Proctor and Gamble 2005 Annual Report Download - page 31

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 27
among฀many฀competitive฀offerings.฀The฀GBU฀is฀focused฀on฀winning฀
the฀“second฀moment฀of฀truth”฀–฀when฀the฀consumer฀uses฀the฀product฀
and฀evaluates฀how฀well฀the฀product฀meets฀his฀or฀her฀expectations.฀
°฀Global฀Business฀Services฀(GBS)฀operates฀as฀the฀“back฀office”฀for฀
the฀GBU฀and฀MDO฀organizations,฀providing฀world-class฀technology,฀
processes฀and฀standard฀data฀tools฀to฀better฀understand฀the฀business฀
and฀better฀serve฀consumers฀and฀customers.฀GBS฀personnel฀or฀highly฀
efficient฀and฀effective฀third฀party฀partners฀provide฀these฀services.
•฀ Focusing฀relentlessly฀to฀improve฀costs฀and฀generate฀cash.฀Each฀฀
GBU฀is฀evaluated฀on฀their฀ability฀to฀support฀the฀Company’s฀financial฀
goals.฀This฀includes฀an฀evaluation฀of฀net฀sales฀growth,฀earnings฀
growth฀and฀profit฀margin฀expansion.฀GBUs฀are฀also฀evaluated฀on฀
their฀ability฀to฀generate฀cash,฀for฀example,฀by฀increasing฀capacity฀฀
utilization฀and฀meeting฀capital฀spending฀targets.฀
Summary฀of฀2005฀Results
For฀the฀fiscal฀year฀ended฀June฀30,฀2005,฀we฀delivered฀our฀fourth฀
consecutive฀year฀of฀sales฀growth,฀earnings฀per฀share฀growth฀and฀free฀
cash฀flow฀productivity฀at฀or฀above฀our฀targets.
•฀ Net฀sales฀increased฀10%.฀Net฀sales฀increased฀8%฀excluding฀the฀
impact฀of฀foreign฀exchange฀–฀above฀our฀target฀of฀4%฀to฀6%.฀
Organic฀sales,฀which฀excludes฀the฀impacts฀of฀acquisition,฀divestitures฀
and฀foreign฀exchange,฀also฀increased฀8%.
°฀Every฀GBU฀delivered฀volume฀growth฀rates฀of฀high-single฀
digits฀or฀greater.฀Within฀the฀MDO,฀every฀geographic฀region฀฀
posted฀volume฀growth,฀led฀by฀developing฀markets฀up฀high-teens.
°฀We฀increased฀our฀overall฀market฀share฀in฀categories฀representing฀
approximately฀two-thirds฀of฀the฀Company’s฀net฀sales.฀We฀increased฀
market฀share฀in฀each฀of฀our฀core฀businesses฀of฀Baby฀Care,฀Fabric฀
Care,฀Feminine฀Care฀and฀Hair฀Care.
•฀ Diluted฀net฀earnings฀per฀share฀increased฀15%฀due฀primarily฀to฀
volume฀growth.
•฀ Cash฀flow฀from฀operating฀activities฀was฀$8.72฀billion.฀Free฀cash฀flow฀
productivity฀was฀in-line฀with฀our฀target฀of฀90%.
Market฀Overview฀and฀Challenges
Our฀market฀environment฀is฀highly฀competitive,฀with฀both฀global฀and฀
local฀competitors.฀In฀many฀of฀the฀markets฀and฀industry฀segments฀
in฀which฀we฀sell฀our฀products,฀we฀compete฀against฀other฀branded฀
products,฀as฀well฀as฀retailer฀and฀private-label฀brands.฀Additionally,฀
many฀of฀the฀product฀segments฀in฀which฀we฀compete฀are฀differentiated฀
by฀price฀(referred฀to฀as฀premium,฀mid-tier฀and฀value-tier฀products).฀
Generally฀speaking,฀we฀compete฀with฀premium฀and฀mid-tier฀products฀
and฀are฀well฀positioned฀in฀the฀industry฀segments฀and฀markets฀in฀which฀
we฀operate฀–฀often฀holding฀a฀leadership฀or฀significant฀share฀position.
P&G฀Beauty.฀We฀compete฀in฀several฀categories฀of฀the฀beauty฀market฀
including฀Retail฀and฀Professional฀Hair฀Care,฀Skin฀Care,฀Feminine฀Care,฀
Cosmetics,฀Fine฀Fragrances฀and฀Personal฀Cleansing.฀The฀beauty฀markets฀
in฀which฀we฀compete฀comprise฀approximately฀$200฀billion฀in฀global฀
retail฀sales,฀resulting฀in฀our฀overall฀share฀position฀of฀about฀10%.฀฀
We฀are฀the฀global฀market฀leader฀ in฀Hair฀Care,฀one฀ of฀ our฀core฀
businesses,฀with฀approximately฀a฀24%฀share฀of฀the฀global฀market.฀
We฀are฀also฀the฀global฀market฀leader฀in฀the฀Feminine฀Care฀category,฀
another฀core฀business,฀with฀approximately฀a฀36%฀share฀of฀the฀market.฀
Billion-dollar฀brands฀in฀P&G฀Beauty฀include฀Pantene,฀Wella,฀Olay,฀Always฀
and฀Head฀&฀Shoulders.
P&G฀Family฀Health.฀In฀P&G฀Family฀Health,฀we฀compete฀in฀several฀distinct฀
health฀care฀product฀categories฀including฀Oral฀Care,฀Pharmaceuticals,฀
Personal฀Health฀and฀Pet฀Health฀and฀Nutrition.฀In฀Oral฀Care,฀there฀are฀
several฀global฀competitors฀in฀the฀market,฀of฀which฀we฀have฀the฀number฀
two฀share฀position.฀Our฀Pharmaceuticals฀business฀has฀approximately฀
33%฀of฀the฀global฀bisphosphonates฀market฀for฀the฀treatment฀of฀
osteoporosis฀under฀the฀Actonel฀brand.฀Actonel,฀along฀with฀Crest฀and฀
Iams,฀each฀have฀annual฀sales฀over฀one฀billion฀dollars.฀
Baby฀Care฀and฀Family฀Care฀compete฀primarily฀in฀the฀Diapers,฀Baby฀
Wipes,฀Bath฀Tissue฀and฀Kitchen฀Towel฀categories.฀Baby฀Care฀is฀one฀of฀
our฀core฀businesses฀with฀a฀global฀share฀of฀approximately฀37%฀of฀the฀
market฀behind฀the฀strength฀of฀Pampers,฀with฀annual฀sales฀in฀excess฀of฀
$6฀billion.฀The฀markets฀in฀which฀we฀compete฀generally฀include฀two฀to฀
three฀global฀companies,฀as฀well฀as฀local฀competitors฀and฀retailer฀brands.฀
Family฀Care฀is฀predominantly฀a฀North฀American฀business.฀The฀Bounty฀
and฀Charmin฀brands,฀with฀approximately฀a฀43%฀and฀27%฀market฀share฀
in฀the฀United฀States,฀respectively,฀each฀have฀annual฀sales฀over฀one฀
billion฀dollars.
P&G฀Household฀Care.฀In฀P&G฀Household฀Care,฀the฀Fabric฀Care฀and฀
Home฀Care฀businesses฀operate฀in฀a฀global฀market฀containing฀numerous฀
brands฀in฀each฀geography.฀We฀generally฀have฀the฀number฀one฀or฀number฀
two฀share฀position฀in฀the฀markets฀in฀which฀we฀compete,฀with฀particular฀
strength฀in฀North฀America฀and฀Europe.฀Fabric฀Care฀is฀one฀of฀our฀core฀
businesses฀and฀we฀are฀the฀global฀market฀leader฀with฀approximately฀a฀
32%฀share.฀Home฀Care฀competes฀in฀the฀Dish฀Care,฀Surface฀Care฀and฀Air฀
Care฀product฀categories.฀Four฀of฀our฀billion-dollar฀brands฀are฀part฀of฀the฀
Fabric฀Care฀and฀Home฀Care฀businesses:฀Tide,฀Ariel,฀Downy฀and฀Dawn.฀
In฀Snacks฀and฀Coffee,฀we฀compete฀primarily฀in฀two฀industry฀categories:฀
Salted฀Snacks฀and฀Coffee.฀In฀Salted฀Snacks,฀we฀compete฀against฀
both฀global฀and฀local฀companies.฀One฀global฀company฀dominates฀
the฀category.฀In฀Coffee,฀we฀hold฀a฀leadership฀position฀of฀the฀brands฀
sold฀predominantly฀through฀grocery,฀mass฀merchandise฀and฀club฀฀