Coca-Cola Amatil has joined the growing list of companies revealing asset write-downs amid the COVID-19 pandemic and lockdowns which continues to make a mess of its sales performance.
The company told the ASX on Thursday that it’s June half-year accounts would contain impairments of up to $190 million.
But of greater importance was the warning that its trading volumes had dropped by about 23% in the June quarter as businesses were shut and people stayed indoors.
CCA said the non-cash impairments would be in the range of $160-$190 million, post-tax, and would relate mainly to its Indonesian business which have seen a sales fall because of the impact of COVID-19.
“These expected impairments are non-cash accounting adjustments and we remain very confident about the long-term prospects for our Indonesian business,” Coca-Cola Amatil, CEO, Alison Watkins said in a statement to the ASX before trading on Thursday.
The company said they were made because of the adverse impact of COVID-19 on trading performance, and the approach to assessing carrying values under accounting standards.
CCA also gave a trading update on its June performance, which saw an improvement from the lows of April and May.
Volumes were down about 9% from June 2019 levels, but the total June quarter volumes were off 23% on the same period last year.
That was due to the government imposed lockdowns across Australia, New Zealand, the South Pacific, and Indonesia.
“The rate of improvement has varied greatly across geographic markets, due to differences in the approach, timing, and extent of the lifting of lockdown restrictions,“ CCA said in the update.
“In New Zealand, where significant easing of restrictions has taken place, Amatil’s June 2020 Volumes increased approximately 4% on June 2019.
“In Australia, June 2020 Volumes declined approximately 3% (non-alcoholic ready to drink (NARTD) Volumes declined 4%).
“In Indonesia, where COVID-19 infection rates remain high, June 2020 Volumes declined approximately 23% on June 2019, despite improving significantly on the May 2020 and April 2020 decline rates,” The company explained.
“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'” the company said.
In other words, profit margins have fallen because of the consumer switch to buying through supermarkets, the impact of the lockdowns on cafes, convenience stores, etc and the higher relative production costs on the reduced sales volumes.
CCA made no further comment on the half-year results, but the warning on the margins means there could very well be a sharp slide in store for the announcement and either a lower interim dividend or no dividend at all.
Despite that, the shares were up more than 5% yesterday to $8.97.