Good day and welcome to the Mondelez International Second 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’d now like to turn the call over to Mr. Dexter Congbalay, Vice 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 statements. 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 second quarter and first half results played out essentially as we told you they would. Although our top line was below our long-term target, our underlying business fundamentals were solid. We exited the second quarter with strong volume mix and power brand games. Faster growth in emerging markets and increasing market shares around the world. This Positions us well to accelerate organic revenue growth and expand margins in the back half of the year and in 2014. Earlier today we also announced a substantial increase in our share repurchase program as well as an increase in our quarterly dividend, our first raise since 2008. These actions reflect our Board’s confidence in our future, our balance sheet strength and our commitment to create value for our shareholders. Let’s take a closer look at the key metrics behind our first half results. In both the second quarter and first half we delivered organic revenue growth of 3.8%. As I mentioned, as for lower long-term target, but consistent with our first half guidance. As expected, the impact of lower coffee prices and capacity constraints, tempered revenue growth by about 1.3 percentage points. But need at the top line: 7p line number, our fundamentals were solid. I say that for several reasons. First we delivered high quality growth fueled by strong volume mix. In fact volume mix accounted for about three points for more than 75% of our top line growth. What’s more, this strength was wide spread. We grew volume mix in each of our regions. We are especially proud of the performance of our European team, who once again grow strong underlying revenue in a very challenging macro environment. Second, our focus on power brands continue to payoff, with revenue up 8% in the first half,…

Thanks, Irene. Good afternoon. As Irene just described, we're poised to accelerate revenue growth in the second half and into 2014. We expect gross profit margin to expand in the back half of the year as well, as productivity programs pick up speed and as we drive leverage from stronger revenue growth. In the first half, however, adjusted gross margin was essentially flat as pricing and vol/mix gains offset higher input costs. Adjusted operating income margin in the second quarter improved sequentially to 11.4%, up from 10.3% in the Q1. For the first half, however, adjusted OI margin was 10.8%, down 170 basis points but in line with the expectations we communicated earlier this year. The results reflect a combination of factors, including about 50 basis points from cycling prior year one-time items, about 30 points from devaluation of the Venezuelan currency and about 20 points from ongoing restructuring costs. In addition, we invested over $100 million to drive growth in emerging markets. While this tempered margins by about 70 basis points in the first half, it sets us up for a much stronger 2014 on both the top and bottom lines. Turning now to earnings per share. Adjusted EPS for the quarter was $0.37 including a negative $0.01 impact from currency. On a constant currency basis, adjusted EPS was up 5.6%. For the first half, adjusted EPS was $0.71 including a negative $0.05 impact from currency. On a constant currency basis, adjusted EPS was up 13.4% driven primarily by lower taxes. As I mentioned, however, our incremental investments in emerging markets were a key driver of the $0.04 decline in operating earnings. Turning to guidance, we continue to expect organic revenue this year to grow at the low end over 5% to 7% long-term term target. And on the…

Before I wrap up, in a separate press release today we announced our intention to increase the return of capital to shareholders. As you may recall at Cadbury we committed to resuming share buybacks and dividend increases once our leverage ratios were back in line with our targeted credit rating. As a reminder our priorities for cash are first and foremost to invest in the business to drive sustainable, profitable growth; and as we’ve discussed we’re doing that. We’re also aggressively expanding capacity, increasing capital expenditures for about 4% of revenues to about 5%. That includes for example the expansion of a biscuit plant in China, the construction of the new growth facility in Mexico that I mentioned earlier and a new Greenfield site in India. It also includes a number of other high return expansions around the world. Our second priority for cash is tack-on acquisitions. At present we believe we have ample flexibility to manage the M&A opportunities that may become available in the near term. The third priority for cash is the return of capital to shareholders in the form of share buybacks and/or higher dividends. And the fourth is paying down debt. We have now reduced our gross debt to about $18 billion and net debt to about $15.5 billion. At these levels our leverage ratio is now consistent with our target rating, investment grade with access to CP. So with investments fully funded, and a solid credit profile, we can now return more capital to shareholders while still preserving our ability to pursue future strategic opportunities. As such, today we announced an increase in our quarterly dividend to $0.14, a share an increase of a penny were 8%. We are also significantly increasing our current shipper buyback authorization to $6 billion or about $1 billion to $2 billion annually through 2016. We believe that the combination of double digit EPS growth, higher dividends and a substantial increase in share buybacks creates a highly attractive mix that taken together will drive superior returns for our shareholders. So to wrap up, our first half results demonstrated solid underlying business momentum including strong vol mix and power brand gains, faster growth in emerging markets and increasing market shares globally. We’ll build on these strengths in the second half to deliver improved performance. On the top line, we'll benefit from our first half momentum and increased investments in emerging markets, as headwinds from coffee pricing and capacity constraints begin to subside. On the bottom line, we expect margins to expand as revenue growth accelerates and as we aggressively drive productivity and overhead cost savings. As a result, we're positioned to deliver our commitments for 2013 and to drive sustainable profitable growth in 2014 and beyond. Now, we'd be happy to your questions.

(Operator Instructions). Your first question comes from Chris Growe of Stifel.

Hi. Good afternoon.

Hello, Chris.

Hi. Just two questions for you. The first one I'd like to ask is, as you think about the emerging market investment, Irene, you have some tax favorability in the first quarter, you have some more here in this quarter. You let some of that flow through in the first quarter. I just want to get an understanding now like all the tax benefits that are coming through this year, should we assume that the majority of those are being reinvested back in the business? I'm trying to put some color around the amount of incremental reinvestment back in the business.

Well, I think Chris we gave you a schedule to show that. We said we generate about $0.11 to $0.14 favorability from taxes. We gave about $0.03 back in the first quarter as you recall. Our investments are about $0.06 and that just gives you a sense of how we're thinking about that.

Okay. And then if I could also ask a question, I guess maybe more for Dave, regarding your increase to the share repurchase authorization and your increasing the repurchased shares. Is there an expectation that you would take on debt? I was trying to think about your free cash flow over the next year or two, is that free cash flow growing as fast than you expected and allowing you to do more share repurchase activity or is there the capacity to take on some more debt?

The free cash flow is pretty much in line with what we laid out at CAGNY at this point in time, but I think as you think about what we said at CAGNY '13 and '14 we still got the restructuring program spending in there. As we keep going forward beyond '14 that was disappear out of the base and we'll be delivering a stronger cash flow. So we may have to take on a small amount of incremental debt in the near term, but I think it's well within what we can afford as we go over time.

Okay, thanks for the time.

Your next question comes from Andrew Lazar of Barclays Capital.

Good evening, everyone.

Hi, Andrew.

One thing I wanted to follow-up on, on Chris' question just to make sure I fully understand the new fully year guidance. When you reported the first quarter you mentioned you were holding I think $0.03 to $0.04 of tax flexibility in your pocket for the rest of the year. And as I look at your current guidance, you're saying it is still $1.55 to $1.60 but you'd also be this quarter tax is more favorable than you thought even at the end of the first quarter and relative to our model interest expense was also much more favorable. So I'm just trying to get a sense of where some of that flexibility is going?

Yeah, Andrew, we're still looking to keep our powder dry as we looked at the balance of the year. There's quite a bit of volatility in a number of these markets and we want to make sure that we are appropriately hedged to deliver our commitment.

Okay. We're now I guess five weeks into your third quarter and I wanted to get a sense from you, if you could, just even directionally of the trends you're seeing so far in the third quarter relatively consistent with your expectation for the kind of acceleration you're expecting in – most importantly in the organic rate of top line growth that you're looking for in the second half of the year?

Yeah, I don't want to give you week-by-week guidance but what I will tell you is certainly we've expressed great confidence in the back half of the year for all the reasons we've said and there's nothing we're seeing that's inconsistent with that.

Thank you.

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

Hi. Good afternoon.

Hi, Bryan.

A question about as we look at the organic sales performance in the first half and especially the second quarter, one thing that's been really encouraging is that volumes have accelerated sequentially over the last couple of quarters. And if you go back to some of the years where the period where organic sales growth was at the high end of your range, there was probably more of a pricing component. Actually volume wasn't really a big contributor to revenue growth. So I guess what I'm asking is you move into the second half of the year, do you expect that vol/mix to continue to be in that 3% to 4% range in terms of the contribution of revenue growth? First. And then second, of all the pieces that are still sort of below sort of your long-term expectations, whether it's gum, some of the developed markets, coffee contribution, where do you think we should look for sort of the acceleration? Should it come from even more growth in the emerging markets or should some of those weaker areas begin to contribute more?

Yeah, I think on the first step, I can cover that and Irene can cover the second step. I think when you go back to those days when we had much lower vol/mix, it was a very high pricing environment. That was when we had the commodity run up and naturally there was a bit of pullback on vol/mix as consumers on the trade front reacted to those price increases. Obviously we're in a very benign pricing environment today, so all of the entire revenue growth you're seeing is coming from vol/mix. As we look at the back half, I'm not looking to input costs to increase or pricing to measurably improve, so most of that revenue improvement at the back half is going to have to come from vol/mix.

But if you think about it, just to put it in some perspective, Bryan, I think if we think about the 3A, as we said, we believe that about a 1.3 points is due to – coffee is about 1 point and about 0.3 due to capacity constraints. As we then exit the first half, those headwinds will – certainly in terms of coffee will lessen. It's still going to be there. The capacity constraint should be behind us. And so as we look to what we're going to execute in the back half, we feel quite comfortable that the momentum we've got in the front half, it's the spending that we've got in our emerging markets and our overall share performance will carry us through.

So I guess it stands to reason that your confidence in increasing A&C spending in the second half will have an influence because you're really targeting consumption growth as opposed to pricing? I mean the idea is that if you spend more on advertising and consumer spend, you should drive even more consumption.

That's correct. But I would also tell you that the programs that we are investing behind are proven programs. I mean it seems like the launch of Golden Oreo in China, the route expansions that Dave alluded to in both China and India, it was some incremental preseason support on Tang, these are proven programs that we have invested in, so we have high confidence that we'll get a good return on those investments.

Okay, great. Thank you.

Your next question comes from David Driscoll of Citi Research.

Great. Thank you. Good evening, everyone.

Hi, David.

Wanted to – Dave, wanted to just maybe ask very directly the EPS guidance or – you didn't actually give it, but on the third quarter it seems like you're expecting stronger revenue growth but the OI margin expansion isn't as good as in the fourth quarter. There seem to be a number of puts and takes on the tax rate, et cetera. Bottom line, would the third quarter EPS all-in, it should be a little bit less than the EPS contribution for the fourth quarter? I think I've taken into account everything, but can you confirm that?

Well, I don't want to give you quarterly EPS but I can give you two pieces to sort of help. Firstly on the OI margins, I wouldn't compare to prior year because prior year was pretty unusual given the timing of a lot of spending OI revenue as we were preparing for the spin. So last year was pretty unusual. This year I think it's going to be more normal. You'll see our OI margins improve progressively through the year and our high points will be in quarter four. So that would be the first point. Secondly on the taxes, we did say a few minutes ago that we would expect our taxes in the back half to be higher but frankly Q3 is going to be well below that 15% to 20% rate I said just a minute ago and Q4 will be higher. And again, it is because of some discrete items that we would expect to get Q3 – that will benefit Q3. So those are two elements I can give you some guidance on.

And then, Dave, just three other quick ones. Tax rate, I get this question a lot. Is the low tax rate in 2013 going to be a headwind for 2014 or is the comment that you reinvested it and that even when this tax rate normalizes to something higher, the fact is, is that there are other pieces of the P&L that will change in '14 to compensate. Is that a correct way of thinking about the tax issue?

We've given guidance for our tax rate for the next three to five years, but it's going to be around 20% plus or minus. This year was usually low. So I'm not going to give specific guidance for next year but this year was really – [I mean] last year was about 20%, this year was down quite a bit below that. Going forward over the next three to five years, I would expect to see closer to 20 again. In terms of special offsets, I may be returning back to instead of the OI conversation we had, by accelerating the emerging market investments from future periods into 2013 we’ve essentially built that into our base and so it means we’re going to get two years of OI margin, the expansion in one next year, and we would expect our margins to grow from, so we said this year flat to last year up in the high 12’s next year. And so our EPS next year is largely going to be OI driven.

Okay, final two from me, fast ones; in marketing -- what was marketing up in the first half of the year and last question on interest expense can you give us interest expense guidance for ’13?

Marketing is about 9.5% of revenue, so it's similar to what it was in the first quarter. And interest expense, I mean I wouldn’t expect we had a small one timer that we recall that as we talked about it, that was $0.01 to $0.02, but otherwise I’d say our trend on interest should be relatively even through the year.

Yeah, we’re about $18 billion on gross debt and our weighted average rate is about 5.9%.

You had some options in the back half of the year that were in debt pay down, so I think there were questions as to whether or not interest expense was going to change in the final couple of quarters. So you’re saying second quarter run rate is a good run rate?

Yeah, we will be with that $1.8 billion coming due in October. We expect to pay that off through the combination of cash and commercial paper issuance.

Okay. Thank you.

Okay.

Your next question comes from Robert Moskow of Credit Suisse.

Hi, a follow-up to David Driscoll question, I think you said that marketing was 9.5% of revenue in Q1 and Q2, but what was it last year, and does it reflect an increase in marketing spending year-over-year? And then secondly, just to drilldown a little bit on U.S. gum, we took a look at some Kantar media data and it showed big declines in tracked media spending in U.S. gum. I think it could have been reflected on the fact that you might be increasing digital in your mix, but I thought that you had a lot of digital spending last year too so, just trying to get a sense of whether the advertising cuts might have caused some of this decline in U.S. gum? Thanks.

I’ll answer the first bit, last year our spending was 9.4% of revenue versus last year you would see within our mix we’re spending a lot more in emerging markets and we’re a little tighter in the developed markets.

Rob, we feel quite comfortable with the level of spending we have behind our gum as I’ve talked about, we have made some important changes in the price size architecture, we have strengthened our campaigns. Any declines that you see are really reflecting the mix we're increasingly investing at point of buying as opposed to on television for example it's much more focused on digital and point of buying, and so you would see a reported change in Kantar, but it does not reflect this level of support that we got behind the business and as you see from the share numbers that I quoted to you, we’re feeling very good about the results that this spending is generating.

Okay, and then one more question on the guidance. You said that you’ve seen some slowing growth in categories in China, Russia and Brazil; to what extent did that affect your overall top line; like if you -- could you quantify what that would mean just to the category growth assumption for the year and just to give you the sense of how much harder your business has to work to grow for the remainder of the year to offset it?

We’ll only give specifics on perspectives, we start with the fact that we’re going by share -- growing or holding share in about 60% of our revenue. So, a key prospect to the slowing category is our share gains and we’re seeing very strong share performance around the world and a lot of the investment that we’re making in our franchises particularly in the emerging markets is designed to help us there. But just for perspective if you think about the BRIC markets for example, GDP has gone down from about 5% -- year-to-date about 5% it was about 6% the same time a year ago and yet our revenue within those markets is up 13%. So there is not a direct correlation or should there be. There’s no question we have to work harder in the phase of some of these category slowdowns, but the strength of our brand the investments that we’re putting behind brand equity as well as route to market is what will carry us.

Got it. So you’re up double digit that’s more than enough to offset 1% change in BRIC GDP?

As an example, yes in aggregate, yeah.

Okay. Thank you.

Your next question comes from Eric Katzman of Deutsche Bank.

Hi, good evening.

Hi, Eric.

Dave, I guess let me ask you a question on -- I think maybe it was Chris Growe; but when I do the math you basically have about $3 billion of net income, you’ve got depreciation and amortization of $1 billion to $1.3 billion, CapEx has been running $2 billion and your dividend are at least two and you’re increasing that, and that evens out to a free cash flow after dividends of basically zero. So, where is other than just straight out leveraging over the next year or two until CapEx comes down, where is the share repo funding coming from?

Yeah, I think when we talked at Cagney, we actually laid out our cumulative cash flow over the ’13 and ’14 period. And so if you can go back and look at that, but I think we essentially said we had about $1 billion year-end facility. And I think what we’re talking about here if we’re buying $1 billion to $2 billion there’s no question but if you take the midpoint of that in the short-term we would have a modest increase in our debt, but I think as we wind through that restructuring program and the cash spending on that goes through this is a program that we can take forever or in cash flow cash flow. So there will be a short-term increment, but it won't be big.

Okay, and then unrelated question but when I look at your performance in the latest quarter across the regions, most of them are actually pretty solid in terms of volume mix and this EEMEA outlier of up 12. know you said there was a big recovery in Russia, but I’m just a little worried that in the past the Company has been kind of stung by over shipping consumption, and we’ll find out later that it was a kind of a false positive. So why shouldn’t I be worried that one segment was so strong relative to everywhere else in the world. I mean was Russia just a complete disaster a year ago and it's such a strong rebound or maybe you could add a little more color there?

Yeah, I think I’d say two things. Number one, Russia did have a very strong rebound and that’s the combination of good marketing and share gains beginning this year, but it's off pace as well as year ago; so that is true. But also I’d say we’ve got good growth in most of the EEMEA markets. We’re growing well over 20% in Egypt, we’re growing well in Ukraine, we’re growing in high single-digits down in South Africa; we’re growing in double digits in North Africa and Nigeria. As well I think as you may recall from the first quarter in the Saudi Arabian markets we had a joint venture that we set up and essentially had to wind down the shipments to a existing distribution network and didn’t ship much in that first quarter. So we got a rebound from that as we get back to normal shipments in quarter two. So there’s a lot of factors. Would I expect to be growing 12% vol mix every quarter? No. But I think we feel pretty good that it is wide spread strength, and no I’m not worried that we’re shipping ahead of consumption.

Okay, excellent. Thank you.

Thanks Eric.

Your next question comes from Alexia Howard of Sanford Bernstein.

Good evening everyone. Two questions; first of all the investments -- the $100 million investments in sales capabilities and route to market expansion in A&C support, could you tell us a little bit about where those are being deployed. Are they in the already profitable BRIC countries or is this the beginning of getting into the next wave markets that presumably aren’t making money as yet?

No, at this time Alexia the focus is on the already good gross margin BRIC markets, it's investments as I said behind and if you think about the A&C support, business – buy businesses like Oreo, in particular I talked about Golden Oreo launch in China, it's the opportunity to continue to expand our sales coverage both in China and in India, and it's the opportunity to continue to expand some of our innovation platforms. So these are proven programs that have high returns and that’s why we felt quite comfortable accelerating them.

And Alexia to jump in on the other markets; we do make money in almost all of our emerging markets. So we talked about the BRICs because they’re the biggest and they have very strong gross margins and good OI margins. We also have very good gross margin, very strong OI margins in our other emerging markets. We don’t talk (indiscernible) much because they’re smaller, but they all have very good margins and we would not invest in any country that didn’t have a very strong gross margin such that we could get good return on investment on those bets.

Okay, great. And then as a follow-up, your power brands are growing much faster than your non-power brands. Does that mean that there's SKU rationalization going on in those non-power brands globally? And I was wondering if you could give us an idea of how many SKUs you have globally and where that may go to over time if that's happening? Thank you and I'll pass it on.

Yeah, I don't think I want to get into an SKU discussion, but you can ask about some future costs. I think it is a combination of expense on the market. There is some SKU proliferation that we're pulling back on clearly. There is simply a matter of focusing on the brands that are going to be the future of the company and spending less support on the secondary and tertiary brands. And there is just smaller brands in markets that just don't have the scale over time staying themselves. So they've been broadly for the last two or three years, sort of non-power brands have been broadly flat as kind of in the traditional trend we've been on and I would expect us – probably a realistic expectation going forward as well.

Great, thank you very much. I'll pass it on.

Your next question comes from Jason English of Goldman Sachs.

Hi. Good evening, guys. Thanks for the questions. It's been a while since you've done this, but I was hoping that maybe you could just aggregate the volume and mix for us to give us a better sense of volume trends and how big the mix headwind is?

No, we've stopped doing that because truthfully if I give you a classic example, it comes down to – if you change the pricing that obviously is pricing. If you start doing downsizing, then you get into very complicated volume versus mix calculation. So that's the reason we went away from it. Also gum doesn't realize. So we will continue to report vol/mix as one number.

Okay. I wanted to circle back then to Rob Moskow's question on what's ailing gum? Irene, I think I heard you say you don't think it's a spend issue at least in terms of measured media. But when you look at the numbers, since the end of 2008, sugar confection up like 366% in measured media, chocolate up 97%, gum down 57%. How can we look at those numbers and not think that there is a spending problem or a marketing investment problem behind the category?

Well, I tell you, Jason, we talked about the fact two years ago when we bought the business. We felt that there was a spending problem. There is no question that Cadbury in the final moments had pulled back quite extensively on marketing support for gum and had very aggressively priced the category and that was part of the reason that we started to see some weakness fairly early on. We corrected that very early on, so that's why I feel quite comfortable with the level of spending. The issue for us is just making sure that we've got the right marketing mix within that spending. I think the issues that we've talked about; there's really four that we've been focused on. It's been about pricing and sizing both at the lower end and the upper end, particularly in markets like Southern Europe where the economies are still quite challenged and we are finding that we're getting very good consumer takeaway as we do a better job of covering the spectrum of price points within gum. So that's been a very important part of our '16 program. The second is, as I said, some of our marketing spending we were not feeling was as effective as possible. Some of the campaigns had gotten a little bit too esoteric and we've brought them back to the fundamental category benefits of breath-freshening as well as oral care and finally we're getting a good response to that. The third is more impactful displays. We have a number of examples around the world. Argentina is probably our best example where we have displays that are increasing our takeaway by 30%, 40% and we more broadly implemented those displays in a number of our key gum markets. And then last, which is probably the most significant, is the category over time got very heavily dependent on innovation to the point where a lot of the base SKUs were being replaced by some of the innovation and we were participants in this. But it turns out that some of those innovations were not carrying their weight. And so it's taken us some time to manage the category to get our customers to change their shelf sets and as I mentioned part of the reason, there is a lag between our share performance and the revenue growth is simply because it takes a while for our customers to make these shelf set changes. But really those are the four areas that we've been focused on and we are beginning to see some good traction in our key gum markets, particularly in the U.S. and in Europe.

Great, thanks a lot. I'll pass it on.

Your next question comes from Matthew Grainger of Morgan Stanley.

Hi, everyone. Thanks for the question. Could you just provide a bit more detail on the deceleration in volume trends in Latin America during the quarter? What were some of the factors? You called out Mexico in particular as having weaker vol/mix, what were some of the factors at play there? And are there any additional markets you'd highlight where volumes softened or where you saw more pricing come through and just shift the balance during the quarter?

Yeah, I think – I'd start with we had very good vol/mix in the most important market, which is Brazil and that was really the key one. I think vol/mix declines really were driven by Argentina to some degree, which has its own economic issues and Mexico. Mexico was really – obviously, it's gum. So it's the same old thing and an increase in competition in powdered beverages, but it's really those two categories in Mexico that drove the negative vol/mix.

Okay. Thanks very much.

Your next question comes from Ken Goldman of JPMorgan.

Hi. Good afternoon. When you think about some of the macro trends you're seeing – I know you touched on this a little bit in emerging markets versus Western Europe, there seems to be a – maybe a bit of a consensus thesis out there that emerging market's slowing a bit, Europe recovering a bit. Is it fair to say that you're seeing that as well? One interpretation of some of your numbers sequentially would suggest that it is, but I'm just curious if that's a fair analysis on a broad scope?

Well, Ken, I would say – that's not exactly what we are seeing. I mean I would say we are very pleased with our Western Europe trends and we really feel very good about the progress that we've made in a number of our core categories, certainly in the most troubled parts of the Euro zone, Southern Europe in particular. We're still continuing to see softness. I do want to kind of put the category slowdown in some context. When the emerging market category slowdown, they are still growing at 3 to 4 times the rate that we see in the developed markets. So yes, there has been a slowdown in a number of these markets and I cited the GDP to revenue relationship that we're seeing in the BRIC markets, for example. So there is no question we are seeing some slowdown. I talked about biscuits in China. Biscuits category in China grew last year about 18%. The first half of this year it's up only about 6%. So when I talk about slowdown that's the kind of dynamic that we're seeing. But we're still seeing the emerging markets for the most part are growing quite a bit faster than any of the developed markets. But I feel quite pleased with the performance that we've seen in a number of our developed markets. I talked about the strong U.S. biscuit performance, for example, as well as the strong underlying performance of our European business.

Great, thank you.

Your next question comes from Ken Zaslow of Bank of Montreal.

Hi. Good evening, everyone.

Hi, Ken.

Just two quick questions. One is, how did you guys decide to actually repurchase stock and go that avenue rather than accelerate investments of cost cutting efficiencies?

Yeah, I think – as Irene laid out, we basically – we had our three cash priorities that we are focused on and the first was and she rightly indicated investing in the business, whether that's cost reduction, opportunities or whether it's investing in growth. As we sit here today, we believe we've funded the investments we need to deliver the numbers we put out in '13 and '14 and beyond. So that was the first step. We did look at M&A and we think we have the flexibility for that. And we always said the third step, the place we would turn to next would be returning cash to shareholders. So we did follow that sequence in looking at the opportunities and we did wait until we got our debt in line before we started those discussions. So it was a thoughtful process and it was tied really in sort of strategic planned process.

And then my last thing, as you gain share in gum, can you talk about your profit profile change to see how that actually has changed?

I don't think we give profit by category and I wouldn't want to go down that road now. Gum is a highly profitable business at the gross margin line. So I think that's probably as far as I'll go.

Great, thank you very much.

Okay.

Your next question comes from Thilo Wrede of Jefferies. Thilo Wrede - Jefferies & Co.: Good evening, everybody. Maybe I'm a little bit slow tonight. I'm just trying to figure out what all the puts and takes for the guidance are for the full year. I have on the plus side, maybe lower than expected tax rate, maybe some share repurchases, the interest expense is lower and then that is partially offset by reinvestments and currency. Am I missing anything? And is the net-net of this a positive impact on this full year guidance or does it just the amount?

Yeah, I think the – we have our full-year guidance at constant currency of 155 to 160, that’s the same number we gave back in May. Within that taxes will be favorable for that, really have invested more behind that, interest is very small and share buyback frankly will be there, its smallest workers were doing most of that towards the end of the year. So, I think that will be the two big swing factors. Currently we call that there was a $0.05 risk on currency because the guidance we gave is a conference currency. So currency stage where they were I July 31st for the rest of the year then the number will come down born by about a nickel. Thilo Wrede - Jefferies & Co: Okay. Got you, and then the other question I had the pricing in Asia Pacific turn negative this quarter. What’s behind that?

It’s a question of timing of promotions and react in a competitive advantage, but having importantly, we’re focused on maintaining the gross margin going forward. Thilo Wrede - Jefferies & Co: Okay. So that shouldn’t the trend for the rest of the year? Okay. Thank you. Operator: We have time for one more question. Your final question comes from John Bumgarner of Wells Fargo.

Hi, thanks for the question. Good afternoon.

Hello, John.

I’ve been wondering if you can speak a little bit to your introduction of the espresso compatible capsules over in Europe. I know you’ve seen other branded competitors do that in the recent years, look out quite we’ll for them then we reinvigorating the brands. So just wondering of I could speak mainly for the details for the program and maybe your thoughts on a broader opportunity to grow premium roast and ground coffee across Europe in general,

Well we got to get the driver of the hour coffee performance has been or more convenient coffee forms as I had mentioned, Tassimo up about 40%, Millicano up in the very strongly in the double-digits and so that continues to be an area of focus. We did announce the launch of an espresso compatible plot. We are starting with [indiscernible] in France and Germany. As we speak we will expand that to a number of other countries in the later part of the year. So, we think this is an opportunity. And we’re – we believe we have very strong brands that will perform well in that system and as all doing.

Great. Thank you.

This concludes the allotted time for today’s question and answer session. I would now like to turn the conference over to Mr. Dexter Congbalay for any closing remarks.

Nick and I will be around – later on this evening to take any calls. You have our numbers and thank you for joining the call.

Thank you. This concludes today’s conference. You may now disconnect.