Colgate Palmolive India : Investor/Analyst meet- Transcript 22 August 2023

Colgate-Palmolive (India) Limited

August 22, 2023

"Colgate-Palmolive Brand Days Analyst Meet"

August 22, 2023

Management:

Ms. Prabha Narasimhan - Managing Director & Chief Executive Officer Mr. M.S Jacob - Whole-Time Director & Chief Financial Officer

Mr. Surender Sharma - Whole-Time Director Legal & Company Secretary Ms. Sarala Menon - Executive Vice-President - End to End Supply Chain Mr. Balaji Sreenivasan - Executive Vice-President, Human Resources Mr. Gunjit Jain - Executive Vice-President, Marketing

Mr. Ruchir Bhatnagar - Executive Vice President, Customer Development Ms. Swati Agarwal - Executive Vice President, IGTC

Ms. Sujata Nairi - Director, Commercial Finance & Investor Relations

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Colgate-Palmolive (India) Limited

August 22, 2023

Sujata Nairi:

Hello, everyone. Good morning and welcome to the Colgate-Palmolive Brand Days Analyst Meet. I, Sujata along with the entire leadership team, would like to extend a warm welcome to all of you present here physically as well as those who have joined us virtually.

Happy to meet all of you in person again, and I hope you had a lovely time in the last one and a half hour on the walk around of our products, innovations and the technology behind it. The session today will be approximately 45 minutes with a brief presentation from Prabha and Jacob post that will have a Q&A session of 20 minutes in all.

So for those participants who have joined us physically, can raise their hands and those who have joined us virtually can please put their questions in the chat box and we'll be happy to answer as much as we can. I would now request Prabha to share her views. Prabha over to you, thank you.

Prabha Narasimhan:

Good morning, everybody. Let me add my welcome to Sujata's and thank all of you for having made the trip to Powai, all of you who are in the room and to welcome everybody who's online. It's absolutely the LT and my privilege to be here this morning and take you through the entire Colgate-Palmolive story as part of our brand days event. And to start with the statement that all of you know, the Safe Harbour statement. So I am not going to dwell on it too much and crack straight on.

This is really what we're going to cover in the deck today, for those of you who are wondering that, apart from the walk around, what we're going to add, what we're going to talk about is really a recap of the opportunity that we see in the spaces in which we play, our current state of our business, what are our key growth pillars, and of course, the financial results for which I will hand it over to Jacob.

Starting with the opportunity, I'm sure you've heard this downstairs already, but it's certainly worth reiterating that the headroom opportunity in oral care, despite the fact that it is a category that's been around for a very, very long time and despite the fact that it is a category that has near-universal penetration on both toothpaste and toothbrush, remains immense. Only 20% of urban households brush twice a day, which is the recommended level of brushing by your dentist and 55% of rural households don't brush daily. So the simple math will tell you that if we are able to move some of these numbers into either daily brushing in rural or twice daily brushing in urban, the volume opportunity that sits within the world of toothpaste. And then, of course, when you look at the premiumization opportunity, a lot of the story which you would have heard downstairs, 86% of the category sits below the 110 average price index.

So if you average out all the brands that sit in the category, 86% of the value of the category sits below 110 index. And so again, if you see competitive categories in personal care, like hair or personal wash our skin for that matter, this number is in excess of 25%. So against a 14 odd percent for oral care, the number is in excess of 25 for comparable categories and therefore an opportunity for us to bridge that as well.

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Colgate-Palmolive (India) Limited

August 22, 2023

And if you take a look at toothbrushes in the similar way, replacement in urban is once every 6 months on average. Of course, the frequency distribution of that varies and replacement in rural is once every 15 months. Again, your dentist would recommend that you replace your toothbrush once every 3 to 4 months. There is data that a new toothbrush actually cleans 95% better than an old toothbrush and therefore, you know, an exhortation to get people to move their toothbrush purchase more often. 78% of the category sits below the 40 rupees price point, where again, the more premium offerings in the range and we will talk about them offer significant benefits as you go up the price ladder. So, we are truly in a space where there is opportunity for the category to grow and as market leaders in both toothpaste and toothbrush, we do see it as our primary task to grow the entire category.

From an oral care awareness perspective, 75% of India's urban population believes that they have great teeth, which is great. However, 89% actually suffer from some form of oral health issues and this doesn't mean that they are in pain or this doesn't mean their teeth are going to fall out, it just means that better dental care would take care of these oral health issues. And therefore, as they get more aware of these oral health issues and as they act upon these oral health issues, we also see an opportunity in terms of category growth. 9% of India visits a dentist at least annually, usually for pain, not because this is a recurring visit. That population tends to be small and there is, of course, an opportunity to build the habit of going to the dentist and driving better oral hygiene. Over the last two slides, you probably heard me use the word opportunity I think must be half a dozen times. But I think if I could sum up what we think of this category, that would be the one word, which is there is tremendous headroom to grow despite the fact that penetration is near universal.

So let's then switch from the category to the state of our business. What we are seeing from an external lens, which is great and I think we are hearing this across FMCG companies, is really a revival in category volumes. We are seeing this across urban and rural and I'll take you through some data in just shortly. And we are seeing green shoots in rural consumption, which is great because immediately after the impact of COVID, we saw it come back a little bit and then dip quite sharply. But we are now seeing a resurgence in that and hopefully this will continue.

From an internal perspective, you would have heard a lot about it, but our focus is really to ensure that we deliver superior science backed products, put out best in class communication to get the benefit of these science backed products to our consumers and make sure that our availability through robust customer development fundamentals remains absolutely best in class. I'm sure you've heard that we reach 1.7 million outlets directly and managing these 1.7 million outlets in the right assortment into those outlets is a large part of our strategy. Doing these three things well is leading to momentum that you're seeing in our results.

Margins, which has always been a strength of this company. I think over as far back as we have looked at data continues to be very strong, helped by very tight governance of our internal processes and of course the external factor of the softening of all of the commodity prices and various other prices that we are getting the benefit of.

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Colgate-Palmolive (India) Limited

August 22, 2023 And we continue to stay focused on digitization as well as ESG, which are the other two core pillars on which this organization rests.

So coming to the category volume, on the left you see toothpaste volume growth. You will see that huge peak in Q2 21 was obviously off the base of our Q2 20 COVID base. So that is an aberration. It was because of the base rather than, you know, the volume of that Q2 21 being particularly high. But all through 2022, you will see that volumes in this category have been fairly depressed. These volumes are now coming back and coming back quite sharply in both urban as well as rural, which augurs very well for a company like Colgate and anybody who operates in the toothpaste category. And toothbrush volume growth, a similar pattern, sharper dip, shorter dip, but coming back and we have realized that the toothbrush category is actually quite sensitive to inflation and as inflation continues to drop, consumers come back into buying habits because otherwise the postponement of a purchase of a toothbrush is actually quite easy.

So that brings me really to our growth pillar, and for any of you who have been here before in this room or on the call, this will be a slide that's not unfamiliar. I want to reiterate our strategy in Colgate-Palmolive. Our first leg, as I've already mentioned, is really to lead category growth and toothpaste category consumption led growth, and that is to drive the volume of the category. And secondly, for us to double down on our three core brands, which is Colgate Strong Teeth, Max Fresh and Colgate Active Salt to make them the best in class for the benefit that they offer.

The second leg of our strategy is to drive premiumization. You saw our 14% number that's above the 110 index. It is our intention to move that number further and further up and we have a whole host of portfolio, which you would have seen, and I will anyway reiterate for the benefit of those on the call and drive that constantly up.

The third leg is to lead category growth in toothbrushes, both in terms of premiumization as well as the replacement rate of toothbrushes. And then we have opportunities in terms of whitening devices, one of which you would have seen downstairs.

And the last one, we have talked about it before, but diversification beyond oral care and building a strong second leg in personal care through the Palmolive brand is the fourth leg of our strategy. All of this underpinned by what we think is fundamental to making these four pillars happen, the first of which is superior science backed products. A lot of the work that you would have seen in the demonstrations showed that technology leads to superior benefit delivery. And that's really what our focus is on.

The second, and we've discussed this, driving financial efficiency because as we are efficient, we unlock more money which allows us to invest to drive brand growth.

Digital at the core, no company can survive without being digital at the core. And I think we are making some rapid strides in this space and we will talk, you have heard about some of it already. Smile stores, amazing digital twins in factories, lots of the work that's being done in the supply chain outside of that. But we will recap it again.

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Colgate-Palmolive (India) Limited

August 22, 2023 And then of course, people, we are who we are and people are absolutely critical to our success. And the entire idea of how we manage talent and culture is really critical to us. And that becomes then the fourth enabler. And the last one is ESG. I hope all of you have had a chance to see the second ESG report that we just released along with our annual report this year. This is just a reaffirmation of our commitment to doing all the right things as far as environment and social impact is concerned and continuing the very, very strong work that we do on governance.

So with that, I'm going to move to talking just a little bit on a recap about our brands. Those of you who did the walk around this morning who are in this room will have heard all of this before, but there's never too many times that we feel we can say this or we're going to say it again, starting with Colgate Strong Teeth, the thing that is really to be noted about Colgate Strong Teeth is that it does have the best in class science on what is a market standard product. So the arginine technology is actually clinically proven best in class science for strong teeth and this is what we've put in our market standard product. And I say this because it just reaffirms our commitment to building oral health in this country.

And this technology allows us to say, 2X remineralization of teeth or in consumer parlance, 2X stronger teeth. And I'm sure you saw it downstairs. Since we relaunched this product with a superior formulation, new communication, we have actually seen a tremendous uptake in this brand, which continues to grow now at double digits this year. And the great work on CD Fundamentals has meant that we've added about 200,000 total distribution points. For those of you who don't know what a distribution point is, 1 SKU in the store is one distribution point. So 200,000 distribution points is 200,000 incremental touchpoints of some CST SKU into a store.

This is a new campaign. I hope you've seen it, which has very, very high reach. It has been the highest decibel level campaign that Colgate has ever done, I think, in its entire history, really well received. We have got lots of positive feedback from both practitioners as well as consumers on the advertising which does go back to the roots of Colgate, of Colgate Strong Teeth, of being a family led brand that is warm and is really all about an elder or a mother's advice for how she builds strong teeth in her children. We have also taken this to rural, 7000 plus villages, and have seen wall paintings where it's difficult for us to reach them through television. The exact same message of driving strong teeth is delivered in these wall paintings.

We then come to our second brand, which is Max Fresh, superior freshness technology. If there's one thing to remember about Max Fresh, that would be it. Our technology that delivers 10X cooling or 10X freshness has been our most successful brand over the last little while with a 470 basis point increase in household penetration.

So household penetration is measured by 100. If there are 100 households, what percentage of them use it? We've added 470 BPS to that penetration. The brand grows two times as fast as the market and we're making sure that we are doubling down on the success to ensure that we get more and more money behind what is a truly winning mix.

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