|Company Name:||The Clorox Company|
|Event Title:||Deutsche Bank dbAccess 10th Annual Global Consumer Conference Transcript|
|Event Time:||05:15 AM ET|
Alright it's great pleasure to welcome Clorox back to our --conference -- kindly come I think for -- gosh the conference started. So thank you Clorox. So without any further ado I'd like to introduce the Chairman and CEO of Clorox, Don Knauss.
Donald R. Knauss
Chairman and Chief Executive Officer
Thank you Bill. Good morning everyone. I've got three topics that I want to cover with you this morning and Steve and I will take you through this but before that obviously I want to make you aware of the Safe Harbor statement. We try to make it one of the more exciting in CPG so you can please refer to it at your leisure but the three topics messages I'd like to go through with you this morning is with you this morning I just give you a little bit of a report card on the Centennial strategy that we embarked on about 5.5 year ago. We think it has been a particularly successful strategy, we will show you the results of that. The metrics that we have measures that against.
And I want give you a preview of the 2020 strategy that we are going to unveil basically in October. We are holding our Analyst Meeting out in California in October at our new R&D facility if you have a chance to make that out you can actually spend the weekend in Napa or Sonoma after that, we try to make that entertaining for folks.
And then talking about the long term investment case of this business. For those of you who are familiar with the company it is a pretty eclectic portfolio, the real congruency in these brands is the fact that all of these brands now whether they are in the cleaning division, the household division, the lifestyle division or certainly international go through the same basic customers so the supply chain is really the congruency here of these businesses, what Clorox does very well I believe is build brands regardless of whether it's Hidden Valley Ranch or Burt's Bees or Brita water filter.
It's all about building brands and we think we do that quite well. Above 90% of our brands are number one or number two in our space. So we think that gives us some insulation against competition. The centennial strategy very quickly, the mission of this company is very simple, we make everyday life better everyday and so people interact with our brands our consumers interact with our brands from the time they get up in the morning till the time they go to bed at night.
So we're all about that everyday mission if you will. Two objectives and I think the one that differentiates us from most CPG companies is we're focused on driving economic profit. We did a lot of work looking at correlations between stock price appreciation, total shareholder returns when we did the centennial strategy and the thing that's jumped out of this is the strongest correlation between stock price appreciation overtime with EVA as growth and economic value added or economic profits.
So that's why we focused this company and how we pay people is on economic profit both for their annual incentive as well as their long-term incentive. And the second thing as I said we are good at building brands and this company has really been focused on one objective over the decades and that is building big share brands and mid sized categories so trying to stay out of the categories where the larger multinational might focus for example detergents have focused on smaller categories like bleach or charcoal or water filtration or natural personal care.
And then those four strategies I think those have been in place for five years, five and a half year starting with our people really focused on our demand building, our desire decide the light model that we use in brand building think about it is as pre-purchase point of purchase post purchase marketing, and then accelerating growth not only in our core but beyond the core and of course one of the hallmarks of this company is taking waste out of the business every year we have taken about 150 basis points of waste out every year for the last decade.
And I'll talk a little bit about the pipeline going forward. These were the four questions we asked ourselves developing the Centennial strategy and these same questions is what we are going through as we develop the 2020 strategy. But clearly what are the goals and aspirations.
One thing that kills companies is I think ambiguity about what they are trying to achieve and we wanted no ambiguity about what we were trying to achieve. And then the next three questions where to play? Where do we participate by category, by channel, by country? How do we win? What capabilities are we focused on? And then how do we configure the business? Who has accountability for the P&L?
So just to give you a little bit of a report card on goals and aspirations, it was all about maximizing economic profit across categories channels and countries and you can see the compounded growth rate of about 6% over the time frame. As I said the reason we picked economic profit, it was the most robust financial measure we could find, it was the only one we could find that had a P&L component which obviously is net earnings, it had a balance sheet component which was how much capital did you have to deploy to get those earnings and third; it had a capital market component what is the cost of that capital?
And we think that is the most robust metric in regardless of what business you're in, you've got to return above your cost of capital. Economic profit really drives the decision making in this company and really drives our choices. If you look at where to play, look at some of the things we've acquired or divested. Obviously we acquired Burt's Bees about 5.5 years ago, one that get into natural personal care divested the auto business, the Armor All - STP business. We didn't think it was consistent with the trends we were focusing on. Trends such as health and wellness and sustainability.