Procter & Gamble's (PG) CEO David Taylor Hosts Analyst Day Meeting 2016 (Transcript)

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Procter & Gamble Company (NYSE:PG)

Analyst Day Meeting 016

November 18, 2016 08:30 AM ET


David Taylor - Chief Executive Officer

Jon Moeller - Chief Financial Officer

Yannis Skoufalos - Global Product Supply Officer

Marc Pritchard - Chief Brand Building Officer

Shailesh Jejurikar - President, Global Fabric Care

Juan Fernando - President, Selling & Market Operations-Latin America

Fama Francisco - President of Feminine Care Business

Charles Pierce - Group President Global Grooming

Giovanni Ciserani - Group President of Global Fabric

Alexandra Keith - President, Global Skin & Personal Care at Procter & Gamble

Carolyn Tastad - Group President. North America, Selling & Market

Matthew Price - SMO President for Greater China


Wendy Nicholson - Citi Investment Research


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, P&G needs to make you aware that during the presentation, the company will make references to several non-GAAP and other financial measures. For completeness, we have posted on our website, a full reconciliation of non-GAAP and other financial measures.

Here is Chairman, President and Chief Executive Officer of the Procter & Gamble Company, David Taylor.

David Taylor

Good morning, everyone. Welcome Cincinnati and welcome to all of you that are joining on the webcast. For those of you that were here last night for the reception, I hope you had the opportunity to meet many of our leadership team, most of whom are with us today. If you’ve listened to any of investor presentation this year, you’ve hopefully taken away one key thing, focus on balanced growth and value creation. It is the same thing in all our internal strategy discussions, leadership team meetings and global webcast. We have one very clear objective, balanced top and bottom line growth and strong cash generation that delivers total shareholder return that returns P&G back to consistently in the top third of our peer group.

Our long-term growth algorithm is aimed at delivering organic sales growth modestly ahead of the underlying growth of the markets where we compete. Our markets today are growing somewhere between 3% and 3.5%. We want to do a bit better than that consistently. We’re targeting core earnings per share growth of mid to high-single-digits, which requires annual margin expansion of 30 to 70 basis points each year. We will aim for high single-digits, but we feel the total range reflects the reality of the slow growth environment like we’re currently facing. This range also reflects our intention to maintain strong investment in the business to support topline growth including the periods when macro factors like foreign exchange or commodities are working against us. We expect to turn these earnings in the strong levels of cash generation delivering free cash flow productivity of 90% or better every year, consistent, sustainable balanced growth and value creation.

To deliver this objective, we’ve been focusing on our big opportunities within our control. First, building and investing in business plans to grow our categories and attract more users to our brands, to accelerate topline growth. Second, driving productivity improvement in cost savings to fuel investment and margin improvement. Third, streamlining and strengthening our portfolio and fourth, transforming P&G’s organization and culture. These four forces are mutually reinforcing, they enable and build upon each other. They will contribute to stronger balanced top-line, bottom-line and cash flow growth.

Now looking at this morning, we have a full agenda. Jon will lead us off with a brief overview of results and a recap of our outlook for the fiscal year. Then John and I will lead a discussion on the four focus areas and the progress we’re making right now in each of those. We hope to bring the work we’re doing to life with presentations from several of our business unit and selling and market operations leaders as well as leaders from our products supply and marketing organization. We will give you a chance in the middle to stretch your legs, then we’ll come back and finish up with your questions.

I thank you again for joining us, for those of you did last night and today and now I’ll hand to over to Jon.

Jon Moeller

Thanks David. As you know, we recently announced our first quarter results which marked a good start to fiscal 2007. One of our key priorities has been to reaccelerate growth. Organic sales for the quarter grew 3%, this includes about a one point drag from the combination of rationalization and strengthening work we’re doing on the ongoing portfolio and it includes the impact of reduced kinase [ph] product imports in the Venezuela. Top-line growth was broad based across categories and markets. Organic sales growth in the U.S. progressed from 1% in the first half of last fiscal year to 2% in the second half to 3% in the quarter that we just completed. Growth in China, -8, -2 to +2 over those same time periods.

We’ve been making sequential progress also in each of our four largest categories. Baby Care, -2, flat, +2. Grooming +2, +3 and +3. Fabric care +1, +1, +5. And Hair Care -1, flat, +2. July-September organic sales grew in each reporting segment and in all 10 product categories. Still work in opportunity remains. Hair Care and Baby Care, two of our largest categories were both up 2%, but below the rates of market growth in those categories. These businesses along with the Grooming business in the U.S. represent notable opportunities for further topline improvement.

On a geographic basis, organic sales grew in each region and in 9 of the 10 largest markets and here too opportunities remain. Sales in the UK for example which continues to be a very challenging highly promotional market were down 2%. Organic sales in China and Russia grew 2%, but again below the pace of market growth. Progress, but more work to do. Sales growth in the quarter was volume driven organic volume was up 3%. All-in sales for the company were aligned with the prior year including the 3 points headwinds from foreign exchange.

Moving now to the bottom line. Core earnings per share were $1.3 which was up 5% versus the prior year. Foreign exchange had a negative 7 points headwinds on first quarter earnings, so on a constant currency basis core earnings per share grew 12%. Core gross margin increased 50 basis points. By constant currency basis, core gross margin was up 130 basis points including 190 basis points of productivity improvement.

Commodities were modest [indiscernible] to gross margin in the quarter feed stocks for propylene, ethylene and tropical oils are up as much as mid-teams since we put our plans together for fiscal 2017. And wage inflation is also an increasing challenge in many developing markets. Productivity improvements contributed 270 basis points of operating margin benefits. We reinvested a significant portion of those savings in product and packaging innovations, media reach and continuity, sampling, R&D, sales coverage and targeted consumer value adjustments in order to accelerate top line growth. So on a net basis, core operating margin was up 20 basis points for the quarter on a constant currency basis up a 120 basis points.

All in GAAP earnings for the preferred share were $0.96 for the quarter also up 5% versus the prior year. We generated $2.3 billion in free cash flow with 85% free cash flow productivity. Returning $2.9 billion to share owners, $1.9 billion in dividends and $1 billion in share repurchase. Our share repurchase flexibility was somewhat limited in the first quarter due to the trading restriction related to the Coty transaction.

So again, all in a good start to the year. As we move forward, progress won't be a straight line, there will be quarter-to-quarter volatility, as you all know comps get more difficult. We need to manage significant geopolitical and currency volatility across the number of our markets. In Egypt the pounds just devalued by 50% and new margin limits were set for the categories that we compete in. The Philippines has just set pricing controls. Nigeria is experiencing an economic crises resulting in very limited access to hard currency. There have been significant devaluation in the wake of the U.S. elections. Or competition is not standing still.

We have work remaining in some categories in markets to get our brands back to market levels a growth. This opportunities are being addressed category-by-category, brand-by-brand, channel-by-channel, we’re after it, but it's not going to happen overnight. While it’s very difficult to tell where things will net out, we’re currently maintaining our organic sales growth and core earnings per share outlook for the fiscal year. We’re expecting organic sales growth of around 2%.

This includes about a half of point of headwind on an annual basis from the portfolio rationalization and strengthening of work within the [indiscernible] categories which will dissipate as we through the year. It also includes a headwind form the lost sales for a Venezuelan subsidiaries in the first half of the fiscal year. We expect all-in sales growth of about 1% including a 1 point drag on growth form the net impact of foreign exchange and divestitures.

Our bottom line guidance is core earnings per share growth of mid single-digits and that range reflects the volatility of the market in which we compete, it reflects the investments we intent to make in the business to accelerate organic sales growth in a sustainable long term market constructive value accretive way. We’re still sorting through the foreign exchange in geopolitical impacts of the U.S. elections, we do not plan to cut investments as a way to manage through these events. So we’ll have to see as things settle down where we net out for the year. However, it’s unlikely the very recent impacts we’ve felt will reverse or recover within the second quarter.

Fiscal 2017, will be another year of significant value recurring to share owners. We expect that the dividends of over $7 billion. We’ve reduced outstanding shares by $9.4 billion in the transaction with Coty and we expect to make $5 billion of direct share repurchase, in total about $22 billion in dividend payments, share exchange and share repurchase. We continue to outlook up to $70 billion in dividend share exchange and share repurchase over four years through fiscal 2019.

As David said, our long term objective is to return to and sustain balanced growth and value creation. Leadership total shareholder return requires balanced top line growth, bottom line growth and high cash efficiency, this isn’t an opinion, this is isn’t the philosophy, it’s a fact. Delivering top third TSR entirely from the bottom line would require 200 basis points of margin growth each and every year, that simply isn’t going to happen, our competitors aren’t going let that happen.

Delivering top third TSR entirely through the top would require 8% organic sales growth year-after-year, it’s never happened in our industry, it isn’t going to happen. Balanced top and bottom line growth along with high cash efficiency is the only way we get home, period.

We must accelerate top line growth reaching and sustaining organic sales growth at or slightly ahead of underlying market growth. We’ve strengthened our growth hand through our portfolio moves and are transforming our organization and culture to more consistently win. Productivity improvement and cost savings underpinned all of this providing fuel for top line growth and margin expansion.

I’m going to start there with productivity in terms of covering the four focus areas that David mentioned. Top line growth and bottom line growth are simply not separate endeavors. They reinforce and fuel each other. Nearly five years ago, we stated that we needed to make cost and cash productivity part of our culture, it’s integral to our culture as innovation. We’ve made significant progress, over the last five years we’ve accelerated and exceeded each of our productivity objectives, that strong track record and our line of sight to additional opportunity and from our intent to save as much as another $10 billion in cost over the next five years.

We expect to reinvest, as David said, a significant amount of the savings in R&D, in product and package improvement and sales coverage and brand awareness and trial building programs to deliver balanced top and bottom line growth. We are driving productivity up and down the income statement and across the balance sheet, all areas of costs and cash are opportunities for productivity improvement.

I’d like to introduce my colleague, Yannis Skoufalos, our Global Product Supply Officer to share with you in more detail productivity areas, opportunities and the areas of cost of goods sold.

Yannis Skoufalos

Thank you, John. Ladies and gentlemen, good morning to you and I’m really honored to be with you. Back at 2014 at our Investor Day I said with you the great progress that is being made against our commitment to deliver $6 billion of cost of goods reductions over five years. I’m really pleased to tell you that we were able to exceed that commitment and with more than $7 billion of savings and I’m excited to share our plan to sustain this productivity with significant potential ahead of us.

I’m more than confident that costs of goods savings can once again be a key contributor to the company’s intent to save $10 billion over the next five years.

So let me explain how I see this. We are making significant investment in [technical difficulty] transformation, we actually call it Synchronization. This is the creation of supply network all the way from our customers to our suppliers who responds in real time to consumer demands. In an ideal world, our supply network would be fully linked and synchronized with real time point to save data and a consumer purchase literally will trigger updates to our manufacturing and planning schedules and us ordering materials to our suppliers.

This transformation, it is a strategic imperative to serve the evolving needs of our customers, of our consumers and be a huge value creation for our company. Synchronization starts with digitally linking P&G supply network to our customers. This allows us to respond with the right product on the right frequency and it allows both parties to reduce inventory and cost. I would like to cite a great example, this is of our North American mixing center network, which is shown here. Through this network we can reach 80%, I will repeat that if you don’t mind me, 80% of our customers in less than a day and this network opens up new cost savings opportunity for all of us.

By using mixing centers we are able to put more products on each track reducing the number of tracks on the road. And we have literally more concentration on key shipping lanes allowing us to secure a far better pricing and a far better service. In many cases, we are creating dedicated lanes filling tracks that would have previously been empty. As a result, transportation in North America have been reduced significantly despite higher labor costs and tight trade capacity. And if you wonder, this is not only North America, similar benefits from synchronization are being delivered in places like Latin America with the 10% savings in transportation and warehousing over the past three years.

As importantly, for our retail partners, stock levels have improved and our sales [ph] availability has reached record levels. As you can imagine this drives both top and bottom-line. Now synchronization is powered internally by highly automated operations with global standard equipment that we call manufacturing platforms. Over the past decade, we have reduced the number of platforms by 50%. I’ll cite the example of laundry liquids where we have reduced the number of bottle sizes from 100 to 20. Now this for us provides faster, more efficient response timing to product changes and initiative launches. We are relentlessly focused or making this operations more efficient.

Much of the progress today could be attributed to what we call Integrated Work Systems or IWS is our manufacturing methodology that focus on zero loss identification and 100 employee involvement, total employee involvement. There are four phases in this particular methodology of IWS as you progress, you reach levels of excellence, of stability, productivity, agility and integration. As you can imagine Phase 4 is the highest level.

Over the past five years, we have increased the number of sites at Phase -- we have increased the number of sites at Phase 3 and 4 from 37% to 70%. These sites have the highest capability and deliver the most value creation. IWS, our methodology together with our four double automation and digitization delivers manufacturing productivity. A greater example comes from our Mariscala site in Mexico where over the past four years we have increased productivity by 60%, almost half of that improvement is attributed to the digitization programs that we have and the other half is related to automation programs where robotics come in play, robotics in the area of piloting in automated guided vehicles and automated bottle sorting.

For the total company, this programs in manufacturing have contributed to 27% same site enrolment reduction over the past five years. We expect this progress is going to continue and actually we think automation, as it becomes more affordable and digitization -- along with digitization will eliminate manual work and will increase or organizational capability across the globe. We are leveraging our supply network design to accelerate adoption of all of these platforms. Adoption of automation, manufacturing standardization to fewer strategic sites, multi-business unit site that operate together as they are located closed to population centers.

Since 2013, four years ago, we have reduced our number of plants globally by 10%, while increasing the percentage of multi-category sites by 15%. I want you to know that this transformation is underway in North America, in Europe and we are expanding it in Latin America, Middle East and India and all other markets in the near future. These new manufacturing sites are being build with efficient overheads structure, so that they can be located strategically and help us reduce both the wage raise and the transportation and warehousing costs.

When we initially announced this transformation, we talked about delivering up to $2 billion in shareholder value. I want you to know that this plants are on track and we expect the savings to ramp up over the next several years as we move past the initial period of investment. This entire supplied network of physical assets is being synchronized through digitized sales and operating planning work which spans across from a finished product of our customer shipments all the way to our suppliers.

In 2012, we launched a program to simplify that entire planning ecosystem from 300 planning centers to eight of them. This has enabled us to standardize the entire system and processes and significantly improve our productivity. This journey continues now, continues by investing in what is called algorithmic planning, enabling agility, accuracy, while improving organizational capability and driving more savings. We are also focused on more strategic supplier’s relationships. We have fewer, we have integrated the suppliers with us and we can now leverage even more our scale, digitize the flow of information, reducing production cost for both parties.

Now, we will continue to strategically optimize our supplier base and expand our integration so we can drive up more savings. Over the past five years, we have reduced our total number of supplier by roughly 20% and we’ve become most importantly and I think that’s quite a fascinating evolution to co-locate some of their employees next to our planning centers. We actually have 50 suppliers that as we speak, across the globe, they are co-located on our working force at our own planning centers.

Supplier's partnership and collaboration, I want you to be reassured leads to new savings opportunities. For examples, we have reduces perfumes for more than 30% as part of our business simplification efforts. This simplification creates bigger, fewer spend pools [ph] and allow us to drive better pricing and reducing the production cost for P&G and for our suppliers. We have saved in that area over $250 million since that fiscal year effort 2014.

Now, on top of this savings, we continue to focus literally elimination non-value added cost from our product design and manufacturing process. I would like to site the example in Baby Care where we have implemented a technical solution on our converting lines to combined material that has given us an ability of close -- of savings of close to $50 million on the lines. This lean approach is not only the examples of perfumes and baby, I want you to know it is embedded in every one of our business units.

Now, representing 62,000 men and women in product supply, I would like to close by discussing our culture. The plant that brings to life everything that we do. Every single of our men and women in product supply, they are hardwired in delivering value creation for P&G. we are continuously re-skilling this work force by adopting and adapting technology that improves productivity and customers service level. I believe that this culture along with our synchronizations strategy in umbrella gives us great confidence that we will be able to meet our productivity commitments and that we will continues to fuel the top line growth and gross margin improvement for years to come.

I would like to thank you and turn back to Jon. Thank you

Jon Moeller

Thank you Yannis. Through the work that Yannis has just describe and as he’s mentioned, we have reduces manufactures enrollment by 22% all-in over the last four years, that figure includes staffing necessary to support capacity additions and as Yannis indicated on the same site basis manufacturing enrollment is down about 27% through June 2016 with additional progress planned in 2017.

In February 2012, we announced that we would reduce non-manufacturing or overhead enrolling by 10% over five years. As of July 1, we've reduces rolls by nearly 25%, 2.5 times the original target. Including divestitures, we’ll reduce rolls by about 35% by the end of fiscal 2017.

To put this headcount reductions into perspective, we compared ourselves to 3G, generally regarded the best in class benchmark in cost management and overhead efficiency. Our 25% reduction in overhead manufacturing staffing compares to the 3G Benchmark range of 5% to 23%. We continue to see additional opportunity even with continued reinvestment back into R&D and into sales coverage. As we operate in the new simpler more focused 10 category company going forward.

We’re also making significant progress in making our marketing dollars more productive.

I’d like to welcome Marc Pritchard P&G's Chief Brand Building Officer.

Marc Pritchard

Thanks Jon. Good morning everyone. We are driving marketing productivity by improving the efficiency and the effectiveness of our investments to grow users and deliver balanced stock and bottom of growth our brands. P&G is one of the largest advertisers in the world. With our marketing cost being the third largest spend pool behind people and products. And three years ago, we spent nearly $8 billion in advertising, including more than $2 billion in agency fees and the cost to produce advertising and marketing related material. Now we’re improving the efficiency of these spending by reducing cost to consumer [indiscernible]. Category-by-category, market-by-market, we consolidated to reduce the roughly 6,000 agencies that we use for advertising, media, public relations, package design, in-store materials by about 50%.

We reassigned several brands to higher quality partners and we cut the workload to produce far fewer, but much better advertising and marketing campaigns. We’ve already saved $620 million, which has been reinvested in media and sampling. We see more savings runway ahead using digital technology for production, pooling more production and also using open sourcing and creativity in our work to create advertising, both within and outside of existing agency networks.

For example SK-II users open sourcing to develop and product it’s advertising at about 50% the cost of traditional ads. The companywide there is still plenty of opportunity ahead as we are still spending more than $500 million in advertising production around the world. We are also improving the efficiency and the effectiveness of our media investments by increasing media reach and continuity while optimizing the mix across mediums.

Our portfolio of house holding, personal care brands are used and purchase everyday by about 5 billion people around the world. So to make sure that our brands are top of mind when it’s time to buy, we need broad media reach to create awareness among all potential category buyers. Across the range of communications methods that they use search, social, online video, mobile, print, television and many others.

We are increasing media reach by 10% to 20% on brands like Tide in the United States by shifting to more broadly appealing television shows, and also higher reach digital platforms. Febreze is broadening its reach in social media and online video by using a broader target audience definition to reach all potential hair care buyers. We are delivering mass reach on Pampers, but with greater precessions, at the right times, to the right people, targeting communications to moms in the start of their pregnancy to birth and then throughout the diapering years.

We are also increasing media continuity by bouncing spending more evenly across months and quarters on all brands to enable top of mind awareness year around. Even a brand like Vicks, which is traditionally heavily advertising -- heavily advertised during the peak cold season in winter has better balanced its advertising on a more year around basis, because 40% of colds actually happen outside of the winter.

And we are optimizing medium mix by following consumer behavior to advertise based on when, where and how much time consumers spend engaging with ads on various media platforms. And today roughly one-third of consumer products advertising is in some form of digital media. P&G brand spend in line with the industry amount average, but what’s more important is to tailor the ads to be more effective in creating brand and benefit awareness, based on how consumers actually view the media. For example, online videos are effective in a 15 second and a 30 second format very similar to TV.

So our brands extensively use online video and TV of course to communicate the superior performance. But we’re also increasingly using five to six second formats that quickly convey the brand and the benefit given the ad skipping behavioral that we know happens quite frequently. And on social media, we make as work in literally two to three seconds recognizing the pipeline or wiping through the new feeds. Of course, they’re still there is a place for longer form advertising on all mediums and it must be highly engaging on what matters to people and where the brand matters.

For example Pantene’s Strong as Beautiful campaign brings to light distinctive elements of Pantene’s superior performance through the pro-vitamin product story that deliver a benefit of strong beautiful hair. And Pantene is also part of the cultural conversation, nearly doubling reach through free earned impressions from social media and public relations with diverse brand ambassador such as Selena Gomez, Jillian Hervey and expressing Pantene’s point of view that strong and beautiful daughters come from time spent with her Dad. Just take a look.

[Audio/Video Presentation]

Well, the three daughters have done a lot of bad Dad dues [ph]. Now as like Pantene Dad do always like a girl, Arial’s #dadsharetheload, secret stress tested for women and SK-II marriage market takeover are not only highly effective, they’re culturally relevant. Becoming part of the broader culture conversations and generating free earned impressions.

For example SK-II marriage market takeover in China delivered 1 billion impressions in paid media and an addition 4 billion impressions through public relations and social media, a fourfold increase in reach and frequency. By improving the efficiency and the effectiveness of our marketing spending, P&G brands are continually improving productivity to grow users and drive top and bottom-line growth.

Thank you. I’ll turn it back to Jon.

Jon Moeller

Thanks very much Mark. Finally, we’re working to improve the effectiveness of our promotional spending. In fiscal 2016, we spent $15 billion and promotional spending. A portion of the spending is directly tied to pricing algorithms and trade terms with our retailers. But even excluding these dollars, it’s too big of a spend pool to ignore. We have a significant amount of spending available to optimize. We see clear opportunities to improve the effectiveness of the spent for us and our retail partners to build the value of our categories and our brands.

As we approach enhancing the effectiveness of these dollars, we will not do it in a way that puts our brands at a competitive disadvantage. Our key objective is to drive category growth with our retail partners by leveraging new tools and data analytics to help identify which events work best and which skews are most effective. For example in some of our categories, a full price and capped display of a premium tier product will generate more revenue and profit for both our retail partners and ourselves than a deep discount promotion on a lower price item.

Combining our efforts and resources on joint marketing programs can be more productive to drive additional shoppers into the store and to our categories than deep discounts. More effective spending and category growth are the objectives here, a win-win for us and our retail partners.

Now, taking products as a whole, net of reinvestments and to innovation, sales coverage, media and sampling, productivity has enabled us to deliver constant currency gross and operating profit margin improvement and high single to double-digit constant currency core earnings per share growth in each of the last four fiscal years. We’ve improved gross and operating margins by triple digit indices both including and excluding currency in the year we just completed.

Over the last four years in our developing markets, constant currency earnings have grown six times faster than organic sales due largely to productivity cost savings and portfolio choices that have strengthened the overall profitability of our business. Again, top and bottom line growth are not separate endeavors, they reinforce and fuel each other, they’re part of the same ecosystem they live together, they depend on each other, they can’t be separated. The second of the four priorities we’ll discuss is portfolio transformation. I want to take just a minute to highlight where we’ve been and where we’re heading to help illustrate the significant changes our company has made to prepare us for our next 180 years.

P&G is a very different company today than it was just 10 years ago, we’re much simpler and more focused. Between our portfolio moves and productivity improvements, we’ve as I said earlier, strengthened our growth hand for the longer term. Think about the significant simplification we’ve made over the last decade, we’ve reduced the number of categories we compete in by 60% and brands by 70%. We’ve simplified the number of go to market clusters for which we serve the globe by 50%. We’ve reduced the number of manufacturing sites mainly in developed markets and moved more of the work closer to consumers and faster growing developing markets.

As Yannis said, we’ve simplified manufacturing platforms by 50%. Manufacturing enrollment is down by 30%. As Mark said, we’ve reduced the number of advertising PR and agencies supporting the business by 50%. We’ve reduced the number of office buildings and technical centers by 60% and 25% respectively. We’ve cut the number of legal entities in half, we’re processing 30% tier [ph] invoices each year.

Overhead including divestitures will be down 35%. 10 years ago, it took a 140 category country combinations to generate 70% of the company sales, in our new portfolio less than 50 category country combinations generate 70% of sales. So 140 to 50 and we’re growing in almost half of them now. This is significant simplification that enables better execution leading to stronger more sustainable results. The day after the quarter ended on October 1st, we reached a very important milestone in our portfolio transformation program closing the duty transaction with Coty.

This marks the completion of the most significant portfolio transformation in P&G’s history. In just over two years, we’ve divested, discontinued or consolidated of 105 brands. This brands represents about 14% of fiscal 2013 sales and only 6% of profit. Over the last decade, we've exited 12 product categories Bleach, Water Purification, Kitchen Appliances, Pharmaceuticals, Coffee, Snacks, Pet Care, Batteries, Fine Fragrance, Cosmetics, Retail Hair Color and Saloon Hair Care. With each of this exits, our primary objective was to maximize value to shareholders. In total across these transactions we estimate we’ve generated $8 billion to $9 billion of value for our shareholders.

Then would have been created by continuing to operative these businesses ourselves. We’ve done this by finding good owners for our brands and good opportunities for our people and by effectively structuring these transactions. The businesses we've existed, they’ve gone to owners for whom these are core categories. The buyers paid full prices and have largely succeeded with the brands they’ve brought. That's good for P&G and our share owners and it's good for them. We’ve streamlined our portfolio for faster growth of higher profitability.

We now have a much stronger portfolio that's better positioned to win. The 10 category portfolio we’re moving forward with has historically grown a point faster and is 2 points more profitable than the old company. These are categories where P&G has leading market positions. These are categories where purchase intense and choice are driven by a specific job to do and a product’s effectiveness in doing it than by self expression and/or fashion trends. 10 years ago about a third of our sales were in categories where purchase decisions we driven primarily by fashion, flavor or fragrance, effectively zero today.

Consumer's use these categories on a frequent basis typically daily. Daily use categories are important to our resale partners, they drive shopping trips and dollars. Loyalty to brands is often higher in daily use categories. The brand relationship is a closer one and we sell more. The categories we’re retaining leverage are core strengths as a company, consumer understanding, branding, innovation and go-to-market capabilities. Much more fully than the portfolio we've divested.

We've also simplified within the 10 category portfolio making smart choices for short, mid, and long term value creation foregoing bad business even when these choices create near term top line pressure. In hair care, we've reduced the number of brands we bring to market by 65%, SKUs by 40%, formulas by 25% and laundry we've reduced the number of brands by 35%, SKUs by 30%, manufacturing platforms by 35% and the number of different packages we produced by 40%.

The total number of SKUs in the ongoing 10 categories are down 24% from where we started. We are beginning to annualize the choices we made early last year to strengthen our line ups in Mexico and India as to examples, organic sales in these markets were up 6% to 9% respectively in the July-September quarter. Importantly, local currency profit continues to grow faster than sales in both of this market.

The steps we’ve taken to streamline and strengthen our fabric care product portfolio discontinuing product forms such as additives, bars, bleaches, and powder detergents will continue to be a top line drag through most of next calendar year, but will improve the profitability of the business and its long term attractiveness. As we come out of this, we'll have strong top line growth that is really worth something. There is really no point to growth if it isn’t worth something.

This completes the first portion of the presentation this morning. We'll now taka 20 minute break, we'll return to discuss the work we doing with accelerate top line growth and improved the Company’s organization and culture. Please be back to your sits. John do we have a time, 9:35. Thank you very much.


David Taylor

Welcome back. I hope you can see in the first part, we made great progress in the transformation of P&G’s portfolio and in driving productivity improvement and cost savings, both which are critically important to getting back to balance growth and value creation. However, as Jon demonstrated earlier, we can’t get to our TSR goals with cost savings alone. We have to deliver steady consistent top-line growth at/or above market levels to reach our goals. Accelerating top-line growth has been and clearly remains our biggest value creation opportunity right now. And we’re making progress, but we’re not, where we need to be.

Top-line growth starts and end with the consumer and shopper, in delighting them. Winning the zero, first and second movements to truth, when consumers research our brands online, when they purchase them in the store online and they use them in their homes. Winning these three critical movements of truth requires consumer and shopper understanding and insights, that lead to improved product and packaging innovations. Consumer communication and retail programs that lead the competitive advantage for P&G’s brands and products.

Now we’re investing in packaging product innovation and go-to-market programs that delight consumers and importantly build categories, and you’ll hear more about building categories. We are market leaders in our categories and we take responsibility for growing those categories. When we do our work well consumers want to use our brands and retailers want to partner with us, because we’re helping them grow also. Throughout P&G’s history, we’ve led market growth by creating new categories or reinventing existing ones.

Now I’ll give you an example and there are many examples I can give you, but let’s takes Febreze Car, go back to six years ago. It was a sleepy category about 250 million in retail sales. Many of you probably used the products, how many of you had a Christmas Tree hanging from your rear view mirror. On a hot day what happen, it blew you away with fragrance, on a cold day nothing, a week later nothing, they didn’t work.

So we develop a product with a partner outside that has special member that volatized the perfume in a hot car and a cold car very consistently. Day 1, day 7, day 28 very consistently and what happen overtime, we were able to grow that category. And in-store, when we went to talk to the retailers, where do they want to put it. In the car isle, how many people shop in the car isle, not a lot. We convinced the retailers to put it with the consumer shop, where most of the purchases are made and we put it in the air care isle and then what happen over the next six years, the category grew from $0.25 billion to $0.5 billion and we led that. Today we have almost a 45% share of that category.

But it illustrates what happens when you come with a product that solves the dilemma and it may have been a frankly unarticulated need, but it did it really, really well. We grew the category and the retailer says we’ll reward you with that because you grew our sales and you grew our margins. There is many examples, we just launched Febreze [indiscernible], three of our forms.

The category is growing 4% or 5%. Six months after we launched, category has grown double-digit, we’ve gone from zero to over 20 share in our leading form, which is our aerosol, is over 40 share. But it illustrates what happens when you understand what consumers need or what they want or maybe what they may appreciate if they had and give it to them and work with your retailers to create the environment store were the category grows. Innovation driving category growth, you will hear more example in just a few minutes.

But given the need to accelerate sales growth, some of you may ask, why haven’t you made near-term market share growth your primary topline objective, and I understand the desire for faster growth and for a single minded short-term objective. But we’ve seen this movie before and frankly we don’t want to live the sequel. We’ve gone through periods of extreme focus on short-term growth and the bottom-line suffered. The pendulum swung the other way, we’ve gone through periods where it’s almost single mindedly on getting the bottom-line and the topline suffered. This again leads us back to balance. We’re as impatient as anyone to accelerate topline growth and get back to our long-term target rates, but we want to get there and sustain it, while delivering bottom-line and cash targets.

We want to grow the number of users of our brands in the usage in our categories to accelerate organic sales in a sustainable long-term market constructive in value accretive way. If we attract more users to our brands and we lead the growth of the categories, our marketshare growth will follow. Now, I’ve asked several of our business unit and SMO precedence to give you some more perspective on the work they’re doing to accelerate growth. We got pictures of all the ones that have come up and then we’re going to start with the business units.

Shailesh will discuss our work in Fabricare, first, Buck [ph] will cover filmcare, Charlie is going to discuss Grooming, Jon is going to cover Baby Care and then Alex will highlight the work we’re doing in skin and personal care. We’ll start with Shailesh.

Shailesh Jejurikar

Thanks David. Global Fabricare is an attractive category with almost $70 billion of retail sales and market growth of about 3%. P&G is the market leader in this category, we have nearly a 30% value share. Fabricare is the largest category at P&G with over $14 billion of sales, it is about 22% of the company’s sales.

We have a concentrated portfolio with four brands making up nearly 85% of our category sales, Tide, Ariel, Gain, Downy which is also called Lenor in some markets. We have four main focus areas for growth and value creation in Fabricare. First is winning in priority markets, winning in fabric enhancers, winning with new innovative forms like beads and pods and driving productivity to fuel investments for growth and improving profit margins.

The 10 priority markets represents 65% of our sales and over 90% of our profit. As you might guess, many of these are developed markets like the U.S. where we had strong share positions. Therefore to deliver sustain growth of our business as David said, we need to drive growth of the markets. And then our shares within them. To enable this, we have become much more deliberate about what it takes to grow the category.

There are really three strategic plans we've focused on trade in, trade up, and trade across. Let me talk about trade in first. We need to ensure value equation that’s strong in all price tiers where we choose to compete. Tide simply which plays towards the value end of detergents in North America is a good example. Tide simply is priced at a premium to competitive mid and low tier brands, but it’s seen as excellent value by consumers who shop in this tier. It is a great entry point for consumer who aspired the use Tide, the best brand in the category.

Sampling is another great way to trade consumers into our brands. We have significantly increased our investment in sampling to give consumers the best experience possible when they buy their new machine. We have in fact increased sampling coverage six fold in the past two years. We are also driving trade in which sharper consumer insights. In Japan, we have done this by leveraging insights in how consumer behavior changes with the seasons. Just take a look at couple of Ariel commercials from Japan.

[Audio/Video Presentation]

The second drive category growth is trade up. We’re driving trade up with our premium propositions, most importantly the unit dose form which has reached over $2 billion of retail sales and has been a key to driving category growth. Another huge category growth drives is dosing. One of the biggest barriers for category growth in the U.S. has been the increased household penetration of high efficiency machines. The medium size wash tub of the installed base of machines has increased by more than 25% over the past 6 years, and is still trending up.

As these machines grew, consumer under dosed, optically the loads looks smaller and many machine manufactures advices them to use less detergent. Because some detergents were not designed well for this machines. As a result, the consumer was getting a sub optimal performance. We’ve addressed in the U.S. by adjusting our recommended dosing to ensure our consumers use the correct amount for these larger loads. Larger machine size have also resulted in fewer wash loads. Most of this new machines, offer a quick cycle when you have a smaller load. But less than 5% of consumers use quick cycle today. Either because they don't know it exists or they believe that they will not get the right level of cleaning.

Our efforts to teach consumers about the quick cycle loads has the potential to increase load frequency by up to 30% and can be much better from the sustainability standpoint too. Because it reduces energy and water usage despite doing more loads. We’re also looking to drive category growth by getting consumers to trade across, adding new products to their regiment to achieve an even better consumer experience. Making simple, but important steps like having the same fragrance across product forms removes barriers to building consumer regimens.

In store execution is also very critical to expanding the shopper basket. We’re working with many of our retail partners to implement shelving solutions that drive regimen in fabric care. This very deliberate program is really beginning to make a difference in category growth. As you can see the results in our top two markets are quite impressive. We have grown the category and grown our sales ahead of the category.

Fabric enhancers is now over a $3 billion business for us, we’ve delivered 8% top line growth over the past five years, with 6% coming from the base liquids business and about 30% growth on beads. But the great news is there is still plenty of growth opportunity ahead. Fabric enhancer load penetration is less than 30%, even in a developed market like the U.S. load penetration is only 27%. The key to increasing load penetration has been making this relevant for consumers.

Some consumers especially millennials either don’t know what the product is for or think it is for a specific load. Let’s look at a couple of examples that demonstrate Downy’s benefit and make the brand relevant for it be used on every load.

[Audio/Video Presentation]

New innovative forms like unit-dose and scent beads are also significantly accelerating our growth. As I mentioned, our scent beads offerings including Downy Unstopables, Lenor Gain Fireworks and Bounce are delivering strong and continuous year-on-year growth of approximately 30%. These results support our reason to make Unstoppables a billion-dollar brand. Scent beads like the unit-dose are a huge premium growth opportunity and we are still on the journey to expand them globally.

Earlier this year, we executed a very successful launch of Lenor Beads in Germany, where we already reached an [indiscernible] share in just five months. 10 points of share growth where incremental to Lenor making the total brand over a 50 share. But more importantly, the total fabric enhancer category in Germany is now up 8%. Just as we speak, we’re launching Beads in the Arabian Peninsula as well. Productivity essential part of the strategy we have to ensure the flexibility to invest in our products packaging, branding and sales coverage.

We will continue to simplify our operations to deliver step change on productivity. We are on track to make -- to deliver our structural savings program, which is benefiting from the supply chain transformation that we have. By the end of this effort, we expect to have reduced the number of laundry product formulations by over 40% and simplified manufacturing platforms by about 50%. At the same time, we have rationalized our laundry packaging menu to serve consumers in a more cost efficient way, resulting and 50% packaging solution simplification.

This strategy has enabled more effective execution of innovation, increased cost savings and significantly reduced capital spending. The simplification of our work is also helping us free of capacity to move much faster on innovation. A good example is the work on Tide Pure Clean, when we went from idea to market in just nine months. This is great example of productivity improvement driving, the top-line in addition to the bottom-line.

In summary, we have a very clear focused approach to deliver balance top and bottom-line progress. Our focus will continue to be on driving cost savings to fuel investments needed to win in our top priority markets with product superiority and with new forms that delight consumers and grow our categories.

Now I hand it over to Fama Francisco, President of Feminine Care Business.

Fama Francisco

Thanks Shailesh. The global Feminine Care category is over $20 billion in sales and growing at about 4% every year. With our big brands Always Whisper, Tampax and Always Discreet we are the global share leaders sold in over 130 countries around the world with nearly 30% share. We have strong share positions in North America, Europe, India, Middle East and Africa and Latin America. And this month, we are restaging our premium line-up in China to capture a much bigger part of this fast growing market. With roughly $4 billion in sales, these brands are creating significant value for our consumers, customers and shareholders.

We’re also accelerating top-line growth on our Always Discreet brands are entry into the fast growing adult incontinence category. This category has the market size of $6 billion and growing 6% to 7% every year. In sun care, we are accelerating growth through four key strategies. First is to give the consumer the product experience that she want. Second is to launch innovation that grows the category. Third is to win her a point of market entry. And four is to accelerate productivity to reinvests behind growth. We do this new product, package and commercial innovations and I’ll share with you some examples of how the strategies are working to drive growth for P&G and the category.

We’re leveraging our best performing and most highly rated pad Always Radiant to provide consumers with the best experience possible. This uses a proprietary absorbent material that absorbs 10 times its weight, but feels like nothing. The flex foam course design is so soft and flexible that you forget that the pad is even there. The Radiant packaging is fresh and useful which is attractive to younger consumer and the result is strong. Radiant’s share of the U.S. pad market was up nearly a point over the last six months contributing to over a point of share growth for the Always brand and over two points of growth for the overall U.S. pads market on the past six months basis.

We are also using the superior technology and private experience to establish our super premium segment in the China market. We just launched Always Infinity in Radiant this month to offer the best assortment of this proposition to Chinese women. The early results are encouraging and we expect this imported premium innovation to drive trade up among existing pad users as well as attract new users into the China pad market.

In addition to our top-end entry with Infinity and Radiant, we also have to address the Chinese consumers need for superior comfort across our entire line-up. To do so, we launched our entire brand including a new cloud like soft cotton line that delivers comfort and breathable like never before. We delivered upgrades to our super dry product with much more softer and more comfortable wings as well as a slimmer, longer and more breathable nice product that provides superior comfort overnight.

This relaunch was supported by a new campaign, Oh no, Oh yes to communicate comfort beyond imaginations. Both launches were introduced at a PR event just a few week ago at the iconic Beijing Olympic water tower which generated unprecedented coverage. We had live streaming in our biggest customer Timo and we also had live streaming in Weibo and WeChat which are the biggest social channels in China. The early results are strong, behind flawless customer activation in retail support which Matthew will discuss more later.

In Feminine care, discretion and portability are also important aspects of the consumer experience in addition to fundamental performance. Our recent innovation on Tampax, the pocket per line provides the best protection of our pro-Tampon in a new pocket size form which comes with a breakthrough wrapper that is very Discreet, very compact with an easy to open tab. This product allows women to use it conveniently both at home and for on the go. Over the last six months, at Tampax pocket per line has reached 4.5 women adding 700,000 new users to the Tampax brand and 600,000 new users to the overall Tampon market in the U.S.

It’s another great example of how we’re using products and packaging innovation to improve the consumer experience and grow the category. Another example of winning with both the product experience in innovation is Always Discreet. Our recent introduction is at the fast growing adult incontinence category. This is a category where we can make a real difference for women by bringing superior technology as well as a more Discreet usage experience to help normalize the condition. Always Discreet is significantly preferred versus competition because of its thinner, less noticeable design and superior odour control and it also helps that Always is a brand that these women have known and trusted over the last 30 years.

The potential for always discreet is significant. In the U.S. and very simply around the world, one in three women experienced incontinence and actually as you go above the age 50 its 38% above the age of 70 is over 55%. So somehow we will all -- all of us will get there. So out of the one is three women, that actually experience the condition before we launched Always Discreet, only one in nine women actually used the category. Now only two years later, since we launch always discreet. One in seven women are using the category which is an indication that our proposition is working and that's even more potential ahead.

Our adult incontinence value share in the eight markets we are in range between 10% and 20% and this proportionately appeals in new users. In those markets, the category growth has accelerated by more than 50% since we launched. Creating tremendous value for our customers and shareholders. In the U.S. for example, before we launched always discreet the category was growing about 5%, its now growing to 7% to 8%, in the UK 8% before we launched, now about 12%. So the market has really accelerated since we launched.

Next time, I want to share with you some examples of how we are growing the category and driving new users through commercial innovation particularly a point of market entry. In 2014, just two years ago. The brand team came across what we call an Outrageous Fact. An Outrageous Fact is something that is touching you with the heart and makes you want to do something. In that Outrageous Fact, amongst all the girls that go through puberty every year. 50% of them experience a huge drop in self confidence and many of them will never recover their self confidence through adulthood.

This is often triggered by the onset of their first period, but its also affected by societal pressure, gender bias and demeaning phrases such as, like a girl, that are so ingrained in our every day culture that we don't even notice its everyday effect. Because of that, Always made it’s brand mission to stop the dropping confidence this growth experience at puberty and empower girls to fight against any limitation that they may face. That's how the LikeAGirl campaign was born and is started as a one market experience for the U.S.

This summer, we found another Outrages Fact. That seven out of ten girls feel that they don’t belong in sports. And because of that, over half of girls around the world quit sports at puberty. You know how much times that rate is higher versus boy. Two and the half time the rate of boys dropping out of puberty. Boys dropped out 20%, girls dropped out 50%. There is no reason why that should happen. So our most recent addition keep playing like a girl was activated in 42 markets around the world simultaneously conceding with the real summer Olympic. Let's take a look at the video.

[Audio/Video Presentation]

This campaign generated 200 million views around the world, 11 billion PR impressions and very strong retail activations with our partner customers in the U.S., U.K, China, Russia and beyond. LikeAGirl has significantly improved our brand awareness, our equities among teens and among moms and it’s driving incremental sales and profit.

Most importantly, while growing the business the brand would also able to create real societal change. Before the campaign only 19% of growth had any positive association with a phrase, LikeAGirl, and after watching the first video only once, 76% of girls no longer saw LikeAGirl as an insult.

I think this is brand building at its best, it’s a kind of marketing that really resonating with our team, with our millennial and it’s something that’s growing the brand.

In addition to those LikeAGirl campaigns another effort that we are very passionate about is our Puberty Education Program. This program reaches 15 million to 20 million girls every year in 60 countries around the world, primarily a school program, we provide product samples and educational materials to the girls. This year, we expanded the reach of our school program in the Middle East and Africa by over 50%. We talk about confidence, we talk about everything that girls can do, we take about Puberty, and we talk about periods. The results are very positive, category usage among teens has increased significantly up to 8% in Pakistan and category grow is up 5% across all of these markets. This program is also making a real difference and whether our girls are able to stay in school or whether they have to miss school during their period and some eventually drop out.

Finally, we are have to fuel investments for growth by driving productivity in everything that we do. This last year we saved over $100 million behind two key areas. First is the focus and driving marketing efficiencies across our non-media spending, particularly in agency production cost as well as agency fees and second is we’re driving down cost of goods savings through supplier contract negotiations, material savings and simplifying our global platforms.

Savings create for us, the investment opportunity to drive back into the business, through great campaigns like LikeAGirl, our sampling and educational program and our innovations like Always Discreet and Radiant, which help build the category.

In summary, we have a broad footprint on global feminine care, we have leading brand equities and shares, we have a robust innovation portfolio across Pads, Tampons and adult incontinence and we are accelerating growth through four proven strategy. Give consumers the product experience she wants, launch innovation in the girls categories, win her starting from point of market entry and drive productivity to fuel innovation for growth.

Thank you. Next is Charles Pierce, Group President for Global Grooming.

Charles Pierce

Thanks Fama. Good morning, everyone. P&G is the leader in the $20 billion Global Grooming category. In the largest segment the $15 billion Shave Care category, which is growing 2% P&G holds 60% share. This includes both Blades and Razors and Shave press. The remaining $5 billion is Electric Hair Removal where we have a 20% share. Last fiscal year in the grooming category, we delivered steady growth in international markets, holding or growing value share in each region outside the U.S. and driving market growth. Behind strong innovation, advertising and sampling programs. The growth in international markets was offset by soft results in the U.S.

In the U.S., our Blades and Razors share is still down 60 basis points for the past three months time period. We have faced competitive entries in direct to consumer space, as well as the traditional retail space, we are addressing both. To improve our growth and the growth of the market, we are driving innovation, new user trial, go-to-market excellence and improved consumer value across our portfolio. These elements which are driving growth internationally will be the same for what it takes to win in the U.S. market. Grooming grew organic sales 2% last fiscal year. We are encouraged by our start in fiscal 2017 with first quarter organic sales up 3%.

Turning to innovation, we completed the global expansion of a very successful to Gillette Fusion FlexBall innovation earlier this calendar year. More than 40 million FlexBall razors and counting are in the hands of around the world. We expanded our performance advantage at the top end of the market. Our most recent cartridge innovation Gillette Fusion ProShield launched this past January. ProShield has lubrication before and after the blades for an incredibly comfortable and smooth shave. ProShield has been the number one razor in key market such as the U.S., UK and Germany.

We’re supporting a broader range of our product lateral from our best product, the Fusion ProShield to MACH3 systems, to premium prices and superior performance disposables with stronger consumer value communication. This is an important strategy change for Gillette, where the focus in the past with almost entirely our new cutting edge products. For example, MACH3 is a billion dollar brand which occupies a key position in the price performance ladder between high-end disposables and the top of the line systems.

We’re launching improvements including our first blade upgrade and over a decade on both base MACH3 and the higher performing MACH3 Turbo in markets around the world. New base MACH3 is the best entry level MACH3, we have ever made produced at a lower costs on our new global flexible manufacturing platform. New MACH3 Turbo brings our most advanced blade technology to the MACH3 family.

Let’s watch U.S. add spot which features or stronger performance claims and value messaging on the MACH3 brand.

[Audio/Video Presentation]

In disposable, so we are launching an all new three blade disposable razor in Latin America which is designed to trade up two blade users with pricing between current two and three blade products. This product occupies an important new position on the price performance ladder which broadens the appeal of Gillette to more men and is also made on our new low cost manufacturing platform. Innovation is driving growth on our Venus and Braun brands as well. Venus Swirl utilizes the dual pivoting head technology first used on Gillette FlexBall and was launched in international markets last fiscal year, helping to drive double digit top-line growth in these markets.

Similarly, performance on Braun has been strong with three consecutive years of value creation and a good start this fiscal year with mid-single digit organic sales growth. Growth on Braun has been driven by innovation. For example earlier this year we have entered the light based hair removal segment on the female business with strong early results and we are launching next quarter a major overhaul of our men’s styling portfolio with several new products including precision trimmers as we better serve men across the spectrum of their grooming needs. We are committed to winning both online and offline to reach our consumers however and wherever they want to shop.

Currently our online sales are growing at over 40% rate, so ensuring we have a winning plan online is an important part of our overall growth strategy. We have versions of the Gillette shave club up and running in more than 10 top markets. We’re driving trial at point of category entry, we’ve put Fusion FlexBall razors in the hands of over 80% of young men in the U.S. over 2 million samples last year with our 18th birthday sampling program. We’re now sampling the FlexBall razor handle and Pro-Shield cartridge, our very best combination of shaving technologies.

We’re also driving trial of key seasonal opportunities such as the holiday season and Father’s Day. We just announced our new tie-in with the new Star Wars Rogue One film with strong retailers support for display of special holiday Gillette gift packs, usually a difficult time to get in store support. Our Father’s Day video this past year had exceptional engagement, let’s take a look now at the video.

[Audio/Video Presentation]

That Father’s Day video had over 550 million earned media impressions in almost 20 million video views across Facebook and YouTube. The campaign also generated an impressive 190% lift in organic search for Gillette Shave Club in North America and a 40% lift in site traffic. Next quarter, we’ll launch a major change to Gillette’s packaging in the U.S. this is designed to simplify our brand architecture and improved findability and shopability for consumers. Helping to drive purchase in category growth for retailers.

Productivity continues to be a part of how we operate. Driving cost down through our cost of goods sold. We have reduced enrollment through smart automation. With IWS progression that Yannis referenced earlier we have delivered process reliability on our machines at record levels. We continue to drive cost savings through material localization. Finally, the global paltforming work continues to help regionalize the supply chain placing production in lower cost areas and eliminating cost for more transportation and warehousing. This has also increased the speed of execution and innovation which contributed to our first MACH3 upgrade and over a decade.

In closing in P&G grooming, we will continue to drive innovation across our portfolio and increased trial generation to grow our brands in categories by delivering superior value to consumers around the world.

Thank you and now I'll hand over to Giovanni Ciserani, Group President of Global Fabric and Home Care and Global Baby and Feminine Care.

Giovanni Ciserani

Thank you Charlie. Good morning everyone. So the Baby Care category is large category, $30 billion being retail sales. We hold the 35 share of that category that means the Baby Care unit is about $9 billion, 95% of which is in Pampers. The category is growing low single-digit. This is a deceleration from the past one of our focus areas.

When you look at our performance, we have been globally slightly behind the market growth and as you are all aware therefore we lost some market share. Today, I will be talking about intervention areas that we are putting in place to return Baby Care to solid top and bottom line performance.

Before we go there however, I wanted to share a couple of success stories. Countries where we have executed our intervention plans in the right way are now starting to show the right performance. U.S. where we are, this is a category where our share advantage versus our main competitor is continuously growing over the year and in September the last month for which we have data, we achieved the highest share advantage versus key competitor in the last 20 years. And this is despite some aggressive price moves that we had to face.

Another market, which is for us a success story is Japan. In Japan if you go back a decade, in the years between 2008 and 2010, we were number four brand in the industry. If you look 10 years later, now we are the number one brand, not only we are the number one brand overall, but we are the brand leader in pants [ph] which is as you know the dominant form in Japan and form where historically P&G gas been behind and we are catching up very fast.

These are the success stories, of course there are other companies where we are not performing as well, particularly China. This is why our organic sales last fiscal year ’15, ’16 has been slightly below 100. As I said we have been losing some market share. What is important however is to look at the trend. In the first half of ’15, ’16, our performance was minus 2, in the second half of the year we have been slightly growing and we had a strong start to this fiscal year.

So what are the intervention areas that we have agreed, that we have funded and we are executing everywhere in the world. Here they are. First is the focus on the top 20 markets. This is for us, priority one, two, three. Second, similar to what you have heard from pharma, the critical importance of the point of entry. Third is the growth of the new form called pants. Fourth is the market with innovation, as I said before the market is being growing less than in the previous years and this is an area where we want to intervene. And of course the productivity, which is the fuel needed for us to fund the top -- the other two four priorities. So let’s take each of them one by one.

The top 20 markets in Baby Care represents over 80% of our sales and 80% of our profit. Of course there is some white space growth that is out there, but we are very, very clear that our priority is first and foremost to get these market to balance top and bottom line performance. As we started to focus on those year ago, we started to see sequential improvement and in these market, we are registering share growth in the past six, three, and one period.

Let’s now talk the point of entry. This is the number one priority in baby care, why is that? It is because we can measure a direct correlation between our total market share and the share that we have at the point of entry. If you want, the point of entry determines what is the ceiling that we can achieve. As we work on the point of entry, specific capabilities are needed, you need to learn how to sell to hospital, which is a couple that we have in the business unit, which is unique to us. You need to learn how to engage moms with digital and social media, which is over proportionally important with pregnant moms and new moms.

We look at the working at point entry in three phases. First, we need to get the brand familiar with consumers, particularly with first time moms that know nothing about the category. This is why it’s so important for us to be present during pregnancy. We need to be present as the first time, the mom is searching for new baby.

The second phase of the work has to be to create a relationship with these moms, which we do through the work that we do in the hospital, through the registration into our database and through all the one-on-one interaction that we are able to generate through the social media. If they are aware, if we have the one-on-one relationship than we need to generate preference. The way we do it is with sampling in the hospital, we add Pamper sample in over 80% of the hospitals in these top 20 countries. You do that with rate reduce, these moms are very keen to understand the point of view of other moms. The word of mouth is therefore critical in this type of work.

And then we have a reward system in which we reward moms or their loyalty to the brand. So there are mobile application, they register to the brand, they scan their tickets as they buy Pampers, they accumulate point and therefore, we are able then to reward them for their loyalty. In the point of entry as I said, it’s very, very important to add specific capabilities that are needed here. And I wanted to share with you, because this week, we are launching in the U.S., our latest innovation for pre-mature baby, these are diapers that are only sold in the intensive care unit. And the one that you see at the top is the latest diaper that we have introduced, this is real size and goes for pre-mature babies that are only 1 pound of weight. This is a typical example, where you do something incredibly important for babies while at the same point generating very strong equity for the brand.

As a result of all these activities, when you take the top 20 market for baby care, we are market leader in point of entry in 18 of those and this is where always the first priority, the first dollar and the first people are spent. Second priority is the one on Pants, -- Third priority is the one on Pants. So the Pants category in our estimate will be 90% of the growth of this category in the next 10 years. 90% of the growth will come from the conversion, from taped diapers into Pants.

In the U.S., Pants are used for toilet training, but this is a unique feature of this market, everywhere else in the world Pants are replacing diapers. Today Pants represents 21% of the category, it is up 20% versus a year ago. We are growing 30% versus a year ago on our Pants and we gained in the last year 5 points of segment share within Pants. This is one of the intervention of the five that we have been able to execute already in China and we moved within a year from being the number five brand in Pants to the number two brand in Pants, and more to come.

This is clear focus area, there are now growth in Pants in countries like Japan where pant represent 60% to 70% of the market. In India, pants are 85% of the baby care market. In Russia, they are over 30%, so this is clearly the form for the future. Next priority is driving market growth with innovation. As I said, we are not happy with the fact that the category is growing less than before. We believe what is needed is the repetition of what we have done in the past U.S. with introduction of Toddlers where we have new technologies that perform better with the babies and the moms and therefore we generate a trade up. The latest technology that we have introduced is the one called Channels.

This is for us a major breakthrough, we are able now to apply every single particle of super absorbent exactly in the position that we want on the diaper. Therefore as we position the super absorbent into the core of the diaper, we can leave open channels without super absorbent which helps the fluid to go faster all around the diaper. The baby skin is drier and because the fluid is distributed better, we avoid the sagging of the diaper when it is wet. Let’s see how this has been executed in the UK.

[Audio/Video Presentation]

There is a very important part here related to our manufacturing. Thanks to the work of the department of Yannis, our global production lines are modular and you remember we presented that to you in the past, that means that the first module, the one where we make and convert and create the absorbent core is the same on every line around the world and it is the same on lines that produce [indiscernible] and lines that produce Pants. That has allowed us to take this technology and roll it out to Pants as we speak and roll it out into mainline as we speak. This is a unique advantage of this modular construct where once we have a breakthrough in one feature of the diaper we can roll it out very fast across plants, across peers [ph] and across product forms.

We have talked about productivity and the importance of having the fuel needed to invest into the pants conversion, into the point of entry conversion, into superior innovation. On top of everything the Mark and Yannis have discussed before, I want to bring an example how technology can become a source of productivity.

If you go back to the example I presented on Channels, because we are able to apply every single particle of the super absorbent in the right position, we have become more efficient on how much super absorbent we need to use in each diaper from the mentally there is no waste. In doing that, we have a much better control on this particle, therefore we can accelerate our lines in achieve another level of productivity, and we can roll out as I said this technology across different platforms and by doing so accelerated the speed to market.

So, in summary, I hope I have been enabled to explain what are the five interventions, the five interventions are being implemented everywhere in the world and what is encouraging is that we see the progress country by country as we are able to execute the plan.

Thank you and I pass to Alex, President for Skin Care.

Alexandra Keith

Thank you, Giovanni. Good morning everyone. The Global Skin and Personal Care category is a big opportunity for P&G. It is latest category P&G plays in over $80 billion in retail sales growing around 3% annually. This category is made up of four distinct segments Antiperspirants & Deodorants, Personal Cleansing, Super Premium Skin Care, and Mass Market Skin Care. P&G currently holds between 5% to 40% of the value share depending on the country and segment combination, Skin and Personal Care is roughly 8% to P&G's global sales with each of the four segments contributing equally to sale and all segments and brands playing a major role in value creation.

Our major brands that include Secret, Old Spice and Gillette and Antiperspirants & Deodorants, Safeguard Olay and Old Spice and Personal Cleansing, SK-II in super premium skin care and Olay in mass market skin care. All of these brands with the exception of Olay have grown sales over the past four years. We have momentum in these businesses and significant upside as our footprint is largely contained in North America and Asia and neither region currently has full distribution of our portfolio of segment and brand in the market.

I'll highlight some of the work we are doing in each of this segment. One great example of sustained growth in success with much opportunity to expand this Old Spice, Old Spice has been growing continually every year since we introduced our Old Spice guy, Isaiah Mustafa, the man on horse in 2010. Since that time, Old Spice has grown on average $50 million per year. In February 2016, we introduced a new collection design to increase the efficacy profile of Old Spice the hardest working collection. This collection is priced 25% above our premium lines at $5 and is the main driver of our recent growth on Old Spice across Antiperspirant & Deodorants and Personal Cleansing.

It is delivering a user trial and strong repeat and already account for about $50 million in retail sales. Our unique commercial positioning resonates outside North America too and we are also growing share in several market including Mexico, Brazil and Russia. At Barclays, Jon shared the SK-II change destiny campaign with you. This powerful campaign developed the local insights around the leftover women has driven incredible engagement with and trial of the brand. Sales of SK-II in China finished last year up 25% and are accelerating this fiscal. Safeguard is another brand that is winning in China. It is P&G's mostly widely distributed brand in China and is growing, past six months share growth is lead by the fast growing body wash and liquid hand soap segments.

Safeguard superiority in long lasting germ protection is powerful wash hands and have dinner digital program for Chinese New Year and its strong in-store presence are working together to grow the brand despite ongoing competitive challenges including a major anti-bacterial brand launch and heavy promotion activity. We are funding support to accelerate our top line and grow these brands via very deliberate productivity program that has become part of our annual planning cycle and day-to-day execution.

We reduced several non-consumer facing budgets before the year start to create a bank of funding that allows us to fuel incremental brand support while delivering profit margin growth. Last fiscal year, we funded more than $20 million of incremental media in our category, while delivering over 100 basis points of before tax profit margin expansion. We are making important progress and have strong brand and growth to leverage for our Total Skin and Personal Care business while we address our issues on Olay, and we are making meaningful progress on that.

Olay starts too far to address every new benefit space, price tier and channel that emerged in the market. The show became complex as sales slowed, cost reductions were made in packaging, beauty counselor programs and counter operations in China. The relevance of our brand declined with small innovations that we are not at the core of the brand. The first step we took with the sharpen our in-store presence in North America, we reduced 20% of our SKUs last year, while this created several points of headwind for us, it was necessary to remove slow moving item from the line and create space to double and triple face are best selling SKUs.

This includes Regenerist Micro-Sculpting Cream, our iconic red jar which remained more than 10 years after its launch, the number one selling facial moisturizer in North America with sales more than 50 times the average SKU in the mass skin care category. This healer item grew 7% last fiscal year and the total micro-sculpting line grew 27% behind the total commercial program and our recent focus on the core. In China, our in-store presence encountered channels had the degraded significantly and in-store consultant fee was not competitive. So move out of the way of that picture so you could see it.

In the last six months, we have completely revamped our beauty counselor programs and are investing to upgrade our faster growing more profitable counters with much higher and tighter standards. As part of this effort, we are reducing the number of counters by around 30% and reinvesting in diagnostic devices, samples and counselor training and incentives that are designed to bring new users into the brand.

Early results from the upgraded counters are positive and we are expanding. In all markets, we are returning Olay to prestige benchmark across the entire ecosystem, over the next six to 12 months, you will see more improvement, which would elevate our equity and make the shopping experience easier. Another critical area is to return Olay's innovation program to our points of competitive advantage, anti-aging products grounded in meaningful and superior sciences design to grow the category by attracting new users. The first example of this is Olay Eyes, a collection of five products designed to address the biggest areas of concerns. Eyes to first place that women notice the signs of aging. We launched this line in North America in July 2016, and in the first few months, we have seen positive results. We have gained 9 points of segment share making us the segment leader.

We are growing the Eye segment double-digits and it was down 3% for the year preceding our launch. And early reads show that over half the trialists are new to the Olay brand. We are making progress and seeing positive signs. Our shelves simplifications counter reinvention and Olay Eyes are just the beginning. We have bigger and more exciting things coming in the next 12 months to 18 months that I can’t reveal here today. One thing I can share is our new Olay packaging, which will begin rolling out next month in the U.S. We’re bringing prestige quality packaging back to the brand with simplified navigational SKUs to help consumers find the right product for her. Our first steps are showing promise and I am confident that the total program will return Olay to growth in both the U.S. and China as comes to bear.

Thank you. Now I’ll turn it back to David.

David Taylor

Thank you, Alex. I hope you can see with each of these examples. Some of the principles that I’ll talked earlier, focuses on new users, growing categories, insights, using productivity to invest and we’ve identified many areas we needed to invest and are investing or making a difference. And there are not just these five categories this is happening all 10 of them. We want to feature 5 today. Now, next I want to switch to the Sales and Market operations. I've asked three of our leaders from the SMOs to share how go-to-market innovation and execution improvements also accelerating top line growth and make a meaningful difference. First, Carolyn Tastad from North America then Matthew from Greater China and then Juan Fernando from Latin America; first up Carolyn from North America.

Carolyn Tastad

Thanks David. Good morning. North America is one of the strongest growth markets in the world and its P&G's largest and most profitable market. We’ve over $28 billion in sales and we have the number one or two brands in each of our 10 categories. And important as David has mentioned, we’re matching the investments and choices necessary to win. About 20 months ago, we changed our operating model in North America. Previously, we’ve focused a little too much on scale and we’re now more focused on product category. Category as a point of competition, it’s the point at which consumers engaged with our brands. It must be blend through which we operate our business. We’ve created category superhighways, a direct line from each of our 10 products category teams to our retail customer team operating seamlessly and efficiently to win.

The goal is to drive fast and agile decision making with each category general manager focused on what it takes to win through lens of consumer, shoppers and retail partners. We’ve changed a lot to bring this new operating model to life, business planning and decision making, networks and accountability, talent development and core planning, recognition and rewards. Let me share a few specifics. We’ve invested in selling resources and category dedication. In the last two years, we’ve added approximately 140 sales people including external hires and we now have over 90% of our sales covered by dedicated category experts. We’ve eliminated many of the aggregate metrics and we’ve moved to more granular accountability. We’re measuring and rewarding our sales people on the results they deliver for their category and this includes growth contribution as a profit metrics.

Our customer team leaders are rewarded on a number of categories still during their goal ideally 10 for 10. The move to category dedication is making a difference. Now of course we continue to operate with scale and as one company where it creates value and competitive advantage such as our company wide mixing centers which Yannis talked about. We believe we’re n the right path and we’re beginning to see progress. Our historic organic sales growth for the past five years has average 1%. In each of the top four quarters, we’ve delivered sales growth of 2% or greater. In the most recent quarter, 8 of 10 categories were growing sales.

Now, looking ahead our business results on our growth trajectory will not always be a straight line but we’re encouraged as our new operating model takes hold. We’re focused on what matters the most, brand plans that win with consumers and grow categories for our retail partners. We’re focused on winning with the fastest growing consumer group and winning in retail formats that shoppers prefer and we’re transforming capabilities to deliver this. Let me give you a few examples.

Growing household penetration has the top priority for North America. We’re double clicking on the four critical user groups that will drive 85% of household growth over the next five years. These are Millennial, Hispanic, African Americans and Fifty Plus. Our household penetration gap with these four groups represents a $1 billion sales opportunity. We’ve discovered that our on top availability is lower in stores with that over index with Hispanic or African American shoppers. So for these stores, we’re creating specific action plans to close those gap including more localized product assortment, tailored shop sets and incremental store coverage.

We’re also leveraging our influence around EMEA partnerships to win with the user group. We have a platform that delivers significant rates with 50 plus consumer and we’re using this to amplify our brand innovation including sampling and credentialing. We’re also using this for retail and partnerships to drive in store merchandizing. We have the My Black Is Beautiful platform which we’re using to launch national, brand initiatives targeted to African American. These types of platforms are giving us great ways to connect with these consumers. Growing users especially with these four groups is foundational to our growth. We’re focused on winning in the shopping formats in the locations the consumers prefer. We have a very strong business and highly developed shares in large format stores and we’re working to build the same advantage in smaller formats and online.

With the trends to urbanization, winning a new format is crucial to drive our growth and we’re having good success here. Some of our strongest results are being delivering in the fast growing, smaller formats dollar channels that serve the lower income consumer. We’re growing billion dollar businesses in this channel with a lot of upside still to come and of course we must win online. Consumers are taking better solutions to quick and easy replenishment and deep engagements with the brands that they love. We’re working with retail partners on their brick and click side such as or, and we are partnering with fast growing players like Amazon and innovators like or, which as you know was recently acquired by Wal-Mart. We're experimenting and learning with direct-to-consumer where we can provide consumers a value proposition or an experience or a new benefit that they're not able to get elsewhere. In all cases, our intension is to learn and will share these insights with our retail partners to accelerate our growth.

These efforts are having a positive impact. In most recent advantage monitor survey, P&G was rated number one by our retail partners overall. And in the online stage, we are also number one and leading by a very wide margin. Our retail partners have also told us that they are very happy with the supply chain transformation that Yannis talked earlier. We've improved reliability, shipment lead time and delivery frequency while reducing constant cash in the supply chain. We're reaching 80% of our customer, our retail partners in less than one day and we've increased delivery frequency from one to two times per week to daily.

Our customer service has reached best ever performance levels. In fact with one of our most demanding customers, we are the only supplier that's been able to meet their on time and full requirements. This capability is enabling us to deliver strong in stock positions and all shop availability both of which will accelerate top and bottom line growth. A final example is the work that underway to drive effectiveness and efficiency in our marketing and trades spending. Our goal is to deliver quality trial awareness and brilliant retail presence for our brand while getting maximum value for every dollar spent.

We are going after nonworking dollars and ineffective spending everywhere, and we are looking at our spending very holistically. With combined efforts with retail partners to improve point of sale coupon validation to reduce cashier over arise and to block counterfeit coupons. We estimate that separate has saved us about $40 million and allowed us to reinvest those dollars into activities that more effectively can accelerate our growth. We've also recently rebidded our agency partnership as Mark talked about earlier and we are transforming how we plan and invest our trade spending to accelerate growth.

In both of this situation, media and trade we've increased the rigor and detail of the planning leveraging data and analytics to guide our choices. And was new tool to better understand the effectiveness of the plans that we execute. This is the productivity mindset that we have repaired with our growth and innovation mindset, a critical part of our culture. Overall, we believe we are on the right path in North America. We made some progress as our category based operating model takes hold and we are very committed to accelerating this progress. My message to our organization is unrelenting, we are doing the right thing, we are on the right track but we must make faster progress.

We are not letting up and we are determined to win. Thank you and I'll turn over to Matthew Price, SMO President for Greater China.

Matthew Price

Thank you, Carolyn. Good morning, Xuhui, Shanghai as we say back home. As you know China is our second largest market in terms of sales and profit. Before I talk about the challenges that we've faced in China and many of you have the pleasure to ask me about in the last night are very much appreciated. I would like to point out that we are two to three times of size of our largest competitor in China. We have brand equity number one or two in most of the categories. There is 95% of Chinese consumers have purchased a P&G brand in the last 12 months; and we have many brands like Safeguard where our household penetration is greater than 50%.

Our portfolio in China is fairly concentrated. We compete in seven categories with 19 of our global brand, so this in itself is an opportunity. The categories we're competing are growing. They grow in mid single-digits but crucially there is double-digit growth at the premium end. David shared the unvarnished critic of our performance in China at the CAGNY Conference and our results were not what they should be. What happened? We were too slow to respond to market premiumization. Most of the growth in China is coming from premium brands. And secondly there is a change in shopper habits. There is a move to new channels and these two things are linked because the shoppers buying in the new channels want to buy premium products. So I suggest you go to China and visit a baby store.

In a baby store, as I told some of you last night and take your baby in, they put a rubber ring around his neck, they put him in a hot tub, they give him a massage and you go shopping, it’s great to be a Chinese baby, but what it also means is, if the mom is going into that store clearly wants to buy something new and different. They want premium products or they want new forms like pants. The market rigged and we ragged, but now we need to rag. Both SMO and GBU a piece of the problem and we have strong progress to address the issue. First of all we are putting in place a very strong lead team, most of the people we now have on my lead team in China have extensive Chinese experience and we've brought people back.

Secondly, the GBU leaders are putting design people on the ground in China, focused on designing the China, designing packaging, and designing communication. This is unique starting to release their part, their initiative marks are planned with more focused on premium. We have launched new products and packaging across several categories in the last 12 months and every single categories we’ll see strong base and premium innovation over the next 12 month to 18 months. We are also focused on how we can leverage this new innovation to grow categories consistent with our leadership position. This also builds much stronger trade support.

In the SMO, we had become overly focused on selling. China is a big country, selling in quite easy. The tricky bid is to make sure the stuff sales out and we’ve built significant trade inventory overtime. We have over the last 18 months significant reduced trade inventory as you can see from the green line and we now believe that we are selling in line with consumption. We have reduced our focus on traders. We have taken our discount structure and got it under control and we are investing more in distribution and rebuilding sales fundamentals. The sales organization and distributors are now measured on self loop and in so fundamentals. We are pioneering in-store fundamental tucking system with 40,000 stores. This is managed by a gentleman who I called the Minster of Truth who report direct to me and ensures that the data is totally accurate. So everything is nice and transparent, and we know precisely what we’re trying to do in store.

You can also see, if you go back on slide, those our quarter-by-quarter progress, we are sequentially improving and we grew June ’16, for ensure it’s not where we want to be, but I am pleased to see that we’re improving our business whilst also keeping trade inventories under control. One of our focus areas, one premiumizing our brands, the GBUs are fully focused on bringing the live innovation. Secondly digitization, TV is still important but increasingly consumers are watching online and actually 60% of what they watch digitally is actually mobile. And also consumers' house or young lady's house in Xuhui few weeks ago and we were talking about media habits, she had an old TV in the corner, I asked her to turn it on. She looked at me and she said, I don’t even know how to turn it on grandpa. She didn't say grandpa, but I could see it in her eyes. But the point is and everything is now mobile and it means they’re choosing what media they want to look at. So our communication, we need to place it where they're going and we need to make seductive and interesting event.

We’re also transforming on go-to-market, we are investing our trades spending in key business drivers, which we have understood by channel with strengthening our shopper marketing capability. We’re also creating a dedicated cash free customer organization, which is end-to-end I'll talk about this a bit later on. But this is allowing a much deeper category understanding by our sales force and allowing them to much closer with the GBUs. We have also in the last 12 months create a truly multi-functional ecommerce team, we put a senior general manager in-charge of it and turn it into a business unit and, we actually have GBU people in the e-commerce team, so that we can act very quickly to what’s going on in the market.

So how is this playing out? I’d like to build up the example of our Fama shares. We have a whisper brand in China, whisper has become I would say fairly mainstream and mid-tier in terms of perception, this is now changing. We are launching Infinity, which has a patented FlexFoam technology. This will be priced three times higher than the market average. We’ve also upgraded the cotton-like products. Indeed, we've upgraded the entire line-up. And Fama even developed a nighttime product with a local Chinese supplier with connect and develop developed in China.

So we’re developing -- I'd say in the all days, we would have 30 second advertising and we would put it on air and push the communication to the consumer. Now and we would probably be reapplying a global campaign. Now, we have a GBU, a global business units marketing person on the ground, they have developed local TV advertising, it’s a Chinese idea, take comfort beyond imagination, it’s oh no, oh yes, which is a double entendre in Chinese if you speak it, which means a leak and then oh joy. And this is creating a lot of thoughts within China. We need to make all of this innovation that we have talk of the towns hence we launched it at the Beijing Water Cube Olympic site. We demonstrated the superiority to media attendees. We also had key opinion leaders and we had consumers via live streaming which we have not done before. I’d like to show you a quick video.

[Audio/Video Presentation]

So we’ve managed also to use a washing machine, as we’re with P&G in the demonstration where we put a pad into the washing machine and it maintains its form when it takes out. We have and I triple checked this number, we have 6 billion impressions from this, which is very big and we only did this last month. We have distributed 6 million samples to our trial machine to our university program. We are using the launch to premiumize categories and we’re using it to build the category with retailers. Now because we have a full portfolio, we’re able now to win in each channel because for e-commerce we’re able now to win in each channel because for e-commerce we have the high-end with Infinity which is prior to three times and is new and different. And actually it was the hottest selling SKU in feminine care in 11-11 which I’ll talk about in a second.

We are using it with hyper stores to trade up and we’ve got a shopper base design and this is not a category that people like to shop, we mean don’t like to spend in front of the fem care shelf for a long time particularly if they are with their husband or kids and so we try to make it very easy for them and we’ve created this shopper base design where we’ve done it, we’re seeing an 18 point increase an we’re rolling it out to a 1000 stores. And we're also then using the rest of the line two win lower down the trade as well. This is in my view helps the win in China. I think the full portfolio with leading innovation across the line. And I think we were market leader in fem care in 11-11 last week.

Actually next slide, actually speaking of 11-11 because some of you are asking within six hours within six hours of 11-11 last week P&G of take have exceeded last year's record. What I am very please is that we did this win very, very, very discipline approach to promotion spending. We focus on marketing and we focus on acquiring new uses. It's quite easy to tell a lot on 11-11 with a high level of promotion discount, this was not the approach that we took. Our sales on Ali Tmall are up 60% versus last year. We believe we've acquired new users 2 million new users we with the number of one SKU in hair, fem and personal care. Yannis managed to shift 3.2 million households, 1 million households in one day. So our focus on driving payment innovation, building tax decrease is allowing us to partner with retailers. It is also allowing us to develop deep insides with people like Alibaba and Jingdong, and also to develop O2O programs with top hyper retailers. We've building capability in our hyper team by strengthening our shop on marketing and this is enabled by dedicative category customer organization.

Last year, 15% of our sales people were focused on one particular category. By December, we will have nearly 60% focused on just selling one category. This meets and the plan is to keep them in position for minimum of two years and to try and keep people working in a particular category. So we've built deep category understanding. What this mean is GBU GM basically has his or her own sales force. It brings the GBU GM much closer to the customer indeed they have to go and present to the customer, so they have to eat what they cook to some extent and is allowed much, much faster decision making and communication. We believe this is a great enabler to wining in China.

We are also driving productivity. We have reduced central overheads by 30% in head office and we have invested this is more coverage with more category focuses as I just talked. We are creating a baby care dedicative sales force now we are creating a dedicative cosmetic sales force. Now we have dedicating people in to e-commerce and we've putting more people back on into the regions as well. We will continue to drive productivity as it is the engine is allows us to keep growing in reinvestment in the business.

To summarize, we're committed to reaccelerating growth in China. We are saying prememization coming on all categories. We are starting to make some closest. We are increasing investing in digitization so we can influence shopper habits both online and offline. We are building winning partnerships with all online retailers. We are transforming our go-to-market and we have channeling our trade spending to focus on key business drivers and we are creating a dedicative end-to-end our customer organization.

It will take us some time to get back to market level growth. Although in some categories, we are now exceeding it. We started last year with two quarters down 8% as we took a lot of inventory out of the system as you saw. We grew 2% in the first quarter this year. We have a talented highly experienced team in place. I want you to know that winning in China for me and the team is not just a job, it's a personal mission. It's great honor to do it and we will not stop until we are winning in China again.

Thank you very much, and now Juan Fernando from Latin America.

Juan Fernando

Thank you, Matthew. Good morning. Latin America is one of P&G’s most dynamic and faster growing regions. The Latin American market is $56 billion excluding Venezuela and last year it grew at 8% organic growth. P&G has a 23% of the categories in which we compete and at sales of about $5 billion, the region comprised 8% of the Company’s sales.

In Latin America, we are determined to make our go to market activities a source of competitive advantage to accelerate top line growth and create value for P&G. As you have seen the business units are delivering very strong innovation, and branding plans and we in the SMO, are partnering with retail, so that we execute the sales fundamentals that lead to category growth and to drive consumption for our brand in a sustainable way. What this means is having the right trade coverage, the right forms, the rightsizing and the price points and the right in-store execution in the different channels, retails, retailers and stores across the region.

And we know that it all comes down to execution, getting those key business drivers every day, day in and day out. Let me provide a few examples of how we are doing that. A key element of winning with the Latin American consumer is affordability. Our brands are regarded generally as the best performing brands in the categories, but sometimes the price points are too high for consumers.

This was the case with the fast growing discounter and proximity channel in Mexico. This channel seeks to offer high quality brands at price points of around 30 pesos, that’s about $1.50 today. To address this opportunity, we put together portfolio of smaller sizes on our superior brand such as Pantene, Head & Shoulders, Ariel and Ace detergent, making our brands much more accessible to a broader range of consumers. These initiatives have been successful to-date allowing us to deliver double-digit growth in these key channels and growing market share as well.

Similarly in Peru where about two thirds of our sales are still going through traditional small independent stores and we are about 80% of the transactions happened at the once sole price point about $0.30. We recently launch pampers singles. To meet the need for a superior performing diaper, that provides a full night sleep to the baby with a low cash outlet. Again making it much more affordable to a broader part of the population, it is early days in Peru, but the business is accelerating behind this initiative and it’s doing well as well as our baby care business is doing around the region behind this innovation, that’s Yannis shared. In addition to accessible packed sizes on price points, in-store execution is critical to winning the first moment of truth.

In Brazil, we have revamped our trade spending to reward this specific activity that we know will drive brand growth and will grow the categories, by brand and by channel key business drivers. On Pamper for instance that means making sure that we have the full range of site is available at all time in all stores and then we also have a secondary point of sale in each store. On Gillette, it means we have the right shave space that we have MACH3 being hold in open sales and then we have distribution both for Prestobarba 3 as well as Venus. We have these key business drivers for each brand identify and we try to compliance versus in over 7,000 stores in Brazil today. In the stores, where the key business drivers are executed, our growth accelerates as well as the categories. Further our focus on these very specific activities has allowed us to reduce trade spending so that we have reinvested in additional sales coverage in the country.

These interventions are a big part of our business in Brazil is averaging double-digit growth over the last 12 months in the challenging economic environment. We’re also making sure that our brand standout in the stores. In the number of countries, we have agreed with top retailers to have long-term store displays on our largest brands such as Salvo. These displays are high quality, they communicate the key product benefit and they reinforce our brand equity. They replace in and out promotional displays that we’re often low quality and we’re inefficient both operationally and financially for us and the retailers.

Now to foster a culture of execution of performance of accountability, we implemented a performance score card across all our sales force in the region. This last quarter ranks each sales person in the country on a balance side of measures that includes growth on sales, growth on gross contribution and the execution of those key business drivers. The ranking of our sales people is then directly tight to their rating, the recognition and their pay. This program provides the data and tracking system to enable each of our sales people to act as sale manager for their business. And our organizational results indicate that they are happier working in this performance-based system.

As you can see, we are asking our sales people for improved mastery and execution, and we are rewarding them when it is delivered. In total, these strategies are working for Latin America over the past four quarters. The LA business has averaged double-digit organic sales growth. Now in addition to delivering today, we are also focus on building for tomorrow. We aim to be in dispensable partner and top leader for retailers. Partnering with them to grow their business and very importantly grow the categories in which we complete. To do this, we are elevating the quality of our joint business plans. We start with discussion about how we will grow the categories. These means for example in laundry how do we drive compact liquids as well as on washing.

In hair care, how do we add the second and third step to the consumers' regimen, and in shave periods, how we drive more system usage. Many of these sessions take place in our innovation center in Mexico or our innovation centre here in Cincinnati. These sessions changed the game moving us from a commercial negotiation to joint business plans that create value for retailers, P&G and the categories. This worked together the strong progress we’re making on executional metrics such as service is being recognized by our customers.

In the 2017 advantage survey, we were rated either number one or number two in across most categories in the region. Strong progress from being numbers four since three years ago. This is, so that is our activity system in terms of how we’re going to market. Now the way to fuel this is with our efforts on productivity. We are driving out non-value added cost across all elements so that we can reinvest in the business and keep the superior value equation. Over the last two years, we have made strong progress I would say across all the cost elements. Yannis already talked about the product, the progress on protocol savings. Last year, Latin America delivered cost savings two times the historical average and we are on track to do that again this year.

We are focused on attacking all non-value added costs that are under our control but not appreciated by consumers. One example of this is what we called indirect media spending that Mark referred to. We looked at the number of agencies commercial production, celebrity fees, we found that in some cases we were spending more there and on the actual media we were putting the pulling behind the contest. So we went after that and we found savings of 40% of that cost budget about a $100 million over the last three years. We have been able to reinvest part of this behind media, keeping our media on air throughout the year, helping build our brands and equity.

In total, our focus on productivity has allowed us to substantially improve our operating margin in the region while maintaining a winning consumer value equation. So overall, a strong result behind the power of the business plans, the market, the go-to-market activity system. We are pleased with the progress that much more to do.

Thank you and I will now pass it back to David.

David Taylor

Very good. Thank you, Juan Fernando Fernandez. Hopefully as you could see each of the 10 product categories need to the markets has its own priorities and tactics, but the ultimate objective is very clear and hopefully consists and sustainable, consistent balanced growth and we are making progress. Organic sales have accelerated sequentially in 7 of the 10 product categories from the first half of last year to the second half of last year to the first quarter of this year. Organic sales have accelerated across four of our six selling in market operations from the first half to the second half to the first quarter this year. The global and regional averages are improving and more importantly we’re making improvement at the categories country level and this is a really important lens to me and it’s when I attract monthly and discuss with each President.

In calendar 2015, we were growing shares 14 of our top 50 category country combinations. Over the past 12 months that’s up to 16, past six months 21, past 3 months 23 of our top 50 category country combinations now we are growing share. It is still not where we wanted to be, but steady improvement with just translating into stronger organic sales growth. Organic sales growth for flat in the first half of last fiscal up 1% in the third quarter, 2% in the fourth quarter, plus 3% in the most recent quarter. Now we know that further acceleration won't happen in straight line and comp skip more difficult, as we move throughout the year. And as Jon said in the last earnings call, considering we are expecting to back 2% organic growth for the year in the first quarter was 3% there is likely going to be in a period that's on the low side of 2%.

We will have quarter-to-quarter volatility and improvement wont' happened overnight. But we are measuring progress in fiscal years, not quarters and this year will be another year of improvement toward a long-term objective of consistently growing above the market. Again, our objective is to get back to target growth levels and sustained the result over the long-term avoiding big swings in the top to the bottom line. This means, we all need to be more consistently key drivers of both top and bottom line results and this requires several things. We're going to be investing in sustaining superior value equations relative to our best competition at each price tier and each market. Ensuring, we have the consumer and shopper insights, so we get the information necessary to guide our product innovation in commercialization decisions. We are going to invest in and you saw the sample of the product and packaging innovation to gain or sustain noticeable superiority at each moment of truth.

Investing in sales coverage, so our brands are available when and wherever consumers and shopper want to shop. And finally investing in marketing programs to deliver the media reach frequency and continuity as well as sampling our products to drive awareness in trial of our brands. This is why the productivity program is so important. Productivity provides the fuels from investment in each of those five of areas and allows us to drive top line growth. And all of this is ultimately enabled by P&G people, which is why we are making changes to strengthen our already strong organization and culture. Now, we are making many changes that buy themselves may seems small and obvious, but when you take together I really do believe these are significant, meaningful and will drive change.

We are changing our talent development and assignment planning system to drive more mastery, continuity and debt. The objective is simple. Improve business results by getting and keeping the right people in the right place to develop and apply deep category or market mastery in order to win. Now we shared awhile back the example in Personal Health Care in North America where we raised the level of category dedication and mastery through a combination of outside hiring and managing carriers within categories of the sector. This is happening there. It's happening the other side of world in Australia. We done the same thing moved to end-to-end approach through dedicated sales coverage in the pharmacy channel for Health and Beauty categories.

Our sales people are applying their mastery to these categories to win the set of customers with similar store and shopper dynamics. We made this change to start of the fiscal year, we are already seeing a strong lift in organic sales where we done it. There are many of the examples but the point in simply that we are making changes and placing premium on applied mastery throughout our company. The P&G is very fortunate to consistently source and develop strong talent and we intend to maintain our developed within approach. But as I talked before, there will be times when the best talent overall maybe not be inside our organization. Going forward, we will selectively hire from the outside to add the skill and experience is needed to win and feel the best impossible.

Over the last year, we’ve double the number of experienced hires, we brought an experienced talent at five different levels of management including at the Vice President level. Experienced hires comprised about 5% of all management hires in the last fiscal year. We’ve also just had a new regional business unit Vice President from outside of the Company Paul Gama who will lead our Personal Healthcare category in North America starting next quarter. Paul has 25 years experience in Personal Healthcare adding depth and mastery to our team. We’ve also recently added external positions -- external hires and senior positions in areas like media planning that was announced at cyber security and corporate communications. Bottom line, we are committed to getting, keeping and growing the right people, the right place to drive better business results. Dedicating sales personnel, sales resources to categories or sectors has been proved. The clarity of role responsibility and importantly accountability and is leading to better execution, which leads to better results. You heard examples in North America, you heard from the other the side of the world in China.

We're adapting how we manage small countries and market cluster groups. For small markets, we are implementing changes to give on the ground market leaders more flexibility to react quickly to competitive threats and customer opportunities within a predefined framework, develop our P&G's regional category leaders. In the Asia-Pacific region, we’ve just implemented this new freedom within a framework approach for smaller markets. The approach covers 71 smaller category combinations, they frankly require less regional day-to-day engagement, given the sales and profits significance. A few key aspects of this approach are to have regional leaders established the strategy a product plan and a budget for the category and define the executional boundaries as well as the market is executing within this predefined strategies and plans, there is not a need for the level of engagement we’ve had in the past. This approach is enabled the region to cut the number of review meetings in half, reduce the number of people participating in regions significantly and we use the content required at meetings from 10 documents to 1, it is simplification at its best and it will lead to faster growth.

We are aligning the centers that are lowered in a more specific level of granularity to better responsibilities and frankly to elevate accountability. Two changes we're making place or taking place this fiscal year. First, annual bonuses will be determined by the results of the business team at a regional country level versus global average results, linking rewards more closely to work. This is more granular approach incentives have expanded the number of pools, profit pools five times we had 20 last year, this year that will be 90. Second, our long-term incentive program, which is called performance stock program, will be expanded to include all Vice Presidents ranging the participation from about 30 executives to 250.

The payments from this incentive program are based on four metrics, organic sales growth, core EPS growth, core before tax operating profit growth on a constant currency basis and adjusted free cash flow productivity. Expanding participation in this program drives border line across our top leaders Presidents and Vice Presidents that drive total shareholder return. We're changing how we measure our progress, reducing in some cases eliminating aggregate measures and averages, you had some other people mentioned this. A few of you’ve noticed that when stop reporting things like percent of global sales to U.S. sales that are holding or growing share. I’m not a big fan of measures like this that are either internally or externally. As a result to one part of the business mask real problems and another worsen some cases, they don’t really correlated with how we’re doing.

We’re tracking our progress on a category country basis that lend and our simplified portfolio the top five markets for each of the top 10 categories or 50-category country combinations covers two-thirds of our sales and 75% of our profits, I can tracking once in the paper and do. I’m firmly believer in the management philosophy you get what you attract and what you measure. We’re measuring what we'd help our winners win bigger and quickly exposing issues that we can comment and help and address issues where we’re not delivering. We’re measuring details not averages. We’re benchmarking against our best competition, not horizontally across other members of the portfolio.

Again each of these measures may see small and obvious, but collectively, you taken together, the big and important changes for our organization in culture. The each year transformation top-line acceleration, productivity, portfolio and strengthen the organization and culture requires change and we’re making to further each of these. With success ultimately will be graded by sales, profit, cash and value creation results that we actually deliver, not in the activity that get us there. We are committed to doing everything we can to change what must be changed to deliver these results.

We expect this year will be another significant step back toward balance growth and value creation. We are committed to continued productivity improvement and cost savings to provide the fuel for innovation and investments needed to accelerate and sustain past top-line growth, you’ve heard about a lot of progress everywhere we’re making. We’ve created and sustaining strong cash flow, cash productivity momentum. We’re building stronger innovations aimed at delighting consumers and growing markets, a lot of about growing markets and growing our market share in the process.

We’ve completed the major portfolio and those to simplifying strength in the category portfolio and we’re making similar moves at the branded product form level to improve the profitability and value creation capability each of the categories we’ve retained. And finally we’re strengthening the organization and culture by improving our approach is to a talent acquisition, career management, decision making, accountability and incentives. We will undertake anything and everything that’s needed to win, the only thing we will not change is the Company’s purpose, values and principle and our commitment to winning. Other than that we will adapt, evolve and changes needed to get back to wining consistently.

We are making progress and we are determine to win, but we’re also realistic about the time it will take for all of these improvements and investments we’re making to fully play out in Brazil all over the world. But our standards are high we are not satisfy with little better than last year, we want to be the best. Thank you and I’ll be happy to take your questions. I’ll ask Jon to come up as well.

Now, I could ask you please use the microphone. We have folks around you with those and our IRR team has the microphones and if you raise your hand, Jon will get microphones to you.

Question-and-Answer Session

Q - Unidentified Analyst

Thanks. So I have two questions. You mentioned the word of concept balance to my count 15-16 times.

David Taylor

Glad you’re counting.

Unidentified Analyst

Today, I am trying to count something. So clearly things are changing, right from a accountability perspective or portfolio perspective and you mentioned just at the end of we’re willing to adapt, we’re willing to change. Can you give us a sense of how you know you’re getting to the right balance? So how are you testing yourself to know what you have to go further then you’re going so far. In that, can you give us kind of an answer to what you view the value and scale?

David Taylor

Sure. First, how they’re doing better through the lens of the 10 categories which is the way we’re running this company through the then final lens of category country, one of the most important is which ones are we winning? Is the category in those top 50 category countries and are we starting to grow share because that tells me vis-à-vis the category competitors in that market we're better than whether the small local or global competitors. And to me it’s important that we have a lot of shorts in the past because they look horizontally across. We’re very much looking to the lens of category and category country in the external competitive steps that deal with in every category and that to me gives me a very good indication.

On the balance point, we track top bottom past or the three things we watch. There is a lot of in process business that are important to manage the business like ours but the relative priority has shifted very focused on organic top line and making sure we get the bottom line and cash generation. We’ve given a lot more flexibility by category and we’re needed by category country to do what it takes to win versus the competitive set that they have but those are the tools that are used in the category country one is always with me because that’s the best land when I’m interacting with the President or General Manager to say versus your best competitors that you are winning top bottom cash. And your second question was you got two in there?

Unidentified Analyst


David Taylor

Okay, scale. You didn’t hear my sale for Jon, any member of the leadership team generally talk a lot about scale. We believe we get a lot of advantages by being part of Procter & Gamble. There is a tremendous advantage whether it’s with the customer or whether it's with our central services but generally we want the scale advantage to be on non-consumer facing items so that we still can be as agile as we need to be to win in every core category country combination and I believe the outcome of doing that really well in those top 50 will be we’ll get an even bigger scale advantage, we will grow.

Now there is many-many areas, if you look at products supply that Yannis talked about mixing centers I get enormous advantage. Everyone of these tin core categories could not create anywhere close to what we created because of the tin categories. We’ve gone down from over 15 to the tin that we have a basis to really win and now we’ve got to go out and execute but our supply systems and advantage we have many platform technologies supplier relationships, customer relationships will get meaningful scale advantage. To watch out and there is Henry talked about it a lot, if you focus on scale as the outcome, to me there is a tendency to centralize and globalize and do not want to do that. We want to do the things necessary to win and it will be very competitive but we get enormous advantage for all those areas that I just mentioned as well as the non-consumer facing items on shared services. So I think we’ll get a scale benefit but I want to be very competitive by category by country. Thank you. You guys pick, Wendy.

Wendy Nicholson

Thanks. My question is going forward did you think the cost of defending your market share is going to be greater than the cost of kind of where you've gotten thus far. So the question is as you generated ton of cost savings you've shown a fair amount of margin expansion, but I would think that as you continue to actually take more share in more categories for more competitors. The response could be pretty aggressive on multiple market all of the same time. So my question is fundamentally what your confidence and ability to keep putting up margin expansion in that environment, where the cost savings are still following through, but you might have that's been more going forward? And related to that Jon, if you commented on number several years ago about the gross margin benefit where you find kind of reached to critical scale in some market like Brazil or like India, I am just wondering where we are?

David Taylor

Let me take the first one here actually if you want to do the quick on, I think that if we do a great job on innovation that build categories that I will not see the dynamic that you're seeing. Certainly, the competitor on brand country combination or category country combination may get more aggressive, but you hear the words modest share growth. The majority of our growth will come in category growth. Significant majority of our growth has, if we go back to look at last 10 years, for us and every one of the industry participants in this category the big ones is company category growth.

You heard a lot I hope on category growth when the category grows and we did a disproportion amount of that growth. We growth fast, we grow a little share, but it's a very market constructive strategy that do so. If your strategy is to have aggressive share growth I think that dynamic that you describe is very real. But we've got many examples now where we are on category growth ideas Febreze CAR -- the profitability that category is quite healthy for the retailers for us and for other participants because the categories twice the size that it was six years ago.

In these profitable for us profitable for retailer probably profitable for other participants just not nearly as much is for us because we invested and grew the category, which is why there such premium for innovation that is truly superior. We talked about getting to a much higher standard of irresistible superiority. Kathy and her team are working with everyone of the 10 categories to say not just a little technically better, but meaningfully better which would drive more users, higher consumption in faster category growth.

After doing that the risk that you've highlighted is real, which means we need to do that really well in our 10 categories and out markets. And other thing I'll say is the six regions play a huge role in creating the environment in-store that grows category. Different shelves set we've got clear evidence in grow categories in close sales more. So that lens of category growth whether it's market or whether it's business is enormously powerful and it's a very market constructive strategy. Jon.

Jon Moeller

Yes, let me discuss build on that also as you could imagine our relevance and importance for our retail partners relates directly to our ability to do exactly what David talked about. They really don’t care about P&G share growth. They care about the growth is there to our market basket and on their sales. In terms of being able to do what David describe in and continue to generate some level of margin growth, we showed one chart place. there is only one chart we showed twice and that chart was the chart that showed to the importance of both top line growth and getting that back to where it need to be and continued modest margin expansion. We have then operating as a 10 category company for 49 days.

I counted a lot of days before that, but I’m convinced that there is significant opportunity as we start to around what this represents. We had a meeting yesterday with all the SMO leaders that you talk here today and the idea issuance around the opportunity on both top line and significant productivity, not just from a savings standpoint, but for making more effective in the marketplace, more agile in the marketplace, really focusing that’s on biggest opportunities to drive market. It’s -- if we do what David described, I think very well grow markets, as we grow our business and we do, what I’m confident, we can do hopefully we’ve demonstrated we can do, which is continue to provide cost out of the system, but for wide cost out of the system and reinvests in cost that drives a business will be able to do what that chart describers.

David Taylor

Yes, we are in the early part of the supply transformation as Yannis talked about. We are not the end of that, we just got the six mixed in centers we’re still starting one of the plans building it and Europe and many each of the other regions are still to come during various stages. So there are many years ahead of meaningful total costs opportunities, Marc highlighted. I don’t see that as a barrier at all, I think there is a lot of opportunity. Our job is to move faster with more intention and maintained balance. Others please.

Unidentified Analyst

Great. So, if I think about your $10 billion cost savings objective over the next five years that’s about $2 billion a year, which on your EBITDA it was about 10% to 15% profit growth. Plus organic growth, that’s a solid mid teens profit growth versus long-term guidance of mid single-digits. So, I don’t think about that gap, is that just what a cost to grow a little bit ahead of the market or is that flex help me? And where is that -- where is that gap go as we got go forward?

Jon Moeller

So it’s both. We have said every presentation today that we’re going to own best in the five areas of David show towards the end of the areas. His remarks and that’s the primary reason for what you describe is that gap. But we also want to have the flexibility to we see opportunities to grow and also deliver bottom line simultaneously. So, it’s both.

Unidentified Analyst

Clear. Two questions. Jon, just real quick on the trade spending. Where are you in the process, you talked about being opportunity, but how developed is it in terms of there is number of dollars you can see where we deployed? So that’s the first question. And then David P&G has been historically and innovation and marketing driven culture. And it’s strictly has one of your biggest opportunities is in the store execution out of stock et cetera. How do you train and attracting the teams the best talent from that vantage point because it seems likes that is a lot of low hanging fruit that you can just get that not right?

David Taylor

So in terms of trade is spending effectiveness and efficiency, I would say we are at a place and that program that are similar to where we were on non-manufacturing overhead reduction in 2012. So what’s very early days, we launched, what we call the trade transformation program in North America and Europe as pilots last year. So we’re 12 months into that a lot of that was developing and understanding and knowledge base and a tool set, and that that’s put into action, so very, very early days and opportunity.

Jon Moeller

Your point on in-store, first I think it’s very fair point. We are innovation driven company, we’ve take that innovation in a former brand, but ultimately the consumer, the shopper sees how it shows up. And we’ve learned a lot getting what I called very objective measures and how we actually show-up and Matthew gave a good example of one of the worst cases in terms of find out the delta between where we would want to be and where we really were, when these gotten to the data from stores, from objective stores. There is several things we’re doing to address that. The staff to when idea, the idea of stand that you’re going to say first dedicating the category where it makes sense, bigger markets dedicating category, huge change, you understand the category, you understand the competitive environment, you understand the market and you have a relationship with the customer, all really important.

So the rate of change, we move people had the change. And the whole philosophy this is looks this way versus this way is a big change for our company, we’re just in the staffing plans, in the assignment planning and making sure it fits. That's in process and making a difference and Carolyn gave an example as well, and what’s she's saying from past five years to past four quarters. That’s going to happen. There will be and I think we found some hairs where we’ve got it’s too tight and field sales coverage, so we work doing this well with recover and in-store conditions. And there is something we call software based design resources to look at, how you organize the shelf to creating environment, the gross category and disproportionally favors our brands.

We’ve got some really good examples, but we’ve also got many categories where we haven’t done well. And Alex showed kind of before and after at one of the counters, doing that well can make an enormous difference with exactly the same product and package, and we have a better product and package amplifies it. In some categories and in some markets, if we’re not doing well enough and don’t believe we have it, we’ll do external highest and one of the bigger chunks of external highest over the last year has been sales personnel. Category, masters that have understanding both of selling skills, but also presentation merchandising skills and stores to the lens of manufacture, but understand the retailer’s needs. And I’d say that’s a focus area, which is why we’ve got six presents here and available last night. We’ll talk about what they’re doing to the lands of their country in the 10 categories. And the ideas when you around, we have show better to anybody else, so we have category orientation that both gross the category and favors or brands, that’s just success looks like.

Unidentified Analyst

Good morning. I thought the slide where counter yourself against the 3G companies was particularly interesting because, but part of way I think drove such a big delta for some these companies was, where the starting point was. So can you talk about your starting point and your level of investment versus where they’ve been historically? And do you think your manufacturing efficiencies actually they can growing reductions. What not just change year-over-year for you, but after we see if you may, if you think you’re at far relative to peer or superior relative to appears?

David Taylor

If you look at gross margin as one indicator just talking about cost of goods for a second, as we benchmark that across the peer group. First of all, I wanted to take get into the point that aggregate betters at several times. We don’t want to compare total company to total company. We deliver an opportunity and that compares. We really want to compare Charlie is growing business to his best competitor for around seven or eight care business to help best competitor. And we look at gross margins on that basis, we have probably paid in the 10 categories I might have that one by one. But we had a pretty good gross margin obviously has a sales compliant as well and we are a little bit premium price so both those feed in that.

Having said that, we believe that there is still significant opportunity, as Yannis indicated; as David mentioned, we’re just indicating of our supply transformation program, the whole area of digitalization and automation. I would all agree we’re in the same place in the journey that they talk to Nick about on trade terms. So there is significant opportunity there. In terms of overhead, again when you look at it not as a company aggregate by category, by category to best competitor, we’re not in as good a place probably six out of the 10. Now some of those are deliberate business model choices we’re making. We don’t run our business the same way. We won’t run our business exactly the same way as competitors. We are going to invest heavily in innovation and shouldn’t penalize ourselves for that as its part of our business strategy.

But in the areas that aren’t a core part of creating noticeable security and a competitive difference, we need to get best in class. So we’re really at that granular levels across the activity system, where do we choose to invest and where we don’t do we have a line of sight to best in class. And I think again as I said many, many times I mean I don’t think I don’t want to personalize this but I remember our conversations very, very clearly. So there is somewhat painful for me. In 2012, when we, I said trust me there is this kind of cost takeout there without impacting in a significant way our capabilities across the business and I would just tell you that I feel even more strongly about that today than I did back in 2012.

Unidentified Analyst

Can you just a little bit more meat on the bon on the EPS in the second quarter? So is this all discrete to currency and you still think sort of like 1% top line for currency divestitures in the years still right and I think you said $0.12 per EPS. And for both you, do you still think you are going to exit fiscal ’17 at category growth rates where I think you sort of said both offline and online that by the time you get to the four fiscal quarters, that include kind of the ready-to-go and to the added close to the category growth rate?

Jon Moeller

So, first the all in sales growth number 1%, yes we still think that’s the right number. In terms of the desire to be at or getting approaching category growth rates by the end of the fiscal year that’s very much our desire. And as I said on the call, as David repeated in his remarks, 3% in the first quarter, that would imply something close to 3% in the fourth quarter, we still see 2% of the average. So there will be some lumpiness across the quarters. O&D will be a tough quarter in part because of that lumpiness but also because of these massive currency changes that have occurred literally over the last two weeks since the election. And those are things that will work to recover overtime for a combination of cost savings, smart pricing mix but with six weeks left there aren’t things that were likely to be able to cover in the quarter.

Unidentified Analyst

[indiscernible] what countries are going to meaningfully accelerate to get to that 3% growth exiting the fiscal quarter?

Jon Moeller

Well I tried to when I talk about opportunities, when we’ve discussed the top line in the tape a couple of categories and a couple of markets where we weren’t at category growth rates the big ones, so we said hair care and then Baby Care grew 2% in the quarter we just complete but that was still below the category. We talk about U.S. grooming, and I talk about China and Russia growing but behind category growth rates and after you talked about the desire to continue improving that overtime. So, frankly, those big opportunities, if we’re able to make sequential progress in each of those we should be getting pretty close.

Unidentified Analyst

Thanks just following up and as you said, but hair care is one of the category you didn't delivery just yet, but we did hear much of that beyond that today. So, it's going of script to me hear a little bit of what's going in hair care maybe why wasn't a feature category because that been the piece of the -- this is one of the business that has to turn first to get back where it wanted to be?

David Taylor

You're absolutely right. The only design intend to not, first we cover our hair care today is because to get you to your planes on time. We have to make a group presence.

Jon Moeller

And we talked some of the last night.

David Taylor

All Script, but a set up question. Go ahead.

Patrice Louvet

So as on hair care, a lot of the consist themes that we talked at a very consistent for hair care. Right, focus on accelerating the top line through the better brand building, stronger innovation, you saw some examples this morning what we are doing on Pantene, you saw Pantene start this fiscal year very nicely with the mid single-digits performance with slightly continue to drive that. Second, piece is portfolio, we gone through significant clean up with our portfolio whether that the divestiture color business. We are selling some of the mid tier low tier businesses that we have sprinkled around the world.

Third piece you've heard a lot of about go-to-market and transforming the shelve and shopper base on a very relevant for hair care, you saw a couple of example on Pantene, we are doing the same across the entire portfolio which is hardly simplified a shopping experience hardly really make this category, a category of consumers enjoying buying because it's his beauty, there has to be kind of the emotional dimension. One of the constant regarding is what we called Golden River on Pantene which is breaking despite brand blocks, we saw a couple of examples today. Kind of bringing that today and we're seeing where we implement that we are seeing the business response very strongly, and I think the first fourth point from the capabilities stand point is we are thinking about hair care you saw I think across all the businesses as a dedicated company, right.

Operating and wizard-like capabilities to in hair care. So now trying to see what's we're quite doing in baby care and assuming that we just reapply that in hair care, but really focusing on, given the hair care consumer, given the competitive landscape, given the retailer expectations what required to in a hair care starting with the U.S. and staring in China, and we are building those capabilities which helps get us to descent start in JF [ph] and I expect this to accelerate. And I think the Bill's earlier question, we expect to end the fiscal year category growth rates on hair care.

Unidentified Analyst

Okay. Just built on Bill Schmitz's question before, but specifically on China, one thing I was struck by during the conversation last night and again today was the expression going to take in time. We've seen in the asset to begin the return to the category growth rates in China, back-of-the-napkin math, it's probably somewhere to about a 50 basis point drag relative to the 3% or 3.5% that you guys want to get back to. So two questions may be you could help us sort of contemplate what's sort of baked-in and what's sort of timeframe understanding there is a lot going on in the market? Number one. And number two, David from your perspective what are the learnings from China and you feel like you made a right changes organizationally. Is that in theories should play to Procter strength in terms of wining at the high end where you guys caught a little bit flat footage. What are some of the learnings there that could be applied to the rest of your organization>

David Taylor

Let me give you a couple of quick and I'll turn it to Jon. I lived 3.5 years in Greater China from 1998 to 2001. Jon was there as well. So, we've both spent time living in the region before and that market around 2008 to 2012 moved very quickly and is something very open with. I think at times aggregate measures blind emerging issues; and if you look many of the categories that have real issues in China in absolute our in Global Lens, we’re doing fairly well for several years.

So one of the learnings is looking at the senior levels -- at global averages or aggregate measures did not cause the level of attention that needed to be put there, quickly enough. The second one is portfolios are broad generalizations, developing market, developed market to be also blind. Chine is one of the biggest developed markets in the world, most demanding consumers and it’s one of the biggest developing markets in the world, and we need our full portfolio, not in Phase 3 of the rollout because it’s developing market. It already got best we have at the same time of the most advanced markets in the world because you’ve been to Shanghai recently or many that the metro areas, urban areas, you have incredibly large number of demanding consumers and you had very modern format stores and many specialty stores.

So again, I would say, when we looked at it developing, developed or you look at it through any lens other than the brand country combination, we didn’t react as fast. Now, we recognized and we’ve been very open about that and shifted. And I think you’re seeing a difference front half of last year in the second half into this year. And how fast it happens we’ll see, I've been there just know there was signed, and that the wall. When I first went in China 1998 and it said, anything is possible and right below it said, noting is easy. And both of those are very true in China's day. Anything is possible, but is a big country, there are lots of different challenges virtually every competitor both local, regional global is there, and what we are trying to do and working hard to do is built the go-to-market capability wherever the shop is by category. Jon you've referred to baby stores which is being worked. And we are also trying to do is built the portfolio and the capacity to serve it in a constructive way and that’s going to take some time. And in some categories, we are moving very quickly. We have several categories that are going quite nicely and they have the best of the portfolio. We have a few categories where we are little bit out of position and that’s coming in, and it’s coming in progressively over the next several quarters. In the meantime, we have a quite a few markets that we showed our growing share and they’re going to need to make up for that while this one gets better.

Jon Moeller

I would only add in terms of the organization, a couple of things I think are important. One is really making a deliberate effort to get some of our best management in the China who have experience with China as Matthew mentioned. The other is doing the same thing with our suppliers, so the media agencies resources on the ground in China who really understand the Chinese market, working on daily proximity with our advertising groups. The third is management attention, each of the GVU Presidents sitting here today, I don’t want to see for them, but I would guess if you ask them, China is number one or number two. In terms of their priority, in terms of how they are allocating resources, in terms of how they allocating their own time. And that’s also the truth for David and myself, which wasn’t necessarily the case as we got into some of the problems as we have.

David Taylor

And we are going to have to close now. Let me just make one last comment is my hope for those of you that we hear last night saw that we are very open to engage in answer questions. And when we had all of our 10 category presidents, we had all of our SMO leaders, each of them fix there, and we had number of our function leaders. Everyone of those is very-very clear and what’s success looks likes everyone of us. This balanced growth and value creation puts our company back in the top third of our peer group is very, very clearly, the goal for everyone of the people that we trying to do today. We also understand that there is a strong push to go fast and we’re working that is hard as we think is appropriate to do in a way that we may start sustainable. We’re very much appreciate the investment you may last night and today and learning more about the Company and as I said when we started, we’re very committed to when and this team to me as capable making that happen. Thank you very much. Have a great holiday.

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