Annual 2013 Report

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Annual 2013 Report ANNUAL 2013 REPORT represented an important inflection point for Hasbro 2013 as we heightened our focus and execution around Dear Fellow our most important global initiatives, our Franchise Brands, across Shareholders: our brand blueprint. Over the past five years, we established, invested in and honed our brand blueprint. Today, it informs everything we do. As Hasbro and our markets experience ongoing change across our global consumer and retailer base, the blueprint directs our decision making. Hasbro brands and our Partner Brands sit at the center of this blueprint. We execute these brand experiences to create the innovative toys and games Hasbro is known for around the world. For Hasbro brands, we also create engaging and impactful digital media, immersive entertainment and lifestyle licensing experiences for consumers and audiences globally. In 2013, we heightened our focus on Hasbro’s Franchise Brands: LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH and TRANSFORMERS. We streamlined our organization, putting more resources and investments behind these valuable brands because we believe they offer the greatest long-term potential in terms of revenues, profitability and expansion across the blueprint. Importantly, we believe we are very early on in executing against the full potential globally for Hasbro’s Franchise Brands. We also strengthened our Partner Brand initiatives by expanding our strategic merchandising relationship with The Walt Disney Company for major entertainment brands, Marvel and Star Wars. Presently, our agreements for Marvel and Star Wars extend to the end of 2020 and cover all film and television over that time. The Walt Disney Company’s planned entertainment slate provides extensive franchise support to build upon for years to come. As a result of our brand blueprint execution and focus on Franchise Brands and Partner Brands globally, Hasbro is creating a Revolution in Play: Across Geographies, Consumer Engagement and at Hasbro. ANNUAL 2013 REPORT 2013: Focusing our Business Hasbro’s global team orientation. In 2013, we incurred Our increased focus on Hasbro Franchise Brands and the a number of restructuring and other charges, mostly execution of our brand blueprint is evident in our 2013 associated with the transformation of our business, but results. For the year, Hasbro revenues were $4.08 billion we are better positioned today to deliver long-term and, excluding charges, operating profit margin was profitable growth in our business and enhanced total 14.6%, both essentially flat with 2012 results.1 shareholder return. Hasbro’s Franchise Brands delivered revenue Our balance sheet remained strong and in 2013 we growth in 2013 of 15% year-over-year and together they generated $401 million in operating cash flow. We are represented 44% of total revenues. Franchise Brands committed to strategically investing in our business and grew double digits in both the U.S. and Canada segment returning excess cash to our shareholders through our and the International segment. dividend and buyback programs. Additionally, in 2013, our investment in Emerging In February 2014, we announced an increase in Markets continued to deliver double-digit revenue our quarterly dividend of $0.03 per share, or 8%, to growth for Hasbro in these markets. In 2013, our $0.43 per share. This is the 10th increase in 11 years and Emerging Market revenue grew 25% to $575 million or fifth consecutive year with an increase in our dividend. 14% of Hasbro’s revenues globally. Emerging Market In fact, over the last decade our quarterly dividend has growth helped deliver higher revenues in all Hasbro’s grown from $0.06 per share to its current rate of $0.43 major international regions: Europe, Latin America and per share. Asia Pacific. Additionally, in August 2013, the Board of Directors Profitability in the Emerging Markets also increased, authorized the Company to repurchase an additional growing more than 40% year-over-year to 10.1% $500 million of our common stock. $524.8 million operating profit margin versus 8.9% in 2012. This remained available at year-end in current share improvement is the result of strong top-line growth repurchase authorizations. driven by the execution of our brand blueprint, as Over the past five years, we’ve returned $2.1 billion we begin leveraging our investments in these higher to you, our shareholders, through our dividend and growth markets. We believe over time these margins will buyback programs. This represented 121% of our net improve to approach company average operating profit earnings during this period and, after investing in our margin levels. business, remains our top priority for use of excess cash. 2013, however, presented difficult comparisons given Our target remains to generate $500 million in the entertainment calendar in 2013 versus 2012 and operating cash flow on average per year. In 2013, continued challenges in developed economies such as operating cash flow would have exceeded $500 the U.S. and Australia. Despite these challenges, revenues million if not for $125 million in long-term royalty grew in the Girls, Games and Preschool categories advances we paid during the year as we extended our offsetting the decline in the Boys category following a strategic merchandising relationship with The Walt strong 2012 entertainment year. Disney Company. We remain focused on growing our profitability faster than revenues over time. Throughout Hasbro, Revolution Across Geographies we have been actively implementing our cost savings The Revolution in Play we are creating begins with a initiative to deliver $100 million in underlying cost savings Revolution in Geography, where we have significantly by the end of 2015. From a strategic perspective this invested in establishing and orienting Hasbro globally. program focuses our efforts on fewer brand initiatives We are turning the pyramid of global growth on its while we tactically streamline the organization, exit head, investing in emerging markets to achieve double- unprofitable brands, license out select brands and build digit growth, improving our execution in developing ANNUAL 2013 REPORT ANNUAL 2013 REPORT economies where we believe we can deliver above in television-backed revenues for Hasbro brands during industry average growth and innovating in our developed 2013 including MY LITTLE PONY, TRANSFORMERS and economies to gain share and grow over time. LITTLEST PET SHOP. Over the past five years, we opened and expanded We also invested in and expanded our digital offices in new and emerging markets and implemented engagement with consumers globally. In 2013, 85 million global development and marketing organizations. As consumers visited a Hasbro digital experience, whether a result, Emerging Market revenues grew at a 30% it was a mobile app, one of our branded sites or on our compound annual growth rate for the five year period, social media pages. Today, we engage more consumers while operating profit in these markets expanded 96% on their terms, where, when and how they want, and we during the same time. are doing so more efficiently and effectively than ever. In the U.S. and Canada, we are poised for An essential component of this digital engagement improvement, with a focus on Franchise and Partner is the continued expansion of digital gaming. In 2013, we Brands, strong television and film entertainment and strengthened our digital gaming presence through several the right innovative products at retail. Our future new and renewed partnerships across gaming platforms. performance will be driven by sustained brand building Also, we added new resources and talent to Hasbro and an entertainment calendar which does not peak in with the addition of Boulder, CO based Backflip Studios 2014, but builds over a several year period. to our gaming portfolio via our majority investment in the studio in July 2013. The Backflip team is focused Revolution in Consumer Engagement: in three areas: driving its already successful brands Anytime, Anywhere, Any Medium like Dragonvale; launching new game brands such as As we compete around the world, our brands are the Dwarven Den and several others; and launching games key point of engagement for global based on Hasbro brands that connect across digital and consumers and audiences. analog play. Recognizing this trend for The result of our investments several years now, we made around the brand blueprint is evident substantial investments to build in the brands we are most focused and enhance our story telling and on, Hasbro’s Franchise Brands. We content creation capabilities. We are executing these brands across the use these investments to bring blueprint and across consumer groups our brands to life for consumers by creating compelling, immersive play globally with compelling and experiences globally. emotionally resonant characters and stories. Revolution in Hasbro: Innovation, At Hasbro Studios, we’ve Story Telling, Global Execution Deliver produced over 1,000 half hours Record Year for Girls of television programming Over the past ten years, our creation of since we began a few years new brands and investment in re-imagining ago. In 2013, our shows aired existing brands grew Hasbro’s Girls category in 180 territories globally, revenues from nearly $300 million to more including in the U.S. on Hub than $1 billion in 2013: a record level for Network. This investment Hasbro’s Girls portfolio and 26% revenue in programming created growth in 2013 versus 2012. more than $400 million ANNUAL 2013 REPORT Behind a successful global entertainment, licensing Fashion Themed Doll in the United States, taking the top and retail strategy which re-launched MY LITTLE PONY spot from veteran players in this toy category.2 in 2010, MY LITTLE PONY has grown to represent The combination of strong consumer insights, global approximately $650 million at retail across the brand digital content and engaging storytelling, innovative blueprint. In 2013, we grew both the core MY LITTLE products and comprehensive retail execution, enabled PONY products as well as successfully launched MY MY LITTLE PONY to post three years of revenue growth, LITTLE PONY EQUESTRIA GIRLS.
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