Coca-Cola Amatil takes $150m impairment on SPC

Once the lifeblood of Shepparton, the SPC fruit cannery has had its business value written down to zero.

A wroker at SPC’s Shepparton facility. Picture: Jason Edwards

It might only be a simple accounting treatment but yesterday’s decision by beverage company Coca-Cola Amatil to write off nearly $150 million in value from its struggling SPC has reduced the once proud and mighty industrial fruit cannery business to penury as it awaits being sold to the highest bidder.

For decades fighting against the entrenched power of the ­supermarkets, competition from private label canned fruit and a host of other pressure points on the budgets of households, SPC has dipped in and out of losses for years and required massive licks of capital to upgrade its factory and harden its competitive edge.

Coca-Cola Amatil bought SPC for $700m in 2005 under then chief executive Terry Davis as part of a plan to widen the beverage company’s business operations, and the deal proved disastrous. Coca-Cola Amatil is better known for its fizzy drinks such as Coke, Fanta and Sprite — as it was forced to impair more than $404m against SPC’s goodwill in 2014.

Yesterday came the final, embarrassing blow, as Coca-Cola Amatil said it would book a non-cash impairment of $146.9m against SPC, extinguishing the carrying value of the historic regional Victorian fruit company’s net assets.

Once called the Shepparton Preserving Company and founded in 1912, it has been limping along for decades under the ownership of Coca-Cola Amatil and before that a farmers’ co-op as it has been pinched by the supermarket wars and intense competition from overseas fruit brands and private label competitors.

Coca-Cola Amatil also announced yesterday it was progressing with the planned divestment of SPC to go to a first round of non-binding indicative offers. Australian and overseas parties have made offers and were being shortlisted.

But the beverage company said because of the uncertainty of the financial outcome of the process it believed it was prudent to recognise a non-cash impairment to the carrying value of SPC of $146.9m before tax in the 2018 full-year accounts.

SPC was still on track to post a before-tax loss of $10m for the 2018 fiscal year but combined with the impairments and trading losses SPC — now branded a “discontinued operation” in the Coca-Cola Amatil accounts — will be a loss of about $120m after tax. Shares in Coca-Cola Amatil ended down 0.8 per cent at $8.34.

The loss comes despite a four-year, $100m investment in SPC from Coca-Cola Amatil and the Victorian government to whip the cannery’s operations into shape.

In 2014 the federal government under Tony Abbott refused to give the fruit processor a $25m grant, which would have been matched by $25m from the Victorian government and a $150m investment from Coca-Cola Amatil.

But the threat to regional jobs became too much and eventually the Victorian government agreed to step in. Since acquiring SPC in 2005, Coca-Cola Amatil has invested millions in the business, including in technology and equipment and has unveiled a range of innovative marketing campaigns to inspire a sense of loyalty among consumers for the historic Australian SPC branding.

Coca-Cola Amatil is now in the process of selling SPC to the highest bidder, which could include an overseas investor that would mark an end to more than 100 years of Australian ownership of the nation’s most important fruit cannery.

Coca-Cola Amatil chief executive Alison Watkins told The Australian the snuffing out of SPC’s valuation to zero was just “an accounting entry” and did not change the company’s views of the potential for the business.

“SPC has a lot of growth opportunities thanks to the $100m we put into the Shepparton processing facility with the help of the Victorian government,’’ she said. She said there was strong, positive feedback from potential buyers who had recently toured SPC’s facilities.