On Monday 18th February 2019, Beverages giant Coca-Cola Amatil Limited (ASX: CCL) announced its key update on its iconic canned fruits and vegetable business, SPC (Shepparton Preserving Company) that it had cut down the SPC's value from $146.9 million before tax straight to zero, which reflects that the company expects a very slim price form the sale of the business.
SPC was already put up for sale in a strategic review meeting held recently on 30th November 2018 after its expectation of running at a $10 million loss for FY18. The company has come up with the decision to write-down its value to zero as it does not seem to be viable at any front considering $100 million investment made with Victorian government in SPC from 2014 - 2018. The company stated that it reflects the continuous losses and eventually the sale of the business was an increase in the overseas imports and major supermarkets introducing competing home-brand products.
After initiating the first round of sales proceeds, the company received significant interest from buyers from Australia as well as overseas some of which also visited the manufacturing facility in Victoria's Shepparton. Even after receiving several biddings the decision of slashing down the SPC value to zero was due to the inherent uncertainty of the sale looking at the wide range of offers received in terms of size and structure as stated by the company.
On the financial front, the total profit of CCL is expected to take a hit after accounting for loss from discontinuing operation of approximately $120 million after tax. This reflects the non-cash impairment of SPC and the trading loss for the year. However, the company stated that it would not affect the underlying business and the group's ability to pay dividends in the future.
Furthermore, as a result of divestment process proceeding, SPC's assets and liabilities that are to be sold to the potential buyer are reported to be classified as held for sale in the consolidated balance sheet and the business' loss will reportedly be classified under ‘discontinued operations' in the consolidated income statement from a financial reporting perspective in FY18 results. Consequently, SPC's result will not be included in the "Corporate, Food & Services" segment for FY18, and the segment renamed "Corporate & Services".
The company also refuted the negative opinions which stated that the write-down indicated the loss in business worth as the company believes it represents a mere accounting issue relating to impairment. Further, the company also reflected strong confidence amongst the stakeholders stating that it has received keen interest in the SPC which indicates many opportunities and further growth prospects for the SPC including new products and market. It also remained confident in leveraging the technology and intellectual property of the brand going forward.
CCL last traded at $8.34, down by 0.83% on 18 February 2019. After the 30th November 2018 announcement of liquidation of SPC, the stock had plunged more than 9% in the same day. It seems the stock is finding it difficult to recover from there as it has given more than 11% negative return since then.
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