pbg cagny 2009
DESCRIPTION
Pepsi Bottling Group Presentation at 2010 Consumer Goods Analyst ConferenceTRANSCRIPT
Al DrewesSVP & CFO
Eric FossChairman & CEO
Cautionary StatementCautionary Statement
Statements made in this presentation that relate to future performance or financial results of PBG are forward-looking statements, which involve uncertainties that could cause actual performance or results to materially differ. We undertake no obligation to update any of these statements. Listeners are cautioned not to place undue reliance on these forward-looking statements. These statements should be taken in conjunction with the additional information about risk and uncertainties set forth in PBG’s annual report on Form 10-K for the year ended December 29, 2007.
We have disclosed certain non-GAAP measures within this presentation. Our 2009 financial outlook also contains non-GAAP measures. “Non-GAAP” measures include those designated as “Comparable” as well as Operating Free Cash Flow (OFCF). Please see reconciliations to their respective measures prescribed by accounting principles generally accepted in the U.S. included on our website at www.pbg.com under Investor Relations.
Statements made in this presentation that relate to future performance or financial results of PBG are forward-looking statements, which involve uncertainties that could cause actual performance or results to materially differ. We undertake no obligation to update any of these statements. Listeners are cautioned not to place undue reliance on these forward-looking statements. These statements should be taken in conjunction with the additional information about risk and uncertainties set forth in PBG’s annual report on Form 10-K for the year ended December 29, 2007.
We have disclosed certain non-GAAP measures within this presentation. Our 2009 financial outlook also contains non-GAAP measures. “Non-GAAP” measures include those designated as “Comparable” as well as Operating Free Cash Flow (OFCF). Please see reconciliations to their respective measures prescribed by accounting principles generally accepted in the U.S. included on our website at www.pbg.com under Investor Relations.
REFRESHREFRESH RETHINKRETHINK REDEFINEREDEFINE
SNAPSHOTOF PBGSNAPSHOTOF PBG
THE EVOLVINGLANDSCAPETHE EVOLVINGLANDSCAPE
STRATEGICPRIORITIESTO DRIVESHAREHOLDER
VALUE
STRATEGICPRIORITIESTO DRIVESHAREHOLDER
VALUE 2009PRIORITIES &FINANCIALOUTLOOK
2009PRIORITIES &FINANCIALOUTLOOK
AGENDAAGENDA
3.5 MILLIONPOINTS OFINTERRUPTION
3.5 MILLIONPOINTS OFINTERRUPTION
85 BILLIONSERVINGSSOLD ANNUALLY
85 BILLIONSERVINGSSOLD ANNUALLY
1.5 MILLIONDELIVERIESPER WEEK
1.5 MILLIONDELIVERIESPER WEEK
67,000EMPLOYEES67,000EMPLOYEES
2 MILLIONPIECES OFCOLD DRINKEQUIPMENT
2 MILLIONPIECES OFCOLD DRINKEQUIPMENT
Snapshot of PBGSnapshot of PBG
Successful Portfolio Repositioning… With Clear OpportunitiesSuccessful Portfolio Repositioning… With Clear Opportunities
GeographiesGeographies
U.S.U.S. InternationalInternational
2012F2012F
4040
6060
20082008
3030
7070
20022002
1010
9090
Operating Profit ShiftsOperating Profit Shifts
CSDsCSDs Non-CarbsNon-Carbs
2012F2012F
>35>35
<65<65
20082008
2727
7373
20022002
1515
8585
U.S. Category ShiftsU.S. Category Shifts
BrandsBrands
Operating profit is on a comparable basisOperating profit is on a comparable basis
Snapshot of PBGSnapshot of PBG
Great Portfolio of Brands… Strong #1 or #2Great Portfolio of Brands… Strong #1 or #2
ColasColas
Non-CarbsNon-Carbs
WaterWater
Invigoration & EnergyInvigoration & Energy
FlavorsFlavors
• Financial Literacy
• Metric Based Granular Focus
• Tools, Training & Technology
• Financial Literacy
• Metric Based Granular Focus
• Tools, Training & Technology
Snapshot of PBGSnapshot of PBG
Capable, Motivated, Experienced WorkforceCapable, Motivated, Experienced Workforce
• Results Oriented
• Continuity of Management
• Appreciation & Recognition
• Results Oriented
• Continuity of Management
• Appreciation & Recognition
CapabilityCapability CultureCulture
Snapshot of PBGSnapshot of PBG
1999 2009 & Beyond
“We Sell Soda.”“We Sell Soda.”
ServiceExcellence
ServiceExcellence
OperationalExcellenceOperationalExcellence
Revenue / Margin Management Excellence
Revenue / Margin Management Excellence
Executional ExcellenceExecutional Excellence
SellingExcellence
SellingExcellence
Best-In-Class ExecutionBest-In-Class Execution
$526$504
2005 2008
Snapshot of PBGSnapshot of PBG
Proven Financial Track RecordProven Financial Track Record
$11.7$13.8
2005 2008
CAGR+6%
$1.2$1.0
2005 2008
CAGR+6%
Topline Growth(in billions)
Topline Growth(in billions)
Operating Profit(in billions)
Operating Profit(in billions)
EPS Growth(in dollars)
EPS Growth(in dollars)
Cash Flow(in millions)Cash Flow(in millions)
$1.68
$2.27
2005 2008
CAGR+11%
Total Payout +110%
All figures are on a comparable basisAll figures are on a comparable basis
The Evolving Landscape… Consumer The Evolving Landscape… Consumer
RelevanceRelevance
• Purchasing Broader Repertoire of Products• Adopting New and Unique Brands & Flavors• Purchasing Broader Repertoire of Products• Adopting New and Unique Brands & Flavors
Health & WellnessHealth & Wellness
• Shopping Across Channels in Search of Value• Seeking Key Price Points• Shopping Across Channels in Search of Value• Seeking Key Price Points
• Craving Humanity, Optimism & Energy• Embracing Modern, Simple & Iconic Designs• Craving Humanity, Optimism & Energy• Embracing Modern, Simple & Iconic Designs
VarietyVariety
• Searching for Better for You and Functional Products• Continuing to Focus on Better Tasting Hydration• Searching for Better for You and Functional Products• Continuing to Focus on Better Tasting Hydration
ValueValue
Evolving Landscape… Channel & Customer Evolving Landscape… Channel & Customer
Continued Channel MigrationContinued Channel Migration
Value Rules the DayValue Rules the Day
Escalating Labor CostsEscalating Labor Costs
Big Getting BiggerBig Getting Bigger
Evolving Landscape… Category Evolving Landscape… Category
• Top Retail Sales Category• Annual Growth of 4%• Innovation Fueling Growth
• Top Retail Sales Category• Annual Growth of 4%• Innovation Fueling Growth
• 110 Million Households Buying• Top Destination Category• Highest Grocery Purchase Frequency
• 110 Million Households Buying• Top Destination Category• Highest Grocery Purchase Frequency
US Retail LRB SalesUS Retail LRB Sales
20052005
$98B$98B
$110B$110B
20082008 LRBLRB
4%4%
Top 10Top 10
4%4%
HouseholdPenetrationHouseholdPenetration
LRBLRB Top 10Top 10
98%98%
73%73%
PurchaseFrequencyPurchase
Frequency
LRBLRB Top 10Top 10
6363
1414
Big, Growing and Powerful CategoryBig, Growing and Powerful Category
Retail Sales Growth
Retail Sales Growth
Reposition and Strengthen Global
Brand Portfolio
Reposition and Strengthen Global
Brand Portfolio
TransformPerformance ThroughOperating Excellence
TransformPerformance ThroughOperating Excellence
Capitalize on Geographic Growth
Opportunities
Capitalize on Geographic Growth
Opportunities
Strategic Priorities to Drive Shareholder ValueStrategic Priorities to Drive Shareholder Value
REFRESHREFRESH RETHINKRETHINK REDEFINEREDEFINE
Reposition and Strengthen Global Brand PortfolioReposition and Strengthen Global Brand Portfolio
ENTERWHITESPACE
ENTERWHITESPACE
INVEST INCOREBRANDS
INVEST INCOREBRANDS
FILL PORTFOLIOGAPS: GOAL#1 OR #2POSITION
FILL PORTFOLIOGAPS: GOAL#1 OR #2POSITION
PURSUESCALEOPPORTUNITIES
PURSUESCALEOPPORTUNITIES
REFRESHREFRESH
Transformational Re-Launch of PepsiTransformational
Re-Launch of Pepsi
REFRESHREFRESH
Invest in Core BrandsInvest in Core BrandsREFRESHREFRESH
Aligns Portfolio Across U.S. and Canada
Strengthens Flavor CSD Brand Line-Up
Significant Volume Potential
Aligns Portfolio Across U.S. and Canada
Strengthens Flavor CSD Brand Line-Up
Significant Volume Potential
REFRESHREFRESH
REFRESHREFRESH
Expand Energy PortfolioExpand Energy Portfolio
Expands PBG’s Portfolio into White Space
Leading Brand in High Growth Segment
Strong Platform for Health & Wellness
Muscle MilkREFRESHREFRESH
Largest Juice Producer; #1 Share Position
Growth Category within LRB
Juice Drinks Introduction in 2009
Scale Business with Attractive Margins
75/25 Joint Venture with PepsiCo
Integration Opportunities and Synergies
Largest Juice Producer; #1 Share Position
Growth Category within LRB
Juice Drinks Introduction in 2009
Scale Business with Attractive Margins
75/25 Joint Venture with PepsiCo
Integration Opportunities and Synergies
Lebedyansky AcquisitionLebedyansky AcquisitionREFRESHREFRESH
Re-Conceptualize ConsumerValue Architecture
Re-Conceptualize ConsumerValue Architecture
Step Change inCost Structure and Productivity
Step Change inCost Structure and Productivity
Transform Performance Through Operating ExcellenceTransform Performance Through Operating ExcellenceRETHINKRETHINK
Re-Conceptualize Consumer Value ArchitectureRe-Conceptualize Consumer Value Architecture
• Pulse Value at Key Price Points• Big Brands & Big Packs, In & Out• Pulse Value at Key Price Points• Big Brands & Big Packs, In & Out
• Deep Insights & Experience• Understand Private Label Limitations• Deep Insights & Experience• Understand Private Label Limitations
• Well-Defined Value Architecture• Best-in-Class Planning Tools• Well-Defined Value Architecture• Best-in-Class Planning Tools
• Long-Range Value Migration Planning• Delivers Value Volume & Margin Runway• Long-Range Value Migration Planning• Delivers Value Volume & Margin Runway
Innovation & Limited Time Offer PackagesInnovation & Limited Time Offer Packages
Price Gap ManagementPrice Gap Management
Weeks in ValueWeeks in Value
Price / Package ArchitecturePrice / Package Architecture
Transform Performance Through Operating ExcellenceTransform Performance Through Operating ExcellenceRETHINKRETHINK
Step Change in Cost Structure and ProductivityStep Change in Cost Structure and Productivity
2009 Cost Savings of $250 Million2009 Cost Savings of $250 Million
Transform Warehouse Capabilities
Transform Warehouse Capabilities
Maximize Go-To-Market Effectiveness
Maximize Go-To-Market Effectiveness
Optimize Manufacturing
Cost
Optimize Manufacturing
Cost
Transform Performance Through Operating ExcellenceTransform Performance Through Operating ExcellenceRETHINKRETHINK
REDEFINEREDEFINE
OVER 100INDEPENDENT BOTTLERSOVER 100INDEPENDENT BOTTLERS
GeographiesGeographiesNew/Emerging SegmentsNew/Emerging SegmentsOrganic GrowthOrganic Growth
Capitalize on Geographic Growth Opportunities Capitalize on Geographic Growth Opportunities
DomesticDomestic
Other AnchorsOther
Anchors
IndependentBottlers
IndependentBottlers
• Enhanced Speed to Market
• Cost Rationalization
• Financially Accretive
• Enhanced Speed to Market
• Cost Rationalization
• Financially Accretive
• PepsiCo Partnership
• Distribution Agreements
• Learning Labs
• PepsiCo Partnership
• Distribution Agreements
• Learning Labs
• Consumer Value
• Executional Excellence
• Leverage Innovation
• Consumer Value
• Executional Excellence
• Leverage Innovation
$1 BILLIONIN RETAIL SALES $1 BILLIONIN RETAIL SALES
3 TO 5% RETAILCATEGORY GROWTH3 TO 5% RETAILCATEGORY GROWTH
• Low LRB Per Capita Consumption
• Strong Brand Portfolio
• Power of One with Frito
• Capability as a Competitive Advantage
• Low LRB Per Capita Consumption
• Strong Brand Portfolio
• Power of One with Frito
• Capability as a Competitive Advantage
RussiaRussia MexicoMexico
• Large Population Base
• Capitalize on Channel Shifts
• Strengthened Management Team
• Restructuring Plans Being Executed
• Large Population Base
• Capitalize on Channel Shifts
• Strengthened Management Team
• Restructuring Plans Being Executed
International Markets… Positive Long-Term PotentialInternational Markets… Positive Long-Term Potential
Capitalize on Geographic Growth Opportunities Capitalize on Geographic Growth Opportunities REDEFINEREDEFINE
AgendaAgenda
PBG’S APPROACHTO CREATINGSHAREHOLDERVALUEPBG’S APPROACHTO CREATINGSHAREHOLDERVALUE
MANAGINGIN THE CURRENTENVIRONMENT
MANAGINGIN THE CURRENTENVIRONMENT
2009FINANCIALOUTLOOK2009FINANCIALOUTLOOK
PBG’s Approach to Creating Shareholder ValuePBG’s Approach to Creating Shareholder Value
• Sustainable Topline and Bottomline Growth
• Focused Cash Flow Priorities
– Investments Increase ROIC – WACC Spread
– Grow Operating Free Cash Flow
– Effectively Return Cash to Shareholders
• Sustainable Topline and Bottomline Growth
• Focused Cash Flow Priorities
– Investments Increase ROIC – WACC Spread
– Grow Operating Free Cash Flow
– Effectively Return Cash to Shareholders
PBG’s Approach to Creating Shareholder ValuePBG’s Approach to Creating Shareholder Value
Revenue(in billions)Revenue(in billions)
Operating Profit(in billions)
Operating Profit(in billions)
EPS(in dollars)
EPS(in dollars)
Sustainable Topline and Bottomline GrowthSustainable Topline and Bottomline Growth
$1.41$1.41
$2.20$2.20$2.27$2.27
20032003 20072007 20082008
$10.3$10.3
$13.6$13.6$13.8$13.8
20032003 20072007 20082008
~$1.1~$1.1~$1.2~$1.2
$.9$.9
20032003 20072007 20082008
CAGR+7%
+2%
CAGR+5%
+2%
CAGR+12%
+3%
Operating profit and EPS are on a comparable basisOperating profit and EPS are on a comparable basis
PBG’s Approach to Creating Shareholder ValuePBG’s Approach to Creating Shareholder Value
1999-20021999-2002 2003-20082003-2008
Reinvest in the BusinessReinvest in the Business $2.3 Billion$2.3 Billion $4.4 Billion$4.4 Billion
AcquisitionsAcquisitions $1.3 Billion$1.3 Billion $1.1 Billion$1.1 Billion
Share Buybacks & DividendsShare Buybacks & Dividends $700 Million$700 Million $3.5 Billion$3.5 Billion
Focused Cash Flow PrioritiesFocused Cash Flow Priorities
PBG’s Approach to Creating Shareholder ValuePBG’s Approach to Creating Shareholder Value
ROICROIC
Focused Cash Flow PrioritiesFocused Cash Flow Priorities
OFCFOFCF
7.0%7.0%7.8%7.8%
20032003 20082008
$440$440$526$526
20032003 20082008
CAGR+4%
WACCWACC
Non-GAAPNon-GAAP
Managing in the Current EnvironmentManaging in the Current Environment
EnvironmentEnvironment PrioritiesPriorities
• Global GDP Pressure = LRB Category Pressure
• Double-Digit Foreign Currency Devaluation
• Tight Credit Markets
• Commodity Costs Improving
• Global GDP Pressure = LRB Category Pressure
• Double-Digit Foreign Currency Devaluation
• Tight Credit Markets
• Commodity Costs Improving
• Ensure Strong Liquidity
• Enhance Risk Management Capability
• Accelerate Productivity
• Strengthen Cash Flow and Working Capital
• Ensure Strong Liquidity
• Enhance Risk Management Capability
• Accelerate Productivity
• Strengthen Cash Flow and Working Capital
Goal:Solid Near-Term Results… an Even Stronger PBG Post-Recession
Goal:Solid Near-Term Results… an Even Stronger PBG Post-Recession
Managing in the Current EnvironmentManaging in the Current Environment
• Reaffirmed A/A2 Credit Rating
• Guarantee Liquidity
– $1.1B Committed Bank Lines Through 2012
– $1.3B 5 Year Offering in Oct. 2008
– $750 10 Year Offering in Jan. 2009
• Reaffirmed A/A2 Credit Rating
• Guarantee Liquidity
– $1.1B Committed Bank Lines Through 2012
– $1.3B 5 Year Offering in Oct. 2008
– $750 10 Year Offering in Jan. 2009
Bond Maturity Ladder(in billions)
Bond Maturity Ladder(in billions)
’09 -’11’09 -’11
LiquidityLiquidity
$1.0$1.0
$0.4$0.4
$1.3$1.3
$0.8$0.8
$1.0$1.0
$0.75$0.75
$0.25$0.25
$0$0
’12’12 ’13’13 ’14’14 ’15’15 ’16’16 ’19’19 ’29’29
Managing in the Current EnvironmentManaging in the Current Environment
Working CapitalWorking Capital • Rigorous Cash Conversion Cycle Management• Global Receivable & Inventory Controls• Rigorous Cash Conversion Cycle Management• Global Receivable & Inventory Controls
Counter PartyCounter Party• Minimum Criteria for Financial Institutions & Global Suppliers• Quarterly Review of Exposure• Rigorous Assessment of Suppliers
• Minimum Criteria for Financial Institutions & Global Suppliers• Quarterly Review of Exposure• Rigorous Assessment of Suppliers
HedgingHedging• Smooth Volatility and Manage Risks• Hedges Matched to Future Needs… No Speculation• Rolling Average Hedge Positions & Centralized Control
• Smooth Volatility and Manage Risks• Hedges Matched to Future Needs… No Speculation• Rolling Average Hedge Positions & Centralized Control
• Balanced Maturity ladder• Committed Bank Lines in Place… $1.1 Billion Through 2012• Balanced Maturity ladder• Committed Bank Lines in Place… $1.1 Billion Through 2012Liquidity / RefinancingLiquidity / Refinancing
Risk ManagementRisk Management
Managing in the Current EnvironmentManaging in the Current Environment
• Real-Time Decision Making
• Multiple Scenario Plans
• Heightened Focus on Productivity
• New Working Capital / Capital Spending Approach
• Local Currency Profit Targets
• Real-Time Decision Making
• Multiple Scenario Plans
• Heightened Focus on Productivity
• New Working Capital / Capital Spending Approach
• Local Currency Profit Targets
New Approach to PlanningNew Approach to Planning
Balancing the Near-Term Pressureswith the Long-Term Attractiveness of PBG
Balancing the Near-Term Pressureswith the Long-Term Attractiveness of PBG
Managing in the Current EnvironmentManaging in the Current Environment
• Structured to Succeed
• Self Manufacturing andLight Weighting
• Transform Warehouse Operations
• Optimize Route-To-Market
• Structured to Succeed
• Self Manufacturing andLight Weighting
• Transform Warehouse Operations
• Optimize Route-To-Market
Productivity Savings(in millions)
Productivity Savings(in millions)
Productivity InitiativesProductivity Initiatives
$100$100
$170$170
$250$250
20072007 20082008 2009F2009F
Managing in the Current EnvironmentManaging in the Current Environment
• Accounts Receivable and Credit Monitoring Enhanced
• Cash Conversion Scorecards and Targets by Country
• US Best Practices to International Markets
• Accounts Receivable and Credit Monitoring Enhanced
• Cash Conversion Scorecards and Targets by Country
• US Best Practices to International Markets
Working CapitalWorking CapitalCapital Spending(in millions)
Capital Spending(in millions)
Capex as % of RevenuesCapex as % of Revenues
$869$869
$693$693$550 - $600 $550 - $600
6.4%6.4% 5.0%5.0% 4.0%4.0%
20072007 20082008 2009F2009F
2009 Guidance2009 Guidance
Top-Line GrowthTop-Line Growth
Operating Profit Growth*Operating Profit Growth*
Earnings Per Share*Earnings Per Share*
Operating Free Cash FlowOperating Free Cash Flow
*Comparable*Comparable
Down Low to Mid-Single Digits
Down Low to Mid-Single Digits
$2.15 to $2.25$2.15 to $2.25
~ $450 Million~ $450 Million
U.S. DollarU.S. Dollar
Down Low to Mid-Single Digits
Down Low to Mid-Single Digits+ Low-Single Digits+ Low-Single Digits
+ Low-Single Digits+ Low-Single Digits
~ $(0.18)ForEx Impact
~ $(0.18)ForEx Impact
Currency NeutralCurrency Neutral
Financial Outlook SummaryFinancial Outlook Summary
Strong Track Record of Results
Clear Priorities for 2009
Financial Flexibility due to Strong Balance Sheet
Bright Future as Macros Rebound
Strong Track Record of Results
Clear Priorities for 2009
Financial Flexibility due to Strong Balance Sheet
Bright Future as Macros Rebound
STRENGTHENING
BRANDPORTFOLIO
STRENGTHENING
BRANDPORTFOLIO
BEST-IN-CLASS OPERATINGCAPABILITYBEST-IN-CLASS OPERATINGCAPABILITY
STRATEGICREPOSITIONINGOF GEOGRAPHIC PORTFOLIO
STRATEGICREPOSITIONINGOF GEOGRAPHIC PORTFOLIO
SummarySummary