5th Sem BBM D

Submitted by:

Kiran Raj R 0911371

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[FINANCIAL STRATEGIES OF BEVERAGES INDUSTRY]

Financial Strategies of Beverages Industry

Financial Strategy of Hellenic

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Financial Strategies of Beverages Industry

Coca-Cola Hellenic was formed in 2000 as a result of the merger of the Athens-based Hellenic Bottling Company and the London-based Coca-Cola Beverages. Since then, their territory has expanded and currently extends from as far west as Galway, Ireland, to Petropavlovsk, the easternmost point of Russia. This breadth provides attractive growth opportunities and reduces their dependence on any particular market. In conducting operations across 28 countries, Coca-Cola Hellenic provides guidance, support and supervision to each operation while placing day-to-day management and operation in the hands of local employees with a deep familiarity of their own country, its business practices and community aspirations. Coca-Cola Hellenic is headquartered in Athens and currently listed on the Athens, New York and London stock exchanges. Their two major shareholders are the Kar-Tess Holding S.A., a private holding company, and The Coca-Cola Company. They produce, sell and distribute a wide range of non-alcoholic beverages. These include four of the worlds best selling brands, owned by The Coca-Cola Company: Coca-Cola, CocaCola Light (diet Coke), Fanta and Sprite. They produce, sell and distribute a wide range of non-alcoholic beverages In addition, our portfolio includes sparkling and still beverages, such as: iced tea juice and juice drinks natural mineral, table and flavored waters sports and energy drinks iced coffee

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Financial Strategies of Beverages Industry

Financial Strategies adopted by Coca-Cola Hellenic
Funding Strategy The Groups funding strategy in the debt capital markets is built around the following principles: to raise financing via our wholly owned Dutch financing subsidiary Coca-Cola HBC Finance B.V., except in the case of subsidiaries with joint control, or countries where certain legal or tax restrictions or advantages apply, in which case financing at lower levels in the organisation may be considered; to maintain our presence & profile in the international capital markets and where possible to broaden our investor base; to target specific investor segments through diversification of tenor and currency, although the euro is the most important funding currency of the Group; to maintain a well-balanced redemption profile, and to use our European Medium Term Note programme as well as our Global Commercial Paper programme as the main basis for our financing. Risk management policy The Group activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Groups financial performance. They regularly use derivative products like forwards, options, caps and collars but these are solely used for the purpose of hedging underlying exposures to foreign currency exchange rate risk and interest rate risk. None of these financial instruments are leveraged, used for trading purposes or taken as speculative positions. Credit risk Credit risk is controlled by a restrictive policy as to the choice of potential counter parties for treasury transactions. Companys credit risk is managed by establishing approved counterparty and country limits, detailing the maximum exposure that we are prepared to
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accept with respect to individual counterparties or countries. The limits are reviewed and monitored on a regular basis. Interest rate risk The Group is exposed to market risk arising from changing interest rates, primarily in the euro zone. Periodically we evaluate the desired mixture of fixed and floating rate liabilities and modify the interest payments based on the desired mixture of debt. We manage our interest rate costs using a combination of fixed and floating rate debt, interest rate swap and option cap agreements. Although we have no set target for the mixture of fixed to floating rate liabilities, historically we have been more exposed to floating rates as this has tended to act as a natural hedge against our overall business risk. Foreign exchange risk Given the Groups operating activities, they are exposed to a significant amount of foreign currency risk. Our foreign currency exposures arise from adverse changes in exchange rates between the euro, the US dollar and the currencies in our non-euro countries. Transaction exposures arise mainly from raw materials purchased in currencies such as the US dollar or euro which can lead to higher cost of sales in the functional currency of the country. Translation exposures arise as many of our operations have functional currencies other than euro, and any change in the functional currency against the euro impacts our consolidated income statement and balance sheet when results are translated into euro. Treasury policy requires the hedging of rolling 12-month forecasted transactional exposures within defined minimum (25%) and maximum (80%) coverage levels. Hedging beyond a 12month period may occur, subject to certain maximum coverage levels, provided the forecasted transactions are highly probable. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations. These contracts normally mature within one year. Liquidity risk The companys general policy is to retain a minimum amount of liquidity reserves in the
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the form of unused committed facilities, to ensure that they have cost-effective access to
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form of cash on their balance sheet while maintaining the balance of our liquidity reserves in

Financial Strategies of Beverages Industry

sufficient financial resources to meet our funding requirements. These include the day-to-day funding of their operations as well as the financing of our capital expenditure program. In order to mitigate the possibility of liquidity constraints, we endeavor to maintain a minimum of 250 million of financial headroom. Financial headroom refers to the excess committed financing available, after considering cash flows from operating activities, dividends, interest expense, tax expense, acquisitions and capital expenditure requirements.

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Financial Strategies of Beverages Industry

Financial Strategy of Coca Cola

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Financial Strategies of Beverages Industry

Coca Cola Company
The financial strategy of the company is adding value by allocating the funds in the activities and the projects that can generate the return increase of the share-owner value and the cost of capital. The major goal of the company is achieving the optimal capital structure that can provide the financial flexibility of the companys internal projects, appropriate priced acquisitions and the share repurchase. Its principal operating goal therefore is the increase of the long-term operating cash flow which can be profitable in the increases for its sales volume. The company has also the external factors for its capital that includes yet not limited to the bank borrowings, the issuance of private and public placement, and the issuance of the equity securities. The company also believes that the proper long-term resources can have the operating cash flows which are available in satisfying the maturities of the debt, income tax obligations, interest payments and the dividends payments for the share owners. The company has added to the availability of the equity market and it is the source of the longterm financing while registered in the debt securities to the Securities and Exchange Commission and under the shelf registration that can enable the company in issuing debt which is important in the amount that registered for the issuance. It had been recorded to have the $871 million of the shelf registration are remained to be unissued and can also be issued every time at the floating or fixed interest rate which was the selection of the company at the issuance of the time (Ibid). In the year 2007, the company had taken its first long-term debt for five years and borrowed $1.75 billion in helping to pay its recent purchase of the vitamin water maker Glaceau. This bond will replace the short-term debt commercial paper and taken from by the company while some of the proceeds of the bonds can be used to the general corporate purposes but unspecified. It maintains its level of debt and considers being base on prudence of the cash flow, percentage of the debt capital, and to the interest coverage. This had been use in lowering the entire cost of capital and to increase the capital of return in the equity of the shareowners. The long term debt of the company had been rated A+ which means that the capital structure and the financial policies of the company are considered. The issuance and the payments of the debt are included in the long term financing activities and recorded the $4,963 million in credits for the available facilities. The debt increase is primarily due to the
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acquisition of the 18 German bottling as well as the distribution of the operations.

Financial Strategies of Beverages Industry

Financial Strategy of Kingfisher

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Financial Strategies of Beverages Industry

Kingfisher
Beer is brewed in either the companys owned or non-owned Breweries, with certain Breweries set up for certain functions. This also reduces the cost and there is less treat of the suppliers. The company also has its franchise for the production of the beer. The best example is of the Taloja plant situated in Mumbai. The experience of Kingfisher brand since 1915 adds to the experience and efficiency of the firm. The in thing is also very clear from its balance sheet as the EBITDA of United Breweries is 2675.2 Millions which is 35.61% more than previous year (2007-2008). The owned plant also has reduced the switching cost of the suppliers of Kingfisher. Higher prices and short supply of key raw materials like malt, hops and barley can reduce the profit margin and affect operations. Barley and glass bottles constitute 12% and 40% of the total operating expense of UBL. Any price increase in these two commodities has a direct bearing in reducing the overall operating margin. Due to price increase of barley by over 33% and increase in bottling cost, during FY2008 the net profit margin fell by 26%. The 51% Equity stake in Maltex Malsters Limited, a manufacturer of malt, is also an initiative for vertical integration and excellence in inbound logistics.

In states like Uttar Pradesh, Rajasthan and Madhya Pradesh which, account for 80.34% of barley production in India, the area under cultivation is shifting to other crops like sugarcane. The barley production has declined by over 60% from 3135 KMT to 1220 KMT from 1975 to 2005. To hedge the risk on rising raw material prices, UBL has entered into long term arrangements for sourcing of the vital inputs. In addition it has extended its own contract farming initiatives in the state of Punjab.

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Financial Strategies of Beverages Industry

Financial Strategy of Nestle

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Financial Strategies of Beverages Industry

Nestle
We believe that to have long-term business success you must simultaneously create value for shareholders and for the public.

Nestle has indicated that the recession need not be all about cutting costs and keeping prices down, unveiling initiatives to tackle longer-term economic and social challenges, and create shareholder- and public-value. Even though Nestle said in February that it expects to see on-going growth in 2009, the depth of a recession may seem an odd place from which to launch new projects aimed at solving nutrition, water, and rural development issues around the globe. Peter Brabeck-Letmathe, chairman of Nestle, said: The financial crisis which has resulted in the current deep recession revealed once more a basic business axiom: if you fail to work on behalf of the public interest and rake shortcuts that place the public at risk, you will also fail your shareholders. The company said that long-term economic and social challenges cannot be solved by governments alone, and that companies must also take responsibility. Such issues include population growth, water resources and food security. The company claims that shared value for all involved in its manufacturing from farmers through to communities in which it operates has always been part of its strategy. However there is a major focus on sustainability in industry at the moment, as operators wake up to the need to secure a long-term future and demonstrate their responsibility to customers and shareholders. A Nestle forum that took place in New York this week, in cooperation with the United Nations, is setting for the launch of three specific new initiatives:

Nestle plans to extend its nutrition and physical activity education projects, under the Nestle Healthy Kids Global Programme, to more than 100 counties by 2011. The programme is double-pronged, aiming to help both malnutrition and rising obesity rates.
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Financial Strategies of Beverages Industry

Nestle is opening a new research and development centre in Abidjan, Cte dIvoire which it says shows its commitment to rural development in Africa. The centre will focus on productivity and safety in local crops, like manioc, corn, millet, coffee, cocoa, and cereals, and tree propagation.

The Nestle Prize in Creating Shared Value, to be awarded every two years to give financial support of up to CHF 500,000 to individuals, NGOs, or small enterprises offering innovative solutions to nutritional deficiencies, access to clean water, or rural development.

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Financial Strategies of Beverages Industry

Financial Strategy of Amul

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Financial Strategies of Beverages Industry

Amul
AMULs business strategy is driven by its twin objectives of Long-term, sustainable growth to its member farmers, and Value proposition to a large customer base by providing milk and other dairy products a low price. Its strategy, which evolved over time Simultaneous Development of Suppliers and Customers F r o m t h e v e r y e a r l y s t a g e s o f t h e f o r m a t i o n o f A M U L, t h e c o o p e r a t i v e realized that sustained growth for the long-term was contingent on matching supply and demand. Further, given the primitive state of the market and the suppliers of milk, their development in a synchronous manner was critical for the continued growth of the industry. The organization also recognized that in view of the poor infrastructure in India, such development could not be left to market forces and proactive interventions were required. Accordingly, AMUL and GCMMF adopted a number of strategies to assure such growth. A M U L a n d o t h e r cooperative Unions adopted a number of strategies to develop the supply of milk and assure steady growth.

F o r t h e s h o r t t e r m , t h e p r o c u r e m e n t p r i c e s w e r e s e t s o a s t o provide fair and reasonable return. A w a r e o f t h e l i q u i d i t y p r o b l e m s , c a s h p a ym e n t s f o r m i l k s u p p l y w a s m a d e w i t h m i n i m u m o f d e l a y. F o r t h e l o n g - t e r m , t h e Unions followed a multi-pronged strategy of education and support.

For example, only part of the surplus generated by the Unions is paid t o t h e me mb ers i n t h e f o r m o f d i v i d e n d s . A s u b s t a n t i a l p a r t o f t h i s surplus is used for activities that promote growth of milk supply and improve yields. These include provision of veterinary services, support for cold storage facilities at the village societies etc.

Cost Leadership

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Financial Strategies of Beverages Industry

AMULs objective of providing a value proposition to a large customer base led naturally to a choice of cost leadership position. Given the low purchasing power of the Indian consumer and the marginal discretionary spending power, the only viable option for AMUL was to price its products as low as possible. This in turn led to a focus on costs and had significant implications for managing its operations and supply chain practices. Managing Third Party Service Providers

Well before the ideas of core competence and the role of third parti es in managing the supply chain were recognized and became fashionable, these concepts were practiced by GCMMF and AMUL. From the beginning, it was recognized that the core activity for the Unions lay in processing of milk and production of dairy products. Accordingly, the Unions focused efforts on these activities and related technology development. AMULs finance strategy is driven primarily by its desire to be self-reliant and thus depend on internally generated resources for funding its growth . This choice was motivated by the relatively underdeveloped financial markets with limited access to funds, and the reluctance to depend on Government support and thus be obliged to cede control to bureaucracy. AMULs financial strategy may thus be characteriz ed by two elements: 1. Retention of surplus to fund growth and development, and 2. Limited/ no credit, i.e., all transactions are essentially cash only. For example, payment f o r m i l k p r o c u r e d b y v i l l a g e s o c i e t i e s i s i n c a s h a n d w i t h i n 1 2 h o u r s o f procurement (most, however, pay at the same time as the receipt of milk).Similarly, no dispatches of finished products are made without advance payment from distributors etc. This was particularly important, given the limited liquidity position of farmer/suppliers and the absence of banki ng facilities in rural India. This strategy strongly helped AMUL implement its own vision of growth and development. It is important to mention that many of the above approaches were at variance with industry practices of both domestic and MNC

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competitors of AMUL.