Soft drinks giant Coca-Cola Amatil has revealed plans to cut costs by $140 million due to a drop in demand for its products in the last quarter as a result of COVID-19 and Australia’s bushfires.
On Friday, Group managing director Alison Watkins said that while the company has been able to “produce and distribute and protect jobs” to date, there has been a major impact on volumes and shift in the channel mix.
Cost saving measures will include a “significant reduction in incentives, recruitment freezes, reduced marketing expenditure and minimising discretionary spend”.
The company has also deferred all non-critical projects reducing capital expenditure for FY2020 from $300 million to $200 million.
“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.
“Looking specifically at March 2020 which was impacted by COVID-19, we experienced mid single digit percentage Volume growth versus 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.
Watkins said that the first two weeks of April, including the lead up to Easter and Ramadan which are significant trading periods for the business, were adversely impacted by COVID-19. Volumes reduced by approximately 30 per cent on the prior corresponding period, with Indonesia down close to 50 per cent and Australia down approximately 15 per cent.
The company will temporarily withdraw its dividend to protect the business against further impact from COVID-19.
“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,” the company said in Friday’s trading update.
“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 it would be premature to “draw any conclusions about the trading impact of the pandemic at this stage” given the fluidity of the COVID-19 situation across all markets.
“We will have a clearer view at our Annual General Meeting in May,” she said.
“Our strong balance sheet, ample liquidity and solid credit ratings mean we are in a strong position financially and operationally not only to trade through the pandemic but to also emerge a stronger and better business.”