While 2005 saw important achievements across all the primary strategic objectives, it was also a challenging year as results were negatively affected by the softness of the CSD category, especially for sugared products, and by a difficult trade environment, characterized by retail pricing pressure and the growth of hard discounters.

We have completed a comprehensive planning and review process – jointly with The Coca-Cola Company – that enables us to better understand the changing marketplace dynamics and to vision, design, build, and implement a system plan to bring back long-term sustainable growth to our European operations.

Improving Service and Efficiency
Through this process, we have identified several factors that are vital to our success. In 2006, we will start to reverse the trends of our recent performance by focusing on five critical success factors:

• Re-fuel the growth of CSD core brands by accelerating category leadership for our diet/light portfolio and driving consumption frequency through high-value small pack innovation;

• Capture the opportunities in energy and sports drinks;

• Selectively capture profitable opportunities in health and wellness beverages;

• Improve home channel excellence in the new retail environment through our Pack-Price-Promotion strategy, system-integrated plans to maximize investment productivity, first class store execution, optimizing sales force costs, and customer management structures;

• Step-change profitable cold drink incidence, maximizing brand availability in high-value channels via acceleration of open front cooler placements and packaging diversification.

In addition to targeted, local reorganization programs to improve our effectiveness and efficiency, we will enhance Coca-Cola system operational capabilities to improve the speed of our decision making in response to changing consumer trends, to provide more effective resource allocation, and to create new operating efficiencies.

As we move forward with these enhanced strategies, we can build on some key accomplishments from 2005, including strong diet and light CSD growth, noncarbonated beverage growth of 10 percent as we introduced Minute Maid juices in France and Great Britain, and sports drink growth of more than 20 percent. We can also build on a heritage of strong customer service, as demonstrated by important customer awards last year in Great Britain and France from ASDA and Carrefour, and on success in controlling operating expense growth, which grew only 1 percent last year.

Our European operations are a strong and profitable franchise with long-term growth potential. Though structural challenges will persist into 2006, we will make significant progress in understanding and addressing these changing marketplace dynamics, and we have full confidence in our ability to create renewed, sustainable growth in Europe.

Shaun Higgins
Executive Vice President and
President, European Group