Coca-Cola Amatil’s (CCA) first half profit has slumped nearly 28 per cent as it was forced to restructure its struggling SPC Ardmona (SPCA) business in Victoria at a cost of 150 jobs.
The soft drink supplier on Tuesday reported a 27.8 per cent drop in net profit for the six months ended July 1, 2011, to $153.6 million.
The result included $80.5 million in writedowns on the assets and inventory of the SPCA fruit and vegetable processing business.
CCA’s net profit before significant items rose 5.5 per cent to $234.1 million but was constrained by the effects of natural disasters in Australia and New Zealand over the key summer period, the high Australian dollar, subdued consumer spending and some higher raw material costs.
Managing director Terry Davis described the underlying first half result as “solid” amid the toughest operating environment he had seen for many years.
CCA will close its SPCA plant at Mooroopna in Victoria and consolidate manufacturing into the two sites at Shepparton and Kyabram, also in Victoria.
The company said SPCA’s earnings had suffered as the stronger Australian dollar affected its competitiveness against cheap, imported brands, and domestic grocery private-label contracts moved to imported products.
A review of SPCA had shown it had excess manufacturing capacity.
“With the material increase that we’ve seen in the last few years of these cheap imported fruit and vegetable products, SPCA has really struggled to compete,” Mr Davis said.
“We certainly welcome the government’s recent announcement to strengthen the anti-dumping measures in Australia as we believe many of these products have been dumped in Australia at less than their fair market value in their domestic markets.”
Mr Davis said CCA remained firmly committed to maintaining its manufacturing base in Australia.
SPCA would refocus its activity towards higher-growth, more profitable snack foods and expand the presence of its products in other channels such as convenience stores.
Mr Davis said CCA expected to generate stronger earnings growth in the second half of the current financial year, but the retailing environment would remain challenging.
“Group volume growth for July and August is ahead of last year, so that’s certainly a good start,” Mr Davis said.
“But to me, it’s still very unclear about which way trading conditions are going to go in Australia.
“Consumers every day seem to have to deal with a new negative from increases in food costs, increases in fuel costs, utility costs, higher interest rates through to poorer returns in housing and, certainly, poorer returns in the share markets.”
However, not all in the first half of the financial year had been doom and gloom, Mr Davis said.
CCA’s businesses in Indonesia and Papua New Guinea had shown strong earnings growth on the back of new products and investments in increasing capacity in Indonesia.
CCA’s alcoholic beverages unit was also “powering ahead”, increasing volumes ahead of the broader market.
Morningstar analyst Adrian Atkins said the CCA first half result was a little below expectations and most growth appeared to come from tighter cost controls.
Shares in CCA were 17 cents higher at $10.69.
