Mondelez shares outlook for 2015

MONDELEZ International executives reiterated the company’s supply chain reinvention and overhead cost-reduction initiatives as part of its growth plans, at the Consumer Analyst Group of New York (CAGNY) conference held on 17 February 2015.

Irene Rosenfeld, chairman and CEO said, "In the current challenging environment, we're executing against our transformation agenda by controlling what we can control, reducing costs, pricing to protect profitability and driving our Power Brands and innovation platforms in key markets. By executing these strategies, we're well-positioned to continue to deliver strong shareholder value through sustainable, profitable growth over the long term."

Highlighting long-term targets of organic net revenue growth at or above category growth rates, high-single digit adjusted operating income growth at constant currency and double-digit Adjusted EPS growth at constant currency, Ms Rosenfeld said "In 2015, however, we'll continue to prioritize margin expansion and earnings growth while delivering modest organic revenue growth, as we progress our transformation agenda to focus our portfolio on snacks, reduce costs and invest for long-term growth," she said.

Mondelez expects to close a coffee joint venture with D.E Master Blenders 1753 this year. It boosted its snack portfolio with recent acquisitions Kinh Doh in Viet Nam and Enjoy Life Foods in the US.

Supply chain reinvention on track to achieve margin goals
The company’s reinvented supply chain is expected to bring $3 billion in gross productivity savings, $1.5 billion in net productivity and $1 billion in incremental cash flow over three years.

According to Daniel Myers, executive vice president, Integrated Supply Chain, the company is transforming its manufacturing processes to develop more efficient, modular designs for global product platforms, called "Lines of the Future." These advantaged lines are cutting conversion costs by 30 percent in biscuits and 20 percent in chocolate and in gum as they replace older, more inefficient assets.

"Our Lines of the Future are driving significant savings in reduced engineering, installation and start-up costs. And we're reducing conversion costs through increased throughput, less waste and lower staffing per line," he said.

Mondelez is restructuring its end-to-end supply chain network.  From 2013 to 2015, the company will have funded and built 11 new or expanded manufacturing plants around the world, including in Bahrain, Brazil, China and India. By 2018, the company expects to build another five sites.

"When we started our journey, only 15% of our Power Brands were produced on advantaged assets," said Mr Myers.  "By 2018, we expect that number to be about 70%."  Myers said the goal is to have all of the company's Power Brands produced on advantaged assets in advantaged locations at advantaged costs.  Revenue per plant is expected to increase more than 50% from $200 million per plant in 2012 to more than $300 million by 2018.

Since 2012, the company has reduced its cash conversion cycle by 23 days, resulting in $600 million in incremental cash last year, he said.

Targeting overhead reduction through best-in-class cost management
"Overhead savings will also be a major contributor to margin gains," said Brian Gladden, executive vice president and CFO. "Using a zero-based-budgeting approach, we significantly reduced overhead as a percentage of revenue in 2014. This puts us well on our way to reduce overheads by at least 200 basis points by 2016."

As a result of cost reduction progress in both the supply chain and overheads, Adjusted Operating Income¹ margin increased by 80 basis points to 12.9% in 2014, despite absorbing a 50-basis-point headwind from mark-to-market accounting.

Outlook for 2015
The company affirmed its 2015 outlook:

• Organic Net Revenue growth of at least 2%, after accounting for the company's strategic decision to exit certain lower-margin revenue
• Adjusted Operating Income margin of approximately 14%
• Double-digit Adjusted EPS growth at constant currency

The company delivered Free Cash Flow excluding items² of $4.8 billion over the past two years, up nearly 30% versus the company's earlier guidance, primarily driven by margin expansion and the strong improvement in working capital. In 2015, the company expects to deliver Free Cash Flow of at least $1.2 billion, excluding the impact of the expected coffee transaction.

Reinvesting in the business to drive growth will remain the top priority for cash.  The company will also continue to explore opportunities for acquisitions to strengthen capabilities in its snacks categories.  Finally, Mondelez expects to continue to return capital to shareholders in the form of share buybacks and dividends while maintaining an investment grade credit rating.