Recent Developments:

Recent Developments:

During fiscal 2019, the Company completed the acquisition of the over-the- counter (OTC) healthcare business of Merck KGaA (Merck OTC) for approximately $3.7 billion. This business primarily sells OTC consumer healthcare products, mainly in markets in Europe, Latin America and Asia and is included within our personal health care category.

During fiscal 2019, the Company also dissolved our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceutical Industries, Ltd (Teva) in the OTC consumer healthcare business. Pursuant to the agreement, PGT product assets were returned to the original respective parent companies to reestablish independent OTC businesses. This transaction was accounted for as a sale of the Teva portion of the PGT business. The Company recorded an after-tax gain on the sale of $353 million.

Organization Design:

Sector Business Units

Beauty: We are a global market leader amongst the beauty categories in which we compete, including hair care and skin and personal care. We are the global market leader in the retail hair care market with over 20% global market share primarily behind our Pantene and Head & Shoulders brands. In skin and personal care, we offer a wide variety of products, ranging from deodorants to personal cleansing to skin care, such as our Olay brand, which is one of the top facial skin care brands in the world with approximately 6% global market share.

Grooming: We compete in shave care and appliances. In shave care, we are the global market leader in the blades and

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The Procter & Gamble Company 15

razors market. Our global blades and razors market share is over 60%, primarily behind our Gillette and Venus brands. Our appliances, such as electric shavers and epilators, are sold primarily under the Braun brand in a number of markets around the world where we compete against both global and regional competitors. We hold over 25% of the male electric shavers market and over 50% of the female epilators market.

Health Care: We compete in oral care and personal health care. In oral care, there are several global competitors in the market and we have the number two market share position with nearly 20% global market share behind our Crest and Oral-B brands. In personal health care, we are a top ten competitor in a large, highly fragmented industry, primarily behind respiratory treatments (Vicks brand) and digestive wellness products (Metamucil and Pepto Bismol brands). As discussed earlier, in fiscal 2019, we dissolved the PGT Healthcare partnership with Teva, and reestablished an independent OTC business. We also acquired Merck OTC as discussed above.

Fabric & Home Care: This segment is comprised of a variety of fabric care products, including laundry detergents, additives and fabric enhancers; and home care products, including dishwashing liquids and detergents, surface cleaners and air fresheners. In fabric care, we generally have the number one or number two market share position in the markets in which we compete and are the global market leader with over 25% global market share, primarily behind our Tide, Ariel and Downy brands. Our global home care market share is nearly 25% across the categories in which we compete, primarily behind our Cascade, Dawn, Febreze and Swiffer brands.

Baby, Feminine & Family Care: In baby care, we are the global market leader and compete mainly in taped diapers, pants and baby wipes with over 20% global market share. We have the number one or number two market share position in most of the key markets in which we compete, primarily behind Pampers, the Company’s largest brand, with annual net sales of over $7 billion. We are the global market leader in the feminine care category with 25% global market share, primarily behind our Always and Tampax brands. We also compete in the adult incontinence category in certain markets behind Always Discreet, with nearly 10% market share in the key markets in which we compete. Our family care business is predominantly a North American business comprised primarily of the Bounty paper towel and Charmin toilet paper brands. North America market shares are over 40% for Bounty and approximately 25% for Charmin.

Enterprise Markets

Enterprise Markets are responsible for sales and profit delivery in specific countries, supported by SBU-agreed innovation and supply chain plans, along with scaled services like planning, distribution and customer management.

Corporate Functions

Corporate Functions provides company-level strategy and portfolio analysis, corporate accounting, treasury, tax,

external relations, governance, human resources and legal services.

Global Business Services

Global Business Services provides technology, processes and standard data tools to enable the SBUs, the EMs and CF to better understand the business and better serve consumers and customers. The GBS organization is responsible for providing world-class solutions at a low cost and with minimal capital investment.

Strategic Focus

Procter & Gamble aspires to serve the world’s consumers better than our best competitors in every category and in every country in which we compete and, as a result, deliver total shareholder return in the top one-third of our peer group. Delivering and sustaining leadership levels of shareholder value creation requires balanced top- and bottom-line growth and strong cash generation.

The Company has undertaken an effort to focus and strengthen its business portfolio to compete in categories and with brands that are structurally attractive and that play to P&G’s strengths. Our portfolio of businesses consists of ten product categories where P&G has leading market positions, strong brands and consumer-meaningful product technologies.

Within these categories, our strategic choices are focused on winning with consumers. The consumers who purchase and use our products are at the center of everything we do. We win with consumers by delivering superiority across the five key elements of product, packaging, brand communication, retail execution and value equation. Winning with consumers around the world and against our best competitors requires innovation. Innovation has always been, and continues to be, P&G’s lifeblood. Innovation requires consumer insights and technology advancements that lead to product improvements, improved marketing and merchandising programs and game- changing inventions that create new brands and categories.

Productivity improvement is critical to delivering our balanced top- and bottom-line growth, cash generation and value creation objectives. Productivity improvement and sales growth reinforce and fuel each other. Our objective is to drive productivity improvement across all elements of cost, including cost of goods sold, marketing and promotional spending and overhead costs. We plan to use productivity improvements and cost savings to help offset cost increases (including commodity and foreign exchange impacts), reinvest in product and packaging improvements, brand awareness-building advertising and trial-building sampling programs, increased sales coverage and R&D programs as well as to improve operating margins.

We are constructively disrupting our industry and the way we do business, including how we innovate, communicate and leverage new technologies, to create more value.

We are improving operational effectiveness and organizational culture through enhanced clarity of roles and

16 The Procter & Gamble Company

responsibilities, accountability and incentive compensation programs.

We believe these strategies are right for the long-term health of the Company and our objective of delivering total shareholder return in the top one-third of our peer group.

The Company expects the delivery of the following long-term annual financial targets will result in total shareholder returns in the top third of the competitive, fast-moving consumer goods peer group:

• Organic sales growth above market growth rates in the categories and geographies in which we compete;

• Core earnings per share (EPS) growth of mid-to-high single digits; and • Adjusted free cash flow productivity of 90% or greater.

In periods with significant macroeconomic pressures, such as the current COVID-19 pandemic, we intend to maintain a disciplined approach to investing so as not to sacrifice the long-term health of our businesses to meet short-term objectives in any given year.


Amounts in millions, except per share amounts 2021 2020 Change vs. Prior Year

Net sales $ 76,118 $ 70,950 7 % Operating income 17,986 15,706 15 % Net earnings 14,352 13,103 10 % Net earnings attributable to Procter & Gamble 14,306 13,027 10 % Diluted net earnings per common share 5.50 4.96 11 % Core earnings per share 5.66 5.12 11 % Cash flow from operating activities 18,371 17,403 6 %

• Net sales increased 7% to $76.1 billion on a 3% increase in unit volume. Favorable foreign exchange had a positive 1% impact on net sales. Net sales growth was driven by double digit increases in Health Care and in Fabric & Home Care, a high single digit increase in Beauty, a mid-single digit increase in Grooming and a low single digit increase in Baby, Feminine & Family Care. Organic sales, which exclude the impacts of acquisitions and divestitures and foreign exchange, increased 6% on a 3% increase in organic volume. Organic sales increased high single digits in Health Care and in Fabric & Home Care, increased mid-single digits in Beauty and in Grooming and increased low single digits in Baby, Feminine & Family Care.

• Operating income increased $2.3 billion, or 15% versus year ago to $18.0 billion, driven by the net sales increase and an increase in operating margin.

• Net earnings increased $1.2 billion or 10% versus year ago to $14.4 billion, due to the increase in operating income, partially offset by current year charges of $427 million after tax for the early extinguishment of debt and an increase in the current year effective tax

rate. Foreign exchange impacts negatively affected net earnings by approximately $108 million.

• Net earnings attributable to Procter & Gamble were $14.3 billion, an increase of $1.3 billion or 10% versus the prior year primarily due to the increase in net earnings.

• Diluted net earnings per share (EPS) increased 11% to $5.50 due to the increase in net earnings and a reduction in shares outstanding. ◦ Core EPS, which represents net earnings per share excluding

charges for the early extinguishment of debt in the current period and incremental restructuring charges in the base period, increased 11% to $5.66.

• Cash flow from operating activities was $18.4 billion. ◦ Adjusted free cash flow, which is operating cash flow less capital

expenditures and certain other impacts, was $15.8 billion. ◦ Adjusted free cash flow productivity, which is the ratio of adjusted

free cash flow to net earnings, excluding the charges for early debt extinguishment, was 107%.

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