Pressure mounts on Coca-Cola over RI operations

Pressure mounts on Coca-Cola over RI operations

Dow Jones, Sydney

Coca-Cola Amatil is battling pressure to exit its Indonesian business as some blue chip investment banks, including Merrill Lynch, continue to question the company's strategy in that market.

Indonesia accounts for around 11 percent of Coca-Cola Amatil's sales, 5 percent of earnings before interest and tax, and 9 percent of net assets, ranking it fourth in size behind the company's operations in Australia, Oceania and South Korea.

Coca-Cola Amatil has been in Indonesia since 1992.

In a report released Wednesday, Merrill Lynch analysts voiced their concerns about Coca-Cola Amatil's Indonesian strategy which they say has become all about "price recovery and margin protection" where previously it was focused on "product affordability combined with a rapid increase in availability."

"The Indonesian business continues to struggle. In our view the changed strategy for Indonesia raises the question of why Coca-Cola Amatil would/should be in this market at all," analysts said in the report to clients.

Merrill Lynch, which is recommending clients buy the stock, said there is a question mark over whether the long term growth potential of the Indonesian operations "will ever be realized."

Similarly, rival investment bank Credit Suisse First Boston told clients Wednesday that Coca-Cola Amatil's Indonesian unit was marked by volatility.

Credit Suisse First Boston expects the stock to underperform the broader market.

"Earnings news about Indonesia is likely to affect Coca-Cola Amatil's share price," analysts said.

The soft drinks maker is due to report its full year 2002 results on Feb. 13.

However, Coca-Cola Amatil maintains that it's going be a long term player in Indonesia.

"We believe it has long-term potential," a spokesman told Dow Jones Newswires in reference to Indonesia.

Late last year, Coca-Cola Amatil said that trading in Indonesia in October and November had been "above expectations," with volume growth achieved in each of those months compared with the same months a year earlier.

Coca-Cola Amatil's share price were under pressure in 2002 reflecting concerns about its operations outside of Australia.

Its shares closed down six cents at A$5.70 on Wednesday.

Coca-Cola Amatil is about 35 percent-owned by the Coca-Cola Co. of the U.S.