coca cola and its global challenges
TRANSCRIPT
COCA COLA AND
ITS GLOBAL CHALLENGES
GROUP 9
•Established: 1886 •Ranking: 4 of the world's top 5 non-alcoholic sparkling beverage brands •Associates: 90,500 worldwide •Operational Reach: 200+ countries •Consumer Servings (per day): 1.5 billion •Beverage Variety: more than 2,800 products
About Coca cola
• Started in 1886 – annual revenue $50
• Worldwide annual revenue is $22bn in 2004.
• Coca cola operates in 200 countries and deals in 47 functional currencies
• 76 % profit comes from Outside North America
•47 % worldwide market share in flavoured cabonated soft drinks•Market share in US is 42%•International market share is 50%
Coca cola & its global Challenges
• World’s largest manufacturer, marketer and distributor of soft drink concentrate.
• Bottling and canning operation in done outside the US
• In 1995, change in organisation structure into five regional group headed by Group President.
• Spinned off bottling and canning operation into independent companies
Coca cola & its global Challenges
Coca cola’s profit by Geographical area : Year 2004
•International operations were increasing significantly • Need felt for comprehensive & easy reference accounting manual•During mid eighties company was going downhill • Earnings (8-10%) was less than the Equity Capital (16%)•Decided to evaluate company’s performance by type of business •Key financial measures : margins, cash flow reliability, capital requirement etc
Issues related to Foreign Exchange
• Devised a new accounting manual .
• Created a universal chart of account for all subsidiaries
• Defined each account, policies and procedures.
• Section for translating financial statements in local currencies to US $
• This accounting policy made significant impact on coke business strategy.
Issues related to Foreign Exchange
As per FASB : Translation of foreign
currency statement can be done by
• Current rate method
• Temporal Method
Issues related to Foreign Exchange
Current rate method translates
• All asset & liability at current exchange rate
• All income statement items at average exchange rate
• Owner’s equity @ when company issued stock
Issues related to Foreign Exchange
Temporal method translates
• Only monetary assets & liability at current exchange rate
• Other assets at historical exchange rate
• Income statement at average exchange rate
• Cost of goods sold & depreciation at historical rate
Issues related to Foreign Exchange
Under current rate method gain or loss is
called accumulated translation adjustment
and taken in balance sheet in owner’s
Equity
Under Temporal method gain or loss
directly taken on income statement &
hence affects EPS
Issues related to Foreign Exchange
Series of setbacks
• Frequent change in CEOs.•Financial crisis in Russia• Weakness in global economy• Price reduction due to local competition•Lower profit due weak currency•Resulted in drop in profit by 14% in 1998.• Failure of acquisition of Cadbury Schweeps• Allegations for poor quality•France rejected offer due to concerns of dominance of coca cola
Challenges ahead of Coca Cola
• Lack of creative advertisement & marketing• Poor relationship with bottlers•Over controlling Board of Directors• Reluctance to change according to industry demands• PepsiCo diversification into non-carbonated drinks and snacks
What should be the strategy of Coca Cola ??
• Aggressive advertisement & marketing• Improvement in relationship with bottlers• Change according to industry demands
Year Ended December 31,
2007 2006 2005 2004 2003
Unit Case Volume (in billions)
22.7 21.4 20.6 19.8 19.4
Year Ended December 31,
20071 20062 20053 20043,4 2003
Net operating revenues
$28,857 $ 24,088 $ 23,104 $ 21,742 $ 20,857
Cost of goods sold
10,406 8,164 8,195 7,674 7,776
Gross profit 18,451 15,924 14,909 14,068 13,081
Selling, general and administrative expenses
10,945 9,431 8,739 7,890 7,287
Other operating charges
254 185 85 480 573
Operating income
7,252 6,308 6,085 5,698 5,221
Interest income 236 193 235 157 176
Interest expense 456 220 240 196 178
Equity income -- net
668 102 680 621 406
Other income (loss) -- net
173 195 (93) (82) (138)
Gains on issuances of stock by equity investees
-- -- 23 24 8
Income taxes 1,892 1,498 1,818 1,375 1,148
Net income $5,981 $ 5,080 $ 4,872 $ 4,847 $ 4,347
Average shares outstanding
2,313 2,348 2,392 2,426 2,459
Average shares outstanding assuming dilution
2,331 2,350 2,393 2,429 2,462
Basic net income
$2.59 $ 2.16 $ 2.04 $ 2.00 $ 1.77
Diluted net income
2.57 2.16 2.04 2.00 1.77
Cash dividends 1.36 1.24 1.12 1.00 0.88
Closing market price on December 31
61.37 48.25 40.31 41.64 50.75