Proctor and Gamble 2011 Annual Report Download - page 8

Strategic Choices Create a Winning Portfolio
We continue to take steps to strengthen P&G’s portfolio of
businesses, which enables us to focus on our greatest growth
opportunities. Two years ago, we exited our pharmaceuticals
business. This was an industry where the innovation model did
not play to P&G’s strengths, where there was little go-to-market
synergy with the rest of P&G’s businesses, and where branding
was inherently difficult and less relevant. We felt that exiting
pharmaceuticals would allow us to focus our efforts on consumer-
oriented health care, where we can more clearly apply our
Company’s strengths and where there are strong economic
and demographic tailwinds.
We are advancing this over-the-counter (OTC) focus with the
intent to form a joint venture with Teva Pharmaceutical Industries,
which we announced earlier this year. We will maintain our
North America OTC business, which generates % of our total
OTC sales. We will gain access to Teva’s manufacturing scale as
the largest prescription drug manufacturer in the world, to their
library of molecules including several prescription-to-OTC switch
portfolios, to their highly effective regulatory capabilities, and to
best-in-class pharmacy coverage in many markets. Teva will
further strengthen its position with major pharmacy customers
around the world and leverage P&G’s consumer understanding
and brand-building strengths. This partnership will allow both
companies to significantly accelerate entry into additional OTC
categories and markets.
Negotiations continue to progress well as we work to close the
transaction by the end of this calendar year.
We closed the Ambi Pur acquisition and have completed a
successful integration. Through a combination of the acquisition
and organic expansions of the Febreze brand, we have grown
And, most recently, through a disciplined approach and two
rounds of negotiations, we agreed to divest Pringles to
Diamond Foods. This transaction is expected to close by the
end of calendar  and will complete P&G’s exit from the
food and beverage business.
Strengthening our business portfolio is an ongoing process. We
continually evaluate the strength of our portfolio by assessing
category attractiveness across three dimensions: industry
attractiveness (market size, growth and structural economics),
competitive position (share, profitability versus industry, brand
equity/consumer purchase intent versus competition), and
portfolio fit (ability to apply the Company’s core capabilities of
brand building innovation, consumer understanding, go to
market and scale). Based on this evaluation, we believe that our
current portfolio is the strongest it has been in many years and
provides a highly strategic platform for market leadership and
sustainable growth.
These are the cornerstones of P&G’s growth strategy and our
ability to create sustainable shareholder value: innovation that
improves everyday life in every part of the world… fueled by
productivity that frees up resources to invest…in a portfolio
of businesses and brands designed for growth.
Growth Challenges
As we executed the Company’s growth strategy this past year,
we faced a number of extremely challenging external head-
winds—two of which are most important and most likely to
continue in the year ahead.
We are facing rapid and significant increases in commodity costs.
Materials and energy costs were up more than $. billion
before tax for the fiscal year. We’re taking a holistic approach
to manage these cost increases.
ō We’re turning up the dial on our productivity and
cost-savings initiatives, as indicated previously.
ō We’re creating alternative product formulations and
developing materials that use renewable feedstocks.
ō We’re reducing our dependency on commodity and
energy costs through our own and our suppliers’
sustainability efforts.
ō We’re increasing prices where necessary, coupled
with innovation where possible, to deliver the best
consumer value.
We expect commodity costs to continue escalating in the year
ahead and will remain highly disciplined to ensure we can offset
increases as fully as possible while continuing to invest in growth
and create shareholder value.
Developed markets are growing slower than expected. These
markets—principally North America, Western Europe and
Japan—account for about two-thirds of our sales. Their under-
performance reduced total Company growth by one percentage
point in fiscal year .
6The Procter & Gamble Company
our Air Care presence from  markets to nearly  markets.