In what group MD Alison Watkins called a “highly unusual” 1Q2020, Coca-Cola Amatil reported a 15 per cent drop in earnings for the period and a beverage volume plunge of 30 per cent in April due to COVID-19.
In its COVID-19 and trading update on 17 April, Watkins announced the company was withdrawing its expectation of dividend franking levels being above 50 per cent in 2021 and its previous commentary in relation to its expectation that there will be no net non-trading item charges in FY2020.
“Looking ahead, given the uncertainty as to the duration of the pandemic and the likelihood of a protracted economic recovery in at least some of the geographic markets in which Amatil operates, the board has decided that it is prudent to temporarily withdraw Amatil’s dividend payout ratio guidance.
“This will provide the group with additional flexibility to address any future headwinds or further adverse economic conditions arising from the pandemic. In line with Amatil normal cadence, the board will take a decision on the 2020 dividend at the time of the 1H2020 financial results,” Watkins said in the briefing.
Watkins said, “Our first quarter of 2020 was highly unusual. We faced the challenges of the Australian bushfires in January and February and in March the adverse impacts of the COVID-19 pandemic started to take effect.”
Watkins said the company implemented cross functional business continuity and pandemic plans at the first signs of the COVID-19 in early March, to “ensure the health and safety of its people, support its customers and maintain continuity of its operations”.
“As a result of these measures I am pleased to report that to date, we have continued to produce and distribute and protect jobs. We have however seen a pronounced impact on volumes and shift in our channel mix and are redeploying our people and resources to serve customers with high demand,” she said.
Amatil delivered low single digit percentage volume and revenue growth in 1Q2020 compared to 1Q2019, driven primarily by its Indonesian business.
Earnings Before Interest and Tax (EBIT) was down by mid-teens percentage for the quarter on the prior corresponding period reflecting: the impact of the January-February bushfires; planned additional marketing expenditure in Indonesia; and margin erosion as a result of changes in channel mix in March when social distancing restrictions were introduced by governments in Amatil’s major markets.
Watkins said looking specifically at March, Amatil experienced mid-single digit percentage volume growth compared to March 2019 as consumers engaged in stockpiling.
“EBIT however was down by low single digit percentage compared to March 2019 due to the pronounced channel shift to Grocery across our markets.”
The lead up to Easter and Ramadan in the first two weeks of April are significant trading periods for the business but was impacted by closures and stay-home requirements.
It saw a beverage volume drop of around 30 per cent on the prior corresponding period, with Indonesia down 50 per cent and Australia 15 per cent.
Alcohol volume declined by approximately 20 per cent with On Premise outlets being severely impacted by government’s restrictions.
From a financial perspective, Watkins said management has stress tested the group’s balance sheet, P&L and liquidity across multiple scenarios.
It has implemented a number of cost management programs designed to save over $140 million in 2020 via initiatives such as: significant reduction in incentives; recruitment freezes; reduced marketing expenditure; and minimising discretionary spend.
Non-critical projects have been deferred reducing Capital Expenditure for FY2020 from $300 million to $200 million.
The company is facilitating the ability of its customers to sell online through food aggregators and is working with customers to develop payment plans where appropriate, she said.
“We entered this crisis with a resilient business model and strong foundations that have enabled us to withstand the immediate challenges presented by the pandemic.”
