Mondelez International Inc (MDLZ) — Q4 2018 Earnings Call Transcript

Thank you. Good afternoon and thanks for joining us. With me today are Dirk Van de Put, our Chairman and CEO, and Luca Zaramella, our CFO. Earlier today, we sent out our press release and presentation slides, which are available on our website mondelezinternational.com/investors. During this call, we will make forward-looking statements about the company’s performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K and 10-Q filings for more details on our forward-looking statements. Some of today’s prepared remarks include non-GAAP financial measures. Today, we will be referencing our non-GAAP financial measures unless otherwise noted. You can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. In today’s call, Dirk will give you an overview of our results as well as progress against our strategic priorities; then Luca will take you through the financials and our 2019 outlook. We will close with Q&A. And with that, I will now turn the call over to Dirk.

Thank you, Shep, and good afternoon. Last September at our Investor Day, I shared with you our long-term strategy to refocus the company on sustainable top-line growth, which we saw as a natural evolution from our more cost and margin-oriented strategy over the last 5 years. This new strategy leverages our unique differences from other food companies, which are our strong global presence, our iconic brands, and our leaner supply model. But above all, what really sets us apart in today’s difficult food environment is our unique position as a global snacking leader. Because we are in snacking, we are not in general food; we are also all over the world, not just in North America, and we have global and local brands that have a unique place in consumers' minds. As such, we are a truly global company, operating in attractive, large and growing markets. In those markets, we have a strong manufacturing distribution and marketing network. This means, for instance, that our scale and strong presence in emerging markets is an asset and a competitive advantage. As an example, in the fourth quarter, our emerging markets grew at 6.5% and around 6% for the full year. More than 40% of this was volume mix driven, indicating that consumers around the world consume more on-the-go snacks and treats. We connect with consumers in those markets through a portfolio of powerful global brands as well as local items. And in each market, we also strive to be the industry leader in understanding consumers to advance insights and analytical capabilities. During the last 5 years, we have gone through a significant restructuring and a cost-focused approach, which has created a solid foundation for investment. The strengths of our company are amplified through our unique group of people who have an incredible capability to really make a difference when they put their minds to it. Witness to that has been our margin improvement over the last 5 years. 2018 was my first full year as CEO; I joined in November 2017, and today, I feel good about what we have achieved in that short term. In the first half of 2018, we developed a new strategy that we think will make a difference. In the second half, we started to execute against that strategy, and that has translated into good results and momentum going into 2019. So, we are pretty excited about our future. This new strategy creates more growth by focusing on three pillars. First, is a new more consumer-centric marketing and sales; second, an obsession with operational excellence to optimize our demand fulfillment, but also to drive efficiency and lower our costs; and third, there is a step change in our corporate culture from short-term cost focus to a purpose-driven long-term growth focus. The combination of these three levels of growth creation will lead to what is an attractive long-term financial algorithm: 3% plus organic net revenue growth, high single-digit adjusted EPS growth, dividend growth that exceeds adjusted EPS growth, and over $3 billion of yearly free cash flow. Now, in switching to the highlights of the year, I would characterize 2018 as a strong year for Mondelez. We met or exceeded our financial and strategic commitments. We accelerated our top-line growth with a good balance between volume mix and price. Our execution in emerging markets drove 6% growth. Our local brands are showing improvements as we balance investment with our global brands. We expanded adjusted gross profit dollars in Q4 by approximately 5% on a constant currency basis. This was due to solid productivity, volume leverage, and a good balance of pricing net of costs. We also delivered another year of double-digit adjusted EPS growth, which brings our 5-year average to 18% per year. Our focus on turning profit into cash flow and returning capital to shareholders also paid off. 2018 was a year of strong free cash flow, generating $2.9 billion of cash and returning more than $3 billion to investors. We continued our commitment to our impact strategy and announced all our packaging will be recyclable by 2025. I believe this strong 2018 financial performance is just a first indication of what is the potential of this company. Now, maybe a few words on our progress against that new strategy I was talking about before. As 2018 came to a strong close, I am pleased to see that many of the elements of our new approach are being put in place. So, let me take you may be through a few highlights. 2019 will be the first full year of increased investment in our growth agenda. But as we saw good momentum as Q4 progressed, we made additional investments in advertising and consumer promotion as well as go-to-market. To give you a few examples, we put incremental investments behind areas like chocolate in India, which grew double digits, biscuits in China, where we saw mid single-digit growth, chocolate and biscuits in Russia, which increased double digits for the year, biscuits and chocolates in Germany with low single-digit overall country growth for the year, or chocolates in the UK, which posted low single-digit growth. Oreo in the U.S. posted a high single-digit increase for the year, or we invested in our recent Mexico Oreo chocolate launch, which has received very positive feedback from our customers. We have also further invested in our research, development, and quality capabilities. In Q4, we opened a new R&D technical center in India to drive innovation in chocolate and beverages. We also expanded our state-of-the-art facility in Wroclaw, Poland, with further investment in gum and candy research capabilities. The creation of the SnackFutures innovation hub will help us explore future trends and opportunities. We are also pleased with our recent acquisition of the Tate's Premium Cookies business, which delivered another quarter of strong double-digit growth. As a second big step in accelerating our consumer-centric growth, we launched our new marketing playbook, which drives shifts in several areas of our commercial approach. While in the past we focused mostly on our global brands, in our new strategy, we are achieving a better balance between investment in global brands like Oreo, Milka, and belVita and local jewels like Fontaneda in Spain or LU in France; Freia, Marabou in the Nordics; Kinh Do in Vietnam. The combination of those two is generating stronger growth than focus on global brands alone. All combined, our brands drove overall organic net revenue growth of 2.5% for the quarter. In our second strategic pillar, which is all about driving operational excellence, we also started to show good progress, particularly as it relates to excellence in our sales channels. To give you some recent examples, we have launched initiatives to drive e-commerce excellence with key partners in China, where online sales were up strong double digits and overall growth in China was mid single-digits. In India, we are making significant enhancements to our sales and route to market excellence, where we also grew double digits. We are making similar shifts to tap into the significant opportunities in other emerging markets such as Africa, Southeast Asia, Russia, and Mexico, where our investments are accelerating growth. As you know, in recent quarters we have put particular focus on our North American supply chain performance, where we are aiming to significantly improve its operational excellence. Q4 was a good quarter where our gradual improvement continued in the right direction. An important enabler of our future growth is our third pillar of building a winning growth culture. At the start of 2019, we implemented a new, more locally oriented commercial structure with 13 business units within our existing regional framework. This shift reduces our complexity, improves our speed, and encourages more entrepreneurial approaches to marketing, sales, and product development. We are encouraging our colleagues to test, learn, and scale, which means we are implementing a faster, more cost-effective, and locally driven approach to innovation. We are also changing our incentive structure to drive better overall alignment with our key financial metrics of volume and revenue growth, gross profit progression, and solid translation into earnings and cash flow. There is also a stronger direct link to local performance versus overall global performance. Another important change here is that we are refocusing the organization on volume and absolute profit dollar growth. We are also making sure that the quality of the financial results is taken into account into our incentives. To further enhance this new consumer-oriented but also performance-based culture, we launched the new purpose of the company, 'empower people to snack right.' We believe this will lead to higher engagement as well as new ideas on how we will fulfill our vision of being the best and biggest snacking company. One of the expressions of our new purpose is to make sure we offer the consumer the right snack made the right way. For example, in this quarter, we added Brazil to the Cocoa Life program, which is our signature sustainability approach in chocolates. We also announced the commitment to make all our packaging around the world recyclable by 2025. So in summary, I find that 2018 was a strong year for us, which has created good momentum in the business as we head into 2019. We are building on this momentum by increasing our investment behind key initiatives. This includes continuing to invest in our brands and portfolio to capture opportunities in broader snacking as well as driving further growth through innovation. We are also focusing our investment in higher growth geographies and under-indexed channels. We will amplify this growth by continuing to work on improving execution across our business. I am also very excited by the energy that our new growth-focused culture is creating across the organization. Our tangible progress and the proof points I see around the world of how we are accelerating sustainable growth underscore my belief and confidence that we are in the right segment with the right footprint and the right portfolio. Snacking is an attractive and growing global trend, and we are well-positioned to continue to lead the industry. Let me now turn to Luca for more detail on our Q4 and full year performance.

Thank you, Dirk, and good afternoon. It was a good quarter and a good year as we delivered on all our key financial metrics for both periods, especially as it relates to organic top-line growth, earnings growth, and free cash flow generation. We are also pleased with the quality of the delivery throughout the year. We generated broad-based growth with a good balance of volume and pricing. Gross profit on a constant currency basis grew more than revenue in both Q4 and the full year. In Q4, we also started accelerating some investments to further support our brands. So, we feel good about the momentum we had coming into 2019 as our teams executed well and made progress towards our strategic roadmap. Net revenue increased 2.4% for the full year and 2.5% for the fourth quarter. Our strong emerging market footprint propelled our growth for the year, delivering an increase of nearly 6% with clear trends in Russia, India, China, Southeast Asia, Mexico, and Africa. In fact, Brazil was the only notable emerging market where results were soft. Excluding Argentina, emerging markets grew 4.5%. On a regional basis and for the full year, Europe continues to execute well as it delivered net revenue growth of 2.5%. Consistent with recent years, this growth was volume-driven and broad-based with solid increases across biscuits, chocolate, and candy. Russia posted double-digit revenue growth behind share gains in both biscuits and chocolates, while Germany delivered another solid year of growth. Our chocobakery business continues to demonstrate the power of test and learn innovation and excellent execution, turning in high single-digit growth for the year and approaching $600 million in annual sales. We are pleased with our capabilities in this region and encouraged regarding the opportunities that remain in front of us. AMEA grew 3.5% and is accelerating with strength coming from several key markets. India delivered double-digit growth powered by great execution, robust market dynamics, share gains, and innovation in chocolate and biscuit. China posted its sixth consecutive quarter of growth, increasing mid single-digits behind continued momentum and share gains in biscuits and gum. Southeast Asia also turned in robust growth propelled by demand for biscuit and chocolate, including a strong mooncake season in Q4. We are also pleased with the progress we are making in Africa. Latin America grew 3.6%, impacted by inflation-driven growth in Argentina. However, we delivered another good year in Mexico, posting mid single-digit growth as our gum and candy business executed well. We also delivered growth in the Western Andean cluster. Brazil declined low single-digits primarily due to competitive dynamics in our powdered beverage business. Earlier in the year, the business was also impacted by a national strike. However, we delivered positive results in our Brazilian biscuits business, which grew mid single-digits behind strengths in Club Social and Oreo, and although down for the year, the chocolate business finished on a positive note, with low single-digit growth in Q4 and share gains. North America grew approximately 0.5% for the year. U.S. biscuits continued to see good momentum with low single-digit growth and share gains driven by brands like Oreo. We are proud that the team delivered material progress for the quarter. That said, there is still work to be done to drive improved levels of consistency, and we continue to expect progress in 2019, albeit not linear. Now, let’s review our profit performance. In 2018, gross profit dollars grew by approximately 4% on a constant currency basis and ahead of revenue. Gains were driven by continued productivity, volume leverage, and pricing. We look to build on this progress over the long-term. Gross profit growth was partially offset by additional investment, driving adjusted operating income dollar expansion of more than 6% on a constant currency basis. This translated into an operating income margin of 16.7%, up 60 basis points. In Q4, consistent with our long-term strategy, we invested additional dollars in growth initiatives, including point-of-sales and holiday season activations in Europe and Asia, advertising and consumer promotions investments in Europe and Mexico chocolate, and investments in China and Russia biscuit to sustain and accelerate momentum. Additionally, we spent in some R&D and marketing areas. On a regional basis, gross margin expansion and cost execution drove margin improvement. Europe grew 60 basis points to 19.6%. North America was flat at 20.3% as higher conversion costs in U.S. factories and customer service and logistics cost limited expansion. Latin America increased by 90 basis points to 16.4%, and AMEA improved by 140 basis points to 14.4%. I will now briefly cover category highlights. Our three snacking categories continue to demonstrate solid growth as they have all year, growing at 2.7%. This is the strongest they have been in 3 years, and we remain encouraged by the underlying trends and untapped opportunities. Overall, we held or gained share in 60% of our business. Year-to-date, biscuits grew 2.8%. Approximately 80% of our revenue grew or held share in this category, including our U.S., France, China, Germany, and Russia businesses. In chocolate, our business grew 3.5%. Approximately 40% of our revenue grew or held share, including Germany, Russia, China, and India. The percent of businesses growing or holding shares was 50% in Q4 and is further improving in the latest period. Gum and candy growth was slightly positive, reflecting modestly improved results in developed markets. About 40% of our revenue in this business gained or held share, including strength in China gum and solid U.S. candy performance. Now, turning to earnings per share, as is mentioned, 2018 was another year of strong adjusted EPS growth, increasing 15% on a constant currency basis. These results were driven primarily by strong operating gains, share repurchases, and effective taxes, with our joint venture investments also performing well. I will now move on to our free cash flow results. For the year, we executed with excellence and delivered $2.9 billion of free cash flow, which was consistent with our outlook and a great outcome despite currency headwinds. This performance was driven by better net income conversion due to strong working capital management. As I mentioned at our Investor Day, this is a critical focus area for me, my team, and the entire company. Turning to capital return, 2018 also marked another year of significant return of capital to our shareholders. We returned $3.4 billion in total as we repurchased $2 billion in stock and paid $1.4 billion in dividends. This includes an 18% increase to our cash dividends in Q3 as we continue to target dividend growth in excess of earnings. Now, let me provide some details around our outlook for 2019, which remains consistent with what we provided at our Investor Day last fall. I would like to remind you that this is an important year of investment as we continue to focus on accelerating volume-driven revenue growth for the long-term. For the top line, we expect organic net revenue growth of 2% to 3%. With respect to earnings, we expect adjusted earnings per share growth of 3% to 5%, which reflects a step up in investment levels in advertising and consumer promotion, sales, R&D, and quality. These investments will reinforce a growth cycle, which we expect to lead to high single-digit earnings growth over the long-term. Our outlook for the free cash flow is approximately $2.8 billion consistent with our results in 2018. Recall, this outlook includes additional cash tax impact resulting from U.S. tax reform. In this outlook, we also expect our 2019 adjusted effective tax rate to be in the low 20s and expect interest expense to be approximately $450 million, reflecting the increasing rate environment. 2019 is an important year for Mondelez International. It will mark the first full year of our new approach to investing behind our strategic growth initiatives. Our new approach will set the stage for our long-term growth algorithm of 3% plus organic net revenue growth with a ramp-up in the outer years. High single-digit adjusted EPS, dividends greater than adjusted earnings, and free cash flow of more than $3 billion. With that, let’s open the line for questions.

Good afternoon, everybody.

Hi, Andrew.

Hi, Andrew.

Hi, two questions from me if I could. I will start with, Dirk, you have been in the CEO seat for just over a year now and recently detailed the company’s strategy and growth algorithm along with a new organizational structure to support it. I am trying to get a sense of how you are feeling about the company’s momentum heading into this year? And I ask with particular interest in terms of organic sales trends because you have got incremental pricing that you have announced, incremental investments that we saw in both 4Q and then expect it again throughout this year. I guess if anything it would seem like the organic sales growth target for this year perhaps could end up as a bit conservative. And I wanted to get your perspective on that? And then I have a quick follow-up.

Okay, okay. So well, I would say a few reflections on how I feel after about a year and 3 months in the job. Probably the most important for me was to deliver 2018, and I think we over-delivered on what we said we would do. The quality, I think, was good. If I think about it, we accelerated our net revenue growth, which was volume-driven, and you said that we also had some good price discipline. We continued to focus on our costs, and so we had good gross profit growth and ROI and EPS growth was solid as well as free cash flow generation. On top, we were able to start reinvesting in Q4 to sustain the accelerated growth. So I feel good about all that. Second, as you pointed out, we developed our new strategy and financial algorithm for the company, which creates growth on three levels: more demand creation through a new approach to sales and marketing, more demand fulfillment through better execution, and then new ideas and innovation through a different mindset or a different culture in the company. There are a number of big shifts in the company. One is about the balance between top and bottom line, not just focused on the bottom line. Dollars over percentage focus, speed over perfection, and a stronger focus on volume and market share, and it’s giving us momentum, as you said. So that confirms my observation that we have good potential, because snacking categories are doing well; they have been probably the best in the last 3 years in ‘18. We have got good margin expansion and we have good competitive levels that allow us to unlock investment and shift our focus to volume growth, and we can generate substantial free cash flow. So yes, of course, that makes you think you are stronger than you were a few years back. Why are you guiding towards the 2%, 3% top line growth? Yes, we have momentum in emerging markets, and if I think about 2018 and the mix of the pluses and the minuses that we had, overall, we probably had a few more pluses. As you remember, the main driver of it was that we are lapping the malware year of 2017. So 2019 is a year that we need to, even if we guide toward that 2%, 3%, we need to step up our growth and we need to solidify our progress. If I would look at today and reflect about 2019, probably the mix of risks and opportunities raises it a little bit more toward risk—I’m talking largely macroeconomics, Brexit, some of the commodity things we are seeing. So we also are stepping up, and we are probably will point that out our investments we are doing it largely so that 2020 will be the year that we are starting to see some good growth. So we feel that 2019 outlook is appropriate, but we are clearly entering the year with a bit of good momentum.

Great, I’ll leave it there. Thanks very much.

Hi, good evening.

Hi, Chris.

Hi, I had a question for you have had a pretty strong sustainable growth in your categories over the past few years and including in 2018 it seems like that category growth rates continue and I think it was up 2.7% for your snacking categories. Is that what you would expect for 2019 as well?

Yes, yes, that’s in our long-term strategic plan. We estimated that we will be circling around the 3% growth, and we are at this stage, we will not see that 2.7% has been sort of consistent throughout 2018, what we were saying, and we are not seeing an immediate change for that and going into 2019 so yes, we reconfirm that.

Okay. And then as you look at your margin performance in 2019, I know there is a much more-heavier focus on reinvestment and accelerating revenue growth so you have cost savings coming through from simplified to grow and then I suspect you’re going to have some more, is it mostly SG&A investments so could we see a stronger gross margin performance? And then maybe some of that given back, if you will, in the form of SG&A investments when it comes to A&C and route-to-market that kind of thing is that the way to think about the investment levels in 2019?

So, Chris, I think, look, as we said many times, we are trying to create a little bit of a cultural shift in the company and moving away from simple percentages. The clear commitment we have is to drive gross profit growth and operating income growth and EPS growth. As you think about that in the past, by guiding to gross margin percentages and operating income percentages, we left on the table we believe some opportunities we gave you in the past a couple of examples, namely around channels and incrementality we see there, or for that matter, also local brands. I think we have what it takes to generate incrementality there and to deliver good return on investment. Make no mistake when we say that we are focusing on dollar growth it doesn’t mean that we will live outside productivity or the restructuring program that we announced at the Investor Day. The continuation of the current program, or for that matter, things that we have done quite well like zero-based budgeting and MBS over the last few years. So, I think, as you think about the quality of the P&L in 2019, if you take out the additional investments we have, that are, as we said, in advertising and consumer promotion, but also in route-to-market or in quality or in R&D and marketing, I think if you take those out, the shape and the quality of the P&L is very consistent with what we did in 2018.

Okay, that’s very helpful. Thanks for that color.

Hi, good afternoon, everyone.

Hi, Bryan.

Hi, Bryan.

Just I guess, just two questions for me one, just in the fourth quarter the margins in North America were pretty good and, I guess, I just wanted to understand, since it sounds like there were some reinvestment there, was there anything else there that was sort of unusual or flowed through in North America, I guess, or was it just the pricing, the PNOC that helped? I’m just trying to understand the margin performance in North America in the fourth quarter.

The margin was good as you say in North America. I think, as you think about it, we did make improvements in reliability of the supply chain and the logistics network. As we stabilize the situation a bit in terms of service levels, we were able to deliver efficiencies that in the other part of the year we were not. I think you also saw that there was a little bit of pricing favorability above and beyond the average of the year; there were some phasing, quite frankly, in there. So I think as you think about pricing, it was round about the number you have to keep in mind is the number that you see for the year, which was round about 1%. But I think in stepping back and looking into it, quite pleased in North America with the continued momentum we’ve seen in biscuits. There are still some challenges in categories like gum, but in general, the margin that came through in Q4 was good news for us, and that’s something the team that did a nice job by stabilizing the situation in the supply chain.

And then, I guess, as a follow-up to that, as we’re thinking about if service levels are improving in North America and hopefully continue to improve some in 2019, are you going to be able to—how are you thinking about the balance between investing and spending in North America and then actually being able to service the programs? Do you feel like you’ve you’re maybe not spending as much or doing as much as you might ordinarily want to if you had full confidence in the ability to service it?

The outlook we have in place at the moment clearly has investments in North America. Now, having said that, there are still things that we need to look into. As we said in the last call, we implemented pricing, and we are about to see the effect in the marketplace, so we need to stay flexible there and see how to best balance investments with pricing. We also want to be clear that while we believe we are making good progress and we’ve seen growth coming through, there is still work to be done in North America. So in general terms, I would say we will invest more behind categories like biscuits or categories like candy, and even in gum. But the reality is we need to take an inventory of where we stand at the end of Q1 in terms of pricing and supply chain, and then I think we need to adjust as the case.

Okay, great. I will leave it there. Thank you.

Thank you.

Thank you.

Hi, thank you very much.

Good morning, Ken.

Hi, Ken.

Hi, guys. The primary pushback again on your stock is valuation and specifically on EBITDA, and I think I talked to investors. Many of them understand that the value of your joint ventures needs to be added back, but plenty, at least not at first glance, seem to get that. So, to me, this issue is increasing, right? Investors are weighing EBITDA more heavily because debt levels have risen higher. So, I guess, my question is this: if your thesis is correct that investors are sort of punishing companies like Mondelez for relying on unconsolidated operations, does that make you rethink the value of your joint ventures to your stock price, or is that not really a way for you to factor that?

Look, I think we can clearly debate if we are overvalued or undervalued. I believe when I step back and I look at the opportunities we have as a company and the quality of the results that we delivered in 2018, I feel quite good about the long-term guidance that we gave. As a leading snacking company, the ability to generate sustainably volume-driven growth results in revenue of 3%, high-single digit EPS growth, and cash flow of $3 billion plus, I think it is something that is quite compelling. My reply to your specific question is, look, the JVs clearly don’t roll up into our EBITDA; they are around about 10% of our EPS. I believe that clearly it was a great investment, and I believe there is still upside potential. So I think they are still undervalued. But the premise of Mondelez, I think, tangibly looking back at 2018 and handing us delivering in the face of all the forex headwinds that we had, a cash flow that was $2.9 billion with a conversion of net income that was excluding the JVs for which we don’t get much dividend, 130%. I think that should reassure investors that we have what it takes to win. Again, the premise of us being in emerging markets, seeing emerging markets growing 6% for the year, and more than 6% for Q4, 40% of that growth being volume-driven. I mean, I can tell you we are quite pleased. And I think as you think about the valuation, think about what our potential is as a leading snacking company in emerging markets or, for that matter, globally, so that will be my reply.

Okay, thank you for that. And then a quick follow-up, at the end of your prepared remarks you reiterated your desire to grow dividends ahead of EPS growth. Can you elaborate on why this is the right decision? It feels to me—we just talked about, I think, investors are increasingly sensitive to debt, your company that’s also increasingly emphasizing growth and that requires reinvestment. It just may be feels to me like raising your dividend above earnings isn’t the ideal strategy, but I’m just curious to hear the rationale behind the take there.

I think it is the confidence we have in the overall capital structure of the company. If you step back and if you think about the ability we have to generate free cash flow and our commitment that materialized in 2018 of $3 billion-plus from 2020 on, if you think about the balance sheet flexibility we have at our current leverage, but also with the fact that we were fairly clear, the coffee stake is an investment for us and it is not strategic, that gives us flexibility. So if you put the ability we have to generate cash, if you take into account the leverage that we have today, the coffee stake that we have, even in premise of M&A, I think we have what it takes to be able to have the flexibility to do share buybacks, to get dividends, and also to make M&A. So I think you can update one piece; you have to look at all of this together. All the elements are there pointing in the direction that there is confidence in being able to raise dividends. The last time we did it was 18%, so we feel good about that.

Thank you.

Good afternoon, everyone.

Hi, Alexia.

Hi. So just a quick question, the emerging market growth, ex-Argentina being in the 4% to 5%, two things a little lackluster I’m just trying to understand how much of that was Brazilian gum, and what’s the prognosis there? It sounds as though Brazil was down low-single digits and some of the categories were positive, but the gum business must have been in quite some trouble, so maybe some commentary there. And then just as a follow-up, some of the household products companies have complained local competition in places like China have slowed them down quite a bit. What are you seeing out there in China relative to your local competitors? Do you think that’s relevant to you, and is that something that you’re worried about in terms of getting the emerging markets growing again? Thank you, and I’ll pass it on.

Okay. Well, on Brazil, yes, Brazil was, of the emerging markets, probably the one that didn’t perform as we would have hoped in 2018. But we feel that over the medium term, the growth prospects for Brazil are quite good. It wasn’t really because of gum that 2018 was more difficult for us; it was really driven by two things: there was a bit of a price scuffle, I would say, in the chocolate category, which we are getting through. We see at the moment we see good volume growth in chocolate in Brazil; we addressed the price gaps, and we started to gain share in the last quarter. In biscuits, we were largely flat as it relates to share, so it was really on top of the chocolate issue; it was the powdered beverages, which in Brazil we are seeing a colder summer, so a slowdown in Q4, and we are expecting the same in Q1 of our powdered beverages sales. On top, overall, the powdered beverage category is doing a little bit less than cold drinks in general, and then us within that category losing some market share. So that was the real driver for Brazil. As it relates to China, we obviously, like everybody else, have the local competition, but we are pretty happy with our performance in China. We had another solid quarter, which is the sixth consecutive quarter of growth for us in China. All of our categories are growing. In gum, we are increasing our market share quite considerably because we launched a new product called Stride Waves, which is the same as the Trident Vibes here in the U.S. In chocolate, we launched our Milka Magic Cup, and there also we have about 0.5 point of market share gains. In biscuits, where we have the most local competition, we have been really doing well, with more than 1 point gain of our market share combined between online and offline. We have got some pretty heavy growth going on in our e-commerce business in China, which is up almost 80% for the year. So overall, yes, there is competition, but at this stage, we feel like we are doing quite well in China.

Great, thank you very much. I will pass it on.

Okay.

Hi, two quick questions. You mentioned advertising and consumer investment in the quarter. I don’t know if I heard you quantify how much advertising and consumer was up year-over-year. Can you give us a sense of what it was in the quarter and then the overall year? I’m sorry for the overall year, how much of it was up? And then, secondly, pricing down a lot in Europe. My impression is that, especially in the UK, that a lot of pricing needs to go higher to offset higher input costs, and then, of course, the Brexit situation might make that accentuate that. Do you have a contingency plan if there is a hard Brexit this year? Thanks.

Thank you, Robert. So, maybe Dirk will take the Brexit. I will start by commenting a bit on your advertising and consumer question and pricing. As we said, we activated more investments in Q4, but we are not going to quantify by the way, it was advertising and consumer, and as we saw good momentum in India chocolate, in China biscuits and gum, in Russia chocolate and biscuits, we gained in Russia alone more than 2 points of share in the last 12 months. So as we saw these economies doing very well, as we saw volume-driven growth, I think we put more advertising and consumer, and I think it was the right decision. As we said, we are trying to invest in our local brands as well, but it was not only advertising and consumer. I think if you look at what we did in Q4, for instance, we spent in seasonal activation in big countries like the UK, Germany, and, for instance, in India, in Australia. But we also spent in route-to-market and finally we had investments in marketing and R&D. I think if you think about the quantum, it was clearly materializing. The quality of the earnings, we had gross margin growing 90 basis points for the quarter, off of it dropped to the bottom line, so we reinvested quite a bit. Going forward, we will reinvest even more. The difference is going to be that it will involve more countries and more brands. As to pricing, I wouldn’t get quite frankly where it’s fixated on the Q4 pricing impact for Europe; there were some phasing in there. What I can tell you is that, in general, the total pricing for the company was in the right place. Europe specifically was able to generate nice gross profit growth, so gross margin was up in Europe. Again, it was puts and takes between pricing and commodities at forex that we had effectively covered for Europe. I don’t think there is much to worry at this point in time on pricing in Europe, with the exception of maybe Brexit that Dirk is going to talk about in a minute.

So, as it relates to Brexit, yes, I mean, the UK is an important business for us, and we have a very good team there that’s very solid, and I think they’re very well-equipped to weather through this situation. We don’t know, and that’s the difficulty of Brexit; we don’t quite know what’s going to happen here, so we have to really prepare for the worst and hope for the best. The worst is clearly a hard Brexit. We are assessing all the potential scenarios, and we do feel that Brexit will, for sure, have a short-term and a medium-term impact. Over the long term, we believe that it will stabilize itself, and we will come back to where we are today. Obviously, there’s a huge difference between a hard Brexit and a softer Brexit. So, as it relates to a hard Brexit, our contingency plan is quite extensive, and it basically is focused on the disruption and the ease of the flow of the goods. So, we’ve invested in additional resources in logistics operations; that means we’ve rented many more trucks, we have rented much more warehousing space, and we’ve increased our inventories. We are making sure that we are capable, even in difficult circumstances, to maintain our customer service. We are very focused on demand planning. We’ve also increased, for instance, our additional raw and packaging materials in the UK and in Europe. Now, Brexit could come with other effects like devaluations or tariffs, maybe a loss of consumer confidence in the first part. Those types of things we have not included in our current guidance. But we are preparing for it in case it would happen. I hope that yesterday’s vote helps a little bit to avoid the hard Brexit. As it relates to pricing, I think we will have to see what happens particularly with Brexit itself to make decisions. At the moment, our pricing is adapted to the current situation, but we are ready to adapt the pricing as Brexit would start to happen.

Okay. Thank you very much.

Okay.

You are welcome.

Hi, good evening, folks.

Hi, Jason.

Hi.

Thanks for sliding me in. I appreciate that you’re focused on the holistic portfolio now and don’t want to spend time dwelling on the legacy sort of Power Brands versus non-Power Brands. But I’m going to try anyways, because the strategy clearly is one of trying to activate the periphery of the portfolio. And I love to get a bit more context of how it’s working so far. So, is there any sort of performance metric you can give us and how these non-Power Brands are progressing as you extend the investment?

Yes. We can explain that a little bit. So, I wouldn’t say it’s the periphery of the portfolio. Our non-Power Brands or our non-global brands are sometimes quite important. And we’re really using them in synergy to try to cover as many aspects of the consumer needs that exist. For instance, in Russia, we become leaders in chocolate by using the combination of Alpen Gold and Milka to be the winners in the market. So, it’s more than the periphery; it’s really playing off brands against each other and making sure that we activate all of those brands. So that is still, of course, a work-in-progress. I would say that we have seen the Power Brands continuing largely on their trend of about 3% growth. Then we’ve seen the local brands go down—go up, sorry, from a negative growth in the past two—close to 1% growth in the last quarter. That’s sort of the shift we’re seeing, and obviously, that’s only after about 4 months of activation of those local brands. So, we’re expecting to see more growth in 2019.

Excellent. Thank you for sharing that. And I want to come back to a comment you made in the prepared remarks about empowering people to snack right. I guess, snack right means lots of things to lots of people, but to me it seems to connote a degree of health and wellness, which is not something I think comes to top of mind when we think about your portfolio. So, can you talk about the context around that statement in terms of your vision and whether or not it does entail a bigger push in health and wellness? And if so, how much of this would be sort of strategic M&A and priority versus organic?

Yes. It means many things. It does have a health and wellness connotation. But if I take it up one step, it is a recognition that the same consumer, depending on the moment of the day and the situation in which he or she finds themselves, can make different decisions. And when we say right, we mean that we want to offer the right product for the right occasion. We see—as we look around at what’s going on and what’s growing in percentage it’s the more health and wellness-oriented categories, but in dollars, it’s still the old biscuits, chocolate, ice cream, and categories like that, that are getting the biggest growth. As it relates to health and wellness, yes, we clearly have an intent to do several things. It probably starts with constantly trying to improve the ingredients on our product, the sourcing of our raw materials, and may be that’s not necessarily health-related, but we’re thinking about Cocoa Life or our Harmony Wheat programs that we have, which are about more sustainability of the raw materials and so on. But I think that’s also these days something that the consumer appreciates, as we do that in our brands. We will also eliminate as much as we can fat and salt and things like that. Yes, we will need to have more pure health-oriented brands. We have several; belVita would be the one that comes most to mind. But we have clearly an intent, apart from continuing to improve our current brands, to launch more health-oriented options under our current brands or to launch new brands, and you’re right that might have to be partially also through M&A. But I wouldn’t say it’s more biased in one or another direction. It’s a little bit of a whole spectrum of activities that we have in mind.

Got it. Thank you, guys.

Okay.

Thank you, Jason.

Hi, good evening, and I hope everyone in Chicago is staying warm.

Yes, in the office, we are okay.

But I think Shep was handing out hand warmers or something like that around the order of table. But – so my question is for Dirk to kick it off would be, how do I think about some of the more impactful investments in advertising and consumer promotion and just in your broader route-to-market you’re making this year? Specifically, Dirk, what are the key markets where sales force headcount for Mondelez employee is increasing, and then which emerging markets would local iconic brands matter most in your opinion? Then I have a short follow-up for Luca.

Yes. Well, I would say, where the manpower matters is largely in the emerging markets, the reason being that a lot of the sales are still happening to mom-and-pop and smaller stores, which you have to physically cover. The countries that come to mind to be able to do that are, of course, India, but even Russia, Southeast Asia, Africa, and the Middle East. Those are the markets where we are planning to invest overall, in how we cover the stores and get a bigger universe of coverage. It’s not only people; it’s also driven by the equipment that we might need, trucks or in-store display equipment. In the hotter climates for our chocolate business, we need coolers. So that’s really what for us is what we mean when we say we are going to invest in route-to-market. I think I took you through the markets that we are going to do that. As it relates to the significant emerging markets for us, while we’re seeing at the moment we’re seeing double-digit growth in India, we’re seeing double-digit growth in Russia. We talked about Brazil; that wasn’t—‘18 wasn’t a great year, but that’s a key market for us. We are also—China, of course, we need to look at the opportunity we have for mid-single digit that we would like to increase that. And then the markets where I would say our presence—all those markets I’ve talked about, there’s probably close to a $1 billion for us, more or less give or take. Southeast Asia, there’s still a few markets there where our presence is not as big as it should be, and our market share is not as big as it should be. So, we are also planning to do quite some investments in there.

Okay, great. And then, Luca, since you’re trying to direct our attention to focus more on profit dollar growth as an industry, how should we think—or as a company, how should we think about for ‘19 EBIT dollar trends on a constant currency basis, constant currency headwind?

Yes. Look, we—again, I think if you look at the guidance we gave in terms of EPS, 3% to 5%, we guided on interest cost at $450 million. I can—you can walk it back up and see that it is, I guess, roundabout the same EPS growth that you have. There are puts and takes, obviously, but that’s what it is.

Alright. Thank you. Congrats on the good quarter.

Thank you.

Thanks, Steve.

Great. Thank you, and good evening.

Hi, David.

Hi, David.

Hi, two small modeling questions and then just one bigger question. What’s your inflation forecast for 2019? And then on the organic revenue forecast of 2% to 3%, would it be correct to assume that, that would skew towards pricing as opposed to volume/mix? And then I have a follow-up, please.

Look, on the inflation, we are not going to break that out in terms of composition of cost inflation, forex inflation, commodity. I think as you model, think about commodities being pretty much in line with what we have seen this year in terms of inflation. There is clearly logistics cost that is creating a little bit of a pressure point. That was one of the key drivers that drove us to increasing pricing in North America for 2019. But we also see some packaging and the forex to a certain extent is one of the components that is creating a little bit of pressure in terms of inflation. Again, we are taking action, obviously. Clearly, we are covering our exchange rate exposure throughout the year, and we had good coverage at this point. I think we took advantage of some of the dips that we saw recently, for instance, for the Brazilian reais. On the composition of the 2% to 3%, I prefer not to go there. We are not going to give guidance on that specifically. Clearly, as you think about what we said in the context of Investor Day, we believe that volume growth is the right thing. When you think about the various regions, I think we will continue seeing good momentum in terms of volume in the EU, the same in AMEA. In Latin America, there clearly is Argentina and some inflationary pressure. In North America, we need to wait and see what happens with the price increase as it becomes effective in the marketplace. So, I think there we have to see if the elasticity we model is the right one or if it is better or worse.

And then on the investments that you’re making in 2019, can you give us some color on the pacing of those investments? And then also, one clarification on your fourth-quarter comment, I believe you used the phrase something like you accelerated your investments and they began in the fourth quarter. Does that mean that the dollar amount of investments in ‘19 is now less because some of it took place in the fourth quarter, or is it just in aggregate going up because you had flexibility in the fourth quarter, but again, please don’t forget the pacing part of the investment question for ‘19? Thank you.

No, I didn’t forget the pacing term. So, let me answer that first. I think as you think about it, it is fairly even throughout the various quarters. Bear in mind that there are seasonal events throughout the year. So, Easter, for instance, happens to fall in 2019 a little bit later than it did in 2018. So, it is a Q2 event, and there are other seasonal events. But specifically, on advertising and consumer promotions, it is equally phased throughout the quarter, I would say, give or take. The other part was, does it mean we are going to reduce our investment in ‘19? And no, the answer is no. It’s clear that our intent that the investment pace of ‘19 is we are going to increase on that in ‘20. Yes, maybe not at the same pace as in ‘19, but we are trying to change our circle here to a virtuous circle. So, our objective is to keep on growing and in that way, increase our top-line growth.

Thank you very much.

No problem.

Thank you.