Mondelez International, Inc. (MDLZ) Q1 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Mondelez International First Quarter 2020 Earnings Conference Call. Today’s call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I’d now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations from Mondelez. Please go ahead, sir.

Good afternoon, and thanks for joining us. With me today are Dirk Van de Put, our Chairman and CEO; and Luca Zaramella, our CFO. Earlier today, we sent out our press release and presentation slides, which are available on our website, mondelezinternational.com/investors. During this call, we’ll 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, 10-Q and 8-K filings for more details on our forward-looking statements. As we discuss our results today, unless note as reported, we’ll be referencing our non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide our year-over-year growth on a constant currency basis, unless otherwise noted. You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. Before I speak to the agenda, I would like to remind everyone that we have an upcoming investor call on May 8 to coincide with our annual Snacking Made Right report. Both Dirk and our Chief Impact Officer, Chris McGrath will discuss sustainability and wellbeing. They’ll talk more about our approach, targets and progress on this call as well as answer your questions on those topics. In today’s call, Dirk will provide a business update. Then Luca will take you through the financials and our outlook. We’ll close with Q&A. With that, I’ll now turn the call over to Dirk.

Thanks, Shep, and hello, everybody. Let me begin by saying thank you to our colleagues for all that they are doing during this unprecedented human crisis in our factories, our facilities, our distribution network and our sales force. Our teams are working night and day to keep the food supply chain going. Our greatest asset is our people. They’re determined and dedicated. They’re courageous and they do love our consumers. Because of them, we have delivered outstanding results in exceptional circumstances. I’d also like to take the opportunity to wish everybody else all the best at this difficult time, our investors, our business partners and clients and of course, our consumers. The challenges we face are unlike anything we’ve seen before, but we firmly believe really merged stronger from this. In turning to Slide 5, we have clear priorities for managing the volatile environment that is caused by this pandemic. First, we are supporting our colleagues. Their wellbeing is our highest concern. We’ve put in place strict health protocols including temperature screening, social distancing, mass clearing, and the mandatory work from home policy for everyone who can and we’ve provided frontline employees with enhanced benefit. We extended sickly for anyone who contracts the virus and in markets like the U.S., we announced increased hourly pay and bonuses for frontline workers. We’re also supporting our communities. In March, we announced the program to donate $15 million in cash and products to COVID relief. And in fact, we’ve already exceeded our original plan by $5 million. The recipients included the Red Cross organizations in the United States, Italy, Switzerland and the Philippines, the National Health Service trust in UK, and food banks across Latin America to name a few. In addition, our themes have responded to local needs with creative solutions. For instance, in the UK and Slovakia, we redeployed our 3D printers to create parts for face masks used by frontline care workers. And in several markets, we started making hand sanitizers. I’m very proud of our response and believe that we are doing the right thing. Our next priority, of course, is business continuity. Our supply chain has been resilient, and we’ve delivered consistent service to our customers. Case Fill rates, in fact, are at better-than-average levels. We’ve seen an increase in demand in developed markets, and we’ve met it by focusing on the most important SKUs. Our strong relationship with our suppliers have helped us maintain critical raw materials and packaging supplies. And we have worked with local governments to keep our factories open during lockdowns. We’ve also maintained our cost discipline and managed cash appropriately. We’ve made adjustment to spending like more tailored promotions, and in A&C to just focus on working media. We’re reducing non-critical capital expenditure, and are maintaining strict control over working capital and inventory. And we are also closely monitoring foreign exchange markets and adjusting where necessary. Under these circumstances, we are preserving capital and liquidity. We’ve taken opportunities to increase liquidity through extensions to our credit facilities, and we’ve also stopped our share buybacks in March. We refinanced short-term debt also at attractive levels. Overall, our priority is clearly to emerge stronger from this. We are confident that we can do that because before the epidemic took hold, our strategy was working well. We are also better positioned than ever to handle a situation like this, given the consumer focus and the locally oriented organizational structure we’ve put in place recently. We are now accelerating a number of strategic initiatives, and continuing to invest in our brands and capabilities to remain the preferred choice of our customers and our consumers. In turning to Slide 6, we executed well in the first quarter, even as the virus was spreading. Organic net revenue growth was 6.4% driven by developed markets performing strongly in March. Overall, the first two months of the quarter were in line with last year’s results showing strong top and bottom line growth. The exception, of course, was China that showed a significant slowdown in February. But then in March, China started to come back quickly, thanks to our local first approach, which puts the decision rights and the accountability where they are almost – where they are the most needed. Also, North America and Europe became strong drivers. Consumers not only stocked up but also consumed more of their trusted brands and including some new consumers entering into our brands. Execution was strong for our Easter business, and our teams were very agile in meeting that increased demand. And our supply chain stayed strong and was resilient. At the same time, emerging markets started to experience disruptions. Sometimes we had quite abrupt lockdowns that made sales and distribution more difficult. Because of the lockdowns, we also saw a decreased offtake in the traditional trade. And these lockdowns sometimes made it even difficult to produce because our people could not reach the factories. Despite these difficulties and the headwinds, we will continue to see that the long-term prospects of emerging markets remain attractive. Our emerging market footprint is a differentiator and is a key part of our long-term growth strategy. A few other channels also performed less well due to COVID. Our world travel retail business dropped significantly, and also away-from-home was impacted. All this the reduction in traditional trade and the away-from-home hit gum and candy, which is sold more often in away-from-home channels. We also incurred higher costs to keep clients supplied. The mix changed due to higher demand for larger family packs, for instance. Our supply chain cost also rose because we had to hire temporary workers, we had to increase compensation and saw costs for distribution increase, and we did see some currency impacts in emerging markets. So far in April, what we see is that where we have the freedom to operate, we are doing quite well. In developed markets, we continue to see elevated demand, though not at the same level as in March. And in emerging markets, we do have clear headwinds driven by lockdowns and potential economic downturns. We also expect those cost headwinds to continue because we will continue to invest in additional health and safety measures to protect our people. We will continue to see higher personnel and distribution costs. The mix will continue to be a factor, and we will see the ongoing impact of ForEx. All this makes it difficult to forecast what will happen. But overall, we do expect to come out of this stronger with increased market share. Now to Slide 7. Despite this challenging environment, I think we can be proud of what we have achieved. Since September 2018, we have increased investment in our brands, both in terms of quantity but also quality and ROI. As a consequence, we saw record share levels in Q1. We held or gained share in 80% of our markets. Biscuits, which is around 45% of revenue, has seen the biggest spike in demand due to COVID-19, and that also is a category where we saw share increase the most. Overall, just to give a few examples. In the U.S., our Biscuit brands, Oreo, belVita, Ritz, Triscuit and Wheat Thins out-posted mid-teens growth or more in the first quarter, which drove share gains of 2.5 points in the last reading. In China, we saw share gains of 7 points in the latest reading. And in the UK, we saw gains of 1.5 points over the Easter period. While dynamics were different by market, global snacking categories were strong. We also saw strong momentum in our categories, especially in biscuits and chocolate, but less so in gum and candy. On Slide 8, as stated, we expect headwinds in the second quarter, but we remain very positive about our longer-term prospects. We are convinced we will emerge stronger because we are the market leaders in resilient categories and have an unrivaled portfolio of global and local brands. We’re seeing consumers snacking more. They are looking for that moment of comfort offered by biscuits and chocolate in today’s stressful circumstances. In particular, our trusted brands and our taste of the nation brands bring a sense of normalcy, and we can give the consumer that normalcy with our brands around the world. So since we have a unique setup, thanks to our brands, also our organization and scale, we are convinced our categories will continue to present significant opportunities. We’re also focused on operational excellence. We will keep manufacturing, shipping and delivering despite the many headwinds around the world. Our powerful direct store distribution in the U.S. to our deep-rooted local distribution in emerging markets will make sure that our products will continue to be available for consumers. We’re also managing our costs in order to be able to invest to win. So we are fully planning to continue to increase support for our brands and capitalize on the recent share gains as we are focused on long-term sustainable growth. At the same time, we will double down on driving efficiency by accelerating simplification initiatives, increasing our agility and very strong cost controls. And lastly, we have liquidity and balance sheet strength because we further strengthened our balance sheet and the liquidity so that we can make sure that we can handle the fluid situation no matter what. So let me turn to our strategy on Slide 9. We will continue to focus on our three strategic priorities and our long-term financial algorithm. Although we will take opportunities to make short-term tactical shifts as required. We are convinced our strategy is the right one, and it’s proving to be a plus in the current situation. Our local-first approach with strong local business unit empowerment and an efficient supply chain is giving us speed and reliability. Our organization has gone through a lot of change, and we have developed more agility, so we were able to adapt quickly to the new circumstances. Our local brands are showing a resurgence driven by consumers going back to a feeling of comfort and trust in familiar products. And as you know, a big chunk of our portfolio are local brands. We’re also taking the opportunity to accelerate certain initiatives. In growth, we are adjusting our marketing and innovation projects by increasing our spend on working media and at the same time, simplifying our portfolio. In addition, we see opportunities in both revenue management and in e-commerce, where we can capitalize on increased demand from at-home shopping. On execution, we’ll increase our supply chain efficiency while continue to reduce our cost basis. We are also streamlining the amount of projects and activities here. And in culture, we’ll build on the agility we’ve seen in the organization to further enhance our ways of working. Turning to Slide 10, we remain committed to our people and communities for the long-term, and believe our sustainability initiatives are as important as ever. Companies need to be doing the right thing. And due to this crisis, the consumer will become even more conscious about the fragility of our planet. So our focus is on protecting our ecosystem; we are caring for our people, we’ve made donations to support our communities; we’ve increased credit support to our suppliers and our distributors to help them weather the crisis; and we’re determined to continue to deliver on our environmental and social goals. And on May 8, as Shep mentioned, we will have a special investor session to highlight our ESG targets and plans. We invite you all to join the call. And with that, I will hand it over to Luca.

Thank you, Dirk, and good afternoon. Before getting into our financial results, I would like to echo Dirk’s comment when it comes to thanking our people and teams across this company. I’m really proud of how everyone in the organization has come together in the face of this situation and brought their resolve, energy and creativity to help us navigate challenges and finding solutions. With respect to results, we have some performance the first quarter on both the top and bottom line. Our revenue grew by 6.4% and will supported by the expansion in each one of our four regions, with particular strength in North America and Europe. We also delivered record share growth performance throughout the quarter, due to a combination of supply chain and sales execution as well as recognized quality of our global and local brands. These factors enabled us to grow share by 50 basis points on a year-to-date basis, and 1 point in the latest reading, or hold or gained share in 80% of our revenue base. Our revenue growth driven by favorable volume and pricing dynamics enabled us to post solid profit dollar and EPS growth despite some significant COVID related costs. In addition to turning in a good P&L performance, we also took an opportunity out of an abundance of caution to further strengthen our balance sheet position and liquidity profile. On Slide 13, you can see we performed well across all our key metrics. Importantly, we generated significant profit dollar growth with volume leverage that offset extra costs related to COVID. This allowed us to invest more A&C in the quarter. Moving to Slide 14. We saw our top line results driven by an acceleration in our developed market, which grew more than 7%. These markets were performing well through February before step up in March due to increase in-home consumption. This trend has extended into April, though at a less elevated rate and predominantly in North America, as Europe’s positive impact in retail is offset by headwinds in our whole travel retail business. Emerging market growth was 4.5%, or 2.4% when excluding Argentina. Similar to developed markets and leading China aside, this set of countries was performing very well and in line with our expectations for the first two months of the quarter before strict lockdowns in late March began to have a material impact on traditional trade. China was a bright spot, as the team did an outstanding job and demonstrated resilience in order to not only bounce back from COVID-related headwinds, but actually post low single-digit growth for the entire quarter. Overall, the potential of emerging markets remains unchanged, and we will continue to invest appropriately to maximize long-term growth opportunities in these markets. Biscuit is performing extremely well, given the advantaged position and trusted brands that we have, predominantly in developed markets. Chocolate overall was positive, but not impacted by some emerging market lockdowns, particularly India and our travel retail business. Overall, notwithstanding some COVID-related headwinds, we were very happy with our chocolate performance in Q1. Now let’s review our profitability on Slide 15. We increased gross profit by nearly 6% in Q1. Strong volume in developed markets was partially offset by roughly flat volume mix in emerging markets, primarily as a result of COVID disruptions. Pricing was positive across both developed and emerging market, and in all of our four regions. Additional costs associated with overtime, frontline workforce bonuses and customer service and logistics tempered gross profit results. Operating income grew nearly 6%, as high A&C and front line expenses were partially offset by cost reduction programs and volume mix gains. Moving to regional performance on Slide 16. North America grew 13.4% driven by strong share gains and COVID-related consumption. Biscuits growth was broad based across both global and local brands. Oreo, belVita, Ritz, Triscuit and Wheat Thins out-posted mid-teens growth or more. Strong execution in manufacturing, our robust DSD network and alternative channel growth in cloud value and e-commerce were critical factors in achieving this performance. Although the quarter was strong, we did see softer results in Gum, given its impose nature and the lag in convenience relative to other channels as well as some share losses in Gum. The North American region grew operating income by more than 20% as significant volume leverage more than offset additional labor and distribution costs. Europe executed well in the quarter with revenue growth of 4.3%. Strong sales, supply chain and brand execution resulted in a largely volume-driven growth quarter. The UK, Germany and Italy all grew mid-single digits, while Russia continued its momentum with high single growth behind strong volumes and share gains. Our Easter season was successful with flat year-over-year growth, which is outstanding given the shorter Easter season and COVID-related challenges. Importantly, we believe the early sell-out data suggests share gains. On the flip side, we did experience some headwinds related to the convenience channels, mostly in World Travel Retail and Gum. Adjusted OI dollar declined slightly due to a more difficult compare related to commodity cost pipeline, which we expected and we mentioned to you last quarter as well as some higher A&C costs and some COVID-related costs. AMEA grew 2.2% with some different dynamics across the region. A number of markets, such as India and Southeast Asia saw significant disruptions late in the quarter related to strict lockdowns that caused widespread traditional trade closures as well as some difficulties to operate. In fact, both India and Southeast Asia were slightly positive for the quarter. China recovered quite well from the lockdown and grew low single digits in the quarter behind strong Biscuit results. Australia and New Zealand delivered a good performance with mid-single-digit growth behind strong Easter execution and share gains in chocolate. Overall, and on the positive side, AMEA is posting a very good performance on shares with widespread gains. AMEA operating income dollars declined by approximately 8% due primarily to lower-than-typical volumes and leverage in addition to extra costs related to COVID. Latin America grew 7% due primarily to inflation driven growth in Argentina. Revenue was flat when excluding Argentina. Mexico grew slightly behind solid Biscuit performance. And although the market decline in Gum and Candy, we grew share. In Brazil, we were flat. Biscuits and candy were solid, while the powder beverage category continued to decline. We took actions in Q1 around new marketing communication and product formulation but it is very early stages. Our Western Andean countries were at the harvest in the region by COVID. An aggressive lockdown had a significant impact on the traditional trade, which is most of the business in this country cluster. Adjusted OI dollars in Latin America declined by 3.5%, primarily due to headwinds associated with negative mix as well as the impact of currency. Turning to EPS on Slide 20. Q1 EPS grew nearly 11%. This increase primarily reflected operating gains driven by revenue growth. Clearly, we saw the impact of COVID in the top line as well as in additional expenses to keep the operations running at the right levels. Moving forward, we expect costs related to labor, customer service and logistics to increase, and we expect a negative mix impact. Our teams are working to find offset. However, we expect the net effect on earnings to be significant in terms of additional costs as we look at Q2 and into the second half. I’ll now move on to our free cash flow results on Slide 21. We delivered free cash flow of $70 million, which was in line with our plans and included some discrete indirect tax payments. We are maintaining strong rigor around both working capital and our own cash management. We have clear priorities for the remainder of the year, which include protecting critical reducing non-critical items. Optimizing discretionary cash spending and aligning restructuring initiatives to new needs in this operating environment. Moving to Page 22. We returned $1.1 billion to our shareholders in the first quarter. As a cautionary measure, we made the decision to suspend our share buyback program. There is no change to our long or short-term dividend policy. Although we maintain – although we may adjust tactics to reduce non-critical uses of cash and maximize liquidity, our focus and prioritization of investing in our business is unchanged. While on capital allocation, I wanted to make mention of our acquisition of Give & Go for approximately $1.2 billion, which closed on April 1. This growth platform is a leader in the large and fast-growing in-store bakery channel with fully finished fresh products. This category has been growing mid-single digit over the past several years, and that’s been gaining square footage in stores, and it is a demand driver. We are excited about the opportunity to further grow this platform, and cross-sell with some of our traditional brands. Although the acquisition did not close until early April, the business performed well in Q1. Let me take a moment to address an area that I know is on the mind of investors across all of their portfolio companies which is balance sheet trends and liquidity. We feel very good about the strength and flexibility of our balance sheet. We have ample liquidity with approximately $9.5 billion of committed and mostly undrawn credit facilities. In addition, we have opened a low-cost access to that capital market. This includes commercial paper or the recent $1 billion in debt that we issued earlier this month at favorable rates. Let me underscore that we are committed to maintaining our investment-grade status and access to Tier 2 commercial paper. As you saw from our release earlier, we are no longer providing a financial outlook for the full year 2020. The outlook for the balance of the year depends heavily on the expected impact of COVID-19 and the duration of the staying at home orders across regions. Both of which remained uncertain, limiting our ability to forecast with precision. A few additional points I would like to make related to our outlook and year. Our near focus is on all of our people and those that play a key role across our manufacturing, distribution and sales function. We are seeing incremental costs and cannot predict what new headwinds might emerge as a result of COVID crisis. We will make decisions to protect our people and come out of this situation stronger. Given the circumstances, quarterly earnings will obviously be less of a priority, but our long-term strategy and focus around investing in our business and driving balanced profitable growth has not changed. Although, we’re not providing full year guidance at this time, I wanted to share some thoughts regarding tailwinds and headwinds from the second quarter. With respect to tailwind, we expect continued positive impact from increase in-home consumption and expandable consumption in developed markets, especially in this case. We are also taking some actions to mitigate costs across the business, which means taking a fresh look at the entire business and looking for additional opportunities that do not impact our revenue-generating investment. We also expect some tailwinds from optimizing A&C investment, which means the timing is likely to shift in certain cases from Q2 to the second half. In terms of expected headwinds, we expect the negative impact that we saw in late March and through April to continue in emerging markets as it relates to traditional trade closures. World travel retail, which is a few hundred million dollar business, is expected to see significant declines. Our Gum category, which is consumed more than our other categories out-of-home and is the most impose in nature, is expected to see material declines. And we expect higher costs to drive our current operation and support the continuity of business during the crisis. Currency impact is greater now than earlier this year. As we stand today, it would decrease full year net revenue growth by approximately 4% – 5% and adjusted EPS by approximately $0.10. We will continue to monitor the situation and keep you updated as appropriate. Our long-term growth algorithm is unchanged. As Dirk said earlier, we will continue to run this business for mid to long-term sustainable growth, which means we are investing to win in the market by delivering share gains to drive profit dollars and to return capital to our shareholders. I’ll now turn it over to Dirk for some closing comments.

Thank you, Luca. As we look to the next weeks and months, we are clear about our priority, are: first interest is in taking care of our people, keeping them protected and being a good partner to customers and suppliers by taking care of our ecosystem. As stated, while we may see headwinds in short-term in emerging markets, our long-term emerging market opportunities remain significant, so we will stay the course. Our priority is to ensure routes to market remain intact so we can recover immediately the minute that markets emerge from lockdown. We are prepared to ride the wave of increased demand in our developed markets, and we’ll focus on ensuring our supply chain remains strong to fulfill the increased demand. The current environment is dynamic, and every day brings new challenges, so we will continue to be agile and act with speed to deal with them. And even if we see headwinds in the second quarter, we have everything we need to emerge stronger and faster. And as such, we’ll continue to invest in our brands, our customers and our people. With that, I will turn to Shep to open the Q&A.

[Operator Instructions] Your first question is from Andrew Lazar with Barclays.

Great. Thanks very much everybody. Dirk, to start off, you talked a number of times about looking to emerge from all of this in a stronger position. I was hoping you could expand a bit on that. It’s clear market shares took a big step forward. And it seems like scale, brand strength, supply chain have all been pretty clear advantages at this stage. But I guess, should we anticipate some additional investment as the year progresses, if there are opportunities to do so. And if so, what form might those take, whether it’s advertising, go-to-market investments and such. That would be helpful. And then just I have a quick follow-up.

Okay. Thank you, Andrew. I would say, first of all, we were entering this crisis unlike in the past from a position of strength, and our strategy was working. We saw good growth in January and February and we had a recipe that was working for us, and we are trying to get back to the recipe as soon as we possibly can and we get this behind us. You pointed out a few things there, categories. If you go back to past crisis, particularly Biscuits, but also Chocolate tend to do quite well. Gum and Candy, a little bit less, but also meals, cheese in these circumstances are not that much affected and sometimes see increased consumption as you, for instance, can see right now with Biscuits. While we are the global market leader, we still have significant headroom to grow and you saw the results of this quarter, and I think that will still be a big possibility for us to keep on increasing our market share, particularly in circumstances where some of the more local or smaller competition might have a slightly hardest time than we do. I think we have the right set up with the local teams, changing the structure that we did. We saw in China – 3%-plus growth in China in the first quarter is excellent work by our team. And that is through the fact that they made the decisions right away and they were on the ball, and could make things happen without having to pass a lot things. And then, I think we still have the opportunity to go wider with our categories, both organically and with our brands, and we can go also inorganically. Maybe this period offers an opportunity, just as we have recently done with perfect – done with Perfect Snacks and Give & Go. There is a number of other things I think that we are working on. Execution has been excellent for us. We are reducing investment in the second quarter and trying to increase our investment in the third and the fourth quarter, which would mean over the year that probably we will not increase our investment. But at least keep it stable and have a significant increase, when things are back to normal in the second half of the year of our investments and see some return to growth as soon as we can, or continuation of growth depending on what happens in the second quarter. So, I think, all that are reasons for us that we believe that we can emerge from this stronger, and we are accompanying all that, as Luca said, with strong focus on costs, which allow us to do that extra investment in the second half and absorb some of the headwinds that we will be facing. So, I think those are some of the reasons – the main reasons why we believe that we can come out of this stronger, and that’s really our focus.

Okay. Thank you for that. And then, just a quick one maybe, just if you could, a quick walk around just some of the key emerging markets. They are not all created equal, and how long you maybe see it taking in some of these key markets to get back to a more normalized consumption pattern obviously with the best information we have today? Thank you.

Yes. So, first of all, I think, as you know, we have strong positions. We have a clear strategy in these markets and we have strong local management, which is critical in these times. If you start to group our emerging markets, overall they are about, let’s call it, 37% of our net revenue. But if you look at the groups within that, I think it’s important to sort of separate them and understand a little bit what’s going on. So, first one is China. China is over 10% of our emerging markets. We saw low single-digit growth in Q1. We had a strong bounce back. We had significant share gains. And while maybe the categories Biscuits and Gum or not quite back to where they were before the crisis, through that market share gain, we are doing quite well, and we see the market recovering gradually. India is another important market for us, of course, also 10% of our emerging markets, a significant closures of the traditional trade at the moment, which is about 75% of our revenues. There is clear, some short-term impact, but we expect sequential easing of restrictions. We have very strong distribution system. We’ve got products that are across all price points with a strong presence in low unit price points. So, I think, the return there will be fast, plus we can still grow by increasing our distribution and going into adjacencies. And then, the last one there, Southeast Asia is really into a similar position as India. So that cluster, I would say, China is already kind of back in India, Southeast Asia will go fast. Second cluster is Eastern and Central Europe, not that heavily affected in the first quarter. There will be more lockdown restrictions in the first half of April, but overall, traditional trade is only about 20% of revenues there. We have a strong team. We did also have strong share gains, and we have a very good branding strategy. So we think this part will not be as heavily affected and we will be back to normal quite strongly. And then, switching to Latin America, Mexico, which is – those European markets are more than 20% of our emerging markets. And then Mexico, we think that we have a macro environment that’s soft, but operations are continuing to run well. They’re related to the crisis, and we see a deeper contraction. But we have strong consistent trackers and we think we will come back fast. So, I would say, about two-thirds of our emerging markets we feel pretty good about. And then the others, that’s where we have much stronger traditional trade. I’m talking about Argentina, Brazil, Middle East and Africa and WACAM. I think those will take a little bit more time. There is a dynamic of traditional trade that is closed with some devaluation, so that it will need to be some pricing. It’s only one-third of our emerging markets, but that really remains somewhat challenged and it will probably take us six to nine months to return here. So, that’s a quick tour about – around our emerging markets. I hope it was helpful. But I think it’s important to group it in different clusters, because they’re not all created equal.

Yes. Thanks very much.

Thank you.

Thanks, Andrew.

Your next question is from Dara Mohsenian with Morgan Stanley.

Hey, guys. Hope everyone is doing well in this environment.

Hey, Dara.

Yes, I hope the same

First, in developed markets where you’ve seen the demand strength, can you discuss how much of the increased demand may be more consumer pantry loading versus actual increased consumption and based on the research you mentioned how sticky higher consumption levels might be going forward when social distancing ends? And then, in emerging markets, all the comments around duration were helpful. Can you give us a bit more clarity on if Q2 in aggregate looks like the March sales decline that you guys outlined in the low single-digit decline. Obviously there are various puts and takes by region, but just trying to get a bit more clarity specifically on expectations for Q2 relative to what we saw in March in the emerging markets region? Thanks.

Okay. I’m sure that Luca will want to jump in certainly on the second question, but if he wants to, on the first question, we’re not in the same location today, we are all at home. So it’s a little bit less fluid. So, in the U.S., I would say, yes, there was an original pantry loading in our categories and you would see in Biscuits growth that would approach 30%. And then in the weeks after we saw that come down to high-single digit. First, low double-digit, now high single-digit. We’ve been interviewing consumers around the world and we can say that it’s clear there is increased snacking. And there’s three basic reasons for that as we saw. The first one is that there is a lot of out-of-home consumption that has now shifted to in-home. And in-home, there is more grazing, more continuous eating, and snacking takes up a much bigger role, particularly Biscuits. The snacking categories that consumers tell us they are eating more is cheese, so Philadelphia is benefiting also, is fruit and veggies, is biscuits and some salted snacks. So, that’s the one reason. The second reason is that sharing a snack with your kids as everybody sort of cooked up in the house brings back a feeling of normalcy of togetherness calming everybody down, and we see them quote that as a big reason. And the third one is that there is some more experimenting going on. We see consumers – new consumers entering our brands. So, for brands like Oreo and Ritz, that was somewhere between 15% to 20%, but in some of our other brands like Fig Newtons or Nutter Butter, it’s over 40% new consumers. So it’s clear that the consumption is going up. The penetration is going up, and that’s what we currently are seeing. And I believe, as long as we are in this uncertain situation, and as long as we are not having the same out-of-home consumption, our categories, particularly Biscuits, but also Chocolate will benefit from that. By the way, what I quoted here on the U.S., we see the same in Europe 50% of consumers there also say that they are increasing their snacking more occasions and more quantity, and particularly Biscuits, but also Chocolates has seen quite an increase there. So that’s a little bit on that consumption that we’re seeing in developed markets. And maybe, switch to emerging markets, I don’t know, Luca, if you want to take that one?

All right. I can go if you prefer. Yes. Well, maybe we can – you start, and then I’ll complement and I’ll answer the Q2 part of the question.

So, from an emerging markets perspective, what we’re seeing is that, in March, the effect was driven by some of the very serious and severe lockdowns that started to happen in places like India, the Philippines, Malaysia. And then, they shifted gradually into Latin America and into places like South Africa. They – of course, since our business is more in the traditional trade there, the effect has been bigger because the consumers don’t go through those stores, our sales force and distribution trucks are not always allowed to go there, and the owners often close their stores. That’s starting to come back so April for sure we will see that effect. And I think that in May, we will start to see a significant easing of that situation, and then in June, we will gradually be back to normal. We are all set up to make sure that our route to market is intact. So we’ve been working very closely with our distributors to make sure that they’re ready to go and that they are in business and surviving, and we are planning to immediately go back. And even in the tough circumstances, the situation, for instance, in India at the beginning was much more severe than it is now. We’re certainly not back to selling what we were selling before, but we’ve improved quite a bit already. So I would say it’s still a tough April, May improving, and I think June, we should see some return close to normal situation as it relates to visiting and selling into these channels. Luca?

Yes. And thereon Q2, I think, as you said yourself, there are clearly several puts and takes. Certainly in the last part of Q1 in March, and those will expand into Q2, and there is a page in the presentation in the prepared remarks where we discussed several factors as key drivers. How each one will play out going forward? It is quite difficult to predict at this point in time, and there could be both positive and negative impact affecting our quarterly earnings. At this point, quite frankly, we see the acceleration of our Q2 top line versus Q1, given that as Dirk highlighted, the impact of emerging markets was partial in Q1, and it is going to its full expand certainly in April and most likely into part of May. We also see some places that while supply chain is keeping up quite well, particularly in the U.S., and we are very proud with that, there are situations around the world where we have some capacity constraints, and one would be certain places in Europe in Biscuit, but might be potentially some capacity related issues. As we said very clearly, one of the elements that is coming up in Q2 is also the fact that we see higher cost to drive the business. But on the flip side, we’re working quite intensely to find out any opportunities. We are not going to invest in places where we clearly are capacity constrained or where the demand pickup is very high, but has the exact intention is to go back in the second part of the year and actually spent the same amount of money that we had planned in our original plan. In this time of uncertainties again, it is difficult to make predictions, but we have to do certainties. As we said, we want to stay true to our strategy. We will continue to invest for growth. What Dirk said about more traditional brands being picked up by consumers these days as never before give us an opening to be able to introduce in a stable way. These brands seem to be referred to our – all of our consumers, and we want to take that opportunity very, very seriously. We also, as I said, are looking at all costs, and both tactically and structurally, we are making decisions that will affect the cost structure going forward trying to offset some of the cost implications that we clearly see in part of Q1. We will see more in Q2, and potentially some of that will stay also going forward.

Great. That’s very helpful. Thanks.

Thank you, Dara.

Your next question is from Bryan Spillane with Bank of America.

Hey. Good afternoon, everyone.

Hi, Bryan.

Hi, Bryan.

So, I just – I had one question. In the conversation so far, there has been a lot of focus on how the lockdowns are affecting your business in emerging markets right now, and maybe how it affected in developed markets, almost in a positive way? But I guess, as we get through this that we end up potentially with the recession in a period of elevated unemployment. Could you just talk about how that factors into sort of a recovery to normalcy? Do you have the flexibility to sort of adjust price points or do things to affect affordability? Just trying to understand how a recession potentially affects the ability to kind of get back to normal.

Yes. So, probably the points to make here, and of course it’s difficult to estimate because this is a very particular type of recession. We don’t quite know how we’re going – how fast and how we’re going to get out of it. So we base a little bit our learnings on past recessions. So, our categories are durable, and they are not that much affected by these recessions we’ve seen in the past, and I’m talking largely about Biscuit and Chocolate. And in past recessions, they were affected, but they didn’t go down in a major way. I would also say, our products are affordable and they are skewed to in-home consumption. And as we discussed before, this is really a recession whereby in-home consumption is benefiting from it. Even our chocolate, which is largely tablet chocolate, it’s not like bar chocolate is largely in-home consumption. So I think we benefit from that. And then, also private label, which in other categories does well. Private label is penetration in our categories is quite low. Although gum is not our biggest part of our business, we’ve seen in past recessions that that is usually affected and we see that already. So our estimates at the moment was that before all this started that our categories with grew 3% globally. We think that it’s reasonable to assume that they may slow down to 2%, 2.5%, but we feel that we should try to make that up by gaining share. And as the recent periods showed that has been possible for us. The reason why we think we can do so good in share is that we are entering this in a position of strength. I believe we’ve done well in investing in the last two years in our brands, they are stronger than in the previous year. Hence, the market share increased, the portfolios modernized, our communications are much more effective. We have seen in the past, wherein recessions we went in trying to protect in the first place, the bottom line in cutting investments, in brands and capability, that is not the right approach. Because that results in share loss and volume decline. So there is – we will try to play a much finer balance here between top line and bottom line going forward. And I think some of the issues we’ve had in the past as it relates to execution, North America comes to mind two years ago. We don’t have that at the moment, and I’m particularly happy to see what we’ve done recently in these months in North America or how China has come back. And I think execution is a strength for us. Now having said all that, we are making some adjustments that will make it easier for us during the recession. We are reducing our portfolio in the number of SKUs and also the number of innovation initiatives. We are working very hard on the right-pack sizes is doing, what we call, PPA on one hand to get the price points right in emerging markets. But on the other hand also, they have the right at-home facts. We are already looking at investments in overheads and going through all our ZBB pillars again and doing an extra round of savings there. We are doing the same in our supply chain and we are looking for efficiencies as it relates in our ways of working since the crisis showed that we can work in different ways. And maybe we don’t need all the offices that we currently have around the world. So there is a major effort going – taking place as it relates to the costs in the business. So having said all that, I think that, yes, there will be a recession. It’s going to be different by country. Some countries have seen devaluations where we will need to price more. Other countries, we are already set up well, and it’s really about getting in front of the consumer and communicating. So, it’s a mixed bag, but we feel confident that we have the right recipe to get through the recession in a relatively strong and fast way.

Yes. Maybe just one thing I would add to that, it is – Bryan. I just step back and you look at the broader strategy we had at CAGNY. We still see tremendous opportunities in emerging markets in terms of distribution route-to-market adjacencies. And I think, on the other side, there could be organic and inorganic opportunities as well. So, we are looking at everything and trying to be ready for maybe challenging times, but we believe we can emerge even stronger in those markets.

All right, thank you.

Thank you, Bryan.

Your next question is from Robert Moskow with Credit Suisse.

Hi. Thank you for the question.

Hi, Robert.

Hi, Robert.

I want to know about your developed markets sales in 2Q. And any – it looks like the sales trends are going to remain very strong because of at-home consumption. Have you done any math to figure out how much the first quarter benefited from one-time pantry loading? And maybe that can help us figure out how to think about North America sales growth in 2Q and maybe even Europe. I understand the emerging market guidance, I guess, but I’m not sure how much to decelerate developed markets in 2Q.

So maybe I’ll start, and then, Dirk, yes, sorry – do you want to go, Dirk?

No, no, no. Go ahead, Luca. No problem.

I think, on the specific question on how much you’re going to see into Q2, again, we see heightened consumption in North America and in some parts of Europe, I think, look, the simple way to answer this question is, before the breakout of COVID, our categories were a little bit north of 3%. And on top of that, we were gaining share. I think, both on positive and negatives, what you see as a difference versus the three category – the 3% plus category and the share gains is the difference that is attributable to COVID. And I would leave it there, high level because it is quite frankly very difficult to understand what would have happened otherwise. I mean, this is literally very different than we could have expected – any one of us. I think, on the other side, I would also tell you, when I look at January and February, those were great months for us. And in developing markets, in places like India as one example, we saw exactly the same trends as last year. Clearly, with the exception of China that got impacted earlier. So, it’s very difficult for us to tell you what it would have been, but the reference point that I would have, if I had to make an educated guess is, 3% categories and share gains in line with what you saw in Q4 last year, to give you a little bit of the consumption understanding.

Okay, thanks. A quick follow-up. You mentioned higher cost to drive the operations in 2Q. Can you help us quantify your overall COVID cost increases for the year, and how much it will be higher in 2Q versus 1Q?

Look, again, this is – the reason why we didn’t give guidance is because we don’t have visibility on some of these elements and particularly on the duration of the crisis, and some of the costs are related to unutilized assets or under-absorption, which clearly is a little bit of an element that will play-out in Q2. Just for reference, the extra COVID cost in Q1 was around about $40 million to $50 million, most likely closer to $50 million than $40 million, and all of these excludes the volume impact of COVID. So, purely cost in Q1, we had $40 million to $50 million. In Q2, we are going to see quite a bit of a pickup. And the reason being that, particularly in emerging markets, there is a lockdown that is impacting our sales force, there are standard cost, we continue seeing the extra bonuses that we are paying to the sales force and to people that operate in our factories. There is a higher level of absenteeism. And in some places, there is a little bit of temporary labor that we need. And in some cases, there is also lower output. So, I had in mind the number, but again it is very preliminary. We are trying to manage it down, and most importantly what you have to assume is that on top of that cost there will be a series of initiatives on the side that will try to minimize costs where it doesn’t really matter in Q2 to spend with intention again to potentially reinvest some of those savings in the second part of the year.

Okay. Thanks very much.

Thank you, Robert

Your next question is from Steven Strycula with UBS.

Hi. Good afternoon. Luca, quick clarification, not to go back to Slide 6 too much. But I think what a lot of people are trying to feel out right now is the difference between deceleration in Q2 in sales versus decline on a year-over-year basis in sales. And then I think, what I am hearing is, given what’s happening to developed markets, that should be able to – the math itself should be able to offset what’s happening in EMs. That would be my quick clarification question. And then I have a more fundamental question for Dirk.

Look, again, it is really tough for us to give you a number at this point in time. What we see – we have regular calls with the regions, every single week, and we go to business unit by business unit. There is quite a bit of volatility week to week. What I can tell you is that if you ask me an educated guess at this point in time, we see continuation of the U.S. quite strongly into April and into the second part of the quarter. But we see material declines in emerging markets that has come to a standstill. All-in-all, I would tell you, it might be negative. But there might be a situation where that impacting is minimized. If we can keep up the – with the demand supply, particularly in Europe and in the U.S. So at this point in time, you’re not going to see a high number in Q2. As you saw in Q1, it could be potentially negative. I don’t know exactly how much, I don’t expect it to be materially negative, that maybe bring you a little bit of color.

Very helpful. And then Dirk, just wanted to think through a little bit more to maybe Andrew Lazar’s question about emerging markets. How do we think about given the managerial changes you guys have made in the marketplace, how those brand managers are thinking about managing the business on both maybe like a 3 to 12-month view? How are you thinking about driving price pack architecture in some of those regions? Are they resourcing themselves a little bit differently in this type of environment to gain share and how do you think about pricing? Thank you.

Yes. Yes, I think you got it right. So there is a number of changes that our marketing people need to go through. The first one is to understand the mindset of the consumers, and we’ve already started to adapt the communication surrounding our brands in different places around the world to give you an idea, what type of form that takes is in China, as everybody was at home. We started to realize that cooking with Oreo was something that they really like to do. So we switched our communication to cooking with Oreo, and it had a great effect on our sales. So we are doing a number of things as you can imagine there is a lot of links to helping communities and so on and Oreo around the world is about staying playful. So that’s one. Make sure that what our brands communicate is linked to what is on the – in the minds of the consumer or on the mind of the consumer. The second one is to understand that, which price points we need to be, and that’s a lot of work in PPA, promotions, different packs. And the packs might be smaller or bigger as I explained between stay-at-home or home consumption and on-the-go consumption. There also we need to make sure that we linked to the different opportunities that we saw with the local brands. So what we’ve seen is that certainly our local brands are getting an increased interest from consumers. I was explaining the inflow of new consumers into those brands. And so what we’ve also asked them to do is to make sure that we give a good boost to those local brands. This might be unique opportunity for us to make sure that we get even more traction there. And then the last thing that I would mention that is much more we’re doing, but this is a moment to really, what I would call it, attack the market, and be strong in the second half of the year. So between the cost savings that we are doing and then shifts within our marketing budgets, where we are shifting a lot of our investment to working media, we are hoping to see a significant increase of our media investment versus last year in the second half of the year, while keeping our P&L obviously within reason. And I think that could have a big effect on the consumer reaction in that second half. Maybe another thing that I would mention is that we are also using this opportunity to significantly reduce the number of SKUs to significant – we have always have had a lot of innovation projects, not always the most useful ones, I would say. So we are reducing significantly our innovation projects. So we are working on making our business simpler. So that gives you sort of the headlines I would say of what our marketing teams are working through at this stage in trying to adapt to this new situation and making sure that we really win in the second half of the year.

That’s great. Thanks

Thank you, Steven.

Your next question is from Steve Powers with Deutsche Bank.

Yes. Hey, thanks.

Hi.

Again, maybe just to build on that, that dialog, Dirk, and you walked around the emerging markets earlier. I think you did a good job of paying the path toward top line recovery if I understood you correctly. But I guess my question is, from a profitability perspective, does the anticipated improvement run in parallel to that top line recovery with the reabsorption of some underutilized costs or is it likely to come on a slightly further lag given some of those investment initiatives you just spoke to in response to Steve Strycula’s question that the leaning in to win in the back half and beyond? Can you just give us a little perspective that would be great?

Yes, yes, and I’ll maybe give you my perspective on it, and then Luca, I’m sure will jump in also. So the thinking is that we do not have to invest a lot in the second half – sorry, in the second quarter, because there’s still a lot of channel restructurings and sales restrictions. And for the consumers that are at home, we told you that the consumption is there. So, and on top, we are complementing that with a severe or a serious effort on costs that we’ve launched immediately. The culmination of that will be shifting our investment to the second half and having a significant increase in our media spend. But at the same time, using those cost reductions, as we discussed to keep our bottom line, whether I would call within reason. I don’t know. It’s difficult for us to really forecast Q2. So it’s even more difficult to do H2. But to have a year that we come out and we are ready to enter 2021 where we have invested in our brands. They are strong. We’ve increased our market share. We’ve done that through the moves that I explained, and we have a reasonable bottom line for the year, so that we feel that 2021 can be a real winning year for us. That’s the thinking and we’ve been working through the numbers to make that happen. We accompany that. Some of the cost work we’re doing is – has to see with our supply chain, with some of our network opportunity. So you can imagine if you reduce your SKUs quite a lot, there is many benefits across the business for that. So some of the work also aims at keeping our supply chain costs under control so that our gross margins also benefit from that. So that’s the thinking. That’s what we’re trying to achieve. Maybe Luca, you want to add a little bit to that?

Yes. I think to your question about the level of under-utilization of some of the assets as the market resumes in emerging market, there might be potentially a lag. I would also tell you one thing though, it is clear at this point in time that some of the trade stock in some of the emerging market is quite low. And so I think there will be a phase as we resume business to normalcy in some of these markets where we will have to make more volume. I think I expect then consumption and expectations from consumers to grow steadily as the thing was going before. So there might be a situation where we actually are able to resume production and get back to some of the levels before crisis quite quickly. As Dick said, emerging markets for us are a little bit of a mixed bag. I would say, if I take China as one example, the fact that we were able to deliver, I think the number was 3%-plus in Q1, that was with volume. And the concept here is, if China is the example of what can happen, and we apply that model to everything, I think it can be very fast. I’m afraid, there will be situations where that will be the case. Others where maybe it will take more time, but we don’t see a huge lag and we don’t see under-absorption as we enter the second part of the year or even as we talk about Q4.

Okay. Thank you very much.

Your next question is from Chris Growe with Stifel.

Hi. Good evening.

Hi, Chris.

Hi, Growe.

Hi. Just a question for you, if I could, first will be around the second quarter outlook. Are you anticipating or incorporating some like pantry de-loading by consumers? So has the first quarter benefited unusually from this environment, pantry loading, and then we have some of the negative side of that, if you will in the second quarter. I know there’s probably answer by country, but from a high level, I’m curious how you see that?

At this stage, we do a lot of research. We’ve invested quite a bit in talking to consumers and understanding. At this stage, we do not have the impression that the consumer is sitting on a huge pantry full of our cookies. We’ve seen – through these interviews, we’ve seen some significant consumption. And so we are not necessarily thinking there will be an enormous pantry de-loading. Our products have a limited shelf life, not as limited as some other snacking products, but they are not good forever. So I think the consumer over the course of the second quarter, and certainly into the third quarter, will be inclined to – if they would have pantry stock, to consume it. So we are not expecting a massive effect on it.

Okay. And then I have – go ahead. I’m sorry.

Yes, I will go ahead. I just want to make one clarification as Steve is exciting to ask. The comment I made about the top line as it relates to Q2, it was not only for emerging markets, it was for total Mondelez. When I said that might be slightly negative for Q2, but there is still a little bit of a level of uncertainty, and we don’t know exactly how Q2 will pan out for the company. Sorry, Chris, go on.

That’s okay. Thanks for that clarification. So just the second question will be in relation to the incremental pricing that you will need in the business to offset some of those currency induced cost inflation, if anything. I’m just curious, does that start as quickly as the second quarter or you need to get again kind of these countries up and running before you start to implement pricing to start to offset some of the cost inflation?

Yes. Look, the reality is we are not necessarily going to face at least from a transaction standpoint the pressure right away. We have good coverage in some of – all our commodities. So actually went up during the crisis or are going up. And even in exchange rate we are covered quite a bit, and I would say also there are puts and takes. Imagine, we are also importing some staff from some of these markets that had been impacted by the valuation. So I think you can see expect that we are making decisions now to optimize independently from the pipeline that we have, the price realization and the volume implications of it. And so we are seeing some price increases already in some marketplaces. And in some cases, we are implementing, though we are following strictly some of the competitors. But the reality is, we have a little bit of time in terms of protecting our margins, and importantly, this is not about a pure line price increase. This is about what we call revenue growth management. And it will be a fine balance between getting productivities, creating the right price points for consumers and implementing the right actions in the marketplace through advertising, for instance, to ensure that volume is kept and scale is kept. We are working through those plans, literally as we speak. But again, you might expect that independently from corporates that we have, we might make some decisions in the second part of the year, in order to give a little bit of breathing room as we enter 2021.

Okay. Thank you for that very much.

Thank you.

Your next question is from Jason English with Goldman Sachs.

Awesome. Hey, good evening, guys.

Hi, Jason.

Hi, Jason.

Hello, a couple of quick questions from me, if I can. We – and I apologize if I missed this. You mentioned EMs down 1% or so down low-single digit, sorry down low-single digits throughout the month of March. But I think you also said that it decelerated substantially in the late part of March and remains at that much weaker level through April. What is that weaker level?

Look, again, the – it really depends on a market-by-market. I give you one example. Take India, okay. India for us, as we have said is a great market. Obviously we all know the potential of that market. It is a $1 billion company for us. I would tell you that when the original lockdown was announced and by the way, there was an unofficial lockdown before that, the company went absolutely blank and it was impossible, given the fact that we have multiple plants to actually get people into the plant, and to have people from the distribution centers to be able to supply the distributors. And it was impossible to even get trucks. So the first phase of the crisis, we literally sold close to zero in that specific market. Today, I would say, we are recovering, and we are a little bit higher than half of the sales that we had last year on a more regular basis. So the situation is improving day by day, but these are the magnitude of the issues we are talking about. And again, the trade is absolutely empty. There is – so we have an opportunity as we go back to receive the pipeline, and we are absolutely right. And you can also imagine that given the strength of that market, we want to do exactly what we did in China. And so the recovery curve might be very close to China in that market. There are other markets like WACOM, where we sell predominantly through traditional trade and distributors where gum is an important part of the business and so is candy. That market again has been materially declining in the last few weeks. I think again, it can go back to normalcy, but it will take some time. So it is really a mixed bag and it is impossible for me to give you a number that is exactly in Q2 for emerging markets. Also that matter for the totality of the company.

Okay, okay. Well, I appreciate the effort on it. One more question. I’ll pass it on. I imagine that many people are going to interpret your withdrawals guidance as an indication that the numbers you had put out there before are no longer achievable, that you’re likely to earn something much less. As we run through – sort of the puts and takes the pros and cons, the balance feels, well, it’s – just add a little more balanced. I’ve got some tailwinds in DMs, I got some headwinds in EMs. I’ve got some cost pressure, but you got cost cuts, I’ve got promotional retraction. All these that are the offsets. Is it reasonable to assume that the numbers that were out there before at constant currency are indeed unachievable or is it just at the range of outcomes now? So why that you don’t want to pin yourself down?

I think it is really the latter. Let me give you a little bit of a perspective of where it’s from – in terms of that. First of all, we are saying nothing around the year. So, saying nothing is saying nothing, it’s not saying something and not wanting to say. It is really, we don’t know at this point in time. But let’s step back for a second, the first quarter was 6.5%. I told you that Q2 might be moderately negative. The average of the two quarters might be – I don’t know, 3% or so. And again, I’m guessing at this point, I don’t know how long it will take to recover the situation in the second part. But I also told you that there might be a situation where we had to refill the trade. Now I think that is the top line as far as I see it. So there might be – may be a scenario where we might be close to the original guidance we gave you, which was 3%-plus. Now I don’t expect it to be the 4 or plus percent that we saw in some quarters last year quite frankly. On the bottom line, I think the situation is different. The situation is the following. There are multiple puts and takes. The number one element that comes into play in Q2, and in the second part of the year is the ongoing extra running costs. I think if you take Q2, there will be, as we said very explicitly, some extra cost that we will incur. Now all these costs, most likely will not stay in the second part of the year, some of those will subside, some of those will stay. I think our job is to make sure that between cost savings and between incremental pricing, we create that space into the P&L to be able to invest and to offset part of this cost. So that’s the framework we have in mind. I think again the idea for us is, how do we make all the developing markets, which are the most impacted, recovering with the shape of the curve that we saw in China. That’s the challenge we have today. And we believe we will have to invest some money in the second part of the year, as we have said particularly in working media, to ensure that we protect our franchises and we protect all the share gains that we are seeing. We are winning in this environment. I mean the share gains that we’re seeing at this point in time, I haven’t seen never – suddenly in Mondelez and those share gains, it is our job to protect and potentially to expand going forward. That I believe the name of the game for us.

Understood. Thank you very much.

Thank you, Jason.

And your final question comes from Alexia Howard with Bernstein.

Good evening, everyone.

Hi, Alexa.

Hi.

Hi Dirk, thank you for the question. So, just a couple of quick ones from me. Firstly, should we be concerned about European Chocolates in the upcoming couple of quarters? Are you able to give us a rough idea of how much on what proportion of that business is tied to on-the-go impulse type purchases that might be at risk in this kind of environment, where we’re not on-the-go. And then the follow-up question is really, you talked a lot about these share gains in China and that potentially being a patterns of what you’d like to see in other emerging markets. Were the competitors somehow compromised? What – was it just that you were able to outspend them with a particular channel dynamic? Can you just give us a little bit more on the case study of what happened that was quite successful there? Thank you, and thanks for the question.

Yes, thank you. So Chocolate is doing quite well. Globally in the markets where we play Chocolate is growing at almost double-digit and where it grew mid-single digit in 2019, so Chocolate is also benefiting. Now there are channels, like we mentioned, the World Travel Retail and some of the away-from-home channels, i.e foodservice that are affected by this. But those channels are minor. So in Europe, for instance, 75% of our business is in the retail channel, so benefiting from that growth. Second data point is Easter. We were obviously quite worried about Easter. Easter is a big season for us, and the Chocolate category performed quite well again in the markets where we play. And the growth in the last period, which is the Easter period, the growth was double-digit for the category. And that takes into account the fact that Easter came earlier. So the Easter promotional period was shorter. You had the whole issue with the pandemic, which means less travel, less celebration with family and friends, which is very important. The gifting is very important. And we had the supply chains, which were affected by this. Our teams did an excellent job to get our sales in stores in strong ways, and we delivered record share gains. So in the UK, which is our largest Easter market, we gained over 4 points of share and we now have more than 50% of the Easter period. And even in Australia, where retails – where we already have very high market share, we gained another 2.5 points during the Easter period. So Easter in the end, we started promoting a little bit earlier, because we were worried that it might not sell-out, but in the end, it did quite well. But because of that promotion, I would say, year-on-year, the Easter period itself deducting the cost of promotion or so is the same as last year, which is an exceptional performance, taking into account all the factors that I said. So we feel pretty good about the Chocolates. It’s a strength. There are areas, as I said, that are minor that are affecting us, but we are still seeing quite solid growth as a company, taking into account even those two channels that we virtually are seeing no sales at the moment. So while where we are, it’s growing 8%, sometimes double-digit, for the company, it’s growing close to about 3% if you deduct those channels that I was talking about. The reason why I think our Chocolate is doing well is that we’re largely in tablets. And tablets are more home consumption than on-the-go consumption. They are family consumption, they are sharing, and those are all important in these circumstances. So I hope that gives you an idea on Chocolate. The second question, I must admit that I forgot the second question, Alexia.

China. It was the China...

Yes, China, China, yes.

Yes. With the competitors, what happened?

Yes. So the China situation I think is an effect of a number of things. First of all, our Chinese team took it upon themselves to say that they were not going to let this pandemic affect their performance for the year. And that’s no matter what they were going to deliver the year. And so they went into this with an incredible vengeance, and they were absolutely convinced that they could do whatever they needed to do. So we had situations where there was no delivery trucks where our people loaded the products in their own cars and drove themselves to the stores to deliver. And so the first element is an incredible drive and passion by our Chinese team to make this happen. The second thing, which we see really around the world is that in these situations, consumers are going back to the brands they trust. They want to go to brands that have the image of being high quality that they really sort of have a respect relationship with an Oreo as an example or Pacific have that for us in China. And so we see a shift of consumers abandoning the lesser quality brands that they treat with a little bit more suspicious – suspicion shifting into the higher quality brand. And there’s a real shift in the Chinese market towards quality. So those for me are the two big reasons that we were able to, in the last period, we gained 7 points of market share. So we do want to now keep on growing on that momentum. I think the consumer is helping us. And we now need to follow-up very quickly. Gum is a little bit less. We’re doing very well. We’re also gaining quite some market share in Gum, but that’s the category which is more on-the-go consumption. And that in China up to recently were still quite affected. People do not – did not go out that much. The Chinese team tells me that that is changing quite rapidly. Restaurants are open again and so on. But Gum is going a little bit slower, but there also we see the same sort of gains that we are seeing in the Biscuit market for us.

Perfect. Thank you so much. Appreciate it, and good luck with the second quarter.

Thank you.

Thank you, Alexia.

I think that’s it, Shep?

Yes, that’s it.

Okay. Well, thank you so much for taking some extra time. We went an hour-and-a-half. But in these circumstances, I think that is appropriate. I hope we were able to explain you as much as we could, how we feel about the business and what we are expecting. We of course would prefer to give you a bit more guidance, but it doesn’t feel like it’s prudent at this stage. There is too many variations at play. But we are convinced of one thing that we will do well seeing the circumstances, and we have a lot of strengths to build on and we are convinced that we will come out of this much stronger and much better than before this crisis. Thank you, and talk to you later.

Thank you, everyone.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.