ko-transcript-2013-09-04t15_15

THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPTKO - The Coca-Cola Company at Barclays Back to School Conference

EVENT DATE/TIME: SEPTEMBER 04, 2013 / 3:15PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Ahmet Bozer The Coca-Cola Company - EVP & President of Coca-Cola International

C O N F E R E N C E C A L L P A R T I C I P A N T S

Mike Branca Barclays Capital - Analyst

P R E S E N T A T I O N

Mike Branca - Barclays Capital - Analyst

We're ready with our next presenter, the Coca-Cola Company. And we're certainly very pleased to welcome back Ahmet Bozer, the President ofCoca-Cola International. Ahmet joined the Coca-Cola Company back in 1990 and has held several roles including President of the Eurasia and AfricaGroup and is now responsible for operations in Europe, the Pacific and Eurasia and Africa.

We look forward to hearing Ahmet's take on the current global trends and specifically Coca-Cola's recent efforts to accelerate their global volumegrowth. And with that I will hand over the stage.

Ahmet Bozer - The Coca-Cola Company - EVP & President of Coca-Cola International

Thank you, Mike. Good morning, everyone. It's great to be back here after a few years at Barclays. I'm joined here by Jackson Kelly, Head of ourInvestor Relations Department, and we will be sharing with you some interesting information regarding our international business going forward.

But first things first, obviously our comments about the forward-looking statements; I'm sure everybody is well aware of the content of that.

Let me start with what Coke International is all about. It's a pretty large and dynamic consumer base; we have almost 6 billion consumers and afairly large chunk of that under 21, a very young population. We serve this market with over 350 brands, 120 bottling partners and we representroughly half of the total Company volume. And we have a fairly good portfolio of countries, which we classify then as developed, developing andemerging markets, over 60% of the markets that we do business in are actually emerging and developing markets.

How do we go to market as an organization in Coke International? You might remember that Coke International's structure was put into place atthe beginning of this year to oversee three operating groups -- Eurasia, Africa and Europe and Pacific groups. And the main purpose of theestablishment of Coke International was that we are able to speed up our operations and execution and scale better across these three groups, aswell as locating this structure in Atlanta allowed a much closer linkage between corporate operations and field operations and faster decision-makingat the corporate level. And that has been working quite well so far for us.

Our organization right now is headed by quite senior executives, all of whom have great continuity in the territories in which they are responsible,which is a strength for us. James Quincey who has presented a few -- about a month or so ago about Europe; Nathan Kalumbu heading up Africa,and currently I am actually also looking after the Pacific group, I didn't want to put my picture there twice.

We made a recent appointment of Atul Singh who takes over a portion of the Pacific group as the Deputy Group President, it's India and China,half of the world's population. Atul is extremely well positioned for that role because he has shown a wonderful track record in India over the lastsix or seven years. And before that he was responsible for a large chunk of business in China. So he brings to bear great experience and greatrelationships with our bottling partners and other stakeholders in China and extremely well-qualified to take that role.

Now as I said, James Quincey had made a presentation in Europe a few months ago and I'm going to touch briefly on Europe. And if you're interestedin his presentation it is in our Investor Relations website, you're welcome to go through that in more detail.

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SEPTEMBER 04, 2013 / 3:15PM, KO - The Coca-Cola Company at Barclays Back to School Conference



Well, you obviously hear maybe not so encouraging news about the European economy every day when you look at the paper. But actually if youlook beyond that, if you look at the mid- to long-term potential, there are some great reasons to be very optimistic about Europe.

First of all, it's the largest NARTD retail value pool in the world and that is expected to grow between now and 2020. Then if you look at the percapita consumption of sparkling beverages and compare that to the other Western markets, Europe is exit quite low. So there is opportunity togrow sparkling beverages in Europe. And we have a very strong position with our brands and our bottling system and we are leading obviouslythe NARTD market in Europe. So those three things are great reasons to be more optimistic about Europe in the medium- to long-term.

So what has happened? If you actually track down the predictions about what Europe in the macro sense will do, you would notice that every yearthe projections for the start of the recovery got pushed back and pushed back. So that is just the last couple of data points to say that recoverywould be later. Obviously that is not something we can control too much.

But what we can control really is our investments and continuing to strengthen our position so when the recovery does take place we are actuallyin an advantaged position to capture more growth. And that is exactly what we have done since 2008. We've actually gained volume and valueshare in Europe and we have realized positive price mix in this difficult economic environment. And as a result of that we have maintained bothour gross profit and PBT margins on a currency neutral basis in Europe.

And we have maintained a fairly advantaged sparkling brand portfolio where you see on the screen our favorite brand scores versus our primarycompetitor and we are in an ever stronger place in Europe as that. So we haven't really wasted the economic crisis in Europe; we continue tostrengthen ourselves.

So how do we see the future unfolding in Europe? Obviously at some point in time the economic recovery will start. We really believe in that andyou already see some positive economic indicators in terms of how the austerity programs are yielding results in countries like Greece. And oncethe economic recovery starts we will benefit from the fact that we have taken advantage of this period to get ourselves in a better position withsome of the emerging channels in Europe such as discounters.

At the same time we've been broadening our consumer base, appealing to not just the teenagers and young adults but also adult consumers. Andwe have been selectively expanding our portfolio beyond sparkling. So those three investments in a way that we have made over the last three,four years will continue to give us a significant advantage as the economic recovery starts.

One of the -- and you might be familiar with our famous terminology OBPPC. We have been expanding our pricing and packaging portfolio inEurope to be able to increase our recruitment and build frequency in sparkling beverages. And we have also been strategically choosing stillscategories to participate.

One of the great examples of that is the innocent brand which we acquired a portion of in 2008. And I can tell you that that is the fastest-growingchilled juice brand in Europe, it's the number one European smoothie brand. We already have leadership positions in Ireland and Austria in chilledjuices and we are closing the gap in the UK versus our nearest competitor.

And to add to those data points I would also say that we have doubled our revenue since 2008 as part of that acquisition. That is a very strategicacquisition which is carefully being expanded which eventually complements our portfolio in Europe in a very positive way.

Moving on to the Pacific group, we have used the term that it's really two worlds growing together. In one side you have the likes of Japan, Australia,which are more developed markets whose growth rates may not be as fast as the developing markets. And you see the per capita consumptionand then GDP per capita numbers there on the screen. And on the other side we have emerging markets where we have very low per capitaconsumption and very low GDP per capita and that actually makes up three quarters of the Pacific group's volume.

And our strategy in addressing the Pacific group is reflecting that diversity in our marketplace. When it comes to the emerging markets it is veryimportant that we create habits with teenagers and build frequency with teenagers and young adults in sparkling beverages.

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In terms of the developed markets, while that still is an important strategic initiative for us, the emphasis must be on more innovation so that wecan also appeal to the growing adult population. When it comes to our strategies versus the customers, emerging markets would more typicallybe developing more innovative route to market systems with small drop sizes in a large geography, whereas in the developed markets we arelooking to create value with the modern trade and our Pacific group strategy reflects those both.

In our category choices we are always very careful about vetting on the right categories. Pacific market has -- the NARTD market is very welldeveloped in terms of a number of different categories and we compete in that market by making the right choices and supporting the choiceswe made in the right way to give us the total NARTD leadership. Which we are, by the way, across the Pacific group we are the NARTD leader withvery strong presence in obviously sparkling juice and juice drinks, teas and value added dairy.

Just to cover a little bit about China as the key market and our Pacific group. As you know, China is in a transition period both politically andeconomically and the growth rates have been coming down a couple of notches and the competitive landscape has been evolving.

The opportunity that we see in China is still huge in the sense that there's going to be a significant increase in personal consumption expendituredisposable income, there is going to be more middle-class coming between now and 2020, more urbanization is expected to take place. And Iwould add to that still the NARTD per capita in the market is at a very, very early phase of development which gives us opportunity to grow.

And as China is in transition we are also evolving our strategy to address that. And obviously our first and foremost -- our strategy is to revitalizegrowth into sparkling and that is very important. As you might remember, we have the most loved brand in Coke, the fastest-growing brand inFanta and the number one selling brand -- sparkling brands I'm talking about -- in Sprite.

So we have a very strong sparkling portfolio which we are going to activate fully by using a provincial segmentation approach where we recognizethe potential within China within the provinces. And in fact by province and within the province. And from the standpoint of segmenting ourstrategies and approaches to high priority markets and fully activating our sparkling portfolio and being selective of stills beverages to serve in asegmented way.

So that strategy is being put into place and as a result of that we are also realigning our route to market and our regional supply chain to cater tothat kind of a segmented strategy. And while the strategy is slowly finding its place in the marketplace we have also made some organizationalchanges to strengthen the organization, to evolve the organization to implement such a strategy. And that has taken place with Atul's appointmentas well as additional appointments in marketing and operating roles.

Combined with all of that we are quite pleased of our progress in China and we're actually witnessing improvements in trends from the last quarter-- so far within the third quarter. Obviously there is one more month to go, but we are witnessing improving trends.

Now one of the things that I mentioned as part of the Coke International organization was our ability to scale things, scale good ideas and reapthe benefits from that. One such example was the Share a Coke campaign where we have created incredible excitement across the Coke Internationalterritory where the consumers were sort of looking for their names written on Coke cans and actually forming lines in supermarkets trying to gettheir names printed.

So quite an exciting promotion. I would like to share with you the video of that on how we have activated that Share a Coke campaign in China.So if we could roll the video please.

(Video in progress).

When I had my market visit there I had my nickname printed on a Coke bottle. Of course I didn't understand what that was. And last meeting theysaid something like a wise old man. So I like the wise but not be old.

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So moving on within the Pacific group, we have probably not talked a lot about Southeast Asia, that is the collection of markets such as thePhilippines, Vietnam, Indonesia, Thailand, Myanmar, Malaysia, Singapore. 600 million people -- it's a big chunk of that developing world withinPacific after India and China.

We have achieved high single-digit, mid to high single-digit growth over the last four years, three years. And between now and 2020 there is stillsignificant growth expected in these markets in terms of urbanization, increasing in disposable income and rising middle class -- the same favorabledemographic trends that we see elsewhere in the emerging world. And we have a pretty strong position in Asian markets with sparkling beverages,juice and juice drinks and waters and other regional brands.

Moving on to Eurasia and Africa group which covers -- and just for clarity, India was part of Eurasia Africa group until the beginning of this year. Allof the Pacific information I've shared with you includes India, and everything that I'm going to share with EAG here excludes India for the purposeof comparability. And between 2009 and 2012 great strides in gaining volume and value share in growing volumes 9% in Eurasia and Africa group.

It actually is -- this geography holds 66% of the world's oil reserves. Again, extremely favorable demographic trends with emerging middle class,urbanization and -- but at the same time very, very low current per capita consumption happening in those markets. Again point to a significantopportunity both in the short- and long-term in Eurasia and Africa group.

And our position in Eurasia Africa group is quite strong, number one in sparkling, number one in juice and juice drinks, number two in water,number two in tea and number two in sports drinks. And industry retail value is expected to grow about 10% between now -- between 2012 and2020.

Within Eurasia Africa group we have about 85 to 86 markets, so it's very important that our strategy is very clear in terms of choices of categorieswe participate and in terms of the specific roles that each of these markets play in Eurasia Africa group. As it is in any other market, sparkling is ournumber one bet. Juice and juice drinks we've been focused on in Eurasia Africa group for the last four or five years and making great progress.Energy and waters, but we also allow different markets given the diversity of those markets to have regional priorities such as teas and maltbeverages.

And when you look at the market perspective, we have some very bold strategic challenges. For example in Russia -- Russia, again, is in a way a bitlike the Pacific markets where there is highly developed NARTD segments and juices, waters and teas, etc. But we have made a bet to more or lesstransform that market so that the market grows on the strength of sparkling beverages. And we have been succeeding in that ever since we startedthat strategy of growing our sparkling beverages double-digits and Brand Coke having a phenomenal success there.

And Turkey with a reasonably high sparkling per capita, we are looking to continue to unlock the sparkling potential, but we also have strongpresence in juices, waters and teas and continue to grow our total business with that portfolio.

Middle East and North Africa, this is a market where we are really focused on improving our market position and share position, especially in thoseparts of the business unit where we are not leading the industry and we are making great strides in that as well. And I will cover Middle East in alittle while.

And then sub-Saharan Africa, which is being added in terminology to the BRIC as an S and making it BRICS. Even though the S stood for SouthAfrica it actually represents the entire sub-Saharan Africa. We believe it is the time to seize the moment because they have been growing on a nicecompound rate for the last -- economically for the last 10 years and we have a very strong position there to take advantage of that. So clear strategicheadlines for each of the markets.

Middle East division and North Africa, we talked about that a little while ago. The way we are really improving our market position is that we aretaking advantage of what's happening in the Middle East, all the social changes that is happening there, by really having a cultural leadershipmarketing type activities to appeal to the youth and improve the equity of our brand.

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While we are doing that we're continuing to invest in our stills portfolio. You might remember our big acquisition -- acquisition of Rani juice brands,which is the number one juice brand in the Middle East, which significantly improved our stills presence in the entire Middle East as well as givesus an opportunity to launch juices profitably in a very profitable way in markets across Middle East and Africa and looking for applicability of thesejuices even beyond that.

And as a result of all of that, Middle East and North Africa business unit was the winner of our Woodruff Cup, which is largely determined based ontheir performance -- market performance and they were the winners of that cup to signify the great track record they have established last year.

Talked about Russia, it's transforming the markets through our focus on sparkling. For the last five years we have been consistently investing inBrand Coke and our sparkling beverages and activating each one of them completely in a phased manner, as well as we have a pretty strong stillsportfolio with acquisitions in juices and being able to sort of connect those businesses in our route to market systems in a synergistic and effectiveway.

And as a result you see our sparkling share gains of 4.5 points since 2009 and you see our market position in various categories as number one insparkling, number one and number two in all the categories that are listed there. You also noticed there the growth of Brand Coca-Cola since 2009,quite an impressive high teens double-digit growth.

Talked about Africa earlier as the next frontier. And again, the very favorable demographics -- more middle-class, more urbanization. An interestingstatistic is if you haven't heard that before is that the fastest-growing global economies seven, out of 10 are in Africa. And Africa has been largelydecoupled from what happened around the world because of a lot of maybe Chinese and Asian investments as well as continuing to diversify theireconomic landscape, not just being dependent on minerals or energy.

So as a result of that the industry retail value is expected to grow double digits and our performance in sub-Saharan Africa has been consistentmid single-digit growth primarily driven by sparkling and focusing a lot on how we are able to get to the small stores in urban and rural marketsthrough different distribution models which I'm going to talk about at the end of the presentation a little bit placing more coolers, investing inmore PT lines and etc. And you notice the per capita consumption levels are quite low at this point in time pointing to further opportunity.

Now one of the ways that we are really continuing to build a strong connection with the African consumer is again scaling up a great idea thatwe've had that you might've seen in other presentations about really more cultural leadership type activities where we're giving the Africanconsumers reason to believe in Africa and sort of showing in some ways our little contributions to Africa, which I will show later on. So let me justshow you, if you could roll the tape, please, on that reasons to believe in Africa advertising.


An inspiring piece of communication which is not just a one-way communication; we are asking the African consumers to contribute their billionreasons to believe in Africa through the social media, which is just some amazing stuff coming through. And this way we are really connecting withthe African consumers because they need to believe in themselves and that fits so well with our brand and continues to strengthen our brand lovescores.

Now obviously one of the things that we really try very hard for is to make sure that sustainability really is an integral part of our business, it is notnecessarily philanthropy. And it's ever more important in Africa that we succeed in that effort. And we have a lot of initiatives there. I've talkedabout how we are able to get to these maybe promote communities, how we are able to deliver to small stores in different ways.

One of the initiatives that we have is to build retailer capabilities and actually empowering women retailers or distributors so that they are sort ofa thriving business who can help us with our distribution and earn a living. And the way we're helping them with our 5by20 program is that providingthem access to finances, providing access to them to networks of similar people in those and training on how they can actually not only succeedin business but also succeed in life overall.

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And this program is getting incredible results and that is part of our commitment to empower -- economically empower 5 million women by 2020in Africa is playing a big role in that. Another one of those initiatives you might've heard about is EKOCENTER, that started out as the slingshotwater purification machine which actually can use any source of -- any quality water and produce vaccine grade distilled water.

Now -- so people walk long distances with containers carrying maybe days walk to get some water. With this machine we can actually make drinkingquality water available to communities. And around that then the slingshot machine could become like what we call an EKOCENTER where thereare -- other necessities could be added in there such as communication or even other basic goods being sold and put an entrepreneur in there toactually earn a living through that.

So these are things that are helping the local community and helping our business as well, not necessarily philanthropic activity. And for those Ihave a couple of other videos to share with you. One is in Uganda where -- and there is another leg of this in Kenya where we are working withfarmers to help them grow mangoes in a more efficient, more environmentally friendly and more cost effective way so that we can purchase thosemangoes from them for our juice business in Africa, which we already have a number two position in juices.

And the other one -- video that you are going to see, you're going to see them back to back, is about the women's empowerment project that Ijust talked about. So if we can roll those two videos quickly, please. Thank you.


So I hope this gives you an idea that when I say sustainability is not about philanthropy for us, it is really part of our business. But we're doing thatin a way that, as I call, we are hitting the bull's-eye. That we are benefiting everyone who touches this initiative including ourselves. So we are quiteencouraged by all the feedback we are getting on all of that.

So really to -- I want to leave you with the following message. We have an incredibly rich portfolio of countries, 159 of them, and every single oneon the developing side offering huge opportunities driven by favorable demographic developments as well as low per capita consumption, whichwe are able to address with a strong presence in different categories as well as a strong system that we operate through.

We have a leading competitive position in NARTD and in important categories within NARTD. We have a lot of continuity and our organization isevolving very well, all unified with our bottling system behind a clear vision and a clear set of strategies to realize those opportunities. And we areconfidently marching on that road to create a bright future for all of us.

So, thank you very much. I think we have about five minutes for questions and I will take my seat there next to Jackson.

Q U E S T I O N S A N D A N S W E R S


Ahmet, you had a pretty challenging second quarter in terms of the business performance. So I was hoping you could maybe touch on how thatbusiness has evolved since then and particularly in some of the critical emerging markets like China. And what initiatives -- obviously we saw theshare of Coke -- you are undertaking to get the growth back up to the historical standard.


Yes, thanks, Mike. As you all know, the second quarter volume wise was disappointing for us. At the same time after having done a lot of analysisand digging deep we are absolutely convinced that it was an anomaly where a lot of adverse things, primarily weather really, came together all atthe same time across the geography in everywhere. So I guess that happens from time to time and did happen in quarter two.

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And as we are now going through the third-quarter so far two months down we are seeing improvements in trends, especially China, so that is thecase. Obviously there is still a month to go in the quarter. And I've talked about our strategies and those in China, those strategies we are puttinginto place as we speak. The team that I have talked about is in place since July 1.

I have personally been there twice since July 1 with the new team and I see the great energy with our bottling system, I have actually personallymet as a system with all of our bottlers. So quite excited about the strategy, quite excited about the team. And certainly programs like Share a Cokerevitalizes that energy and giving us the hope for short- and long-term in China.


If we could perhaps talk a little bit about the value side of the equation and price mix, OBPPC obviously is a system-wide initiative and we alwaysfocus quite a bit on the unit case and volume performance. But I'm hoping you can collaborate on how you see the evolution of price mix in yourterritories with the understanding that with 159 countries you are going to have pluses and minuses.

But specifically on a local basis does OBPPC give you the ability to take a greater rate of price mix over time than what you had previously? Andhow do you see that offsetting perhaps geographic price mix as you have much more rapid growth in your larger emerging markets where theprice premium is lower than the corporate average?


Certainly the OBPPC is a significant tool for us to manage price mix in every single country. And obviously that is not sufficient to have good OBPPCstrategy; that has to be complemented with the right route to market and customer service systems that we can actually implement that very well.And then add as a third layer on top of that continuing to build value for our brand so that we can expand the price premium that we can chargeversus our primary competitor.

So those three levers help us manage price mix. And, yes, there is a portfolio effect, that slower growing high-margin countries versus faster growing,all of that. But if you do the math you will see that if you can realize a bit of price mix in Europe and you can achieve a certain level of volumeperformance in Europe and you realize price mix improvements within the emerging markets even though they are lower. Actually the math works;we can sort of balance our volume growth with healthy price mix development in international markets.


Okay, we're going to stop there. If you would join me in thanking Ahmet and the team for providing beverages during the conference.


Thank you.

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