2016 Annual Report

We have a unique opportunity with our leading brands, our category breadth and our geographic reach to make a big impact in consumers’ lives. Our brands are purpose driven and make life better for hundreds of millions of consumers every day, where they Live, Learn, Work and Play. We believe in the upside potential of our new strategy yet recognize the challenge of the work in front of us. We believe that if we put the consumer first in everything that we do, all of our constituents will benefit. We are always hungry and believe that good enough never is. We are convinced our potential is unbounded given the nature of our categories and of our competitive set. As a result, we have a big ambition for the business and believe we can deliver transformative returns for our investors.

Our confidence is grounded in the experience we have over the last five years doing just that and is underpinned by the knowledge that our new strategy largely reapplies a proven playbook over a larger portfolio. Importantly, our opportunity is shaped by the categories in which we operate. We compete in large, growing and unconsolidated global categories. Categories that are growing in line with GDP growth and are responsive to brand development and innovation activity. Our significant scale advantage versus our competition allows us to create a leading set of capabilities in insights, design, innovation and communication that we are now investing to extend across the majority of our new, larger portfolio. We are also reshaping our selling organization to reach consumers where they shop, creating an advanced e-commerce capability that will enable us to further scale our e-commerce business going forward. We expect to more than double our e-commerce business over the next five years to nearly 20 percent of our global revenue. This combination of our brands, innovation and e-commerce capabilities positions us to continue to consolidate market share – as we have in our home markets – and build our brands in a way that our competitors simply cannot match.

Of course, extending and building these capabilities takes investment. We have embarked on a very aggressive cost reduction program that we expect will generate $1.3 billion in annualized savings from 2016 to 2021 through continued Project Renewal savings and the cost synergy work we are doing to simplify and strengthen the company. We have moved quickly to streamline the cost structure of our organization by consolidating 32 business units into 16 Operating Divisions, flattening the top of the organization, broadening spans and layers, and reallocating resources to the businesses with the greatest potential for growth and earnings. We believe that these savings, along with the other work underway to maximize the mix and capture price realization, will fund these capability investments and significantly increase our margins and cash generation, while simultaneously funding increased brand investment over time, resulting in sustained competitive levels of top line growth.

We have also embarked on a significant effort to focus and strengthen the portfolio with the long term goal of establishing a set of scaled anchor categories like Writing, Baby, Appliances & Cookware, Home Fragrance, Food, Outdoor & Recreation and Consumer & Commercial Solutions. In this context in late 2016, we announced the intention to divest about 10 percent of the business. As of the publishing of the 2016 annual report, we have completed the divestiture of the Tools business and the Rubbermaid Consumer storage business. Combined, these divestitures have generated about $1.5 billion in after tax proceeds, with the U.S. net proceeds used largely to pay down debt.

We expect that by the end of 2017 we will be very close to the high end of our target leverage ratio range of 3 to 3.5 times, nearly a year ahead of our original timetable and despite the fact that we have already begun to add new brands to the portfolio – including completing the acquisition of the WoodWick candle brand in the U.S. and the fast-growing New Zealand based Sistema Plastics food storage business with a market presence in New Zealand, Australia, U.K. and parts of Europe.

As we drive this profound change agenda forward, we are committed to making sure we perform while we transform. In 2016 we did just that, delivering very competitive results. Net sales were $13.26 billion, an increase of 124 percent over 2015. Core sales grew 3.7 percent, with broad-based growth across the divisions and geographies. Normalized earnings per share increased nearly 33 percent. Our normalized operating income was $2.06 billion, compared to $848.6 million the prior year. We generated cash flow from operations of $1.8 billion, up from $565.8 million a year ago. And we used that cash along with net proceeds from divestitures to substantially deleverage the balance sheet.

We delivered these results in a continued period of volatility driven by currency fluctuation, modest underlying economic growth in our key markets and substantial shifts in the retail landscape. These dynamics, while not new, created a less favorable backdrop for performance, making our 2016 results even more meaningful. As we look to the future, we expect these trends to continue and our outlook for 2017 contemplates a more-of-the-same set of assumptions.

We are at a unique moment in time and have a unique opportunity in our potential to both transform the company and deliver transformative value creation for our investors. Our proven playbook reapplied to the new company should result in competitive and consistent levels of core sales growth in the 3 to 5 percent range from 2018 onward; increased operating margins to best-in-class for our industry; consistent double digit increases in earnings; and strong, increasing cash flow that should enable us to achieve our leverage targets earlier than anticipated. This will allow us to apply capital primarily to growth and margin development activities including M&A in our anchor categories. This financial algorithm offers the potential for tremendous value creation to our investors and we believe will establish Newell Brands as one of the most transformative companies in the consumer goods space.

I am proud of our people who are working incredibly hard to deliver results through unprecedented and transformative change. We are driven by the prospect of creating a powerful new company and are excited to be working for a company that makes life better for hundreds of millions of consumers every day where they Live, Learn, Work and Play.

This promise represents both the power and the potential of Newell Brands. Thank you for your continued support.

Michael B. Polk
Chief Executive Officer

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