At the heart of P&G’s design for growth is our capability to innovate — broadly, reliably, and successfully, year after year, in every part of our business. We innovate across more categories and on more leading brands than any other consumer products company. We have a broader range of science and technology than any of our competitors. We invest more in innovation and marketing support than any other consumer products company. We deliver an unrelenting stream of innovation with systematic discipline. And P&G’s businesses are run by women and men who are not only globally experienced general managers but also highly skilled innovation leaders.

This helps P&G deliver consistent, reliable innovation and reliable, sustainable growth. Innovation drives growth.

We saw this in fiscal 2008, as P&G delivered another year of innovation-driven growth at or above the Company’s target levels for sales, earnings-per-share and cash generation.

Fiscal 2008 Results

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  Net sales increased 9%, to $83.5 billion. Organic sales increased 5%.
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  Diluted earnings per share increased 20%, to $3.64 per share.
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  Free cash flow from operating activities was $12.8 billion, or 106% of net earnings, well ahead of the 90% cash productivity target.

Fiscal 2008 was P&G’s seventh consecutive year of organic sales growth at or ahead of the long-term target range; brand and new product innovations, particularly in developing markets, accounted for virtually all this sales growth. Over the same period, diluted earnings per share have grown at a compound average growth rate of 13%⁽¹⁾, well ahead of our long-term target. We’ve generated more than $60 billion in free cash flow since the beginning of the decade. Most importantly, we’ve delivered consistently strong total shareholder return over the past ten-, five-, three- and one-year periods, above the Dow Jones Industrial Average.

P&G’s sales growth in fiscal 2008 came from a diverse mix of businesses and was driven primarily by innovation.

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  Baby and Family Care organic sales increased 8%. Charmin delivered double-digit organic volume growth behind the introduction of Charmin UltraStrong and a complete restage of the brand line-up. Pampers delivered double-digit volume growth — and became P&G’s first $8 billion brand — behind the continued strength of Pampers Baby Stages of Development. Bounty introduced Bounty Extra Soft and upgraded Bounty Basic.
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  Fabric and Home Care grew organic sales 6%, driven by liquid laundry detergent compaction — a disruptive innovation rolled out across the entire North America laundry portfolio — along with strong product innovation on Tide, Gain, Ariel, Downy, and Febreze.
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  Beauty organic sales increased 4%, behind the continuing success of Olay Definity and Regenerist product innovation, new product and package innovation on Head & Shoulders, and a revolutionary new home hair-colorant called Perfect 10 on Nice ’n Easy.
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  Grooming grew organic sales 4%, led by more than 40% top-line growth on the superior Fusion male shaving system. Fusion became P&G’s 24th billion-dollar brand.
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  Health Care organic sales grew 3%, driven by strong innovation across the Health Care business: Crest Pro-Health Night Paste and Rinse, Oral-B Cross-Action Pro-Health Brush, Always Clean and Always Fresh, and comfort upgrades on the Naturella brand.
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  Snacks, Coffee and Pet Care organic sales increased 4%, led by the launch of Dunkin Donuts^® retail coffee, a number of Pringles initiatives — including Rice Infusion, Extreme Flavors and Pringles Stix — and Iams Proactive Health for dogs and Healthy Naturals for cats.

Growth was broad-based across all geographic regions, with mid-single-digit sales growth in developed markets and double-digit sales growth in developing markets.

We successfully completed the integration of Gillette, exceeding cost synergy and dilution targets. Revenue synergies are on target, with significant upside potential over the next three to five years. We’ve just begun to leverage the Gillette and Oral-B brands, both strong platforms for innovation.

On June 4, 2008, we announced our agreement to merge P&G’s coffee business with The J.M. Smucker Company. The agreement maximizes the after-tax value of the coffee business for P&G shareholders and minimizes earnings-per-share dilution versus other alternatives. We expect to complete the transaction during the second quarter of fiscal 2009.

1. 2001 EPS excludes $0.61 per share of costs from the Organization 2005 restructuring program and amortization of goodwill and indefinite-lived intangible assets.

Note: An explanation and reconciliation of free cash flow and organic sales for 2008 is provided in Other Information.