寶潔 (PG) 2012 Q4 法說會逐字稿

Good morning.

And welcome to Proctor & Gamble's quarter end conference call.

Today's discussion will include 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.

As required by Regulation G, P&G needs to make you aware that during the call the Company will make a number of references to non-GAAP and other financial measures.

Management believes these measures provide investors valuable information on the underlying growth trends of the business.

Organic refers to reported results, excluding the impacts of acquisitions and divestitures and foreign exchange where applicable.

Adjusted free cash flow represents operating cash flow, less capital expenditures, and adjusted for after tax impacts of major divestitures.

Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings, excluding divestiture gains.

Any measure described as core refers to the equivalent GAAP measure adjusted for certain items.

P&G has posted on its website, www.pg.com, a full reconciliation of non-GAAP and other financial measures.

Now, I will turn the call over to P&G's Chief Financial Officer, Jon Moeller.

Thanks.

Good morning.

Joining me this morning are Bob McDonald and Teri List.

Today we're going to share fourth quarter results.

We'll also discuss our commitment to deliver leadership levels of total shareholder return behind a time tested business model and stronger, more focused plans.

I'll begin today's call with a summary of our fourth quarter results and guidance for fiscal 2013 and the September quarter.

We're going to skip the detailed business by business discussion.

All of this information is provided in our press release and will be available in slides, which we posted on our website, www.pg.com.

Doing this will give time for Bob to provide his thoughts on our strategy, our commitment to winning and to leadership levels of shareholder return.

We'll of course take questions after our prepared remarks and we'll be available after the call to provide additional perspective as needed.

With that, let me move to fourth quarter results.

We grew top line organic sales 3%.

Progress was broad-based with organic sales up in four of five reporting segments.

P&G has averaged 4% organic sales growth over the past three years, achieving 3% to 5% organic sales growth for the past 11 consecutive quarters.

Over this period we've added organic sales of $8.5 billion, an amount that equates to the sales of a Fortune 300 Company.

We have effectively created an Energizer and Church and Dwight in 3 years.

Growth continues to be very strong in developing markets.

Developing markets now generate nearly 40% of sales and 45% of our unit volume.

It's a $32 billion business, the largest developing market business of any consumer products company.

We see significant remaining growth opportunities as our business in developing markets is still lower as a percentage of sales than some of our competitors.

We continue to focus on growing our footprint in the largest, most important developing markets, to improve our exposure to best-in-class levels.

We grew developing market organic sales 10% in the quarter, organic sales in China were up 9%, Brazil was up 17%, India sales grew 21% and Russia was up 18%.

We have a strong track record of successful developing -- excuse me, a successful developing market growth, even in our come from behind markets.

In 1991, our sales in Asia, including India, were about $1.5 billion.

Unilever sales in Asia, by our estimates, were $4 billion.

So we were about 38% of Unilever's size in 1991.

In 2001, ten years later, we generated $4 billion of sales in Asia, and were 57% of estimated Unilever size.

In 2011 we generated $12.8 billion of sales in Asia, 96% of our estimate of Unilever's Asian sales.

And in the year we just completed, we generated $14.7 billion of sales in Asia and estimate we've now effectively matched Unilever.

In the early 1990s our sales in greater China were about equal to Unilever's, at around $0.5 billion.

Today greater China is our second largest market with sales of $6 billion.

This compares to Unilever sales of $2.5 billion.

I use Unilever as a comparison point simply because they're best-in-class when it comes to developing market footprint.

We've built our developing market shares in 8 of the last 10 quarters and have held share or grown it in all 10.

Developed market sales were down slightly in the quarter we just completed and were below levels reported by our best competitors.

Developed market business is are a disproportionate focus of strength and plans in our top 40 category country combinations, which we discussed at the Deutsche Bank conference in Paris.

These 40 businesses represent about 50% of company sales and approximately 70% of operating profit.

Trends in these markets should begin to improve over the next six to nine months as plans are fully implemented.

Total Company fourth quarter organic volume was in line with prior year levels.

Pricing contributed 4 points to organic sales growth, positively benefiting all five reporting segments.

This marks the fourth consecutive quarter where pricing has added 4 or more points to sales growth and the fourth consecutive quarter where pricing has been a positive contributor to growth in each segment.

We've received several questions about the retrospective wisdom of our price increases.

This is an important question, which I want to spend a little bit of time on.

Over the last two years, commodity costs increased by $3.6 billion, which is nearly 25% of our core operating earnings.

Letting this all come to the bottom line would have been very punishing for our shareholders and would have compromised structural economics in many markets, significantly reducing the value of future growth.

We made what we believe was the hard, right choice, taking pricing across our product categories, while acknowledging the market share volatility we knew would result.

Where competitors, including private label have also taken pricing, we stand in very good shape.

Price elasticity at the category level is generally low in consumer staples categories.

In some instances, where competitors have not taken pricing, we need to adjust.

This is relatively easy to do but takes some time to fully execute.

During our last earnings call we mentioned six category country combinations where we had made a decision to roll back prices or match increases in competitive promotion levels.

These choices are now beginning to positively impact business momentum.

Four of these moves were made in the US and three of these categories we've already begun to see the benefit.

US laundry market share was down 1.6 points over the past 12 months.

Over the past six months, it was down 0.8 points.

Market share in the past three months is down 0.2 points and in the past month we built market share of 0.6 points.

Within this, Tide value share is up 2.6 points behind the success of premium priced Tide PODS innovation.

We expect this trend to continue as we began merchandising Tide PODS and as our larger sized higher value powdered laundry packages reach the market.

US male blades and razor share trends are also positive.

Past 12 month share was down minus 1.4 points.

Past six and three month shares were down 0.7 points.

In the past month we grew share by 0.4 points.

The strength of our plans on this business will increase going forward.

While not yet fully positive, share trends in US auto dish have also improved significantly.

On a 12 month basis shares down 5.5 points, while past one month share is down only 1 point.

The US oral care changes we talked about in the last call just went into full effect in July.

We have subsequently announced changes in US family care where we will be taking a list price reduction on our Bounty basic and Charmin basic lines, and several beauty and health business where we will be making targeted adjustments.

In total, the investment in price rollbacks and increased promotion now represent about $400 million of the $3.5 billion of pricing we put into the market.

Many more prices are holding than are not.

As I said, we had 4 points of pricing benefit to the top line in the quarter we just completed.

Unilever had 3.5 points, Colgate had 3.5 points, Kimberly had 2 points, Clorox had 5 points.

We don't appear the to be differentially exposed to a significant degree.

Mix reduced sales by 1 percentage point in the quarter, due mainly to over proportionate growth in developing markets.

All in sales for the quarter were down 1% versus the prior year, reflecting a negative 4 point FX impact.

Moving to the bottom line, core earnings per share were $0.82, in line with prior year.

The core tax rate was 22.4%, higher than last year's rate of 21.1%, but lower than the 25% rate included in our initial guidance for the quarter.

The lower rate was driven by several favorable audit outcomes and behind stronger developing market results which drove favorable tax mix.

The lower rate contributed $0.03 of earnings per share versus our tax guidance.

All in earnings were $1.24 per share, up 48% versus year-ago.

This includes a positive impact from the Pringles divestiture, which closed in the quarter, of $0.48 per share.

It also includes $0.08 of non-core restructuring costs.

Core gross margin increased 10 basis points.

Pricing improved gross margin by roughly 220 basis points and savings projects helped gross margin by approximately 240 basis points.

These benefits were partially offset by a 200 basis point negative impact from higher commodity costs and 100 basis point negative impact from a combination of product and geographic mix.

Core SG&A costs were down 80 basis points, due mainly to top line leverage and lower overhead costs, driven by productivity improvements.

An important part of our strength in plans is our commitment to improve productivity.

As one demonstration of this commitment, we significantly over delivered our overhead productivity targets for the fiscal year.

In February, we announced our intent to reduce non-manufacturing enrollment by 3% by June 30.

This equated to 1,600 rolls.

Actual non-manufacturing enrollment is down by 2,000 rolls versus last year, or 4%, ahead of target.

There are a another 990 individuals whose effective transition date was July 1, 2012.

These rolls are not included in the June 30 reduction figure of 4%.

Through July 1 then the reduction would be 5%, about 60% of objective.

We now think we'll achieve the majority of our initial 10% reduction target by the end of the calendar year, which represents meaningful acceleration.

As part of our productivity work we've identified additional opportunities to cut costs.

We expect over time to be down by more than 10%.

But need to balance progress on roll reductions with the need to reverse trends in developed markets and fuel continued growth in developing markets.

Core operating profit continued to improve, growing 4% for the quarter.

While not yet where we want to be, we've made sequential improvement throughout this fiscal year with core operating profit progressing from down 4% in the first two quarters to up 2% in the third quarter, to up 4% in the fourth quarter.

Core operating profit margin grew 90 basis points, including about 280 basis points of productivity improvements and cost savings.

On an all in basis, including restructuring costs, gross margin was down 40 basis points with all in operating margin down 30 basis points.

All of the decline in reported operating margin was due to 120 basis points of non-core restructuring investments.

We generated $2.7 billion of free cash flow, with quarterly adjusted free cash flow productivity of 142%.

Free cash flow for the fiscal year was $9.3 billion.

Adjusted free cash flow productivity was 90%, consistent with our target.

During the fiscal year we returned $10 billion of cash to shareholders, drew $6 billion of dividends and $4 billion of share repurchase.

We paid a dividend for the 122nd consecutive year, one of only nine companies to have done this.

We increased the dividend 7%.

This was the 56th consecutive year we've increased the dividend.

One of only six companies to have done this.

Over the last 10 years, P&G has paid out $42 billion in dividends.

Excluding $20 billion of share repurchase associated with the Gillett acquisition, we have repurchased $46 billion of stock.

In total, through dividend and share repurchase, we've returned $88 billion of cash to our shareholders, which is 90% of reported net earnings.

Returning capital to shareholders, through both dividend and share repurchase, remains a central pillar of our efforts to deliver superior returns.

Before I get into the details of 2012, 2013, I'd like to step back and provide some framing.

Developing market growth and cash flow productivity were both strong in 2012.

Developed market growth and earnings progress were not.

Our focused and strengthened 40, 20, 10 plan is designed to restart growth in developed markets, while maintaining developing market growth.

The top four category country combinations are disproportionately developed market businesses.

Businesses like North America and Western Europe laundry detergent, baby care, hair care, North American and Western European shave care and feminine care businesses, along with North American oral care and skin care.

We've worked as a leadership team to ensure we have sufficient plans to achieve our objectives in these markets.

We're making certain that we have offerings that provide superior performance and value, that our pricing is right, that innovation is strong, that marketing effectively communicates the superiority of our offerings and that there is sufficient marketing support.

This will require investment and pricing as I've described earlier, in innovation and in marketing.

Advertising spend in developed markets will increase.

Restarting growth in developed markets will have a positive overall impact on profit as these are some of our most profitable businesses.

At the same time, we'll begin to earn a return on the developing market investments of the past couple years.

As we bring more of the portfolio to bear, as we switch local manufacturing plants on, as we continue trading aspirational consumers up, as accretion from previous entries funds new ones, the developing market margins will improve.

In addition to all of this is a five year, $10 billion cost savings program which we are implementing and which is on track.

As I mentioned earlier, we're ahead of target on the overhead portion of this plan and will have completed the majority of it by the end of the calendar year, accelerating its benefit.

Also as I mentioned, we see opportunity for further reductions and we'll be balancing those with the need to make top line progress.

Our ending point, though, will be greater than a 10% reduction on an apples-to-apples basis.

We already have plans to deliver $1 billion of the $1.2 billion we need in cost of goods sold savings for 2012, 2013 and have established a stretch target of $1.4 billion.

The plan includes a 5% net productivity increase across our manufacturing operations, even as we bring on new manufacturing capacity in developing markets.

We're expecting significant savings from our ongoing global supply network design, while in the area of transportation, new planning tools and capabilities will improve our vehicle fill rate by 1.5 points.

We're planning on material savings driven by reformulation, compaction and innovation.

We've chosen for next fiscal year to prioritize resumption of developed market growth over efficiencies in advertising.

We'll still be striving for efficiencies but we'll be investing these back in the business.

On a going basis, we would expect these efficiencies to come to the bottom line.

In addition to focused and strengthened plans where it matters most, and in addition to our cost savings plan, we're increasing the effort being applied to discontinuous innovation, which Bob will talk more about in a minute.

In a normalized world, in other words absent major exogenous events, we should be poised to significantly accelerate operating leverage and earnings per share growth.

And we should be in a position to better withstand exogenous events if they occur, while delivering target levels of earnings growth.

One way to think of the growth algorithm is as follows.

If we grow our top line at the current rate of market growth, which is 4%, earnings per share will grow at 4%, assuming no operating leverage or share repurchase.

$2 billion in savings per year, regardless of whether they come from cost cuts or operating leverage, create an 11 point earning per share benefit.

If we only bring half of this to the bottom line, it would equate to about a 6 point earnings per share benefit.

This 6 to 11 point range of savings benefit would take the 4% earnings per share growth to a range of 10% to 15%.

Share repurchase should add another 2 points, taking earnings per share growth potential to a range of 12% to 17%.

Developing market profit accretion and any top line growth above market rates, in other words, building market share, would be additive to this.

If we delivered two-thirds of the 12 to 17 point range, due to macro impacts or mix, earnings per share growth would be 8% to 11%.

That's why we're maintaining our long-term earnings per share guidance of high single to low double digits.

And I want to be clear that for us, long-term is 2014.

With that as background, let me turn to 2013.

It will take some time to get our plans fully implemented.

We won't have a full year of overhead savings, for example, until 2014.

Some of the developed market businesses will take some time to right and we'll be investing to do this, not counting on marketing efficiencies in 2013.

There are also significant macro headwinds.

Our guidance for 2013 reflects both of these realities.

Fiscal year organic sales guidance is unchanged from the preliminary outlook we provided in mid-June.

Organic sales growth is expected to be in the range of 2% to 4%.

This is comprised of volume growth of 1% to 3%, pricing contribution of about 2%, and negative mix of around 1%.

We expect by the back half of the fiscal year we'll return to modest market share expansion.

We expect foreign exchange will be a top line headwind of about 4 percentage points, based on mid-July spot rates.

This brings our all-in sales growth guidance to a range of down 2 to in line versus the prior year.

On the bottom line, we expect core earnings per share in the range of $3.80 to $4.

This is the same as the preliminary guidance we provided in June.

The growth rate shifts down to minus 1% to plus 4% as the earnings per share over delivery in the fourth quarter 2012 hurts our fiscal 2013 earnings growth rate by about 1 point.

As I mentioned earlier, that over delivery was largely taxed, which is not carried forward.

We expect to continue our 56 year track record of dividend increases.

The exact amount of the increase is subject to Board approval and will be determined by the Board during the April 2013 Board meeting.

Our plan now includes share buyback of $4 billion in 2013.

We continue to value our double A minus rating and are disciplined in managing against it.

But given strong cash performance in the last quarter, even lower interest rates, the growing spread between financing costs and our dividend yield, the current stock price and most importantly our growing confidence in our business plan, we've decided to accelerate future share repurchase.

Within our fiscal 2013 guidance, we expect approximately $0.04 to $0.05 benefit from a combination of lower interest expense and higher non-operating income.

These benefits will be offset by $0.04 to $0.05 headwind from a higher effective tax rate on core earnings.

This earnings per share forecast assumes mid-July spot prices for both commodities and foreign exchange.

Foreign exchange rates create a 3 point earnings per share headwind, without which 2013 earnings per share growth would be 2% to 7%.

Commodities are up modestly on a year-on-year basis.

There are a couple of significant one-off items included in the guidance.

The guidance includes $0.06 per share negative impact from pension and employee benefit plans, as a result of revised assumptions for the discount rate used to value plan liabilities and projected return on plan assets.

We're also building about a $0.06 per share impact from the combination of recently imposed import restrictions in Argentina and the carryover impact from mandated price reductions in Venezuela.

To aid transparency and enable more informed decision making, we also want to call out some of the potential risks that are not included in our guidance.

As I said earlier, our forecast is based on mid-July foreign exchange spot rates.

Potential currency risks include significant dollar strengthening or a large post election devaluation of the Venezuelan Bolivar.

Our guidance assumes current market growth rates.

A significant deceleration associated with the European financial crisis or with the fiscal cliff in the United States would put additional downward pressure on these estimates.

Last, we're also assuming within this guidance the key provisions of US tax code that require regular extension, including the R&D tax credit and sub-Part F look-through rules are in fact extended.

One additional item not included in our current guidance is the earnings per share impact from our purchase of the balance of our baby care and feminine care joint venture in Iberia, which was announced last month.

The transaction is subject to regulatory approval and when completed is expected to result in a $400 million to $600 million before tax non-core holding gain.

We expect to complete the transaction by the end of the calendar year.

Gaining full ownership of the business will also have an impact on core operating profit results and we'll adjust guidance if necessary as the transaction is completed.

One last proviso on fiscal year guidance.

I want to repeat what I said on several previous occasions.

We're committed to deliver a plan that creates long-term value for shareholders.

We won't chase commodities or currency out the window just to deliver a guidance number.

We will execute our plan and we'll do it in the most fiscally responsible way we know how.

Finalizing fiscal year guidance on an all in basis, earnings per share are forecast in the range of $3.61 to $3.85, this includes non-core restructuring investments of $0.15 to $0.19 per share.

Including both core and non-core spending, we expect to make restructuring investments of up to $1 billion in fiscal 2013.

We expect free cash flow productivity will again be around 90% of net earnings, consistent with our long-term target.

This includes a forecast for capital spending of around 5.5% of sales, as we continue to expand production capacity in developing markets.

The July, September quarter will be our toughest, both from a comparative standpoint and from the standpoint of plan momentum, both on top line and as it relates to savings.

We're estimating organic sales in the range of flat to up 2%, within this we expect pricing will contribute 3 points to sales growth.

Foreign exchange is expected to reduce sales by 6%, which leads to all-in sales in the range of down 6% to down 4% versus year ago.

On the bottom line, we expect September core earnings per share in the range of $0.91 to $0.97, or down 10% to down 4% versus base period core earnings per share of $1.01.

On an all in basis, we estimate earnings per share in the range of $0.83 to $0.91.

This includes non-core restructuring charges in the range of $0.06 to $0.08 per share.

Foreign exchange is currently estimated to have a 5 to 6 point impact on the bottom line in the first quarter, which is driving most of the difficult comparison.

July, September volume and sales growth are also the lowest of the four quarters.

For the balance of the fiscal year, we currently expect quarterly organic sales growth in the range of 3% to 4% with modest improvement each quarter as we restore momentum in our top 40 category country combinations.

On the bottom line we currently expect core earnings per share growth for the balance of the year in the range of 1% to 6%.

The improvement versus the first quarter is driven by the elimination of the foreign exchange headwind, improved top line, increasing cost savings, and the timing of non-operating income benefits.

Now let me turn it over to Bob.

Thanks, Jon.

The whole P&G organization is committed to generating superior levels of shareholder return.

We intend to do this through our commitment to win with consumers, by offering branded products with superior quality and value, and by focusing on our largest and most profitable businesses, and through our $10 billion cost savings program.

We've continued to grow our business during the most difficult economic period since the Great Depression.

We've done exceptionally well, growing our top line in developing markets, but have come up short on top line growth in developed markets and on bottom line growth overall.

We have implemented three meaningful changes to address our shortfalls.

The first is our 40, 20, 10 focus, focusing resources on the 40 largest and most profitable businesses, many of which are in developed markets, on our 20 largest innovations and on the 10 most important developing markets.

As a first priority, we are ensuring that we have sufficient plans to achieve our objectives in the 40 largest category country combinations.

We have to make certain that we have offerings that provide superior performance and value, that our pricing is right, that our innovation is strong, and that the marketing effectively communicates the superiority of our offerings, and that there is sufficient marketing support, and we've done this.

The second change is a deliberate refocus on discontinuous innovation.

Innovation that obsoletes current offerings and creates new categories and new brands, items like Tide PODS, Swiffer, Crest White Strips, or ZzzQuil.

This, of course, comes on top of our commitment to ongoing innovation on our base business.

In 2012, we spent more than $2 billion on innovation, 45% more than our next largest competitor.

Innovation is at the heart of our business model and at the heart of our Company.

We're focused on driving our top 20 base business innovations like Tide PODS, Always Radiance, Bounty Trap & Lock and Bounty Unstoppables in 2013, and advancing our promising pipeline beyond.

Some of our fastest periods of growth and some of our largest and most profitable present day businesses were driven by discontinuous innovation.

Disposable diapers, liquid laundry detergents, home care items like Swiffer and Febreze.

We need to get back after this in a meaningful way.

In late July we met with our global leadership team to review an increasingly promising pipeline of new category and brand opportunities.

While it will take some time to get some of these innovations ready for market, I can assure you we have meaningfully advanced our work in this area over the last year.

We should begin seeing the lead items in this portfolio enter the market in fiscal 2014.

The third change is the $10 billion productivity program we announced in February and that we're progressing.

As Jon said, we significantly over delivered one piece of this plan in fiscal 2012, reducing enrollment well ahead of targeted levels.

In addition to these three changes, we're improving execution in all parts of the Company.

Better execution will help us to overcome macro challenges, manage competitive threats, and get the maximum benefit from our innovation, marketing, and productivity programs.

We're also maintaining accountability at all levels.

In aggregate, short-term bonus awards will be below target.

Three year performance awards are currently tracking to average 35% of target.

In the last two years of stock options are currently under water.

We all acknowledge this reflects the level and quality of our results.

We have the right metrics to incent results that are aligned with shareholder objectives.

Our long-term bonus metrics are simple.

Organic sales growth relative to competition, organic earnings growth, EPS growth, and free cash flow productivity, the four drivers of total shareholder return.

We've aligned the entire Company next year on short-term metrics of volume and sales growth, market share, operating profit growth, and productivity, which is delivering against the $10 billion plan, cash flow, and internal controls.

These are the metrics that we will measure ourselves against and that you can measure our progress by.

We will be updating you on them as the year progresses.

With these changes, we should be poised to seize opportunities for top and bottom line growth, which are meaningful.

We have significant opportunity for revenue growth through increased market share on our established businesses, by expanding our portfolio of superior branded products in the most promising markets and price tiers, and by innovating to expand markets and create new ones.

Our productivity opportunity is substantive and the program is in place.

This will help us finance top line growth, ensure our consumer value propositions are superior, overcome macro headwinds, and deliver better bottom line growth.

We're ahead of our targets to reduce non-manufacturing enrollment and have already identified and staffed $1 billion of the $1.2 billion in cost of goods sold savings we need in fiscal year 2013.

We have taken decisive action, but this company wasn't built overnight.

It will take some time to restart growth in developed markets.

It will take some time to get the savings program to full run rate levels.

We are committed to doing the job right and are taking the appropriate steps to do this.

It will take some investment to ensure our brands are priced appropriately, our marketing plans are robust, and the restart innovation where it's been lacking.

We are committed to make those investments, fueled by improvements in productivity and cost.

We will move forward with urgency but with balance, balancing developing and developed market growth, balancing top and bottom line, and balancing short and long-term results.

I know we will deliver.

One source of my confidence is Proctor & Gamble's long track record of success.

Over long periods of time, when Proctor & Gamble successfully executed its business model, it is consistently delivered and it is outperformed.

Measuring from the end of each quarter, rolling 10 year returns have exceeded both the S&P 500 and the Dow Jones industrial average in 82 out of 88 periods, or 93% of the time.

In rolling 20 year returns have exceeded both the S&P 500 and the Dow Jones industrial average in 46 out of 48 periods, or 96% of the time.

Within this longer term track record, there have been shorter periods, like the last couple of years of under performance.

These have typically been followed by periods of strong out performance.

This past track record does not in any way guarantee future success.

It does reflect, though, the strength of a time tested business model.

Our business model, which Jon described, centered on consumer insights, superior products and compelling advertising, is a time tested model in both good times and bad.

With this model, P&G has built the largest and most profitable household care business in the world.

We built the largest, most profitable beauty and grooming business in the world.

We've also built one of the largest and most profitable consumer healthcare businesses in the world.

With this model, we've created $25 billion brands, the latest being SK-II and Vicks.

In our categories we have three times more billion dollar brands than Unilever, which is our next largest competitor, and more than Kimberly-Clark, Colgate, Beckett, Energizer, Estee Lauder, Henkel, and Church and Dwight combined.

The model, when executed, works.

It's working now in developing markets.

It's working global globally in Pampers, our first $10 billion brand.

It's working in Prestige Beauty, it's working on Vicks, it's working in home care.

We now need to more fully fund it through improved productivity and more consistently execute it.

It will take some time to get back on the trajectory we want, but I give you my commitment that we will get back on this trajectory.

We know it has to be done at Proctor & Gamble and we're taking the right steps to get it done.

One of my greatest sources of confidence it will get done is the quality and capability of Proctor & Gamble people.

They are Proctor & Gamble's most important competitive advantage.

Along with our business model, we have a successful time tested people development model.

It starts with the very best people.

Last year, we had about 1 million applicants for fewer than 5,000 jobs around the world.

We give people responsibility, enabling them to develop and we build them into the best leaders in our industry.

This, combined with continued strong progress in developing markets, substantive annual cost savings and a strengthened core, should generate the kind of earnings progress that will put us among the best in our industry.

This, combined with our strong cash flow and track record of capital return to shareholders, including the recent resumption in share repurchase, makes P&G in our view an excellent long-term investment opportunity with substantial upside.

We look forward to creating significant value for P&G shareholders and we'll be reporting back to you on our progress along the way.

That concludes our prepared remarks.

And now Jon, Teri and I would be happy to take your questions.

(Operator Instructions)

Chris Ferrara, Bank of America.

Hi, thanks, guys.

Can we talk about mix a little bit, and obviously you've talked I think about long-term you think what the mix effect is on the top line, but bottom line, or gross margin I should say, it's hit you guys by about 200 basis points a quarter.

This quarter it dropped to 100 basis points.

I was wondering if you could try to frame a little bit, put a little color around, first, that drop from 200 to 100, in the spirit of trying to understand how high that wall is you have to climb on cost savings to get to EBIT growth.

And can you talk a little about -- try to take a shot at what you think the long run kind of negative margin mix would be on product and geography.

Thanks.

Part of the reason for the improvement in the last quarter is that we got full pricing for devaluation into the developing markets and so that mix impact from that disproportionate growth in developing markets was less negative than it would have been prior to that pricing being fully reflected.

But also, it also reflects, and this should be something that we continue to see going forward, improved progress and profitability in developing markets behind the things we've been talking about for quite a while, getting local sourcing in place, benefiting from the full scale of the portfolio as it gets put in place.

We continue to see really significant trade-up in developing markets, which is also improving margin.

So as those margins improve, the mix impact of disproportionate developing market growth also improves.

I don't have a specific number for you, Chris, in terms of what to expect going forward.

But we'll try to work on that and give you some dimensionalization of it.

Bill Schmitz, Deutsche Bank.

Good morning.

Hi, Bill.

Just wanted to ask one question if I could.

Will you guys be able to give us the productivity savings in that $10 billion, either every quarter or every year, because I think that's kind of an important thing to track.

And then my main question is about 32% of the portfolio had market share flat or up in the quarter, which obviously was a low.

We saw a nice uptick in June.

Can you give us that metric for the US and then tell us what the US growth was and sort of leaving the quarter, did you see any good signs of progress in the US market share trends?

So first, Bill, on tracking the $10 billion.

Of course, we'll definitely do that.

It will probably be more of an annual or every six month report back, as opposed to every quarter, but we'll definitely do that.

And you can imagine, we're doing that internally.

It's part of our performance metrics, so we should have that ability.

Bob, do you want to comment on market share?

You're right, Bill, we said that market share was about 33%, one-third for the quarter, but ticked up to about 45% over the last month.

And Jon covered some of the progress that we're seeing in market share gains in the US, in the categories where we've taken the corrective pricing action.

Or where we strengthened our plans.

Or where we strengthened our plans.

Laundry with the Tide PODS addition, for example.

Tide PODS, as you recall, added 2.5 points to the share of Tide.

Dara Mohsenian, Morgan Stanley.

Hi.

First, can you give us your commodity and tax rate assumptions for fiscal 2013?

And do you have a total cost savings number for fiscal 2012?

Maybe I missed it.

And then the real question, I was hoping for more detail on organic sales growth guidance in Q1, because you sounded pretty enthusiastic that some of the recent strategy changes and price adjustments you've made paid off in terms of improved market share in June.

But if you've already made those adjustments and have an Olympic boost, why is top line decelerating in Q1 despite the easier comp and why do you think it will reaccelerate in the balance of the year beyond Q1?

Sure.

So first, tax rate for next year, think of kind of 25% to 26%.

And as I mentioned in my remarks, we currently see commodities up modestly, so flat to up, probably, less than $100 million next year.

Relative to top line sales growth, versus the quarter we just completed we'll have less pricing benefit as we start to annualize some of the price increases that's we've taken.

So that's the primary reason you're seeing that, quote, deceleration.

And then as we go through the year and the 40, 20, 10 plans are fully implemented, we'll start to see stronger momentum in the out periods.

It's not we go from zero to two, to three to four so it's not a massive acceleration.

Those are the two underlying dynamics that are driving those trends.

John Faucher, JPMorgan.

Thanks.

In looking at the relative success in emerging markets and the problems in developing markets, particularly what appears to be an over reliance on the US from a profit growth standpoint, can you talk a little bit about how you view the role of the GBU?

If you look at most of your multinational competitors they do have more of a regional basis for the P&L.

How do you guys look at ensuring that all the GBU heads aren't running to the same side of the boat so-to-speak in terms of over relying on the US from a profit growth standpoint?

Thanks.

Good question, John.

First of all, I think it's important to know that we have -- it's important to understand how our GBUs are organized.

We're really organized as regional business units that report up to a global head, and so we try to maintain that presence at a regional level.

And in terms of making sure that everybody doesn't run to the same side of the boat, we have very specific portfolio roles for geographies, both top and bottom line, just as we do with business units.

And we manage it that way.

Also, John, it's important to know that the whole focus on the 40, 20, 10 plan is about making sure we invest and resource our Business where it matters most and that is what a GBU President does.

And then of course, there's oversight by the Vice Chairman of GBUs, Dimitri Panayotopoulos, and Jon and I, as we meet with the GBU presidents.

So, in terms of a pendulum from one side to the other, or exploiting one geography or another, it's unlikely that would happen.

Lauren Lieberman, Barclays Capital.

Thanks.

Good morning.

I just wanted to ask a little bit about mid-tier innovation.

I know as you're sort of talking about refocusing on discontinuous and that whole thing, we will start to see flow through in fiscal '14.

One piece that felt missing to me versus your plan laid out a few years ago was more mid tier innovation, but particularly in developed markets.

I know there's been a lot in developing.

So can you talk about how that may or may not be playing a role in your plans for the top 40 going forward?

Thanks.

Thanks, Lauren.

It still is strategic for us to have a full vertical portfolio of offerings in every category.

So that is part of our strategic plan and it is part of our innovation program.

So for example, in laundry in the United States, you would go from Tide Total Care or Tide PODS on the high end, Tide Total Care being priced about 160 versus average Tide, down to Gain, at maybe 85 index or Era at 65 index in pricing versus average Tide.

So, the same would be true, for example in skin care, with Olay you can buy a product for as much as $6, or you can buy a professional product for as much as $45.

So, we want to have a full vertical portfolio and we'll innovate at each one of those price points for the consumers that those products serve.

You will see entries, Lauren, in the mid-tier in the year that's coming up in developed markets.

Nik Modi, UBS.

Thank you.

Good morning.

Just wanted to talk about category growth.

A lot of focus on market share.

Given the fact that you guys are so big in your categories and typically the leading brand, just wanted to get your perspective on how you're thinking about category growth philosophically as you look to recover the top line.

We think it's our responsibility, Nik, to grow the categories for exactly the reasons you said.

Our retail partners, if you look at the advantaged survey or the Cannondale study, they recognize us having a comparative advantage versus our competition for growing category sales.

So something like Tide PODS, for example, which is the most concentrated form of laundry detergent you can buy, because of that concentration it grows the category.

And since we've launched Tide PODS, we've not only grown the share of Tide and grown the share of our laundry category, but we've also significantly increased category growth.

Another example would be the Febreze car strip, which is a new kind of air freshener in the auto category, which has grown the category substantially.

When we innovate, when we introduce new items, when we improve the items that are in the market, we work hard to make sure we grow the category.

You'll remember back to CAGNY, Nik, we showed a couple slides about our philosophy on developing markets and how it's all about category growth, as a much more important component of overall growth.

That continues to be what we're seeing as well.

As we bring innovation into developing markets, the majority of the growth is sourced through market growth.

Wendy Nicholson, Citi Research.

My first question is just a little bit of a follow-up, that if you're focusing on the 40 largest businesses and that only represents 50% of your sales, isn't it logical to assume that the other 50% of your sales is probably going to continue to under perform, and so maybe us all focusing on that market share metric, 45% of the business or 55% of the business, maybe that's not a fair indication of how your business is doing.

I would imagine 50% is going to continue to really lag.

My other real question is I remember when AG announced his strategy and I think his was top 10 customers, top 10 countries and top 10 categories.

Is there -- I remember at the time the customer -- there's a big differential between how much money P&G made or how profitable the business was with some of the top customers, as opposed to the smaller customers, and I'm wondering if that should be a focus now or is there not so much of a spread maybe between what you make in various types of retail channels.

Thank you.

Thanks, Wendy.

The top 40, top 20, top 10 process, while encompassing or comprising 50% of our sales and 70% of our profit, there's no intention to just simply disregard the rest of the business.

And when you include the top 40, then you include the top 10 developing markets.

You've got a pretty good swath of our business.

In comparison to the program you talked about with AG, which is really big customers, big brands, big countries, it's the same approach, which is to make sure we focus on where our business matters most, and that's what we're doing.

In terms of profitability at customers, there's really not a difference by customer.

What you really see, if anything, is a difference by channel.

But I don't -- we treat the customers the same and support, consistent with the Robinson-Patman Act, and support them consistent with our innovations.

In fact, right now if you went into virtually any store in the United States you would see a large number of displays of Olympic-featured Proctor & Gamble product.

We're in about 4 million stores with displays right now all over the world.

And obviously, we work with retailers to support those displays and to sell as much product as we can.

Joe Altobello, Oppenheimer.

Hi, guys.

Good morning.

First question, could you outline some of the changes that you've made internally on the innovation front in order to bring more impactful innovation, more discontinuous innovation to the market quicker.

And then secondly, you talked about the increase in advertising investment next year.

Just rough estimate, if you could quantify what we're looking at in terms of the year-over-year increase in advertising next year?

Thanks.

Relative to the discontinuous innovation, Joe, we've taken a number of steps.

One is we've created a new business creation organization, call it NBC, reporting to Dimitri, the Vice Chairman of GBUs, and also with a lot of oversight from myself.

And the whole idea there is to have people working on innovating in the scenes, in places that would fall between the organization boundaries.

So for example, a product like Swiffer would involve chemistry, would involve paper technology, would involve apparatus technology.

No single GBU would develop that.

It falls between the seams so we need people working on that.

Secondly, we put an experienced group president in charge of that organization.

It's Jorge Mesquita.

Jorge has a track record of having developed a number of discontinuous innovations.

When he worked with me I ran fabric and home care, and he led our Home Care business and grew Febreze, grew Swiffer to significant pieces of business for us.

Third is we've funded all this activity and we focused the organization on it.

Fourth is we've done work training the organization on discontinuous innovation.

We've worked with Clayton Christensen, from Harvard Business School, who has helped us.

I think that's about it.

There are more things, but they're more minor.

In terms of the increase in advertising, Joe, obviously that's something that's somewhat fluid depending on how plans work or don't work, but I would think of it for now as up 30 to 50 basis points.

There's one other thought.

We didn't do it just for discontinuous innovation.

As an evidence of our scale of the Proctor & Gamble Company, we've taken a new approach in research and development called transformative platform technologies where we've identified nine technologies that span our business units.

Think of these as technologies that are so breakthrough that no individual business unit could afford to invest in them on their own.

But on the other hand, the corporation can invest in them.

These are like 10-year, 20-year technologies that change the face of our business.

One example of this that you would be familiar with is something called solid state technology.

Think of this as two metal rolls that take a substrate between them and change the physical properties of that substrate as that substrate passes between them.

And provide either stretch properties, so you would see that in baby care, you would see that in feminine care on Always, on Pampers, but you would also see that in Glad trash bags, the new stretchable Glad trash bags or the new stretchable Glad household bags.

This selfing technology is a technology that no single business unit could create, but by creating it corporately and then putting it out to the business units, it's a great example of the scale benefit derived from our investment in research and development.

One clarification point for those who might be confused.

We have a -- we're in a joint venture with Clorox on the Glad business, which is why Bob mentioned that.

Ali Dibadj, Bernstein.

Hi, guys.

Couple things.

One is just want to explore the prudence of saying fiscal year '13 is going to be back half weighted.

And the fiscal year '14 will return to the long-term growth rate, which would be great.

Trying to understand the prudence of that.

I don't get it.

I don't get the bullishness around it given some of the fits and starts you've had to face for the past several years.

And especially -- and you obviously have to give credit for the track record of the 20-year and 10-year of the Company, but it was a different time.

It was a different company.

I think you need to do different things than you have done before.

So first question is do you agree that there are different things you have to do?

So you have to be more value-oriented.

You have to be more in the developing markets, you have to sell beauty, which you didn't really do during that whole time frame.

I don't really know what the solution is for beauty.

You have to cost cut.

If I were focus on cost cutting for the second part, from all your numbers that you presented.

You are very reliant on cost cutting to deliver your numbers.

And it's a $10 billion restructuring, which is great.

Don't get us wrong, as you know, it was a little late.

But that was based on a 5% top line growth assumption.

So, that's not happening.

I'm trying to understand, given your reliance there and given kind of the first question which is you have to do things a little differently, how are you going to make up that difference?

Have you found big new buckets of cost savings?

Because a couple hundred million dollars here and there won't do it, or are you expecting a hockey stick of top line growth to get you to 5%?

Are things different, number one.

Number two, how are you going to plug the hole on $10 billion, given your top line is not growing the way it was expected to grow?

We believe the Proctor & Gamble Company has a time-tested business model.

It involves superior products, based on superior consumer insight.

It involves the five strengths of the Company.

Branding, go-to-market, scale, innovation, consumer knowledge.

We think those are enduring, just like we think the purpose of the Company is enduring.

What we're doing now is we're becoming more focused and more fit to win in this current environment.

That's what our 40, 20, 10 plans are about.

That's what our $10 billion cost savings and productivity improvement plan is about.

That will be the fuel to growth and the fuel to profit.

And that's what our discontinuous innovation focus is about.

So we think this time tested business model makes the Proctor & Gamble Company an outstanding long-term investment.

Relative to a couple of the other points, Ali, on prudence of first quarter guidance, I don't generally consider whether something is prudent or not.

I consider whether it's accurate or not.

And that's where we find ourselves.

And, we tried to explain why.

In terms of the $10 billion program, I'd say a couple things.

First of all, we've tried to very transparently lay out exactly how that number was calculated, and you've rightly described how that's calculated.

If you have a different view in terms of what happens with the top line or any component of it, we've given you all the pieces and you can model it any way that suits yourself.

I mentioned in my remarks that we have found, as we've gone through this, additional opportunities to reduce cost.

I mentioned that I expected us to be -- or that we would be more than 10% below June 2011 levels on enrollment when we're all done.

So we don't -- it's not like we're looking at the $10 billion figure and saying that's it.

This is about a culture and a mindset that, as Bob said, and it puts us in a position to be more fit to win in a very difficult economic environment.

Javier Escalante, Consumer Edge Research.

Good morning, everyone.

I just would like to understand better the fiscal '13 plan, basically the financial side and how that jives with your long-term financial and strategic goals.

You left 2012 holding or gaining share on 45% of the portfolio.

Your strategic target is to gain share on 65%, if I recall correctly.

Are you planning to get there by the end of fiscal '13?

If so, is the spending to get there budgeted in your plan?

If you can explain the change in the share repurchase issue.

You halted it in May and now you're buying it again.

You attribute it to a debt rating issue.

I don't think it changed that much in a month and-a-half.

If you can explain better why that now you are restarting share repurchases.

Is it that you consider a structural change in the portfolio and now you're not considering it.

If you could explain the share repurchase issue also, as well, it would be very helpful.

Sure.

Let me start with the math for next year, if you will, and how it squares with both the end of the year we just completed, as well as the subsequent year.

We have, as I mentioned, funded increases in marketing support and we have, as I mentioned, funded investments in pricing.

So the investments that are required to deliver that growth acceleration are baked in.

And that's one of the reasons that the first quarter is what it is, and it's one of the reasons that the overall guidance is what it is.

If you exclude foreign exchange from the guidance, as we mentioned in the comments, we would be at about 2% to 7% earnings per share growth in 2013.

That's not significantly off the bottom end of the range that I described for 2014 of 8. And as we get a full year of cost savings in place, for instance from enrollment, as we gain the acceleration in the restarted plans in the developed markets, et cetera, and as we don't have the significant one-time hurts that we have in the current year due to pension revaluation and due to the Venezuela pricing thing, we should get there.

Connie Maneaty, BMO Capital.

Good morning.

Some time ago we had calculated that Proctor's overhead cost per employee was about 40% higher than what we saw as an industry average.

I'm wondering if you have benchmarked yourselves against the industry and what you think the right metric there would be.

And relatedly, it also seemed to me, as we were evaluating this, that it led to some internal gridlock.

So as personnel count is being reduced, what are the changes in processes or responsibilities that will make the organization more nimble?

Thanks.

Connie, our core SG&A is around 14.5% of sales, which based on our benchmarking puts us in the bottom half of a 15 company global competitive peer group.

Now, within that, there's some diversity.

In general, the global beauty companies skew very high on this metric, some as high as 24% of sales.

And the mainly domestic household care companies skew to the low end, 9% to 10% of sales.

The beauty companies, because they have counters, they have beauty counselors, that's why they're high.

The household companies, some of them go through brokers and don't have sales forces, that's why they're low.

But based on our mix of business, which is about 53% household care, 33% beauty and grooming, 14% healthcare, we compare well with the weighted average of our peers.

However, considering our Company's scale, we expect to be better than the competitive weighted average.

So, getting to core SG&A of around 12% of sales, we think puts us in the top third of our competitors on an absolute basis and about 350 basis points below the weighted average, based on business mix.

As we go about this work, as you properly pointed out, this is not just about reducing the number of heads.

It's about finding ways to do the work differently in order to be more agile.

That's one of the reasons we've reduced the number of levels within the organization, the hierarchy.

We've talked before about reducing the number of vice chairmen by 50%, reducing the number of vice presidents by 15%, reducing the number of directors.

And while we've done that, we've digitized the organization to allow them to operate effectively with fewer -- with less overhead.

We've also been working to make the process from the creation of a product to selling it in the market more linear.

During the time of many acquisitions in the past, we became less linear.

We had too many hand-offs, too many people you had to check with, and we're going through a process now in our brand building organization of making that much more linear.

Those are two examples.

A third example is obviously the creation of global business services, which has saved us about $1 billion in back office activities from 2000 to 2012.

Bill Chappell, SunTrust.

Good morning.

Just one quick housekeeping, Jon.

I don't remember if you said but for the Venezuela, Argentina and the pension issue, is there any one quarter that it impacts, or is it all four quarters?

Second, looking at simple changes, any thoughts on another round of compaction?

That seems like that would be the easiest way to cut costs and drive sales.

It would affect a big part of your organization and I ask that because this seems like the time of the year that if you were going to do it for next year, you would start announcing it.

First, on the housekeeping question, the pension impact is ratably spread across the quarters.

The Venezuela, Argentina thing is more a front half issue because we anniversary the new law in February in Venezuela.

Bill, as you would imagine, compaction is always on our radar screen, in our innovation program.

It's good for consumers because it helps them reduce the amount of space product takes.

It reduces fillers.

And it's good for retailers because it reduces the amount of shelf space they have to use.

It's good for the environment.

It reduces carbon emissions from trucks carrying it around.

It reduces ethanol in the environment.

We're always looking at compaction.

And every one of our innovation programs has some kind of compaction within it.

I would encourage you, when you think about compaction, to think about Tide PODS.

It's the most compact laundry detergent available.

It's got the highest percentage of actives of any laundry detergent in the market and it cleans as well, if not better, than six competitive products at the same time.

So we've just begun the launch.

We're going to be rolling it out around the world and that would be a great example of the benefits of compaction.

Jason Gere, RBC Capital Markets.

Thanks.

Good morning.

Just one thing, looking through your slide deck when you talk about some of the assumptions for the year, you're talking about global market growth of 4% to 5%.

Hopefully I'm not wrong here, but I think you guys were talking about 4% over the last couple of months when you gave that number.

When most of your peers are talking more cautiously about Western Europe and even the US, it seems like this number's actually elevated a little bit.

Just wondering if you can reconcile that.

If you think about -- if we just break it down into pieces, what we were seeing before was developed market growth of about 1.5 points.

Developing market growth of about 8 points, which got us to 4 on a global basis.

What we've seen more recently is a slight uptick in developed, primarily in June, and that's growing now at 2 points.

Developing, we've actually seen some acceleration.

But it's at about 10 points right now, so that's how you get to the 5.

These numbers are very volatile.

They move around all the time.

That's why we're describing it as a range of 4% to 5%.

So we've seen 5% recently.

I don't know that, that necessarily is representative of the future.

We expect it to be somewhere between 4% and 5%.

This is exactly, Ed, why the productivity program is so important.

Because should that market growth slip, we still need to have the fuel to invest in innovation and to invest in growth.

And that's why we've got the $10 billion productivity program.

Alice Longley, Buckingham Research.

Hi.

Good morning.

Could you tell us what the US alone looked like in the fourth quarter?

Was volume still down mid single digits and value sales down, say, 2% to 3% here?

And then going into the first quarter, are value sales likely to be down more because of less pricing?

And then second part of my question is could you comment on the quality of what you're doing to improve your share?

And as an example, in blades it looks like your share is improving because of improvement with disposables on much heavier promotional activity, and I'm wondering if that's how you want to gain share.

Our US business is strengthening, as Jon talked about in his remarks.

Some of the activity is correcting price disequilibrium.

But it's important that much of it also is innovation and the innovation is also what's driving the improved shares.

An example of that would be continued growth on ProGlide, for example, in blades and razors.

And we have future innovation coming.

So we're expecting the US business to continue to strengthen.

Mark Astrachan, Stifel Nicolaus.

Thanks.

Was wondering why do you think the decision to focus on your 10 largest developing markets or, as you said, not going into other new markets is the right decision for the long term?

Why is it not short sighted where it gives competitors an opportunity to develop beachheads so-to-speak and ultimately put you at a disadvantage where you have to play catch-up again?

So fully, fully agree with developing markets being a priority and the strategic imperative as we look forward.

We have significant opportunity in those 10 large markets, and by markets, you shouldn't confuse the word market with country.

These are often times regions or country clusters where we go to market very similarly, so we refer to them as one market.

If you look at what's ahead of us in developing markets, I think it's an incredibly exciting thing for both consumer products companies in general and particularly Proctor & Gamble.

We're looking at population growth to 2020 of 700 million people globally, 95% of which are going to be in developing markets.

We're looking at the addition of 1.5 billion middle income consumers, 98% of which are going to be in developing markets.

We're, I think, at the precipice of one of the biggest trade-up cycles that we've ever seen.

You've got populations growing, income levels, and very aspirational consumers.

So we couldn't agree more with the need to be fully present, and we feel comfortable with the top 10 as being actually the way to maximize our presence in those markets.

And we'll get to the others as time and funding allow.

Linda Bolton-Weiser, Caris & Company.

Hi.

I was wondering, Bob, if you could address just company culture a little bit.

I remember when you first became CEO sitting in meetings with you, you talked a little bit about it and how you felt there needed to be some tweaking of the culture.

You sounded like a tough guy, quite frankly, that there needed to be -- I forgot your exact words -- but ramifications for non-delivery, et cetera.

Can you talk about how the culture has been tweaked a little since you've been CEO, and in what ways you've been happy with the cultural change or not happy, or maybe you think there needs to be more, or just talk about that issue a little bit.

Thanks.

Thank you, Linda.

I think we're making progress in making -- in strengthening the culture, and what I mean by that i,s I talked about, in my remarks, accountability.

We hold people accountable at the Proctor & Gamble Company.

If you remember in my remarks, I talked about bonus programs, paying roughly on average 35% payout.

That's a low number.

That's painful.

I also mentioned accountability in terms of leadership.

If you compare the leadership that we have today versus the leadership we had three years ago, you would see substantive changes, particularly in the Beauty business.

I also talked about the need to establish a culture of productivity, something that Proctor & Gamble hasn't had during my 32-year career.

We've had periods of productivity improvement but they tend to be one-off or episodic.

What we're trying to create now is a productivity constancy, where we constantly work to improve the organization, the organization effectiveness, the leadership of the organization, the way we do our work, so that we can constantly be turning up the money that we need to invest, even in slow macroeconomic environments.

So we're working very hard on the culture.

We're working very hard on the leadership of the Company.

And frankly, we just all got together a couple weeks ago and I'm very encouraged by the leadership team we have now.

In many ways, I think that -- I just wish I had done it three years ago.

I think we've got the right team.

Victoria Collin, Atlantic Equities.

Good morning.

I'd just like to ask a question about the steps that you're going to be taking to improve and hopefully reaccelerate the volumes in the beauty category.

I assume a lot of it is down to the skin care and particularly in developed markets.

But just what steps are being taken?

Is it simply trying to capture the consumer, or are there other productivity or execution issues that you're taking on as well that you hope to improve things.

Secondly, I want to congratulate you on the Olympics advertising.

I think P&G has done a really excellent job aligning themselves with the elite competition.

Do you see this making a contribution to sales in the first half of next year?

Will there be a second leg of advertising now to link P&G, or link your name to the brands and get the sales up?

And is this one of the ways you're looking to raise advertising and also regenerate sales in the developed markets?

Thanks for the question, Vicky.

Relative to beauty, beauty is one of the primary focuses of our 40, 20, 10 focus program.

There are parts of our Beauty business globally that we're very happy with, but there are also parts that we're unhappy with.

We've talked for some time about Pantene North America.

We've talked for some time about Olay North America.

And we're working through innovation, through better consumer insights, through better advertising, to improve the results of those brands.

Secondly, on the Olympics, thank you very much for your comments.

The Olympic sponsorship is really a terrific example of Proctor & Gamble's scale brought to life.

It's the largest multi-brand commercial program that we've ever done.

We've got 34 brands and we've got displays right now in more than 4 million stores around the world and it lasts for a six-month period.

It started last March, April, as you know, probably with Mum's Day in London and it's going to continue after the Olympics this week.

After the Olympics end in the next couple of weeks, we start the Paralympics, which is part of our sponsorship as well.

The program's got a 50% higher return on investment versus our typical single brand program.

We've generated a lot of awareness through social media with 6 million views of advertising online so far.

And the benefits of the program extend well beyond the London Olympics, as I said.

We still expect to fully deliver about $0.5 billion in incremental sales over a 12-month period.

And we've consistently demonstrated a 5% to a 20% increase in sales when retailers run Olympic displays.

We also have seen a tremendous advantage when our brands are linked back to our Company, the Proctor & Gamble Company.

While this looks like something new, it really isn't all that new.

When I worked on a new brand in Proctor & Gamble in 1980, we were allowed to put -- this is from Proctor & Gamble -- on the brand for six months, during the first six months of launch.

When I was living in Asia from 1991 to 2001, we ended every ad that we had in Asia with a placard that talked about Proctor & Gamble and improving lives.

And we have experience throughout the world that Proctor & Gamble is the glue that pulls all the brands together, enabling these massive multi-brand merchandising and displays, but also leading to the credibility of the brands and the credibility of the Company.

As you can imagine, we researched this in many countries around the world and this is a positive connection.

So, we will continue it and obviously we'll review our Olympic effort afterwards, and we'll improve it the next time.

Leigh Ferst, Wellington Shields.

Good morning.

My question is about how you're managing your focus your attention on the 10 emerging markets?

What changes have you made since you've announced this focus and to what extent are they managed differently from established markets?

Great question, Leigh.

What we do is we get the leaders of the Company together, the GBU leaders and the geography leaders, and we work to put together a total company plan.

So for example, if we were introduced -- to introduce a new category in the country, we would look at what other categories face up against the consumer, against the retailer, against the competitor, and make sure that the plan we put in place in that country is synchronized amongst all the business units.

We make sure that the strategies are consistent across business units and it's really a matter of trying to bring Proctor & Gamble scale to bear to win in that market.

Tim Conder, Wells Fargo Securities.

Thank you.

Wanted to circle back to the restructuring tracking, just more from a housekeeping item here.

It would be helpful, rather than every six months or year, if we could get that on a quarterly basis.

Several other companies much smaller than Procter do provide that, that we're familiar with.

The main question though that I have would be related to part of your guidance here, and if you could maybe expand upon it.

The share repurchase, when you gave guidance a quarter ago, basically you had no share repurchase for fiscal '13 when you gave some updates before.

Now you do, yet the EPS is in essence unchanged.

Jon, is that -- has something changed on the expense outlook here to work that dynamic?

Is it part of the investment that you've talked about earlier here?

If you could just expand on that, maybe give a little reconciliation.

Good question, Tim.

Basically we haven't built in any significant share repurchase because we haven't finalized the timing of share repurchase.

That timing will have an impact on how much earnings per share -- earnings per share benefit is there for the year.

But obviously, that provides some degree of flexibility to -- from a lot to a little, depending on when we do it.

There's nothing that's changed in the expense environment.

If anything, things have probably improved a little bit.

We talked about commodities being essentially flat, whereas when we were talking in Paris for example, we were talking about more of a headwind in commodities.

We probably have a little bit more flexibility than we had when we were speaking in June.

Caroline Levy, CLSA.

Good morning.

Thank you so much.

I think one of the more interesting questions was on -- focuses was on management because some of the problems that have happened over the last several years have been related to maybe who was running various businesses, and so on.

Can you just run us through, if you think at this point in each of your divisions, you're where you need to be already, are there still going to be some tweaks to leadership?

And when you talk about bonuses and compensation, how much do people feel that what they do within their existing business is going to drive their comp versus the total P&G performance?

And that sort of talks to the benefit of being one large company versus you're competing against some people who just do oral care, or they just do diapers, or they just do prestige beauty.

So how do you get management to do everything they need to do if they feel that maybe the whole compensation structure is -- doesn't reward them for that?

It's a good question, Karen.

I'm happy with the leadership team that we have in place today.

Very happy.

And as I said, I think if you compared the leadership team we have today versus the one we had three years ago, you'd see significant differences.

Number two, the compensation system of the Company very much favors the shareholder.

Most of us have over 95% of our net worth in Proctor & Gamble stock.

This company has been a company that, in the early days of the company, created a profit sharing trust program.

Basically all of my retirement is based in Proctor & Gamble stock.

I have no pension other than Proctor & Gamble stock.

Our medical care is supported by Proctor & Gamble stock.

Our bonus programs are based on Proctor & Gamble stock.

So our leadership is very, very much focused on total shareholder return and Proctor & Gamble stock, and that's why the comment I made about the payout being only average 35%, that's still going to be paid in Proctor & Gamble stock in restricted shares.

So, that's significant.

Secondly, while it is true that part of the compensation program is a mixture of business unit performance as well as company performance, even when we do that metric we have a Company factor in there.

And when the leadership team got together last week, we suggested and we all agreed that we focus on seven metrics for the entire organization.

And we're doing that.

So we're united more than ever before, as I said in my remarks, on those metrics that matter most to total shareholder return.

And every leader of the Company is focused on that.

Just one other point, Caroline, when you were talking about the challenges of managing a big company as opposed to a smaller, focused company.

I think it's important to understand how we actually manage the business, which is actually very focused.

The daily business of the Company is managed by leaders of individual business units.

They're focused on only one thing.

They have one job, growing sales and profit for their business.

And they get to do that with all the assets of the Proctor & Gamble Company behind them.

And unlike many of their competitors, they don't have to concern themselves with back office activities, treasury, tax, investor calls.

They've got one job.

So it's actually a very focused approach and more focused than even some of their smaller competitors.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a good day.