Katy Chen: Powering Care, International Personal Care

Hi, I'm Katy Chen, the president of the new International Personal Care business unit. I've been with Kimberly-Clark for 14 years, including the last three years as a managing director of KC China, and prior to that a decade leading marketing and R&D in China, driving fem care and baby care growth. I'm very excited to introduce you to IPC and highlight the significant opportunity ahead to deliver strong growth and expand our margin through a proven model.

IPC generates $6 billion in annual sales and operates across three core categories: baby care, baby and child care, fem care, and adult care. Our powerhouse brands across these categories are loved and preferred by consumers, and we are positioned to build our current low to mid-teens margin profile. We will do this by leveraging the new KC operating model that Mike and Allison touched on. We will have enhanced resources and agility, focus on our top five markets. These markets account for approximately 60% of segment sales. There are greater China, South Korea, Brazil, Australia and New Zealand, and Indonesia. This will be complemented by efforts to optimize our enterprise markets to ensure profitable growth and ensure we can capture the attractive long-term growth opportunity that exists.

We are starting from a position of strength. We have leading share positions across focus markets and categories. For example, in baby and childcare we have shared leadership across South Korea, Australia, and China, with strong number two positions in our other focus markets. The same is true in fem care and adult care, where we have leading positions across our core markets. These markets and the way our products and strategies are resonating with consumers will serve as the foundation for our value creation opportunity, and there remains significant runway across each category for us to continue to grow share.

We play in large and growing categories that offer clear opportunities for growth in the years to come. Across the International Personal Care markets, we have more than 120 million new births every year in these markets, more than 60 million girls entering puberty — this is a significant growth opportunity for our period care products — and over 700 million in our segment are aged over 65, creating a growing need for our adult care products. And this number is only expected to grow by 2030. These tailwinds across our categories provide a significant runway for growth.

We now touch briefly on our focus markets in IPC, starting with China. China is the world's second largest economy and grew over 5% in 2023, and consumers are increasingly becoming more fluent and as a result spending more and developing a discerning eye for their brand choices. Over my 14 years in KC China, I have seen and helped the company successfully navigate these changes. I'm also excited to see China lead the digital disruption across social media, video content, consumption, shopping, and live streaming. The vertically integrated, closed-loop ecosystem that platforms like Douyin and Tencent have created are unique and offer new ways to connect with consumers. We are building new advantage capabilities to ride this disruption. For example, in baby and child care we have the number one position on Douyin; in fem care we have twice the share in e-commerce than we do in brick and mortar. The digital capabilities that we've built in China will help us accelerate growth in China and will also serve as a lighthouse for the entire IPC enterprise.

In South Korea, we are market leaders across all categories that we play in. In Australia and New Zealand, we are market leaders in baby care and adult care and a strong number two in fem care. Our brands are widely preferred in both these countries. Both markets are developed, advanced economies with high GDP per capita, developed categories, and sophisticated consumer needs and preferences. This offers us benefit-based trade-up opportunities through innovative products with benefits that deliver performance-based differentiation and a greater brand advantage.

Turning to Brazil and Indonesia, which are faster-growing economies offering opportunities to ignite profitable growth in the coming years. One quarter of households are upper middle class families earning $35,000 to $70,000 per capita, and this will only grow as the economy grows. So if we look at the baby and child care category as an example, the average diaper consumption in Indonesia is 1.5 pieces per day; in Brazil this number is 4.8 pieces per day; and in developed countries like Korea it is significantly higher at 7.2 pieces per day. This demonstrates the opportunity to grow category penetration and consumption with the growth of these markets.

It is clear that IPC can be a major growth engine for Kimberly-Clark as we continue to advance our position in these five markets. Our aspiration is to grow faster than the market, which we expect to grow at low single digits. While these markets offer an attractive opportunity, they are also some of the most difficult to operate in. Consumers are demanding and digital-savvy, expecting immediate engagement with brands. Intense competition with local and global players also presents a challenge, with their quick pace of innovation, agile business models, and insurgent brands. But we have a proven model to win, a track record of delivering consistent growth, and a strategy that sets us apart.

Overall, markets China has the toughest operating environment. Despite this, China is an outstanding example of the unique KC advantage Allison talked about. Over the last 10 years, KC China has doubled revenue, tripled gross profit, and delivered share growth year on year. Two examples of this are Huggies and the Kotex brands. Our e-commerce share is also two times higher than our brick-and-mortar presence. This is a testament to the growth of our digital presence, as well as winning new digital channels and connecting with our consumers. Huggies China is a great case study for how we've executed this playbook. In 2021, we gained share leadership and for the first time became the most preferred diaper brand in China. We did this through four distinct strategies that enhanced our market share. We offer a unique and appealing consumer promise that makes us the preferred brand for consumers. We design superior innovation and aim to deliver it faster and cheaper than the rest of the market. And we leverage our advantage digital capabilities to engage our consumers better. All of this driving to continuously trade up our consumers.

Let me share the story of how we did this. First, by developing a unique and appealing consumer promise to enable trade-up. Here's an example of Huggies Melting Soft, which is a product in our best tier. Instead of communicating softness in a cliché way, we wanted our moms to intuitively feel it by using the metaphor of a penguin hugging their little ones with the softest part of their body, their fur. We brought this to life in product and packaging, but also across all consumer touch points, making Huggies Melting Soft a desirable product to moms for their babies. We launched our baby's first black card activation campaign targeted towards moms of newborns. We created a personalized gift box, tailor-made VIP benefits, and a black card for the baby that could be used for purchase of new Huggies Melting Soft. Moms loved the super premium image and exclusive, luxurious experience, creating an aspirational image and sales grew for Huggies Melting Soft. All our products represent our continuous focus on understanding moms' needs and giving the best for her baby.

In a competitive market, product innovation and science is a big advantage, and in China we are a pioneer. We focus on being faster to market at a lower cost than the rest of the categories. Here you can see a diaper with two-zone liners for pee and poo zones. This innovation is an example of us being first to market.

In recent years, consumers' media behavior has changed and we've seen that firsthand in China. Today, one consumer views 300 pieces of content every day on TikTok. We are not competing with other brands for attention, but with all the content our consumers are exposed to. So high-quality, engaging content is the number one priority to drive traffic. Since short videos are the norm in digital media, we need to make sure our product content catches their attention in the first second. This is so important that we designed an innovation of a diaper with a puppy tail to generate high-engaging content on social media. And we consistently generate high-quality content by leveraging the creativity and the power of our influencers. This is one example of our co-creating content created with KOLs.

So once we have great content, we precisely target and deploy our content leveraging data intelligence, which is key to improve efficiency. In summary, high-quality content and data intelligence improved the efficiency and effectiveness of our digital engagement plans, as you can see from the numbers here for the video I just played. The result of these initiatives is Huggies China is winning through trade-up to maximize our value advantage. As of 2023, 42% of our business is in the best tier, up from only 6% in 2019 — a remarkable improvement. Also know that the price index for our entry-level good offers is 80 versus 350 for our top-end Melting Soft premium diaper, so this is a significant spread that we have been able to capture by relentlessly trading up. Our unique consumer promise and superior innovation are driving consumers to higher quality premium products. This is what success looks like in China.

And we are confident we can accomplish similar wins in our other markets too. Through our success in China, we've developed a proven winning model with each of these areas I just discussed, along with excellent execution specific to each local market. We are positioned to win shares through trade-up. This will help us to enhance value and improve portfolio mix with pricing at the right value and continuous focus on further reducing cost. IPC has a diverse range of markets. The proven business model is relevant and successful in all of these markets and their unique context. An example of purposeful and insightful consumer marketing to elevate our brands is Brazil's first female football referee video. The video shines a light on the stigma women still face today and our brand's role in championing women's progress. This campaign won a Cannes Gold.

In Korea, we launched a premium diaper which provides noticeably superior breathability, which is especially relevant in summer months — a great example of pioneering innovation. In Indonesia, we have an efficient supply chain producing lowest-cost products with agility. Our team in Australia developed excellent in-market execution in partnership with Woolworths customer and an NGO partner with an aim to reduce poverty by donating free products for every sale. We also have a tremendous opportunity to ignite profitable growth in our enterprise markets. Our presence and opportunities are immense: 50 markets spanning five continents and about three and a half billion consumers. We are assembling a separate internal team to oversee these markets, a team that has deep and diverse experience in markets that are at early stages of development. Their mandate is to develop a focus on key markets in which to invest, to sustain or to turn around. We will leverage the best of Kimberly-Clark on a global base, from our winning innovation to marketing excellence and the revenue growth management capabilities. We will transform our value chain across markets by optimizing our footprint, sourcing, product portfolio, and our routes to market. And we will speed up our local commercial execution by adopting local in-market execution models and reducing management and go-to-market layers. In the end, we aim to build our enterprise markets into self-sustaining platforms for long-term profitable growth by being selective about where we invest and what we prioritize.

To wrap things up, our IPC segment is poised to continue delivering strong growth and improving margins through our proven country-based strategies. We are focused on several initiatives to accelerate growth, extend our leadership, and ignite profitable growth across our five focus countries and 50 enterprise markets. Thank you all today for your time. We hope you share in our excitement for the future of KC's growth opportunity in greater China and our other international markets.