Mondelez 2013 Annual Report Download - page 28

Table of Contents
We monitor the following factors and trends that we expect could impact our near- and long-term revenues and profitability.
Long-Term Demographics and Consumer Trends –
Snack food consumption is highly correlated to GDP growth, urbanization of the
population and rising discretionary income levels associated with a growing middle class. Over the long-term, we expect these
trends to continue leading to growth in key consumer behaviors including increased snacking occasions, greater use of
convenience food and migrating to more frequent, smaller meals.
Demand – We monitor consumer spending and our market share within the food and beverage categories in which we sell our
products. In 2013, our Organic Net Revenues grew faster than the global categories as we expanded market share in a number of
the categories. Growth in the global categories slowed from approximately 6% in 2012 to under 4% in 2013. The slowdown in
category growth is expected to impact our near-term net revenue growth and we have reflected this in our Organic Net Revenue
outlook for 2014. We believe the slowdown in category growth, particularly in emerging markets, is temporary, as we expect
category growth to return to levels more in line with the expected growth of emerging markets and consumer spending. We
continue to make investments in our brands and build strong routes to market to address the needs of consumers in emerging and
developed markets. In doing so, we anticipate stimulating demand in the categories and growing our position in these markets.
Volatility of Global Markets – Our growth strategy depends in part on our ability to expand our operations, particularly in emerging
markets. Some of these markets have greater political and economic volatility and vulnerability to infrastructure and labor
disruptions as we saw this past year in some of the markets in which we sell our products, including China, Russia, Brazil, Turkey,
Venezuela and Argentina. The volatility affects demand for products and requires frequent changes in how we operate our
business. While there will likely be continued volatility across these and other markets in which we sell, we will continue to invest in
these markets as we believe the emerging markets in particular will deliver significant growth over time.
Competition – Our competitors continue to grow their global operations and routes to market and low-cost local manufacturers are
also expanding their production capacities in the markets in which we sell our products. Competitors may significantly reduce prices
or offer other incentives as we saw with products such as coffee this past year. We continually evaluate the competitive
environment and market conditions and bring new products and innovations to market. We also adjust our pricing, trade and
promotional programs to compete and continue to focus on growing our market share.
Pricing – We adjust our product prices based on a number of variables including demand, the competitive environment and
changes in our input costs. Our net revenue growth or profitability may be affected as we adjust prices to address new conditions.
This past year, we generally increased prices modestly in response to higher commodity costs and other factors. But in certain
categories such as coffee, we significantly decreased our prices as the cost of coffee beans fell significantly over 2013. This had a
0.8 percentage point (pp) negative impact on our Organic Net Revenue growth in 2013. In 2014, for the commodities we purchase,
we anticipate slightly higher aggregate commodity costs and expect to adjust our prices accordingly.
Operating Costs – Our operating costs include raw materials, labor, selling and marketing costs, general and administrative
expenses, taxes, currency impacts and financing costs. We manage these costs through cost saving and productivity initiatives,
sourcing and hedging programs, pricing actions, refinancing and tax planning. We continue to work on various programs to expand
our profitability and margins. As reflected in our 2014 outlook, we expect to achieve double-digit growth in our Adjusted Operating
Income and Adjusted EPS on a constant currency basis. This reflects a number of cost saving programs we have put in place,
including our supply chain reinvention program and 2012-2014 Restructuring Program, among others.
Currency – As a global company with 83% of our net revenues generated outside the United States, we are exposed to changes in
global economic conditions and currency movements. We work to mitigate our currency exposure by hedging a portion of our
currency exchange business transactions as well as our investments in overseas operations. However, we may not be able to
effectively hedge against currency risks in all the countries and currencies in which we operate due to factors including limited
markets for hedging currency transactions and current monetary policies and restrictions of countries such as Venezuela and
Argentina. While we work to mitigate our exposure to currency-
related risks, global market volatility, actions by foreign governments
and other factors outside our control could lead to unfavorable currency impacts on our earnings.
Financing Costs – We regularly evaluate our variable and fixed-rate debt and recently refinanced $6.4 billion of our long-term U.S.
dollar-denominated debt for lower cost long-term Euro and U.S. dollar-denominated debt. We continue to use lower cost short and
long-term debt to finance our ongoing working capital, capital and other investments, dividends and share repurchases. Our
weighted
-average interest rate on our debt as of December 31, 2013 was 4.8%, down from 5.8% as of December 31, 2012.
Following the January 16, 2014 $3.0 billion note issuance and completion of the February 6, 2014 tender offer and retirement of
$1.6 billion of our long-term debt, our weighted-average interest rate on our debt was 4.3%.
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