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Innovating for Everyday Life Contents 2011 ANNUAL REPORT Innovating for Everyday Life Contents Letter to Shareholders................................. Crest D White ...................................... Financial Contents .................................... Leadership Brands....................................... Gain Dishwashing Liquid........................ Global Leadership Council......................... Innovating for Everyday Life...................... Head & Shoulders .................................. Board of Directors..................................... Gillette Guard ........................................ Old Spice ............................................... Financial Summary.................................... Brazil...................................................... Disaster Relief........................................... Company and Shareholder Information..... Net Sales ($ billions) Operating Cash Flow ($ billions) Diluted Net Earnings (per common share) 11 $. 11 $. 11 $. 10 $. 10 $. 10 $. 09 $. 09 $. 09 $. 08 $. 08 $. 08 $. 07 $ . 07 $. 07 $. 2011 Net Sales By business segment By geographic region By market maturity % % % Beauty North America Developed Grooming % Western Europe Developing % Health Care % Central & Eastern Europe, % % Middle East & Africa Snacks & Pet Care % % Latin America % Fabric Care & Home Care Asia % Baby Care & Family Care % Financial Highlights (unaudited) Amounts in millions, except per share amounts Net Sales $, $, $, $, $, Operating Income , , , , , Net Earnings , , , , , Net Earnings Margin from Continuing Operations . % .% .% .% . % Diluted Net Earnings per Common Share from Continuing Operations $ . $ . $ . $ . $. Diluted Net Earnings Per Common Share . Dividends Per Common Share . Robert A. McDonald Chairman of the Board, President and Chief Executive Officer Dear Shareholders, Last year, I described P&G’s Purpose-inspired Growth Strategy, which is to touch and improve more consumers’ lives in more parts of the world more completely. I told you that we intend to deliver total shareholder return that consistently ranks P&G among the top third of our peers—the best- performing consumer products companies in the world. To do this, we must deliver the Company’s long-term annual growth goals, which are to: ōGrow organic sales 1% to 2% faster than market growth in the categories and countries where we compete ōDeliver core earnings per share (core EPS) growth of high single to low double digits ōGenerate free cash flow productivity of 90% or greater 2 The Procter & Gamble Company We made meaningful progress toward these long-term goals Growth Drivers for fiscal , despite significant external challenges. P&G’s Purpose is to touch and improve people’s everyday lives. ō Organic sales grew %. Organic volume grew %. This is an inspiring but demanding aspiration. There are nearly seven billion people on the planet today and we are currently ō Core earnings per share grew %. reaching about . billion of them. We want to reach all of ō Free cash flow productivity was % of net earnings. them with products and services that make their everyday lives a little better. We know that if we do this well, we’ll be rewarded with sales and profit growth, market share leadership, a strong We increased our quarterly dividend by %, making company reputation and, ultimately, the creation of value that this the st consecutive year that P&G has paid allows our people, our shareholders and the communities in which we live and work to prosper. a dividend and the th consecutive year that the dividend has increased. Our growth strategy, which we established two years ago, is inspired by our Purpose. We are executing this strategy by Over the past years, P&G’s dividend has increased at an innovating to improve people’s everyday lives in every part of annual compound average rate of approximately .%. In total, the world, and by then expanding our portfolio of innovation we paid approximately $. billion in dividends in fiscal . up and down price tiers, into new markets, and into new and existing product categories. We also returned $. billion to shareholders through the repurchase of P&G stock. Based on our current market This strategy is fundamentally right for P&G because it inspires capitalization, dividends and share repurchase, we provided our people and our partners, focuses us where the growth shareholders with an effective cash yield of nearly %, with opportunities are greatest, and leverages our core strengths: additional potential for capital appreciation. consumer understanding, brand building, go-to-market capability, global scale and, most importantly, innovation. This is good performance in a very demanding business and economic environment. It is not yet great performance. I am confident, however, that we will continue to grow our business Innovation Wins Decades on the strength of our Purpose-inspired Growth Strategy: Innovation is the driving force behind our strategy, as it always has been at P&G. Our experience has proven that price promotion ō We are executing the strategy as planned, with may win a quarter here and there, but innovation wins decades. unrelenting focus on innovation. There are many examples to prove this. Take our Laundry ō We are increasing productivity, which frees up resources business in the U.K., for instance. In the late s, we were to invest in innovation. competing hard just to defend and maintain our % market ō We continue to strengthen our portfolio of businesses. share leadership position. We then stepped up our innovation efforts. In the three decades since, we’ve introduced a series of ō We are tackling growth challenges head on. game-changing innovations such as Daz automatic detergent, ō We have solid, executable plans in place to capture the concentrated liquid detergent, and most recently, Liquitabs. enormous growth potential that our strategy creates. We now enjoy around a % share. We’ve seen the same dynamic in Oral Care. In the s, we Further, P&G people are inspired and are performing heroically lost our historical lead versus our top competitor because they to improve lives, to grow our business, and to create value simply out-innovated us. We stepped up our innovation game for our shareholders. My objective, with this Letter, is to explain once again and delivered a string of product breakthroughs what we are doing in each of these areas. including Crest Whitestrips, Crest Pro-Health, and Crest D White. We restored P&G’s leadership of the U.S. Dentifrice category, which is now enabling us to expand these innovative products around the world. The Procter & Gamble Company 3 Purpose-inspired Growth Strategy: Our path forward Organic Sales Growth (1) 4% 1–2% above global market growth rates Core EPS Growth (2) 8% High single to low double digits Free Cash Flow (3) 84% of net earnings 90% of net earnings (1) Organic sales growth is a non-GAAP measure of sales growth. See page 51 for a reconciliation of net sales growth to organic sales growth. (2) Core EPS growth is a non-GAAP measure of the Company’s diluted net earnings per share from continuing operations. See page 51 for a reconciliation of Core EPS to diluted net earnings per share from continuing operations. (3) Free cash flow productivity is defined as the ratio of free cash flow to net earnings. I’ll share one more example. Head & Shoulders was a relatively In this past fiscal year, we grew or held market share on small, primarily North American brand a decade ago. We invested businesses representing about % of our sales, which is the best in a combination of marketing and product innovations and indication that consumers are rewarding P&G innovation despite then began to expand the brand globally. Since then, we have a highly competitive and demanding economic environment. more than tripled sales and Head & Shoulders is now the largest We also continue to earn external recognition for our shampoo brand in the world. innovations. In , P&G launched eight of the top most These and other experiences reinforce our commitment to successful new products in the consumer products industry innovation as the fundamental driver of P&G’s growth. in North America, as measured by SymphonyIRI Group (which recognized us last year as one of the most innovative We invest about $ billion a year in Research & manufacturers in the U.S. Consumer Packaged Goods Industry Development—about % more than our next for the past decade, presenting us with an Outstanding closest competitor and more than most of our Achievement in Innovation Award). Crest D White was the most successful new product launch measured by competitors combined. SymphonyIRI Group last year. For the past years, P&G has The investment continues to pay off. We currently have the had products on the top New Product Pacesetters list, strongest innovation and global expansion program in P&G history. more than our six largest competitors combined. We are globalizing products such as Gillette Fusion ProGlide, In , P&G along with our agencies brought Crest D White, Laundry additives, and the Pampers thinness and absorbency upgrade. home a record-setting Cannes Lion awards We’re also expanding successful marketing innovation such (which recognize the world’s best advertising and as the Shiksha education program in India, in which P&G communications) at the Cannes Lions International contributes a brick to build a school for each pack of product Festival of Creativity (formerly known as the purchased, or the Pampers “One Pack Equals One Vaccine” International Advertising
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