The Kraft Heinz Company
Q4 2008 Earnings Call Transcript

Published: 30 May 2008

[Margaret Nollen:]

Good morning. I am Meg Nollen, Vice President of Investor Relations for the H. J. Heinz Company. I would like to welcome everyone today to our 2008 Investor Forum. For those of you attending today’s session, all of your conference materials are included in the folder in front of you. Each presentation is separated by a tab and denoted by speaker and is numbered to coincide with today’s agenda. The agenda, in the front of your folder, right behind it are speaker bios and our new statistical summary pages, which include five years of financial and operating history. For those of you on the simultaneous listen-only call or webcast, the presentation and stat pages are also available on our website at Heinz.com in the Investor section. We have a great morning planned for you, complete with presentations from each of our regional presidents. Our schedule today is quite full, so let me lay out the parameters and you can be prepared to get the maximum benefits. We have presentations scheduled throughout the morning, from 8

[William R. Johnson:]

Thank you, Meg. Good morning everyone. Bright and early, and if that last reading didn’t put you to sleep, I feel pretty good about our prospects. Today the entire senior management team is here to present our new High-Performance Plan for fiscal 2009 and fiscal 2010. We are also going to briefly recap our fiscal 2008 results and summarize our performance against the commitments we made two years ago as part of our Superior Value & Growth Plan, which concluded at the end of April. I am pleased to report that we met or exceeded virtually every target established in the fiscal 2007 and fiscal 2008 plan and I would like to especially highlight our strong organic sales growth, our sustained investments in consumer marketing and in R&D, our 20% annualized revenue growth in emerging markets, and a number of others things as you can see on the slide. Notably, we also delivered more that $500 million in productivity savings and generated almost $1.8 billion in operating free cash flow, much of which we returned to our shareholders. A capstone of our plan was achieving the number one position in total shareholder return versus our peer group for the two-year period. This was a time of significant challenge and equally great opportunity for the CPD industry. All you have to do is pick up USA Today and the Wall Street Journal today, and I think they do a pretty good job of summarizing the pressures we are all experiencing. This is very reminiscent of the late 70s and early 1980s as we’re dealing with the pressures of significant cost inflation, which in this instance has risen twice as fast in half the time, along with risk economies and related uncertain consumer behavior. Different today, however, is the presence of several countervailing trends, most notably the rapid growth in emerging markets and the accelerating consumer interest in health and wellness. Heinz is well positioned to capitalize on both these trends with a well-diversified geographic mix, great brands, rapidly growing scale in emerging markets, as you will see more on later, and a pipeline full of value-added innovations aimed at health and wellness as well as taste and convenience. Let me just take a moment to remind you of where we’ve come from. Suffice it to say, we delivered another exceptional year of growth in fiscal 2008, exceeding the top end of our sales, earnings, and cash flow goals. Art will provide a more detailed look at our results a little later, but by any measure it was clearly a successful year, highlighted by record sales of almost $10.1 billion. The company’s current momentum is broad-based with sustained success in North American Consumer Products, robust growth in the Pacific where we are emerging as a significant player, increasingly good performance in Europe, and accelerating growth in emerging markets. Later this morning we will provide a panoramic picture of our emerging market business to help you better understand just how well positioned we are and why we believe that these businesses could represent as much as 20% of Heinz’s sales by fiscal 2013. Our average growth rate of 6% from organic sales over the last two years reflects the contributions of a much improved leadership team, as well as more aggressive investments in consumer-driven innovation and marketing. Our ground building investments have proven to be particularly timely given the current cost environment and they have enabled us to balance growth, productivity, and price to optimize the short- and long-term health of our business. Before we review the details of our new plan, let me take a minute to describe the sustainable growth platform we have built and the reasons we are confident in the raised two-year outlook that we will share later this morning and was highlighted in the press release. Over the past five years we have transformed the Heinz culture into one of growth, innovation, and superior performance. This progress reflects five fundamental changes. First, we refocused the company against three core categories in a portfolio of leading brands. Second, we expanded aggressively, and frankly, early, to build scale and effective management in emerging markets. Third, we substantially ramped up investments in consumer research, marketing, and R&D. Fourth, we achieved real breakthroughs in productivity and have set the stage for future improvements to be enabled by our SAP roll out. And most importantly, we have built a world-class leadership team motivated by the creation of shareholder value. Now let me just briefly address each one of these things. First, our portfolio is totally different than it was just five years ago. In the first half of this decade, as most of you are aware, we reshaped Heinz around three core categories. We divested over $3 billion of non-core commoditized businesses for relaxed scale and competitive advantage and we added about $1.5 billion of new revenue in core categories and faster growing emerging markets. Consequently, our three core categories now represent abut 96% of our sales and profit and each is showing consistent growth, as illustrated on the chart, led by Infant nutrition. Our ketchup, condiments/sauces, and meals and snacks categories are also demonstrating robust growth, as you can see. Our tighter focus clearly contributed to the acceleration of our growth but it also enabled us to expedite a series of productivity initiatives highlighted by significant reductions in trade spending, SG&A, and fixed costs, and the elimination of more than a quarter of our manufacturing facilities and thousands of SKUs. We now have a focused and very efficient stable of 15 powerful and growing brand equities that drive approximately 70% of our sales. The jewel in the crown is the nearly $4 billion Heinz brand, which commands extraordinary reach across all of our categories in many of our markets. All of these brands drive at least $100 million in sales and we expect another four brands to surpass the $100 million mark by the end of this planned period. In commenting on this sharper focus we acquired and built strong business with scalable brands and infrastructure in a number of emerging markets which in total have grown more than 40% in the past two years. These businesses are contributing differentially to our results as Chris, Scott, and Mike will show you later this morning during the panel discussion. Third, as I said, we substantially ramped up investments in R&D and marketing while putting the consumer at the forefront of all we do to drive a culture of innovation. We have strengthened our market research capabilities across the organization and increased R&D investment at a double-digit rate in each of the past four years, in addition to deploying significant capital to a new innovation center in Pittsburgh. As a result, we have built an 18-24 month innovation pipeline in our core categories across most of our businesses. To drive awareness and trial of our brands we increased marketing by almost $115 million, or more than 40%, during the past two years. Importantly, this investment successfully drove the growth of our top 15 brands at a compound rate of 12% over the two years. Fourth, we made significant improvements in productivity and began the journey to upgrade our global business processes and systems. I am confident that our initiatives to broadly expand our customized planning process, launch the global Heinz Marketing and Procurement Academies, implement the new waste reduction effort, commence the global roll out of SAP, and optimize trade spending will enable further growth and productivity gains, as Art will show you later. Fifth, and most importantly and often overlooked, we built a great team by attracting and developing talented people to lead our key businesses and drive superior results. We have recruited eight players across this organization, while promoting proven performers and applying some of our best talent into underperforming business units to improve their results. Importantly, nearly all of our business units are now led by experienced native talent with deep local-market and consumer knowledge. 75% of our top 100 leaders are new to their jobs within the last five years and between 30%-40% are new to the company. And as you will hear, we have introduced reward metrics to concentrate their efforts on the creation of value for our shareholders. Combined, these changes have institutionalized the culture of superior performance. While our business was evolving we continued to drive superior cash flow, $6.5 billion of which we returned to our shareholders in the past five years in the form of dividends and share repurchases. Our approximately 60% dividend pay-out ratio is among the highest in the CPG industry and we announced good news on that front earlier this morning. With that broad overview of how we established a platform for sustainable growth and superior value and performance for our owners, let me turn it over to Art for just a few minutes to recap fiscal 2008 before I return to discuss our new High-Performance Plan.

[Art Winkleblack:]

Thanks, Bill, and good morning everyone. As Bill mentioned, we’re very pleased with our results for fiscal 2008 and in this portion of today’s agenda I will take you through a quick review of these results, both for the year and for the fourth quarter, and then put this performance into the broader context of our two-year Super Value & Growth Plan. Highlights for the year include double-digit growth at both the top and bottom line, with sales up 12% and EPS up 11%. Importantly, we were able to accomplish this while significantly increasing our commercial investment levels. We increased marketing support by 15% and continue to ramp up our innovation capabilities with 17% higher spending on R&D. This speaks to very high-quality earnings during a year in which we had to fend off the impact of significant commodity cost increases. Now taking a look at our standard P&L scorecard, we topped $10 billion in sales for the first time in company history. Strong top line growth, aided by continuing reductions in our trade spending levels, overcame the impact of commodities and higher marketing spending to drive operating income growth of 8.5%. The increase was effectively leveraged to EPS growth of approximately 11% and at $2.63, we exceeded the top end of our original EPS range by $0.03. Drilling down on the full-year income statement, you can see that gross profit increased 8.5% powered by our strong top line growth. Importantly, we were able to offset much of the 120 basis point reduction in gross margin by a 75 basis point improvement in SG&A, ex-marketing. The higher EPS reflects strong operating income growth and the impact of our share repurchase program, which resulted in 3.2% fewer shares outstanding this year. The tax rate of 30.6% was up 100 basis points from fiscal 2007 and was in line with our full-year expectations. With regard to sales growth, we generated 6.9% organic growth for the year. That’s well ahead of target and well ahead of the growth generated by many of our peers. Importantly, we delivered this growth on top of 4.8% adjusted organic growth last year. Overall, increases in volume at 3.6%, net pricing at 3.3%, and foreign exchange at 5.1% were only partially offset by net divestures of 0.2%. On a global basis every one of our segments delivered organic sales growth during fiscal 2008. Organic sales in the Rest Of The World grew at almost 20%, driven primarily by very strong results in Latin American Infant Nutrition, condiments, and sauces. Asia/Pacific had an excellent year with organic sales growth at 9%, primarily reflecting volume growth of 6.5%. India, China, Indonesia, and Australia led the way, driven by strong innovation, increased marketing, and great sales execution. Europe posted organic sales growth of almost 8% for the year, with volume up at 4.5%. Strong volume gains were largely attributable to outstanding performances by the Heinz, Pudliszki, Weight Watchers, and Honig brands. North American Consumer Products again generated strong organic sales growth, up 7%, with a very healthy balance of volume and net pricing, as both were up 3.5% for the year. The growth was led by Smart Ones, Boston Market, and Classico pasta sauces. U.S. Foodservice organic sales were up 0.6%, driven by favorable net pricing of 1.7%, largely due to price increases on ketchup, frozen soup, and tomato products. Volume decreased by 1%, primarily resulting from the reduced guest traffic reported by many of our Foodservice customers. Now, importantly, in this difficult commodity-cost environment, we were able to get net pricing in every segment of our business. As I noted earlier, gross profits of $3.7 billion increased a very strong 8.5% for the year. This reflects higher volume, increase pricing, and continued productivity gains across the business. We achieved this despite posting a lower gross profit margin. The 120 basis point decline reflects the fact that pricing and productivity improvements were more than offset by increased commodity costs. The cost of virtually all of our ingredients went up, led by increases of more than 25% on edible oils, processed grains, and dairy. In this time of very high commodity cost inflation we believe that our focus on growing gross profit dollars is the correct path, even if we need to sacrifice some margin in the near term. Turning to profitability, all segments posted excellent profit growth, with the exception of Foodservice. We drove strong double-digit profit increases in Asia/Pacific, the Rest Of The World, and Europe and delivered an 8% increase in North American Consumer Products. Great growth in the Asia/Pacific primarily reflects excellent profit momentum in Australia and Indonesia, while the Rest Of The World segments generated strong results in Africa/Middle East, Latin America, and in our small but fast growing business in South Africa. Europe’s double-digit bottom line growth primarily reflects the continuing turnaround in the UK and strong results in our emerging market businesses in Russia and Poland. 8% growth in North American Consumer Products was led by the U.S. frozen business and by a very strong year in Canada. Operating income in U.S. Foodservice decreased 22%, reflecting relatively flat volumes, high commodity cost inflation, and investments to streamline the business. Volume was impacted by softness in the U.S. Foodservice industry and declines in our non-branded business. The commodity inflation rate in Foodservice hit 12% for the year, significantly higher than the rates in the rest of our business. And lastly, we rationalized our portion-pack business and streamlined administrative activities, which cost up about $10 million, virtually all of which came in the fourth quarter. For the year, operating income benefited from favorable foreign exchange, but that benefit was dwarfed by the significant inflation in commodity markets. Turning now to our balance sheet scorecard, we exceeded our plan for operating free cash flow, generating $895 million for the year. This was achieved with a 49-day cash conversion cycle, which was flat the prior year, and a 30 basis point increase in CapEx, to 3% of sales. Net debt increased by $210 million, or about 5%. This reflects our share repurchase activity for the year, but importantly, net debt grew at a rate less than our profit growth. ROIC increased by 100 basis points for the full year. This was generated primarily by the impact of FAS 158 accounting that we adopted at the end of last fiscal year. But we are pleased that we organically increased our ROIC by 10 basis points while growing a top line of a double-digit rate, investing in new capacity, completing two acquisitions, and offsetting the impact of a higher tax rate. Taking a closer look at working capital, our flat CCC reflects a 2-day improvement in payables, offset by a 2-day increase in inventories. Days in inventory increased this year due to the acceleration of our volume projectories and related to capacity constrains and supply chain issues in a number of areas. With regard to net debt, the increase was in line with our plan and in fact, represents an improvement in our leverage position, as net debt to EBITDA declined to 2.4x from 2.5x in the prior year. Now finishing off the full-year discussion, here are the details behind our cash flow. Operating free cash flow was $17 million higher than last year, despite the fact that we paid out roughly $60 million more in capital expenditures and received $50 million less for disposals of PP&E. The keys to improving our cash flow were the increase in reported net income, lower cash tax payments in the current year, and prior year payments for work force reductions related to fiscal 2006. Partially offsetting these improvements were higher working capital levels related to our incremental $1 billion of sales in fiscal 2008. Now, below operating free cash flow, you can see net share repurchases came in on target at $502 million and our annual dividend used about $485 million of cash. Our accomplishments for the full year are the main story of the earnings release today, but to be complete, we also wanted to briefly summarize the fourth quarter for you. In delivering the full-year P&L, the fourth quarter came in above our expectations. Sales for the quarter were up approximately 11% and EPS for the quarter of $0.61 was also up 11%. Taking a quick look at the fourth quarter P&L, volume, net price, and productivity gains more than offset commodity increases to generate a 6% increase in gross profit. In Q4 we set a new quarterly record for consumer marketing spending at $107 million. That’s up slightly from the previous record we set in Q4 last year. SG&A, excluding marketing, was up 10% for the quarter, largely reflecting about $20 million for streamlining and mobilization of task forces. After the impact of these investments, operating income was up 2%, which was effectively leveraged to higher EPS growth through lower net interest, a lower effective tax rate, and fewer shares outstanding. Fourth quarter contained our strong organic sales growth trend, up 5.7%. Volume improved 1.2%, led by our businesses in the UK, Australia, and Canada. Pricing was up 4.5% for the quarter, representing the highest quarterly increase in net pricing in more than five years. Foreign exchange rats were very favorable for the quarter as well, contributing 5.6% toward growth, as we continued to benefit from our strong international portfolio. Now, all of our operating segments continued to generate organic sales growth in the fourth quarter with the exception of Foodservice. The growth was led by the Rest Of The World, Asia/Pacific, and Europe. North American Consumer Products was up 3.3%, reflecting strong net pricing of 4.3% and a volume decline of 1%. The lower volume solely relates to the impact of normal trade buy-ins and advance of Ore-Ida price increases late in the fourth quarter of last year and at the end of the third quarter of this year. Turning to profitability, all segments were better than prior year with the exception of Foodservice and the non-operating area. Similar to the full year, we drove strong double-digit increases in the Rest Of The World, Asia/Pacific, and Europe, and posted a high single-digit increase in North American Consumer Products. Foodservice was down $19 million, given lower volume higher commodity cost and about $10 million that we invested in the business during the quarter to help build for the future. Similarly, expenses in the non-operating area were up $9 million, primarily reflecting spending on our global task forces. Finally, as we complete our earnings release discussion, we are pleased with the way we finished the fiscal year. We delivered 11% growth at both the top and bottom line in the quarter. Importantly, we were able to post these double-digit increases while continuing to invest for the future. We set an all time quarterly record for spending on consumer marketing, we increased R&D by 18%, we reduced headcount and rationalized the factory foot print in Foodservice, we consolidated leadership of our entire UK business under David Woodward by folding our frozen business into the base UK operation, and finally, we accelerated our task force investments in order to continue our global capabilities and improving our global capabilities and productivity. Overall, for the full year we made discretionary investments of approximately $25 million to build value for the future, and as we look forward we anticipate increasing this investment even further. But that’s getting ahead of the story. We will save more on that for later. Now let me shift gears here. As I mentioned at the outset, I would like to take a few minutes and put FY2008 into the context of the Super Value & Growth Plan that we launched two years ago. That plan provided clear P&L and balance sheet targets for both fiscal 2007 and fiscal 2008. This earnings release marks the completion of that plan so I thought it would be worthwhile to take a look back and check on our progress. As Bill mentioned, we exceeded the target for the three key P&L measures of sales, operating income, and EPS. At 9%, we grew sales well above the two-year target of around 3.5%, largely reflecting strong organic growth of almost 6%. Operating income grew at about 8% per year, up 110 basis points from the annual target. Overall, strong top line growth and productivity more than offset higher commodity costs, incremental marketing investments, and the cost for streamlining in task forces. EPS grew at a very robust rate, up almost 12%. Higher operating income and somewhat lower tax rate drove the upside of almost 200 basis points versus our target. Now, as you recall, we set specific targets in three broad areas

[William R. Johnson:]

It’s always fun to look back when you’re doing well, but you don’t care and we don’t care. So let’s talk about what we’re going to do going forward. We’re obviously very encouraged by our success but we still see abundant opportunities for growth. We have capitalized on many of these opportunities, as you will see, in developing a new two-year plan which raises our outlook in several key areas. We’ve raised our sales goal to 6+% on an annualized basis. We will continue to increase consumer marketing 8%-12%, operating income growth of 6%-7% annually, earnings per share growth of 8%-11% annually, and operating free cash flow of around $850+/- million. We will continue to use cash flow to create value for our shareholders. We are increasing our annualized dividend by 9.2%, to $1.66 per share, beginning with the July 2008 quarterly payment. This projected increase of $0.14 compares favorably to last year’s increase of $0.12. And as I mentioned, we intend to target a pay-out ratio of around 60%. Our new plan is built on the four strategic pillars we have reviewed with you in the past and on which our success in the past two years rest. Namely

[Beth Eckenrode:]

Good morning. We’re going to spend our time this morning talking about industry strengths, industry trends, and strengths, and why are trends and strengths important. Well, there are two strategic questions any company must be able to answer. The first one is where will the industry be three to five years from now? The second one is how do a company’s strengths enable it to responds to those industry trends in a way that outperforms competitors more effectively than the competition can do? We are going to lay out key trends. We’re going to lay out five key trends into two trends. We’re going to follow that up talking about Heinz’s strengths. We’ve selected a bunch of Heinz’s strengths to tell you about today. And then we’re going to bring them together in a way that shows you how Heinz’s strengths take advantage of these trends to drive growth. Let’s start with trends. Here are the five that we want to talk about today. These trends challenge the industry in a number of ways. They challenge the industry on the cost side, they challenge the industry to innovate, and they challenge the industry to reach the world’s most rapidly growing populations. The first trend is a significant increase in commodity inflation, which has put in question the relationship between the health of the global economy and food prices. The expanding middle classes in China and India are fundamentally changing demand, while the food to fuel phenomenon is significantly impacting supply. Will commodities returned to the cyclical nature of the past? We don’t know. What we do know is that every food company needs to be able to perform in either environment. Now trend two reminds us of how quickly emerging markets are growing relative to developed markets. The choices we have made in the past have established us as a major food producer in many of these rapidly growing countries. Our six key emerging markets are listed on the right

[David Moran:]

Thank you, Beth. Great strategy. Very well laid out. I think it’s a great framework for us to think and talk about our business. Good morning everyone. I’m excited to share our plans for North America. As you know, North America is about 45% of the company. It’s comprised of two operating units, North American Consumer Products and U.S. Foodservice. Our sales mix is evenly split between KC&S and our convenience meals. Now North America is a fantastic business to lead and to run. The foundation is strong and it’s built to last. For us it’s all about big powerful brands, a clear well understood formula for success with consumers and customers, a pipeline of innovation, and importantly, the right people in the right job doing the right work. FY2009 will continue our leadership results. We are in a very advantaged position in regards to the strength of our brands. Almost 90% of our portfolio is a category leader or a close second. In these times of inflation, price increases, and consumer unease, our equity with our consumer is our most important strength. Not only are these $100 million brands important to Heinz, they are vital to our customers. And customers expect us to lead our categories growth. Fortunately, we have exciting innovations on all of our businesses and importantly, this proven team knows how to execute their plan. Our brands are also very on trend with the Health and Wellness initiative. About one half of our brands help consumers live a healthy life and give them the options they need and want. But you know our strategies. We’ve talked them before. For us it’s all about organic growth, growing what we own. It’s also about full price consumption every day, off the shelf. It’s about driving brand health and adding value to the consumer, and then, as you would imagine, getting full price as a result. We manage our P&L as our own bank to fuel our own growth. Now CP has had a long and successful run and that continues, but over the last two years, since FY2006, we’ve added almost $0.5 billion in sales and almost $100 million in profits. And our brands have just never been healthier. Shipments and consumption are up 6% and 7%. We’re selling almost 90% of our consumption off the shelf at full price every day and we have successfully taken price at about 90% of our portfolio. As you can see, we’re growing volume and price at the same time and over the last eight quarters we’ve grown volume by an average of 3.2% and price by 2.7%. This is a result of our emphasis on strong brand equities and the innovations we have brought to the marketplace. We’ve held gross profit margins virtually on all brands and we believe that it is a critical management measure with direct materials soaring as they are for the last couple of years. I would like to share some comments about our fourth quarter volume number that you see. As Art mentioned, we took two price increases on Ore-Ida that affect a comparison of Q4 volume. Excluding the impact of those two increases, volume for North American Consumer Products would have been up 5%, in line with the last two years’ performance. Just as an FYI, sales for Ore-Ida in Q1 of FY2009 will be up about 20%. Our ability to cost recover is a direct result of our commitment to improving the value proposition to our consumers. We add value to our product and then we expect consumers to pay for them. Our brand teams have executed this strategy brilliantly over the last five years. We also believe that the P&L is our bank and we continue to tease out non-value added costs. As you can see D&A continues to be reduced, but since FY2003, we have reduced D&A by about 530 basis points and we believe we’re among the very lowest in the industry. SG&A continues to be managed closely, and again, we believe we’re the lowest in the industry. Now we have a very well developed plan for FY2009. We’re going to drive frozen harder, with a continued double-digit increases in meals. We also have new innovations in meals and new innovations on our Ore-Ida business that we’ll detail today. We’ll complete the upgrading of the ketchup packaging across the entire line, we’ll reposition Foodservice for this new environment that we’re competing in. We will hold gross profit margins at the brand level flat and grow our gross profit dollars and we will drive Health and Wellness into sustainability, as Bill talked, through our brands. I want to give you some details of our plans for FY2009. Smart Ones is on fire in the U.S. and north of the border. Our brand is now the leader in velocity and continues to accelerate. All cylinders are firing on this important brand. We’ve dramatically improved the taste on about 65% of the line. Our marketing has been focused, effective, and now we’re expanding that marketing into new day time opportunities. Our vision for Smart Ones is to be a lifestyle brand, helping consumers live smart 24/7. We have a new commercial behind our fruit inspiration launch and while the results are very early, they are exciting. Our share is 31.1% and our base volume is up 25%. Let’s take a look at that ad. [video played] We launched Smart Ones into Canada only 18 months ago and we’re already the number two brand. Importantly, seven of the top eleven categories skews are ours. Ore-Ida is going to have another action packed year. We will mark crispiest and best tasting and healthiest Ore-Ida fries ever. We are launching ABC tater tots, an important kids’ entry point and we’re launching, also, Ore-Ida’s new Steam n’ Mash, new technology that is largely incremental to our brand. Steam ‘n Mash is homemade mashed potatoes made easy. You simply steam the potatoes in the microwave for ten minutes, add milk, butter, and then mash. We do all the dirty work of washing, peeling, and dicing. Consumer scores and customer response has been nothing short of extraordinary. This is big news for us in this category because the category is $900 million in size and it’s virtually all white space for our company. Our ketchup business continues to respond to value-added packaging and going back to FY2002 and the successful launch of top-down, and then fridge-fit two years ago, ketchup consumers have embraced the better packaging options versus the commodity dock bottle. Effective this year we will move the entire line to these preferred formats and we’re adding a stay-clean cap across the entire line. Improvements such as these have helped us grow our base consumption. Full price sales now represent 75% of our consumption, and that’s up 8 points over the last two years. This year we developed a consumer generated ad contest, our topless PD challenge campaign, gave consumers the opportunity to publicly express their passion for the brand. Our results surprised even us. Over 6,500 qualified ads were submitted and these were viewed more than 10 million times on line. If you do some quick math, consumers spent more than 127,000 hours watching and interacting with our brand on line. To put these 6,500 submissions in perspective, other similar contests and other big national brands resulted in about 1,000 submissions. Let me share with you three commercials that are on air now. [video played] Well, I hate to admit it, I’ve actually been in that bar in the second commercial, so I know exactly where it is, along the Pacific Ocean. Our Canadian ketchup business continues to perform very well and we just hit an all-time record share of 82%. 82% is an all-time record in the Heinz world. Our results from this is the result of a new Heinz North America collaboration, as we extended fridge-fit packaging into Canada this January. This is a little fun fact, Heinz ketchup has the highest share of requirements, or loyalty to the brand, of any product in the Canadian grocery store. The new Skillet segment is growing rapidly in our TGIF brand will play perfectly in this new space. We are expanding the successful TGIF brand name while leveraging our expertise in premium meals. TGIF Friday’s Skillet meals are inspired directly from the restaurant and our innovation center and our objective is to create the highest possible consumer experience in-home. Our three-step, fifteen minute preparation involves the consumer cooking stovetop with a skillet. This is a new price point for us and a $7-$8 range is a complete meal for two adults. All of our brands have meaningful innovations this year. We are expanding our emphasis on Health and Wellness with Bagel Bites and whole grain, also improved sauces and healthier protein options. We are partnering with U.S. Youth Soccer to drive trial and awareness. Classico now has 16 SKUs converted to all-natural. We’re adding the iconic wrap to all sizes of L&P and we’re also introducing a thicker version of our classic recipe. We are also launching infant formula in to Canada to offer an entire Heinz feeding cycle to new moms. This capitalizes on the 60+ chair of our jarred baby food in Canada. Our most recent acquisition, Renee’s, continues to perform very, very well. And we folded production into our operating facility and closed the original factory. Our North American Consumer Products business continues to lead their categories in most ways. Our volume, share, and other consumer metrics are very healthy. In looking forward, we expect FY2009 to be another strong year. We have room to grow and importantly, we have a winning team in place. Let’s discuss U.S. Foodservice, which has not been performing as well as we would like. But let’s be clear. Foodservice is a core business to Heinz and to North America. Bill talked about this in the opening segment but we have some of the best and strongest brands in the industry. And Foodservice leverages the North American asset base and keeps the Heinz name in front of consumers across the country every single day. So it’s a very important segment for us. As you know, the industry grew rapidly in the 80s and 90s. More women entered the work force, household income grew, and Foodservice units expanded rapidly. At the core of the Heinz business model was personal and customer relationships. But so much has changed over the last five years. Consumers’ budgets are under pressure from oil and food costs, lifestyles are different. Importantly, the ownership structure of our operator has changed and they are under the same cost pressure that we are. As a result of all of this a different strategy and a different model is needed. The biggest change is for us to run for value versus just running for volume. We have the brands and the capability, both in the front and the back of the house, to lead and help our operators. Just look at our brands. Heinz, L&P, Chef Francisco, and importantly, our appetizers business. We are well positioned once the industry returns to growth. But for now we must drive greater value to this all-important portfolio. Building brands will become more important in our new model. We will increase our emphasis on innovation, new ideas as helping our operators win in this difficult environment. We have a three-part plan to turn this business around and begin profitable growth. It’s all about innovation, cost, and profitability. Job one for this unit is driving innovation. Therefore, we have better aligned R&D, culinary, packaging and marketing. We expect to increase our sales from new ideas very quickly. To better compete we have to get after our cost structure, as this is increasingly a bid business. In Q4 of FY2008 we closed a factory, a back office, and reduced overall headcounts. In FY2009 we will continue to streamline the business and get the gunk out of the system. We are working hard to improve our customer processes and to become more efficient as an organization. Our most important near-term initiative is changing the focus internally of our business leaders and sales teams. We have historically run this business for volume, but our new approach is quite different. We must charge a fair price for the value of our brands and the value that we add. We’re having conversations with customers about this and some of the choices that we both need to make. We expect North America to have an overall strong year. Sales and profits will be leading. The turnaround in the foodservice industry and our business will continue to be slower than any of us would desire but we are positioning ourselves well in terms of brand emphasis, people development, and needed capability. Now it’s a pleasure to turn the podium over to Scott to talk about the exciting work that’s going on in Europe.

[Scott O'Hara:]

Thanks, Dave, and good morning everyone. Let me start by giving you a snapshot of our business. Here you can see Heinz Europe accounts are about 35% of the company’s businesses and the emerging markets businesses in Russia and Eastern Europe. This chart shows the breakdown by region and by category. Following a significant reshaping of our portfolio completed in FY2006 we are a very focused business, with 95% of our revenues in our three core categories. Our sales are predominantly driven by the Heinz brand, however, we are also achieving excellent growth from local jewels like Plasmon in Italy, Honig in the Netherlands, Pudliszki in Poland, and Aunt Bessie’s, HP, and Lea & Perrins in the UK. In addition, we have Weight Watchers which we are expanding across all of Europe. Our top seven brands in Europe all generate at least $100 million in sales and our plans call for the Orlando brand in Spain and Portugal to join that list over the next two years. These brands are thriving behind a 38% increase in marketing and R&D over the past two years. Heinz Europe’s performance accelerated in fiscal 2008 as our deepening innovation pipeline and marketing investment connected with consumers. Our brand-building investments are driving strong organic growth with a balance mix of pricing and volume growth in fiscal 2008. This is a winning formula that we are determined to continue executing in fiscal 2009. As this chart demonstrates, we are generating excellent performance across our big brand and in the significant majority of our markets. We have sustained approximately 60% of our portfolio in both value and volume share growth over the past year indicating our ability to price against value-added innovation. Heinz Europe [inaudible] Health and Wellness profile with the strength of each segment that Beth outlines earlier. Our portfolio has a strong foundation in fiber-rich bean, lycopene-rich ketchup, healthy soups, and all-natural infant foods and fortified infant formula. We are also excited about our growth opportunities in Weight Management under the Weight Watchers brand and in our growing medical nutrition brands in Italy. This further evidence that consumers are trying our new products and repeat purchasing at healthy rates. Sales of our product launched during the year accounted for about 10% of our revenue in fiscal 2008 alone, putting Heinz Europe ahead of the curve of our target of 15% of sales coming from new products launched in the last three years. We are fueling our growth with improved D&A and SG&A productivity and I will talk momentarily about the great results we’re getting from our successful SAP roll out in the UK and Poland. We have accomplished a lot in Heinz Europe over the past two years and that has only motivated us for more success. Building on a banner fiscal 2008 we expect fiscal 2009 to be another year of innovation-driven growth. To achieve our goals we will continue to follow the winning formula of investing for success behind our seven priority brands. We will increase the number of new products by about 20% in fiscal 2009 and we will support those launches with a double-digit increase in marketing. We will also continue to pursue price where appropriate. We are improving our innovation capabilities by focusing our R&D efforts through three centers of excellence

[Mike Milone:]

Thanks, Scott. That’s a great turn-around story and certainly sets up an exciting future in Europe. We will shift now to Australia and New Zealand. These are countries we don’t normally talk about. We don’t represent a segment and are rather included in Asia/Pacific. However, at 9% of sales, we are very important to Heinz. I’m sure you’ve noted in some of the materials that I given is use a provocative title, “Commanding Growth.” That’s because we own very strong platforms in these markets from which we have successfully grown and will continue to grow. Our brands, Heinz in Australia and Wattie’s in New Zealand, are local institutions. We have the highest per capita sales in the world of Heinz, even higher than in the UK. It would equate to a $24 billion business if the U.S. had the same dollar per capita sales as we do in New Zealand. Our business represents an estimated 5% of total packaged foods in Australia and 10% in New Zealand. We have achieved excellent performance. These are established markets growing organically in excess of 6.5% further aided by acquisition in FY2008. Looking at the mix, Australia is the larger of the two, which is not surprising given it’s 5x the population and we are very focused on Heinz core categories. Our strong local position breeds success, as I indicated earlier. As you will see, we have strong leading brands and our leadership enables consumer and customer insights. We have a powerful and scalable infrastructure and fundamental to us, exceptionally strong local talent. We will begin our deeper dive with a look at our leading brand positions. Two $100 million brands are fundamental to our Australian/New Zealand business. Heinz in Australia and Wattie’s in New Zealand. But we also sell other Heinz global brands in these markets. As you might expect, with 10% of total packaged food sales we have very strong branded share positions in New Zealand. We are number one in 11 different segments, often larger than all other competitors combined, with share exceeding 50%. In Australia we also have multiple number one and number two positions, which have been supported for growth with significant increases in marketing and R&D spend. Our strong local market positions provide great consumer and customer local insight and connections. We talk and think in terms of three key consumer trends

[Margaret Nollen:]

Okay, we’re miraculously on time so we’re going to keep that way. We’ve got a 15 minute break and we’ll start right back up at 10

[Margaret Nollen:]

Our next presentation is in a little bit different format and we’ve got a panel of all of regional presidents that manage emerging markets for Heinz. And I think that the following discussion is going to be very interesting for you so let me kick it off. Chris Warmoth who is head of our Asia/Pacific markets will lead us off in the emerging markets.

[Chris Warmoth:]

Thank, Meg. I’m Chris Warmoth, the Senior Vice President for Heinz Asia and Scott, Mike, and I are going to take you through how Heinz is winning already in the emerging markets and how we expect to accelerate that growth going forward. Now, there should be three key take-outs from this presentation. The first is that Heinz has built an excellent springboard for future growth. We already have a disposable and growing business. We have a very attractive portfolio, it’s focused around six countries, three core categories and six brands. We have excellent management which is really locally rooted. And then the second key message, and I think we will illustrate to you, we have a proven capability to execute the fundamentals of consumer goods. That’s innovation, marketing, and distribution. And then lastly, we’re pleased with the progress we’re making but we believe the future is even brighter. Now why do I say Heinz has an excellent springboard for future growth? This chart shows in FY2008 our emerging markets business was $1.3 billion and that was up 25% versus FY2007. And as you can see from here, over the last few years we made $400 million in our emerging markets and our OI margin, while below the company average, was still double-digit and that’s pretty respectable. Now Bill talked earlier on the managed focus has brought Heinz and that’s very true of emerging markets. We have an attractive and focused portfolio. We’re focused in terms of country. We have six core counties

[Scott O'Hara:]

First of all I think any food company is inherently a local business. You have to be very close to the consumer and close to the taste. And I think that Heinz is uniquely positioned in that we have global scale, and in fact a global brand behind the Heinz brand, but we also empower, as part of our culture, our local business units to really run their businesses. And I read that BCG study and it takes a study like that for somebody to come up with the globality theme. But I think the essence of that was that local companies that are closer to consumers have a competitive advantage. And I agree with that. I think Heinz is uniquely positioned in that we empower our local business units to truly run their business and in fact, we’re really close to our consumers and I think the results you will see reinforced is that we can take advantage of that opportunity as well.

[Chris Warmoth:]

Thanks, Scott. So that really captures why I believe Heinz has built such a great springboard. We have disposable and growing business. We have the attractive portfolio in terms of countries, categories, and brands with very strong equities. We have very strong local management, in general, I think by this culture which we have. And then lastly as you saw, we have a pretty good record on acquisitions in emerging markets. And from there I want to lead to our second key message, is that we have a proven capability, in my view, to execute really well in the markets. We innovate well, broadly and relevant, we have strong marketing ideas and investing heavily behind them. And then when it comes to distribution, we’re really using our know-how to get products broadly available to the population.

[Mike Milone:]

Chris, let me take on innovation and go a little deeper on that one. We talk a lot about innovation which is the bread and butter of any food company, and apart from the high tech innovation there is a lot of other innovation that goes on. And we think of it in these four blocks. I want to touch on each one. The first block in the upper right is the basics. Improving our core products, making sure our base businesses are healthy and re-launching and freshening our products. With the help of Chris I want to point out a few examples with my magic pointer finger. First example I will give is on ABC Sashay, the soy sauce. We literally sell billions of these in Indonesia and we’ve refreshed that product recently with new packaging and improved flavor and improved formula. Moving to the next block, the line extensions, we sell a very successful ketchup in Poland called Pudliszki. We are now expanding it with Pudlichef, which is a kid’s version of the same ketchup, or the same brand. Moving to new segments, we have some LongFong sauces. LongFong is a dim sum brand that Chris referenced earlier and we will talk about more, but here we’ve added natural extensions that are LongFong soy sauce, LongFong dumpling dipping sauce, and a cooking paste. And the final area is in packaging where we have the, the most obvious example is the ABC from Indonesia, sardines where we’ve added the EZOMs. But there are other examples of packaging which are pretty easy to see up there as well.

[Chris Warmoth:]

Now, Mike continues in a second area and I think we’ve got some really good ideas and we’re going to share some with you later, so we’ve been investing pretty heavily behind them. You can see from this chart, in FY2007 we increased our marketing spend by 33% and in FY2008 it was up 35%.

[Scott O'Hara:]

And one of the great things, we’re able to support these fantastic brands with strong marketing support but one of the challenges we all face in our emerging markets is ensuring that we can get the product to the shelf. The trade tends to be much more fragmented in the emerging markets than it would be in the mature markets and in discussions with both Chris and Mike, one of the key learnings that we each had was that you really need to have a tailored approach to your distribution network in these emerging markets if you’re really going to be able to get distribution down the line beyond kind of the A cities. And I think you can see from the chart that we’ve just put up that each of us uses a very distinct or tailored approach in our markets to drive distribution. Some markets have what we call the modern trade, all of them have supermarkets. Many of them need to be served through wholesalers or distributors and we need to make sure that we have a network that can support all of that.

[Chris Warmoth:]

So what we would now like to do is bring alive these themes with some real case studies. And I’m going to start off with the ABC brand in Indonesia. Now this is our single biggest brand if you take one market. And ABC is focused across many categories but the two biggest are soy sauce and beverage syrups. These are concentrated fruit syrups to which you add water and you get a very refreshing drink. Now soy sauce in Indonesia had its best year since we acquired the business in FY2008. And what we did is we re-launched the brand. We improved the product, we improved the graphics, much more modern. We added a new pouring cap to the bottle, and we introduced the line of three pouch products. Indonesians consumers really like these. They are light, most Indonesians don’t have cars. They’re easy to pour, if a child drops them they don’t break. And they are a little bit cheaper. And that was supported, I think, with a very effective TV campaign behind the celebrity chef endorsement. And it was a pretty similar story, actually, on the syrup beverages. There we also upgraded the product and modernized the graphic. And we have two lines there. We have what we call Squash Delight. This will be regular flavors like orange, pineapple, and melon. And then on top we have a premium line called Special Breaks. And at a break you can try those. And we have a line of children’s products called ABC’s Juicy. You can see that in the right there. And we’re pushing, with a lot of success, a line of health drinks. Now the ABC brand is very strong. And what we’re finding is we can also leverage it to introduce new packages. Here is an example. This is called Shrimp Paste. Now, Shrimp Paste is used by 89% of all Indonesians every week. It is used to make chili paste, you have menus where you spread the chili paste on fried chicken or fried fish, and you can also use it directly to make dishes like vegetable soup. Like what we’ve done is we’ve taken this category and seen an opportunity. Because today most of the product we sell unpackaged and unbranded in wet markets. The consumers are a little concerned about the cleanliness and the quality of the product. So we’ve packaged this product and the results have been very, very good.

[Scott O'Hara:]

Now I’m sure many of you are sitting there thinking, “Okay, we’ve just had a case study on shrimp paste. How is Scott going to follow that up?” But I do have an opportunity for you. In Poland one of the things we’ve been very successful with is our Ready Meals. And we do a lot of consumer research, as we’ve talked to you about before and one of the insights that wasn’t very surprising was that most Polish consumers prefer traditional Polish meals. And Polish homemakers would like to prepare those for their families. But like many places around the world, the Polish homemakers don’t have the time that they want to do that. But the real insight was around while they didn’t have the time, they were skeptical about the quality of the Ready Meals that were available on the market. So what we did is come up with a concept called Kitchen Secrets where we took the recipes of these Polish homemakers and built products around that. And it tested phenomenally well. In fact, it tested so well we used one of the homemakers, that we selected her recipe, to star in the commercial. Take a look at this.\ [video played] And the results have been fantastic, as you can see on the chart. Sales have tripled over three years. Yes, Chris, I did say sales tripled. But beyond that, the category group, which is fantastic for the market, our share grew. And in fact, Ready Meals is now our biggest category in Poland and we’ve got a lot in our pipeline for fiscal 2009 to continue to drive our Ready Meal business and we’re really excited about that.

[Chris Warmoth:]

Thanks, Scot. Now, I’ve eaten insects with local authorities, I’ve eaten snakes in many places in China, but I do have to tell you, the product that had the biggest bodily impact on me was Pudriscki fried. It’s really quite an experience. [laughter] But I would now like to move on to a very tasty product which is LongFong dim sum. And this is also sort of a story about endorsements, but in this case it’s a story about celebrity endorsements. And this woman on the screen is probably the world’s most famous sportswoman, because she is the world’s Olympic number one at table tennis. She actually combs the world’s rank number one in singles, she’s the number two and three in doubles with different partners and she’s the hot favorite for the Olympic gold medal. And she’s called Young Jenee and I have to tell you the highest ranked British woman in table tennis was number 85. So come August Young Jenee is my woman. We’ve used her pretty extensively. We’ve used her on the packaging. As you can see we’ve used her in PR, we’ve used her in promotion. We’ve also used her in TV. And it actually helped if you think about it, “Well, a table tennis ball looks very similar to a rice ball.” And this business has been doing very well. Now on the theme of China and the Olympics, just a little footnote, which is the CEO of LongFong and last Sunday he carried the Olympic torch and this was in recognition of the great work he’s done to bring the Chinese and the Taiwanese business communities together. Now Hector’s run was in Shanghai and one of the big challenges we have in China is how to get distribution of LongFong in the lower-tier cities. Now versus India these are actually quite well developed but freezer space is rather limited. And so we’ve come up a program that makes available freezers to retailers in these small cities on condition they’ll only put LongFong in the freezers. And we’ve got a little video here that illustrates how it works. [video played]

[Mike Milone:]

Infant nutrition is another large category for us and I’ve got a case study in infant nutrition focusing on Venezuela. First a bit of background. Venezuela’s got a reputation of being a very tough market. But it’s also benefiting from the tetro economy. We’ve been there for 50 years and we’ve got a strong local management team that is accustomed to dealing with the environment. They know how to work and live in that environment and have managed the business very well. You can see we’ve got leading share positions in two of our core categories, in ketchup and in baby food. And in baby food we’ve got a great success story as well. You can see we’ve grown at least 19% for each of the past three years and that’s been accelerating. It’s been accelerating as we have removed capacity constraints. And the fact is that as we’ve removed them we filled it up again so we’re continuously investing and adding capacity to support this growth. For the latest year we actually grew our sales in baby food in Venezuela at 34%. How did we do it? Well, we did it by adapting our products to the local market. The eating habits in Venezuela, as you might expect, are very fruit-oriented so our line tends to be fruit-based as opposed to vegetables or meats. We’ve also expanded with local applicable products like a yogurt line, like a kid’s line. We’ve done packaging on cereals in the lower left-hand corner. And we have an interesting product that is a rice-milk-based supplement which has the potential and we will be leveraging opportunities that Chris has talked about and we’ll talk about, similar to Complan in India.

[Chris Warmoth:]

Thanks, Mike. Well, we do have a pretty good story on children’s nutrition in China. I think if you annualize this we would more than triple very quickly. This business grew well over 30% in FY2008 and at the same time we improved our operating income margins. And it was very much behind innovation. Now the heart of our baby food business in China is cereal and in FY2008 we have had a lot of success with a new premium segment. There are two products there. One is a chewable product. This is to help the child learn how to chew and then the second is everyone’s favorite where we add in extra nutrients to help brain development. And it is true, the direct Chinese translation of the name is, “high intelligence, many, many.” And it’s really done very, very well. We’ve also just re-launched our base cereal business. And that’s the biggest action we done in over 20 years is having cereal in China. We moved to a new product, we moved to a new package form. We call it Bag In The Box. We also improved our graphic. And we’ve also repositioned the brand as scientifically formulated. And this was to address the belief of many Chinese women that actually they could get all of the nutrients with Heinz cereals as with homemade cereals, which absolutely isn’t the case. So then also we’ve done a lot of work on jars and this business grew nearly 40%. Jars segment is priced small in China and we re-launched this to get across to women that even though the product is shelf stable, it is fresh and it has no preservatives. And then a very new and I think exciting product is on the right there. It is baby noodles. Now noodles in China are very, very popular. And what we’ve done is introduced a line of string noodles. They come in egg, carrots, and spinach and each of the noodles, as you can see them there on the screen, is small and very soft. And each serving is with a one gram pouch which is full of nutrients. We’ve also extended the Heinz brands with these products. So we have something called Cholustrum. This comes from New Zealand. It’s sold in 60 cachets to a pack, each cachet is one gram and that retails for about US$45.00. The next product is called Milk Mate. This is full of prebiotic and Chinese natural ingredients and it’s very good against the Chinese bad digestion condition. We then leveraged the Heinz brand name. And all of these innovations have been heavily supported by a very good infrastructure of medical detailing, in-store promoters, and samplers. In fact our sampling coverage in China in FY2008 increased from just 41 cities all the way up to 100 cities. Now we come to Complan. Complan is also a child nutrition brand, in India. And it’s targeted to 4-14 year olds. And they had a great year. And many things drove that success but one thing more than anything was the advertising. Now, I’m a marketer by background and the Holy Grail of advertising is to come up with a long-term, sustaining campaign. That’s exactly what we’ve done on Complan. This brand was a flop for five years. And then we went to the new campaign, we’ve invested heavily behind it, and yes, Scott, we’re well on way after five years. Now, the campaign is built around a very consistent benefits, which is that if you feed your child Complan, you can be sure he or she will grow properly. And the height of the child is proof of that. Mike, I guess your mother didn’t feed you Complan. [laughter] What’s also part of the campaign is that Complan has reasonably around 23 vital nutrients. And the execution is all built around the really good consumer inspection in India. Most kids in India are actually under height. And what they will do is they will hang from bars and busses or from door frames to try and stretch themselves. And of course, with Complan that absolutely isn’t necessary. Now I want to show you just two of the five ads we’ve made and they’ve all been very consistent and very fresh. So let’s look at the first ad and then let’s look at the latest. [video played] That last ad is for a very new product that’s just expanding now and the English translation is, “back from [inaudible]” and it’s a great tasting product and what we’ve found is in India Complan had this opportunity to become very, very local and that will also be available at the break. I would recommend that everyone try it. It’s naturally sweet.

[Scott O'Hara:]

Now, one of the things we haven’t talked about is Heinz ketchup in the emerging markets and I have a great example to share with you in Russia. If you think about it, before 2004 we fundamentally had a very small, niche Heinz ketchup business in Russia. And that was largely due to one thing. We had to import the product from continental Europe and the import duties were incredibly expensive. And as a result we had to price the product at a super premium. And it was really only available to the most affluent Russian consumers. In 2004 we purchased the Petrosoyuz business. And we did that for a couple of reasons. First of all, they had some great local jewel brands that we could take advantage of. But as importantly, they had infrastructure in terms of a distribution network and importantly, local manufacturing that would allow us to drive the Heinz brand even harder. Now that’s important because Russia is the number two ketchup market in the world. So it’s a fantastic platform for growth for us. And as you can see on your right-hand side of the slide, in addition to the cost advantage we got from local manufacturing, we got real flexibility around packaging formats as well. And Chris talked earlier about how consumers in Asia liked doy packs. Well, you can see that here, Russians truly like doy packs. In fact, it’s about 1/3 of a category in Russia. So that gave us an opportunity to meet that consumer need as well. And then about two years ago we won the McDonald’s business. And that’s been critically important for us and for McDonald’s, I think, in that we were able to have the great Heinz brand to help them establish McDonald’s in Russia, and of course, they made a massive number of consumer impressions for us on our Heinz business. We sell about 40 million of these dip pots a year that are co-branded at McDonald’s. Now how do we take advantage of that? Well, one of the things that will support this business now that we can make a little bit more money on it with the local production was some great advertising. So we took the Grown Not Made concept that I shared with you earlier and adapted that to Russia. And we really drove that hard. In addition, we drove real strong in-store theater in our trade customers and they really got behind the Heinz brand. And we have the number one share position now with the Heinz brand in both the Moscow and St. Petersburg markets. And you can see here that the results have been truly fantastic. Sales have tripled, volume has quadrupled, and the market shares are just through the roof. And we’re really excited about this business because we have a beachhead, if you will, in Moscow and St. Pete and our focus for 2009 is to really expand to national distribution.

[Chris Warmoth:]

Thank you very much, Scott. I would now like to just go back to India for a moment. Our second biggest brand in India is Glucon-D. This is a powdered energy drink and it’s consumed by people who are either sick or people who are lacking in energy. Obviously in India the sun is very hot and the energy is literally sucked out of you. And what we’ve done here is, I think, an interesting program to drive distribution. Because at the moment the product is focused very much on towns and cities. And the benefit, of course, of energy is very, very relevant for the rural communities. And I just want to show you a video of how we’ve done that. It’s a two-step process. The first step is that we send a bicycle salesman and he will get distribution in the local store. And then the second step is that the road show where we educate the villagers on the merits of Glucon-D. [video played] So that’s the end of our tapes and I hope that we have illustrated to you that we really do have a proven capability to execute in these very exotic markets. And that brings me to my third point, which is well though we’re doing, I think we all believe our future is even brighter. We already project to be a $3 billion business by the year 2013 and that sum depends by the huge growth of the middle classes. And then on top we see some additional opportunities. We want $100 million markets and even within our top six we’ve got a lot of white space. Now this chart shows you the $3 billion projection. Between FY2004 and FY2008 our emerging markets business grew at a CAGR of 17.6%. Project that forward and by the year fiscal 2013 we would be about $3 billion. And as you can see, in FY2004 emerging markets were less than 10% of Heinz. In FY2008 that is going to 13% and then by FY2013 that would be up to 20%. And this is the kind of thing that gives us all confidence that this is very real. What I’ve done on this chart is four columns. The left-hand column here is population. GBT growth at parity purchasing power. Packaged food spends per capita. That’s dollars per person. And then packaged food spends projected growth. And we’ve totaled up the six markets I’ve been talking about, the top six, total emerging. And we’ve also totaled up the highest developed markets. And I think what you can see is very, very striking. The population in the emerging markets is 4x that of the developed markets. Look at GBT and parity purchasing power and it’s 3x as fast. Just look at packaged food spend per capita. It’s just a fraction of what you see in the developed markets and of course, packaged food is growing much, much quicker in these markets than it is in the developed markets.

[Mike Milone:]

We’ve talked a lot about the six, but lets talk about the future. As Chris has said, we have three additional markets we are targeting to achieve $100 million in sales in the next two to three years. Those are South Africa, the Middle East, and Mexico. I will profile Mexico for just a couple of slides here. Why Mexico? Well, we’ve chosen Mexico based on an analysis of the various markets in Latin America and you can see first, it’s very sizeable. And second, it’s got relatively good development of our categories already, so we’ve got a good base from which to grow. Interestingly, all the markets listed above Mexico on this slide are markets where we currently do business and you can see how successful we’ve been at developing the categories. In addition, Mexico can benefit from the infrastructure that we’ve got through the proximity to Venezuela and the United States. Building further on that infrastructure, we’ve recently installed Heinz ketchup cachet making capability in Mexico. That is a huge shift and big advantage for us now going forward. So now we have the ability to supply on time quickly at a good cost and supply our customers much better. Our customer base actually gives us very strong reason to believe we’ve got the basis for success in Mexico because we’re already selling most of the customers on this page. Everyone but the big guy in the lower right-hand corner. However, the customers on the entire right-hand side don’t buy any Heinz ketchup from us today. All of them buy other products from us but they cite lack of availability with local suppliers as a big barrier. Now that objection has been taken away so hopefully we can be enveloping this business very quickly. And on the retail side we’ve also got very high expectations. We’ve begun to build distribution starting with Walmart and some of the other major customers. Walmart’s Superama format, which is their big store format, and we’ve got the distribution and shelf presence you see in these slides. We’ve already been able to achieve a 34% share. So we think we’ve got the capabilities and are well poised for growth in both retail and foodservice ketchup in Mexico.

[Chris Warmoth:]

Thanks, Mike. I think we also have additional opportunities even within our existing six markets. If you take the Heinz core categories and put them along side our emerging markets, you see plenty of opportunities. Take for example the ketchup and sauces segment. In China and India that’s $2 billion or more. And yet we’re only just getting started. But with the Heinz and LongFong brands, with our global know-how, with our infrastructure, that looks a great opportunity. Scott, as I thought he would, set out the great work they’re doing on ketchup in Russia and that’s a huge market, as he said. Even if you slip out Mayo, that’s a $350 million market and I know that Steve has got some very, very exciting plans to go after that. Mike talked about Foodservice in Mexico and Scott talked about McDonald’s in Russia. The Foodservice business is growing very, very fast in our top six markets. We have the know-how, we have the product range, we can participate in that growth. [inaudible] meals and snacks. LongFong is a great business. It’s a $100 million brand. It competes in a $700 million market. It’s already big. The penetration is low and the range of products is still modest. Big opportunity. And the Ready Meals market is still very small and we have a proven capability in that area. And then Pudliszki Ready Meals. Local Ready Meals are doing very well in Poland but outside Poland, again, that market still has huge potential. Children’s nutrition, Venezuela, Russia, China. Complan in India. We have a very good children’s group, nutrition physicians, in the emerging markets. And yet we’re not competing at all in the infant formula market. That’s worth at least $3 billion in these markets. Jarred foot. In China we have a big share of the market and it’s very small. That’s clearly an opportunity. But on the other hand, you take Russia, where Scott’s been so far very focused on cereals and yet the jarred food market is already worth $170 million. And then Mike talked about Complan in Venezuela. Well, Complan is a big brand in itself, it’s $100 million. It’s competing in a $700 million market. Opportunity in India and perhaps opportunities outside India. So where does that leave us? Well, this is what I would like you to take away from this session. First, Heinz really has a very attractive portfolio. We are in six countries. We have a very strong presence. We are focused on our three core categories and we have six very, very strong brands with great equities. We have very strong local organizations. And I think they have a proven capability to execute in the market, innovations, marketing, and distribution. Now this business profitable and with current trends it is going to be a $3 billion business by the year 2013. And that’s sum depends on this very fast growing middle class. And then finally, we see additional opportunities for accelerating growth. Mike talks about new $100 million brands. They exist. And I’ve just gone through white space in the Heinz core markets in our top six. Emerging markets really are a very exciting place. I spend all my time in them and I have to say the organizations I deal with are, in my 27 years in consumer good, some of the most energetic and enthusiastic and hard-working people I’ve ever come across. This is the best job I’ve ever had. And even for our shareholders, even if they never set one little foot in one of these emerging markets, they should love them, too. And with that I’ll hand it over to Art.

[Art Winkleblack:]

Thanks, guys, and thanks, Chris. I think you see why we’re so excited about the opportunity in the emerging markets. It’s one heck of a big opportunity for us. So I’ve got to say that’s a tough act to follow so I’ve enlisted some help to kick off this final session of the day’s event. Kramer, always shy and retiring, right? I figured we would take an opportunity here to bring together all the things that we’ve talked about today and bring home the presentation. So in the next few minutes I’ll summarize the plans you’ve heard today and provide the algorithms underpinning our exciting growth prospects for the next two years. Our plan starts with the solid grounding of where we are today. You heard it earlier but I think it bears repeating. We have very strong momentum in the business. We posted excellent growth across the key metrics of sales, operating income, EPS, and return on invested capital, all delivered during very challenging economic times. Looking forward t FY2009 and FY2010, we are raising our guidance, from 4% on the top line to an average growth rate of 6+%. And from 7%-9% EPS growth, to a CAGR of 8%-11%. Strong organic momentum is driving the increase in our outlook. The result is that we project EPS in the range of $2.83-$2.91 for FY2009, followed by another year of strong growth in fiscal 2010. Our two-year P&L plan represents a continuation of the organic growth and investment story that we’ve been executing. Our top line growth will be driven by a strong innovation agenda and continuing increases in consumer marketing and R&D. On margins we project flat to slightly improving results with increase pricing and strong cost discipline, offsetting continued high commodity cost inflation. We believe this is the right algorithm to navigate the current environment and deliver strong overall financial performance. Now let’s take a deeper look at the key drivers behind our top line growth. As Bill mentioned, they are a relentless focus on consumer-based innovation, increased R&D and marketing investment, additional pricing and period spending effectiveness, and stronger growth in emerging markets. Focusing first on innovation. We project our sales contributions from new products to increase as a percentage of overall sales. We estimate that approximately 11% of revenue growth in FY2008 emanated from new products launched over the past 36 months. Going forward, we plan to further ramp up the pace of innovations, delivering about 15% of revenue from new products. You’ve seen today a snapshot of the powerful innovation agenda we have in motion and we believe we have the right ingredients in place to accelerate our momentum. These include increased investment in market research, continuing packaging upgrades, ongoing flavor development, and enhancing the health profile of our products. Innovation and base business growth will be supported by continued increases in marketing and R&D. We’ve demonstrated strong returns on our commercial investments over the last two years and we’re looking to build on that foundation. Because of this track record and because of the better talent, more disciplines innovation processes, and robust pipeline of consumer validated new products, we have the confidence to continue increasing our commercial investment. Our plan calls for double-digit annual increases in R&D and increases of 8%-12% in marketing. Coupled with the aggressive increases of the last two years our annual marketing spend by 2010 will have increased by around 75%, or as much as $200 million. In the current commodity cost environment pricing will play a key role in delivering the top line. With annual net price increases projected in the range of 3.5%-4.5% for fiscal 2009 and fiscal 2010. We believe that our strong number one and number two brand positions around the globe, combined with our track record of value-added innovation, put us in an advantaged position in the industry. And through the combination of list price increases, continuing improvements in the effectiveness of our trend spending, and aggressive productivity initiatives, that we plan to offset the continued commodity cost inflation. As you just saw from Chris, Mike, and Scott, we’re excited about our positions in emerging markets, the capabilities we have there, and our opportunity to sustain high growth. We expect organic top line growth rates in the high teens in these markets, representing nearly 1/3 of the company’s overall growth. By 2010 total emerging market sales are projected to be more than 3x larger than they were back at the start of the decade. Now pulling the pricing information and productivity story together, we believe that we can hold or even slightly improve our gross margin by FY2010. Our 3.5%-4.5% pricing will translate to approximately 2.5 points of gross margin. Similarly, we expect that we can drive about 2.5 points of productivity each year. The gains in each of these areas will be required in order to offset the expected annual inflation impact of about 500 basis points. Finally, we expect business mix to be a minor factor in the equation going forward. Now to give you a bit more prospective we’ve laid what we’ve experienced and what we expect in terms of the market prices for our commodities. We estimate that the market prices for our mix of commodities have ramped up from 3% to 5% to 8% over the last three years and we are expecting another 8%-9% over the next two years. We project continuing increases on most of our key ingredients, led by packaging, oil, tomatoes, dairy, and processed grains. It’s a volatile market now and we don’t have a crystal ball but we hope we have established a prudent estimate and are driving to cover it. Moving to SG&A, we’re planning continued leverage with SG&A as a percentage of sales dropping to around 17% by FY2010. Our plans include disciplined headcount control, simplification of distribution networks and continued streamlining of administrative activities. You will note however, that we expect slower reductions in SG&A than in the past couple of years. This reflects the fact that we are planning to reinvest even more of the productivity gains. We are building bench strength in terms of talent, enhancing organizational capabilities through global task forces, and implementing system improvements for greater visibility and efficiency. All of these actions are intended to further enhance our long-term competitiveness. We have developed a model to deliver enterprise-wide benefits and drive productivity over the longer term, well beyond FY2009 and FY2010. The concept here is to establish new capabilities and truly leverage our global scale. In short, we want to maintain our excellent local market execution, while not reinventing the wheel around the globe. In so doing our goals make Heinz more efficient and effective while developing the fuel for long-term growth. To capture this opportunity we have dedicated task forces working on the global supply chain, led by Scott O’Hara, and in the global sales and customer arena, led by Chris Warmoth. These efforts are complimented by functional work streams and financing human resources and integrated under what we’re calling Project Keystone. Keystone underpins our global effort and over time will integrate our enterprise-wide metrics, processing capabilities, and leverage technology to re-update the solution set. I want to quickly profile the efforts of our global supply chain task force. Scott and his team are directing the largest cost component in our P&L, representing nearly $6.4 billion of annual expense. As Bill indicated, the supply chain task forces has identified several key areas where significant cost reduction is possible, while at the same time increasing our level of customer service and responsiveness. The areas that we are most excited about include center-led global visibility and sourcing, integrated supply chain planning from seed to shelf, and tying our supply chain to a more accurate demand signal; further optimization of our network across manufacturing, warehousing, and transportation, as we standardize around best practices and leverage new systems; continued SKU rationalization. We’ve made tremendous progress on this in the past and there’s more to come; reduction of our inventory levels to greater focus and integrated planning; and finally, ongoing strengthening of our factory footprint, as evidenced by the recent announcement of our plant closure in Foodservice. We are very excited about what’s possible in the supply chain area, but a large part of the opportunity is not possible without world-class systems and processes. The goals of Project Keystone are to provide the global process and system foundation needed to build sustainable global capabilities and support future growth. Ultimately the Keystone team will help the business units implement SAP wall-to-wall around the globe. I chair this relatively new effort, which is led by a council made up of our division presidents and senior functional heads. The objectives of Keystone will not materialize overnight but the anticipated benefits are compelling, allowing the company to better leverage its existing scale, providing and sharing best practice capabilities with our operating companies around the globe, driving new levels of visibility and transparency, and providing a scaleable platform for the exciting growth that we see ahead. We have mobilized the program team with some of our most capable talent and they’re developing our global process, data, and system design. Their task is to capital on the SAP successes we’ve had in the UK, Canada, and India today, while also ensuring that we incorporate industry best practices. So what does all this mean? The answer is that in the near term we are prioritizing on some of the quick wins. But even with these, we’re not expecting a lot of benefit in the short term. As we capture the wins we will be simultaneously investing for the future. Thus, over the two-year horizon of our High-Performance plan, we are not expecting our productivity rate to accelerate much from our recent experience. Longer term, however, we see a very significant potential opportunity. We believe the size of the prize could be as much as $400 million-$500 million, which would position us well from a long-term competitive standpoint. Net-net, we believe there is a sizeable opportunity here and a team is mobilized to go get it. Let me now close the discussion of the P&L in the snapshot to the translation of OI to EPS. We project strong OI growth, in the range of 6%-7%, while making the investments that we discussed. We then expect to leverage the OI growth to even higher EPS growth. This leverage is generated largely by a relatively flat interest expense and other expenses, partially offset by a bit higher tax rate. As you recall, we will finish fiscal 2008 with a tax rate of 30.6%. Our projection, going forward for the next two years, is a tax rate in the 31%-32% range. Not a big increase, but up slightly. Now turning to the balance sheet and cash flow, we expect to generate around $800 million of operating free cash flow in each of the next two years. This reflects continuing reductions in the cash conversion cycle, driven primarily by improvements in DII, offset by higher capital spending as we invest in production capacity and new systems. For CCC we are targeting a reduction of 2-3 days per year. And remember that we basically cut our CCC in half over the last few years. CapEx spending will be around 3.5% of sales, still relatively low by industry standards but up from our historic spending of around 2.5%-3%. Finally, while driving significant top line growth and investing for the future, we are targeting to increase our ROIC. So over the next two years we expect to generate roughly $1.7 billion of free cash flow, after capital spending. Our priorities for use of this strong cash flow is as follows

[Margaret Nollen:]

(Instructions) All right, questions.

[Unidentified Analyst:]

In one of the pie charts earlier on it showed the co-packing costs as a percent of costs [inaudible] by mistake or presumably just over-billing dollars. At the same time we’re hearing that new products as a percent of sales are going to increase from 11% to 15%. I guess the question is, does that imply that your co-packing as a percent of cost is going to increase over time, because that’s typically associated with the introduction of new products, and if so will that continue to pressure margins over time if that doesn’t stop.

[Art Winkleblack:]

Well, let’s see. I think you’ve got two factors there. When we innovate, we tend to send products out so they can be worked on so that we don’t have capacity before we need it. So I think you will see some of that, an increase as our new product development increases. But on the flip side of that, as we mentioned, we are ramping up capital spending so we are going to then bring back some of that in-house, so I would expect that percentage range would stay somewhere around the same area that we are now.

[William R. Johnson:]

I think it depends on the market and on the business. One of the things we pointed out to you three or four years ago is we’re going to invest behind your products and trend capacity, not ahead of it. We looked at the three plants I mentioned earlier in my remarks, predominantly focused on frozen and Asia, we will still be co-packing, even with the additional capacity, because we continue to invest behind, not ahead of this, and we think that’s the prudent way to go. My own view, and I’ve said this many times, I think the industry spends far too much capital on expectation of performances as opposed to meeting performance. So I think in that context we’re doing the right thing. And I think Art said well. It will be about the same percentage. You’ll see some mix in terms of categories but I think fundamentally we have a pretty good handle on it.

[Unidentified Analyst:]

You made a point about the Ore-Ida brand and you talked about the performance in the fourth quarter. Specifically, though, can you talk to us about, with all the pricing that you have taken on the brand, what type of volume growth would you expect for Ore-Ida in FY2009, and I’m just trying to get after a little bit of what happened in the fourth quarter.

[David Moran:]

On Ore-Ida in the fourth quarter we pulled in volume, as you know, from the first quarter. So, as we look to the first quarter of FY2009, we expect sales to be up about 20%. Volume will be up about ½ of that. On a full year basis, with the innovation of Steam n’ Mash, I would expect us to be up in the low- to kind of mid-single digit.

[Unidentified Analyst:]

And a bigger picture for Bill and Art, can you talk about how concerned you are broadly about volume slow down in North America because of all the price increases that have to be taken in response to the commodity environment.

[William R. Johnson:]

Well, our businesses are dependent on innovation and I think the North American pipeline of innovation is as good as in the company, and I guarantee you better than the majority of our peers. We feel very good. Dave told you he’s going to get mid-single-digit sales growth this year and I think there actually could be some room on that. I think we feel very good about the innovations on TGI Friday’s, we feel very good about what we’re doing in ketchup, we feel the innovations on Ore-Ida are a potential significant breakthrough which we really can’t scale up yet because we don’t know how quickly we’ll get the distribution we need to drive that, although the selling has gone very well. I’m not concerned. You know, when you take the price increase at the end of one quarter and then at the beginning of the next quarter you’re getting some compacting in terms of volume, but the rest of this business would have been up 5% in volume, so the rest of his business continues to grow pretty well in line with what we’ve done, even if you take the innovations we have in Ore-Ida and the innovations we’ve got planned elsewhere. I just don’t foresee North American slowing down much in this year.

[Unidentified Analyst:]

You talked about Foodservice slowdown and really your point big picture was traffic slowdown. There’s maybe another way I’m looking at this. Why isn’t it possible that you actually see volume pick up within grocery?

[William R. Johnson:]

Well, we are seeing some volume pickup in grocery. I think the TGI Skillet Meals is a great opportunity, priced between $7-$8 dollars, to pick up people who are no longer going out but are migrating back to retail. We’re seeing that clearly in our entrees business. I think you say a chart that Beth showed you earlier about the over-50 population growing, driving 96% of the growth in that retail where we are very well positioned. So, we are seeing a big pickup. I think the context of the overall plan is we presented the pieces of that plan, it took us where we wanted to be. So I think how we come in against plan will vary with how well we have secured some of the other opportunities. But again, I think it’s important to note, on Foodservice our expectation are frankly not much. We don’t anticipate a major turnaround. I think Dave used the term “stable”, we’ve used the term “flat”, which is pretty much what we expect. I think frozen will do better. But we’re taking a prudent response. We have not seen a slow down as a consequence of pricing, but we’re still uncertain about the future so we took a fairly appropriate, in my view, fairly conservative approach on the North American business. Having said that, how many of our peer company’s are telling you mid-single-digit growth is conservative?

[Unidentified Analyst:]

For Art, for free cash flow, why does free cash flow basically seem stable when earnings are expected to grow?

[Art Winkleblack:]

As you saw there, Eric, I think what we’re seeing is more capital spending than we have done in the past and that is for two things. We are covering increases in capacity that are required for fuel outgrowth. And the other thing is we are investing more in systems going forward. So we expect good strong underlying growth dynamics in cash flow. Capital spending will be a bit higher, but as I mentioned earlier, at 3.5% we’re still not high by industry standards. The other thing is that we’re continuing to drive cash conversions. I think we’ve done a great job in our [inaudible]. We’ve got more opportunity in re-inventory ramp, but most of the improvements you’re seeing going forward in the cash conversion cycle relate to inventory. And over the past we’ve cut in half that cash conversion cycle so that was a big advantage for us. We see more opportunities but it’s not in such a big swath.

[Unidentified Analyst:]

So based on that Project Keystone, I think you called it, so we’ve got a kind of flattish free cash flow, albeit at a decent level, and then ramping up after this two-year spend?

[Art Winkleblack:]

I think over time we will see good growth in cash flow. Again, that’s going to require continuing improvements with the cash conversion cycle. But as we ramp up capacity I think over time you will see a less need for that, but at this point in time we have a number of needs and it’s a good problem to have. Frankly, driving the top line growth at the rates we have is a good thing. We do need to spend some [inaudible]

[Unidentified Analyst:]

And then to Scott, if Europe has been benefiting from a stronger consume over the last few years, after a really tough period, plus you’ve had a kind of a turnaround but I guess recent data suggests that maybe the consumer is pulling back there a bit. How do you think about that versus the kind of plans that you’ve put in and just what flexibility are you putting in on the assumption that that pullback really continues?

[Scott O'Hara:]

Well, I think, Eric, that’s its fair that it’s like in the U.S. If the economy softens a little bit in Europe, you know, I think our innovation pipeline has been incredibly powerful, we’re seeing, as you saw on the charts that I showed, across our total European business that our market share is doing very well, our franchise help is doing very well. So we’re going to continue to drive the innovation pipeline and we do it throughout the whole range of products. We try to upgrade, as I said, the kind of core items, like the Classic soups that I showed, and the beans, as well as we’re trying to launch into new white space areas, whether it be packaging or things like Deli Mayo’s, into a segment that we don’t see it in today. But I feel very good about where we’re at with the business and the pipeline we have to continue to drive growth.

[Unidentified Analyst:]

My question is for Dave. David, if you look back over the past couple of years, your sales growth rate has exceeded profitability. North American Consumer. And it looks like row 9, you’re calling for the reverse. You’re looking for leverage. So, I’m thinking you’re going to be spending more on innovation, certainly more on marketing. What would you suggest would be the major drivers of getting that leverage?

[David Moran:]

I think all the leverage that you talked about, we are going to grow mid-single-digit on sales and almost double-digit on profit. I think there’s a lot of mix in there. We’re growing our biggest, most profitable brands the most with innovation and in-store conditions. And don’t underestimate the pricing we’ve already taken and how we’re thinking about it going forward. We think this commodity inflation is here to stay. We’re building a model to deal with that. I just had the entire North American organization in Pittsburgh, literally last week, 2,000 people, and we talked about this changing model, that we don’t think it’s going to subside for the next few years. We hope it does, but if it doesn’t, we’re prepared for it. The final comment that I would make is, this is a great time to be in the grocery business if you have great brands. It is absolutely a terrible time to be in the grocery business in the United States if you don not have top-tier brands. And our modeling, our belief structure of the top 100 people in North America believe that we will emerge on the other side of this inflation issue with our brands so much stronger than they are today. Private label will probably be stronger and may a bigger share, even though that really hasn’t happened yet. But those second- and third-tier brands that seem to clog the shelves and not add that much value, I think it’s going to be tough to compete. So we’re blessed with a spectacular portfolio, and we’re chocked full of innovations that is really going to help us in this environment.

[Unidentified Analyst:]

I have a question regarding the grade spend of the migration. Do you plan to have one trade budget for the whole line?

[William R. Johnson:]

No, our trade budgets are allocated by business and each market has nuances that require us to spend at different levels. Europe is a little more difficult, as is Australia and New Zealand, primarily because of customer concentration and the way deals are allocated. But the pressure to reduce deals across the company is continuing on every business, and every business has made progress over the last three years with the exception of Australia and it’s hard to quibble with their high double-digit or the mid-double-digit profit growth and their high single-digit volume growth. So, we don’t allocate it by the total company. We allocate it by business based upon the needs of the business, the nuances of the market, the exigencies of our competition and what we need to do to drive those brands. I mean one of the things you’re seeing in the 16.4% G&A by the company is some markets are much higher than that, some are much lower. Some of our brands are far lower than that. You notice we haven’t broken those out nor will we. Some are much higher than that. We also haven’t broken those out. And I think the one thing I can tell everybody is we’re going to be very careful going forward talking about our D&A spending. We are getting some curiosity and some questions from people that are very important to us, namely our customers, about this whole process. They’re not concerned with what we’re doing, they’re concerned with how much we’re sort of publicizing it and not including them in that process. And that’s why Dave and Art both talked earlier about the importance of partnering. But we don’t do it globally, we do it locally.

[Unidentified Analyst:]

Do you plan to put launch any of your international brands in Europe?

[William R. Johnson:]

Well, we’ve got products launching all over the company. What we will do is we will take formulations, recipes, and ideas and localize them in terms of existing local brands. So we might take some ideas from LongFong or some ideas from Weight Watchers in the UK and bring them into the U.S. under the Smart Ones brand or TGI Fridays brand. And vice versa. In the last six weeks we’ve had the U.S. sauces team spending a fair amount of time in Europe looking at the innovations the Europeans have made. We’ve had the European frozen teams in the U.S. visiting an innovation center looking at the innovations the U.S. guys have made. And so there is lot of sharing, it’s just tailored by market. I think Mike gave some examples earlier of soups and how we move those from market to market. There’s more sharing and ideation across business units in this company in the last 12 months than there’s been in the last 26 years. And that is a real focal point. I mean, one of the things you should have observed was the three guys sitting up here in terms the emerging markets, was the relationship they clearly have with each other and Dave is clearly a part of that. They are willingness to share and their anxiousness to share more, because it helps them and at the end of the day all we care about are the results, not the origination of the idea.

[Unidentified Analyst:]

Do you plan to plough profits from one place in the world to another place? Like if you’re making a lot of profits in the emerging markets, do you plan to plough it, let’s say, in North America?

[William R. Johnson:]

We plan to deliver the range as we showed you. And how the allocation goes will depend on the opportunities in each business.

[Unidentified Analyst:]

You gave a pretty strong estimate for price realization this year and you showed in your gross margin chart pricing covering about half your cost inflation. I’m just curious why a lot of your peers are trying to price to their cost inflation. Is there a reason you’re trailing that or is there maybe one market or one business where you’re not getting . . .?

[Art Winkleblack:]

No, I think what you’re seeing Chris, is we’re trying to balance overall growth to drive profit dollars. So in other words our view is if you ramp up pricing too far you will impact volume disproportionately or more so than what you would like. And I think our past results over the last couple of years, you’ve seen us balance those levers very nicely to drive gross profit dollars and upper gain dollars. We’re looking to do that going forward. So we’re constantly looking at the balance between pricing, volume, and productivity to make sure that the innovation driving our growth really is sustained and sustainable as we look forward.

[Unidentified Analyst:]

Relative to the cost saving targets you put out there for the next two years, you’ve been very good about including the charges in your P&L, it’s a very high quality way of going about it. Are there more of those sort of charges coming through to achieve these costs? Is that something you can talk about?

[Art Winkleblack:]

We spent about $25 million in FY2009 in terms of investments for the future. As we look forward, we’re looking to continue to ramp that up. Others of our peers have successfully done that and then built in the capability to absorb one-time investments or whatever the case might be. We’re certainly looking to follow that same path. And so over time we will ramp that up and we’ll talk to you more about it as things unfold.

[Unidentified Analyst:]

Art, in your projection for cash flow, it’s for $1.7 billion over the next two years, you’re also saying there’s actually going to be some debt reduction with those funds. I mean, mathematically it looks like there’s going to be a lot less cash available for share repurchase than in the last two, I actually thought you might increase debt along with the growth of your company. Has something changed there?

[Art Winkleblack:]

No, I think what you’re seeing, as our business grows, certainly we’ve got our debt ratios and we watch those very carefully, but as the business grows and even if you maintain a flat debt ratio, that allows you to increase your debt somewhat. I think what you’re hearing from us is that we are very excited about our growth opportunities and the reality is I would love to see us fill in some of the white spaces geographically, especially in the emerging markets and some more core categories and so we’re looking hard for some of those acquisitions. Personally, I would prioritize that higher than share repurchases at this time. To the extent that we didn’t find the acquisitions that we wanted, we would certainly look more at share repurchase.

[William R. Johnson:]

I think fundamentally we’re keeping our powder dry. As I said to you in my comments, we are seeing more $50 million-$100 million M&A opportunities than we’ve seen in maybe 5-6 years. Predominantly, if not totally, outside the U.S. Particularly in Europe and the emerging markets. That’s our focus. We’ve built a great infrastructure, we’ve got great management teams who are hungry to build on their categories and to grow those categories even more. So we’re going to let this play out for a while and then we will revisit this with you later. Assuming how this goes.

[Unidentified Analyst:]

There’s a lot of talk about consumers trading down out of restaurants into grocery stores and even trading down within grocery to private label. I’m just wondering, since you have a very strong collection of brands, are your consumers telling you anything about, since they are eating more at home, that they are valuing the brand more than they did in the past. I mean, there’s plenty of evidence, or at least speculation, that brand is dying or dead because of private label emergence, I’m sure you would agree. But would current economic trends actually help you to that degree?

[William R. Johnson:]

Let me address overall and then let me let the guys address that. Brands are more powerful now than they have ever been. And the reality is while consumers may be telling you, the reactions in terms of our market shares and our penetration is increasing, because consumers, when they don’t have as much economic upside as they thought they did, they go to things they know and trust. And what they and trust are great brands. And we have great brands. It goes back to the comment that Dave made earlier, that we think it’s very germane what’s going to happen over the next two to four years, and that’s is that second-tier brands are going to come under significant pressure and find themselves squeezed between the trade’s opportunity to drive private label and the number one brand’s opportunity to increase penetration. You’ve seen Dave do it in ketchup, you’ve seen it in Ore-Ida and other brands. So, I think overall we view this change as a positive, overall. There will clearly be some dislocation in smaller markets or in other segments, and we’re perfectly prepared for that, but I think it’s more appropriate to let these guys answer what’s going on in their own regions.

[Art Winkleblack:]

If you actually look a the private label’s profit model, they actually have just as much pressure from cost, if not more than we do. So we’re seeing a lot of upward pressure in their businesses as well and some are having difficulty maintaining supply in their contracts with customers. So we’re not seeing that, we have a lot of great opportunities with our brands and the environment remains prime for us to grow.

[Scott O'Hara:]

The only thing I would say on that is that particularly now, given the economic situation, consumers are looking for values. And if they’re getting great value, whether it’s new product innovation or in the core, they’re going to continue to support our business. Certainly for me in Europe, we haven’t seen the trade down into private label in our large categories to date. Clearly it’s something that we watch and monitor but we think that given the innovation plan and the strong support we’ve put behind the business, that consumers stay in our franchise.

[Chris Warmoth:]

And Beth and I mentioned the Millward Brown equity study. That’s the first time Heinz has ever down a study like that which was totally consistent around the world. I think we knew our brands were strong, I think we were pleasantly surprised how many were up there in that top right-hand quadrant. If you talk to Millward Brown, they will say brands up there are more resilient and have better future potential for growth. And of course, we’ve identified some opportunities and Scott talked about Heinz in Russia where we can build our presence, and move it into that top quadrant. So I think that’s rather given us a lot of new insights on a global scale.

[Unidentified Analyst:]

On the Foodservice side, you said in your guidance you do not assume much of a recovery in that area in the U.S., that it would be stable in terms of profitability there and that you would be having conversations with these accounts about the value of the Heinz brand. Could you give us a sense of what you’re presenting in terms of data, what’s the big argument you’re making with these accounts. Obviously the big guy, McDonald’s, does not have Heinz. So I’m just curious to see what you’re showing them to convince them of the value of Heinz.

[William R. Johnson:]

Well, we’re not going to mention customers, for a lot of reasons. Namely, many of them are probably listening. And we found it’s safer over a period of time not to reference any specific customers. I think our general plan is to remind the customers of the importance of our brands. I don’t think that you should take out of that the context that we’re going to do disproportionate pricing. I think what we’re showing our customers is data that’s new to them which is the disproportionate impact we’re feeling from commodity costs relative to our other businesses. And as Art told you it was 12% across the year in Foodservice. That’s 50% bigger than what we said as the company as a whole. So that’s data that we have not shown them.We have built the model that drives volume, has not driven value. What they’re doing is just changing the mindset of the model to value rather than volume. So when we have opportunities with accounts, instead of chasing small volume runs, we’re going to chase opportunities for more value creation in the importance of our brand. But I’m not going to comment on the magnitude of pricing by customer. One, it’s not appropriate, and two, it’s a lot of the stuff is still ongoing.

[Unidentified Analyst:]

I’m also curious about where you are in that process in the confidence level and achieving this year.

[William R. Johnson:]

Obviously we said Foodservice this year would be stable or flat. We’re not anticipating any substantial upside. You saw where the numbers were this year relative to last years, so we’re not expecting any significant improvement in that so I think you can draw your own conclusions from what we’re saying.

[David Moran:]

Our new leader of Foodservices is Vernon Coley. He’s a very high quality marketing person that most recently was on the CP side who started his career with another company in Foodservice so he understand the business. And we’re going to be moving to more innovation and new ideas. That’s the only thing that I would add to Bill’s point.

[Unidentified Analyst:]

Art, I believe that you mentioned that ROIC is one of the metrics that the senior leadership team is measured against. When I look at the target that you put out for ROIC by fiscal 2010 it was only about a 20 basis point improvement from where we ended fiscal 2008. It seems that you other targets are much more aggressive than that and they are probably realistic. I’m just wondering why the ROIC target seems to be rather skimpy?

[Art Winkleblack:]

First of all, we have a very healthy ROIC now, so compared to our peers we’re slightly higher the last time I checked. I think first of all, we’ve got a very strong return on investment capital. We’re well more than covering our cost of capital. It’s about growth now and so I think what we want to do is invest behind that growth and that would be capital that the systems, to the extent that we can get some acquisitions, we will do so, and as you know, even bolt-on acquisitions don’t help your ROIC in the short term. So I think we’re giving ourselves a little room on that. Because again, this is about growth and driving the top line and then driving the bottom line.

[William R. Johnson:]

I think there’s a balance. We’ve got a lot of metrics up there. Some can be questioned as too aggressive, others not ambitious enough. We do what we can in terms of getting as much balance as we can and I think Art said it best, we are focused on driving the growth in this business. I want to make a comment in that regard. We hear other people talking about emerging market business and the future and so forth. What you say today is a real business led by real people with real brands, real execution capabilities, real results and a real promise in terms of the magnitude of potential of that business over the next two to five years. And I think if in that context, if we continue to drive that growth, one of the things that’s likely to happen to us, we’re going to find the need for additional capacity. Maybe even beyond what we’ve set. We re clearly looking at new capacity in Asia, we are clearly looking at opportunities, as Mike pointed out, in Mexico. What Mike didn’t tell you is that Venezuelan baby food business has grown 34% this year, we built a new line in November, installed it, it’s already full capacity. We’re adding another line in another market to help absorb that. My guess is about an hour after that line is up it will be full. And so we’re going to continue to invest. It’s a nice problem. It’s a problem that many of our peers would gladly take. And so I think it’s just a balance and it’s just trying to recognize the tradeoffs we’re going to make and do the best we can in terms of projecting where we’re going to go.

[Unidentified Analyst:]

Scott, in the press release it mentioned that the Italian infant business was down in Q4. Could you give us any general comments on the competitive environment in Italy for infants and has there been any improvements over the past few months since the recent industry consolidation.

[Scott O'Hara:]

We haven’t seen any impact from the industry consolidation. It’s a fantastic business. The Plasmon brand has an incredible brand equity. I think any of our peers would love to have that. It is a competitive market. Our business is stabilized there and we have got a phenomenal innovation pipeline. It’s focused on the Plamon brand, which is the core business and we’re really excited about where that business is going to go. It will continue to be a very competitive market for us and we recognize that. We feel really good about the plans we have in place and it’s a great business to have.

[Unidentified Analyst:]

You spent a lot of the morning talking about value-added innovation across all the businesses and then in the gross margin bridge it looked as though mix was not to be much of a contributor. Is that simply geographic mix working against product mix? And then one for Dave. Can you comment on any notable changes in the changes in the competitive environment in NACP?

[William R. Johnson:]

Let me comment first on the mix. That is business unit mix so if you think about it, as emerging markets grow they’ve got a slightly lower gross in operating margin than the rest of the company. That would be a negative factor. On the other hand we expect most of our developing markets to grow faster than Foodservice. Foodservice tends to be a lower margin. So we’ve got a few offsetting factors. But that line in that chart is meant to be only geographic business unit mix, not product mix. Within each of the business units I think you’re seeing some positive mix impact as we go forward.

[David Moran:]

On CP, not much of a change. What I would say to you is, over the last five our six years, we really didn’t take any price increases. And we got net pricing by reducing deals and allowance in the U.S. by about 1000 basis points and we’ve been public about that. We lived on that for a lot of years. And I think our retailers, and I would go so far to say our consumers, realize that we have held pricing down. That’s given the right and the bullishness to go into the marketplace. Private label is matching us. It takes about 4-6 months because they have contracts and they have to work through it. But these are all direct material cost inflation issues. These are not margin enhancing. We’re not margin grabbing. So we are seeing private label go up with us, 4-6 months later, almost to a the tenth of a percent on two or three of our biggest businesses. Again, second- or third-tier brands are not following because the role that they play for retailers has been less expensive product and that’s the role that they play and they’re having difficulty in this pricing environment.

[Unidentified Analyst:]

If you’re getting pricing of 3.5%-4.5% and you’re saying that your developed market revenue is expected to be mid-single digits, is volume growth up 1%, is that conservative? Maybe you can address the fact that you’re ranking up a lot of marketing so is that conservative?

[Art Winkleblack:]

The thing about the dynamic, we’ve talked about 6+% top line, so 3.5%-4.5% pricing, that leaves 1.5%-2.5% of volume. We certainly hope that’s a conservative assumption and depending upon the mix of growth that we see, we’ll see if we can do it on the upside there. But that’s the way the math works in the plan as we have it laid out.

[Unidentified Analyst:]

Scott, currency has obviously been a nice benefit and I think in your remarks today you said it did give you some benefit on the operating line.

[Scott O'Hara:]

Not in my presentation so much, but in the press release it does break out the FX impact versus organic growth. Clearly there was a tailwind in fiscal 2008. Right now we expect that there would be much less of a tailwind in fiscal 2009 and there would be much more organic growth.

[Unidentified Analyst:]

I guess what I was wondering is have you put mechanisms in place, are you anticipating maybe the Euro comes down against the dollar, you could buy a little bit, maybe a lot?

[Art Winkleblack:]

I think there’s two aspects to this. There is the translation aspect, there is the transaction aspect. And the transaction standpoint, currency is working very much against us, particularly in Europe. Remember we produce ketchup and condiments on the continent to ship to the UK, which is our largest ketchup market. We think Russia eventually will be but right now it’s the UK. And the Euro, relative to the pound, has strengthened pretty considerably over the last six to twelve months. So that is one thing going against us. Same thing is pretty much true with the kiwi and the aussie where we’ve seen some dislocation, although that seems to be coming back this week. I think from a translation standpoint we pretty much have a hedged book. We’re about 40% outside the international markets, 60% inside the international markets. We expect over time the Asian currencies to continue to strengthen. Now there’s a lot of jawboning going on around that but we think those things will continue to strengthen. As our position in those markets grows we think we will be a beneficiary of that. Which we think might allow us to offset anything that happens in the Euro. Now we’re talking about some volatility on a minor level. We’re not talking about wholesale changes between the dollar, the Euro, and the pound. We think the pound probably has more downside vis-à-vis the Euro. But a lot of it is just going to depend on the economies and interest rates. We tend to on translation lock in a quarter. We have not historically locked in beyond that. Obviously something we are always looking at to see if it makes sense.

[Unidentified Analyst:]

I’ve asked it before but I do think it’s, the company is obviously doing well now. Those of us who have been following the business for a while know the struggles of years ago. So you’ve spent more time in the last few conference calls talking about human resource talent. I assume with the company doing better it’s easier to bring in talent, but can you talk a little bit about, having been with the company a long time, Chairman, CEO, COO, President, what is your outlook in terms of responsibility and how do you see your role changing and potentially bringing in more delegation of responsibility?

[William R. Johnson:]

Well, you forgot that I also cleaned the floors at night. Just look around me. Look to my right and look to my left. I stack this team up against anybody in the industry. Quite frankly, it’s better than anybody in the industry, with maybe one possible exception. These guys are getting a lot of autonomy delegated to them. We run these businesses very autonomously on a localized level. It’s one of the reasons we can be successful. If we get the right people in place, we empower and we give them the resources, they drive it well. Clearly, when you’ve been in a job as long as I have you have a Board and it’s a very topical governance issue. We are very focused on what happens when I retire 15 or 20 years from now. And that’s about as precise as you’re going to get out of me. But we have a very robust succession plan across all aspects of our company. Not just in terms of the way you look at me and potential succession for me, but all levels. And we’ve got the deepest bench we’ve ever had. I’ve got four or five COOs sitting around me who are running terrific business. They have an enormous amount of freedom in the way they operate. It’s allowed me to do what I want to do, which is spend more time creating the succession opportunities around the company, developing people, really improving our skill set. All these guys are undergoing enormous training regimens and development processes whether it be spending two months at Harvard, tailored programs like we’re doing at Carnegie Mellon. And what I’m telling you that this company is blessed with the talent sitting next to me than can run any company in this industry. I think that’s a nice thing for the Board to recognize and they do. In due time and as things progress as they should, this company is well established with bench, well set up to move forward, and right now these guys are running their businesses better than anybody in the industry and I wouldn’t trade this team for anybody. So eventually quarterbacks get old and quarterbacks retire. So eventually those things happen and I’m blessed to have five guys or six guys around me who can quarterback this team very well.

[Margaret Nollen:]

There are no further questions. This concludes our webcast. You may now disconnect.