At time of writing, Coca-Cola Amatil Limited [ASX:CCL] shares are trading at $8.68 apiece. This marks a 14.06% drop from yesterday’s closing trade price of $10.10.
The Asia Pacific regional branch of the Coca-Cola beverage bottlers also invests in local ready-to-eat/drink businesses as part of their mission.
This morning, the company’s 2018 Investor Day Presentation was released on the ASX. It revealed ‘decisive action’ that is planned to be taken in relation to the failed SPC venture.
The news has clearly rattled investors.
Why Coca-Cola Amatil is divesting from SPC
In the presentation, the company made it clear they had ‘delivered on [their] commitments’ to SPC — a fruit and vegetable processing business — to initiate a revenue turnaround.
These included ‘completion of a four year $100 million co-investment plan — $78 million from Amatil and $22 million from the Victorian Government — to drive new product and packaging innovation, capability and efficiency’.
But despite these efforts to help grow SPC revenue, it has come to no avail. Coca-Cola Amatil is expecting a loss of $10 million from their investment in SPC for the 2017–18 financial year.
Coca-Cola Amatil has since conducted a strategic review of SPC which began in August. From this review, the company concluded ‘a change in ownership is the best course of action for the many growth opportunities in SPC to be unlocked’.
Despite this course of action, there are currently no plans to shut down SPC’s operations. The 220 full-time workers in Shepparton are safe for now.
Nevertheless, Coca-Cola Amatil’s growth has taken a hit from this venture.
A concerning future for Coca-Cola Amatil
CEO of Coca-Cola Amatil, Alison Watkins, has warned that this year’s results have been brought down with $50 million of ‘one-off’ expenses towards ‘cost optimisation programs’.
She regretfully added that the upcoming year doesn’t look any less bleak:
‘As anticipated, FY18 is being impacted by our accelerated reinvestment of approximately $40 million of cost savings in Australia.’
While a complete turnaround is no doubt possible, even the company admits it heavily relies on ‘the success of revenue growth initiatives in Australia, Indonesian economic factors and regulatory conditions in each of our markets’.
Keep an eye on this space to see how well Coca-Cola Amatil manages to recover.
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