Deerfield / IL. (mdlz) At the Barclays Global Consumer Staples Conference, Mondelez International outlined its compelling total return framework, including significant ongoing progress reducing costs and expanding Adjusted Operating Income margin. The company also updated investors on its strategies to accelerate growth, including a major foray into both the mainstream and premium segments of the U.S. chocolate category with its Oreo and Green + Blacks brands.
«Our advantaged platform positions us as one of the few industry players with the assets and ambition to deliver strong, sustainable growth on both the top and bottom lines, while we also return significant cash to our shareholders», said Brian Gladden, Executive Vice President and Chief Financial Officer. Since the launch of the company in October 2012, Mondelez International has delivered total shareholder return of 72 percent, which has outpaced both the S+P 500 and its consumer staples peers.
Continuing to Expand Adjusted Margins and Improving Cash Flow
Gladden underscored several of the company’s recent achievements, including increasing marketing support behind Power Brands, improving net productivity to world-class levels and significantly reducing overheads, thanks to zero-based budgeting and the expansion of a global shared services capability.
Mondelez International has expanded Adjusted Operating Income margin by more than 450 basis points since 2013, while delivering Adjusted EPS growth at constant currency1 of more than 17 percent a year. Building on this momentum, the company continues to target Adjusted Operating Income margin of 15-16 percent in 2016 and 17-18 percent in 2018.
«Cash flow generation will increasingly be a strength», Gladden said. «With expanding margins, lower capital expenditures, strong working capital performance and declining restructuring spend, we’re on track to deliver Free Cash Flow of at least 1.4 billion USD in 2016, and we expect to double that number in 2018».
Reinventing the Supply Chain and Delivering World-Class Productivity
Daniel Myers, Executive Vice President, Integrated Supply Chain, highlighted how Mondelez International is now consistently delivering world-class net productivity and progressing to best-in-class cash management, improving its cash conversion cycle from 33 days in 2012 to an expected minus 20 days in 2018.
«The transformation of our end-to-end supply chain is driving this progress», Myers said. «Today, we have 50 Lines of the Future on stream that deliver speed and flexibility. As we replace old and inefficient production lines, we also realize substantial conversion cost savings. In addition, we now have more than half of our Power Brands on advantaged assets, and we’ve dramatically reduced complexity in terms of the SKUs we produce and the number of suppliers».
Accelerating Growth by Addressing Key Consumer Trends
Tim Cofer, Chief Growth Officer, provided an update on the company’s strategies to accelerate revenue growth, which center on contemporizing the core portfolio through fearless marketing and well-being snacks, filling key consumer and geographic white spaces, and driving sales and channel ubiquity, especially through e-commerce.
«As we generate more cost savings, we’re bringing A+C support to leadership levels in our categories and brands», Cofer said. «But it’s not simply about investing more money. We’re also improving the impact of our marketing in terms of messaging and media». Cofer noted that the company is shifting more spending to digital and social with strategic partners like Google, Twitter and Facebook. He also shared several examples of fearless marketing campaigns that are delivering higher returns on investment, meaningful growth and share gains.
Mondelez International has also made well-being a priority and is on pace to become the global leader in well-being snacks by 2020. To reach this goal, the company is simplifying and enhancing the ingredient and nutritional profile of its base business while also introducing breakthrough innovations. For example, the company’s Wholesome Thins platform, which includes Oreo Thins, Chips Ahoy! Thins, Ritz Crisp + Thin and Good Thins biscuits, will surpass 300 million USD in sales this year, only two years after the launch of the platform in China.
Entering the U.S. Chocolate Market with Oreo and Green + Blacks
To continue to fill geographic white spaces, Mondelez International announced a major expansion into the U.S. chocolate market, where the company has only a small presence today.
«With our strong brands and global expertise in chocolate, we see enormous potential to grow our U.S. business and expand the category», Cofer said. «The U.S. is the world’s largest chocolate market, valued at 14 billion USD. However, per capita consumption is only about half that of many developed European chocolate markets».
In the mainstream segment, the company is pairing Oreo, America’s favorite cookie, with Milka, one of Europe’s most iconic chocolate brands. This unique cross-category innovation is already a proven global success, available today in over 20 countries, where it has delivered new buyers to the category and velocities that are more than double the category average.
In the premium segment, Mondelez International is dramatically expanding its Green + Blacks offering, maintaining the brand’s heritage of providing the finest ingredients from sustainable and ethical sources. The new Green + Blacks range will feature 70 percent dark chocolate in tablets as well as sharing and gift packs. The recipe sustainably sources cocoa through the Cocoa Life program, and contains no artificial colors, flavors or preservatives.
Building an Industry-Leading E-Commerce Business
Finally, Cofer outlined how the company is strengthening its sales and distribution capabilities, enhancing in-store execution and building best-in-class routes to market, especially in emerging markets. A key part of this strategy is to build an industry-leading e-commerce snacks business, targeting at least 1 billion USD in revenue by 2020.
To reach this goal, the company has built a dedicated cross-functional team of internal colleagues and experienced talent from leading e-commerce companies to drive stronger execution. For example, the relaunch of belVita biscuits at Amazon generated a sales lift of more than 60 percent, while a recent live video stream with two of China’s hottest celebrities on Alibaba’s Tmall platform generated a tenfold increase in Oreo’s e-commerce sales. Through the first six months this year, the company’s global e-commerce sales were up more than 30 percent, while in China, online sales have more than doubled.
