Q4 2019 Earnings Call
Ladies and gentlemen, this is the operator today's conference and scheduled to begin momentarily until the time Airlines will again be placed on musical. Thank you for your patience.
In closing remarks, Amanda lease management and the question and answer session in order to ask your question. Please press the star Keith followed by the number one on your Touchtone phone at anytime during the call I'd now like to turn the call over to Mr. chefs and less Vice President Investor Relations of monopolies. Please go ahead Sir.
Good afternoon, and thanks for joining us with me today, our Dirk van to put our chairman and CEO and Lukas I remember our CFO .
Earlier today, we set our press release and presentation slides, which are available on our website Mandalays International Dot com forward slash investors.
During this call will 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 are forward looking statements.
Are we discuss our results today plus no.
As reported will be referencing our non-GAAP financial measures, which adjusts for certain items included in our GAAP results. In addition.
Divide our year over year growth on a constant currency basis, unless otherwise noted you can find a comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and out the back of the slide presentation.
Today's call Dark will give you an overview of our results as well to progress updates against our strategic priorities. The local will take you through the financials and our outlook.
Close with QNX.
I'll now turn the call over to dark.
Thank you ship and good afternoon, everybody I will start off on slide four called delivering long term shareholder value creation.
2019 was a great year for monopolies International It was the first full years under our new consumer centric growth strategy and we delivered strong results on the top end the bottom line, while generating significant free cash flow.
Our solid execution and the targeted investments in both our global and local brands enabled us to meet or exceed all of our financial targets for the years.
These results give us increasing conviction that our strategy will create sustained momentum in our business, allowing us to deliver on our long term financial targets in the years to come.
Switching to slide five.
Recapping the year eat out a few highlights we delivered organic net revenue growth of 4.1%.
Which was broad based across geographies and brands and was driven by both volume and pricing.
In terms of geographies or emerging markets growth was strong.
Early mid single digit thinks Argentina, and driven primarily by key geographies like China, Russia and India.
But also by emerging high growth markets in Southeast Asia.
[noise] developed markets showed robust growth, both Europe , and North America, performing well delivering share gains and driving category growth.
Overall the results reflect the quality of her brand portfolio without unique combination of both global and local brands benefiting from increased and target that the investments throughout the year.
Our adjusted EPS growth was more than 8% for the year.
And we are pleased to meet our full year free cash flow generation of about 3 billion, which was well ahead of our outlook.
Switching to slide six.
Our strategy is now well embedded in the business in the past 12 months.
Made great strides in implementing it across the different business units.
The rollout of the new strategy was reinforced by our new way of incentivizing our teams assuring that everybody's clear on what is important.
I think score we are constantly trying to be more consumer centric.
Using our new and unique understanding of consumers around the world to develop a more effective and a more consistent approach to marketing.
And as a consequence growth in our global brands has accelerated further water out of local brand growth is now very close to overall category growth.
We've also invested in further growth in non grocery channels like discounters E Commerce and convenience.
Rolling out a few would initiate this but with bigger success.
We're clear to that strategy only succeed with outstanding execution.
And why we still have a long way to go.
Credits, a big part of our results to better execution in our commercial as well as our supply chain operations.
North America supply chain in 2019 definitely showed significant improvement.
Our European teams executed against the seasonal opportunity like Easter and Christmas better than in recent years and our themes in India and China reached the highest level of of execution in store as well as in the plans.
However, the opportunity to constantly improve our execution remain significant as our recent struggles with our supply chain in Brazil, but indicate.
As it relates to our operating costs.
While we are in the first place trying to leverage volume growth to a lower the live with golf per thumb, we still see significant opportunity to optimize many other cost area.
Yeah.
While more and better marketing as <unk> as strongly improved execution of driven or 2019 results.
Shifting mindset around the company also has had an important impact.
The most important part of this shift was driven by our local first approach.
Basically empowering local business units to make the ride choices for their consumers and the clients.
This empowerment this led to clear accountability and fast of decision, making it was reinforced by focused incentives.
I am proud of how the themes have embraced this new culture and really believed that this model has great potential for the future.
Yeah.
While we are talking about culture I'd also like to mention a change in the leadership of our Latin American region.
We are announcing today that gustava <unk>, you'll join us as region President's Latin America effective February 1st.
Stifle comes from the unknown varies health numerous positions around the globe.
<unk> last little he was leading the global dairy and plan based division.
Earlier in his career he managed the argument dine in Brazilian business and brings with him significant experience in the volatiles <unk> economies of Latin America.
I look forward to working with Gustava again.
[noise] switching to slide seven.
While we are excited about our financial results and prospects.
In today's world any consumer business needs to have as strong a social and environmental agenda as a financial agenda.
Our own employees as well as our consumers demanded and customers investors and other stakeholders expected.
So I'm happy to say that in 2019, we have made great progress in embedding our purpose to empower people do snack right.
We announced a new sustainable snacking strategy with new goals is stronger commitments.
In cocoa, our biggest commodity we're committing to sourcing the equivalent of 100 per cent of the cocoa, we need for our chocolate brands through our cocoa life programmed by 2025 today I'm proud to share that we've achieved 63% by the end of 2019 and increase from 40.
3% in 2018, and with a clear road map for the remainder.
Earlier this year, we joined other major companies seems renewing our commitment to the parish climate accord and upset our path to worth further reduction in carbon emissions.
Looking towards the consumer really focused on making the packaging for all our product hundred per cent recyclable by 2025 and by the end of 2019, we're already at 92% with some interesting trials underway to unlock the remaining 8% of that journey.
Finally, as it relates to the mindful enjoyment of our product we're committed to increasing our mix of portion control backs to 20% of our total revenues rebel on the way with 15% already sold in such formats.
We know that our future growth in success as a company depends on ensuring people and planet thrive and we are committed to tracking and reporting on our progress and impact transparently along the way.
I look forward to sharing more with you in 2020.
And with that I will hand, it over to look.
Thank you here and now good afternoon.
It's like nine is our financial performance for ball quarter for every year.
We ended 2019 strongly continuing the momentum recreated since the beginning of our new strategic plan.
This is the case at decently late two organic top line groll that translated into gardening scroll and free cash flow.
We believe this outcomes to be high quality.
Revenue growth was broke bays by region global and local Brian .
Ending terms soft develop and emerging market.
As a matter of fact.
Out of the 13 business units the lever crawl in 2019.
Importantly, there was a good balance or volume and pricing.
Both of which are important.
Volume, allowing us to leverage the grateful infrastructure, we have created we'd much work over the last few years.
And pricing to try value.
This banner for resolving Paul lying.
<unk> profit dollar call, while enabling investments in our plans.
Ink you for and throughout 2019, we also made significant investments in that I like your enemy or two fathers support our Brian .
<unk> initiatives as well as seem to be skits Catholic or in North America and certain markets in Latin America. These investments wedding line with an hour or isn't apply and the beep higher in certain areas and then either on expected returns and share games.
Turning towards like Penn.
Overall, we grew 4.1 in both you for and in 2000 in 19.
We didn't either strong volume and pricing like role in we actually all key emerging markets like China, India, Southeast Asia, Russia, Mexico in Africa.
Okay emerging markets grew approximately 8% for both the year and a quarter.
Excluding inflation's, even golfing, Argentina emerging markets go 6% for the year.
These resolved.
Support our conversation that our emerging market food praying he's a competitive advantage and the investments we had been making 19, then previews E.S. are paying off.
Developed markets also believe a solid result for the courtroom, we'd rather than you grow up approximately 2%.
Three then by improve resolved out of both Europe , and North America, we shared gains in both regions.
Actually sending previous colds, particularly in Europe . These results were eight that by a longer Easter season, and then my the summer than 2000 anything.
Now, let's review our profitability performance sounds like 11.
We increase cross profit by 4% for the <unk> and 4.4% <unk>.
These cross profit dollar increase enabled <unk> investments focused on working media en route to market capabilities.
We also draw soluble I dollar improvement with volume leverage pricing and cost savings bank, partially of fat by growth investments.
Moving for regional performance sounds like 12, four the four year.
Europe execute it very well for the year, when 3.7% driving you call.
These results include strong volume three then grow and develop markets such as the U.K., and Germany, which group missing need single digits, as well as Russia, which posted double digit growth for the 20 year behind strong volumes and share games when the lever consistent execution in chocolate.
<unk> throughout the year and the strong execution resolve that ball in shared games, particularly now we're chocolate business and good Catholic regrow.
Adjusted go Idleness grew by almost 6% in spite of significant investment.
He has like a and see.
You shows the full potential of our mobile as we drove solid volume three even market grow Gainshare and then leave a strong cross profit progression that allowed for agencies step up.
Yeah group, 5.3% showing continuous time across much of the region.
India grew double digit behind another year of strong execution and investment we continue to have tried the chocolate market, while making progress against our plans of building a larger biscuits platform.
China that grew high single digits for the three even buys trends in both be skits and and great execution in both E. commerce as well as you're flying channels.
Southeast Asia groom in single digits with solid resulting biscuits on chocolate.
Yeah increased operating income dollars by more than 9% due to leverage from top line goal.
<unk> comes despite some significant investments in a and c. en route to market.
The limited to lie growth in Q4 ease entirely due to additional investments in agency and those were enabled by continue strong Ross profit scroll that we sold throughout the whole year.
<unk>.
Algorithm is working quite well in this region.
Latin America grew 7.8% due primarily to inflation even growth in Argentina.
Revenue increase 1.7% excluding Argentina.
Mexico group mid single digits, driven by strong execution in shackles across most categories in Brazil, we saw his like declining revenue for even primarily by a reduction of trade stalls in powder beverages, partially offset by lopping the general tracker strike in 18.
We are beginning to take actions in this category, including the launch of new marketing communications and product formulation.
Adjusted light dollars in Latin America declined by approximately 6%.
Primarily due to volume losses in powder beverages in Brazil, along with some remaining supply chain costs from our plan transition.
We do not expect material prime transitional costs to continuing 2020 .
For the quarter the significant growth in Hawaii is due to laughing someone timers related to for X. contract Secluding last year and some legal cases.
While we are you sure by the solidity of the business in Mexico, and the West and I'm getting region and dealing well with the volatility Argentina, we recognize that he's more work to do in Brazil, and the focus of will stop one team will be mostly on that.
Finally, North America group, 2.2% for the 40 year and more than 3%. Thank you for driven by improve volumes.
We close the year, well and then leave or strong sad, resulting biscuits with growth in a number of P. Brian .
Clothing, Oreo rate and <unk>.
We continue to make investments he Nancy and we are seeing our Brian's respond favorably mainly when koppel without were excellent yes the execution.
The North American region grow out by more than 6% for the deal to leverage affected pricing and waste reduction with additional agency, mostly in our biscuits Brian .
North America Headstrong gross profit believe read through all the and Q4 was no exception to that.
But again lattice are they in to see that I think you for.
Turning to Catholic or highlights.
Our three snacking categories continue to demonstrate that traffic control, we both our category Grove top 3.6% for the year.
We did see and more normalized growth in our Catholic was woke you for a 2.8%.
Some of the table Queens that help you to include free and longer Easter into two and then milder summer <unk> subsided in the last part of the.
However, we remain encouraged by the half of our categories and believe they can continue to sustained growth hopping around 3% over the long term.
And this is what our long term I've already them is predicated upon.
There are a number of very significant asked where we hadn't tried the category Groping 2000 in 19, among those U.S.B. scale, where we continue to execute better a marketing and execution a point of savings and where we draw both by you and volume growth fruity as the.
U.K., India in Russia, chocolate, where our where I would renewed marketing bombed also on both global and local Brian's Coppell, we'd say, it's excellence drove substantial value for the category.
Overall, we had or gainsharing, 75% of our business in 19, which reflects the progress on our brought the stuff that you have volume and chat improvement.
Overall, our shareware up for the <unk>.
Ending several E.S. off shall losses.
And we ended the year on on improve trajectory.
My category.
I would be skates business school, 4.4%.
Approximately 75% of our revenue group or health share in this category, including I., One U.S., China, Russia, and India businesses.
In chocolate our business go 5.8%.
Approximately 85% of our revenue group or has share, including the U.K., Australia in Russia.
Gumming candy revenue growth likely.
About 35% of our arriving in his business gained or had share, including planting China and France gum in Russia Candy.
Now thrown into P.S. almost light 18.
<unk> U.P.S. grew more than 8%.
<unk>, primarily reflected operating gangs driven by strong revenue results income from J.B. equity stays despite some toxic <unk>.
And lower than expected <unk> impressed extends driven by accelerated cash flow Falkirk financial management unfavorable great environment.
I now move on to our free cash flow result, sounds like 19, we the lever to D.F. free cash flow or 3 billion, which was about our outlook and the nearly 200 million dollar improvement over last year view.
You too strong income.
Continued progress in our cash from version cycle as well as lower caste restructuring on topics.
On page 20, we return 3 billion to our shareholders for the food here.
This brings us to more than 24 billion copy thought return seem <unk> was form.
Now, let me provide some dictates around our outlook for 2020.
The high level, we expect on our own allegory them ear for 2000 and play the in terms of our financial out.
We expect organic net revenue growth up 3% loss.
This is predicated on our view of category growth of approximately 3%.
<unk> games and revenue growth driven by both volume and pricing.
We expect a draft of the P.S. in the high single digit range.
Outlook implies continue grow across profit dollars and volume leverage.
It also reflects another step hopping investments levels, primarily you know you can see and say it's capabilities to.
To continue to support sustainable and high quality growth.
As well as some cost savings to fund incremental investments.
Where is back to free cash flow, we are expecting approximately 3 billion.
Coal. These outlook includes additional cash taxing packed resulting from the U.S. tax reform.
In these out a little we also expect I worked 2020 adjusted effective tax rate to being the low to mid twenties and distressed expanse of approximately 380 million.
Although we do not provide a quarterly outlook on the key metrics. It is important to know that the falling items in terms of phasing when impact 2020 .
Bowl Easter and Chinese new year full earlier this year when compared to 2019.
In terms of year over year comparisons our commodity pipeline is relatively more unfavorable in the first part of the versus the second part of the year, especially in the first quarter.
And we have covert most of the commodities for 2020.
We also feel good about overall levels of pricing in the plan.
We'd that let's open the line for questions.
As a reminder to ASCII question you any depressed are one on your telephone to retire quite impressed to pound key.
Well they can have a human day roster.
[noise] [noise] looking characters I seen from the line and Andrew bizarre with Barclays [noise].
Good evening everybody.
Hi, Andrew.
Right just to for me first I'd say, obviously model easily much stronger than initially planned 2019, especially on organic sales growth companies looking for 3% plus and 2020, which is the long term algorithm as you said, so obviously deceleration from from the 4% plus you you showed.
In 2019, or so, but you could talk a bit to this in terms of you know where or whether you're building in some <unk>. Some contribute some conservatism there or if there's really it was something more specific behind it whether it's have you said you are laughing a longer Easter in a in a hunter summer and things of that nature, and then I've got a phone.
Okay. Yeah, I think 19 was a good year for us.
We we've just been through the numbers.
Not only because of the numbers, but I think also that it was sort of the first confirmation that are strategies working this was the first year full year with the new strategy for us.
Every it'd be so a number of signs that we think a real continuum next year like the volume growth like solid gross profit then <unk> dollar growth a market share games continue costly siblings. It was US you alluded to help.
By a laker Easter season, which gives us or climbing stored and also that three left the the very hot summer of 2018 in Europe in in 19. So we we can see now the markets in the last quarter, where are the categories were more a 2.8% not the around the.
4% that they were in the middle of the year.
I think the the the the unlocked that we have we will continue to work, though so but the consumer first keep on focusing on our execution.
Keep on increasing our investments keep on improving our marketing activating our local brand. So all that will continue next year and also but we have done as it relates to a responsibilities and goals and better alignment of our incentives to be making a few more to each this year.
Every every number of issue that we need to solve in the first place <unk>, Brazil supply chain, which is riches are going better.
But also we have to pay attention to China for instance, so all that <unk> for us, we're saying the market sort of the categories, we think will be around 3%.
See ourselves increasing our market share.
And so we recall is a 3% plus in line with our long term algorithm and it's the beginning of the year. We are always very thoughtful as we as we sit our targets.
And and we'll see how the first quarter goals, but at this stage, we feel that it's it's certainly not in our book a slow down from from this year. We we continue as we are but we do believe that the categories will be a little bit less than they were last year because of the reasons that I said I think apart.
From from the to watch so that I mentioned, we see nothing at this stage that with particularly <unk> goodbye as for the start of the year. So overall I would say for us to continue to strategy S.. We are yes. The numbers are a little bit less than they were in <unk> 19, but that was largely <unk> driven.
By the structure of how things came about in 19 and 20 as a continuation of of where we are.
Thanks, very much I'll leave it there.
Okay.
Oh and <unk>.
Yeah.
Good good afternoon, everyone.
<unk> I, so I guess I wanted to pick up just on on the expectation for incremental investment for 2020.
So maybe just a couple of points around that first if you can kind of maybe size what the incremental investment in 20 would be relative to what it wasn't 2019, and then I guess is we're thinking about the sources that would would we would it sort of suggests that.
You'd have gross profit dollar growth growing faster than operating profit growth because there's going to be some incremental investment in a in c. or am I not thinking about that currently.
No I think you're well, it's it's a you're thinking about it correctly, but let me start from from the stars and so in a 19, our extra investment was about 150 million largely focused on more N.C. route to market. This r. and D.M.M.B. is going to be in the same ballpark.
2020 S. extra investment.
In 19 rehab glance that that extra investment would have an impact on earnings I don't know if you remember we said we would be sort of around mid single digit earnings, but then during the year. Our sales came in better as expected to be generated more gross profit and Indians. We we were ending the arrow and an eight.
Percent E.P.S. increase however, we had Brazil that the affected us in in a way and in fact, our gross profit good grow more and we we we would've hope to invest more in 19 so.
In 20, the extra gross profit that three you're adding is say slightly higher than we did in a in $19 and we are flowing but let's say 40% of that roughly into into A.N.C. and the other investment area. So it's it's.
I'm going to do any of us last year, but we don't have the negative effect of Brazil, and that's why we can continue with that algorithm and deliver hi single digit D.B.S. girl.
That's that's helpful. And then just in terms of where geographically to spend is gonna be could you just maybe give us a little bit of color on.
Maybe where you where are you emphasized the extra spend in in 19 and kind of where the the incremental piece is going to 20 can only be there. Thanks.
Yes, It goes largely to first of all the two sources or the two destinations of the money is one in extra marketing a media investment to be very specific it's all in media and the second part. These in if distribution expansion. So the extra meaning investment is a little bit across the board in most countries.
Different the level that we do that but the idea is to continue increasing our media pressure as it relates to the route to market that is more concentrated in the emerging markets. The India that China's the Russia's wherever you still have a huge opportunity to increase our our distribution I would also like to add that as it really.
Through those media investments not only are we increasing the overall spent on A.N.C., but within that and see we're shifting more into media Soviet increasing our working media spent largely through digital and then also we constantly are trying to increase our our why which increased about 12% in.
In a 19 on our media spend so and and on top of them. We have restricted our agency. So we also think that I've known media spend <unk> have higher efficiency and higher quality. So all that together.
We have the effect of the higher investment, but also that re shifting which has a pretty big effect on on on our media pressure. So that's a little bit how it all comes together that's great. Thank you for that color.
Okay.
We'll take our next question from their M.S.N.N. with Morgan Stanley .
Hey, guys.
Okay.
[noise], obviously, some pretty strong results in terms of organic sales growth in 2019, but within that we saw a a really solid acceleration in volume growth. So I I would love to hear a bit of the state of the Union now that the full year results for it.
You know what drove that in your mind, how sustainable that volume pick up is going forward you mention goes volume mixing price he'll be up next year is is one you know a bigger driver of that or Ganic sales growth in the other.
And then secondly on Brazil have the supply chain issues are those now been resolved in their behind you and maybe just give us a little more of an update on how you're managing the powder beverage business and if we should expect sequential improvement in the first half the year versus the back half of last year or their strategies take longer to play out.
Thanks.
Okay, I'll I'll I'll start and maybe <expletive> with color and they they Brazil, so as to volume clearly, we like Walter U.S.C., we like that.
Is coming mostly.
Tool you know a good bottom solved both volume and pricing, we believe that balances sized quite important because it allows us to create battling the market place, but that the same time to have the leverage that we need four hour ugly them to to really for the war.
It is pretty much across the board may be looking at the numbers you might say it is a little bit less in emerging markets by when you sleep out Argentina, you really see a good bought and sold volume and pricing even in a in emerging markets. We keep on investing on our front ties is entitled to market.
In a quality of our Brian's and so we expect that to continue and we would always try to strike that I bought us between Ah Ah pricing and and volume. So I don't think queue for what was it must eat an exception to the rest of the I think you know the only one that came back in terms of volume growth in the second part of the.
He is north America that the that these executing while while behind be skid, both in terms of in terms of marketing and.
I would say in terms of the as the execution. So I think we will continue seen that as we continue investing in our front tires.
<unk> quite frankly, they supply chain issue is for the most park behind us, but there is more work to be done and and on P.B.S. I don't all these if you want to comment on specifically on what we're doing and how we see that are progressing in 2020.
Yes.
Yeah. So the the B.B. market is is.
Starting to recuperate, a little bit, but still not that great and on top of that thing our brand, which was the the leading brands was having some shared challenges so what and as a result of that we saw some these stocking of P.B.S. ended trade because there was less demand for it so.
What we're doing is we are launching a new bundle on thing going a little bit back to what thing was in the past, we had probably drifted a little bit too much into new variety, new flavor into bomb and more bringing it back to well how how thank him really play a role in the daily.
Beverage choice of kids in the family and and how it contributes to that we are increasing our investments we launching a new campaign Relaunching of course are not a number of new flavors.
The overall, it's a bit too early to say, what's going to happen to be in the middle of the season of of Brazil at the moment, but that's what we're doing on the about the beverages.
In terms of of ties of that and the second part of the it would be easier in terms of top line because we started the stocking up you'd be seen the second part so.
I think that's maybe the way you have to think about how it will phase out while the year.
Great. Thanks, guys.
Thank you there.
Oh My next question is from John Baumgartner, well smart, though.
[laughter] good afternoon. Thanks for the question.
Hi, Hi.
Dirt I wanted to dig a little bit into the local brands and I guess first off can you be ballpark what percentage of the revenue base. There. It's already been activated with the increase investments and if the brands that have not been activated how are you thinking about the phasing of the investment uptick between you know 2020, maybe 2021 at this point.
Yeah. So the the local brand so I would I was roughly say about 45% or portfolios global rant about 45 is local brands that we want to activate and then about 10% is is brands that we do not want to activate and largely run them for gosh.
Of those logo brand those 45% most of them have been a activated I wouldn't say yet with the optimal media spend yet so that's that's where we want to increase it but the ones that that we have been able to increase media and reposition them and give them sort of.
The new.
A new purpose then has worked really well for us so one of the the most striking examples with the would be Jubilee in Russia, which is.
A legacy biscuit, Brent, which was kind of dormant <unk> revamped. It then is now showing double digit growth in a strong marketing increase every see that with the number of brands flew in Europe V.C.W. the number of wrapped around the world. So I wouldn't say that it's.
It it within that 45% that Bart was not activated than other parts was activated no but overall the the logo brand are growing 3.2% versus the global brands, but the logo brand. So now getting very close to category growth and we really want them to be in line with category growth in the global rents clearly needs to be above that that's that's.
The way, we think about it.
Okay. Let me just to follow up on that where you had increased the investment in those local brands I'm curious how your competitors are responding or you seen them generally staying rational in terms of pricing and you know kind of following year lead doubling down in marketing and innovation of their own.
The observations there so far in terms of the competitive dynamics.
Well, we try to avoid to run price promotions and so on on the local brand. So the reaction there has been I mean, I wouldn't say, we really never in a in a price war.
As I think about it around the world Yeah as as we move some of these bloke local breath and sometimes we move them more into the sustainability direction and things like that yeah. There is.
A a reaction of competition trying to do the same but I think overall, that's very good for the category because that will help the consumer increase its interest in our category. So we're not against it I think it's a it's a good movement overall.
Great. Thank you for your time okay.
Let's take our next question from Chris agree with equal.
Hi, good eating.
Right right right I just had a question if I could ask first and I don't think you've addressed it yet, but just I'm curious what rate of inflation use spectral this year and then related to that you talk about some pricing you'd have some cost savings can be through is it pricing that mostly upsets cost inflation for the year or will you need so maybe you're simplified to grow savings dumps doesn't let as well.
Yeah.
[noise]. So you know I think when you look at the last couple of years, we have seen quite the Beatles inflation pressure, mostly around I would say transportational cause labor costs, and I will that for <unk>.
Really with the dollar strengthening there was a big inflation component attached to that.
Commodities, where a little bit more favorable than the last five years over the last couple of years I will say as we move forward, we see a little bit off more a normal inflation pressure around laboring clearly there are differences around the world that are you know economies like India away.
Labor inflation is is quite high but overall for the company does a little bit low <unk>, but really we see a little bit more like commodity three than inflation, particularly call call Daddy's, another one and packaging cost as well so only know we expect commodities for.
Works on inflation to be plenty plenty in the ballpark on what we have seen in a in 19 and so we expect obviously to to price that the way in in the short term I think we do as a company a good job in putting in place good corporate stoppage and it's all we have never had from out in terms of some of these commodities.
Or you know even from packaging inflation can be covert wild through beggars instruments.
And so in the short term Lois type to fight the best balance between you know our volume our pricing an hour inflation in the long term or in the medium tell them, we really want to prices. The way I can give you. The exact number in terms of pricing, we don't guide tool and break down between you know what we say in terms of revenue in volume and price.
I think it is fair to say I don't see dynamics changing from optically into 20 plenty.
What we do in himself you know productivity and cost savings finish at these realities, what we would like to do we use for that money to be half reinvested back into the business and fun a in Seattle to marketing investments and there has to be dropped to develop a lie. So that's the way we think we see.
Productivity and cost saving initiatives to be the real upside the margin and step Ah investments.
Okay. Thank you for that and I had just one of their quick question what should be.
And I think would.
I think it's good plus 100 wrote to market investments, but you've you've had expansion of distribution and some of the faster growth channels you talk about the U.S. to clubs doors discount stores I think it's also occurring in the emerging market was curious is that an incremental investor level for you is across the more that part of your investment in 2020, as well and to see that'd be.
Contributed a revenue growth.
Yes.
<unk>, if I would summarize what we did in 19, which we are largely repeating in 20, maybe even increasing a little bit.
In the developed markets that would be particularly around to seasonals that we try to have a better and stronger in store presence and then also going into the what we call. The alternative girl channels in U.S. that would be convenience for incident with a bit more manpower a bit.
Morning investment in there in the emerging markets.
He has to see with physical distribution opening more distribution centres, having more trucks on the road, putting more a cooler in the stores in in India, but also in China for instance, it means going into 30 or C.D. setting up sales teams, there and and are starting to cover the city.
Praises him China, we've added about 140000, new stores. This year than we are planning to continue that into the 2020. So it it does help our revenue clearly.
Being well above category growth in China, and we are seeing very strong double digit growth in in a in India and we we are counting that the distribution expansion is is helping us and at the same family. The developed markets. We we want to continue that shift into more seasonal thing more alternative grow channels.
Which also will help or revenue growth.
Well take our next question from Steve strict cool, yeah with D.B.S. [noise].
[noise] hi, good afternoon.
So.
The jerk a quick question for you to kick off.
<unk> about the outlook for 2020 in your guys for 3% plus gross.
Actually we think about how you <unk> evaluated macro considerations, whether it be which kind of unfolding in front of us in China, right now where even with some of the other multinational companies have sided with macro softness in so like countries across [noise], South American or the you cut out discrete issues for the powder beverage category, but love to hear.
Review on those two macros situations and have a quick falling for Luka.
Okay.
So if if I start with maybe the the developed markets. If if we see a little bit over pulled back in develop markets, which we don't see at the moment to be honest B.C., so very vibrant grilled in Europe and in the U.S. So it's it's clearly no visible for us.
But I would say on our snacking categories out a little bit more resilient, if there would be a bull back in the economy.
Than other FMCG or categories.
Tensions between the U.S. and others are really not are currently impacting us <unk> I would say is a risk although I don't see it in 2020, but if if there would be no deal near the end of the year that that would be possibly a a disruptive.
But I assume at this stage that they will find a deal in that it will be a relatively smooth transition.
India emerging markets and I know that some some of our colleagues are seeing different impact there.
We we are not feeling an impact in India or in China, but we would probably be a bit more cautious around the projections for Latin America.
<unk>, obviously, we have high inflationary environment in Argentina.
Reach we are largely managing to protect our scale and are absolute roughly generation as well as our cash flow in the country.
And we do know and N.B.C. It of course that there is more volatility in emerging markets, but we feel that the growth opportunities far outweigh the risks of that.
You have to also take into account that snacking behavior and snacking demand is still growing very fast into these markets and and there's still a lot of runway there and then I I would overall say that are categories are showing an acceleration into into an 2019 before.
Forecasting them at 3%, which is our long term expectation for our categories. We don't see that the moment, that's as being you risk.
Because we believed that there is still a lot of opportunity for consumers to to keep on snacking more than putting scissors 30. We recently did about the state of snacking clearly showed that the behavior is a is on the optic. So overall I I would say we cannot come from some of the other impressions that you've heard from some of our colleagues we feel pretty good about what we're seeing.
Around the world.
Thanks.
Quick question for Luka did I Miss in your prepared remarks for fiscal 20 guidance, what the EBIT dollar outlook would be on accounting currency basis to kind of get to the algorithm you're on E.P.S.
We purposely even gold day on the Saturday, we game you enough elements I I can be in common tend to beat on a you know what type of cross project goal. He sees a 40 year. Obviously, we expect a gross profit to be the source of funding for AIDS.
And at all to market. The long term algorithm implies a strong meet single digit like roll and and again I think in a in a plane <unk>, we should be a at on the ball. There. We believe you know in the end the way we are under the business. We cheese, we won't we'll have volume.
Girl, we want to have shared gain somebody find a category girl that these are projected and actually thing.
The L.S.D. I toss, 2.8% so roundabout free.
I think that gives us together would cost savings and investments in a in the business the ability for US you know by not even counting much on below that the or the bit line items gives us the ability to achieve the high single digits it'd be asked that you know he's part of the guidance we gave for 2020.
<unk> that three philosophy to them on all three castle thing he's our long term guidance for fashion.
Steve just before we switch to the next question did your question also consider the Corona virus in in China was that because I have largely.
Talked about the economy's that we see around the world, but maybe it's also good that I comment a little bit China, and the Corona fire situation for us.
So quickly Chinese about a 1 billion net revenue country for us so about four and a half per cent, we had a very strong 2019 and you'd contributed.
<unk>.
We do believe that it will be an impact on our Q1 revenue, but it's really too early to quantify for us at this point, we are monitoring the situation closely and real updated you. If in case there is something that we need to report the outbreak has come during Chinese new year, which is a dime of hi consumption or sell.
<unk> was in line with expectations was quite good we now have to seem to coming weeks what has happened to be the sell out during Chinese new year. The other thing that is happening is that normally today, our factories three or four factories in China's two of our factories out in the region.
Comedy would have started up our factories again the government the local government disaster to keep our factories clothes for another 10 years, Oh, sorry, [laughter] 10 days.
In in order to not have.
Too much of a of a a risk with the infection and we also have voluntarily put some travel restrictions to do our own people to travel less within China and also for our global people to travel less to China.
But overall I I would like to a point out that we do believe that this could have a a short term impact but long term be continued to be very convinced for the outlook of the Chinese market for us.
Great. Thank you.
Thank you same.
Oh My next question is from Jason with Goldman Sachs.
If folks thanks to squeeze you mean, much appreciated and I'm happy belated new year.
I have to do things for me for first congrats on on a road on a solid year. It it's great to see the momentum, particularly in on your core business biscuits and chocolate performing quite nicely. The the gum in confection side, though continues to English on market share side. It's.
Can you touch on what if any plans you have to resuscitate that business. So that's that's the question one and then second question in the context of over all the business doing pretty pretty solid with the port full you have.
Can you also didn't touch them on your strategic ambitions as we think about in a in some of the investments that you have out there the potential montage them the potential to reallocate some of those to build your portfolio new areas just update it's on your broader thought process on on strategic direction. Thank you.
Okay, well, what I Louise maybe I'll talk about becoming candy and the lubricant dark a little bit about our M.A. and a strategic investment. So there is a clear distinction this year in 19 between gum and candy on gum.
What is chain store or not change. These the fact that we are doing very well in emerging markets, where we are gaining share in our gun business. We have yesterday very good revenue growth regain share, particularly in China, which is our second biggest gum market in the world any.
Brazil, we we are gaining share it is clearly not the strongest category in those markets, but it is positive growth for the category impulsive share for us in emerging markets.
Continue to be a challenging in developed markets largely in U.S. European It will clearly seeing a better situation.
But it's it's a is U.S. that ER continues to be very difficult for us the categories <unk> displaying now low grow old buddies growing but we are still losing some share and and we have some fundamental category challenges and we have some brand challenges with with I would say that the on on our major Brent.
Right and things are are are quite Ah, okay. It's into smaller brands, which we are gradually I would say flush out of the system. That's what is.
<unk> continue to share loss for us.
As it relates to a candy I would say the reason why candy was not as vibrant. This year was largely due to the U.S. market, where we had a capacity issue that capacity issue is now solved and we expect a much better 2024 eye candy business in in the U.S.
I would say that as we look at the future plans for for gum.
It's a difficult situation for us because governments very profitable and gives a scaling key markets. So it's not something that we can just sort of Ah shift aside we are working on a number of initiatives to address that shared big lying first of all as I said strengthening our core brands likes thrive in in China or.
I didn't in U.S., improving quality changing the positioning improving their positioning be doing expansion into means that of course doesn't solve our gum problem, but that does reinforce the brand and we everything very good results with that in for instance, France with Hollywood and then we have first started to launch a number of new experiences.
New reasons to chew.
Particularly in Brazil, and we're also seeing some very good traction on that so we have the first sort of a test and learns as it relates to the new thing initiatives on gum, and we have to see how they'll spend an outing 2020 . So maybe look or you can talk about the accounting maybe less thought with coffee.
And I would start by saying that the J. These are performing well and are very attractive but at this point in time.
Himself a walk we have all with these cry that say financial investment and so that would be appointed time, where we relax it those those investments.
They are good investment they continued to perform quite strongly we had.
You know good earn scroll related to them in a in 1999, we are expecting Sony during drove into 2020.
The category South continues to be a attractive I think in the password commentator needing to you know I'll watch it would welcome an I.P.O.J.D. I think that would establish a public mark or that investments.
We believe about that that eventually will improve our value over all as a as <unk> I think these I good assets and I think is we would allow you guys to do with proper some of the part another this for for more lilies by the way you know all all the subway or for for that I would say also that J.D.'s.
Values 20, a great company us quite a bit of on top of financial eat that compiling all story as as a company and it is a little bit more than a than rustling around I think it you know these company that has a big presence in a premium segment to walk we call instant coffee and a and only.
<unk> as well as a professional <unk> himself you know away from home and servicing other occasions, then in Hong Kong. So I'm just so we think like good about the about those and you said that the timing of the access as we all with that will depend upon how much potential we still see in those companies and.
You know it inappropriate use of funds, which potentially ease up better and then a and you know assets that we liking a into snacking landscape globally.
Will remain a a disciplinarian from solve file them in a and we had discussed that our preference I just pointing tiniest on both times. We are looking at a premium wellbeing areas adjacent sees and trying to feel <unk> people follow that we have <unk> geographically and and.
Topically wise in in some places around the world. So we believe that by staying decent clean.
We have we will have the ability you know in some of these gaps and step up even more our girlfriends on the top line and and on earnings as well.
Great. Thank you so much.
<unk>.
Like our final question.
Think of my trap.
Good afternoon, everyone I just have two quick questions.
One is on the investment.
So do they become self funding I know they had good returns, but how do you think about the years in which they will just kinda kinda be a certain.
Virtuous cycle and the second question I have it in Europe .
What has the utilization rates in in the facilities where are they now in it where they looked to me because it you know it seems like that part of the opportunity that you guys continue to leverage over time is as you get more volume through it is operating leverage and I'll leave it tho those too.
Okay, maybe I'll I'll talk about the investments in the look and talk about the operating leverage yeah. So.
When the investments or become a cell funding I think.
It's still a little bit away for us we feel that we have potential to drive the categories around the world.
And we see good reaction good return on investment still and so as we are trying to develop a long term algorithm daddy's repeatable year. After year at this stage you'd feel that the algorithm allows us to keep on adding more investment every year and hopefully that translating.
So let me down and.
And so I would say <unk> at a certain states extra investment will not generate more growth and then we have to start questioning it but at this stacy seats, working really well for us. So he decided funding I mean for <unk>, we'll be able to that either on the prime resolve shankle, hi single digit P.S. and three.
You know of cash flow that algorithm itself includes the level of investments, we cheese factory and entities, you know, allowing us to handle on now all those numbers I think in the end the measure of success for US is whether we would be able to that neither shad games consistently.
The second one is if we increase I wore volume consistently all of that came to <unk> 2019.
Then the second part of the question I, there was a little bit of a disturbance in the line could you repeat it maybe I think I I <unk> yeah.
I'm a European <unk> on the European side, you know it seems like you keep on getting Marge makes match. It you utilization you know <unk> basically the assets have been put together through acquisitions as you keep on getting leverage and do some restructuring a little bit. It sounds like you know the utilization rate should continue to increase.
Wherever they been where are they and where are they going I guess, it's kind of what I'm thinking.
Yeah look I think in general terms, we don't comment on capacity utilization Buddies I I think that you know that that will be it'd be tough.
Much of a comment I would say.
Look we had invested white the between term solve a bowl, creating and more nimble and the more flexible organization both in overheads and an infrastructure is not only like a c. site, we invested in a in brand new sites in Europe in Europe , I remind you easily.
Be more men Continental Europe or U.K. These also rush in our case, so I would characterize the old state to solve the facilities in a in Europe quite good it can be further optimized but we still have available capacity in terms. So you know of continuing growing the big blockbuster brands that.
We have middle Skies. One example, cabaret orrell, but also the local Brian's and I think that's well we are working on.
Great. Thank you very much thanks.
Thank you well in conclusion, I would say that 2019 with a major step forward for the company and it was the first full year of executing our new strategy.
We've successfully launched and driven this more consumer centric approach.
Get growth across organization and as a result, we are building in a an effective local her sculpture that is delivering.
We had a good finish through the year read broad based a revenue growth and strong earnings in cash flow.
And the momentum we've created to cross our brands in our geography. This past year reinforces our confidence that we have in our strategy or people and our ability to execute.
They certainly more work to do in a long way of opportunities. He's ahead of us, but we believe that the early success or combines with yet directive category dynamics and her there's target that a investment provides us greater confidence that weekend delivered sustained long-term growth and attractive.
Total returns with that I would like to end the call. Thank you for assisting.
And then from 10 minutes.
Conference call thinking for participating give me now just kind of.