Q4 2023 Mondelez International Inc Earnings Call

Good day and welcome to the mine to Lee's International fourth quarter 2023, and you're in earnings Conference call. Today's call is scheduled to last about one hour, including remarks by month lease management and the question and answer session in order to ask a question. Please prestige starkey.

<unk> followed by the number one on your Touchtone phone at any time during the call I'd now like to turn the call over to Mr. Shep Dunlap Senior Vice President of Investor Relations for mine at least please go ahead Sir.

Shep Dunlap: Good afternoon, and thank you for joining US with me today are Dirk van de put our chairman and CEO and Luke is there a miller our CFO earlier today, we sent out our press release and presentation slides, which are available on our website.

Shep Dunlap: During this call we will make forward looking statements about the company's performance. These statements are based on how we see things today actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K, Q and 8-K filings for more details on our forward looking statements.

Shep Dunlap: As we discuss our results today unless noted as reported we'll be referencing our non-GAAP financial measures, which adjust 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.

Shep Dunlap: The comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation.

Shep Dunlap: Dirk will provide a business and strategy update followed by a review of our financial results and outlook by Luca we will close with Q&A.

Shep Dunlap: I'll now turn the call over to Dirk Thanks, Chip and thanks to everyone for joining the call today I will start on slide four.

Dirk: I'm pleased to share that we delivered our best year ever in 2023.

Dirk: Robust top line growth continued share improvements.

Dirk: Rick It profit dollar growth and strong total shareholder return our double digit top line performance was driven by strong pricing execution and positive volume mix growth.

Dirk: We also delivered continued share improvements as consumers across the globe remains very engaged with our iconic snacking brands.

Dirk: We set another record for gross profit dollar growth achieving $2 2 billion.

Dirk: Through ongoing cost discipline, and sound pricing to offset cost inflation as well as volume leverage.

Dirk: We continued our track record of strong free cash flow generating $3 6 billion to accelerate our strategy of global Snacking leadership, we continue to invest significantly in our brands and capabilities.

Dirk: Multiyear growth on both the top and bottom lines.

Dirk: I'm, especially proud of our record financial results as well as returning nearly $4 billion in capital to shareholders.

Dirk: These results deepen our confidence that the strength of our brands, our proven strategy, our continued and increasing investments and especially our great people position us well to achieve our long term financial targets in 2024 and beyond.

Dirk: Turning to slide five you can see the 2023 was a strong year on both the top and bottom lines with substantial reinvestment to drive continued growth in the years ahead.

Dirk: Organic net revenue grew 14, 7% or $4 6 billion versus prior years.

Dirk: Our continuing solid performance in volume mix demonstrates that consumers continue to prioritize our brands and categories.

Dirk: We also delivered record adjusted gross profit dollar growth of $2 2 billion.

Dirk: Up 18, 8% significantly.

Significantly lapping the last several years.

Dirk: We are proud of our team's continuous focus and commitment which enables us to continue investing in the business to drive further sustained growth.

Dirk: Accordingly, we increased ANC investments by more than 21%, helping to drive consumer and customer loyalty.

Dirk: Our iconic global brands and our local jewels.

Dirk: Which represent the taste of the nation in their markets.

Dirk: These results translated into strong Oi growth of nearly $1 billion up.

Dirk: More than 19% versus prior years.

Dirk: Adjusted EPS grew 19% on top of strong growth in the past several years.

Dirk: Although we remain confident that our virtuous cycle of strong gross profit dollar growth.

Dirk: Fueling local first commercial execution and increasing investments in our strong brands capabilities and talent will enable us to continue delivering attractive sustainable growth.

Dirk: I'm, especially proud to share that we continue to outperform our peers in total shareholder return.

Dirk: As you can see on slide six our five year's CSR is nearly double the average of our peer group. Our one year return is particularly impressive with model is delivering double digit growth, while our peer average return has fallen into negative territory.

Dirk: We view these results as evidence that we have the right strategy the right brands and the right people to continue delivering long term value for our stakeholders.

Dirk: Switching to slide seven.

Dirk: Performance in 2023 gives us confidence.

Dirk: That we have not only the right growth strategy, but also the right execution to deliver it.

Dirk: Here are just a few highlights of our strategy in action.

Dirk: Our biggest global brands, Oreo Milka and Cadbury achieved more than 10 billion in global net revenues.

Dirk: We continue accelerating our focus on our core categories for chocolate biscuits, and baked snacks, because these categories offer attractive growth and profitability.

Dirk: We remain on track to deliver 90% of our revenue through these core categories.

Dirk: We also continued to make strong progress in executing our growth strategy.

Dirk: Our U S supply chain has stabilized.

Dirk: We have added more than 600000 stores to our emerging market distribution channels.

Dirk: Additionally, we continue to advance our portfolio reshaping strategy in 2023, we integrated Clif bar and recall Reno now, albeit of harnessing the power of these recent acquisitions to strengthen our presence in the global snack bar and the Mexican chocolate and Candy segments. We also completed the sale of our <unk>.

Dirk: <unk> market gum business for $1 4 billion, providing another important source of reinvestment to further advance our brands talents and capabilities.

Dirk: On slide eight along with our financial performance I'm pleased to share that we've made significant progress towards our sustainability goals and targets in 2023.

Dirk: First we continue to advance our leadership in more sustainably sourced critical ingredients about 80% of the cocoa volume using our chocolate brands.

Dirk: Is sourced through cocoa life, our signature cocoa sourcing program that works to lift up the people and restore landscapes, where cocoa growths.

Dirk: We also made continued progress in helping to combat climate change.

Dirk: We achieved an important milestone in 2023 by submitting a roadmap to achieve net zero by 2052, the science based targets initiative.

Additionally, we continued advancing our light and right packaging strategy more than 97% of our packaging now is designed to be recycled.

Dirk: We also continue investing in ways to empower consumers to make more mindful snacking choices that fit into that healthy active lifestyles.

Dirk: More than 55% of our snacks revenue comes from mindful portion snacks that is snacks that are packaged in individually rapped mindful portion serving sizes or with clear mindful portion recommendations. All back. These are just a few highlights of our continuing progress towards building a more.

Dirk: Our sustainable Snacking company.

Dirk: We continue to believe that is helping to drive positive change at scale is an integral part of value creation.

Dirk: With positive returns for our stakeholders.

Dirk: We encourage you to watch our annual Snacking made right report, which will be published in April to view, our full year sustainability data.

Dirk: Turning to slide nine.

You can see that like many companies we continue to navigate through a dynamic operating environment. We are closely tracking and planning around a number of near term teams, including continuing inflation shifting consumer habits geopolitical challenges rising cocoa prices just to name a.

Dirk: Q.

Dirk: We are well positioned to address these challenges and we remain confident that we can deliver a non algorithm years.

Dirk: Our confidence is rooted in our conviction that we have the right strategy the right execution and the right people as well as very strong widely loved brands.

Dirk: We continue to see momentum in the majority of our key emerging markets our categories remain resilient and our solid volume mix performance demonstrates that consumers continue to prioritize our iconic snacking brands.

Dirk: To continue accelerating this momentum we are continuing to increase our investments significantly in our brands and capabilities.

Dirk: We are pleased that our U S supply chain has substantially improved and we continue to focus on expanding distribution opportunities in both developed and emerging markets. We're also making solid progress in our European pricing negotiations.

Dirk: We expect to deliver robust EPS growth in both constant and real dollars in 2024.

Dirk: And overall, we remain confident that we have the right strategy to effectively navigate today's volatile environment, while continuing to focus on long term sustainable growth.

Dirk: In conclusion I am pleased to reiterate that 2023 was another record year, our focus on portfolio reshaping strategy is working and we are well positioned to continue driving attractive growth in 2024 and beyond.

Dirk: By continuing to double down on our attractive core categories of chocolate biscuits and baked snacks.

Dirk: Investing in our widely loved brands.

Dirk: Focusing on operational execution and cost discipline and empowering our great people I am confident that we can deliver strong performance for years to come.

With that I'll turn it over to Luca to share additional insights on our financials.

Thank you Dan and good afternoon, everyone before I get into our financial results and the 'twenty 'twenty four outlook. It is important to provide some context related to be developed market dumped a divestiture anything pack on our results.

Luca: On slide 11, you can see that impact of the divestiture on revenue was roundabout $500 million.

Luca: While overall 013 percentage points negative.

Luca: <unk> was impacted by minus 11 I'll.

Luca: I'll give you more color as this relates to the outlook later in the call and how we plan to fully offset impact on income.

Luca: Moving to slide 12 in.

Luca: In 2023, we delivered exceptional results starting with double digit revenue growth, we both volume and value contributing as we keep saying gross profit dollars is the most important P&L valuable as it allows us to reinvest and protect on our virtual cycle.

Luca: <unk> GP dollars grew by $2 $2 billion, allowing substantial investments salt earnings and robust cash flow generation.

Luca: Of these results can be seen across all regions and categories revenue growth was plus 47% PD one three points of growth coming from volume mix for the quarter growth was about 10% with a slight decline in volume mix.

Emerging markets grew by 24% for the year and 14, 9% for the quarter with plant come from a substantial number of key countries, including Brazil, China, India, Mexico, and the western not yet developed.

Luca: Developed markets grew plus 11, 1% for the end plastics, plus 6% for the quarter, including robust growth from both U S and Europe.

Luca: Moving to portfolio performance on slide 13.

Luca: Our chocolate and biscuit businesses, both delivered double digit growth for the year also gum and candy continue to perform well with superior growth in emerging markets.

Luca: Fifth group last 11, 9% for the plus five 5% for the quarter a large number of brands delivered strong growth for 2023, including Oreo chips Ahoy benzene update given goals seven days top and got social.

Chocolate grew plus 14, 5% for the and plus 11, 2% for the quarter with significant growth across both developed and emerging market volume mix was up by two 5% for the year two 4% for the quarter.

Luca: Global brands like Cadbury dairy milk, Milka toblerone, all believers extraordinary growth.

Luca: While we also deliver strong role with many of our local jewels, including lockout equally non corridor.

Luca: Gum, and candy grew more than 48% for <unk> and 20% for the quarter.

Luca: Key markets, including Brazil, Mexico, China, and the Western India area, all performed well.

Luca: Lets review market share performance on slide 14.

Luca: We held or gained share in 65% of our revenue base with strong results in both chocolate and biscuits.

Luca: Given the amount of pricing we took in the last couple of years, we see this as a strong accomplishment and our brand investments both from a quantity and quality standpoint, clearly played a role.

Operator: Good day, and welcome to the Mondelz International 4th Quarter 2023 and Year-End Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelz management and a 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 any time during the call.

Luca: Turning to regional performance on Slide 15, Europe Group last 14, 5% for the and plus 11, 6% for the quarter solid execution led to positive volume mix for the year. Despite significant customer disruption in Q2 profit in 2003 was up last slide 8% for the year and plus one 6% for the quarter.

Operator: I'd now like to turn the call over to Mr. Shep Dunlap, Senior Vice President, Investor Relations for Mondelz. Please go ahead, Shep. Good afternoon, and thank you for joining us. With me today are Dirk Vandeput, our Chairman and CEO, and Luca Zaramella, our CFO. Earlier today, we sent out our press release and presentation slides, which are available on our website. During this call, we'll make four flashing statements about the company's performance. These statements are based on how we see things today. However, actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K, Q, and 8-K filings for more details on our forward-looking statements.

Luca: Underlying profit in Europe continues to improve but Q4 was negatively impacted by Forex fluctuations on some cash deposit has been.

Luca: That function as a protection and guidance currency volatility.

Luca: Excluding these headwinds EBIT in Q4 was up nicely despite the significant increase in AUC.

North America grew plus nine 5% for the full year, while Q4 grew plus one 9% against an exceptionally strong compare of almost 20% in 2022.

Luca: Full year growth was driven by higher pricing broad based clients across brands and channels and solid volume mix in Q4 volumes declined as a result of softening U S. Biscuit category tight inventory management in advance of tier one pricey and declines in keeping going please given goal was impacted by our.

Shep Dunlap: As we discuss our results today, unless noted as reported, we'll be referencing our non-GAAP financial measures, which adjust 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 the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation.

Luca: The season to be leased some of the holidays gingerbread teeth in the low profit we continue to be very happy with even though overall clicked results were driven by lower backhaul assumption and inventory depletion connected to retailers building inventory in Q3, <unk> potential disruption ahead of the system.

Shep Dunlap: Today, Dirk will provide a business and strategy update, followed by a review of our financial results and outlook by Luca. We will close with Q&A. I will now turn the call over to Dirk.

Dirk Van de Put: Thanks, Shep, and thanks to everyone for joining the call today. I will start on slide 4. I'm pleased to share that we delivered our best year ever in 2021, with robust top-line growth. Continue to share, improve. Wreck-It Profit Dollar Growth. Our Double-Digit Popline performance was driven by strong pricing execution and Positive Volume Mix Growth. We also delivered continued share improvement as consumers across the globe remain very engaged with our iconic snack. He set another record for gross profit dollar growth.

Luca: Position in early October.

Luca: As a result, we made adjustments to inventory driving the year over year shipment decline, we feel comfortable with current inventory levels, along with our program and investments to drive something for coal.

Luca: Overall, we're confident regarding our prospects in banking for North America, given our strong activation flowers tvp's expansion growth channels and substantial investments in agency wed love to give you a better sense of these opportunities Academy.

Luca: <unk> increased plus 22, 7% for the year due to strong pricing and solid volume for the quarter increased by nine 5%.

<unk> grew 11, 7% of the seven 9% for the quarter, India grew strong double digits for the quarter driven by both chocolate and biscuits, China grew high single digits for the year and quarter as well Southeast Asia grew mid single digits for the year and Australia delivered solid results for both the.

Dirk Van de Put: Achieving 2.2 billion, through ongoing cost discipline and sound pricing to offset cost inflation, as well as volume levels, we continued our track record of strong free cash flow, generating $3.6 billion, to accelerate our strategy of global snacking leadership. We continue to invest significantly in our brands and capabilities, driving multi-year growth on both the top and bottom lines. I'm especially proud of our record financial results, as well as our return of nearly $4 billion in capital to shareholders.

Luca: In the quarter.

Luca: As it relates to volume mix performance in the region for Q4, there has been some pressure on western consumer brands in the middle East since that will began and we have not been immune from that we that impacted sales in the middle East and part of Southeast Asia. We are supporting colleagues, who have been impacted in different ways around the world.

Luca: As well as working with Ngos partners to aid in humanitarian aid, forcing the regions.

Dirk Van de Put: These results deepen our confidence that the strength of our brand, for Provence Travel, continued and increasing investment, and especially our great people position us well to achieve our long-term financial targets in 2024 and beyond. Turning to slide five, you can see that 2023 was a strong year on both the top and bottom lines, with substantial reinvestment to drive continued growth in the years to come. Organic Net Revenue grew 14.7%, or $4.6 billion versus the prior year.

Luca: While volatile and difficult to predict on a go forward basis, we are tracking the situation and working with stakeholders and planning for these dynamics in our plenty plenty for EMEA.

Luca: EMEA increased by 14, 5% for the year, an 18, 5% for the quarter continuing a strong track record of annual top and bottom line growth.

Luca: Latin America grew 34, 8% for the year and 28, 6% for the quarter with strong volume growth and strong price execution ex Argentina growth for AE was plus 18, four 1% for media and nine 2% for the quarter, let's define the good work done by <unk>.

Dirk Van de Put: Our continuing solid performance in volume mix demonstrates that consumers continue to prioritize our brands and categories. We also delivered record adjusted gross profit dollar growth of $2.2 billion, 18.8%, significantly lapping the last several years. We're proud of our team's continued focus and commitment, which enables us to continue investing in the business to drive further sustained growth. Accordingly, we increased ANC investments by more than 21%, helping to drive consumer and customer loyalty to both our iconic global brands and our local jewels, which represent the taste of the nation in their minds. These results translated into strong OI growth of nearly 1 billion dollars, up more than 19% versus Brian. Adjusted EPS grew 19% on top of strong growth in the past several.

Luca: Our teams beyond price management in Argentina, Latin America delivered another strong year of stability Oi group last 48, 5% for the year and more than 49% over quarter strong.

Luca: Volume mix pricing and coordination of gum and candy momentum drove these results turning to page 16 for the year will deliver strong double digit Oi dollar growth driven by record high increase in gross profit of nearly $2 2 billion.

This growth has enabled strong levels of brand investment behind brands and capabilities for plentiful important deal. In Q4. We also saw strong double digit Oi and gross profit dollar growth of more than $500 million.

Luca: Even by top line strength and ongoing cost recently, either was impacted by the Forex dynamics and fund production in U S. Dollar that I discussed about Europe.

Next to EPS on slide 17, fully Aps group plus 19% in constant currency. The vast majority of this growth was driven by operating gains and despite currency headwinds. We grew adjusted EPS as reported Forex by 14, 3% adjusted EPS will be $3 30 per share, including 11 sensor.

Dirk Van de Put: All told, we remain confident that our virtuous cycle of strong gross profit-dollar growth, Fueling local-first commercial execution, and increasing investment in our strong brands, capabilities, and talent will enable us to continue delivering attractive, sustainable. I'm especially proud to share that we continue to outperform our peers in total shareholder retention, as you can see on the slide. Our five-year TSR is nearly double the average of our peer groups.

Luca: Dilution from the NGO.

Luca: I'll talk more about our plans for 2004, but we've been a metric moving as much standard cost as possible.

Luca: Turning to slide 18, we delivered $3 $6 billion of free cash flow for the full year, including the impact of more than $380 million related to cash taxes from the liquidation of our ADP state our balance sheet remains quite strong as full year leverage ended at two six times.

Dirk Van de Put: Our one-year return is particularly impressive, with Mondely delivering double-digit growth, while our peer average return has fallen into negative territory. We view these results as evidence that we have the right strategy, The Right Breath, and the right people to continue delivering long-term value for our state.

Speaker Change: Let me take a moment to discuss our outlook and some of our key planning assumptions on slide 24. The current year, we expect to deliver on our long term algorithm for revenue earnings and cash flow, we expect to be at the upper end of our 3% to 5% range for organic net revenue growth as pricing sensitive marker.

Dirk Van de Put: Switching to slide seven, our performance in 2023 shows us that we have not only the right growth strategy but also the right execution to deliver. Here are just a few highlights of our strategy. Our biggest global brands, Oreo, Milka, and Cadbury, achieved more than $10 billion in global net revenue. We continue accelerating our focus on our core categories for CHOP, biscuits and bake, because these categories offer attractive growth and profitability.

Speaker Change: With significant chocolate portfolio, such as euro is expected to be higher than historical levels, we expect free cash flow of $3 $5 billion plus in.

Speaker Change: In terms of your assumptions for inflation, we expect the high single digit increase for 24. This inflation is driven by significant increases in both cocoa and sugar as well as another upstate in labor costs.

Speaker Change: As Europe faces more inflation than any other market, we expect customer disruption during Q1 and potentially into Q2 associated with our annual price negotiation process.

Dirk Van de Put: We remain on track to deliver 90% of our revenue through these core channels. We also continue to make strong progress in executing our growth. Our U.S. supply chain has stabilized, and we have added more than 100,000 stores to our emerging market distribution. Additionally, we continue to advance our portfolio reshaping strategy. In 2023, we integrated Clif Bar and Ricolino.

Speaker Change: This process is happening early in some cases, unless the <unk> might be more pronounced in Q1 for Tal and margin lines.

We also remain committed to substantial brand supporting this region and all the others similar to our stance over the last past several years.

Speaker Change: In terms of interest expenses, we expect approximately $325 million.

Dirk Van de Put: Now we are harnessing the power of these recent acquisitions to strengthen our presence in the global snack bar and the Mexican chocolate and candy segment. We also completed the sale of our developed market gum business for $1.4 billion, providing another important source of reinvestment to further advance our brands, talents, and capabilities. Slide eight, along with our financial performance, I'm pleased to share that we made significant progress towards our sustainability goals and targets, and Tony Bourdain. Thank you. Thank you.

Speaker Change: We are expecting three cents of EPS headwinds related to foreign feedback for the year in terms of taxes, we expect an ETR in the meat places shattered purchase expectations around $2 billion.

Speaker Change: Turning to our EPS outlook on page 21, we would expect adjusted EPS, We expect high single digit roll off our reported base plenty three of $3 30 per share which includes the 11 central contribution from our divested develop some business we expect to eliminate nearly.

Dirk Van de Put: First, we continue to advance our leadership in more sustainably sourced, critical ingredients, about 80% of the cocoa volume used in our chocolate brand, sourced through Cocoa Live, our signature cocoa sourcing program that works to lift up the people and restore landscapes where cocoa grows. We have also made continued progress in helping to combat climate change. We achieved an important milestone in 2020 by submitting our roadmap to achieve net zero by 2050 to the science-based targets in. Additionally, we continue advancing our light and right. More than 97% of our packaging is now designed to be recycled.

Speaker Change: Of these 11 cents impact by the movie scientists calls in fact, we made good progress by already realize existence of stranded cost savings in late 2023 with that let's open the line for questions.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad, you may remove yourself from the queue at any time by pressing star two.

Speaker Change: So again that is star one to ask a question, we'll pause for a moment to allow questions to queue.

Speaker Change: Our first question comes from Andrew Lazar Barclays.

Speaker Change: Everybody.

Dirk Van de Put: We also continue investing in ways to empower consumers to make more mindful snacking choices that fit into their healthy, active life. More than 55% of our SNACs revenue comes from mindful portion. There are snacks that are packaged in individually wrapped mindful portion serving sizes or with clear mindful portion recommendations.

Andrew Lazar: Firstly I was hoping.

Andrew Lazar: When you get a bit of a state of the union on how you see the performance in key markets at this stage as we saw a bit more volume weakness in North America.

Andrew Lazar: In the fourth quarter and Conversely, it still seems like Theres strength in many of the other key markets trying to get a sense of how you see this playing out in 'twenty, four and whether a similar cadence.

Andrew Lazar: Across your markets might be the same or where it might be a bit different.

Dirk Van de Put: These are just a few highlights of our continuing progress towards building a more sustainable future. We continue to believe that helping to drive positive change at scale is an integral part of value creation and positive returns for our state. We encourage you to watch our annual Snacking Made Right report, which will be published in April, to view our full-year sustainability. Turning to slide 9.

Speaker Change: Kind of follow up.

Speaker Change: Okay.

Speaker Change: Thank you Andrew.

Speaker Change: I mean machine Theres, a very strong full year performance.

Speaker Change: We feel that this portfolio strength, which is broad based across our regions across the categories across the brands.

Speaker Change: The volume mix growth is solid for the year and we expect that to continue into next year.

Dirk Van de Put: You can see that, like many companies, we continue to navigate through a dynamic operating environment. We are closely tracking and planning around a number of near-term challenges, including continuing inflation and shifting consumer habits. Geopolitical Challenges

Speaker Change: Our price execution has been very good this year across the business.

Speaker Change: Share performance as goods North America recovers.

Speaker Change: EMEA, we've been gaining share Europe, we had some disruption effect during the year, but that we started to recuperate strongly at the end of the year.

Dirk Van de Put: Rising cocoa prices, just to name a few. We are well-positioned to address these challenges, and we remain confident that we can deliver a non-algorithm.

Speaker Change: The strength in emerging markets continuous broadening I can comment a little bit on.

Speaker Change: Where there are some.

Short term issues.

Dirk Van de Put: Our confidence is rooted in our conviction that we have the right strategy, the right experience, and the right writer, as well as a very strong, widely loved brand. We continue to see momentum in the majority of our key emerging markets. Our categories remain resilient, and our solid volume-mix performance demonstrates that consumers continue to prioritize our iconic snacking brand to continue accelerating this moment. We're continuing to increase our investment significantly in our brands and capabilities. We are pleased that our U.S. supply chain has substantially improved.

Speaker Change: And then.

Speaker Change: Very good <unk> got some very strong gross profit growth.

Speaker Change: $2 2 billion for the year, which has allowed us to reinvest quite significantly in the business and.

Speaker Change: And so.

Speaker Change: The acquisitions are doing well EPS growth adjusted 19% three of 14% strong cash flow. So we feel feel good as we enter 2024.

We have some more pricing coming in but.

Speaker Change: In.

Speaker Change: North America, that's already agreed in Europe.

Speaker Change: In line with where we were last year and the majority is already agreed.

Speaker Change: We are planning to continue with strong investments in our brands with strong activations.

Dirk Van de Put: And we continue to focus on expanding distribution in both developed and emerging markets. We're also making solid progress on our European pricing. We expect to deliver robust EPS growth in both constant and real dollars in 2024. And overall, we remain confident that we have the right strategy to effectively navigate today's volatile environment while continuing to focus on long-term sustainable growth.

Speaker Change: The acquisitions, we expect to continue to play a big role for us and so overall.

Speaker Change: And maybe another point to mention is that we have this distribution runs in the way of adding distribution for our brands around the world. So.

Speaker Change: We feel it was very strong 23, and we feel good entering 'twenty four now that doesn't mean that there are no particular issues that are on our mind. So the first one would certainly be the cocoa prices and our need to.

Dirk Van de Put: I'm pleased to reiterate that 2023 was another record year. Our focus and portfolio reshaping strategy is working, and we are well positioned to continue driving attractive growth in 2024 and beyond. By continuing to double down on our attractive core categories of chocolate, biscuits, and bacon, investing in our widely loved brand, focusing on operational execution and cost, and empowering our great people, I am confident that we can deliver strong performance for years to come. With that,

Speaker Change: Price is needed we are.

Speaker Change: Well covered for the year.

Speaker Change: But we need to mainly in Europe get those prices agreed.

Speaker Change: Consumer while the consumer is feeling better and more positive short term, we see that elasticity you feel it at or below historical norms.

Speaker Change: But there is some uptick in consumer elasticity in some spots around the world.

Speaker Change: It is to be expected that we will have.

Luca Zaramella: I'll turn it over to Luca to share additional insights on our, Thank you, Dave, and good afternoon, everyone. Before I get into our financial results and the 2024 outlook, it is important to provide some context related to the developed market gum divestiture and its impact on our results. On slide 11, you can see that the impact of the divestiture on revenue was around about $500 million, while on growth, 0.3 percentage points negative. EPS was impacted by minus 11. I'll give you more color as this relates to the outlook later in the call and how we plan to fully offset the impact on it. Moving to slide 12.

Speaker Change: Customer disruption in the beginning of the year in Europe. The animal negotiations are in progress, but like I said, we are right in line, where we were last year and the majority is agreed but we still have some to go.

Speaker Change: And then maybe a few words on some of the effects on the volume in Q4, which we don't think we will continue in Q1 in certain instances. So there is some tensions in the middle East and that has some effect on the western brands and we have some of those western brands, we expect that to continue in Q1 and Q2.

Speaker Change: Gradually over the year, because that will fade away and that is the main reason why our EMEA is not as strong in volume mix as you would expect and then North America look I said it in the <unk>.

Speaker Change: Comments.

Luca Zaramella: In 2023, we delivered exceptional results, starting with double-digit revenue growth in both volume and value contribution. As we keep saying, gross profit dollars is the most important P&L variable, as it allows us to reinvest and protect on our virtual site. Last year, GDP dollars grew by $2.2 billion, allowing substantial reinvestment, strong earnings, and robust cash flow generation. The strength of these results can be seen across all regions and countries.

Speaker Change: And particularly in the U S.

Speaker Change: The very specific one off reasons.

Speaker Change: Stopping.

Speaker Change: Part of the range of giving go.

Speaker Change: The systems change in in.

Speaker Change: And cliff.

We expect to return to good volume mix growth in North America in the beginning of next year.

Speaker Change: All of these items that I'm talking about are included in our full year outlook.

Speaker Change: And so we believe at this stage, but particularly since we have to see how the negotiations go in Europe that we should guide towards our own algo results from 24.

Luca Zaramella: Previous growth was plus 14.7% in the year, with 1.3 points of growth coming from volume mix. For the quarter, growth was about 10%, with a slight decline in volume mix. Emerging markets grew by 20.4% for the year and 14.9% for the quarter, with trends coming from a substantial number of key countries, including Brazil, China, India, Mexico, and the West.

More towards the higher side, but we are going to continue with all of the things I've said then.

Speaker Change: We'll see how the negotiations go in Europe, that's probably the main question Mark that we have at this stage.

Speaker Change: Alright, great. Thank you and a quick follow up for Luca and then some of this you covered a little bit dark, but I think it was a street expectation for organic sales growth for 24 to maybe be a little bit above the three to five long term algorithm just given the pricing that you're taking so maybe Luke you could walk us briefly through some of the key puts and takes to keep in mind as we think about the sales growth guidance for the year and maybe the.

Luca Zaramella: Developed markets grew plus 11.1% for the year and plus 6.66% for the quarter, including robust growth from both the US and Europe. Moving to portfolio performance on slide 13. Our chocolate and biscuit businesses both deliver double-digit growth for the year, also coming and kindly continuing to perform well with superior growth in emerging please skip group plus 11.9% for the year and plus 5.5% for the course. A large number of brands deliver strong growth for 2023, including Oreo, Breeze, Chips Ahoy, Bandit, Update, Give and Go, 7 Days, Tac, and Club Source. Chocolate grew by plus 14.5% for the year and by plus 11.2% for the quarter, with significant growth across both developed and emerging markets.

Luca: Phasing aspect of it thanks, so much.

Luca: Thank you Andrew I will start by saying that guidance for 2014, our mind this.

Luca: As solid, particularly as we look at what drove 23 and the continuation of that momentum into 2004 and saw.

Luca: We can I believe count on resiliency of our categories. We're happy as I said in the prepared remarks on our share performance I think you will see momentum in our share, particularly in that in the first half.

Luca: These.

Luca: Related to the unprecedented.

Luca Zaramella: Volume mix was up by 2.5% for the year and 2.4% for the course. Global brands like Capri Dairy Milk, Milk, and Toblerone all delivered extraordinary growth, while we also delivered strong growth with many of our local jewelers, including Lacta, Ricorino, and Condor. Gum and candy grew more than 28% for the year and 20% for the whole, key markets including Brazil, Mexico, China, and the Western India area

Luca: The investment we put forward.

Luca: There are still material distribution opportunities that will help us model through some of the challenges that we discussed in the prepared remarks, and then finally the acquisitions I think we will continue to be accretive for us both in terms of topline and bottom line decomposing the revenue guidance.

Luca: <unk> is clearly a key component of this plan.

<unk> contribution will be a little bit the last thing we have seen in 'twenty three but it is higher than an average year and particularly as we price our way cocoa chocolate will contribute to most of the pricing in 'twenty for pricing as we mentioned presents a couple of challenges one is potential customer disruption in Europe.

Luca Zaramella: Let's review market share performance on slide 15. We had a gain share in 65% of our revenue base, with strong results in both chocolate and beer. Given the amount of pricing we took in the last couple of years, we see this as a strong accomplishment. And our brand investments, both from a quantity and quality standpoint, clearly play a role. Turning to visual performance on slide 15.

Luca: We have planned for a part of it is also in the base of 23, but wireless is positive <unk>.

Luca: More than half of the prices that is.

Luca Zaramella: Europe grew plus 14.5% for the year and plus 11.6% for the quarter. Strong execution led to positive volume mix for the year despite significant customer disruption in Q2. Profit in 23 was up plus 12.8% for the year and plus 1.6% for the quarter. Underlying profit in Europe continues to improve but was negatively impacted by forex fluctuations on some cash deposits held in dollars that function as a protection against currency volatility. Excluding these headwinds, evening dewfall was up nicely despite the significant increase in North America; North America grew plus 9.5% for the full year, while Q4 grew plus 1.9%, against an exceptionally strong comparison of almost 20% in 2020.

Luca: Secured at this point.

Luca: We cannot really say what is going to happen.

Luca: Particularly as we look into Europe, clearly, we don't control.

Luca: Customer disruption, having said that I think it is important to realize that our brands are strong and that they drive significant traffic for retailers. So couple that with the.

Luca: The fact that prices has come to market in many competitors will have to price I think we feel we feel quite positive at this point in time quite frankly, the second one is elasticity for which I feel better because competitors as I said, we'll have to price too.

Luca: But also because our brands.

Luca: Our unique and we have been investing quite a bit we expect will be our volume to be mildly positive.

Luca: With a good contribution actually when we exclude the cost of a disruption. So at this point in time, given we don't control.

Luca Zaramella: Four-year growth was driven by higher prices. Broad-based trends across brands and channels and a solid volume mix. In Q4, volumes declined as a result of softening U.S. biscuit category type inventory management in advance of Q1 pricing and declines in give-and-go and Given Grove was impacted by our decision to release some of the holiday's gingerbread Lienel Low. We continue to be very happy with Give&Go overall. Click results were driven by lower bar consumption and inventory depletion, connected to retailers building inventory in Q3 to minimize potential disruption ahead of a system transition in early October.

The level at which customer disruption will affect the plan.

Speaker Change: We want it to be a little bit on the cautious side.

Look at reality is if we push these through and we are successful most likely there would be revenue upside and so as I said with a good importantly, I want to say North America, we had very good clients as we go into 2024.

Speaker Change: And I think at the lineup of all these plants plus the combination of.

Speaker Change: The momentum in the acquired platforms. This growth I want to say Latin America, if in our case continues to be.

Speaker Change: Good EMEA.

Despite some of the challenges has.

Luca Zaramella: As a result, we made adjustments to inventory, driving a year-over-year shipment. We feel comfortable with current inventory levels, along with our programming and investments, to drive 24Growth. Overall, we are confident regarding our prospects in 2024 for North America, given our strong activation plan, Growth Channels, and Substantial Investments in ANC. We're going to give you a better sense of these opportunities at the end of the session. North America OI increased plus 22.7% for the year due to strong pricing and solid volume. For the quarter, OI increased by 9.5%. Amir grew 11.7% for the year and 7.9% for the past year. India grew strongly double digits for the year and quarter, driven by both chocolate and milk.

Speaker Change: A lot of momentum in India, and China that will continue and finally I think.

Speaker Change: If you look at Europe, excluding customer disruption the underlying business and the categories are doing well so I believe the year.

Speaker Change: We'll play out well for us depending obviously on the extent of customer disruption.

Thanks, so much.

Speaker Change: Thank you Andrew.

Speaker Change: Yes.

Speaker Change: Our next question comes from Ken Goldman Jpmorgan.

Ken Goldman: Hi, good afternoon.

Ken Goldman: Hi, Ken.

Ken Goldman: I just wanted to clarify a little bit.

Ken Goldman: About the EPS guidance. So it's on the algo off a 330 base, but it's actually above algo, if we think about it on a like for like basis versus the 319 right. If you exclude come from both 2023 and 2024 and please correct me if.

Luca Zaramella: China grew by high single digits for the year and quarter as well. Southeast Asia grew by mid-single digits for the year, and Australia delivered strong results for both the year and the quarter. As it relates to volume mix performance in the region for Q4, there has been some pressure on Western consumer brands in the Middle East since the war began, and we have not been immune from that with an impact on sales in the Middle East and part of Southeast Asia. We are supporting colleagues who have been affected in different ways around the world, as well as working with NGOs and partners to aid in humanitarian efforts in the region. While volatile and difficult to predict on a go-forward basis, we are tracking the situation and working with stakeholders and planning for these dynamics in our 2024 outlook. AMEA increased OI by 14.5% for the year and 18.5% for the quarter, continuing a strong track record of annual top and bottom lines.

Ken Goldman: If that's not accurate I'm just curious.

Ken Goldman: What would necessarily what gives you the confidence it will be a little bit above algo just on that like for like basis, and maybe how much of that underlying is sort of the elimination of some stranded costs. As you think about it that Mike just give a little bit more of a boost to the year than we might typically have.

Speaker Change: Yes. Thank you for the question, Ken we wanted to make sure.

Speaker Change: It was clear that we are trying to eliminate all the stranded costs and so we really wanted to guide.

Speaker Change: High single digit call the higher base.

Speaker Change: The confidence comes from the fact that as I said.

Speaker Change: We're gonna have excluded the customer disruption volume momentum into the business and that provides leverage and we will continue pricing in a very disciplined manner.

Speaker Change: And that will offset that.

Luca Zaramella: Latin America grew 34.8% for the year and 28.6% for the quarter, with strong volume mixed growth and strong price execution. Ex-Argentina growth for LA was plus 18.1% for the year and 9.2% for the quarter, demonstrating the good work done by our teams beyond price management in our Latin America delivers another strong year of profitability. OI grew plus 48.5% for the year and more than 49% for the past year. Strong Volume Mixed Pricing and Combination of Come and Candy Momentum drove this result. Turning to page 16.

Speaker Change: Material inflation that we see.

Speaker Change: Clearly, we will continue with cost discipline and productivity and the fact that we will eliminate 70, 80% of the stranded cost into 'twenty four allows us to guide to high single digit of Ultra high base in all of these article.

Speaker Change: We're not going to have I have to say, 20% ANC increase another.

Speaker Change: But it will be most likely high single digit low double digit. So we will continue investing across all the regions across all the brands and so we think good about that remember finely that through the integration of <unk>, there will be synergies coming to fruition where literally.

Luca Zaramella: For the year, we delivered strong double-digit-wide dollar growth, driven by a record-high increase in gross profit of nearly $2.2 billion. This growth has enabled strong levels of reinvestment behind brands and capabilities for 2024 and beyond. In Q4, we also saw strong double-digit-wide and gross profit dollar growth of more than $500 million, driven by top-line strength and ongoing cost-effectiveness; other was impacted by the forex dynamic, and Fund Protection in US Dollars that I discussed in Europe. Next 2 EPS on slide.

Speaker Change: Going live.

Speaker Change: In a few days and hopefully that will unlock both revenue and cost synergies for 2024.

Speaker Change: Thank you and then quick follow up you mentioned disruption a little bit more in <unk>. This year with the understanding it's quite early is there any way, we can get a little bit more of a quantitative sense just to how to think about some of the impact potentially on the top and bottom line in the quarter I realize it like I said, it's impossible to kind of.

Luca Zaramella: Fully APS grew plus 19% in constant currency. The vast majority of this growth was driven by operating gains. And despite currency headwinds, we drew adjusted EPS at reported 4X by 14.3%. Adjusted EPS would be $3.30 per share, including $0.11 of contribution from the amount.

Speaker Change: Completely forecasted at the time, but just any kind of.

Speaker Change: Magnitude at this point would be helpful. As we think about our models perhaps.

Speaker Change: Look I think as you look at the.

Speaker Change: Q1.

Speaker Change: Revenue pacing.

Speaker Change: We're going to have a revenue may be a number that is a little bit below the full year our goal.

Luca Zaramella: I'll talk more about our plans for 2024, but we will aim to remove as much standard cost as possible. Turning to slide 18, we delivered $3.6 billion of free cash flow for the full year, including the impact of more than $380 million related to cash taxes from the liquidation of our KDP system. Our partnership remains, and it truly is leveraged and 2.0. Let me take a moment to discuss our outlook and some of our key planning assumptions on slide two. For the current year, we expect to deliver on our long-term algorithm for revenue, earnings, and cash. We expect to be at the upper end of our 3-5% ALGO range for organic red rabbit growth, as pricing in central markets with significant chocolate portfolios, such as Europe, is expected to be higher than historical levels. We expect free cash flow of $3.5 billion in terms of yes. For inflation, we expect a high single-digit increase in 2024. This inflation is driven by significant increases in both cocoa and sugar, as well as another uptick in labor.

Speaker Change: <unk>.

Speaker Change: I think youre going to be hopefully happy with the numbers you see across three regions out of the for.

Speaker Change: Europe is going to be more impacted.

Speaker Change: Its terms versus the fact that we have already in the base in 'twenty three in Q2.

Speaker Change: And most likely volume mix.

Speaker Change: Excluding.

The customer this option is going to be a nice number and positive I believe total volume mix might be.

Speaker Change: Debt to a slightly negative because of the disruption, but I can't go any further than that we are in the middle of negotiations and conversations with retailers and.

Speaker Change: We we have.

Speaker Change: Plan, we have a science of what Mike had been but time will tell exactly.

Speaker Change: We will land pricing in Europe.

Speaker Change: Understood. Thank you.

Speaker Change: Thank you Ken.

Speaker Change: Our next question comes from Bryan Spillane Bank.

Bryan D. Spillane: Bank of America.

Bryan D. Spillane: Hey, Thanks, operator, good afternoon.

Bryan D. Spillane: Luca.

Luca Zaramella: As Europe faces more inflation than any other market, we expect customer disruption during Q1 and potentially into Q2, associated with our annual price negotiation. This process is happening earlier in some cases than last year, so it might be more pronounced in Q1 for top and margin. We also remain committed to substantial brand support in this region and all the others, similar to our stance over the past several years. In terms of interest expenses, we expect approximately $325,000.

Bryan D. Spillane: Hi, Brian.

Bryan D. Spillane: Hey, just a couple of questions actually and one is just get just getting back to the guidance and I just want to tie in.

Bryan D. Spillane: It's $2 billion of share repurchase this year, but you also repurchased quite a bit of shares in the fourth quarter. So if we think about.

Bryan D. Spillane: The impact that share repurchases or a lower share count would have on fiscal 'twenty four it should be more than the roughly 2% that 2 billion repo would would suggest right just simply because of the timing of your 23 share repurchases were so late it should drive the share count down a little bit more.

Luca Zaramella: We are expecting three sets of EPS headwinds related to 4H impact for. In terms of taxes, we expect a DTR in the middle. Shelly Purchase expectations are around to be. Turning to our EPS Outlook on page, we expect to adjust the DPS. We expect high single-digit growth of our reported base, 23 of $3.30 per share, which includes the 11 signs of contribution from our divested developed countries. We expect to eliminate nearly all of the easy level science impact by removing stranded. In fact, we made good progress by already realizing the sense of spending cost savings. Early. With that, let's open the line for: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

Speaker Change: Then we would normally see I just wanted to make sure I'm thinking about that correctly.

Speaker Change: I think youre thinking about that correctly, yes, okay, alright, because thats going to square to just how much we need to burden the operating profit growth and I think it's not going to be quite as high as I think as it would've sort of look.

Speaker Change: Okay. Thanks for that and then the second question just if you could talk a little bit about Argentina.

Speaker Change: It's been topical over this earnings season for companies operating there we've seen a range of.

Speaker Change: Outcomes, I guess or actions companies have taken so could you just kind of walk us through Argentina.

Speaker Change: Does the devaluation at all have any effect on local operations, what's incorporated into the guidance and also maybe if you can just touch on.

Speaker Change: Is that's what's driving the FX guidance to be so moderate because we feel that that question a bunch over the last few minutes.

Speaker Change: So Argentina for Ics.

Operator: Once again, that's Star 1 to ask a question. We will pause for a moment to allow questions to... Our first question comes from Andrew Lazar, Barclays. Everybody.

Speaker Change: The $600 million business, we're very happy the way the business has been managed over the years.

Speaker Change: Have a clear playbook, what matters in Argentina for US is not necessarily top line growth is not sure. It is about protecting the cash that we have there and that Argentina has been consistently generating cash for us and we have been able also to take some cash out of the country.

Dirk Van de Put: Dirk, I was hoping we could get a bit of a State of the Union on how you see the performance in key markets at this stage, as we saw a bit more volume weakness in North America in the fourth quarter. And, conversely, it still seems like there's strength in many of the other key markets. I'm trying to get a sense of how you see this playing out in 24 and whether a similar cadence across your markets might be the same or where it might be a bit different. I mean, I've just got to follow up.

Speaker Change: Some of the companies have talked about the exposure on net monetary position, our net monetary position leasing control. It will go down over over the course of 'twenty four as we have a clear playbook playbook and by the way, we Incent, Argentina, not like all the other business units.

Speaker Change: But we incent, Argentina on net monetary position and free cash flow generation.

Dirk Van de Put: OK. Thank you, Andrew. Yeah, I mean, we see a very strong full-year performance. We feel that this portfolio strength, which is broad-based across our regions, across the categories, across the brands. The volume mixed growth is solid for the year. We expect that to continue into next year. Our price execution has been very good this year across the business. Share performance is good. North America, we recovered.

Speaker Change: There was a little bit of a spiky net monetary exposure in Q4 and that was as the old Goldman <unk> put in place some.

Speaker Change: <unk> control mechanism, but as those have been released at the net monetary position in Q1 is going to be very manageable and I don't expect any major <unk>.

Speaker Change: <unk> you to that.

Speaker Change: It's also fair to say that.

Speaker Change: We have full control of the operation we are free to price at this point in time and the team is fully committed to protecting as much as they can.

Speaker Change: The size and the scale of Argentina and.

Any issues or whatsoever in terms of in terms of impairment clearly there has been material devaluation.

Dirk Van de Put: EMEA, we've been gaining share. Europe, we had some disruption effects during the year, but we started to recuperate strongly at the end of the year. The strength in emerging markets broadly continues, and I can comment a little bit on where there are some short-term issues. And then we've got some very strong gross profit growth and 2.2 billion for the year, which has allowed us to reinvest quite significantly in the business. And so the acquisitions are doing well. EPS growth adjusted 19 percent, real 14 percent, and strong cash flow.

Parallel markets Ron set.

Without even higher than the official one reported that obviously already much higher than last year and so we will have to cap most likely growth for Argentina going forward into 2024, having said that you would be constant moot point as we guide you to organic net revenue growth and Forex impact and so the two.

To offset each other and if you take the guidance we gave in terms of organic net revenue growth and the impact on revenue.

Speaker Change: Which is round about asset point of growth.

Speaker Change: That should do the <unk> in terms of yield forecasting <unk> in total.

Dirk Van de Put: So we feel good as we enter 2024. We have some more pricing coming in, but in North America, that's already agreed. In Europe, we're in line with where we were last year, and the majority has already agreed. We are planning to continue with strong investments in our brands and strong activations. The acquisitions we expect to continue to play a big role for us. And so overall, and maybe another point to mention is that we have the distribution runway of adding distribution for our brands around the world. So we feel that it was a very strong 23, and we feel good entering 24. But that doesn't mean that there are no particular issues that are on our minds.

Speaker Change: Thanks Luca.

Luca: Thank you Brian.

Luca: Our next question comes from David Palmer with Evercore.

Luca: Thanks.

David Palmer: A couple of questions.

David Palmer: On Europe and pricing so often we talk about the retailer customer in the dynamic of getting through pricing there I wonder.

David Palmer: As you are taking pricing. This year are you is your pricing strategy to offset the dollar impact.

David Palmer: That youre going to see from Coco.

David Palmer: Or it would seem like that would be a pretty reasonable expectation for the players there given what's happening with cocoa, but maybe there's some timing issues for 2024, there to think about.

Dirk Van de Put: So the first one would certainly be the cocoa prices and our need to price as needed. We are well covered for the year, but we need to, mainly in Europe, get those prices agreed. While the consumer is feeling better and more positive, in the short term, we see that elasticity is still at or below historical norms, but there is some uptick in consumer elasticity in some spots around the world. It is to be expected that we will have customer disruption at the beginning of the year in Europe. The annual negotiations are in progress.

David Palmer: And then and then how what from what you've seen about from the consumer there is the pricing less price elasticity there much different than what you would see.

David Palmer: From from what you see in your biscuit business in the U S. For example.

Yes.

David Palmer: Yes. Your first assumption is correct in the sense that we are trying to offset the dollar impact of the inflation that we're seeing on our input costs.

David Palmer: We're not pricing for percentage margin, but offsetting that dollar impact, which yes, we believe is a reasonable position.

David Palmer: This year seen the situation in Europe, and the fact that the retailers are seeing.

Dirk Van de Put: Like I said, we are in line where we were last year, and the majority is agreed, but we still have some to go. And then, maybe, a few words on some of the effects on the volume in Q4, which we don't think will continue in Q1 in certain instances. So there are some tensions in the Middle East, and that has some effect on Western brands, and we have some of those Western brands. We expect that to continue in Q1 and Q2, but gradually, over the year, that will fade away. And that is the main reason why AMIA is not as strong in volume mix as you would expect.

David Palmer: Probably some deflation in other areas of their business is this.

David Palmer: Little bit of an explanation to explain that not only cocoa, but also sugar or hazelnuts.

David Palmer: Showing significant inflation, which is not the expectation I think by now they understand that it has to happen in chocolate. So we have high hopes that we will be able to land in a good way.

David Palmer: As it relates to.

David Palmer: Elasticity.

David Palmer: I would say the elasticity in Europe as being very reasonable.

Dirk Van de Put: And then North America, Luca said in his comments, particularly in the U.S., because of very specific one-off reasons, stopping a part of the range of give and go, the systems change in CLIF. We expect to return to good volume mix growth in North America at the beginning of next year. All these items that I'm talking about are included in our full-year outlook. And so, at this stage, particularly since we have to see how the negotiations go in Europe, we should guide towards our own ALGO results for 2024, probably more towards the higher side. But we are going to continue with all the things I said, and we'll see how the negotiations go in Europe. That's probably the main question mark that we have at this stage. Great. Thank you.

We might.

David Palmer: Maybe expect a little bit.

David Palmer: <unk>.

David Palmer: <unk> uptake as prices keep on going up for a third year in a row and particularly in chocolate.

David Palmer: But there is very little or load down trading within the category because everybody will have to <unk>. So it's a joint movement of all the brand. So we don't expect that there will be huge differences between different brands and no shifting of consumers.

David Palmer: What we've seen in the past year is a strong price increase of.

David Palmer: 12% to 15% in Europe, and chocolate with a very limited zero to 0.5% effect on volume.

David Palmer: And so that shows that the elasticity is very low.

David Palmer: We think that is driven because of strong brand loyalty.

David Palmer: The fact that chocolate has a very distinct taste profile and consumers tend to stick with their chocolate brand because they like the taste and.

Luca Zaramella: And a quick follow-up for Luca, and some of this you covered a little bit, Dirk, but I think there is a street expectation for organic sales growth for 2024 to maybe be a little bit above the three to five long-term algorithm just given the pricing that you're taking. So maybe, Luca, you could walk us briefly through some of the key puts and takes to keep in mind as we think about the sales growth guidance for the year and, maybe, the phasing aspect of it. Thanks so much.

David Palmer: People recognize the taste of their brand. So private label is very small and people do not tend to switch brands very easy if we call. It the taste of the nation every country has their favorite chocolate.

David Palmer: And then on top of that we will do significant investments very strong activations. We've been driving seasonal is very hard next year. We will celebrate 200 years of Cadbury, which will be a major activation in the U K. So all of that combined make us believe and we have proved in the past that.

Luca Zaramella: Thank you, Andrew. I would start by saying that guidance for 24 in our minds is solid, particularly as we look at what drove 23 and the continuation of that momentum into 24. And so we can, I believe, count on the resiliencies of our categories. We're happy, as I said, in the prepared remarks on our share performance.

The elasticity will be limited to our opinion and chocolates in Europe.

David Palmer: Yes.

Luca Zaramella: I think you will see momentum in our share, particularly in the first half, and that is related to the unprecedented ANC investment we put forward. There are still material distribution opportunities that will help us model through some of the challenges that we discussed in the prepared remarks. And finally, acquisitions, I think, will continue to be a credit to us, both in terms of the top line and the bottom line. Decomposing the revenue guidance, pricing is clearly a key component of this plan.

David Palmer: Okay.

Speaker Change: A quick follow up.

Speaker Change: Distribution growth seems to be a key driver of growth driver for the company.

Speaker Change: Think I've ever heard you say how much of your organic sales growth will come from distribution expansion.

Speaker Change: But if you had to guess how many percentage points organic sales targets would come from that.

Speaker Change: What would you say.

Speaker Change: So roughly you can assume for the for the markets, where we can drive significant numerical distribution I'm talking about China, and India, which we are now also starting to drive very hard in places like Brazil.

Luca Zaramella: Its contribution will be a little bit less than we have seen in 23, but it is higher than an average year. And, particularly as we price away cocoa, chocolate will contribute to most of the price in 24. Pricing, as we mentioned, presents a couple of challenges. One is potential customer disruption in Europe. We have plans for it. Part of it is also in the days of 23.

Speaker Change: We probably in those markets you can expect that about 50% of our.

Speaker Change: Organic growth is driven through distribution expansion on a global basis, we are probably talking about 2% over extra growth coming from this.

Speaker Change: The runway of this is still quite a bit to give you a few numbers show since 2019, we've added $1 7 million stores.

Luca Zaramella: But while I feel positive, and you've said more than half of the prices are secured at this point, we cannot really say what is going to happen. And, particularly as we look into Europe, clearly, we don't control customer disruption. Having said that, I think it is important to realize that our brands are strong and that they drive significant traffic for retailers. So, couple that with the fact that prices are common in the market, and many competitors will have to price match. I think we feel quite positive at this point in time, quite frankly.

Speaker Change: In China, India and Brazil.

Speaker Change: But as our biscuits are now in about $3 million of the potential 6 million stores in China, or our gum business is only $2 million of the 6 million potential stores.

Speaker Change: In India, we've added 180000 stores in 23.

Speaker Change: Deployed 100000, new visit bullish, but then just over 900.

Speaker Change: I'm, sorry, 9 million retail outlets, we cover directly $2 million and we have about $3 million that are.

Luca Zaramella: The second one is elasticity, which I feel better about because competitors, as I said, will have to price too, but also because our brands are unique and we have been investing quite a bit. We expect the year's volume to be mildly positive, with a good contribution, actually, when excluding the customer disruption. So at this point in time, given we don't control the level to which customer disruption will affect the plan, we wanted to be a little bit on the cautious side. And look, the reality is that if we push this through and we are successful, there will most likely be revenue upside. And so, as I said, we feel good. Importantly, I want to say North America, we have very good plans as we go into 2024. And I think the lineup of all these plans plus the continuation of the momentum in the acquired platforms is good. I want to say Latin America, in our case, continues to be good.

Indirect coverage of $85 million of the nine stores in India.

Speaker Change: I can't go out on different countries. So I gave you the percentages what it means for us and the other message here is that the run rate the years that we can keep on doing this are quite significant going forward.

Speaker Change: Sure.

Speaker Change: Well, thank you very much that's great.

Speaker Change: Thank you.

Speaker Change: Thank you David.

Speaker Change: Our next question comes from Robert Moskow with.

Robert Moskow: With T D Cohen.

Robert Moskow: Hi, Thanks, I actually had a follow up on the distribution question.

Robert Moskow: Are you taking extra steps to.

Robert Moskow: Monitor distribution levels at distributors and work or even the retailers.

Robert Moskow: In light of.

Robert Moskow: Volatility of consumption.

Robert Moskow: Theres been multinationals who have.

Robert Moskow: Falling into.

Robert Moskow: Inventory de loading situations in Latam.

Luca Zaramella: AMIA, despite some of the challenges, has a lot of momentum in India and China that will continue. And finally, I think if you look at Europe, excluding customer disruption, the underlying business and the categories are doing well. So I believe the year will play out well for us, obviously depending on the extent of customer disruption. Thanks so much.

Robert Moskow: You're expanding distribution, so well I'm just wondering if you were also picking.

Robert Moskow: Taking extra steps to monitor it at the same time.

Speaker Change: Yes, yes, we are.

Aware that.

Speaker Change: Distribution expansion needs to be very well monitor so we're putting in place is.

Sure.

Speaker Change: A direct connection because we use mainly distributors to make this happen is a direct connection to their system. So we can read what they sell for stores and what the sell in is how much. The replenishment is so we monitor that very carefully we go slow and in some of the cities where were doing the expansion. So that we make sure that we can see.

Operator: Thank you, Andrew. Our next question comes from Ken Goldman, J.P. Morgan. Hi, good afternoon.

Luca Zaramella: Hi, I just wanted to clarify a little bit about the EPS guidance. So, it's on ALGO off a 330 base, but it's actually above ALGO if we think about it on a like-for-like basis versus the 319, right? If you exclude GUM from both 2023 and 2024, and please correct me if I'm, if that's not accurate. I'm just curious what would necessarily give you the confidence it'll be a little bit above algo, just on that like-for-like basis, and maybe how much of that underlying is sort of the elimination of some stranded costs as you think about it that might just give a little bit more of Yeah, thank you for the question, Ken. We wanted to make sure it was clear that we are trying to eliminate all the stranded costs. And so we really wanted to guide the high single-digit cost, the higher base.

Speaker Change: Setting up the whole distribution system is profitable and that it can be maintained so we've had no surprises so far.

Speaker Change: On this many times in my career and I've had surprises, but so far things have gone quite smoothly I think our teams around the world know what to do they are on top of it.

Speaker Change: Usually accompany these distribution expansion is with very heavy activation in the cities that we are doing this so we feel we feel pretty good that we have a very controlled way of doing it and like I said, so far we have had no surprises whatsoever with this.

Speaker Change: And a follow up on that and some of these markets you've introduced more digitized tools to enable.

Speaker Change: Small retailers or distributors to order, a reorder and and also monitor their performance on promotions I think has that improved your ability to keep track of distribution and monitor sales like our the tools better than they were 10 years ago to monitor all of this.

Luca Zaramella: The confidence comes from the fact that, as I said, we're going to have excluded customer disruption and good volume momentum into the business. And that provides leverage. We will continue pricing in a very disciplined manner, and that will offset the material inflation that we see. Clearly, we will continue with cost discipline and productivity. And the fact that we will eliminate 70, 80 percent of the stranded cost into 24 allows us to guide to a high single-digit of a higher base. In all this algo, we are not going to have, I have to say, a 20 percent ANC increase another year, but it will most likely be a high single-digit or double-digit. So we will continue investing across all the regions, across all the brands. And we feel good about that.

Speaker Change: Yes, we are.

Still in a relatively experimental phase with that.

Speaker Change: We are for instance, mainly experimenting with this in Latin America.

Speaker Change: Largely in channels that we don't have immediate big coverage. So as an example, I would say bars in Brazil would be typically something that we don't cover directly or indirectly at the moment.

But we have started to have a presence in and we are monitoring how that is going.

Speaker Change: I'd say those tools that help you help the retailer order directly and get our products in there it helps us to understand how much the store sales and yes, we can monitor.

Speaker Change: Promotions as a tool to monitor monitor how our distribution is evolving it's probably complementary to the other system. When I was talking about but we prefer at this stage to monitor that through our distributors because the way. It works is they they will order through this new App and then we.

Luca Zaramella: Remember, finally, that through the integration of Ricorino, there will be synergies coming to fruition. We are literally going live with SAP in a few days, and hopefully that will unlock both revenue and cost synergies for 2024. Thank you, and then a quick follow-up. You mentioned disruption a little bit more in one cue this year.

Speaker Change: Through our normal distribution system will deliver or we will use a third party to do it. So that's usually the source of the monitoring of distribution not necessarily the new app for us.

Luca Zaramella: With the understanding it's quite early, is there any way we can get a little bit more of a quantitative sense just of how to think about some of the impact potentially on the top and bottom line in the quarter? I realize, like I said, it's impossible to kind of completely forecast it at the time, but just any kind of magnitude at this point would be helpful as we think about our models. Look, I think as you look at the Q1 revenue pacing, we're going to have a revenue number that is a little bit below the full year algo. But I think you're going to be awfully happy with the numbers you see across three regions out of the four.

Speaker Change: Got it thank you.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Steve powers with Deutsche Bank.

Yes. Thanks.

Steve Powers: So my question.

Steve Powers: I think based on the EPS guidance combined with the $3 five plus billion dollars free cash flow guidance.

Steve Powers: Towards the $3 five kind of ignoring the plus by focusing on $3 $5 billion I think it implies.

Steve Powers: 75% or lower free cash flow conversion I, just wanted to kind of throw that passed to you and see if that's the that's the message you intended to convey if so what might be some of the drags on that free cash flow conversion or if there's a if there's a higher level of free cash flow conversion, we should we should anchor two as a target.

Luca Zaramella: Europe is going to be more impacted in relative terms versus the impact that we already have in the base in 23 in Q2. And most likely, volume mix excluding the customer disruption is going to be a nice number and positive. I believe total volume mix might be tilted slightly negative because of the disruption. But I can't go any further than that.

Speaker Change: Maybe you can talk about that.

Speaker Change: Thank you for the question Steve.

Speaker Change: As we think about the free cash flow and net income conversion to free cash flow important to realize that.

Speaker Change: The dividend payout of the joint ventures that we had.

Operator: We are in the middle of negotiations and conversations with retailers. And we have planned. We have a sense of what might happen, but time will tell exactly how we will land prices in the EU. Understandable. Thank you.

Speaker Change: Not 100% and solved that.

Speaker Change: He's a little bit about <unk>.

Speaker Change: Factor as you consider the conversion the other one I would tell you is we're going to have a slight uptick in <unk>.

Speaker Change: Capex, particularly as we need to invest in places like India, you look at the volume over the last five years <unk> has been.

Operator: Thank you, guys. Our next question comes from Bryan Spillane, Bank of America. Hey, thanks, operator. Good afternoon, Dirk, Luca.

Speaker Change: Taylor and we are very happy, but we are at the point, where we need to put down a little bit more capacity same goes for Latin America, and oil rail and obviously, we integrate platforms like the colino et cetera.

Luca Zaramella: Hey, Luca, I have a couple of questions, actually, and one is just getting back to the guidance. And I just want to tie in that it's $2 billion of share repurchase this year, but you also repurchased quite a bit of shares in the fourth quarter. So if we think about the impact that share repurchases or a lower share count would have on fiscal 24, it should be more than the roughly two percent that a two billion repo would suggest. Right. Simply because the timing of your twenty-three share repurchases was so late, it should drive the share count down a little bit more than we would normally see.

Speaker Change: The other one that we've come into play in terms of capital expenses for 'twenty for ESI SAP Hana.

Speaker Change: And so I think thats. Another element you have to consider I think look the number I would like.

Like you to focus on these won't be delivering 23, which net of the taxes.

Taxes, we pay for coffee.

And about $4 billion and so there might be some one time payments coming our way and so we need to make sure that we have enough headroom, but want to reassure you that.

Speaker Change: In terms of free cash flow, we are very happy we have best in class I believe cash conversion cycle. We continue to be very disciplined in terms of lowering overdue across the board and inventories are coming down and so we feel good about the cash flow generation of the company.

Luca Zaramella: I just want to make sure I'm thinking about that correctly. I think you're thinking about that correctly, too. Okay, all right, because that's going to square to just how much we need to burden operating profit growth, and I think it's not going to be quite as high as I think it would have sort of looked. Okay, thanks for that. And then the second question, just Luca, if you could talk a little bit about Argentina.

Speaker Change: Alright, great guys. Thank you for that and it sounds like you guys talk a little bit more about this at Cagny, but.

Speaker Change:

Speaker Change: You can you can talk about it now just the <unk>.

Luca Zaramella: You know, it's been topical this earnings season for companies operating there. We've seen a range of outcomes, I guess, or actions companies have taken. So if you just kind of walk us through Argentina, does the devaluation at all have any effect on local operations? You know, what's incorporated into the guidance? And also, maybe if you can just touch on, is that what's driving the FX guidance to be so moderate? Because we feel that question a lot over the last few minutes.

Speaker Change: <unk> four.

Speaker Change: Volume recovery in organic growth.

Speaker Change: Toleration in North America.

Speaker Change: I guess how quickly do you think that is likely to manifest in 24 is that going to be a slower build or do you think we should expect some results sooner.

Speaker Change: As you leverage some of the commercial investments it sounds like you made in the fourth quarter.

Speaker Change: Yes.

Luca Zaramella: Thanks. Yeah. So Argentina for us is around about a $600 million business. We're very happy with the way the business has been managed over the years. We have a clear playbook.

Speaker Change: I think you said it right at the end there in the fourth quarter, if you think about it.

Speaker Change: On one hand, we we had a good year and we were coming with a price increase which by the way. It has been agreed in the U S. In the beginning of the year, so no need to pushing volumes from our side then.

Luca Zaramella: What matters in Argentina for us is not necessarily top-line growth, it's not share, it is about protecting the cash that we have there. And Argentina has been consistently generating cash for us, and we have been able to take some cash out of the country. Some of the companies I've talked about, we have a clear exposure on our net monetary position. Our net monetary position is under control. It will go down over the course of 24 as we have a clear playbook.

Speaker Change: We.

Speaker Change: We have the cliff.

Speaker Change: System integration changeover, and so we needed to bring our inventory down and manage it very tightly and then we've talked about the giving go holiday kits that we stopped selling because of margins or not.

Speaker Change: Interesting for us so.

Speaker Change: If I exclude those and then.

Look at the rest of the business the volume mix performance in Q4 was in fact quite good. So we're expecting a good volume mix performance right away in Q1 of next year.

Luca Zaramella: And by the way, we incent Argentina not like all the other business units, but we incent Argentina on net monetary position and free cash flow generation. There was a little bit of a spike in net monetary exposure in Q4, and that was because the old government put in place some price control mechanism. But as those have been released, the net monetary position in Q1 is gonna be very manageable, and I don't expect any major impact due to that. It's also fair to say that we have full control of the operation. We are free to price at this point in time, and the team is fully committed to protecting as much as they can the size and the scale of Argentina. So I don't see any issues whatsoever in terms of impairment.

It is really a one off situation in Q4, so we don't really necessarily feel like there is a slowdown in North America is not going to be massive volume growth, but he is going to be positive volume growth in the beginning of the year. So that's really we are it is not going to be a slow buildup. We will continue where we are without.

Speaker Change: The exceptionals that we have in Q4.

Speaker Change: Okay very good thanks, Derrick I'll pass it on.

Speaker Change: Okay.

Speaker Change: Thank you.

Alexia Jane Howard: Our last question comes from Alexia Howard Bernstein.

Luca Zaramella: Clearly, there has been material devaluation. The parallel market runs at rates that are even higher than the official one reported, which is obviously already much higher than last year. And so we will have to cap most likely growth for Argentina going forward into 2024. Having said that, it becomes a moot point as we guide you to organic net revenue growth and forex impact. And so the two offset each other.

Speaker Change: Good evening everyone.

Speaker Change: Hi, Alex Yeah, Hi, Hi, Thanks, two questions first of all on innovation.

Speaker Change: Just wondering if you can give us a quick status update.

Whether the pace of innovation is likely to pick up going forward it feels like with the pandemic and the supply chain disruption.

Speaker Change: And it's been very hot.

Speaker Change: Continue innovation over the last several years do you anticipate a pickup going forward and then I have a follow up.

Luca Zaramella: And if you take the guidance we gave in terms of organic net revenue growth and the impact on revenue, which is around about half a point of growth, that should do the trick in terms of you forecasting Mondanese in total. Thanks, Luca.

Yes, we are.

Going through.

Speaker Change: And a bit of a change in the way we look at innovation, if you think about our business around the world.

We have quite a rhythm of small innovation, new flavors, new sizes of facts as we do PPA in RCM.

Operator: Thank you, Brian. Our next question comes from David Palmer with Evercore. Thanks. There are a couple of questions. On Europe and pricing, so often we talk about the retailer, the customer, and the dynamic of getting through pricing there. I wonder, as you take pricing this year, is your pricing strategy to offset the dollar impact? that you're going to see from COCO, it would seem like that would be a pretty reasonable expectation for the players there, given what's happening with COCO, but maybe there are some timing issues for 2024 there to think about. And then from what you've seen from the consumer there, is the price elasticity there much different than what you would see from what you see in your biscuit business in the US, for example?

But that leads to hundreds of small projects, which do drive our business, but we are gradually.

Speaker Change: Eliminating probably close to half of those small projects because in fact over time. They don't have that much of an impact on the business. So overall, our business is doing well we can afford to do so and we are shifting our focus to bigger innovation projects.

Speaker Change: So the ones that I would mention is first of all.

Speaker Change: Making healthier versions of our.

Mainstream product.

Speaker Change: Im referring to for instance, what you've seen so far in audio gluten free or Oreo zero sugar in China gluten free in the U S doing quite well and you can ask.

Speaker Change: I expect that we will continue to expand those efforts across all their brands and then we are entering quite significantly engaged in phase III and there you can.

Speaker Change: Expect us to push quite as hard and so you could see the Oreo cake theres or the audio every cake in China and these are all significant innovations that as.

Dirk Van de Put: Yes, your first assumption is correct in the sense that we are trying to offset the dollar impact of the inflation that we're seeing on our input costs. And we're not pricing for percentage margin but offsetting that dollar impact, which, yes, we believe is a reasonable position. I think this year, seeing the situation in Europe and the fact that retailers are probably seeing some deflation in other areas of their business, it is a little bit of an explanation to explain that not only cocoa but also sugar or hazelnuts are showing significant inflation, which is not expected.

Speaker Change: As the potential or tens of millions of dollars of net revenue per country.

Speaker Change: We're pushing hard on premium chocolate. So we launched for instance, the total around provisions.

Speaker Change: Or.

Speaker Change: I've done some big innovations on our core chocolate tablet so.

Speaker Change: These are bigger innovations that require more work higher potential, but we're re shifting of.

Speaker Change: Efforts towards those so I don't know if I would call. It what you are asking is do.

Speaker Change: Do we see pick up the pace of innovation I think the impact of innovation on our growth will increase in the coming years, but it's not driven by more innovation is driven by better innovation I would say.

Dirk Van de Put: I think by now they understand that it has to happen in chocolate, so we have high hopes that we will be able to land that in a good way. As it relates to elasticity, I would say elasticity in Europe has been very reasonable.

Speaker Change: Very helpful and then could I just follow up finally do.

Speaker Change: Do you have any observations about the stages of the American consumer I think we've heard from other companies that there had been down trading that vulnerability. There's channel shifting I'm just wondering if any of them whether it's some of the challenges that you're seeing in North America.

Dirk Van de Put: We might maybe expect a little bit of an uptick as prices keep on going up for a third year in a row, particularly in chocolate, but there is very little or low down-training within the category because everybody will have to price. So it's a joint movement of all the brands, so we don't expect that there will be huge differences between different brands and no shift of consumers. What we've seen in the past year is a strong price increase of 12 to 15% in Europe for chocolate with a very limited 0 to 0.5% effect on volume. And so that shows that the elasticity is very low.

Speaker Change: Being driven by the consumer dynamic.

Speaker Change: Yeah, everything you're saying is true let me explain it a little bit.

I would say the consumer as it relates from a behavior standpoint.

Speaker Change: As in the fourth quarter show, the biggest shifts and I can explain a little bit the shifts that we've seen.

Speaker Change: But from a mindset perspective from a confidence perspective.

Speaker Change: In North America, probably the best in the last two and a half years. So.

Speaker Change: What theyre doing is still reflecting sort of the tension there under but.

Speaker Change: They are expecting the economy to improve in that better times are ahead for them. So what are they doing.

Dirk Van de Put: We think that is driven because of strong brand loyalty, the fact that chocolate has a very distinct taste profile, and consumers tend to stick with their chocolate brand because they like the taste, and people recognize the taste of their brand. So, private label is very small, and people do not tend to switch brands very easily. We call it the taste of the nation. Every country has their favorite chocolate.

Speaker Change: We see a little bit more of an elasticity effect in the way they react to that is there waiting more we see particularly light buyers waiting for promotions, so not buying with the same frequency, but buying more running some promotion.

Speaker Change: We see them downsizing going to smaller formats.

Speaker Change: And buying more of those.

Speaker Change: We see shifting channels. They go to club channels E Commerce channels, that's the one we see winning.

Dirk Van de Put: And then on top of that, we will make significant investments, very strong activations. We've been driving seasonals very hard. The next year, we will celebrate 200 years of Cadbury, which will be a major activation in the UK.

Speaker Change: And then we have a number of sort of mechanical effect that we're seeing particularly the snap reduction in U S and so we see less.

Speaker Change: Less disposable income for a certain group of consumers, but overall I would say, we expect that that gradually will improve because of that mindset change that I was saying so the.

Dirk Van de Put: So all that combined makes us believe, and we have proven in the past, that the elasticity will be limited, in our opinion, in chocolate in Europe. And a quick follow-up on distribution growth seems to be a key driver of growth for the company. I don't think I've ever heard you say how much of your organic sales growth will come from distribution expansion. But if you had to guess, you know, how many percentage points of your organic sales targets would come from that? What would you say?

Speaker Change: The overall volume.

Speaker Change: Expectations as the year goes by in the U S. We are expecting to accelerate and to get better.

That's a little bit our view on the viewers consumer at the moment.

Speaker Change: Great. Thank you very much I'll hand, it back to you.

Speaker Change: Alright. Thank you well. Thank you that I think that was the last question.

Speaker Change: As we said we feel very good about 'twenty three it was a great year for us.

Dirk Van de Put: Well, and roughly, you can assume for the markets where we can drive significant numerical distribution, I'm talking about China and India, but we're now also starting to drive very hard in places like Brazil. Probably, in those markets, you can expect that about 50% of our organic growth is driven through distribution expansion. On a global basis, we're probably talking about 2% of our extra growth coming from this. The runway for this is still quite long, to give you a few numbers.

Speaker Change: We are entering 'twenty four with good momentum I think we are prepared.

Speaker Change: For everything that we.

We are seeing ahead of it and then as I said there is some some issues that we have to look at but despite all that and including those effects into our forecast for the year. We think that we're going to have a strong year, we will see how the client disruption goes in Europe. So we have to wait a little bit to see how the first quarter goes by but overall.

Speaker Change: We think we will have a known to the higher side of our algorithm.

Speaker Change: A year at this stage that we can forecast.

Dirk Van de Put: So since 2019, we've added 1.7 million stores in China, India, and Brazil. But, for instance, our biscuits are now in about 3 million of the potential 6 million stores in China, or our gum business is only in 2 million of the 6 million potential stores. In India, we've added 180,000 stores in 2023. We deployed 100,000 new VC coolers. But it is over 900, sorry, 9 million retail outlets. We cover directly 2 million, and we have about 3 million that are indirect coverage.

Speaker Change: Again, thank you and happy to answer any other questions that you would have through our IR Department.

Speaker Change: Thank you everyone.

Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at anytime.

Okay.

Okay.

[music].

Speaker Change: Hum.

Speaker Change: Mhm.

Speaker Change: [music].

Dirk Van de Put: So we're in 5 million of the 9 million stores in India, and I can go on in different countries. So I gave you the percentages, what it means for us. And the other message here is that the runway, the years that we can keep on doing this are quite significant going forward. Thank you very much. That's great. Thank you, you guys. Our next question comes from Robert Moskow. T.D.

Speaker Change:

Speaker Change:

Speaker Change: Uh huh.

Speaker Change: Oh.

Speaker Change: Hum.

Hum.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: [music].

Operator: Cohen. Hi. Thanks. I actually had a follow-up on the distribution question. Are you taking extra steps to monitor distribution levels at distributors or even retailers in light of the volatility of consumption? There have been multinationals who have fallen into inventory deloading situations in LATAM. You're expanding distribution so well. I'm just wondering if you're also taking extra steps to monitor it at the same time.

Dirk Van de Put: Yes, yes, we are aware that the distribution expansion needs to be very well monitored. So what we're putting in place is a direct connection, because we use mainly distributors to make this happen, a direct connection to their system. So we can read what they sell per store and what the sell-in is, and how much the replenishment is.

Dirk Van de Put: So we monitor that very carefully. We go slow in some of the cities where we're doing the expansion so that we can see that setting up the whole distribution system is profitable and that it can be maintained. So we've had no surprises so far. I've done this many times in my career, and I've had surprises, but so far, things have gone quite smoothly.

Dirk Van de Put: I think our teams around the world know what to do. They're on top of it. We usually accompany these distribution expansions with very heavy activation in the cities that we are doing this, so we feel pretty good that we have a very controlled way of doing it. And like I said, so far, we've had no surprises whatsoever with this. And a follow-up on that. In some of these markets, you've introduced more digitized tools to enable small retailers or distributors to order or reorder and also monitor the performance of promotions. I think, has that improved your ability to keep track of distribution and monitor sales? Are the tools better than they were 10 years ago to monitor all this? Yes, we are still in a relatively experimental phase with that.

Dirk Van de Put: We are, for instance, mainly experimenting with this in Latin America, largely on channels that we don't have immediate large coverage. So, as an example, I would say bars in Brazil would be something that we don't cover directly or indirectly at the moment. But we have started to have a presence, and we are monitoring how that is going. I would say those tools help the retailer order directly and get our products in there.

Dirk Van de Put: It helps us to understand how much the store sells, and yes, we can monitor promotions. As a tool to monitor how our distribution is evolving, it's probably complementary to the other system I was talking about, but we prefer, at this stage, to monitor that through our distributors. The way it works is they will order through this new app, and then we, through our normal distribution system, will deliver it, or we will use a third party to do it.

Dirk Van de Put: So that's usually the source of monitoring distribution, not necessarily the new app for us. I got it. Thank you.

Operator: Our next question comes from Steve Powers with Deutsche Bank. Yes, thanks. Thanks for the question. Luca, I think based on the EPS guidance combined with the $3.5 plus billion free cash flow guidance, towards the $3.5, kind of ignoring the plus, if I focus on the $3.5 billion, I think it implies a 75% or lower free cash flow conversion. I just wanted to kind of throw that past you and see if that's the message you intended to convey. If so, what might be some of the drags on that free cash flow conversion?

Luca Zaramella: Or if there's a higher level of free cash flow conversion we should anchor to as a target, maybe you could talk about that. Thank you for the question, Steve. As we think about free cash flow and net income conversion into free cash flow, it is important to realize that the dividend payout of the joint ventures that we have is not 100%.

Luca Zaramella: And so that is a little bit of a factor as you consider the conversion. The other one I would tell you is we're going to have a slight uptick in capex, particularly as we need to invest in places like India. I mean, look at the volume over the last five years in India. It has been stellar, and we are very happy. But we are at the point where we need to put down a little bit more capacity. The same goes for Latin America and Oreo.

Luca Zaramella: And obviously, we integrate platforms like Ricolino, etc. The other one that will come into play in terms of capital expenditures for 2024 is SAP HANA, and so I think that's another element you have to consider.

Luca Zaramella: I think, look, the number I would like you to focus on is what we deliver in 2023, which net of the taxes we pay for coffee is around about $4 billion. And so there might be some one-time payment coming our way. And so we need to make sure that we have enough headroom. But I want to reassure you that, in terms of free cash flow, we are very happy. We have a best in class, I believe, cash conversion cycle. We continue to be very disciplined in terms of lowering overdue across the board, and inventories are coming down. And so we feel good about the cash flow generation of the company. Very good indeed. Very good. Thank you for that. And, you know, it sounds like you're going to talk a little bit more about this at Cagney, but, to the extent you can talk about it now, just the prospects for volume recovery and organic growth acceleration in North America. I guess, how quickly do you think that is likely to manifest in 24? Is that going to be a slower build?

Dirk Van de Put: Or do you think we should expect some results sooner? You know, as you leverage some of the commercial investments you made in the fourth quarter? Yes, I think you said it right at the end there. In the fourth quarter, if you think about it, on the one hand, we had a good year and we were coming with a price increase, which, by the way, was agreed in the U.S. at the beginning of the year, so there was no need to push volumes from our side. Then we had a cliff system integration changeover, and so we needed to bring our inventory down and manage it very tightly. And then we talked about the give-and-go holiday kits that we stopped selling because the margins were not interesting for us.

Dirk Van de Put: So if I exclude those and look at the rest of the business, the volume mix performance in Q4 was, in fact, quite good. So we're expecting a good volume mix performance right away in Q1 of next year. It was really a one-off situation in Q4, so we don't really necessarily feel like there is a slowdown in North America.

Dirk Van de Put: It's not going to be massive volume growth, but it's going to be positive volume growth at the beginning of the year. So that's where we are. It's not going to be a slow build-up.

Dirk Van de Put: We will continue where we are without the exceptions that we had in Q4. Okay, very good. Thanks, Dirk. I'll pass it on.

Operator: Our last question comes from Alexia Howard, Bernstein. Good evening, everyone. Hi Alexia.

Dirk Van de Put: Hi. So, two questions. First of all, on innovation. I'm just wondering if you can give us a quick status update on whether the pace of innovation is likely to pick up going forward. It feels like, with the pandemic and the supply chain disruption, it's been very hard to do innovation over the last several years. Do you anticipate a pick-up going forward? And then there's a follow-up.

Dirk Van de Put: Yes, we are going through a bit of a change in the way we look at innovation. If you think about our business around the world, we have quite a rhythm of small innovation, new flavors, new sizes of packs, as we do with PPA and RGM. But that leads to hundreds of small projects which do drive our business. But we are gradually eliminating probably close to half of those small projects because, in fact, over time, they don't have that much of an impact on the business.

Dirk Van de Put: Since overall, our business is doing well, we can afford to do so, and we are shifting our focus to bigger innovation projects. And so the ones that I would mention are, first of all, making healthier versions of our mainstream products. So I'm referring to, for instance, what you've seen so far, an Oreo gluten-free or an Oreo zero sugar in China, gluten-free in the U.S., doing quite well.

Dirk Van de Put: And you can expect that we will continue to expand those efforts across other brands. And then we are entering the cake and pastries market quite significantly, and there you can expect us to push quite hard, and so you could see the Oreo Cakesters or the Oreo Airy Cake in China. And these are all significant innovations that have the potential to generate tens of millions of dollars of net revenue per country. We're pushing hard on premium chocolate, so we launched, for instance, the Toblerone pralines, or we have done some big innovations on our core chocolate tablets.

Dirk Van de Put: So these are bigger innovations that require more work, and have higher potential, but we are refocusing our efforts towards those. So I don't know if I would call it what you were asking, Alexia, do we see a pick-up in the pace of innovation? I think the impact of innovation on our growth will increase in the coming years, but it's not driven by more innovation; it's driven by better innovation, I would say.

Dirk Van de Put: Very helpful. And then, could I just follow up on that? Do you have any observations about the state of the American consumer? I think we've heard from other companies that there's been down trading, there's vulnerability, there's channel shifting. I'm just wondering whether some of the challenges that you're seeing in North America are being driven by this consumer dynamic. Yeah, everything you're saying is true.

Dirk Van de Put: Let me explain it a little bit. I would say the consumer as it relates from a behavior standpoint, as in the fourth quarter showed the biggest shifts, and I can explain a little bit the shift that we've seen. But from a mindset perspective, from a confidence perspective, in North America, probably the best in the last two and a half years. So what they're doing is still reflecting sort of the tension they're under, but they are expecting the economy to improve and that better times are ahead for them. So what are they doing? We see a little bit more of an elasticity effect, and the way they react to that is by waiting more. We see particularly light buyers waiting for promotions, so not buying with the same frequency but buying more when it's on promotion.

Dirk Van de Put: We see them downsizing, going to smaller formats, and buying more of those. We see them shifting channels. They go to club channels, and e-commerce channels.

Dirk Van de Put: That's the one we see winning. And then we have a number of sort of mechanical effects that we're seeing, particularly the SNAP reduction in the U.S., and so we see less disposable income for a certain group of consumers. But overall, I would say we expect that that gradually will improve because of that mindset change that I was saying. So the overall volume expectations as the year goes by in the U.S., we're expecting to accelerate and to get better. That's a little bit our view on the U.S. consumer at the moment.

Dirk Van de Put: Great. Thank you very much. I'll hand it back to you.

Dirk Van de Put: All right. Thank you. Well, thank you. I think that was the last question. As we said, we feel very good about 23. It was a great year for us.

Dirk Van de Put: We are entering 24 with good momentum. I think we're prepared for everything that we are seeing ahead of us. And as I said, there are some issues that we have to look at. But despite all that, and including those effects in our forecast for the year, we think that we're going to have a strong year. We'll see how the climate disruption goes in Europe. So we have to wait a little bit to see how the first quarter goes by. But overall, we think we will have an on the higher side of our algorithm year at this stage, which we can forecast.

Operator: Again, thank you, and I'm happy to answer any other questions that you would have through our IR department. Thank you, everyone. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and John Goldsmith. Thank you for watching. I hope you enjoyed this video. If you did, please leave a comment and let me know. I'll see you next time.