The Coca-Cola Company (KO) Q1 2015 Earnings Report, Transcript and Summary

Okay. If we can make our way to our seats, we’re ready for the next presentation from The Coca-Cola Company. So, our next presenter is The Coca-Cola Company. And before we get started, I would like you to join me in thanking them for their generous support this week, both in cosponsoring yesterday’s lunch and also supplying beverages to us all week. As you know, it’s an exciting and incredibly busy time at Coke as the company pushes forward with its bold new strategic agenda to reaccelerate top-line growth and bottom-line growth. I would like to thank Coke’s Chairman and CEO, Muhtar Kent; and Chief Financial Officer, Kathy Waller for spending time with us today. Muhtar, I’ll turn it over to you.

Thank you, Bryan for that kind introduction and good morning ladies and gentlemen. It’s great to be back here at CAGNY in sunny Boca. And I’m pleased to be joined this morning by Kathy Waller, our Chief Financial Officer and Tim Leveridge, our Investor Relations Officer. I’m sure by this point in the conference this week you are all familiar with this legal disclaimer. Since we just had our fourth quarter earnings last week and a detailed 2015 modeling call in December, I’m just going to quickly summarize our 2014 performance, planned to spend the majority of our time this morning talking about the actions we’re taking to transform our business as we balance short as well as medium and long-term growth priorities to continue delivering sustainable share owner value. I’ll then turn it over to Kathy who’ll take you through specific examples of the progress we’ve made and what we’ve learned along the way and how we see the future. So, let me start by taking a look at our 2014 full year operating results. 2014 proved to be a challenging year and a critical year for us. While we gained value share, the macro environment in key markets; key emerging markets continued to deteriorate resulting in a deceleration in both PCEs personal consumption expenditures and industry growth at the same time. And although ongoing forex foreign currency headwinds and an increasingly volatile macro environment impacted, did impact our performance, there was no doubt, we also needed to improve our own execution and take steps to accelerate our results in several key geographies. And to that end, we took significant steps to transform the business to accelerate growth and also to regain our momentum. Specifically, we announced five strategic initiatives in October which you can see here on this slide. While Kathy will walk you through the specifics of these five initiatives later in the presentation, let me highlight some key points for you. Most importantly, this is not solely a cost cutting exercise, it’s a set of well-planned, well-thought off initiatives that actually underpin our core growth strategies that are helping to accelerate our results. Specifically, we’re streamlining; we’re simplifying; we’re cutting costs to free-up capital and resources to reinvest in our business as well as provide us the needed financial flexibility. We’re directing those investments against the greatest returns and we’re focusing our company as well as our system against what we collectively do best. Simply put, these initiatives are assuring that we utilize our resources as effectively as efficiently as possible to drive share owner value through both the top as well as the bottom-line growth while remaining focused on overall returns. And it’s in challenging times like these that companies with the fortitude to stay the course can actually enhance their positions and generate stronger cash flows and significant value for decades to come. This is exactly why we remain confident in our future. It comes down to the fact that we have the right strategies in place and that our associates bottling partners are very enthusiastic about what’s ahead for them. So, with that as a backdrop, let’s drill down into more of the specifics of our strategy and why we actually remain confident. Sustainable and balanced revenue growth is a key driver of our economic profit model. Other key components such as productivity, such as cost savings and overall effectiveness and efficiency are critical to ensure that we have the resources to invest for growth and provide that financial flexibility. Broadly speaking, our revenue growth is led by three key drivers, one that is directly influenced by macro trends while the other two we believe are generally within our own control. And to put it simply, we participate in a growth industry with leading positions. And macro trends and assumptions we identified when we launched our 2020 vision continue broadly to hold true. Retail value growth in the nonalcoholic ready-to-drink industry is actually pretty well-correlated to personal expenditure growth, PCE. More disposable income drives more convenience; drives more package goods. Personal expenditure growth continues to be fueled by favorable demographic trends such as increased urbanization and the growing middle class. These global macro trends give us confidence that the global nonalcoholic beverage industry will grow $300 billion, $300 billion in value through 2020, between now and 2020, which represents approximately a growth rate of -- a CAGR of 5%. However, as you would expect, growth is not going to be in a straight line. We’ve seen it run anywhere from 4% as it has in the last couple of years to nearly 6% in the past few years. So, it’s also important to note that industry value growth is not the same across markets, all markets and all categories. This chart illustrates industry value growth by the three categories of markets, emerging; developing; and developed. As you can see in this chart here, value growth in emerging markets actually continued, has continued to decelerate for a few years as those markets have suffered from those macro slowdown trends impacting personal consumption expenditures. What is not initially evident, looking at those growth rates on the screen is the underlying truth about global value growth across categories. As we move here to the next chart that has industry growth broken down by category, what becomes clear is that the deceleration in the industry is not actually category specific. Sparkling industry represented roughly one-third of total industry value in -- back in 2010 and still represents the same percentage of total industry value at the end of 2014. In fact sparkling beverages have grown value in both emerging; developing; and developed markets in each of the years shown. The point is we see tremendous growth opportunity in both the Sparkling and other still categories. This is why we remain confident as the industry moves back to more historical growth trends, both sparkling and stills will benefit in similar ways. And we’re fortunate therefore to compete in such a vibrant and dynamic industry. But for our model to work well, we must also drive value share and price realization in the marketplace, which we have done successfully over the last several years. In fact, we have outperformed the global industry and gained global value share for 30 consecutive quarters now. That strength ultimately comes down to three assets: Comes down to dynamic brands; it comes down to great marketing; and it comes down to superior execution across our entire system. We have the brands; we’ve got the people to romance those brands; and we have an unparalleled global system that touches the entire planet. And we will continue to strengthen our portfolio of brands and leverage our global distribution system to continue creating sustainable long-term share owner value. So, we announced a couple of weeks ago now, we added $3 billion brands back in 2014, Gold Peak; FUZE TEA; and I LOHAS. This brings our total number of $1 billion plus brands to 20 of which 14 are still brands now. Gold Peak, a premium team here in the United States benefited from very good -- great marketing, strong media and stepped up execution. Further, FUZE TEA now available in nearly 40 markets all around the world, reaching the status in less than three years, demonstrating the strength of our systems, both marketing and executional capabilities. And finally I LOHAS, our innovative premium water brand in Japan regained billion dollar brand status last year. And we have strength in each of our markets, not just at a global level. We have leadership positions in multiple categories in key markets, not just sparkling, enabling us to benefit from that multi-dimensional growth expected in our industry. And as I said before, we see tremendous value growth opportunity in both the sparkling and still categories. And we’re going in a very segmented fashion, investing based on the best opportunities in terms of the category and country mixes. It’s important to think about value growth in terms of both absolute as well as the rate of growth. For example, sparkling continues to be on an absolute basis the largest opportunity. To put it in perspective, just brand Coca-Cola. Its annual retail sales value is roughly equivalent to the global ready-to-drink tea category and the global energy category combined. And we continue to leverage key innovation platforms to expand consumption occasions, capture the opportunity with what we refer to as the rising billion. For example the Splash Bar is an innovative way of serving our products at affordable price in markets like India and soon it will be available in other similar markets. Hopefully you’ve had some of your -- all of you have had a chance to test out the Splash Bar during lunch yesterday. We continue to extend the footprint of our innovative Coca-Cola Freestyle fountain dispensers, both here in the United States and certain international markets. This innovative technology expands on our promise to deliver increased variety and choice and an exciting and engaging consumer experience. We also continue to leverage our participation across the range of consumption occasions. Just a few days before, at the CAGNY conference last year, we announced our global partnership with Keurig Green Mountain and later this year, we will be launching Coca-Cola and key brands in our portfolio in pods under the Keurig platform. A few months after Keurig closed, we shared our strategic announcement with Monster Beverages which is on track to close at the beginning of the second quarter. Both of these investments, partnerships will strengthen our position in fast growing categories. We also continued to expand our capabilities in the dairy category, particularly the premium dairy category with fairlife milk which was recently launched here in the United States coast to coast. So, underpinning our strong brand portfolio is the great marketing that has been and will continue to be at the heart of all we do; as we have tremendous assets with which to work, one of the greatest of which is this iconic model. In 2015, our timeless bottle is turning 100 years young and will make the most of this enduring and will make most of that enduring symbol of refreshment and happiness across the world. It’s a great reminder of the specialness of the product and the special unique experience of Coca-Cola. It also speaks to a beautiful design, innovation and sensory esthetics, elements that will continue to drive our business and brands forward for years and years to come. Now, I’d like to share a couple of ads that we will be showing as part of our activation and celebration of the centennial of the contour bottle. We run the ads please? [Video Presentation] I hope that’s made you a little bit thirstier this morning. These ads actually have tested very well and demonstrate our commitment to improving the quality of our ads. It’s about also a great example of how we’re thinking about the effectiveness of our marketing. These ads are going to be leveraged in marketing campaigns in more than a 100 markets around the world globally, enabling us to really scale that program. And finally, when it comes to great execution; if marketing is the engine of all we do, our unparalleled distribution system is the chassis. But we recognize that these are very different things; that’s why we are so focused getting back to our core capabilities of marketing innovation and franchise leadership. In North America, the refranchising process is well underway and we closed several transactions last year and led out a clear path and timeline to refranchise our remaining territories. We also took steps in 2014 to strengthen our system, bottling system in both, Africa and Indonesia, two very critical high growth markets. First, here in North America, we accelerated the refranchising process, moving about roughly 5% of company volume here to our bottling partners, will double that pace in 2015 and double it again in 2016. At the same time, we’re getting the process right and that is really critical servicing both, large national and local customers; modernizing our sales systems and warehouses, fleet infrastructure; and investing critically in common IT platforms. This is not easy but we’re moving and moving very rapidly. Just a couple of weeks ago, I was in Montgomery, Alabama and Pensacola, Florida with our friends from Coca-Cola United to see firsthand how these early transitions were progressing. Both territories have recently moved from Coca-Cola Refreshments to United and we also began the implementation of that critical Coke one IT system. And my takeaway is that the transition is moving along quickly and moving along effectively. Turning to Africa, we entered into an agreement to re-architect our African bottling system with the creation of the Coca-Cola Beverages Africa, will serve 12 southern and east African countries and will be a top-ten global bottler of our Coca-Cola system, once this transaction is closed. Importantly, Coca-Cola Beverages Africa will have the scale, will have the resources, will have the effectiveness and efficiencies to fund the investments required to capture the strong long-term growth potential in Africa. And this puts us in I believe a great position to capture the growth on this very dynamic young continent. In Indonesia, we announced a joint venture in Coca-Cola Amatil Indonesia that will help again support our systems to capture the long-term opportunity in this extremely attractive young emerging market. As the low per capita territory market and fourth most populated nation in the world, Indonesia represents boundless opportunities. The total market has more than actually tripled in the past decade, aided by a rapidly emerging middle class. The middle class is expected to double by 2020, adding in the neighborhood of an incremental 60 million people in urban Java as well as Sumatra and Bali. This will continue to fuel that growth that we’ve seen in the past decade for many decades to come. So, we combine the critical elements of our strategy, the right price/pack architecture supported by great marketing and clear executional alignment with our partners, the company grows and the system creates value. This approach and strategy has always stood the test of time and works well all over the world. We’re seeing this play out in North America where our incremental media investments coupled with our segmented price/pack strategies drove revenue growth in our sparkling portfolio through strong 4% price mix and coupled with that overall margin expansion in the second half of last year. And finally, no doubt, we have a lot of heavy lifting to do. And I know, this is not a task for the fainthearted. However, I also know that tomorrow morning when everybody here wakes up; 2 billion households all across the world are going to wake up thirsty. Over the course of tomorrow when they wake up, those 2 billion households, each household will consume about 26 servings of nonalcoholic beverages. Our brands will account for only about one of those 26 servings. So, it’s not just about growing our beverages, it’s about growing beverage occasions, incremental beverage occasions sustainably. The growth is there. We know we are positioned to capture it. And when we grow, we drive positive economic profit that will benefit our share owners in the short, medium and long-term. Now, I’d like to pass the floor over to our Chief Financial Officer, Kathy Waller to take you through the second part of our presentation.

Thank you Muhtar and good morning everyone. This past year was a challenging but critical year for our company. We made progress implementing our strategic initiatives which will continue to be an area of focus for us in 2015. Change is never easy but we are committed and confident that our actions will deliver results. Our company has a legacy of adapting and evolving to generate value for our shareholders. We are taking the necessary steps to transform our business while balancing short and long-term growth priorities. For the reasons Muhtar discussed, we are confident in our ability to deliver our mid-single-digit revenue target over the long-term. Our ability to element cost and redirect resources to value creating activities is critical to our success. At the end of the day, it’s not just about doing more with less, it’s about having a structured investment framework that ensures our resources are directed towards one clear objective, creating sustainable shareholder value. So, let me start with our productivity initiatives and efforts to streamline the business. In 2013, we developed the plan to fund up to $1 billion of increased media investments by 2016, which we communicated at the beginning of last year. As we moved further into 2014, we recognized it was unlikely that the macro environment would improve in certain key markets, so we worked to identify opportunities to expand the program. We used an iterative process of top down and bottom up reviews which led to an aggressive expansion of our program to $3 billion in annualized savings by 2019. This represents a significant reduction in our addressable spend base and we are on track against the plan. So, assessing the magnitude of the program, it’s probably easiest to think about targeted savings in addressable spend base in three primary buckets, cost of goods sold; operating expenses; and marketing. About half the targeted savings will come from cost of goods sold which represents about an 8% reduction in that spend base. But when you consider the input cost from our major commodities make up about half of our total cost of goods sold. The targeted savings is actually somewhere between 15% to 20% of that addressable spend. And furthermore, our consolidated gross margin is already north of 60%. So, we are aggressively identifying opportunities to drive inefficiencies out of the system. Moving to operating expenses, we are targeting 15% to 20% savings in non-bottler operating expenses and a mid-single-digit percent savings from operating expenses from our company-owned bottling operations. And we’re targeting $600 million in savings related to our marketing expenditures. Those targeted savings will primarily come from changes in our procurement standards and a focus on creating efficient and global campaigns. As I walk through a couple of examples to illustrate the progress that we’ve made and the lessons that we’ve learned, it’s important to remember that productivity is journey that we’ve been on for several years. And we’re continuously getting better at identifying opportunities and improving the process that allow us to realize those savings. After the acquisition of CCE’s North American operations, our initial focus was on unlocking synergies associated with procurement and sourcing activities to benefit from the scale of our combined operations. At the same time, we began to work to optimize our package architecture, based on consumer preference. Now, we are able to drill down further and focus on additional opportunities like in-line blowing for our PET bottles. To put this in perspective, we have approximately 90,000 truckloads of empty bottle freight each year. Needless to say, there is opportunity. Moving on to zero-based budgeting, we’ve completed the phase 1 of this work in North America and in our corporate centers. It’s a learning process but one that we’re committed to doing and doing well. It requires top down leadership and empowered program management office and discipline to see it through. The opportunities are large and small, and they come from all parts of our organization. They range from a decision to reprioritize all corporate projects to a decision to further leverage technology to reduce cost of internal meetings. We are kicking off the next phase of this work in the next couple of months. And towards the end of 2014, we began streamlining and simplifying our operating model. This process includes a reduction in headcount. We have eliminated a functional layer at the group level while simultaneously changing how we work by further standardizing process which will lower cost and lead to faster decision making. And this work is ahead of initial schedule. So, Muhtar talked about how we continuously evaluate growth opportunities by category and by market. We use a similar framework to drive disciplined investment decisions to maximize returns. We continue to make investments in entry level packages to help recruit new consumers and drive price realization. Our system remains focused on superior point of sale execution, including placing additional coolers in the market. Last year, we also made a sizeable step-up in our overall marketing expenditures, which increased mid-single-digits for the year including a double-digit increase in media investments. Media investments take time to reach their full respect, but when we fully fund our brands with high quality marketing, we see results. It’s still early days, but we are encouraged by some initial positive signs. Moving on to the importance of segmenting market roles and focusing core business. Our dynamic brands, great marketing and superior execution are the key components of our success in any market. We tailor our strategies to the individual market. In emerging markets, we generally place more emphasis on volume growth as we develop categories and gain scale across our system. In developing markets, we generally have a more balanced approach between volume and pricing due to our category position and the scale of our local business. And in developed markets, we have a greater focus on pricing and transaction growth. We are taking steps to further focus our business on revenue and profit growth by revising our incentive metrics to include revenue. This will provide line of sight between our employees and the metrics that they can best influence. Our proxy statement will be issued in the coming weeks and you will see the revised incentive metrics aligned to those segmented market roles. Moving to refranchising in North America, as Muhtar discussed earlier, we have a clear path and timeline to refranchise the business. As we reach the end state in North America, these actions will drive lower capital spending, lower invested capital, higher operating margins and higher returns on invested capital. Our business remains a remarkable cash business. Despite unprecedented foreign currency headwinds and a difficult macro environment, we continue to generate strong operating cash flows. In fact over the last three years, we generated nearly $32 billion in cash from operations. This is approximately $29 million of cash each and every day. And we’re sharing that cash with our share owners. We’ve increased our annual dividend for 53 consecutive years including an 8% dividend increase for 2015. In closing, we are confident in our long-term algorithm for all the reasons discussed this morning. The beverage industry will continue to be dynamic and vibrant with favorable demographic trends. We will continue to take decisive action to gain share and drive price realization by leveraging the power of our brand, great marketing and superior commercial execution of proxy system. There are a lot of positive things happening at The Coca-Cola Company. I know I speak for all of our associates when I say we are proud to be a part of it and we are excited about the future. It’s been great to be here with you this morning. And we are now ready for questions.

Good morning. Just wondering on the regulatory advisory body that has talked about how sugar labeling -- maybe there will be a minimum, maximum percentage of daily calories that should come from sugar for the first time on labels things like that. I know that you’re moving ahead of where regulation is now, to try to change your portfolio. But can you talk a little bit about what other actions you may be able to take to reduce sugar, be it publicly or just quietly taking down the amount of sugar in any of your beverages?

Well, you mentioned all the innovation that we’re putting out in terms of our enriching our portfolio with new products. Secondly, we have probably one of the most innovative collaborations, industry collaborations that is out there that we have in the United States. Clear commitments, what it’s done; what it is going to do in terms of reducing calories over the next period of roughly a decade, huge commitments in terms of how we see. And I think thirdly, the price/pack architecture that we have that if you look at what’s happening in terms of our packages all around the world, they are getting smaller; more people are enjoying our products through small packages. And that’s a good thing. That helps in every way, just multidimensional I think in terms of how it’s impacting positively the category and the business. So, I think overall, that’s how we see it. And you start getting early results, but when you compound double-digit growth in smaller packages over a number of years, this starts becoming really meaningful, meaningful in terms of both how you can impact calories, how you can entice a broader consumer group because essentially what you’re doing is you’re following a consumer and that really works. And that’s what we see around the world, not just in the United States but all across the world. And we do that through -- it’s not just as simple as saying okay, I’ll just change the package, it’s a lot of innovation because smaller PET until recently could not -- you couldn’t have more than a very short shelf life. And now we’ve passed that barrier and we’re improving shelf life to six, seven, eight months that works everywhere around the world in some very small PET packages and that’s all of that is being launched around the world. And I think that is very healthy and very positive. And it helps the top-line; it helps generate more price mix but as important if not more, it actually helps towards that goal that you just talked about. Judy? And I’ll come back to you. I think you have a question.

Thank you. So, if you think about the broader NARTD industry growth from 15% to 20%; you talked about the 5% expectation, I think within that sparkling has been lagging and the gap seems to be widening more recently. So, as you think about your priorities either accelerating really share gains within the sparkling category or meaningfully accelerating the growth within the stills and really making that portfolio shift, can you talk about how you balance those priorities and what you think you’re doing in terms of getting to either one or both of those…

Yes. What you just mentioned, actually I’d just like to say that from a value perspective, that doesn’t hold true. It actually has a very robust growth also, sparkling beverages, from a value perspective. So, I think we’re very much heartened by that. I mean one of the takeaways of 2014 is the consumers around the world are paying for sparkling beverages. And it’s about getting into that sweet spot and getting that balance right. And so, we see tremendous value growth, revenue growth opportunity in the world of sparkling beverages in the next 5 to 10 years. But at the same time, we see tremendous also growth opportunities in still beverages. And our portfolio is getting stronger; our brands in the still area are getting stronger, 14 of the 20 brands now are in still. And more importantly, it’s capturing the opportunity in premium still beverage brands. And when I look around the table here from tables, I know you may have -- because we’re presenting, you may have got our beverages, but I came here last night and I looked all around the tables last night and it was the same. So, it’s good. And I think we see opportunities in every respect for revenue, profitable revenue growth, driving profitable revenue growth across stills in the next five years and across sparkling at the same time. I don’t see that there is a risk between one and the other like mentioned. Volumetrically, as we implement, execute our strategies and when you go down in package size, there will be some impact on volumes. But I think look at the revenue number and judge how we are doing with that. And I think you’ll see…

If you look at the slide 14, that’s kind of what I was referring to. It’s a value growth like global NARTD value growth. And if you look at the industry growth and sparkling value growth, it does look like in the last couple of years, the gap’s widening a little. But I hear your point on the max.

Yes. And we don’t see that necessarily in the next five years, we don’t see that. We see a very good balance growth picture from a total nonalcoholic industry perspective, in terms of value. Over here, yes.

Muhtar, it looks like demand elasticity has come in much better than expected in the U.S. and Mexico post the large price increases over the last year. Could you talk about how that informs your decision in other developed markets around the world to take greater pricing going forward? And also does it apply at all to emerging markets, obviously to a lesser extent; or is it more kind of specific issues in those countries have driven the low demand elasticity you see?

Yes. I think it’s a number of things happening. I believe that incremental marketing, media coupled with the price/pack channel architecture that we’re putting into the marketplace is yielding results that we are content with in terms of how we see that playing out. Is there a more work to do? Absolutely yes. I don’t think it’s just as simple as a rate increase and seeing elasticity play out. It’s not that simple. It’s about the entire price/pack channel architecture; it’s about the effectiveness of marketing; it’s about the strength of the brands; and it’s about our learnings that we keep on learning about elasticity models and going to what Kathy said related to the three -- the deeper segmented strategy I think is really critically important here. And the way we’re rewiring our business from not just on geographical basis but also from an emerging and developing basis even from the perspective of marketing is begging to I think pan out. But it’s early days; we’re learning all the time. But it’s -- go ahead.

Let me remind you, in Mexico that impacted the entire industry, right. So, it was not just our product, it was the entire industry at the exact same price increase.

Thank you and good morning again Muhtar and Kathy, Tim. Europe, you described Europe as a particularly challenging market for you, some encouraging numbers out of there as we start in ‘15. But, can you speak specifically to how important a change in modeling structure in Europe is to you achieving your own aims in that portion of the world? And both from an ownership standpoint and kind of structure standpoint, how changes in that regard are important to your own objectives?

Yes, I think it’s not just the structure of the bottling system as the one of continuous evolution as we’ve witnessed over the last 10 years, 20 years and I think it will continue to evolve over the next 20 years. And I think the most important thing is, how do you fit it best to the consumer; how do you fit it best to the commercial and customer realities? And so that’s what we’re looking. From the perspective of where we are in Europe, I think as you’ve seen n the last year and half, two years how the Spanish bottling system has evolved, how the repair work that we have done Germany; Germany in the last three, four years has been the best performing European market for us from a western European perspective. And all of that I think plays into how we look at it into the future. And it’s not necessarily one where you have to say big is necessarily only solution, the most important thing is having the right alignment; having right structure; and having the right leadership. And I think what we have right now in Europe is working and we’ll continue to evolve it.

Can you speak to the role of ownership as an element in addressing your own ambitions? Because you’ve effectively said there is going to be ownership changes, and I appreciate you can’t announce an ownership change. But can you speak to how you’re thinking about the structure in the future versus how it looks today.

I can’t; it will play out based on what I’ve just said, follow the consumer; follow the commercial and follow the customer. And we’ll see how it best suites the various stakeholders. That’s all I can say. It will continue to evolve, the one thing that is for sure. And evolution in the right way is really critically important. And that’s why I’ve stressed so much that we’ve got to get the refranchising done in the right ways. Right way means you don’t lose momentum as you refranchise. So, imagine somebody running, you’ve got to make sure that as you drop that person on to the terrain, act [ph] that they continue to run that they don’t slow down. And that’s one thing certainly having the right systems to serve the customer properly, serve the consumer properly. That’s why once we have got it right in terms of those areas, IT; the customer facing parts, the production part, all of that is once this in place. And those are the hard things because it requires a lot of negotiation, discussion and agreement between parties. And once you have those, then you can move pretty rapidly. And I think that’s what we’re seeing in the United States today. And that’s why you’ve got to get it right. It’s the easiest thing. You ask how many -- who would like to expand, everybody raises their hand. It’s so easy to do it, if you just ask that question. But then four or five years later, they will ask another question, why did they do it that way? Brian?

Muhtar, question about Latin America, going into this year, especially Brazil and Argentina pretty difficult or volatile underlying environment on the ground, currencies aside, just what’s happening with the consumer there. So, if you can give us a little color in terms of what you’re seeing now there? And then also just as you went into this year in planning with your bottlers in those markets, have you done anything differently to ensure that you get the execution by hiding programs that you’re going to run because the perception is what happened maybe in Europe last year as the execution wasn’t there; programs were there where in Latin America where it may be volatile run through that same issue again. So, we can talk just about how you went through the planning process of Latin America this year and then some color just in terms of what’s happening now.

I think the planning process in Latin America started earlier this year than normal time, so it’s couple of months earlier across all the Latin America. And I think the one thing that happened in 2014 is that despite all the difficulties, investments did not slow down. And that’s really important. And so, investments in terms of coolers; in terms of feet on the street; in terms of distribution; in terms of cold drink, all of those actually continued their momentum. And so, I think that’s really important to know. And the second thing is that ramping up the media in terms of reallocation from our marketing budgets and the productivity, and so that’s also something that a lot of attention was paid to how that’s executed. And then, the macro conditions are what they are. Colombia continues to be the best performing Latin American market. Brazil just announced couple of days ago that growth rates they expect is going to be in the negative area for the first time since 2008. I think it will do a little bit better than that but I don’t -- it’s not a very vibrant PCE, personal consumption expenditure environment. But I think the strongest brand, the strongest system will continue to do better in Latin America and we continue to gain value share and volume share across Latin America. I’m cautiously looking at how these investments and how the planning; and it’s a very flexible kind of program that we have in Latin America and big programs around the counter execution. In the back. Yes, over there. And I’ll come to that side too because if you have any questions. Yes.

Thank you. Just an update a year into the Keurig partnership, just would be interested kind of your perspective of how you see it changing U.S. market in terms of kind of consumption over the next four, five years. And can I ask that if you’re wildly more enthusiastic about it, is there a plan in place or is the thought of how to integrate the bottlers into the economic distribution down the road becomes meaningful part of the U.S. business?

I think it’s broadly all about creating incremental, underline incremental consumption occasions. So, if you take -- the way I believe in the next 5 to 10 years, call it 10-year period, brands will be developed and new brands will be launched, existing brands will be developed in the nonalcoholic beverage industry in the United States and around the world is imagine a triangle. So, continue ready-to-drink, like launching new products, enhancing existing brands in ready-to-drink. The second is at home, that’s where carry comes. And I’m very encouraged by the opportunities that it holds in the future for us in terms of how we can move between ready-to-drink at home and work our way through. And the third is foodservice, technology at the foodservice. So, technology driven incremental occasions is how you need to think about that across the triangle. Technology allows us to do that at home; technology through Freestyle and its derivatives allows us to do that through foodservice and then ready-to-drink and then move rapidly inside that triangle. And that’s I think basically the game plan on how we see that. And then in terms of an angle again, it will evolve; there is not just a linear thing here. I hear it that’s going to go in into the marketplace but there is multiple other iterations of that I think the way you need to think about it, technology driven. Ali?

Thanks Muhtar. So, I’ve two questions on two of your key messages. The one first one goes back to I guess page 10. To keep quantify for us how you get from today’s growth rate through mid-single-digit long-term revenue growth rate between the industry growth, the share gains and the price realization? So, is it a third, a third, a third to close the gap or is it some other mix? That’s question one. And question two comes to the compelling chart you put up where out of 26 servings in a day, only 1.4 are Coke. Do you have the portfolio to close that gap to where you want to be, could you build it organically or you’re going to have to acquire to get into things like value added dairy and teas? So, two questions there.

Yes. I’d say on the first, if you look at the sort of latter half of the year, I’d say balance between first in terms of the revenue and the price side of the revenue, there is a pretty good balance between the rate and mix. So, that’s number one I think that we are seeing playing out. That will continue to play out pretty much that way, like to be little skewed to one side versus the other side, depending on the segmentation pretty good. And then the balance of that is the volume and how that builds over time. And so that’s I believe how it’s going to happen, volumes getting a little bit better and then the rate and the mix playing into that. And that’s how you go from the current levels to 1% or 2% higher. That’s what I believe is the way to think about that. And what was the other question?

So, building on this one, you broke it up in terms of industry; in terms of share gain; in terms of price realization to get your revenue growth. So those, if you can apply to those buckets what you just said, that would be helpful.

I don’t think it’s a one-third; one-third; one-third, it depends on the segmentation. It’s going to be skewed much more towards volume in the high -- in the emerging markets. And we’ve said that before. And it’s going to be skewed much more towards the other side in the developed markets.

And the second question, thanks for taking is around just your portfolio.

Yes. Portfolio, think about it, look at what’s happening in terms of some of the brands that we have acquired; where they’ve been built and look at those that have been built organically. And I think we believe we have that very rich portfolio that is getting -- continuing to get richer whether it’s in juice, juice drinks and now with Monster relationship with energy and the stills versus the sparkling. I think we continue to have in our stable many more brands that are probably between the sort of 500 to 1 billion level, not quite yet to the 1 billion level; we’ll continue to grow those. And I think we do have a very rich portfolio of brands across the world when you look at it. And it’s getting richer all the time. I think will we look at opportunities for any brands to be acquired; any businesses that we feel fit that strategy, yes. But look at our entry into dairy has been organic through a partnership in the United States. We’ve acquired some dairies in other parts of the world that we are growing. And I think it’s that kind of a mix; it’s not one or the other; it’s complementing each other. But we have proven time and time after again that we can create successfully organic brands that prosper like Gold Peak. And we’ve proven that we can build very small brands that we’ve acquired into $1 billion plus brands. And we have proven that we can enhance and grow our existing portfolio. One more question over there from right side. Yes.

Great, thank you. Your dividend increase this year is pretty hefty and attractive one given the macro outlook and what’s going on with currency. Could you talk a little bit about the thought process around that kind of a dividend increase as opposed to something perhaps a little bit less like some of the other companies here have done? And again, given the macro outlook and assuming continued strong dollar, how sustainable is an increase like that? Thank you.

Well, our capital structure is something that we focus on and think about all the time. And we are managing our -- that capital structure and we works with our Board of Directors and we feel very strongly about our dividend and we recommended the increase. We thought it was appropriate for the company for this year. Going forward, obviously cash flow is a matter of kind of business performance as well as currencies as well as what we need to reinvest in. So, we will always continue to look at that balance. And as a result, knowing how important a obviously dividend is to us and it’s 53d. So, that’s important to us as well. We’ll balance all of that and we will do what’s appropriate for our shareholders.

We need to stop the Q&A; we’re out of time. But we’ll be going to breakout room.

Muhtar, Kathy, Tim, thank you for spending time with us this morning. Thank you again for co-sponsoring lunch yesterday.