1. Brands are like money and should be managed that way. Andy Farr Director of Brand Investment Planning Millward Brown Group

2. Imagine you were investing in stocks - which of these recent actions would attract you to a company? Increased price promotion Signed long term sponsorship deal with the NFL Relocated customer service call centres abroad Increased R&D investment Introduced more rigorous quality control systems Started using cheaper ingredients Launched market beating new innovation Cut back communications spending Increased price promotion Signed long term sponsorship deal with the NFL Relocated customer service call centres abroad Increased R&D investment Introduced more rigorous quality control systems Started using cheaper ingredients Launched market beating new innovation Cut back communications spending

3. Investing 101 What is a company’s share price based on? Average share price = 18 x last years earnings.  With no growth it would take 18 years to earn its share price! Average share price = 18 x last years earnings.  With no growth it would take 18 years to earn its share price! What is it that underpins future profit growth? ….. demand for the company’s goods and services. FUTURE profit g r o wt h  So share price is based on expectation of:

4. What underpins demand?  Meeting the evolving needs of the consumer  = R&D  Meeting the evolving needs of the consumer  = R&D  “Product/Service” delivery that exceeds consumer expectations  = Quality  “Product/Service” delivery that exceeds consumer expectations  = Quality  Awareness and desire for the company’s brands  = Brand Building  Awareness and desire for the company’s brands  = Brand Building

5. Are you more or less likely to invest?  Cut back communications spending  Using cheaper ingredients  Market beating new innovation  Increased price promotion  Moved customer service call centres abroad  Long term sponsorship deal with the NFL  More rigorous quality control systems  Increased R&D investment  Cut back communications spending  Using cheaper ingredients  Market beating new innovation  Increased price promotion  Moved customer service call centres abroad  Long term sponsorship deal with the NFL  More rigorous quality control systems  Increased R&D investment Profits Now Profits in the future

6. Advertising does not pay for itself in the short term. MMA data

7.  “…establishing a value for increased awareness and positive image on its own is much like establishing the value of half of a $100 bill…  …Unless you can get the matching half it has no value” James D Lenskold, “marketing ROI”, McGraw Hill 2003  “…establishing a value for increased awareness and positive image on its own is much like establishing the value of half of a $100 bill…  …Unless you can get the matching half it has no value” James D Lenskold, “marketing ROI”, McGraw Hill 2003  BUT we don’t value what we can’t measure

8. How can we put a value on “brand building”? Need to have an investment mindset: Future profits are what matters Risk has a price - it requires a return

9. Discounted Cash Flow + + Combines forecast of future profits Assessment of risks associated with profits

10. Discounted Cash Flow

11. Net Operating Profit After Tax = CASH

12. Forecast future profits 5 Years

13. Now we need to “discount” these profits. Money today is worth more than the promise of money tomorrow Which would you rather have ? Money today is worth more than the promise of money tomorrow Which would you rather have ? Now5 years time OR

14. Why might you not get the profits in 5 years time ? 1. Geography - currency, recessions 2. Sector - less growth, legislation 3. Brand - loss of share or margin due to competition 1. Geography - currency, recessions 2. Sector - less growth, legislation 3. Brand - loss of share or margin due to competition Think like a bank manager - Bigger risk = higher interest rate.. = higher discount rate

15. How much should we discount? Risk free rate Market Premium Specific risk factor βeta Discount Rate = 4% + { 6% X } } 1 = 10% ? ?

16. Discounted Value 0 20 40 60 80 100 123456++++++++++++++ 91% Yr 1 83% Yr 2 75% Yr 3 68% Yr 4 62% Yr 5 %

17. Discounted Cash Flow Net Present Value $m

18. Three things to think about when assessing risks. 1. Geography 2. Sector 3. Brand 1. Geography 2. Sector 3. Brand Sector Risk Stock Market 8.5% 15%

19. How do strong brands impact on risk? Strong brands are more secure. Investment in media reduces risk. Strong brands are more secure. Investment in media reduces risk.

20. Voltage™: The differential consumer equity a brand possesses, relative to its size Voltage™: The differential consumer equity a brand possesses, relative to its size

21. R 2 = 0.71 0% 100% -10010 Voltage™ Downside ( % brands losing share) Strong brands are less likely to decline 343 brands grouped on the basis of Voltage™

22. Strong brands are more likely to grow. R 2 = 0.64 0% 100% -10010 Voltage™ Upside (% brands gaining share) 343 brands grouped on the basis of Voltage™

23. BRAND Risk Multiplier

24. Strong brands are more valuable $418ml Average NPV based on brand strength $600ml Strong $335ml Weak The accumulated value of PAST “brand” building

25. How can we use this thinking? 1. Measure how much value is being created year on year by the team managing the brand. 2. Use this thinking as an aid to investment decisions across and within a portfolio of brands. 1. Measure how much value is being created year on year by the team managing the brand. 2. Use this thinking as an aid to investment decisions across and within a portfolio of brands.

26. Brand investment planning tool. What will happen to the category? Can we maintain share? What will happen to margins? How does the planned investment impact risk? How risky is the forecast? These questions can be answered using a mix of existing knowledge, judgement and empirical analysis. DCF Forecast

27. Advertising Investment reduces risk R 2 = 0.74 0% 50% 100% -30%0%30% % losing share 354 brands grouped on the basis of relative ad spend. Media Pressure (Share of Voice - Share of Market)

28. “Better to be approximately right than precisely wrong” “Better to be approximately right than precisely wrong”

29. Why we will never get it precisely right… Competitors - they are out to get you Consumers - unpredictable and irrational Creativity - the most variable variable in the marketing mix Competitors - they are out to get you Consumers - unpredictable and irrational Creativity - the most variable variable in the marketing mix But we can:  Use the knowledge we do have to generate reasonable assumptions  Build these into DCF framework  Conduct sensitivity analysis to maximise total shareholder return across the portfolio But we can:  Use the knowledge we do have to generate reasonable assumptions  Build these into DCF framework  Conduct sensitivity analysis to maximise total shareholder return across the portfolio

30. Media sensitivity analysis Average Brand Strength 0 20 40 60 80 100 507090110130150 Annual Media Spend $m Change in NPV $m

31. Media sensitivity analysis Differing levels of brand strength 0 20 40 60 80 100 120 507090110130150 Weak Annual Media Spend $m Change in NPV $m Strong

32. Budget setting example Change in NPV ($ml) WeakAverage Increase in spend from $50 - $60ml per annum Change in NPV ($ml) WeakAverage Increase in spend from $50 - $60ml per annum +16ml+ 22ml

33. Budget setting example Change in NPV ($ml) WeakAverage Increase in spend from $50 - $60ml per annum Increase in spend $80 - $90ml per annum Change in NPV ($ml) WeakAverage Increase in spend from $50 - $60ml per annum Increase in spend $80 - $90ml per annum +16ml+ 22ml +5ml+8ml +16ml+ 22ml +5ml+8ml

34. Key thought… When managing your brands think like an investor That means:  Think about profit, not volume.  Treat marketing as an investment  Look across the portfolio to see where investment can generate the greatest total return  Think long, not short term.  Learn to love the finance guys  Keep it simple. When managing your brands think like an investor That means:  Think about profit, not volume.  Treat marketing as an investment  Look across the portfolio to see where investment can generate the greatest total return  Think long, not short term.  Learn to love the finance guys  Keep it simple.