Brown-Forman Corporation (BF.B)

Investor Day 2016

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Dec 14, 2016

Ladies and gentlemen, please welcome Jay Koval, Vice President, Director, Investor Relations. Good afternoon, everyone. Paul, I considered putting up your name slide as my aspiration, but thought better of So I want to thank all of you for coming today for Brown Forman's 2016 Investor Day. Obviously, this is not your typical corporate Investor Day. It's an Investor Day done Brown Forman style, paid an homage of Jack Daniels and its 150th anniversary. For those of you who are joining by webcast and couldn't attend today, picture a warehouse with exposed brick and over 100 investors in the room who've just gone through 4 experiential rooms that help convey some of what makes this brand so special. While we would have preferred to host all of you in Lynchburg, we respect your time and thought it made sense to bring Lynchburg to you in New York. So with that, let's do a quick walk through of our Safe Harbor statements and then we'll move on to the agenda. Today's investor presentations contain forward looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place any undue reliance on any forward looking statements and the company undertakes no obligation to update any of these statements whether due to new information, future events or otherwise. This meeting is being webcast for those investors who weren't able to come in person and slides are available on our website under the section titled Investor Relations. And on this page, we've listed a number of the risk factors that you should consider in conjunction with our forward looking statements. Other significant risk factors are described in our Form 10 ks, 8 ks and 10 Q reports filed with the Securities and Exchange Commission. Now moving on to the agenda. Paul will kick off formal presentations and start with a look at our competitive advantages as well as some perspective on what we think is driving the global interest in American Whiskey. Mark will then continue and talk about Jack's global growth potential over the next decade, followed by Lawson, who will talk about building Brown Forman's other great brands as well as the portfolio reshaping that we did in 2016. We'll have a quick break for you and after the break, Jane will then come up and pull all the numbers together and discuss our shareholder friendly approach to capital allocation, followed by Garvin, who will give you some family perspective on the company. And finally, we'll give the floor back to Paul to open it up to Q and A and all of you for the last hour. And at 5 p. M, you'll all be free to enjoy some of our fine products including some of the Jack Daniel's 150th commemorative products that we've launched. So with that, I'm proud to introduce Brown Forman's Chairman and CEO, Paul Varga. Well, thank you, everybody. Thanks for being patient with us there and navigating those 4, just glimpses really of Jack Daniels there. I was reminded as listening over there to Jeff Arnett as he discussed Jack Daniels, the man. Every business along the way needs some luck. I mean, we would all agree with that. And listening to Jeff talk about Jack Daniel is the man in his reference to his original name Jasper Newton Daniel. I'm reminded literally that he never changed his name to Jack, we probably wouldn't be standing here. And because can you imagine the Jasper and Coke being the call around the world today that Jack and Coke is? I mean, just one of those things that just subtle tiny little things that happen along the way, just a person changing their name and I mean really predisposing it to success in the marketplace. So in any event, I'm not going to spend a lot of time. I just thought what we might do is just set what you're about to hear from some of my colleagues. And 1st and foremost, you'll see this phrase and let me go ahead and pull together here is this serves a bit as a content I outlined for you. You're going to hear about the Jack Daniel's growth opportunity. I won't go into it in any detail here. You're going to hear about portfolio growth and development, some of the work we've been doing over the years. And of course, as Jay said, Jane will bring a lot of this together with the numbers, but also reference our capital allocation priorities. In the middle here, you see this phrase and I just thought I'd explain it a little bit. It says building forever. Of course, it is a feels as sloganesque. And the way I would I'd like to describe it for you because it means a lot to people throughout Brown Forman. And it course uses our company's initials, but is intentionally has a double meaning. And one of them being a statement of a potential destination, which is foreverness. And we like to think particularly enabled by family control that this company could strive to be everlasting to endure. And so we try to have that approach to the business every day. Of course, the other way you can read it is that the company and its employees, its brands are continuously building forever. So hopefully, you'll see glimpses of how we are constantly trying to improve the performance and attractiveness of the company each and every day. So it's something that means something to us. So you'll see it regularly in our materials and I thought I'd just explain it. This is a set of attributes that we sometimes use ourselves or we hear others describe. And of course, this too, just I think serendipitously ends up being a bit of the content and hopefully some of the takeaways that you have today from not only the prepared remarks that people have, but also from the Q and A session we'll do at the end. And so you see it, it's obviously here to celebrate Jack Daniel's 150th anniversary, but also to talk about its global growth opportunity. You hear a lot about looking ahead. You're going to hear about our portfolio and the premium focus of it and the work we've been doing there. You're going to hear aspects of our track record of brand building and things that we think are really important to making these brands grow and thrive. It's not just the responsibility and actually the privilege of owning many of these brands, it's also going out and building them, as we say here, building forever. The financial attractiveness that we're regularly working to build inside the company, our shareholder friendly capital allocation just consistently putting shareholders, what we consider to be objectives 1st and foremost in that. And then of course, you'll hear from Garvin on the Brown family and how that permits the company's long term view. One of the most often asked questions of me and all of my colleagues is why this American whiskey resurgence and how long might it run? In various forms, we get questioned about that a lot. And I thought I just I'm not going to go into it in deep detail, but I thought what I would do is just if you all have a chance when you're not here today, we don't have copies of them here today, but our last annual report, we have been asked that so regularly over the last couple of years. We actually took a stab at documenting a point of view about that. So for those of you who'd like long verse, which that was, I would direct you to our annual report because it is probably our most recent articulation of why we think American whiskey has become so appealing today and actually why we believe it might last. As a summary, I thought I might read an excerpt and of course, as you would expect, there's really no silver bullet answer to the question of why or why it might continue. But I thought this excerpt from that letter might serve as a useful summary. And it says, so American whiskey possesses appealing traits such as authenticity, history, craftsmanship, hospitality, unpretentiousness, humility, great taste and versatility. And most of the world's 7,000,000,000 people have never even tried it yet. Is American Whiskey here to stay? I believe it is and at Brown Forman, we are certainly going to do our part to ensure it remains. And in doing so, we will strive to prove that these timeless attributes indeed stand the test of time. And then I feel like that's probably a summary of what you could get from more some of the data references or support points that are articulated there, but some of it is in this room with you today. Some of these references to hospitality and authenticity and the real people who work behind the scenes oftentimes, Sometimes they are upfront in terms of the hospitality, but often times giving you a glimpse of this to real history, real product quality, real people. Sometimes it really is about real packaging. Sometimes it can be about other things that really engender the category and the brands that lead it to the consumers. So I thought, I would just touch on that because we're not going to go deep into forecast today for the category, but I wanted to reference it. And of course, the if you were going to try to have a direct impact on sustaining the growth of the category, the thing that would enable you the most is to have leading brand because the work you do there can in fact have a direct impact on it. In fact, when you look outside the shores of the United States for the last 20 years, the driving force behind why American Whiskey has grown has been this trademark. And so it serves then is the reference point for me to introduce one of my colleagues who leads Jack Daniel's today, who is going to take you through our views on the future of the brand. Let me bring up Mark McCallum. Thank you, Paul. And let me add my welcome as well. I've got about 30 minutes to share some information regarding Jack Daniels with you. In particular against that backdrop of our contention or our firm belief that Jack Daniels is a brand and a business that has a very long term and continued growth roadway ahead of it. Even though here at 150 years, that's quite some time, we will talk a little bit about or I'll talk a little bit about that runway for growth. I'll talk about the key areas of opportunity that we would seek to leverage as we anticipate seizing those growth opportunities. And then I'll give you some insights into what makes Jack Daniel's so special. And so that combination of understanding what those areas of opportunity for the future are and then the contention that we have quite a special brand in this iconic brand called Jack Daniels that that combination comes together to give us great confidence in the future growth prospects and long term growth prospects of the Jack Daniels business. I will I'm going to start with a retrospective look, not because we're just enamored of history, mainly though because I look back at some of the history of Jack Daniel's growth is a wonderful way to help us understand what our strategic thinking might be as we consider the future for the brand as well. So bear with me. I'll explain what you're looking at. This is a 30 year look back at the Jack Daniel's family of brand volume, case volume, beginning in 1985 because as you know that was the beginning of the IWSR monitoring of volumes around the world and going through to the most recent 2015. And already on the chart, you'll see a couple of things. This is, as I say, Jack Daniel's volume growth, started around 4,000,000 cases there in 1985 and last year somewhere around 15,500,000 equivalent cases, excluding the presence of ready to drink RTDs at around 700000 to 800000 cases as a RTD equivalent. At the top, the 3 bars are showing the growth rates, the compound growth rates for each of those 3 decades. And so one of the observations I would make of that is that somewhere between and each of the two numbers, you've got the family of brands at the top and Tennessee Whiskey, all number 7, the single brand itself underneath. So the range there is sort of 3% compound growth in the early decade here up to a family of brands compound growth of around 6%. So in that 3%, 4%, 5% and 6% continuous compound growth with the 30 year compound number at around 5%. Now I want to talk the reason that I thought that this would be of interest to you would be that I'd like to talk about some of the influences over this 3 decades. So we've got a generation and a half of humanity here and some of the our understanding of the external influences that may have been at play here and the internal or management controlled influences at play here are very helpful for us as we think about the future. And I would just reference perhaps as you look from 'eighty five to 2015, here's just a few of the external, we'd say somewhat out of the control of management that were at play. Actually in 'eighty five and 'ninety one federal excise tax increases, 2 of them, each of them 17% 19% respectively. So long time since that's happened here in the U. S. Same thing or while this was going on and having a real effect on the beverage alcohol and particularly the spirits industry in the U. S, the whiskey category in the U. S. Was in long term decline. It had started somewhere in the early '80s at somewhere around 70,000,000 cases and it reached a low point of somewhere around 45,000,000 cases just a short 5 or 6 years ago before this current renaissance, what we'd call it, of the whiskey category globally and in the U. S. Kick back in. So another one of the external factors. We'd call those sort of maybe headwinds. Some of the tailwinds that were with us over this time was things like the invention of the World Wide Web, the ability for us to get much more connected to our consumers around the world, the invention of cell phones and the mobility of cell phones and again, the ability for us to speak directly to our consumers. The global economic crisis was a headwind in 'eight, 'nine. The strengthening of the U. S. Dollar recently, we call that at least a reported headwind. So external influences at play over those 30 years. And so how do we think about the next 10 years? And what external influences might we consider as we factor in prospects for growth? Now and from external to internal, looking at brand stewardship, the way we would the current stewards of the brand market and sell this brand around the world and how over this 30 years that discipline has been passed on. The globalization of Jack Daniels. When the U. S. Was under the pressure of those headwinds in the late '80s and into the '90s, there was a purposeful determination to begin to globalize the Jack Daniel's brand. I mean really quite a good story and we'll get to that a little later here. And then another management influence of course is the determination around innovation. And over that 30 years, the role of innovation and its effect on that growth curve there. So again, in terms of innovation, one of the interesting points here would be that back in 'eighty five, there were really just 2 brands. There was Jack Daniel's black and white label, all number 7 and there was that green label offering of Jack Daniel's which had come out post prohibition as a way to bring perhaps a not quite as long matured and a slightly lower priced opportunity to generate some revenue post prohibition. And so there they were, 2 brands. Right through those 30 years and a brand defined by anything over 10,000 cases in IWSR language. So just recently in this past year from 2 to 8 brands sitting in the Jack Daniel's family of brands. And the point to point growth of Jack Daniel's at 288 percent, 85% to 15%, maybe a meaningless number in some ways, but I'm just going to do a quick comparison to 2 of our global whiskey competitors, our key global whiskey competitors, Johnny Walker and Jim Beam. And here they are, same time period and just different stories. Same external influences on all three brands and quite different internal decisions and influences affected by management. All three brands interestingly starting at the same sort of volume there, somewhere around 500,000 cases difference in 'eighty five and then having these different 30 year journeys through to last year. Johnnie Walker, with the Scotch industry very globalized, Johnnie Walker able to ride the Scotch Whisky wave around the world and some peaks and troughs of course across the Johnnie Walker profile there, expanding their portfolio from 3 to 14 brands over the 30 years. Gymbim, a different story, same external influences, different influences internally, 2 brands and a much flatter growth rate. And then I guess recently under the stewardship of the Suntory business beginning to expand through innovation. So Jim Beam moving from 2 brands to just lately 16 brands in their portfolio. So just and the growth rates there point to point are different. Make no conclusions from that other than to observe that we're very confident that that sort of growth profile at 3% to 6% ish growth profile is sustainable for the very long term if the confluence of external and internal influences play out. So now, what I'd like to do is look ahead and begin to talk about the areas of opportunity that we mostly focus on. And earth, birth, girth and worth, Sure, they're 4 rhyming words, easy to remember, easy to convey and communicate as we work with our teams around the world, but I think capture nicely the 4 major opportunities, areas of opportunity that we see. Earth of course self explanatory. There's Paul referenced the $7,000,000,000 yet perhaps to try Jack Daniels. But there's a large, large opportunity, very significant opportunity and we're going to talk a little bit about the markets that we are focusing on around the world. Birth, I think the number there says 1,600,000,000 middle class consumers of legal drinking age will enter will be added to the population by the year 2025. So demographics playing an important role in our understanding of opportunity for this brand. Girth, we'll talk about innovation. The girth or the ability for the Jack Daniels trademark to be able to offer additional and incremental opportunities to connect with consumers around the world. And lastly, Worth, arguably or third party suggestions or affirmation that this may be or is the most valuable spirits brand in the world and our ability to continue to leverage pricing and mix and premiumization and portfolio management to focus on the need to continue to be very aware of the effect on this brand's value and worth going forward. So there are our opportunity areas. And I'm going to now move and talk a little bit about Earth. There are 4 sort of builds here and I want to show you what in the recent 10 years, approximate 10 years has happened with the Jack Daniel's business around the world as we've purposely invested either through M and A or through operating expense in globalizing this Jack Daniels business. And so the red shaded, there are 4 groupings of markets here. There's 1,000,000 case plus 2 markets here. There's 500,000 to 1,000,000, 200,000 to 500,000 to 500,000 dollars And what we'll show you is this has been in our 100 and some almost 50 years history as a company and Jack Daniels as a brand, a very rapid and purposeful expansion of our footprint and capability globally. So the U. S. And the UK, Germany, France, Australia and Global Travel Retail where Jack Daniels just became the 2nd most valuable by sales brand in the Global Travel Retail channel. Markets like Canada and Poland and Mexico and I'll talk a little bit about those in a minute. And then these what we'd call nascent markets or emerging or seeded markets, on the page there in total, there are 32 markets, not every one of which is a strategic focus for Jack Daniels, but many of which depending on circumstances become strategic if circumstances permit. And I know that you're aware at the moment that we've got some lethargy in our emerging market world, generally speaking as an industry. And so as we understand that and the forces at play, we will shift and allocate resources appropriately. But of these 32 markets or 31 markets that are on here, every single market in some way has moved over the last 10 years. And I might just quickly reprise the influence and the way we would describe the purposefulness of what we've been doing. Certainly from an M and A point of view, with the acquisition of Finlandia in the early 2000s and the acquisition of Herradura around 2007 or 2008 and the dissolution of the three way joint venture in Australia through M and A type investment, we have opened up for accelerated growth, the Mexico market, the Poland market, Finlandia in Eastern Europe gave us a runway for Jack Daniels to follow into elements of Eastern Europe that we hadn't been as able to penetrate prior. The Australian one of course was a and and having our own ability to control the business there was as a result of a purposeful investment. So that was really the M and A sort of influence on that footprint and the acceleration of our ability to grow. In terms of operating expense investment, I think you're very aware that over the last just short period of time, say inside the last 7 years, we established our own organizations in Germany, in France, in Turkey, in Brazil, in Canada and some others. And the results in most of those cases, given the influences at play, have seen an acceleration in the growth rate of the Jack Daniel's business and the ability to not just sell and market Jack Daniel's Oil No. 7, but to begin that pioneering work of bringing the other brands within the Jack Daniel's family into markets other than the United States. We've also not only do we invest in our own infrastructure, we invest in evolving and changing some of the partnerships that we've been able to foster over this last decade. Examples of that would be the relationships we have with Coca Cola in many of our or in a number of our European markets, particularly the relationship we have in Russia and the relationship we have in a cost sharing arrangement in the 2nd most important market of ours, which is the UK and the strengthening of partnerships where that's appropriate. There is no single model for how we do this. It depends. And I think we were or I know we recently announced the fact that we're going to look at Spain differently to the way we've looked at Spain for a number of years and we're moving ahead with the investment in our own organization in that key whiskey market. So that's Earth. We believe that this the work of the last 10 years in particular has really established what I would call it a real foothold and the ability for the brown form and companies in many of these markets to be able to claim competitive at least level competitive playing field and now poised I think to leverage the capabilities that we've been developing this last decade in order to drive growth and seize these opportunities in these individual markets. We're very, very excited by this prospect. So that was earth and birth really. Let's say we've taken the first two of the rhyming words and that reflects our enthusiasm in regard to earth and birth. The opportunity in regard to girth, let's talk about that for a while. We showed on the or I showed on the 30 year look back the portfolio evolution from 2 brands to 8 brands. These were the main contributors to that with Gentleman Jack in the late 80s launched in many ways as a competitive reaction or a competitive counter to the emergence of the Crown Royal brand in the U. S. Single barrel was a very obvious ultra premium move up the value chain for the Jack Daniels brand. The Aussies convinced us in the late '90s that RTDs were actually a true expression of the Jack Daniel's brand. And only then in the late '90s did we begin to understand the power of offering Jack Daniels in a ready to drink form. And that business is of course in Australia, it's quite unique and we have down there somewhere between 3,000,000 and 4,000,000 cases of Jack offered in this ready to drink form. But our learnings from that market have also enabled us to expand our footprint in regard to Daniel's ready to drinks around the world. Today, we're somewhere toward 8,000,000 cases of Jack Daniel's ready to drink cases just in this last essentially in this last decade or 1.5 years. And then of course, you're very aware that just in the last 5 years, we've introduced Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Fire as 2 new brands added to the Jack Daniel's family of brands. And I'm sure in question and answer, you may have some questions you'd want to ask of that. I would say that what I just said is the way we treat these 2 brands. These are 2 distinct brands with distinct positioning and distinct brand architecture. And we're managing them that way with focus on each of them with a belief that we have very long term growth available if and how we manage these brands as distinct brands and not just line extensions or sometimes called flavor extensions. We are very much in the camp of these are 2 brands and we will resource them accordingly. It has been our experience that this has been successful and that the Jack Daniel's brand in particular can enable this to be true. And now I'd like just to give you a look ahead. So I'm going to show you 3 girth opportunities that have one of which has just entered the market And this concept of continued and thoughtful innovation is, has been, is and will be a key opportunity that we will be carefully leveraging as we look to the long term growth. We talked about Australia. This has been launched just 8 weeks ago in Australia. It's called Jack Daniels, American Serve. Most of you are Americans, I'm going to figure. In America, there's something called the American poor. You don't live here, it's called that somewhere else. We always would smile at the size of drink that Americans were able to get at any particular bar, understanding that, that generous pour most often led to a decent tip. And so not the case elsewhere as you know. So anyway, here we go. We've launched this half size it's really a half size can, 10% ABV, a whole or a little bit of mixer and a whole lot of Jack in that can. It really does taste like the way you are served Jack and Coke here in the States. And the early signs, they're quite promising, but work in progress. We're watching what happens, maybe scalable, who knows, we'll test and learn. In the spring of 2017 in the UK, we are test launching Jack Daniel's Tennessee Cider. There's an exciting new category growing in the UK. It's called spiders. They're inventive. It's the mix of spirits and spiders, spiders. I didn't make it up. We are very excited by the prospect of Jack Daniels playing in this category and competing in this category and have we have a high level of confidence that the Jack Daniels brand will do very well there, but test and learn. Test and learn in the spring of 20 17. We're already at the point of speaking to retail customers in that market regarding this test launch. And then lastly, in the fall of 2017, we will introduce Jack Daniel's Tennessee Rye. This is an approximate illustration of what the pack will be. It's not exactly what it will be, but just for the purposes of discussing it. As you walked around the room here today, you actually would have seen on most of the stands, the single barrel rye, Jack Daniel's single barrel rye that we launched last year. Actually 5 years ago, we launched unaged rye and then 2 years after that, we launched Jack Daniel's rested rye and then last year, we launched Jack Daniel's Single Barrel Rye. Jeff and Chris and the team in Lynchburg have been crafting Jack Daniel's Rye Whiskey for a number of years now, working on what would be the what we would call the perfect expression of Rye for Jack Daniel's. And as I said, coming to the market here in the U. S. In the fall of 2017 will be a, as you know, single barrel, which sits at somewhere between $55 $65 a bottle, so ultra premium priced. We will be bringing out this Jack Daniel's at a super premium somewhere in that range of a price below this ultra premium yet to be determined, but we're very excited by it. And I know that if you talk to Jeff and ask him what he thinks about this product, he will wax lyrical about that work. So that's girth. So they're the 4 and we've expressed the idea behind Worth and our determination to use this mix of value creators for the brand. So Worth is covered in that as well. Now what I'd like to do is share with you some suggestions or predictions that we might have in regard to the forward 10 year growth for the Jack Daniels business globally. And so I want to just I'm going to show you the 30 year historic category growth and then I'm going to show you what we project to be the categories potential growth for the next 10 years and then 3 scenarios for Jack Daniel's growth over that forward 10 years. So let's have a look at this. Here's the category growth. This is all information available to you via IWSR. And what the observation here is, is that from 85 to 95, the category globally, so this is global whiskey, All global whiskey IWSR base grew at about 1.5% as it did again in the 10 years through to 2,005. And then in the last 10 years, this sort of 6% surge in global whisky. About half of those six points there driven through MFL, Indian Made Foreign Liquor in India. And so what I sometimes personally do is I'll sort of go, okay, well, so around almost a 3% growth rate of what we'd call global whiskey excluding IMFL. We'll lay over that. There's the what we saw earlier, the 30 year look back for Jack Daniel. So regardless really, we don't necessarily see category growth as a one to one correlation for Jack Daniel's growth. In fact, the truth is that Jack Daniel's has shown decades of growth at times when the category hasn't been growing. Nevertheless, we take it as a tailwind, not a headwind. We like it when the category grows. It's a help, not a hindrance of course, but it's not a mandatory in regard to our own aspirations for Jack Grove. And now I'm going to show you 3 scenarios that these are based on, so our calculations done internally based on population, incidence and usage and GDP. As I say, we've worked on this ourselves for as you would imagine for a long time internally. We've also sought arm's length 3rd party validation of our assumptions and sought 3rd party understanding of different ways for us to think about it and the confluence of our own work and the validation work that we have sought suggests that these three scenarios are possible for the Jack Daniels business. So they range between a 3% growth in scenario 1 and a 5% growth in scenario 3 and it has in there of course market share estimations. And the market share delta between the 5 and the 3 is about a 1 point swing. Market share for Jack Daniels in 2015 was around 4.0%. And so you can do your own thinking in regard to those scenarios. But there it is. We believe there's an expression of what we believe to be possible if the influences are as we've assumed and we do the work that we would need to do 3% to 5 percent next 10 years depending on what happens. But that's what in our strategic planning, that's how we're thinking. So that's really everything in regard to the 4 areas of opportunity and the forward look in terms of trying to quantify for you how we see the coming decade. I'd like now just to spend some time on that second piece of the equation, Jack Daniel's the brand and what makes Jack Daniel special and why is this even important? Well, mainly because to project future growth such as we are and the long term growth that we anticipate, it will need to be a special brand and it'll have to stay special in order to be able to recognize or seize that. I'll start just by saying we know what makes Jack Daniel special. We don't say that we made it special. We say we know what makes Jack Daniel special. So here they are. It's an iconic name and package. Paul actually nicely I thought talked about Jasper or Jack. The name itself, the black and white label, the square bottle, it's an iconic package. We know because we've worked with Professor Doug Holt, who is one of the world renowned writers and academics on the question of what makes a brand iconic. He and Jack Daniels have worked together and Professor Holt suggests that sometime in the 50s with the confluence of television and film and the gunfighter myth here in America, Jack Daniels began to be assigned iconic status. So we'd mark the 50s as when Jack Daniels became iconic in the world of the cultural backgrounds of America and countries around the world. And there's a lot of course written on that. And if anybody is interested, we can certainly provide you with ways to understand how Jack Daniels became iconic. But here's what makes it special. It is a special product. Paul talked about American whiskey. Everything to do with American whiskey is actually heavily influenced by the brand Jack Daniel's. It is an informal product, less formal than scotch. It is a product that is very accessible, just psychographically very accessible. We use the term bikers to bankers, fine establishments and questionable joints everywhere available to sample this product. Real stories, I mean you met real people from a real place. And the real stories of Jack Daniels have been told for generations. And as stewards of the brand, our understanding is that these stories need to be told in contemporary ways for generations yet to come. It has a distinct voice. Arlene, I hope you don't mind me or Kevin. That not just accent, but humility and lack of pretension that you felt that's real. So the authenticity and then the independent side of the Jack Daniel's brand and brand values market is a very distinct voice that connects with global consumers. Humanity as a race, I guess, is enamored of authenticity matched with independence. It's not a U. S. Set of values. It's a global humankind set of values that this brand connects with. And in the ways that it connects, we find in because of its iconic nature and status, these consumers often become ambassadors and disciples or zealots for the Jack Daniel's brand. We say we've got the largest unpaid sales team in the entire beverage alcohol world and we love them for it. Trademark girth we've talked about. Opportunity, what makes it special is that it has girth. It has the ability to add brands to its family with minimal cannibalization and always extending the ability for the brand to reach and connect with new consumers and new occasions. A focus and we talked about that map of the world, a focused and dedicated route to consumer, RTC route to consumer. In a number of those 31 countries you saw on the map, Jack Daniel's Tennessee Whiskey is the only brand that the Brown Forman organization markets themselves, not all of them, but and we will continue to expand it. But we say that within our competitive set, we have the most dedicated and focused sales and marketing and commercial team within the industry around the world. We think it's what makes Jack special. It's a brand that comes easily to those who connect to it either inside the company or outside the company. And then lastly, you know of the rates or the return on invested capital and the margin quality of the Brown Forman Company, which because of the Jack Daniels brand in particular is able to be industry leading in return on capital and operating margins. And so that's what makes Jack special. It's a very quick reprise, but we know that our job as the brand owners has guardrails. A brand owner cannot be the author of everything brand owner necessarily, more so by the cultural industries and commentators at the time or the celebrities and musicians who adopted the brand. But our role as brand stewards, as we look to the future and determine the long term growth prospects for this brand are very well defined. And I'm going to finish with just there's 2 TV spots here. And I really I'm using them just to say to you that the first one you'll see is about 10 years old. But it's a great example of the look and the feel and the voice that we as the brand owner, we have permission to be able to offer this to markets around the world. And the second one is quite new. It was launched in the late summer of this year or the early fall. And again is a contemporary voice of Jack Daniels and just one example of our stewardship of this brand and the way we steward this brand so carefully to ensure that Jack Daniels remains as special as it needs to be in order to continue to drive the sort of future growth prospects that we are strategically planning for it. So just 2 one minute spots here to give you a sense of His was the oldest registered distillery in the United States This is Lynchburg, Tennessee. This is how many people were born here. This is how many are 5th generation. This is how many are named Hiawatha Kitty McGee. These people have served their country. This is how many will still be in town when the football team plays at Huntland. She's from Taiwan. He's German. This guy keeps the town dry. These guys would prefer it a little wet. This many have ejected from an SR 71 Blackbird and lived to tell about it. He can lift a 500 pound barrel of whiskey. These are the descendants of Mr. Jack Daniel himself. This is how many people are proud of what we do here. This is how many will go around bragging about it. This is our town. For 150 years, the home of Jack Daniels. If you can't get here, just look for one of our postcards. We send them all over. They look like this. And so with that, I will finish. And just perhaps sometimes we'll ask the question of an audience and it will be rhetoric, but you might want to think about it. And we ask our audiences when we speak about how we need to steward this brand in ways that keep it as special as it is. We sometimes ask the question, what needs to be true to ensure that Jack Daniels remains special and it leads to wonderful conversations internally around the world as we expand our footprint and expand our business. And so at the break or after the cocktail, I'd love to know your thoughts on what must be true in order to ensure that Jack Daniel stays special enough to deliver the very long term growth prospects that we plan for this business. So thank you and I'll hand the podium over to Lawson Whiting, who will talk to you about the Brown Forman brands. All right. Thank you, Mark, and good afternoon, everyone. It's good to see you all. It's been a while since we've got up here, but it's always a drove to come back in New York and speak to you all about our brands and everything that we're trying to get done. I'm going to take a little bit of a different angle than what you've heard for the last couple of hours. We're going to talk about the rest of the portfolio at Brown Forman and we are very proud of that also. But I want to talk a little bit about not only the brands themselves and we are we'll go through some examples of some of the things that we're doing, but also a bit about the philosophy for how we think about the rest of the portfolio. What's important to us? What are some of the things that we measure ourselves by? And want you to have a better understanding of what it is that we expect out of the rest of the portfolio to make it a good business for Brown Forman and indeed deliver great shareholder value growth. And I think particularly for those of you that follow the broader consumer products world, there's a lot of companies out there or a number of companies out there that have a strong dominant brand that lead the portfolio. That means for the you better make sure that it's a really good business and you better make sure that it can actually lead the growth and certainly not be a detraction or a laggard within the portfolio. And to be honest, there were a number of years over the last decade where it was a detraction. And so we've put a lot of effort into raising the bar on the rest of the portfolio to make it a better business for our shareholders and to really raise the growth rates on it. So we're quite proud of that. So how do we do it? What is the way that we approach creating value or what we call a disciplined approach to value creation for our shareholders? First of all, it's just active portfolio management. We want to be and we have continued to be over literally over decades, Brown Forman, I think, has been a fairly active portfolio manager of the brands within his portfolio. And we're going to talk a little bit more about some of the things we've done recently. It's important to keep the premium side of our brands. So you should expect that we will maintain as we expand the portfolio. We wanted to be able to lift the company's margins, not drag it down the other way. And so we want to remain very focused. We're not looking to have 100 brands in our portfolio. We want to maintain a focused premium portfolio. We believe or I think we feel pretty good that we have a history of excellent brand building. And when I say that, I don't just mean delivering excellent commercials like that Lynchburg one that you just saw, which I absolutely love. But it's more than that. It is actually a business review of what we have and what it is behind the scenes that we do with these brands to make them into better businesses, and I'll show a number of examples there. And then also seating for the future. One thing with Brown Forman and the benefit of having a long term shareholder base is we're able to think in longer terms than many other companies are out there. We have been planting a lot of seeds in the last few years and I'm going to walk you through some of the things that we're doing there. So, 10 years of active this is just a review of the last 10 years. We've certainly had a lot longer view on the portfolio management than that. But for those of you who've been around for a little while, you remember the days when we were into Lennox and Hartman and the plates business and fine China and all that. And we got out of that, it was about 10 years ago now. The wine business, I mean, I've been around Foreman for 20 years and we've since gotten in and then gotten out again of what would be the more popular priced wine businesses. We didn't feel like we brought enough to the table to make that a competitive advantage and make a great business out of the wine business and so we got out of that maybe 5 years ago. Southern Comfort and Tuaca more recently, that was particularly inside of the company was a pretty big deal to sell Southern Comfort, a brand that had been around for like 30 plus years in our portfolio. But we couldn't figure out a way to make that brand really make the high standards that we have for the rest of the portfolio and so the decision was made to sell it. But so as we've taken a number of things out of the portfolio, we've brought a number of things in too. And some of it organic, for instance, the Fire and Honey under Jack Daniels. We bought Casa Herradura. Actually, it was 10 years ago next month. So it has been an up and down 10 year ride for us, and I'm going to walk through you're going to see some of that later on. But we've really got that business now, I think, in a much better place and we feel pretty good about that. Just recently, the Benrioche Distillery Company, which is Glendronach and the Benrioc brands, we bought last summer, early last summer. Chambord, which was more like 8 or 9 years ago. Slane Irish Whiskey, I'm going to show you some things on Slane, but that's one we'll begin selling it in 4, 5 months. And then Cooper's Craft, which is our version of craft in the United States, the craft whiskey explosion that you've seen on so many brands, and I'll talk you through some of that too. So as I mentioned, we have a very focused portfolio. I mean, if you look across there, I mean, obviously, Diage and Pernod are going to be much bigger than us. But even Bacardi and Campari and Veeam and these other brands, they have a lot more brands than we have. I say focused and premium portfolio, we are also more we have a more premium portfolio than most. Obviously, Remy is sort of the extreme example in a very premium portfolio, in a very focused, very small number of brands. But I think Brown Forman feels pretty good that that's a good spot. It's a bit of a sweet spot in the 20s 30s dollar price points that are something that brings a nice combination of both value growth, margin growth, keep our portfolio up in that area. So with that, I'm going to walk you I'm going to take you through a couple of examples of things that we've been doing with our portfolio, but I thought I'd first start out with a short video on Woodford Reserve. This project has been a labor of love for everyone involved. A love of this place, a love of history and the love of making superb whiskey. It's the balance that's really important, and it has to have structure. It's always going to be present in the cocktail. It's always going to be characteristically Woodford, but it works very well with other flavors. It has to be bigger than the sum of its parts. There's this misconception that, oh, women are not supposed to drink bourbon or that we don't like to or it's a man's drink. Reality is that women are drinking bourbon like crazy. We are what's driving the bourbon boom. New rule, Winfried Reserve has to stop bragging that their bourbon has 200 distinct flavors. I was Chris Morris, master distiller of Woodford Reserve and Tim Lary with the best title of all time, Chief Entertainment Officer. Thank you guys for being with us. The perfect mint julep, it has to start out with a little bourbon and this is 2 ounces of Woodford Reserve, which is the official bourbon by the way of the Kentucky Derby. We have to have a mint julep because it is Derby town, right? What makes this one special? This right here in Woodford County. That last video of Owsley Brown there, that was taken at the launching of the Woodford Reserve brand, which was 20 years ago this fall. And I think it's interesting because now the brand is over 500,000 cases. And I think Mark referred a little bit to the IWSR Magazine that just came out. I think it was only a few weeks ago that had Woodford named the 38th most valuable brand in the world. So, over that period of time, we have really developed this brand into it's probably the most important brand within the rest of the portfolio, but it's certainly one that is going very, very well. So why? And some of these you heard a little bit of this on Jack Daniels and Paul referred a couple of these points too. What is it that's making this thing tick and really go so well? I mean, quality is obviously part of it. Quality and award winning whiskey, you almost have to start there before you can really get to be a great brand. But an authenticity you've heard about, that sense of hospitality and I'll call realness a little bit. So the consumers, we're putting 150,000 people a year through the home place and distillery, up just outside of Lexington, Kentucky. 150,000 people a year going through a 500,000 case brand is a really high ratio. There is not much of a better way to connect with consumers than there is whether they go to Lynchburg and they learn about the Jack Daniel's brand or they go to for sales Kentucky, that is what we call it, to go learn about the Woodford Reserve brand. It is a deep dip where they can see it, they can touch it, they can smell it and they can taste it and hopefully buy a little bit on the way out the door. But it's a it is really a fantastic way to immerse a consumer in the brand and it works. I mean, that is something we have learned at Jack Daniel's and we are using in a big way. And I think many would say we probably have the best home place in Kentucky. So it's getting a lot of visitors there and we feel pretty good that that bodes well for the long term. We've also had some really good innovation. We've got a Woodford Reserve Rye also. We've got a Woodford Reserve Double Oaked, which is a great brand and it's priced above $50 and it's over 30,000 cases and growing at a really strong clip. So we've got a number of things in innovation that are doing very well for the brand too. And you add it all together, and this is the type of results we've had over the last 4 or 5 years, sort of a high 20s kind of growth rate is something that we're quite excited about. That's a nice balance between international and in the U. S. It's about 80% U. S, 20% international right now, but both of them are growing at very strong rates and bodes well for the future. Old Forester. Old Forester is a brand that we didn't talk about for a long, long time at this company. And it has absolutely caught fire in the last few years. It has caught fire largely with millennials. This is a brand, the word old and old Forrester for most of my career was a death blow. There weren't any brands that were growing if you had the word old in front of it because millennials just didn't want to touch it. Old and early were not good adjectives to have before a brand name. Yet that sort of retro thing has come back a little bit and this has been the brand probably within the entire Bourbon industry that has caught it, caught it the best, and really relates to some of these consumers. They think of this as real. They do think of it as retro. It's a great product at a reasonable price. It's not as expensive as Woodford. Similar to what I talked about with Woodford and we've used a jack, we're going to similar to what I talked about with Woodford and we've used a Jack, we're going to do the same thing in downtown Louisville with Old Forester. So we're building an urban distillery that we think will be the best one out there. It's under construction right now. So we got a bit of time before it's going to be ready. But we think by the time this is all said and done, when you want to go to a rural distillery, you've got Woodford Reserve when you want to stay in the urban one, which is where, honestly, most distillery, you've got Woodford Reserve when you want to stay in the urban one, which is where, honestly, most people stay when they go on this tour anyway, Wood or Old Forest will be the first one that they go to. So this is a brand we'd all love to have. I wish every brand had this type of growth outlook or growth profile. This starts in 2012. If you went back 30 years before that, every year was a negative. This was a million case brand in the early 70s that went on a very long term decline and has really caught in the last few years. And I can tell you last fiscal year, if you take the 30 largest bourbons in the United States and rank them by growth, Old Forester is number 1. So the fastest growing bourbon in the U. S. Last year. So it was this has been a good story for us. Moving on to our other or a couple of other brands, I'm going to talk about our tequila business for a little bit. This is business, as I mentioned, that we bought 10 years ago now 10 years ago in 2007. And it took us a while, to be honest, to get this business, to get our feet underneath it and to develop what we think is a good business model going forward. I think if we were honest with ourselves, it did not meet our early expectations and it was a bit of a struggle and there was a lot of internal intense pressure to figure out how to fix the business and then how to really make it grow. So I'm going to walk through Herradura quickly first and then we'll actually talk a little bit about Herradura too, because they are different. The U. S. Situation is very different than in Mexico. The U. S. For Herradura, it's just all basic blocking and tackling awareness, distribution and get it going. And we've finally we've been investing pretty heavily in this brand for a number of years. So it's not a lot has dropped to the bottom line, but now it's going. And now we've got our margins in a place where we're happy with that and the growth is there. And so we feel pretty good about that. I think tequila people often ask why is it that tequila seems to be doing so well, particularly in the last 2, 3, 4 years. The tequila business, which has had its sort of fits and starts over long periods of time, are really accelerating right now, particularly at the premium price points. It's and I actually would cite it similar to bourbon. It's some of that same sort of authenticity a little bit. It's flavor. It's the product itself. You've got a lot of experimentation with consumers and it tends to be experimentation at very high price And so you've got some premiumization happening within the category. There's still a lot of things that are coming together to make it a decent business. And the barriers to entry in tequila are have some similarities to where they are in Bourbon, which tends to result in a better business over a long period of time. And so we are feeling pretty good about that. Mexico is a little more difficult. The price points in Mexico, particularly, are much lower. And so, although it took us a few years to get there, we have been aggressively taking price up on Herradura in the last couple of years, double digit price increases every year. Purposely actually on Herradura, we've maintained the volume pretty well. But purposely taking these businesses up, these margins up and trying to get them to a place where now the growth we think can really deliver on shareholder value. Herradura has been a little bit more volatile, particularly this is a global chart and the volatility has been more in Mexico. The U. S. Has been pretty good sustained double digit growth for a little while now, but still a pretty nice chart. El Jimador is a different example, but it's this is a business where I think it's less it doesn't deliver as much profit to Brown Forman, but I think it's important that you understand our philosophy and how we manage a business. El Jimador, once again, similar to the U. S. And the U. S. Business and Mexico business are very different. Mexico, when we bought this thing was 800, 900, depending on which year you looked at, it was close to a 1,000,000 case brand. We have driven that down purposely to 400,000 cases in Mexico today, and it makes more money. The margins, once again, we have been aggressive on price increases. It was we could have continued to grow the brand at the prices that we were at, but I think we would have looked at it and said we're destroying shareholder value every day because the returns are just not there. And so before we want to start growing again, we better fix the underlying business. And so we have done that. So we've cut the business in half down there to grow better for the future. U. S. Is in a different example. The margins actually are fairly decent here. We've more than tripled that business. It's gone from 150,000 cases to over 500. So the business, which was 80% or 90% Mexico when we bought it is now less than half as Mexico, the rest of it is the U. S. And we've got a couple of 100,000 cases outside of the U. S. So a very good story where the margins now are better and we think the business can now profitably be grown from here to deliver some good shareholder value. So wrapping all up and we're moving more into what I call seeding for the future a little bit, we're looking to create the next Woodford like growth drivers. Woodford is now a real growth driver for Brown Forman and we feel pretty good about that. Those other 3 that I just mentioned are well on their way to being real good growth drivers for Brown Forman. We've been reshaping this portfolio more recently to create what we would call the next generation of growth drivers. So what this is, just to sort of ground you, this is actually the Woodford Reserve long term volume chart. And as you can sort of eyeball it, it took 10 years to get it to 100,000 cases, which is not atypical in the whiskey business, particularly at the premium price points. It takes a while to get these things going. You just can't turn on the spigot and the whiskey is not there. And so some of it is supply driven, but it's taken a while to seed it in the right way. But that's the way we believe is the right way to build these brands. And it hits that proverbial tipping point and has really accelerated and that's almost straight up in the last few years. So it's now a sizable brand and we're feeling pretty good about that. So what are we going to do to sort of see the future? Well, this is Cooper's, which we launched. It's only in 5 cities. It's very small right now. But this is our response to one of the things we get asked about all the time is why don't you go develop a whiskey for Texas, Oregon, California and Rhode Island. Well, that really we don't have assets in any of those places. I'm not saying we'll never do that, but the priority is not to approach or not to go that route. A lot of others have, because they don't have any other option. There's nothing for the big guys to buy in Kentucky for the most part. And so they're finding to go to these other states, admittedly, which are growing nicely some of these things right now. But that's not our strategy. Our strategy is to take the existing assets we have in Kentucky and create some new innovation there. At the end of the day, 95 of the world's bourbon is still coming out of Kentucky anyway. We believe in big opportunities, things that we can scale up and make big, so that they can be meaningful inside of a company the size of Brown Forman. Cooper's is off to a great start. We feel pretty good about that and this is, I call it, our version of playing the craft whiskey space. Slane, Slane is different. The Irish whiskey that we announced was about 18 months ago, I guess, now that we announced this sort of part acquisition, part really more innovation. Slane Whiskey will be available in the U. S. By next summer. And it's going to be a fantastic whiskey. That's one thing I can promise. We did not we wanted we look a lot of people have looked at the Irish whiskey category and seen what's happened really largely by Jameson, great business. We didn't have any assets to be able to get in. And so we went ahead and we're taking making the long term play. And in a lot of ways, we call it taking the Woodford Reserve model to Ireland. We're going to come in at a higher price point than Jameson and what we think is a great product and really make this a good go. And we think we can do something here. Lastly, Glendronik, which is the core brand within the Benrioc Distillery Company, sometimes it gets a little bit confusing. It is interesting and it was a bit coincidental, to be honest, that we sold Southern Comfort net proceeds of about $400,000,000 and turned around about 60 days later, announced the acquisition of this company for about $400,000,000 So in a way, we traded one out for the other. Now that was trading out near term profitability, we know it. This has been those 2 in tandem were very dilutive to our earnings. But at the end of the day, it's trading out near term profitability for a long term opportunity that we believe is real. We love the single malt space, very premium, can be really good returns when you're getting prices that are as high as they are. This thing, Glendronik in particular, we call it the Little Macallan. It is what Macallan was a decade ago or a little bit more. We're coming in at price point above them and I think that we can do something. And so we're quite excited about that too. And when you put this company, which is really managed by almost a single guy out of Scotland, a very small operation with no RTC ability anywhere in the world, we're bringing our entire global franchise to the table with this brand in such a global category, we think we can really make something of it. So I hope that gives you a better understanding of what we've been doing from a brand value creation perspective, active portfolio management, keep it premium, keep it in the spirits world, keep doing good brand building work and continue saving for the future. So that's what we are about. That's what we've been trying to get done. So with that, I'm finished. I think we're going to take a 15 minute break for a little bit. So we can get the lights back on, take 15 minutes, and then I'm sure they'll gong a bell or whatever they'll do to get you back in here again. Thank you. Our program will commence with Jane Moreau, Executive Vice President, Chief Financial Officer. Welcome back, everyone. It's always hard to follow the brand presentations who have videos and lots of pictures. But this is the one that matters, right? It's funny. And you're going to hear a Kentucky accent through this one too. So here's what I'm going to do with you. I'm going to talk a couple of about a couple of things with you over the next 15 or 20 minutes. First, I'm going to talk about what you also heard both Lawson and Mark alluded to, which our business model, how we look at our business model. So I'm going to talk to you about why we believe we have a uniquely great business model and why in turn it's enabled us to deliver and return nice cash to our shareholders. The second thing I'm going to do is take and tie together what you heard from both Lawson and Mark and look forward a bit and talk about the aspirations we have, the assumptions we have to continue to create shareholder value into the future. And so with that, let me start by talking about this excellent business model we believe we have. Again, Lawson alluded to this, how he's been looking at this and how we've been looking at this with our rest of the portfolio. Mark talked about it as it relates to Jack Daniels. And we think of it in 3 component pieces. We think of it in growth, we think of it in operating margins and we think about it in return on invested capital. The first 4th component piece of it is really the meaningfulness of it. I'm going to focus this is what we also look at not only on a brand basis, but as a company. And as you know, we've had consistent balanced growth. We've got industry leading margins and we've been very capital efficient business. With high returns on invested capital. All that in turn has generated significant cash flows for us over the years and they have been growing and that in turn has allowed us to deliver and return cash to our shareholder in a very friendly way. What I'm going to do now is take you through, I'm going to look back historically and take you through these metrics that we look at the financial attractiveness of our business and how we look, how we perform and compare ourselves to some benchmarks. So with that, let's start off with revenue growth. First part, you got to have the revenue growth. You start at the top of the P and L. And as you know, we've had consistent revenue growth over long periods of time. You can see over 35, 25, 10 year periods of we've grown consistently in the 5% to 6% range. Now you see a slight slowdown and these reported results by the way. You see a slight slowdown in the last 5 years, 4% growth, and that's been largely impacted by dispositions. Disposition that happened primarily in F11, which was the sale of our low price wine business out in California. So if we put it on and look at our underlying growth rate over the last 5 years, it's been quite nice at 7%. So how does that compare to benchmarks? You see on this chart to your right, we've compared quite favorably. Again, if I'm just looking at our reported results, the 4%, you see we compare quite favorably compared to our competitive set on a reported basis and more consistent with our other benchmarks, the Staples and the S and P. But again, adjusting and looking at our underlying growth, we far outpaced the benchmarks. So one more thing I wanted to point out is looking at the last 5 years looking at where our growth has come from a geographic mix perspective. It's been very balanced, as you can see, by our 3 broad geographic clusters that we're showing here, which is the U. S. Business, the International Developed Business and the Emerging Markets business, very balanced. Notwithstanding, we have had some slowdown more recently in the emerging markets. We see that as a temporary slowdown, has lessened our confidence that we see in the future, particularly where our brands are, how early they are in their development. So that's our first metric, which is our revenue growth. 2nd metric I would like to point out is our operating margins. And we've got very high operating margins. And these high operating margins have been driven by where we play at the premium price point and above. This chart here illustrates how these margins have been improving over the last 10 years quite nicely. In fact, they've accelerated quite a bit more recently and the acceleration has been due to a number of things. First, again, the sale of the wine business, which was a low margin business 2, pricing that we've enjoyed over the period of time 3, the mix benefit that we've got from some of the faster growth that we've seen from the rest of our portfolio that Lawson was showing, the Herradura and the Woodford brands. They've grown nicely over this period of time and start to accelerate and is now starting to be meaningful to our growth contribution. And 4th, the successful innovation that you saw Mark show earlier of Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Fire, they both have added nice mixed benefits to our results. We've taken combined those with leveraging our investments we've done in route to consumers. These have resulted in this acceleration that you see here in our operating margin. So we look at our operating margins compared to benchmarks and we've got a 2 by 2 chart here showing our operating margins and return on invested capital, which is the 3rd metric that we look at for a good business. And you can see that Brown Pharma is in your upper right hand quadrant, illustrating that it has the highest operating margins compared to benchmarks and industry leading as well as the top tier ROIC. Now when we look at this and look at the industry leading margins and industry leading ROIC, we've done that while investing behind the business. So it's been quality bottom line earnings when we get there. So we've invested consistently over long periods of time. This is a 5 year look. But if you pull it back and look further, you'll see a consistent investment behind our business, both in the form of brands, spending, as well as our investment behind our people in the mid single digit range. So when we combine our top line growth with our high margins, we have delivered very consistent long term operating income growth. Again, similar to the revenue chart you saw, you see long term operating income growth on a reported basis in the 6% to 7% range. A little bit lower in the last 5 years, again similar to the revenues, pulled down a bit from the dispositions of the business. So if you look at the 5 year period on an underlying basis, it's doubled the reported numbers quite nicely at 10% growth compounded annually each year over the last 5 years, which is quite impressive. Comparing that to benchmarks, just looking at our reported results, we outstripped all the benchmarks that you could see, the growth rate is stronger than any of them on there and then significantly out So the combination of our strong and solid growth over the past 10 years At the top line, coupled with our strong operating margins, has generated really significant cash flow. In fact, we've generated $8,000,000,000 of cash flow over the past 10 years, the majority of which just came from what I just talked about, which was from our business. So our cash flow from operations. We had a little bit more that was added on there from the sale proceeds from the sale of some of the businesses. And then our remaining amount was a little bit from debt, net debt that we incurred at very, very attractive interest rates. So what did we do with that cash over this long period of time? Well, we invested a third of it back in our business in the form of CapEx and working capital and acquisitions and 2 thirds of it went back to our shareholders in the form of dividends and share repurchases. What I thought I might do is just look a little bit more at the CapEx and working capital investments we've been making over the last 10 years, because those investments are important for the future. So let's look at what we've been doing over the past decade. And this chart illustrates what our net gross PP and A investment was in 2006, 2011 2016. It looks at our working capital change as well. So the PP and A bar is the dark gray and the working capital is the copper color, if you will. If you look at the 1st part of the decade, the 5 years, 'six through 'eleven, you can see that our investment behind our business was approaching about 400,000,000 dollars Most of that was coming from investing behind our working capital, behind the inventory as our capital was pretty close to the same. Our PP and E levels were pretty close to that it's the same on that basis. What you see though over the last 5 years is an acceleration in the investment in our business behind both CapEx and working capital. Now you've heard us talk about the once in a generation spending that we've been doing behind our business in the form of capital. You see some of the pictures on there. You see the new distillery at Jack Daniel's. You see some Cooperage. Lawson was referring to investments we're making in Old Forester and Slane. So those are ongoing. But these were what we'll call them once in a generation in once in a generation investments and you can see the CapEx stepped up during that period of time. You'll also note that the orange bar, the copper part of the bar also went up quite a bit And that's our investment. Primarily, it's working capital, but it's primarily in inventory. Our business, as you know, is heavily skewed toward American Whiskey right now and you've got to be laying down what you think your demand is going to be 3, 4, 5, 6 years from now. We'll get layer and scotch at some point, it will be even longer. So my takeaway from this is or your takeaway should be that we really see a bright future for ourselves. We've been investing behind our business in the pharma working capital. So we've been laying down whiskey so we can meet the demand that we see coming down the road. We've been expanding our facilities to meet the capacity to make sure that we have the ability to build and make the whiskey that we see so expanding our capacity for those long term plans. One final thing I wanted to make note on here too is, we're almost past our once in a generation spending. So what I've referred to here is our free cash flow yield, we expect should begin to improve as we move past F 2018. And we've returned more to levels that we're used to, not necessarily dollar levels, but as a percentage of revenues. Looking at our this chart illustrates the past decade of how we've returned cash to our shareholders. And you can see that we've returned it in 3 forms, in regular dividends, which is denoted by the brown bar, special dividend is the gray portion of the bars and yellow, which is the share repurchases. By the way, I should be looking back here because I noticed there was different colors when Mark was showing this, but they look like they're the same. And so you can see that there's been spikes along the way. So again, regular dividends, if I think about that, they've been steadily we've been steadily growing our regular dividends over the past decade. Where you see some spikes on the chart here, that's driven by, again, great part of the bar being special dividends, where we had event driven events that happened where we returned cash to our shareholders or paid dividends to our shareholders. Could be when we sold the Lennox business as an example, We wanted to get cash back to our shareholders. And then the yellow bar, which where we've been doing opportunistic share repurchases. So you can see peaks and valleys or troughs, if you will, over the past 10 years. But what we have done is we've averaged an annual yield of 4% to 5% back to our shareholder over this past decade, which is quite remarkable. So when I pull all the stuff that we've done over the past decade together, our P and L, our growth, our returns, our margins, our investments behind our business, what we've done to return cash to our shareholders. We've been able to deliver top tier long term shareholders over the past to our shareholders over the past decade. In other words, if you invested in Bramformin 10 years ago, you would have been that top bar or top line, if you will. It would have been worth $100 would have been worth $3.19 today. So while the smoothness of that total shareholder return is not smooth, in fact, you see over the last couple of years, it's been fairly steady, if you will. And we've taken that opportunity over the past couple of years to actually be opportunistic looking at our looking at interest rates as low as they are, looking at our debt capacity to really invest in ourselves when we think our share value has been of value. So that is pulling together our business model. I talked about the metrics that we look at. I used history to show why we think ours is a uniquely great business model. And now what I want to do is look forward a bit and pull together everything you heard from Mark and Lawson, and talk about our 2025 aspirations. And these aspirations are built on the business we have today. Does it mean that we won't look at acquisitions? Well, we will. We always have. We'll make sure that they fit right, they meet our criteria, etcetera. But this is based on the business that we have, the organic business that we have today or the business we have today growing it organically. And so I'm going to take you through a series of assumptions, aspirations that we have. So the first thing is I would remind you what Mark showed you. Mark showed that three scenarios for Jack Daniel's volume, Jack Daniel's family of brand brought volume growing between 3% 5% over the through 2025. So using that information, combined with pricing, let's say, in 1% to 2% range, we believe the Jack Daniel's single family of brands can grow in the mid single digits. And coupled with what Lawson showed, which he has spent a lot of time, he and his team and company has spent a lot of time reshaping our portfolio, getting it to be a better business as we described here. And we believe that we're positioned now to grow faster than Jack Daniel's brand. So add that on to your sales forecast. So where would that growth come from? When we look at the growth for over the next several years, we expect that the U. S. Business will continue to grow. It's an important business for us, but we'll grow faster outside the U. S. In fact, we see that the emerging markets will become a bigger contribution to our business than it is today, approaching 30%. That's the confidence we have that while we're in a trough now, we have optimistic views on the growth prospects of that part of the world. We'll continue to invest in our brands and our people. We'll leverage the route to consumer investments we've done over the past decade, but we'll have opportunities too as we grow the business for future route to consumers. Mark alluded to the Spain one we have coming up next summer. There'll be others. They don't always come in the form of owning your own business. But the important thing is for us to be able to have the focus. And we were found when we found our focus and we can focus on our brands, we actually can accelerate the growth of our brands. And so that's what we're looking for and we'll be looking for as we go ahead. We expect this continue to have strong margins. We talked about the operating margins, the industry leading operating margins we have and consistently high return on invested capital. We do not see that stopping. And that should all in turn lead into high single digit operating income growth. And with a strong conversion to free cash flow, we think that we'll be able to continue to we will be able to continue to invest behind our business fully and we'll have ample cash to return to our shareholders in a thoughtful way like we've done over the previous decades. And that will all in turn lead to what we believe will be superior TSR for our shareholders. So one topic we haven't talked a lot about here today, well, Paul alluded to it in his opening remarks, is the family. And we are a family controlled company. And we've always felt like it's been a competitive advantage for us because this allows us the long term perspective. It allows us to develop strategies for the long term, some of which we've been sharing with you today. And so with that, I have the privilege to introduce a member of the Brown family to you. Some of you may know him, some may not. That is George Garvin Brown IV, who's going to come talk about the family's perspective on the company. Good afternoon. I'm Garvin Brown. I'm the Chairman of the Board of Brown Forman Corporation. It's a pleasure to be here with you in New York today. I got to come present 4 years ago at this similar event. I just had to how many people were there? Okay. Okay. Thank you. So I went into detail that day and I'm just going to hit on some headlines today on a couple of points. But it's a pleasure to be here. I joined Brown Forman 20 years ago in New York actually. I was in our wine division. We're talking about divestitures. I was my first day on the job working out of our Hop Hog, Long Island office, I was tasked to fill distribution gaps in the critical Ebola Pinot Grigio 186 SKU in Nassau County, not Queens, Staten Island, Nassau. Eventually, I made it into Staten Island. They let me into Queens and Brooklyn. And by the time I finished with the Wine Group, I was even allowed to sell something in Manhattan. I was also responsible for Fontana Canada for Scotty. For Scotty? Any for Scotty drinkers? Okay. There aren't any 27 year old Brown Forman employees in New York City working on for Scotty today, I can guarantee you, which is another example of the Fontana brand didn't even make Lawson's slide. I'm very satisfied by that. But in any event, I've been on our Board now for 10 years. When we did a 5th generation changeover, that was Ousley Brown, the second who is in the Woodford Reserve video, my first cousin once removed. He was our Chairman and CEO and under his leadership, we did a switchover 10 years ago. His daughter, Brooke, was in the photo of Slane at the Slane Distillery there, the 2nd woman from the left. Her husband is the current U. S. Ambassador over the United Kingdom. We've been able to enjoy to have her sort of appear at some events like that. And there's one other actually there's a family in the room here today, 4 generation shareholders of Brown Forman, but there's someone else here, Jennifer Powell. So you've met a great, great, I think grand niece of Jack Daniel. We've got a descendant of Frank Bobo here, who you met earlier. And then Jennifer Powell is a great, great, I think great, great granddaughter of Lem Motlow. And so it was Lem's name that was on the bottle of Jack Daniel for so long. He was Jack's nephew and the Brown family in 1956 purchased Jack Daniel's from the Motlow family. So Jennifer, actually I think organized this all this stuff that we're looking at today. She's also a part of the family. And so I think between those in the video and myself and those in the room, yes, it's a competitive advantage, I would argue. It's also certainly a barrier to entry. I mean, it takes 5 generations to claim that you're the great, great grandson of somebody. And that's a I mean, Nokia they've got lower barriers to entry. And so I think that it's an example just in the room of some of the uniqueness that I think helps Brown Forman. I'm the one with the Canadian accent by the way. I was raised in Montreal for reasons we can talk about over drinks. But, so I regret I don't have a lovely accent. My dad did, but I've got basically a Canadian accent. My family and I would like to make something really clear. We see this community, you all, as partners, in 2 ways. Your analytical partners of ours, we're shareholders. We read your work. Every Friday, Ernie Patterson, the Director of Family Shareholder Relations, sends out an e mail with articles on the company to everyone in our family. And we read your work and obviously so is the management team. But for us to have that 3rd party objectivity in the world of analysis is a critical part of our governance mix. And so my family wanted me to be sure to thank you for that. Thank you. And you're our partners, some of you as investors. We've been partners together the public and us for 83 years. We went public on the New York Stock Exchange in 1933 and that's a big deal. We've been partners for 83 years. And so for those 2 your partners in 2 ways and for those two reasons, we also think that out of respect to you, we owe you a degree of transparency as to how we organize ourselves. We're your partner. Who are they? What are they thinking? How do they organize themselves? Boy, I read something about a family business the other day. I wonder if that applies to the Browns. And so that's why 4 years ago, I went into quite a lot of detail on the governance initiatives that Paul and I kicked off in 2007. We created this thing called the Brown Forman and Brown Family Shareholders Committee as a formalization of the way that we talk to the family, as a way to engage 5th generation family members and actually moving out to 6th generation. And also to better regulate the way that the family interacts with the company, with the Board, engagement is great, give or take. And so we like engage we call it balanced engagement when it's done right. And so we don't want I mean even as tempted as I've been in days to call Paul about the Chambord package. I mean that's just not appropriate. And but nor is it appropriate to be totally unengaged. I mean, we're your partners and I think you'd even expect us to be engaged. This is a big investment for us, not just the value of the company and our stake in it, but actually the percent of our assets that are in this investment. It's a big deal. We're not a diversified fund. This is our investment. It's an we're still an operating family with an operating business. So it's important for us to govern things properly. We've got this family committee, we've written a family constitution, We have an employment protocol to govern how people apply for jobs and what happens to them if and when they do get a job. I can assure you we lean towards meritocracy in those debates. When it all comes together, I like to call it thoughtful ownership. I know we all talk about shareholders. I prefer the word owner. I think it's more holistic. And on the family side, I think it sends the right message because it reminds all the family members that with ownership comes responsibilities. And shareholding feels too easy. Ownership feels like it comes with a couple of duties and some responsibilities, a couple of strings attached. And I think that's okay in a multi generational family ownership base. So is that what gets us out of bed in the morning? A day of thoughtful ownership, right? Look, for some of us, yes. For me, I mean, that does excite me in the morning actually. It does get me out of bed. But there are some other things too more honestly that get the family out of bed in the morning about Brown Forman. Two things I would like to touch on. 1 is culture. Look, on the corporate culture side, Brown Forman has won awards, the human rights awards for its diversity initiatives with its employee base and the family is proud of that. Makes them feel good. They get out of that for meetings when that's a topic. Sustainability awards from the environmental community for our ability to control to shrink our carbon footprint. So that's exciting. And those are some things just examples and culture on the corporate side. For our family, I mean, I can't say it. I don't know how to say it anymore honestly, but Lynchburg, Tennessee, this brand that is surrounding us today is something that we get. We get the place. It reminds us where we're from. We might live all over the country, got different accents. We live even outside the United States. But at some level, we all believe that we're just we're distillers and we're from Kentucky. And so a brand like Jack Daniel's in our hands, we feel is a good fit. We feel that a family's timeline, multigenerational, is the sort that works in this industry. It takes 4 some odd years depending on the weather, tightness of the barrel to make a single bottle of Jack Daniel's. I think I went from Motorola to Nokia to Apple in 4 years. And so we think that those timelines work well in the hands of a family. Culture is important, but we also like to win. We're investors. We consider ourselves a business family and we like winning. And actually, we've been winning with Brown Forman for decades And that matters. And we think that the family timelines also help very well ground the 3 bits of strategy that I heard today in my words. The capital allocation that Jane described, investing in the business at the right time, expanding distilleries, new distilleries, a cooperage, a mill. All those capital investments that are generational, that the team has reset the table for the next generation on, we think are good use of capital. But we also believe, I think it's Slide 48, not that I'm counting, that the returns to shareholders are significant. And it's that balance between the return to shareholders and the investment in the business that really strikes us as a family is being a well business a well balanced capital strategy. Looking at Lawson's work with the changes to the portfolio, Bola, Fetzer, Fontana Canada, Lennox, Hartman and then finally you get to talk in Southern Comfort, which made such press. Those are tough decisions. You're walking away from real revenue. I can't remember who someone wrote 2 or 3 sentences they sort of nailed it, one of you all, that so many companies should make those decisions, but they don't because of the pressures that they're under for quarterly revenue performance. And walking away from the revenue on Southern Comfort in order to make a long term bet in Scotland, in Ireland. I mean, we feel that those are appropriate long term decisions that we can help with our own timelines. And then finally, Jack Daniels, I mean, this iconic global brand, the one that we feel we get so well, we feel that the values, not just the taste profile, the product and all that wonderful stuff that you would have seen today, but the values of Lynchburg and the patient way that they've been slowly told around the world, we think that those that story works well in the hands of a very long term investor. Some people call it globalization. When it comes to this brand, for me, it's localization of the world to the values of Lynchburg, Tennessee. And it's a good business. That's it for me. That was a short version of what we discussed 4 years ago, but I hope it gives you a sense of what your partner, the Brown family, feels about this business and how we think we can help it. Thank you for your partnership. Thank you. There's just this is what you heard today. And I hope, it was a pleasure to sort of provide the MC support for what you heard from everybody here today. But this is what we believe have been critical aspects of the historical success. And sometimes we worry it's boring that we believe these to be critical aspects of our forthcoming success. You know this to be true from Jane's references. These were when you put it all together and think about long term returns, this is it wasn't 10 years ago or 20 years ago that we set out to have the highest absolute or even relative TSRs versus these benchmarks. They were just to keep it going to build forever. And in fact, I think with some good fortune of some great brands and very important to this has been the privilege of all of us and then those around here today to basically tell you the story on behalf of 4,000 plus of our colleagues who frankly have produced this and are very, very excited in the same ways you heard it from every one of my management partners here in Garvin about what's ahead of us. So, we remain optimistic. And I will say that probably the thing that when I reflect on what we try to do in order to do this, there's no measure of risk associated with these returns. Oftentimes, the returns associated with 12% 14%, 20 year returns or 10 year returns, also you incurred the greatest risk. And when you have a company with a family behind it that wants it to go on forever, one of the things you do is you try to pursue outsized rewards for lower levels of risk. And when you can find that, it's not easy, but when you can find that in the business we have and in the way we manage it, you can actually build forever. And so in many ways, the summary of what you've heard here today is our continuing pursuit of that, to try to create great outsized rewards for what we would consider to be very acceptable levels of risk associated with those pursuits. We're going to do a Q and A now, but one thing we didn't cover that's in your book as you go away. I did want to recognize really the prior generation that preceded us. You'll see on the back of this a phrase we love a lot. It was actually attributed here to an Owsley Brown, the second quote who you saw in a film, which was planting trees so that others may enjoy their shade. The work you saw here today were us we're planting some seeds for people who will probably be making this presentation, we hope in 20 years with the same story, but we've got to plant them today. The people who were doing this 20 years ago at Brown Forman, they gave us Woodford Reserve, they gave us Jack Daniel's globalization, they gave us excellent capital deployment. And a lot of us here today, while we've done a lot of good work, done the great brand building, etcetera, I mean, we really are enjoying their shade. So we put this on here purposefully because we think it's something worth replicating and we hope that we'll be giving these types of presentations for literally decades to come. So that concludes our prepared remarks and permitting your all's continued interest in all this, we thought we'd open it up to questions. So I'm going to bring everybody up and just give us a second to bring a couple of chairs up, we'll start to answer your questions. I think the way it's going to work is we're going to have a microphone out here in the audience. So if there's something you want to say, and because the thing is webcast, it would be great if you could say it into the microphone versus sort of yelling it across the hall, even though we might be able to hear you. Okay. Thank you. Yeah. We're at about right about 4 o'clock, so we've allocated as much as up to an hour to listen to your questions and have some conversation about what you heard. And as we said earlier, we'll have really a fun part at the end, chance to sample some of the product with some of our great guests that we brought up here, our friends we brought up here too, we'll be able to happy to describe elements of what you're tasting as well. So why don't we open it up here and see who might first have a question? Thank you. So I think, Mark, you well articulated the 3% to 5% outlook on Jack Daniel's. I was hoping to talk about the other part of that algorithm, the 1 to 2 points of price and mix, given the current context of the pricing environment today. So it's a 2 part question. First, in the near term, I read in the trade press that Booker's is doubling their pricing. So I'm curious how you think about price gap management across different expressions of Jack Daniels and even though the pricing environment is tough for maybe the Master Brand or the Mainline brand, is there an opportunity to stretch your price gaps? And then for the longer term, 1 to 2 points, how are you thinking about the balance between pricing and mix? Thank you. I'll start and I'm sure Jane will have a view on that as well. I think let me think of pricing only first before mix. I think our experience right now on pricing is it's a mixed bag. It depends. For instance, in the one market, the world's most valuable spirits market, the U. S, pricing is available to us and has been available to us. And we quite confident that what we've experienced in the past, we can continue to experience for the time being. So and that accounts for a large part of our business. And around the world, again, it depends. There's a number of markets around the world where we're very successful in our ability to take pricing, either stimulated by excise tax increases that a number of countries will do on an annual or biannual basis. But I think I'm confident that what Jane was representing in her remarks is remains available to us as we get better and better and better in the international markets of managing our direct to customer infrastructures that we've established. I think Vivien is Do you need the mic? Oh, do you have it? Can you hear me? A mic. Yes. Okay. I'll use this. So Vivien, I would say also, you're right. You're looking at the time period right in front of you, which is short term. And so you see things that are happening. And as Mark alluded, we've got healthier markets that are able to take some pricing, US being one of them right now. But what I'm trying to look at is over the long term. And so we believe that over the long term, we've got that pricing opportunity available to us. And so I was primarily talking about pricing at that point. We will get mix benefits as I was referring to, particularly as I look at the rest of the portfolio that Lawson was describing and the premiumization of that and the high price of scotches and so forth come in. And as they become more meaningful, that will have a mix benefit, we believe. Vivien, let me add something to it. I think that there's 2 things that have I think I'm actually miked, yes. So, yes. I think that if you pull back 4 years ago, because of the success that we were seeing with Jack Daniel's Tennessee Honey, Jack Daniel's Tennessee Whiskey, as well as Gentleman Jack and other expressions, Several of us were sitting back saying, we've grown pretty rapidly here. We want to continue to emphasize specialization, just really how special Jack Daniels is. And also, we always have this benefit several years in the future to say, if we don't, we'll probably run into some issues with supply because you have these challenges that are ahead of you if you don't manage them. And so we were pretty aggressive with pricing across the globe for 18 months to 24 months as it related. And then it was a conscious decision because in a few places, particularly against the low inflation environment that was settling in around the world, low interest rates, low inflation, we were seeing others people not being as aggressive. Sort of FY 2018 to 2020. We know we will have some costs associated with the depreciation that Jane was referring to. So as we look ahead, we will be I think it will be on us to give you a good perspective as we get closer to maybe the summer about how we feel about those forthcoming pricing decisions. I will say the one thing, if you particularly in the United States, one of the things that will give particularly our Jack Daniel's brand, more confidence and comfort to take prices up will be the development of the segment above it. There's a blessing and a curse, of course, as that market develops above you, you have to worry about keeping yourself best in class and highest quality and special. But it also, I think, presents the opportunity to take prices against different premium reference points. Right now, the most developed super premium and ultra premium American whiskey category in the world is in the United States. So we think we have better opportunity there. As you move around, as we think it's a very long term perspective, as people premiumize in a lot of the other countries around the world and more volume metrics are delivered at those higher price points, it opens up the door for Jack Daniels to take more regular pricing. It's never easy. This balancing act of high volume and super premium price, you're always working both aspects of it. What you're seeing in some of our more near term results for conscious decisions after a couple of years of pretty aggressive Jack Daniel's Black Label. We've even complicated it in my view ourselves. 5 years ago, we didn't have to worry about we largely land priced on our flavors. So effectively, if you want to keep doing that, you have to think about raising the price on a number of items, not just one. Hard to do, right? And so there's a lot of things to think about when you go in to make those Jack Daniel's decisions. We're actively thinking about them, but really continue to believe there is opportunity for us. That's that worth element that Mark was talking about. I will add a quick point to it. It's much smaller in the grand scheme of things within brown form. But the tequila category, it's often I talked about some of the really aggressive pricing we're doing in Mexico, which is a bit unique to brown form and not indicative of the market necessarily. But the agave market, the spot market for agave has tightened significantly to the point of almost doubling now over the last couple of years. So that has better ramp right now, we can, for the most part, control most of our supply. And so it's really not a factor for us, but there are some big brands that you will know that rely heavily, heavily on that spot market. And so what we hope, not seeing it in the numbers yet, but that will put some upward pressure on that market and that's something we all look forward to. Thank you for the question. There is somebody here that will be back here, Christy, I think. He was in queue first because we took the microphone from him. So, we will go next here. We will have time for everybody. Questions on the new product launches you talked about, in particular rye and on SLANE. Just you might not give me the full marketing and plans for next year, but can maybe from a supply standpoint, are these things that can go nationwide when they are launched, be there I think Slane was in the summer and rye was in the fall? Or is this going to have to be from a supply standpoint more state by state? We have a bigger push kind of in calendar 2018? I'll take the easier one, not the easier one necessarily on Saline, but the first one. Yes, no, it's going to it won't be nationwide immediately. We do not have enough supply to do that out of the box. I would expect within 2 or 3 years, it will be nationwide. It will not be global either. We're going to focus on the United States, Ireland and the UK, global travel retail. It will probably be more like 5 years before we have enough supply to be truly global on that brand. So it will be a slow build, but you know what, that's not the worst thing in the world. It creates a bit of consumer demand when you do that, allows us to keep pricing at a healthy level and build it in what we think is the right way, which will be a lot of on premise and sort of key account management. It's not going to be going into the Costcos in the 1st couple of years. It's going to be managed, we think, in the right way. With little expectation for profitability during that time frame, a lot of investment back in against a new product like that, which is very different than a line extension. Let me address the rye question. As everybody knows, it's a very fast growing category. There's a lot of consumer interest in it. We actually started laying down rye about 5 years ago. So we've been planning for this. Now we don't have we are initially looking to introduce it in the U. S. So it's a U. S. Focus initially. And so what we think about this product, of course, we're going to take the advantage of the charcoal melamine from Jack Daniels, it's done there and make a really special rye. We think it's going to have a lot of legs as time goes on. But again, I think we would it would be my view. We haven't sat and looked at the F 2018 2019 sort of sales levels on it. We will have more supply in I think increasing years thinking about 2018 to 2019 etcetera. But I would expect us to be able to even though we'll invest behind the Jack Daniel's rye expression that it would be able to be more profitable sooner just because it comes from through the line extension activity in the Jack Daniels name as well. Now there's already some pent up demand for Jack Daniels entering the RAB business. We wish it was that way on Saline, even though we think there's some building of the Irish Whiskey expectations from Brown Forman's products and from our trade partners, but not to the level we would think in terms of initial reception to Jack Daniel's rap. Sharon, do you have? Have you guys ever looked at the impact of legal cannabis on spirits consumption? Because I haven't sort of seen anything that's been that worthwhile, but some of the distributors are kind of freaking out about it. We defer to Vivien on that. Yes, we're obviously we're monitoring it and have been now for a while. And it's one of the most off asked questions is how is this going to unfold. And we're seeing some of the same analytics and data. My conclusion so far, I think is the correct one, is it's way too soon. Although it's not way too soon to be looking at it, monitoring it, thinking about it. I think last week on our investor call, I made this reference. I think the most immediate consequence of the growing legalization across the United States on our business, the first and foremost is that if you think about the way it will be consumed in the states where it's legal, it will largely and exclusively be off premise. So to the extent that there's cross usage or the occasions are shared between marijuana and distilled spirits, it's very likely to be have the same dynamics that would influence the way we think about the off premise. And the way we think about the on premise and off premise, there's some similarities, but there's often differences. So to the extent it drives more consumption overall to the off premise, I think suppliers and brand owners are going to have to adjust accordingly. But what it means for direct competition and the like, we are in what I'll call observational and study mode more than we are conclusion mode yet. Okay, that's helpful. And then, Garv, can I just ask you a question about the spirit of the dual class shareholder structure and if you ever thought about collapsing it? When we went public in 1933, we only had one class of shares. And then in the 50s, I think it was the 50s that, of course, the tax treatment of dividends was different. And so it was more tax appropriate to return value to shareholders through the creation of another class of shares. And so at that point, every shareholder was given 1A and 1B. And since then, the float of A and B has changed over time because of buybacks. But otherwise, we don't spend a lot of time looking at that. We did have preferred shares. Actually, when I joined the company, we had a 3rd class preferred shares. I think they were retired. I remember I was in the wine group probably 99 or something. Yes. But from the family perspective, we frankly have had over years if there's been a liquidity need for estate planning purposes or whatever it might be, having 2 classes of share has been able to facilitate liquidity without shaking the family's position with regards to the voting shares. The other thing that arises on those typically circumstances where there can be misalignment between A and B is when you have the ownership concentrated, but very little economic investment by the controlling owners and that is just not the case with the Brown family and hasn't been that way at any point. Yes. We've had a rule of thumb and I adjust a rule of thumb, but it's been a rule of thumb, which is that it's probably not a bad thing if the family stake in the business is more than it's a governance spread that can is a it's a governance spread that can attract attention from the ISS and from other appropriate advisory firms. And so we do keep an eye on that on the family side. I mean, for what it's worth, I'm giving you a family point of view and I'm not speaking so much for the company. We agree with it. Yes, Judy. Sorry, we've got these lights, so sometimes we can't see your hand. We can't Judy, we can see it here. But if you could just, yes, sort of make your hands harder for us to see out there. Thank you. So a couple of questions related to the global expansion strategy. So first is, when you think about the 3% to 5% JAK growth target, how much of that is geographic expansion or just emerging market gains? And obviously, emerging markets have been pretty tougher for everyone. And Jane, you characterized this as a temporary slowdown. So and you've got aspiration to obviously get bigger. So when you think about the 30 2 markets that you've listed, how has the focus of those markets changed in the last few years? And is this would you think about this as also once in a generation opportunity where you can actually make more sizable investments in a tough time to get bigger? Yes. You want to tackle that? I'll start. Recently, we I think I mentioned that we have been slightly or in some ways, sometimes significantly reallocating resources as a result of our market focus. For instance, I mean, we're all very aware of the vitality of the U. S. Market right now. And just compared to 2 to 3 years ago or 3 to 5 years ago, where the vitality for us was in a number of those emerging markets, Russia being a classic example. We are making adjustments, particularly in regard to we call our brand expense. So also the infrastructure investments we made in some of the core markets like Australia and Germany and France, we're really leaning into those investments and seeing good growth now as a result of that. So depending on circumstances, either external or internal factors, we're able to look across those 32 markets and appropriately I think redirect resources where we see near term or mid term opportunity more so than in some of the other markets. So that's one way of saying. We make adjustments reasonably frequently, as we see different circumstances affecting our ability to grow the business in any particular market. Yes. And Judy, to your reference on I think it was Page 15 in here on where we might expect growth to be differential between in Mark's segments here when he shared them was $1,000,000 and $500,000 to 1,000,000 dollars 200 to $5,000,000 and then below or $50,000,000 to $200,000 I almost feel like from top to bottom you would expect an accelerated growth rate going down the page. Now not every market for every period will have it, but as a general thought, our plans are predicated on a lot of these markets being very early stage development still, in some cases, building out distribution and awareness. And so I would say there is a correlation. And then where the investments follow will depend a bit. I'll just give you the example of this year. I feel like one of the most significant incremental investments we made this year was to not dollar for dollar make cuts in brown form and SG and A or A and P associated with the sale of Southern Comfort and Towaka. The brands that were coming in did not even come close to matching the profitability of those businesses, but the idea of taking our people and in most instances there, they were in developed markets, international and United States, at a time when we felt like it was a really good time to invest in those versus the emerging markets. By holding that investment, those people can then go work on Woodford Reserve and Woodford Reserve Double Oped and they can work on the start of Cooper's, they can work on Jack Daniel's Black Label. And so it takes some of that, which you all might call fixed overhead and reallocates it to more highly value added items in our view. So in that case, the investment doesn't match up with the long term view of where we think the volumes are going to come from, but it does match up with the current year or so where maybe the conditions are better in the United States and developed markets than they've been in emerging markets. Does that help a little bit on your question? Okay. Yes, we got one here and then maybe just one back here in just a minute, Sharon, if you can see him. Hey, good afternoon. Laurent Grandet from Credit Suisse. Hello. Hello. Actually a follow-up from Judith's question about the geographic in that famous map you just show. I mean, it seems like, I mean, Latin America is kind of white almost apart from Brazil. And it's usually the playground of American companies and especially you mentioned the associations in some part of the world with Coke. Any plan to go in that geography specifically in Latin America in any of those countries? So that's my first question. My second question actually it's more about the potential risk. You decided not to go into beyond the 2 flavors you already launched I mean, into flavoring, but some of your competitors are aggressively looking for market share expansion. Do you see that as a risk of potentially commoditizing the category a bit like, I mean, it has been done in the vodka category? And what do you do about it? 2 very different and good questions. Anyway, who wants to tackle you want to do flavor or geography first? Does that matter? Anybody? I'll do can I take your second question first? Yes. Do that. Yes. I spoke a little bit about our belief, our portfolio strategy belief that these individual brands that we add to the portfolio deserve a long term stewardship outlook or a long term strategic outlook. And so we are we have said that right now, we're not planning an additional flavor in that range and I guess we mean that. What I have noticed at the commentary in the public press is that the flavored whiskey category is beginning to and the commentary around it is beginning to use terms such as you used And the care that I've noticed other brand owners using in regard to being too aggressive in terms of flavor extensions actually believe fundamentally that that's how we should be looking at it. And so, again, we don't have any plans for a third flavor. What we do have plans for is to continue to grow Jack Daniel's Tennessee Honey. And I believe if I look at the numbers today, we're having some good success, not only in the U. S, but beyond the U. S. As we focus on that and consider it a multi generational brand. And the same with Tennessee Fire, which is very early in its life, actually really only in its 2nd year. So we owe Jack Daniel's Tennessee Fire multiple years of focus before we even look up and consider whether or not there's opportunity beyond those two flavors. So that would be the way I would answer that. Go ahead. South America, make sure I heard it correctly that just how optimistic we are about the basics of South America over the next X number of years. I mean, I think if you look at a map, our biggest emerging market, I think this is actually correct, would be Mexico. Brazil would be sort of following on that in a pretty quick way. So sort of we have the 2 biggest markets in that part of the world now. And it's yes, I mean, I think if you rank order our priorities in the world of emerging markets, South America taken as a whole is going to be right up near the top. Colombia, in particular, is a huge whiskey market, a very, very premium whiskey market. And so that's one where there's at least short term expansion plans, because right now we're very, very small in those markets. You have to start adding up a bunch of them together to get to be meaningful when you get outside of Brazil. But I'd also talk Brazil itself. We are so tiny there in terms of where geographically within that country where we go. We're only really in the 2 big cities. And so there is a big effort also in there to say why can't we put more people out into these sort of I don't know if they really call them Tier 2 cities, but in these broader and these bigger cities out there. And so yes, I think it will be a big growth market. And I'll tell you there from time to time we have conversations about Chile, Venezuela, Argentina, all of them having different risk reward profiles, frankly. And every time we talk about them, given what we would call maybe scarcity of resources to go to all these markets at the same pace at the same time, we end up going back to what Lawson referenced, which is we just think there is so much opportunity behind the company we have invested in down in Brazil that offers better sort of 3 to 5 year results. By the way, it doesn't we still have an emerging brand franchise in a place like Chile. I mean, it's not like we are not existent, not doing well, etcetera. It's just what are your priorities and we call it pub, Paraguay, Uruguay, Brazil that triumvirate there. One thing we did not talk about today that goes to this topic of flavors, it's been very frequently and it's a good frequently asked, it's a good question about how we're going to manage that. If you all some of you have seen our talks in the past, have seen us say that the American Whiskey business and predominantly, and we think this is afforded to Jack Daniels, is this intersection between the most attractive attributes of both scotch and vodka, the 2 largest categories in the world. So when we do this balancing act of figuring out what we call sometimes the vertical scale and the horizontal scale, one being flavor, which is often associated with vodka, the ability to horizontally extend into flavor in your category or your brands. And in vertical, which the scotch business has done an exceptional job from sort of standard price point up to very high price points, we think that opportunity is available uniquely today to American Whiskey because of its mixability and the high quality associations with its liquid, the aspirational value of Americana, etcetera. But you can't seize all those opportunities at one time. And so, I don't feel like pausing and really dedicating our efforts to Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Fire as a statement against flavor generally. I actually really believe as is evidenced by Mark's comments on the RTDs that the mixability of American whiskey is one of the reasons that is in fact expanded at the rate it is. You want to do it thoughtfully. And so what you're seeing from us is a more measured pace related to focus and the opportunity afforded by what we have introduced. It is never a guarantee that we would not innovate in some way, even saw the Cider expression being a kind of a hybrid. We had a Jack Daniel's Winter Jack, very successful in Germany and in parts of the United States that had flavor elements. It's more like an RTP we call that. So I think that will continue to be an area right for us. It's just the pacing and the focus and wanting to develop this trademark as responsibly as we can. And so part of it is you do this phrase I love that Mark was using, which is test and learn, test and learn. And then as you go along, make sure Mark's phrase, the beating heart, Jack Daniel's Tennessee Whiskey remains invested behind and is the primary focus. So it will be a dynamic exercise for it. We try not to say we will never do this or we will only do that. But we think it's responsible based on the pace of the innovation we've done to just really focus on those two expressions. And by the way, I consider rye to be a flavor. It's a full strength flavor off of the traditional bourbon flavor. And one of the things people appreciate it for is its spiciness and robustness and it's why it's such a popular element today in U. S. Cocktails. Yes, I can't see who it is. Robert, hey, sorry, I saw a hand in the tie. Robert Ottenstein, Evercore. You've had a very consistent long term message today. And in the spirit of that, I want to ask a very long term question to the family. And that is the portfolio now is much more focused on brown spirits. There has historically been a cyclicality to brown spirits, white spirits. And just want to get a sense of your comfort long term in terms of the firm's positioning and focus on brown spirits. And how you would think about if 5 years from now category growth were to slow appreciably? Do you think you have the diversification, the capabilities to deal with that? Would you go back and look into other sorts of diversification that you did in the past? Just those sorts of questions in the respect of kind of the long term partnership that you discussed. Okay. That's a great question. When I started in 'ninety six, the whiskey category, I think, was in its maybe 15th year of decline. And we used to show a great chart that would sort of decline in whiskey and a growth in Jack Daniel's kind of try and get the sales force riled up. It worked. And so we're lucky and Mark will be more articulate on this than I am that Jack Daniel's we believe and we've seen the evidence just transcends the whiskey category. So when Paul started on the brand, the competitive set was Jim Beam and Crown Royal. In the United Kingdom, the competitive set to Bacardi and Smirnoff and now suddenly bullets back on the scene, another American whiskeys emerged. So we've had a history of being able to transcend the category because of our focus on values in the brand. It's not a whiskey, it's Jack Daniel's. All those true cliches that are very valuable ones. With regards to getting in Woodford, the new old Forester, Cooper's Craft, Ireland, Scotland, even tequila, brown spirit, actually the silver is doing quite well now, but let's argue it's brown spirit because it's aged in barrels. I think your points what your point of caution is well made with regards to United States, what have trends turned, so on and so forth. But when you step back and look at the global trends, actually the world is a place of brown spirits. And IMFL in India and their palate, that is already there for flavored spirits. The amount of brandy that none of us think of that is out in Africa and in East Asia. And so there is the flavored spirits is what the world drinks other than Eastern Europe. And in Eastern Europe, of course, they've the vodka category has sprung a leak and they're excited about imported brown goods, something with flavors, something different. So we do so for two reasons, we feel good about this move towards aged brown spirits. We feel that it's if need be, we can transcend the category. And then outside the U. S, we feel that the category trends are with us. And the third point is just as a family investor, we do like high barriers to entry. And so if things are aged, if we're out there promoting aged goods, that really people need, one of you described it, I think, is it the ability to I'm looking over to him to get the quote, the ability to withstand loss or something like that. Not the average investor can build a distillery in aged goods for 5 to 12 years. And so if we're out promoting that end of our industry, we think that it's a place that works for families who have a longer term investment. And so on the flavors, I'm sorry, just to come back to that. One of the strategic conundrums of flavored whiskey is that it opens the door a little bit to non aged brown spirit characteristics, easier to drink. There's a company that even uses younger Canadian whiskey in theirs, shall remain unmentioned. And so in their cinnamon flavored popular brand. So the type of thing we'll debate in the world of flavors. But look, we fought Jack and Coke in the family for 20 years. And I mean, I remember it was sort of took an act of God to finally let a glass of Jack mix with Coca Cola appear in an ad for Jack Daniels, even though 60% of the population is mixing with Coca Cola. So anyway, I'd say all that to say that we do we try to be thoughtful about this. There are a number of considerations including this barriers to entry factor kind of back to Strategy 101, was it Porter's Forces something to think about and that's one of the appeals for us of this stance that we've taken. But it's a really good flag. Yes. I suppose you could describe this as a follow-up, but it is specific to the United States. And the data clearly shows how the discipline around Jack Daniel's has allowed you to grow in any type of environment for the larger alcohol segment. But the question is this, as millennials age, I presume you expect the larger spirits category to slow down. So is that a fair assumption is question number 1. And then question number 2, if it is a fair assumption, how do you think it will affect behavior in the larger spirits category? Well, my view, I mean, for I guess now 30 years, we've been watching the first one was that the category of spirits in the United States was going to go into oblivion because the boomers were going to move through and not drink spirits or even with the trends back in those days, it was even brown spirits. I think the thing is that we're so focused on Millennials Day. We remember there's another generation behind them for the next 20 years that will be making their choices about whether to drink spirits or bourbon. And I mean, you've heard us, of course, talk today about why we believe American whiskey is attractive within spirits. I mean, I think generally the trends related to society at large, people wanting greater levels of customization, people appreciating variety, etcetera, that I think are populating the trends of many categories and you see that in beer, wine and spirits today, that the ability of the spirits category from the standpoint of accessibility and the variety of cocktails and drinks with which you can enjoy so that from each day to the next or each occasion to the next or even within the same evening from drink 1 to drink 2, you can have that variability and experimentation. And frankly, that has not been the case with categories from which spirits have been sourcing, most notably popular priced beer. And so I really do think as long as the manufacturers and brand builders within the spirits industry continue to promote these most desirable attributes associated with the category, some of which relate to premiumness and quality and history and heritage, but also variety and mixability, I actually think it bodes really, really well for spirits consumption generally, I mean, very much. What will happen with other megatrends as they come along, there's trends we've observed over the years, whether it's related to convenience, which remember, it's not just mixability when you provide an RTD or a flavored whiskey, you're also providing convenience. The way I'd like to say it that when we were having a little talk earlier, when the smoking ban occurred in the United States, which in my view made a large contribution to the movement of consumption from on premise to off premise. It also then matched up well with people who provided more convenient formats because the average consumer was not going to replicate what they could access in a bar. So guess what took off at that time? Flavored whiskeys. So the ability to vary the product in that case in a format people put it in their freezer, etcetera. I mean, that just matched up beautifully with the consumer trend. And then when people the technology came along and you crowdsource and have 12 people over to your apartment, who needed the bar, right? I mean, so, I mean, these are trends that are going on. So, if you listen to bars and restaurants, they are reinventing some ways that they can bring people back in for traffic. And some of them are doing a very, very nice job at it. But there are macro trends that occur from which we have to adjust and adapt in our promotions and marketing and those are just a couple of the examples of it. Yes, Sharon, somebody back here. Yes. Hi, Skyler Wenner, Van Rensselaer. A question has to do with premise off premise. Can you share with us your thoughts on what you think your takeaway is, percentage to premise to off premise for your leading brand, your next leading brands and generally your product line, 2nd, geographically and 3rd versus your competition? Well, I think literally we're going to have to get back to you because the way that the businesses are set up around the world, you'll see like, I mean, our largest country, the United States, I'm going to make a general statement because we have several brands, you're going to see something like a 75% to 80% off premise, 20% to 25% on premise. If you move to the U. K. Where the Jack Daniel's brand, for example, first was built in the pub channel and the on trade has now over the last generation moved more to the off trade. I don't know where we stand today, say, 30% on, 70% off. You go into some markets, particularly emerging markets where the brands are sold by bottle in the on premise. We have some markets where we're going to be 80% on premise. You'll have brands, various Jack Daniel's Tennessee Fire, for example, is far more developed in the on premise in the United States, even relative to Jack Daniel's Tennessee Honey, which is more developed in the off premise. So we'd have to literally, I mean, your question probably would be a 75 page presentation. I mean, it really would. I mean, because it varies so much. There's just not the markets are so differently developed. So maybe Jay can help with some follow-up to that when we can publish some stuff or something. It could be useful for people on the distribution between the two channels. Sorry to defer, but that's we're going to have to. Hi. As a family controlled business with a long term time horizon, how do you think about the intrinsic value of your company of our company? And when to buy out your fellow partners? Well, we have never made that move. So that partnership has lasted a long time. We like our partners. Yes. Yes. You guys are just great. So the intrinsic on the intrinsic value, I was at the end of our annual stockholders meeting, we will typically get our Board together with the family shareholders. We record this stuff by the way those meetings just to make it really clear to all the participants that everything is happening Reg FD kosher. And so that we've got the tapes in the event that we were ever accused of something. But the so in those recorded meetings, this came up and we were all just chatting about geopolitics a little bit. How are we all feeling? What does the environment look like? FX headwinds, share price, what is the family metric? Is it the share price? And I made the point to everyone around just to remember that we've got this is a these are slow moving consumer goods. It takes us a few years to make a single bottle. There are high barriers to entry to come into this industry. And in the world of J. Miro, the cash flows are so healthy. And with all those healthy cash flows and yet our dividend yield is I mean, it's not one of the highest. I mean, I know that's because the denominator does so well. But it's not one of the highest and even the payout ratio is not one of the highest. Excluding specials. Yes, that's right. Well, remember the special dividends. Okay. They're talking regular dividends now. And so, in our if we're together sitting around the breakfast table and we're thinking about it's the health of the brands and it's the cash flows. And those are the 2 things we want to keep an eye on. And knowing that how healthy the cash flows are, it gives us a sense of comfort if the sky fell in the world of the share price. That's from the family point of view. Look, I'm Chairman of the Board. I have a fiduciary duty to all shareholders. And the Board does obviously care about the share price. And so that is something like the management team that we've got to look out for, because you all enjoy capital growth also. So do we. We just don't sell the shares. But look, it's nice to know that it's there. And so on the Board side, of course, we've got a fiduciary duty to worry about share price. I'd just add to it that I think that on Page 51 in your book, you'll see at the James yield slide on shareholder friendly capital allocation. One of the things that obviously we wouldn't have talked about this, but underpins these decisions is what I call a risk adjusted NPV assessment on a regular basis. And for example, even the authorizations we seek or the decision to act on a share repurchase program is influenced by our view of the intrinsic value of the company and we at times will risk adjust that as well. One of the things we found has been beneficial for all shareholders over a very, very long period of time and this is where the money matters, I think, on this long term view thing, which is if you think when most people will do discounted cash flow assessments over 10 years, we're in year 146. If you think you can go 15 and keep the growth going, you'll have a higher intrinsic value. So some of it is patience and it's that view of the long term and what the influencing conditions are at that time. What are the factors influence? For us today, for example, we've been posting what we consider to be very solid underlying results, which have caught the very strong headwinds of currency. So as we sit here today, I mean, you look at F15 and F16, very strong years of share repurchase, prior years had very strong years of special dividends at times. Some of those were rewards to long term shareholders for their patience and liquidity, while allowing them to hold their shares. The share repurchase programs takes, I'll just say, sometimes those less committed shareholdings and allows people to get those liquidity moments. But I think this was a beautiful slide I thought in the presentation to remind us we don't make these decisions without looking at the intrinsic value of Brown Form a. And it's actually I thought I'd close that section really well because it was indicative of our confidence in the long term future. So very good question though. Some another hand, you all may be getting ready for No, I think they're talking about that. Yeah. Hey, how about this, you all? Let's conclude. Thank you all for your interest in this and we're going to be available with you guys here to enter 1st and mingle and talk some more. Thank you very much. Thank you so much.

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