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Deliveringto the Consumer

31A

nnual Report �008

Swire Beverages operates nine Coca-Cola bottling plants in Mainland China. In �008, it sold over 600 million cases of soft drinks in seven provinces. In addition to Coca-Cola, best selling brands include Sprite, Nestea and Nescafé.

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The Beverages Division has the right to manufacture, market and distribute the products of

The Coca-Cola Company in Hong Kong, Taiwan, seven provinces in Mainland China and an

extensive area of the western USA.

Beverages Division

2008 �007 HK$M HK$M

Turnover 8,001 7,066 Operating profit 510 483 Share of post-tax profits from jointly controlled and associated companies 269 191 Attributable profit 585 507

Segment information Turnover Attributable Profit

2008 �007 2008 �007 HK$M HK$M HK$M HK$M

Hong Kong 1,799 1,69� 157 134 Taiwan 1,358 1,0�7 21 �7 USA 3,512 3,�94 256 �7� Mainland China* 1,332 1,053 169 113 Central costs – – (18 ) (39 )

Total 8,001 7,066 585 507

* Mainland China turnover is attributable mainly to the Fujian Coca-Cola franchise. All other interests in Mainland China are jointly controlled or associated companies, the total turnover of which in Mainland China (including sales between the interests) was HK$14,749 million (�007: HK$7,764 million).

�008 OVERVIEW

• Attributable profit reached HK$585 million, a 15%

increase over �007, principally reflecting a strong

performance from the Mainland China franchises.

• Overall sales volumes grew by 17% with Mainland China,

Taiwan and Hong Kong all showing solid growth in

difficult market conditions.

Hong Kong

2008 Results

• Attributable profit totalled HK$157 million, a 17%

increase over �007. In a market that declined 1%, overall

sales volumes grew by 5% with both existing brands and

line extensions contributing.

• Sparkling beverage sales volumes grew by �%, with Coca-

Cola remaining the leading brand in the sparkling market

and Coke Zero building on its launch in �007. New

Schweppes flavours were successfully launched in the

summer.

• Still beverage sales volumes (excluding water) grew by

11%, led by sustained growth in sales of Healthworks

(a health-focused drinks brand) and strong sales of

MinuteMaid orange and grapefruit juice drinks following a

re-launch in October.

• Sales of Bonaqua mineralised water continued to grow.

Bonaqua has become the market leader in the water

category.

• Price increases were constrained in a competitive market,

while raw material costs continued to rise for most of the

year. An improved sales mix reduced pressure on margins.

• Better weather in the second-half helped to offset some

early signs of weakness in consumer spending.

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nnual Report �008

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USA

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Sales volumes in million unit cases

Millionunit cases

Hong Kong

Mainland China

USA

Taiwan

Capital expenditure by operations

HK$M

Net assets employed at operationsTaiwan

2008 Results

• Attributable profit totalled HK$�1 million, a ��% decline

from �007. Sales volumes grew by �6%, principally

reflecting the successful mid-year re-launch of MinuteMaid

orange and grapefruit juice drinks.

• Sparkling beverage sales volumes grew by 11%, mainly

driven by Coca-Cola. Still beverage sales volumes

grew by 64% principally as a result of the re-launch of

MinuteMaid, which ended the year as the market leader

in juices.

• Raw material costs, especially sweeteners, rose

significantly and depressed margins.

• Pricing was constrained by the expansion of private label

brands and a contraction in the total beverages market.

• Restructuring costs of HK$10 million were incurred after a

detailed review of options designed to improve operational

efficiencies.

USA

2008 Results

• Attributable profits totalled HK$�56 million, a 6%

decline from �007. Overall sales volumes were steady, as

growth in still beverage sales offset weakness in sparkling

beverage sales.

• Sparkling beverage volumes declined by 1% despite strong

growth in sales of Coke Zero, as consumer preference

turned to still beverages.

• Still beverage (excluding Dasani water) sales volumes grew

by 16%, reflecting the introduction of Glacéau (a leading

vitamin-enhanced water brand) and a strong performance

by energy brands for much of the year.

• Water sales under the Dasani brand grew marginally.

The total market for packaged waters weakened in the

economic downturn.

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Shaanxi

Washington

Oregon Idaho

California

Nevada

Arizona

Utah

Wyoming

Colorado

Nebraska

Henan Jiangsu

Anhui

Zhejiang

Fujian

TaiwanGuangdong

Hong Kong

2008 Per Capita Consumption(8oz servings)

Bottling Plant

above 5026 to 5010 to 25

Shaanxi

Washington

Oregon Idaho

California

Nevada

Arizona

Utah

Wyoming

Colorado

Nebraska

SouthDakota

Henan Jiangsu

Anhui

Zhejiang

Fujian

TaiwanGuangdong

Hong Kong

2008 per capita consumption(8 oz servings)

Bottling plant

above 5026 to 5010 to 25

USAGreater China• Raw material costs and, for much of the year, fuel costs

increased substantially but margins were maintained by

improved pricing and a favourable product mix.

• Market conditions started to weaken in the first-half as

high fuel prices began to affect consumer discretionary

spending, especially in restaurants and convenience stores.

• The worsening US economy in the second-half led to

a further decline in market conditions, with consumers

starting to trade down from higher priced categories.

Mainland China

2008 Results

• Mainland China operations generated an attributable profit

of HK$169 million, a 50% increase over �007. Overall

sales volumes grew by �0% reflecting further expansion

of the distribution network and a continued focus on cold

drink availability through investment in coolers.

• Sparkling beverage sales volumes grew by 13%, with

Sprite maintaining its position as the market leader in this

category. Coke Zero was launched in selective markets

and generated encouraging early results.

• Still beverage sales volumes (excluding water) grew

by 38%, primarily reflecting 4�% growth in sales of

MinuteMaid and the successful launch of Yuan Ye, a

mainstream tea brand.

• Water sales grew by 34% as a new brand of mineralised

water, Ice Dew, was launched towards the end of the year.

• Margins remained under pressure from high material costs

and competitive constraints on pricing.

• Better weather helped the second-half results. Those

franchise provinces (Guangdong, Jiangsu, Fujian) most

exposed to the weakening of export-orientated industries

experienced some slowing of growth in the second

half, but this was partially offset by strong growth in less

developed provinces (Shaanxi, Henan, Anhui).

• The manufacture, sale and distribution of the Campbell’s

Soup Company’s range of Swanson’s soup broths

commenced in Guangdong province in late �007, and was

extended to the Shanghai market towards the end of �008.

Encouraging sales were reported and prospects for further

development are being explored.

• A 41% interest in Coca-Cola Bottlers Manufacturing

Holdings Limited was acquired during the year. This

company manufactures still beverages on behalf of all

Coca-Cola franchisee bottlers in Mainland China.

2009 Outlook

• Economic conditions will be challenging in all markets,

but especially so in the USA, where sales volumes are

expected to be under significant pressure in �009.

• The Mainland China market will face challenges but

continued growth is expected as distribution continues

to be expanded into less-developed rural regions. The

Hong Kong and Taiwan markets will continue to be very

competitive, but the successful re-launch of MinuteMaid in

both markets will be built upon in �009.

• The benefit of the recent reduction in the cost of

certain raw materials will not be felt until contractual

commitments extending into the second half of �009 have

been met.

Geoff L Cundle

Review of Operations – Beverages Division

35A

nnual Report �008

Shaanxi

Washington

Oregon Idaho

California

Nevada

Arizona

Utah

Wyoming

Colorado

Nebraska

Henan Jiangsu

Anhui

Zhejiang

Fujian

TaiwanGuangdong

Hong Kong

2008 Per Capita Consumption(8oz servings)

Bottling Plant

above 5026 to 5010 to 25

Shaanxi

Washington

Oregon Idaho

California

Nevada

Arizona

Utah

Wyoming

Colorado

Nebraska

SouthDakota

Henan Jiangsu

Anhui

Zhejiang

Fujian

TaiwanGuangdong

Hong Kong

2008 per capita consumption(8 oz servings)

Bottling plant

above 5026 to 5010 to 25

USAGreater China

GDP Per capita Population No. of per capita consumption (millions) employees (US$) (8 oz servings)

Mainland China Guangdong 65.6 4,�58 6,�89 64 Zhejiang 47.1 �,470 6,��� 69 Anhui 67.� 1,187 1,995 13 Jiangsu 55.3 �,469 3,744 40 Fujian 36.7 1,663 4,103 40 Shaanxi 38.4 1,01� �,440 �4 Henan 98.7 �,050 �,347 15Hong Kong 7.0 1,378 30,800 197Taiwan �3.0 965 16,848 60USA 6.1 1,781 41,04� 338

Coca-Cola Franchise Territories

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Sparkling Water

Still (excluding water)

Breakdown of total volumes by category

Breakdown of total volumes by package

Breakdown of total volumes by channel

TotalMainlandChina

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TotalMainlandChina

USATaiwanHKTotalMainlandChina

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Others

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Modern Trade Others

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