Coke slumps to loss and slashes dividend after COVID-19 shuts key customers

Coca-Cola Amatil has booked hefty impairments and severely cut its dividend after COVID-19 shut down key customers.

Coca-Cola Amatil CEO Alison Watkins in Sydney. Hollie Adams/The Australian

Coca-Cola Amatil boss Alison Watkins has urged the government to bring on reforms that would fire up the private sector to create two million new jobs, while a broadbased investment allowance could encourage the purchase of everything from utes to new manufacturing lines.

Ms Watkins, one of the most respected corporate leaders in Australia and who sits on the Business Council of Australia board, said that while it was key for government to continue its support through subsidies, such as JobKeeper, at some point the private sector needed to step in and replace the millions of jobs lost in the COVID-19 pandemic.

This challenge would play out for at least the next few years after the economy was shaken up by the health crisis.

“I definitely think the next, probably, two to three years are going to be a really challenging time for Australians and the focus for all of us has to be on recreating the jobs that are going to be lost while helping the economy go through the restructuring that needs to be done,’’ Ms Watkins told The Australian after Coca-Cola Amatil unveiled a half-year loss of $8.7m, a reversal of the $168m profit made in the previous corresponding period.

“It is very important the government continues to have a strong role until we get to the position where the private sector is really picking up the slack.

“So, I think a thoughtful, targeted approach to continued government support for people who, through no fault of their own, have been impacted by this is one really important part, the other part of it is to encourage business investment as fast as we can because nine out of 10 jobs rely on the private sector and investing in creating new businesses or in enlarging existing business is what will create jobs and help us replace those two million or so jobs that are going to be lost.

“I definitely think some sort of investment allowance that is quite broadbased and encourages, for example, business to invest in their technology, in their e-commerce platforms as well as to invest in buying a new ute or new manufacturing line needs to be broadbased, needs to encourage business investment and that is what is going to drive jobs growth for us.’’

The bottler she runs, with operations across Australia, New Zealand, the Pacific and Indonesia, showed the bruises of the COVID-19 crisis in the first six months of calendar 2020 with $162.2m in impairments, mostly in its Indonesian arm, and weaker profits in Australia as major customers such as pubs, clubs and restaurants were closed.

A plunge into a loss saw the beverage company also slash its interim dividend by more than half, declaring a half-year dividend of 9c, down from a dividend of 21c for the half-year results in 2019, which also came with another 4c special dividend. The dividend will be paid on October 13.

The bottler said it had booked impairments of $162.2m for the June half, at the bottom end of its earlier guidance of impairments for the period of $160m to $190m.

Coca-Cola Amatil, which sells a range of carbonated drinks, bottled water, alcohol and coffee, said its ongoing net profit of $112.1m was down 35.3 per cent while group trading revenue for the half was down 9.2 per cent.

Pre-tax earnings of $370.5m was down 19.4 per cent and reflected the impacts of volume and changing consumer patterns during the early months of the COVID-19 pandemic and restrictions on movements and social gatherings.

“Despite these challenges, the resilience of our business was demonstrated by our agile response in addressing changes in channel mix and consumer behaviour, enabling us to grow our market share in key product categories,’’ Ms Watkins said.

“Our financial performance under these challenging conditions, in particular our strong cash realisation, is a testament to the strength of our business and the tenacity of our people, partners and customers.”

Within Australia revenue fell 8.8 per cent to $1.296bn as earnings dropped 35.5 per cent to $118.7m.

“As consumer buying patterns adapted to COVID-19 restrictions, the company’s carbonated drinks business experienced a transition of volume to lower margin channels (such as grocery and national quick service restaurants) and a shift to lower margin ‘at home’ consumption packs.”

Ms Watkins said its Coca-Cola Amatil’s alcohol and coffee division was also adversely impacted, with outlet closures and trading restrictions in the on-premise channel, such as pubs and clubs.

However, as restrictions around Australia were eased, volumes were up 3 per cent in July and flat for the first two weeks of August.

In Indonesia, the bottler booked a 13.6 per cent fall in revenue to $502.6m as earnings dived by 59.7 per cent to $20.9m.

Shares in Coca-Cola Amatil closed up 41c, or 4.6 per cent, at $9.28 each, making it one of the session’s best performers on the S&P/ASX 200 Index.