Proctor and Gamble 2009 Annual Report Download - page 6

CASH AND COST MANAGEMENT
P&G’s cash productivity — the percentage of earnings we convert
into cash
— has averaged over 100% since the beginning of
the decade, consistently among the very best in the industry.
This cash productivity allows us to maintain the Company’s
excellent credit rating, to pay a strong dividend every year,
and to have the flexibility to investin the business organically
or through mergers and acquisitions.
Our cash position is consistently strong because we are
relentlessly focused on working-capital management.
For example, P&G is the receivables leader of the industry,
operating more efficiently with fewer days of receivables
outstanding than any consumer products competitor.
We’re equally rigorous about managing costs. We have reduced
overhead costs as a percentage of sales by more than 300 basis
points since 2001, and we continue to focus on reducing
overhead costs consistently and steadily year after year.
In addition to reducing costs, we’ve also focused on increasing
productivity in everything we do. Sales per employee has grown
from $363,000 in 2000 to $585,000 in 2009, and profit per
employee has increased from $32,000 to $84,000. We have
doubled the productivity of our R&D organization since 2000
even as we’ve become more innovative. This means that P&G
can now support an additional $44billion in sales with virtually
the same number of R&D employees we had nearly a decade
ago. We’ve become so much more productive because we
continually innovate how we innovate and because we are
working with such a large and diverse global network of
external innovation partners.
This productivity discipline ensures that P&G has the flexibility
and the resources to invest in growth even in the most
challenging environments.
LEADERSHIP FOR THE NEXT DECADE
P&G has earned a reputation as one of the world’s best
companies for leaders. We work hard at leadership development
because, as a build-from-within company, our future success is
entirely dependent on the ongoing strength of our talent pipeline.
Succession planning is an important element of this focus on
leadership. We are methodical about identifying multiple
succession candidates for every senior executive leadership
position and then ensuring each individual gets the experience
to be ready for the job.
We began planning for my successor as CEO several years ago.
Bob McDonald emerged as the right choice to lead P&G in the
decade ahead. Bob has nearly 30 years of brand-building, market
development, global business unit and global operations
leadership experience across the Company and around the world.
I’ve worked with him for most of my career at P&G. We’ve worked
side-by-side over the past decade.
I am equally confident in the leadership team that we’ve put
in place to lead P&G in the decade ahead. This executive team
has more than 1000 years of collective industry experience
—
in every part of P&G’s business, in developed and developing
markets, in good times and through business and economic
crises. This is a team you can count on.
I will continue to be engaged: I will chair the Board; I will
continue to provide advice and counsel to Bob and will join
him at business strategy, innovation program and talent
development reviews. I will continue to be involved in coaching
senior managers.
The breadth, depth and quality of management
— and of the
organization as a whole
— is another way we design P&G to
lead. I could not be more confident in the new leadership team
or in the 135,000 P&Gers who lead our business every day.
DESIGNED TO CREATE VALUE THROUGH LEADERSHIP
In the end, P&G’s commitment is to create value for its
shareholders (including employees and retirees, who hold about
10% of P&G shares). This decade, we’ve fulfilled that commitment.
When I became CEO on June 8,2000, P&G was the 31st largest
company in sales and the 22nd largest company in profit among
the Fortune 500. In the nine years since, P&G has moved to 20th
in sales and to 9th in profit.
The Company’s market capitalization in June 2000 was
$74billion
— 35th highest among the Fortune 500. Since then,
P&G’s stock has appreciated by about 80% while the S&P 500
Index has declined approximately 30%. P&G’s market capitaliza-
tion is now roughly $150billion, making P&G one of the 10
most valuable companies in the United States.
Our business and financial performance is the result of clear
choices and extraordinary commitment and capability at every
level of our Company. I’ve never been prouder of this Company
and its people than I am today. We have designed P&G to lead
through virtually any economic environment
— and as a result,
P&G remains a company you can count on to improve
consumers’ lives and to create superior shareholder value.
A.G. Lafley
Chairman of the Board
August 7,2009
4The Procter & Gamble Company