Inside Matters the Pepsi Bottling Group, Inc
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2004 ANNUAL REPORT Inside Matters The Pepsi Bottling Group, Inc. is the world’s largest manufacturer, seller and distributor of carbonated and non-carbonated Pepsi-Cola beverages. Outside 2004 Facts about PBG U.S. the U.S. Total Number of Plants: 46 50 96 Number of Distribution Centers: 254 267 521 Number of Employees: 31,700 33,000 64,700 Percentage of Volume: 61% 39% 100% U.S. / Canada Brand Mix Trademark Pepsi Trademark Mountain Dew Aquafina Other PepsiCo brands Dr Pepper Sierra Mist Other Non-PepsiCo brands Lipton SoBe Tropicana Frappuccino Europe Brand Mix Trademark Pepsi Other PepsiCo brands KAS Aqua Minerale Other Non-PepsiCo brands 7 UP IVI Fruko Mexico Brand Mix Electropura Trademark Pepsi Manzanita Sol Mirinda Squirt 7 UP Other PepsiCo brands Garci Crespo Other Non-PepsiCo brands Financial Highlights $ in millions, except per share data 2004 2003 2002 Chairman’s Letter Net Revenues $10,906 $10,265 $9,216 Page 2 Pro Forma Net Revenues1 $10,906 $10,265 $8,926 PBG / U.S. and Canada Operating Income $976 $ 956 $ 898 $ in millions Page 4 Diluted$800 EPS $ 1.73 $ 1.50 $ 1.46 Pro Forma Diluted EPS2 $ 1.73 $ 1.56 $ 1.46 PBG / Mexico $700 Net Cash Provided by Operations $ 1,251 $ 1,084 $1,014 Page 8 Capital$600 Expenditures $ (717) $ (644) $ (623) PBG / Europe Net$500 Cash Provided by Operations, $534 Page 10 less Capital Expenditures $ 534 $ 440 $ 391 $400 $440 Board of Directors 1 Fiscal year 2002 has been adjusted to reflect$391 the adoption of Emerging Issues Task Force (EITF) Issue Page 12 No.$300 02-16. For reconciliation of Pro Forma Net Revenues, see page 42. 2 Fiscal year 2003 Diluted EPS of $1.50 was adjusted by adding $0.04 for the impact of a Canadian tax Financial Review law$200 change and $0.02 for the cumulative effect of change in accounting principle (impact of adoption of EITF 02-16). For additional information on the impact of EITF 02-16, see page 42. For additional information Page 13 on$100 the Canadian tax law change, see page 52. 2004 Pro Forma Diluted EPS growth versus the prior year was 11%, which is mentioned in the Chairman’s Letter. $0 2002 2003 2004 Pro Forma Diluted Earnings Per Share $2.50 $2.00 $1.73 $1.50 $1.56 $1.46 $1.00 $0.50 $0 2002 2003 2004 Net Cash From Operations, less Capital Expenditures Cumulative Average Growth Rate 17% $ in millions $800 $700 $600 $500 $534 $400 $440 $391 $300 $200 $100 $0 2002 2003 2004 1 Chairman’s Letter Dear Fellow Shareholders, • On a constant territory* basis, both New packages also provided new ways While these marketplace conditions were We invested in capacity by building our • We manage our revenue with U.S. and worldwide volume were up to meet consumer needs. In the U.S. and difficult, we did not lose sight of our focus: first new plant in more than a decade, a discipline – understanding the levers In this year’s annual report, I invite 2 percent in physical cases. Canada, we launched the eight-ounce continuing to execute our programs with 330,000 square foot state-of-the-art facility we control and the dynamics of each you inside our business to meet three can multi-pack to appeal to drinkers excellence and securing pricing and mak- in Virginia. PBG market. outstanding PBG leaders – Eric Foss, • Net revenue per case growth was up who prefer smaller portions; expanded ing the right investments for future growth. one of the most dynamic executives in 3 percent, both in the U.S. and worldwide. the rollout of the Fridgemate package, And we continued to grow through • We choose the best employees to join the beverage industry, whose ability to designed to do what its name implies – acquisitions, adding four businesses in the our team. People who share our values, design clear objectives and inspire our • Total topline growth was 6 percent, the allow better access to refrigerated Investing in Growth and Capability U.S., Canada and Mexico to PBG’s our work ethic and our sense of urgency. employees to take action is a huge most balanced we’ve achieved in any year beverages – and in Mexico, Russia operations. Eric, Rogelio and Yiannis set the pace. advantage for us in the U.S. and Canada; since our Initial Public Offering in 1999. and Greece, we introduced new plastic Selling excellence training for our sales We have a strong bench behind them Rogelio Rebolledo, whose broad back- bottles that have been a hit with con- force continued to be an area of invest- running our operations in the 67 markets ground in understanding consumer sumers.The contoured shape of these ment for the third consecutive year. Building the Future where we do business. And then, there needs and business dynamics in different Growing the Topline packages makes them easier to grip and More than 5,000 frontline employees are are the thousands of frontline employees countries and environments is making a pour, important attributes in marketplaces now certified in PBG’s selling methods, We expect our share of challenges in who are PBG’s face to the customer. difference in our newest acquisition of Once again, consumer demand for variety where multi-serve PET packages are bringing a level of consistency to every 2005. But, we’re prepared – with realistic What’s inside them is what matters most Mexico; and Yiannis Petrides, whose and value drove our initiatives. Innovation the biggest volume drivers. sales call and allowing us to be very plans, targeted investments in both the of all.Their accomplishments are the knowledge of his markets, great decision- played a starring role in our progress. In responsive to our customers.This training, marketplace and our people, and the single biggest reason we’ve come so far. making capability and sensitivity to the U.S., we began the year with the very Across our markets, consumer value is which has worked so well in our U.S. flexibility to respond to whatever con- Their executional excellence and desire customer issues have driven huge progress successful launch of Tropicana juice drinks, central to our strategy.We tailor our operations, has become a best practice sumer, customer or competitive dynamics to win make us sure that we are capable in our European business.You’ll get a carving out a solid second place in this brands and packages to consumer wants and is moving to other geographies, take place. PBG’s next frontier is to take of so much more. sense of what motivates them and how category in less than a year.We continued and needs.Then we focus on ensuring that such as Russia, which has adopted the our already strong customer service to they lead their teams to success. to pulse “in and out” products into the our beverages are available in the places curriculum and customized it to address new heights.We plan to do this with market, including a reappearance of where consumers shop, eat and work … local selling situations. initiatives designed to enhance our cus- You’ll also see that at PBG, what’s inside Mountain Dew Live Wire and the intro- and always at attractive price points. tomer relationships and our performance. matters. Quality products. Disciplined ductions of Mountain Dew Pitch Black We’ve continued our focus on diversity, Our work has been driven by our revenue management. Strong financial and Pepsi Holiday Spice. In Canada, with emphasis on providing the right customers, who have explained their controls. Excellence in everything we Tropicana Twister was big news and Managing Cost Pressures products, promotions and service for our biggest challenges and what they need to do. And the best people in the industry – moved to the top of the category. multicultural markets.We’re also strength- succeed going forward.We intend to in leadership positions and at the front Our topline growth was impressive in ening our workforce by attracting, ensure their needs are met.We want to line. All this adds up to what matters In Mexico, we introduced Pepsi Twist with 2004, but external dynamics had a signifi- developing and retaining employees be their supplier of choice, today and in to you – results. lime and line extensions of two of our cant impact on our ability to translate it whose varying viewpoints and life the future. powerhouse flavor brands, Mirinda and to bottom line results.The rate of inflation experiences bring richness to our work Manzanita Sol.We relaunched our bottled on key raw materials used to make our environment and business perspective. At PBG, what matters to us is what’s The Numbers – 2004 water under a new brand name, EPura. products had been relatively stable for We’re pleased that Diversity Inc. magazine inside. Inside our products. Inside our Redesigned to appeal to our target almost a decade. In 2004, all of that acknowledged our progress in both of plans. And most of all, inside our people. • Diluted earnings per share were $1.73 audience of young, health-conscious changed. Global supply and demand these areas by including us in their 2004 All of it adds up to our formula for for the full year, an 11 percent increase. consumers, the product posted impressive for sweeteners, aluminum used in can list of Top Companies for Diversity. success: volume growth of more than 20 percent production and the resin used to make We’re proud of this recognition, but know • Return on invested capital increased in the fourth quarter after its introduction.