Australian soft-drink giant Coca-Cola Amatil faces a potential write-down to the value of its Indonesian business that could blow a hole in its earnings after its global partner impaired its stake in the operation.
American group The Coca-Cola Company owns 30 per cent of the ASX-listed Coca-Cola Amatil (CCA), and the two companies are joint owners of Coca-Cola Bottling Indonesia (CCBI).
The Coca-Cola Company said on Tuesday it was recording an impairment charge of $US205 million ($289 million) against its 30 per cent stake in CCBI business, which it bought for $US500 million in 2015.
“This impairment was primarily driven by revised projections of future operating results reflecting unfavourable macroeconomic conditions and foreign currency exchange rate fluctuations,” the Coca-Cola Company said.
CCA said it had previously called out soft trading conditions in Indonesia, while a collapse in the value of the Indonesian Rupiah against the US dollar to the lowest levels in more than 20 years had also hurt its performance.
CCA said that it would review the value of its Indonesian business ahead of its full-year results in February, but flagged it did not necessary follow that it would have to record an impairment on the business simply because its joint-venture partner did.
This was because the Coca-Cola Company’s carrying value for the business was based on its investment made in 2015, and accounted for the business as an equity-accounted investment, while CCA valued the business based on investments it made since 1992 and was consolidated in its accounts.
JP Morgan analyst Shaun Cousins said that CCA’s financial performance in Indonesia had been subdued for some time, “with revenue growth elusive despite significant market share opportunities in large categories”.
CCA said that the Coca-Cola Company’s valuation of the Indonesian operations exceeded its own carrying value of the business, while Morgan Stanley said the valuation of the business was about double its own estimates. CAA’s shares rose 2.6 per cent to $9.91.