Coca-Cola Amatil Limited (ASX: CCL) owns 70.6 percent of the Coca-Cola bottling operations in Indonesia (CCBI) and remaining 29.4 percent is owned by The Coca-Cola Company (TCCC). TCCC recently announced that during the September quarter the company recorded other-than-temporary impairment charges of $205 million which are related to PT Coca-Cola Bottling Indonesia, an equity method investee. This impairment was primarily driven by revised projections of future operating results reflecting unfavorable macroeconomic conditions and foreign currency exchange rate fluctuations. Following this news, the share price of CCL, however, increased by 2.4 percent as on 31 October 2018.
Coca-Cola Amatil has previously faced challenges due to continued soft market conditions in Indonesia and it recognizes that the Indonesian currency has fallen to its weakest level against the US Dollar in more than 20 years which has adversely affected the performance of the business. The carrying value of Amatil is different than the TCCC’s investment in CCBI due to the timing of both the investment. Amatil is going to review the carrying value of CCBI as part of its year-end accounting processes before the release of FY18 results in February 2019.
In the first half of 2018, the Statutory earnings before interest and tax (EBIT) of Coca-Cola Amatil increased by 6.6 percent to $257.2 million and Statutory net profit after tax (NPAT) increased by 12.8 percent to $158.1 million as compared to the first half year result of FY 2017. The Company’s underlying EBIT decreased by 4.9 percent to $297.5 million compared to corresponding period of last year and the company’s underlying NPAT decreased by 5.9 percent to $178.8 million. Company performed strongly in New Zealand and Fiji. The company increased its working capital by $77.9 million to $536.9 million in H1 2018 compared to H1 FY 2017 and the increase was driven by Indonesia extending credit to drive volume during Ramadan which had not been collected at the end of the period and it was also driven by higher inventory in SPC. The Net non-debt derivative liabilities decreased by $16,6 million which was primarily driven by maturity of out of the money foreign currency hedge positions.
The earnings performance of the company is consistent with its plans to accelerate the reinvestment of cost savings in 2018 and some negative impact on volume from the New South Wales container deposit scheme. The trading revenue per unit case was 1.1% higher in H1 2018, comprising 4.1% increase from container deposit scheme charges, 2.2% investment in realized price and 0.8% decrease from product / channel mix. The company is making progress in Cola, Water and Sports categories with more innovation and activities planned for second half of FY 2018. The company has brought forward approximately $40 million of reinvestment from the expected cost savings in 2019 to invest against the initiatives in the Accelerated Australian Growth Plan. The company is expecting New Zealand & Fiji and Alcohol & Coffee to continue to deliver growth in line with Shareholder Value Proposition.
In the last six months, the share price of the company increased by 3.98 percent as on 30 October 2018. CCL’s shares traded at $9.89 with a market capitalization of circa $6.99 billion as on 31 October 2018 (1:00 PM AEST).
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