Q1 2020 Earnings Call

[music].

Good day and welcome to the Mondelez International first quarter 2020, <unk> earnings Conference call.

Today's call is scheduled to last about one hour, including remarks, My mom believes 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 anytime during the call.

I'd now like to turn the call over to Mr. ship Dunlop Vice President Investor Relations firm Mountains. Lee. Please go ahead Sir.

Good afternoon, and thanks for joining US with me today are Dirk van to put our chairman and CEO Lukas there are a miller our CFO earlier today, we sent out or press release and presentation slides, which are available on our website Mondelz 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 risk factors contained in our 10-K. Thank you and 8-K filings for more details are forward looking statements as we discuss our results today unless noted the report.

It will be referencing our non-GAAP financial measures, which adjusts 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 a comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of slide presentation before I speak to the agenda I would like to remind everyone that we have an upcoming investor call on may eight to coincide with our annual snacking made right report.

Both Dirk in our Chief impact Officer, Chris Mcgrath will discuss sustainability and wellbeing.

It will talk more about our approach targets and progress on this call as well as answer your questions on those topics.

In today's call Derek will provide a business update the Luke will take you through the financials and our outlook.

We will close with you and with that I'll now turn the call over to dark.

Thanks, Chip and Hello, everybody.

Let me begin by saying thank you to our colleagues.

For all that they are doing doing this unprecedented human crisis.

In our factories are facilities, our distribution network and our sales force. Our teams are working nights and they do keep the food supply chain going.

Our greatest assets, it's our people there determined and dedicated their 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 these difficult time.

Our investors our business part, they're saying clients and of course, our consumers.

The challenges we face our unlike anything we've seen before but we firmly believe will emerge stronger from this.

In turning to slide five we have clear priorities for managing the volatiles environment that is caused by this pandemic.

First we are supporting our colleagues, they're real being is our highest concern.

We've put in place strict held protocols, including temperature screening social distancing mask layering.

And the mandatory work from home policy for everyone who can.

And we've provided frontline employees with enhanced benefit we extend that 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'd also supporting our communities in March we announced a program to donate 15 million in cash and products to cope with 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 at the National Health service thrust in UK and food banks across Latin America to name a few.

In addition, our themes have responded to local needs with creative solutions.

For instance, in the UK in Slovakia read redeployed, our threed printers to create parts for face masks used by front line care workers.

And in several markets, we started making hand sanitizers.

I'm very proud of our response and belief 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 gays fill rates effect, our at better than average levels.

We've seen an increase in demand in developed markets and we've met that by focusing on the most important this can use.

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 maintain our cost discipline and managed cash appropriately we've made adjustment to spending like more tailored promotions and in a and C. Just focus on working media.

We reducing non critical capital expenditures and are maintaining strict control over working capital in inventory.

Every year also closely monitoring foreign exchange markets, and adjusting where necessary.

Under these circumstances, we're 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 at sort of a.

Attractive levels.

Yeah.

Overall.

Our priority is clearly to emerge stronger from this.

We're confident that we can do that because before they epidemic two colt 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 have now accelerating a number of strategic initiatives and continuing to invest in our brands and capabilities to remain the preferred choice two 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 of 6.4% driven by developed markets performing strongly in March.

Overall, the first two months of the quarter vote 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 riots in the accountability, where they are almost there or where they are the most need it.

Also North America, and Europe became strong drivers.

Consumers not only stocks the up but also consume more of their trusted brands in and including some new consumers entering into our brands.

Execution was strong for our Easter business and our theme sort of 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 have quite abrupt lockdowns that made sales and distribution more difficult.

Because of the lock down three also saw decreased offtake in the traditional trades.

And these locked down 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 covert.

Our world to travel retail business dropped significantly and also away from home was impacted.

All this that the reduction in traditional trades and the away from home hit gum, and Candy, which is sold the sold more often in away from home channels.

We also incurred higher costs to keep glide supplied.

The mix changed due to higher demand for larger family packs for instance.

Our supply chain cost also rose because we had to higher temporary workers.

We have to increase compensation and soft costs for distribution increase.

Have you did see some currency impacts in emerging markets.

So far in April.

What we see that where we have the freedom to operate we are doing quite well in developed markets. We continue to see elevated demand so not at the same level as in March.

And in emerging markets, we do have clear headwinds driven by Lockdowns and potential economics 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 effective and we will see the ongoing impact of Forex.

Oh this.

Makes it difficult to forecast what will happen, but overall, we do expect to come out of the stronger will increase 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 covert 19.

And that's 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 rates risk it and we didn't all posted mid teens growth or more in the first quarter, which drove share gains of two and a half points in the last is in the last reading.

In China, we saw share gains of seven points in the late this three they.

And then do you gave you saw gains of 1.5 points over the Easter period.

While dynamics are 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 eight 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 leaders in resilient categories and have an unrivaled portfolio of global and local brands.

We've seen consumer snacking more.

They are looking for that moment of comfort offered by biscuits and chocolate in todays stressful circumstances.

In particular, our trusted brands and our based of the nation brands bring a sense of normalcy.

And we can give the consumer that normalcy with our brands around the world.

So since we have a unique set up thanks to our brands also art organization and scale.

We are convinced our categories will continue to present significant opportunities.

We're 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 the U.S.

Through our deep rooted local distribution any markets in emerging markets.

We'll 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 strength.

Because we further strengthened our balance sheet and 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 nine.

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 shift as required.

We are convinced our strategy is the right one.

And is proving to be a plus in the current situation.

Our local first approach, which strong local business unit that power meant 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 thrust in familiar product.

And as you know a big chunk of our portfolio our local brands.

We're also taking the opportunity to accelerate certain initiatives.

In growth.

We are adjusting our marketing and innovation project by increasing our spent on working media and at the same time simplifying our portfolio.

In addition, we see opportunities in both revenue management end in E Commerce, where we can capitalize on increased demand from at home shopping.

On execution will increase our supply chain efficiency, while continue to reduce our cost basis.

We're also streamlining the amount of projects and activities here.

I think culture will built 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 Rs important as ever.

Companies need to be doing the right thing.

And due to this crisis, the consumable become even more confidence about the fragility of our planet's.

So our focus is on protecting our ecosystem.

We are caring for our people.

We've made donations to super support our communities.

We've increased the credit support to our suppliers and our distributors to help them, whether the crisis and we've determined to continue to deliver on our environmental and social goals.

And on May eight as chip mentioned, we will have especially investor session to highlight our E as GE targets and plans.

We invite you all to join the call.

And with that I will hand, it over to Luca.

Thank you the Afghan ER docs.

Before getting into our financial resolved I.

I would like to one called the its common money constant thanking our people and teams across this company.

I'm really proud of holiday.

Hi station that's come together in the face of C of the situation enrolled they are resolved energy and create D to how class navigate challenges and finding solutions.

With respect to resolve we have strong performance in the first quarter on both the top and bottom line.

Our revenue grew by 6.4%.

Well supported by the expansion in each one of our four regions. We started last time in North America.

We also believe or lack of shankill performance throughout the quarter due to combination of supply chain and safe execution as well as nickel nice quality of our global and local Brian.

These factors enabled by the culture by 50 basis points told me yesterday phases, and one on Naples meeting all the gain share it make sense Caballo Blanco things.

Our revenue growth driven by favorable volume and pricing dynamics.

Enable basketball sold and probably baller NPS called despite some significant obviously like that calls.

In addition to turning in a good PNM performance. We also took an opportunity outbound abundance of caution.

Further strengthening our balance sheet completion and liquidity profile.

On Slide 13, you can see we performed well across all our key metrics importantly, we generated significant profit dollar coal volume leverage that offset except costs related to coffee.

This allowed us to invest more agency in the quarter.

Moving to slide 14.

We saw our topline resolved lead them by an acceleration we now when we bought up market, which grew more than 7%.

These markets weapon for Meanwhile, through February before stepped up the March you to increase in whole consumption.

This time as extended equal, though at the last elevated rate and predominantly North America. As you look positive impact and we paid is offset by had we see now what will travel retail business.

Emerging market growth was 4.5% or 2.4, when excluding Argentina.

Similar to develop market and leading China side, the setup countries, both performing bagwell ending line with our expectations for the first two months of the quarter.

Before strict look downs in late March began to have them I eat and pack one traditional trade.

China was a bright spot as the team did an outstanding job and demonstrated resilience in order to not only bounced back from called between eight and had weak, but actually Paul's low single digit growth for the entire quarter.

Overall, the potential of emerging markets remains unchanged and we will continue to invest appropriately to maximize long term growth opportunities in these markets.

[noise] discussed is performing extremely well given the advantage position I trusted brands that we had predominantly in developed markets.

I will collect all girls was positive about impacted by some emerging market look dolls, but equally India and that was probably paid business.

Overall, notwithstanding some college related headwinds, we were very happy with our chocolate performance in Q1.

Now, let's review our ability on slide 15.

We increased gross profit by nearly 6%. Thank you want.

Some volume in developed markets was partially offset by roughly flat volume mix in emerging markets, primarily as a result Colby disruptions.

I think was positive across both developed and emerging markets.

And in all of our four reasons.

Additional costs associated with overtime.

Some line workforce bonuses and customer service and logistics tempered gross profits resolved.

Operating income grew nearly 6% at higher agency in front line expenses were partially offset by cost reduction programs and volume mix gains.

Moving to regional performance onus on slide 16.

North America grew 13.4%.

Driven by strong show gays and call with related consumption.

Biscuits growth was broad based across both global and local Brian.

Oreo Belvita free play scale, and we things all posted mid teens growth or more.

Sounds good execution in manufacturing, our <unk> robots, DSD network and I'll turn I think China go Glob by you and Commerce were critical factors in achieving these performance.

Although the portable song, we see soccer, resulting Dom give any to impulse nature and the lagging convenience relative to other channels as well as some share losses in now.

The North American region grew operating income by more than 90% as significant volume leverage more than offset additional labor and execution calls.

You are executed well in the quarter with revenue growth of 4.3%.

Some savings supply chain and Brent execution resulted in a largely volume driven growth quarter.

The UK, Germany, and Italy, all grew mid single digit.

Like Russia continues its momentum with high single girl behind some volumes and share gains.

Our Easter seasonal successful weeks flat year over year goal.

We see is outstanding even in a short Easter season, and called it related challenges importantly, we believe the early sellout data suggests share gains.

On the flip side, we did experience some headwinds related to the convenience channels, mostly in war traveled repaid and gum.

Adjusted like dollar declined slightly due to a more difficult compare related to commodity costs pipeline.

Which we expect it and we mentioned to you last quarter.

As well as some higher is it calls and some called it related costs.

EMEA grew 2.2% with some different dynamics across the region.

And number of markets, such as India Southeast Asia, So significant disruptions late in the quarter related to strict meltdowns that caused widespread traditional trade closures as well as some difficulties to operate.

In fact, both India and Southeast Asia were slightly positive for the quarter.

China over quite a while from the locked down and grew low single digits in the quarter behind some of these gets resolved.

Australia, New Zealand believer and good performance with mid single digit growth behind strong Easter execution and share gains in chocolate.

Overall and on the positive side I mean, he's posting a very good performance on shares with widespread gains.

EMEA operating income dollars declined by approximately 8% due primarily to lower than typical volumes and leverage in addition to extract costs related to called it.

Latin America grew 7% due primarily to inflation do you can go in Argentina.

Revenue was flat when excluding Argentina.

Mexico grew slightly behind solid this good performance and although the market declining gum and candy we grew share.

In Brazil, we were flat.

Biscuits and candy West solid why the powder beverage category continued to decline.

We took actions in Q1 at all your marketing communication and product formulation, but b piece very early stages.

I was less than on get countries, where he harvesting that agent by called it.

Aggressive locked down and the significant impact on the traditional trade, which is most of the business in this country club.

Adjusted $1 in Latin America declined by Sea and how you are saying primarily due to headwinds associated with negative mix as well as impact of currency.

Turning to the Asms like 20.

You want to EPS grew nearly 11%.

This increase primarily reflected operating gain threatened by them equal.

Clearly, we sold impact so called within the topline as well as you know additional expenses to keep the operations running at the like levels.

Moving forward, we expect cost related to labor customer service and logistics to increase and we expect that negative mix impact.

Our teams are working to find offset however, we expect the net effect on earnings to be significant in terms of additional cost as we look at Q2 and into the second huh.

I will now move on to our free cash flow resolve it sounds like 91.

We don't need our free cash flow of $17 million, which was in line with our clients and including some discrete in direct tax payments.

Yeah, I'm paying some rigor around both working capital and overall cash management.

We have clear priorities for the remainder here, which include protecting Catholics why would you see more critical items.

Optimizing discretionary cash spending.

And aligning restructuring initiatives to me in these operating environment.

Moving to page 22.

We returned 1.1 billion to our shareholders in the first quarter.

As a cautionary measure we make the decision to sustain our share buyback program.

There is no change to our long or short term dividend policy.

Although we maintain a although we may adjust optics to reduce noncritical uses of cash and maximize liquidity, our focus and prioritization of investing in our business is unchanged.

Why don't capital allocation I wanted to make mention of our recent <unk> acquisition of even goal for approximately 1.2 billion, which closed on April 1st.

These core platform is a leader in the large and fast growing installed bakery channel, we fully finished fresh product.

This category has been growing mid single digit over the past several years and that's been gaining square footage in stores and be teas and demand driver.

We are excited about the opportunity to further grow this platform and cross sell with some of our traditional brain.

Although the acquisition did not close until early April the business performed well in Q1.

Let me take a moment to address on the other technologies on the mine, but investors across all of their portfolio companies, which is balance sheet time and liquidity.

We feel very good about this plan some flexibility of our balance sheet.

We have ample liquidity with approximately 9.5 billion not committed and mostly undrawn credit facilities.

In addition, we have opened and low cost access to that capital market.

This includes commercial paper older leasing 1 billion in that that we should earlier this month at favorable rates.

Let me underscore that we are committed to maintaining our investment grade spaces and access to tier two commercial paper.

As you saw from our release earlier, we have no longer providing a financial out outlook for the full year Twentytwenty.

The outlook for the balance of the depends heavily on the expected impact of quality to 19, and they duration of the stay at home orders across regions.

Both of which remain uncertain limiting our ability to forecast me precision.

If you additional on probably like to me relating to our outlook in here.

Our we are focusing his old is on all of our people and goals that play a key at all across our manufacturing distribution and chase function.

We are seeing incremental costs and cannot predict what you had when my emerge as a result, the coffee prices.

We will make decisions to protect our people and come out of this situation stronger.

Given the circumstances quarterly earnings will obviously be less of a priority.

But our long term strategy and focus around investing in our business and driving ballast profitable goal has not changed.

Although we're not providing full year guidance at this time I wanted to share some thoughts regarding tailwinds and headwinds from the second quarter.

With respect to pay win.

We expect continued positive impact from increasing home consumption and expandable consumption in developed markets, especially in the scale. We're also taking some actions to mitigate costs across the business, which means taking a fresh look at the entire business and looking for additional opportunity that do not impact.

Now what revenue generating investment.

We also expect something we saw from optimizing a seem batsmen, which means the timing is likely to ship in certain cases from Q2 to the second huh.

In terms of expected headwinds.

We expect the negative impact that we sold in late March into April two competing in emerging markets as it relates to traditional trade cultures.

Well traveled retain which is a few hundred million, but our business is expected to see significant declines.

Our gum category, which is consumed more than our other Catholic was out of home and these than most impulse nature is expected to see material declines.

And we expect higher cost to drive our kind corporation and support the continuity of business during the crisis.

Currency impact is great and now than earlier this year as we stand today, you will decrease full year net revenue goal by approximately 4% 5%.

And adjusted EPS by approximately 10 cents.

We will continue to monitor the situation and keep you updated as appropriate.

Our long term growth algorithm is unchanged.

As Dick said earlier, we will continue to run this business for me to long term sustainable growth, which means we are investing to win in the market by delivering share gains to drive profit dollars and to return capital to our shareholders.

I'll now turn it over to be for some closing comments.

Thank you Luca.

As we look to the next weeks and months.

We are clear about our priority our first interested in taking care of our people keeping them protected and being a good partners to customers and suppliers by taking care of our ecosystem.

As stated why we may see headwinds in the short term in emerging markets. Our long term in emerging market opportunities remain significant so real stay the course.

Our priority is to ensure routes to market remain intact. So we can recover immediately the minutes that markets emerge from locked down.

We are prepared to ride the wave of increased demand in our developed markets and we'll focus on ensuring our supply chain remain strong to fulfill the increased demand.

The current environment is dynamic and everyday brings new challenges. So we will continue to be add child and activate speed to deal with them.

And even if we see headwinds in the second quarters, we have everything we need to emerge stronger and faster and as such will continue to invest in our brands our customers and our people.

With that I will turn to ship to open the QNX.

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You asked a question you any depressed our one on your telephone to withdraw your question press. The pound key please standby will be come out of Q1 day roster.

Your first question is from Andrew let's start with Barclays.

Great. Thanks, very much everybody can start to start off you talked a number of times about looking to emerge from all this in a stronger position I was hoping you could expand a bit on that you know it's clear marketshare took a big step forward and it seems like scale brand strength supply chain have all been.

<unk> pretty clear advantages at this stage, but I guess should we anticipate some additional investment over the year progressive if there are opportunities to do so and if so what four might those take whether it's your advertising go to market investments in such a that'd be helpful. In and just have a quick follow.

Okay. Thank you Andrew.

Hmm I would say first of all be entering this crisis, a unlike in the past or from a position of strength.

And Oh, we our strategy is working we saw good growth in January and February and we had a recipe that was working for us and we are trying to get back to the recipe as soon as we possibly can and we get the behind us.

Sure you pointed out a few things there.

Categories. If you go back to past a crisis.

Particularly biscuits, but also chocolate tend to do quite well gum and candy a little bit less but also a meals cheese.

In in these circumstances.

Not that much affected and sometime see increased consumption as you for instance, can see right now with a with biscuits.

While we are of the global market leaders, we still have significant headroom to grow and you saw the results of this quarter and I think that will still be a big possibility for us to coupon increasing our market shares, particularly in circumstances, where some of the more local or smaller competition might have slightly harvest time a them.

We do.

I think we have the right set up with the local teams are this changing the structure that we that we saw in China.

Three or 3% plus growth in China in the first quarter is excellent work by our team and that is.

Through the fact that they they they made the decisions right away in the were on the ball and could make things happen without having to pass a lot.

Things.

And then I.

I think we still have if the opportunity to go wide with our categories, both organically and without brands and we can go also inorganically. Maybe this this a period offers an opportunity just as we have recently than a perfect done with perfect snacks and.

And given go.

There's a number of other things I think that we are working on the execution has been excellent for us.

We are reducing.

Investment in the second quarters and trying to increase our investment in the in the first in the first fourth quarter, which would mean over the year that probably be will not increase our investment but at least keep it stable and have a significant increase when things are back to normal in the second half of the years of our investments and see so.

From a a return to two growth as soon as we can or continuation of growth depending on what happens in the second quarter.

So I think all that are reasons for us that we believe that we can emerge from this a stronger.

Every year, our company accompanying all that to assess Luka said be the strong focus on costs, which allow us to do that extra investment in the in the second half and absorb some of the the headwinds that we will be facing so I think those are.

Some of the reasons. The main reasons why we believe that we can come out of the stronger and that's really our focus.

Okay. Thank you for that and then just a quick one maybe just a if you could a quick walk around just some of it in emerging markets. Yeah, you know, they're not all created equal and how long you maybe see it taking in some of these key markets to get back to a more normalized consumption pattern.

Obviously, you know with with the best information we have today. Thank you.

Yes, yeah.

So I I first of all I think that's you know we have strong positions, we have a clear strategy in in these markets and we have strong local management, which is critical in these times.

If you start to group our emerging markets overall, there there's about let's call. It a 37% of on a net revenue, but if you look at the groups within that I think it's important to to sort of separate them and understand a little bit what's going on so first there is China China is a.

Over 10% of our emerging markets, we saw low single digit growth in Q1.

We had a strong bounced back we had significant share gains and.

While maybe the categories biscuits, and gum or not quite back to where they work before the crisis through that market share gain we are doing quite well and we see the market's recovering gradually.

India is another important market for us of course are also a 10% of our emerging markets.

A significant closures of the traditional trade at the moment, which is about 75% of our revenues. There's clear some short term impact, but we expect a sequential easing of restrictions. We are very strong distribution system. We've got products that are across all price points with.

Strong presence in low unit price.

So I think the return there will be will be fast plus we are we can still grow by.

We're increasing our distribution and going into adjacent Ses and then the last one there southeast Asia is really into a similar position us India. So that clustered I would say China is already kinda back in India Southeast Asia will go fast.

A second clustering eastern and central Europe, not that heavily affected in the first quarter, there will be more locked down restrictions in in the first half of April but overall divisional trade is only about 20% of revenues. There. We have a strong team. We did also if stronger chair.

Games every ever very good branding strategy. So we think this part will not be as heavily affected and we will be back to normal quite strongly and then switching to Latin America, Mexico, which assists models those European markets are more than 20% of our emerging markets and then Mexico, we think.

But we have a macro and for a environment that soft but operations are continuing to run well. There later to the crisis and we see a deeper contraction, but we have a strong consistent trackers. The everything we will come back a fast so I would say about tutors already emerging markets, we feel pretty good about and then.

The others, that's where we have much stronger traditional trade I'm talking about Argentina, Brazil.

Middle Eastern Africa, and and walk them I think those will take a little bit more time. The there is a dynamic of traditional trade is closed with some devaluation so that it and we'll need to be some pricing. It's it's only one third of our emerging markets, but that will remain so what a challenge to end.

So we'll probably take us.

Six to nine months or two to return here. So that's sort of quick towards about around our emerging markets I hope. It was helpful. But I think is it's important to group it in different clusters, because they're not the all created equal yeah. Thanks very much.

Thank you.

Thanks, Andrew.

Your next question is from DRAM <unk> with Morgan Stanley.

Okay.

Hey, guys hope everyone through well in this environment.

In their Jefferson I hope the same.

You know first in developed markets, where you've seen the advanced rates can you discuss how much the increase today and maybe more consumer pantry loading versus actual increased consumption.

Based on the research you mentioned, you know how sticky higher consumption levels might be going forward when social assistance against.

And then in emerging markets all the comments around duration were helpful. Can you give us a bit more clarity on if you know Q2 in aggregate looks like the March sales decline that you guys outline a low single digit decline. Obviously, there are various puts and takes by region, but just trying to get a bit more clarity specifically on expectations for.

Q2, you know relative to what we saw in March and emerging markets region. Thanks.

Okay. Thanks, I'm sure that Luca Miller, who wants to jump in.

Certainly on the second question, but if he wants to on during the first Chris if you're not doing the same location today, we're all at home so it's a little bit less fluids. So.

Indeed, U.S. I would say, yes, there was an original pantry loading in our categories and you would see in biscuits growth that would approach, 30% and then in two weeks. After we saw that Oh come down to high single digit diverse low double digit now high single digit.

We've been interviewing consumers around the world and we can say that a it's clear that has increased snacking.

And there's three basic reasons for that and as we as we saw the first one is that there's a lot of out of home consumption. Then has now shifted to in home an in home there is more grazing more continuous eating and and snacking takes up a much bigger role.

Particularly biscuits.

The the snacking categories that consumer Stellars. They are eating more is g. So Philadelphia is benefiting also is a fruit the veggies is biscuits and some saw and salty snacks. So.

That's the one reason the second reason is that sharing a snack with your kids as everybody sort of go up in the house brings back or a feeling of normal see of togetherness combing everybody down and we see them quote that as a as a big reason and the third one is that.

There's some more experimenting going on we see consumers new consumers entering our brand so for brands like Oreo and a rich that was somewhere between 15% to 20%, but a in some of our other brands like FICC Newton or not or better. It's a it's over 40% new consumers. So it's.

Clearly that the consumption is going up the penetration is going up and and that's what we currently are seeing and I believe as long as we are in this uncertain situation and as long as we are I'm not having the same out of home consumption.

Other categories, particularly biscuits, but also chocolate to they'll benefit from that by the way I what I quoted here on the U.S., we see the same in Europe.

50% of consumers. There also say that they are in greasing their snacking, morro occasions, and more quantity and particularly check biscuits, but also chocolate test see as seen quite an increase there. So that's a little bit on that consumption that we're seeing in developed markets and maybe a three.

Each to emerging markets I don't know Luca if you want to take that one.

All right I can go for.

While maybe we can now use stock and then I compliment that dialogue on some the Q2 part of the question.

So there from a from in a emerging markets perspective.

What we've seeing is that.

The in March the the effect was driven by some of these very serious and severe locked downstairs started to happen in places like India, The Philippines, Malaysia.

And then they shifted a gradually into Latin America and into places like South Africa.

They.

Of course since our business is more I mean, the traditional trade there the effect has been bigger because the consumers don't go to those stores, our salesforce and distribution trucks or not always allowed to go there and the owners often close their stores.

That's is starting to come back so April for short, we will see that effect and I think that in May we will start to see a significant easing of that situation and then in in June.

We will gradually BB back to normal we're all set up to make sure that our route to market is intact. So we've been working very closely with our distributors to make sure that they're ready to go in that they're in business and surviving and we are planning to ER.

Immediately go back and even into the tough circumstances. The situation for instance in India at the beginning was much more severe than it is now it's certainly not back to selling what we were selling before but we've improved quite a bit already so I would say still a tough April may.

Are improving and then think June we should see some returned close to normal situation as it relates to visiting in selling into the search channels.

Okay.

Yeah, and more on Q2, I think as as you said yourselves that clearly set up puts and takes I'm certainly not in the last part articles opt you want in March and those will expand into into Q2 and die, but he's a page in the presentation and you put that in markets, where we discussed.

Factors that can drivers how each one we play out going forward is quite difficult to predict at this point in time and there could be both positive and negative impact affecting our quarterly earnings.

At this point quite frankly, we see a deceleration all our Q2 topline versus Q1, given that does that I highlighted de pop up in emerging markets was partially in Q1 entities are going to each school expand certainly in April and most likely into.

Our called May we also see some places that a wider supply chain is keeping up quite well I think when you asked on whereby Powell with that that's situations around the world, where we have some capacity constrained and no one will be certain places in Europe.

At least get the might be at potentially some capacity related issues are actually said very clearly a one of the elements that is coming up in Q2 is also the fact that that we see higher cost inside the business, but on the flip side, we're walking quite intensely to find out.

Any opportunities, we're not going Baskin places, where we clearly our capacity constraint aware that he must be copies. He's very I BOP has the exciting pension needs to go back in the second part of year and actually supply and the same amount of money that we had planned in our original plan in this time of uncertainties again you know.

It's difficult to make clear leaches spot, we ask you certainly because as we said we want to stay true to our strategy. We will continue to invest will go what they've said about more traditional brands being picked up by consumers. These days as never before new bus and opening to be able to eat.

For use in a stable way these brian seem to be able to our of our consumers and we want to take that that opportunity very very.

Seriously. We also as I said I'm looking at all costs and that both domestically and capturing making decisions that will affect the cost structure going for trying to offset some of the cost implications that we clearly see in part of Q1, we see more in Q2 and potentially some of that we stay also going.

<unk>.

Great that's very helpful. Thanks.

Thank you though.

Your next question is from Brian Smith with Bank of America.

Hey, good afternoon, everyone.

Hi, Ryan.

So I just had one question.

In your car on the in the conversation so far they spent a lot of focus on.

Have a lock down are affecting.

Your business in emerging markets right now and maybe how it affected in developed markets almost in a positive way.

But I guess, if we get through that.

That we end up.

Potentially with the recession in a in a period of elevated unemployment.

Could you just talked about how that factors into sort of a recovery the normalcy.

The flexibility to sort of adjust price points or do think to affect affordability, just trying to understand how a recession potentially affect.

The ability to kind of get back to normal.

Ah, yes, so the probably the points to make a here and of course, it's it's difficult to estimate because this is a very particular type of recession. We don't quite know how are we going how fast and how are we going to get out of it. So we base a little bit our learnings.

Some fast.

Recessions so.

Our our categories are.

Durable and.

They are not that much are affected by by these recessions, we've seen in the past and I'm talking largely about biscuit and ER and chocolate and in past recessions. They were affected but they didn't go down in in a major way.

I'd also say our products are affordable and they are skewed to in home consumption and as we discussed before this is really a recession whereby in home consumption is is is benefiting from it.

Even our chocolate, which is largely that with chocolate its not like bar chocolate is largely in home consumption. So I think we benefit from that and then also a private label, which in other categories does well a private label is penetration in our categories is quite low.

Although gummies not our biggest parts of our business and we've seen in past recessions that that is usually affected have you see that all already.

So our estimates at the moment was that before all this started that our categories would grow 3% globally.

We think that it's reasonable to assume that they may slow down to two 2.5%.

But we we feel that we should try to make that up by gaining share.

And as the recent periods showed that has been possible for us. The reason why we think we can do so good.

In share is that we are entering this in a position of strength I believe we've done well in investing in the last two years in our brands they are stronger.

Then the in the previous year, hence the market share increase.

The portfolios modernize their communications are much more effective.

We have seen in the past redeemed recessions, we went in trying to protect the first plays the bottom line and cutting investments.

In Branson capability that is not the right approach because that results in share loss in volume decline. So there is we will try to play a much finer balance here between topline and bottom line going forward and I think some of the issues. We've had in the past as it relates to execution North America comes to mind, the two years ago.

We don't have that at the moment and and I'm, particularly happy to see what we've done recently in these months in North America, or how China has come back and I think execution is this strength for US now having said all that we are making some adjustments that will make it easier for us during the recession.

We are reducing our portfolio and in in the number of SK use and also the number of innovation initiatives.

We are working very hard on the right pack sizes doing what we call P.B.A. on one hand to get the price points right in emerging markets, but on the other had also to have the right or at home packs.

We are already looking at investments in overhead San <unk> going to all our CBB pillars, again and doing anixter round of savings there we're doing the same in our supply chain.

And we are looking for efficiencies as it relates in our ways of working now sees the crisis shows that we can work in different ways and maybe we don't need all the offices that we had currently have around the world. So there is a major effort going but taking place as it relates to the costs. So in the business. So.

Having said all that I think that yes, there will be a recession is gonna be different by country.

Some countries have seen devaluations, where we will need to price more other countries. We're already set up well and it's really about getting in front of the consumer and communicating so it's it's a mixed bag, but we feel confident that we have the right recipe to to get through the recession recession in in a relatively strong and fab.

That way.

Thank you Jeremy Yes, maybe just one thing I would add to that is on probably another step back and you look at the broader Sarkozy, we've had that pardon me.

We still see tremendous opportunities in emerging markets in some solves a distribution go to market adjacent spaces.

And while I think on the other side you know that could be.

Organic and inorganic opportunities as well. So we are looking at probably thing and on glob trying to be ready for maybe challenging times, but we believe we can emerge even stronger in those markets.

Right. Thank you.

Thank you Bob.

Your next question is from Robert Moskow with Credit Suisse.

Hi, Thank you for the question.

Hi, Robert paragraph.

I want to know about your developed market sales into Q and any it looks like sales trends are going to remain very strong because it.

At home consumption.

Got any math to figure out how much quarter benefited from one time pantry loading.

And maybe that could help us figure out you know how to think about North America sales growth into two and maybe even in Europe.

I understand the emerging market guidance I guess.

Sure how much did you celebrate.

Developed markets to Q.

So maybe I'll start and then model there yeah, sorry, there's not going there.

No no no go ahead look on a pro I I think you know I'm not on the specific question on how much you're gonna see into Q2 again, we see heighten consumption now in North America and in some parts of Europe I think look.

The simple way to answer this question. These before on the blade cloud of Colby. Our topic was were a little bit north south of 3% and on top of that we were linked so.

I think both on positive and negative as what you see us as a difference versus the three category that people sound plus topic will end the share gains is the difference that is attributable to to call. The then I would leave it there I love it because it is quite frankly very difficult to.

Staying walk through that happened otherwise I mean, this is Alan Mitrani babysitting Mama and we could expect with anyone about I think on the other side I would also tell you when I look at a you know a generally sadly those were great most loss and that in developing marketing places.

Like India as one example, we saw exactly the same plans as last year are clearly with the exceptional upside you know that got impacted earlier. So it's very difficult for us to tell you walk we would have been but the reference point that I would have if I had to make a and educated guesses three.

Percent Topicals and solid gains in lines will walk you sold in Q4 last year to leave you a little bit of all the consumption understanding.

Okay. Thanks, a quick follow up you mentioned higher costs to drive the operations into Q.

Can you as a way to quantify your overall.

Cost increases for the year and and how much is going to be higher in Q2 versus one Q.

Okay. Again. This is a there is and why we didn't give guidance is because we don't have visibility on ensemble of these elements on particularly on the duration of the crisis and Ah you know samples of the costs are you able to underutilized assets or under absorption, which clearly.

He is a little bit of over an element that will play out into two just for reference the extra call. The cost in Q1 was not about $40 million to $50 million most likely closer to 50, then than 40 and all of the using excludes the volume impact out of college, so the only cost.

In Q1, we had 40 to 50 million Egypt tool, we're gonna see a quite a bit outside they pick up and the reason being that you know a particularly in emerging markets days I'm, a little down that was impacting our say source. The last time the costs, we continue seeing the extra bonuses.

Were paying to the sales force to people that operate in our factories. They use a higher level of absolutely Gleeson I'm and do some places there is a little bit off of a temporary label that you need and in some cases that is also lower output. So I had in mind, a number but again it is vital to limit.

We are kind of to manage it down and most importantly, what do you have to assume is that on top of that caused that would be a series of initiatives on the side I will try to minimize costs, where it doesn't really MACRA in Q2, two spine, we didn't mention again to potentially name by some of those savings in the second part of the.

Yes.

Okay. Thanks very much.

Thank you Robert.

Your next question is from Stephen straight total yet with <unk>.

Hi, Good afternoon look at quick clarification not to go back of them like not to go back to slide six too much but I think what a lot of people are trying to fill out right. Now is the difference between deceleration in Q2 and sales versus decline on a year over year basis in sales and I think before I'm hearing is.

In developed markets that should be able to the map itself should be able to offset what's happening any that'd be my quick clarification question that are more fundamental question corridor.

Look again or you can it's really tough for us to give you a number at this point in time walk you know we see we have regular calls with the agency every single week on we got two business units by business unit that is quite a bit of volatility week to week.

What I can tell you east that a you know if you ask me I may be paid to gasoline was going to be fine.

We see consternation all the U.S. quite strongly into into April and into the second part public order.

But we see material decline seen in emerging markets.

Yes dumped steel owning all I would tell you in might be now that bought that might be a situation, where that's impacting is meaning nice if we can keep up the a with the demand supply, particularly in ER in Europe and on the U.S. So at this point in time, you're not going to see Oh, hi.

Number in Q2 as as you saw in Q1, it could be potentially a negative I don't know exactly how much I don't expect it to be materially negative, but maybe in the very you a little bit of color.

Very helpful. And then dirt just wanted to think through a little bit more to maybe angela's ours question about emerging markets. How do we think about given the manager managerial changes you guys have made in the marketplace. How this brand managers or thinking about managing the business on both maybe like a three to 12 month view how are you thinking about.

Riding price pack architecture, and some of those regions are they resourcing themselves a little bit differently in this type of environment to gain share and how do you think about pricing. Thank you.

Yes.

Yeah, I think you you got it right. So there's a number of changes that are marketing people need to to go through the <unk>. The first one is to understand the mindset of the consumer and we've already started to adapt the communication surrounding our brands.

In different places around the world to give you an idea.

So what type of form that they exist in China as everybody was at home.

We started to realize that cooking with Oreo was something that they really like to do so we we switched our communication to two cooking read Oreo and it had a great effect on ourselves.

So we were doing a number of things as you can imagine there's a lot of links to helping community centered around and Oreo around the world is about staying playful. So that's one make sure that what our brands communicate is linked to what is on the in the mines over the consumer or on a on the might have to come.

Consumer the second one is to understand that which price points, we need to be and that's a lot of work in a P.P.A. promotions.

Different pacsun, the backs might be smaller or bigger as I explained between stay at home or go home consumption and.

And on the go consumption.

They also need to make sure that would be a link to the.

Different opportunities that we saw with the local brands. So what we've seen is that supposedly our local brands are getting an increased interest from consumers I was explaining the inflow of a.

New consumers into those brands and so we also asked him to do is to make sure that we give a good boost to those local brands this might be unique opportunity for us to make sure that we get even more traction there.

And then the last thing that ER that I would mention there is much more we are doing but.

This is a moment to really.

What I would call it a attacked the market and be strong in the second half of the year. So between the cost savings that we are doing and then shifts within our marketing budgets, where we are shifting a lot of our investment to working media, we're hoping to see a significant increase of our media investments versus Oh.

Versus last years in the second half of the year, while keeping our personnel obviously within reason and I think that could have a big effect on the consumer reaction in that in that second half. It maybe another thing that I would mention is that we are also using this opportunity to see.

Difficult to reduce the number of SK use to significantly I always have had a lot of innovation projects not always the most useful ones I would say so we are reducing significantly our innovation projects. So we're working on making our business a simpler.

So that gives you sort of the headlines I would say of what our marketing teams are working through at this stage.

In in trying to adapt to these new situation and making sure that that we really when in the second half of the year.

That's great. Thanks.

And just event.

Your next question is from Steve powers with Deutsche Bank.

Oh, Yes, hey, thanks.

Hi.

Maybe just to build on that.

Dialogue in Turkey, and your walk around the emerging markets really are they did a good job of paying the path towards top on recovery. If I understood you correctly, but I guess my my first my question is from a profitability perspective.

Does the anticipated improvement running parallel to that top on recovery with the re absorption of some underutilized cost or is it likely to come on a slightly further lag given some of those those investments.

So if you just spoke to in response to future coolers question the leaning in to win in the back half and beyond.

It's a little perspective, yeah yeah.

Yes, yes, and Oh, maybe you've given my perspective on it and then look I'm sure. We'll we'll jump in also so the thinking is that.

We do not have to invest a lot in the second half are you starting the second quarter, because there's still a lot of channel restrictions and sales restrictions and and for the consumers that are all that are at home. We told you that the consumption is there so I.

And on top of your complementing that with a severe or a serious effort on on costs that we've launched a immediately.

The combination of that will be in shifting our investment to the second half and a and having a significant increase in our media spend.

But at the same time using those cost reductions as as we discussed to keep our bottom line what do I would call. We didn't reason I don't know difficult for us to really forecast Q2, so it's even more difficult to do h. too.

But to have a year that we come out and we are ready to enter 21, where we have invested in our brands. There's strong we've increased our market shares we've done that through the moves that I explained and at the end and we ever reasonable a bottom line for the year.

So that we feel that the 21 can be a real winning year for us. That's that's the thinking and we've been working through the numbers to to make that happen via a company that some of the the cost. The work. We're doing is as to see where there are a supply chain.

With some of our network opportunity. So you can imagine if you reduce your SK used quite a lot. There's many benefits across the business for that so some of the work also oh.

Aims at.

Keeping our Ah supply chain costs under control so that our gross margins also benefits from that so that's the that's the thinking that's what we're trying to achieve maybe Luca you want to add a little bit through them.

Yeah, I think to your question about the level of a under utilization of some of the asset that the market yields in a in emerging markets.

There might be potentially a lag I would also tell you one thing, though it's going to I'd just point in time that.

Some of the plate stock in some of the emerging market. This is quite low and so I think that would be a phase as we resumed business Ah two normalcy in some of these markets, where we will have to make more volume I think I expect then consumption and that expectation.

It's from consumers to gold stably as the thing was going before so there might be a situation, where we actually able to resume production and get back to some of the levels before crisis likely quite quickly as Dick said emerging markets for us.

It will be covered mixed bag I would say if I take China is one example, the fact that we were able to de lever I think the number I was about three plus percent in Q1.

That was weak volume and the concept East China easily example of what can happen and we applied but modest why did the I think a it can be by spot I'm afraid I will be situations, where that will be the case, I guess, where they need to take more time, but.

We don't see a huge lager, we don't see under absorption as as we entered the second part of the or even as we talk about Q4.

Okay. Thank you very much.

Your next question is from Chris agree with Stifel.

Hi, good evening.

Hi, Chris Hi, Cotterill, Hi, just a question for you if I could first would be.

Around the second quarter outlook or you are you anticipating are incorporating some like pantry de loading by consumers. So is it the first quarter benefited unusually from this environment pantry loading and then we have some of the negative side of that if you will in the second quarter and others, probably answered by country, but from a high level.

I'm curious how you see that [noise].

At this stage and the redo a lotta research, we've invested through quite a bit in in talking to consumers and understanding.

At this stage, we do not have the impression that a the consumer is sitting on a huge pantry full of a of our cookies.

We've seen a through these interviews we've seen some significant.

Consumption and a and so we we are not necessarily thinking there will be a and an enormous pantry loading our.

Products have a limited shelf life not not as limit that there's some other snacking products, but they are not a good forever. So I think the consumer over the course of the second quarter and sort of into the third quarter will be inclined to two <unk>. If they would have pantry a stock the to consume it. So we're not expecting him a massive for effect on it.

Okay.

And then I have made a lot of it.

Go ahead, sorry go I guess I just want to make one one clarification assess the these recycled glass the comments I'll move about God the topline.

As it relates to goodwill, which was not only for emerging markets towards four talk among the lose when I said that might be slightly medical or for Q2, but there is still a little bit of a level of uncertainty and the you know we don't know exactly how good the will pan out for the company.

Okay. It's gone girl, it's okay. I'm also a clarification. So just the second question would be in relation to the incremental pricing that you'll need in the business to offset some of this currency in these cost inflation of anything I'm. Just curious if that does that start as quickly as the second quarter or did you get you know you can kind of these countries up and running before user.

So to implement pricing to start to offset some of the cost inflation.

Oh, Yeah look I would be a reality is we are not necessarily going to face and at least from the transaction standpoint, the plants are right away.

We have good coverage in some of you know all our commodity to some actually went up during the crisis or are going up or even an exchange rate. We we are covert quite a bit and ER.

I would say also there are puts and takes a Nigel you know we are also importing some stop from some of these markets that that being.

Impactful bye bye.

By devaluation. So I think you can expect that we're making decisions now to optimize independently from the pipeline that we have the price utilization and the volume implications of it and so we are seeing some price increases are writing some marketplaces and that.

In some cases, a you know we are the main goals or we have fallen a particularly some of but some of the competitors.

He is we have a little bit top line in terms of protecting our margins and importantly, this is not about a few online price increase this is about what we called rather than the Gulf management and he can be a fine balance between you know getting productivity is creating right pricepoint score consume.

Yes, and implementing you know right axles in the marketplace to advertising for instance to ensure that volume is cast and stay which Scott will walk into those plans literally as we speak but again you might expect that independently from a corporate set we have we might make some of the seasons.

The second part of the year in order to leave a little become breathing room as as we enter.

It's like the one.

Okay. Thank you for that very much.

Thank you.

Your next question is from Jason English with Goldman Sachs.

[noise] also right you guys hi, guys inside Jason.

Hello.

A couple quick questions from me again, he we and I apologize if I missed this but you mentioned in Mems down more per center, so down low single digits are down low single digits throughout them at the March.

Great. Thank you also said that it decelerated substantially in the late part of March and remains.

At that much weaker level through April.

What is that weaker level.

[noise] look again, the you really depends on not only market by market I I give you. One example, taking the alpha yet for US as Nick said is Mr is a separate marker out there. They market. Obviously, we all know the potential of at market, which is a 1 billion dollar company.

Ross I will tell you that ER and why did the original locked down who was a mouse and by the way. It there was an official locked down before back.

The company when absolutely blogs and it wasn't possible even the fact that we had a multiple plans to actually get people into the plant and to have people from the distribution samples to be able to supply you know the distributors and equals impossible to even got clocks.

So the first phase of the crisis, we literally sold close to zero in that specific markup to me I would say, we haven't globally and we are a little bit higher than house. All these savings that we had lost here on a on that on a more regular basis. So the situation is improving.

They behave but these are the magnitude of leases were talking about and again, it's the Kt is absolutely anything there is so we have an opportunity as we go back to assume the pipeline. Then we are absolutely right and you can also imagine that even this time for that market, we want to do exactly what we did in China and so.

Really covert curve might be like close to chime in but block at that other markets like walk from a way a you know we sat are predominantly to traditional trade and distributors weapon. Tom is an important part of the Dcs on so it can be that market again has been materially decline.

In a in the last a few weeks I think of then you can go back to normal. So you bought it will take some time. So it is really a mixed bag and it is impossible for me to give you a number that these exact in Q2 for emerging market or for that matter for the totality of the comp.

Okay, Okay, well I appreciate the effort audit.

One more question I'll pass it on.

I imagine that many people are going to interpret your your withdrawal guidance as an indication that the numbers you had put out there before are no longer achievable.

That you are likely to raise something much less as we run through as you run through sort of the puts and takes the pros and cons. The the bell skills as well just a little more balanced they've got some tailwinds Indiana's they've got some headwinds in terms of I've got some cost pressure, but not cost cuts I've got a promotional retraction all these other offsets.

Is it reasonable to assume that the numbers that were out there before our constant currency are indeed honest achievable or is it just at the range of outcomes is now so why you don't want to pin yourself there.

I think it is easily the lock or let me give you a little bit on my perspective of wells phone, but not all in comes off of that first of all we're saying nothing there around the sole say nothing to say nothing it's not saying something and not wanting to say it is it is really we don't know just.

One company, but let's step back for a second the first quarter was 6.5%.

I told you that or you know Q2 might be a moderately negative the advantage of the two quarters might be I didn't know people sample so and again I'm guessing at this point I don't know how long it will they add two week over the situation in the second part but.

They also told you that there might be a situation, where we have to be seems to trade no I think that.

Is the topline as far as I've seen so there might be maybe a scenario where you know we might be close to the original guidance. We gave you we chose sleep logical sense I'm now I don't expect it to be you know before or plus percent, but like we saw in some quarters last year quite frankly.

On the bottom line I think the situation is different the situation is the holding there are multiple puts and takes the number one element that comes into play in Q2 and being the second part the media is the ongoing extra running cost I think if you take you to there would be as we said right basically assume.

I'm extra cost that we will incur now all these costs most likely will not stay in the second part of the some of those will subside. Some of those we state I think our job is to make sure that meets in cost savings and listen incremental pricing, we create that space into that you're not to be able to invest and to have.

At par cost of this cost so that's the framework we had in mind I think again the idea for US sees how do we make all the developing markets we tackle most impacted but he cooperating with the shape of the curve that we saw in China. That's the challenge we have today and we believe we will have to invest some money.

In the second part will be a as Dick said, particularly walk in media to ensure that we protect our franchises and we protect all the share gains that that we're seeing yeah, winning in this environment I mean, the share gains that were seeing at this point in time I haven't seen.

Never in a suddenly monopolies and those share gains it is our job to per pack and and potentially to expand going forward that I believe the name of the game for us.

Understood. Thank you very much.

Thank you Jason.

And your final question comes from Alexia Howard with Bernstein.

Good evening everyone.

Hi, Alex Hi, Hi, Dan. Thank you get a question and that just a a couple of quick ones for me.

Firstly should we be concerned about European chocolate.

The upcoming couple of quarters.

Are you able to give it a rough idea or how much what portion of that business trying to only that go into the core type purchases like the at risk and that kind of in Barlow why wouldn't I'm the guy.

Well, let you know really you talked a lot about these checking in China.

And that potentially being a patent for what you'd like to see no other emerging markets.

Well the competitive somehow compromised one literature that you were able to send them with L. particulate show dynamic can you just give us a little bit more in the case study of what happened quite successful that thank you and type the question.

Yes. Thank you.

So.

Chocolate. This is is doing quite well globally in the markets, where we play chocolate is growing at a at or almost double digit.

And I'm very grew a mid single digit in 19. So chocolate is also benefiting now there are a channels.

Like we mentioned the world travel retail and some of the away from home channels. Our foodservice that are affected by this but those channels are on mine are showing in Europe for instance, 75% of our of our business is seen in the retail chain.

And also benefiting from that that growth.

A second data point is Easter you ever obviously quite worried about Easter Easter is a big season.

For us and the chocolate category performed quite well in a it again in the markets, where we play.

And the growth in the last periods, which is the Easter period. The growth was double digits for the category and that takes into account. The fact that Easter came earlier. So these are promotional periods was shorter you have the whole issue with the pandemic, which means less travel let celebration with family and friends.

He is he's very.

A important the gifting is very important every had their supply chains, which were affected by these are our teams did an excellent job.

To to get ourselves in stores in strong ways, and we delivered a record share gains. So indeed, UK, which is our largest eastern markets regained over four points of share and we now have more than 50% five zero percent of the Easter period, and then even in Australia.

Where a retail if you read we already have very high market shares. We gained another 2.5 points during the Easter period. So eastern Indians, we started promoting a little bit earlier, because we were worried that might it might not sell out, but a indiana it did quite well, but because of that promotion I would say year on years, the Easter period.

Self deducting the cost of of promotion has so is is the same as last year, which is an exceptional performance taking into account all the factors.

What I said so.

We feel pretty good about chocolate a it's a strength there are areas as I said that are minor that are affecting us, but we're still seeing quite solid growth as a company or taking into account even those.

Those two channels that read virtual you're seeing no sales at the moment so.

Wow, where we are growing 8%, sometimes double digits for the company's growing or close to about 3%. If you deduct those channels that I was talking about the reason why I think our chocolate is doing well is it that we largely in tablets and tablets are more home consumption than on the go consumption their family consumption.

And they're sharing and those are all important a in these circumstances so.

I hope that gives you an idea on chocolate.

The second question.

I must admit that I forgot the second tried analytics and given the choice, but China China.

[laughter].

Yes, so that the China situation I think is in effect of a number of things first of all our Chinese theme.

Took it upon themselves to say that they were not going to let this pandemic affect their performance for the year.

And that no matter, what they were going to deliver the year.

And so they went into this with an incredible vengeance and liver.

Absolutely convinced that they could do whatever they needed to do so we had situations where there was no delivery trucks, where our people loaded.

The products in their own cars and drove themselves through the stores to deliver.

And so the first element is an incredible.

Right and fashion via a Chinese team to make this happen the second thing, which we see really around the world is that in these situations consumers are going back to the brands. They trust. They want to go to a brands that have the image of being high quality.

Are they really are sort of have respect relationship with an Oreo as an example, or Pacific half that for us in China, and so we see a shift of consumers abandoning the lessors.

Quality brands that they three to be little bit more suspicious suspicion shifting into the higher quality Brendan just real shifting the Chinese market towards quality. So those those for me out to two big reasons.

We were able to in less Peter to begin seven points of market share. So we do want to now keep on going on that momentum I think the consumer is helping us and and we now need to follow up very quickly.

Gum is a little bit less we're doing very well, but also gaining quite some market share in gum, but that's a category, which is more on the gong consumption.

And that in China up to recently was still quite effective and people do not did not go out that much. The Chinese theme tells me that that is changing quite rapidly restaurants are open again, and so long, but ER gummies going a little bit slower, but they're also we see the same sort of gains that we are seeing in the biscuit market for.

Yes.

Perfect. Thanks, so much I appreciated and good luck with the at the second quarter.

Thank you can collect.

I think that fit shep.

Yeah.

That is that.

Okay, well. Thank you so much for.

Taking some extra time, we went to an hour and a half about in these circumstances I think that is appropriate I hope we were able to explain you as much as we could probably feel about the business and what we're expecting we of course would prefer to give you a bit more a guidance, but it doesn't feel like it's prudent at this stage, there's there's too many.

He variations that play.

But we are convinced of one thing that.

We will do well seem to circumstances and we have a lot of strengths to built on and we are convinced that we will come out of this much stronger and and much better than ever before this crisis.

Thank you in a oculus.

Thank you everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

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Good day and welcome to the Mandalays International first quarter 2020, <unk> earnings Conference call.

Today's call is scheduled to last about one hour, including remarks, I believe management and the question answer session.

In order to ask a question. Please press the star key followed by the number one on your Touchtone phone at anytime during the call.

I'd now like to turn the call over so Mr. Shep Dunlap, Vice President Investor Relations from <unk>.

Please go ahead Sir.

Good afternoon.

<unk>.

With me today.

Our chairman and CEO.

Okay.

Yeah.

Earlier today, we send out a press release your presentation slides, which are available on our website.

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 future.

Certainties, please refer to the cautionary statements risk factors contained in our 10-K. Thank you an 8-K filings more details are forward looking statements as we discussed the results today.

As reported will be referencing.

So measures would you just for certain items.

In addition, we provide our year over year growth on a constant currency basis, unless otherwise noted.

You can find a comparable GAAP measures and GAAP and non-GAAP reconciliations within our earnings release and at the back of slide presentation.

Before I speak to the agenda I would like to remind everyone that we have an upcoming investor call on <unk>.

Coincide with our annual Snacking me right report.

Well dark and cheap impact officer, Chris Mcgratty will discuss sustainability wellbeing.

Talk more about our approach targets and progress on this call as well to answer your questions on those topics.

In today's call circle provide a business update the local will take you through the financials and our outlook.

We will close with you and.

With that I'll now turn the call over dinner.

Thanks, Chip and Hello, everybody.

Let me begin by saying thank you to our colleagues.

For all that they are doing doing this unprecedented human crisis.

In our factories are facilities, our distribution network and our sales force. Our teams are working nights and they do keep the food supply chain going.

Our greatest asset, it's our people there be determined and dedicated their 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 these difficult time.

Our investors, our business partners and clients and of course, our consumers.

The challenges we face our unlike anything we've seen before but we firmly believe will emerge stronger from this.

In turning to slide five we have clear priorities for managing the volatiles environment that this caused by this pandemic.

First we are supporting our colleagues, they're real being is our highest concern.

We've put in place strict helps protocols, including temperature screening social distancing mask layering.

And the mandatory work from home policy for everyone who can.

And we've provided frontline employees. These enhanced benefit we extend that sick leave for any wonderful contracts the virus.

In markets like the U.S., we announced increased hourly pay and bonuses for frontline workers.

We'd also supporting our communities in March we announced a program to donate 15 million in cash and products to cope with release.

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, Ted the Philippines.

At the National Health service thrust into UK and food banks across Latin America to name a few.

In addition, our themes have responded to local needs to be creative solutions.

For instance, in the UK in Slovakia read redeployed, our threed printers to create parts for face masks used by from flying 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 its business continuity.

Our supply chain has been resilient and we've delivered consistent service to our customers gays fill rates effect or better than average levels.

We've seen an increase in demand in developed markets as we met that by focusing on the most important desking use.

Our strong relationship with our suppliers have helped us maintain critical raw materials and packaging supplies.

We've worked with local governments to keep our factories open during locked up.

We've also maintain our cost discipline and managed gosh appropriately we've made adjustment to spending like more stainless promotions and in a and C. Just focus on working media.

Reducing non critical capital expenditures and are maintaining strict control over working capital and inventory.

Have you at all so closely monitoring foreign exchange markets, and adjusting where necessary.

Under the circumstances, we're preserving capital and liquidity.

We've taken opportunities to increase liquidity three extensions to our credit facilities.

We've also stopped our share buybacks in March we refinanced short term debt also adds or.

If levels.

Overall.

Our priority is clearly to emerge stronger from this.

We're confident that we can do that because before the epidemic two colt 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 have now accelerating a number of strategic initiatives and continuing to invest in our brands and capabilities do remain the preferred choice two of our customers and not consumers.

In turning to slide six we executed well in the first quarter, even as the virus was spreading.

Organic net revenue growth of 6.4% driven by developed markets performing strongly in March.

Overall, the first two months of the quarter very in line with last years results showing strong top and bottom line growth.

The exception of course of US 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 almost there or whether they are the most need it.

Also North America, and Europe became strong drivers.

Thank you much not only stocks to up but also consume more of their trusted brands, including some new consumers entering into our brands.

Execution was strong for out Easter business, and our theme sort of very agile in meeting that increased demand.

And our supply chain stayed strong and west resilience.

At the same time emerging markets started to experience disruption.

Sometimes we have quite abrupt lockdowns that made sales and distribution more difficult.

Because of the locked down we also saw decreased offtake in the traditional trades.

And these locked down 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 self emerging markets remain attractive.

Our emerging markets footprint is a differentiator and he is a key part of our long term growth strategy.

A few other channels also performed less well you took off it.

Our world to travel retail business dropped significantly and also away from home was impacted.

All this that the reduction in traditional trades and the away from home hit gum, and Candy, which is sold so more often in away from home channels.

We also incurred higher costs to keep glide supplied.

The mix changed due to higher demand for larger family packs for instance.

Our supply chain costs also rose because we had to higher temporary workers.

We have to increased compensation and soft costs for distribution increase.

Have you did see some currency impacts in emerging markets.

So far in April.

What we see that where do we have the freedom to operate.

Doing quite well in developed markets, we continue to see elevated demand or not at the same level as in March.

And in emerging markets, we do have clear headwinds driven by Lockdowns and potential economics.

Turns.

We also expect those cost headwinds to continue.

Because we will continue to be investing 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 effective and we will see the ongoing impact of Forex.

Oh this.

Makes it difficult to forecast what will happen, but overall, we do expect to come out of the stronger will increase market share.

Now to slide seven.

Despite this challenging environment I think we can be proud of what we have achieved.

Since September 2018, you 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 covert 19.

And that's also is the category, where we saw share increase the most.

Overall, just to give a few examples in the U.S., our biscuit brands Oreo belvita rate risk it and we Didnt all posted mid teens growth or more in the first quarter, which drove share gains of two and a half points in the last in the last reading.

In China, we saw share gains of seven points into late this three they.

And then do you gave you saw gains of 1.5 points over the Easter period.

Well dynamics are 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 eight 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 leaders in resilient categories and have an unrivaled portfolio of global and local brands.

We've seen consumer snacking more.

They are looking for that moment of comforts offered by biscuits and chocolate in todays stressful circumstances.

In particular, our trusted brands and our based of the nation brands bring a sense of normalcy.

And we can give the consumer that normalcy with our brands around the world.

So since we have a unique set up thanks to our brands also our organization and scale.

We are convinced our categories will continue to present significant opportunities.

We're also focused on operational excellence.

We will keep manufacturing shipping end delivering despite the many headwinds around the world.

Our powerful direct store distribution in the us.

Through our deep rooted local distribution in new markets in emerging markets, we'll 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 strength.

Because we further strengthened our balance sheet and 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 nine.

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 the rights one.

And is proving to be a plus in the current situation.

Our local first approach, which strong local business unit the power meant and an efficient supply chain is giving us speed and reliability.

Our organization has gone through a lot of change every as it develops 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 thrust in familiar products.

And as you know a big chunk of our portfolio our local brands.

We're also taking the opportunity to accelerate certain initiatives.

In growth.

We are adjusting our marketing any novation project by increasing our spent on working media and at the same time simplifying our portfolio.

In addition, we see opportunities in both revenue management end in E commerce, very weak and capitalize on increased demand from at home shopping.

On execution will increase our supply chain efficiency, while continue to reduce our cost basis.

But it also streamlining the amount of projects and activities here.

I think culture will built 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 Rs important as ever.

Companies need to be doing the right thing.

And you do this crisis, the consumable become even more confidence about the fragility of arc limits.

So our focus is on protecting our ecosystem.

We are caring for our people.

We've made donations to supper supports our communities.

We've increased credit support to our suppliers and our distributors to help them whether the crisis.

Have you determined to continue to deliver on our environmental and social goals.

And on May eight as chip mentioned, we will have especially investor session to highlights are as gene targets and plans.

We invite you all to join the call.

And with that I will hand, it over to Luca.

Thank you the Afghan docket.

Before getting into our financial as well.

Lightweight Colby installment lending constant tanking got what people and themes across this company.

I'm really proud of holiday.

Nation, that's come together in the face off seat on the situation.

Enrolled they are resolved energy and create the how Pos navigate challenges and finding solutions.

With respect to resolve we have strong performance in the first quarter on both the top and bottom line.

Our revenue grew by 6.4% and well supported by the expansion in each one of our four regions. We bought the last time.

My guidance.

We also going deeper that goes shackles performance throughout the quarter due to combination of supply chain and safe execution as well as recognized quality of our global and local Brian.

These factors enable bye bye.

By 50 basis points on the basis and one on the latest meeting all the Gainshare make sense of all of that.

Our revenue growth driven by favorable volume and pricing dynamics.

Enable basketball, Sony probably baller NPS called despite some significant obviously make calls.

In addition to turning.

TNS performance. We also took an opportunity out of an abundance of caution.

It's hard to strengthen our balance sheet position and liquidity profile.

On Slide 13, you can see we performed well across all our key metrics.

Importantly, we generate significant profit dollar goal volume glad rich that offset except costs related to coffee.

This allowed us to invest more agency in the quarter.

Moving to slide 14.

We saw our topline resolved lead them by an acceleration. We now look we've got a market which grew more than 7%.

These markets weapon, forming while tightly before that thought the March you to increase in home consumption.

This trend has extended the weight goal at the less elevated rate and predominantly North America as positive impact. We paid is offset by had we not what will travel retail business.

Emerging market growth was 4.5%.

2.4, when excluding Argentina.

Seem not to develop market and leading China side, the setup country performing bagwell ending line with our expectations for the first two months on the quarter before strict bouncing late March began to have them eat and pack one traditional trade.

China wasn't bright spot as the team did an outstanding job and demonstrated resilience in order to not only bounced back from called between eight and headwinds, but actually Paul's low single digit growth in tiotwo.

Overall, the potential of emerging markets remains unchanged and we will continue to invest appropriately to maximize long term growth opportunities in these markets.

[noise] biscuits is performing extremely well given the advantage position and trusted brands that we had predominantly in developed markets.

Welcome to the overall was positive about the impacted by some emerging market look dollars, but equally India and that was probably paid business.

Overall, notwithstanding some call. These related headwinds we were very happy with our chocolate performance in Q1.

Now, let's review, our local pwc almost like 16.

We increased cost profit by nearly 6% in Q1.

Volume in developed markets was partially offset by roughly flat volume mix in emerging markets, primarily as a result called the disruptions pricing was positive across both developed and emerging market.

You know will allow for reasons.

Additional costs associated with overtime.

Some blind workforce bonuses and customer service and logistics anchored gross profits resolved.

Operating income grew nearly 6% at higher agency in front line expenses were partially offset by cost reduction programs and volume mix gains.

Moving to regional performance own on slide 16.

North America grew 13.4%.

Driven by strong share gains and called related consumption.

Biscuits growth was broad based across both global and local Brian.

Oreo Belvita Reid, please get things all posted mid teens growth or more.

Sounds good execution on the manufacturing our robot robots DSD network and the Internet each on the Gulf Glob by you and Commerce were critical factors in achieving these performance.

Although the portable song, we see soco, resulting Dom give any Tom impulse nature, and a lagging convenience relative to other channels as well as Tom said losses in now.

The North American region grew operating income by more than 70% as significant volume leverage more than offset additional labor and distribution costs.

Europe executed well in the quarter with revenue growth of 4.3%.

Same supply chain and Brent execution resulted largely volumes even go quarter.

The UK, Germany, and Italy, all grew mid single digits.

Drastic continued its momentum with high single girl behind some volumes and share gains.

Our Easter seasonal successful flat year over year goal.

We see is outstanding Ethernet shore Easter season, and called it related challenges importantly, we believe the early sellout data suggests share gains.

On the flip side, we did experience some headwinds related to the convenience channels, mostly he won't probably paid and.

Adjusted like dollar declined slightly due to a more difficult compare relate that to commodity costs pipeline.

Which we expect it and we mentioned to you last fall.

Well as some higher AMC calls and some called it related costs.

EMEA grew 2.2% with some different dynamics across the region.

And number of markets, such as India, and Southeast Asia, So significant disruptions late in the quarter relate the district meltdowns that calls widespread traditional trade closures.

As well as some difficulties to operate.

In fact, both India and southeast Asia slightly positive for the quarter.

Sign I'd call it quite well from the locked down and grew low single digits in the quarter behind some beast gets resolved.

Australia, New Zealand believer and performance with mid single digit growth behind strong Easter execution and share gains in chocolate.

Overall and on the positive side I mean, boasting about good performance on shares with widespread gains.

EMEA operating income dollars declined by approximately 8% due primarily to lower than typical volumes and leverage in addition to extract costs relate that to called it.

Latin America grew 7% due primarily to inflation didn't go in Argentina.

Revenue was flat when excluding Argentina.

Mexico grew slightly behind solid this good performance and although the market declining gum and candy we grew share.

In Brazil, we were flat.

Biscuits and can be west solid why the how the beverage category continued to decline.

We took actions in Q1 at all your marketing communication and product formulation, but b piece early stages.

I was less than on get countries, where the harvesting the region by called it.

Grass seed locked down and the significant impact on the traditional trade, which is most of the business in this country club.

Adjusted $1 in Latin America declined by 7%, primarily due to headwind associated with negative mix as well as impactful currency.

Turning to the Asms Lifepoint team.

You want to ask only 11%.

This increase primarily reflected operating gain freedom buys I have an equal.

Clearly, we sold in past calls offline as well as.

Additional expenses well keep you operations running at attractive levels.

Moving forward, we expect costs related to labor customer service and logistics to increase and we expect that negative mix impact.

Our teams are working to find offset however, we expect the net effect on earnings to be significant in terms of additional cost as we look at Q2 ending to the second huh.

Ill now move on to our free cash flow results on slide 21.

We then either free cash flow of $17 million, which was in line with our clients and including some discrete in diabetic tax payments.

Yeah, I'm paying some rigor around both working capital and overall cash management.

We have clear priorities for the remainder of year, which include protecting the got Catholics why did you see more critical eye.

Optimizing discretionary cash spending.

And aligning restructuring initiatives to new me in these operating and Bob.

Moving to page 22.

We returned 1.1 billion to our shareholders in the first quarter.

As a cautionary measure we made the decision to sustain our share buyback program.

There is no change to our long or short term dividend policy.

Although we maintain a although we may adjust optics to reduce non critical uses of cash and maximizing liquidity, our focus and prioritization of investing in our business is unchanged.

Why don't Capitala location I wanted to make mention of our reasonably these acquisition of you've been goal for approximately 1.2 billion, which closed on April 1st.

This call platform is a leader in the large and fast growing installed bakery channel, we fully finished crashed product.

This category has been growing mid single digit over the past several years and that's been gaining square footage in stores and B piece as demand driver.

We are excited about the opportunity to further grow this platform and cross out with some of our traditional bright.

Although the acquisition did not close until early April the business performed well in Q1.

Let me take a moment to address on the other technologies on the mine, but investors across all of their portfolio companies, which is balance sheet time I liquidity.

We feel very good about this plan some flexibility of our balance sheet.

We have ample liquidity with approximately 9.5 billion not committed and most of the undrawn credit facilities.

In addition, we have opened and low cost access that capital market.

This includes commercial paper or the leasing lumpy I mean that we should earlier this month at favorable rates.

Let me underscore that we have committed to maintaining our investment grade status and access to do you have to commercial paper.

As you saw from our release earlier, we have no longer providing a financial out outlook for the full year Twentytwenty.

Our outlook for the balance of the depends heavily on the expected impact of quality to 19, and they duration of the stay at home orders across regions.

Both of which remain uncertain limiting our ability to forecast feet per season.

If you additional on probably like to me relating to our opinion.

Our New York, focusing his old ease on all of our people and goals that play a key at all across our manufacturing distribution and chase function.

We are seeing incremental costs and can opt for the walk you had we might emerge as a result, the coffee prices.

We will make decisions to protect our people and come out of this situation stronger.

Given the circumstances quarterly earnings will obviously be less of a priority.

But our long term strategy and focus around investing in our business and driving bottom profitable growth has not changed.

Although we're not providing full year guidance at this time I wanted to share some thoughts regarding pets, we had we from a second quarter.

With respect to pay win.

We expect continued positive impact from increasing home consumption and expandable consumption he developed market, especially in the scale.

Also taking some actions to mitigate cost across the business, which means taking a fresh look at the entire business and looking for additional opportunities that do not impact out what revenue generating investment.

We also expect something we fall from optimizing you've seen bassman, which means that timing is likely to ship in certain cases from Q2 to the second huh.

In terms of expected headwinds.

We expect the negative impact that we sell in late March and April two competing in emerging markets as it relates to traditional trade cultures.

Well traveled retain which is a few hundred million, but our business is expected to see significant declines.

Our gum, Caustically, which is consumed more than how that Catholic was out of home at least the most imposing nature is expected to see material declines.

And we expect higher costs to drive our kind corporation and support the continuity of business during the crisis.

Currency impact these great have now done earlier this year as we stand today, you will decrease full year net revenue goal by approximately 4% 5%.

The adjusted EPS by approximately 10 cents.

We will continue to monitor the situation and keep you updated that's appropriate.

Our long term growth algorithm is unchanged.

As Nick said earlier, we will continue to run this business for me to long term sustainable growth, which means we are investing to win in the market by delivering share gains to drive profit dollars and to return capital to our shareholders.

I'll now turn it over to be for some closing comments.

Thank you Luca.

As we look at till the next weeks and months.

We are clear about our priority.

Our first interested in taking care of our people keeping them protected and being a good partners to customers and suppliers by taking care of our ecosystem.

As stated.

We may see headwinds in the short term in emerging markets, our long term and emerging market opportunities remain significant so real stay the course.

Our priority is to ensure routes to market to remain intact. So we can recover immediately the minutes that markets emerge from locked down.

We're prepared to ride the wave of increased demand for you know developed markets have been focused on ensuring our supply chain remained strong to fulfill the increased demand.

The current environment is dynamic and every day brings new challenges. So we will continue to be add child and actively speed to deal with them.

And even if we see headwinds in the second quarters, we have everything we need to emerge stronger and faster and as such we will continue to invest in our brands our customers and our people.

With that I will turn to ship to open the couponing.

<unk>.

You asked a question you any depressed our one on your telephone to withdraw your question press. The pound key please standby will be come out of Q1 day roster.

Your first question is from Andrew Mazare with Barclays.

Great. Thanks, very much everybody.

Third to start off you talked a number of times about looking to emerge from all this in a stronger position I was hoping you could expand a bit on that it's clear marketshare took a big step forward and it seems like scale brand strength supply chain have all been.

<unk> pretty clear advantages at this stage, but I guess should we anticipate some additional investment over the year progressive if there are opportunities to do so and if so you know what four might those take whether it's your advertising go to market investments in such a that'd be helpful. And then just have a quick follow.

Okay. Thank you Andrew.

I.

I would say first of all be entering this crisis, a unlike in the past or from a position of strength.

And.

We are strategy is working.

Sorry, good growth in January and February.

And we had a recipe that was working for us and we are trying to get back to the recipe as soon as we possibly can and we get behind us.

Thank you you pointed out a few things there.

Categories. If you go back to past a crisis.

Particularly biscuits, but also chocolate then to do quite well gum and candy a little bit less but also a meals cheese.

In in these circumstances are not that much effect that and sometime see increased consumption. As you for instance, can see right now it with biscuits.

While we are the global market leaders, we still have significant headroom to grow and you saw the results of this quarter and I think that will still be a big possibility for us to coupon increasing our market shares, particularly in circumstances, where some of the more local smaller competition might have slightly harvest time.

We do.

I think we have the right set up with the local teams. This changing this structure that we that we saw in China.

Three or 3% plus growth in China in the first quarter is excellent work by our team and that is.

Through the fact that they made the decision is right away and there were on the ball and couldn't make things happen without having to pass a lot.

Things.

And then I.

I think we still have if the opportunity to go why did we are not categories, both organically and viewed our brands and we can go also inorganically maybe this this beauty. It offers an opportunity just as we have recently then.

Perfect done with perfect snacks and given go.

There's a number of other things I think that we are working on the execution has been excellent for us.

We are reducing or investment in the second quarter and trying to.

Increase our investment in the into during the first fourth quarter, which would mean over the year that probably be will not increase our investment but at least keep it stable and have a significant increase when things are back to normal in the second half over the years of our investments and see some a a return to growth as soon as we can or.

Continuation of growth depending on what happens in the second quarters. So I think all that's our reasons for us that we believe that we can emerge from this stronger and every our company.