Reading an Annual Report - Part 2

Yesterday, I wrote the first part of how to read an annual report. When I originally had this idea, I thought that it might be 3 - 4 posts. Now that I'm on page 2 of a 175 page document, I'm thinking that I might have underestimated that.

Never mind that, we are off now. Let's dive in to Coca Cola's annual report and more specifically, the Products & Brands section of the document. There is a lot of content here, and it is fascinating, but a dissection of this could be 2 - 3 posts in itself. I'll pull out what I think is important and hopefully provide some ways to think about asking better questions in your accounts.

The Products & Brands section is exactly that. It is a more detailed overview of the business and what the company sells and, in the case of Coca Cola's bottling business, how they sell & distribute their products.

If you've ever worked with the oil / gas industry, you know to incorporate the words upstream, midstream, and downstream in to your conversations. If you're going to work with Coca Cola, you have to understand the terms that they use and start speaking their language.

Once you're through the definitions, there is an explanation about how each of those businesses make money and a high level overview of margins. How can you help here? Distribution? Better bottling? Less costly syrups? Better communications to partners? As you read this, start thinking about how you can help.

More definitions and brands. Speak their language. Don't fake it or lie, but at least learn the business.

This next part is interesting...

In addition to the beverage brands we own, we also provide marketing support and otherwise participate in the sales of other nonalcoholic beverage brands through licenses, joint ventures and strategic partnerships, including, but not limited to, the following:

If you're trying to get in to Coca Cola, and believe that you have a good story for them, you might also have a good story for some of their partners. Again, this is global in nature, but you've got a listing for two key partners right here. Pick up the phone and call them. At a minimum, maybe they tell you how Coca Cola could be a better partner.

The next section is all about Coca Cola's Distribution System. I don't see kids playing with UPS or FedEx trucks. Coca Cola trucks are iconic. They sold 29 billion cases of product and had to get that in the hands of people all over the world. Their distribution system is awesome.

How can you help with that?

There is another list of global partners that you should call up. These are Coca Cola branded, but are independent companies. These 5-companies are 40% of the business. It might be worth a call.

The next section is Bottle Agreements. What I get out of this section is a.) more internal language about Coca Cola that I can use to start to be more educated about their business, and an action item to find out who these independent bottlers are. Maybe there is an opportunity there and maybe it is just a conversation to know the industry better. Who knows. Call them.

Promotions & Marketing Programs. Oh, this is interesting. On top of all of the marketing money that they spend, Coca Cola spent $4.3B helping their bottling partners with marketing and promotion. That is a lot of do, re, mi. In my industry, I'm thinking about what that goes to, who gets that money, how do they measure the success, who manages the spend, what is the approval process?

Bottling Investments. There isn't anything too material here for this report, but they do buy whole or stake interest in bottling partners from time to time. Might be good to talk about the integration points there, how they make that decision, what are the challenges, etc.

And finally, Seasonality. Shocking, people drink most soda and water in the summer. A quick search of Coca Cola Quarterly Revenue shows this trend. This probably impacts budget a little bit, depending on the size / scope of your deal. Keep this in mind.

Tomorrow, I'll review Competition down to Available Information before getting in to Part 1A - Risk Factors, which is where the money is.