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