Procter & Gamble Company (The) (PG)

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The Procter & Gamble Company (PG)

Deutsche Bank dbAccess Global Consumer Conference Call

June 12, 2013 4:30 am ET

Executives

Jon R. Moeller – Chief Financial Officer

Analysts

Bill Schmitz – Deutsche Bank

Presentation

Bill Schmitz – Deutsche Bank

All right, we are going to get started here with P&G. I am Bill Schmitz, I am the beverages and Household & Personal Care Analyst for North America, Deutsche Bank. Can we go ahead and run the forward-looking language?

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P&G would like to remind you that today’s presentation includes a number of forward-looking statements. If you will refer to P&G’s most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the Company’s actual results to differ materially from these projections. Also as required by regulation G, Procter & Gamble needs to make you aware that during the presentation, the company will make a number of references to non-GAAP and other financial measures. From completeness, Procter& Gamble has posted on its website www.pg.com a copy of the key slides from this presentation and a full reconciliation of non-GAAP and other financial measures.

It took me a couple of practice rounds to record that, but Don and Carrey don’t need any introduction. We very much appreciate in coming back to the conference this year. So without any further ado, Jon Moeller, Procter & Gamble’s Chief Financial Officer.

Jon R. Moeller

Thanks Bill and good morning everyone. I am going to make some pretty short prepared remarks this morning, which will give us a plenty of time for Q&A. Last June, we sat and shared business and productivity plans for fiscal year 2013. Through the first three quarters, we are on track or ahead on each metric.

Organic sales growth is expected to be about 3% for the year; the midpoint of our initial guidance. Each of our productivity measures are tracking ahead of the plan. We have increased the midpoint of our core earnings per share guidance by $0.10, while absorbing the operating impact from the devaluation of the Venezuelan bolívar and while increasing back half investments.

In April, we increased our share repurchase target to $6 billion and increased our dividend by 7%. While the market share trends have been improving, we held or grew market share in businesses representing over 50% of sales in the March quarter; the third consecutive quarter-to-quarter improvement from 30% in the June quarter last year to 45% in the September quarter to just below 50% of the December quarter and now over 50%.

Overall, global market share trends have improved, but we are still down versus prior year levels. We expect this will improve in the current quarter.

We’ve recently made a few important changes in our organizational structure at Procter & Gamble. As you may have heard, we have a new CEO. We have also announced, we will be grouping our global business units into four industry based sectors. These changes will help us operate more effectively and efficiently driving technical, commercial, financial, and organizational synergies.

We expect this structure will facilitate faster global expansion of brand and product innovations to win with consumers and get people more effectively against the best companies in our industry.

While we must always evolve and change and we will continue to do so, we don’t currently expect foundational changes to our near-term priorities. We will continue to focus on maintaining strong and developing market momentum, strengthening our core developed market business, building and leveraging a strong innovation pipeline and aggressively driving cost savings and productivity improvements to fuel growth.

Let me briefly cover progress against each of these priorities. First, maintaining and developing market momentum. By the end of this fiscal year, our developing markets are expected to be $33 billion to $34 billion in sales. This constitutes the largest developing market business of any consumer products company, roughly 50% larger than Unilever and three times larger than L'Oreal and Colgate in our product categories.

Over the last 10 years, sales and after-tax profit in developing markets have increased about fourfold. Profit will be growing ahead of sales this year and next. Our highest priority developing market sales are up 10% fiscal year to-date and profit will grow well ahead of this.

While we have the largest business in developing markets, we also have one of the largest opportunities. By the end of this fiscal year, developing markets are expected to be nearly 40% of our sales, which is roughly double where we were about 10 years ago, but still well behind several of our largest multinational competitors.

Looking more closely at the BRIC markets; India results have been very strong. In the March quarter, organic sales increased more than 20%; this was the 43rd consecutive quarter of double digit sales growth in India. In the March quarter, over 80% of the sales in the market were growing share.

In Brazil, organic sales have increased high single to low double digits for 31 of the last 36 months or nearly 90% of the time. Value share has been up for 36 consecutive months and 80% of the business was growing share in the March quarter.

Third quarter organic sales in China were up a solid 8%. This marked an acceleration versus our first half growth rates. In this fiscal year alone we have introduced a tie with Safeguard, Pantene, Nature Fusion, Head & Shoulders for Men, (inaudible) Naturals, Mach3 Sensitive, and Gillette ProGlide blades and razors. And we have completed product restages with improved benefits on Rejoice, Olay, Safeguard, Duracell, Whisper, and Pampers. With these innovations, we are growing share across many of our largest businesses. Businesses representing roughly 75% of sales have sequentially improved market share, but we haven’t turned the corner yet on overall share growth.

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