A Year of Positive Growth Momentum
We are delighted that 2005 was a year of excellent growth momentum for Colgate. Global sales rose 7.5% to an all-time record level and global unit volume from continuing businesses grew 6.5% on top of the outstanding growth achieved in 2004. In fact, every operating division reported sales and profit increases for the year.
We are also encouraged by the 0.5% increase in global pricing that built during the year to 2.0% in the fourth quarter, the largest increase in 21 quarters. This is a good indication that our global focus on more efficient trade spending is beginning to show results.
Advertising spending supporting the Company’s brands rose 12% to an all-time record level on top of double-digit growth in 2004, leading to worldwide market share gains and strong volume increases.
Profits in 2005 include $145.1 million of aftertax charges associated with our previously disclosed 2004 Restructuring Program. This four-year restructuring and business-building program was undertaken to help ensure continued long-term solid worldwide growth in sales, unit volume and earnings per share. These charges were partially offset by the net aftertax impact of certain Other Items that increased profits $29.9 million.
We are very pleased that just one year into the 2004 Restructuring Program, we are generating strong gross profit margin increases, up 100 basis points in the fourth quarter, excluding restructuring charges, despite sharply rising energy-related costs worldwide.
The sale of Colgate’s North American and Southeast Asian detergent businesses during the year is consistent with our strategy of focusing on our higher margin, faster growing oral, personal and pet care businesses and should further the growth momentum of these businesses going forward.
Cash flow was also strong with operating cash flow reaching an all-time record level for the year. The Company’s strong cash generation and positive growth momentum led the Board of Directors to authorize a 21% increase in the quarterly dividend rate effective in the second quarter of 2005.
Overall, Colgate’s fundamentals are strong and getting stronger, with all key ratios moving in the right direction.
Colgate People Drive Our Business Success
The commitment of Colgate people to incorporate Colgate’s values into their work and lives is a major factor driving our business success worldwide. Our three global values of Caring, Global Teamwork and Continuous Improvement, along with a deep respect for people, shape our culture and give Colgate an important competitive advantage.
 As a global company with our sales balanced among four vast geographies, we benefit from a diverse management team representing all areas of the world. Working and living in a number of different countries and cultures broadens their backgrounds and improves their ability to work as one global team. Currently, we have more than 400 managers working outside their home countries to strengthen our business unit results while preparing for increasingly responsible management positions.
At the senior leadership level, we recognize the importance of global goal alignment. Last April, senior management and general managers from all subsidiaries met to establish key priorities and reaffirm proven business strategies. Out of this meeting came key strategies to accelerate Colgate’s global growth in the years ahead.
As we look to the future, we will build on the outstanding example of leadership provided by President Bill Shanahan, who retired in 2005 after 40 years with the Company. During his long, esteemed career at Colgate, Bill served in every division around the world. His many roles gave him an in-depth perspective on the Company’s operations, which he used in subsequent corporate leadership roles to establish consistent global processes and strategies focused on key performance measures.
Our Board of Directors and Colgate people everywhere join us in expressing heartfelt thanks to Bill for his expertise, insights and invaluable
contributions to our current and future success.
Driving Growth Worldwide
Colgate’s growth strategy includes an emphasis on innovation in everything we do, from new products to global distribution, from effective advertising and promotion to valuable partnerships with the dental, veterinary and scientific communities, suppliers and research firms.
This approach has led to continuous strengthening of brand leadership positions and market shares in key product categories. Colgate’s global
market share leadership in toothpaste expanded during the year to a record level. Our global market share in manual toothbrushes also rose during the year, reaching an all-time record.
To further encourage innovation in all areas of the organization, we have established a program that will fund innovative projects from any department or function. At the same time, we are increasingly working with outside experts to develop ideas for new products and processes.
Our new product pipeline is full with innovations that address diverse consumer needs using new ingredients and innovative packaging and design. Increased focus on consumer and shopper insights is identifying new consumer benefits, helping to anticipate future trends and expanding
our knowledge.
We are increasingly benefiting from understanding local consumer habits and preferences and developing products that address them such as Colgate Propolis toothpaste. Colgate Propolis toothpaste combines propolis, a natural ingredient collected by bees believed to have healing properties, with Colgate's oral care expertise.
We are also providing new stain removal, cleaning and protection benefits with products like the Colgate 360° manual toothbrush, designed with a unique tongue cleaner, and enamel-reinforcing Colgate Luminous toothpaste. For the many consumers participating in today’s fast-growing spa trend, Colgate offers the benefits of a spa-like experience at home with personal care products such as Palmolive Aroma Creme, infused with essential oils and moisturizing cream.
Increasing Brand-Building Activities
Introducing innovative new products is just one step toward achieving global leadership. Both new and established brands must be supported by effective brand-building activities. These include everything from sufficient investment in advertising to strong professional endorsements, from connecting with consumers in new ways to understanding what affects their purchase decisions.
In 2005, Colgate’s advertising spending was at a record high, up 12% versus the prior year, led by a double-digit increase in media. This is generating healthy volume and strong market share gains worldwide.
Strengthening our relationships with the dental and veterinary professions is key to Colgate’s strategy to drive increased trial and loyalty in our oral and pet care businesses. In addition to supporting a multitude of oral health care initiatives around the world, Colgate is applying the successful professional strategy of its GABA oral care business in Europe, which has built market-leading positions from close ties with dentists, pharmacies, dental schools and students. In Italy, for example, the GABA brand is recommended by dentists for cavity prevention three times more often than any other brand.
Reaching consumers effectively today means going beyond traditional mass media outlets. Colgate marketing and research people spend time with consumers in their homes to see how they use our products and in stores to see how they shop for them. Focusing on where and how consumers shop has led to placing television commercials in-store and enhancing packaging to allow consumers to touch and feel unique features of our products right at the shelf. |
