可口可樂 (KO) 2008 Q4 法說會逐字稿

At this time I'd like to welcome everyone to The Coca-Cola Company's Fourth Quarter 2008 earnings results conference call.

Today's call is being recorded.

If you have any objections, you may disconnect at this time.

All participants will be in a listen only mode until the formal question and answer portion of the call.

(Operator Instructions) Participants will be announced by their name & Company.

Due to the interest in this call, we request a limit of one question per person.

I'd like to remind everyone that the purpose of this conference is to talk with investors and therefore questions from the media will not be addressed.

Media participants should contact Coca-Cola's Media Relations Department if they have questions.

And now I'd like to introduce Mr.

Jackson Kelly, Vice President and Director of Investor Relations.

Mr.

Kelly, you may begin.

Good morning and thank you for being with us today.

I'm joined by Muhtar Kent, our President and Chief Executive Officer, and Gary Fayard, our Chief Financial Officer.

Following prepared remarks this morning by Muhtar and Gary, we'll turn the call over for your questions.

Before we get started, I'd like to remind you that this conference call may contain forward-looking statements including statements concerning long term earnings objectives and should be considered in conjunction with cautionary statements contained in our Earnings Release and in the Company's most recent periodic SEC reports.

In addition, I would also like to note that we have posted schedules on our Company's website at www.theCoca-ColaCompany.com under the financial information tab in the investor section, which reconciles certain non-GAAP financial measures that may be referred to by our Senior Executives in our discussion this morning and from time to time in discussing our financial performance to our results as reported under Generally Accepted Accounting Principles.

Please look at our website for this information.

Now, let me turn the call over to Muhtar.

Thank you, Jackson, and good morning, everyone.

I'm pleased to report that we have delivered another quarter and year of strong financial performance.

This marks our ninth consecutive quarter of double digit comparable EPS growth and the third straight year of meeting or exceeding our long term growth targets.

Our results reflect the hard work and dedication of our global system through this incredibly challenging economic environment.

Together with our bottling partners, we are assertive and flexible in terms of managing our business, focusing strategies, accelerating actions, redirecting investments, and being prudent with our capital and other expenditures, while maintaining a disciplined long term approach to our operations.

Our performance for the quarter and full year underscore our firm belief that there's no better business to be in than non-alcoholic commercial beverages.

In a challenging environment, we added another billion incremental unit cases in volume essentially another Japan, our fifth largest volume market.

We firmly believe our industry will continue to experience growth across all categories and geographies as macro population and personal expenditure trends still highly favor the simple moments of pleasure we bring to our consumers over 1.5 billion times a day at cents at a time.

Strong, decisive execution based on focused strategies enabled us to deliver continued global volume and value share gains across key geographies as well as categories.

As we all manage through these globally challenging times, volume and value share gains will continue to be critical benchmarks for our performance progress.

We remain on track to deliver $0.5 billion in annualized savings from productivity initiatives by 2011.

The continued acceleration of these efforts are going to enable our cash to be redeployed to drive investments for sustainable growth.

And there's no question that this year will pose unique macroeconomic challenges for all businesses.

That said, we are not content to just ride out the storm.

Rather, we will leverage this as an opportunity to further build the equity of our brands and drive value for our system and customers.

Our highly skilled management team has navigated through a very difficult operating conditions around the world before and is well equipped to run our operations in these challenging times.

I'm confident that our solid brands as well as our business fundamentals coupled with a sound balance sheet, robust cash generating model, and strong bottling partners spread across all five continents, provide a sound foundation for our management team to continue delivering against our long term targets this year and position our Company and our system to become even stronger over the long term.

Looking at this past quarter and year, we delivered 4% unit case growth for the past quarter and 5% unit case growth for the full year 2008.

Our international operations again lead the way with 6% volume growth for both the quarter and full year.

In close, close collaboration with our bottling partners, we're building from a strong competitive position with share that is three times that of our nearest competitor to drive continued solid international growth.

This growth was well balanced across the entire globe as each of our five geographic operating groups out paced the industry for the year, resulting in consistent top and bottom line performance.

By any measure, we continue to believe these are strong results.

We credit our performance to a consistent set of strategic initiatives.

Now I'd like to take you through some of the progress we've made against those strategic initiatives.

First, drive growth in sparkling and still beverages.

Sparkling beverages are the very oxygen of our business as I've said many times.

Unit case volume for sparkling beverages grew 2% for the full year with our international performance up 4%, representing incremental growth of half a billion unit cases last year.

Full year global performance was driven by Coca-Cola up 2%, Coca-Cola Zero up 35% with nearly 600 million unit cases sold, Sprite which became our third trademark to reach two billion unit cases and annual volume was up 6% lead by countries like China and India and Fanta driven by innovation was up 3%.

Coca-Cola continues to be the brand that consumers love most around the world with a 3:1 favored brand preference versus our global competitor.

Our Olympic sponsorship is a great, great example of how incremental investments have an exponential impact on building the global equity of our powerful brands.

During the most successful Olympic activation in our history, we connected with more than half a billion consumers in China and we're cited by many as the most recognized and effective sponsor of the Beijing games.

Also we are continuing to build on the heritage as well as the incredible global appeal of our flagship brand with the recent launch of our new worldwide Open Happiness campaign.

This exciting new integrated Marketing campaign is the Next Generation of the Coke side of life and stays true to Coca-Cola's 123 year heritage while opening new doors to connect with consumers around the world in a relevant and timely manner.

Again, this year, our ads rated highly during Super Bowl and importantly, Open Happiness will be leveraged globally with launches in most of our key markets by mid 2009.

Importantly, we gained sparkling beverage share globally for the quarter and the year across most of our key global markets.

Our still beverage unit case volume increased 13% for the year driven by strong growth in existing brands and several strategic brand acquisitions.

Internationally, still beverages were up 17%.

Still beverage growth across each of our operating groups drove category volume and value share gains globally.

Leading the way were gains by Vitamin Water and our global juice, tea, coffee, as well as energy brands.

Our strategy to build on the world's strongest juice business continues to succeed.

Minute Maid pulpy already a huge success in China is being expanded to several other key international markets.

Here in North America, our multi-tier juice strategy continues to out perform the category and drive share gains.

The simply trademark is quickly approaching billion dollar brand status.

Our Latin American acquisitions are providing growth and scale to drive efficiencies for our bottling partners.

In 2008 we continued to innovate with new brand launches such as the successful Original Leaf Tea in China.

We're also leveraging our partnership with Illy and launching this ready to drink coffee in ten markets with close collaboration with our bottling partner, Coca-Cola Hellenic.

Glasso lead by Vitamin Water remains well on track to become a $2 billion trademark through continued volume and value share gains and we have several new product innovations in store for this year.

We grew Glasso double digits in the quarter as well as full year in the US while expanding this great brand to five international markets in 2008.

And finally, better marketing focus drove performance for our critically important Georgia Coffee brand in Japan.

Unit case volume for Georgia grew 2% for the year in 2008 driven by 9% growth in key core Georgia flavors.

Before I move on to a summary of our geographies, let me briefly touch on two innovations that many of you will get to experience at the upcoming CAGNY conference next week in Florida.

One in ingredients and the other in equipment.

In 2008, we announced two significant advances.

First, the introduction of products sweetened with Trevi and all natural non-nutritive sweetener.

We've already launch several products, two new Odwalla flavors along with Sprite Green, the first sparkling beverage enhanced with this breakthrough sweetener.

Also we're announcing the launch of Vitamin Water Ten, the perfect combination of ten naturally sweetened calories and great taste.

Second, last September, we unveiled our breakthrough fountain dispensing technology that empowers consumers to select from over 100 branded beverages in the same footprint as our current six valve fountain.

Through unique design and microdosing technology, this is surely something you'll want to try firsthand at the CAGNY conference next week.

These are just two examples of how The Coca-Cola Company is applying new thinking and new ways of quickly leveraging our R&D investments across our global operations.

We continue to leverage our geographic footprint in over 200 countries where our threefold strategy is focused on first leveraging our share leadership position for profit in developed markets.

Second driving value as we achieve scale in developing markets.

And investing for volume growth in the emerging markets.

Let me share a few highlights from some key markets.

In Japan, we delivered our largest unit case volume year on record, successfully cycling 3% growth in the prior year, resulting in non-alcoholic commercial beverage share gains.

We continue to invest in our three cola strategy and this investment paid off with the 5% growth of sparkling beverages during the year, lead by trademark Coca-Cola.

Europe grew 3% for the year cycling 5%, continuing our successful efforts to gain share in both sparkling and still categories, continued expansion of Coke Zero with strong pan-European Marketing platforms such as our 007 Bond activation and the Christmas activation on Coca-Cola drove our sparkling beverage growth.

And in Latin America which is a great example of how we achieve scale in a developing market very rapidly.

We delivered solid balanced growth with all Latin America business units delivering mid to high single digit unit case volume growth and share gains for the year.

Coca-Cola increased 4% and still beverages increased 40% as we continued to leverage the regionally important [Coco Savalla] acquisition.

In Russia, unit case volume increased slightly for the year primarily reflecting the impact from unseasonable weather during the summer and economic pressures at year-end.

Despite the slowdown of volume growth in Russia, we gained volume and value share in non-alcoholic ready to drink beverages in the quarter and full year.

The fundamentals of our business in this key market remain very strong.

In Turkey one of our leading emerging markets we increased unit case volume 11% in the quarter and 15% in the full year as we benefited from the strength of our brand portfolio and solid execution by Coca-Cola [Interject] our bottling partner.

Importantly in our 120 countries with per caps less than 150, our volume growth was 9% for the year, cycling 11% in the prior year.

We continue to believe we are early in the game in key emerging markets.

To that end this past year, we grew volume 19% in China, and 14% in India, the two fastest growth economies in the world.

While China is clearly expecting slower GDP growth this year, we are confident in our plans to ensure our brands as affordable consumer staples, continue to offer real value to Chinese consumers during these difficult times.

During 2009 each of our operating groups will continue to execute against our strategies and focus on delivering consistent results.

We will continue working closely with our bottling partners in these challenging times to adapt to conditions on the ground and better meet the needs of our consumers as well as customers.

In North America, we along with so many other industries are facing some of the most challenging economic conditions in the world.

However we made real progress last year.

In what is arguably the world's most competitive beverage market, I am pleased that our brand portfolio is getting stronger, our customer relationships are improving dramatically, and we have a more aligned and capable bottling system.

The continued success and enduring investment in this progress is enabled by a relentless ongoing focus on cost management and productivity.

The fundamental measurement of our results is brand health and share gains.

Clearly, the volatile economic environment and bottler price increase impacted our results.

However it is important to recognize we out performed the industry, when measuring across all channels we gained volume and value share in the quarter and the full year.

In fact, The Coca-Cola Company owned five of the top ten fastest growing trademarks in incremental retail sales in North America for 2008 with Coca-Cola, Zero, Glasso, Simply, Nos and Fuse.

And our system also handles half the volume of the Monster trademark giving us access to a sixth brand.

Real and tangible progress is being made in strengthening our alignment with our bottlers as illustrated by strong customer teamwork across our system.

We have a rigorous portfolio of effectiveness and efficiency initiatives with our bottlers as we move forward.

These actions are ongoing and we expect will drive incremental gains in long term profitability for our system in North America.

Our Marketing and innovation calendar for North America is robust with numerous activities across the portfolio.

As the economic environment strengthens, we believe our continued investment in our brands, customer and franchise relationships will enable us to return our sparkling brands to growth and accelerate continued growth in our still brands.

Before I turn the call over to Gary, let's just step back and review what makes The Coca-Cola Company's model so special.

First, we have some of the best brands in the world and the cash flow to keep investing in them to build long term equity with our consumers and customers.

Second, our invested capital generates high returns.

Simply said, we were built for times like these.

The Coca-Cola system generates up to $50 million of cash per day.

Our fundamentally sound balance sheet allows us to pursue growth and we have demonstrated the ability to deliver a reliable dividend which is increased each of the last 46 years.

We enter 2009 with the same mind set as one year ago, deliver on a consistent set of strategies and initiatives that provide us a disciplined road map to operate in the best consumer business in the world, a business with significant long term opportunity.

We have a tradition of delivering growth over the long term and it is our intention to continue to drive long term balance and sustainable growth for the benefit of our shareholders.

Our picture of success this year is clear.

First, maintain simplicity by focusing on a critical set of measurable deliverables.

Second, increase the speed and efficiency of execution to capitalize on opportunities while mitigating risk.

And third, remain constructively discontent in all that we do in order to deliver against our long term growth targets and enhance our long term brand and system health.

With that, let me now turn the call over to Gary.

Thanks, Muhtar.

As, Muhtar indicated we once again delivered strong financial results in the quarter resulting in our ninth consecutive quarter of double digit comparable EPS growth and our third consecutive year of delivering against our long term growth targets.

We continued with our disciplined approach to financial management, using our many business levers; consistent volume, solid price mix, improving operating expense leverage and disciplined capital allocation, to deliver value to customers, consumers and shareowners, even in this difficult operating environment.

Our management's effort to diligently execute our strategies and work with our bottlers to adapt to the marketplace is a testament to the resilience of our business model and the talents of our employees.

We reported earnings per share of $0.43 per quarter on a diluted basis in the quarter, however this included a net charge of $0.21 per share.

$0.15 of the net charge was related primarily to our proportionate share of the non-cash impairment charge recorded by Coca-Cola Enterprises.

The remaining $0.06 of the net charge was primarily related to asset impairments restructuring charges and cost related to our global productivity initiatives.

Therefore comparable earnings per share was $0.64 per share an increase of 10%.

For the year, reported EPS was $2.49.

Comparable EPS was up 17% to $3.15.

The net charge of $0.66 per share primarily related to non-cash impairment charges recorded at Coca-Cola Enterprises in the second and fourth quarters as well as asset impairments, restructuring charges and costs related to our productivity initiatives.

For the year, unit case volume growth was 5%, essentially in line with concentrate sales.

Revenue growth was 11% as we balanced the volume and value equation by delivering a 4% increase in concentrate sale, a 3% favorable impact from price and mix, and a 4% currency benefit for the year.

Full year comparable operating income was up 17% as our productivity efforts have begun to pay off and include a 6% benefit from currency.

Again, ahead of our long term targets.

Importantly, our advantageous geographic diversity played a key role with each of our international operating groups contributing to our profit growth for the year.

In terms of margins, our core business remains healthy, expanding margins for the full year as we drove top line growth and delivered operating expense leverage.

Bottling investments continues to improve margins as well.

In the Fourth Quarter, you will have noticed that we delivered significant operating expense leverage.

We do not expect to achieve that Q4 leverage in 2009, rather we would expect the run rate for 2009 operating expense leverage to be more in line with our 2008 full year results.

Our productivity initiatives remain on track to deliver $500 million in annual savings by year-end 2011 and we are accelerating efforts to rewire the organization to support our next era of growth.

Cash flow from operations for the year increased 6% to $7.6 billion on strong underlying business performance.

But you may have noticed that working capital was a $700 million year-over-year use of cash.

The working capital change was primarily one-time international tax payments which will reverse in 2009 and cash payments related to restructuring charges and our costs incurred for productivity initiatives.

Excluding these items, cash from operations increased 13%.

As part of our ongoing productivity initiatives we'll continue to focus on managing our working capital in 2009.

We repurchased approximately $1.1 billion of our stock for the full year in line with our prior guidance.

Additionally the Company paid $3.5 billion in dividends to shareholders in 2008.

Our balance sheet remains fundamentally strong with solid interest coverage ratios and a conservatively invested cash position of $4.7 billion.

Now let me address some of the factors that we see impacting 2009.

First, let me reiterate Muhtar's sentiment, there's no question that the coming year will pose macroeconomic challenges for all businesses.

But we will not be content to just ride out the storm.

We will leverage this as an opportunity to drive our business for the long term and build on our track record of success.

We have continued to evolve and improve our operational and fiscal discipline, while building on our solid foundation with consistent, strategic priorities.

Our seasoned Management team is poised to continue to do so in 2009.

As you know our long term currency neutral growth targets are 6% to 8% operating income growth and high single digit ongoing earnings per share growth.

Our picture of success for 2009 is to achieve those targets, as well as enhancing brand health and gaining share, despite the difficult operating environment.

Additionally we will track share gain across all of the key markets and categories.

On concentrate pricing, we will continue to work in alignment with our bottlers to adjust our occasion, brand, price, pack, and channel architecture to bring value to both our customers and consumers.

As always our intention is to take pricing in line with our bottlers net retail pricing over the long term.

As in the Fourth Quarter, our revenues will continue to be impacted due to structural changes primarily related to disposal of bottlers.

We would expect a similar drag during a portion of 2009 as we cycle the sale of the [Remil] bottler in Brazil at the end of Q2 and the Pakistan bottler investment at the end of Q3.

We expect to deliver operating expense leverage on both the core business and bottling businesses in 2009.

We'll continue to invest behind our brands and innovation initiatives.

Additionally selling and service expenses will increase as we invest for growth in our bottling operations as well as investments behind our brand acquisitions, particularly in North America.

G&A expenses were tightly controlled in 2008 and we will continue with our disciplined approach in 2009 including further progress on our productivity initiatives.

As for our pension plan, we remain on fairly solid ground; however we were impacted by declines in the value of plan assets and a lower discount rate.

As a result we would expect pension expense to increase $0.03 to $0.04 per share in 2009 as compared to 2008.

From a capital expenditure standpoint, we purchased approximately $1.8 billion in net property plant equipment during 2008.

For 2009 we would expect the total Company net capital expenditures to be approximately $1.8 billion to $2 billion as we continue to make investments in our business as well as recently acquired bottling operations.

For share repurchase we do not plan to repurchase additional shares in 2009 due to the pending acquisition of Huiyan Juice Company in China.

Now let me move to currency.

As expected, currency has proved to be a head wind in the Fourth Quarter impacting comparable operating income by negative 9%.

As for our 2009 currency outlook, it is obviously a very volatile environment and there are no clear trends for the US dollar.

As we are all observing the markets risk perspectives continue to evolve and may move to mute the attractiveness of the dollar as the year progresses.

However there are many different scenarios that could play out and we're managing against this back drop.

We are effectively 100% hedged on key hard currencies like the Euro and the Yen for all of 2009.

But emerging market currencies continue to be particularly volatile and provide the highest risk and opportunity to our currency expectation for this year.

Based on our current hedge position, we are expecting an estimated 10% to 12% headwind from currencies in the First Quarter and we'll provide further updates as we progress through the year.

It's important to note that we manage our business in local currency to ensure we make the right decisions for the long term business health.

For 2009 our best estimate is that the full year underlying effective tax rate will be approximately 23% to 24%, up from the rate in 2008, largely due to the impact of currency.

Finally let me say a few words about quarterly phasing.

As many of you know, we report quarterly unit case volume growth on an average daily sales basis to eliminate comparability issues due to calendar variations.

For 2009, we will have one fewer day since 2008 was a leap year.

First Quarter of '09 will have five more days than Q1 '08 and the Fourth Quarter of '09 will have six fewer days versus Q4 '08.

This will not impact our unit case sales reporting, but will impact our concentrate sales and therefore revenues.

Additionally both Easter and the impact of July 4th US holiday shift into Q2 this year.

We expect 2009 will be a challenging but successful year.

We continue to be a consistent generator of operating cash flow providing attractive long term returns to our shareowners.

That's what I wanted to cover this morning.

Operator, we're ready for questions.

Thank you.

(Operator Instructions) Our first question comes from Judy Hong, with Goldman Sachs.

Your line is open.

Thanks, good morning everyone.

Good morning.

Muhtar, can you speak to the volume strength that we saw in the Fourth Quarter in a lot of the international markets?

And if you can go through whether this is really driven by the category being very resilient in the face of the economic downturn or you're just maybe gaining more share in those markets?

And then as we look out 2009, you have talked about the picture of success in '09 meeting your long term targets, does that apply to the volume targets of 3% to 5% as well?

Hello?

One moment, please.

Please stand by.

All parties, please stand by.

Judy?

Yes.

Yes, something happened to the line and I just want you to repeat the question if you could, please?

Yes, sure.

I just wanted to get your perspective on the volume strength that we saw in a lot of the international markets in the Fourth Quarter in the face of the weaker economy, whether you think it really speaks to the resiliency of the category or you're gaining more share in those markets?

And then as we look out 2009, you've talked about the picture of success this year meeting the long term targets and whether that applies to the volume growth targets in '09 as well?

Right.

Well, first, I think the answer is to the first part of your question is both, the resilience of the category as I've said many many times, we're selling moments of pleasure billions of times a day, more than 1.5 billion times a day at cents at a time.

And our bottling partners have been continuing to invest very heavily on the ground in equipment, with the customers, in the past two, three years and I think that's paying off.

We had a balanced growth.

Our developed markets like Europe grew as well as our emerging markets and Latin America grew, Euro-Asia and Africa grew very well.

The brick markets particularly India and China had a very strong quarter in the last quarter of last year.

So I think overall we've had a very strong quarter.

As far as going forward, we recognize the challenges.

Our picture of success still remains to meet our long term growth targets, but we said we will have bumps along the road and we may not achieve our targets in one or two quarters.

That is possible, but our picture of success remains to continue to drive investments, to ensure that we're investing in the health of our brands and to ensure that we gain market share as we've done this past year, this past quarter and this past year.

And to come out of this tunnel with stronger portfolio, stronger brands.

And one thing you'll not see us doing is that we will not cut our communication with our consumers.

We will continue to invest with our bottling partners.

Our bottling partners appetite for investment remains very strong around the world and that is a very good litmus test of what's happening in the marketplace with our system.

Just, in relation to that, I mean it we've seen media rates coming down pretty substantially, is there an opportunity to kind of look at the marketing expense line and get more leverage and maybe flow some of the more productivity savings to the bottom line in this environment where the media spending is trending down?

Well even when media costs were not trending down, we were achieving significant efficiencies in our marketing.

We have much fewer agencies that we're working with.

We've consolidated our agencies.

We have the Coke Side of Life campaign was leveraged all across the globe as well will be the Open Happiness campaign, the new Open Happiness campaign.

Agency numbers have gone down by more than half and I think we've driven a lot of efficiencies in our marketing, in our market research costs over the past 12 months.

That will continue and we will evaluate the costs of media, but ensure that our GRP's remain very healthy in the way we communicate with our consumers across the world.

And I think -- I've personally seen in Russia where I lived through these crisis in the past in the 1990's and in Turkey, Argentina, it's always paid off to ensure that you keep communicating with your consumers in macroeconomic conditions as the ones that we're living through right now.

Okay, and then just a question on currency, Gary.

Is there any transactional impact that we should be aware of beyond that $0.10 to $0.12 impact in the First Quarter you've talked about?

And then secondly, is the reason that you're not giving sort of the full year currency guidance is just the volatility in the emerging markets currency and really the full year depends on where these currencies go from here through the end of the year?

That's exactly right.

10% to 12% impact on the First Quarter at operating income is kind of what we see today for the quarter.

But I mean you've seen the volatility as well as we have and I think to try to give guidance on what currencies could do for the full year is impossible because of the swings.

I think long term, there's no doubt in my mind that the dollar is going to weaken and for many reasons but right now obviously it is a safe haven.

It's why the Fed's looking at I think adding four new primary dealers for Treasuries right now because of everybody going to safe havens.

But at some point it's going to turn.

We just quite candidly don't know when it's going to turn.

Our next question comes from Marc Greenberg, Deutsche Bank.

Your line is open

Thanks, good morning.

Muhtar, I was kind of hoping you could elaborate on something, expense management in the quarter was terrific.

Can you talk about longer term, how you can increase investing to drive brand growth and at the same time get expense leverage?

Beyond some of the comments to Judy I guess I'm thinking about the sustainability of lower SG&A into 2009.

Yes, and I'll make a comment and also ask Gary to comment too on that.

Firstly, I think what we want to say is that this year in 2009, you should be guided by our full year expense leverage from last year.

So 4% to 5% OpEx leverage is what you should be looking at for 2009, and that is going to be achieved through our continuing successful transformation process.

As you know, we've started that process way ahead of this current macroeconomic downturn.

It's been going on now for more than 12 months.

We've already captured significant effectiveness and efficiency in productivity and we will continue to drive our target of $0.5 billion by 2011 recurring.

And I think that that is a combination of effectiveness and efficiency in our processes in our systems in how we approach our business.

And also it's also being driven by the whole new architecture that we have in our organization that we put into place at the end of 2006 in our international markets.

And North America continues to drive also a lot of effectiveness and efficiency inside their own transformation process.

And this is all outside of the Supply Chain efficiencies and effectiveness that we're also beginning to tap into.

And Marc, I would just add a little color on that and I'm going to give you a little granularity because as we're going through rewiring our Company for significantly enhanced effectiveness, what we're getting is a lot of efficiency as well.

And let me just give you a really granular example.

In finance itself, global finance within our Company, we have been going through and starting to rationalize the companies we own and the legal entities.

So when we do a consolidation each month or each quarter, we consolidate about 1,200 entities.

We've gone through and last week have found 112 of those that we can eliminate, another 200 that we can probably eliminate.

And if you just think about there are people spending many many hours doing work on legal entities that actually don't need to exist, that have just been around for years that there's a reason for it in the beginning, it goes to how do we do intercompany accounting.

We are in granular detail of how we wire and rewire this Company to be significantly more effective and we'll be a lot more efficient at the same time.

So we're very confident that we're going the right way and doing the right things for the long term and getting short-term benefits while we're doing it.

One other point I just want to add is that we always talk about the money side of it.

I think the piece that I'd like you to really focus on also Marc is the organization now that we have in place.

As a result of this the work that we've done is executing with much greater speed and effectiveness and mitigating risk as it goes along.

And I think that's the piece that is also very important.

We're much closer to the marketplace today,much fewer meetings, much more time in the marketplace with our bottling partners, with our customers, and that's really also a significant advantage of the transformation process.

In addition to the actual monetary side of the effectiveness.

Our next question comes from John Faucher, JPMorgan.

Your line is open.

Yes, thank you very much.

Gary, quick question, the CapEx has risen and you've talked about investing in companies & Company owned bottlers and things like that.

It's a little bit of a change from how we've historically thought of CapEx at The Coca-Cola Company, so how long do you see this higher CapEx trend continuing and as you begin to divest more bottlers does it have less of an incremental impact year-over-year?

Thanks

Yes, thanks, John.

If you look at what I just said about CapEx last year and in 2009, $1.8 billion to $2 billion for '09, about half of it or so is actually related to the bottling investments group or the bottlers that we own.

My expectation as you saw in 2008 is over time we will be net sellers.

And as we actually sell bottlers, the CapEx will come down fairly significantly.

The CapEx has really been driven right now because as we continue to invest in China and the Philippines and Germany and those bottlers and really invest in India, investing in cold drink equipment, those kinds of things to drive volume, value, across the long term, we think we're doing the right things for the long term in those.

But CapEx will start coming down significantly over the next five years, if you will, as we're disposing of some of those bottlers.

Okay.

Great.

Thanks.

Our next question comes from Kaumil Gajrawala, UBS.

Your line is open.

Thank you.

Good morning, everybody.

Good morning.

I know you touched on this a bit but as you consider this economic slowdown in emerging markets and the fact that a good percentage of your portfolio is the premium ready to drink offering, to what extent are you considering affordability in these markets and what would you do to address it?

Yes, I think we're always insuring that our products are affordable.

We have the right price pack architecture, Kaumil .

And we're doing a lot more work on ensuring that we have the right price points in this current environment, adding more packages that will bring the price point down both in the at home market as well as in the immediate consumption market.

And we're not doing that only in emerging markets.

We're doing it across the world in North America, right here, with really good initial results in terms of the new price pack channel architecture with 16-ounce and some other smaller packages.

And as well as places like Mexico, to ensure that we are much more part of the meal occasion and we increase pantry.

And so what we have seen in this environment is that it's really working well in terms of driving pantry at home, creating more occasions in this environment and whether it's in China, whether it's in Great Britain.

In China we just launched a new 355 milliliter PT that's doing initial results are very good, so just to give you one example.

So I think across the entire geography, across all continents, we've done a lot of work in the past four, five months in that

Got it, and a quick follow-up just on Judy's question, to be clear with media deflation, are you maintaining the budget and increasing impressions or maintaining the number of impressions and just enjoying some efficiency?

Yes, I think we're doing all of that, but and it's too early to say where it's going to pan out.

One thing you can be sure of is that we're not going to reduce our weight and we will capitalize on the current market trends.

Got it.

Thank you.

Yes.

And a question from Christine Farkas from Merrill Lynch.

Your line is open.

Thank you very much.

Good morning, Muhtar and Gary.

Good morning.

I'm looking at a couple of your mature markets, North America and Europe and clearly you talked about unusually high leverage in the quarter and maybe you can speak to this on a more normalized basis, but the margins were quite strong.

Are some savings coming through from the $500 million program already?

Was this about market allocation timing of where you put your dollars in the quarter?

And then within those regions, speak to the strong food service trends and what countries worked or didn't work in Western Europe?

Thank you.

Sure.

Basically, Christine, I think as far as Europe is concerned, I think basically, we've had a lot of initiatives for Pan-European programs over the last 12 months and I think they've really started working well for us in this environment.

So we've got a lot of efficiencies and they are sustainable efficiencies.

Across the whole Company, and across our headquarters functions, we've started to reap some of the benefits already of the transformation process.

We've got a lot more coming and again in terms of there's a whole, there's a tremendous focus on G&A across the whole Company and particularly OpEx.

And what we've said is that this is the time to be choice full about how we spend our money and anything that basically does not drive value does not have a place.

So we have certainly also launched a lot of products with better margins in Europe.

New teas, new smoothies that has brought again some efficiencies on the effectiveness on the P&L line in our European business.

In North America, a lot of work is going on in effectiveness and in efficiency part of the transformation process but also the work that's ongoing with our bottling partners in the Supply Chain and in some other areas in order to drive again some leverage on our P&L.

In terms of food service, we're cycling minus 3% from in quarter four of '08 which was the beginning of the economic downturn.

And I think that again, we've launched some new products in our food service in quarter four, some new teas, some new coffees and smoothies, and I think basically all the investments that we're doing with all our customers are paying dividends.

Thanks for that and just a quick question, was Germany positive in the quarter?

Basically, we would prefer not to comment in individual countries but I would just basically say to you that overall, key markets like Great Britain, France were positive.

And I think all of the programs that we have in Germany are paying dividends.

And it's -- 2009 is going to be the first full year of consolidation in Germany when we'll get really the results of all of the work, all of the good work that's being done.

And we're gaining traction in Germany.

Christine, this is Gary.

Let me add one thing to your Europe question, if I may.

And I don't know if this is where you were coming from, but I know I picked up a few comments earlier this morning about Europe and I think a lot of people perhaps thought currency was a really significant tail wind in Europe in the Fourth Quarter.

We had some hedge coverage in place so let me just kind of give you a little bit on that.

Currency for Europe was a negative eight, so if you look at that versus what you are expecting it to be, you may find that there's a little bit of difference there as well because of our hedge coverage.

Our next question comes from Lauren Torres, HSBC.

Your line is open.

Good morning.

Good morning.

Yesterday, Coke Enterprises spoke about their strengthening relationship with Hugh and the formation of Coca-Cola Supply.

I was hoping you could give us just a little bit of your thoughts behind this organization, what are your expectations?

I guess I'm just trying to get a sense offer how we should gauge and monitor the progress that's developing in this new relationship?

I think basically, what you need to, we are very serious about our efforts in Coca-Cola Supply and I think that what we have got a very good program in place in terms of the new integrated Supply Chain initiative that will consolidate the common Supply Chain initiatives.

It will optimize product flow and create over $150 million of annual incremental operating income by 2011 for CCE and The Coca-Cola Company.

And I think all our other bottling partners are going to benefit from that and it's a very serious initiative.

Is there anything we're going to see or should expect to see over the course of this year?

I know we're talking about savings through the next couple years, but as far as the immediate impact just something somewhat more material that we'll be seeing coming through?

I think you can just look at it as similar to the transformation initiative that we announced over 12 months ago in our Company.

Basically, you can expect that the 2009 plan will deliver an aligned outcome for both companies, both The Coca-Cola Company as well as our bottling partners and certainly a more progressive agreement for the future.

I think that we will ramp up everything in turn -- compressed certainly the program as best as we can and we have a very good plan forward.

Okay, all right thank you.

Yes.

Our next question comes from Mark Swartzberg, Stifel Nicolaus.

Your line is open.

Thanks.

Good morning, everyone.

Muhtar, a couple questions on the macro front.

When you look particularly at your emerging market businesses, and even to an extent your developed market businesses, can you talk a little bit about some of the assumptions you're making about key macro trends unfolding?

Obviously they are getting worse, but I'm particularly interested how you're thinking about inflation and other key variables affecting the broader environment you're operating in?

And then I had a related question.

Well, it;s -- what you have to do is absolutely remain flexible because it's changing so fast.

We don't right now, I think immediately there's no threat of inflation but over a period of time there's no question that with all of the amount of money that's being printed around the world, no question that we need to make some planning ahead that we may be facing an inflationary environment.

But we certainly don't know when that will happen, if that will happen, and if it does happen, when it will happen and where it will start and how it will evolve.

All I can tell you is that we've lived through those inflationary environments in the past and our businesses really we have great operating talent across the whole world that have operated in that environment whether it be Latin America, in the Euro-Asian countries.

And we will certainly be looking at what's evolving and we will remain very flexible as well as ready for anything that comes in that area.

Mark, this is Gary.

I would add one thing about inflation.

If you go back and look at history, any time we really enter into an inflationary environment our Company actually benefits.

We do extremely well in that type of environment.

Great.

That's helpful, and then some interesting comments out of Diagio this morning describing at least parts of their emerging markets business as being -- having not only the better growth but perhaps the most enduring growth.

When you look at your own business and think about volatility and risk of slowdown and magnitude of slowdown outside of the US , what do you consider your markets that are most vulnerable to slowdown just from a macro perspective?

Hearing what you all can do to defend against that I think is pretty persuasive but what do you kind of put at the top of the list as your most vulnerable markets if you have to put something up

Well, I mean certainly we talked about Russia.

Russia has been hit in a different way and earlier than some of the other markets and we've certainly seen the results of that slowdown on our business too, our volume growth has slowed down.

Philippines was one of the other markets that's been hit significantly earlier than the rest, in terms of the macroeconomic situation and in terms of the remittances that were driving a lot of the consumption in that economy came down.

And we've seen the impact of that and no question that there's some Latin American Markets that are beginning to feel the downturn in the United States more like Mexico.

We know that the GMP in India and China is not going to be the same as it was in the past 12 months.

It's going to be slower, but there will be growth.

The Chinese Prime Minister reiterated the objectives of his government to insure that they grow at 7% to 8% last week.

And announced more details of their stimulus package which is very real.

And I think all governments across the world are launching in their own way different stimulus packages, whether it's tax cuts, incentive -- investment incentives, supporting small and medium size Enterprises.

So across the world there's a tremendous effort that we're seeing by a lot of governments by central banks to ensure that the macroeconomic downturn in their markets is not as deep as in some of the other markets that have already been hit.

And we shall see how all of that evolves but certainly I mentioned a couple countries and then we have others that are still resilient that are still growing, countries in Latin America, Indonesia, Turkey.

And I've mentioned again earlier, we got a lot of small countries that make up a fairly large portion of our volume.

Countries over 100 countries that we have per caps of less than 150, where last year we've grown almost double digits 8% to 9% in these countries.

So all of the investments that we're doing on the ground in distribution, in customer connectivity, in cold drink equipment, in packaging, in new products are paying off in a lot of those markets.

Our next question comes from Carlos Laboy, Credit Suisse.

Your line is open.

Good morning, everyone.

Good morning.

On a couple of issues, one is on Japan.

The co-op of the bottlers there was being restructured and you were looking at the structure of Japan, I was hoping you could offer some thoughts on how you see that system evolving and whether you see yourself having to buy any bottlers there?

And on the issue of China and India, Muhtar, how detached do you feel that your business trends might be from these macro pressures given how low you are in the evolutionary development of these markets for you?

Yes, let me just, Carlos talk to you first just shed some light on the Supply Chain.

The Supply Chain was set up for speed, flexibility as well as scale in Japan and none of that is being lost as we restructure it.

The key is now it is much more aligned with the local bottlers and how they -- and to ensure that their needs are met on a more timely basis.

So it's a restructuring but not, but ensuring that the scale and the flexibility and the speed is still there.

That is point number one on Japan.

In terms of detachment, look we, in markets like India and China that you referenced, our per capita's are still very very low, 24 in China, less than 24 in India.

And again, we know that there's a pressure on migrant workers for example, I'll give you one example in China that are returning back to the rural area.

Well we have 30 plus bottling plants in China scattered across the whole country.

We're selling to those rural customers and we were selling to them before they migrated to the cities and we're selling to them now.

And we are again rearchitecting, creating new price points, ensuring that we are available and we're available in more formats with different price points to ensure that the affordability of our brands is still in place for Chinese and Indian consumers as well as consumers across all of the emerging markets can still afford and buy our products.

Trademark Coke in China was up 18% in Q4.

Minute Maid Pulpy, well a great product that was up almost 50%, more than 50% in quarter four, and is now a couple hundred million case business on its own in China.

And we've doubled our volume in tea last year in China, growth more than 90%.

So again, a lot of our organic growth has been very successful in China and as I said I repeat organic growth.

So that's really sort of answers your question I hope, Carlos.

Yes, Muhtar, just to clarify, on the Japan issue do you see yourselves having to inject yourselves into Japan maybe more aggressively in terms of M&A or there was a transaction that hit the tape on Japanese bottler?

I think the thing about Japan is think about it, we have had success with our cluster in West Japan, it is producing good results, achieving great market results now, beginning to achieve great market results in West Japan with that cluster that has been formed where we injected ourselves in a minority position but ensured that we played a critical role in creating West Japan.

And again, after the investment that we had in Coca-Cola bottlers Tokyo, we are continuing to work to create the next cluster in Japan around [Canto], and if there is a need for us to inject ourselves in a small way, to ensure that we can play a catalyst there, role of a catalyst, we will do so.

Thank you.

Yes.

Final question comes from Celso Sanchez from Citi.

Your line is open.

Hi, good morning.

Could you talk a little bit about the fountain business please in North America, specifically the US , the innovation with the mega choice dispenser that you'll be displaying next week, it certainly is encouraging.

But if you could speak more to the sort of organization changes that may be occurring in terms of how you approach the business and how you approach it in conjunction with the bottler and the price pack architecture?

CCE spoke a little bit about it yesterday but I'd love to know how you see your roles evolving from both bottler and brand owner of the next 12 months or

Sure, first the fountain of the future, is certainly something that we're very excited about.

We've working on this as part of our innovation pipeline over the past couple years.

And certainly what we have seen so far is very encouraging in that the consumer gets excited with the choice and with the flavors.

And certainly compared to a much more limited choice, we see great consumer excitement in the marketplace in how the consumer interacts.

So we're excited with what that will bring to us in what a key channel of our business in North America and other parts of the world as we roll it out.

So our efforts really focus on the deployment of the beverage offerings that considers, that this will create a lot of excitement at the point-of-sale with all our customers as we start to roll that out.

So that's, and I hope that you can see for yourself at CAGNY next week.

In terms of the organizational change, and approach to business with the bottler and price pack architecture, I think that -- don't think about it as an organizational change.

Think about it as a very tremendously aligned approach.

We have dual customer calling in about 20% of CC's territory.

We've begun to move to a single call model in the market to improve value to the customer and the system and it's in early stages of its development.

And it's all about being more effective in the marketplace and it's all about being flexible and fast in the marketplace.

That sounds like a procedural change, but I was wondering more along the lines of the alignment you spoke of in the markets when there's not dual calling, is there room for improvement do you think for the alignment of price pack between sound and bottle can?

Oh, I think there is and that's part of -- and that's one of the work streams that we have with CCE and other bottling partners what we call fountain harmony which offers the opportunity to implement the occasions brands pricing as well as channel architecture across -- on premise channels in a manner that we will ensure that meet evolving consumer desires and also the incremental volume opportunities.

All right, thank you very much.

Sure.

Thank you.

Our focus in this challenging and dynamic environment is to proactively drive our strategic agenda.

We see tremendous opportunity to extend the reach potential and profitability of our business around the world, despite the prevailing macro conditions.

And we're confident we have the right strategies as well as the right leadership team to do just that.

We also remain committed to always ensuring open and ongoing transparent communications with you, our investors.

Thanks very much for joining us this morning and we wish you a great day.

Thank you for participating in today's conference call with The Coca-Cola Company.

Audio playback is available via the companies website, theCoca-ColaCompany.com.

You may now all disconnect, thank you.