Colgate Palmolive India : Analyst Conference Call - Transcript 12 May 2023

"Colgate-Palmolive (India) Limited"

May12, 2023

Management: Ms. Prabha Narasimhan - Managing Director and Chief Executive Officer

Mr. M.S Jacob -Whole-Time Director & Chief Financial Officer

Mr. Ruchir Bhatnagar -Vice President, Customer Development

Mr. Balaji Sreenivasan - Executive Vice-President, Human Resources Mr. Surender Sharma - Whole -Time Director Legal & Company Secretary

Ms. Swati Agarwal- Vice President - India of Global Technology Center

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Colgate-Palmolive (India) Limited

May 12, 2023

Moderator:Good evening, everyone, and welcome to the Colgate-Palmolive (India) Limited Analyst Conference Call for the Financial Year 2022-2023.

Please note that the conference call will include forward-looking statements. These statements are made on the basis of the company's views and assumptions as of this time and are not guarantees of future performance.

As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. At that time, participants on webcast may click on the live interaction button which will be enabled below the media player. Alternatively, you may send your questions to us through the text box on your screen. Participants connected via telephone may enter "71*"on your touchtone phone to ask a question.

Today's session will begin with a brief presentation by the management of the company, sharing their views on the overall company's performance and strategy. This will be followed by a Q&A session. I now hand over the proceedings to Ms. Prabha Narasimhan, Managing Director and CEO of Colgate-Palmolive (India) Limited. Thank you and over to you, Ms. Narasimhan.

Prabha Narasimhan: Thank you very much, and good evening, everybody, and thank you for joining us on this Friday evening as we take you through the plans and the thinking that we have on the company as well as our results for both the financial year and the quarter that's just gone by. I want to start, as always, with the safe harbor statement, which I'm sure all of you are fully familiar with.

Let me also take this opportunity to introduce the Colgate leadership team. Most of the faces on this chart, I'm sure, are extremely familiar to you. We do have one new addition, who has joined us just over the last few months. He is unfortunately not here today, but Gunjit Jain has taken over as the Marketing Head of Colgate-Palmolive India as of February 2023, replacing Arvind Chintamani, who has moved to Canada.

We also have one change in the role that Sarala Menon plays. She is now responsible for the entire end-to-end supply chain of this organization. So I want to start actually with our headline thought of what we're trying to do with this organization, and it can be summarized in really three simple words, which is Grow, Strengthen and Simplify. We do believe and we have the opportunity to show to you the potential that this organization has for growth. We have some tremendous strengths, which we think we can get even better at. And of course, there is always an opportunity to make business easier, faster, more agile and more simple, and we'll talk you through our thinking there as well.

So starting first with the idea of growth. And we've said this before but let me start with the macro picture of the toothpaste category. There is a huge opportunity to grow. Firstly, we are the market leader, and it is, therefore, incumbent upon us to grow this category. Secondly,

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Colgate-Palmolive (India) Limited

May 12, 2023

when we compare the per capita consumption of toothpaste, even to a country like Philippines, we do see that we are at roughly about, maybe half of their consumption in total.

And if we were to get to the toothpaste consumption level of the Philippines, which, by the way, is not obviously the highest in the world, we will have a toothpaste market that is double the size of its current size. And to get to this, what we need to do is really to move the daily brushing habit of rural households where 55% of households don't brush every day and to get urban households to brush twice a day. Neither of these are particularly easy tasks.

But as Colgate-Palmolive, we are both committed to it, both from a business perspective because this is critical to us and from a perspective of moving the oral health agenda of this country. The second leg, of course, is to take a look at toothbrush and a similar opportunity stares at us over here. Dentists would have you believe that you should replace your toothbrush once every three months to four months and that a new toothbrush actually cleans 90% better than an old toothbrush.

As you can see, the levels of replacement currently are much lower than that and getting consumers to realize the cleaning power of a new toothbrush and therefore, replacing their toothbrush more often becomes another agenda item for us. And then when we shift our attention to value, there is a whole lot of opportunity sitting here as well. Within the toothpaste category, about 65% of the category sits within this 90 to 110 index, giving us significant -- and if you see above the 110 index, you see only about 14%, 15% of the category.

Significant opportunity for us to provide value-added benefits that allow a premium to be charged and consumers to see value in paying that premium. If you compare toothpaste to a comparable category like toilet soaps and starting with the poorest consumers, which is SEC D&E, you will see that spends on toilet soaps is 70% higher than spends on toothpaste.

And then if you take a look at it at the other end of the spectrum, which is the most premium consumers at SEC A, you will see that an SEC A consumer spends only 2x the money on toothpaste that an SEC DE consumer spends. Whereas on toilet soaps, that number becomes 2.6x, 4.4x of actual toothpaste. And therefore, significant headroom for us to grow value in this category.

And if we look at it from a toothbrush lens, actually even simpler, 2/3 of the market roughly or a little under 2/3 of the market sits in a brush handle under Rs.30 and the average price per handle in this country actually is closer to Rs.20 than Rs.30. But as you move up, you start seeing that there is opportunity to sell toothbrushes that are priced above Rs.40. And if you see the growth, that's exactly where the market is moving. The numbers on the top of 0%, minus 3% and 15% at the Rs.40-plus segment. These are 2022 numbers.

But as you take a look at the numbers for the first quarter of 2023, you actually see that this Rs.40-plus toothbrush segment is actually growing 5x as fast as the sub- Rs.30 market or actually the sub- Rs.40 market. And Colgate is really well placed because we have a portfolio

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Colgate-Palmolive (India) Limited

May 12, 2023

of both price points and benefits ahead of this Rs.40 segment and making them visibly available to consumers represents a real opportunity to drive growth.

And therefore, with this tremendous headroom opportunity for growth, I want to come to what are our plans to get to this growth. Our first action is to announce, and I'm really happy to do this, is to announce the re-launch of our flagship brand, Colgate Strong Teeth. Colgate Strong Teeth is the volume and value leader in the toothpaste market in this country. It is available in more households than any other brand in this country and more stores than any other brand in this country. Toothpaste brand. And we have just re-launched this with patented Arginine technology backed with a stronger consumer-preferred flavor.

What this technology of arginine does is to work with the naturally present arginine in your mouth and aid remineralization of teeth. And what remineralization does is really to give you stronger teeth. And this is Colgate-Palmolive'sbest-in-class technology for cavity protection and strong teeth. And it's a testament to our commitment to the oral health of this country that this technology sits in our most affordable toothpaste.

The brand also has tremendous potential in rural. It is 1.2x the penetration of the next brand and our opportunity really to get rural consumers to brush more as we spoke about earlier. And what we want to do with this relaunch is really to reframe the category. If you thought that toothpaste was just about cleaning, then it's time to rethink that because it's not just about cleaning, it's about nourishing. We spend a lot of effort nourishing our hair, our skin, our bones, but we don't consider that healthy hair and skin without great teeth is perhaps not as valuable.

And therefore, this brand is now moving the entire position of the category to talk about not just cleaning but nourishing, built on the fact that our patented fluoride plus arginine technology actually delivers teeth that are 2x stronger. And how are we going to communicate this to consumers? Let's take a look at the advertisement.

[Audio-Video Presentation]

Prabha Narasimhan: So that was a sneak-peak to our advertising. The advertising goes live on Sunday, and we are looking to significantly invest behind this mix. We are doubling our media investment on this brand. And it is being supported by an unprecedented level of sampling with 35 million samples of this new winning formula going to consumers along with it. And this, of course, also represents our biggest opportunity to drive rural growth, and we are, therefore, spending incremental money driving reach in rural India across various mediums.

I come from our largest equity to our second largest equity, which is MaxFresh and which has actually been having a really good run over the last few years. And why? Because it is a superior product versus competition, delivering a fabulous in-mouth feel. In the last year, this brand has added 21 million consumer homes and a penetration increase of 580 basis points. It grows 5x faster than the market. We've also added a charcoal variant, if you had seen the

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Colgate-Palmolive (India) Limited

May 12, 2023

advertising ahead of this conversation, you would have seen the advertising for MaxFresh Charcoal. That's a variant that's been added.

And what we are intending to do here is to take a winning mix and double down on our commercial investment behind it. And with a view to saying that we will talk to our core audience, and we will also talk to a new age, younger audience and look at how we can create communication that talks to this. And let me show you one example of what we've done over the last little while.

[Audio-Video Presentation]

I then turn my attention to the natural segment, which we had referenced last time as well as plateauing. And it continues to plateau and has even started to decline a little bit. A segment which got a little bit of a fillip due to COVID has now gone back to levels that are about three years earlier. And as we've said before, we firmly believe that consumers buy benefits and are very, very confident of our ability to deliver all benefits across the entire oral care spectrum.

And with that, I want to come to one of our premium mixes, which is really Colgate Active Salt. Active Salt, which has the Salt + Clove Technology uses natural ingredients, which are enhanced in our science-backed formula and deliver proven efficacy. This is the first brand that came into the salt category has been a truly successful innovation for Colgate over the last 10 years and owns the Salt segment.

And once again, it has best-in-class communication. I'm sure most of you would recognize the line with which it goes, which is "Kya Aapke Toothpaste Main Namak Hai" tested in the top 25% of all advertising. And once again, since we are onto something that works, our effort here will be to drive an increase in reach in the priority geographies for Colgate Active Salt and make sure that we continue to build this mix.

We then come to the second leg of our strategy. We've discussed the core, which really consists of Strong Teeth, MaxFresh and Colgate Active Salt. We come to growing the second leg of our strategy, which is really all about driving premiumization. Last year, we launched Visible White O2, and it has been one of the most successful launches ever in the history of CP India. This breakthrough technology gives whiter teeth in three days and has powered the overall whitening portfolio to a 30% faster growth, albeit on a small base.

But when you take a look at the penetration of whitening in India and you see that it's just 1.5%, you can see the headroom opportunity for growth just by driving penetration. The second thing is that this really does play to Colgate's strength. It is a science-backed product with great technology. It is at a premium, and it brings in a new benefit, moving oral care more into being oral beauty rather than in the segment of either preventive health or therapeutics. Colgate is also the first mover in this category, and we intend to double down on what we've done so far.

Firstly, by establishing beauty relevance and making sure that we are present in all occasions where beauty is a driver, weddings, events, parties, you name it, oral beauty should be a part of

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