Australia: Asahi racks up losses of A$1.13 bln in Australia during six years

Japanese beverages giant Asahi has racked up losses of A$1.13 billion in Australia during six years after slashing the value of goodwill by A$1.19 billion – an unofficial admission it paid too much for drinks companies Schweppes and Independent Liquor, The Australian Financial Review reported on September 12.

Asahi is Australia's second-largest non-alcoholic beverages bottler after Coca-Cola Amatil, and owns or bottles leading brands Pepsi, Schweppes, Spring Valley, Cool Ridge, Frantelle, Asahi Super Dry, Mountain Goat beer, Vodka Cruiser and Somersby cider.

An analysis of Asahi Holdings (Australia) Pty Ltd accounts since 2011 by The Australian Financial Review shows the group has booked accumulated losses of A$1.13 billion since 2011, including losses of A$122.8 million in the 12 months ended December 2016, on revenues of A$1.57 billion.

In many years the company made a small operating profit but sank into the red after slashing the value of goodwill and brands.

In 2016, for example, goodwill impairments reached A$155.4 million and followed write-downs of A$191.6 million in 2015, A$243 million in 2014, A$140 million in 2013 and A$464 million in 2012.

As a result of the losses, Asahi paid no tax most years and received a net A$40 million in tax benefits during six years.

Asahi chairman Peter Margin and chief financial officer Robert Iervasi were not immediately available for comment.

Asahi entered the Australian beverages market in 2009, outbidding Coca-Cola Amatil and fellow Japanese drinks company Suntory for major assets that included soft-drink bottler Schweppes, which makes Pepsi, and beer, cider and RTD maker Independent Liquor.

Asahi paid A$1.18 billion, or 15.2 times historic earnings, for Schweppes in 2009, A$1.2 billion for Independent Liquor in 2011, A$188 million for private-label bottler P&N Beverages the same year, A$100 million for Charlies Group and A$54 million for water bottler Mountain H2o in 2012.

In September 2015, it scooped up boutique Australian brewer Mountain Goat after buying the Cricketers Arms brand in April 2013.

Industry sources said Asahi had paid too much for assets, only to be squeezed by Woolworths and Coles, a price war in bottled water with Coca-Cola Amatil and changing consumer consumption habits, including a shift away from sugary soft drinks and juice.

"They're used by the retailers as an alternative to Coke if Coke gets too bolshy," said one beverage industry source. "They make just enough profit to stay in business and keep Coke honest."

"But things will only get worse as Coke struggles and progressively turns to price," he said.

Coca-Cola Amatil has cut prices for its market-leading Mt Franklin brand to reduce the price gap with Asahi's Frantelle and Cool Ridge brands and Woolworths' private-label water, in an attempt to regain market share and volume growth.

In 2014, Asahi sued private equity firms Pacific Equity Partners and Unitas Capital for about A$700 million, alleging they misrepresented Independent Liquor's financial position by inflating earnings during the sale process.

PEP, Unitas Capital and their insurers agreed to pay A$200 million to settle the case and Asahi booked a A$189 million one-off gain in its 2014 accounts.

Asahi is not the only Japanese beverage company to have shredded billions of dollars of value in Australia. Japanese brewer Kirin is estimated to have written off about A$2 billion off the A$2.8 billion it paid for National Foods in 2007 and the A$910 million it outlaid for Dairy Farmers in 2008.

However, Suntory, which paid A$1.2 billion, or 13.3 times earnings, for Frucor Beverages has fared better, with Frucor's Australian and New Zealand operations earning A$NZ25 million last year on sales of A$NZ418 million, underpinned by demand for energy drink V.

Last year Asahi unveiled plans to close three of its nine local bottling plants, including MacGregor in Queensland, Moorebank in NSW and Payneham in South Australia, with the loss of 140 jobs.

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