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 it. Hey, 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 in homage of Jack Daniel's 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 four experiential rooms that help convey some of what makes this brand so special. While we would've 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. With that, let's do a quick walk-through of our safe harbor statements, 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, 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, slides are available on our website under the section titled Investor Relations. 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-K, 8-K, and 10-Q reports filed with the Securities and Exchange Commission. Moving on to the agenda. Paul will kick off the 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. 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. Finally, we'll give the floor back to Paul to open it up to Q&A and all of you for the last hour. At 5:00 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. With that, I'm proud to introduce Brown-Forman's Chairman and CEO, Paul Varga. Thank you, Jay. Well, thank you, everybody. Thanks for being patient with us there and navigating those four just glimpses, really, of Jack Daniel's there. I was reminded, listening over there to Jeff Arnett as he discussed Jack Daniel's, the man. Every business along the way needs some luck. I mean, we would all agree with that. In listening to Jeff talk about Jack Daniel's, the man, and his reference to his original name, Jasper Newton Daniel, I'm reminded literally that had he never changed his name to Jack, we probably wouldn't be standing here. Because can you imagine the Jasper & Coke being the call around the world today that Jack and Coke is? I mean, it's just one of those things, the just subtle, tiny little things that happen along the way, just a person changing their name and really predisposing it to success in the marketplace. 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. First and foremost, you'll see this phrase, and I'm going to 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. 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. I just thought I'd explain it a little bit. It says, "Building forever." Of course, it feels slogan-esque. The way I'd like to describe it for you, because it means a lot to people throughout Brown-Forman, and it of course uses our company's initials, but it intentionally has a double meaning. One of them being a statement of a potential destination, which is foreverness. We like to think, particularly enabled by family control, that this company could strive to be everlasting, to endure. We try to have that approach to the business every day. Hopefully, you'll see glimpses of how we are constantly trying to improve the performance and attractiveness of the company each and every day. It's something that means something to us, 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. 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&A session we'll do at the end. You see it, we're obviously here to celebrate Jack Daniel's 150th anniversary, but also to talk about its global growth opportunity. You'll 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 first and foremost in that. 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. 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 had been asked that so regularly over the last couple of years. We actually took a stab at documenting a point of view about that. For those of you who 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. Of course, as you would expect, there's really no silver bullet answer to the question of why or why it might continue. I thought this excerpt from that letter might serve as a useful summary, and it says, "American whiskey possesses appealing traits such as authenticity, history, craftsmanship, hospitality, unpretentiousness, humility, great taste, and versatility. Most of the world's 7 billion 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. In doing so, we will strive to prove that these timeless attributes indeed stand the test of time." 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. 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're out front in terms of the hospitality. Oftentimes, it would be 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. I thought, I would just touch on that because we're not going to go deep into forecasts today for the category, but I wanted to reference it. Of course, 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 a 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 U.S., for the last 20 years, the driving force behind why American whiskey has grown has been this trademark. It serves then as the reference point for me to introduce one of my colleagues who leads Jack Daniel's today, who's going to take you through our views on the future of the brand. Let me bring up Mark McCallum. Thank you, Paul. Let me add my welcome as well. I've got about 30 minutes to share some information regarding Jack Daniel's with you. In particular, against that backdrop of our contention or our firm belief that Jack Daniel's 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'll 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. I'll give you some insights into what makes Jack Daniel's so special. 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 Daniel's, that that combination comes together to give us great confidence in the future growth prospects and long-term growth prospects of the Jack Daniel's business. I am going to start with a retrospective look, not because we are 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. Bear with me, I will explain what you are looking at. This is a 30-year look back at the Jack Daniel's family of brands 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. Already on the chart, you will see a couple of things. This is, as I say, Jack Daniel's volume growth. Started around 4 million cases there in 1985, and last year, somewhere around 15.5 million equivalent cases, excluding the presence of ready-to-drink RTDs at around 700,000-800,000 cases as a RTD equivalent. The three bars are showing the growth rates, the compound growth rates for each of those three decades. One of the observations I would make of that is that somewhere between, and each of the two numbers, you have got the family of brands at the top, and Tennessee Whiskey, Old No. 7, the single brand itself, underneath. 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%. In that 3%, 4%, 5%, and 6% continuous compound growth with the 30-year compound number at around 5%. I want to talk about some of the influences over these three decades. We have got a generation and a half of humanity here, and some of 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. I would just reference, perhaps, as you look from 1985 to 2015, here is just a few of the external, we would say, somewhat out of the control of management that were at play. Actually, in 1985 and 1991, federal excise tax increases, two of them, each of them 17% and 19% respectively. A long time since that has happened here in the U.S. 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 1980s at somewhere around 70 million cases, and it reached a low point of somewhere around 45 million cases just a short five or six years ago before this current renaissance, what we'd call it, of the whiskey category globally and in the U.S., kicked back in. Another one of the external factors. We'd call those 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 2008, 2009. The strengthening of the U.S. dollar recently, we call that at least a reported headwind. External influences at play over those 30 years. How do we think about the next 10 years? What external influences might we consider as we factor in prospects for growth? From external to internal, looking at brand stewardship, the way we, 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 Daniel's. When the U.S. was under the pressure of those headwinds in the late 1980s and into the 1990s, there was a purposeful determination to begin to globalize the Jack Daniel's brand. Really quite a good story, and we'll get to that a little later here. Then another management influence, of course, is determination around innovation. Over that 30 years, the role of innovation and its effect on that growth curve there. Again, in terms of innovation, one of the interesting points here would be that back in 1985, there were really just two brands. There was Jack Daniel's Black Label Old No. 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. There they were, two brands. Right through those 30 years, and a brand defined by anything over 10,000 cases in IWSR language. Just recently in this past year, from two to eight brands sitting in the Jack Daniel's family of brands. The point-to-point growth of Jack Daniel's at 288%, 1985 to 2015. Maybe a meaningless number in some ways, but I'm just going to do a quick comparison to two of our global whiskey competitors, our key global whiskey competitors, Johnnie Walker and Jim Beam. Here they are, same time period and just different stories. Same external influences on all three brands. Quite different internal decisions, and influences affected by management. All three brands, interestingly, starting at the same sort of volume there, somewhere around half a million cases difference in 1985, 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 whiskey wave around the world. Some peaks and troughs, of course, across the Johnnie Walker profile there, expanding their portfolio from three to 14 brands over the 30 years. Jim Beam, a different story. Same external influences, different influences internally. Two brands and a much flatter growth rate. I guess recently, under the stewardship of the Suntory business, beginning to expand through innovation. Jim Beam moving from two brands to just lately 16 brands in their portfolio. The growth rates there point to point are different. Make no conclusions from that other than to observe that we're very confident that sort of growth profile, that 3%-6%ish growth profile, is sustainable for the very long term, if the confluence of external and internal influences play out. Now what I'd like to do is look ahead and begin to talk about the areas of opportunity that we mostly focus on. Earth, birth, girth, and worth, sure, they're four rhyming words, easy to remember, easy to convey and communicate as we work with our teams around the world, I think capture nicely, the four major areas of opportunity that we see. Earth, of course, self-explanatory. There's poor reference, the 7 billion yet perhaps to try Jack Daniel's. There's a large opportunity, very significant opportunity, 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 1.6 billion middle-class consumers of legal drinking age will be added to the population by the year 2025. 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 Daniel's trademark to be able to offer additional and incremental opportunities to connect with consumers around the world. Lastly, worth. Arguably or third-party suggestions or affirmation that this may be or is the most valuable spirits brand in the world, 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. They're our opportunity areas. I'm going to now move and talk a little bit about earth. There are four sort of builds here. 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 purposefully invested, either through M&A or through operating expense, in globalizing the Jack Daniel's business. The red shade, there are four groupings of markets here. There's a million case plus 2 markets here. There's half a million to 1 million, 200,000 to half a million, and 50 to 200,000. What we'll show you is this has been in our 100 and some almost 50 years history as a company, Jack Daniel's as a brand, a very rapid and purposeful expansion of our footprint and capability globally. The U.S. and the U.K., Germany, France, Australia, and global travel retail, where Jack Daniel's just became the second most valuable by sales brand in the global travel retail channel. Markets like Canada and Poland and Mexico. I'll talk a little bit about those in a minute. 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 Daniel's, but many of which, depending on circumstances, become strategic if circumstances permit. 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. As we understand that and the forces at play, we will shift and allocate resources appropriately. Of these 32 markets or 31 markets that are on here, every single market in some way has moved over the last 10 years. 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&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&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 Daniel's to follow into elements of Eastern Europe that we hadn't been as able to penetrate prior. The Australian one, of course, was a major play for us. Australia's a very important market for us, and having our own ability to control the business there was as a result of a purposeful investment. That was really the M&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 seven years, we established our own organizations in Germany, in France, in Turkey, in Brazil, in Canada, and some others. 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 Old 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. 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 a number of our European markets, particularly the relationship we have in Russia, the relationship we have in a cost-sharing arrangement in the second most important market of ours, which is the U.K., and the strengthening of partnerships where that's appropriate. There is no single model for how we do this. It depends. 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. That's earth. We believe that the work of the last 10 years in particular has really established what I would call it a real foothold, the ability for the Brown-Forman companies in many of these markets to be able to claim at least level competitive playing field. 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 excited by this prospect. That was earth and birth really. Let's say we've taken the first two of the rhyming words, that reflects our enthusiasm in regard to earth and birth. The opportunity in regard to girth, let's talk about that for a while. I showed on the 30-year look back, the portfolio evolution from two brands to eight 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 Daniel's brand. The Aussies convinced us in the late '90s that RTDs were actually a true expression of the Jack Daniel's brand. Only then in the late '90s did we begin to understand the power of offering Jack Daniel's in a ready-to-drink form. That business is, of course, in Australia. It's quite unique. We have down there somewhere between three and four million cases of Jack offered in this ready-to-drink form. Our learnings from that market have also enabled us to expand our footprint in regard to Jack Daniel's ready-to-drinks around the world. Today, we're somewhere toward 8 million cases of Jack Daniel's ready-to-drink cases, just essentially in this last decade or decade and a half. Then, of course, you're very aware that just in the last five years, we've introduced Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Fire as two new brands added to the Jack Daniel's family of brands. 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 two brands. These are two distinct brands with distinct positioning and distinct brand architecture. 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're very much in the camp of these are two brands, we will resource them accordingly. It has been our experience that this has been successful, that the Jack Daniel's brand in particular can enable this to be true. Now I'd like just to give you a look ahead. I'm going to show you three girth opportunities, one of which has just entered the market, 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 eight weeks ago in Australia. It's called a Jack Daniel's American Serve. Most of you are Americans, I'm going to figure. In America, there's something called the American pour. If 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. Not the case elsewhere, as you know. Anyway, here we go. We've launched this, it's really a half-size can, 10% ABV, 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. 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 U.K., we are test launching Jack Daniel's Tennessee Cider. There's an exciting new category growing in the U.K. It's called ciders. Very inventive. It's the mix of spirits and ciders. I didn't make it up. We are very excited by the prospect of Jack Daniel's playing in this category and competing in this category. We have a high level of confidence that the Jack Daniel's brand will do very well there. Test and learn. Test and learn in the spring of 2017. We're already at the point of speaking to retail customers in that market regarding this test launch. 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, five years ago, we launched Unaged Rye. Then two years after that, we launched Jack Daniel's Rested Rye. 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 we would call the perfect expression of rye for Jack Daniel's. 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. I know that if you talk to Jeff and ask him what he thinks about this product, he will wax lyrical about that work. That's worth. They're the four. We've expressed the idea behind worth and our determination to use this mix of value creators for the brand. 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 Daniel's business globally. I'm going to show you the 30-year historic category growth. Then I'm going to show you what we project to be the category's potential growth for the next 10 years. Then three scenarios for Jack Daniel's growth over that forward 10 years. Let's have a look at this. Here's the category growth. What the observation here is that from 1985 to 1995, 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 2005. In the last 10 years, this sort of 6% surge in global whiskey. About half of those six points there, driven through IMFL, Indian Made Foreign Liquor in India. What I sometimes personally do is I'll sort of go, okay, well, so around a 3%, almost a 3% growth rate of what we'd call global whiskey, excluding IMFL. We'll lay over that. There's what we saw earlier, the 30-year look back for Jack Daniel's. 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. 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 mandatory in regard to our own aspirations for Jack growth. I'm going to show you three scenarios. Our calculation's done internally based on population, incidence and usage, and GDP. As I say, we've worked on this ourselves, as you would imagine, for a long time internally. We've also sought arm's length, third-party validation of our assumptions and sought third-party understanding of different ways for us to think about it. The confluence of our own work and the validation work that we have sought suggests that these three scenarios are possible for the Jack Daniel's business. 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. The market share delta between the 5 and the 3 is about a one-point swing. Market share for Jack Daniel's in 2015 was around 4.0%, and so you can do your own thinking in regard to those scenarios. There it is. 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%-5% next 10 years, depending on what happens. In our strategic planning, that's how we're thinking. That's really everything in regard to the four 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's special, and why is this even important? 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's special. We don't say that we made it special. We say we know what makes Jack Daniel's special. 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 Daniel's have worked together, Professor Holt suggests that sometime in the '50s, with the confluence of television and film and the gunfighter myth here in America, Jack Daniel's began to be assigned iconic status. We'd mark the '50s as when Jack Daniel's became iconic in the world of the cultural backgrounds of America and countries around the world. There's a lot, of course, written on that, and if anybody's interested, we can certainly provide you with ways to understand how Jack Daniel's became iconic. 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. You've met real people from a real place, and the real stories of Jack Daniel's have been told for generations. 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. Lynn, 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. 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'd 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. In the ways that it connects, we find 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. The 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. 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 and sells. Not all of them, and we will continue to expand it. 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. Lastly, you know of the return on invested capital and the margin quality of the Brown-Forman company, which, because of the Jack Daniel's brand in particular, is able to be industry-leading in return on capital and operating margins. That's what makes Jack special. It's a very quick reprise, we know that our job as the brand owners has guardrails. A brand owner cannot be the author of everything necessary for an iconic brand such as Jack Daniel's. In many ways, that iconic status was offered to Jack Daniel's not by the brand owner necessarily, more so by the cultural industries and commentators at the time, or the celebrities and musicians who adopted the brand. 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. I'm going to finish with just these two TV spots here. 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. The second one's quite new. It was launched in the late summer of this year or the early fall, and again, is a contemporary voice of Jack Daniel's and just one example of our stewardship of this brand and the way we steward this brand so carefully to ensure that Jack Daniel's 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. Just two one-minute spots here to give you a sense of. His was the oldest registered distillery in the United States, from a place where the water was cool, clean, and iron-free, perfect for making whiskey. Charcoal mellowed drop by drop for smooth sipping the Tennessee way, which is not the easy way, but it was his way. This is Lynchburg, Tennessee. This is how many people were born here. This is how many are fifth 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 Daniel's. If you can't get here, just look for one of our postcards. We send them all over. They look like this. With that, I will finish. Just perhaps, sometimes we'll ask the question of an audience, and it'll be rhetoric, but you might want to think about it. 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 Daniel's remains special? It leads to wonderful conversations internally around the world as we expand our footprint and expand our business. At the break or after, at the cocktail, I'd love to know your thoughts on what must be true in order to ensure that Jack Daniel's stays special enough to deliver the very long-term growth prospects that we plan for this business. Thank you, and I'll hand the podium over to Lawson Whiting, who will talk to you about the Brown-Forman brands. Good job. This is forward and backwards today for me. All right. Thank you, Mark. Good afternoon, everyone. It's good to see you all. It has been a while since we've been up here, but it's always enjoyable to come back into 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 how we are very proud of that also. I want to talk a little bit about not only the brands themselves, and 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. 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 rest of portfolio, 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. To be honest, there were a number of years, over the last decade, where it was a detraction. We 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. We're quite proud of that. How do we do it? Or 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 is just active portfolio management. We want to be, and we have continued to be, literally over decades, Brown-Forman, I think, has been a fairly active portfolio manager of the brands within its 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 want it to be able to lift the company's margins, not drag it down the other way. 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. When I say that, I don't just mean delivering excellent commercials like that Lynchburg one that you just saw, which I absolutely love. 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. Also seeding 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 that 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. 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. For those of you who've been around for a little while, you remember the days when we were into Lenox and Hartmann and the plates business and fine china and all that. We got out of that, it was about 10 years ago now. The wine business, I've been at Brown-Forman 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. 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 30-plus years in our portfolio. 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. The decision was made to sell it. As we've taken a number of things out of the portfolio, we've brought a number of things in, too. Some of it organic. For instance, the Fire & Honey under Jack Daniel's. We bought Casa Herradura. Actually, it was 10 years ago next month. It has been an up and down 10-year ride for us, and you're going to see some of that later on. We've really got that business now, I think, in a much better place, and we feel pretty good about that. Just recently, The BenRiach Distillery Company, which is The GlenDronach and the BenRiach brands, we bought early last summer. Chambord, which was more like eight or nine years ago. Slane Irish Whiskey. I'm going to show you some things on Slane, that's one we'll begin selling it in four or five months. Coopers' Craft, which is our version of craft in the U.S., the craft whiskey explosion that you've seen on so many brands, I'll talk you through some of that, too. As I mentioned, we have a very focused portfolio. If you look across there, obviously, Diageo and Pernod are going to be much bigger than us. Even Bacardi and Campari and Beam and these other brands, they have a lot more brands than we have. I say focused and premium portfolio. We have a more premium portfolio than most. Obviously, Remy is sort of the extreme example in a very premium portfolio and a very focused, very small number of brands. I think Brown-Forman feels pretty good that that's a good spot. It's a bit of a sweet spot in the 20s and $30 price points, that are something that brings a nice combination of both value growth, margin growth, good returns. It's a good place to be these days. We're going to keep our portfolio up in that area. With that, 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. It has to have structure. It's always going to be present in a 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. The reality is that women are drinking bourbon like crazy. We are what's driving the bourbon boom. New rule, Woodford Reserve has to stop bragging that their bourbon has 200 distinct flavors. I'm with Chris Morris, Master Distiller of Woodford Reserve, and Tim Laird with the best title of all time, Chief Entertaining Officer. Thank you guys for being with us. The perfect mint julep, it has to start out with a little bourbon. This is two ounces of Woodford Reserve, which is the official bourbon, by the way, of the Kentucky Derby. Have the pecan pies, our inspiration for the Woodford Reserve Mint Julep. We have to have a Mint Julep. Oh, sure we do. It is Derby time, right? There you go. What makes this one special? This thing cost $1,000. By honoring the ingenuity and skills of our predecessors, we will again make the world's finest bourbon whiskeys 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. I think it's interesting because now the brand is over 500,000 cases. 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. 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 well. Why? Some of these, you heard a little bit of this on Jack Daniel's, and Paul referred to a couple of these points, too. What is it that's making this thing tick and really go so well? 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. An authenticity you've heard about. That sense of hospitality, and I'll call realness a little bit. The consumers, we're putting 150,000 people a year through the home place and distillery, 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 Versailles, 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. It is really a fantastic way to immerse a consumer in the brand, and it works. That is something we have learned at Jack Daniel's, and we are using in a big way. 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. It's over 30,000 cases and growing at a really strong clip. We've got a number of things in the innovation that are doing very well for the brand, too. You add it all together, and this is the type of results we've had over the last four or five years, a 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 time at this company. It has absolutely caught fire in the last few years. It has caught fire largely with millennials. The word old in Old Forester, 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 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 Reserve. It has done a nice job of developing a younger group of consumers. You can see that Old Forester Distillery opening in 2018, similar to what I talked about with Woodford Reserve. We've used at Jack Daniel's, we're going to do the same thing in downtown Louisville with Old Forester. We're building an urban distillery that we think will be the best one out there. It's under construction right now. We've got a bit of time before it's going to be ready. 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 people stay when they go on this tour anyway, Old Forester will be the first one that they go to. This is a brand we'd all love to have. I wish every brand had this type of growth outlook or growth profile. It starts in 2012. If you went back 30 years before that, every year was a negative. This was a $1 million case brand in the early 1970s that went on a very long-term decline. It has really caught in the last few years. I can tell you, last fiscal year, if you take the 30 largest bourbons in the U.S. and rank them by growth, Old Forester's number 1. The fastest-growing bourbon in the U.S. last year. This has been a good story for us. Moving on to our other, or a couple other brands. I'm going to talk about our tequila business for a little bit. This is a business that I mentioned that we bought 10 years ago now. 10 years ago in 2007. 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. It was a bit of a struggle. There was a lot of internal intense pressure to figure out how to fix the business, how to really make it grow. I'm going to walk through Herradura real quickly first. We'll actually talk a little bit about el Jimador, 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. We've been investing pretty heavily in this brand for a number of years, so not a lot has dropped to the bottom line, but now it's going. Now we've got our margins at a place where we're happy with that, and the growth is there. 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 two, three, four 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. 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 points. 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. The barriers to entry in tequila have some similarities to where they are in bourbon, which tends to result in a better business over a long period of time. We're feeling pretty good about that. Mexico is a little more difficult. The price points in Mexico for tequila are much lower. 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. Actually, on Herradura, we've maintained the volume pretty well. 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. Still a pretty nice chart. el Jimador is a different example, but this is a business where I think it doesn't deliver as much profit to Brown-Forman, but I think it's important that you understand our philosophy in how we manage a business. el Jimador, once again, similar to the U.S.; the U.S. business and Mexico business are very different. Mexico, when we bought this thing, was 800,000, 900,000, depending on which year you looked at, was close to a 1 million-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. 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." Before we want to start growing again, we better fix the underlying business. We have done that. 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 500,000. The big business, which was 80% or 90% Mexico when we bought it, is now less than half is Mexico. The rest of it is the U.S., and we've got a couple hundred thousand cases outside of the U.S. 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. Wrapping up and, or 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 three 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. What this is, just to sort of ground you, this is actually the Woodford Reserve long-term volume chart. As you can sort of eyeball 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's not there. Some of it is supply-driven, but it's taken a while to seed it in the right way. That's the way we believe is the right way to build these brands. It hits that proverbial tipping point and has really accelerated, and that's almost straight up in the last few years. It's now a sizable brand, and we're feeling pretty good about that. What are we going to do to sort of seed the future? Well, this is Coopers', which we launched. It's only in five cities. It's very small right now. 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, 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. They're finding to go to these other states, admittedly, which are growing nicely, some of these things right now. 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 a company the size of Brown-Forman. Coopers' is off to a great start. We feel pretty good about that, and this is, I call it our version of playing in the craft whiskey space. Slane, though, Slane's different. The Irish whiskey that we announced 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. It's going to be a fantastic whiskey. That is one thing I can promise. 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. We went ahead, and we're making the long-term play. 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. We think we can do something here. Lastly, GlenDronach, which is the core brand within the BenRiach 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 million and turned around about 60 days later, announced the acquisition of this company for about $400 million. In a way, we traded one out for the other. Now, that was trading out near-term profitability. We know it. Those two in tandem were very dilutive to our earnings. 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, GlenDronach in particular, we call it the little Macallan. It is what Macallan was a decade ago or a little bit more. We're coming at a price point above them, and I think that we can do something. We're quite excited about that too. When you put this company, which was 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, and we think we can really make something of it. 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 seeding for the future. That's what we are about. That's what we've been trying to get done. With that, I'm finished. I think we're going to take a 15-minute break for a little bit. If we can get the lights back on, take 15 minutes, 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 Morreau, 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. This is the one that matters, right? It's finance. You're going to hear a Kentucky accent through this one, too. Here's what I'm going to do with you. I'm going to talk 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 allude to, was our business model, how we look at our business model. 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. 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 Daniel's. We think of it in three 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 fourth 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. 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 I'm going to look back historically and take you through these metrics that we look at to look at the financial attractiveness of our business and how we perform and compare ourselves to some benchmarks. With that, we'll start off with Revenue growth. First part, we got to have the revenue growth. We start at the top of P&L. As you know, we've had consistent revenue growth over long periods of time. You can see over 35, 25, 10-year periods of time, we've grown consistently in the 5%-6% range. You see a slight slowdown, and these are reported results, by the way. You see a slight slowdown in the last five years, 4% growth, and that's been largely impacted by dispositions. Dispositions that happened primarily in FY 2011, which was the sell of our low-price wine business out in California. If we put it on and look at our underlying growth rate over the last five years, it's been quite nice. It's 7%. 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 competitor set on a reported basis. We're consistent with our other benchmarks, the Staples and the S&P. Again, adjusting and looking at our underlying growth, we far outpaced the benchmarks. One more thing I wanted to point out is looking at the last five years and looking at where our growth has come from a geographic mix perspective. It's been very balanced, as you can see, by our three 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. Hasn't lessened our confidence that we see in the future, particularly where our brands are, how early they are in their development. That's our first metric, which is our revenue growth. Second metric I would like to point out is our operating margins. We've got very high operating margins. 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 sell of the wine business, which was a low-margin business. Two, pricing that we've enjoyed over the period of time. Three, 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 it's now starting to be meaningful to our growth contribution. Fourth, 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 mix 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. We look at our operating margins compared to benchmarks, we've got a two-by-two chart here showing our operating margins and return on invested capital, which is the third metric that we look at for a good business. You can see that Brown-Forman 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. 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. It's been quality bottom-line earnings when we get there. We've invested consistently over long periods of time. This is a five-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. 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%-7% range. A little bit lower in the last five years. Again, similar to the revenues, pulled down a bit from the dispositions of the business. If you look at the five-year period on an underlying basis, it's double the reported numbers quite nicely at 10% growth compounded annually each year over the last five years, which is quite impressive. Comparing that to benchmarks, just looking at our reported results, we outstripped all the benchmarks. If you could see, the growth rate is stronger than any of them on there, then significantly outperformance when you look at it on an underlying basis. 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 billion 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. Our cash flow from operations. We had a little bit more that was added on there from the proceeds from the sale of some of the businesses. Then our remaining amount was a little bit from debt, net debt that we incurred at very, very attractive interest rates. What did we do with that cash over this long period of time? We invested a third of it back in our business in the form of CapEx and working capital and acquisitions. Two-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. Let's look at what we've been doing over the past decade. This chart illustrates what our gross PP&E investment was in 2006, 2011, and 2016. It looks at our working capital change as well. The PP&E bar is the dark gray, and the working capital is the copper color, if you will. If you look at the first part of the decade, the five years, 2006 through 2011, you can see that our investment behind our business was approaching about $400 million. 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&E levels were pretty close to the same on that basis. What you see, though, over the last five years is an acceleration in the investment in our business behind both CapEx and working capital. 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. Those are ongoing. These were what we'll call 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's going to be three, four, five, six years from now. When we get layer in Scotch, at some point, it'll be even longer. 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 form of working capital. 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 make sure that we have the ability to build and make the whiskey that we see. 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. What I've referred to here is our free cash flow yield, we expect should begin to improve as we move past F18, and we return more to levels that we're used to, not necessarily dollar levels, but as a % of revenues. Looking at our, this chart illustrates the past decade of how we've returned cash to our shareholders. You can see that we've returned it in three forms: in regular dividends, which is denoted by the brown bar; special dividends, which is the gray portion of the bars; and the 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. You can see that there's been spikes along the way. Again, regular dividends, if I think about that, 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, gray 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 Lenox business, as an example. We wanted to get cash back to our shareholders. The yellow bar, which where we've been doing opportunistic share repurchases. You can see peaks and valleys or troughs, if you will, over the past 10 years. What we have done is we've averaged an annual yield of 4%-5% back to our shareholder over this past decade, which is quite remarkable. When I pull all the stuff that we've done over the past decade together, our P&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 to our shareholders over the past decade. In other words, if you invested in Brown-Forman 10 years ago, you would've been that top bar or top line, if you will. It would've been worth $100, would've been worth $319 today. 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. We've taken that opportunity over the past couple of years to actually be opportunistic, 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. 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. 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. These aspirations are built on the business we have today. Doesn't 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, et cetera. 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. I'm going to take you through a series of assumptions, aspirations that we have. The first thing is I would remind you of what Mark showed you. Mark showed that three scenarios for Jack Daniel's volume, Jack Daniel's family of brand volume growing between 3%-5% through 2025. Using that information, combined with pricing, let's say in 1%-2% range, we believe the Jack Daniel's family of brands can grow in the mid-single digits. Coupled with what Lawson showed, which he and his team and company have spent a lot of time, we're shaping our portfolio, getting it to be a better business, as we described here. We believe that we're positioned now to grow faster than Jack Daniel's brand. Add that on to your sales forecast. 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 growth, 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. When we find a focus and we can focus on our brands, we actually can accelerate the growth of our brands. That's what we're looking for and will be looking for as we go ahead. We expect to 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. That should all, in turn, lead into high single-digit operating income growth. With a strong conversion to free cash flow, we think that 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. That will all, in turn, lead to what we believe will be superior TSR for our shareholders. 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. 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. 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, and that is George Garvin Brown IV, who's going to come talk about the family's perspective on the company. Thank you. Thanks, Gina. 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 four years ago at this similar event. How many people were there? Okay. Okay, thank you. I went into detail that day, and I'm just going to hit on some headlines today on a couple of points. 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 were talking about divestitures. My first day on the job, working out of our Hauppauge, Long Island office, I was tasked to fill distribution gaps in the critical Bolla 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 Candida, Frascati. Frascati? Any Frascati drinkers? Okay. There aren't any 27-year-old Brown-Forman employees in New York City working on Frascati today, I can guarantee you, which is another example of. The Fontana brand didn't even make Lawson's slide. I'm very upset by that. In any event, I've been on our board now for 10 years. When we did a fifth-generation changeover, that was Owsley Brown II, who was 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 at the Slane distillery there, the second woman from the left. Her husband's the current U.S. ambassador over the U.K. We've been able to enjoy to have her sort of appear at some events like that. Actually, there's a family in the room here today, fourth-generation shareholders of Brown-Forman, but there's someone else here, Jennifer Powell. You've met a great, I think, grandniece of Jack Daniel. We've got a descendant of Frank Bobo here, who you met earlier. Jennifer Powell is a great, I think, great granddaughter of Lem Motlow. It was Lem's name that was on the bottle of Jack Daniel's for so long. He was Jack's nephew, and the Brown family, in 1956, purchased Jack Daniel's from the Motlow family. Jennifer, actually, I think, organized all this stuff that we're looking at today. She's also a part of the family. I think between those in the video and myself and those in the room, yeah, it's a competitive advantage, I would argue. It's also certainly a barrier to entry. It takes five generations to claim that you're the great-great-grandson of somebody. Nokia, they've got lower barriers to entry. I think that it's an example, just in the room, of some of the uniqueness that I think helps Brown-Forman. Oh, I'm the one with the Canadian accent, by the way. I was raised in Montreal for reasons we can talk about over drinks. I regret I don't have a lovely Louisville 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 two ways. You're analytical partners of ours. We're shareholders. We read your work. Every Friday, Ernie Patterson, the Director of Family Shareholder Relations, sends out an email with articles on the company to everyone in our family. We read your work, and obviously, so does the management team. For us to have that third-party objectivity in the world of analysis is a critical part of our governance mix. My family wanted me to be sure to thank you for that. Thank you. 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, that's a big deal. We've been partners for 83 years. You are partners in two 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. 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 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 now to 6th generation. Also to better regulate the way that the family interacts with the company, with the board. Engagement's great. Give or take. We call it balanced engagement when it's done right. We don't want, as tempted as I've been in days to call Paul about the Schönberg package, that's just not appropriate. Nor is it appropriate to be totally unengaged. 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 % of our assets that are in this investment. It's a big deal. We're not a diversified fund. This is our investment. We're still an operating family with an operating business. 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. On the family side, I think it sends the right message because it reminds all the family members that with ownership comes responsibilities. Shareholding feels too easy. Ownership feels like it comes with a couple of duties and some responsibilities, a couple of strings attached. I think that's okay in a multigenerational family ownership base. Is that what gets us out of bed in the morning? Oh, a day of thoughtful ownership, right? For some of us, yes. For me, that does excite me in the morning, actually. It does get me out of bed. There are some other things, too, more honestly, that get the family out of bed in the morning about Brown-Forman. Two things I'd like to touch on. One is culture. On the corporate culture side, Brown-Forman's won awards, the Human Rights Awards, for its diversity initiatives with its employee base, and the family's proud of that. Makes them feel good. They get out of bed for meetings when that's a topic. Sustainability awards from the environmental community for our ability to control, to shrink our carbon footprint. That's exciting. Those are some things, just examples of culture on the corporate side. For our family, I don't know how to say it any more honestly, 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 U.S. At some level, we all believe that we're distillers, and we're from Kentucky. 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. Look, it takes four 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 four years. We think that those timelines work well in the hands of a family. Culture's important, but we also like to win. We're investors. We consider ourselves a business family, and we like winning. Actually, we've been winning with Brown-Forman for decades, and that matters. We think that the family timelines also help very well ground the three 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 a good use of capital. We also believe, I think it's slide 48, not that I'm counting, that the returns to shareholders are significant. It's that balance between the return to shareholders and the investment in the business that really strikes us as a family as being a well-balanced capital strategy. Looking at Lawson's work with the changes to the portfolio, Bolla, Fetzer, Fontana Candida, Lenox, Hartmann, finally you get to Tuaca Southern Comfort, which made such press. Those are tough decisions. You're walking away from real revenue. I can't remember who, someone wrote, two or three sentences, they sort of nailed it, one of you all, that so many companies should make those decisions. They don't because of the pressures that they're under for quarterly revenue performance. Walking away from the revenue on Southern Comfort in order to make a long-term bet in Scotland, in Ireland. We feel that those are appropriate long-term decisions that we can help with our own timelines. Finally, Jack Daniel's. 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've seen today, but the values of Lynchburg and the patient way that they've been slowly told around the world, we think that 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. It's a good business. That's it from me. That was a short version of what we discussed four 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. This is what you heard today, it was a pleasure to provide the emcee support for what you heard from everybody here today. This is what we believe have been critical aspects of the historical success. 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. 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. In fact, I think that's with some good fortune of some great brands. Very important to this has been the privilege of all of us, and then those who are around here today, to basically tell you this story on behalf of 4,000 plus of our colleagues who frankly, have produced this, and are very excited in the same way as you heard it from every one of my management partners here in Garvin about what's ahead of us. We've remained optimistic, 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% and 14%, 20-year returns or 10-year returns, also, you incur the greatest risk. When you have a company with a family behind it that wants it to go on and forever, one of the things you do is you try to pursue outsized rewards for lower levels of risk. When you can find that, it's not easy, when you can find that in the business we have and in the way we manage it, you can actually build forever. 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&A now, 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's attributed here to an Owsley Brown II quote who you saw in a film, which is, "Planting trees so that others may enjoy their shade." The work you saw here today, 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. A lot of us here today, while we've done a lot of good work on the great brand building, et cetera, we really are enjoying their shade. 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. That concludes our prepared remarks. Permitting your all's continued interest in all this, we thought we'd open it up to questions. I'm going to bring everybody up, and if you'll 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. If there's something you wanted to say, and because the thing is webcast, it'd be great if you could say it into the microphone versus yelling it across the hall, even though we might be able to hear you. Okay. Thank you. Got it. I want your book in. Why don't you do it? Yeah. You all were at right about 4:00, we've allocated as much as up to an hour to listen to your questions and have some conversation about what you heard. 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've brought up here, our friends that we've brought up here, too, will be happy to describe elements of what you're tasting as well. Why don't we open it up here? Let's see who might first have a question. It was Christine. Yeah. Thank you. I think, Mark, you well articulated the 3%-5% outlook on Jack Daniel's. I was hoping to talk about the other part of that algorithm, the 1-2 points of price and mix, given the current context of the pricing environment today. It's a two-part question. First, in the near term, I read in the trade press that Booker's is doubling their pricing. I'm curious how you think about price gap management across the different expressions of Jack Daniel's. Even though the pricing environment is tough for maybe the Master brand or the main line brand, is there an opportunity to stretch your price gaps? Then for the longer term, 1-2 points, how are you thinking about the balance between pricing and mix? Thank you. I'll start, I'm sure Jane will have a view on that as well. 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're quite confident that what we've experienced in the past, we can continue to experience for the time being. That accounts for a large part of our business. 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. I'm confident that what Jane was representing in her remarks remains available to us as we get better and better in the international markets of managing our direct-to-customer infrastructures that we've established. I think Vivian You need a microphone. Oh, do you have it? Can you hear? A mic, okay. No, I don't think you are. You might be- Oh. Yeah. Okay, I'll use this. There you go. Vivian, 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. As Mark alluded, we've got healthier markets that are able to take some pricing, U.S. being one of them right now. What I'm trying to look at is over the long term. We believe that over the long term, we've got that pricing opportunity available to us. 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 the scotches and so forth come in, and as they become more meaningful, that will have a mix benefit, we believe. Vivian, let me just add something too to it. I think that, there's two things that have I think I'm actually mic-ed, yeah. You are. Yeah. I think that, if you pull back four 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 Daniel's is." Also, we always have this benefit several years into 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. So we were pretty aggressive with pricing across the globe for 18-24 months as it related. Then it was a conscious decision because in a few places, particularly against a low inflation environment that was settling in around the world, low interest rates, low inflation, we were seeing other people not being as aggressive. We hit the pause button. Obviously, that topic is a huge planning topic as we look out to FY 2018 to 2020. We know we'll have some costs that are associated with the depreciation that Jane was referring to. As we look ahead, I think it'll 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, particularly in the U.S., 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 have to worry about keeping yourself best in class and highest quality and special. 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 U.S. 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 Daniel's 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 were conscious decisions after a couple of years of pretty aggressive Jack Daniel's Black Label. We've even complicated, in my view, ourselves. five years ago, we didn't have to worry about, we largely land priced on our flavors. 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? 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's opportunity for us. That's that worth element that Mark was talking about. I'll add a quick point, too. It's much smaller in the grand scheme of things within Brown-Forman. The tequila category itself, and I talk about some of the really aggressive pricing we're doing in Mexico, which is a bit unique to Brown-Forman and not indicative of the market necessarily. The agave market, the spot market for agave, has tightened significantly to the point of almost doubling now over the last couple of years. Right now, we can, for the most part, control most of our supply, and so it's really not a factor for us. There's some big brands that you will know that rely heavily on that spot market. What we hope, it's not seeing it in the numbers yet, but that that'll put some upward pressure on that market, and that's something we all look forward to. Thank you for the question. There's somebody here that back here, Chrissy, I think. He was in queue first because we took the microphone from him. We'll go next here. We'll have time for everybody. Thanks. Questions on the new product launches you talked about, in particular, Rye and on Slane. You might not give me the full marketing and plans for next year, can maybe from a supply standpoint, are these things that can go nationwide, when they're 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, and we have a bigger push in calendar 2018? I'll take the easier one. Not the easier one necessarily on Slane, but the first one. No, it won't be nationwide immediately. We do not have enough supply to do that out of the box. I would expect within two or three years it will be nationwide. It will not be global either. We're going to focus on the U.S., Ireland, and the U.K., and global travel retail. It'll probably be more like five years before we have enough supply to be truly global on that brand. It'll be a slow build, 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 key account management. It's not going to be going into the Costcos in the first couple of years. It's going to be managed, we think in the right way. With little expectation for profitability during that timeframe. 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. Does everybody know this is a very fast-growing category? There's a lot of consumer interest in it. We actually started laying down our rye about five years ago, so we've been planning for this. We are initially looking to introduce it in the U.S., so it's a U.S. focus initially. What we think about this product, of course, we're going to take the advantage of the charcoal mellowing from Jack Daniel's that's done there and make a really special rye. We think it's going to have a lot of legs as time goes on. Again, it would be my view, we haven't sat and looked at the F18 and 19 sales levels on it. We'll have more supply in, I think, increasing years, thinking about 2018 to 2019, et cetera. 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 and the Jack Daniel's name as well. There's already some pent-up demand for Jack Daniel's entering the rye business. We wish it was that way on Slane, 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 rye. Sharon, go ahead. Have you guys ever looked at the impact of legal cannabis on spirits consumption? I haven't seen anything that's been that worthwhile, but some distributors are kind of freaking out about it. We defer to Vivian on that. We're monitoring it, and have been now for a while. It's one of the most oft-asked questions is, how is this going to unfold? 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 U.S. 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. To the extent that there's cross-usage or the occasions are shared between marijuana and distilled spirits, it's very likely to have the same dynamics that would influence the way we think about the off-premise. The way we think about the on-premise and off-premise, there's some similarities, but there's often differences. 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. 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 all for that. Garvin, can I just ask you a question about the spirit of the dual class shareholder structure, and if you ever thought about collapsing it? We had one. Thanks. When we went public in 1933, we only had one class of shares. In the 1950s, of course, the tax treatment of dividends was different. It was more tax appropriate to return value to shareholders through the creation of another class of shares. At that point, every shareholder was given 1A and 1B. Since then, the float of A and B has changed over time because of buybacks. 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 third-class preferred shares. I think they were retired. I remember I was in the wine group, probably 1999 or something. 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 two classes of shares 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. Yeah At any point. We've had a rule of thumb, and it's just a rule of thumb. 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 50% of the economic value. That spread between voting stake and economic stake, it's a governance spread that can attract attention from the ISS and from other appropriate advisory firms. We do keep an eye on that on the family side. For what it's worth, I'm giving you a family point of view, and not speaking so much for the company. We agree with it. Yeah, Judy? Sorry, we've got these lights, so sometimes we can't see your hand. Judy, we can see it here. If you could, as you see, I'll sort of make your hands harder for us to see out there. Thank you. A couple of questions related to the global expansion strategy. When you think about the 3% to 5% Jack growth target, how much of that is geographic expansion or just emerging market gains? Obviously emerging markets have been pretty tougher for everyone, and Jane, you characterize this as a temporary slowdown. You've got aspiration to obviously get bigger. When you think about the 32 markets that you've listed, how has the focus of those markets changed in the last few years? 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? Yeah. You want me to tackle that? I'll start. Recently, I think I mentioned that we have been, slightly or in some ways, sometimes significantly, reallocating resources as a result of market focus. For instance, we're all very aware of the vitality of the U.S. market right now. Just compared to two to three years ago, or three to five 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 what we call our brand expense. Also the infrastructure investments we made in some of the core markets, like Australia, Germany, and France, we're really leaning into those investments and seeing good growth now as a result of that. 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. 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. Yeah. 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 million, then $500,000-$1 million, $200,000-$500,000, and then below, or $50,000-$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. 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-Forman SG&A or A&P associated with the sale of Southern Comfort and Tequila. 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 U.S., 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 Oaked, and they can work on the start of Coopers' Craft. They can work on Jack Daniel's Black Label. It takes some of that, what you all might call fixed overhead, and reallocates it to more highly value-added items in our view. 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 U.S. and developed markets than they've been in emerging markets. Does that help a little bit on your question? Okay. Yeah, 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 Judy's question about the geographic and that famous map you just showed. It seems like Latin America is kind of white almost, apart from Brazil. 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? That's my first question. My second question, actually, it's more about the potential risk. You decided not to go into beyond the two flavors you already launched, into flavoring. 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 it has been done in the vodka category? What do you do about it? Two very different and good questions. Anyway, who wants to tackle? You want to do flavor or geography first? Does that matter? Anybody? Can I take your second question first? Yeah. Flavor. Do that. Yeah. Yeah. 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. 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 and the commentary around it is beginning to use terms such as you used. The care that I've noticed other brand owners using in regard to being too aggressive in terms of flavor extensions, I actually believe fundamentally that's how we should be looking at it. 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. 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 multigenerational brand. The same with Tennessee Fire, which is very early in its life, actually, really only in its second year. 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. That would be the way I would answer that. Go ahead. I think you're correct in South America. Yeah. 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 think if you look at a map, our biggest emerging market, I think this is actually correct, would be Mexico, and Brazil would be sort of following on that in a pretty quick way. Sort of we have the two biggest markets in that part of the world now, and it's, yes, 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. 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. I'd also thought Brazil itself, we are so tiny there in terms of where geographically within that country where we go. We're only really in the two big cities. 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'd really call them tier 2 cities, but in these broader, in these bigger cities out there. Yeah, I think it'll be a big growth market. I'll tell you, from time to time we have conversations about Chile, Venezuela, Argentina, all of them, having different risk-reward profiles, frankly. 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's so much opportunity behind the company we've invested in down in Brazil that it offers better, sort of three to five-year results. By the way, we still have an emerging brand franchise in a place like Chile. It's not like we're not existent, not doing well, et cetera. 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 asked, and it's a good question about how we're going to manage that. If some of you who've seen our talks in the past has seen us say that the American whiskey business and predominantly, and we think, this is afforded to Jack Daniel's, is this intersection between the most attractive attributes of both scotch and vodka, the two largest categories in the world. 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 flavoring your category or your brands. 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, et cetera. You can't seize all those opportunities at one time. 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, the mixability of American Whiskey is one of the reasons that it has, in fact, expanded at the rate it is. You want to do it thoughtfully. 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. You 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 U.S., that had flavor elements. That's more like an RTP, we call that. I think that'll 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. Part of it is you do this phrase I love that Mark was using, which is test and learn. 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. It'll be a dynamic exercise for it. We try not to say, "We will never do this," or, "We will only do that." We think it's responsible based on the pace of the innovation we've done to just really focus on those two expressions. By the way, I consider rye to be a flavor. It's a full-strength flavor off of the traditional bourbon flavor. 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. I can't see who it is. Oh, Robert. Hey. Sorry, I just saw a hand and a tie. Thank you. Robert Ottenstein, Evercore. You've had a very consistent long-term message today. In the spirit of that, I want to ask a very long-term question to the family. That is, the portfolio now is much more focused on brown spirits. There has historically been a cyclicality to brown spirits, white spirits. I 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 1996, the whiskey category, I think, was in its maybe 15th year of decline. We used to show a great chart that would a decline in whiskey and a growth in Jack Daniel's to kind of try and get the sales force riled up. It worked. 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. When Paul started on the brand, the competitive set was Jim Beam and Crown Royal. In the U.K., the competitive set was Bacardi and Smirnoff. Now suddenly Bulleit's back on the scene, another American whiskey's emerged. 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, Coopers' Craft, Ireland, Scotland, even tequila, brown spirit. Actually, the silver's doing quite well now, but let's argue it's a brown spirit because it's aged in barrels. I think your point of caution's well made with regards to the U.S., what if trends turn, so on and so forth. When you step back and look at the global trends, actually the world is a place of brown spirits. 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. The flavored spirits is what the world drinks, other than Eastern Europe. In Eastern Europe, of course, the vodka category has sprung a leak, and they're excited about imported brown goods, something with flavor, something different. For two reasons, we feel good about this move towards aged brown spirits. We feel that if need be, we can transcend the category. Outside the U.S., we feel that the category trends are with us. The third point is just as a family investor, we do like high barriers to entry. 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? Yeah. Not the average investor can build a distillery and age goods for 7 to 12 years. 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. 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. In their cinnamon-flavored popular brand. The flavored whiskey category just opens a little crack in the door. We do observe that. That's the type of thing we'll debate in the world of flavors. Look, we fought Jack and Coke in the family for 20 years. I remember it took an act of God to finally let a glass of Jack mixed with Coca-Cola appear in an ad for Jack Daniel's, even though 60% of the population is mixing it with Coca-Cola. Anyway, I say all that to say that we try to be thoughtful about this. There are a number of considerations, including these barriers to entry factor, kind of back to Strategy 101, was it Porter's forces or something? To think about, and that's one of the appeals for us of this stance that we've taken. It's a really good question. Good flag. Yes. I suppose you could describe this as a follow-up, 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. The question is this: as millennials age, I presume you expect the larger spirits category to slow down. Is that a fair assumption, is question number one. Then question number two, if it is a fair assumption, how do you think it will affect behavior in the larger spirits category? Well, my view, for I guess now over 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 today. 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. You've heard us, of course, talk today about why we believe American whiskey is attractive within spirits. I think generally the trends related to society at large, people wanting greater levels of customization, people appreciating variety, et cetera, that I think are populating the trends of many categories. 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 one to drink two, you can have that variability and experimentation. Frankly, that has not been the case with categories from which spirits have been sourcing, most notably popular priced beer. 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. Very much. What will happen with other mega trends 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 is that when, we were having a little talk earlier, when the smoking ban occurred in the U.S., 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. Guess what took off at that time? Flavored whiskeys. The ability to vary the product, in that case, in a format people put it in their freezer, et cetera. That just matched up beautifully with the consumer trend. When the technology came along and you could crowdsource and have 12 people over to your apartment, who needed the bar, right? These are trends that are going on. If you listen to bars and restaurants, they are reinventing some ways that they can bring people back in for traffic. Some of them are doing a very, very nice job at it. 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. Yeah, Sharon, somebody back here. Yeah. Hi, Skyler Winter, Vedran Slier. 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? Second, geographically, and third, versus your competition. Well I think literally we're going to have to get back to you on it, because the way that the businesses are set up around the world, you'll see 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%-80% off-premise, 20%-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%. 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. Your question probably would be a 75-page presentation. It really would, because it varies so much. The markets are so differently developed. Maybe Jay can help with some follow-up to that one. We can publish some stuff or something. 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 our company? Yeah. That's good. When to buy out your fellow partners? We've never made that move, so the partnership has lasted a long time. We like our partners. Yeah. Yeah. You guys are just great. On the intrinsic value, at the end of our annual stockholders meeting, we'll 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's happening, Reg FD kosher, and so that we've got the tapes in the event that we're ever accused of something. 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? I made the point to everyone around just to remember that 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. In the world of J. Moreau, the cash flows are so healthy. With all those healthy cash flows, and yet, our dividend yield is not one of the highest. 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. Yeah, that's right. Paul always said, "Well, remember the special dividends." Okay. Talking regular dividends now. 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. Those are the two things we want to keep an eye on. Knowing 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. 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. Look, it's nice to know that it's there. On the board side, of course, we've got a fiduciary duty to worry about share price. If I can just add to it, that I think that, on page 51 in your book, you'll see, I thought, Jane's 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. 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've found has been beneficial for all shareholders over a 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 where 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. 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 influencing? 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. As we sit here today, 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. 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-Forman. Actually, I thought it closed that section really well because it was indicative of our confidence in the long-term future. Very good question, though. Another hand? You all may be getting ready for cocktail hour. No, I think they're done, Paul. I think they're done. 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 interact first and mingle and talk some more. Thank you very much. Thank you all. Thank you so much.

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