and New Zealand, sales have been pushed through less profitable channels such as the supermarket chains, while Coca-Cola Amatil is still missing out on sales of soft drinks, alcoholic beverages and bottled water at sporting events and other outdoor activities.

The beverage group was forced to scrap its earnings guidance in March as COVID-19 began to spread through Australia, New Zealand and Indonesia. Its margins were also pinched by the shift of volumes away from the more profitable “on-the-go” channels such as at football games and outdoor events to grocery sales, as shoppers stocked up at the supermarket.

Coca-Cola Amatil told the ASX said in the light of the adverse impact of COVID-19, and its assessment of carrying values under accounting standards, the group expected to incur non-cash impairments in the range of $160m-190m in its first-half accounts.

Coca-Cola Amatil said the likely impairments related predominantly to its Indonesian business.

The final outcome of the impairment review is subject to external audit and final board approval.

Chief executive Alison Watkins said she remains confident about the long-term prospects of the Indonesian business.

In a recent update Coca-Cola Amatil revealed its Indonesian business was hit hard in early April, with volumes down approximately 50 per cent due to social distancing measures during the traditionally heavy trading period in the lead up to Ramadan.

However, in some parts of Australia and New Zealand there has been an improvement in sales as lockdowns ease and consumers come out of home isolation.

Coca-Cola Amatil said trading conditions had improved in its major markets in June, reflecting the gradual easing of COVID-19 restrictions.

Its trading volumes in June 2020 were down approximately 9 per cent compared to June 2019. This resulted in a second quarter volume decline of approximately 23 per cent compared to the prior corresponding period.

“The rate of improvement has varied greatly across geographic markets, due to differences in the approach, timing and extent of lifting of lockdown restrictions. In New Zealand, where significant easing of restrictions has taken place, Amatil’s June 2020 volumes increased approximately 4 per cent on June 2019,’’ the company said.

In Australia, June 2020 volumes declined approximately 3 per cent while non-alcoholic ready to drink volumes declined 4 per cent.

In Indonesia, where COVID-19 infection rates remain high, June 2020 volumes declined approximately 23 per cent on June 2019, despite improving significantly on the May 2020 and April 2020 decline rates.

The beverage group’s margins had been put under pressure as volumes switched between channels.

“As noted at the May trading update, margins, particularly in Australia, have been adversely impacted by changing consumer behaviour due to COVID restrictions. This has led to a significant shift in volume towards Amatil’s grocery channel and away from higher margin on-the-go channels, which have been hardest hit by the restrictions,” Ms Watkins said.

“It is encouraging to see the improvement in our volumes as the pandemic restrictions were

lifted across a number of our markets.

“We nevertheless remain cautious, given the reinstatement of lockdown measures from July in Melbourne and the rising COVID- 19 infection rate in Indonesia.

“The impacts of the pandemic are continuing to evolve with the situation fluid across all of our markets.”