SOUTH AMERICA: Panamco downgrades 2002 forecasts, announces $98m of charges

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Panamerican Beverages (Panamco) revealed today that it expects to record one-time charges in its third quarter of around US$95-$98m, before taxes, or US$80-$83m, net of taxes, in order to address the deteriorating economic conditions in some of its markets.

"We have moved aggressively and proactively to enhance our ability to operate successfully in a very difficult macroeconomic environment, with the additional benefit of positioning ourselves to reap even greater rewards as the economic environment improves," stated Craig Jung, Panamco's chief executive officer.

The charges, the company said, are the result of a detailed analysis of its business strategies, its current cost structure and asset valuations. The vast majority of the charges are non-cash, with cash charges totalling approximately US$20-$22m. The company expects total annual pre-tax savings, primarily related to the cash charges, to be approximately US$20-$22m from 2003 onward.

Nearly 75% of Panamco's one-time charges relate to Venezuela and the remaining 25% relate to Mexico, Colombia and, to a lesser extent, Brazil.

"Charges in Venezuela reflect asset write-offs and impairment charges resulting principally from the deteriorating macroeconomic and business environment, the company said in a statement. In addition, some charges incurred in Venezuela relate to severance payments

Meanwhile, Panamco also announced today that it expects to report a net loss, excluding the one-time charges, of approximately US$3-$5m on a consolidated basis for the third quarter of 2002, of which approximately US$16-$18m is related to Venezuela.

"The loss is primarily attributable to deteriorating macroeconomic conditions impacting both operations and financial items and comes despite volume growth, continued price/value management and a strong focus on cost and expense controls," the company said.

Consolidated volume for Panamco is expected to grow nearly 2% during the quarter. However, average revenue per unit case is expected to fall, reflecting currency weakness.
Currency weakness also impacted operating profitability. As a result, Panamco now expects third quarter cash operating profit (COP), excluding one-time charges, to reach US$90-$92m, an approximate 33% decline from the results achieved a year ago.

Looking forward Panamco said it now expects that COP for the fourth quarter will reach US$95-$105m. And for the full year 2002, excluding one-time charges, COP is expected to reach US$415-$425 million, a decline of 18-20% from a year ago. Net income, excluding one-time charges and the one-time gain from the sale of Kaiser, should reach US$60-$70m for the year. Including the gain from Kaiser, net income is expected to reach $110-$120m.
The Company expects to provide full year 2003 guidance later in the year.

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