Mondelez International, Inc. (MDLZ) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Dara Mohsenian, Morgan Stanley's food, household products and beverage analyst. I'm very pleased to welcome Mondelez to Morgan Stanley's Global Consumer and Retail Conference. Before we get started, I do have to note some disclosures. Please see the Morgan Stanley website at www.morganstanley.com/researchdisclosures for important disclosures. And if you have any questions, you can reach out to your Morgan Stanley representative. So with that out of the way, Mondelez clearly has had a lot of success the last few years at reaccelerating market share and organic top line growth back to the 4% range, with strategic changes under what's still a relatively new management team. And those share gains have actually accelerated during COVID, offset a bit by some category weakness in areas like gum. So certainly, an interesting time to have the management team here with us. And joining us today, we have Mondelez' CEO, Dirk Van de Put, as well as Mondelez' CFO, Luca Zaramella. Dirk and Luca, thank you so much for joining us.

[Indiscernible] Thank you.

So first, maybe to start with Dirk. Clearly, you posted above consensus Q3 results. Organic sales growth accelerated to 4.4%, saw improving trends in Emerging Markets. So you saw a sequential improvement versus Q2 where you saw a lot more COVID impact, particularly in the Emerging Markets. Can you just give us a bit of an update and a review on your thoughts walking around the world at this point, share what you're seeing in some key markets in terms of consumption patterns in some of your key countries as we think about the balance of the year and heading out to next year?

Sure, sure. So we -- I would say we've -- we have a positive outlook at the moment. There's a number of reasons for that. The -- our brands, our strong brands, we are in categories that are relatively resilient. Apart from gum that you mentioned, our categories have done well during this pandemic, even accelerated. We've been executing well. Our supply chain, our customer service has been good. We've kept on investing, and we've got good payback on them. And the result of all that has been that we've gained share. Q3 was a good quarter. There was a little bit of a pipeline fill in there since Q2. There was a number of markets in lockdown, and we couldn't necessarily get to the stores. India would be an example of that. So you have a little bit of an effect. And other markets -- our inventories depleted because of high demand. So Q3 was on the high side, I would say. But overall, we remain very positive. Walk around the world, I think what we see happening is that clearly, I don't know if we can call it a third wave or a second wave, but let's call it the second wave of COVID, that's going to have a number of effects around the world. We see it in Europe right now where there's a lot of countries that are in lockdown. U.S. is still -- not quite sure what we want to do here, but it's clear that the situation is getting worse. And you have some cities like Chicago that are in lockdown. So the effects that we've seen during the first wave, I think we will see to a lesser degree in the second wave. And I'm not quite sure how long the second wave will last, but well into the new year, I would assume. So that means for North America, that demand will remain elevated, to my opinion. I'm counting on our team to continue the very strong execution they've had, and that our biscuit share gains are going to continue. In Europe, where we have a different perspective a little bit in the sense that we have more out-of-home and we consolidate our world travel retail in the European numbers, it's going to be strong, but it's not going to be to the degree of North America, I would say. The Emerging Markets, we always grew them in 2/3 and 1/3. But I think, overall, the Emerging Markets with the lockdowns they implemented, they had a big economic shock. And I doubt that they will go there again into these total lockdowns. Unfortunately, I don't think they can afford to do it, which in one side, is good for business; on the other side, it's probably not that great for the health of the consumers. But I don't think we will see this slowdown that we had in Q2 in the Emerging Markets. They're still recuperating from that Q2 effect, but it's not going to be to the same extent. So overall, I would say 2/3 is recuperating in the Emerging Markets and will continue to recuperate. I'm talking about China, India, Eastern European markets like Russia. Brazil, I would probably put in there. Then there is 1/3 that the pandemic was accompanied by a very severe economic crisis, often some currency effects. I'm talking about Mexico, Central America, the Middle East, some countries in Africa. I think theirs is more severely affected, and that's going to take a little bit of a longer time before they recuperate. But that's sort of the picture that we are taking into account ending this year and starting next year.

Okay. That's very helpful. And Luca, maybe you can take us through some of the individual countries in Emerging Markets and what you're seeing there. Obviously, a pretty pronounced snapback in Q3 versus the declines we saw in Q2, some of that clearly timing and related to rebuilding up inventory. But as you think about some of your key countries, Brazil, China and some of the other key emerging markets, countries, maybe take us through a bit of a review on them on an individual basis.

Yes. Absolutely. Thank you, Dara. I mean, first and most importantly, I want to say that we continue to be strongly positive about Emerging Markets, particularly in the long term. Whenever we look at snacking growth, it is clear that majority of the growth in snacking will be coming out of these markets. And we don't talk very much about it, but we have been gaining share in these markets, too, besides the U.S. and the European markets. And so we are taking advantage of our good position in terms of footprint, and we have been investing and we are investing in these markets. Specifically about the markets, the one I feel quite good about is India. It is performing extremely well, certainly out of the COVID wave that we had grew again double-digit in Q3. I was -- high single digits, sorry. I was very happy with that. There was clearly a [ revived ] effect in there. But importantly, as we look at the foundational -- at the foundation or the growth in that market, we had been expanding distribution, and we continue to expand distribution. We have created, over the last 3 years, a meaningful leg of business, which is biscuits. We still have a pretty modest share, but it is a big market, and it is growing fast, and we are outpacing the biscuits market growth. I can also anticipate that Q4 will be strong for India. Diwali, which is a great festivity there, where we sell products for chocolate, it went quite well, and we expect this market to continue driving growth into 2021. Dirk and myself reviewed the plans around the world, and it is clear that we will continue investing, and we have opportunities to continue growing in that market. China is performing very well. We had high single digit growth in Q3. Importantly, despite both categories of biscuits and gum being a little bit subdued, we are gaining share in both. And particularly in biscuits, it is making a clear difference, and that's why we are growing. Off-line categories, as I said, are soft. But online, they are growing. And now we are very happy because we are gaining share in both channels. Russia, very pleased. Certainly, a remarkable progress in Russia over the last 3 years. We gained quite a bit of share. Q3 was strong. Q2 was somewhat disruptive as well. We see some category softness, but we continue gaining share, particularly in biscuits and in chocolate. And again, we remain quite optimistic about that country. Brazil grew double digits in Q3, in all fairness, lapping some disruption last year. So underlying, I would say we are growing low single digit or mid-single-digit. We are making good progress in terms of execution, but there is still some work to be done. Categories at the moment are not great yet. I would say they are in slight decline. But in that context, I think we are doing a little bit better than the categories. And we are fixing, piece by piece, the executional aspect of the business. And importantly, we have started reinvesting back in the business. And so our franchise should grow into next year. As Dirk said, we are a little bit more cautious about other developing markets like Mexico, North Africa and Western India. And those are markets where we have the predominance of the portfolio, particularly in Latin America, in gum and candy, which is the category that is impacted the most. But again, from an execution standpoint, I think when you look at our shares, we are doing relatively well. So hopefully, that gives you a little bit of color about our developing markets.

That's great. That's very helpful. And Dirk, in the first 10 minutes of this conversation, you guys talked a lot about market share gains. Clearly, those have accelerated during COVID. They were accelerating even pre-COVID. But as you think about these market share gains, how sustainable do you think they are longer term? And is this sort of sustained competitive advantage in your mind versus your competitors out there or more of a temporary phenomenon, the step-up we've seen during COVID? And also what type of competitive response are you seeing from those competitors?

Yes. I mean, the market share gains, if I step back to how we've gotten to them, and that gives you an idea of what's going to happen going forward. So I would say the 3 big reasons why we have gained market share, the first one is that our supply chain functioned well. At the beginning of the crisis, a lot of companies have disruption in their supply chain. We did better than others. We had a very effective route-to-market. The fact that we have DSD systems in the U.S., but also in other countries around the world, really helped. And so our customer service levels were better and our on-shelf availability was better. So that clearly helped. We're now solidly through that. There is no real benefit anymore from your supply chain. I think everybody's sort of level now. But the second big reason for our market share gains was that consumers bought our brands more than others, and they clearly are choosing our products over others. And I think that has to see with the fact that our brands are very trusted brands, very well-known brands. You have our global brands, which are widely known. Oreo, I think, gives a lot of sort of awareness, comfort around the world, but we have also local brands, which are taste-of-the-nation type of brands. And there was clearly a shift. Consumers snacked more, but they also went to brands that they felt comfortable with. It reminds them of their childhood. It's something they want to share with their kids. So we have brands that really play into that. And then we accompany that with quickly adapting our messaging to the particular pandemic situation. So the Stay home, Stay playful campaign of Oreo, for instance; or Milka thanking the frontline workers; Cadbury, which is about generosity, airing commercials about acts of generosity. So we connected really well with our consumers. That was the second reason. And the third reason is that our mix within snacking, for consumers that are staying at home, is we had advantage because we are more of a box chocolate player versus a chocolate bar player. Bar is more on-the-go, chocolate is more home consumption. We're more sort of basic biscuits player versus the very sophisticated biscuits. And clearly, that was, for at-home consumption, something that benefited from this. I think that will be sustained for a while, the second and the third reason, because we've got new consumers into these brands. They are getting used to consuming them. So I think we will see an after effect. Of course, we are putting in place a number of activities going forward that we hope will sustain and hopefully increase even further our market share. We're investing a lot in the second half of this year, but also increasing our media investment significantly next year. Not only do we increase our A&C and our P&L, we increased within the A&C budget more towards working media. And then in working media, we're working on our mix to get more ROI. So the end effect is quite significant of the shifts that we're doing. I think our marketing effectiveness has increased. We've seen a significant uptick in the ROI of our marketing. So that's going to help us. We are now top tier, top 20% in our ROIs on our brand. So that is a big step forward for us. We are trying to make sure that the first half of next year is the biggest activation with the most exciting activities you've seen on our brands. We think we need that because there is a risk for a recession. There is a risk that the categories will slow down. And so we will depend on our market share gains. So we want to make sure that around our biscuits, chocolate and also gum and candy categories, things are very exciting. So you've got the Lady Gaga Oreo coming out. We've got very big Christmas promotions coming up. And next year, of course, we will have Easter. We're trying to make sure that it's huge. We're doing sponsorship of several soccer leagues in Europe and so on and so on. We are also shifting our promo strategy. We're trying to play a little bit more on value. We do that through particular promotions in the U.S. and in Europe where we think that will be most important. And the last thing we're doing is adapting our packs. So we've shifted, for instance, Oreo more to family packs in the U.S. So that means the consumer buys more quantity [ and justified ]. We're doing that on more of our brands. We're developing special e-commerce pack, which contain more quantity because consumers want to buy more online. So we think we've got a battery of activities that are stronger than ever. That should allow us to build on what we've done. Competition, I'm sure that they will try to fight back because the market share differential has been quite significant. But we feel that the #2 and 3 of the reasons why we're doing well are here to stay, and we're putting everything in place we have to defend that. So we feel pretty solid about holding on to those market share gains.

That's helpful. And have you seen a lot of reaction in terms of incremental spend from competitors recently? Or what have you seen so far?

Yes. Clearly, I think in the gum category, we've seen -- we're increasing our spending and we've seen our competitors there because everybody's aware that something needs to be done. So there will be a lot of activity there trying to revamp. We've seen -- I wouldn't say an increase in spend, but they're certainly keeping up with us. And so the balance hasn't really shifted. It's not that we stick out a lot more. I think they're keeping up with what we are doing. Some of our competitors have the benefit of getting their supply chain to function well. I wouldn't say there's anything earth-shattering going on, but they -- I mean, they're good competitors. They will fight back, for sure. And so they're doing everything that they need to do. But again, I think we will be ready for it.

Okay. Great. And then, Luca, on the Q3 call, you guys indicated that 2021 should be a non-algorithm type of year, which is 3-plus percent organic sales growth, high single-digit local currency earnings growth. From a top line perspective, theoretically, there's been category weakness this year with gum. Obviously, that'll extend somewhat in the early part of the year, but you should see a bit of recovery later in the year. And even travel retail, right, is still going to be down, but should recover as you go throughout the year. And theoretically, some easier comparisons in Emerging Markets. So as you think about these market share gains, the reinvestment categories may be getting a bit better, why can't you potentially do better than algorithm next year? And what are sort of the key puts and takes versus your forecast as you look out?

Yes. It's a great question. It's early, quite frankly, to be talking about next year and 5 quarters out. But as you indicated, we see from where we sit today in 2021, that can be on algorithm. We are still going through the plans. There are still some decisions to be made about next year's plans and some investments, specifically. But based on what we know so far, that's what we see. So just to give you some flavor. I would say you see percentages of revenue growing and holding share. What that number doesn't do justice to is the amount of share we are gaining. So the #1 goal we have into next year is that we want to retain those share gains and potentially likely grow those share gains. But it's not that we are talking about the same amount of share gains that we had in 2020 into 2021. So it is a more moderate share gain of a base, which is, quite frankly, the best base we had since the inception of Mondelez. And that's why, for us, it is so important that we increase the working media, marketing and sales, and we progress on those strategic initiatives that we have been talking to you about, for instance, at CAGNY. This is the reason why this COVID costs that might subside into next year and the more stronger initiatives will be mostly reinvested behind the business to sustain our share gains and potentially weather a recessionary environment. Biscuits and chocolate, we are very proud of those categories, and they should continue to do well. But as you rightly said, we will be lapping some elevated growth, particularly in the first part of the year and in Q1 to be even more precise, and particularly in biscuits. I think chocolate has still more runway. On the flip side, you're right, there should be some recovery of the most impacted COVID categories. But particularly for gum, we want to stay cautious because we don't want to plan all the way into price, if I can say so about that category. So we want to be quite cautious. There should be a recovery of gum, but we don't want to overshoot because, quite frankly, we don't see the same rate of recovery as we would have expected. And so it is a category that is still subdued. On world travel retail, a major impact for us this year. It was $0.25 billion business last year. It is running, even these days, at circa 80% of what it used to be. So we haven't seen a meaningful pickup for Q4 and into next year. And again, we want to be quite cautious. At this point, summing all up, all these things, I think we see a year that should lead to 3-plus percent. But as I said, we need to validate a few assumptions, and we'll give you more color as we post our Q4 numbers.

Okay. That's helpful. And you ran through A&C and productivity on the margin line. Commodity costs, we've seen a couple of costs spike recently. There's obviously been a lot of news around cocoa. Just general thoughts around commodity costs as you look out to next year. Is the overall bucket that different than long term trend? And how do you think about it versus long-term trend?

Yes. I would start by saying that we are never hand to mouth in terms of commodities. So we are well covered for pretty much all commodities into next year. And so at this point, we have quite a good view of our cost pipeline as it boils down to commodities and ForEx. And what I would like to say is that for both commodities and ForEx combined, inflation into 2021 is to the same level that we have experienced over the last few years. So there is no need for us to take more pricing or different type of pricing. I think what is true, though, is that categories like chocolate are more impacted than others. And so you might see more pricing in the chocolate category. Having said that, it is important to say that we are refining our pricing strategy. It's not like we go out and we announce an x percent price increase across the board. We are more selective on portions of the portfolio. We try to leverage what we call price pack architecture. We play more with the mix. And also, we sometimes recalibrate promotional spending to be able to optimize the elasticity due to price increases. And again, we are very cautious. And at this point, I would say we are making progress on the pricing front in chocolate.

Okay. And then, Dirk, maybe we can turn to the gum category. It's obviously been severely impacted by COVID given the social occasion issue. When do you expect gum to return to pre-COVID growth levels? Is there any visibility there? And in the past, even pre-COVID, it wasn't a strong a fit as some of the other pieces of your portfolio. So how do you think about this business strategically now post COVID?

Okay. Maybe start sort of at the top, what does gum me for us. Gum, this year, is 5% of our revenue. So it is certainly seeing everything that's going on, that category, that is heavily influenced for us and for everybody else, but it's not massive in our overall scheme of things. We also -- within gum, you need to make a separation between Emerging Markets, which is about 60% of our business, and Developed Markets. The Emerging Markets, even before COVID, were doing quite well. I'm thinking about China, Russia, Mexico. Overall, pretty good. Sometimes some very strong market share gains. And also quite important as a critical mass to allow us to go through all the small traditional stores in the Emerging Markets. As you can imagine, those traditional stores are heavily impacted by COVID. And so the gum category in those countries is affected. But I would say apart from recuperating from, and getting back to where the category was before, which is going slow, I would say we believe that the category in Emerging Markets was quite healthy. And then you have the developed markets where before COVID, the category was already not doing well. And we, within that category, were not doing well. Weak performance, flat to sometimes negative, sometimes positive growth, depending on the year, in Europe and in North America, and then us in that losing some share. So clearly, a situation that we need to think through, and then COVID comes and make the situation even worse for everybody. So we're doing a lot of work in the sense that we are trying to make sure that we have the presence that we need to have. So we focus on our execution. We are also making sure that we connect to consumers. At the moment, 75% of gum consumption is on the road. It's because you're on your way in public transportation or in your car, at work, you're going out, that's typically gum consumption moments. But we've also seen that in the crisis, there's more stress and anxiety, and gum can be a relief. So we're doing some interesting activities in making sure that gum is also seen not just as a mouth refreshment, but can help you be less anxious. And that seems to resonate. And so we're redirecting our advertising in that sense, a number of innovations and so on. So we're treating gum in a way that -- more investment next year. So we're trying to make sure that we're putting everything in place that allows for a fast recuperation of gum next year. Nevertheless, we are taking all options into account, and we're reviewing what health we could potentially be doing. Because even if we get back to pre-COVID levels, that remains very -- and a, that's not a given, because in any previous crisis, we've seen that gum comes back, but usually to about 95% of where it was before the crisis. At the moment, I don't have the latest numbers, but we're probably more at the 70% to 75% level of where it was pre-COVID. So to even get back to 95% is going to take something, and then we would still be down. So you have to self -- ask yourself the question what you're going to do here. So we're exploring all those options. As you can imagine, it's not a great time to explore those options since the whole category is depressed, but we do not want to be in a position where we have not taken those options into account. It might be in the next 2 years that it becomes financially just a better -- a more viable option. And we'll see what's happening with the relaunch and all the investment that we're doing next year to revamp the category. But that's, at the moment, our thinking. And I'm mainly talking about Developed Markets there. In developing markets, we feel pretty good about where the category eventually will end up.

Okay. That's helpful. And then, Luca, it seems like we've been having the Brexit discussion for years, but it looks like it's almost upon us here. Obviously, the U.K. is an important market for you guys. It's about 9% of your global revenue. So can you just talk about the potential risk of slower consumer spending, COGS exposure there, as you think about importing any materials into the U.K. or exporting products out of the U.K., your exposure there would be helpful.

Yes. You're right. I mean, we have been talking about Brexit for quite a while now. This will be the third time around that we sort of get ready for a potential issue related to supply chain overall, not ours specifically. And so we are getting ready for a potential impact. There are still a few days left. It seems like we always are always at the last minute trying to solve for something, but it has been a successful business for us. We are very happy with the U.K. It has driven tremendous growth, both in terms of top and bottom line and cash flow in the last 5 years consistently. This year, it's extremely successful year for us. We have been gaining share in pretty much all the categories. It is primarily a chocolate business. And despite the fact that we have both in-country production and some production coming from the continent, it is fair to say that the overwhelming majority of the raw material and packaging, even if you were making staff, 100% into the U.K., it would be prone to a potential tariff impact because, particularly on chocolate and sugar and other things, it is mostly imported into the country. So if it is a hard exit, tariffs will be in place, and there will be most likely an immediate devaluation of the pounds with the obvious consequences to the business like us that is reported in dollars eventually. But importantly, there will be a material inflation within the country that will require pricing. Now I think what we have been seeing extensively over the last few years, whether it was more recessionary environment or the fear of the Brexit, our categories are more resilient. And we have seen both chocolate, biscuits and cream cheese, which is the third category there, all being quite well through the crisis that -- and the downturn that the country has been experiencing. We play more in the mainstream type of segments. We have affordable indulgence, and consumers will unlikely not trade down from our category. So we expect all these potential means to be temporary if the Brexit had to happen. But hopefully, it won't happen, and we will enjoy the growth that we have been having over the last few years as well. So that is one of the reasons why I've been a little bit more vague than I would like about next year, because this is, together with tax implications in the U.S., one of the elements that make me be a little bit more cautious about next year because we don't know the way this will play out exactly. There might be also a period during which there is a transition, and so it might be a soft lending in case of a hard Brexit, and all of that remains to be seen.

Right. Okay. And how do you think about your pricing power in the U.K. in the categories you're in, if you do see significant currency weakness or inflation really come into that market in a big way? Do you feel like you generally are in categories and have the portfolio where you can exhibit pricing power? How do you think about that?

There are a couple of things. And again, you might imagine that we have been thinking and working on these quite extensively. And we are ready to go now. It will take a little bit of time to implement pricing. It won't be necessarily all line pricing. What you find out in the U.K. is that it is, in general, a heavy promoted market. And so the heavily promoted market revolves around certain price points. We will have potentially with the market, to move some of those price points, but it won't be enough to change the promotional price. It won't be enough to announce line pricing. We have to work more on the portfolio through price pack architecture. And again, we have a complete array of plans laid out. We are ready to put them in place. But obviously, we need to see first what happens. And hopefully, there will be this transition period that will give us more time. But we have talked through all of these. And in case it happens, I think we are having a plan.

Okay. Great. And then, Dirk, as you think about A&C, obviously, we're seeing different levels of year-over-year trends in the back half of the year versus the first half of the year. But as you think about sort of the A&C base leaving 2020, is it still a depressed base despite the higher investment? In the second half of the year, you've talked about increasing spending, clearly, in media in Q4, and in today's discussion, beyond that as you look into 2021. So just curious for your thought process. Is it more that you want to continue to increase spend over time and you're seeing a strong ROI on that? Is it that 2020 is a depressed base, whatever is sort of implied in the guidance for Q4? How do you think about that level over time?

Yes. No. The answer on the long term, and including for next year is that we want to get into a virtuous model, and we were in a virtuous model, and we are also, in 2020, to my opinion. And that model is that we drive sufficient top line growth, which generates enough gross profit, which allows us to, every year, increase our A&C investment, but also flow sufficient to the bottom line to fulfill our financial algorithm that we want to hit. And this year, we -- in the end, we will increase slightly our overall spending, probably not as much as we would have hoped because that gross profit increase that we would have expected, it certainly happened if you exclude the COVID cost, but we were hit with a significant amount of COVID cost that we had to absorb. So we weren't able to do as much as we normally would do. But what we did within the year is that we reduced our spending in Q2 because of, on one hand, you had very high demand, and it was really not necessary to communicate. On the other hand, some of the countries were really on lockdown and the consumer couldn't even get to the store, so it didn't make any sense either. We took all that and shifted into the second half, giving us quite significant increases in the second half. And for next year, we're planning to come back to our normal algorithm, doing what I explained. We drive our top line, get extra gross profit and flow ideally half of that into A&C investment, the other half to the bottom line, or all types of investments could also be in sales force and things like that. So we think next year, that will play out. I think what we did this year is showing a significant increase of our spending in the second half. The other movement that we are doing is we thought that we could optimize our A&C investment. If you think about A&C, there's what we call working media, and there is all the rest. And we've been working on that balance within that budget and significantly increasing the percentage of working media. So not only will you have the total of A&C goes up, but within that, we have been shifting more to working media. And then within the media, we've been following up very carefully on which type of investments give us the best ROI. Our ROI has significantly increased. And so you've got that triple effect: more A&C, more working media, better ROI, which we think will drive some important effect on the level of the consumer. We think we will need that for next year because there is a risk that the categories will slow down a little bit, and we want to defend our shares. So overall, I think that those 2 reasons give me a lot of confidence. The third one that I haven't -- that is not -- literally, the spending itself is the effectiveness of the communication itself. I think we are evolving our brands towards a more emotional connection with our consumers, which work really well in these times. That, of course, is also at the base of the ROI improvement or that is reflected in the ROI improvement. But I think it also is changing the perception that consumers have of our brands, which will give a higher repeat over time. So going forward, starting with '21, we want to get back to that algorithm that I was explaining, and we see no reason why we shouldn't be able to do that next year.

Great. That's helpful. And then, Luca, maybe we can turn to your capital allocation priorities post the recent monetization of a part of your coffee stakes. Where does M&A stand? Is it a greater focus now with the stronger balance sheet? Where do share repurchases stand within that capital allocation with the authorization? And how do you think through those 2 pieces of capital allocation here?

Yes. Yes, for sure. I mean, we have been doing a tremendous amount of work on the balance sheet front. It was not only the monetization of the KDP stake and partially the IPO of JV. It was also the fact that we backstopped that. We took on, since the beginning of the year, $7 plus billion worth of debt, and we prolonged maturities. We have a couple of meaningful towers of that coming due next year, and we wanted to get a little bit ahead and like stopping the balance sheet. And importantly, I think the other element is about cash flow. And we had been having tremendous progress this year on the cash flow side. Last year, it was a remarkable year in terms of cash flow. Hopefully, this year, we will do a little bit better than last year. But that is the other element. The capital allocation priorities are pretty much the same. We want to continue to invest for growth. I mean, we just finished talking about working media. But also in terms of expanding distribution in some Emerging Markets, we continue investing. And I think that is the first place where we should direct the money, and we are. We are, this year, investing a little bit less in capital. We have cut versus the original budget the spending of capital by 20%. We're going to end up in the neighborhood of 3%, 3.2% on revenue, which is, again, coming down quite a bit versus the 4.5-plus percent we had in the last few years. And those remain the priorities. We want to continue to invest in capacity expansion, but it is more selective than in the past, and quite frankly, the #1 place in terms of capacity where we are investing is Oreo. The second priority, as you say, this targeted M&A. We still see a lot of opportunities organically, but that is an area where we are potentially going to be more active. We are scanning a lot of potential targets, and we continue monitoring the situation. The priorities are the same. As we talked many times, it is expanding geographically and filling some of those gaps that we have. It is about premium. It is about well-being. It is about those adjacencies that we have been mentioning, for instance, at CAGNY. Then we will deploy money to dividends and share repurchases. We switched off share repurchases. Yesterday, the Board approved an additional authorization for share repurchases, but it was just a renewal of the old authorization. You don't have to read too much into that other than the fact that we are resuming share buybacks in Q4 and certainly into next year. And finally, debt repayment is always the lowest priority in our capital allocation framework because, obviously, it is, even more these days, quite a cheap source of financing and we want to keep on having access to commercial paper, even if it is quite low these days. And that's the last place where we will deploy money.

Okay. That's helpful. And Dirk, as you think about size of deals here given strength in the base business, you're in a better position than when you took over a few years ago. Given a better balance sheet, might you start to think about larger deals here? Is your focus more bolt-on in nature? Luca mentioned geographies as one priority, but what are sort of the key strategic priorities, too, as you look at some of these acquisitions?

Yes. Well, we like the space that we're in. We like snacking. And we went, frankly, through a lot of trouble to get here with the company and so on. So we are trying to become stronger and stronger and better and better in the snacking space. So the largest deals -- the issue there -- we certainly don't exclude them, but the issue is that it's difficult to find pure snacking companies. There are a few, but not necessarily kind of deal we've done. So we are more focused on bolt-on acquisitions in attractive spaces. Now that doesn't necessarily mean that the deals have to be small. There's a lot of interesting companies around the world that are quite sizable. So we want to keep on reinforcing our core, and the core for us at Mondelez is biscuits and chocolate. But if you think that through and you look a little bit deeper, of course, we have gum and candy also as a company. But next to biscuits and chocolate, there's 2 categories: one what I would call bakery, pastries; and the other one is bars, that are a natural extension of where we are. So we see that whole universe as ours, which offers a lot of possibilities, and Give & Go was one of those. And then there's the geographical opportunities we have. It's rare you find a country where we are the #1 in biscuits, chocolate, gum and candy. So there's a lot of opportunity there, as you can imagine, with a lot of potential cost synergies to do something in countries around the world. Within the categories itself, there's 3 areas that are growing faster and that I think will become more important for the future. One is premium. And for instance, in premium chocolate, we are not as an important player as we would like to be, and that is growing faster than the chocolate market. The second one, obviously, is belVi, slowed down a little bit. Not as important during COVID, but we assume it's going to come back, and there are certainly things we need to do. And then digital, which -- we think digital models, personalization of snacking, that's where we're heading. Most of that we see at the moment in China, but gradually, those models will come into the rest of the world. And so we think we should focus there, too. And so that's really our focus. I think that's a very attractive space with good natural growth, a lot of opportunities for cost synergies for us, and the potential to really accelerate our growth at the moment. So we feel pretty good about the space.

Great. Well, that was a very helpful overview, gentlemen. We really appreciate your time, Dirk and Luca. And great to see your faces. And with that, we'll end things here.

Well, thank you so much for having us, Dara.

Thank you, Dara. Stay safe.

You, too.