怪物飲料 (MNST) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation third quarter 2015 financial results call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Rodney Sacks, Chairman and CEO for Monster Beverage Corporation. Please go ahead.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President is with me, as is Tom Kelly, our Senior Vice President of Finance.

Before we begin, I would like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. And which are based on currently available information regarding the expectations of Management, with respect to revenues, profitability, future business, future events, financial performance and trends.

Management cautions that these statements are based on our current knowledge and expectations, and are subject to certain risks and uncertainties, many of which are outside the control of the Company, that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, filed March 2, 2015, as well as our most recent report on Form 10-Q, filed August 10, 2015, including the sections contained therein entitled, risk factors and forward-looking statements, for a discussion on specific risks and uncertainties that may affect the performance.

The Company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. An explanation of the non-GAAP measures of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes designated with asterisks in the condensed, consolidated statements of income and other information attached to the earnings release dated November 5, 2015. A copy of this information is also available on our website, at monsterbevcorp.com, in the financial information section.

As previously announced, the transaction with the Coca-Cola Company closed on June 12, 2015. We're continuing to implement our strategic alignment with Coca-Cola bottlers worldwide. Our transition in Germany in July was successfully implemented, and we're starting to see an improvement in the quality of our distribution with and execution by that bottler. We're also pleased to announce that we have reached an agreement with the Coca-Cola Hellenic Group that will be applied across 28 countries serviced by them for Coca-Cola.

Monster is currently being distributed through the Hellenic Group in approximately 14 countries. We're currently in the process of signing agreements and planning for the transitions and/or launches of Monster in the remaining 14 countries within the Hellenic Group's distribution network. Of particular note are our plans to transition our brand from our existing distributors in Italy, Romania, Ukraine, Bosnia, Croatia, Serbia and Slovenia to Hellenic, as well as to launch Monster in Russia through Hellenic before the end of this year. Another substantial opportunity for us with Hellenic is the planned launch of Monster in Nigeria in 2016.

We have commenced discussions regarding the production of Monster locally with Hellenic in Nigeria, which is one of the two largest energy drink markets in Africa, the other being South Africa. Besides the agreement with Hellenic, we have also reached definitive agreements with the Coca-Cola bottlers in Spain and Portugal, which are large markets for Monster. We are planning to transition Monster in Spain and Portugal from our existing distributors to Coca-Cola Iberian partners early in the first quarter of 2016.

We've had positive discussions with the Coca-Cola bottlers in Southern Africa, and are in the process of commencing the distribution of Monster in a number of countries in Southern and Central Africa, through Coca-Cola bottlers. We are planning to commence local production of Monster in South Africa in the next few months.

We're also planning to launch Monster in China. We have filed applications for approval of our products, and have commenced negotiations with the Coca-Cola bottlers for production and distribution of Monster in China. Although the approval process could take longer, we are still planning to launch Monster in China in the first half of 2016.

We are also pleased to report that we entered into a definitive agreement with Coca-Cola beverage company, owned by LG Household and Healthcare Limited in Korea, to distribute Monster in South Korea, and are in the process of making transition arrangements with them. We are continuing negotiations regarding the prospective transitioning of Monster to Coca-Cola bottlers in South and Central America, as well as in Australia. While we have made good progress, many legal and financial issues still need to be resolved. We are hopeful that we will be able to make further progress over the next few months.

We have also engaged in ongoing negotiations to transition Monster to Coca-Cola bottlers in a number of smaller countries worldwide. We intend to continue to manage the Coca-Cola energy brands, which we acquired and refer to as our strategic brands, as the concentrate business, similar to the manner in which the Coca-Cola Company operated such business prior to the closing of the transaction. Under the concentrate model, concentrate and/or beverage base is sold to bottlers, who add other common ingredients and containers to produce the finished product.

We will, however, continue to operate a finished product model for our own Monster energy drinks, consistent with the manner in which we have historically run our business. Such arrangements will form part of our finished products segment.

As previously indicated, our reportable segments will reflect our view of the business going forward. In this quarter, we reported on three operating and reportable segments. One, finished product, the principal product, of which include the Company's Monster Energy drink product, which previously comprised the majority of the former DSD segment.

Two, concentrate, the principal products of which include the strategic brands acquired from Coca-Cola. Three, other, the principal products of which include the brands disposed of as the result of the Coca-Cola transactions. Including those which previously comprised the majority of the former warehouse segment and the Peace Tea brand.

Sales in the quarter continued to be negatively impacted by foreign exchange movements, as well as the uncertainty faced by many of our independent international distributors, outside of the Coca-Cola network, given the anticipated implementation of the transitions in their territories. Additionally, out bottling in Great Britain experienced production issues, causing production to be suspended for a number of weeks towards the end of the quarter and most of October, resulting in lost sales to us, both for the quarter and in October.

Although substantial progress was made during the third quarter, results were still affected by out-of-stocks at retail, although at a lower level than in the previous quarter. Gross sales for the 2015 third quarter were $862.4 million, compared to gross sales of $738.1 million in the comparable third quarter of 2014, an increase of 16.8%.

Net sales in the 2015 third quarter were $756.6 million, as compared to $636 million in the same period last year, an increase of 19%. Changes in foreign currency exchange rates had an unfavorable impact of approximately $34.1 million on gross sales, and approximately $28.6 million on net sales.

Gross and net sales were impacted by advance purchases made by our customers in the quarter, due to a price increase effective August 31, 2015, on certain of our Monster 16-ounce energy drinks. We estimate that approximately $12 million of gross sales, and $11 million of net sales in the quarter, were attributable to such advanced purchases.

Gross profit as a percentage of net sales was 61.5%, as compared to 53.8% for the comparable 2014 third quarter. The increase in gross profit as a percentage of net sales was largely attributable to net sales of the concentrate segment, which has higher gross margins than the finished product segment, as well as the sale of the non-energy brands, the price increase referred to earlier, lower cost of certain raw materials, and changes in product sales mix. Distribution costs as a percentage of net sales were 3.5% for the 2015 third quarter, compared to 4.5% in the same quarter last year.

Selling expenses as a percentage of net sales were 10.7%, compared to 10.1% in the same quarter a year ago. Advertising costs, sponsorship0 and endorsements, as well as commissions and royalties, were all higher in the third quarter. General and administrative costs as a percentage of net sales for the 2015 third quarter were 8.8%, as compared to 9.2% for the corresponding quarter last year. Payroll expenses were up $7 million, due partially to increased staffing in connection with the Coca-Cola transaction.

Stock-based compensation, which is a non-cash item, was $8.9 million for the third quarter of 2015, compared to $7.4 million in the same quarter last year. Gross sales to customers outside the United States were $207.8 million in the 2015 third quarter, compared to $173.2 million in the corresponding quarter in 2014, an increase of 20%. Net sales to customers outside the United States were $170.6 million in the 2015 third quarter, compared to $136.3 million in the corresponding quarter in 2014, an increase of 25.2%.

Foreign exchange movements had an unfavorable impact on gross sales of approximately $34.1 million, and on net sales of approximately $28.6 million. Including gross sales to customers outside of the United States, or our sales to the Company's military customers, which delivered in the United States and trans-shipped to the military and their customers overseas.

According to the Nielsen reports for the 13 weeks through October 24, 2015, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including shots, increased by 10.1% versus the same period a year ago. Sales of Monster grew 9.3% in the 13 week period, while sales of NOS increased 6.8%, and sales of Full Throttle decreased 6.7%. Sales of Red Bull increased 11.2%, sales of Rockstar increased by 28.5%, sales of 5 Hour increased 2.8%, and sales of AMP decreased 3.9%.

According to Nielsen, for the four weeks ended October 24, 2015, sales in the convenience and gas channel, including energy shots, in dollars, increased 8.6% over the same period last year. Sales of Monster increased by 4.3% over the same period last year, while NOS was up 3.9%, and Full Throttle sales decreased 5.5%. Sales of Red Bull increased by 11.2%, Rockstar was up 32.1%, 5 Hour was up 3.5%, and AMP was down 6.6%.

According to Nielsen, for the four weeks ended October 24, 2015, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars, decreased by 1.5 points over the same period last year, to 34.9%. NOS's share decreased by 0.2 of a point, to 3.9%. Full Throttle's share decreased 0.2 of a point, to 1.1%. Red Bull's share increased 0.8 points, to 34.8%, slightly below Monster's share. Rockstar's share was up 1.5 points, at 8.2%, which is similar to the market share Rockstar had two years ago. 5 Hour's share was lower at 8.2%, and AMP's share decreased 0.3 points, to 2%.

According to Nielsen, for the four weeks ended October 24, 2015, sales of energy plus coffee drinks, in dollars, in the convenience and gas channel, increased 9.6% over the same period last year. Java Monster was 5.9% higher than in the same period last year, while Starbucks Doubleshot Energy was16.6% higher.

According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended September 19, 2015, the energy drink category increased 8%. Monster sales were up 32% versus a year ago.

Our market share increased 5.7 points, to 30.4%, over the same period last year. Red Bull sales increased 1%, and its market share decreased 2.5 points, to 39.1%. Rockstar sales increased 6%, and its market share decreased 0.4 points, to 16%.

According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 31% in the month of August 2015. Monster's sales increased 24%, our market share decreased 1.8 points, to 32.2%, against the comfortable period last year. Sales of Burn, one of our acquired bands, increased 8%, although Burn's market share decreased 1.1 points, to 5.2%.

Red Bull sales increased 8%, and its market share decreased by 3.7 points, to 17.8%. [Viva 100's] market share increased 5.1 points, to 26.9%, while Boost's market share decreased 0.1 of a point, to 13.1%.

The Nielson statistics for Mexico cover a single month, which is a short period that may often by materially influenced, positively and/or negatively, by sales in the Oxxo convenience chain, which dominates the market. Sales in the Oxxo convenience chain, in turn, can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month.

Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. According to Nielsen, for the 13-week period ended September 2015, the actual 13-week periods vary by a few weeks between different markets.

Monster's retail market share end value, as compared to the same period last year, grew from 11.4% to 12% in Great Britain, from 16.6% to 19.4% in France, and from 8.9% to 12% in Germany. In the same period, Monster's value share grew from 8% to 9% in Sweden, from 7.9% to 8.7% in Belgium, and from 5.6% to 6.1% in the Netherlands.

Monster's retail market share value for the 13 weeks ended in the August 2015, as compared to the same period last year, decreased from 17.6% to 15.7% in South Africa, although in local currency, sales were higher. Monster's retail market share in value for the 13 weeks ending September 2015 in Spain decreased from 22.7% to 22.1%, and in Italy decreased from 12.6% to 10.3%. These latter three markets all have independent distributors. According to IRI, Monster's market share in Greece increased for the 13 weeks to the end of September 2015, from 28.2% to 29.4%.

I would like to point out that the Nielsen and IRI numbers in EMEA should only be used as a guide, because the channels read by Nielsen and IRI in EMEA vary from country to country. According to Nielsen, for the month of September 2015 in Chile, Monster's retail market share in value increased to 18.3%, as compared to 11.8% last year. And in Brazil, Monster's market share for the month for September declined from 5.7% to 3.7%, as compared to the same period last year.

According to INTAGE, for the month of September 2015, the convenience store channel in Japan, Monster's markets share grew from 30% to 39.2%. The launch of Monster Energy Ultra in Japan has been positive, and sales continue to be solid.

As stated earlier, the Company has revived its reportable segments into finished products, concentrate and other. Net sales for the finished product segment, formerly the DSD segment, but excluding Peace Tea, increased 15.5%, to $686.7 million, and operating income for the finished product segment increased 25.3%, to $289.5 million, in the 2015 third quarter.

Net sales for the finished product segment were negatively impacted by approximately $23.1 million of foreign currency movements, and operating income for the finished product segment was negatively impacted by approximately $2.5 million of distributor termination costs.

Net sales for the Company's new concentrate segment were $69.9 million for the three months ended September 30, 2015. And operating income for the concentrate segment was $45.3 million. Net sales for the concentrate segment were negatively impacted by approximately $5.5 million of foreign currency movements.

As a result of the Coca-Cola transaction, which closed on June 12, 2015, there were no sales for the other segment during the third quarter of 2015, as compared to $41.6 million of net sales in the third quarter of 2014.

In Europe, the Middle East and Africa, net sales in the third quarter, in local currencies, increased [45.4%], and 19.9% in dollars over the same period last year. Gross profit in this region, as a percentage of net sales, increased from 38% in the same period last year to 51.5% during the quarter.

While Monster is continuing to gain momentum, and increased market share in Europe throughout the third quarter, growth in Spain and Italy in particular were negatively impacted due to the uncertainty following the Coca-Cola transaction. We believe that the situation will be reversed once Monster is transitioned in these countries, through the Coca-Cola bottlers.

Overall, EMEA is now operating well, and we have made good strides in achieving increased distribution levels and in-store execution. EMEA traded profitably during the third quarter. We are continuing of the launch of Mega Monster in 553 milliliter cans, in limited additional markets in Europe. Response from consumers has been positive, and we believe sales for Mega Monster are largely incremental to sales of our original Monster 500 milliliter size products.

In particular, in Belgium, Bulgaria, France, Germany, Greece, Hungary, Ireland, the Netherlands, Poland and Sweden, Monster achieved increased sales guidance, as well as increased market share. It is noteworthy that in many of our international markets, where our distribution partners anticipate the Monster brand being transitioned to the Coca-Cola network, sales levels, as compared to the same period last year, were markedly lower than the sales levels in those markets which are being managed by the Coca-Cola bottlers system, also as compared to last year.

In Asia-Pacific, net sales in the third quarter increased 64% in local currencies, and 42.6% in dollars, over the comparable quarter last year. Net sales in Mexico, Central and South America and the Caribbean in the third quarter increased 65.8% in local currencies, and 45.7% in dollars, over the comparable period in 2014.

Monster sales in Brazil were negatively impacted, due largely to the overall difficult economic and market conditions in Brazil, along with the uncertainty for the distributor there, associated with the Coca-Cola transaction. In Japan, net sales increased by 11% in dollars, and 34.1% in local currency during the quarter, as compared to the same quarter last year.

In Mexico, net sales increased by 48.8% in dollars, and 72.6% in local currency, as compared to the same quarter last year. Both Japan and Mexico contributed meaningful operating profits to the region in the third quarter 2015. India continues to be impacted by regulatory issues, and we continued to incur losses there in the third quarter. We are addressing these issues, and hope to achieve a resolution in the near future.

We continue to be actively involved in discussions with prospective Coca-Cola bottlers in numerous countries around the world, regarding distribution opportunities for our Monster Energy drinks. We are also evaluating a large number of local production opportunities with Coca-Cola bottlers, both in the US and internationally, which we believe will yield cost reductions.

As previously reported, we have reformulated and repositioned our Muscle Monster line. In September, a new juice Monster drink named Pipeline Punch was launched exclusively with 7-Eleven. During the 2015 third quarter, the Company purchased approximately 2.9 million shares of common stock, at an average purchase price of $134.43 per share.

Purchases were made under a prior repurchase program authorized by the Board, which has been exhausted, as well as under the new 500 million share repurchase program announced in September 2015. Subsequent to the close of the 2015 third quarter, the Company purchased an additional 0.06 million shares, at an average purchase price of $134.12 per share. The Company has approximately $250 million available under its current Board authorized repurchase program.

Turning to the balance sheet, cash and cash equivalents amounted to $1.2 billion, compared to $370.3 million at December 31, 2014. Short-term investments were $1.5 billion, compared to $781.1 million at December 31, 2014. Long-term investments decreased to $34.4 million, from $42.9 million at December 31, 2014.

Included in short and long term investments are auction-rate securities of $1.5 million, which have now been redeemed in full. Days outstanding for accounts receivables were 43 days at September 30, 2015, and 36.4 days at December 31, 2014, compared to 38.5 days at September 30, 2014.

Inventories decreased to $159.7 million, from $174.6 million at December 31, 2014. Average days of inventory was 49.4 days at September 30, 2015, which was lower than the 57.4 days of inventory at December 31, 2014, and lower than the 62.9 days at September 30, 2014.

In November, we will be launching Pipeline Punch, as well as Ultra Black nationally. Our repositioned Monster Energy Rehab, Juice Monster and Punch Monster lines all continue to make good progress. We are planning to launch additional new products early in 2016.

Gross sales in October 2015, in dollars, adjusted for the advanced purchases I referred to our earlier, were approximately 6.8% higher than in October 2014. In local currencies, gross sales in October, adjusted for the advanced purchases I referred to earlier, were approximately 10.6% higher than in October 2014. October 2014 included the old [warehouse] division and Peace Tea.

October 2014 comes through a high. October also had one less selling day than October 2014, and was also negatively impacted by the production issues experienced in Great Britain.

We caution again that sales in a single month, and over a short period, are often disproportionately impacted by various factors, such as, for example, selling days, days of the week in which holidays fall, timing of new product launches, and the timing of price increases and promotions in retail stores, and should not necessarily be imputed to or regarded as indicative of results for the full quarter or any future period.

In conclusion, I would like to summarize some recent positive points. One, we continue to be pleased with the Coca-Cola transaction, and the opportunity that this presents to the Company. Two, North American and international gross margins are healthy and continue to improve.

Three, the US Nielsen market statistics show that the energy category is continuing to grow. Four, the new additions to the Monster family continue to gain market share and add to the Company's sales.

Ultra continues to perform well. We believe that the changes made to, and the repositioning of, our Rehab, Juice and Punch Monster lines have been positive. With regard to international markets, we are particularly pleased with the performance of a number of our international markets, particularly Japan, Great Britain, Germany, France, Belgium, Sweden, Chile, Ireland and Greece.

I would like to open up the floor to questions about the quarter. Thank you.

(Operator Instructions)

Our first question comes from Kevin Grundy of Jefferies. Your line is now open.

Thanks, good evening guys.

Good evening.

First, a broader question, and then just a couple brief modeling questions. First, can you talk about the investment that you think is going to be necessary, specifically in Russia and China? Which are big opportunities, but relatively going to be new markets for you? Talk about what sort of life you are expecting there? And how you're defining success? And then if you could touch on the investment piece?

And then a modeling question for you, Hilton. Margins were particularly strong in the quarter. What we should expect there, for the balance of the year, going forward? And then some guidance on the long-term tax rate? Thank you very much.

I think that -- much of what your asking is really forward-looking, which we have historically not given, and we're not going to give some -- the large part of your question will remain unanswered. We don't believe there is -- at this point, our intention in launching in Russia is not going to be different to the way we have historically launched. And there may be some changes in China, but it's too premature for us to even make that decision. We have not made it.

We are, at the moment, evaluating the market, and how we are going to go to market in Russia. Again, we do not believe that those would be extraordinarily high or different, in any way, to how we've gone in the past. But it really is premature for us to give you any real indication on that. With regard to the tax rate, Hilton will give you some response on that going forward. And I will hand it over to him.

Kevin, there were two questions you asked. One was about margins. And as you know, we do not give guidance. However, what I can tell you is that we took a price increase on certain of our Monster 16 ounce line, effective August 31. So we had one month of sales with increased prices, and there were buy-ins in that period, as well, which we referred to, and there were some buy-ins in September. So you can factor that into your analysis. The second thing is, we have looked at the tax rate, and we believe here -- and obviously we stand corrected -- but we think our tax rate should be more normalized at about 37.5%.

Very good. Thank you, guys.

Thank you, and our next question comes from Mark Astrachan, Stifel.

Good afternoon, guys.

Hi, Mark.

A couple of logistics modeling-type questions. Could you give the split of your legacy business sales, in the US and international, just so we can get a sense of the comparisons there? And then separately, just curious how you think the price increase has impacted your market share and volumes? Just broadly, and then market dynamics?

I know there's been a lot made of a strange week's worth of data in the scanner services. Curious if you can comment on that, and obviously in the context of the weaker results in October. Hearing what you are saying, how much of that is the pieces that you were talking about, the moving parts, versus an underlying weakening in demand for you, or just the category broadly?

Just to start, for the Nielsen [numbers] in October, the months, particularly of October, was a choppy month. We think that it's the timing of promotions, the timing of launches. Things are -- with all these other factors, we think they had had -- did they have some influence over it? We don't believe that it will be ongoing, but -- and we believe that the rest of the quarter will improve. But we still see strength in the category. We have a number of new product launches planned for the beginning -- early next year, and running through a number of quarters next year. So we believe that you just should not have that high regard or influence on the single-month numbers.

With regard to the split between the legacy [bands], we given you that split throughout the Company. We haven't divided it into the US versus the rest of the world. And I don't have that number available. We've done it -- we look at it in country by country, and region. So I don't have that really available. I'm not sure that we should be providing that information at this point. Because then that starts creating other issues in segments. And so at this point, we would like to just leave it at the finished products, and concentrate segments as a group, going forward.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from Caroline Levy of CLSA.

Can I just clarify, when you said October was up 7, was that including international? That was a worldwide number?

Yes.

Okay. And 10, if you exclude the advanced purchases?

ForEx.

That was ForEx?

Yes.

Sorry, sorry. [Quite a trick.] Would you be able to give us the breakout between -- your case sales seem to include concentrate, which then distorts what your finished product -- we can't get at what finished product grew, or what net revenue per finished product case looks like. Would you be willing to share that?

So you're looking -- you're looking for a breakout again of finished product cases, and again, we -- this is -- (multiple speakers).

We'll take that under advisement. We haven't -- you'll see the segment information. You will see finished goods, and you will see concentrate in the Q, which we're hoping to release tomorrow or Monday. So you will have that then. And we'll -- looking forward is with the -- it will make sense to give case numbers.

Because I think it's very hard to model something if we don't have an idea of what volume pricing and -- you give us [contact it], I think, by division. But we need that volume and pricing by division, if at all possible.

Anyway, just lastly, could you talk -- getting back to share loss, which is what we are seeing in the measured data. And we actually haven't seen that for several years. And then a few months ago, Red Bull started growing significantly faster than you guys. And I thought maybe with the price increase, you would catch up. But it doesn't appear to be happening. Are there any other dynamics, over the past couple of months, that would have affected that, other than launch timing?

Again, it depends on how you -- you've got to look at the two-year step numbers, and where we were. Those have quite a big impact on share, or if you take share loss. Red Bull's numbers are -- have basically been a percent or two above ours, generally. But again, they took a price increase in January, at a slightly higher level, which seems to have stuck. We are really just starting to try to get and get the -- our price level solidified. But if you look at cases and units, then our market share, in fact, increased ahead of Red Bull's.

Thank you, and our next question --

And that's what I'm a little confused about, Caroline, because we mentioned on the call today that in convenience, which is the major sector, our share is actually higher than Red Bull's. So what you are looking at is year on year, historical 2014 versus 2015. But if you look at the actual share, our share in convenience, according to Nielsen, is bigger than that of Red Bull's.

And it's been trending that way for the last three months. We've been increasing share. So these figures are sometimes -- you've got to read -- depends how you read them.

Thank you. Our next question comes from Pablo Zuanic of SIG. Your line is now open.

Good afternoon, this is actually Aatish Shah on behalf of Pablo. I have more of a strategic level question. For the markets where you are planning to keep your distributors, what kind of emphasis will be played on the energy drink brands acquired? And can we expect any kind of attrition, cannibalization, of those brands? And on the flip side, where you will be moving to the new Coke system in the countries, should we expect some attrition for those brands? And if not, how will those brands be segmented in those countries?

I think that -- we don't believe there will be any attrition in our business. The whole strategy is that, in those countries that we stay with our existing distributors, like Japan, then they will stay with whatever portfolio they have. And if we have a portfolio that we have acquired -- and Japan there just isn't one. But if in other countries, where there is one, then that will be managed through the Coke bottler. We've taken the [assignment] of the Coke distribution arrangement and contracts, and that will simply be managed. If -- in the cases where we're going to transition Monster, we're transitioning them, and they've dealt with and managed separately.

You have got Monster going into their bottler. And we, obviously, have bought and paid for the strategic brands and we're going to manage those brands. It is our job, obviously, to try -- which is different to how Coke, obviously, looked at their competitors. But now that we have both brands in a country, we're going to look to try and segment them, and position them differently. But they both are important brands. They both, in each country, are good contributors to our bottom line and to our growth as a Company. And to giving us a stronger position in the overall, in the energy category in that country. If you aggregate the two brands, in many countries, it gives us a very strong and leading position, which I think also helps us.

And obviously, from a management point of view, where we can use the same staff, we will try and rationalize it. But in some cases, we feel you do need additional staff, so that they can focus on their own brand in a country. So don't think there will be attrition. The attrition will come by -- from -- if the brand is not strong enough in the particular country, to sustain its distribution or shelf space, then there will be attrition. But obviously, we're going to try and put focus on it, and try and avoid that. So at the moment, obviously, we're going through the learning curve with some of the new brands.

We are repositioning the new brands. We are looking to redesign them, and re-evaluate their size containers. And whether we have a different size, or a single size. In some markets, we have too many sized containers, and different flavors in different countries, for the same brand. We're trying to rationalize some of the -- and improve some of the flavors. We have plans to introduce a new -- some innovation and some new flavors for these brands, the strategic brands, in 2016.

So we are positive about them, and -- but they will be managed differently, and they will be managed separately. But we obviously are looking to continue put support behind, and to do our best with both -- all of the brands that we have in our portfolio. With the energy focus, that remains our focus, in that category.

Thank you. Our next question comes from Judy Hong, Goldman Sachs. Your line is now open.

Thank you. Hi, everyone.

Hi, Judy.

I have two questions One is, Rodney, just a little bit more color on China, as you think about 2016? One, just in terms of the clarification on the -- on where you are on the approval process? I think you said you're still expecting to launch in the first half. Any risk that it gets delayed into the back half? And then just in terms of distribution opportunity, just given the strength of the Coca-Cola system in that country, do you expect to see distribution ramp up pretty quickly in China, versus some of the other countries that you've entered?

And then the second question is really on return of capital that you -- in prior calls, you have commented on the Board actively looking at ways to return more cash to shareholders. Obviously, you still have a pretty sizable cash balance on your balance sheet. But any update, in terms of the Board's willingness to actually take on some leverage, and return even more cash to shareholders?

I will let Hilton answer the second one. I will address the first one, and just divide the questions up. On distribution in China, we're looking at going into China not very differently to how we've addressed most of the markets where we believe we have the best prospects of success. And again, without having taken a final decision, it's unlikely that we're going to have some sort of massive national launch, with big TV campaigns behind it.

We'd like to go into a country, we will take a number of areas, or a number of types of chains, or [cloths] of business, and focus on that, and roll it out. And it may mean that it takes some time. It doesn't -- it may not go through all of the problems, as China is very, very big. It's like saying, in America, how would we launch? We launched in American in one County, in San Diego. Red Bull launched in one County in Northern California. And then you sit down, and grow from there, and develop it.

We think that that type of launch -- and not necessarily one county or only one city -- but that type of launch is far better. If it's a smaller country, it's a lot easier to get your distribution up. But China is a massive country. It's like a continent. And we're going to -- we're still working through the strategy, as to how do we launch, where do we launch, which cities do we launch in? Do we launch a little slower in two different or three different types of cities? More modern, a little more traditional, get the responses, and see how we're positioning the brand.

We're going into a new market, with new culture and new consumers. And it is very, very -- we believe, very -- a great opportunity for the company, and enormous growth. But we need to do it correctly, and we need to do it right. And we're right in the middle of those processes. So it's premature for us to give you any further direction.

As to the process, there are a number of alternative categories in which we believe our drinks can fall. We've made applications in two places, for our products, in two or three different categories. Those are currently being processed. I don't know how long it will take. We don't think that they will take that long, but I think we were hoping, in the next few months, to start getting some positive response, and maybe get some approvals. But we really don't know how long it is. We've not done it before, so we don't know.

And we do have -- different ingredients, and therefore a different timeline. We can't just simply look back and compare a soda and say, how long does it take for a soda to get approved? It's a different product, with different ingredients. But we still believe that we have a good prospect of launching in the first half, perhaps a little later than thought maybe a few months ago. But we still think that we have a good shot of going -- the first half of launching in China. Perhaps Hilton will then take the -- your other question.

Judy, the Board is still reviewing options, with regard to return of capital to shareholders. And we will update shareholders, once this decision has been finalized. At this time, no final decision has been taken how best to accommodate a buyback. You also asked a question about leverage, and I think my answer is the same answer I've given in the past. Some of us may have a -- personally have an aversion to that. But it's not -- it's a Board decision. And the Board will determine what is in the best interest of shareholders, and the Company. So just watch the space. That's all I can say.

Great, thank you.

Thank you. And that concludes our Q&A session for today. I'd like to turn the conference back over to Mr. Sacks for closing remarks.

On behalf of Monster, I would like to thank everyone for their continued interest in the Company. We continue to believe in the Company and our growth strategy, and remain committed to continuing to develop and differentiate our brands, and to expand the Company, both at home and abroad.

We are particularly excited about the new opportunities that we have going forward, with a robust portfolio of energy drink products throughout the world, comprised of our Monster Energy brands, together with our newly acquired strategic brands. We believe that our agreements with the Coca-Cola Company will enable us to focus on our core energy business, while leveraging the strength of the Coca-Cola Company's powerful distribution and bottling system, on a worldwide scale. Thank you very much for your attendance.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.