KHC
#Thank you, <UNK>, and Happy New Year to everyone
As I hope you saw in our press release, we had solid Q4 results overall with solid sales and business investments to further improve the health of our brand
But I'll start by focusing more on what we have been able to accomplish in the first full year of The Kraft Heinz Company
It formed the base and in many ways that's our agenda for the year ahead
So, let's start with our progress against the three objectives of our strategy that we laid out at the beginning of our merger
In our first objective, to deliver profitable sales growth, on the top line, we built positive momentum through the year, despite the commodity headwinds that persisted during the year, resulting in profitable sales and flat to positive organic sales growth in all regions except Europe
We generated significant gains from our Big Bet innovation strategy in our efforts to capture whitespace opportunities
This was led by condiments worldwide, especially ketchup and barbecue sauce, pasta sauce in North America and Latin America; soy sauce in China, and hot sauces and mayo in Europe
Our investments also led to better market share trends over the course of the year in core categories such as sauces worldwide including pasta sauce in Canada and Latin America; green cheese and mac & cheese in the United States, UK beans; baby food in Italy; and in Australia, beverage
That said we still have significant areas to improve in 2017. They include Indonesia soy sauces, U.S
cold cuts, baby food in Canada, and our non-measured channel shares in the UK to just name a few
We also pushed into places, whitespace, where Kraft Heinz did not previously compete, products such as Devour frozen meal, Cracker Barrel mac & cheese and Heinz Barbecue Sauces in the United States
There was Planters which now is available in both China and the UK
We also brought Heinz Mayonnaise to Europe, Brazil and Australia
And we made significant progress toward extending our foodservice presence, not just in the west but through strong performance in Canada, Brazil and Russia as well
Nevertheless, there is much, much more to go after in 2017 and beyond
It's also clear that our go-to-market investments are paying off and delivering profitable growth through distribution gains and better performance at retail
We supported go-to-market activations with better management of our field teams in Canada, U.S
, Brazil, Russia and China
These efforts resulted in phased execution improvement in a challenging retail environment all around the world, including Australia, Japan, China, Russia, Egypt, Brazil and Germany
And then our second objective, we made meaningful progress toward achieving best-in-class margins
Through our ritual and routines, including zero-base budgeting and managed by objectives, we drove sustainable improvements throughout the year
ZBB savings were a key driver of value creation across the company delivering faster than expected savings at the outset of the year and contributing to the company achieving $1.2 billion in cumulative savings since the inception of our Integration Program
As of today, we have cascaded personal MBOs directly from company leadership to more than 6,000 employees worldwide
This is a critical step in aligning everyone behind common goals and improving our day-to-day execution
To put that number in context, this represents more than 50% of our white collar population around the world
And in supply chain, we invested more than $1 billon into manufacturing upgrades in our footprint program to modernize our facilities and enhance our capacity for innovation and quality
We went live with our Global Business Services in Europe, which together with our shared service integration in North America, helped drive processes standardization and improved service levels
Importantly, as all of these was happening, we achieved a global case fill rate of 98%
We also invested heavily in our people, in our capability
For example, we promoted more than 1,700 team members worldwide last year
We expanded our talent acquisition programs worldwide, growing the volume of applicants by 40%
And in our ongoing effort to grow a better world into a partnership with Rise Against Hunger, we package and distribute more than 65 million meals to people in need
Finally, on the capital structure front, our leverage ratio was reduced to approximately 3.6 times EBITDA and we kept up our strong dividend payout
<UNK> will build more on our capital structures improvement in a moment
Overall, we made solid progress in our first full year as a merger company and it set a strong base for us to build upon in the next phase of our development
So let's turn to slide three to review our Q4 and full year financial results and how the numbers bear out our progress
As it relates to the company sales, there're really two things to highlight
First, for the reasons I mentioned earlier, we drove sequentially better organic sales growth driven by volume/mix improvement in all segments
The primary contribution to this growth were condiments and sauce globally and costs in refrigerated meal combinations in the United States
Second, we had solid price realization in most segments during the year despite a deflation in key commodities like dairy, coffee and meat in the U.S
as well as the trade investments we made in our UK and Netherlands business
Net EBITDA full year growth at constant currency was driven by strong cost savings from integration and restructuring activities, favorable net price and growth in our Rest of the World market
I should note however that our rate of growth in Q4 was held back by two factors
First, we began to lap integration savings that began last year in Q4. And, second, we accelerate our investment behind growth initiatives late in the year, as well as trade investment we made in our UK and Benelux business
Dropping down to our adjusted EPS, both Q4 and full year were up more than 50% excluding the extra week last year, primarily driven by EBITDA gains and the refinancing of the preferred stock in June
Now, I will hand over to <UNK> and <UNK> to highlight our performance in each reporting segment and what we expect going forward
<UNK>?
Thank you, <UNK>
Let me start by saying that 2016 was a solid year for our company
We made a great deal of progress in realizing our potential
But we still have a lot to improve in order to deliver our expectation for 2017. In 2017, we enter year two of our multi-year merger plan
Headwinds remain from highly competitive retail markets to persistent foreign exchange headwind, especially in Europe
So at the top of our agenda is an even sharper focus on profitable organic sales growth
By that, I mean that we will focus our investments in innovation, renovation and marketing on our leading brands, along with prioritizing fewer, bigger and bolder bets within our portfolio
These will include expanding our core by innovating into adjacent categories and new segments, where Kraft Heinz brand have the ability to win
It also includes Big Bets in existing categories by aggressively targeting on-trend segment where you're currently under indexed, such as the 2016 bet we laid in the U.S
natural cheese
For competitive reasons, we do not have a list of key initiatives to provide today, but we will certainly highlight them as we roll them out in the coming quarters
And finally, globally, we're focusing on three key brands: Heinz, Kraft and Planters, and in five categories with global potential; condiments and sauces, cheese, meals, nuts and baby food
The emphasis within these opportunities will be to increase investment levels and improve execution, which includes applying best practice for wining in each channel, from traditional retail and discounters to foodservice, and over time e-commerce
All this will be fueled by significant incremental investment in marketing, both for market capabilities and product development, covering North America, Europe and rest of the world
Our agenda also includes achieving best-in-class operating efficiency with top quality
We plan to reduce complexity through active assortment management in United States, an achieve best in class operations efficiency and quality within our manufacturing facility
Also great execution begins with great training and we are actively building a new methodology and training platform to support our performance-driven organization
But let met turn it back to <UNK> to wrap-up by explaining how our agenda will translate into 2017 financial performance
Hi, <UNK>
Hi, <UNK>
Good afternoon, this is <UNK>
Look, about the repatriation, you're right, there would be the brands coming back to us in January 2018, and there is some work to be done in preparation
But from a cost standpoint or from a revenue standpoint, there is really no benefit or impact in the year, right
There is preparation from marketing, from distribution, from our manufacturing capabilities to hit the ground and be running, but I don't think there will be an impact to – on the cost or the revenue for the repatriation efforts
Hi, <UNK>
I think, it was important to highlight that, just to give a sense of the direction of the focusing looking at three global brands and five top categories that really, when you mix all them represent 70% of the business, and you're going to move forward
That is United States and North America like I mentioned, but also worldwide
And so I don't think there is a distinction really in the amount of investment between U.S
and international
They will be – they'll be moving together
They'll pursue different states and different – what the business is by country and by region, but as a focus looking mid-term, those are the ones
I think, it's important in your question also to highlight that our business is a balance between global brands and local brands
Global brands having the strength and the scale to grow multi-categories and multi-regions; and the local jewelry (39:49) like we like to call customizing to consumer needs on local markets and regions
So we are really happy with our portfolio and the balance we have today between the global brands and local brands, and the specific categories
But those three global, we're calling global brands, in those five categories is really what's going to push us to the next level that we're calling this balance towards profitable growth
I don't think there is a distinction between investment in North America or internationally
It would be case-by-case depending on the state of the business at the regional level
Hi, <UNK>
Look, we always look with this, the way that we think the categories and the brand, we always look and think about profitable and organic growth
So the way you're directing here is all organic
And the reason for that is actually you're right to say it's true
A small part in the total portfolio, but very relevant in many countries important for us, including Canada, including Australia, including the UK, for sure Italy like you mentioned, for sure China, Mexico, you're getting to Brazil, Russia that's the biggest category we have there
So when you see all this, even the small presence, where we have a presence it's significant through the Heinz brand most part of the time, sometimes local brands like Plasmon in Italy and so on
And we believe there is a lot of opportunities, like you said, in whitespace geography, again, country-by-country, region-by-region
There is a role that can be played and we want to look at that with the right expectation
Good evening
Hi, <UNK>, it's <UNK>
Like we mentioned in the last call and continue to be, the point, our goal in Europe is to return to profitable growth
We really think that our performance – that was a weak performance in 2016 and Europe has absolutely no correlation with the cost side and like you mentioned the overhead, I think, there was a lot of correlation on the stakes, on the go-to-market and things on the promo side, volume mix that didn't work out as we showed, and what we are actually encouraged about is when you see the Q4, the performance by all the business, especially the Benelux and the UK had improved significant looking at sell out consumption, looking at share on the main category, soup, beans, sauces, and you already have 70% of renovation for the year ready in the market
So the results from the Q4 plus what you're seeing now in January moving into February, I really encouraged by a much better performance 2017 in Europe than you had 2016. Still going to be challenged, the retail environment is challenged like the density (54:59) between FX rate and everything that's happening in the continent
But that being said, I think the performance Q4 is really encouraging about we can have a better performance looking at 2017, than our weak performance in 2016.
Look again, when we talk about profitable growth and like <UNK> mentioned in the beginning, our idea of sales mix, really sales flowing to the bottom line
We have no intention of gaining sales without profitability
Component that come attached to that
There are investments that needs to be done in the marketing side and in go-to-market side that I think we have been doing and we'll continue to do it
But that being said, if we're able to create profitable growth sales in Europe that should come also with a better performance in the bottom line
