Proctor and Gamble 2005 Annual Report Download - page 30

Management’s฀Discussion฀and฀AnalysisThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
26
Strategic฀Focus
P&G฀ is฀focused฀on฀strategies฀ that฀we฀ believe฀are฀right฀for฀the฀฀
long-term฀health฀of฀the฀Company฀and฀that฀will฀increase฀returns฀for฀
our฀shareholders.฀The฀Company's฀financial฀targets฀are฀(excluding฀the฀฀
impacts฀of฀the฀pending฀Gillette฀acquisition):
•฀ Sales฀growth฀of฀4%฀to฀6%฀excluding฀the฀impact฀of฀changes฀in฀฀
foreign฀exchange฀rates฀from฀year-over-year฀comparisons.฀On฀average,฀we฀฀
expect฀approximately฀2%฀of฀sales฀growth฀to฀come฀from฀market฀
growth;฀1%฀to฀3%฀from฀the฀combination฀of฀market฀share฀growth,฀
expansion฀to฀new฀geographies฀and฀new฀business฀creation;฀and฀the฀
remaining฀1%฀to฀come฀from฀smaller,฀“tack-on”฀acquisitions฀to฀access฀
markets฀or฀complement฀current฀business฀portfolios.
•฀ Diluted฀net฀earnings฀per฀share฀growth฀of฀10%฀or฀better.
•฀ Free฀cash฀flow฀productivity฀of฀90%฀or฀greater฀(defined฀as฀the฀ratio฀of฀
operating฀cash฀flow฀less฀capital฀expenditures฀divided฀by฀net฀earnings).
In฀order฀to฀achieve฀these฀targets,฀we฀focus฀on฀our฀core฀strengths฀฀
of฀branding,฀innovation,฀go-to-market฀capability฀and฀scale฀against฀the฀
following฀growth฀areas:
฀•฀Driving฀our฀core฀businesses฀of฀Baby฀Care,฀Fabric฀Care,฀Feminine฀Care฀
and฀Hair฀Care฀into฀stronger฀global฀leadership฀positions.฀ ฀
฀•฀Growing฀our฀leading฀brands฀in฀our฀biggest฀markets฀with฀our฀฀
largest฀customers.฀฀฀
฀•฀Investing฀in฀faster-growing฀businesses฀with฀higher฀gross฀margins฀
that฀are฀less฀asset-intensive,฀primarily฀in฀the฀Beauty฀and฀Health฀฀
Care฀businesses.฀
฀•฀Building฀on฀opportunities฀in฀select฀developing฀markets฀and฀with฀฀
lower-income฀consumers.
Sustainability
To฀sustain฀consistent฀and฀reliable฀sales฀and฀earnings฀growth฀in฀line฀with฀
our฀financial฀targets,฀we฀have฀identified฀four฀key฀enablers:
•฀Building฀a฀diversified฀and฀balanced฀portfolio฀consisting฀of฀foundation฀
businesses฀and฀higher฀growth฀businesses.฀Foundation฀businesses฀
include฀many฀of฀our฀established฀product฀categories฀–฀Fabric฀Care,฀
Home฀Care,฀Baby฀Care,฀Family฀Care,฀Snacks฀and฀Coffee.฀These฀
businesses฀provide฀a฀base฀for฀steady฀growth,฀strong฀operating฀
cash฀flows฀and฀an฀excellent฀training฀ground฀for฀future฀leaders.฀We฀
are฀focused฀on฀expanding฀these฀categories฀through฀innovative฀
products,฀offering฀our฀brands฀in฀more฀parts฀of฀the฀world฀and฀tailoring฀฀
our฀products฀to฀meet฀the฀needs฀of฀more฀consumers฀(including฀฀
lower-income฀consumers).฀To฀complement฀the฀steady฀growth฀of฀
foundation฀businesses,฀we฀are฀expanding฀our฀portfolio฀of฀Beauty฀and฀
Health฀brands.฀These฀businesses฀generally฀have฀higher฀gross฀margins฀
and฀lower฀capital฀requirements฀than฀the฀balance฀of฀the฀Company’s฀
portfolio.฀Over฀the฀past฀several฀years,฀we฀have฀increased฀the฀size฀
of฀our฀Beauty฀and฀Health฀businesses฀by฀growing฀base฀brands฀and฀
through฀acquisitions,฀including฀Clairol฀in฀2002฀and฀Wella฀in฀2004.฀
Both฀of฀these฀acquisitions฀expanded฀our฀presence฀in฀the฀retail฀and฀
professional฀hair฀care฀categories.฀In฀January฀of฀2005,฀we฀announced฀
our฀agreement฀to฀acquire฀The฀Gillette฀Company,฀which฀will฀further฀
expand฀our฀portfolio฀of฀Beauty฀and฀Health฀brands.฀Gillette฀is฀a฀leader฀
in฀several฀global฀product฀categories฀including฀blades฀and฀razors,฀
oral฀care฀and฀batteries.฀Pending฀regulatory฀approval,฀we฀expect฀
this฀acquisition฀to฀close฀in฀Fall฀of฀2005.฀We฀expect฀our฀portfolio฀of฀
Beauty฀and฀Health฀brands฀to฀continue฀to฀provide฀a฀disproportionate฀
percentage฀of฀growth฀for฀the฀Company.
฀
•฀ Investing฀in฀innovation฀and฀capability฀to฀reach฀more฀of฀the฀world’s฀
consumers฀with฀quality,฀affordable฀products.฀This฀includes฀expanding฀
our฀presence฀in฀markets฀and฀reaching฀more฀consumers฀where฀we฀
are฀under-represented฀including฀lower-income฀and฀value-conscious฀
consumers.
•฀ Leveraging฀the฀Company’s฀organizational฀structure฀to฀drive฀clear฀฀
focus,฀accountability฀and฀improved฀go-to-market฀capability.฀We฀have฀
an฀organizational฀structure฀that฀works฀together฀to฀leverage฀our฀
knowledge฀and฀scale฀at฀the฀global฀level฀with฀a฀deep฀understanding฀
of฀the฀consumer฀and฀customer฀at฀the฀local฀level.฀
°฀The฀GBUs฀leverage฀their฀consumer฀understanding฀to฀develop฀฀
the฀ overall฀ strategy฀for฀ our฀brands.฀They฀identify฀common฀฀
consumer฀needs,฀develop฀new฀products฀and฀build฀our฀brands฀through฀฀
effective฀marketing฀innovations.฀
°฀The฀MDO฀develops฀go-to-market฀plans฀at฀the฀local฀level,฀฀
leveraging฀their฀understanding฀of฀the฀local฀consumer฀and฀customer.฀
The฀MDO฀is฀focused฀on฀winning฀the฀“first฀moment฀of฀truth”฀–฀when฀
a฀consumer฀stands฀in฀front฀of฀the฀shelf฀and฀chooses฀a฀product฀from
34%
32%
34%
2005 Net Sales
(by GBU)
P&G Beauty
P&G Family Health
P&G Household Care
37%
33%
30%
2005 Net Earnings
(by GBU)
P&G Beauty
P&G Family Health
P&G Household Care