Consumer Analyst Group of New York Conference

CAGNY
February 18, 2016
Agenda
• Recent Results: the Good & the Bad
• Market Realities
• P&G Transformation
•
Productivity
•
Portfolio
•
Top-line Growth – Growing Users
•
Organization & Culture
• Q&A
2
Total Shareholder Return (TSR)
Sales
Growth
Profit
Growth
Total
Shareholder
Return
Margin
Improvement
Cash Flow
Growth
Objective:
Consistently in
Top-Third
of Peer Group
Asset
Efficiency
3
Q2 ‘16 Organic Sales Growth
Broke Trend
4%
4%
3%
2%
2%
2%
2%
1%
1%
-1%
4
Q2 ‘16 Bottom-Line
Q2 ‘16
Core Earnings Per Share Growth
+9%
Constant Currency Core EPS Growth
+21%
Core Gross Margin ex. FX
290 bps
Core Operating Margin ex. FX
390 bps
5
Q2 ‘16 Cash
Free Cash Flow
Adjusted Free Cash Flow Productivity
Q2 ‘16
$3.8bn
117%
Dividends ($bn)
Share Repurchase ($bn)
Value to Shareholders
$1.9
2.0
$3.9bn
6
Cash Generation & Productivity
117%
$4
106%
96%
95%
101%
117%
3.8
Cash ($ Billions)
ADJ. Free Cash Flow Productivity
3.0
2.8
2.9
2.9
Q3 '15
Q4 '15
3.0
$2
Q1 '15
Q2 '15
Q1 '16
Q2 '16
7
Value to Shareholders
Next
4
Yrs
FY’15
Past 5 Yrs
up
to
$11.9 bn
$60 bn
$70 bn
88
Market Realities
• Slowing market growth
• Geoeconomic and political challenges
• Unprecedented FX
• Commodities - neutral to negative
9
Value Market Growth
Market Realities – Slowing Growth
4.2%
3.6%
3.1%
P12M
P6M
P3M
10
Geoeconomic & Political Hot Spots
2010/11
2011/12
2012/13
2013/14
2014/15
Syria
Venezuela
Argentina
Russia
Ukraine
Egypt
Iraq/Islamic State (Iraq, Yemen, Libya)
Israel/Palestine
Nigeria
Brazil
~10% of Total Company Sales and Profit
11
FX - Impacting Almost Every Currency
-170%
-3100%
12
Spot Rates – Feb 2016 vs. Feb 2014
FX – Significant Four-Year Impact
FY ‘13
FY ‘14
FY ‘15
FY ‘16e
FX Impact
Cumulative Impact
(460)
(460)
(1,030)
(1,490)
(1,540)
(3,030)
(1,015)
(4,045)
% Base Period Earnings
Cumulative Impact
(4%)
(4%)
(10%)
(14%)
(15%)
(29%)
(10%)
~(40%)
$ Millions AT
13
Commodity Costs
P&G Input Costs Lagging Oil Declines
% Change vs. YA
FY ‘15
Q2 ‘16
Brent Crude
WTI
-31%
-32%
-40%
-40%
Pulp
Resins
Propylene
Kerosene
Ethylene
+4%
-1%
-9%
-18%
-9%
-1%
-14%
-30%
-44%
-35%
14
P&G Transformation
A Balanced Growth & Value Creation Strategy
Top-line
Productivity
Portfolio
Top-line Acceleration
Organization & Culture
✔
✔
✔
✔
Bottom-line
✔
✔
✔
✔
Cash
✔
✔
✔
✔
15
Productivity Transformation
Cost of Goods Savings ($bn)
$1.6
$1.2
FY '12
Cumulative
Savings:
~$7bn
$1.5
$1.3
FY '13
$1.4
Target
Run-Rate
= $1.2bn/yr
FY '14
FY '15
FY '16e
16
Productivity Transformation
Same-Site Manufacturing Enrollment
Enrollment
Results-to-Date:
Target:
June '12
Cumulative
Reduction
June '13
-5%
-19% as of June 2015
-25% to -30% by June 2017
June '14
-11%
June '15
-19%
17
Productivity Transformation
Non-Manufacturing Enrollment
Enrollment
Original Target: -10% by June 2016
Results-to-Date: -23% as of Dec 2015
Updated Plan:
-25% to -30% by June 2017
June '11
Cumulative
Reduction
June '12
June '13
-5%
-12%
June '14
-15%
June '15
-22%
June '16e
-25%
18
Productivity Transformation
Agency/Production Savings
14/15
Reduction
15/16e
Reduction
Number of Agencies
-40%
~ -25%
Agency/Production Spending
($ million)
-370
-200
19
Productivity Transformation
Cumulative DOH
Improvement
Inventory Days On Hand
-2
-3
-5
-6
-6
-7
-10
FY ‘12
FY ‘13
FY ‘14
FY ‘15
20
Productivity Transformation
Payables – Supply Chain Financing Contribution
Cumulative ($ Bn)
4
$2.3
2
$1.1
$0.2
0
FY 13
FY 14
FY 15
21
Productivity Transformation
Driving Structural Earnings & Margin Improvement
Constant Currency
Core EPS Growth
FY12/13
FY13/14
FY14/15
JAS’15
OND’15
+10%
+14%
+11%
+12%
+21%
Core Gross Margin +50 bps +10 bps
Core Op. Margin
+90 bps +310 bps +290 bps
+50 bps +150 bps +130 bps +320 bps +390 bps
22
Doubling-Down
on Productivity
to Fuel Growth
& Value Creation
23
Past 3 year growth rates and margins thru FY’13
Portfolio Transformation
# Brands
Sales Growth
BT Margin
Before
166
After
65
1 pt. Faster
2 pts. Higher
24
Portfolio Transformation – Before
25
Portfolio Transformation – After
Baby
Fem
Family
Fabric
Home
Hair
Skin
& PC
Grooming
Oral
PHC
26
Major Transaction Timelines
Expected Close
Duracell
JFM 2016
Beauty
Second-Half CY 2016
27
Value Accretive BU Moves
Mexico Family Care
Sales, $ millions
Before-Tax Margin
* Pre = FY ‘15, Post = Going
Pre-Change*
Post-Change*
100
~25
Negative
Double-Digits
Positive
Double-Digits
28
28
Value Accretive BU Moves
India
$ Millions
Organic Sales Growth
Before Tax Profit
Before-Tax Margin
2013/14
2014/15
+Mid-Teens
+High-Single Digits
Negative
Positive
-Low-Single Digits
+Mid-Single Digits
29
29
Aspiration
Serve the world’s consumers
better than our best competitor in
every category and every country
where we choose to compete creating winning shareholder
value in the process.
30
Raise
the Bar
31
Top-line Growth
Consumer at the Center
32
Top-line Growth
# of
Users
How Often
They Buy
Sales
Growth
Profit
Growth
How Much
They Buy
Value
Creation
Margin
Improvement
Cash Flow
Growth
Price They
Pay
Asset
Efficiency
33
Drivers of Growing Users
Product Superiority
Media Reach & Effectiveness
Packaging
Shelf
Sampling
Value Equation & Cash Outlay
34
34
35
36
37
38
35
Millions of Washing
Machine Samples
30
30
25
20
17
15
10
5
5
0
FY '15
FY '16
CY '16
39
40
41
42
43
Baby Care U.S.
P&G 43%
K-C 35%
01/31/09
12/26/15
46
47
Baby Care U.S.
Introduce Brand
Build
Relationship
Create
Preference
48
Baby Care ex. U.S.
Addressing Issues
• Consumer Preferences
• Consumer Value
49
2006
2015
Live Flake Free for Life
50
51
52
Market Premiumization
Consumer Income Up 3X in 10 years
Income per
capita (RMB)
2005
2015
2020
7,792
20,853
30,546
~3X
~4X
53
53
Market Premiumization
Top Price Tiers Driving Market Growth
Market Tiering
FY2005
CAGR
(2000-2005)
Super-Premium
6%
94
24%
130
Premium
21%
106
35%
118
Mid
31%
27%
107
Low
42%
117
109
14%
97
Total
100%
109
100%
112
Source: Nielsen
FY2015
CAGR
(2010-2015)
54
54
Traffic Shifting from Mass to e-Commerce
Monthly Buying Frequency
7
6.5
4.7
1
Hyper-Market
e-Commerce
2008
2015
55
Organization & Culture
Transformation
• Assignment Planning
56
Organization & Culture
Transformation
• Assignment Planning
• Talent
57
Organization & Culture
Transformation
• Assignment Planning
• Talent
• Responsibility & Accountability
58
Organization & Culture
Transformation
• Assignment Planning
• Talent
• Responsibility & Accountability
• Rewards
59
Is P&G Willing to Change?
Portfolio
YES!
Productivity
YES!
Supply Chain
YES!
Top-line Growth
YES!
Organization & Culture
YES!
60
Balanced Growth & Value Creation
Sales
Growth
Cash
Generation
Margin
Expansion
TSR
61
Forward Looking Statements
Certain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward‐looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward‐looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward‐looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward‐looking statements. We undertake no obligation to update or revise publicly any forward‐looking statements, whether because of new information, future events or otherwise.
Risks and uncertainties to which our forward‐looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including disruptions in credit markets, reduced market growth rates or changes affecting our credit rating, and generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to maintain key manufacturing and supply arrangements (including sole supplier and sole manufacturing plant arrangements) and manage disruption of business due to factors outside of our control, such as natural disasters and acts of war or terrorism; (4) the ability to successfully manage cost fluctuations and pressures, including commodity prices, raw materials, labor costs, energy costs and pension and health care costs, and achieve cost savings described in our announced productivity plan; (5) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to technological advances attained by, and patents granted to, competitors; (6) the ability to compete with our local and global competitors in new and existing sales channels by successfully responding to competitive factors, including prices, promotional incentives and trade terms for products; (7) the ability to manage and maintain key customer relationships; (8) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, efficacy or similar matters that may arise; (9) the ability to successfully manage the financial, legal, reputational and operational risk associated with third party relationships, such as our suppliers, contractors and external business partners; (10) the ability to rely on and maintain key information technology systems and networks (including Company and third‐party systems and networks) and maintain the security and functionality of such systems and networks and the data contained therein; (11) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, intellectual property, antitrust, privacy, accounting standards and environmental) and to resolve pending matters within current estimates; (12) the ability to manage changes in applicable tax laws and regulations; (13) the ability to successfully manage our portfolio optimization strategy, as well as ongoing acquisition, divestiture and joint venture activities, to achieve the Company’s overall business strategy, without impacting the delivery of base business objectives; and (14) the ability to successfully achieve productivity improvements and manage ongoing organizational changes, while successfully identifying, developing and retaining particularly key employees, especially in key growth markets where the availability of skilled or experienced employees may be limited. For additional information concerning factors that could cause actual results to materially differ from those projected herein, please refer to our most recent 10‐
K, 10‐Q and 8K reports. Regulations FD and G Disclosure
For a full reconciliation, please visit:
www.pg.com/investors
63
The Procter & Gamble Company Regulation G Reconciliation of Non-GAAP Measures
In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP
measures used in Procter & Gamble's February 18, 2016 CAGNY Conference and associated slides and
the reconciliation to the most closely related GAAP measure. We believe that these measures provide
useful perspective of underlying business trends and results and provide a more comparable measure of
year-on-year results. These measures are also used to evaluate senior management and are a factor in
determining their at-risk compensation. These non-GAAP measures are not intended to be considered by
the user in place of the related GAAP measure, but rather as supplemental information to more fully
understand our business results. These non-GAAP measures may not be the same as similar measures
used by other companies due to possible differences in method and in the items or events being adjusted.
The measures provided are as follows:
1. Organic Sales Growth—page 3
2. Core EPS and Currency-Neutral Core EPS—pages 4
3. Core Operating Profit Margin and Constant Currency Core Operating Profit Margin—page 5
4. Core Gross Margin and Constant Currency Core Gross Margin—page 5
5. Adjusted Free Cash Flow—page 6
6. Adjusted Free Cash Flow Productivity—page 6
The Core earnings measures included in the following reconciliation tables refer to the equivalent
GAAP measures adjusted as applicable for the following items:
• charges for incremental restructuring due to increased focus on productivity and cost savings,
• charge in 2015 related to the change in accounting for our Venezuelan subsidiaries,
• charges for certain European legal matters,
• charges for balance sheet impacts from the devaluation of the foreign currency exchange rate in
Venezuela prior to deconsolidation,
• impairment charges in 2013 and 2012 for goodwill and indefinite-lived intangible assets and
• a holding gain in 2013 on the purchase of the balance of our Iberian joint venture.
We do not view these items to be part of our sustainable results.
Organic sales growth: Organic sales growth is a non-GAAP measure of sales growth excluding the
impacts of the Venezuela deconsolidation, acquisitions, divestitures and foreign exchange from year-overyear comparisons. We believe this provides investors with a more complete understanding of underlying
sales trends by providing sales growth on a consistent basis.
Core EPS and currency-neutral Core EPS: Core EPS is a measure of the Company's diluted net
earnings per share from continuing operations adjusted as indicated. Currency-neutral Core EPS is a
measure of the Company's Core EPS excluding the incremental current year impact of foreign exchange.
The tables below provide a reconciliation of revised diluted net earnings per share to Core EPS and of
Core EPS to currency-neutral Core EPS.
1
Core operating profit margin and currency-neutral Core operating profit margin: Core operating
profit margin is a measure of the Company's operating margin adjusted for items as indicated. Currencyneutral Core operating profit margin is a measure of the Company's Core operating profit margin
excluding the incremental current year impact of foreign exchange.
Core gross margin and currency-neutral Core gross margin: Core gross margin is a measure of the
Company's gross margin adjusted for items as indicated. Currency-neutral Core gross margin is a measure
of the Company's Core gross margin excluding the incremental current year impact of foreign exchange.
Adjusted free cash flow: Adjusted free cash flow is defined as operating cash flow less capital
spending excluding tax payments for the Pet divestiture. We view adjusted free cash flow as an important
measure because it is one factor used in determining the amount of cash available for dividends and
discretionary investment.
Adjusted free cash flow productivity: Adjusted free cash flow productivity is defined as the ratio
of adjusted free cash flow to net earnings excluding impairment and Venezuela charges. The Company's
long-term target is to generate annual adjusted free cash flow productivity at or above 90 percent.
2
1. Organic sales growth:
The reconciliation of reported sales growth to organic sales is as follows:
Total Company
JAS 2013
OND 2013
JFM 2014
AMJ 2014
JAS 2014
OND 2014
JFM 2015
AMJ 2015
JAS 2015
OND 2015
Net Sales
Growth
3%
1%
(1)%
(4)%
(7)%
(9)%
(12)%
(9)%
Foreign
Exchange
Impact
2%
3%
4%
2%
2%
6%
8%
9%
9%
8%
Acquisition/
Divestiture
Impact*
(1)%
(1)%
1%
1%
2%
3%
Organic Sales
Growth
4%
3%
4%
2%
2%
2%
1%
1%
(1)%
2%
*Acquisition/Divestiture Impact includes volume and mix impacts of acquired and divested businesses, the impact of the Venezuela deconsolidation beginning
in JAS 2015, as well as rounding impacts necessary to reconcile net sales to organic sales.
3
2. Core EPS and currency-neutral Core EPS:
FY 12
FY 13
FY 14
FY 15
JAS 14
JAS 15
OND 14
OND 15
$2.97
0.15
$3.50
0.14
$3.63
0.11
$2.84
0.17
$0.93
0.02
$0.96
0.02
$0.92
0.02
$1.01
0.03
0.03
0.31
(0.01)
$3.45
0.08
0.05
0.10
(0.21)
(0.01)
$3.65
0.09
0.02
$3.85
0.04
0.01
0.71
(0.01)
$3.76
0.04
$ 0.99
$ 0.98
0.01
$0.95
$1.04
Percentage change vs. prior year Core EPS
-
6%
5%
(2)%
-
(1)%
-
9%
Currency Impact to Earnings
Currency-Neutral Core EPS
-
0.15
$3.80
0.32
$4.17
0.52
$4.28
-
0.13
1.11
-
0.11
$1.15
Percentage change vs. prior year Core EPS
-
10%
14%
11%
-
12%
-
21%
Diluted Net Earnings Per Share from
Continuing Operations, attributable to P&G
Incremental Restructuring
Venezuela B/S Remeasurement & Devaluation
Impacts
Charges for Certain European Legal Matters
Venezuela Deconsolidation Charge
Non-Cash Impairment Charges
Gain on Iberian JV Buyout
Rounding
Core EPS
4
$
3. Core operating profit margin:
FY 12
FY 13
FY 14
FY 15
JAS 14
JAS 15
OND 14
OND 15
Operating Profit Margin
Incremental Restructuring
Charges for Certain European Legal Matters
Venezuela B/S Remeasurement & Devaluation Impacts
Venezuela Deconsolidation Charge
Non-Cash Impairment
Rounding
17.1%
0.7%
0.1%
1.2%
0.1%
17.7%
0.7%
0.2%
0.5%
0.4%
(0.1)%
18.7%
0.5%
0.1%
0.4%
-
15.6%
0.9%
0.2%
2.9%
-
19.4%
0.4%
0.7%
-
22.8%
0.4%
-
19.4%
0.4%
0.2%
-
22.8%
0.8%
(0.1)%
Core Operating Profit Margin
Basis point change vs. prior year Core margin
Currency Impact to Margin
19.2%
-
19.4%
20
0.3%
19.7%
30
1.2%
19.6%
(10)
1.4%
20.5%
-
23.2%
270
0.5%
20.0%
-
23.5%
350
0.4%
-
19.7%
50
20.9%
150
21.0%
130
-
23.7%
320
-
23.9%
390
FY 12
48.2%
0.2%
FY 13
48.5%
0.3%
FY 14
47.5%
0.4%
JAS 14
48.1%
0.5%
JAS 15
50.7%
0.4%
OND 14
48.3%
0.4%
OND 15
50.0%
0.8%
48.4%
48.8%
40
0.1%
48.9%
50
47.9%
(90)
1%
48.9%
10
FY 15
47.6%
0.7%
0.1%
48.4%
50
0.4%
48.8%
90
48.6%
51.1%
250
0.6%
51.7%
310
48.7%
50.8%
210
0.8%
51.6%
290
Constant Currency Core Operating Profit Margin
Basis point change vs. prior year Core margin
4. Core gross margin:
Gross Margin
Incremental Restructuring
Rounding
Core Gross Margin
Basis point change vs. prior year Core margin
Currency Impact to Margin
Constant Currency Core Gross Margin
Basis point change vs. prior year Core margin
5
5. Adjusted free cash flow:
Three Months
Ended:
Operating Cash
Flow
Capital
Spending
Free Cash Flow
Tax Payment
on Divestitures
Adjusted
Free Cash Flow
$3,633
$3,435
$3,552
$3,988
$(810)
$(832)
$(820)
$(1,274)
$2,823
$2,603
$2,732
$2,714
$363
$183
$183
$2,823
$2,966
$2,915
$2,897
$3,538
$4,480
$(532)
$(691)
$3,006
$3,789
-
$3,006
$3,789
JAS 2014
OND 2014
JFM 2015
AMJ 2015
JAS 2015
OND 2015
6. Adjusted free cash flow productivity:
Three Months Ended:
JAS 2014
OND 2014
JFM 2015
AMJ 2015
JAS 2015
OND 2015
Adjusted
Free Cash
Flow
$2,823
$2,966
$2,915
$2,897
$3,006
$3,789
Net
Earnings
$2,020
$2,398
$2,188
$538
Impairment &
Deconsolidation
Charges
$932
$740
$308
$2,205
Net Earnings
Excl.
Impairment
Charges
$2,952
$3,138
$2,496
$2,743
Adjusted Free
Cash Flow
Productivity
96%
95%
117%
106%
$2,635
$3,228
$350
-
$2,985
$3,228
101%
117%
6