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P&G 2016 Annual Report

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P&G 2016 Annual Report P&G 2016 Annual Report FINANCIAL HIGHLIGHTS (UNAUDITED) NET SALES ($ BILLIONS) Amounts in billions, except per share amounts 2016 $65.3 2015 $70.7 2016 2015 2014 2013 2012 2014 $74.4 Net sales $65.3 $70.7 $74.4 $73.9 $73.1 2013 $73.9 2012 $73.1 Operating income 11.0 13.9 13.1 12.5 13.4 OPERATING CASH FLOW ($ BILLIONS) 2016 $15.4 Net earnings attributable 7.0 11.6 11.3 10.8 to Procter & Gamble 10.5 2015 $14.6 2014 $14.0 Net earnings margin from 2013 $14.9 % 11.7% 14.3% 14.0% 12.1% continuing operations 15.4 2012 $13.3 Diluted net earnings per common share from $ $2.84 $3.63 $3.50 $2.97 DILUTED NET EARNINGS (PER COMMON SHARE) continuing operations(1) 3.49 2016 $3.69 Diluted net earnings per 2.44 4.01 3.86 3.66 2015 $2.44 common share(1) 3.69 2014 $4.01 2013 $3.86 Dividends per $ $2.59 $2.45 $2.29 $2.14 common share 2.66 2012 $3.66 2016 NET SALES BY BUSINESS SEGMENT(2) 2016 NET SALES BY MARKET MATURITY Grooming 11% Baby, Feminine 28% and Family Care Health Care 11% Developing 35% 65% Developed Markets Markets Fabric and 18% Beauty Home Care 32% 2016 NET SALES BY GEOGRAPHIC REGION Europe 23% North America Greater China 44% 8% Latin America Asia Pacific India, % Middle East % 8 & Africa (IMEA) 9 8% (1) Diluted net earnings per common share are calculated based on net earnings attributable to Procter & Gamble. (2) These results exclude net sales in Corporate. VARIOUS STATEMENTS IN THIS ANNUAL REPORT, including estimates, projections, objectives and expected results, 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 and are generally identified by the words “believe,” “expect,” “anticipate,” “intend,” “opportunity,” “plan,” “project,” “will,” “should,” “could,” “would,” “likely” and similar expressions. Forward-looking statements are based on current assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements, including the risks and uncertainties discussed on pages 2–6 of this Annual Report. We undertake no obligation to update or revise publicly any forward-looking statements. Brand names referenced in this Annual Report are trademarks of The Procter & Gamble Company or one of its subsidiaries. All other brand names are trademarks of their respective owners. Dear Shareholders, Fiscal 2016 was a year of progress in our journey to return P&G’s results to a balance of top-line growth, bottom-line growth and cash generation. We increased investments in innovation, advertising and sales coverage to enhance our long-term prospects for faster, sustainable sales growth. We stabilized top-line growth rates in several key markets. We delivered another strong year of productivity improvement and cost savings. We made significant steps in our portfolio transformation — completing the Duracell transaction in February, negotiating and preparing for the sale of 41 beauty brands to Coty Inc., and streamlining the product lineups in our ongoing businesses. We made this progress during a challenging year. We faced significant foreign exchange headwinds, which reduced sales growth by six percentage points and core earnings per share by nine percentage points. We faced slowing market growth, and economic and political disruptions in many large markets. We made choices to exit several lines of unprofitable business, which reduced organic sales growth. Earnings were impacted by reduced exports to Venezuela. Despite these challenges, we delivered organic sales growth within our initial guidance range, and free cash flow productivity was above our initial expectations. Core earnings per share were at the low end of our initial guidance range due primarily to over half a billion dollars after-tax of incremental foreign exchange impacts that occurred after we had set our targets for the year. • All-in sales declined 8%; organic sales grew 1% • All-in earnings per share increased 51%; core earnings per share declined 2% David S. Taylor • Free cash flow was $12.1 billion, with adjusted free cash flow productivity of 115% Chairman of the Board, President and Chief Executive Officer TABLE OF CONTENTS Letter to Shareholders i Global Company Leadership 74 P&G’s 10 Categories ii Board of Directors 75 Form 10-K ix Recognition 76 Measures Not Defined by U.S. GAAP 29 Citizenship Inside Back Cover Company and Shareholder Information 73 ii • The Procter & Gamble Company We continued to build on our strong track record of returning cash to you, our shareholders. We paid $7.4 billion in dividends, increasing our dividend for the 60th consecutive year. We reduced shares outstanding by more than $8 billion through a combination of share repurchases and shares that were exchanged in the Duracell transaction. In total, P&G delivered nearly $16 billion of value for shareholders. We made progress in a challenging environment, but we know we need to do better. We are focused on streamlining and strengthening our product portfolio, improving productivity and our cost structure, building the foundation for stronger top-line growth, and strengthening our organization and culture. These are the choices we’re focused on to raise the bar on P&G’s performance to consistently deliver balanced growth and leadership value creation. Streamlining Our Product Portfolio We’re organizing our portfolio around 10 category-based business units and about 65 brands. These are categories where P&G has leading market positions and where product technologies deliver performance differences that matter to consumers. We’re focusing on categories where product performance drives purchase decisions — where there are clear consumer jobs to be done and objective measures of performance. These are products in financially attractive categories, which consumers P&G’s purchase and use on a daily basis. These 10 category- based business units have historically grown faster 10 with higher margins than the balance of the company. Within these core categories, we are streamlining Categories our product lines. For example, we are making smart choices to discontinue undifferentiated, unprofitable and commoditizing products in favor of more profitable, consumer-preferred and differentiated products in a number of markets and businesses around the world, including Mexico, India and Fabric Care. Combined, these choices caused about a one-point drag on organic sales growth in fiscal 2016 and are expected to continue to be a headwind in fiscal 2017. As we complete this work, our portfolio of brands and products will be better positioned for stronger and more profitable growth. Explore our brands and categories The Procter & Gamble Company • iii Consumers at the Center P&G’s aspiration is to serve the world’s consumers better than our best competitors, in every category and every country where we choose to compete — creating superior shareholder value in the process. We’re organizing our portfolio around 10 category-based business units and about 65 brands. These are categories where P&G has leading market positions and where We have deep consumer understanding in our categories. P&G is a global leader in all these categories. product technologies deliver performance differences that matter to consumers. We’re focusing on categories where product performance drives purchase decisions — where there are clear consumer jobs to be done and objective measures of performance. These are products in financially attractive categories, which consumers purchase and use on a daily basis. FABRIC CARE HOME CARE Laundry Detergents, Fabric Enhancers, Dish Care, Air Care, Surface Care, Laundry Additives P&G Professional GROOMING ORAL CARE Male Blades & Razors, Female Blades & Razors, Toothbrushes, Toothpaste, Pre- and Post-Shave Products, Other Oral Care Appliances, Other Shave Care BABY CARE FEMININE CARE FAMILY CARE Diapers and Pants, Feminine Care, Paper Towels, Tissues, Baby Wipes Adult Incontinence Toilet Paper PERSONAL HEALTH CARE HAIR CARE SKIN AND PERSONAL CARE Gastrointestinal, Respiratory, Shampoo, Conditioner, Skin Care, Antiperspirant and Deodorant, Rapid Diagnostics, Vitamins / Minerals / Styling Aids, Treatments Personal Cleansing Supplements, Other Personal Health Care iv • The Procter & Gamble Company Improving Productivity and Cost Structure We continue to improve cost and cash productivity with significant upside ahead. Productivity is the fuel for top- and bottom-line growth. We have delivered and exceeded $10 billion in savings over the past five fiscal years across cost of goods sold, marketing spending and overhead. In cost of goods sold, our original target was $6 billion in savings over five years, from fiscal 2012 to 2016. We delivered over $7 billion, with savings at or above target each year. In marketing spending, we have delivered strong savings over the last two years in non-working agency fees and commercial production costs. We’ve been reinvesting these savings in marketing programs that improve the reach, frequency or continuity of our advertising, and in programs such as product sampling that generate trial of our superior products. In overhead, the decision to reduce enrollment was difficult, but was made with careful consideration of what is best for the health of the business. Since 2011, we have reduced non-manufacturing roles by about 25%, which is two-and-a-half times the original target. Including divestitures, we’ll reduce non-manufacturing roles by about 35% by the end of fiscal 2017. Productivity cost savings have been essential to offset $4 billion of negative foreign exchange impacts over the last four years. These savings have enabled us to improve constant currency gross and operating profit margins and deliver high-single- to double-digit constant currency core earnings per share growth in each of these years.
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