Mondelez International, Inc.

Good day and welcome to the Mondelez International First Quarter 2020 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. I'd now like to turn the call over to Mr. Shep Dunlop, Vice President, Investor Relations from Mondelez. Please go ahead, sir.

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 or risk factors contained in our 10-K, 10-Q, and 8-K filings for more details on our forward-looking statements. As we discuss our results today, unless noted as reported, we'll be referencing our non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide our year-over-year growth on a constant currency basis, unless otherwise noted. You can find the comparable GAAP measures and GAAP and non-GAAP reconciliations within our earnings release and at the back of the slide presentations. Before I speak to the agenda, I would like to remind everyone that we have an upcoming investor call on May 8th to coincide with our annual Snacking Made Right report. Both Dirk and our Chief Impact Officer, Chris McGrath, will discuss sustainability and well-being. They'll talk more about our approach, targets, and progress on this call, as well as answer your questions on those topics. In today's call, Dirk will provide a business update, then Luca will take you through the financials and our outlook. We will close with Q&A. With that, I'll now turn the call over to Dirk.

Thanks, Shep, and hello, everybody. Let me begin by saying thank you to our colleagues for all that they are doing during this unprecedented human crisis. In our factories, our facilities, our distribution network, and our sales force, our teams are working night and day to keep the food supply chain going. Our greatest asset is our people. They're determined and dedicated, they're courageous, and they do love our consumers. Because of them, we have delivered outstanding results in exceptional circumstances. I'd also like to take the opportunity to wish everybody else all the best at this difficult time. Our investors, our business partners and clients, and of course, our consumers. The challenges we face are unlike anything we've seen before, but we firmly believe we'll emerge stronger from this. In turning to slide five, we have clear priorities for managing the volatile environment that is caused by this pandemic. First, we are supporting our colleagues. Their well-being is our highest concern. We've put in place strict health protocols including temperature screening, social distancing, mask wearing, and a mandatory work-from-home policy for everyone who can. And we've provided frontline employees with enhanced benefit. We extended sick leave for anyone who contracts the virus, and in markets like the U.S., we announced increased hourly pay and bonuses for frontline workers. We're also supporting our communities. In March, we announced a program to donate 15 million in cash and products to COVID relief. And in fact, we've already exceeded our original plan by 5 million. The recipients included the Red Cross organizations in the United States, Italy, Switzerland, and the Philippines, the National Health Service Trust in the UK, and food banks across Latin America, to name a few. In addition, our teams have responded to local needs with creative solutions. For instance, in the UK and Slovakia, we redeployed our 3D printers to create parts for face masks used by frontline care workers. And in several markets, we started making hand sanitizers. I'm very proud of our response and believe that we are doing the right thing. Our next priority, of course, is business continuity. Our supply chain has been resilient, and we've delivered consistent service to our customers. Case fill rates, in fact, are at better than average levels. We've seen an increase in demand in developed markets, and we've met it by focusing on the most important SKUs. Our strong relationship with our suppliers have helped us maintain critical raw materials and packaging supplies. And we've worked with local governments to keep our factories open during lockdowns. We've also maintained our cost discipline and managed cash appropriately. We've made adjustments to spending like more tailored promotions and in ANC to just focus on working media. We're reducing non-critical capital expenditure and are maintaining strict control over working capital and inventory. and we are also closely monitoring foreign exchange markets and adjusting where necessary. Under these circumstances, we are preserving capital and liquidity. We've taken opportunities to increase liquidity through extensions to our credit facilities, and we've also stopped our share buybacks in March. We've refinanced short-term debt at also attractive levels. Overall, our priority is clearly to emerge stronger from this. We're confident that we can do that because before the epidemic took hold, our strategy was working well. We are also better positioned than ever to handle a situation like this given the consumer focus and the locally oriented organizational structure we've put in place recently. We are now accelerating a number of strategic initiatives and continuing to invest in our brands and capabilities to remain the preferred choice of our customers and our consumers. In turning to slide six, we executed well in the first quarter, even as the virus was spreading. Organic net revenue growth was 6.4%, driven by developed markets performing strongly in March. Overall, the first two months of the quarter were in line with last year's results, showing strong top and bottom line growth. The exception, of course, was China that showed a significant slowdown in February. But then in March, China started to come back quickly, thanks to our local first approach, which puts the decision rights in the accountability where they are the most needed. Also, North America and Europe became strong drivers. Consumers not only stocked up, but also consumed more of their trusted brands, including some new consumers entering into our brands. Execution was strong for our Easter business, and our teams were very agile in meeting that increased demand. And our supply chain stayed strong and was resilient. At the same time, emerging markets started to experience disruptions. Sometimes we had quite abrupt lockdowns that made sales and distribution more difficult. Because of the lockdowns, we also saw a decreased offtake in the traditional trade. And these lockdowns sometimes made it even difficult to produce because our people could not reach the factories. Despite these difficulties and the headwinds, we will continue to see that the long-term prospects of emerging markets remain attractive. Our emerging market footprint is a differentiator and is a key part of our long-term growth strategy. A few other channels also performed less well due to COVID. Our world travel retail business dropped significantly and also away from home was impacted. All this, the reduction in traditional trades, and the away-from-home hit gum and candy, which is sold more often in away-from-home channels. We also incurred higher costs to keep clients supplied. The mix changed due to higher demand for larger family packs, for instance. Our supply chain costs also rose because we had to hire temporary workers we had to increase compensation and saw costs for distribution increase. And we did see some currency impacts in emerging markets. So far in April, what we see is that where we have the freedom to operate, we are doing quite well. In developed markets, we continue to see elevated demand, though not at the same level as in March. And in emerging markets, we do have clear headwinds driven by lockdowns and potential economic downturns. We also expect those cost headwinds to continue because we will continue to invest in additional health and safety measures to protect our people. We will continue to see higher personnel and distribution costs. The mix will continue to be a factor and we will see the ongoing impact of Forex. All this makes it difficult to forecast what will happen. But overall, we do expect to come out of this stronger with increased market share. Now to slide seven. Despite this challenging environment, I think we can be proud of what we have achieved. Since September 2018, we have increased investment in our brands, both in terms of quantity, but also quality and ROI. As a consequence, we saw record share levels in Q1. We held or gained share in 80% of our markets. Biscuits, which is around 45% of revenue, has seen the biggest spike in demand due to COVID-19. And that also is a category where we saw share increase the most. Overall, just to give a few examples, in the U.S., our biscuit brands, Oreo, Belvita, Ritz, Triscuit and Wheat Tins outposted mid-teens growth or more in the first quarter, which drove share gains of 2.5 points in the last reading. In China, we saw share gains of 7 points in the latest reading, and in the UK we saw gains of 1.5 points over the Easter period. While dynamics were different by market, global snacking categories were strong. We also saw strong momentum in our categories, especially in biscuits and chocolate, but less so in gum and candy. On slide 8, as stated, we expect headwinds in the second quarter, but we remain very positive about our longer-term prospects. We are convinced we will emerge stronger because We are the market leader in resilient categories and have an unrivaled portfolio of global and local brands. We're seeing consumers snacking more. They are looking for that moment of comfort offered by biscuits and chocolate in today's stressful circumstances. In particular, our trusted brands and our Taste of the Nation brands bring a sense of normalcy and trust. we can give the consumer that normalcy with our brands around the world. So since we have a unique setup thanks to our brands, also our organization and scale, we are convinced our categories will continue to present significant opportunities. We are also focused on operational excellence. We will keep manufacturing, shipping and delivering despite the many headwinds around the world. Our powerful direct store distribution in DS to our deep-rooted local distribution in emerging markets will make sure that our products will continue to be available for consumers. We're also managing our costs in order to be able to invest to win. So we are fully planning to continue to increase support for our brands and capitalize on the recent share gains as we are focused on long-term sustainable growth. At the same time, we will double down on driving efficiency by accelerating simplification initiatives, increasing our agility, and very strong cost controls. And lastly, we have liquidity and balance sheet strengths because we further strengthened our balance sheet and the liquidity so that we can make sure that we can handle the fluid situation no matter what. So let me turn to our strategy on slide 9. We will continue to focus on our three strategic priorities and our long-term financial algorithm, although we will take opportunities to make short-term tactical shifts as required. We are convinced our strategy is the right one and it's proving to be a plus in the current situation. Our local first approach with strong local business unit empowerment and an efficient supply chain is giving us speed and reliability. Our organization has gone through a lot of change and we have developed more agility, so we were able to adapt quickly to the new circumstances. Our local brands are showing a resurgence, driven by consumers going back to a feeling of comfort and trust in familiar products. And as you know, a big chunk of our portfolio are local brands. We're also taking the opportunity to accelerate certain initiatives. In growth, we are adjusting our marketing and innovation projects by increasing our spend on working media, and at the same time simplifying our portfolio. In addition, we see opportunities in both revenue management and in e-commerce, where we can capitalize on increased demand from at-home shopping. On execution, we'll increase our supply chain efficiency while continue to reduce our cost basis. We're also streamlining the amount of projects and activities here. And in culture, will build on the agility we've seen in the organization to further enhance our ways of working. Turning to slide 10, we remain committed to our people and communities for the long term and believe our sustainability initiatives are as important as ever. Companies need to be doing the right thing, and due to this crisis, the consumer will become even more conscious about the fragility of our planet. So our focus is on protecting our ecosystem. We are caring for our people. We've made donations to support our communities. We've increased credit support to our suppliers and our distributors to help them weather the crisis. And we're determined to continue to deliver on our environmental and social goals. And on May 8th, as Shep mentioned, we will have a special investor session to highlight our ESG targets and plans. We invite you all to join the call. And with that, I will hand it over to Luca.