Kraft Foods EEMA & Russia - IIS Windows...
Transcript of Kraft Foods EEMA & Russia - IIS Windows...
KRAFT FOODS EEMA & RUSSIAOctober 2008
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Maurizio CalentiGroup Vice President Kraft Internationaland President EEMA
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Forward-looking statements
This presentation contains forward-looking statements that we will focus where we can win; that Kraft International is gaining momentum; that EEMA is delivering consistent double-digit growth; that Kraft's biscuits potential to be unlocked after LU acquisition, in particular, that geographic expansion plans are in place; our belief that our broad manufacturing footprint allows low cost local production; that Kraft is well-poised for growth in EEMA; that the Bolshevik/LU integration is underway; that capacity expansion is in progress in St. Petersburg; that Kraft has upside potential in Russia; our belief about where we see opportunities; and that we're extremely well-positioned for profitable growth in Russia. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statements. Such factors, include, but are not limited to, continued higher input costs, pricing actions, increased competition, increased costs of sales, regulatory actions or delays, unanticipated expenses such as litigation or legal settlement expenses, our indebtedness and ability to pay our indebtedness, risks from operating internationally and tax law changes. For additional information on these and other factors that could affect our forward-looking statements, see our filings with the SEC, including our most recently filed Annual Report on Form 10-K/A and subsequent reports on Forms 10-Q and 8-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this presentation.
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Overview
EEMA
Russia
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Kraft Foods Worldwide
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Nearly $40 billion in revenueSales in 150+ countries
Operations in 70+ countriesNine billion-dollar brands
50+ brands over $100 million
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41%$16 Bn
Net Revenue
34%$1.7 Bn
Operating Income
International a vital part of Kraft
2007 pro-forma estimated results including LU biscuit.
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Three pillars to rewire Kraft International
1. Win locally, leverage globally
2. Build management depth
3. Focus where we can win
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Established a more flexible, decentralizedbusiness model
Empowered business units with full P&L responsibility
Linked pay structure to local results
Ensured leveraging of global expertise
1. Win locally, leverage globally
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2. Build management depth
Best of home-grown talent
Experienced international managers from the outside
Key leaders from LU biscuits
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3. Focus where we can win
5 Categories
10 Brands
10 Markets
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Snacks Beverages
BiscuitsBiscuits
PowderedBev
PowderedBev
CheeseCheeseChocolateChocolate
CoffeeCoffee
5 Categories
Biscuits
Chocolate
Powdered Beverages
Coffee
Cream Cheese
10 BrandsComposite organic revenue growth
H1 2008
14%11%
2007
6%
’03-’06CAGR
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10 Markets
4 Growth Engines
6 Scale Markets
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2.4%
03-06 CAGR
6.9%
2007
Organic RevenueGrowth*
H1 2008
11.7%
(3.5)%
2.6%
Operating IncomeGrowth (ex items)*
15.0%**
Gaining momentum
03-06 CAGR
2007 H1 2008
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Kraft International
* See GAAP to Non-GAAP reconciliation at the end of this presentation** Organic OI growth (excluding currency and LU biscuit); See GAAP to Non-GAAP reconciliation at the end of this presentation
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Overview
EEMA
Russia
Kraft Eastern Europe, Middle East, Africa
Kraft’s largest geographic region
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Kraft an early starter in the region
Markets in CEE begin to open1990
* Countries which entered EU in 2004: Poland, Czech, Slovakia, Hungary, Lithuania (+ Latvia, Estonia)
10 acquisitions (5 in Central Europe*)Local brandsInfrastructure
1992 – 1995: Start up
Strategic direction and controlsGlobal brands introducedCost base improved, operations strengthened
1996 – 1999: Consolidation
Category expansion5 acquisitionsAcceleration of investments on stronger base
2000 – 2006: Growth
LU Biscuit acquisition2007: Together we go Further
1930s – 1950s Start export of cheese and Tang in the Middle East
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Today a strong player in a high potential area
7,800 employees in 18 countries
16 plants in 11 countries
Catering to a population of 530 million (18 countries)
Rapid economic growth
* Real GDP 2008, 2005 – 2007 avg.Source: Kraft calculations based on EIU data
2008 2005 - 07 avg.Eastern Europe* 6.5% 7.2%
Middle East* 7.0% 5.6%
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Substantial scale, but opportunity exists
Nestlé Unilever(Food)
Ulker * PepsiCo WBD Coca-Cola
Danone Cadbury
Source: Annual reports 2007 & Kraft Estimates* Ulker food share
EEMA Peer Comparison2007 Food & Beverage Revenue
Kraft
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2000 2001 2002 2003 2004 2005 2006 2007
Delivering consistent double-digit growthEEMA Net Revenue
CAGR 2000-2007
+21%(Ex LU)
Acquisitions
Note: 2007 Results do not include LU Biscuits
Nova Brasilia Stollwerck (RUS) Family Nutrition (EGY) LU Biscuits (BG/RO)Samar (MOR) Kar Gida (TR)
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Johannesburg
St. Petersburg
MoscowPokrov
VyshhorodTrostyanets
Pendik
BrasovSvogeKostinbrod
CasablancaAlexandria Dammam
ManamaCairo
Sobinka
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Broad manufacturing footprint allows low-cost local production
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Four distinct business units
Russia− Exports to Central Asia
Ukraine− Exports to Belarus and Caucasus
Southeast Europe / Turkey− Bulgaria, Romania, East Adriatic Markets (former Yugoslavia), Turkey
Middle East & Africa− Gulf Cooperation Council (Saudi Arabia, Emirates),
Morocco, Egypt, South Africa
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Russia and Ukraine account for more than half of revenue and profit
53%
Net Revenue
55%
Operating Income
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BeveragesSnacks
BiscuitsBiscuits
PowdBev
PowdBev
OtherOther
ChocolateChocolateCoffeeCoffee
EEMA is largely a snacks and beverage business with strong positions in chocolate and coffee
Biscuits
Chocolate
Powdered Beverages
Coffee
2007 pro-forma estimated results including LU biscuit.
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Note: shares cover only countries where we are present and Nielsen data available
* Nielsen Value shares FY 2007
Share* Position Competitor
Biscuits 18% 1 Ulker # 4%
Chocolate 17% 1 Nestlé 14%
Salted Snacks 16% 2 Frito Lay 60%
Coffee 20% 2 Nestlé 28%
Powdered Beverages 65% 1 Foster Clarks 5%
Cheese 29% 1 Al Marai 24%
Category
Leading positions where we compete
# Competition is fragmented – key ones are Ulker (GCC) and General Mills (United Bakers in Russia)
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With a global and local brand mixGlobal icons Local gems
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Priority and regional core brands account for about 85% of EEMA net revenue
Other16%
Other16%
10 KI Priority51%
10 KI Priority51%
Regional Core33%
Regional Core33%
2007 pro-forma estimated results including LU biscuit.
Brand Net Revenue
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Multi-tier chocolate portfolio
Premium
Mainstream
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Milka in premium segment
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Strong local chocolate brands
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Strong chocolate positions across region
CroatiaAlgeriaBosniaBulgariaRomania SerbiaSloveniaUkraine
Share Position
Source: Nielsen Value shares FY 2007
#1 #2Russia
#3
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Biscuits potential to be unlocked after LUacquisition
Limited geographic presence, but strong positions
Geographic expansion plans in place
Leveraging Nabisco and LU portfolio
#2PakistanSaudi Arabia
#1EgyptRussia
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Jacobs is the key premium coffee brand across the region
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Leading coffee shares
BulgariaMoroccoRussia
RomaniaUkraine
Source: Nielsen Value shares FY 2007
Share Position
#1 #2
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Powdered beverages key in the portfolio forMiddle East and Africa
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Kraft’s leading powdered beverages positions
EgyptKuwaitMorocco
Saudi ArabiaSouth AfricaTurkeyUAE
Source: Nielsen Value shares FY 2007
Kraft #1 Position
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Philadelphia 80%
Kraft Cans 72%
Kraft Spreads 37%
#1 in Middle East cream / processed cheese
Source: Nielsen Value shares FY 2007In Kuwait, KSA and UAE (tubs, tins, jars)
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EEMA Summary
Kraft’s largest region
Consistent double digit growth
Strong positions in all countries where present
Leading positions in all categories
Well-poised for growth
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David SteerVice President and Area Director, Russia
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Overview
EEMA
Russia
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Russia: attractive market
143 million population
Highly educated
GDP CAGR 58% over 5 yrs
Consumer up-trading
Growth platform
“The hardest decision in Russia is what not to do…”
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Kraft in RussiaPrior to 1994
1994
1999
2000
2001
2007
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Opportunistic exports
Representative office established
Transition to local legal entity
St. Petersburg - coffee packing plant
Stollwerck chocolate acquisition
Bolshevik (LU) biscuit acquisition
St. Petersburg - freeze-dried coffee plant
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Bolshevik (LU) integration underway
Acquisition effective 12/2007
Leadership team 7/2008
Operational integration 9/2008− Distribution
− Marketing and sales
− Shared services
To follow :− Systems
− Legal
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St. Petersburg - new freeze-dried plant
Freeze-dried fastest growing / premium segment
First in Russia
Commissioned Q1 2008
5000 ton capacity
Further 5000 ton capacity expansion in progress
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Russia now a significant business
$25 $50
$200
$700
Net Revenue$US Millions
IncludingStollwerck
IncludingBolshevik (LU)*
1998 2001 2002 2007
AcquisitionBase Kraft
Pro-forma estimated results including Bolshevik (LU) biscuit.
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St. Petersburg
Pokrov& Sobinka
Moscow
Modern, well-placed local manufacturing footprint
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KI - 5 core categories - Russia today
Biscuits
Chocolate
Powdered Drinks
Coffee
Cream Cheese
#1
#3
#2
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Key category segments in Russia
#1 in tablet chocolate
#1 in freeze-dried coffee
#1 in sweet biscuits
Source : AC Nielsen Retail Audit Russia JJ 2008
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Strong track record of growth in key segments
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5
10
1520
25
30
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2002 2003 2004 2005 2006 2007 2008JJ
Kraft FD Nestle FD
Freeze-dried coffee is half the volume and 2/3 of the value of the soluble market
Kraft now leads in value
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5
10
15
20
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30
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2004 2005 2006 2007 2008JJ
Kraft Tablets Nestle Tablets
Kraft strengthens its lead in value in chocolate tablets
Kraft is also volume leader
Source : AC Nielsen Retail Audit Russia 2002 - 2008
Dollar share
KI’s top 10 priority brands – Russia today
Milka – #1 premium chocolate tablet
Cote d’Or – new premium pralines
Toblerone
Jacobs – our growth driver in coffee
Carte Noire – #1 super premium coffee
Source : AC Nielsen Retail Audit Russia JJ 2008
KI’s strategy – leading local brands
Jubilee – #1 biscuit
Prichuda - #1 wafer cake
Alpen Gold - #1 chocolate
Barny - Fastest growing soft cake snack
Vozdushny - #2 chocolate tablet
Source : AC Nielsen Retail Audit Russia JJ 2008
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Competitive trade position
* Source : AC Nielsen Retail Audit Russia JJ 2008
Full national coverage
Exclusive sales teams in 500+ cities / towns
Coverage of 70%* value-weighted universe
Trade marketing teams in place
Positive synergy from Bolshevik (LU) integration
Upside potential
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Strong local talent base
70% of business unit leadership team membersare local
Average age is <40
Only 5% of second level leadership are foreign
Strong mix of internal promotion and external recruitment
95% of Bolshevik (LU) talent retained
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Opportunities…
Premium coffee leadership
Premium pralines
Chocolate and biscuits synergy− Snacking and cross-branding
Biscuits – leveraging Kraft distribution scale
Route-to-market efficiencies
Category management
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Kraft Russia Summary
Critical scale with strong infrastructure
Strong market positions
Proven track record of success
Portfolio well-aligned, strong global and local brands
Talented local organisation
Extremely well-positioned for profitable growth
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AppendixGAAP to non-GAAP reconciliation
As Reported (GAAP)
Impact of Divestitures /
OtherImpact of
AcquisitionsImpact of Currency
Organic (Non-GAAP)
For the Years Ended:
20041 5.7% 1.4pp (0.2)pp (7.1)pp (0.2)%
20051 7.0% 0.9pp 0.0pp (3.6)pp 4.3%
20061 3.9% 0.3pp (1.1)pp 0.1pp 3.2%
2007 18.4% (0.9)pp (2.1)pp (8.5)pp 6.9%
For the six months ended June 30, 2008: 50.3% 0.8pp (26.5)pp (12.9)pp 11.7%
Compound Annual Growth Rate, 2003 - 2006 1 : 2.4%
1 These numbers have not yet been restated to reflect the impact of the Post discontinued operations.
(Unaudited)Net Revenue Growth - Kraft International
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AppendixGAAP to non-GAAP reconciliation
Reported (GAAP)
Asset Impairment, Exit and
Implementation Costs -
Restructuring
Asset Impairment and Other Costs - Non-Restructuring
(Gains) / Losses on Divestitures, net
Excluding Items (Non-GAAP)
For the Years Ended:
20041 (33.0)% 15.6pp 3.4pp 2.1pp (11.9)%
20051 20.3% (7.9)pp (4.4)pp (9.3)pp (1.3)%
20061 (14.1)% 14.2pp 14.0pp (10.7)pp 3.4%
2007 9.8% (12.9)pp (11.3)pp 17.0pp 2.6%
Compound Annual Growth Rate, 2003 - 2006 1 : (3.5)%
1 These numbers have not yet been restated to reflect the impact of the Post discontinued operations.
Operating Income Growth - Kraft International(Unaudited)
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AppendixGAAP to non-GAAP reconciliation
Reported (GAAP)
Asset Impairment, Exit and
Implementation Costs -
Restructuring
Asset Impairment and Other Costs - Non-Restructuring
(Gains) / Losses on
Divestitures, net
Excluding Items (Non-GAAP)
Impact of Divestitures /
Other Currency
LU Acquisition, net of
Integration Costs
Organic (Non-GAAP)
2008 First Half vs. 2007 First Half:
Operating Income Growth 44.2% (9.1)pp 0.7pp 17.8pp 53.6% 1.6pp (11.3)pp (28.9)pp 15.0%
Organic Operating Income Growth - Kraft International(Unaudited)