P&G’s business is focused on providing branded consumer packaged goods. Our goal is to provide products of superior quality and value to improve the lives of the world’s consumers. We believe this will result in leadership sales, earnings and value creation, allowing employees, shareholders and the communities in which we operate to prosper.
Our products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and “high frequency stores,” the neighborhood stores which serve many consumers in developing markets. We continue to expand our presence in other channels including department stores, perfumeries, pharmacies, salons and e-commerce. We have on-the-ground operations in approximately 80 countries.
Our market environment is highly competitive, with global, regional 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 retailers’ private-label brands. Additionally, many of the product segments in which we compete are differentiated by price (referred to as super-premium, premium, mid-tier value and low-tier economy products). Generally speaking, we compete with super-premium, premium and mid-tier value products and are well positioned in the industry segments and markets in which we operate — often holding a leadership or significant market share position.
Our organizational structure is comprised of three Global Business Units (GBUs), Global Operations, Global Business Services (GBS) and Corporate Functions (CF).
Global Business Units
In fiscal year 2009, our three GBUs were Beauty, Health and Well-Being and Household Care. The primary responsibility of the GBUs is to develop the overall strategy for our brands. They identify common consumer needs, develop new product innovations and upgrades and build our brands through effective commercial innovations and marketing plans.
Under U.S. GAAP, the business units comprising the GBUs were aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care. The following provides additional detail on our GBUs and reportable segments and the key product and brand composition within each.
|GBU||Reportable Segment||% of Net Sales*||% of Net Earnings*||Key Products||Billion Dollar Brands|
|* Percent of net sales and net earnings from continuing operations for the year ended June 30, 2009 (excluding results held in Corporate).|
|Beauty||Beauty||23%||22%||Cosmetics, Deodorants, Hair Care, Personal Cleansing, Prestige Fragrances, Skin Care||Head & Shoulders, Olay, Pantene, Wella|
|Beauty||Grooming||9%||13%||Blades and Razors, Electric Hair Removal Devices, Face and Shave Products, Home Appliances||Braun, Fusion, Gillette, Mach3|
|Health and Well-Being||Health Care||17%||21%||Feminine Care, Oral Care, Personal Health Care, Pharmaceuticals||Actonel, Always, Crest, Oral-B|
|Health and Well-Being||Snacks and Pet Care||4%||2%||Pet Food, Snacks||Iams, Pringles|
|Household Care||Fabric Care and Home Care||29%||26%||Air Care, Batteries, Dish Care, Fabric Care, Surface Care||Ariel, Dawn, Downy, Duracell, Gain, Tide|
|Household Care||Baby Care and Family Care||18%||16%||Baby Wipes, Bath Tissue, Diapers,
Facial Tissue, Paper Towels
|Bounty, Charmin, Pampers|
Beauty: We are a global market leader in the beauty category. Most of the beauty markets in which we compete are highly fragmented with a large number of global and local competitors. We are the global market leader in hair care with over 20% of the global market share. In skin care, our primary brand is Olay, which is the top facial skin care retail brand in the world. We are also one of the global market leaders in prestige fragrances, primarily behind the Gucci, Hugo Boss and Dolce & Gabbana fragrance brands.
Grooming: This segment consists of blades and razors, face and shave preparation products (such as shaving cream), electric hair removal devices and small household appliances. We hold leadership market share in the manual blades and razors market on a global basis and in almost all of the geographies in which we compete. Our global manual blades and razors market share is approximately 70%, primarily behind the Gillette franchise including Mach3, Fusion and Venus. Our electric hair removal devices and small home appliances are sold under the Braun brand in a number of markets around the world, where we compete against both global and regional competitors. Our primary focus in this area is electric hair removal devices, such as electric razors and epilators, where we hold approximately 30% and 50% of the male and female markets, respectively.
Health and Well-Being
Health Care: We compete in oral care, feminine care, pharmaceuticals and personal health. In oral care, there are several global competitors in the market, and we have the number two market share position with approximately 20% of the global market. We are the global market leader in the feminine care category with over 35% of the global market share. We have approximately 40% of the global bisphosphonates market for the treatment of osteoporosis under the Actonel pharmaceuticals brand. In personal health, we are the market leader in nonprescription heartburn medications and in respiratory treatments with Prilosec OTC and Vicks, respectively.
Snacks and Pet Care: In snacks, we compete against both global and local competitors and have a global market share of approximately 10% in the potato chips market behind our Pringles brand. In pet care, we compete in several markets around the globe in the premium pet care segment, with the Iams and Eukanuba brands. The vast majority of our pet care business is in North America, where we have approximately a 10% share of the market.
Fabric Care and Home Care: This segment is comprised of a variety of fabric care products, including laundry cleaning products and fabric conditioners; home care products, including dishwashing liquids and detergents, surface cleaners and air fresheners; and batteries. In fabric care, we generally have the number one or number two share position in the markets in which we compete and are the global market leader, with over 30% of the global market share. Our global home care market share is over 15% across the categories in which we compete. In batteries, we compete primarily behind the Duracell brand and have over 25% of the global general purpose battery market share.
Baby Care and Family Care: In baby care, we compete primarily in diapers, training pants and baby wipes, with approximately 35% of the global market share. We are the number one or number two baby care competitor in most of the key markets in which we compete, primarily behind Pampers, the Company’s largest brand, with annual net sales of approximately $8 billion. Our family care business is predominantly a North American business comprised primarily of the Bounty paper towel and Charmin toilet tissue brands, with U.S. market shares of over 45% and 25%, respectively.
Fiscal year 2010 changes to Global Business Unit structure
We recently announced a number of changes to our organization structure for the Beauty GBU, which resulted in changes to the components of its segment structure. Effective July 1, 2009, the Beauty GBU will become the Beauty and Grooming GBU and reportable segments under the GBU will move to a new consumer-oriented alignment. The reportable segment formally known as Beauty will become Female Beauty and the Grooming reportable segment will change to Male Grooming. As a result, Female blades and razors will transition from Male Grooming to Female Beauty. In addition, certain male-focused brands and businesses, such as Old Spice and Gillette personal care, will move from Female Beauty to Male Grooming.
These changes will be reflected in our segment reporting beginning in fiscal year 2010, at which time our historical segment reporting will also be restated to reflect the new structure. The GBU and segment discussions in the MD&A and accompanying Consolidated Financial Statements reflect the organizational structure that existed through June 30, 2009.
Global Operations is comprised of our Market Development Organization (MDO), which is responsible for developing go-to-market plans at the local level. The MDO includes dedicated retail customer, trade channel and country-specific teams. It is organized along five geographic units: North America, Western Europe, Central & Eastern Europe/Middle East/Africa (CEEMEA), Latin America and Asia, which is comprised of Japan, Greater China and ASEAN/Australia/India/Korea (AAIK). Throughout MD&A, we reference business results in developing markets, which we define as the aggregate of CEEMEA, Latin America, AAIK and Greater China, and developed markets, which are comprised of North America, Western Europe and Japan.
Global Business Services
GBS provides technology, processes and standard data tools to enable the GBUs and the MDO to better understand the business and better serve consumers and customers. The GBS organization is responsible for providing world-class solutions at a low cost and with minimal capital investment.
CF provides the Company-level strategy and portfolio analysis, corporate accounting, treasury, external relations, governance, human resources and legal, as well as other centralized functional support.
P&G is focused on strategies that we believe are right for the long-term health of the Company and will increase returns for our shareholders. The Company’s long-term financial targets are:
- Organic sales growth of 4% to 6%. This is comprised of:
- – 3% to 4% of market growth, plus
– 1% to 2% of share growth
- 0% to 1% of mix enhancement and whitespace expansion, plus
- 1% of growth acceleration behind revenue synergies associated with the Gillette acquisition.
- Operating margin expansion of 50 to 75 basis points.
- Diluted net earnings per share (EPS) growth of 10%.
- Free cash flow productivity of 90% or greater (defined as the ratio of operating cash flow less capital expenditures to net earnings).
- – Capital spending at or below 4% of net sales annually.
As a result of the recent global economic downturn, market growth rates have slowed and for 2010 are expected to be below the range that underpins our long-term financial growth targets. We are continuing to monitor market growth and may reassess our long-term targets in the future.
In order to achieve these targets, we will focus on three primary areas:
- Grow our leading, global brands and core categories. Our portfolio includes 23 brands that generate over $1 billion in annual sales and 20 brands that generate approximately $500 million or more in annual sales. Combined, these 43 brands account for 85% or more of our sales and profits. These brands are platforms for future innovations that will drive sales growth, expand categories for retail customers and differentiate brands in the minds of consumers. Our core categories, Baby Care, Blades and Razors, Fabric Care, Family Care, Feminine Care, Home Care, Oral Care, Prestige Fragrances, Retail Hair Care and Skin Care, have opportunities for continued growth. We will focus on profitable share growth across all of our businesses by leveraging our core strengths in innovation and brand-building.
- Build business with underserved and unserved consumers. We are increasing our presence in developing markets, where 86% of the world’s population lives. We will increase the amount of sales from these markets by focusing on affordability, accessibility and awareness of our brands. We are extending our distribution systems to reach more consumers through underserved retail channels such as e-commerce and high frequency stores. And, we are creating a broader and deeper product portfolio. Our initiative pipeline has new and improved products that extend and strengthen our category and brand portfolios vertically and horizontally.
- Continue to grow and develop faster-growing, structurally attractive businesses with global leadership potential. We are continually optimizing our portfolio of brands and businesses with an emphasis on opportunities in Beauty, Health Care and selective portfolio and geographic acquisitions in Household Care. We will also identify growth opportunities in services, particularly businesses that can be franchised and expanded rapidly.
To achieve our targets, we will also leverage core strengths that create competitive advantages and are critical to winning in the consumer products industry: consumer knowledge, innovation, brand-building, go-to-market capabilities and scale. We are placing particular emphasis on execution, simplification and scale as key improvement areas that will enable P&G to create the greatest value and competitive advantage. Finally, we are strengthening the depth, breadth and quality of leadership at all levels of the Company to make P&G a more demand-driven, real-time, future-focused organization.