The Procter & Gamble Company

Company Profile

Publication Date: 27 Aug 2010

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TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Company Overview

COMPANY OVERVIEW

The Procter & Gamble Company (P&G) is one of the world's largest consumer goods companies.
It markets more than 300 brands in the beauty, health, fabric, home, baby, family, and personal care
product categories. The company operates in the Americas, Europe and Asia. It is headquartered
in Cincinnati, Ohio, and employs about 135,000 people.

The company recorded revenues of $79,029 million during the financial year ended June 2009
(FY2009), a decrease of 3.3% compared with 2008. The decrease is primarily attributable to the
decline in unit volume and unfavorable foreign exchange. The operating profit of the company was
$16,123 million in FY2009, a decrease of 3.1% compared with 2008. The net profit was $13,436
million in FY2009, an increase of 11.3% over 2008.

KEY FACTS

Head Office The Procter & Gamble Company

One Procter & Gamble Plaza
Cincinnati
Ohio 45201-0599
USA
Phone 1 513 983 1100
Fax 1 513 983 9369
Web Address http://www.pg.com
Revenue / turnover 79,029.0
(USD Mn)
Financial Year End June
Employees 135,000
New York Ticker PG

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SWOT Analysis

SWOT ANALYSIS

With revenues of $79,029 million, P&G is the world's largest consumer products manufacturer, with
its products reaching 4 billion people worldwide. In addition, P&G has the largest lineup of leading
brands in its industry, with 23 brands with over $1 billion in annual sales, and another 20 brands
generating about $500 million or more in annual sales. Leading market position and strong brand
portfolio provides P&G with significant competitive advantage as well as stabilizes the company's
financial growth. However, fluctuations in commodity costs and foreign currency rates would affect
P&G's profitability.

Strengths Weaknesses

Leading market position garnered on a Increasing instances of product recalls

strong brand portfolio Excessive dependent on Wal-Mart
Significant R&D and marketing investments Higher product prices translated into sales
Robust cash productivity volume decline and market share loss

Opportunities Threats

Future growth plans—increasing Counterfeit goods

concentration on its core attractive
businesses and enhancing its customer
base
Increased investment in manufacturing
capacity in developing countries
Acquisitions to expand portfolio
Changing global retail scenario and rise of
private labels
Commodity cost and currency exchange
rate

Strengths

Leading market position garnered on a strong brand portfolio

With revenues of $79,029 million, P&G is the world's largest consumer products manufacturer, with
its products reaching 4 billion people worldwide. P&G is the 20th largest company in sales and the
9th largest company in profit among the Fortune 500 companies.The company’s market capitalization
in 2009 was roughly $150 billion, making it one of the 10 most valuable companies in the US. In
addition, P&G holds leading global market shares in a variety of categories, including baby care
(33%), blades and razors (70%), feminine protection (37%), and fabric care (33%). The company’s
leadership position is built on its strong brand portfolio. P&G has the largest lineup of leading brands
in its industry, with 23 brands with over $1 billion in annual sales, and another 20 brands generating
about $500 million or more in annual sales. Twelve of the billion-dollar brands are the global market

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SWOT Analysis

share leaders of their categories. These 43 brands have delivered a 9-year compound average sales
growth rate of approximately 10%—double the growth rate of the balance of P&G’s brand portfolio.

Strong brand portfolio enables the company to achieve economies of scale in distribution and retain
a strong bargaining position with retailers. Furthermore, leading market position provides P&G with
significant competitive advantage as well as stabilizes the company's financial growth.

Significant R&D and marketing investments

Being a consumer products company, P&G relies heavily on innovation and continued marketing
investments in order to establish a significant competitive advantage. As a result, the company has
made significant investments in R&D and marketing.

Over the last decade, P&G has invested more than $2 billion in consumer and market research
(nearly twice that of its closest competitor, Unilever; and equal to the combined total of its other
major competitors—Avon, Clorox Company, Colgate-Palmolive Company, Energizer Holdings,
Henkel, Kimberly-Clark, L'Oreal, and Reckitt Benckiser). Virtually, all the organic sales growth
delivered by P&G in the past nine years has come from new brands and new or improved product
innovation. The company interacts with more than five million consumers each year in nearly 60
countries around the world. P&G conducts over 15,000 research studies every year and invests
more than $350 million a year in studies focused on consumer understanding. Additionally, P&G
also involves external innovation partners to boost its internal innovative capability, an approach it
calls 'Connect and Develop.' Currently, more than half of all product innovation coming from P&G
includes at least one major component from an external partner. The IRI Pacesetters study tracks
and ranks the most successful new consumer products introduced in the US. Over the past 14 years,
P&G has had 114 top 25 Pacesetters—more than its six largest competitors combined. In the last
year alone, P&G had five of the top 10 new product launches in the US and 10 of the top 25.

P&G’s strong R&D capabilities and a marketing-driven understanding of consumer needs are backed
by significant marketing investments. The company invests more than $7 billion in advertising
annually, consistently making P&G one of the world’s largest advertisers.

Strong focus on research and development allows P&G to renew its product line at regular intervals,
which boosts customer loyalty and revenue growth. Significant marketing investments to support its
brands, and a broad product portfolio help P&G to remain at forefront in a competitive market.

Robust cash productivity

P&G’s cash productivity—the percentage of earnings converted into cash—has averaged over 100%
since 2001, consistently among the very best in the industry. This is primarily due to P&G’s strong
focus on productivity, working-capital management and cost reduction. For example, P&G is the
receivables leader of the industry, operating more efficiently with fewer days of receivables outstanding
than any consumer products competitor. Furthermore, P&G is equally rigorous about managing
costs. The company has reduced overhead costs as a percentage of sales by more than 300 basis
points since 2001. In addition to reducing costs, P&G has also focused on increasing productivity.

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SWOT Analysis

For instance, sales per employee has grown from $363,000 in 2000 to $585,000 in 2009, and profit
per employee has increased from $32,000 to $84,000. The cash productivity allows P&G to maintain
the company’s excellent credit rating, to pay strong dividends, and to have the flexibility to invest in
the business organically or through mergers and acquisitions. Therefore, robust cash productivity
ensures that P&G has the flexibility and the resources to invest in growth even in the most challenging
environments.

Weaknesses

Increasing instances of product recalls

P&G has been registering increasing instance of product recalls recently. For instance, in November
2009, the company voluntarily recalled three lots of its Vicks Sinex nasal spray in the US, Germany
and the UK. The recall was a precautionary step after finding the bacteria B. cepacia in a small
amount of product made at its plant in Gross Gerau, Germany. In the following month, P&G voluntarily
recalled its Vicks DayQuil Cold & Flu 24-Count LiquiCaps Bonus Pack in the US. The product was
recalled as it did not contain a child-resistant backing for the blister packs in the box, despite label
statements that the product is in child-resistant packaging. Later in March 2010, P&G voluntarily
recalled its Pringles Restaurant Cravers Cheeseburger potato crisps and Pringles Family Faves
Taco Night potato crisps in response to a recommendation from the Food & Drug Administration
(FDA) to the food industry to protect consumers from potential Salmonella exposure.

Most recently in June 2010, P&G voluntarily recalled a small percentage of 1-liter bottles of Scope
Original Mint and Scope Peppermint mouthwash with malfunctioning child-resistant caps in the US
and Canada. During the same month, P&G recalled its 4-Hour Decongestant Nasal Spray distributed
in the US. The product was recalled as the product formulation did not meet the expiration dates on
the package. Furthermore, the company recalled specific lots of its Iams canned cat food in North
America as the diagnostic testing indicated that the product contained insufficient levels of thiamine
(Vitamin B1).

Recurrent product recalls could affect the brand image of the company, which would lead to low
customer loyalty and brand equity.

Excessive dependent on Wal-Mart

P&G is heavily dependent on Wal-Mart Stores (Wal-Mart) and its affiliates for generating major part
of its revenue. Sales to Wal-Mart and its affiliates represented approximately 15% of its total revenue
since 2006. High dependence upon a Wal-Mart reduces the bargaining power of the company. Also,
Wal-Mart could use its bargaining power to impose unfavorable terms on the company. Any decrease
in revenue from Wal-Mart could have a negative impact on the company's businesses. Hence, the
loss of this customer will lead to a sharp decline in P&G's revenues and also a loss of its market
share.

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SWOT Analysis

Higher product prices translated into sales volume decline and market share loss

P&G increased prices to recover higher commodity costs and foreign exchange transaction impacts.
The higher prices pushed through on its products to offset input cost inflation of $2 billion and negative
foreign currency exchange of $4 billion in FY2009 translated to uncompetitive pricing on store shelves
in the midst of the economic downturn. Sales volumes declined, and P&G lost market share in some
categories. The higher prices also affected consumption in some more-discretionary categories.
Although higher product prices would maintain P&G’s investment grade financial health, the company
will be challenged to maintain market share and sales volume, given the face of declines in consumer
spending.

Opportunities

Future growth plans—increasing concentration on its core attractive businesses and enhancing its
customer base

In order to grow in a highly competitive environment, P&G is pursuing a clearly drafted strategy with
focus on two areas: increasing concentration on its core attractive businesses and enhancing its
customer base.

The company is sharply focusing on its core attractive businesses (the beauty and health market
segments and several household care categories) as these are fast-growing businesses. For instance,
the global market for personal care products has annual sales of over $39.5 billion and is growing
at a rate of around 5% annually. In addition, the global household care market is valued at $200
billion and is growing at a steady pace.

In addition, P&G intends to increase its customer base by acquiring under served and unserved
consumers. In line with this, the company is targeting developing markets; extending its distribution
systems; and expanding its brand and product portfolio. Developing and emerging (D&E) economies
are expected to account for 90% of the world's population by 2010, and this is expected to drive
demand for fast moving consumer goods (FMCG). For instance, the Indian FMCG sector is expected
to grow four fold from $25 billion sales in 2008 to $95 billion by 2018. Similarly, the Chinese FMCG
market is also expected to growth at a rate of 15% a year in the next five year period (2009-13). On
an aggregate basis, P&G has a 19% share in developing markets and is growing steadily by about
half a share point a year. Furthermore, in order to tap new customers, P&G is also extending its
distribution systems in four priority areas: drug, pharmacy and perfumery; high frequency stores;
export operations; and e-commerce. In addition, the company expanded its portfolio both vertically—to
serve more consumers at more price points—and horizontally into adjacent categories. For instance,
the company expanded its Tide (the leading laundry detergent brand in the US) and Ariel (the leading
laundry detergent brand in Western Europe) brands horizontally into the laundry additives segment
with the introduction of Tide Stain Release and Ariel Professional. P&G also expanded its portfolio
into the value priced segment by introducing a new line of diapers in Germany called Pampers Simply
Dry, priced about 15% below the Pampers Baby Dry.

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SWOT Analysis

This strategy will put P&G in a stronger position and will drive the company’s profitability in the long
term.

Increased investment in manufacturing capacity in developing countries

P&G is planning the biggest increase in its manufacturing capacity in order to expand into categories
and countries where it doesn't have a brand presence. The company is investing 4% of sales in
capital spending, including funding for new manufacturing capacity to support future growth. Over
the next five years, P&G will add 20 new manufacturing facilities. Almost all of these facilities are in
developing markets, and almost all will be multi-product category facilities. By focusing on developing
markets, the company would reduce the cost of serving these markets while also being closer to
regions with the greatest long-term growth potential.

Acquisitions to expand portfolio

P&G has made significant acquisitions in the recent past. For instance, in June 2009, the company
acquired the Zirh skincare brand. Zirh is a leading super-premium, male grooming brand available
in high-end department stores, specialty outlets and online. Zirh enjoys unique positioning as a
high-end "male only" brand and has one of the most comprehensive skin and shave care lines in
the male grooming market. Later in May 2010, P&G entered into an agreement to acquire Natura
Pet Products, a privately-held pet food business. Natura's brands include Innova, Evo, California
Natural, Healthwise, Mother Nature and Karma. These brands are sold in a limited number of pet
specialty stores and through veterinarians, mainly in the US and Canada. Most recently, in July
2010, the company completed its acquisition of the Ambi Pur Brand from Sara Lee Corporation.
Ambi Pur is a leading global air care brand with presence in 80 countries, and also has several toilet
care products, with strong presence in Western Europe and Asia. Acquisitions such as these will
strengthen P&G’s presence across various categories and in turn enhance its topline and bottomline.

Threats

Counterfeit goods

Trade of counterfeits and pass-offs products is negatively affecting the growth of FMCG companies
like P&G. The top two brands within any category be it cosmetics, detergents, or soaps are effected
the most by counterfeiting and pass-offs. It is estimated that the loss due to counterfeit products
convert into around E6 billion ($8.5 billion). Furthermore, with the advent of digital channels there
has been a surge in the sale of counterfeit products and online sales of these products increased
by 9% in 2009. In November 2009, the US Immigration and Customs Enforcement (ICE) agents
seized more than 17,000 counterfeit items worth an estimated $643,000 from 21 businesses in the
Minneapolis-Saint Paul twin cities region in the US and the consignment included 3,524 bottles of
perfume. Besides revenue losses, counterfeits and pass-offs also affect the company's brand as
they are unsafe. Low quality counterfeits reduce consumer confidence in branded products. Also,
what differentiates the offerings of companies such as P&G from its competitors is exclusivity;

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SWOT Analysis

widespread counterfeits reduce this exclusivity. Counterfeits not only deprive revenues for P&G but
also dilute its brand image.

Changing global retail scenario and rise of private labels

P&G’s products are sold in a highly competitive global marketplace which is experiencing an increased
trade concentration and the growing presence of large-format retailers and discounters. With the
growing trend toward retail trade consolidation, it is increasingly dependent on key retailers. Some
of these retailers have a greater bargaining strength than P&G. They may use this leverage to
demand higher trade discounts, allowances or slotting fees, which could lead to reduced sales or
profitability. P&G may also be negatively affected by changes in the policies of its retail trade
customers, such as inventory de-stocking, limitations on access to shelf space, delisting of products
and other conditions.

In addition, many retailers have pushed their own higher margin private label brands in competition
with P&G. In the past decade, P&G has faced stiff competition from private label brands or "store
brands" of large retailers such as Wal-Mart, Target, and other supermarket chains. For example,
Wal-Mart offers 5,500 products through its "Great Value" brand, which has increasingly sold as
consumers feel the recession squeeze on their disposable income. Large retailers are close to the
consumers, have the point of sale data on consumer behavior and are in better position to understand
consumer behavior. These strengths contribute to better private label product development, which
directly compete with P&G products.

Changing global retail scenario and rise of private labels may adversely affect P&G’s business.

Commodity cost and currency exchange rate

Commodity cost and currency exchange rate volatility places tremendous pressure on P&G’s
business.

Although P&G is based in the US, it earns revenues, pay expenses, own assets and incur liabilities
in countries using currencies other than the US dollar. As a result, increases or decreases in the
value of the US dollar against other major currencies will affect the company’s net operating revenues,
operating income and the value of balance sheet items denominated in foreign currencies. The
unfavorable impact of currency fluctuations decreased revenues by about four percentage points,
or approximately $4 billion, and profit by more than $1 billion. The unfavorable impact was primarily
due to a stronger US dollar compared to most foreign currencies. In addition, unexpected and
dramatic devaluations of currencies in developing or emerging markets, such as the recent devaluation
of the Venezuelan Bolivar, could negatively affect the value of the company’s earnings from, and of
the assets located in, those markets.

In addition as a diversified consumer products manufacturer, P&G depends heavily on a wide basket
of global commodities for manufacturing its goods, the prices for which have risen nearly 50% since
2002. Nearly half of the company's cost of goods is directly related to commodity goods. P&G incurred

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SWOT Analysis

roughly $2 billion in net commodity and energy costs in FY2009, in addition to the $1 billion in the
prior year.

Fluctuation in commodity costs and foreign currency rates would affect P&G's profitability.

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