Mondelez International, Inc.

Good day and welcome to the Mondelez International Fourth Quarter 2018 Year-End Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question and answer session. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time during the call. It is now my pleasure to turn the floor over to Mr. Shep Dunlap, Vice President, Investing Relations for Mondelez. Please go ahead, sir.

Thank you. Good afternoon, and thanks for joining us. With me today are Dirk Vandeput, 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 forward slash investors. During this call, we'll 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'll now turn the call over to Dirk.

Dirk Van Doren 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 of the last five years. This new strategy leverages our unique difference from other food companies which is our strong global presence, our iconic brand, 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're 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. And 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 icons. And in each market, we also strive to be the industry leader in understanding consumers through advanced insights and analytical capabilities. During the last five years, we've gone through a significant restructuring and a cost-focused approach, which has created a solid foundation for investment. These 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 five years. 2018 was my first full year of CAO. 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 strategy. Second, an obsession with operational excellence to optimize or 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 we 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 cost. We also delivered another year of double-digit adjusted EPS growth, which brings our five-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 how our packaging will be recyclable by 2025. I believe this strong 2018 financial performance is just the 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 maybe 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 ANC and go-to-market. To give you a few examples, we put incremental ANC 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 chocolate in Germany with low single-digit overall country growth for the year, or chocolate in the UK, which posted low single-digit growth. Oreo in the US, which posted 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. And 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 Snack Futures 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, Freya, Maribou in the Nordics, Kindo 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've 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. And 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 chocolate. And 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're 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. And I'm 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.