Coca-Cola Amatil runs dry

Selling out of the Philippines has brought Coca-Cola Amatil to a dead end. Not only will it crimp future growth, the company is struggling to work out how to identify opportunities and generate growth. If you want a share of Coke buy the parent, not the local version.

The Philippines had started to come good after the horror years of 1998/99 forced a $1.2 billion writedown but the decision was to go ahead with the disposal despite that, albeit with a 40 cent a share capital return.

David Kennedy's replacement as CEO will be a litmus test for Coca-Cola Amatil's market appeal, as demonstrated by June's share spike on speculation that ex-PBL boss Nick Falloon might take the reins. Whoever it is, they will have to lift the company's lacklustre track record on international bottler agreements.

As we indicated in issue 78 (Hold for the Upside - $4.34), consumption is up and an increased trading profit is expected for 2000/1 from improved sales. Kennedy has been focused on a departure with the company travelling well. Having reassessed the situation, we can't see where the company is heading, except into stormy waters.

As with so many other Australian firms looking to strike gold in Asia, the company has stumbled on a few landmines and returned home covered in blood rather than glory.

First there was the Philippines. South Korea is now a headache and will detract from upcoming results and Indonesia is being reported as a tough market. No surprises there.

All this coincides with management changes. Ex-marketing chief Mark Clark now runs Seoul and Geoff Paton flicked the gig to call the shots in Oceania, a very wise career move. Australian volumes are strong but loss of critical mass with the Philippines offload has jeopardised the company's credit rating.

The $2.26 billion Philippines sale brings to an end a four-year saga after Coca-Cola Amatil bought CCBPI in 1997. All San Miguel shares and some Coca-Cola Company shares in Coca-Cola Amatil are cancelled as part of the deal, with the cash component a lower-than-expected $351 million.

Falling stake

We believe that this long-term loss of critical mass outweighs the short-term benefit, with the company dropping from six to three per cent of the global Coke network and the US stake in the company falling to 35.6%.

A string of poor calls is looming large - rather ironic for the once feisty company that shrugged off its tobacco legacy and dived into soft drinks only to become all but submerged by the Coke juggernaut.

The time has arrived for Amatil to chart its own destiny, as it did in the 80s, but with a receding sugar-daddy and no clear game plan in sight, the prudent will opt to SELL.