Kraft 2005 Annual Report Download - page 41

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MERRILL CORPORATION ABLIJDE// 7-MAR-06 14:42 DISK126:[06CHI5.06CHI1135]DK1135A.;21
mrll.fmt Free: 10D*/240D Foot: 0D/ 0D VJ RSeq: 11 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DK1135A.;21
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
Net revenues increased $712 million (7.0%), due primarily to favorable currency ($361 million),
higher pricing, net of increased promotional spending ($214 million, including commodity-driven
pricing) and favorable volume/mix ($213 million, including the benefit of the 53rd week), partially offset by
the impact of divestitures ($77 million). Net revenues were up 14% in developing markets, driven by
significant growth in Russia, Ukraine and the Middle East. In addition, net revenues increased in several
Western European markets, partially offset by a decline in volume, particularly in Germany.
Operating companies income increased $189 million (20.3%), due primarily to favorable volume/
mix ($115 million, including the benefit of the 53rd week), net gains on the sale of businesses
($112 million), lower pre-tax charges for asset impairment and exit costs ($68 million), favorable
currency ($59 million) and a 2004 equity investment impairment charge related to a joint venture in
Turkey ($47 million), partially offset by unfavorable costs and increased promotional spending, net of
higher pricing ($99 million, including higher commodity costs), higher marketing, administration and
research costs ($53 million, including higher marketing and benefit costs, and costs associated with the
53rd week, partially offset by a $16 million recovery of receivables previously written off), the impact of
divestitures ($24 million), the net impact of higher implementation costs associated with the
restructuring program ($22 million) and higher fixed manufacturing costs ($16 million).
The following discusses operating results within each of Kraft International Commercial’s reportable
segments.
Europe, Middle East & Africa. Volume decreased 1.8% including the 53rd week of shipments
(approximately 2 percentage points of growth), due primarily to lower volume in Germany and the
divestiture of the U.K. desserts assets in the first quarter of 2005, partially offset by growth in developing
markets, including Russia, Ukraine and the Middle East. In grocery, volume declined, due to the
divestiture of the U.K. desserts assets in the first quarter of 2005 and lower results in Egypt and Germany.
Beverages volume declined, driven by lower coffee shipments in Germany, due to commodity-driven
price increases, partially offset by higher refreshment beverage shipments in the Middle East and higher
coffee shipments in Russia and Ukraine. Convenient meals volume declined, due primarily to lower
category performance in the U.K. and lower promotions in Germany. Cheese volume increased due to
higher shipments in the U.K., Italy and the Middle East. In snacks, volume increased, as gains in
confectionery, benefiting from growth in Russia and Ukraine, were partially offset by lower biscuits
volume in Egypt.
Net revenues increased $477 million (6.3%), due primarily to favorable currency ($235 million),
favorable volume/mix ($171 million, including the benefit of the 53rd week), higher pricing, net of
increased promotional spending ($131 million, reflecting commodity-driven pricing in coffee), partially
offset by the impact of divestitures ($60 million). Significant growth in Russia and Ukraine was partially
offset by a decline in Germany.
Operating companies income increased $115 million (16.8%), due primarily to net gains on the sale
of businesses ($108 million), favorable volume/mix ($87 million including the benefit of the 53rd week),
lower pre-tax charges for asset impairment and exit costs ($53 million), a 2004 equity investment
impairment charge related to a joint venture in Turkey ($47 million) and favorable currency ($32 million),
partially offset by unfavorable costs, net of higher pricing ($144 million, due primarily to higher
commodity costs and increased promotional spending), higher marketing, administration and research
costs ($30 million, including costs associated with the 53rd week), the impact of divestitures ($25 million)
and the net impact of higher implementation costs associated with the restructuring program
($17 million).
Latin America & Asia Pacific. Volume decreased 0.4% including the 53rd week of shipments
(approximately 2 percentage points of growth), due primarily to lower shipments in China, partially offset
by growth in Southeast Asia. Grocery volume declined, due primarily to lower shipments in Brazil and
Central America. Snacks volume also declined, impacted by increased biscuit competition in China and
resizing of biscuit products in Latin America, partially offset by higher shipments in Venezuela. In
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