Brown Forman Inc · NYSE:BF.A
Brown Forman — Investor Day (December 2008)
67 slides from Brown Forman's investor day presentation, Dec 5, 2008
Slide 1: Brown-Forman Analyst Day – 75th Anniversary of the Repeal of Prohibition
Brown-Forman Analyst Day – 75th Anniversary of the Repeal of Prohibition December 5, 2008
Slide 2: Agenda
Agenda Welcome Ben Marmor AVP, Director of Investor Relations Strategy and Performance Paul Varga Chairman & Chief Executive Officer Opportunities and Resource Allocation Don Berg EVP, Chief Financial Officer Route-to-Consumer Strategy Jim Bareuther EVP, Chief Operating Officer Building Strong Consu
Slide 3: Our Mission
Our Mission Enrich the experience of life, in our way, by responsibly building beverage alcohol brands that thrive and endure for generations.
Slide 4: Forward-Looking Statements
Forward-Looking Statements This presentation contains statements, estimates, or projections that constitute "forward-looking statements" as defined under U.S. federal securities laws. Generally, the words "expect," "believe," "intend," "estimate," "will," "anticipate," and "project," and similar exp
Slide 5: Strategy and Performance
Strategy and Performance Paul Varga Chairman & Chief Executive Officer
Slide 6: The B-F Arrow
The B-F Arrow } @ BROWN-FORMAN Enrich the experience of life, in our own way, by responsibly building beverage alcohol brands that thrive and endure for generations. nA AS ra gate Eaton, 4 ee Enduring. Brown-Forman.
Slide 7: Be the Best Brand Builder in the Industry, Period!
Be the Best Brand Builder in the Industry, Period! SUSTAINABLE VALUE CREATION INDEPENDENCE GROWTH The advantage of our Gross Profit Total long-term view Operating Income Shareholder Return perpetuated through Earnings Per Share family control “Our End Game is Ensuring that the Game Never Ends”
Slide 8: Top U.S. Suppliers – 1950s to Today
Top 10 U.S. Suppliers – 1950s to Today 1950’s 1970’s Today’s Top U.S. Suppliers Top U.S. Suppliers Top U.S. Suppliers 1. Seagram‟s 1. Seagram‟s 1. Diageo 2. Schenley 2. National 2. Beam Global W & S 3. National 3. Hiram Walker 3. Bacardi USA 4. Hiram Walker 4. Heublein 4. Pernod Ricard USA 5. Public
Slide 9: Strong, Consistent Earnings from Consistent Investment
Strong, Consistent Earnings from Consistent Investment 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 35 yr CAGR 25 yr CAGR 15 yr CAGR 10 yr CAGR 5 yr CAGR 3 yr CAGR since 1973 since 1983 since 1993 since 1998 since 2003 since 2005 Gross Profit 9% 7% 8% 9% 13% 14% Advertising 9% 7% 8% 9% 13% 12% SG&A 9% 7% 8% 9
Slide 10: Measuring Performance
Measuring Performance Operating Income Growth 30% 25% 20% 15% 10% 5% 0% -5% F06 F07 F08 1H F09 Reported Underlying
Slide 11: Healthy Balance Sheet
Healthy Balance Sheet i @ BROWN-FORMAN — | GRAB Backpage EquityCRPR Only numbers allowed with <Pag@>. Related Functions || __ Company Tree Ratings CREDIT PROFILE B own-Forman Corp STABLE A2 P-1 STABLE A A A- A- 1 1
Slide 12: Cumulative Cash to Shareholders Since FY1998
Cumulative Cash to Shareholders Since FY1998 $ Millions $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 YTD Dividends Repurchases Other
Slide 13: Brown-Forman Total Shareholder Return
Brown-Forman Total Shareholder Return Compound Annual Growth in Total Shareholder Return (As of November , assuming reinvested dividends) 14% 12% 10% 8% 6% 4% 2% 0% -2% 20-year return 15-year return 10-year return 5-year return Brown-Forman 12% 13% 6% 6% S&P 500 Index 8% 6% -1% -1% Source: Bloomberg
Slide 14: Brown-Forman Total Shareholder Return
Brown-Forman Total Shareholder Return Compound Annual Growth in Total Shareholder Return (As of November , assuming reinvested dividends) 20% 10% 0% -10% -20% -30% -40% 20-year return 15-year return 10-year return 5-year return 1-year return Brown- 12% 13% 6% 6% -22% Forman S&P 500 8% 6% -1% -1% -37
Slide 15: Attractive Valuation
10 15 20 25 30 11/1/93 11/1/94 11/1/95 11/1/96 11/1/97 11/1/98 11/1/99 11/1/00 11/1/01 11/1/02 BF.B Trailing PE Ratio 11/1/03 11/1/04 Attractive Valuation 11/1/05 11/1/06 11/1/07 11/1/08 Average PE ~20x 15 Year
Slide 16: Opportunities and Resource Allocation
Opportunities and Resource Allocation Don Berg EVP, Chief Financial Officer
Slide 17: The Opportunities Ahead of Us
The Opportunities Ahead of Us 1988 2008 1.6B 9L Cases 2.2B 9L Cases 100% B-F Top 25 75% 2008 6.6B 50% All Other 25% 0% 1988 2008 1988 1.3B Brown-Forman Market Cap
Slide 18: How We Think About Opportunities and Resource Allocation
How We Think About Opportunities and Resource Allocation • Long-term investment horizon • Managing risks to produce excellent rewards • Many medium “bets” vs. few large “bets”
Slide 19: Portfolio Strategy
Portfolio Strategy Current Brand Opportunities BMUs Multi- New Brand regional Market Opportunities vs. local Opportunities brands
Slide 20: Resource Allocation is Consistent, Thoughtful, Investment
Resource Allocation is Consistent, Thoughtful, Investment Spending as % Of Gross Profit 70% 60% 50% 40% 30% 20% 10% 0% FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Reported Figures
Slide 21: Resource Allocation is More Than A&P
Resource Allocation is More Than A&P
Slide 22: Resource Allocation is Like an Investment Portfolio
Resource Allocation is Like an Investment Portfolio Growth & Development Growth & Income % of Brand Profit Growth Review Income Brand Profit
Slide 23: Resource Allocation is Like an Investment Portfolio
Resource Allocation is Like an Investment Portfolio Growth & Development Growth & Income JD Russia JD Romania JD % of Brand Profit Growth France JD UK JD JD US China JD Japan Review Income Brand Profit
Slide 24: B-F Continues to Invest in Markets Around the World
B-F Continues to Invest in Markets Around the World
Slide 25: B-F Continues to Invest in Markets Around the World
B-F Continues to Invest in Markets Around the World
Slide 26: Example of Market Assessment
Example of Market Assessment Mexico India 27M Target Population 4M 16M cases Addressable Market 6M cases 66.4 „08 Economic Freedom Index 54.2 (moderately free) (closer to 100 is more free) (mostly unfree) S-T L-T Investment Horizon
Slide 27: Market Assessment: Next 3-5 Years
Market Assessment: Next 3-5 Years MEXICO INDIA and growth Market size Climate Market
Slide 28: Market Assessment: Long-Term
Market Assessment: Long-Term MEXICO INDIA and growth Market size Climate Market
Slide 29: Brown-Forman's BRIC
Brown-Forman’s “BRIC” P oland R ussia I ndia M exico A rgentina R omania Y oung adults F amilies of brands O n and off premise C hina U kraine S outhern Europe B razil M en – LDA to 29 globally U S. Hispanic S outh Africa
Slide 30: Route-to-Consumer Strategy
Route-to-Consumer Strategy Jim Bareuther EVP, Chief Operating Officer
Slide 31: International Growth
International Growth Net Sales 100% 80% 48% Domestic 60% 78% 93% 40% 52% International 20% 22% 0% 7% FY1988 FY1998 FY2008
Slide 32: Route-to-Consumer Strategy
Route-to-Consumer Strategy • Forward integration in selected areas and activities • Leverage multi-market partnerships and alliances where advantageous • Retain “flexibility” to adapt to changing circumstances and employ various RTC models Influence. Innovation. Adaptability.
Slide 33: Market Assessment Approach
Market Assessment Approach Prioritization Considerations and growth Market size Is it worth our while? When is it a short-term or Climate Market long-term opportunity? Strengths What is our plan for growth? B-F
Slide 34: Poland – Key Success Factors
Poland – Key Success Factors • Market Size & Growth – High per capita vodka consumption – Premiumization and import trends • Market Climate – EU accession – Local economy development with low tax rates • B-F Strengths – People – Route-to-Consumer – Portfolio – Focus on Execution 20
Slide 35: International Route-to-Consumer
International Route-to-Consumer Depth of Influence Key Activity 1995 2000 2008 General Management Marketing Direction Local Brand Management Brand Management (Execution) Sales Direction Field Brand Activation Trade Marketing Key Account Management Field Sales On Field Sales Off Wholesaler Activities
Slide 36: International Route-to-Consumer
International Route-to-Consumer Distribution Ownership Spectrum Agency Commissionaire Cost Sharing Joint Venture Owned • “Full” distributor • “Commission” • No margin paid, • Share in the • B-F captures full margins paid on (margins) paid shared cost of profits and margin and sale for select sales f
Slide 37: International Route-to-Consumer
International Route-to-Consumer Agency Commissionaire Cost Sharing Joint Venture Owned
Slide 38: Route-to-Consumer Variety
Route-to-Consumer Variety Ukraine Hungary Mexico Australia
Slide 39: International Expansion
International Expansion 1988 1998 2008 # of Countries with +50,000 cases 1 3 10 #of Countries with +100,000 cases 4 12 23
Slide 40: Slide 40
Slide 41: Key Takeaways
Key Takeaways • Significant global opportunity exists • Utilize a range of business models • Influence critical drivers of success • Establish global infrastructure in a selective and consistent manner 20
Slide 42: Building Strong Consumer Franchises
Building Strong Consumer Franchises Mark McCallum EVP, Chief Brands Officer
Slide 43: Brown-Forman
g@=@ BROWN-FORMAN
Slide 44: The B-F Way
The B-F Way Execution Ideas Insights
Slide 45: Changing Consumer Behavior
Changing Consumer Behavior
Slide 46: Channel Differences
Channel Differences ON OFF Number of brands Medium High Consumer involvement Low High with package Importance of Price Low High Total purchase Low High Promotion type Interactive Static
Slide 47: The Jack Daniel's Portfolio
The Jack Daniel’s Portfolio
Slide 48: "Paint it Black"
“Paint it Black” i |
Slide 49: New Packages
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Slide 50: Repeal of Prohibition
Repeal of Prohibition
Slide 51: US Result – Volume
US Result – Volume % 8.0 Jack Daniel‟s 7.0 6.0 5.0 4.0 3.0 2.0 Total Distilled Spirits 1.0 0.0 3/10/07 5/5/07 6/30/07 8/25/07 10/20/07 12/15/07 2/9/08 4/5/08 5/31/08 7/26/08 9/20/08 11/15/08 (3 months rolling) Source: Nielsen
Slide 52: US Result – $ Value
US Result – $ Value % 9.0 Jack Daniel‟s 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Total Distilled Spirits 1.0 0.0 3/10/07 5/5/07 6/30/07 8/25/07 10/20/07 12/15/07 2/9/08 4/5/08 5/31/08 7/26/08 9/20/08 11/15/08 (3 months rolling) Source: Nielsen
Slide 53: New Package
New Package Old New
Slide 54: Sonoma-Cutrer
Sonoma-Cutrer i @ brown FORMAN
Slide 55: The Fastest Growing Global Spirit Brand?
The Fastest Growing Global Spirit Brand?* *Source: the Spirits Business, March 2008, ’03 - ’07 CAGR
Slide 56: Packaging Innovation
Packaging Innovation 1970 1990 2003
Slide 57: Finlandia Shelf Presence
Finlandia Shelf Presence
Slide 58: Finlandia Vodka – Global Volumes
Finlandia Vodka – Global Volumes 3,000 2,800 2,600 9L Cases (000) 2,400 2,200 2,000 1,800 1,600 1,400 1,200 May-03 May-04 May-05 May-06 May-07 May-08
Slide 59: el Jimador Innovation
el Jimador Innovation Old: New: 51 % agave 100 % agave
Slide 60: el Jimador US, Rolling 52 Weeks
el Jimador US, Rolling 52 Weeks (ACNielsen) 16% 13.8% 14% el Jimador % Chg PY 12% 10% 8% 6% 5.5% Tequila % Chg PY 4% 2% 0% 12/15/07 02/09/08 04/05/08 05/31/08 07/26/08 09/20/08 11/15/08
Slide 61: The B-F Way
The B-F Way Execution Ideas Insights
Slide 62: Wrap-Up
Wrap-Up Paul Varga Chairman & Chief Executive Officer
Slide 63: Brand Building
Brand Building Initial TTM OCT 08 (amounts in 000s of depletions) Volume Volume Acquisitions Year Acquired Jack Daniels 1956 160 9,500 Southern Comfort 1979 1,650 2,400 Fetzer Wines 1992 1,900 2,850 Tuaca 1999 50 140 Sonoma-Cutrer 1999 150 290 Finlandia 2000 1,600 2,900 New Products Year Launched Ge
Slide 64: Herradura
Herradura ¢=@) BROWN-FORMAN i a ena WO OC AGAVE MADE IN MEXICO wena 2 snnmome ica sox ano. 0 PH
Slide 65: Brown-Forman Total Shareholder Return
Brown-Forman Total Shareholder Return Compound Annual Growth in Total Shareholder Return (As of November , assuming reinvested dividends) 14% 12% 10% 8% 6% 4% 2% 0% -2% 20-year return 15-year return 10-year return 5-year return Brown-Forman 12% 13% 6% 6% S&P 500 Index 8% 6% -1% -1% Source: Bloomberg
Slide 66: Risk vs. Reward
Risk vs. Reward Managing Risks Producing Knowing the Business Excellent Rewards Consistency of Investment Build Great Brands Diversification Superior Growth & Returns Conservative Debt Strong, Consistent Earnings and Cash Flow Strong Credit Rating Investment Flexibility Long-Term Perspective Company
Slide 67: Analyst Day – 75th Anniversary of the Repeal of Prohibition
Analyst Day – 75th Anniversary of the Repeal of Prohibition