281865 procter gamble company presentation at lehman brothers back to school consumer conference...

8/4/2019 281865 Procter Gamble Company Presentation at Lehman Brothers Back to School Consumer Conference Septemb

1/19

2007 Lehman Brothers

Back to School Conference

Boston, MASeptember 6, 2007


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2

Agenda

Business Update

Driving Growth & Productivity Growing Beauty

Q&As

12 Faster-growing, higher-margin,more asset-efficient businesses

3Developing markets and

lower-income consumers

Core business leading brands,countries, customers

gro

wthstrategies

Growth Strategies

Organic (excludes foreign exchange, acquisition & divestiture impacts)

Acquisitions & Divestitures

Strong Sales Growth

4

Organic Target: +4% to +6%thru FY 2010

0%

3%

6%

9%

12%

15%

18%

21%

FY '02 FY '03 FY '04 FY '05 FY '06 FY '07


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Reliable EPS Growth

Annual EPS Growth Target: 10%+5 year EPS CAGR (0207) = 13%*

EPS*

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

FY '02 FY '03 FY '04 FY '05 FY '06 FY '07

* Excludes Organization 2005 restructuring charges in FY 02 & 03

6

Cash ProductivityAhead of Target

Free Cash Flow Productivity Target:

90%+ of Net Earnings

FreeCashFlow,

$Bn

$0

$2

$4

$6

$8

$10

FY '02 FY '03 FY '04 FY '05 FY '06 FY '07

155%

151% 119%

94%

100%

101%

Competition Restructuring

Commodity and Energy Costs

Gillette Integration Work

Delivered Despite Challenges


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On-track to deliver $1bnto $1.2bn cost synergies

On-track to deliver~$750MM revenuesynergies

Non-dilutive to EPS infiscal year 2008

Delivering GilletteCommitments

FY '05 FY '06 FY '07 FY '08

EPS Impact on P&G

$2.53P&G EPS pre-Gillette (10%+ CAGR)

P&G EPS w/ Gillette

P&G Est. EPS w/ Gilletteat time of closing (Oct. 1, 2005)

9

$2.64

$3.04

FY 08 Consensus = $3.47

Double DigitEPS Growth

Organic Sales Growth

+4% to +6%

Margin Expansion+50 to +75 bps/year(in addition to Gillette synergies)

10

Sustainable Growth ModelThrough FY 2010

90%+Free Cash Flow

Productivity

ShareholderValue Creation


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Confident in the Future

Significant increase in sharerepurchase plan

$24 to $30 billion over three years

$8 to $10 billion per year

Adds $0.01 to FY 08 EPS vs. initialoutlook that assumed $6 to $7 billion

Organic Sales Growth+4% to +6%

Margin Expansion+50 to +75 bps/year(in addition to Gillette synergies)

12

Focused on Balanced Growth

billionP&Gs Billion-Dollar Brands


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GlobalMarketShare

HighestBig Country

Market Share

Still Upside Potential

14

Baby CareBlades & RazorsFabric CareFeminine CareHair CareOral CareFacial Skin Care

35% 59%72% 91%33% 68%37% 75%26% 55%20% 38%14% 29%

Key Global Categories

Faster-Growing, Higher-MarginBusinesses

Sales Index fromBeauty, Health and Home Care

FY 00/01 FY 06/07

Profit Index fromBeauty, Health and Home Care

2x

FY 00/01 FY 06/07

3x

16

P&G PortfolioBusiness Mix

Beauty,Health andHome Care

Household


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Developing Markets

Sales

FY 01 FY 07

>2x

P&G Geographic Portfolio

% Sales,Developing Markets

FY '01 FY '07 FY '10e

20%

27%

30%

Household Penetration

HouseholdPurchases

of P&G Product

DevelopingMarkets

U.S.

5 to 10 x


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BrandingGo-to-Market

Innovation

Scale

ConsumerUnderstanding

CoreStrengths

Fabric Care__Laundry Compaction

Home CareSwiffer


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Family CareCharmin

______Oral CareCrest Pro Health

Oral CareInnovation on Established Franchises


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Increasing Productivity

1. Leveraging scale

2. Traditional cost savings3. Organization efficiencies

4. On-going restructuring

5. Marketing & R&D

Sales Growth of 5% to 7% (ex Fx)

Overhead Cost Growth of about 3%

25 to 50 Basis Points of Margin Improvementfrom Fixed Overhead Cost Leverage

Overhead Costs

+

=

Purchasing scale

Local sourcing

Streamlined distribution

Traditional Cost Savings


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Purchasing Scale

Increase strategicpartnerships with suppliers

Leverage low cost supplysources

Leverage scale on alarger portion of thespend pool

Local Sourcing

20%

30

30%

50%Increase

July-06 Future

Streamlined Distribution

Lower distribution costs

Less P&G inventory

Improved customer service

31

450

225


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GBU/MDOStructure

32Organization Efficiency

SmallCountries

Ongoing Restructuring

Gross Margin and S,G&A

Annual $300 to $400million budget

Not reported separately

Marketing and R&D Spending

Marketing andR&D Spending

Efficiency Gains

Reinvestment


13/19

Always

Integratedteen marketing

TV often low prioritybehind other tools:

Interactive

Partner ads

Print

School programs

36

Balanced Growth

Organic Sales Growth+4% to +6%

Margin Expansion+50 to +75 bps/year

(in addition to Gillette synergies)

Fueled byProductivity

Savings

Growing P&G Beauty

Winning formula

Consumer Understanding Meaningful Innovation

Leading Brand Equities


14/19

38

Olay Sales Growth History

FY'

97

FY'

98

FY'

99

FY'

00

FY'

01

FY'

02

FY'

03

FY'

04

FY'

05

FY'

06

FY'

07

Past 5 Yr. Sales Growth CAGR = 20%

Consumer Segmentation & BrandingDriving Olay Boutiques

40

Olay Total Effects

Launched June 00

Price points >$15 forthe first time

First significant step toattract anti-agingfocused consumers


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41

Olay Regenerist

Launched March 03

Price points up to $20

Stressed ingredient-driven performancebenefits

Olay Regenerist

15 new items launchedsince initial 3 variants

Price points >$20

Share of segment = 14%

43

Olay Regenerist

MicroSculpting Cream

Tested by GoodHousekeeping Institute

beat its priceycompetition, even the$350 one.


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44

Olay Definity

Launched July 06

Price points ~$25 onbase lineup

Adds new benefits:fights discoloration,dullness and unevenskin tone

Olay Definity

Beginning expansionof lineup with newitems

Definity Cleanser

Foaming UV Moisturizer

Illuminating EyeTreatment

OlayGeographic Whitespace

46

~60% of sales fromoutside the U.S.

Shipment volume inChina greater than U.S.

Recent expansion into:Russia, Turkey, Chile, Greece,Philippines, Vietnam, India, etc.

Plenty of whitespace leftto fill


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Retail Hair ColorPriority Brands

Nice n Easy

Natural InstinctsHerbal Essences

Koleston

US Nice n Easy Share History

17

16 16

15

14

13

11

10

109 9

10

11

13

14

15

6

8

10

12

14

16

18

CY92

CY93

CY94

CY95

CY96

CY97

CY98

CY99

CY00

CY01

CY02

CY03

CY04

CY05

CY06

CYTD07

2/03 Brand Restage 2/05 New Usage Driver2/05 Base Brand Upgrade

Retail Hair ColorNice n Easy Innovation


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Retail Hair ColorNice n Easy Innovation

2/06 New Usage Driver2/06 Base Brand Extension

Retail Hair ColorNice n Easy Perfect 10

Leverages P&G, Clairol andWella combined expertise

Protected with 18 patents

Establishes a newtechnology platform forfuture innovation

Forward Looking Statement

52

All statements, other than statements of historical fact included in these presentations, are forward-lookingstatements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements arebased on financial data, market assumptions and business plans available only as of the time the statementsare made, which may become out of date or incomplete. We assume no obligation to update any forward-looking statement as a result of new information, future events or other factors. Forward-looking statementsare inherently uncertain, and investors must recognize that events could differ significantly from ourexpectations. In addition to the risks and uncertainties noted in these presentations, there are certain factorsthat could cause actual results to differ materially from those anticipated by some of the statements made.These include: (1) the ability to achieve business plans, including with respect to lower income consumers and

growing existing sales and volume profitably despite high levels of competitive activity, especially with respectto the product categories and geographical markets (including developing markets) in which the Company haschosen to focus; (2) the ability to successfully execute, manage and integrate key acquisitions and mergers,including (i) the Domination and Profit Transfer Agreement with Wella, and (ii) the Companys merger with TheGillette Company, and to achieve the cost and growth synergies in accordance with the stated goals of thesetransactions; (3) the ability to manage and maintain key customer relationships; (4) the ability to maintain keymanufacturing and supply sources (including sole supplier and plant manufacturing sources); (5) the ability tosuccessfully manage regulatory, tax and legal matters (including product liability, patent, and intellectualproperty matters as well as those related to the integration of Gillette and its subsidiaries), and to resolvepending matters within current estimates; (6) the ability to successfully implement, achieve and sustain costimprovement plans in manufacturing and overhead areas, including the Company's outsourcing projects; (7)the ability to successfully manage currency (including currency issues in volatile countries), debt, interest rateand commodity cost exposures; (8) the ability to manage continued global political and/or economic uncertaintyand disruptions, especially in the Company's significant geographical markets, as well as any political and/oreconomic uncertainty and disruptions due to terrorist activities; (9) the ability to successfully managecompetitive factors, including prices, promotional incentives and trade terms for products; (10) the ability toobtain patents and respond to technological advances attained by competitors and patents granted tocompetitors; (11) the ability to successfully manage increases in the prices of raw materials used to make theCompany's products; (12) the ability to stay close to consumers in an era of increased media fragmentation;and (13) the ability to stay on the leading edge of innovation and maintain a positive reputation on our brands.For additional information concerning factors that could cause actual results to materially differ from thoseprojected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.


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Regulation G / Non-GAAP Financial MeasuresThe accompanying presentation includes the disclosure of non-GAAP financial measures. Inaccordance with the SECs Regulation G, the following provides definitions of the non-GAAPmeasures used in the presentation and the reconciliation to the most closely related GAAP measure.

Organic Sales Growth. Organic sales growth measures sales growth excluding the impacts ofacquisitions, divestitures and foreign exchange from year-over-year comparisons. The Companybelieves this provides investors with a more complete understanding of underlying results and trendsby providing sales on a consistent basis.

5%7%8%8%6%1%Organic Sales (Ex: A&D, FX)

-2%1%-2%-4%-2%1%Less: FX Impact

-5%-14%0%-7%0%-3%Less: Acquisitions & Divestitures Impact

12%20%10%19%8%3%Reported Sales Growth

FY07FY06FY 05FY04FY03FY02

Note: Sales percentages are approximations based on quantitative formulas consistently applied.

Sales Growth Excluding Foreign Exchange. Sales Growth Excluding Foreign Exchange is ameasure of the companys net sales growth versus prior year excluding the impact of year-on-yearchanges in exchange rates.

10%21%8%15%6%4%Sales Growth Excluding Foreign Exchange

-2%1%-2%-4%-2%1%Less: FX Impact

12%20%10%19%8%3%Reported Sales Growth

FY07FY06FY05FY04FY03FY02

Note: Sales percentages are approximations based on quantitative formulas consistently applied.

Core Earnings Per Share. Core EPS referenced in this presentation exclude restructuring chargesrelated to the Organization 2005 program. Management believes this measure provides an importantperspective of underlying business trends and results and provides a more comparable measure ofyear-on-year earnings per share growth. The table below provides a reconciliation of reported dilutednet earnings per share to core earnings per share:

$3.04$2.64$2.53$2.20$1.89$1.65Base Business EPS

----$0.19$0.26Less: Organization 2005 Restructuring Charges

$3.04$2.64$2.53$2.20$1.70$1.39Diluted Net Earnings Per Share

FY07FY06FY 05FY04FY03FY02

The restructuring program began in 1999 as part of the Companys Organization 2005 initiative andwas substantially completed at the end of fiscal year 2003. Restructuring program charges includeseparation related costs, asset write-downs, accelerated depreciation and other costs directlyassociated with the Companys reorganization. Restructuring program charges are not included inbusiness segment results, but instead are reported in corporate.

Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flowto net earnings. The Companys long-term target is to generate free cash at or above 90 percent ofnet earnings. Free cash flow is also one of the measures used to evaluate senior management.The reconciliation of free cash flow and free cash flow productivity is provided below:

101%100%94%119%151%155%Free Cash Flow Productivity

$10,340$8,684$6,923$6,156$4,788$3,910Net Earnings$10,490$8,708$6,498$7,331$7,220$6,061Free Cash Flow

-$2,945-$2,667-$2,181-$2,024-$1,482-$1,679Capital Spending

$13,435$11,375$8,679$9,355$8,702$7,740Operating Cash Flow

FY 07FY 06FY 05FY 04FY 03FY 02

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