FPT UNIVERSITY

CLASS: IB1602

GROUP 3

INTERNATIONAL BUSINESS FINANCE

Lector: Tô Thị Thùy Dương

GROUP ASSIGNMENT REPORT

COCA-COLA CORPORATION
FINANCIAL ANALYSIS

GROUP MEMBERS

Nguyễn Thu An SS160051

Nguyễn Đức Vĩnh Khang SS160135
Hồ Gia Bảo SS160362
Trần Đình Nam SS160549
Nguyễn Quốc Huy SS160510

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 TABLE OF CONTENTS

GROUP ASSIGNMENT REPORT

I. INTRODUCTION
II. CORPORATE MANAGEMENT
1. Management of Coca-cola
2. Board of management
3. Remedies for the Agency Problem
3.1 Independent board of directors
3.2 Overseas stock listings
3.3 Concentrated ownership
III. COCA-COLA BUSINESS IN GENERAL AND IN EUROPEAN MARKET
1. Overview Coca-Cola multinational operation
2. Coca-Cola company geographic and non-geographic segmentation:
3. Coca-Cola’s in European Market
3.1 Net revenue in European Market
3.2. How EUR/USD Exchange rate fluctuations affect Coca-Cola company revenue
4. Coca-Cola investment in European Market
5. Conclusion
IV. HEDGING
1. Overview
2. Risk
3. Hedge
3.1 Hedging Transaction Exposure:
3.2 Hedging Economic Exposure
3.3 Hedging Translation Exposures
V. CONCLUSION:
VI. REFERENCES

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 I. INTRODUCTION
Dr. John Pemberton created the Coca-Cola Company in 1886. With billions of dollars in annual revenue,
the company has evolved into one of the world's greatest multinational corporations after 136 years of
development. Coca-Cola is one of Warren Buffet's best investments since the corporation always finds a
way to sail through all of the economic downturns and upheavals detrimental to the company. The world's
largest soft drink company, Coca-cola, has operations in over 200 countries and owns or licenses 400
nonalcoholic beverage brands. Because the company operates in over 200 countries, it has several
difficulties with operations and currency exchange rates across the ocean. We will look at how Coca-Cola
manages its managers in this report. We also look at the impact of exchange rates on Coca-cola’s business
and the company's steps to mitigate the negative consequences.

II. CORPORATE MANAGEMENT

1. Management of Coca-cola

Coca-Cola organizes itself using a decentralization and centralization approach. This means that the
corporation is separated into areas and geographical territories in which it works, yet the global
headquarters retains overarching decision-making authority. These geographical divisions are
subsequently divided into functional departments, which include the departments of Production, Industrial
Relations, Sales and Marketing, and Human Resources. And the financial part of Coca-Cola is outsourced

2. Board of management

Coca-Cola is governed by a single board of directors. It consists of both executive and independent
directors. The assessment will include consideration of the nominee's judgment, experience,
independence, knowledge of the Company or other related industries, and other factors at the start of the
election of the board of directors. As the Committee concludes, it is appropriate to the current needs of
the Board of Directors. The Board believes that various experiences, gender, race, ethnicity, and age
should be reflected in its membership. The Committee will choose competent nominees and present them
to the Council, which will decide whether or not to invite them to join the Council. The Director is elected
for a one-year term, according to the Articles. The Board of Directors believes that there should be no
limit on how many terms a Director can serve. Due to time constraints, the Board may be deprived of
experience and skills critical to the Board's optimal functioning. Directors who have served on the Board
for a long time can offer important insight into the Company's operations and prospects based on their
expertise and knowledge of its history and objections.

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3. Remedies for the Agency Problem

3.1 Independent board of directors

Because Coke owns an independent board of directors, Coke is not solely dependent on one CEO to make
critical decisions. As a result, Coke can easily change policy so as not to reduce shareholder returns
down.

Shareholder David Winters criticized Coca-Cola CEO Muhtar Kent's list for measures that devalued the
company's equity. In an eight-page letter headed "Coca Cola's Fuzzy Math: How Bad Performance,
Excessive Pay, and Weak Governance are Harming Shareholders," Winters lays out his case.

In 2010, CEO Muhtar Kent planned to overpay management and employees in stock and diluted
shareholders by 14% or $24 billion. Not stopping there, CEO Muhtar Kent's plan seems to cover up to $5
billion for 6,400 senior managers over the next five years. Coke's largest shareholder, Warren Buffett,
rejected the project in early March, and many shareholders also voted against or abstained. In October,
Coke revised its plan to incentivize managers primarily with cash rather than stock bonuses. Coke does
this to appease investors like Buffett, who don't want to see Coke stock get so heavily diluted. And
limiting equity award eligibility to 1,000 managers means the stock dilution will remain below 1%.

3.2 Overseas stock listings

One of the world's largest independent Coca-Cola bottlers, Coca-Cola Enterprises, Inc. (ticker symbol:
CCE), celebrated its Fast Path secondary offering on NYSE Euronext in Paris today. CCE was the first
NYSE-listed business to use this streamlined, cost-effective method in 2011, and the eleventh since
NYSE Euronext made the option accessible in 2008.

Coke is delighted to announce that they have been admitted to a premium listing on the London Stock
Exchange. This will help their shareholders through increased liquidity and their company through
improved access to foreign capital markets and a more extensive prospective investor base. It also
protects weak investors since the possibility of tax fraud for personal gain of the company is significantly
reduced due to the problematic policy.

3.3 Concentrated ownership

Warren Buffett added Coca-Cola stock to Berkshire Hathaway's portfolio during the 1987 stock market
crisis, buying shares for around $1 billion at a time when the price was low. It is usually kept to a
minimum. Buffett has maintained and strengthened his position since then. Berkshire now owns about
10% of its total outstanding shares, making it one of his most valuable investments and a steady dividend
payer. According to Buffett, Coca-Cola is a famous name and brand with a global reach. These are some
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of the reasons why, in early 1988, he invested $1 billion in the company. This transaction represented
around 6.2 percent of the total outstanding shares, putting Coca-Cola stock in the spotlight right away.
Among the stocks Buffett owns, this is at the top. KO shares sold for $2.45 per share on January 15, 1988.

Berkshire Hathaway had a book value of $4.9 billion in 1989, which meant Coke stock accounted for
more than 20% of Berkshire's net assets. Coke stock has increased by 1,750 percent since the end of
1988. Coca-Cola stock is now worth 17.4 times what it was when Warren Buffett made his famous
acquisition on March 26, 2018. When dividends are taken into account, shares sell for $42.70 each. Since
Buffett's initial investment, the stock has returned more than 11% each year. Buffett is still a passionate
Coca-Cola personal client, and its brand name is as powerful as it has ever been. Coca-Cola has over 20
different brands and generates over $1 billion in annual sales.

III. COCA-COLA BUSINESS IN GENERAL AND IN EUROPEAN

MARKET

1. Overview Coca-Cola multinational operation

Chart 1: CocaCola Revenue 2007-2021- Source Statista*

We can see that Coca-Cola has been through some ups and downs in the period ranging from 2009 to
2021. According to reports, Coca-Cola had experienced continuous growth from 1999s to 2012s. But
since 2012, the company has struggled to retain its revenue since juices, flavored waters, and other
healthier beverage options became increasingly popular. The company's revenue declined for a long time,
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with no intention of stopping until 2019. The year with the most remarkable drop in this period was
2016-2017, when sales fell 13.4% compared with 2015-2016. Coca-profit Cola's improved for the first
time in ten years in 2018-2019, with revenue rising from 34,300 in 2017-1018 to 37,266 in 2018-2019.
(an increase of 8.6 percent ). Then, in 2020, because of the global economic impact of the Corona
epidemic, revenue crashed. The coronavirus epidemic put pressure on the fountain industry in North
America and away-from-home channels in Western Europe, but growth in China, Brazil, and Nigeria
helped counteract this. Then, in 2021, Coca-company Cola's rebounded thanks to an outstanding
performance in the healthy beverage sector, which included juice, dairy, and plant-based beverages.

Chart 2: 2020 Unit Case volume by category- Source The Coca-Cola Company

This is a list of goods that contribute to Coca-sales. Even though consumer preferences have increasingly
evolved toward healthier products, Coca-Cola remains the company's most important product, accounting
for 55 percent of revenue. The remainder of the products falls into the area of health-related products. As
may be seen, these goods are used in large quantities. As a result, the firm's expansion of its sector
portfolios not only generates more money for the company but also gives it a competitive advantage in a
period when needs are changing, and more customers need to be satisfied.

2. Coca-Cola company geographic and non-geographic segmentation:

The Coca-Cola Factory creates revenue through four geographic segments: Asia Pacific, Europe, Middle
East & Africa (EMEA), Latin America, and North America, as well as their non-geographical segments:
Bottling Investments, Corporate, and Global Ventures.

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 Chart 3: Coca Cola Segmentation Revenue * Source M.Ridder Statista- March 7, 2022

a. Geographic segment
- Asia Pacific: This geographic segment accounts for 12.1% of the revenue of the Coca-Cola
Company. China and Mongolia account for the majority of revenue in this area. It also has
operations in India, Singapore, Pakistan, Japan, the South Pacific, South Korea, and Southwest
Asia, among other nations. Coca-Cola serves nearly 4 billion people across 32 markets in this
area. Coca-revenue Cola's from this area increased by 24% year over year in 2021 driven
by-products such Trademark Coca-Cola, effervescent flavors, nutrition, juice, dairy, and
plant-based beverages.
- Europe, Middle East & Africa (EMEA): This geographic segment accounts for 17% revenue of
the Coca-Cola Company. Coca-Cola has operations throughout the EMEA area, including the
United Kingdom, Germany, Italy, France, Switzerland, Bulgaria, Finland, Hungary, Saudi Arabia,
South Africa, Turkey, and the United Arab Emirates. Coca-Cola serves roughly 2.8 billion people
in this region through 130 markets. From $1.73 billion in Q1 2020, revenue from this area fell by
6% since the demand for Coca-hydration Cola's drink, sports drink, coffee, and tea declined,
resulting in a drop in revenue. On the other hand, Coca-Cola made $1.62 billion in the first quarter
of 2021, accounting for 18% of total sales in the EMEA area.
- Latin America: This geographic segment accounts for 10.7% revenue of the Coca-Cola Company.
Coca-Cola has operations in Latin American nations like Brazil, Chile, and Mexico. With over
650 million customers, the Latin America group consists of 39 markets, most of which are
developing and rising countries. In this region, Coca-Cola had a 2% drop in sales, from $930

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 million in Q1 2020 to $909 million in Q1 2021. The decline in income was mainly due to lower
unit case volume for sports drinks, coffee, tea, dairy, and plant-based beverages in Mexico and
Brazil.
- North America: This geographic segment accounts for 34.1% revenue of the Coca-Cola Company.
This is Coca-Cola's flagship market. North America offers finished products, juice, and restaurant
industries to over 370 million people. Coca-Cola made $2.94 billion in revenue in the first quarter
of 2021. This region's revenue increased by 3% year over year to $2.85 billion in Q1 2020.
b. Non- geographic Segments:
- Bottling Investment: Coca-Bottling Cola's Investments Group is a subsidiary committed to
investing in Coca-Cola bottling operations across the world. Coca-Cola makes the majority of its
money from "finished goods," including bottles and cans, which it distributes through its Bottling
Investments Group. It assists in the acceleration of growth in key markets, the provision of venture
capital, and the modification of structural or ownership tasks. It now works in 19 countries and
attempts to strike a balance in the system between franchise and company-owned bottlers.
Coca-Cola produced $1.9 billion in revenue from bottling investments in the first quarter of 2021,
accounting for 22 percent of total sales. Revenue from this category increased by 14% year over
year in Q1 2021, from $1.66 billion in Q1 2020.

Area Number of Bottling partners

Africa 20

ASEAN & South Pacific 9

Eurasia & Middle East 16

Europe 6

Greater China & Mongolia 4

India & Southwest Asia 15

Japan & South Korea 6

Latin America 36

North America 68

Table 1: Number of Coca Cola Bottling partners- Source The Coca Cola Company

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 - Corporate: Corporate is another part of Coca-operational Cola's structure, and it consists of two
parts: (1) a center focusing on strategic initiatives, governance, and policymaking, and (2) an
organization focused on streamlining and transactional standardization processes and giving
assistance to business units. Coca-Cola had a 45 percent year-over-year reduction in this category,
from $31 million in Q1 2020 to $17 million in Q1 2021.
- Global Ventures: In 2018, Coca-Cola decided to invest in several continents. Global Ventures was
created to ensure we properly connect and globally scale key acquisitions, investments, and
partnerships. Coca-Cola has the confidence to say that they had acquisitions in all parts of the
world. In 2021, Global Ventures Group, which operates Costa Coffee's retail operation, recorded a
27 percent increase in net revenues to $78 million in the fourth quarter, owing to Costa Coffee.

3. Coca-Cola’s in European Market

3.1 Net revenue in European Market

Chart 4: Coca cola's net USD sales in Europe from 2007 to 2021 (Source: companies market cap,
cocaep)

Accounting for nearly 17% of total sales of Coca worldwide, Coca in Europe, middle east & Africa is the
third-largest market is operating.
Overall, the revenue of this company tends to rise and fall erratically over the years from 2001 to 2020
and reach a peak in 2001 ($20.62 B).
According to Coca-Cola's latest financial reports, the company's current revenue in Europe is $10.6B. In
2019 the company made a revenue of $12.01 B, a decrease over the 2018 revenue of $13.11 B.

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 3.2. How EUR/USD Exchange rate fluctuations affect Coca-Cola company revenue

Chart 5: EUR/USD exchange rate- Source: European Central Bank/ EUROSYSTEM

a. Best and Worst Exchange rate of the year:

EUR/USD 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
American
term

Best 0.78 0.83 0.78 0.82 0.95 0.96 0.96 0.89 0.92 0.94 0.89
Jan Jul Mar Dec Mar Dec Jan Nov Sep Mar Nov

Worst 0.67 0.74 0.72 0.72 0.83 0.87 0.83 0.79 0.87 0.81 0.81
Apr Feb Dec Mar Jan May Sep Feb Jan Dec Jan

Table 2: Best and Worst Exchange rate of the year 2011-2021- Source Exchange rate UK

b. EUR/USD Exchange rate fluctuations in periods:

In general, the exchange rate between the US dollar and the US dollar moved and fluctuated a lot during
this time. However, the exchange rate between these two dongs is only about 0.1 EUR/USD by the end of
this 10-year tenure. We divide it into five segments according to the main trends in currency rate
fluctuations during the time.

● 2011-2014

The EUR/USD exchange rate is often low during this period. The lowest point was 1USD=0.67EUR in
April 2011, and the highest was 0.83 in June 2012.

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This low exchange rate benefits Coca-business Cola's in two ways:

- First, it makes Coca-goods Cola's in the European market cheaper, allowing it to compete more
effectively with domestic goods in Europe. For example, in the United States, a can of coke costs
$2; at an exchange rate of 0.83, it will cost 1.66 Euros. However, at a 0.67 exchange rate, a can of
Coke now costs only 1.34eur. Coca-sales Cola's in Europe will benefit from the exchange rate
reduction.
- Furthermore, Coca-Cola will receive more USD when converting earnings from EUR to USD due
to the low USD. For example, if Coca Cola Revenue in Europe is 2 Billion EUR, at an exchange
rate of 0.83, it will have $2.4 billion. However, at a 0.67 exchange rate, Coca-Cola will have $2.98
billion. Coca-revenue Cola's from the European market will benefit from the exchange rate
reduction.

However, Coca Cola European market financial statements show that Coca-Cola's sales dropped
dramatically during this period. This reduction completely went against the exchange rate's forecast. This
issue arises as a result of the European Union's decision to double the taxation on carbonated soft drinks
(even without sugar products such as Coke Lite, Coke Zero). This type of taxation raises the price of the
goods significantly, limiting client demand. Furthermore, it diminishes the profit earned by the company.
The new law has severely harmed coca-Cola.

However, the low exchange rate helped to alleviate Coca-loss in this market.

● 2015-2016

The US dollar exchange rate against the euro has been steadily rising since 2014, from 0.82 at the end of
2014 to 0.96 at the end of 2016. In 2016, the rate of expansion slowed. The year 2016 was marked by
continuous fluctuations in currency rates. However, the exchange rate never dropped too low or climbed
too high; it was merely fluctuating to a certain extent. And, towards the end of 2016, the exchange rate
soared to its highest point of the year and the highest rate of the EUR/USD exchange rate during 2011 and
2021.

Such a sharp increase in the exchange rate adversely affects Coca-Cola's business.

- The appreciation of the dollar against the euro will raise the price of Coca-Cola in the euro
market. The coca-competitive advantage over domestic products will be diminished as a result.
- Second, due to the strengthening of the currency, the revenue of the European market, when
merged with that of the parent firm in the United States, will be lower, reducing the overall
revenue reported by Coca-Cola.

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However, thanks to tax cuts, Coca-sales Cola's in the Eurozone have recovered. Coca-Cola receives
support from some European countries to sell products at a lower tax rate while not having the same
European incentives as in the past. This boosts Coca-revenue Cola's and mitigates the negative impact of
the exchange rate on the company's bottom line.

● 2017

The year 2017 was notable for the rapid depreciation of the dollar against the dollar during the span of the
year. In 2017, the dollar dropped from 0.96 at the start of the year to merely 0.83 at the end. According to
the dollar confinement period from 2011 to 2014, this could theoretically positively influence
Coca-operations in Europe. In reality, Coca-Cola's sales in the Euro market increased significantly during
this period. Increase 2.25 from 10.34 in 2016 to 15.59 in 2017. This is a good sign that Coca-Cola's
investments in this market since 2013 have started to pay off.

However, the total revenue of Coca-Cola dropped sharply during this period. This happens for several
reasons:

- An important reason is that customers in the American market were aware of the impact of sweet
and carbonated drinks on health. This went on for quite a while. PepsiCo's- Coca-Cola’s direct
competitor, revenue has remained stable because the company has shifted to producing many
healthy products such as bottled water, low-sugar, zero-calorie drinks. This affected Coca-Cola's
revenue as the company does not have a wide range of products.
- Furthermore, Coca-Cola has taken several steps this year that are likely to irritate investors.
Despite the clear benefits of the energy drink sector going popular, the choice not to acquire
Monster is a case in point. This angered many investors, and Coca-revenue Cola's plummeted as a
result.
● 2018-2019

The US dollar price against the euro rose again in 2018 and 2019, but not dramatically. This would
theoretically directly impact Coca-revenue Cola's in 2015-2016, resulting in a drop in revenue due to
increased selling prices and lower dollar translation. This year, Coca-Cola's total European sales fell 1.1
billion from 13.11 at the end of 2018 to 12.01 at the end of 2019.

However, this is not reflected in Coca-Cola’s total sales graph, as the business had an uptick in revenue
during this time after a steady decline from 2012 to 2018.

Clearly seen that Coca-revenue Cola's climbed over this period not even due to developments in the EUR
market, but rather in the North American market, particularly in China. Coca-Cola is putting a lot of
effort into expanding its business in China, particularly employee safety. Because the Chinese market is
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vast and promising, Coca-initiative Cola's is greatly lauded. Moreover, during the emergence of the
pandemic at the end of 2019, Coca-Cola concentrated on assisting the Chinese government in dealing
with the issue and company recovery and continuity.

● 2020

The dollar's exchange rate against the euro will decrease again in 2020. This should have helped
Coca-sales Cola's once again, but Coca-revenue Cola's was the absolute antithesis. Coca-sales Cola's is
declining due to the impact of the corona epidemic on the global economy, which has disrupted several
markets and reduced the company's global revenue.

4. Coca-Cola investment in European Market

Coca-Cola claims that it would never have grown into the global corporation it is today without the
European market. Europe has had more than half a century of peace, stability, and prosperity for the first
time in modern history. Coca-Cola benefits from a strong, prosperous Europe every day, thanks to its
bottling partners, distributors, and suppliers. Since the single market was established, businesses like
Coca-Cola have operated more efficiently across borders. Consumers have had access to a more excellent
range of goods at lower prices.

Chart 6: Market cap history of Coca-Cola European Partners from 2001 to 2022

* Source Global Ranking

Coca-parent Cola's business in the United States made one of the most famous investments in the
European market when it invested 1 billion euros in the French market for five years in a row starting in
2013.

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Coca-Cola has invested 350 million euros in five facilities in France since 2013 to equip one of them with
an "advanced aseptic bottling line." This is intended to address one of Coca-strategic Cola's issues:
sustainability. "A considerable percentage of recycled material will be put into bottles or cans, and plastic
will be replaced with cardboard for secondary packaging," according to the plan.

At the same time, Coca-Cola Company, the US's parent company, would invest 500 million euros in
France to "help the development of existing brands and the introduction of new products." This position is
responsible for promoting Coca-growth in this market. However, Coca-Cola owns more than half of the
carbonated soft drink industry in France. However, compared to other markets, sales in France are
significantly lower.

Because Coca-Cola sells its products in euros, investing in a euro-denominated market is very simple
because the corporation doesn't have to worry about exchange rates. However, we will still assume that
Coca-Cola decides to exchange money from USD to EUR to invest to see how the exchange rate will
affect this investment.

In general, the dollar's exchange rate against the euro is currently relatively low in 2013. As a result,
converting dollars to euros will cost the organization extra money. In March 2013, at a rate of 0.78
EUR/USD, getting 350 million EUR to invest would cost the corporation $448.7 million. With a 0.96
EUR/USD conversion rate, the company only needs to spend 364.6 million USD. As a result, investing in
France at a low EUR/USD exchange will be detrimental to the company. Investing in EUR during a time
when the exchange rate is high, and the USD is appreciating, on the other hand, is advantageous to the
company because it costs less USD.

5. Conclusion

According to the statistics, changes in the USD and EUR exchange rates have two opposing effects on the
Coca-Cola corporation.

- Sales impact (Coca-Cola is the recipient): The lower the dollar rate, the better in this case.
Because of the low dollar rate, goods selling prices in overseas markets will be cheaper, giving
enterprises a competitive advantage. Furthermore, a low exchange rate allows one foreign
currency to be swapped for more local currency, increasing the organization's total revenue.
- Impact on Investment (Coca-Cola is the one undertaking the investment): In this case, the greater
the dollar rate, the better. Because a high dollar exchange rate allows one dollar to be exchanged
for more foreign currencies, the corporation will be able to invest in overseas markets for less
money.

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In general, whether changes in exchange rates are beneficial to the company or not will be determined by
its policies and the direction of its cash flows over that time period. However, a vast multinational like
Coca-Cola may be able to temporarily alleviate the currency rate problem by utilizing other markets. The
loss in revenue is frequently caused by the company's operating policies rather than the exchange rate.
But exchange rate risks are worth considering while it directly affects company cash flow.

IV. HEDGING

1. Overview

Risk reduction has always been one of the essential parts of a company. Especially multinational
companies have to pay more attention to reducing risks caused by fluctuations in exchange rates globally.
A weakening of foreign currency against the US dollar affects the US dollar value of the Company's
foreign currency sales and earnings. It often causes the Company to appreciate internationally, potentially
reducing demand for the Company's foreign currency with the Company's products.
As a global company, Coca-Cola faces several market risks such as fluctuations in exchange rates,
commodity prices, interest rates that may affect the company, especially the operations financial
performance of the company. As a result, the Company regularly implements several major financial
derivatives to mitigate these risks and reduce market risk by hedging underlying economic risks.
However, the company does not take these derivatives for trading purposes. In addition, hedging
instruments are typically used up to 36 months in advance and will expire in a few months or less. The
level of financial market risk will be monitored using several objective measurement systems such as
sensitivity analysis.
At the beginning of 2021, the US dollar exchange rate to the euro is below 0.9, which means that one US
dollar will buy less than 90-euro cents by that time. This is down from the 2016 peak of 0.95 euros/dollar
but is still well above the pre-European Eurozone Crisis, which began in 2009 and is due to several
European countries having difficulty paying government debt.

2. Risk
Coca-Cola has facilities, factories, and sales branches in various countries and regions. Coca-Cola earns
revenue, pays expenses, owns assets, and incurs liabilities payable in countries that use currencies other
than the US dollar. Because consular financial statements are presented in U.S. dollars, Coca-Cola must
convert its revenues, income, expenses, assets, and liabilities into U.S. dollars at the applicable exchange
rate during or at the beginning of each reporting period. Therefore, an increase or decrease in the value of
the US dollar relative to other currencies will affect Coca-Cola's net operating revenue, operating income,
and the value of its original record entries currency. This shows that Coca-Cola faces three types of risks:
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transaction exposure, economic exposure, and translation exposure. As a result, Coca-Cola uses financial
derivatives to further reduce its exposure to foreign currency exchange rate fluctuations.

Chart 7: Revenue distribution share of the Coca Cola company worldwide in 2021, by operating
segment*Source Statista 2022

3. Hedge

3.1 Hedging transaction exposure:

a. Hedging against receivables in USD currency

● Forward market hedging
The Company maintains a foreign currency cash flow hedging program to reduce the risk that fluctuations
in foreign currency exchange rates will negatively impact the firm's US dollar net cash inflows from sales
outside the US and US dollar net cash outflows from procurement activities. To hedge certain portions of
forecasted cash flows denominated in foreign currencies, Coca-cola enters into forward contracts and
purchases foreign currency options (primarily in euros, British pounds sterling, and Japanese yen). When
the US dollar strengthens against foreign currencies, the decline in the present value of future foreign
currency cash flows is offset in part by gains in the fair value of derivative instruments. When the US
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dollar falls in value, the increase in the present value of future foreign currency cash flows is offset in part
by losses in the fair value of the derivative instruments. As of December 31, 2021, and 2020, the total
notional value of derivatives designated and qualified for the Company's foreign currency cash flow
hedging program was $7,399 million and $7,785 million, respectively.

● Options Market Hedging

Theoretically, Coca-Cola could buy foreign currency put options to protect itself against foreign currency
receivables. The most significant risk of receivables is foreign currency depreciation. Coca-Cola will
purchase put options if it doubts the currency's depreciation. If the foreign currency depreciates below the
option price, the corporation will exercise the put option. In addition, if the foreign currency appreciates,
the corporation will not exercise options because the company will lose money. Coca-Cola doesn't adopt
this method very often. This is primarily because the company works with reliable market trend analysis
partners and has several useful tools for forecasting exchange rates. As a result, the firm's forecasts are
frequently impartial and accurate. Therefore, the company will not use options to save costs.

b. Hedging against payables and investment in USD currency,

Coca-Cola will pay the currency in dollars when the dollar appreciates. The company can pay fewer
dollars, so there is no need for a forward contract. Conversely, if the dollar depreciates, it will be
necessary to reduce risk by forward contracts.
● Options Market Hedge
An investor does this by simultaneously purchasing a put option and selling (writing) a call option or
purchasing a call option and selling (writing) a put option. A swap agreement is a contract between two
parties in which cash flows are exchanged based on specified underlying notional amounts, assets, and
indices. We do not engage in the trading of derivative financial instruments. The company may also
designate specific non-derivative instruments in hedging relationships, such as our foreign
currency-denominated third-party debt.
The Company uses swap Contract Hedge Cross-currency swaps to hedge the cash flow changes caused by
changes in foreign currency exchange rates for certain foreign currency-denominated debt and other
monetary assets or liabilities. For this hedging program, the Company recognizes in earnings the changes
in carrying values of these foreign currency denominated assets and liabilities as a result of exchange rate
fluctuations. Changes in the fair value of cross-currency swap derivatives are recorded in AOCI, with an
immediate reclassification into earnings for changes in fair value due to fluctuations in foreign currency
exchange rates. The total notional values of derivatives designated as cash flow hedges for the Company’s
foreign currency denominated assets and liabilities were $1,994 million and $2,700 million as of
December 31, 2021, and 2020, respectively.

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3.2 Hedging economic exposure

Coca-Cola uses various derivatives as economic hedges of foreign currency, interest rate, and
commodity risk and derivative instruments that are specified and qualify for hedge accounting. In
Coca-consolidated Cola's statement of income, changes in the fair value of economic hedges used to
counter volatility in US dollar net cash flows are reflected in results in the line items net operating
revenues, cost of products sold, or other income (loss) — net. Coca-Cola additionally uses derivatives as
economic hedges to reduce the price risk associated with the acquisition of materials used in the
production process as well as vehicle fuel.
When the dollar depreciates, the cost of importing raw materials from abroad will increase. At that
time, Coca both did not want to spend more money and wanted to buy high-priced raw materials. They
can make a forward contract, importing that material at the current Spot Rate. For example, the current
exchange rate of the dollar and the euro is 1.3$/€, and Coca-Cola predicts that the rate will increase to
1.5$/€ within the next three months. Then they will make a forward contract to buy that material at the
rate of $ 1.3 / €. Doing so will help them buy raw materials at a lower price, keeping the original product
cost unchanged.

3.3 Hedging Translation Exposures

Translation risk happens when converting the balance sheets of several subsidiaries to the total balance
sheet in the parent company. The balance sheet will have a higher value if the low dollar exchange rate.
The balance sheet will have a lower value when converting foreign currencies if the dollar rate is high.
However, this is not a significant danger because it does not reflect the company's operating condition or
affect actual cash flows; it just affects the book's value. As a result, Coca-Cola decided not to adopt any
hedging strategies to mitigate this risk.

V. CONCLUSION:
Overall, Coca-Cola may be a beneficial firm that provides consistent financial gain through dividends and
a few diversifications to current portfolios due to its low risk compared to the US stocks market. Operate
in a highly established business, but there are numerous prospects for cola if it is ready to invest in
extensive research and development and expand its product offering to new developing regions. It must
also keep an eye out for new legislation, as governments worldwide have declared war on fat, with
alcohol being the primary perpetrator.
Coca-Cola is vulnerable to the risk of altering currency exchange rates. Changes in exchange rates can
impact contract settlement, cash flows, and corporate valuation. Coca-Cola always has the analysis
department, the best approaches to exposure, seeing the tremendous impact if those risks are not managed
correctly. That is one of the reasons Coca-cola has grown so large.

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