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DESCRIPTION
LBOTRANSCRIPT
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STRICTLY PRIVATE AND CONFIDENTIAL
Nomura
Connecting Markets East & West
STRICTLY PRIVATE AND CONFIDENTIAL
Nomura
Hasbro, Inc. (HAS)
May 2014
LBO Presentation
M&A Group
Sean Penso
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Table of Contents
1. Introduction to Hasbro
2. Investment Highlights
3. Growth Opportunities
4. Valuation and Financing Considerations
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Introduction to Hasbro
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Sources:
1. Market Cap, Net Debt and TEV as of 5/14/14 at stock price of $54.95.
2. Company filings and investor presentations.
Overview: Founded in 1923 and headquartered in Pawtucket, Rhode Island,
Hasbro, Inc. (Hasbro or the Company) is a global provider of childrens toys
and family leisure products
Employs >5,000 workers in the Americas, Europe, Asia/Pacific region and
South Africa
Products/Services: Marketed under four segments: (1) boys; (2) games; (3)
girls; and (4) preschool toys
Toys: sells boys action figures, vehicles, and playsets, girls toys, plush
products, preschool toys and infant products, electronic interactive products,
creative play, and toy-related specialty products
Games: sells action battling, board, card, digital, electronic, mobile, and
RPGs
Television programming: produces and distributes broadcasting based on
the Companys brands
Distribution platforms include cable network, ITunes, and Netflix
Licensing/ Movie Entertainment: license trademarks, characters and other
property rights to third parties
Clients: Wholesalers, distributors, chain stores, discount stores, mail order
houses, catalog stores, department stores, and Internet retailers
Financials Highlight (FY13): Revenue: $4.08b; Net Income: $2.01b; FY14E
EBITDA: $839m; EPS: $2.83; FY14E PE: 16.8
52-week range: 43.46 56.91; Market Cap: $7.13b(1) ~$570m Net Debt;
TEV: ~$7.7b
Awards: Fortune Rankings 100 Best Companies to Work For: 2011-13; Forbes
Global 2000: 2010-11; Forbes 400 Best Big Companies in America: 2009
1
Company Overview 2013 Revenue by Segment
US & Canada vs. International Sales
Company Overview
Entertainment &
Licensing
5%
International
46% US & Canada
49%
Global Operations
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Sources/Annotations:
1. Company filings. 2
Franchise Brands Challenger Brands Gaming Mega Brands
Hasbros Brands
Partner Brands
2013 Revenue by Segment
Franchise
44%
Partnerships
20%
Games
20%
Challenger
16%
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1,998 2,009 2,031 2,011 1,997 4,068 4,002 4,286 4,089 4,082
Sources/Notes:
1. All results are from Fiscal Year ending in the referenced period.
2. Company filings and investor presentations. 3
Revenue ($m) Net Income ($m) EBITDA ($m)
Operating Performance Snapshot
CAGR: 0.1% CAGR: 0.0%
792 774 800 813 785
2009 2010 2011 2012 2013
($mm) 2009 2010 2011 2012 2013
Sales 4,068 4,002 4,286 4,089 4,082
COGS 2,070 1,993 2,255 2,078 2,085
Gross Profit 1,998 2,009 2,031 2,011 1,997
% margin 49.1% 50.2% 47.4% 49.2% 48.9%
SG&A 1,387 1,403 1,427 1,390 1,441
EBIT 611 606 604 621 556
% margin 15.0% 15.1% 14.1% 15.2% 13.6%
Total EBITDA 792 774 800 813 785
% margin 19.5% 19.4% 18.7% 19.9% 19.2%
2009 2010 2011 2012 2013
2009 2010 2011 2012 2013
Sales: 2009-2010: part of larger trend of financial
crisis among large toy providers
2011-2012: > $200m decrease in boys toys sales
2012-2013: > $300m decrease in boys toys sales
Gross Profit: 2010-2011: increase in COGS due to
unfavorable manufacturing variances as a result of
reduced games production
2012-2013: increase in COGS due to a change in
product mix
EBIT: 2010-2011: SG&A expenses remained similar;
lower EBIT margin from trend above
2012-2013: (same as 2010-2011)
EBITDA: 2010-2011: explained by trend in EBIT
2012-2013: explained by trend in EBIT
Commentary Key Income Statement Items
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Sources:
1. Company filings and investor presentations. 4
Investment Highlights
Attractive Financial Profile
Strong Target Industry Drivers
Opportunities to Increase
Profitability
Company historically has strong, stable cash flows
Free cash flow has been positive for all of the past 5 fiscal years despite downward compression in the sector
CAGR between 2009-2013 is 12.4%, with growth from $161.5m to $289.1m in free cash flow
Hasbro holds a relatively standard debt profile compared to peers
Total Debt/ TEV = 17.9% versus industry average of 20.8%
Girls toys sales expected to drive growth with strong brands like My Little Pony products
Girls toys sales were up 26% in 2013 vs. 2012
Segment projected to increase from 21% of total revenue in 2010 to >26% of total revenue in 2019
There are increasing opportunities for digital, mobile, and online engagement
Combination of macroeconomic and company-specific factors enable these opportunities
Emerging markets represent a huge potential for revenue growth and margin expansion
Sustained double-digit growth within EMs where Hasbro products are offered
Currently a global cost savings initiative in place to improve operating and other below-the-line margins
Aimed to reduce operating costs by an annual gross amount of $100m by the end of 2015
Achieved through focusing on fewer, more global brand initiatives, workforce reductions, facility consolidation and other process improvements
Emerging markets show sustained operating margin expansion
Can further improve margins via isolation
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Key Growth Opportunities
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Sources/Annotations:
1. Other revenue streams account for $1b in revenue
Select Analyst & Press Comments on Hasbros Q1 2014 Results
Despite the EPS beat, we think the quarter was something of a mixed bag, with enough to keep both bears and bulls in their respective positions. On the positive side, sales were positive in a tough overall
market, with strong continued growth in Girls and an improvement in Boys. BMO Capital Markets (Market Perform PT: $55)
We believe Hasbro is well positioned for growth in 2014 and beyond. Although the current lineup of entertainment properties in 2014 and 2015, which should benefit Boys, is on the forefront of investors minds, we are most excited about the strength of the Girls division, which continues to showcase Hasbros creativityQ1 Revenue growth in Girls (+20.8%) offset worse-than-expected results across the other product categories. Barclays (Equal Weight PT: $58 increased from $55)
The growth in Hasbro's sales of toys for girls contrasts with the fading sales of Barbie dolls, which dragged rival Mattel Inc to its first quarterly loss in nearly five yearsHasbro has tasted success with its My Little Pony franchise, including a TV series based on the equine characters with colorful bodies
and manes. Thomson Reuters
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Sources:
1. Investor presentations and company filings.
The My Little Pony Brand has experienced tremendous success globally
My Little Pony Brand
+199%
+194%
+203%
+47%
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2010-2013 Regional Growth Rates
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Sources/Annotations:
1. 5-Year CAGR of 96%.
2. Company filings and investor presentations.
Division Overview:
$575m in revenue in 2013; comprised 14% of total revenue in 2013
> 40% operating profit growth and significant margin expansion
Operating margin of 10.1% of revenue in 2013 vs. 8.9% in 2012
3-year CAGR of 113%; 5-Year CAGR of 96%
Expected continuous double digit growth
Number of Hasbro employees in EMs increased 2x between 2008 and
2013
50% of employees were outside the US in 2013
Emerging markets represent a huge potential for revenue and operating profit growth, as well as
margin expansion
Emerging Markets Momentum
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EM Revenues ($m)
2008 2009 2010 2011 2012 2013
153 192
233
399
461
575
3-Year CAGR: 35%
2 (4)
6
25
40
58
2008 2009 2010 2011 2012 2013
3-Year CAGR: 113%
EM Operating Profit ($m)(1)
25% Revenue Growth
YoY
45% Operating Profit
Growth YoY
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Valuation and Financing Considerations
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Valuation Multiples
Trading Comparables Analysis
9
Company Name
Price at
5/14/14
(USD)
% of
52 Week
High
Equity
Value
Enterprise
Value CY2014E CY2015E CY2014E CY2015E CY2014E CY2015E
Total Debt/
EBITDA
Net Debt/
EBITDA
Hasbro $54.95 96.6% $7,133 $7,700 1.8x 1.7x 9.2x 8.6x 17.1x 15.5x 1.8x 0.7x
Mattel $39.27 81.0% $13,322 $14,025 2.1x 2.0x 10.4x 9.5x 15.7x 14.0x 1.2x 0.5x
LeapFrog Enterprises $6.65 55.6% $463 $295 0.5x 0.5x 6.0x 4.3x 33.4x 18.2x 0.0x NM
BuildABear Workshop $13.64 95.8% $238 $194 0.5x 0.5x 6.7x 6.0x 27.3x 24.4x 0.0x NM
Namco Bandai $22.02 88.2% $4,889 $3,877 0.8x 0.8x 5.3x 5.1x 14.9x 14.2x 0.2x NM
VTech $13.51 85.3% $3,393 $3,298 1.7x 1.6x 12.3x 11.4x 15.9x 14.7x 0.0x NM
Tomy $4.58 83.7% $441 $812 0.5x 0.5x 5.9x 6.2x 21.1x 18.9x 6.2x 3.3x
Sanrio $32.51 51.0% $2,896 $2,690 3.5x 3.3x 11.3x 10.2x 21.1x 18.3x 1.1x NM
Playmates Toys $0.38 65.1% $450 $383 1.3x 1.5x 4.1x 4.6x 7.1x 7.9x 0.0x NM
Mean 1.38x 1.35x 7.75x 7.16x 19.55x 16.33x 1.07x 1.90x
Median 1.35x 1.54x 6.70x 6.22x 17.14x 15.55x 0.17x 0.70x
Revenue EBITDA Price / EPS
Sources:
1. CapIQ, FactSet, Equity Research, Company 8ks.
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Sources:
1. Equity Research Reports and company filings.
Discounted Cash Flow Analysis
10
STUB-6mo
($mm) Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Terminal
**Discount Rate of 9%
EBITDA $489.4 $891.0 $940.0 $997.8 $1,059.6 $1,059.6
Less: D&A (156.3) (272.0) (283.0) (300.4) (319.0) (157.8)
EBIT 333.1 619.0 657.0 697.4 740.6 901.8
Less: Taxes (35.0%) (116.6) (216.7) (230.0) (244.1) (259.2) (315.6)
NOPAT 216.5 402.4 427.1 453.3 481.4 586.2
Plus: D&A 156.3 272.0 283.0 300.4 319.0 157.8
Plus / Less: Working Capital 0.0 (21.9) (2.4) (26.3) (28.1) (28.1)
Less: CapEx (72.3) (131.0) (140.0) (142.0) (157.8) (157.8)
Unlevered Free Cash Flows 300.5 521.4 567.6 585.5 614.5 558.1
Perpetual Multiple
Method Method
PV of Operation CFs 2,123.4 27.9% 2,123.4 24.4%
PV of Terminal CF 5,478.6 72.1% 6,567.6 75.6%
Total Enterprise Value 7,602.0 100.0% 8,691.0 100.0%
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Illustrative Pro Forma Capitalization
Assumes purchase
price of $8,074 million
or 10x Jun-14E LTM
EBITDA of $807
million
Fully prepayable
capital structure
After-tax weighted
average cost of debt
of 4.23%
Key considerations Sources and uses
Indicative pro forma capitalization
11
($mm)
Sources Uses
Revolver (size TBD) - Purchase Price 8,074
Term Loan A - Financing Fees 190
Cov-Lite Term Loan B 4,000 Other Fees & Expenses -
Second Lien Term Loan 2,000 OID Related Fees 80
Equity 2,344
Total Sources 8,344 Total Uses 8,344
($mm) x Jun-14 % of Total
PF Jun-14 LTM EBITDA Cap Maturity Pricing
Revolver (size TBD) - - - 5.0 years L+375bps / 1.00% / 0
Cov-Lite Term Loan B 4,000 5.0x 48% 7.0 years L+375bps / 1.00% / 99
Second Lien Term Loan 2,000 2.5x 24% 8.0 years L+800bps / 1.00% / 98
Total Debt 6,000 7.4x 72%
Equity 2,344 28%
Total Capitalization 8,344 10.3x 100%
LTM Jun-14 EBITDA 807
Sources:
1. Investor presentations and company filings.
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Illustrative Summary Credit Stats
Projections
based on
equity research
consensuses
through 2019
Cumulative
free cash flow
of $1,896
million through
2019E
Delevers from
7.4x Jun-14E
LTM EBITDA
to 3.6x by
2019E
12
($mm) Actual Est. LTM Projected CAGR / Margin
Dec-11 Dec-12 Dec-13 Jun-14 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 2011-'13 2013-'18
Revenue $4,286 $4,089 $4,082 $4,195 $4,354 $4,511 $4,620 $4,904 $5,208 $5,533 (2.4%) 6.3%growth (4.6%) (0.2%) 6.7% 3.6% 2.4% 6.2% 6.2% 6.2%
EBITDA 800 813 785 807 839 891 940 998 1,060 1,126margin 18.7% 19.9% 19.2% 19.2% 19.3% 19.8% 20.3% 20.3% 20.3% 20.3% 19.3% 19.9%
Jun - Dec 14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
EBITDA 800 813 785 807 489 891 940 998 1,060 1,126
Less: Maintenance Capex (99) (112) (112) (117) (72) (131) (140) (142) (158) (168)Less: Growth Capex (1) (1) (1) (1) (1) (1) (1) (1) (1) (3)
Less: Total Capex (100) (113) (113) (118) (73) (132) (141) (143) (159) (171)
as a % of revenue 2.3% 2.8% 2.8% 2.8% 3.1% 2.9% 3.1% 2.9% 3.0% 3.1% 2.6% 2.7%
Less: Interest expense (395) (213) (355) (382) (407) (414) (405)
Less: Taxes (63) (34) (79) (83) (88) (101) (120)
Plus (Less): Change in working capital - (22) (2) (26) (28) (30)
Free cash flow for debt repayment 169 303 332 334 358 400
Cumulative 169 472 804 1,138 1,496 1,896
Less: Mandatory Amortization (23) (40) (40) (40) (40) (40)
Plus (Less): Revolver draw (paydown) - - - - - -
Less: Optional debt repayment (146) (263) (292) (294) (318) (360)
Free cash flow - - - - - -
Cash balance - - - - - - 0
Revolver - - - - - - -
Bank debt 6,000 5,831 5,528 5,196 4,862 4,504 4,104
Total debt 6,000 5,831 5,528 5,196 4,862 4,504 4,104
Net debt 6,000 5,831 5,528 5,196 4,862 4,504 4,104
Credit Statistics
Bank debt / EBITDA 7.4x 6.9x 6.2x 5.5x 4.9x 4.3x 3.6x
Total debt / EBITDA 7.4x 6.9x 6.2x 5.5x 4.9x 4.3x 3.6x
Net debt / EBITDA 7.4x 6.9x 6.2x 5.5x 4.9x 4.3x 3.6x
EBITDA / Interest expense 2.0x 2.3x 2.5x 2.5x 2.5x 2.6x 2.8x
(EBITDA - CapEx) / Interest expense 1.7x 2.0x 2.1x 2.1x 2.1x 2.2x 2.4x
Fixed charge coverage 1.7x 1.8x 1.9x 1.9x 1.9x 2.0x 2.1x
FCF for Debt Repayment / Debt % 5.2% 5.2% 6.0% 6.4% 7.4% 8.9%
Sources:
1. Equity research reports, investor presentations and company filings.
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Illustrative Returns Sensitivity
Three Year Returns
Five Year Returns
13
3-Year IRRs 3-Year MOIC
Entry Multiple Entry Multiple
9.5x 9.8x 10.0x 10.3x 10.5x 9.5x 9.8x 10.0x 10.3x 10.5x
9.5x 28.3% 24.2% 20.5% 17.2% 14.3% 9.5x 2.1x 1.9x 1.8x 1.6x 1.5x
9.8x 30.8% 26.6% 22.8% 19.5% 16.5% 9.8x 2.2x 2.0x 1.9x 1.7x 1.6x
10.0x 33.2% 28.9% 25.1% 21.7% 18.6% 10.0x 2.4x 2.1x 2.0x 1.8x 1.7x
10.3x 35.5% 31.1% 27.2% 23.8% 20.6% 10.3x 2.5x 2.3x 2.1x 1.9x 1.8x
10.5x 37.7% 33.2% 29.3% 25.8% 22.6% 10.5x 2.6x 2.4x 2.2x 2.0x 1.8x
7,670 7,872 8,074 8,276 8,478 7,670 7,872 8,074 8,276 8,478
Exit
Multiple
Implied Entry EV
Exit
Multiple
Implied Entry EV
5-Year IRRs 5-Year MOIC
Entry Multiple Entry Multiple
9.5x 9.8x 10.0x 10.3x 10.5x 9.5x 9.8x 10.0x 10.3x 10.5x
9.5x 25.3% 22.8% 20.6% 18.7% 16.9% 9.5x 3.1x 2.8x 2.6x 2.4x 2.2x
9.8x 26.4% 23.9% 21.7% 19.7% 17.9% 9.8x 3.2x 2.9x 2.7x 2.5x 2.3x
10.0x 27.5% 25.0% 22.8% 20.7% 18.9% 10.0x 3.4x 3.1x 2.8x 2.6x 2.4x
10.3x 28.5% 26.0% 23.8% 21.7% 19.9% 10.3x 3.5x 3.2x 2.9x 2.7x 2.5x
10.5x 29.5% 27.0% 24.7% 22.7% 20.8% 10.5x 3.6x 3.3x 3.0x 2.8x 2.6x
7,670 7,872 8,074 8,276 8,478 7,670 7,872 8,074 8,276 8,478Implied Entry EV Implied Entry EV
Exit
Multiple
Exit
Multiple
Sources:
1. Equity research reports, investor presentations and company filings.