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Kellogg Co.


CAGNY Conference

Feb. 21, 2007



Event Type▲



Bryan Spillane, Vice President & Monthly Chair, Bank of America

All right if we could take our seats, want to get started. And before we do, just want to take a moment to recognize some of our past Presidents. This conference continues to be a premier destination for companies to come to present and I think part of that is the legacy that our Presidents have built. So I am going to call out the names of our past Presidents that are here and if you can stand just to be recognized. It’s Clint Mayer [ph], Bob Cummins, Bill Nobler [ph], Jane Gilday [ph] Lenny Teitelbaum, Beth Mowe [ph], Rick Larson, John McMillan, Kim Raime [ph], Ann Gillan [ph] and Andrew Lazar.

All right and then before we get started, also just want to take a minute to recognize our current President, Mariann Montagne. In her time serving at CAGNY, Mariann has taken a no-nonsense approach leading the board. She’s led along with Tal Klausner a real thoughtful deliberation on the move from Arizona to Florida and well it seems easy to decide -- it seems like it would be an easy decision just on time zone alone and proximity to New York. There was actually a lot more that went into that decision, in terms of how you move a conference that had to accommodate roughly 1,000 people and the money that’s spent on meals, the money that’s spent on presentations and making sure that that happens seamlessly.

Mariann has also been a strong advocate for this -- for you for CAGNY, making sure the conference is branded, making sure that -- a program has the appropriate speakers and that company’s recognize that this is the place that they want to come to and I think that is something that she has carried forward and we want to thank her for coming through CAGNY, serving her time on the board and leaving it stronger than it was when she got here. So Mariann if you could come up?

Mariann Montagne, President, Thrivent Asset Management

Thank you very much. Thank you. Again I just want to thank my board and all those who’ve come before me. 37 years is quite a legacy and it’s kind of a responsibility on my shoulders. But I think, we’re getting better every year and I think we’re all going to enjoy this year and then the move on -- so progress. Thank you.

Leonard Teitelbaum, Conference Chair, Roosevelt Investment Group

And now to business. When I went to business school, I know Simon’s going to say they used pelts and pieces of stones back then. But we were always told that if you’re going to look for a good company, you had to look for them to obtain, maintain and sustain cash. Because it gave the management the options of what to do with that precious commodity and then you judge management on their ability to deploy the cash and to earn a return. And I think if those principals which were annunciated back in the 60s, early 60s, I think it’s nice to put Kellogg up against a model that seems to have lasted with the ages.

And indeed I think Kellogg stands up well to that. Their cash generation ability and I think their ability to turn a cash cycle it’s probably the high -- one of the highest treats in the food industry, distinguishes the company and how it’s managed. And to I think enlighten that premise and for us to judge the conclusions, though obviously David and John, when they speak today you’ll know as analysts for those who may not have heard them speak before, that they come from the Southern part of New York or as Dave [ph] would say the Bronx and they are not -- they are little South and East or West depend on which way you are facing, but we’ll that you decide.

So David if you’ll start us out. We appreciated hearing Kellogg story this morning. Thank you very, very much for breakfast. John when you were running the checks, I know we used to have to bring our own cereal, but I am glad that you have moved on to bigger and better things. Thank you Kellogg and David the floor is yours.

A. D. David Mackay, President and Chief Executive Officer

Thank you, Lenny and good morning ladies and gentlemen. Before I get into the presentation, of course we start with the obligatory words from our lawyers. In fact there are a lot of them here; I am not going to read them. I would start by saying it is a privilege and an honor to be here as Kellogg’s CEO. I was reflecting back -- this I think is my sixth or seventh CAGNY. The first time I’ve actually got up to kick the presentation off. And with me here of course is John and somewhere in the audience, there’s Simon Burton, the Head of IR.

And as we look at the presentation, clearly three weeks ago we gave our 2006 results which were outstanding. We reported on Q4 and we gave our forecast for 2007. So you’re not going to hear anything dramatically new today, but I think this slide probably talks about what you’re going to hear about from us today, it’s about sustainability.
And I think you’ve heard this over the last five years, our overarching financial target is sustainable, dependable performance. And everything we do as a company is aimed towards that, building sustainability and building off the success that we’ve had. And it really is the same story with perhaps a new old-face.

And what I want to do is take you through what’s evolving at the company and what’s not. And really when you think about what’s evolving, there isn’t a huge amount evolving. I do want to reinforce a number of things that we have been doing and we will continue to do as we go forward. And I’ve been talking to a few of you last night and then this morning and the whole concept of volatility being in favor has come up, which probably means Kellogg is very much out of flavor, because when you talk to someone about sustainable, dependable performance, it sounds a little -- the ultra of volatility. But that’s what we’re all about and that’s what we intend to be about as we go forward.

So I want to take you through a number of things, want to talk about our focused strategy just reinforce it; talk about why we believe it’s the role that [ph] I’m working today. I’m going to go through our operating principles, our business model. I’ll talk a little bit about some of the business challenges we have and then touch on a couple of things that are evolving.
But I think starting with our focused strategy and I think everyone has seen this, although as I look around the room, CAGNY gets bigger every year and there are a lot of new faces. But our focused strategy is really served us very well for the last 5 years. We think it’s got a great potential for the next five to ten years and we are not complacent though. As we think about what we have done over the last five, it is a process of with continuous improvement. We are not going to stand still; we are going to challenge ourselves. We constantly get better and improve on all we do.
But the fundamentals of the business; Our focused strategy, we were looking to grow our Cereal business, globally it’s over 50% of our sales and well in excess of $5 billion for us. Expanding our Snacks business is the second part of the strategy and I will take you through these in a little bit of detail. And finally pursuing selected growth opportunities is the final part.

And if we at look at growing cereal, cereal is at the heart of what Kellogg Company is. It is how we were founded it by W.K. Kellogg in 1906. It remains the biggest part of our business and it remains an area where we will continue to grow and as we grow we will continue to perform well. And if you look at the Cereal category globally, it’s a $23.5 billion category. So it’s a very large category, it’s a very strong category, not only for us but for our trading partners. It’s growing as best we can tell by the euro data monitor about 3% per annum. The margins are very good in the category and it responds to innovation and brand building which is really critical as we look at it today. Our whole model which I’ll talk about in a little bit is around innovation and brand building. So this is a category that we believe has a lot of potential for us. We are well positioned and we intend to keep pushing and growing this category.

And if you look at where we stand and this is not all of the markets in which we compete but a selection. And what it shows is Kellogg in the red, our market share and the relative market share position of the number two player in those categories listed. And what I think you will draw from this is we have a very strong market share position in many of the markets around the world where we compete. That puts an onus on us to drive the category, to finds ways to stimulate consumers in all of these markets, to keep the category growing. And it also puts us in a very strong position to build-off the success we’ve had. And we think this is a very positive position for us to be in as a company and one that we want to ensure that we capitalize on as we move forward.
If you look at our biggest market in the world, the U.S. market, this shows the internal, the IRI Data for the last six years. And as you can see we’ve been successful in growing our Cereal shares in the U.S. over the last six years, up from about 31 to 34 shares at the end of 2006. And really the key to success here have been pretty straight forward. Very strong innovation, aggressive brand building and support of that innovation and outstanding execution in all we do, particularly when it comes to in-store, but across all aspects of the business. And those things have really worked for us; I’ll talk more about those a little bit later on in the presentation.

The other aspect is our global cereal business is really looking at the per capita consumptions around the world to see is there still a potential for us as we look forward. And we believe there’s huge global potential for us to continue our growth in Cereal and we’d like to say, God bless the Irish, because if you look at this chart, you’ll see that the Irish consume 8 kilos per head of cereal. It actually nearly drifts off the chart, it’s so high. And if you look -- it really breaks it down in to four groups here: The top five countries which have an average per capita consumption of 6 kilos, the second five at 3.5, the third five at 2.1 and just the staggering number of countries where the average per capita consumption is running at about 0.6 kilos, so massive opportunities for us to continue to grow our Cereal business around the world.

A lot of these countries with low per capital consumption, that’s driven by our income levels. And as many of these countries start to improve and grow and prosper, more consumers come in to the field category, per capita consumptions rise and we take advantage of that clearly with our strong global positions. The other point I’d make is, when you look at the more developed markets here with high per capita consumptions, there is a real skew in the cereal consumption demographically where kids eat a lot of cereal and then it drops down from between about 15 to 45 and from 45 to 50 cereal consumption actually shoots up.
So as we think about our portfolio globally, we have a very strong focus on our adult portfolio in all of the developed markets, those with high per capita consumptions and the demographics actually work very well there for us, because adult where the population’s are ageing will eat more cereal and therefore we continue stable growth in those markets. So really when we look at cereals, it’s a very attractive category, we’re very well positioned globally. It remains of absolute focus for us to continue that growth and we believe it offers a great potential for us as we go forward.

Now if we turn now to our Snacks business. And expanding Snacks is a huge opportunity for us again. If you looked at our 2006 results in North America, we grew our Snacks business 11%, I’ll show you that in a little bit more detail and worldwide we’re -- principally we’re in the snack-bar business, that category is growing at 10%. And I’ll show you a chart on our global business in a minute. And really the other thing to note when we think about the potential for us in the future in expanding snacks is we compete really meaningfully in only seven market globally. So a lot of potential, we have entered some and I’ll talk to those in a minute.

But starting with our North American business. And if you look at the break up of the business starting with toaster pastries, in 2006 we grew shipments 5%, we grew share a nine-tenth of a percent on a very strong share position, our Crackers business grew 7% for 2006 and we actually grew one-tenth of a share, so the category was growing very strongly. Our Cookies business which we’ve had a lot discussion about over the preceding two or three years actually grew shipments 8% in 2006, it outpaced crackers if you can believe that and we grew 0.5 a share point; so a very meaningful turn around in the cookies business. Our Wholesome Snacks business grew 13% and we grew 0.5 share in the Wholesome Snacks business and that category also grew very strongly across all players and Food Snacks while not shown here, we grew 34% in our Food Snacks business and added 5 share points.
So across all of the sub-components of what makes up in North America, our retail Snacks business. We not only grew share but we had very strong consumption, giving us an aggregate performance across the portfolio plus eleven.
Now it isn’t our forecast that we will continue this growth as I’ll talk to you in a minute, but certainly that was a sensational performance driven not only by very strong innovation, but great execution across many of these sub-components by our -- these organizations who really did a fabulous job in 2006.

If we look at our International business in Snacks: this shows what we have done over the last four years from 2002 through 2006. We’re double the business from 225 million to $450 million. It lists the seven markets I mentioned which are really we’ve been for at least a couple of years and that’s a compound annual growth rate of -- I calculate about 22%, so a very strong performance here and one that we’re very pleased of and we think we can continue to build on this as we go forward.

In 2006, we entered a number of markets, we went in to Venezuela and we have established a DSD system in Caracas and that business has done extremely well and continues to grow. We entered Columbia and Central America and both those geographies on our Snacks portfolio are doing very, very well. And the last entry was in to Japan in 2006 and the Japanese Snacks category we’ve entered, is roughly the same size as the Cereal business in which we’ve competed for an excess of 50 years. It’s early days, but through the first three months -- the last three months of last year, we managed to gain a fixed share in that category and the business seems to be doing well, so hopefully that will continue.
So, really as we look at this, the growth potential as we expand into new geographies, as we take some of the learnings we’ve got from the markets we’re currently in and spread those across these other geographies, as we actually take innovation that succeeds in one market and use it more quickly and effectively in others, we think we can continue to grow our Snacks business very strongly in to the foreseeable future.

The last element of our strategy is pursuing selected growth opportunities and really it breaks down in to one big bucket of existing business in our Frozen Foods business which is over $500 million in net sales and then grew it in excess of 9% in 2006; this was about the third year, I think when we’ve grown high single-digit near double digit. Frozens made up of the Eggo brand, both waffle and about a year ago we entered the pancake segment, we were number four in pancakes. We finished 2006 as the second largest player in pancakes, frozen pancakes. Morningstar Farms our meat or vegetarian alternative products grew very strongly in 2006 and I think we’ve found finally a way to market these great products to a very different group of consumers that are made up of different pockets that are very difficult to get to in one sell swoop and that business continued to do well and we entered the Entrees business with the Kashi Entrees, the launch of six Kashi Entrees targeted very much towards the natural sub-segment of the Entrees business which currently today Amy’s [ph] is the market leader. And those six products well it’s early [ph] and they’re still building distribution rank six of the top 10 in the natural segment today as far as popularity.

The following one is Health & Wellness. We announced that we were launching and expanding our special K brand which was very much positioned against the need start of weight management include meal replacement bars and beverages. And the whole aim here was to try and offer consumers the ability to manage their weight across more day parts and breakfast. It’s very early with this, but it started well. The campaign actually kicked off in January. So we will know probably in three or six months how it’s going. But these are some key things that we are always looking at as we get in to new segments and this is true as we thought about fruit snacks as much as it is about something like Health and Wellness.
We believe we have to have a unique point of difference or else there is no point actually trying to enter a market. Our aim is always to be number 1 or number 2 within 3 to 5 years in any segment within which we enter and want to compete, that segment has to have scale and size to make it attractive, and it has to be a segment that’s growing. And we take a very aggressive investment posture whenever we enter these segments to ensure that we have really driven the offering as hard as we can, driven trial as hard as we can. So hopefully within 6 months, we have a very good sense for whether this entry is going to succeed or fail. And if it is not going to succeed, then we can take the appropriate action. If it is, then we’re in a position to know that we can continue to invest with confidence.

And finally in these segments, we look for branded margins. I’ve shown on here the special K Meal Replacement Bars and the special K Protein Beverage and also our product that we’ve selling in our Mexican business for about 6 months, which is a ready-to-drink dairy-based beverage with cereal in it. It’s a UHT shelf stable, ready to drink breakfast. It’s doing particularly well in Mexico; we’ll see how it goes through every period of time, before we do anything else with that.

Moving now to our operating principals and again these are things that the Company has been focusing on and using consistently for the last 5 years. As we look at them and think about them, then they remain as relevant today as they did when we started using them some 5 years ago and we believe they’re going to hold us in good stead as we go forward. Now there’s a lot on this chart, so I’m not going to go through it and you can’t read half of it. But sustainable growth which is the volume to value wheel we badge [ph] slightly. And really as you look at sustainable growth and I think John is going to go through it, but this is really the virtual cycle that we’ve tried to establish within the business, where we look to expand gross profit margins, manage our overheads, increase brand building, drive innovation, manage our price spend effectively, grow internal net sales, which leads back to a virtual cycle of doing the same again.
Manage for Cash, John will go into a lot more detail on that, again this has worked extremely well for us and has meant that we’ve got a very disciplined approach on capital and we’re always looking to drive effectively. The last three which we really haven’t talked extensively about externally, our executional excellence and that’s something that we believe has been one of the greatest strengths of the business over the last 4, 5 years. Focusing on keeping things simple, focusing on the desire to win in-store, ensuring that whatever we do as a global business, we have a methodology for sharing what works and what does not work as quickly as possible, so we can get that best practice shared around the world.

And finally on continuous efficiency improvement and this is an area we have been and will remain diligent on going forward especially in this high inflation environment. And this is where we’re looking at our cost of goods, trying to offset cost inflation with cost savings. We’re looking at our overhead; we were trying to manage our trade and trade efficiencies, where we’re looking to drive safety as a key metric within the business.

And finally on IT, looking for our IT platform to be an enabler to the business to drive future cost savings and efficiency benefits. And last year in 2006, we completed the implementation of SAP in a number of markets through the Latin America and the rest of the world and we are currently as a company roughly 96% implemented on SAP globally. So that gives us a real opportunity, taking our IT platform as an enabler to the business, to look at things differently, to streamline the business and to -- really to drive for continuous cost improvement as we go forward.
Our business model is relatively simple and straight forward and I think you have all heard about realistic targets, the fact that we continue to want to invest in brand building, we want to continue to drive our innovation and we want to continually focus on cost control. And I think well, if you look at the last four or five years we have actually beaten most of these numbers on a consistent basis. It is our fervent belief that as a food company over the long-term that’s setting realistic targets ensures the people within the company actually worth on things in the right way. We don’t encourage bad behavior; hopefully we encourage and reinforce positive behavior. And as we have stuck with these targets we have managed to achieve good results over the last five years we believe they are the right targets for us going forward.
So low single digit, in turn our revenue growth remains a long-term target, mid single digit operating profit growth and high single digit EPS growth. And I think these targets remain as relevant and appropriate today as they have been through our business over the last five years.

Investment in advertising and promotion remains absolutely critical to us. It’s something we have looked to do every year and our overall long-term approach is to try and increase our investment in advertising at or above the rate of sale, which we have done pretty well consistently over the long-term. We did, I remember talking to CAGNY at this conference a year ago, talk about a program that we undertook in the course of 2006 looking at consumer promotions activity. Our consumer promotion spend has been rising at a rate that we thought was potentially a little high. So we did a process globally looking at best practiced, where could we source inserts [ph] more globally, how could we take cost out and actually drive efficiency and that has been a very successful for us as a business and that’s enabled us as we come into 2006 to increase the level of advertising to a higher rate than normal, but still have our brand building basically growing roughly in line with sales.

And then finally, on sustainable innovation and I think the key here for us -- this chart actually measures rate of innovation for products launched over a rolling three-year basis. And the reason we do it over a rolling three-year basis is because what we’re looking for is innovation that sticks, innovation that will sustain us, not innovation that goes in one year, fails and comes out the next and creates that negative cycle where you’ve got to do more and more just to keep up with what you did the previous year. And we think that’s the right measure for us. And you can see the results. We’ve actually set a target of having 15% of net sales from innovation on a rolling three-year basis. Over the last three years we’ve actually exceeded that target. We’ll keep the target at 15 because the result of doing 16 and 17 has purely been the level of innovation that’s actually worked and is around today that we might have launched two or three years ago.
Interestingly, if you would look at where this was from a North American and International perspective, International actually lagged North America and we put more resources against innovation on the International market. We’ve stepped up the level of focus and they are starting to increase. 2006 we saw their number come up and we believe it will come up again in 2007.
And there was something I wanted to read to you. We were recently named in the -- Kellogg was part of a Booz Allen Hamilton Global Innovation 1000 study. I don’t know how many people in the room

innovation 1000 study. I don’t know how many people in the room actually read it, very prestigious study I might say. Certainly from our perspective because it’s given our things [ph] and this study reviewed the 1000 R&D companies and 94 companies out of the 1000 globally that outperformed the peers and I quote they get more bang for their R&D back than their peers even their hardly innovated peers and they managed to do so consistently over 5 year period. Now I say that Kellogg was the only food company to make the list and I will further quote from the study if these high achievers have one thing in common, it seems to be a focus on building multifunctional companywide capabilities that can provide them with sustainable competitive advantage. And I only read it because it is completely consistent with what we have been trying to do and that is to try and build through what we do in innovation sustainable competitive advantage. And again, I’ll just reinforce that that’s why we believe the three year metric is so critical to us.

The last element of our business model managing either head [ph] which we continue to focus on and will look for opportunities to manage going forward and again offsetting cost inflation in anyway that we can. So let me move quickly to the biggest challenges that we face as a company and I think we’ve talked about these. We went through them at the conference call, so I hope that there will be no surprise and I think you will hear more talk about food versus fuel. The whole issue of ethanol and what’s happening with grain and it’s not just corn. We mentioned corn. We don’t -- we not a massive user of corn but we do use a fair amount of corn not only in the U.S and Latin America but its impact this will have on all grain, because most grain are into changeable especially if your feeding chickens and pigs, etcetera. And if you think about our cost environment and John will take you through a slide giving you more detail on this.

But in 2006, we saw a big ramp up in inflation above the norm, some $0.28 or nearly $170 million above what we would normally expect to see any given year and then this year, we gave guidance for another $0.18 to $0.22. So a lot going on there and really if I show you this one chart, this has got the price of corn over the last 2 years and the price of wheat. Now if you look at the price of corn, it’s up well over double what it was 2 years ago. I think since we got the third quarter conference call, it actually jumped another 30%. Our view as a company is that corn will stay at relatively high levels for the foreseeable future. We think the government pushed the ethanol into one that is potentially right for the country, but it certainly is one that they are not going to back off of and therefore the price of corn and other grains is going to stay high and our whole view of the future is based on, we’re going to assume these costs are going to stay high. We’re going to manage our business accordingly. We have taken that into account as we gave guidance for 2007 and we will ensure that we do whatever is necessary to make sure that we can absorb these costs and continue out sustainable and dependable performance going forward. And I think that will be a challenge for many. We would manage to get through it year and we feel very confident that we can surround the high grain costs as we go forward.

Interestingly, our belief is the wheat which has driven more by drought and global issues will come down as we go forward. So fortunately and I think, I’m not showing the slide jumble, unveil the slide that he presents but we’ve managed to offset a lot, when you look at our logistics, manufacturing, R&D, purchasing groups. They have done just a sensational job over the last five years of actually driving cost savings through our business. They will continue to do that as we go forward. The focus on this will remain very strong for us as the business to ensure that we have the flexibility and capability of continuing to innovate strongly and continuing to put money back into brand building. So what is evolving and there isn’t a lot but there are a couple of things that we are looking at. The first and the really two areas; one is geographic expansion and the opportunities that could exist. Therefore Kellogg is a company as we think about the sustainability in the future and the second is our actions on you nutrition.

I think we have talked a number of times now about our interest in participating in some of these high growth markets in which we currently do not participate Central and Eastern Europe, Russia and Asia and most of these markets are growing across a basket of food products double digit relative to most of the developed markets which typically are very low single digit. So entry into these markets potentially become a very viable and powerful part of how we can maintain or improve our sustainability as we look to the future, and I think -- I’ve joked with John a number of times given he has been hard [ph] to get an entry platform for this for two years. So this clearly is not easy to do and may take us some time. We take the risk of raising expectations and what I can tell you is, would love to participate, we are working hard on it. It’s not that easy and for us to get in here, we have to find the right entry vehicle and it has to be something that we believe because the medium for short-term will be very positive from a shareholder perspective.

The one example I would give you is Turkey. We’ve mentioned this before, not a vast market but a market about a year ago when we looked at it, we had in Turkey a two share of the ready-to eat cereal market which is about a 50 or $60 million market that’s growing roughly 15%. So it’s not big, but 50, 60 million growing 15%, five years it will be nearly 100 million. We had a two share so we entered into a joint venture with the largest food company in Turkey called Ulker which was about $3.5 billion food company. Within one year, our share has gone from 2 share to 22 share and within the next few weeks, we will start selling from a local Turkish plant who will be producing our cereals within Turkey, which will improve the economics and enable us to latch [ph] up the investment even more and continue that growth as we go forward, so we are looking at acquisitions. We are looking at joint ventures. This is an area of right interest for us. We are little late to the game, a lot of food companies and a lot of our peers have been in these markets for a number of years and have establish positions. Nevertheless, we will continue to work on it and I wonder if we get some positive news, I’m sure that you will be the first to hear about it.

In health and nutrition it’s interesting you go back -- Kellogg was founded in 1996 by W.K. Kellogg on the basis of offering consumers healthier food choices. And I think when you look at cereal today, it still resonates as one of the best ways to start your day for breakfast and as we think about the changing environment in which we compete what’s going on with the overarching growth and heath and wellness by the issues of obesity. There are a number of things that we are looking at and doing. The first is when you think about innovation, I think most companies are doing exactly the same, so we are not unique. If you think about Smart Start Healthy Heart, we have a product call Guardian that’s selling in Canada and Australia, which was based on a heart health, low in cholesterol. We’ll bring Yogurty a product that enables adults to get up to half of the part [ph] that they need on the diet. A lot of their innovation is skewing towards healthy and more nutritious offerings, our overarching belief is we will need to offer choice, and we have great choice in the market, but innovations will play a part as we continue to grow and evolve that full trolley going forward. Trend setting efforts, we have done a lot of work. We really didn’t have trend setting efforts in these cereals but in cookies and crackers they existed and some of the other products. We’ve actually removed them in most of those and the prices of taking them out but the balance of the portfolio is well under way, we just need more of the oil that we’re using -- a low-lin soybean oil that farmers need to grow more of. But that progress is well underway and should be behind us in the next 6 to 12 months.

Portion control, I think is becoming more important not only for us but many other companies and you’ve seen that resonate very well with consumers. We’re participating with more offerings in that regard and will continue to do so as we move forward. Labeling, in the UK and Australia and around Europe, we’ve undertaken on the front of cereal boxes giving people information on guideline daily allowances and what is in each of those cereals. That gives more information to consumers than they’re getting today. We’re looking at that along with the industry to see if that’s something that maybe valuable for consumers in the US, then hopefully you’ll see more on that as we go forward.
And finally on community efforts; before I was pretty clear on the issue of obesity. It’s all about calories in, calories out. The Institute of Medicines report that came out recently was very clear that kids are not increasing the amount of calories they eat. They are just not burning as many calories as they used to burn 10 or 15 years ago. So most of our community efforts and a lot of our advertising is skewing towards encouraging consumers to exercise more and to lead more active lives, whether it’s Girls on the Run, whether it’s in Earn Your Stripes. We have a program called Healthy Beginnings where we do health screenings in supermarkets to help people understand where their cholesterol is, their blood pressure, et cetera. And our whole resource [ph] is how can we actually encourage consumers especially parents to encourage their kids and kids to get more active, so that they can burn more calories and therefore address some of the issues that exist today.

I’m just going back. Before I hand over to John, I thought there was a slide in there said run ads, we’re going to run some commercials and then John’s going to come up, run you through the financials, go into a little bit more detail on the issue of margin which I know has perplexed a number of you, and then I’ll come back up, do a quick summary, and then Q&A. So if we could run those commercials that would be great.
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