|
Dear Colgate Shareholder
Strong Global Growth
Increased Gross Profit Margin and Earnings Per Share
|
|
Reuben Mark:
"By making the Company's global values an integral part of our culture, Colgate people are achieving Colgate's outstanding success. We in senior management understand that we must provide the leadership, development and training that further strengthens our values and assures continuing strong performance."
|
 |
|
Bill Shanahan:
"Global teamwork and sharing best practices around the world play a critical role in Colgate's new product success. We are advancing our new products to market and accelerating them around the world using new collaborative techniques that foster continuous improvement and even greater success." |
For Colgate, 2002 was an outstanding year, with all-time record sales and profitability. Our strong results demonstrate once again the merits of our global growth strategies, supported by a powerful yet simple financial approach. We firmly believe that the commitment of our people to living Colgate's values of Caring, Global Teamwork and Continuous Improvement around the world is tightly linked to our continued success year after year.
Colgate made significant progress in 2002, reflected in both our strong top- and bottom-line growth. Successful new products drove market share gains and a worldwide unit volume increase of 4.5% in 2002. These gains came from all parts of the Colgate world, across all divisions and all lines of business. Dollar sales also increased 2.5% to a new record high of $9.3 billion.
Gross profit margin, operating profit, net income, earnings per share and return on capital all set new records in 2002. These results illustrate the power of our proven financial strategy. It is a cycle of success designed to drive gross margin up and reduce costs in order to fund growth initiatives including new product development and increases in marketing spending, which, in turn, generate greater profitability. Gross profit margin improved by 120 basis points to 54.6% compared with 2001. Net income rose 12% in 2002 to a record $1,288.3 million, and earnings per share grew 16% to $2.19 vs. $1.89 for full year 2001.
As we continue to face uncertainties in various regional economies, we are pleased with the strength of the Colgate balance sheet, a key indicator of our ability to fund future growth as well as directly reward our shareholders through dividend increases and stock repurchases. Our cash generation was strong, aftertax return on capital improved 490 basis points to 34.6%, and we achieved further reductions in our already low level of working capital. Every important financial ratio improved during 2002.
Our corporate culture, shaped by our values, is built on respect for people and gives Colgate an important competitive advantage. The financial results just reviewed are simply ways of measuring the strategic soundness and quality of execution that Colgate employees exhibit every day, consistent with our core values and principles. There is increasing recognition today that corporate culture has a major impact on business performance. Proud to uphold Colgate's reputation as a company with the highest ethical standards, Colgate people around the world adhere to a global Code of Conduct that guides us in managing with respect and living our values of Caring, Global Teamwork and Continuous Improvement around the world. Our Code of Conduct is a set of principles that guides our relationships with one another, our business partners, consumers, shareholders and the communities in which we live and work.
To further a climate of mutual respect and trust, we place high priority on communication tools to keep people connected, and on training to build the skills they need to function at their highest potential and advance their careers. All of our 37,700 people attend multiple training programs in our 100-plus class curriculum, including courses that emphasize business integrity, relationships and teamwork. We foster ongoing communication through formal and informal meetings, organized networks of people with common objectives, video reports and our internal intranet.
Because "Becoming the Best Place to Work" is vital to attracting and retaining the best people, we are committed to making this goal an ongoing reality. Through a formal initiative headed by senior company executives, we strive to make Colgate a more exciting place to work, to always recognize and reward contributions, to offer a motivating environment and to create stimulating careers.
Integrity permeates all aspects of our Company. Notably, this year our Board of Directors has again been recognized by respected publications as one of the best boards in America because of its diverse composition, breadth of experience, independence and dedication to fulfilling its corporate governance responsibilities.
 Superior process and outstanding execution go hand in hand with culture to produce consistent global volume increases. Extreme focus on our disciplined global processes generates steady continuous improvement rather than one-time "needle-moving" events. Accordingly, a specific global strategy and execution plan exists for every line on the income statement and balance sheet, helping to drive Colgate's strong, high-quality results.
Clear goal setting and the establishment and worldwide dissemination of global best practices are essential elements of our disciplined approach. Guidelines cover every aspect of our business, from managing working capital to launching new products to successfully dealing with economic slowdown. For example, when the economies of Argentina and Venezuela weakened in 2002, Colgate people were prepared with proven guidelines on how to manage through the crises, and Colgate has emerged with even stronger market shares than before in both countries.
 The concept of "360-degree" marketing, which involves surrounding the consumer with brand messages in new ways, was implemented in a few countries and has been so successful that it is now a Colgate global best practice incorporated in all of our major marketing programs worldwide. Another organizational concept giving Colgate a competitive edge is the formation of cross-functional "go-to-market" teams for every major product launch. First developed in Europe, these teams are being established globally to get new products to consumers faster and more effectively than ever before.
Following proven practices and executing them better and better sets Colgate apart and leads to steady, dependable growth year after year.
 A constant stream of innovative new products continues to build market share in core categories and fuel our growth. In 2002, 40% of Colgate's sales came from new products introduced in the past five years. By maintaining a tight focus on our core categories, Colgate continues to achieve market leadership in many of the most important segments in which we compete, including toothpaste, hand dishwashing liquid, liquid hand soap, liquid cleaners and specialty pet foods. For example, the speed-to-market, quality of execution and great advertising for Palmolive Aromatherapy shower gels drove Colgate to the Number One brand position in this category across Europe for the first time. In categories where we already are Number One, our leadership is strengthened by innovative new products like Hill's Science Diet Nature's Best, a new line of premium dog and cat food made with natural ingredients.
Effective marketing programs are essential to introduce new products and build leadership brands worldwide. Colgate continues to invest in these important activities, and last year spending increased worldwide, both absolutely and as a percentage of sales.
 To continue the flow of innovation, Colgate has opened additional Category Innovation Centers in Asia and Australia, and has linked them to those already in place in the U.S., Europe and Latin America through collaborative teams that develop global strategies for each product category.
As we look ahead, our ongoing momentum, exciting new products, proven growth strategies, and additional benefits from savings and productivity projects all point to our continued strong progress in 2003. We continue to focus resources behind our high-priority, most profitable categories-Oral Care, Personal Care and Pet Nutrition-and are extremely optimistic about the many innovative new products in the pipeline for launch in 2003. Benefits from investing in information technology and in the regionalization of manufacturing have been only partially realized. We have completed the worldwide implementation of the base application of SAP, our enterprise-wide software. We have received significant benefits from this base to date, and there are substantial additional savings ahead. We have just started to roll out the next generation of SAP applications globally for information analysis, supply chain optimization and supplier collaborations. We are only at the beginning of those savings, with much more to come.
We continue to gain efficiencies from regionalization of manufacturing, most recently with a new toothpaste plant in Thailand servicing Southeast Asia, and a toothbrush plant in Yangzhou, China servicing the world.
The ongoing success of our growth strategies and cost-savings programs keeps us on track to achieve our long-term gross profit margin goal of 61% by 2008. They provide the financial resources to invest in our new products and continue to provide increasing returns to shareholders. We look forward to another good year of profitable growth to add to our long history of continuous improvement and strong performance.
Thank you.
|
Reuben Mark
Chairman and
Chief Executive Officer
|
|
William S. Shanahan
President |
|
Highlights