The Mondelēz International Pitch

Transcription

1 The Mondelēz International Pitch

2 Sector Manager: Richard Sparkes Senior Analyst: Patrick Folan Analysts: Ross Casey, Barry Fitzpatrick

3 Introduction: Company Snapshot Graph of share price for past 12 months versus the MSCI World index and MSCI World sector index e.g. MSCI World Energy Index Recommendation BUY Current Price $44.02 Price Target $49.69 Upside 12.81% Timeline 2/3 years Market Cap. $70B 52wk range $33.97-$48.58 P/E Div. Yield 1.6% FCF Yield 1.29% Analyst Consensus Buy

4 Company Overview

5 Business Overview Mondelēz International are a confectionary, food & beverage conglomerate headquartered in Deerfield, Illinois and operate in approximately 165 countries worldwide. The company consists of the global snacking and food brands of the former Kraft Foods Inc. following the spin-off of its North American grocery operations in October The Company's products are sold to supermarket chains, wholesalers, club stores, convenience stores, drug stores, value stores and other retail food outlets.no single customer accounted for 10% or more of net revenues from continuing operations in The five largest customers accounted for 15.7% and their ten largest customers accounted for 23.7% of net revenues from continuing operations in Majority of sales generated through the fast-growing chocolate, biscuit and gum markets. The company have leading market shares in every category they compete in and have nine Billion dollar brands. Their portfolio also contains 58 brands that each generated annual revenues of $100 million or more in 2014.

6 Sales breakdown One of the world s largest snack companies with global net revenues of $34.2 billion and earnings from continuing operations of $2.2 billion in Portfolio includes nine billion dollar brands LU, Nabisco and Oreo biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum; Jacobs coffee and Tang powdered beverages. Almost 85% of annual revenues generated by fast growing biscuits, chocolate and gum & candy industries. Nearly 40% of sales from emerging markets Number 1 market share is held in both chocolate and biscuit categories and Number 2 share in gum Number 2 share in gum

7 Major Brands Cadbury is the second largest confectionary brand in the world after Wrigley s. It is famous for its Dairy Milk chocolate, Crème Egg and Roses selection box. Cadbury chocolate generated approximately $4 billion in global revenues in Oreo Globally recognised biscuit brand marketed as Chocolate Sandwich Cookies sold in 100 countries worldwide.oreo is the best- selling cookie brand in the United States and globally with $2.5 billion in global annual revenues in Lefèvre Utile LU biscuits are available in 100 countries and include such childhood favourites as Le Petite Ecolier. Other international brands under the LU name include Petit Dejuener, Mikado, Pepito (Mini Stars), Cracotte, Ourson and Tuc. Trident is the #1 chewing gum brand in the world. Milka is the leading European chocolate and one of the companies' billion dollar brands.

8 Competitors Nestle are their largest competitor with a market cap of $231B and only producer with larger biscuit and chocolate category food sales than Mondelez. Does not pursue the same aggressive growth strategies as Mondelez. The Hershey Company are the largest chocolate manufactures in North America with a market cap of $14B. They are global leaders in chocolate and sugar confectionary and gum products. Looks overvalued and doesn t have focus on e-commerce. Kellogg s is the world s leading cereal company and the second-largest maker of cookies with a market cap of $25.2B. Changing consumer trends are negatively affecting the company's sales which have fallen 1.6% this quarter, making it the third consecutive quarterly drop in sales.

9 Investment Thesis

10 Summary of Investment Thesis Top Down Analysis Strong CAGR (2.68%) of the global confectionary market projected between This is driven by a rise in disposable income fuelled by falling unemployment and increasing inflation and wages. Mondelez has 56% market share in India which has CAGR of 21% and 32% market share in Brazil which has CAGR of 11%. Wheat prices at five year lows helping keep costs down and maintain healthy margins in North American biscuit division. Global dark chocolate sales expected to rise 9% each year up to 2019 due increased demand in developing nations and associated health benefits this is positive as all of their chocolate related brands produce dark chocolate in volume. 5 Year Wheat Price Graph Has large market share and brand recognition in countries with largest chocolate consumption per capita e.g. Switzerland, Germany, UK,US and Ireland.

11 Summary of Investment Thesis Bottom Up Analysis Analysts expect earnings to grow 13.96% this year and 10.24% over the next five years. Mondelez International s cash flow is set to increase 17% per year through to 2017 boosted by anticipated cost savings from productivity programs and a 5% reduction in capital spending during the period. Mondelez aims to increase net revenue per plant by more than $100 MILLION BY As a result of this aggressive cost management programme combined with an integrated supply chain, they expect to reduce annual operating cost by $1.5 Billion by the end of Company aims to have 50% of their portfolio in the well-being space by Their Belvita biscuit brand which had $600 million in sales in 2014 has experienced CAGR of 20% in preceding years.

12 Financial Overview

13 Financials Summary Total Revenue $31.1B Gross Margin 38.1% EBITDA $5.2B EBITDA Margin 16.8% ROE 28% FCF Margin (TTM) 6.99% Total Debt $16.36B FCF Yield 1.29% Total Debt/Equity 0.55 Div. Yield 1.6%

14 Income Statement $(mn) 2014A 2015E 2016E 2017E Revenue 30,468 27,928 28,383 29,519 Revenue Growth EBITDA 4,717 4,798 5,408 5,861 Net Income 2,993 2,927 3,328 3,662 EPS EPS Growth DPS DPS Growth

15 Balance Sheet & Cash Flow Statement $(mn) 2014A 2015E 2016E 2017E Cash and Equivalents 1,631 2,554 1,356 1,690 Total Assets 66,772 62,464 61,884 63,147 Total Debt 15,069 12,398 11,996 11,662 Total Liabilities 38,919 36,402 34,842 35,106 Shareholders Equity 27,853 26,062 27,041 28,041 Cash Flow Operations 3,562 2,672 3,146 4,055 Cash Flow Ops Growth Capital Expenditure -1,642-1,700-1,419-1,476 Free Cash Flow 1, ,727 2,580

16 Debt Analysis They continue to use lower cost short- and long-term debt to finance their ongoing working capital, capital expenditures and other investments, dividends and share repurchases Completed acquisition from 2014 of biscuit operation in Vietnam for $600 million to expand its presence in the Asia-Pacific region currently generating only 14% of revenue The $4.5 billion revolving credit facility expires in 2018 which includes a covenant that they maintain a minimum shareholders equity of at least $24.6 billion (current $27.7bn) and authorized long-term financing will provide sufficient liquidity for meeting capital needs, planned capital expenditures, future contractual obligations, share repurchases and payment of anticipated quarterly dividends Total short term borrowings for 2015 is $15bn, Long term debt totals $13.87bn with 50% reaching maturity after 2019 Debt to capital stands in line with historical averages at 0.35 very healthy leverage ratio compared to industry average Q3 at.86 They expect to maintain investment grade credit ratings on their debt as they will continue to utilize commercial paper program, primarily uncommitted international credit lines and long-term debt issuances for regular funding requirements (Morningstar BBB)

17 Valuation

18 Valuation: Comparable Multiples Please include all relevant competitors and any other figures that are relevant

19 Implied Multiples Valuation Metric Avg. Industry Value Implied Price P/E FWD P/E P/B Average Price $59.77(+34.7%) Method Industry Multiples EV/EBITDA Model Weight 50% 50% Price Target $49.76 (+12.15%) EV/EBITDA Model EBITDA: 4,717 Low Base High EV/EBITDA EV 61, , , Cash 1,631 - Debt 15,069 Value of Equity 48, , , No. Shares 1,580.0 Per Share Value ($) Potential Upside % % 18.00%

20 Risk

21 Qualitative Risk Global operating risks Currency devaluations or fluctuations in currency values, including in developing markets such as Venezuela, Argentina, Russia, Brazil and China. Sales were Brazil $2.1 billion (2014), Russia $1.1 billion (2014), China $1.0 billion (2014). Currency exchange rate fluctuations A large portion of our assets, liabilities, revenue and expenses must be translated into U.S. dollars for reporting purposes Commodity and other input prices are volatile and may rise significantly or availability of commodities may become constrained. Particular risk in rise of cocoa prices, cocoa futures are up 6% since Sept. 30 despite predicted surplus due to worries over El Nino and dry winds which will put pressure on margins in the chocolate division. They must address risks related to consolidation of retail customers Their five largest customers accounted for 15.7% and their ten largest customers accounted for 23.7% of net revenues in Cocoa futures at highest level in five years USD/Euro heading towards parity?

22 Quantitative Risk 1% VaR Confidence Level 0.95 Bottom Observations 99 VaR VaR % % Amount of Investment $2, Value at Risk $ % VaR Confidence Level 0.99 Bottom Observations 19 VaR VaR % % Amount of Investment $2, Value at Risk $ Yr 2 Yr Expected Return Standard Deviation (volatility) Skew Kurtosis Beta RSQ

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