The Hershey Management Discusses

Good morning, ladies and gentlemen. Welcome to The Hershey Company's Fourth Quarter 2012 Conference Call. J.P. Bilbrey, President and CEO; Bert Alfonso, Senior Vice President and CFO; and I will represent Hershey on this morning's call. We also welcome those of you listening in on the webcast.

Let me remind everyone listening that today's conference call may contain statements, which are forward-looking. These statements are based on current expectations, which are subject to risk and uncertainty. Actual results may vary materially from those contained in the forward-looking statements because of factors such as those listed in this morning's press release and in our 10-K for 2011 filed with the SEC. If you have not seen the press release, a copy is posted on our corporate website in the Investor Relations section. Included in the press release is a consolidated balance sheet and a summary of consolidated statements of income prepared in accordance with GAAP.

Within the Notes section of the press release, we have provided adjusted pro forma reconciliations of select income statement line items quantitatively reconciled to GAAP. The company uses these non-GAAP measures as key metrics for evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP, rather the company believes the presentation of earnings, excluding certain items, provides additional information to investors to facilitate the comparison of past and present operations.

Thanks, Mark, and good morning to everyone on the phone and webcast. I'm pleased with Hershey's fourth quarter and full year financial and marketplace results, which represent a solid end to another good year. We accomplished our 2012 objectives while growing adjusted EPS 14.5%, our fourth consecutive year of double-digit percentage increases. We continue to build and execute our consumer-centric business model and are creating a virtuous cycle that is delivering predictable, profitable and sustainable results. We've accelerated profitable organic sales growth, increased our leadership position in the U.S. marketplace, boosted margins and returns and delivered record profitability. Outside of the U.S. and Canada our businesses continue to grow and, barring any dramatic changes related to foreign currency, we're on a path to achieve net sales of $1 billion in these markets by the end of 2014. We're operating from a position of strength. We believe there are far more opportunities ahead than successes behind us because at The Hershey Company, the future is not where we're headed but what we're creating.

Now for an overview of the U.S. candy, mint and gum category. Growth was solid in 2012 and within the 3% to 4% historical growth rate. As has been the case for the last few years, the gum category has been challenged. Excluding a decline of minus 5.5% for the gum category this year, chocolate, sweets and refreshment grew a combined 5.2% in 2012. This increase outpaced other snack alternatives such as salty snacks, cookies and crackers.

Promoters of the $38 billion Severn Barrage tidal energy project in the UK are ramping up their lobbying for the scheme, saying it would require smaller subsidies than those afforded to wind energy, and probably around the same level as nuclear, Bloomberg reports. Gregory Shenkman, chairman of Hafren Power, told a hearing in the House of Commons in London that the project – which involves a dam-like structure spanning the 18km width of the Severn River and 1,026 turbines – would be economically viable. “We plan to finance this project entirely from private sources, and it’s taken five to six years to get here so far, said Shenkman.

However, he said the project would need 30 years of support through subsidies. Across its 120 year life span, the project could produce power at about $70/MWh, nearly half the cost of nuclear. Bloomberg said the project has yet to have an  environmental impact assessment. An earlier tender for a Severn power plant was ditched in 2010 because the governments said it would rely too heavily on public funds. It is estimated that it could provide 5 per cent of the UK’s energy requirements.

Meanwhile, French energy supply giant Alstom has completed the acquisition of ocean turbine maker Tidal Generation for around $78 million. The deal gives Alstom access to a 1MW turbine installed this month at the European Marine Energy Center in the Orkney Islands. Alstom says the machine has a rotor diameter of 18m, a 22m metres long nacelle and weighs 150 tonnes. It has three pitchable blades, and operates at a water depth of 40 meters, by rotating to face the incoming tide at an optimal angle, to extract the maximum energy potential.

Last week, French engineering group DCNS paid $176 million for majority stake in OpenHydro. Alstom also bought 40 percent of AWS Ocean Energy in 2011 and is working with UK utility SSE to use wave-power systems at a 200MW project off northern Scotland. Alstom also makes turbines for offshore wind farms, Bloomberg reports.