Proctor and Gamble 2008 Annual Report Download - page 45

Management’sDiscussionandAnalysis TheProcter&GambleCompany 43
Netsalesincreased12%in2007to$76.5billion.Saleswereupbehind
9%unitvolumegrowth,includingtheimpactofanextrathreemonths
ofGilletteresultsin2007.Organicvolumeincreased5%.Developing
regionscontinuedtoleadthegrowthwithdouble-digitincreasesfor
theyear.Allreportablesegmentsincreasedorganicvolumeforthe
yearexcepttheSnacks,CoffeeandPetCaresegment.Higherpricing,
primarilyincoffeeandHealthCare,contributed1%tosalesgrowth.
Productmixhadnonetimpactonsalesasamorepremiumproduct
mixdrivenbytheadditionalthreemonthsofGilletteresultsin2007
wasoffsetbythenegativemiximpactofdisproportionategrowthin
developingmarkets,wheretheaverageunitsalespriceislowerthan
theCompanyaverage.Favorableforeignexchangecontributed2%to
netsalesgrowth.Organicsalesincreased5%versus2006witheach
reportablesegmentpostingyear-on-yeargrowth.
68.2

76.5
06

07

(inbillionsofdollars)
26%

27%
06

07

(%ofnetsales)

Grossmarginwasdown70basispointsin2008to51.3%ofnetsales.
Commodityandenergycostincreaseshadanegativeimpactongross
marginofabout200basispoints.Thesewerelargelyoffsetbythe
benetsofscaleleveragefromvolumegrowthandcostsavingsprojects
resultingfrommanufacturingefciencyimprovementsandproduct
reformulations.
Grossmarginwas52.0%in2007,anincreaseof60basispointsversus
theprioryear.Highercommodityandenergycostshadanegative
impactofapproximately60basispointsongrossmargin.Thesewere
morethanoffsetbyscaleleveragefromorganicvolumegrowth,higher
pricingandcostsavingsprojects.Theadditionalthreemonthsofthe
Gillettebusinessin2007,whichhasahighergrossmarginthanthebase
P&Gbusiness,droveadditionalgrossmarginimprovementofapproxi-
mately30basispoints.
51.4%

52.0%
06

07

(%ofnetsales)
Totalselling,generalandadministrativeexpenses(SG&A)increased6%
to$25.7billionin2008.Theincreasewasdrivenbyhigheroverhead
andmarketingspendingtosupportbusinessgrowth.SG&Aasa
percentageofnetsaleswasdown100basispoints.Overheadspending
wasdownasapercentageofnetsalesforthetotalCompanyandfor
eachreportablesegmentprimarilyduetovolumescaleleverage,a
focusonoverheadproductivityandincrementalsynergysavingsfrom
theGilletteacquisition.Marketingspendingasapercentageofnet
saleswasinlinewithpreviousyearlevels.
SG&Ain2007increased11%,or$2.5billion,to$24.3billion.SG&A
increasedprimarilyduetotheadditionalthreemonthsofGillettein
2007andtosupportbusinessgrowth,partiallyoffsetbyoverhead
andmediapurchasingsynergiesfromtheGilletteintegration.The
additionalthreemonthsofGillettein2007accountedforapproximately
$1.1billionoftheincrease,includingapproximately$160millionof
incrementalacquisition-relatedexpenses.Theincrementalacquisition-
relatedexpenseswerecomprisedofthreeadditionalmonthsof
intangibleassetamortizationresultingfromrevaluingintangibleassets
intheopeningbalancesheetoftheacquiredGillettebusiness,coststo
restructurethebusinesspost-acquisitionandotherintegration-related
expenses.SG&Aasapercentageofnetsaleswas31.8%in2007,
animprovementof20basispointsversus2006.Overheadexpenses
asapercentageofnetsalesweredownduetovolumescaleleverage,
overheadcostcontrolandsynergiesfromtheGilletteintegration.
Marketingspendingasapercentageofnetsalesin2007wasroughly
inlinewithprioryearlevelsdespitemediapurchasingsynergiesgener-
atedbytheGilletteacquisitionandacontinuedfocusonmarketing
return-on-investment(ROI)programs.
32.0%

31.8%
06

07

(%ofnetsales)
        BasisPoint  BasisPoint
Comparisonsasapercentageofnetsales;YearsendedJune30     Change 2007 Change 2006
Grossmargin       (70) 52.0% 60 51.4%
Selling,generalandadministrative      (100) 31.8% (20) 32.0%
Operatingmargin       30 20.2% 80 19.4%
Earningsbeforeincometaxes       10 19.2% 100 18.2%
Netearnings       100 13.5% 80 12.7%