South Korea Peter Kelly Regional Director - Asia 13 October 2005 - - PDF document

1

1

October 2005

South Korea

Peter Kelly Regional Director - Asia

13 October 2005

2

October 2005

Introduction Management experience over 18 years

• TCCC roles in Planning and Field Operations
• State Roles as Sales Manager and State Operations Manager
• National Key Accounts & General Manager, Supermarkets
• Director, Business Development
• Director, Operations and Logistics

Initial Observation

• The markets are tough but with the right focus the
• pportunity is clearly there

2

3

October 2005

Korea

New Executive Team, focused on the simple drivers

• f growth that will turn the business around

The key issues are being addressed Results in Qtr 3 are very encouraging – best Qtr for growth since the start of 2004 CCA and TCCC are confident that investments being made in Korea will deliver improved performance

4

October 2005

Our expectations for Korea in the 2nd half…

2005 2nd Half Volume Growth 5-7% 2005 2nd Half EBIT KRW broadly in line with last year Examples of trade execution for full year 2005

• Net New Outlets

16,000+

• Net Coolers placed

21,000+

• Minute Maid

15% of 100% Juice segment

3

5

October 2005

Consumer Spending and CCA sales are highly Correlated – both are returning to growth

• 1%

2%

• 1%

8% 5% 123 122 140 144 122

• 5%

3% 11% 19% 27% 35%

2001 2002 2003 2004 2005 June

Percentage

90 102 114 126 138 150

Million Unit Cases

Consumer Spending

Source : The Bank of Korea

Sales Volume

6

October 2005

Consumer confidence appears to be recovering

Source : Korea National Statistical Office

80 90 100 110 120 Jul 99 Jan 00 Jul Jan 01 Jul Jan 02 Jul Jan 03 Jul Jan 04 Jul Jan 05 Jul

Index

Korean Consumer Confidence Index

4

7

October 2005

GDP per capita growth, at 18% is growing faster than both consumer confidence and spending

7,355 9,438 10,841 10,160 11,499 12,720 14,162 16,740 3000 6000 9000 12000 15000 18000 1998 1999 2000 2001 2002 2003 2004 2005 (E)

GDP per capita

(Unit: Million US$) Source : The Bank of Korea, 2005(E) from Economic Intelligence Unit (Unit: %)

+18.2% +11.3% +10.6% +13.2%

• 6.3%

+14.9% +28.3% 8

October 2005

Competitors show 10% EBIT margins are achievable

Biggest competitor, Lotte H105 results Revenue declined by -9% EBIT Margin at 10% down from 16% EBIT Margin decline driven by un-recovered COGS Operating income down by 45% Implication for CCA Korea – we believe an opportunity exists to improve pricing and recover COGS increases, however we will not be uncompetitive

5

9

October 2005

It’s a competitive market – CCA is holding share

24.4% 25.2% 24.9% 25.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

June / July YTD JJ

2004 2005

(Source: AC Ni e: AC Niels elsen) n)

CCA NARTD Share

10

October 2005

Recap - CCA Performance in the 1st Half

Brand Coke related volume/pricing accounts for 2/3rds of our EBIT decline. (Coke 1st Half -10% vs Qtr 3 +4%) We will be managing both our costs and pricing tightly in an effort to recover COGS inflation There is a lag in getting the benefits from our increased investments in Direct Marketing Expense and Coolers

HY 05 HY 04 % Chg Volume (m unit cases) 63 64

• 1%

Sales revenue / case KRW 3,859 3,902

• 1%

EBIT KRW (m) 346 10,581

• 97%

6

11

October 2005

Significant increase in TCCC marketing investment

2005 TCCC direct marketing investment is double 2004 levels CCA expects at least this level of brand investment to continue for 2006 Both companies are aligned around fewer, bigger activities on the core brands 2006

12

October 2005

Excellent Main Media on air since April

Eg Supporting our E&D Focus

7

13

October 2005

Minute Maid - We are now in all the major categories

0% 3% 6% 9% 12% 15% Cola Flavoured CSD Cider Fruit Juice 100% Fruit Juice - Non 100% Sports

Percentage of NARTD Market CCA Category

Korea Key Categories

(Source: AC Ni e: AC Niels elsen) n)

14

October 2005

Update on the activation of the 5 Pillars

Our trade execution results are on track for 2005 across the 5 pillars

• 1. Product and pack innovation
• 2. Non-carbonated beverage and food expansion
• 3. Growing product availability through cold drink

placements and outlet expansion

• 4. Customer service improvement
• 5. Revenue management and cost discipline

8

15

October 2005

New Brands and Packs delivering growth

• Our brands are returning to growth and profit for our retailers
• Non-Carbonate Innovation

3 New Non-Carb Brands

• Minute Maid
• Minute Maid Fresh Mix
• Powerade Ionade

10 New Non-Carb Brand / Flavour Extensions

• Nestea Lemon Green and Ice Rush
• Minute Maid Tomato and Grape
• Nescafe Mistra (6 flavours)

16

October 2005

Non Carbonates - Minute Maid doing well

9.4 15.2 1.1 19 24 3

5 10 15 20 25 30

FM05 AM05 JJ05

Sales Share in 100% Fruit Juice Availability

15% Share of 100% Juice after 4 months Record Repeat Purchase levels

(Source: AC Ni e: AC Niels elsen) n)

9

17

October 2005

Minute Maid – Getting the Key Components Right

Innovative product range and packs Huge sampling campaign 500,000+ Consumers Excellent advertising and Media weights Excellent execution and trade support

18

October 2005

With Food – Eating & Drinking sales up 28% YTD

Menu boards, branding, staff incentives and Combo meals Building the connection between Korean Food and CSD’s

10

19

October 2005

46,712 46,476 49,698 50,375 53,943 57,219 62,712 65,014 76,499 70,106 9.9 9.8 10.4 10.5 11.2 11.9 13.0 13.5 14.5 15.8 20,000 40,000 60,000 80,000 100,000 Dec 01 Dec 02 Dec 03 Mar 04 Jun Sep Dec 04 Mar 05 Jun Sep 2 4 6 8 10 12 14 16 18 Total Cooler in Market (# of unit)

Cooler Penetration per 10k Population

• Coolers drive consumption
• More is required to capture the opportunity

Cold drink – By December 21,000 new coolers

20

October 2005

30,000 60,000 90,000 120,000

Jan 02 Jul Jan 03 Jul Jan 04 Jul Jan 05 Jul 4,000 8,000 12,000

By Year end 16,000 more customers than 2004

Total E&D Super Wholesale M&P CVS Hyper

Active Outlet Numbers

Total Outlets

11

21

October 2005

Product availability - Forward inventory drives sales

We have gained forward inventory share of NARTD and are targeting 10% more cases on the shop floor

22.6% 22.3%

10% 20% 30% Jan 02 Jul Jan 03 Jul Jan 04 Jul Jan 05 Jul

CCA Forward Inventory Share

(Source: AC Ni e: AC Niels elsen) n)

22

October 2005

Forward Inventory- attractive merchandising

12

23

October 2005

Quality availability - 135 Model Markets +35% up

We now have 135 model markets up and running in Korea They prove again that superior execution can drive incremental beverage sales for all customers in a region The model markets are a test bed for our trade marketing concepts and training ground for our sales employees

24

October 2005

Customer Service Improvements We are focused on driving customer volume and profit and giving the customer a greater voice in our business Customer and category business management Customer Satisfaction Call program Servicing the needs of smaller outlet

13

25

October 2005

Efficiency and Cost Reduction – an opportunity

When benchmarked against comparable CCA operations, Korea has a KRW 20b higher indirect cost base Through a combination of workplace reform, redeployment and downsizing we can begin to close this gap Despite the historically difficult industrial relations environment in Korea, there is a general consensus among our employees for the need for change Our preference is to retrain and redeploy people into market facing roles rather than dramatically downsize the organisation The success of our suggested workplace reforms will determine the eventual number of employees our business can sustain, any restructuring costs and the associated savings

26

October 2005

Korean Nationals now make up 2/3rds of the Executive Team

14

27

October 2005

Our expectations for Korea in the 2nd half…

2005 2nd Half Volume Growth 5-7% 2005 2nd Half EBIT KRW broadly in line with last year

28

October 2005

Our plans for 2006

Major Investments in Marketing, Trade and Product innovation behind Coke and Minute Maid 1 Major Non-Carbonate New Product Launch Cooler penetration increasing to 20 per 10K population CCA executing in 18% of all outlets Workplace reforms targeting indirect savings Redeployment of up to 200 people to market facing roles