CINCINNATI–(BUSINESS WIRE)–The Procter & Gamble Company (NYSE:PG) today issued a letter to
shareholders detailing the comprehensive ongoing transformation that is
working to yield positive results for shareholders.
The Company outlines broad based actions in productivity and cost
savings, brand and product portfolio restructuring, accelerating
innovation and organization changes. These changes are delivering
meaningful new businesses, e-commerce growth, leadership market shares,
and leadership levels of total shareholder return.
The letter highlights that the Board and management recognized the need
to transform and reposition P&G to meet the significant changes in the
consumer, retail and marketing environment. As a result of this
P&G is a profoundly different, much stronger, more profitable Company
than it was just a few years ago.
P&G is on the road to meeting current and future consumer needs with
products that exceed their expectations, and to delivering the
business and financial results shareholders expect from P&G.
P&G has the right team, the right Board, and the right strategy and
plan in place to take the Company to new heights.
P&G states that it does not believe adding Nelson Peltz to the Board is
the right choice for the Company. While Mr. Peltz is an accomplished
investor, he does not fit the criteria established by the P&G Board
through its rigorous governance process, nor does he have the skills the
Board needs to continue to guide P&G for the future. P&G is on the right
track and needs to stay focused to avoid derailing the progress underway.
The full text of the letter follows:
Dear Fellow Shareholders:
The P&G Board of Directors thanks you for your investment in The Procter
& Gamble Company.
As this proxy contest draws to an end, I would like to recap P&G’s view
of where we are as a company and why we recommend a vote to support P&G,
and against putting Nelson Peltz on the P&G Board.
P&G is in the middle of a comprehensive transformation journey, which
is yielding positive results for shareholders.
Some brief perspective may be helpful to give you a sense of where we
have been and what you can expect from us going forward.
The P&G Board and management recognized the need to transform and
reposition P&G to meet the significant changes in the consumer, retail
and marketing environment, and return the Company to delivering
excellent business results. We recognized that P&G needed to address the
impact of several important forces.
Negative foreign exchange had become a major headwind. While P&G’s
revenue was denominated in local currency, our costs were mostly in
U.S. dollars, which created significant margin pressure. Most of our
competitors were from Europe or Japan, giving them price and cost
advantages. This foreign exchange pressure has been with us for the
last several years and has only begun to moderate in the last several
Traditional retail channels were being disrupted by e-commerce,
enabling consumers to shop anywhere, anytime. This put real pressure
on traditional retail.
As consumers were spending more and more time online, traditional ways
of reaching them were being upended. We needed to learn new ways to
market to consumers and rapidly change our marketing mix to digital.
Technology advances were enabling more rapid innovation cycles and
faster consumer insights through big data and analytics.
China, our second largest market, was undergoing a massive change
toward premium products, which was a threat to our mid-tier product
strategy that had worked well for many years.
“In light of the vast array of actions the firm is undertaking, we
fail to see a major impetus behind Peltz’s approach and little to
suggest that his oversight would accelerate change.” Erin Lash,
To address these forces, P&G embarked on what is undeniably one of
the biggest business transformations in P&G’s history.
We are well into the journey.
P&G is a profoundly different, much stronger, more profitable Company
than we were just a few years ago. The changes we have made are broad
based and delivering results.
We implemented a major productivity and cost savings program,
necessary to address the foreign exchange impacts we faced. To give you
a sense of what we have accomplished, we have reduced cost of goods
sold, non-working marketing spending, and overhead costs by more than
$10 billion in five years. We have reduced manufacturing and
non-manufacturing roles by 32% and improved profit per employee by 45%.
While much of the cost savings offset foreign exchange, we have also
made important investments in R&D, selling, and digital technology
infrastructure, while improving margins to industry-leading levels. Our
cost structure today has us much better positioned to compete in a
But we are not finished.
We have announced another $10 billion cost savings initiative,
which we are confident we will achieve. This program can be used to
improve the bottom line and continue to make the necessary investments
in our business to strengthen our growth hand for the future.
We undertook our most significant portfolio restructuring ever.
We reduced the number of brands from 170 to 65 and the number of
categories from 16 to 10, building shareholder value every step of the
way. We now have a portfolio that plays to our strengths, where products
solve problems and performance drives purchase. We are completely out of
businesses driven by fashion, fragrances or flavors.
The stronger portfolio is enabling us to accelerate our innovation
engine. We have built a number of meaningful, new businesses such as
Tide Pods, Pampers Swaddlers and Pants, Downy Unstopables, Always
Discreet and Radiant, Oral-B Power, and many others. By any measure, P&G
is the industry leader in innovation.
We have built a strong e-commerce business with companies like
Amazon, Alibaba, and Tencent. Our $3 billion e-commerce business is the
largest of any multinational consumer packaged goods company, growing
30% last fiscal year, and growing share in 8 of 10 categories.
We are a recognized leader in the use of digital media and advertising,
and in raising the performance standards of the digital media industry. Our
#1 market share position among millennials in brands such as Always,
Tide, Downy, Dawn, Bounty, Charmin, Gillette, Crest and several others
is evidence of P&G’s leadership.
We are changing our organization structure to speed decision making
and improve accountability. We are dismantling the matrix
organization that powered P&G for many years and have moved to 10
category leaders that each have end-to-end accountability from strategy
to financial results. We have changed our compensation system to hold
category leaders even more accountable, and to differentially reward
category teams for their performance.
We are our own powerful agents of change.
We have made dramatic changes to transform P&G. We are embracing the
disruption of today’s world and using it to reshape our Company to win
with consumers and win in the marketplace.
And this change is working.
The Company met and even exceeded its top-line, bottom-line and cash
objectives during the last fiscal year. The P&G team has delivered 28%
total shareholder return during the past two years. During the last four
years, we have improved core operating margin by 270 basis points, 610
basis points excluding the effects of currency. The team delivered
double-digit average annual constant-currency earnings per share growth
during the past five years, improving industry-leading margins along the
way. Over the past ten years, P&G has delivered more than $135 billion
of capital to shareholders in the form of dividends and share
repurchases, among the best in our industry and among the elite in all
industries. This is a strong turnaround by any measure.
Our objective is to grow ahead of the market on the top line and
simultaneously increase margins to deliver leadership levels of total
The Board and management are fully aligned on the strategy. We are
executing a plan that is working and we need to stay the course.
As you know, we do not believe that adding Mr. Peltz to the Board is
the right choice for the Company. We need to stay focused and avoid
derailing the progress we are making.
If we add new Board members, we want to add those who fit the
criteria established by our rigorous governance process, with the skills
our Board needs to continue to guide P&G for the future:
Global business experience, especially in China, which is an
exceptionally important market.
Digital technology, data and analytics experience, as our ability to
use new e-commerce, marketing and media innovations will only
Healthcare experience, as this is an important and growing category
for us, and it has unique category characteristics that require
Gender and ethnic diversity, as our Board composition should reflect
the consumers we serve, and should continue to guide P&G’s social and
environmental sustainability leadership efforts.
Board members who represent the next generation of leaders, to keep
pace with the fast-changing world.
While Mr. Peltz is an accomplished investor, he does not fit any of
Are we expected to lower our governance standards to the horribly low
and irresponsible level of “What’s the harm?”
We recognize that we could have just said “Why not?” and simply invited
Mr. Peltz onto the Board to avoid a proxy contest that no one wanted.
But our fiduciary duty compels us to make decisions that are in the best
interests of all shareholders for the short, mid and long term – not to
take the easy way out today.
We will continue to hold our standards high and look for new Board
members who meet our rigorous governance criteria, add to our set of
knowledge and skills, contribute important new ideas, and strengthen our
growth hand for the future.
It is important to reiterate that Mr. Peltz’s views will not be lost if
he is not on our Board. We expect that he will remain a large
shareholder, and we will continue to listen to his ideas and
recommendations. However, after conducting extensive diligence, we
continue to strongly believe that Mr. Peltz does not offer the best
solution for our Board and for the Company, today.
We are excited about our transformation journey and about our future.
We are on the road to meeting current and future consumer needs with
products that exceed their expectations AND to delivering the business
and financial results that you expect from P&G.
P&G has reinvented itself many times in the last 180 years, and we are
confident we have the right team, the right Board, and the right
strategy and plan in place to take the Company to new heights.
Thank you for your attention and for your continued investment in The
Procter & Gamble Company. We respectfully ask for your support as we
transform P&G to thrive in a rapidly changing world.
On behalf of your Board of Directors,
David S. Taylor
Chairman of the Board, President and Chief
October 2, 2017
About Procter & Gamble
P&G serves consumers around the world with one of the strongest
portfolios of trusted, quality, leadership brands, including
Always®,Ambi Pur®, Ariel®, Bounty®, Charmin®, Crest®, Dawn®, Downy®,
Fairy®, Febreze®, Gain®, Gillette®, Head & Shoulders®, Lenor®,
Olay®,Oral-B®, Pampers®, Pantene®, SK-II®, Tide®, Vicks®, and Whisper®.
The P&G community includes operations in approximately 70 countries
worldwide. Please visit http:// www.pg.com
for the latest news and information about P&G and its brands.
Certain statements in this release or presentation, other than purely
historical information, including estimates, projections, statements
relating to our business plans, objectives, and expected operating
results, and the assumptions upon which those statements are based, are
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements generally are identified by the words
“believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,”
“strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,”
“would,” “will be,” “will continue,” “will likely result,” and similar
expressions. Forward-looking statements are based on current
expectations and assumptions, which are subject to risks and
uncertainties that may cause results to differ materially from those
expressed or implied in the forward-looking statements. We undertake no
obligation to update or revise publicly any forward-looking statements,
whether because of new information, future events or otherwise.
Risks and uncertainties to which our forward-looking statements are
subject include, without limitation: (1) the ability to successfully
manage global financial risks, including foreign currency fluctuations,
currency exchange or pricing controls and localized volatility; (2) the
ability to successfully manage local, regional or global economic
volatility, including reduced market growth rates, and to generate
sufficient income and cash flow to allow the Company to affect the
expected share repurchases and dividend payments; (3) the ability to
manage disruptions in credit markets or changes to our credit rating;
(4) the ability to maintain key manufacturing and supply arrangements
(including execution of supply chain optimizations, and sole supplier
and sole manufacturing plant arrangements) and to manage disruption of
business due to factors outside of our control, such as natural
disasters and acts of war or terrorism; (5) the ability to successfully
manage cost fluctuations and pressures, including prices of commodity
and raw materials, and costs of labor, transportation, energy, pension
and healthcare; (6) the ability to stay on the leading edge of
innovation, obtain necessary intellectual property protections and
successfully respond to changing consumer habits and technological
advances attained by, and patents granted to, competitors; (7) the
ability to compete with our local and global competitors in new and
existing sales channels, including by successfully responding to
competitive factors such as prices, promotional incentives and trade
terms for products; (8) the ability to manage and maintain key customer
relationships; (9) the ability to protect our reputation and brand
equity by successfully managing real or perceived issues, including
concerns about safety, quality, ingredients, efficacy or similar matters
that may arise; (10) the ability to successfully manage the financial,
legal, reputational and operational risk associated with third party
relationships, such as our suppliers, distributors, contractors and
external business partners; (11) the ability to rely on and maintain key
company and third party information technology systems, networks and
services, and maintain the security and functionality of such systems,
networks and services and the data contained therein; (12) the ability
to successfully manage uncertainties related to changing political
conditions (including the United Kingdom’s decision to leave the
European Union) and potential implications such as exchange rate
fluctuations and market contraction; (13) the ability to successfully
manage regulatory and legal requirements and matters (including, without
limitation, those laws and regulations involving product liability,
intellectual property, antitrust, privacy, tax, environmental, and
accounting and financial reporting) and to resolve pending matters
within current estimates; (14) the ability to manage changes in
applicable tax laws and regulations including maintaining our intended
tax treatment of divestiture transactions; (15) the ability to
successfully manage our ongoing acquisition, divestiture and joint
venture activities, in each case to achieve the Company’s overall
business strategy and financial objectives, without impacting the
delivery of base business objectives; and (16) the ability to
successfully achieve productivity improvements and cost savings and
manage ongoing organizational changes, while successfully identifying,
developing and retaining key employees, including in key growth markets
where the availability of skilled or experienced employees may be
limited. For additional information concerning factors that could cause
actual results and events to differ materially from those projected
herein, please refer to our most recent 10-K, 10-Q and 8-K reports.
Important Additional Information and Where to Find It
The Company has filed a definitive proxy statement on Schedule 14A and
form of associated BLUE proxy card with the Securities and Exchange
Commission (“SEC”) in connection with the solicitation of proxies for
its 2017 Annual Meeting of Shareholders (the “Definitive Proxy
Statement”). The Company, its directors and certain of its executive
officers will be participants in the solicitation of proxies from
shareholders in respect of the 2017 Annual Meeting. Information
regarding the names of the Company’s directors and executive officers
and their respective interests in the Company by security holdings or
otherwise is set forth in the Definitive Proxy Statement. Details
concerning the nominees of the Company’s Board of Directors for election
at the 2017 Annual Meeting are included in the Definitive Proxy
Statement. BEFORE MAKING ANY VOTING DECISION, INVESTORS AND SHAREHOLDERS
OF THE COMPANY ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH OR
FURNISHED TO THE SEC, INCLUDING THE COMPANY’S DEFINITIVE PROXY STATEMENT
AND ANY SUPPLEMENTS THERETO AND ACCOMPANYING BLUE PROXY CARD, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain a free
copy of the Definitive Proxy Statement and other relevant documents that
the Company files with the SEC from the SEC’s website at www.sec.gov
or the Company’s website at http://www.pginvestor.com
as soon as reasonably practicable after such materials are
electronically filed with, or furnished to, the SEC.
This letter contains certain non-GAAP measurements that management
believes are meaningful to investors because they provide useful
perspective on underlying business trends (i.e. trends excluding
non-recurring or unusual items) and results, provide a supplemental
measure of year-on-year results, and provide a view of our business
results through the eyes of management. These measures are also a factor
in determining senior management’s at-risk compensation. These non-GAAP
measures are not intended to be considered in place of the related GAAP
measure and may not be the same as similar measures used by other
companies. This data should be read in conjunction with previously
published company reports on Forms 10-K, 10-Q, and 8-K, which are
available on www.PGInvestor.com
under Financial Reporting. Reconciliations of non-GAAP measures to GAAP
are provided below.
The Core earnings measures included in the following reconciliation
tables refer to the equivalent GAAP measures adjusted as applicable for
the following items:
Incremental restructuring: The Company
has had and continues to have an ongoing level of restructuring
activities. Such activities have resulted in ongoing annual
restructuring related charges of approximately $250 – $500 million
before tax. Beginning in 2012 Procter & Gamble began a $10 billion
strategic productivity and cost savings initiative that includes
incremental restructuring activities. In 2017, the Company announced
elements of an additional multi-year productivity and cost savings
plan. These plans result in incremental restructuring charges to
accelerate productivity efforts and cost savings. The adjustment to
Core earnings includes only the restructuring costs above what we
believe are the normal recurring level of restructuring costs.
Early debt extinguishment charges: During
the three months ended December 31, 2016, the Company recorded a
charge of $345 million after tax due to the early extinguishment of
certain long-term debt. This charge represents the difference between
the reacquisition price and the par value of the debt extinguished.
Venezuela deconsolidation charge: For
accounting purposes, evolving conditions resulted in a lack of control
over our Venezuelan subsidiaries. Therefore, in accordance with the
applicable accounting standards for consolidation, effective June 30,
2015, we deconsolidated our Venezuelan subsidiaries and began
accounting for our investment in those subsidiaries using the cost
method of accounting. The charge was incurred to write off our net
assets related to Venezuela.
Charges for certain European legal matters:
Several countries in Europe issued separate complaints alleging that
the Company, along with several other companies, engaged in violations
of competition laws in prior periods. The Company established Legal
Reserves related to these charges.
Venezuela B/S remeasurement & devaluation impacts:
Venezuela is a highly inflationary economy under U.S. GAAP. Prior to
deconsolidation, the government enacted episodic changes to currency
exchange mechanisms and rates, which resulted in currency
remeasurement charges for non-dollar denominated monetary assets and
liabilities held by our Venezuelan subsidiaries.
Non-cash impairment charges: During
fiscal years 2013 and 2012 the Company incurred impairment charges
related to the carrying value of goodwill and indefinite lived
intangible assets in our Appliances and Salon Professional businesses.
Gain on Iberian JV buyout: During fiscal
year 2013 we incurred a holding gain on the purchase of the balance of
our Iberian joint venture from our joint venture partner.
We do not view the above items to be part of our sustainable results,
and their exclusion from core earnings measures provides a more
comparable measure of year-on-year results.
Core operating profit margin and currency-neutral
Core operating profit margin: Core operating profit margin is a
measure of the Company’s operating margin adjusted for items as
indicated. Currency-neutral Core operating profit margin is a measure of
the Company’s Core operating profit margin excluding the incremental
current year impact of foreign exchange. Management believes these
non-GAAP measures provide a supplemental perspective to the Company’s
operating efficiency over time.
Core operating profit margin:
|FY 12||FY 13||FY 14||FY 15||FY 16||FY 17|
|Operating Profit Margin||17.1%||17.7%||18.7%||15.6%||20.6%||21.5%|
|Charges for Certain European Legal Matters||0.1%||0.2%||0.1%||–||–||–|
|Venezuela B/S Remeasurement & Devaluation Impacts||–||0.5%||0.4%||0.2%||–||–|
|Venezuela Deconsolidation Charge||–||–||–||2.9%||–||–|
|Core Operating Profit Margin||19.2%||19.4%||19.7%||19.6%||21.5%||22.1%||
|Basis point change vs. prior year Core margin||20||30||(10)||190||60||270|
|Currency Impact to Margin||0.3%||1.2%||1.4%||0.5%||0.3%|
|Currency-Neutral Core Operating Profit Margin||19.7%||20.9%||21.0%||22.0%||22.4%|
|Basis point change vs. prior year Core margin||50||150||130||240||90||610|
*Permission to use quotation neither sought nor obtained.
1 TSR calculations since November 1, 2015. Market data as of
September 6, 2017. The peers selected by Trian in its September 6, 2017
White Paper are as follows: Beiersdorf, Church & Dwight, Clorox,
Colgate-Palmolive, Edgewell Personal Care, Henkel, Kimberly-Clark,
L’Oreal, Reckitt Benckiser and Unilever. The TSR for “Peltz Serving on
Board” is a weighted average based on the market capitalization of
Madison Square Garden, Mondelez, Sysco and Wendy’s. The TSR for “P&G
Peers” is a simple average, which follows the same methodology utilized
by Trian in its measurement of the same peer constituency in its
presentation filed with the SEC on September 6, 2017.