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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
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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
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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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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