Actions to Position Us for Growth
Over the last few years, we have taken bold steps to position our business for ongoing long-term growth.
We have continued to improve significantly our business processes through B2K, a global initiative that makes effective use of state-of-the-art information technology. B2K began in the United States in 2002, and Europe will implement it during 2006.
We became fully focused on what we do best - providing flavor that makes food taste great. That focus included acquiring Zatarain's, Silvo and Uniqsauces, and selling our packaging business and our U.K. brokerage operation.
We transitioned our Board to a majority of independent directors, while also developing an outstanding leadership team.
Our restructuring plan announced in 2005 will continue to position us for growth on this journey:
- Improving our supply chain and lowering costs.
- Optimizing our industrial business.
- Further developing and strengthening our leadership team.
Improving our supply chain will include the consolidation of global manufacturing, rationalization of distribution facilities, making the way we go-to-market more efficient and eliminating administrative redundancies. These are significant steps for McCormick that will improve margins for both our consumer and industrial businesses.
Optimizing our industrial business means focusing our resources on those customers and products that offer good margins and the highest growth prospects. Following an in-depth review of our industrial business in 2005, we will reduce the number of customers and products we supply by approximately 25% during the next three years. While this will adversely impact industrial sales by 2-5% during this period, we expect minimal impact on profits. Because we are eliminating lower margin business and reducing or redeploying our resources that support these customers, we are projecting increased margins for the industrial business.
Over the next three years, the charges associated with the supply chain actions and optimization of our industrial business are expected to be $130-$150 million. By 2008, these steps should lower our annual costs approximately $50 million.
Further developing and strengthening our leadership team will help guide our growth. Organizational changes were made to reflect our worldwide growth and the evolution of our customer base. These changes will enable us to take advantage of our regional capabilities while maintaining coordination with our global customers. Bob Davey, who has contributed to our success for nearly 30 years, is retiring from the Company and our Board. Also retiring from McCormick's Board is Ned Dunn, who has served as a director and important member of our Compensation Committee since 1998. John Bilbrey, Senior Vice President of The Hershey Company and President of Hershey International, has joined our Board.
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