P&G: tough times, lower spending, new era

By Simon Pitman

- Last updated on GMT

P&G: tough times, lower spending, new era

Related tags Fiscal year Investment

Procter & Gamble is on course to emerge as a leaner and probably healthier business in the wake of selling off a $12.5 billion slice of its fragrance and cosmetics business to Coty.

The consumer giant has been suffering from an over-stretched product portfolio, which in recent quarters has been compounded by a strong dollar that has made a significant dent in its international revenues.

Add to that significant problems in the Venezuelan market that resulted in a $2.1bn hit during the most recent fourth and final quarter and the need to cut expenses becomes even more of an imperative.

Fall in sales means less money to spend

In the last financial year the evidence was clear that spending was down, with selling and general expenses falling from $24.7bn to $23.5bn, but with sales sliding from $80.5bn to $76.3bn, company executives have clearly been looking for more savings.

A big part of the lower spending has been reduced campaigns for ads and promotion, with advertising spend down to $8.3bn in the fiscal year, compared to $9bn in the previous year.

Historically this is a five year low and goes a long way to reflect just how much the company’s place on the global consumer market has been impacted in recent years, although out-going CEO A.G. Lafley has consistently underlined his commitment to advertising in the course of the last year.

Even the top executive is feeling the pinch

But advertising is not the only area where the pennies are being pinched, the recent financial results also show that A.G. Lafley’s salary fell by more than a million dollars over the course of the year, down from $19.5m to $18.2m.

The lower salary reflects the performance of the company, during a year when profits slid almost 40%, from $11.6bn, to $7.1bn – a performance that hit Lafley’s bonus-related pay.

It was also revealed recently that David Taylor will be on a salary of $1.6m in his new role as CEO, underlining further executive cost savings for the company.

R&D spend up

But one area where the company is increasing its spend is research and development. The company invested $2bn in this area during the course of the last financial year, compared to $1.9bn in 2013/2014.

And with recent plans unveiled to develop a new $300m research and development center in Mason, Ohio, in the shadows of its Cincinnati headquarters that will be focused on the beauty segment, the company’s commitment to this area remains solid.

Add the costs savings and the heightened R&D to the fact that P&G will also be facing the next financial year with a significantly trimmed down portfolio following the sale of its beauty and fragrance brands to Coty, the performance of the business should be an interesting one to watch.

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