State gov’t bails out SPC Ardmona, Coca-Cola expects big write-downs

Over the next three years, the state will inject A$22m (US$19.7m) as part of a joint package worth A$100m (US$89m) with Coca-Cola Amatil (CCA), Shepparton-based SPC’s parent. 

Through its injection, Victoria hopes to safeguard 2,700 jobs, and has stipulated that a minimum of 500 full-time equivalent employees continue to be employed over the three years. CCA must also contribute A$78m to the overall project cost.

Asian opportunities​

Victorian premier Denis Napthine said he hopes the funding will be enough to turn round the fortunes of SPC.

“This strategic co-investment has been made after careful financial assessments to secure the long-term future of SPC Ardmona and grow its export opportunities, particularly in Asian markets​,” he said, adding that the money was released from existing programmes.

In a decision that put the immediate future of the fruit processor in doubt, Australia’s federal cabinet last month rejected SPC’s bid for A$25m (US$22.3m) in government assistance, citing the relative profitability of CCA and its responsibility to use corporate funds to put SPC on an even keel.

Prime Minister Tony Abbott at the time attacked the company for being a “union shop​”, with its difficulties the result of “over-generous​” allowances and “extraordinary​” staff conditions.

The announcement of Victoria’s bail-out continues to draw the wrath of the federal government, even though Abbott said he was “delighted​” with the announcement. 

“We said SPC Ardmona had a good future and it does. We said that it didn’t need A$25m from the commonwealth and it doesn’t​,’’ the prime minister said.

Treasurer Joe Hockey used more colourful language to urge taxpayers to resist demands to help private companies increase their profits, regardless of if they are a fruit processor or a fast-food joint.

“The bottom line for us was [SPC] asked us for A$25m to buy new plant and equipment for their factory—a factory that they bought​,” he said.

“Abdul the kebab-maker in Parramatta Mall doesn’t ring up and ask us for a new oven or a new refrigerator for his business if he’s finding he can’t get the appropriate rate of return​.

“[Coca-Cola Amatil] has got to do the heavy lifting here​.”

CCA write-downs​

As part of the bail out, CCA’s chief executive, Terry Davis, told the Australian Securities Exchange in a statement that there would be a material write down of its investment in SPC when the company produces its full-year accounts next week.

“[Our] board of directors is comfortable with the returns expected for [SPC] under the new investment package, but notwithstanding that, in order to right size the business, write downs will occur in the 2013 accounts​,'' Davis said.

CCA bought SPC for around A$700m (US$625m) in 2005 and since then has invested a further A$170m (US$152m) on plant, equipment and technology, product innovations and new packaging designs.