Mondelez International Highlights Growth Investments in Emerging Markets
30 May 2013 --- At the Citi 2013 Global Consumer Conference today, Chairman and CEO Irene Rosenfeld highlighted Mondelez International's opportunities to expand margins while funding investments in emerging markets to drive long-term growth.
"Mondelez International is a unique investment vehicle with all the elements in place for sustainable profitable growth," said Rosenfeld, underscoring the company's unrivaled portfolio of iconic brands in fast-growing snacks categories, proven innovation platforms, strong routes to market and advantaged geographic footprint. "With these assets, we will deliver top-tier financial results."
Rosenfeld affirmed the company's long-term financial targets, including growth of 5-7 percent in Organic Net Revenue and double-digit Operating EPS growth on a constant currency basis.
"Emerging markets are essential to our overall growth aspiration," Rosenfeld continued. "The race is on for us to secure and expand our positions in these fast-growing markets. Our competitors also find emerging markets attractive, so competition will intensify in the near term. That's why stepping up our investments now is critical to deliver long-term shareholder value."
Rosenfeld assured that the company would take a disciplined approach to these investments, "We won't invest unless we're confident we can achieve attractive returns within a reasonable time frame."
The company expects to increase investments by about $100 million this year,
$200 million in 2014 and up to $300 million in 2015 and thereafter in emerging markets. The investments broadly fall into three buckets:
•Boosting marketing and trade support behind Power Brands and global innovation platforms. These investments have a payback of about a year.
•Adding route-to-market and sales capabilities to expand coverage of outlets, particularly in traditional trade. These types of investments also have a quick payback, typically one to two years.
•Capitalizing on "white space" opportunities by entering new markets with new categories, such as the recent launch of Stride gum in China. White-space investments have a payback period of three-to-five years.
Rosenfeld said Mondelez International would pay for these investments in emerging markets, as well as ongoing restructuring, primarily by expanding gross margins in North America and Europe. In both regions, the company will improve mix by focusing on growing its Power Brands, which typically have gross margins that are 100-200 basis points higher than other brands. In addition, the company is managing costs aggressively, with a continued focus on delivering gross productivity of more than 4 percent of cost of goods sold and driving overhead savings.
In North America, the company is targeting a 500-basis-point improvement in operating income margin. The majority of this increase will come from reinventing its supply chain network, introducing new production lines that incorporate leading-edge technologies and repatriating production from co-manufacturers. Overheads will also improve as dis-synergies associated with the spin-off of the North American grocery business are eliminated.
In Europe, Mondelez International is already competitive with peers, but is targeting an improvement of 250 basis points in operating income margin, which would be at the upper end of the peer average. The company intends to reach this target by streamlining its supply chain and by continuing to reduce overheads by integrating Central European countries into its centralized category-led model and by leveraging service centers in low-cost locations.
These actions are expected to expand the total company's base operating income margin by 60-90 basis points annually over the next three years. The company will reinvest a portion of these savings to fund growth in emerging markets and for ongoing restructuring. As a result, OI margin is expected to rise 20-30 points on average through 2015. After 2015, margin growth should accelerate, up an average of 40-60 basis points per year, as the company progresses to its long-term OI margin target of 14-16 percent, in line with peers.
Mondelez International reiterated its expectation to deliver 2013 Organic Net Revenue growth at the low end of its 5-7 percent long-term target. In the back half of the year, as headwinds from lower coffee pricing and capacity constraints abate, top-line growth is expected to accelerate significantly.
The company also reaffirmed its 2013 Operating EPS guidance of $1.55-$1.60 on a constant currency basis. Second quarter margins are expected to remain pressured due to the aforementioned growth investments and comparisons with very high margins in the second quarter 2012. As with revenue growth, margin expansion is expected to sharply accelerate in the second half.
Rosenfeld concluded, "2013 is the first year of our journey as a focused growth company. I'm confident that our strategy will position us well to deliver top-tier performance in the near term and for many years to come."
