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TRANSCRIPT
2015 CAGNY
Muhtar Kent, Chairman & CEO
Kathy Waller, EVP & Chief Financial Officer
FEBRUARY 20, 2015
This presentation may contain statements, estimates or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The Coca-Cola Company’s historical experience and our present expectations or projections. These risks include, but are not limited to, obesity concerns; water scarcity and poor quality; evolving consumer preferences; increased competition and capabilities in the market place; product safety and quality concerns; increased demand for food products and decreased agricultural productivity; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging and developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with our bottling partners; a deterioration in our bottling partners' financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States or in other major markets; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the availability of our products; an inability to protect our information systems against service interruption, misappropriation of data or breaches of security; unfavorable general economic conditions in the United States; unfavorable economic and political conditions in international markets; litigation or legal proceedings; adverse weather conditions; climate change; damage to our brand image and corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations; changes in accounting standards; an inability to achieve our overall long-term growth objectives; deterioration of global credit market conditions; one or more of our counterparty financial institutions default on their obligations to us or fail; an inability to realize additional benefits targeted by our productivity and reinvestment program; an inability to renew collective bargaining agreements on satisfactory terms, or we or our bottling partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer plan withdrawal liabilities in the future; an inability to successfully integrate and manage our Company-owned or -controlled bottling operations; global or regional catastrophic events; and other risks discussed in our Company’s filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2013 and our subsequently filed Quarterly Reports on Form 10-Q, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Coca-Cola Company undertakes no obligation to publicly update or revise any forward-looking statements.
Reconciliation to U.S. GAAP Financial Information
Forward-Looking Statements
The following presentation may include certain "non-GAAP financial measures" as defined in Regulation G under the Securities Exchange Act of 1934. A schedule is posted on the Company's website at www.coca-colacompany.com (in the “Investors” section) which reconciles our results as reported under Generally Accepted Accounting Principles and the non-GAAP financial measures included in the following presentation.
2
Agenda
Areas of Focus for 2015
Q&A
Strategic Overview
2014 Performance
3
4
2014 Performance
Progress in a Challenging Year
* Comparable currency neutral, excluding the impact of structural items ** Comparable currency neutral
2014 Full-Year Performance
NARTD Value Share
Net Revenue*
Operating Income*
EPS**
3%
6%
5%
• Macro environment
• Continued currency headwinds
• Strategic initiatives to accelerate growth
• Evolving and strengthening our distribution system
• New investments and partnerships focused on innovation and new occasions
Challenges and Progress
5
Strategic Initiatives to Accelerate Growth
Focus on core business model
Disciplined brand and growth investments
Segmented market roles
Streamline and simplify organization
Drive efficiency through aggressive productivity
6
Our Strategic Initiatives Drive Business Transformation and Growth
7
Streamline, Simplify and Save
Balanced Investment and Flexibility
Focus Our System • KO: Dynamic Brand Portfolio, Great
Marketing and System Leadership • Bottling Partners: Superior Execution • New Partners: Expanding Beverage
Occasions and Capabilities
Revenue, Profit
& Returns
Strategic Overview
Our Economic Profit Model Is Based on Growth
9
* Currency neutral
70% of EP Growth Economic Profit Growth* 30% of EP Growth
Revenue Growth Margin
Expansion Capital
Efficiency
Target CAGR 10% +
Revenue Growth
Our Growth Story Begins With Our Participation in a High-Growth Industry
10
Long-Term Target of Mid Single-Digit Growth*
Key Drivers of Revenue Growth
Revenue Growth
Share Gains
*Comparable currency neutral
Share Gains
Price Realization
Revenue Growth
Industry Growth
Our Growth Story Begins With Our Participation in a High-Growth Industry
11
Long-Term Target of Mid Single-Digit Growth*
Key Drivers of Revenue Growth
Revenue Growth
Share Gains
*Comparable currency neutral
Revenue Growth
Industry Growth
Share Gains
Price Realization
in Middle Class Growth
million*
in Personal Consumption (PCE) Growth
trillion*
An Industry Fueled by Favorable Demographics and Highly Correlated to PCE Growth
*Projected growth 2015 – 2020. NARTD excludes white milk and bulk water 12
Source: Euromonitor and internal estimates
Source: IHS Global Insight Source: IHS Global Insight
billion*
NARTD Retail Value Growth
Source: Internal estimates
Global NARTD Value Growth* by Market Type
Volatility in Emerging Markets Has Blurred the Underlying Growth Story
0%
5%
10%
15%
20%
2010 2011 2012 2013 2014
Developed Markets
Developing Markets
Emerging Markets
* Growth based on internal estimates. NARTD excludes white milk and bulk water
YOY
Incr
ease
13
• Industry deceleration driven by emerging markets
• Focused on driving revenue growth based on segmented market roles
Developed Markets
Developing Markets
Emerging Markets Emerging Markets
Global NARTD Value Growth*
But Take a Step Back and the Growth Story Comes into Focus
0%
5%
10%
2010 2011 2012 2013 2014
NARTD Industry Value Growth
Sparkling Value Growth
Still Value Growth
YOY
Incr
ease
• Industry deceleration not category specific
• Estimated industry value growth of ~5% between 2015 and 2020
• Sparkling retail value has grown in emerging, developing and developed markets each year since 2010
14 * Growth based on internal estimates. NARTD excludes white milk and bulk water
NARTD Industry Value Growth
Sparkling Value Growth
Emerging Markets Still Value Growth
Winning in the Marketplace
15
Long-Term Target of Mid Single-Digit Growth*
Key Drivers of Revenue Growth
Revenue Growth
*Comparable currency neutral
We Will Grow Faster Than the Industry Through Share Gains and Price Realization
Industry Growth
Price Realization
Share Gains Share
Gains
Utilizing Our Greatest Assets and Capabilities to Outpace Industry Growth
16
GREAT MARKETING
SUPERIOR EXECUTION
DYNAMIC BRAND
PORTFOLIO
• Disciplined portfolio decisions
• Expand consumption occasions
• Quality
• Quantity
• Unparalleled distribution system
• Capabilities and investments
16
We Have the Most Valuable Portfolio of Brands
20 Billion-Dollar Brands... including three new brands!
17
Our Portfolio Holds Leadership Positions in Key Categories and Markets
#1 in total
NARTD in 25 of top
32 markets
#1 in Sparkling and Juice & Juice Drinks
#2 Sports Drinks and Water
#1 in Sparkling, Juice & Juice Drinks, RTD Tea and Water
#2 in Sports Drinks
#1 in Sparkling, Juice & Juice Drinks and Sports Drinks
#2 in Water
#1 in Sparkling, Juice & Juice Drinks, RTD Coffee and Sports Drinks
#3 in Water
#1 in Sparkling and Sports Drinks
#3 in Juice & Juice Drinks
18
North America
Latin America
Europe
Asia Pacific
Eurasia & Africa
Continuously Strengthening Our Portfolio
Industry Growth Through 2020 ($ Billions)
$- $50 $100
All Other
RTD Tea
Energy Drinks
Packaged Water
Juice and Juice Drinks
Value-Added Dairy
Core Sparkling #1
NM
#1
#2
#2*
#3
KO Value Position
Innovations and Investments
19
*Estimated global position upon closing of the transactions with Monster Beverage Corporation
NM: Not Meaningful
Source: Internal Estimates and Canadean
Expanding Consumption Occasions and Capabilities
• Access new technologies, segments and assets through equity investments
• Utilize unique assets and relationships of each partner to maximize value
• Preserves cash and limits capital investment
20
The Coca-Cola Bottle Centennial
21
CELEBRATE A BIRTHDAY… …LEVERAGE IT FOR GROWTH
22
22
Driving Transactions, Recruitment and Brand Love
Continuing to Strengthen Our Distribution System in Key Markets
23
Coca-Cola Amatil Indonesia
Coca-Cola Beverages Africa
21st Century Beverage Partnership Model
• Creation of the largest African Coca-Cola bottler and 10th largest worldwide
• Joint venture to capture growth in this fast-growing emerging market
North America
Indonesia Africa
• Roadmap to retain ~1/3 of the U.S. bottler-delivered business by end of 2017
Our 21st Century Beverage Partnership Model Is Moving Forward
24
• Completed territory transfers with strong and aligned bottling partners
• Transferred territories represent 5% of U.S. bottler-delivered business
• Completed initial pilots for common IT platform (Coke One)
• Developing “transition handbook” to scale success
• “Start Slow – Scale Fast”
System is transitioning AND growing
Customer feedback remains positive
Capabilities in place to accelerate
Progress Learnings and Implications
• Opportunity for CCR and expanding bottlers
24
• Coke One enabling transition AND improving legacy performance
Evolving Our Bottling System in Africa to Seize the Tremendous Growth Opportunity
25
• Coca-Cola Beverages Africa (CCBA) will produce and distribute in 12 countries across Southern and East Africa
• Over 30% of Sub-Saharan population lives in CCBA markets
• Provides greater choice, availability and value to capture the tremendous opportunity
Investing in Indonesia for Sustained Growth
26
• Population of more than 250 million (4th largest population in the world)
• Fast-growing middle class
• NARTD market has more than tripled in the past decade
When We Combine the Right Brands, Great Marketing and Superior Execution, We Win in the Marketplace
STRONG BRAND
PORTFOLIO
GREAT MARKETING
SUPERIOR EXECUTION
27
Retail Dollar Change in Sparkling*
Improving Trends in North America
*Nielsen All Measured Channels
-4%
-2%
0%
2%
4%
6%
2012 2013 1H 2014 2H 2014
Brand Coca-Cola
TCCC
Industry
28
• Refreshment-oriented and value-enhancing price/pack architecture
• Profitable brand growth: quantity and quality of marketing investments
• Distinctive value creation with and for customers
2L Bottle
12 oz Can
1.25L Bottle
7.5 oz Mini-Can
8 oz Glass
12 oz Glass
6 pk 500 mL PET Bottle
Our Opportunity Remains Bounded Only by Our Imagination
The average household globally consumes drinks per day…
…of these 26 drinks,
26 are KO brands*
1.4
29 29 *Includes licensed brands
Areas of Focus for 2015
Driving Long-Term Shareowner Value Through Our Economic Profit Model
31
* Currency neutral
70% of EP Growth Economic Profit Growth* 30% of EP Growth
Revenue Growth
Margin Expansion
Capital Efficiency
Target CAGR 10% +
Revenue Growth
Improving Margins and Capital Returns Through Productivity
32
Margin Expansion
Capital Efficiency
Aggressive Productivity
Streamline Organization
32
Disciplined Investments
Core Business Model
Segmented Market Roles
Marketing
$5-$6B
~$600M
Operating Expenses
$12B
~$1B
COGS
Aggressively Expanding Our Productivity Program
2013
Spend
Base $18B
Total Savings ~$1.4B
• 15% to 20% savings for non-bottling opex
• Mid single-digit % savings for bottling opex
• Streamlining group functions and standardizing business units
• Zero-based budgeting
• In-line blow molding
• Warehouse automation
• Light-weighting
• Network optimization
• Procurement
• Marketing spend procurement
• Reduction in non-media DME
• Focus resources behind most effective investments
33
$18B
~$1.4B Total Savings
2013 Spend Base
TOTAL
$36B
~$3B
Embedding Productivity into Our Culture
• Procurement capabilities
• Product and package optimization
• In-line blow molding
Zero-Based Budgeting Supply Chain
• Completed phase 1 for Corporate and North America
• Supported by disciplined management oversight
• Embedding the process into our culture
Streamlining Organization
• Elimination of a functional layer at the group level
• Launched process improvement teams
34
Improving Margins and Capital Returns Through Disciplined Investment Decisions
35
Margin Expansion
Capital Efficiency
35
Disciplined Investments
Aggressive Productivity
Streamline Organization
Core Business Model
Segmented Market Roles
Driving Growth Through Disciplined Investment Decisions
RED
Global System Investments
Imp
rove
Qu
alit
y
of
Mar
keti
ng
Inve
st in Su
pe
rior
Execu
tion
Right Execution Daily
Incre
ase M
ed
ia In
vestm
en
ts
Imp
rove
OB
PP
C
Cap
abili
ty
• Immediate consumption
• Transaction growth
• Recruitment
• Improve ad quality
• Increase reuse rate
• Double-digit increase in media in 2014
• Disciplined allocation
• Increase outlets and coolers
• Increase use of photo recognition
Accelerate Profitable
Growth
36
Improving Margins and Capital Returns Through Market Segmentation and Focus on Core Business Model
37
Margin Expansion
Capital Efficiency
37
Aggressive Productivity
Streamline Organization
Disciplined Investments
Core Business Model
Segmented Market Roles
Incentives Linked to Segmented Market Roles
Volume Growth
Transactions
Incentives Tied to Profitable Revenue Growth Based on Segmented Market Role
Revenue Growth
Price/Mix
38
Focused on Our Core Business Model and Improving Returns
39
39
Operating Margins
ROIC
Working Capital
Capex
Invested Capital
Expected Impact of North America Refranchising*
*Expected impact on consolidated financial statements
Cash from Operations • Consecutive
Years of Annual Dividend Increases
$4.3B $4.6B $5.0B $5.4B
$2.8B $3.1B
$3.5B $2.6B
2011 2012 2013 2014
Dividends Net Share Repurchases
Billion of Value Over Returned to Shareowners
2014
We Generate Strong Cash Flows and Reward Shareowners
* Received approximately $900 million of cash related to the disposal of certain bottling operations
*
40
We Are Confident in Our Long-Term Growth Algorithm
Long-Term Growth Targets*
Net Revenue PBT EPS
High Single Digit
6-8% Mid
Single Digit
*Comparable currency neutral
41
• PCE growth will continue to fuel industry value growth
• Grow faster than the industry by leveraging:
the world’s most valuable beverage portfolio;
great marketing; and
superior execution across our system
• Drive margin expansion and capital efficiency
Q&A