Mjn transcript-2013-11-07 t15-00

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EDITED TRANSCRIPTMJN - Mead Johnson Nutrition Investor Day

EVENT DATE/TIME: NOVEMBER 07, 2013 / 3:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Kathy MacDonald Mead Johnson Nutrition - VP - IR

Kasper Jakobsen Mead Johnson Nutrition - President and CEO

Greg Shewchuk Mead Johnson Nutrition - VP, Head - Global Marketing

Dirk Hondmann Mead Johnson Nutrition - SVP, Global Research & Development

Ivonne Monteagudo Mead Johnson Nutrition - SVP, General Manager - North America

Chris Stratton Mead Johnson Nutrition - SVP, President - Asia

Jeff Jobe Mead Johnson Nutrition - SVP -- Global Supply Chain

Pete Leemputte Mead Johnson Nutrition - EVP and CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Rob Moskow Credit Suisse - Analyst

Jason English Goldman Sachs - Analyst

David Driscoll Citi - Analyst

Diane Geissler CLSA - Analyst

Bryan Spillane Bank of America/Merrill Lynch - Analyst

Eric Katzman Deustche Bank - Analyst

Amit Sharma BMO Capital Markets - Analyst

Matthew Grainger Morgan Stanley - Analyst

P R E S E N T A T I O N

Kathy MacDonald - Mead Johnson Nutrition - VP - IR

Good morning and welcome to Mead Johnson's Investor Day. My name is Kathy MacDonald, the head of IR. And I hope that the video was a goodreminder for you, as it is for us, of what it really means to be a part of Mead Johnson.

We have an exciting day, and I just wanted to take a moment to go through the agenda and introduce our speakers of today.

Of course first, Kasper, our CEO and President, will give us a strategic overview, and many of you know him. Then we have a new face, Greg Shewchukis actually the head of our Global Marketing group. And, of course, in our company, Marketing and R&D work very closely together; and so afterGreg will come Dirk Hondmann.

After that, we are going to move to our regions. And so Ivonne is going to talk about the North America and Europe segment. And then ChrisStratton, after the break, will talk about Asia and Latin America.

Jeff Jobe is going to talk about Supply Chain. And finally, then -- or I should say but not least is Pete, our CFO.

So to start, let me remind you that our presentation will include comments that constitute forward-looking statements. This slide shows our standarddisclaimers. Please look at our filings with the SEC to more fully understand the risk factors that can affect our stock.

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NOVEMBER 07, 2013 / 3:00PM, MJN - Mead Johnson Nutrition Investor Day



I ask that you read our Safe Harbor Statement, which addresses both forward-looking statements and non-GAAP financial measures. Thesepresentations and those SEC filings are available on the website at meadjohnson.com. It is now my pleasure to introduce Kasper Jakobsen.

Kasper Jakobsen - Mead Johnson Nutrition - President and CEO

Good morning, everybody, and thank you for taking your time to join us here today. I hope you'll enjoy spending the morning with us and that I'msure you look forward to getting to know the management team a little bit better.

Most of the senior management team is seated here in the front row, but there are many other employees attending. And I think it's important topoint out the work we're going to be sharing with you this morning is the product of not only the senior-most team in the company, but many,many employees who work to both produce the results and also has helped us refine the presentation that we are delivering this morning. Sowelcome once again, and I look forward to sharing the morning with you.

Firstly, let me start with what drives us all. We have a very meaningful and somewhat unique mission of helping provide the best start in life forchildren around the world, and it's this mission that inspires the more than 7,000 employees that come to work every day in Mead Johnson globally.

We realize this mission or pursue it through more than 70 products and brands that we market in more than 50 countries around the world. Withinthose 50 countries, we have an enormous market potential of more than 80 million births, not all of which we are addressing currently, but certainlywhich are made up of parents and children that all aspire to one day be able to use our products. These 70 products allow us to have truly globalreach. More than 75% of our business is in emerging markets in Asia and Latin America as many of you will know.

You will see that we have great representation across North America, Asia, Latin America and many of these economies amongst the fastesteconomies in the world -- fastest growing economies in the world. So let's examine in a little bit more detail what is it that drives this growth.

The emergence of global middle class has been much talked about, and this extends well beyond India and China. It extends to many other marketswe operate in -- in Latin America and indeed, in Asia.

You can see that according to independent forecasts, and we are quoting here the forecast by the ERC Group. You can see that the industry as awhole is forecasted to grow at an annual rate of between 6% and 7% over the next 5 years. This is a -- this is a fantastic industry to participate in,and it is really what allows us to continue to perform and invest in our business. But let me talk a little bit more about what this middle class trendmeans to us, what creates it, what is the impact on our industry and how we see it being sustained over time.

Some of you have seen me talk about this chart before, but I often describe it as the underlying investment thesis that's behind our company.

Our story is very simple. We operate in many, many markets where GDP growth is between 3% and 8% on an annual basis. Such rapid GDP growthcreates jobs. Many of these jobs are filled by women who, in turn, as they begin to participate in the workforce help create dual-income familiesthat can meet their aspirations of providing the best start in life by providing premium nutrition products to their infants and children. That is whatunderpins our story.

You can also see that adding further grounds for optimism behind our growth story is the fact that in the areas of the world where the birth rateare the highest, consumption per child is the lowest. This leads us to conclude that not only do we have this underlying dynamic on the left-handside of this chart, but we have great ability to expand consumption by expanding reach and consumption per capita.

Indeed, over the past years, this has translated into a great shift in the marketplace away from commodity price mass market products towardspremium price nutrition products. You can see that, these days, more than 75% of the global market defined as the markets in which we operatenow is made up of premium price products. You can also see that the growing-up milk market, or we sometimes refer to it as the toddler market,is changing in much the same way though it's lagging the infant formula market by a little bit.

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What you'll see is that this trend is not only a conversion within a fixed-sized pie. While this is happening, you will also see the total pie expandedas consumption increases per capita and reenter new regions of the world.

I open by saying, "So can this trend be sustained?" We often get asked on earnings calls, in individual conversations with each of you, we alwaysget asked, "Can you sustain the price increases at the level at which you are currently taking them? I.E., can you continue to cover in your pricecommodity inflation?"

What I think the answer is yes to that. And let me explain to you why. Because even as we have taken prices at an average rate of, say, 4% or so inyears past, you will note that incomes are expanding at a much faster rate in the markets in which we operate. Most frequently, I get asked thisspecific question as it relates to China. So just look for a moment at the China numbers on the right-hand side of this page.

Though I'm not prepared to share with you the exact rate of price increases that we have taken in China, I can say to you that they have beensignificantly lower than both the income expansion as reflected in wage inflation and the general inflation of food prices in China. So in otherwords, what does all of this mean? Well it means that even as prices rise, affordability is, in fact, improving, and I don't have a great deal of concernabout our ability to continue to cover a moderate amount of commodity price increases within this general trend.

Moving now to discussing briefly the global competitive environment. You can see that the industry as a whole is largely dominated by 4 globalmultinationals. I'm sure you know who they are. It used to be 5, then now 4. But it's important to recognize that within individual countries orregions of the world, there are other players that play an important role and that are very important and powerful within these individual areasthat relates to some of the Chinese companies that operate in China and it relates to some of the European companies either in Europe or in certainparts of the Asia-Pacific.

You will also probably ask me about -- so what's going to happen is the industry going to consolidate? Well, the truth is I don't know. But you'reall aware of the fact that at the moment, let's firstly talk about what's going on in China.

There is clearly a government-supported initiative to try and consolidate the Chinese local players into a limited number of stronger players thathave the ability to compete and invest in a global level of quality and global capabilities, so there's no doubt that we are going to see a significantconsolidation of the China local players, and you will have already seeing some of that begin. You've seen mergers announced and you can seethat the emergence of some bigger regional players or parent companies is now quite clear.

I think we have to anticipate that in the longer run, maybe not all but some of these players are going to become quite capable. They're going tobecome regional players and they may even, given their financial strength, decide to compete on the global stage. I feel we are prepared for that,but it's undoubtedly a trend in the industry.

As we look outside of China, however, I think consolidation will continue to be driven by willing sellers or unwilling sellers as the case may be. Themargin industry, as you've heard me talk about before in this industry, is such that privately-held companies can't be profitable at relatively lowvolume and relatively low scale. This means that there really is no economic force that will dictate that people must offer their companies for saleand, therefore, enable consolidation within the industry.

Now, it's possible that over time, increasing regulations, higher burdens on manufacturing standards for these standards to be raised, qualityrequirements rising, it's possible that that might impact this dynamic, but certainly at the moment, I think consolidation outside of China willcontinue to happen in an infrequent and rather slow manner.

Talking about China, let me take this opportunity to repeat some of what I said on the earnings call recently. I recognize there's a great amount ofinterest in the room in what's going on in China in general, and we hit it a couple of times during the morning from different angles. So hopefully,we'll answer most, if not all of your questions.

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Firstly, it's clear that, you know, with the new government coming into power at the beginning of -- in the early part of this year, a lot of newinitiatives are being driven in China. The government is clearly very focused on increasing the food safety standards in China. That's been along-standing issue, and we see a great amount of commitment to raising food safety standards.

We also see the new government focusing quite sorely on business practices in different areas not just in our industry, but across a whole rangeof industries whether it be the pharma industry, the medical device industry, or for that matter the infant formula industry.

The common denominator between all of these industries is that they all come into contact with the healthcare system in China. But it even goesbeyond that and you have all read the newspapers what's the news about all the things that are going on in China in this area.

Our own China team has spent a great deal of time thinking about this, examining their own polices, practices, behaviors, processes. And as a resultof some of these well-publicized external events, the much publicized cases against the -- either leaders of the pharmaceutical industry or evensome of our competitors. Our China team initiated sort of a review of their current practices, which I was very encouraged by. That is an ongoingprocess and they are working on that.

We also have been in discussions with the SEC about the risk that we might be having within our China subsidiary related to certain payments thatmay have been made in the promotional products or other payments that may have been made. And it was for these reasons that we decided toinitiate an internal investigation into our practices in China.

In line with this practice, we decided, well, we got to do everything we can to make sure that it becomes an objective and is exercised, so weappointed an outside counsel to work with. We put in place a special committee of our board of directors to oversee that exercise and, clearly, it'sprogressing.

I recognize there's a lot of interest in it. I'd love to be as foresighted as we can with you about how it's going. There are no conclusions that we canreport or share that at this point in time, and you shouldn't expect unless there is a major change in the status of that exercise. You shouldn't soexpect regular updates on it. I think it will go on for some time. We want to do a thorough job and we want to sort of be professional about that,and I recognize the interest.

I'd be very happy to take questions on it in the Q&A at the end of the morning, but please understand that, you know, beyond what I've sort ofshared with you, there probably isn't a whole lot that we can really say about it at this stage.

Many of you have also come up even before with we started this morning and asked me, well, what does all this mean for your business model?What does it mean for your ability to market your products? You're very dependent on the medical marketing aspect.

Well, that's true, but I don't think that there is any chance that in China or elsewhere that in the long run, all forms of medical marketing will beruled out. It's a simple fact that industry plays a vital role in the continued education of healthcare professionals around the world not just in China,but in the US and in other parts of the world as well.

So I think balance will return to that at the moment. Everybody is trying to find their way. The Chinese Ministry of Health is being very helpful, butwe have other strings to our bow.

Our direct to consumer efforts are first-class. And in a moment, Greg Shewchuk will share with you what we are doing in that area. And we are notgoing to talk about it today, but our in-trade efforts to improve our presence at point of purchase and to make the category as easy as possible toshop for consumers dispersed rate as well. You're going to see some of that manifested in the results of the North American business that Ivonnewill share with you later.

Let me now briefly talk about our strategy for growth. Firstly, I've often felt from the time that it became clear that I would take over from SteveGolsby that many of you have sort of asked me the question of what are you going to change. Well, the first thing to say is there isn't a lot that

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needs changing. We have a great company. We have a strategy that has delivered strong financial performance, so this isn't as much about changingas it is about evolving the strategy to suit, you know, the evolving circumstances around us.

Our strategies are going to continue to be underpinned by our focus on quality. You're going to hear the word "quality" many times during theday. I'll come back to it in a moment briefly, but it's also going to be underpinned by an increased willingness and desire to invest in initiativeswithin our defined core business that drive faster innovation and greater investment in demand creation.

You've seen some of these reflected already in our financial results. A couple of weeks ago, we reported that our year-to-date A&P spend was upmore than 100 basis points on prior year spend. You should expect to continue to see us invest with confidence in initiatives that we know willhelp support the longer-term growth of the company.

The incremental spend is going to go against defined initiatives in the 3 areas that I've highlighted on this slide -- in building high-value Specialtyand Solutions products and brands around the world.

In aggressively expanding our toddler business, this remains one of the biggest opportunities, and Ivonne will talk a little bit about what we aredoing in North America. And finally, in introducing product forms and packaging forms that are significantly more convenient and, hence, can bemarketed at a premium to consumers that are willing to pay more for our products.

Finally, in order to do all of that, we need to continue to focus on developing and attracting the best talent in the industry because only if we dothat can we build the technical capabilities that are needed to support our growth strategy.

An example of that is our investment in R&D. You can see that over a long period of time we've had a steadfast commitment to spending about2.5% of sales on our R&D efforts. This will continue and it may even grow a bit. This is ultimately the engine for our innovation plans. And withoutthe strong product pipeline, we really don't have a sufficient amount of things to invest in. So you'll hear a little bit about that later.

We'll also continue to invest in our quality programs. We recognize that quality is fundamental to the trust that consumers place in our brands andin our company, and we must continue to earn that trust in every product we produce, in every batch, in every plant every day of every week.

It is a tall challenge, but this is an end-to-end process with more than 2,000 different quality checks on a given product starting when we qualifysuppliers and raw materials and then moving on to us checking incoming raw material for quality, in-process testing, environmental testing withinour manufacturing sites and finally, an extensive regimen of tests conducted on final product before we release it for sale to parents around theworld. This is something we take very serious and it's fundamental.

But our concept of quality goes beyond just manufacturing and products. You can apply the same concept of quality to the contribution we makeand the impact we have on communities we touch around the world. So let me talk a little bit about that.

The company has a publicly-stated goal that we will spend 1% of our pretax profits on corporate social responsibility projects. We take this veryserious, and I want to give just 1 example of a project that we worked on in the last 9 months or so.

At the beginning of this year, we made a commitment that we would convert all of our cocoa purchases to types of cocoa where we could identifythe exact source from which we bought this cocoa. We did so in order to make sure that the cocoa -- that we use in our products, which we, inmany cases, use to produce products for wealthy children around the world was not produced on the backs of poor children in poor countries.

I myself went to visit the communities from which we source in West Africa. And as a consequence of that, we set up a contribution to a foundationthat helps build preschools and provide maternal education and family support in these communities from which we source our products.

The same orientation towards quality can be applied to our environmental initiatives. It makes no sense for a company to have a mission to givechildren the best start in life if we are not obsessed with protecting the environment and the world that they are ultimately going to inherit fromus. And I'm very proud of the progress we are making towards our 2020 goals.

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These are important to us -- reductions in waste, less water usage within our plants, reductions in emissions of greenhouse gases, et cetera. Andoutside, I think in the coffee break, you'll get a chance. There is a special exhibition where you can talk to people who know a lot more about whatwe are doing than I do, about what we are doing to further these goals.

It's the combination of all of these initiatives and the effort of all of our people that have produced the track record that the company has since itsIPO in 2009. And I hope you understand that it is because of this track record and it's because of our belief in the underlying growth drivers behindour industry that we are evolving our strategy.

We are not changing it. We are adding onto it. We're investing more aggressively behind it, yes, but it is an evolution and it's a commitment to acontinued focus on our core business in infants and children nutrition.

It is the confidence in this evolved strategy that gave us reason to raise our guidance in the last earnings call. You would see on this chart that wetook our guidance for revenue growth up to 8% to 9% for the full-year 2013 and we raised guidance for earnings also to $3.30 to $3.37 range. Thatwe could mean that it represent growth in earnings per share over prior year of 7% to 9%.

This would put us entirely within reach of meeting our ambition, which both in the short-term and in the long-term is to deliver revenue growthand their earnings growth that positions us firmly inside the top quartile of our peer set. The underlying industry dynamics coupled with ourinnovation program that gives us confidence in our ability to continue to build share in many of these important markets will allow us to do so.

With that, let me just finish on this chart. None of this happens without a committed team, and I'm particularly happy that our team so well reflectsthe global nature of our business. Within our senior-most leadership team, we have nine different nationalities represented. You're going to hearfrom a number of them today, so apart from getting used to my accent, you're going to have to get used to other people's funny accents as well.But I hope that you will come away with an impression that there is a really good match with both the diversity of the team and the experiencebase of the team with the challenges that we face around the world.

So with that, let me just, in addition to saying that we are pleased -- I'm very pleased to be joined by the management team, say also that I'm alsopleased that we are joined by several members of our board of directors here.

Seated at the back, we have both our Non-Executive Chairman Jim Cornelius. We have Howard Bernick who is also on our board, and we haveElliott Sigal who is also a board member of Mead Johnson here.

So you will get a chance to interact with all of us at all levels of management including the board of directors at the end of the day over lunch.

With that, let me call on Greg Shewchuk who is our head of Global Marketing. Greg will talk a little bit about what we are doing to build our brand,what we are doing to activate this brand through directconsumer communication. And lastly, Greg will talk about some of our new media assets.Greg, over to you. Thank you.

Greg Shewchuk - Mead Johnson Nutrition - VP, Head - Global Marketing

Hi, I'm Greg Shewchuk, and I head up Global Marketing. I'd like to spend the next 15 minutes or so talking a little bit about our portfolio, the depthof our consumer understanding, our positioning and how we bring it to life, digital marketing and how we're leveraging it to drive our global AREdemand creation model, and finally, how we're scaling our portfolio across geographically.

From a consumer perspective, there are two types of feeding babies -- healthy babies and babies with feeding challenges. If you're a parent, it doesnot take very long or very much insight to figure out which category your baby falls into.

Approximately, 30% to 50% of babies will have feeding challenges at any given point in time, and it's of critical importance to have a full rangeportfolio so we can deliver on consumer needs as well as physicians' needs and help them navigate through the choices.

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We have a full range portfolio. We have over 70 product that delivering its all pediatric nutritional needs. For healthy, happy babies, we've got ourroutine products which account for about 80% of our business if you include the children's portfolio in there. For babies with feeding challenges,we look at two lenses -- feeding intolerance and cow's milk protein allergy.

For babies with feeding intolerance, we have our Solutions portfolio, and within the Solutions portfolio, we have Gentlease. Gentlease is our flagship.It's easy to digest and it's specifically designed to reduce fussiness, gassiness and crying which is the number 1 need-state in this segment.

For babies with cow milk protein allergy, we have our Specialty segment with Nutramigen, being our flagship here. Nutramigen is explicitly designedfor the fast resolution of cow's milk protein allergy. And my colleague, Dirk, will expand upon this in his section.

This is an incredibly high involvement category. And consumer -- it's very important to understand consumers' needs, wants and desires as theymake decisions through a highly polished blends.

We have deep cross-geographic global research that have highlighted 6 different consumer segments. Within each segment, we know who sheis. We know what motherhood means to her. We know her approach to child care. We know what our goals are for her child, and we know whatthe brand needs to do to fulfill her and her baby's needs. And what this allows us then to do is have a crystal clear razor-sharp strategic target.

But it's not enough a high involvement category to know just the emotional drivers. A brand must communicate a rational and highly differentiatedbenefit that really and sharply connects with consumers. And from our global research, we know what's the most important to our target consumers.

Our target parents are ambitious for the future of their children, and we know that brain and mental development is of extremely high importanceto them. And our DHA clinically-proven brain development benefit is highly compelling, and this is made credible by our scientific superiority andclinical leadership in brain nutrition, which allows us to have a superior consumer experience and a very strong consumer value proposition.Enfagrow is the number 1 global brand in the global industry, and we manage this brand globally with discipline and rigor.

Each region is focused on the brain, but we manage it with considered flexibility. And we do this to recognize the differences not only in consumerneeds, wants and desires, but to recognize the differences around the world in regulations.

And I think a really good way to bring this to life and demonstrate it is through creative execution. And I think what you'll see I'll show 4 differentrecent creative executions, 1 each from the United States, Latin America, China and Southeast Asia. And I think it will highlight the rigor anddiscipline around the brain focus, the balanced and tempered nicely around creativity and flexibility at a regional level.

(VIDEO PLAYING)

Greg Shewchuk - Mead Johnson Nutrition - VP, Head - Global Marketing

We have a proven global demand creation model. And the model is actually very simple -- capture baby very early on often before its born, holdonto them through feeding and their feeding challenges and extend them as long as possible into our Children's franchise. ARE really describesbeautifully what we do as a business through our innovation and through our messaging.

And what we are doing now is activating this digitally -- to take our ARE model into the 21st century. And we're doing it by bringing digitally relevantcontent at each stage, so with acquisition we're bringing in feeding instructions and pre- and post-natal care. At retention, we're bringing in baby'smilestones and feeding challenges. And at extension, toddler nutrition and eating habits. And this is of critical important to us going forward aswe need to accelerate our digital and mobile plans to take this model into the 21st century.

Why is it so important for us to advance to digital and mobile? It's because moms are online in a very big way. We're seeing huge numbers. 94.5%of moms are Internet users, 76.2% of moms use social networks, 66.2% of moms are Facebook users, and moms spend an average of 3 hours a dayonline. 37% of moms sleep with their mobile phones next to them and 40% of moms have downloaded a health and wellness app very recently.So the future is clearly in mobile and in digital.

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I think this is really brought to life nicely through US example. The US has launched ExpectingBaby and AmazingBaby with terrific results.ExpectingBaby app allows mom to track and share her journey through all three stages of pregnancy -- from planning to delivery through arrival.Each week she can learn about the development of her baby, and she can manage all of her to-dos as she can't stand to her baby's arrival.

AmazingBaby turns every day moments like playtime or bath time and to growth and learning opportunity for both mom and baby. The app ischockfull of activities that help in the development of her baby and the app actually helps mom through each activity. So it will actually suggestprops and toys for mom to involve the baby in and will explain exactly how each activity helps in the development of critical milestones for herbaby. If you have not seen the apps, please check them out at the US booth during one of the breaks.

It's probably no surprise that Ecommerce in China is growing at 65% year-on-year. This is being fueled by the lifestyle changes in the post-1980'sgeneration, rapid increase in Internet usage and vastly improved online payment systems.

In June, Enfamil launched its flagship Ecommerce store on Tmall, which is China's largest e-tailer. In August, we launched our 100% importedproduct, which is called Gentle Care, which is the same as Gentlease in other markets around the world. And given the large increases in globalEcommerce, we're reevaluating or updating our US program and we're exploring other opportunities cross-geographically.

Okay.. Going back to our portfolio and back to the consumer segments, I want to spend a couple of minutes unpacking the feeding challengessegment here.

As I mentioned earlier, between 30% and 50% of babies will experience a feeding challenge at some point in time. These break down into twomacro buckets.

Up to 45% while the feeding intolerance are basic feeding intolerance, and these exist all around the world and range from things like spit-up tofussiness and gas, to lactose intolerance. And we have a full range portfolio to fill these needs.

Between 3% and 8% of babies will have a cow's milk protein allergy, and these babies have much more specialized needs and require a hypoallergenicformula to help them manage the colic due to cow's milk protein allergy.

Within our feeding challenges business, we're seeing very strong growth both in this segment and within our flagship brands. So within feedingintolerance or the Solutions category as we call it, we're seeing strong double-digit growth.

Gentlease, our flagship, is the fastest-growing Solutions brand within our portfolio. And in order to keep the momentum, we are constantlystrengthening our messaging and innovation within this space.

Within the cow's milk protein allergy segment, over the Specialty segment, we're seeing strong growth within our target regions. Nutramigen, ourflagship brand, holds the strong global number 1 position. And we're seeing excellent share gains over the past 2 years.

Going forward, a key source of strength for us will be in scaling our Specialty and Solutions business into emerging market. This will be a keystoneto our current and future success.

Our Specialty and Solutions segment data not only indicates high-growth potential, but high margins and high level of profitability. And we aresowing the seeds of these businesses now as these will be huge contributors to our future growth.

So in summary, we have a deep understanding of our consumers' needs, wants and desires, and we are very focused on delivering them now.

We are highly focused on brain and mental development because we know that it's a top priority for our target consumers. We have a provenglobal demand generating model and we are activating it digitally. And finally, we're scaling our Specialty and Solutions portfolio to accelerategrowth cross-geographically. I think I'll turn it over to Dirk.

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Dirk Hondmann - Mead Johnson Nutrition - SVP, Global Research & Development

Good morning. My name is Dirk Hondmann. I am heading Research and Development for Mead Johnson. And over lunch we'll take your feedbackon who has the worst accents of us. I think I'm a good contender there.

Let me start by explaining how we have organized R&D. Our Global Research Center is focused on activities that are of global relevance, includingdiscovery, clinical research and nutrition sciences. In each of our regions we have established a pediatric nutrition institute, which focuses ontranslating new scientific insights, and new processes and products that can be brought to markets. These institutes represent the significantinvestments in building out our capabilities.

In addition, for each of our manufacturing sites, we have an R&D support facility that can provide technical support for operations, but also forproductivity projects.

Our pediatric nutrition institutes play a number of important roles. First of all, they are state-of-the-art facilities where nutritional insights can betranslated into prototype products. But, in addition to being buildings with equipments, they are also meeting locations where we can interactwith scientific experts with regulators and with healthcare professionals.

Most important are our people. We have a specialized and highly dedicated team of professionals. Our R&D team is very diverse in every measure,but what unites us is the dedication to helping provide children with the best possible early life nutrition.

Most people who joined Mead Johnson R&D stay for a career, which is reflected in the high retention rates and the long tenure. We have in ourteam, world-renowned experts in important fields such as pediatric gastroenterology, immunology and regulatory, just to name a few.

This slide demonstrates our open innovation approach. We work together with leading academic groups with the ingredient and technologysuppliers and contract research organizations. At any given moment, we have more than 50 clinical studies and more than 50 discovery collaborationsongoing.

By using this networks approach, we can work together with the best experts in the fields, and do not always have to build the capabilities ourselves,which would be very expensive and which slows us down.

Mead Johnson has a strong reputation for being a leader in science-based pediatric nutrition. This slide is intended to give you an impression ofour scientific credentials.

ESPGHAN in our world is the leading conference and while attendance is open to all who work in the field of pediatric nutrition, presentations canonly be given when invited by the academic expert group that's overseeing overseeing the scientific program. Getting a distinction for work beingpresented is seen as a high honor. At this year's ESPGHAN Conference, our scientists had the strongest contribution of all pediatric nutritioncompanies.

The regulatory environment, in general sense, is becoming more and more demanding. When we want to bring new innovations to market, wenot only have to ensure they are supported by scientific consensus. We also have to convince both global regulators and regulators in our keymarkets that our new products are safe, but also that the new products offer meaningful benefits for infants and children.

Given our strong scientific track records, we believe that we are well-positioned to continue to bring innovations to markets around the world.

Our research areas are well-aligned with the benefit areas that our consumers are most interested in. For example, for brain development, wecontinue to build our expertise in cognitive neuroscience, but we have also started a systematic screening of new food grade ingredients that mayprovide further support for brain development.

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Our screening uses cell-based assays and animal models, and now we have developed an interesting short list of foods [grade-candidate] ingredientsthat we can further develop and notably go to clinical testing and to market launch. Ultimately, our science must translate into superior productperformance and to market share gains so that we can win in the marketplace.

This figure from recent publications shows the superior performance of Nutramigen with LGG, one of our key Specialty products. In this study welooked at how many children with severe allergies will acquire tolerance to cow milk protein. You can clearly see that Nutramigen with LGGoutperformed all other products. And this is very meaningful not only because severe allergies are very uncomfortable, they can even be painfulfor infants. But there's also evidence building up that developing adequate immunoresponse early in life may lower the risk of other new relateddisorders later in life.

Let me now turn to new results for our routine infant products. A recently published clinical study show that babies fed Enfamil A+ have significantlybetter sustain attention. And focused attention is very important to enable, amongst others, learning.

The outcome of this study is also very much in line with previous clinical studies that we have done which also show improvements in variouselements of mental development.

We also continue to innovate our growing-up milks. Our new generation of growing-up milks solve 2 problems that are often challenging toddlerdiets. First of all, many toddlers only get a fraction of the recommended level of DHA. And secondly, they often consume foods that cause glucoselevels to rise rapidly and then fall.

Our next generation growing-up milks now contain expert-recommended levels of DHA, which was a major product development challenge. Inaddition, we have developed products that provide a much more steady glucose supply. Let me explain to you why that's important.

In this graph, you can see blood glucose levels after ingestion of different prototype products. And in the case of blood glucose, a flatter, moreeven curve is the better profile.

The two areas in the curve that I want to draw your attention to. First, the peak area about 30 minutes of ingestion. If blood sugar levels rise toohigh, which for the parents amongst us is probably recognizable as to sugar high, that children can get after consuming high sugar products. Thebody reacts with producing high amounts of insulin. High amounts of insulin result subsequently in an overreaction by the body, and the bodywill start to take too much glucose out of the bloodstream.

Then in the right part of the curve about 90 minutes to 2 hours after ingestion. You can see that the blood glucose level can even drop below thestarting level when a high glucose product was given. And as a parent, I recognize this as the sugar blues, then children have lost their energy andhave difficulty to concentrate. So in general, a sharp rise in blood glucose followed by a speedy decline is something we want want to prevent.

By studying these prototype products, we have learned how we can develop the products that avoid this.

Our next generation growing-up milks now have a modified conversation that help to provide a more steady glucose supply with all the benefitsthat come from that. You will recognize these key messages from my presentation. And I would like to turn now to listen to what a number of ourkey customers have to say about our products.

(VIDEO PLAYING)

Ivonne Monteagudo - Mead Johnson Nutrition - SVP, General Manager - North America

Good morning. My name is Ivonne Monteagudo, and I'm responsible for Mead Johnson's North American business. And I'm here to talk to you thismorning about Mead Johnson Mature Markets -- North America and Europe.

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And let me start by saying that all mature markets share some common trait. We all have declining birth rates and a higher adoption of breastfeedingrates. And the US is, of course, by far our largest market, our largest mature market. And the two trends that I just mentioned have been acceleratedrecently due to the economic crisis in the US.

Since 2007, there has been an 8% decline in birth in the US. And let me put that number into perspective. 8%, if the birthrate has remained at thesame level they were pre-crisis. That would mean that 1.3 million babies might have been born now. And just to put that into perspective, thereare around 4 million births in the US every year, so 1.3 million babies is a lot of babies.

And not only that, but we're seeing also that, accordingly, Americans' desire to have children has not changed. People continue to believe that 2.6children is the ideal family number and that has not changed since the crisis began, which is encouraging. And if you put those two facts together,what you might see is that there has been a deferral in terms of starting a family because of the crisis, but we expect that there may be a birthrebound coming soon to the US

In fact, some of the data from the CDC is starting to show signs of that. What you can see in the graph is the last piece of data we have availablefor the second half of 2012. For the first time in 5 years, we saw growth in birth rates and that is encouraging. And CDC will be issuing a report inNovember, which we are, of course, eagerly awaiting to continue to confirm this emerging trend.

Despite this headwinds, the Mead Johnson's US business is delivering growth versus a year ago. This has been driven by a couple of trends. First,the category volume declines have been partially offset by pricing, and we have benefited from that as the rest of our competitors. But mostimportantly, we have been able to gain share in the US -- a very robust share gain of 1 point versus a year ago.

And this share gain has been driven by improvements in innovation, retention and toddler. And I'll talk more about the drivers that are fueling ourgrowth.

The first thing that I want to talk about and addresses the key questions that you may have about the US business, which is how can we deliversustainable growth in a declining market. And the first part of that answer has to do with staging.

Staging our state product portfolio offering in the US is unique. Staging, which is a very prevailing characteristic of our category around the world,if not the standard in the US, our competitors do not have a stage product portfolio. And we believe that that is a key competitive advantage forus. And let me show you how our lineup looks.

We have adopted staging for the particular needs of the US. Our lineup in the US is not exactly the same. We have around the world. It has beenadaptive. We have validated both through research and in markets that consumers find staging portfolio products to be very appealing.

Staging provides for us differentiation and most importantly, it is a key enabler for us to enter and further develop the toddler category in the US,which is our biggest opportunity for growth. And I'll touch more about that in the future.

The other key point about staging is that is it is absolutely connected to the ARE model that Greg talked to you about before. And let me talk alittle bit more about that in our market.

The ARE demand-generating framework is fueled by two key things -- innovation and digital. Let's talk a little bit about innovation.

Here, you can see products that we have launched in the US in the last three years within the framework of ARE. We strive to deliver the best productoffering so that we are the best alternative for consumers in the acquisition stage when they enter the market, then we want to keep them loyalthrough retention, and then we want them to continue with us into the extension phase.

And here's how our innovation helps us do that. You heard in the testimonials that Dirk presented from healthcare professionals how much theyappreciate our liquid human milk fortifier, a critical product for the neonatal intensive care units to take care of premature babies.

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Let me also highlight a product we launched recently, Enfamil for Supplementing. We strongly believe that we have the best lineup for consumersthat are starting to use infant formula. If you have an exclusively formula-fed baby, we have the Newborn product. If you are breastfeeding andchoose to complement that, we have Supplementing. So we have a great product offering in acquisition.

In retention, I would like to highlight two products. Our refill box is unique in the market. We provide value to consumers, which is critical in thisphase. And also let me talk about our liquid offerings.

We have introduced new liquid products -- I'll talk more them later -- both in the infant and children parts of our business, which provides convenienceto consumers.

Finally, in the extension phase, I would like to highlight that we continue to improve our toddler formulas with DHA behind the science-drivenpoints that Dirk mentioned before.

And our ARE model -- I'm sorry -- comes back to life also in our marketing activities. Kasper made reference to this before. We talk to consumersacross through pediatricians, healthcare professionals and retail and directly, of course. And you have heard in the testimonials how we haveestablished with them long-term relationships that are mainly driven by our medical sales force. And Greg has talked about how we enhanced ourARE model in digital, so I won't talk too much about that.

Just to suffice to say that, we leverage the fact that we are in the US, the number 1 brand recommended by pediatricians across all these points.

And in a declining market, I've spoken about how we drive overall share growth. But given that the volumes are coming down and we have fewerand fewer infant formula bottles every year, it is equally important to maximize value. So we focus on those segments that provide higher growthand higher value, too. And the two that are most important are liquids and Specialty.

Let me talk about those two. In terms of liquids, in April 2012, we introduced a new 8-ounce plastic bottle, and we have had a lot of growth in '13behind this initiative. We have become the number 1 brand in the 8-ounce segment and this is very encouraging. Still we have a lot of room togrow in liquids and our goal is to gain our fair share of this high sales segment.

On the other hand, let me talk about Specialty. We have seen a lot of growth in Specialty with our Nutramigen brand. We became the number oneSpecialty product by the end of 2012. And we have seen that leadership gap widened all through 2013 driven by innovation and the clinical datathat Dirk just described about Nutramigen, which has definitely made it the preferred option for doctors in the Specialty Allergy segment.

I reference how important staging is in its role of enabling us to develop the toddler category. And now I'm going to tell you why that is such animportant opportunity for us.

The toddler category in the US is highly underdeveloped, both when we compare against mature markets and also emerging markets. Toddlerand Children's product sales in the US are only 5% of total category. Infant formula is 95%. And if you look at Europe, the children's segment is 4times larger.

If we look at Mead Johnson sales, you'll see that the split overall is roughly 60/40. 60% in terms of infant formula for children, and this is [SKUed]by the US

Asia and Latin America have 50/50 SKU between infant and children. But in the US, the children's products account for only 10% of our sales. Thismay sound that a small percentage, it shows the potential we have. But what I believe it's very important that we keep in mind is that 10% of ourbusiness given the size of the US market is a very significant amount in absolute terms.

If we were to look at the Enfagrow US sales on its own, it would be similar to the -- it will be at the number 10 market for Mead Johnson, next toCanada. And we have very few markets in Mead Johnson in our top 10 that have the potential to grow their size by 4 if we were to attain theEuropean development rates.

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And, of course, we have been aware of this opportunity at Mead Johnson for some time as you can imagine. What gives us confidence that we canexploit this opportunity is the fact that we're seeing a lot of growth in an our Enfagrow business today, and this is driven by the fact that we havebeen able to put in place in the US the elements of our global Enfagrow model.

And those elements are staging, as I mentioned before. Second element is our brain benefit that Dirk talked about and Greg also mentioned andhow relevant it is for consumers including American consumers. We also have now a liquid offering critical for success in the US And finally, wehave been able to get sufficient and growing distribution levels.

These 4 factors working together have resulted this year in never seen before growth rate for Enfagrow more than 25% growth year-to-date. Andthat has given us confidence as a company to further invest behind Enfagrow. And I'll talk to you about the investment we're making and thatstarted at the end of September and a very exciting plan for Enfagrow.

You'll see here on the right side of the slide the marketing mix at a glance. It looks very similar to our proven model on the Enfamil side, but let mehighlight 2 points that are critical here.

National T.V. advertising. The Missing Piece commercial that you saw in Greg's presentation is a very significant milestone for the Enfagrow brandin the US For the first time ever, the Enfagrow brand has been advertised on a national basis across the general market and Hispanic at very, verystrong media weights.

Having T.V. advertising is a very significant milestone in the way we have developed the Enfagrow brand on a worldwide basis. Several years ago,I was able to see -- to witness the same moment in the story of the Enfagrow brand in Mexico when we aired the first Enfagrow T.V. advertisingand the brand has delivered double-digit growth for years since then. So it's very exciting to see that happening now in the US

The big investment we're making behind for Enfagrow has also given our trade partners confidence in the brand. They were already seeing thisabove 25% growth. And this has helped us secure more than -- nearly 14,000 additional distribution points for Enfagrow in the second half of '13.

This is all very encouraging. We have been, on the year, as I mentioned, for only 4 weeks now. We have some early consumer off-take results thatare very encouraging, and we will keep you posted about our progress.

On the other side, let me talk about the right side of the slide. The Hispanic consumer plays a key role in our toddler plan not only because it'sexpected to be the largest generation of moms and because they have increasingly a higher purchasing power, but also because consumption offortified children milks is very high among Hispanic consumers.

It has to do with cultural habits. This category of fortified children's milk has a very high level of development in Latin America. I can attest to thatmyself on a personal basis, being a Hispanic mom of twins that are going to be turning 3 in December who have been having their Enfagrowmorning and evening for the last -- since they turned 1.

It's a very engrained habit, and it's not a surprise that a very high percentage of our Enfagrow sales have been in the key Hispanic states -- California,Texas and Florida. So we will continue to keep you posted of our progress in this initiative.

And now let me switch gears and talk a little bit about Canada. We have a very, very strong success story in Canada in the last year. Canadianmarkets similar to the US declining category driven by breastfeeding rates. Still we became the number one brand in Canada in the end of 2012,and we have seen a lot of growth ever since. Our leadership gap has significantly widened in '13.

And what have been the drivers of the Canadian success story? You're going to hear me refer to the same key proven elements that I have talkedabout in the context of the US.

Innovation. Of course, we have an ARE model in place and it has been significantly fueled by digital. Canada is best-in-class within Mead Johnsonin terms of digital consumer engagement. We have had success in some hospital contracts and also with the trade.

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And here let me highlight the fact of Costco Canada. If you go to a Costco Canada store, the only infant formula brand that you will find there asidefrom their own Kirkland brand is Enfamil, and that also delivered significant growth for us.

Let me talk now about our European business. Our business in Europe for many years struggled with profitability. We have implemented a significantrestructure recently. And as a result of that, we have reduced our operating expenses. We have optimized our product portfolio and we have alsoimplemented a new operating model. As a result of that, profitability has improved significantly.

On the top line side, we continue to drive our Nutramigen brand behind innovation, the same driver that I mentioned in the US Some of themeven come from success in Europe are these markets for Nutramigen. And we continue to invest in Eastern Europe's selected markets like Polandand Russia that behave more like other emerging markets in Latin America and Asia and where we apply our proven success models. And that'sworking for us.

So let me close my presentation with 3 key messages from the North America and Europe segment.

Number 1 is we will continue to strengthen our infant formula business in North America. We want to have the strongest share position to benefitfrom a potential rebound in birth in the US Second, we are investing very aggressively to accelerate growth of our Enfagrow brand in the US Andfinally, we will continue to drive Europe's profitability. And with that, let me turn it over to Kathy. Thank you.


Thank you. We are going to be taking a break, so I just wanted to provide a couple of quick logistics. For those that are listening on the webcast,you will hear music during our break so that you know that we're still here.

For those that are here in Chicago with us, there is Wi-Fi instructions that should have been under your folder for those who haven't found it. AndI'd say please enjoy the coffee break. Visit our booths as the presenters talked about. And we're going to take 20 minutes, so please come backpromptly. Thank you.

(BREAK)

P R E S E N T A T I O N


Okay.. If I can ask everybody to take their seats? Thank you. And also too, if you're using you cell phones, to make sure they're on mute.

Next, I'd like to introduce Chris Stratton. He actually has been in the Latin America business for the last four years and has just recently moved overto be the head of our Asia Pacific. Chris, let me get -- why don't you get started?

Chris Stratton - Mead Johnson Nutrition - SVP, President - Asia

Thank you, Kathy. Welcome back, everyone, from the coffee break. So as Kathy just mentioned, I'm in a transition role here between Latin Americafor the last maybe four years moving into Asia to run the Asian business. I have actually worked in Asia for over 20 years and including 10 years inAsia in this category prior to joining Mead Johnson.

So what I'd like to start with is firstly just -- and talk a little bit about how we can capitalize on emerging markets, and for today's purpose, emergingmarkets means basically Asia and Latin America.

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And we're very well placed in this respect to capitalize on these growth opportunities in both continents. We're benefitting from and helping todrive premiumization, and this is supported by emerging needs for specialty and solution segment. We have leading market positions in manycountries in both continents.

In addition, we're generating very good market share growth in both regions which I'll show you in the course of the next quarter of hour. Andpart of this is -- of the reason is our strong innovation pipeline which has added huge product segments particularly in Asia.

So earlier, we had a look -- and just to remind everyone of the growing importance of emerging markets within Mead Johnson's portfolio and youcan see that in 2012, 70% of our business was comprised in these two geographies, and this is a major growing part of our global business.

But we also believe that there's very strong headroom for growth in this category as well and we are -- we are seeing now that -- and you can seehere that we have very high birth rates in the two countries, so as Kasper touched on this earlier and you can see that, you know, basically wherethe high births are is where the low per capita consumption is and that's basically what we're looking to benefit from as we go forward.

And you can see that in particular, we have very high opportunity in Asia and Latin America and we're seeing also the per capita consumptionsbetween the two regions are quite different and even lower in Latin America reflecting the higher opportunity in Latin America. But even withinAsia, you can see that there are big differences in per capita consumption by country. So basically, we believe there's still a very strong headroomfor growth in this category.

If you have a look now at the growth of the category, you can see that the large total market size in both Asia at nearly 15 billion and Latin America,2.6 billion U.S. dollars, these are big categories in both continents and this is obviously primarily a function of the very large number of birth inboth regions.

But I'd also draw your attention to the bottom charts where you can see the very high category growth across both regions as reported by Nielsen.

In Asia, the specials and solutions category in particular is growing very fast. And in Latin America, you can see that all segments, infant formula,specials and solutions and growing up milk are all growing very fast, indeed strong double-digit growth. So we therefore foresee that our categorywill remain one of the fastest growing major categories in food and beverage on a global basis.

On the left, you will notice the relative share of total market specials and solutions products within the total category by region. And the smallshare of segment in Asia in particular even compared to other emerging markets like in Latin America.

So in Asia, in order to drive and tap into the previously mentioned specials and solutions growth, we have been basically expanding our productrange and launching two main lead products, Nutramigen LLG and Gentle Care for digestion across the regions to replicate our success in otherregions. So this is as you can see very close to the strategy articulated by Greg earlier and it's working for us in Asia.

I'm also pleased to give you some update in terms of our market leadership position in Asia. And this is basically a chart that represents the Enfabrand market position as opposed to the total Mead Johnson company market position.

And you may already know that our Enfa brand is already the number 1 brand in China, Hong Kong in the infant formula and growing up milkcategory as measured by market share.

But now, I'm happy to report that earlier this year, Enfa also achieved the number one brand in the premium segment across South Asia. And sowe believe this provides us with a very strong platform for growth as we go forward and for expansion.

So now, I'd like to just share with you a couple of wins from -- sorry, just go back. I'd now like to share with you the Asia brand building best practiceand part of this is in our sharp focus on brain benefits.

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And this is just one example of a program that we started in some countries and then we continued to roll out across many other countries. Andit's a very large brand equity building program really building on the benefits that you heard from previous presentations in our science as well asin our -- as well as in our marketing strategy. And you can see that we've -- we're now rolling this out across many ages.

So it's basically an engagement program that involves the activation, brand activation and education around the brain benefit on a large scale inmultiple touch points that includes not only the healthcare professionals but also consumers in trade, schools and media, and this is going to bea major opportunity for us as we roll this out.

And finally, a couple of examples of South Asia which I'd like to just share with you, and these are two markets where we've been having particularsuccess and that both Thailand and Vietnam.

And here, you can see that through a series of activities, very close to the marketing strategies that are being articulated earlier, we are basicallyable now to lift in both countries 1 percentage market share point within the last 12 months which is quite significant. So we're making goodprogress within South Asia.

Now, I'd like to turn a little bit to the China opportunity and, of course, a lot of being said already by Kasper and others on this area. But I think you-- we have -- we still recognize this as a very big market but we also believe that it's a market that still has significant growth opportunity.

We estimate the category to be around 8 billion and split roughly half each infant and children. But it's also by global standards a very premiummarket over 80% of the category being in premium products.

And this premium segment has grown as a percentage of total market over the last five years in the light of quality issues and consumer perceptionand the desire for the best with Chinese mother's child.

Now, Mead Johnson has a very strong base in retail historically and again to talk a little bit more about that. The category as many of you will knowif you've been following it for many years started in China with supermarkets and baby stores around the hospitals.

But increasingly, we've seen new channels developing with e-commerce and baby stores in particular becoming increasingly important. We believethis gives us new opportunities to reach our targeted consumer.

So in recognition of the fast-growing Internet channel, we launched earlier as I touched on earlier some local MJN products in June of this year andwe've just added to that some of our imported products in particular Gentlease through the same site in August.

And we're experiencing very good results in terms of both share and sales growth from this -- from this site although from a small base of course.

So we're very excited there for about the enhanced opportunities to promote the benefits of our products across digital platforms and e-commercechannels.

So as touch points with mothers changed, so do we, in addition, we're working hard to integrate all our messaging across each of the touch pointsthat we have in line with the global strategy that you heard earlier.

Now, in the past, we've talked a lot about the growth opportunity in -- through step change and we still believe that we have plenty of opportunitygeographically. We have presence as you know in over 240 cities and every year, we continue to invest in new city entry through our step changeprogram which we've been doing annually for the past number of years.

But in addition, we recognize increasingly the opportunity from the category size growth in our current cities and we are therefore now investingmore in selected existing cities where we see specific opportunities where the category size is bigger and where Mead Johnson has potential togrow sales and share.

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Of course, any presentation on China would need to refer to the evolving regulatory environment in the light of events over the past few yearsand this was touched on earlier by Kasper. This can essentially be grouped into the categories of food safety, industry consolidation and businesspractices.

Our category nourishes some of the most vulnerable infants and for good reason therefore it's a highly regulated category. But Mead Johnson hasbeen operating in China for maybe 20 years and with local manufacturing presence.

Historically, we have been successful in meeting the requirements of a changing regulatory landscape, some of which are listed here, so we continueto work closely with the authorities in line with our state which is a major industry player committed to the highest operating standards.

I'd now like to move to Latin America. And then from this chart, you may recall that we have an intention to reach $1 billion in sales by 2015 andI'm pleased to report that we are well on track to achieve that objective, and this is a business that's doubled in the last five years.

So as in Asia, we have some very strong market positions across the continent and Mead Johnson is -- sorry, Mexico is Mead Johnson's third largestmarket globally but still has a significant headroom for growth in the premium segment particularly and that's where we are market leader.

And if you look below across the Andean Pact countries and Central America, we're experiencing a very strong double-digit growth in some of thefastest growing countries for our category.

In Argentina, if you may recall, through the acquisition of the market leading SanCor Bebe brand in 2012 and through our launch of Enfa range ofproducts in Brazil a few years ago, we've extended our coverage in two of the continent's largest markets. And so now we have an increasinglybroad footprint outside of our historical dependence on Mexico in which to drive growth across the whole region.

The four global category growth drivers on the right, you'll be familiar with, and these have been shared earlier, but they're especially relevant inLatin America. The bar chart on the left illustrates how in the past decade specifically in Latin America political stability and economic growth hasresulted in a strong growth in the middle class and a major drop in poverty.

Together with increasing numbers of women entering the workforce, this has resulted in strong category growth and the region-wide premiumizationof the category. We believe though in specific differences in a few countries, the overall region remains well on track for continued strong growth.

We follow the same model in Latin America as we do in the rest of the globe of our acquisition retention and extension and we have a very sharpfocus on our brain equity building marketing. And we are growing faster than the category in all product segments as shown by the Latin Americaregional aggregate market share gains that you see at the top of this chart.

Our consumer brand equity tracking also shows that we have a high differentiation with consumers in the core equity measures of brain developmentand high DHA levels.

And in Latin America, healthcare professional's endorsement is extremely important and we have a number one pediatrician recommended brandstatus in many countries, again, a reflection of our brand equity with healthcare professionals.

So two main growth drivers in Latin America have really been our children's -- our investment in the children's category and the fast -- which is thefastest growing segment across the continent plus our geographic expansion.

So in the children segment, we've invested significantly more in advertising every year, rolled on new large Bag in Box packaging formats andextended the range to step for toddler -- older-age toddler segment as well. Our market share growth in the children segment has been strongand we are the premium market leader in most countries.

Secondly, we are growing our overall market share in Argentina where we are the market leader since that acquisition of the Bebe brand and we'regrowing it especially in the premium segment which was our area of opportunity and the rational for the purchase.

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In Brazil, the second largest market in Latin America for our category, we are making continued market share gains in Enfa for our covered areasand we've recently launched Enfagrow with very good success. And we've also launched Sustagen Ready to Drink in Brazil to build up our strongSustagen powder-based where we are a clear market leader.

So in conclusion, we remained optimistic about our continued growth in emerging markets due to strong category growth, market share gainsand the strength of our Enfa global brand. Mead Johnson has many years of experience in a broad range of emerging markets and we believe thatgives us the experience to manage changes and challenges that arise in these markets from time to time.

In South Asia, we have regained our double-digit sales growth strengthening our premium segment leadership through equity building innovationand more recently entered specialty and solutions across many countries.

In China, we look forward into emerging new channels, continued expansion and entrance in new product segments. And our 20 years experiencein China means that we are well-placed to manage any changes.

And our track record in Latin America has resulted in the doubling of the business in five years and has created a strong fourth leg pillar for MeadJohnson globally.

So finally, the increasing geographic breadth of our coverage in both Asia and Latin America means that we are increasingly diversified in termsof managing volatility and exposure to any one market. Thank you very much. I'd now like to hand it over to Jeff Jobe in supply chain.

Jeff Jobe - Mead Johnson Nutrition - SVP -- Global Supply Chain

Thank you, Chris, and good morning. As Chris -- as you can see from the slide, my name is Jeff Jobe. I have responsibility for the global supply chainfor Mead Johnson. I've been leading the global supply chain for the past nine years, and throughout this period, the global supply chain hasremained steadfastly committed to delivering innovative products to our customers with a constant focus on quality and safety.

To accomplish this goal, we employed an ever evolving and flexible global network of manufacturing sites and capabilities to produce our products.A flexible network allows us to provide products to our market while also providing backup capability to strengthen our business continuity.

To provide the capabilities for future growth while maintaining our optimal asset utilization for good cost management, we look forward to expecta demand and carefully plan additional capacity accordingly.

To support our growth especially in the Asia region, we are currently in the process of adding capabilities in Singapore by building our new spraydrying facility. I'll come back to that point later on in the presentation.

We produce both liquid and powder products within our network utilizing manufacturing processes that follow good manufacturing practicesdesigned to deliver high quality and safe products.

Our network and processes also focus our sustainability. Hopefully, you had an opportunity to view our booth at the break or you -- this morningearlier or at lunch to see how our efforts are paying off in that area.

The Singapore plant in one-time system cost to support separation from our parent company have added significant capital expenditure in thepast five years, we now see future capital returning to a more normalized level going forward to support both quality, growth and innovation.

Commodity spending makes up the majority of the cost of goods sold. In recent years, we have seen increase in volatility in regards to many of thekey ingredients we used. We are working to develop and implement a message to manage that volatility.

We employ a culture of productivity that helps contain costs and delivers strong gross margins. And none of that -- of the above would be possible,however, if we did not stay constantly focused on our commitment to deliver products with the highest quality and safety.

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Our global supply chain network is ever evolving to support the growth of innovation in all other markets. I think you've heard a lot of talk in theearlier presentations about the innovations that are being delivered through the supply chain and the marketing teams and R&D.

Recent additions to our -- the global network include the new joint venture in Argentina with SanCor where the joint venture on the business sidebut also we have a large manufacturing agreement with SanCor.

We have new third-party manufacturers to support stage 3 liquid launches as you heard Chris and Ivonne talking about in the US, Brazil and Mexico,and the Singapore plant I previously mentioned which is under construction.

The supply chain has the capability to produce both powder and liquid offerings. Powder is still the predominant form within the manufacturingnetwork. Powdered infant formula manufacturing is a three-stage process which begins with liquid processing then spray drying and then dryblending and finishing which is the top diagram.

Children's powdered product is generally just the first step, dry blending and finishing which is the bottom diagram, throughout this process, wehad extensive quality controls, are built in to monitor each stage of the manufacturing process.

Spray drying capacity expansion has a much longer lead time and requires higher investment in assets and by either Mead Johnson or a third-partymanufacturer and therefore we leverage that capability globally.

Blending and finishing capacity expansion is lower capital investment and shorter lead times which allows us to focus this investment closer toour customer.

Liquid products are currently a meaningful part of the US, Argentina, Canadian and Thailand markets, and as I said earlier, we are currently expandingour stage 3 offerings in new markets by partnering with selected high-quality third-party manufacturers.

The global network in conjunction with the manufacturing process we just discussed allows us to take advantage of global sourcing of raw materialsand base production. Local finishing allows us to be more nimble and flexible to respond to local market needs.

You know, on the screen is an example of our Thailand plant to bring this to life a bit. As you can see from the blue arrows that our Thailand plantreceives raw materials from global sources such as milk from New Zealand or liver oils from Europe.

The red arrow illustrates that there are various sources for the base or spray drying capability for Thailand coming from either the Netherlands, theUS, Australia, Malaysia. This provides us backup sourcing for supply continuity.

And finally, the yellow arrow indicates that markets near the Thailand plant which received finished products including Thailand, Malaysia, Vietnamand Indonesia while Thailand or other plans in the US, Mexico and the Netherlands also serve multiple markets within the region or globally.

In addition to providing a flexible network, the supply chain is also focused on optimizing internal asset utilization to maintain lower cost andhigher gross margin. To accomplish optimal utilization rates, we use a combination of in-house production for the majority of our production aswell as trusted and flexible third-party manufacturers.

Due to the high investment and long lead time for spray drying, we need to have a long-term view on capacity need. Growth in Asia has requiredus to add additional spray drying manufacturing capacity.

To provide the additional spray drying capacity needs, we are currently in the process of building a new plant in Singapore as I mentioned earlier.The total cost of that plant will be in the $300 million. The startup will impact our 2013 and our 2013 cost of goods sold.

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Included in the project is additional spray drying capacity along with research and development facilities and additional warehousing. The spraydryer will provide -- predominantly will be for providing product for the Asia finishing plants but also provide business back up for the rest of theworld.

This slide illustrates, you know, the groundbreaking on the plant. The top left was 15 months ago. The top right photo was taken earlier in 2013. Itwould give you kind of an indication of the magnitude and size of the plant and the progress at that time.

And then the bottom photo is the most recent and demonstrates that the construction is entering, you know, the final phases. Production trialruns are expected to begin in early 2014 with market and product beginning in mid-'14.

We'll expect a quick ramp up for production in 2014 and '15 to near full capacity utilization in 2016. You know, the plant is expandable for additionaldryers or packaging if that becomes needed.

Mead Johnson's capital expenditures have been driven above normal rates over the past five years as I mentioned earlier due to our system-relatedcost of becoming standalone and the large capacity expansion for the Singapore dryer.

Absent any future significant capacity investments, future capital is expected to return more to the normalized level to support our focus on growth,quality and productivity.

You know, we expect capital spending to be near the peer spending level of around 4% of sales, however, due to our kind of higher gross margin,we expect our capital spending as a percent of cost of goods will average slightly higher than our peer set. You know, the capital spending as apercentage of cost of goods sold is primarily driven by the -- our focus on quality, growth and innovation and especially in this industry.

Cost of goods sold is comprised roughly of 70% raw and packaging cost driven by dairy for Mead Johnson at 29%, agriculture products at 21% andpackaging at 13%. Most of our dairy prices are based on dairy indexes published by the USDA. This includes whole milk and skimmed milk for Asia,non-fat for the US as well as lactose and whey.

Agricultural spend is weighted toward agricultural oil such as soy, palm, coconut and some flour. These tend to move lower the overall agriculturalcommodity sector. Another significant spend in the agricultural area is liver oil which is based on a fixed price agreement with the supplier.

Our primary packaging costs are influenced by the tin, aluminum and the plastic markets. We are investing in our procurement capabilities withan -- focused on diversing our supplier network to assure supply, advancing our knowledge around cost modeling, developing hedging strategiesand market intelligence and for improving our material expertise in innovation.

Dairy prices have increased in the 2013 and, you know, as I'm sure you've heard me times from Pete, you know, due to the lag time it takes to impactthe P&L, we expect to -- dairy to be a headwind for our -- to the gross margin in the fourth quarter and the first half of 2014. You know, dairy priceswill, and particularly, likely impact the Asian region.

As the chart indicates, commodity prices such as our dairy components continue to be volatile underpinning our goal of hedging strategies andmarket intelligence to mitigate volatility to a degree possible. In addition, diversing supplier network will allow us to reduce volatility while at thesame time improving our business continuity.

Mead Johnson maintains a structured global productivity process not only for cost of goods but also for non-cost of goods and working capital. Itjust employs a clear definition that the four cost reductions can be counted as productivity, the savings must be output of a project not just simplya market change, the savings must be a reduction versus prior year, you know, while actual cost avoidance projects are important, they are notcounted in our productivity scorecard, and finally, the savings must be sustainable year-over-year.

Our target is 3% of cost of goods and we are on track with '13 as we have delivered in the past years.

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We operate using a concept of productivity pipeline so our focus right now is more on 2014 and 2015 developing that pipeline and assure that wecan deliver it. Our productivity program is the top tier as we benchmark it versus the external world.

Productivity is always truly embedded in the Mead Johnson culture across all facets of the business. you know, productivity targets I have talkeda lot about are built into plans for cost of goods but they're also built in to plans for the operating expenses, general administrative expenses andworking capital.

You know, actual results from our productivity program are tracked and reported regularly at top levels in the organization and their targets werealso, actual results are included in performance measures. So it's clearly across the company a cultural piece of what we do.

Mead Johnson's quality program which underpins much of what we do maintains a proven quality systems that drive continuous process andproduct improvement while maintaining compliance in a dynamic and global regulatory environment.

You know, this program includes but is not limited to things such as our internal quality audits of our manufacturing size to ensure compliance tostandards and regulations, quality audits of suppliers and third-party manufacturers, change control to ensure changes are introduced in a controlledand coordinated manner, routine monitoring of critical control points of our internal manufacturing sites and by our third-party manufacturingsites.

As Kasper talked about, we have an extensive sampling program of testing of ingredients, packaging components, finished products to assure thatwe meet both regulatory requirements and our consumer expectations.

Additionally, Mead Johnson maintains a thorough food safety program that provides deployment of the latest technology and standards in thearea of food safety, proactive surveillance of emerging market risk and assessment of business impact of those risks along with an interaction withthe external regulatory bodies across the globe.

To deliver safe compliant product, our quality organization works hand in hand with our R&D group to provide alignment between our productspecifications and our consumer expectation.

Starting with the earliest phase of research, our quality group is involved with the supplier selection for raw materials, ingredients and packagingcomponents to assure they can meet the qualification criteria that Mead Johnson sets.

The quality organization remains throughout each stage of the product development manufacturing process to assure that the Mead Johnsonproducts are safe and compliant with the regulations in countries that are sold as well as meeting the physical attributes such as color, taste, odorand mixability that our consumers expect.

And so in closing, you know, in summary, so we have an evolving network to support the business. We're working to optimize that network as wego forward. We're working to drive our procurement capability to support a very volatile environment in a commodity world, all of that with anunwavering commitment to quality.

So with that, I'll turn it over to Pete.

Pete Leemputte - Mead Johnson Nutrition - EVP and CFO

Thanks, Jeff, and good morning, everyone. You've heard a lot from our operating leaders here this morning, and my job is to highlight how all thestrategies that some of them discussed are going to drive the financial performance of the company moving forward.

Unfortunately but consistent with past practice, we're not offering any specific guidance for 2014 in this call. For this meeting, we're going to bedoing that in late January in a conference call but I do intend to show you some early perspectives that all the model builders that are in theaudience and listening on the Web can take in mind as they start to -- start their work for planning for next year.

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I also want to point out that the majority of my comments are going to be focused on the non-GAAP financial metrics. So if -- and so if there's anyGAAP measures, I'll point them up specifically.

Kasper showed this slide and I'm sure you're all aware of our very proud history of sales and EPS growth, and 2013 has been no exception to thatrule. The growth that we expect this year, 8% to 9% on a constant dollar basis is at or above the levels that we've seen on average over the last fiveyears so there is no doubt this is a very good year for us.

And our earnings of $3.30 to $3.37 per share are quite impressive particularly when you take into account the fact that we have been making someheavier demand generation investments this year and most notably advertising and promotion spending which is up a full point versus 2012.

Let's take a look at the volume and price components of our constant dollar sales growth. And you can see that 2013 has had a very good balancebetween both volume and price gains very consistent with our five-year average.

It's probably the only year shown in this chart though that you actually seen us perform at the average. There tends to be a fair amount of volatilityparticularly with volume. And it's very clear that volume growth doesn't always come in a straight line over time and so it may be difficult to predictthe performance for any given year except by looking at the longer term trend. And we're very pleased with what we've delivered there of 4%.

Price growth for the company has not seen as much volatility as generally one in the low to mid-single digits year after year and most of that isobviously coming from Asia and Latin America as you can see on this slide on the top portion of the slide.

Our price increases in Asia and Latin America as Kasper pointed out are consistent with rough than lower than wage and CPI inflation as you'veseen. I would point out 2009 since out on this chart is the year with significantly higher price increases and that was the result of dairy prices nearlydoubling in late 2007 and 2008 and 2009 was a catch-up year for us on that.

You'll also note that there has been positive pricing seen in North America/Europe over the last two years and that's a direct reflection of whatIvonne talked about this morning that we have been very active on the innovation front and that's often a point in time when you'll see us actuallyraise our prices.

When you look at volumes, and I probably should apologize here because the scale doesn't do justice to the performance that we have in Asia andLatin America. But you can see that we've delivered very strong volume gains in those regions.

North America/Europe, we've been -- seen lower volumes actually consistently throughout the period and that's the challenge of declining birthsand a higher breastfeeding rates in the US and it's our second largest market so it does obviously have an impact on the -- not only at that segment,North America/Europe but also for the company.

When you look at volume, higher volumes can come from both category growth as well as higher market share. Kasper has already spoken to youabout, you know, the industry has a place for growth 6% to 7%. That's a value number over the next seven years, so I'm not going to dwell -- spendany more time on that.

But you can also see that we've had some very excellent share gains and both Ivonne and Chris highlighted this over the last year in many of ourkey markets. We can't predict, you know, the trend that moves forward with regard to market share. Obviously, we're pushing for as much as wepossibly can but the pace of growth particular in Latin America is something just to keep in mind as we move into 2004 [2014] is quite impressive.

We are focused on what's going to drive longer term share gains and that at the end of the day is having meaningful scientific innovation as anexcellent execution on the ground and that is what's necessary for making sure that we see the share gains moving forward.

One of the hallmarks of our portfolio is the diversity of markets in which we operate in both Asia and Latin America. And this slide shows you thatover time, we've delivered very strong double-digit growth on a fairly broad basis across both of those regions.

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If you look at 2013, constant dollar sales growth in Asia through September increased 7%, and we expect a strong performance in the fourth quarterof this year and we expect the year on a full-year basis is going to deliver a low double-digit sales growth figure.

And Asia is comprised of China/Hong Kong which accounts for about 60% of both regions' sales and South Asia which is another 40%. And youcannot deliver double-digit growth like we are this year without having very strong performance across both of those sub-regions. So we're verypleased with what we're seeing.

For ease of comparison when you look at Latin America, the constant number -- constant dollar numbers are detailed here treat the US dollar asthe measurement currency for both Venezuela and Argentina.

We think it gives a more accurate review of the underlying economic performance of the region because both of those markets have experiencedvery high inflation and we are raising our prices in that environment, but it's really offset by a very significant devaluation of the local currenciesas well. So probably it gives you a better view kind of the longer term potential.

We currently expect that post mid-teen growth for Latin America on a full-year basis in 2013 and that's generally in line with our year-to-dateexperience. And finally, you'll see that historically, the last number of years, we've had a 3% decline in our North America Europe segment, thatimproved somewhat this year driven by the non-WIC market share gains that Ivonne spoke to. But the impact has been more than offset by higherbreastfeeding rates and also the loss of sales from a number of businesses that we excited in late 2012, that's the biggest driver there.

Turning to foreign exchange, over the past three years, our reported sales growth has benefitted from a weak dollar. That trend has reversed thisyear and we've guided to a 2% reduction in sales from FX in the second half of 2013 and that's the 1% decline for the full-year.

If current exchange rates were to hold throughout 2014, we estimate that year-over-year sales would be down by about 1% and earnings wouldbe negatively impacted by about $0.03 per share in 2014.

This chart shows FX trends for some of our most important currency exposures as a reference for all of you. The exposure from a strengtheningdollar is evident in the upper part of this chart and that's in South Asia and in Latin America.

However, we've seen the dollar actually weaken against the Chinese renminbi and the euro as shown in the bottom half. That's good news for ourfinancial performance in China but note that we have very limited sales in Europe in our Dutch plant manufacturer's product for our Asian operations.

So as a result, we hold a short position against the euro and as the dollar weakens, we actually see higher dollar cost for the company, so all thefactors from these four areas are included in that $0.03 impact I just mentioned for next year.

There is obviously a risk that we could see a further strengthening of the dollar in 2014 and that would generate additional financial exposurebeyond what I've just detailed. We can't forecast it any better than you can so I'm not going to even try.

But we do believe that's almost certain, there will be a further devaluation of the Venezuelan bolivar and the Argentine peso as we move through2014. Our biggest exposure in these two markets is to a balance sheet re-measurement loss on net monetary assets held by our Venezuelansubsidiary.

We currently estimate that at about $0.05 per share but it could be higher depending on our cash position and the magnitude of the devaluation.

A second factor would be that related with the translation impact on ongoing in sales and earnings in both of these markets but we can mitigatethat any unfavorable translation FX impacts if we're able to increase prices to offset currency devaluation. That's not a guarantee we can do that.We have been successful so far in doing so though.

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Turning to the components of our EBIT margin, you'll see that we've been able to maintain gross margins in the 62% to 63% range for the last fouryears. I've excluded 2009 because of the fact we have raised prices in response to dairy costs going up but then the global recession hit andcommodity cost problem we got -- a gross margin in that yearend, EBIT margin that we don't think would be sustainable in the longer term.

Some volatility in gross margins is natural depending on commodity prices and also the timing of product innovations which is a point where Isaid that we try to raise our own prices.

Operating expenses have varied for a number of reasons including the higher demand generation investments and also the foreign exchangelosses. But the bottom line is that we've delivered EBIT margins between 23% and 24% from 2010 onward.

Let's take a little closer look at our cost of goods sold for the new year. There's going to be a number of competing factors that work, the mostsignificant headwind that's coming from higher dairy cost on Asia and you're seeing a significant jump as Jeff mentioned for inputs originating inboth New Zealand and Europe. That's going to become most evident in the fourth quarter of this year and we do expect that will continue to thefirst half of 2014.

There are some other commodity trends for example, agricultural oils that are moving on a positive direction but dairy in Asia is going to predominatefor us next year. So it really falls on pricing and our strong productivity program to help offset the impact across inflation.

Pricing and productivity tend to be delivered more steadily throughout the year and we don't expect them to completely offset dairy cost pressuresin the first half.

I also want to point out the temporary impact on COGS as we move toward the completion of the Singapore plant. We have full staff in trainingand some other costs are expected to be up by about $0.03 next year to total of $0.08 per share. That factor will be fully behind us as we exit 2014.

In addition, once manufacturing begins in the second half, we're going to see unfavorable fixed cost absorption and we estimate that's going tobe about another $0.03 or so per share. And the fixed cost absorption issue will be completely behind us once the plant gets to full capacity whichis expected by early 2016.

Turning to operating expenses measured on our percentage of sales basis, growth in overall spending in recent years is the result of higheradvertising and promotion investments which are up a full percentage of point in 2013. And as Kasper noted, that's expected to continue. We geta fantastic return when we invest in sales force additions as well as additional promotional spending.

You can see that sales force marketing and R&D costs have grown in line with our sales base and those are not going to be a source of earningsleverage for us but we do look to general and administrative spending to help provide that leverage.

And you can see here that we've dropped our spending on a percentage of sales basis by about 150 basis points since 2010. We are targetingfurther productions in G&A in the coming years but I want to point out too, we look at these as fuel for growth that we can reinvest back into thecompany so they are not necessarily going to fall through each of the bottom line.

Wrapping up our margin discussion, let me point out recent trends and EBIT margins for our two segments. I'm presenting 2011 here as this yearbecause we launched SAP by that point in time and we were allocating shared service costs up to our business for the first time since the IPO.

In Asia and Latin America, we've seen relatively stable margins around 33%. Meanwhile in North America/Europe, there has been a deteriorationover the past few years.

If you look on the right, you can see that demand generation investments behind the innovation that Ivonne highlighted in the US market is thesingle biggest factor at work for that.

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In addition though, we've also seen an almost equal impact from lower gross margins and that's the result of any number of factors including lowerproduction volumes associated with lower birth. Inflation -- commodity inflation that has been in excessive pricing, particularly, that was a bigfactor last year, and also higher WIC rebate.

Importantly, we've seen a modest improvement in EBIT margins in 2013 from 2012, and any further progress will come from volume recoveryalthough we're also looking for opportunities for additional investment spending in North America and Europe.

The other key source of earnings leverage beyond G&A has been a steady reduction in our effective tax rate or what we call the ETR. Since our IPO,we've taken actions to permanently reinvest a greater proportion of our earnings abroad.

That's important because repatriation exposes the foreign earnings to higher US taxes. And as you can see on the right here, the US carries thehighest ETR out of any major market in which we operate.

Looking forward, further reductions in our global tax rate will require more of our earnings to originate in lower tax rate markets. And our Singaporeinvestment is a key element in that strategy and it builds on our significant manufacturing presence in the Netherlands that we've had for someperiod of time.

We're not giving you guidance on where our tax rate is going to be in the future and there's the reason for that. While we do expect further benefitsfrom Singapore, there may be a need for additional cash repatriation back to the United States at points in time in our future.

And we've been fortunate, last year, we repatriated a very large sum of funds in a tax-free transaction to the US and that's enabled us to keep ourearnings generated in both 2013 and most of 2014 outside the US.

We're using that cash to pay dividends for share repurchases, interest expense and our debt, et cetera, and we could see a need to replenish thosefunds from abroad at a future date. And obviously, higher taxes with the company bolster repatriation of earnings in the future.

We also focus on generating strong free cash flow. We've done very well in that regard. Cash generation comes not only from strong earningsperformance but also from our efforts to manage working capital.

And just an important fact, since 2009, our annual sales have grown by a total of $1.4 billion, and during that time, on a cumulative basis, we'veinvested less than $100 million in additional working capital.

We measure our controllable working capital and our bonuses are affected by our performance in that regard and it includes trade receivables,inventory and payables and we use a 13-month average so to make sure that we deliver sustained benefit and we're not just getting a temporaryreduction. And you can see we're running this year at a rate of 7.3% of sales well below prior years.

The only other item I would want to point out here with regard to free cash flow is the high level of capital spending. It is at 6% this year of sales.And as Jeff mentioned, once the Singapore project is behind us, we would expect to see that drop into a range on average of about 4% or so.

So how do we intend to use our free cash flow? Growth is our highest priority and we intend to pursue potential action -- acquisitions within ourcore business such as the SanCor Bebe transaction that we completed last year.

Returning cash to shareholders is also important. And you can see in the upper right as dividends and share buybacks together have consumedan increasing portion of our free cash flow over time.

We have nearly completed the $300 million dollar share buyback authorization that was put in place in mid-2010, and as a result, the boardauthorized a new program of $500 million for us to have access to moving forward. And we intend to use those additional capacities to offsetsolution from employee stock [awards] as well as for opportunistic share repurchases over time.

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Our balance sheet is as strong as our cash flow. We have total long-term debt of $1.5 billion with $500 million maturing in November of 2014. Asyou can see on the bottom left of the slide, treasuries remained near record lows and we plan on refinancing the notes.

We have effectively locked in current rates to give us great flexibility on the timing of any potential offering. But once we complete the transaction,we are going to see higher interest expense that we estimated of about $1.4 million per month.

That's because the expiring notes carry an effective coupon rate of only 2% after taking to account gains that we had on an interest risk swap thatwas on warrant several years ago.

Finally, I should point out that accounting requires we capitalize interest for large projects like our Singapore plant investment and we've beendoing that throughout 2013, and that will stop once the plant becomes operational in the second half of next year. So that factor by itself is goingto increase reported interest expense by about $3 million in 2014.

So pulling altogether, these are the puts and takes as we currently see them for 2014 for you to considering your models for the new year. We willhave more specific guidance in our late January conference call.

But it's clear, we are using all the available levers that we have to drive not only sales but also earnings for our shareholders.

And just to wrap up, you've heard from a lot of our operating management today, I hope we left you with a better understanding of our businessand the long-term potential for sales and earnings growth that Mead Johnson enjoys.

Its history is a guide. Growth wouldn't occur on the straight line basis but our geographic diversity is an asset that helps us through bumps in anysingle market. And we have the ability to fund demand generation investments through continued G&A leverage and further reductions in ourtax rate.

Most importantly, we have the cash and the balance sheet strength to pursue growth and return capital to the shareholders. And with that, I thinkwe're going to open it up for Q&A.

Q U E S T I O N S A N D A N S W E R S


Great. As the executives are getting settled, I think we're right on time. It's about 11.30 here in Chicago. And so we're going to take about half anhour so that people on the webcast can also listen in and ask questions. And then in effect after that, I still welcome everybody here to come andjoin us for lunch.

So with that, I think we have microphones, if you can just raise your hand and we'll get a microphone over to you. And Rob, I see your hand up.Just give it a little second. So Rob Moskow from the Credit Suisse.

Rob Moskow - Credit Suisse - Analyst

Hi. Thank you, Kathy. I noticed in your comments Pete for 2014, you're talking about a normal year for growth for the company essentially, youknow, strong category growth, maybe 7% to 8%.

But a lot of consumer staples companies are talking about slowing demand in emerging markets I think Mandalez last night said that growth ratesare down 250 basis points across their categories.

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And then -- and then secondarily, you know, you also mentioned that you're going to focus on existing cities in China. It doesn't look like there isnew city expansion next year. And then Latin America, I didn't really get an update on the $1 billion target. It sounds like you're still talking about15% growth but it was a little unclear to me what kind of volume that entails.

So is it really a normal year next year or it is unusually difficult? And what makes you confident that your categories can continue to grow in thatenvironment?


Let me try and take it and then Pete, maybe you want to add any comments that -- Thanks for the questions. So I think -- let me try and think -- if Ican think about them.

We have not seen in our category the slowdown that is being referenced by some of the other consumer products companies. I read the samereports that you read so I'm familiar with it.

I think to some degree, not questioning their data but we are a little bit protected because our category is so much more important to consumersand the motivation and incentive to keep spending is very high in our category.

So, you know, in that regard, I would say looking right across our emerging markets, at this stage, we don't see anything that could cause us to saythat next year looks like a different type of year than what really are in the process of completing.

And Latin America, I don't know. I saw it -- I heard Chris reiterate the fact that we were well on track to achieving our $1 billion target in 2015 and,you know, it's a little bit hard to say dependent on currencies whether we'll get there and, you know, a little bit early on a run rate basis are not butwe have certainty seeing very strong performance of the business. So I forget -- Rob, what was your last component of your question?

Rob Moskow - Credit Suisse - Analyst

New cities in China.


New cities in China, I think what we were trying to signal was that we are probably seeing a rebalancing of our priorities. It's not that we are walkingaway in any way from city expansion as a concept but what we are seeing is that as we are going over our operations in our existing a base whichis more than 250 cities, we are seeing that there are great opportunities in some of those 250 cities to dig deeper, to penetrate the markets, youknow, more.

And as these new channels are evolving, we are also finding new ways of reaching new cities in China. So one of the great revelations of us, forinstance, is venturing into the e-commerce channel has been that a surprising amount of e-commerce than we are seeing in this early phase actuallygoes into cities we are not currently present in. So, you know, it's an evolving model but, you know, it certainly wasn't our desire to signal to youthat there was anything that was too significantly different.

Pete or Chris, I don't know if you -- feel free to add anything.


Maybe just one -- one comment that obviously step change may take as we continue our smaller -- by nature and opportunity and that long-termbuild to short -- by going in to short term into existing cities. And you should remember that these cities have experienced significant growth since

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we first went in and we are just making sure that we're calibrating our investments whether it's in sales force or in those cities to reflect that growthof the evolution over the last few years.


The other thing I would add to that too is that you heard me say, you know, we've gotten volume growth from share gains and the volume growththis year at Latin America. Chris and his team has done a fantastic job, it is very impressive and we can't sit back and say that's going to continueeach and every year moving forward. It's just something to keep in mind.


I think I've got Jason English from Goldman Sachs.

Jason English - Goldman Sachs - Analyst

Thank you. Some questions on the US, the birth rate. Do you, guys -- sorry, not the birth rate. I'm sorry, the breastfeeding rate. Do you know howmuch of this is cyclical for the secondary nature?

And then also on toddler product, you've been down this path before. You've had some setbacks. What's different this time and what gives youthe optimism that you can really sort of create a much larger segment here?

Ivonne Monteagudo - Mead Johnson Nutrition - SVP, General Manager - North America

Okay.. I think that the birth rate is I referred to in terms of -- we think it has to do with the economic crisis. The decline that has happened. Birthrates were definitely affected by that economic crisis and it should be coming back to the crisis levels based on the information we have. So I thinkthat's cyclical.

Breastfeeding rates continue to increase. We think that's a trend that will continue. It will probably slow down once female unemployment continuesto go down because we have seen in the past that the more women in the workforce, that makes breastfeeding adoption -- long term breastfeedingadoption go down.

And regarding toddler, the biggest difference as I pointed out in my presentation is that now we have the core elements of our global Enfagrowbusiness inflation in the US We have stated to begin with. We didn't have that. We have the brain benefit and that has been there for some timebut now we know how relevant it also is for moms in the toddler years with our DHA formula.

We have our liquid offers. We did not have that in the past too. We haven't had tetra pack offerings for children. And finally, we have sufficientdistribution levels and we also did not have that in the past. So that's what has driven our business year-to-date. Even before, we put the advertisingon air and that is what is giving us confidence that we can drive that even further.


Thank you. David Driscoll from Citi.

David Driscoll - Citi - Analyst

Good. Thank you. Two questions if I may, one on China and then one related to United States and the North American operations.

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In China, can you, guys, just discuss -- you know, I feel like there is like the tsunami of information that comes from the Chinese government aboutall these changes. I just like to make it reasonably simple. Do you see the new rules that are being issued by the government as putting themultinational companies? They don't need to single out Mead Johnson. The multinational companies at a disadvantage to the local Chinesecompetitors.

And then somewhere, can you work in the thoughts on the healthcare professional interaction, you know, because I know this is one of the coresthat really has been a strong suit of the company in many geographies for its lifespan.


Chris, do you want to --


I think -- would you take --


So I think that, you know, a lot of things are happening in China, right? It's a very fluid market right now and, you know, I think one of our competitorsoverly extended in their presentation about the changes that I have named the regulatory environment as it relates to manufacturing, et cetera.

But we obviously have strong views on the topic. We have the firm view that the governments ought to focus on regulating product quality i.e.think about that as the quality of the output as opposed to regulating necessarily the manufacturing process itself.

And we are in discussions on an ongoing basis with different agencies in China communicating that view in some cases helping them. We -- I'vetalked before about how we had people from the Chinese quality bureaus and FDAs based in our plants from time to time to help them developunderstanding and help develop standards.

I will say that no matter what the outcome of that process is and I won't try and predict exactly where it will end up, but I feel very confident thatwe as a company have both the resources and the people and the experience and finally, the technical know-how to add that to whatever regulationsget put in place in China.

There is nothing that is being discussed currently that is sort of beyond us. And, you know, it may take us some time. We may have to flex our modela bit and we may have to maybe make some investment or something like that. But we are familiar with all of the technology that is being discussedcurrently. So that's the -- that's probably the key part.

The second part of your question was, David?


I think you've answered it.


Okay..

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I mean it just there seems that there is a hyper --


David -- so I just -- maybe I'll just reiterate what I said. At the moment, there is obviously a lot of nervousness in the China market. Actually, thenervousness is mostly in the hospitals where the healthcare profession as such is very conscious of the fact that the government is looking veryclosely at how industry interact with -- where it interacts with the healthcare system.

As a consequence of that, the Ministry of Health have put out some guidelines trying to clarify how that should happen. Those guidelines need tobe clarified further. We are working with the Ministry of Health, other people I'm sure are doing the same.

I believe that this situation is transitory and that ultimately it will lead to a clearer guideline on how exactly companies should interact with thehealthcare system. It's very hard for me to imagine that all kinds of medical marketing and medical promotion will be eliminated because as I said,the medical profession really depends on private industry to help them understand scientific advances.

The fact is that there isn't a good system in -- well, actually almost anywhere in the world for continued medical education of doctors. Doctors tendsort of qualify and then they practice for the next 30 or 40 years and they rely to a very large degree on industry helping keep them abreast of newdevelopment, new clinical studies and new treatments whether that be in the pharma area, be in the medical device area or for that matter theinfant nutrition area.

So I don't think that the model as such is under threat but it's going to have to evolve/change at that undoubtedly.


Great. Thank you. Diane Geissler at CLSA. If you could just go back -- there she is.

Diane Geissler - CLSA - Analyst

I guess I wanted to talk a little bit about the pricing dynamics in China. I think there's been a lot of concern this year about ability to take pricingand I think Pete laid out in his presentation some of the headwinds particularly on the dairy side, obviously, a lot of attention on the category inthe middle of the summer.

Can you just talk about your viewpoint on demand trends and the ability to take pricing across your product portfolio maybe not just necessarilyin China which I think is the focus today but just broadly, you know, across all geographies?


Do you want to answer that?


Sure. You know, I think when you look at the numbers this year, they're pretty much on average at 4% pricing for the company.

Certainly with regard to China, there has been a little bit of a headwind and I think if you listened to our comments a couple of weeks ago, we saidthat pricing was actually down slightly year-over-year in the third quarter.

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Frankly, you know, it's going to be the competitive market I think that will drive that and a couple of our competitors basically said that they weregoing to keep lower pricing in the marketplace through the middle of next year. We don't have that restriction on us but we're going to have tobe governed by what happens in the marketplace.

I don't think there is anything that we've heard of in China or anywhere quite frankly that would say that you can't take pricing. And our strategyhas been to really do that with regard to innovation. And as long as we can continue to innovate, you know, we should be able to help get it.

I think -- you know, I think our -- despite the fair amount of volatility that Jeff showed you too and dairy costs, so If you look at our gross marginsover the last four years, they've, you know, held within that 62% to 63% range.


Great. Thank you. Bryan Spillane from Bank of America Merrill Lynch.

Bryan Spillane - Bank of America/Merrill Lynch - Analyst

Thank you, Kathy. So I guess a question for Dirk, you know, in looking at formulations, you know, one of the things at least our observation of theindustry and of Mead Johnson has been, you know, the ability to enhance the formulas, change the ingredients, has been a major sort of componentof being able to charge a higher price target premium and really, you know, DHA, RHA and what Mead has done in implementing that and inadvancing it has really been a big part in terms of being able to create that value.

You mentioned in your presentation, you had a short list of ingredients that you're looking at. You know, you've got, you know, Biostime in Chinamakes a lot of product claims. I'm not sure of how many are validated or that you would consider validated or not.

But could you talk a little bit more about kind of what that short list of ingredients is are you looking at, you know, better, fats, more effective fats?Are you looking at other types of ingredients? And, you know, is that -- how high that is I guess from a priority list in terms of really trying to sortof step change formulation? Sorry about the long question.


No. Thank you for the question. I think what we are doing is really a portfolio approach. So we look at opportunities for bigger innovations but alsoa continuous stream of product upgrades, format changes so that we can have a steady flow of innovations coming to market. And I think if youlook at the booth outside, that will show the innovation that we have delivered to the marketplace in the last two years. So we have a continuousflow of innovations.

While we look at the bigger innovations, we're very clear that we want to demonstrate clear functional benefits as delivered in clinical studies. AndI'm not going to comment about our competitors are doing but -- and some of that is also the innovation but some recognized that if we look atthe clinical studies and the supporting evidence, I think it's rather meager.

And what we want to do is make sure that we have a flow of innovations that's sustainable. So what's coming from us will have very good supportbehind it and can also be therefore sustained over the years.

Because it's not only the innovation, it's also the brand building that we are doing. And Enfa and also our other brands, we just stand across. So asmaller player could take a bit more risk. We are going to make sure that whatever we do is really able to building the brand equity.

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Bryan Spillane - Bank of America/Merrill Lynch - Analyst

And just following up in terms of where in the ingredient list you're focused most on, you know, vegetable oils are still a pretty significant portionof the fat content of the formula. Is that a sort of area of focus in terms of trying to improve the fats?


Absolutely. Let me -- so what we are looking at -- we still use breast milk as the gold standard and source of inspiration. So fat is really important.We look at how we can further develop Mead to get close to breast milk? But we also look at protein, we look at carbohydrate sources and we lookat minor components that can affect functional benefits.


Great. Eric Katzman of Deutsche Bank.

Eric Katzman - Deustche Bank - Analyst

Thank you. I guess two questions. First one, maybe following up on Dave Driscoll's question about China. You know, it seems to me that if thegovernment there forces backward integration and the industry to start owning dairy farms, you know, dairy farms are probably one of the worsereturn businesses in the world.

So, you know, it's kind of like -- it seems like it could be a big opportunity to the extent that the local guys are being forced to do it which reducestheir resources but on the other hand, if the government says everybody has to do it, that's, you know, something that investors I've talked to arevery fearful about. So maybe just touch on that and then I'll follow up.


Yes, yes. Eric, you know, I think we consider very unlikely that there will be a requirement to backward integrate all the way to the farm. The realityis that the vast majority of the industry even some of the companies that do that to a very small [yield] we are not really setup to do that for themin China volume.

So I don't think what they are thinking about. What they are thinking about is, you know, how do you -- how do you divide the process to allowone, two or three-step process in all of that. And we are very well positioned I think to do it whichever way the regulations come out.

I don't know that they ultimately will get all the way to forcing the local companies to do this either though I think it -- there's undoubtedly a desireto develop a local industry perhaps even a local dairy industry but many, many other countries in Asia have gone through a similar cycle with anemphasis on developing local dairy industry.

I remember Thailand at one point a few years ago --actually while I was based there, going through a phase where they -- they were trying toencourage players to buy a certain amount of raw -- or local raw material to inject into the manufacturing process.

We don't know whether that sort of thing will come into play. If it does, we'll adapt to it and we'll apply our strict standards to it. But beyond that,I don't know that I -- I don't know what I answered it fully or otherwise, follow up on it.

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Eric Katzman - Deustche Bank - Analyst

I don't know if there is an answer until they decide what the answer is. But on a different question or a different topic, you know, the stock has, youknow, kind of underperformed of late versus a very strong market. I mean anybody in this room or on the webcast can see that, you know, withinpretty short order, you're going to have a very significant ramp up in cash flow.

And, you know, I think, you know, Pete, a lot of your comments regarding 2014 were somewhat cautionary with various items hitting. In thisenvironment today, with, you know, most, let's say, strategic buyers looking, they can see bigger cash flows about to ramp up, they can see theseitems and the stock lagging.

I mean why shouldn't we expect a view to, you know, significantly ramp up the share buyback because, you know, again, in this environment, ifyou don't have return to shareholders or exploit this arbitrage, somebody else is going to do it for you.


Sure. You know, excellent question. And, you know, one thing to keep in mind, we had higher levels of cash in the US as I mentioned that peoplebuy share. That's going to be dropping and has dropped as we move through 2013 and will continue to -- in '14.

So in -- what you're really seeing this year I would point out is not a significant increase in the cash balance of the company because of the investmentthat we're making in Singapore. Once that's behind us, you would expect it to grow again.

Keep in mind that there is a -- there can be a significant penalty to bring that cash back here to buy back stocks. When I showed you some of thetax rates, you know, the market that we operate in, the Netherlands and Singapore ultimately is where a lot of the cash of the company is goingto reside and it can go from what is the single-digit tax rate to 37% by repatriating it, there is a huge penalty there. So that factors into our thinking.

I think we are -- you know, we signaled to you that we've increased the share buyback potential for the company with a 500 [million dollar program].We signaled that we are considering opportunistic share repurchases.

And, you know, we see the stock price watch rating just like you do and there's quite a few people in this room would have taken advantage ofthis volatility and we intend to be part of that.

We can consider taking on additional leverage to also buy back stocks. You know, the challenges that kind of exacerbates the cash issue, you borrowhere in the US in order to get the cash here to do it. And it just make sure -- makes a bit of the challenge for you so there's a tax penalty longer termfor doing that too that we're considering.

Ultimately, you know, we intend to make sure that if we're investing money, and remember that's our first priority, it doesn't take -- if you did adeal like we did in Argentina last year where we spent $200 million, you do a deal like that every year or every two years and frankly, the cashbalance doesn't become an overly big issue for the company. So I'll -- you know, a lot of complexity in that thinking I think but we are -- we do keepthat front and center and then it's something we'll consider.


Great. Thank you. Amit Sharma, BMO.

Amit Sharma - BMO Capital Markets - Analyst

Hi. Thank you. If we look two, three, four years back, a large part of your growth in China has come from consumers moving up the value chain ofthe premium segment, right? But in -- Chris, you showed a slide today that premium segment is at 88% of Chinese market. So given that, how

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should we think about growth in the next two to three years, going to come mainly from share gains, are we expecting that 88% to grow to 98%?That's one.

And the second part is you also mentioned that online is becoming a bigger channel. Given that you don't have to invest in expansion in city, isthat a margin impact versus the China as well?


Okay.. Thank you for the question. On the first point, I think the -- the first point related to the -- the question that's related to the premiumizationof the category, I don't think we would foresee that the cash free would drop in terms of the current levels of premium. It may continue to growbut I don't think we would foresee that there will be a deep premiumization in the category going forward.

We do see that there are still significant opportunities for growth within China and we alluded to some today in terms of new channels like theInternet channel. We're seeing also that as the China -- the China government considers now to invest particularly outside and particularly in theWest, we're seeing new geographies growing as well. So I don't think that we are bearish at all about the growth going forward. It will be a differentmix.

I think I would also stress when we see other segments coming in. We've talked a little bit about specials and solutions and I think that, you know,a lot of those are priced but more premium to routine products, so I think we see that there is an opportunity both in terms of product mix andgeography and I think that that will continue to drive the growth.


And in terms of the online trend, that has a market implication --


Sorry, the?


The online channel.


No, it doesn't have a significant margin implication. It's still a relatively small part of our business too.


Thank you.


I think we have time for one more question. Matthew Grainger from Morgan Stanley.

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Matthew Grainger - Morgan Stanley - Analyst

Thanks, Kathy. One final policy question I guess on China specifically around the one-child policy and it seems possible that we could get somedegree of government proclamation around that in the coming week.

And I'm not expecting you to predict the government action or to be overly bullish I guess about this but how do you think about the potentialimpact that a partial relaxation could have and sort of the various puts and takes and how that could potentially benefit the profit pool?


Will you take that?


I think the -- you know, I think it has been an ongoing process as I've said to you before about a relaxation of the one-child policy. So, you know,it's hard for me to envision that any kind of policy reclamation will lead to any kind of traumatic, you know, landslide change.

There's been -- there's an experimentation with the, you know, I guess fines for second children in different cities and regions going on for quite awhile. And, you know, indeed, I think most of the public data would say that you know, family size something like 1.2, 1.3 perhaps even in at leastin the more developed areas of China these days.

So I don't think it will be a significant and sudden accelerator. Obviously, one would think it would be a net positive. And I think maybe I tie it backto the question that was just asked about China and whether or not are we running out of headway because premiumization is at whatever it was,88% or so.

Well, I think the danger with -- the danger we show in pie charts is that it easily leads to the conclusion that the pie can;t growt. So you've got toremember that growth can come not only from, you know, the relativity is changing between mass market price, products and premiums but alsofrom an expansion of the entire pie through greater consumer penetration although that matter grows in per capita consumption which is still farbelow some other Asian countries in China.

So, you know, I think we have a chart that showed the per capita consumption in Thailand is, you know, more than double what it is in China forinstance. So, you know, maybe that's a few comments sort of in that area.


So that's the end of our Q&A. If -- Kasper would like to have a few closing comments. Kasper?


So allow me just to close. And I've got just a couple of slides. But I want to first of all once again say thank you for coming and spending the morningwith us. I know it's not equally convenient for all of us, but it's been a great opportunity for us. I hope you've enjoyed meeting the managementteam, and I hope you all enjoy getting a chance to talk a little bit more to each of them over lunch.

I also hope that you will leave with a better understanding of our business, with a better understanding of our commitment to preserve the trustthat consumers place in our products and our brands, a better understanding about absolute commitment to quality and understanding of thefact that our growth is underpinned by strong industry fundamentals as well as a belief that we can continue to expand market share based oninnovation.

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So before I turn to the final slide, let me also just, you know, say thank you to a bunch of people internally who helped, you know, make this asuccessful morning -- to Kathy who has been behind the scenes and much of this; to our admin assistants who sort of have assisted you all on theday helping you find the way; and to our media-related staff,John, thanks very much, who've helped made all of the presentations go smoothlyassuming my last slide comes up. And it's been a great effort and it's always great to do these things.

Finally, and I hope you walk away agreeing with the underlying thesis that GDP growth creates jobs which attract women that participate in creatingdual-income families and ultimately foster the ability and the desire to spend on better products for their children, that underpins much of whatwe say, it underpins our belief that we can continue to deliver on our ambition, to deliver our shareholders with attractive revenue and earningsgrowth at or above the rate of category growth.

So with that, once again, thank you very much. I hope you will join us for lunch outside and I hope you understand that, you know, we are committedto delivering value to all of you. Thank you.

D I S C L A I M E R

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Transcript of Mjn transcript-2013-11-07 t15-00