To Our Stockholders
Total Page：16
File Type：pdf, Size：1020Kb
To Our Stockholders: On behalf of Mattel’s Board of Directors, I would like to thank all of our stockholders for their continued support of Mattel. While we remain mindful of the ongoing challenges created by the COVID-19 pandemic, we could not be more proud of our achievements in 2020. Our team persevered through a tumultuous year and demonstrated strong innovation, collaboration and execution. We also leveraged Mattel’s resources to act as responsible corporate citizens to support our consumers, customers, employees, business partners and the communities where we live, work and play. In spite of the challenges, particularly with respect to the first half of the year, 2020 was another milestone year for Mattel. Our strong performance reflects our continued progress towards transforming Mattel into an IP-driven, high-performing toy company. Our key 2020 financial highlights include the following: • Net Sales grew by 2% as reported, and 3% in constant currency,1 versus 2019; • Reported Gross Margin increased to 48.9%, an improvement of 490 basis points; Adjusted Gross Margin1 was 49.1%, an improvement of 420 basis points; • Reported Operating Income improved by $342 million to $381 million; Adjusted Operating Income1 improved by $291 million to $448 million; • Reported Net Income was $127 million, an improvement of $340 million; • Adjusted EBITDA1 was $719 million, up 59%; • Cash Flows Provided by Operating Activities increased by $108 million to $289 million; and • Free Cash Flow1 was $167 million, an improvement of $102 million. In 2020, we continued to meaningfully advance our goals to restore profitability and regain topline growth in the short-to-mid term and capture the full value of our intellectual property (“IP”) in the mid-to-long term. Short-to-Mid Term Significant Progress Towards Restoring Profitability Over the past three years, we have significantly reshaped our operations by reducing our manufacturing complexity, improving key processes, streamlining our organizational structure and achieving over $1 billion in savings. We accomplished these savings primarily through our multi-year Structural Simplification and Capital Light cost savings programs, which were key drivers in restoring profitability. These programs also provided greater visibility and insights into our operations as a whole, which enabled us to identify additional areas where we can further improve operations and drive greater productivity to accelerate growth, while continuing to reduce our cost base. As a result, in February 2021, we announced our “Optimizing for Growth” program, which is expected to deliver, in aggregate, $250 million in incremental savings by 2023. This new program integrates our ongoing Capital Light program with several new productivity opportunities that leverage our scale and global platform. 1 Please refer to the Reconciliation of Non-GAAP Financial Measures at the end of this document for a reconciliation. Significant Progress towards Regaining Topline Growth Over the past three years, we have introduced a new category structure, driven continuous innovation and realigned our commercial team. These and other key drivers have helped us to regain topline growth and gain market share across the portfolio. Most notably, in 2020: • We achieved our second consecutive year of Net Sales growth on a constant currency2 basis; • We achieved our highest fourth quarter Net Sales since 2016 and our highest full year Net Sales since 2017; • We grew market share in our two largest regions, North America and EMEA; • Barbie Gross Billings3 grew 16% and had its third consecutive year of billion-dollar Gross Billings; • Hot Wheels achieved record Gross Billings for the third consecutive year; • Fisher-Price (including Thomas & Friends), American Girl and MEGA demonstrated a positive shift in momentum; and • We ended the year with the world’s #1 Toy property (Barbie), #1 Vehicles brand (Hot Wheels), #1 Game (UNO) and remaining the #1 Infant, Toddler & Pre-School (ITPS) manufacturer (Fisher-Price) for 2020, per NPD. Mid-to-Long Term Capturing the Full Value of Our IP We believe Mattel owns one of the strongest portfolios of children’s and family entertainment franchises in the world. Our portfolio is the foundation of our mid-to-long term strategy to capture the full value of our IP through franchise management and the development of our online retail and e-commerce capabilities. In 2020, Mattel Films and Mattel Television announced several new projects, with 11 feature film projects announced to date, and 17 television series or specials in production, with more projects in development. Our IP uniquely positions Mattel to bring immersive digital games to players globally and capitalize on the fast-growing digital gaming industry. We continue to see the success of our games launched through Mattel163, our mobile gaming joint venture with NetEase, and our digital gaming licensing business continues to grow with several exciting new games launched on multiple digital platforms. Additionally, we delivered continued strong growth in online retail and e-commerce as we accelerated our business in these channels. In 2020, we grew our e-commerce business by approximately 50 percent in the year, representing more than 35 percent of global retail sales in the fourth quarter. Another important part of our strategy is building out our own direct-to-consumer (“DTC”) business. At the forefront of this strategy is American Girl, a leading DTC brand in the industry. We are also developing Mattel Creations, a highly-curated platform targeting fans of all ages with limited edition collectible products. We are leveraging these learnings and capabilities to further strengthen and accelerate our DTC business as another engine of growth for Mattel. Updated Strategy Given the significant progress made over the last three years and our positive outlook, in February 2021, we evolved our strategic roadmap and expanded on its key pillars. In the short term, we are aiming to improve profitability by optimizing our operations and to accelerate topline growth by growing our Power Brands and expanding our brand portfolio. In the mid-to-long term, we will continue to make progress on capturing the full value of our IP through franchise management and online retail and e-commerce. 2 Pease refer to the Reconciliation of Non-GAAP Financial Measures at the end of this document for a reconciliation. 3 Pease refer to the discussion of Gross Billings included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the accompanying Annual Report on Form 10-K, filed February 25, 2021. Our updated strategy reflects our confidence in the continued momentum of our Power Brands, the appeal of our iconic IP portfolio and the strength of our entertainment partnerships, all of which are fueled by innovation and cultural relevance. We believe we are in a strong position to accelerate our topline growth and increase our overall market share. We also believe the company is now on a strong foundation to continue improving profitability in the coming years. Corporate Citizenship As a purpose-driven company, we have raised the bar on our commitment to corporate citizenship. We continued to support our broader communities facing the challenges created by the COVID-19 pandemic. Our efforts included launching the Mattel Playroom to support parents, caregivers and children, producing personal protective equipment for donation to medical professionals, releasing the “Thank You Heroes” collection to pay tribute to frontline healthcare workers and everyday heroes and making numerous grants and donations by Mattel and the Mattel Children’s Foundation to various charitable organizations operating in our communities. Diversity, Equality and Inclusion (“DEI”) is another key priority for Mattel, and we are building on our long heritage in this important area by continuing to advance our DEI efforts across the Company and representing diversity and inclusivity in our products. We continue to invest in sustainability and are making progress on our goal to achieve 100% recycled, recyclable or bio-based materials in both our products and packaging by 2030. In addition, Mattel remains committed to giving back through the Mattel Children’s Foundation, supporting organizations globally through employee volunteerism, gifts and grants, disaster relief efforts and, of course, product donations, which totaled over one million toys in 2020. In Conclusion Mattel today is a much stronger company creatively, operationally, competitively and culturally than it has been in many years. Our mission is to create innovative products and experiences that inspire, entertain and develop children through play. Our purpose is to empower the next generation to explore the wonder of childhood and reach their full potential. Our commitment to our mission and purpose has guided our success and is now inspiring a new chapter as we continue to transform Mattel into an IP-driven, high-performing toy company. We have never been more confident about the future of our company as we continue to advance our strategy and create long-term shareholder value. Sincerely, Ynon Kreiz Chairman of the Board and Chief Executive Officer BOARD OF DIRECTORS EXECUTIVE OFFICERS Mattel, Inc. Directors And Officers Ynon Kreiz(6) Ynon Kreiz Chairman of the Board and Chairman of the Board and Chief Executive Officer, Chief Executive Officer Mattel, Inc. Richard Dickson R. Todd Bradley(2) (3) President and Former Chief Executive