Good day and welcome to Mondelez International First Quarter 2013 Earnings Conference Call. Today’s call is scheduled to last about one hour including remarks by Mondelez management and a question-and-answer session. (Operator Instructions). I would now like to turn the call over to Mr. Dexter Congbalay as President, Investor Relations for Mondelez International. Please go ahead, sir.

Good afternoon and thanks for joining us. With me are Irene Rosenfeld, our Chairman and CEO; and Dave Brearton, our CFO. Earlier today, we sent out our earnings release. This release and today's slides are available on our website mondelezinternational.com. As you know, 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 and 10-Q filings for more details on our forward-looking statements. Some of today's prepared remarks include non-GAAP financial measures. You could find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. With that, I'll now turn the call over to Irene.

Thanks Dexter and good afternoon. Our first quarter performance was in line with the expectations that we communicated earlier this year. Revenue growth remains a lower long term target and were certainly not satisfied with that. But behind the aggregate numbers our underlined business momentum continued to improve as we drove a virtuous growth cycle in each region. Emerging markets accelerated sequentially while results in developed markets continued to be solid. Revenue growth was high quality driven by volume mix, strong power brand and market share gains. Our biscuits, chocolates and candy categories continued to grow strongly. Adjusted growth profit increased which provided the fuel to step-up our investments in emerging markets. While we are well positioned in many of these countries today the raise is clearly on to fortify and expand our presence. As a focus snapping company we believe that now is the time to step our investments in brand building, in sales, in route to market and in capacity to ensure we planted a necessary seed that will bear fruit for many years to come. We begin to see the payoff of these investments clearly as revenue growth accelerates in the second half. With this solid underlying momentum we remain confident in our ability to deliver our full year commitments as well as sustainable, profitable growth over the long term. Let’s look now at the detail for the quarter. Organic net revenue grew 3.8%, as we said the impact of lower coffee prices and capacity constraints again tempered top line growth. These two factors will continue to affect our second quarter, until we lapse the price declines and new capacity comes on stream. We are encouraged, however, by the underlying quality of our revenue. Our focus on power brands continues to payoff. In fact, they grew 7.5%…

Thanks Irene and good afternoon. Before reviewing our quarter one results in more detail let me first highlight the changes to our reporting structure of 2013. Previously we reported our operations in three segments, North America, Europe and developing markets. With the spin-off of our North America grocery operations we have changed our reporting segments this year to give investors more clarity into our operations. We now report in five segments, North America, Europe, Eastern Europe, Middle-Eastern and Africa or EMEA, Asia-Pacific and Latin America. We issued an 8K last month that provided a historical breakdown of revenue and operating income based on these new reporting segments. The 8K included annual results for 2010 to 2012 and quarterly results for the past two years. In another effort to provide insight into the business we have delineated our portfolio into two parts. Emerging markets and developed markets, we define emerging markets to include all of the Latin America and EMEA segments. Our Asia-Pacific segment excluding Australia, New Zealand and Japan is included as well. We also add the Central European countries that are now part of the Europe segment. Using this definition 39% of the revenues were generated in emerging markets last year. Developed markets include all of North America, our Europe segment excluding the countries of Central Europe and Australia, New Zealand and Japan. When discussing our performance in emerging and developed markets we will limit the commentary to revenue. We will continue to report profitability only for our five regional segments. With that let’s now take a closer look at our top-line results. As Irene mentioned we delivered 3.8% organic revenue growth, vol mix grew 2.5 percentage points or about two thirds of the increase while pricing contributed 1.3 points. This included the impact of lower coffee prices as…

Thanks, Dave. Most of our results were in line with expectations were certainly satisfied with our revenue growth this quarter, but the underlying fundamentals of our business are solid. Our emerging markets continue to improve sequentially. Vol mix change and power brands drove high quality top line growth. Our biscuits, chocolate, and candy categories continued to pose strong revenue in share, unadjusted gross profit through globally enabling us to step up our investments in emerging markets. We will continue to build on this momentum as our growth accelerates in the back half of the year. Now, we would be happy to your questions.

The flow is now open for your options. (Operator Instructions) Our first question comes from Andrew Lazar of Barclays.

Good afternoon everybody.

Hi Andrew.

I guess my first question is I realize you invested back much of the discrete tax benefit in the quarter to drive top line growth and that accounted for some of the EBIT shortfall I guess versus where sort of many investor models were? I guess my question is regarding that the balance between operating profit and top line growth and whether I guess the two pin codes exist going forward given the Street view that there is significant margin opportunity to be had or perhaps today they prove mutually exclusive just for some period of time until you get the top line moving to where you waned to be?

There is a couple of questions in there, Andrew. Let me start by saying the money that we have reinvested in our emerging markets is from operating earnings, it is not from the tax benefits. We have not reinvested that money if they have mentioned we dropped pathway to the bottom line and we are holding the balancing reserve just early in the year where we want to make sure that we keep our powder dry, but most importantly, as you asked this question about the balance between margin and growth and top line growth, I am asking first of all to not overreact with single quarter, especially given the strong margin performance we had last year, if you recall we grew about 70 basis. We certainly can expand margin and drive top tier growth. We have done it in the past and in fact our long term guidance assumes that we’re going to do it in the future. But the race is clearly on for us and on our competitors to fortify and expand our positions in these fast growing and highly contested emerging markets and so we have chosen to reinvest some of the upside that we have got in the EU and North America to strengthen our position in these emerging markets and stage our future sustainable growth. I want to remind you though that these investments are all built into our guidance and we’re still in that guidance calling for a double digit increase in operating EPS. So net-net there does not need to be a trade-off, there does need to be a balance and I think we’re striking the appropriate balance.

Thank you and then just last one, the increase reinvestment that you’re doing I assume that’s meant to be part of the on-going base, going forward as opposed to sort of a onetime increase in investment. I’m just thinking about next year as you lap some of this higher spending and then what I guess potentially could also be a higher tax rate how that flows into ‘14?

Yes it is part of a base, again I wouldn’t overreact to one quarter. We have given guidance on the year of a $1.55 to a $1.60, we kept to that range we are going to need to see significant progress in our OI. Obviously quarter one isn't typical of the year for a lot of reasons we talked about but we’re on track with the guidance we gave for the year, so the investments were already assumed within that guidance and I think the key really is you need to see the revenue growth pick up at the back half, so if we deliver that top-line guidance at the back-half and then that will drop to the bottom but this isn't a one time or where you need to worry about as you look at 2014.

Your next question comes from Matthew Grainger of Morgan Stanley.

I just wanted to follow-up first on Andrew’s question regarding the tax rate going forward, Dave can you just give us an update on where we stand for full year tax rate guidance and then given that the realization of onetime items seem have set the bar fairly low this year. As we think forward to 2014, 2015 and what you would consider normalized tax rate, how should we think about the risk that this could potentially impact your ability to constant currency EPS targets over the next year or two.

Okay as we said we’re $0.09 favorable in the quarter but seven of that was from discreet items the other two sets was the base tax and that was already built in the guidance. So that $0.07 is favorable in the year and that would drop our tax rate from around 20% to sort of the high side to mid-teens within that mid-teens range and we would expect if I sit here today for that to drop sort on in the year. So you’re right we have a lower tax rate this year that we originally anticipated. As we look into the next year, we have given you a long term tax rate of 25% and that’s nothing more than the mathematical average of the statutory tax rate throughout the globe, that’s still the right long term tax rate but I think as we’re working through the impacts of the spend and how our capital structure will evolve with that over time and we unwind something’s, it's going to take us two or three years to get there. So I think I’m looking as I sit here today a 2014 probably being closer to the 20% we are originally targeting this year. So there will be a headwind but it's not going to be big as you’re probably worried about and it's probably going to be at that 20% rate plus or minus the points or two for the next two or three years before we start to see it migrate up to that 25%. So I hope that helps.

Thanks Dave and then sorry just kind of phasing of first half sales growth, can you help us think a little bit more about any discreet impacts that would weigh on second quarter organic sales growth because your guidance seems to imply stronger organic sales in the first quarter versus the second quarter despite having a much tougher prior year comparison. Are there any other factors besides what you called out explicitly in the presentation?

In fact we actually have a easier comp in the back half if you look at the year ago base but I think there are a couple of ways to think about it, if you exclude the coffee and capacity constraints that we talked about we’re already in the mid-five and so we’re quite comfortable that the underlying business and I talk a lot about the underlying quality of our results. We’re quite comfortable that the underlying quality of our business is quite strong and we feel quite confident about the back half of the year. We have got the solid underlying moment driven by good share performance, solid volume mix performance, strong performance, solid volume mix performance, strong performance of our power brands. Our categories continue to grow. We will be lapping the coffee pricing. Our new production capacity will come on stream. And then as I mentioned of course we have got low comps in the back half of the year. So, net-net, we are quite confident that the back half will accelerate and that we will deliver the guidance at the low end of the 5% to 7% range for the full year.

Okay, thanks Irene. And I apologize, one very quick clarification. For the first quarter was there any Easter timing benefit that would have resulted in – that would have flattered the rate of organic sales growth?

Not really, because Easter was really early last year, it was a little earlier this year, but given the time that we have to shift to our customers it really didn’t move any volume into Q1. As you look into 2014, you will see a shift between quarter one and quarter two as it goes back to normal timing, but this year versus last year not really. We had a big plus last year, this year it’s kind of neutral.

Okay, thanks again everyone.

Your next question comes from Alexia Howard of Sanford Bernstein.

Good evening everyone. You made a reference to potential volatility in global markets as one of the reasons that you wanted to keep your powder dry with the guidance for this year. Could you maybe talk a little bit about where your biggest concerns are around that and has that got worse over the course of the last couple of months?

There is nothing really specific. I mean, the reason we kept half of it in reserve is basically because it’s only quarter one. And we are a global company. We operate in a lot of markets, where there is a lot going on. We are in Nigeria, Egypt, all parts of the GCC, Argentina, Venezuela, these are all sizable businesses, which we are doing very well in but stuff could happen. So, I mean, it’s not a specific risk. Frankly, even on the tax line, we had discrete items go in our favor. We could have discrete items go against us. So, it’s more a question of just being prudent. At this point in the year, there is nothing specific that I would call out and worry about. It’s just being prudent given we are really only talking about the first quarter right now.

Thank you. And then maybe as a follow-up, you mentioned that India managed to grow low double-digits despite the capacity constraints in chocolate, was that driven by Oreos and Tang and they are launched I guess almost a couple of years ago now. Does that mean that India is almost $1 billion business now that those new businesses or new product launches have hit our run rate of about $100 million also, just want to make sure I got the math right on that?

Actually no, Alexia, the bulk of our growth in India was driven by chocolate. As Dave mentioned, we took a number of steps. We are short on capacity, but we took a number of steps to stretch the capacity that we have got and we are continuing to push as we bring that capacity on stream for the back half of the year. We have high expectations for Oreo in India, but frankly, that’s still a very small business and we will see that play out as the year progresses and then into next year.

Okay, thank you very much.

Okay.

It’s about an $800 million business right now. So, it’s in that range. While we have been growing nicely, the currency has been moving against us, so it has naturally moved much in reported U.S. dollars.

Got you. Thank you very much. I will pass it on.

Your next question comes from (indiscernible) of Jeffries.

Good evening. Irene, I am a little bit surprised that gum continues to drive down results in developed markets, I understand it’s structurally challenged category, but at what point – and you only expect improvement two, three years from now, but at what point do you expect at least stabilization?

Well, as I mentioned, we are not taking this sitting down. We continue to test the number of initiatives and we got a number of ideas out in the marketplace. I mentioned the areas that we are focused on price size architecture, hard hitting advertising focused on more functional benefits like oral care. We are making great progress in driving placement of high-impact displays in markets like Japan, for example. We have got about 13,000 convenience stores that now have countertop displays and we are seeing a 20% to 25% uplift there. And lastly the most important action is getting the right product assortment at retail. And as I mentioned that’s an area that we have been focused on. It does depend on when our customers reset their shelves. But we are starting to see some early signs of success and as we look at markets like the U.S., for example, you will not have seen the April shares yet, but when you see them you will see where our share is up about almost 2 points. So, we are starting to see some impact from these actions. I have great confidence that they will start to turn the tide, but most importantly, I want to make it clear that said a couple of times that we are not counting on that turnaround in the guidance that we have given.

And then maybe if I can ask one more question you mentioned capacity constraints in several markets and two quarters to go we had pricing issues and markets like Russia and Brazil. Do you feel like at least in some markets you have a management issue.

No I think we talked about the fact that we were slow to respond in Russia and I’m quite pleased with the turnaround that we have now seen in the Russian market and we talked about those results, they are quite strong if you look at them in aggregate it's only up about 2% but it's quite a sequential improvement from where we were and underneath that very strong volume mix and response to the initiatives that we have put in there and so I feel quite comfortable with the teams that we have got, we have some capacity issues and as I mentioned (inaudible) these capacity issues you might say how could you not have known but before we bought Cadbury in the effort example it was growing about 10%, we increased our marketing support, we saw it roll 20% - 30% and by the time we finished our programming it was growing 40% and so despite our most aggressive assumptions about growth in markets like India we just underestimated it. We’re on track to bring that new capacity on stream, mid-year into the back half of the year but it's one of those nice problems to have and as we said the major impact, the major dampening impact on our first half results is coffee pricing. So yes capacity plays an impact but the major effect has been coffee pricing and a decline that we have taken there in response to the input cost.

Your next question comes from Bryan Spillane of Bank of America Merrill Lynch.

First question just Dave on the Venezuela, the currency hitting Venezuela, is it a write-down of just cash that was sitting on the bank, just what’s the nature of sort of the hit that you took in the P&L?

Yes that’s part of it, I mean there is really three pieces to the Venezuela impact two of them we called out the currency impact one of them we are just saying is regular operating. So, the net monetary assets as you rightly state we are on hyperinflation accounting as is everybody else. So we have to write those down and that was written down and we are calling that part of that $0.04 impact and obviously the Venezuelan bolivar earnings we make get translated back at a less favorable exchange rate so that’s the second, so those are both in the $0.04. There is other impacts around the input cost just went up a lot based on the currency shift, so it cost a lot more to bring stuff into the country. We have got a price with some liquidity problems with customers, we’re having to push through stuff, all of that is just regular operating and we’re covering that because it's regular part of our business. So the pieces that are in the $0.04 I really just go to the write-down and the dollar translation.

And so as we kind of model it going forward assuming that there wasn’t another devaluation like the level of impact should lessen as we go through the rest of the year?

Yes in fact those two items really should be, the biggest chunk was the non-monetary asset write-down and that is onetime item so the translation is much lesser than impact.

And then I guess just one another question and maybe it's a follow-up to Andrew’s question Irene but I think there has been a lot written in the last six weeks about kind of what Mondelez should do in the future and whether it's merge with Frito Lay or focus more on margin expansion and there has been quite a bit of scrutiny just on what are the level of overhead that Mondelez is too high, you know certainly you’re investing more right now and actually trying to build out infrastructure and markets where it sounds like it's pretty competitive to get the rate of investment or get the investments ahead of your competitor. So can you just talk to that topic you know kind of how you feel about the strategy you have now, the goals you have now? Why they are the right ones? And just kind to talk to this debate I guess that’s going on in the market.

There is no question of profits shattered out there and I’m not going to comment on the shatter but what I will tell you is we have created a very unique business with tremendous opportunities for growth as we watch consumer demand for snacks growing at a very healthy rate around the world, and we capitalize on our strong positions, especially in these emerging markets. Again, one of the premises for the split of our company was the opportunity to focus on snacking and to leverage our position in these emerging markets. We are driving shareholder returns, we will drive shareholder returns by focusing on top-tier revenue and EPS growth, but that does not preclude margin expansion. So, we will continue to see top and bottom line growth, while at the same time we will see margin expansion. As we said before, the margin opportunities are clearly bigger in North America and Europe and we are going to take some of that money to go drop some of that to the bottom line and we will take some of that to reinvest, but all of that investment is captured in our guidance that we have given, and it will still enable us to deliver double-digit EPS growth. We do believe though that these emerging markets that the time is now to make sure that we fortify our positions in these rapidly growing markets and that’s why we are chosen to do that.

Has that urgency to step up the investment in emerging markets intensified at all over the last year?

No, in fact I would say it was one of the main reasons for excluding the company. It was our opportunity to focus exclusively on using that opportunity to expand our position. So, it was very much a part of our overall thesis. It will pay dividends. I know it is challenging to see the impact of these investments at this point, because of some of the headwinds we have talked about. But you will start to see it play through in the back half of the year and it certainly will play through in the sustainable growth that we will generate.

Okay, thank you.

Your next question comes from Eric Katzman of Deutsche Bank.

Hi, good evening everybody.

Hi Eric.

Couple of questions I guess following up on Bryan’s point, I think on the devaluation isn’t it most of the time that companies will take the write-down of the assets and the hyperinflation into something like between operating income and pretax as opposed to the segment. It appears that you are putting the full impact into the segment, is that accurate?

Yeah, I think it is accurate. We called it the currency impact and I think that is consistent with what I have seen other companies do, but we did leave it within the Latin America segment. And that’s why you see the operating income margin, because on a reported basis, it’s within operating income and it shows there as a significant write-down. So, yes, it’s in that segment.

So, is there other devaluation such as Argentina that are material that’s also going to run through your segment line as opposed to after EBIT?

Yeah, it would flow through the segment line. Venezuela is the only material country that’s on hyperinflation. So, the write-down of net monetary assets really is the unique Venezuela issue unless inflation gets high enough in places like Argentina to get us in the hyperinflation, but as of today, we are still at normal accounting.

Okay. And the next question I think Dave you said that there was a 50 basis point drag due to a lack of capacity I guess focused in EM, and that was less than you expected, is that accurate?

Yeah, yeah, back in CAGNY, we had estimated that the capacity constraints would tamper our growth by up to a full point. It’s down to about half a point mostly because we have spent a lot of effort with the supply chain folks. Stretching the capacity getting some efficiencies and de-bottlenecking, but also frankly only selling the skews that matter and really focusing on fewer skews and fewer changeovers. So, that help us stretch it out and got the impact down to about half a point. As Irene mentioned, we would expect even that impact to disappear in the back half of the year, because we have got the new lines coming on. We have got some comments stepping up, and we would expect that impact to disappear for the back half.

So, to get to the second half acceleration, which arguably has to be sales growth of, let’s call it, 6%, 7%, the drag has to go obviously from not being a drag to a contribution. So, could you kind of give a sense as to how much capacity is actually being added that will, let’s say, bridge the gap versus to get to such a fast growth rate, like if you shift to consumption, how much is that going to really add?

Yes, if we shift to consumption, it really is only that half point. We are going to be putting in more capacity, because frankly we want to get ahead of it, and that’s why we talked about in CAGNY we’re going to step up our capital expenditures closure to the 5% revenue for the next couple of years. So we’re going to try to get in front of it but adding more capacity can’t help me so that’s where the consumption. So we will get the half point back. I think as you get into the back half I mean there is few things to think about, the coffee headwind was 1.3 points this quarter and probably similar next quarter that’s going to disappear in the back half. The capacity is half a point that’s going to disappear in the back half. If you added those on along you’re already up to mid-five and on top of that we got good underlying share momentum, it's probably the best we have seen in years, vol mix is very strong, categories are growing, a little less than historically but still very strong growth in our categories and frankly we have pretty easy comp periods in the back half as well. So to add all that together getting to that six to seven range we’re pretty confident.

Okay and then on the guidance so are you saying that with currency where it is today even I guess including currency of a $0.03 headwind did also including the benefit of the taxes assuming you spent back half that you’re not actually changing guidance?

Well we have gone through a mechanism of giving you guidance on a constant current basis of the entire year average rates and I’m giving you sensitivity around that. We did increase that constant currency guidance by $0.03 to the taxes and passing through half of that discreet benefit that’s true, it is a total coincidence but today I spot currency would be a $0.03 headwind and would bring us back down that $0.03 but I think it's only May 7, so I won't overreact to the currency markets. They will be what they will be and will give you a sensitivity every quarter as to how that stands as we get closer to the end of the year we will be able to lock in at a firm number but we will give you a constant currency guidance and we will give you a sensitivity every quarter based on where we sit today.

Okay and then last question I apologize Irene, you know obviously you know at least in China bid market Mars has something like 40% to 50% of the chocolate market over there, lot of other players fighting it out. You’re trying to be aggressive by getting your fair share as quickly as possible. But why shouldn’t be concerned that those were fighting it out are going to struggle with returns I mean Hershey has already kind of backed off a little bit on their long term assumptions about operating margins in their emerging markets. So I guess why isn't going to be a pretty big challenge for all these chocolate players to try to capture profitability in the market?

We’re not in chocolate in China, so our category participation in China is primarily biscuits and then we have overweighed gum and as I talked earlier we feel very good about the biscuit performance, we continue to have the number one biscuits in the country and Oreo growth continues to be very solid and biscuit grew double digit in the first quarter, our overall China business is about a $1 billion it grew about 20% and the incremental benefit there came from gum. As you recall last August we launched Stride gum in China. China is the second largest gum market in the world, it's growing 16% annually and every time I see talking about challenges in gum it's in the developed markets, developing markets are growing at quite healthy rate and China is one of them and I would say our early results we feel quite good about our early results, we have got a share about 5% share and it's certainly performing consistent with our expectations and we view this entry as very complimentary to our biscuit business because in effect we’re basically putting gums on top of the biscuit infrastructure. So we feel quite good about the performance of our business in China today, we continue to make investments in route to market, in expanding our participating in the Tier 3 and Tier 4 cities investing in more in the traditional trade all of which have very attractive paybacks because our gross margins in China are quite good, in fact they are among the highest in the world. So China is a strong market for us, it has performed well. We have every confidence it will continue to perform well and we will invest behind that growth to fuel the overall momentum.

Hey guys let me just step in here, we can just keep the number of questions like 1 or 1.5 per person, wouldn’t try to get to everybody as much as we can. Thanks.

Your next question comes from Chris Growe of Stifel.

Hi, good afternoon and good evening. Just had a question for you, in the quarter, were your input costs favorable to the gross margin? So, were input costs actually deflationary in the quarter overall? I am guessing with coffee being down, there was a big driver, I am just curious overall?

No. Actually, our input cost overall were up about 1%, so pretty small, and coffee is the reason they were small. Within our input cost, commodities are clearly one of the drivers but as the global company now actually bigger driver is currency rates and the cost of cost to bring materials into the individual markets where we sell, and a lot of other minor raw materials that we buy locally. So, commodity costs, they are by far not our biggest piece. If I looked at those, you are right, they are slightly down, but the overall aggregate input cost was up about 1%, probably the lowest inflation we have seen in quite a while, but it was a slight increase.

Okay. And then I just had a quick follow-on question to that. Are you seeing markets where it’s getting more promotional in some of your categories, and also kind of pushing towards gum, is that a category where you also are getting more promotional even sequentially to try and turn that category around?

Yeah, I don’t think we are seeing a material change in the promotional activity. Markets have been kind of in the 1st of June state in the developed world for quite a while. And we have maintained our discipline; I think most of the food industry did. Gum, there has been more promotion. We talked about that in Europe and we are responding to that, but that’s really more of an isolated circumstance. I would not say promotional intensity has increased at this stage.

Okay, thank you.

Your next question comes from Ken Goldman of JPMorgan.

Hi, good afternoon. To follow-up on Matt Grainger’s question, I think he was asking about the second quarter, not necessarily the second half, and I am curious about this too. I am still not sure I understand. To get to your guidance of 3.5% organic growth in the first half, you have to put out a lower organic growth number in 2Q than 1Q. And I guess I am not sure why that is, right. You have a much easier comparison. There is no change in the coffee impact. There is no Easter issue. So, again, maybe you have talked about this, but are there some headwinds I am not necessarily thinking about that hit your top line this current period?

I think we are talking about 20 to 30 basis points gap. So, I mean simplistically, we gave you guidance of 3.5% for the first half. 3.8% is above that, but not materially above that. We left the guidance for the first half at 3.5%, I wouldn’t over-think it.

Alright. It implies 3.2%, then some people would call that meaningful, but I will move on. As you look at your – Dave, as you look at your weighted average interest rate, it’s high versus the group, right. It's the second highest of any company that covering. You have talked in the past about a lot of your debt being non-callable, and of course, the high cash cost associated with restructuring that debt and I understand that. I guess, I am just curious if maybe you can update us on your current thoughts and whether they have changed at all regarding – at least on the outside seems it to be arguably a less than optimal debt structure?

Yes, the interest costs are very high. I mean, all of that debt was taken out really for the Danone acquisition and the Cadbury acquisition. So, they were taken out at a time at the time when (indiscernible) was reasonable and today it looks high. We paid off some debt in February as we have scheduled. We said we would pay-off the February debt that’s done. We said we would pay off the May debt. There is a $1 billion coming due actually tomorrow. So, that we paid off. And that will give us down to about sort of $17.5 billion debt level that we said was kind of our equilibrium. There is another $1.8 billion that is due in October. And we are obviously evaluating options for that. As you think about tenders or other things that we would buyback some of that high cost debt, the reality is it’s pay me now or pay me later. I could buy it back, but I am going to have to pay the bondholders, the net present value of that high interest cost. So, the criteria I have established with my treasury group is it needs to be net present value positive for it to be worth a while to do with that buyback, and that means that it continues to be the criteria. That doesn’t mean we won’t do it, it doesn’t mean we will but that’s the test that will continue to apply. And yeah, we haven’t executed a tender so far, but if we decide that the economics actually work in our favor at some point, we will move forward.

Well, I appreciate that and I will let it go in one second, I would just suggest that perhaps shareholders should come first right? Stockholders come before, bondholders in this kind of situation and if you can drive your EPS significantly higher by paying down some or by restructuring some debt which you probably could and we would exclude the expenses as non-recurring on at least from our vantage point if you can get your stock higher and do an awful lot of things with that in terms of acquisitions and so forth, just my friendly $0.02 there.

Your next question comes from David Palmer of UBS. David Palmer – UBS: I would love to dig into the puts and takes in the quarter with regard to margins. It sounds like global chocolate and biscuits had a solid revenue quarter with relatively higher margin power brands doing significantly better than those categories and you mentioned that the overall inflation of your inputs about 1%. Obviously gum was weak and that’s a high margin business and you had a tougher margin comparison this quarter but is there any more detail you can give us with regard to margin drags or reinvestments that happen in the quarter that seem to offset this other areas that would speak to tail winds. Thanks.

I guess that type of thing wouldn’t overreact to margins at single quarter and particularly to this quarter had a lot of noise in it. We came off the year when we grew margins by 70 basis points we had a very strong year and I think this year in total we still expect to have a good year. At start and look at our margins, our gross margins were flat and at 37.2% and you rightly point out gum actually hit us within that because gum is a higher margin product by about 50 basis points. We also have the price adjustments we made in Eastern Europe and Russia that is as well and we covered that. But continue to be pretty discipline around pricing and input cost and productivity and the rest of the world. So the flat margin really is a decline in a couple of situations but overall continued progress on gross margins. The reason the OI margin was down was as I said on the call it was the Venezuelan bolivar with a onetime impact this year it was prior year items that kind of setup in artificially high base support (inaudible) that we talked about last year. It was this synergies, we haven't talked about the synergies much but we said we had $200 million of the synergies coming out of the spin and we said we would eliminate half of that this year which we will but inevitably the savings are going to come out more towards the back half and the full impact of those synergies hit us in the first quarter and it was the investments in emerging markets that we talked about in A&C and sales and route to market. So those are kind of the drivers, as I look at bucket of events we’re holding gross margins despite some headwinds and we would expect to continue to do that. We will continue to invest in our emerging market growth, the dis-synergies will disappear so we’re on track to hit our total year guidance and I’m not worried about the first quarter, I know it looks bad on paper and it is in isolation, it clearly is but I think you will see that margin pick up more in the back half less over in the second quarter but I think the back half margins will improve significantly and you will see that in delivery of the full year.

Your next question comes from Jason English of Goldman Sachs.

On gross margins you said price growth of around 1.3, inflation of 1, mathematically that alone should have given you some margin expansion adding volume leverage and then your productivity. Mathematically we should have seen much better gross margins. I think you gave 50 basis points offset on gum weakness, can you help illuminate us to what the other offsets were?

Yes the other two big offsets would be the coffee and chocolate pricing adjustment we did in Western and Eastern Europe and it would also be the Argentinian price controls, where inflation is running significantly higher than the price controls right now. We haven't been able to take any pricing this year. Those will be the two biggest offsets plus the gum.

So the coffee it's not included in your inflation and price numbers for the overall company?

The coffee pricing we’re managing fairly well so coffee pricing is down, coffee margins are okay.

And this is my other half question, you gave A&C of 9.6% of revenue for this quarter, what was it last year?

9.4.

Your final question comes from David Driscoll of Citi. David Driscoll – Citi: Great. Thank you for getting me in there, feel like I got into the wire although it’s past the hour. I want to make one clarification. When you guys were saying that OI was in line with your expectation and it allowed the SG&A reinvestment, at least I think I have that correct. And then this tax benefit, the zero tax paid in the quarter you are saying that, that’s not the reason for the SG&A investment that this is outside of that and then you are talking about part of this then gets contributed to the guidance race, did I say that about right?

Yeah, you do. Again, we gave full year guidance, and on a full-year basis, we expect our EPS to be $1.55 to $1.60 and that will be well into double-digit EPS growth. Within that, we have got the tax benefit that we dropped $0.02 to $0.03 and we have got OI that’s going to have to grow. So, we gave a full year estimate on OI growth and our top line behind that. It is going to require margin improvement. We never gave you operating margin guidance for quarter one. So, quarter one was in line with what we would expect internally. We knew about the one-time hits we have, and we knew about the investments we will be making all through the year, but the fact that those will hit us more in the first quarter, because we don’t have that revenue leverage yet. And so it’s more about as we go through the year, we get the top line growth accelerating. That will translate into leverage down through the P&L. You will see that margin gain come through. And so that’s why the quarter one margin in isolation is not great. And it’s certainly below what you guys would have expected. It is part of a full year guidance and there is nothing in there that should it will be concerned about the full year. It really consistent with the guidance we gave back in February.

Very helpful. On China, the 20% growth is pretty encouraging do you think that type of growth rate can be sustained throughout the remaining quarters of the year?

Simple answer is yes, David, I mean probably not exactly at 20%, but we have been growing healthily at those rates for the last couple of years. And I have every expectation. We have got good category growth. We are in good categories in the country. I talked about the performance of both biscuits and gum. We feel we think it’s very strong performance there. We have seen some slowdown in GDP, but it has not disproportionately affected our categories. Even biscuit when it slowed down grew at a healthy 11% rate over the last 52 weeks. So, our share performance continues to be strong. We have got strong brands in both our biscuits and in our gum portfolios, and we continue to make investments as I mentioned in marketing support, in route to market as well as in broadening our distribution base. So, I feel quite confident about the future and the fact that China will continue to be a key contributor to our overall growth rate.

That’s terrific. Can I switch over to just two final questions? One, there are two good ones, they are really good ones, the new products, we don’t hear from you guys about like new products as a percentage of revenues and this I think is a key metric that you look at internally. Can you update us on your thoughts on new products as a percent of revenues? And the final question is Dave, maybe you can just give us some understanding as to what’s the holdup with the arbitration proceedings with Starbucks, hasn’t it been like 10 or 11 months since we have gone through this thing and why aren’t we getting a verdict?

Well, I’ll let Dave answer that one and I will come back to your question about innovation.

Yeah, on Starbucks we remain pretty confident in our case. We are looking forward to the verdict as much as you are, probably more than you are. There is really nothing new since our last call. We are awaiting the decision. You are correct the arbitration hearing is finished in August of last year, but there is no specific timing. It’s really at the discretion of the arbiter. So, we are pretty confident in the outcome. We are pretty confident in the merits of our case, but we can’t (indiscernible).

With respect to innovation, David, we feel pretty good about the performance of our innovation, particularly our global platforms, it represents about 12% or 13% of revenue, and we believe that’s quite high relative to peers and the drivers of that within each of the categories are the platform innovations behind each of our power brands. And so as I talked about the performance of power brands and I talked about Cadbury Dairy Milk or Milka growth, it’s coming because of products like Bubbly. When I talk about biscuit growth, it’s coming from Oreo and belVita, for example. And when we talk about our gum growth we are seeing continued improvement as we focus our Trident franchise on breathe freshening. So, that’s the source of this innovation. It is an important contributor to our overall top line growth and we have seen continued strength in our performance.

Thanks everybody. If you have follow-up questions obviously give myself or Nick a call. and we will talk to you later. Thanks.

Thank you this concludes today's conference. You may now disconnect.