2017 Annual Report
Total Page:16
File Type:pdf, Size:1020Kb
2017 ANNUAL REPORT HASBRO ANNUAL REPORT 2017 DEAR FELLOW SHAREHOLDER: Insights, storytelling and innovation. This is how we, at Hasbro, bring meaningful brand experiences to life. Our mission of “Creating the World’s Best Play Experiences” is empowering us to develop persistent, perpetual engagement with audiences and consumers around the world to unlock the full potential of our brands. Hasbro’s Brand Blueprint is our proprietary competitive advantage, informing brands with global more meaningful engagement consumer insights; developing rich, engaging stories with consumers. and creating innovative experiences across toys and To achieve this objective, over the games, digital gaming, entertainment and consumer past decade, we’ve invested over $1 billion products. It is fueled by break-frame innovation, which in the Brand Blueprint and supported it connects us to a consumer universe that loves our with over $2 billion in product design and brands so much they created over 140 billion views of development to create today’s Hasbro. We’re user-generated content over the last few years. building expertise in key competences including consumer insights, storytelling, gaming BrandBrand Blueprint Blueprint and omnichannel retail, while delivering innovative play experiences across Toy & Game HASBRO Product Innovation demographics globally. RANKED During this period, we’ve almost STORYTELLING GLOBAL IN MARKETS tripled the value of our company, and Digital Consumer Developed G11 Gaming HASBRO BRANDS Products Developing in 2017 Hasbro became the #1 toy #1 Emerging CONSUMER INSIGHTS MARKETS and game company across the G11 according to markets (according to NPD and SIM). NPD and SIM* Immersive Entertainment Experiences Our company is transforming in OMNI-CHANNEL RETAIL PARTNERSHIPS meaningful ways, expanding beyond toys and games to a global play and entertainment company with Our original strategy, developed more than ten the talent, the vision and the capabilities to build years ago, constantly evolves, but the basic tenets experiential brands with deep meaning and play remain: great brands built on proprietary insights, for consumers. enhanced by compelling all-screen stories, create *NPD and SIM POS data. G11 - US, UK, FR, GE, IT, SP, RUS, CAN, MEX, AUS, BR 2 2017: The Hasbro team delivered a strong year In 2017, the Hasbro team made significant progress toward our long-term ambitions. We grew revenues 4% to $5.2 billion in 2017 — the highest revenue level in our Company’s history. We have added over $1 billion in revenue to our top line over the past five years, growing revenues for four consecutive years. 2017 was our In 2017, this growth was driven by all three major biggest year operating segments. The U.S. and Canada segment revenues grew 5%, the International segment rose 2% ever in China. and the Entertainment and Licensing segment gained 8%. We continue to grow in Emerging Markets, where We’re seeing great growth both in TRANSFORMERS we recently opened new offices in India, Argentina and and MY LITTLE PONY. Both properties benefit from South Africa. Emerging Markets revenues increased 5% full franchise execution, including content, consumer for the year, and our ambition remains to grow revenues products, branded events and strong locally- double-digits, absent the impact of foreign exchange, relevant content-to-commerce online campaigns. over the next several years. Our plan also calls for improving operating profit margins in these countries as Multichannel content drove significant growth we build scale and leverage our investments. for MY LITTLE PONY in China last year, including Overall for 2017, Hasbro maintained a high level of distribution on national broadcast CCTV6 and profitability and we delivered a 15.6% operating profit continued placement across all major streaming margin. We continue to see the potential to expand portals. MY LITTLE PONY: THE MOVIE premiered operating profit margins in future years by driving in China in late January 2018 and is our largest growth in higher margin categories including Franchise grossing international market for the film. Brands, Hasbro Gaming and our Entertainment and Licensing segment. TRANSFORMERS theatrical entertainment elevates 2017 also faced a dynamic tax environment. In the the brand in China, and we are now creating local fourth quarter, our finance organization assessed the television content. In partnership with CCTV, global tax environment which provided opportunities to Hasbro is co-creating all new TRANSFORMERS utilize tax assets and reevaluate our current and historical programming for the China market. Beginning in tax reserves. This exercise contributed to an increase 2019, TRANSFORMERS Nezha will be featured on in underlying earnings per share. Similar to other U.S. CCTV national broadcast for the first time since the multinationals, we recorded a provisional charge related 1980s. Although we’re in the early stages, we are to U.S. tax reform in the fourth quarter. thrilled to partner with CCTV on this groundbreaking As these new laws are clarified and additional content co-creation, where we have some of our guidance is provided in 2018, this provision will be further most passionate fans. adjusted. However, we anticipate a sustainable benefit to our effective tax rate in the future and access to our China is also one of the largest gaming markets, global cash will enable us to further invest in our business and we’re delivering immersive Hasbro Gaming for long-term growth. experiences with local Chinese gaming companies. Our cash position increased to $1.6 billion at year Tencent recently launched the TRANSFORMERS end and in 2017 we generated $724.4 million in operating Online MMO and Backflip’s TRANSFORMERS: cash flow. After investing in our business, we returned EARTH WARS was published locally. We will $427.0 million to shareholders, including $277.0 million continue to leverage Hasbro brands in China with in dividends and $150.0 million in share repurchases. gaming partners and with local partners across the Over the past five years, we have returned 100% of our strongest gaming markets. net earnings to shareholders and in February 2018, our Board of Directors increased the quarterly dividend 11%, 3 to $0.63 per share, marking the 14th increase half of our annual revenues, our biggest Franchise Brands in 15 years. investments are in these brands. They As we generate significant earnings represent the greatest potential in revenues and cash flow, our capital priorities begin – we believe these can be $1 billion brands; with investing in our business for long-term in operating profit — in total, Franchise profitable growth. We’re focused on building Brands operating profit margin is above capabilities around the Brand Blueprint — 20%; and in execution beyond toys and such as the investments we are making in games around our Brand Blueprint — as entertainment, digital gaming and our Global Franchise Brands have a higher percentage Consumer Products organization, as well as of revenue coming from Entertainment in developing great brands. and Licensing. Each brand activates the Once we’ve evaluated the options for Blueprint differently, but the results are investing in brands and capabilities, we return consistent: deeper consumer engagement, excess cash to shareholders through our innovative brand and product experiences dividends and share repurchase programs. and increasingly expansive opportunities We do this with a goal of maintaining an for our portfolio. investment-grade rating and access to the NERF is our largest brand and in 2017 commercial paper market. posted its fifth consecutive year of double- Our commitment to returning excess digit revenue growth. It became the #1 toy cash to you, our shareholders, is evident. and game property in the U.S., according Over the past 10 years, we’ve returned to NPD*. The NERF team is delivering approximately $4.5 billion. We will break frame innovation and unmatched continue to review our capital strategies performance. Consumers around the world as we gain better visibility to the ultimate know “It’s NERF or Nothing” and we are impact of tax reform. Our goal remains developing new product segments and to deploy capital strategically to create immersive experiences, such as location long-term value for our shareholders and continue to based entertainment centers, for NERF Nation around allow you to enjoy in the success of our company. the globe. TRANSFORMERS and MY LITTLE PONY both Hasbro Brands Lead the Way leveraged multiple content platforms including theatrical Our most valuable brands are the ones we releases, animation on broadcast and streaming sites own or control for which we deliver not only great and digital content to drive growth. MY LITTLE PONY: toys and games, but immersive brand experiences THE MOVIE was the first animated feature film from across categories. Hasbro, and the first film we produced and funded. In 2017, Hasbro Franchise Brand revenues increased With expansive cross-category engagement, these two 10%, behind growth in TRANSFORMERS, NERF, brands combined to represent approximately $2.7 billion MONOPOLY and MY LITTLE PONY. Totaling about in retail sales last year, and grew revenues for Hasbro. *NPD U.S. POS 2017 Emerging Brands—Franchise Brands of the Future Emerging Brands revenue grew 2% behind strong growth in BABY ALIVE and FURREAL FRIENDS. Based on its global appeal, as well as its revenue and earnings potential, in 2018, we’re elevating BABY ALIVE to a Franchise Brand. In conjunction with this, LITTLEST PET SHOP is moving to Emerging Brands. We’ve made strategic shifts to both our product and content strategy for LITTLEST PET SHOP to be more responsive to market trends and ultimately return the brand to growth. 4 MONOPOLY had a strong year, including a During this period, we generated operating profit successful token madness promotion and product, as margins above 20% in each of these years. well as MONOPOLY GAMER which introduced beloved Gaming is one of the most expansive categories Nintendo characters to the MONOPOLY game.