We are committed to making food taste great. Around the globe, home cooks and professional chefs alike turn to McCormick for flavor and culinary inspiration. We have substantial and sustained investment in the science and art of flavor.
In November 2012, your Board approved a 10% increase in the quarterly dividend. This is the 27th consecutive annual increase, and we are proud to be one of approximately 60 companies in the S&P 500 with more than 25 years of uninterrupted dividend increases.
Our strategy for growth has proven effective even during periods of turmoil in the economy, financial markets and material costs. We are driving sales and profit by investing in our business and fueling this investment from CCI savings. On a ten-year compound annual rate, this strategy has enabled us to grow sales 7%, earnings per share 9% and cash from operations 10%.
A strong increase in sales is a key element driving these results, and we are making great progress with our growth initiatives around the world. Today’s eating trends favor our business, as consumers discover how to prepare restaurant-style meals at home, explore authentic ethnic cuisines and seek products that offer convenience and promote wellness. Our portfolio of products has broad appeal; we offer a complete range—from value priced items to premium gourmet products.
In 2012, we defined three global growth platforms for our consumer business: 1) herbs, spices and seasonings; 2) recipe mixes; and 3) regional leaders—brands like Zatarain’s in North America, condiments in Latin America, or dessert gelatin in Australia. We are driving awareness, trial and use of our products through brand marketing and have increased this investment in each of the past 10 years. We invested a record $198 million in 2012 brand marketing support.
We are not only increasing our brand marketing, we are increasingly adapting our marketing to today’s consumer. Many consumers now spend more time on the internet than watching television. In response, our digital marketing rose to 12% of total brand marketing support in 2012 compared to just 4% in 2010. Initiatives like interactive and digital shopper marketing yield exceptional returns on investment, and our plans call for digital marketing to increase more than 20% in 2013. In Europe, we are further improving the effectiveness of our brand marketing by establishing a masterbrand architecture, redesigning our brand logos for a more uniform look while maintaining the distinct brands that are consumer favorites in the U.K., France and other countries.
We are also getting closer to our customers, many of whom are leaders in their industry, via our drive toward “customer intimacy.” In our consumer business, we supply our brands as well as private label products and provide tools to help food retailers optimize the product assortment and merchandising in a very profitable category. These capabilities apply not only to grocery customers, but in alternative channels such as warehouse clubs, drug stores and other retail formats where we have achieved new distribution. In our industrial business, customer intimacy is equally important. We supply eight of the top ten restaurant chains and nine of the top ten food companies, providing flavors for iconic menu items and for a number of leading products throughout the grocery store. As these leading industrial customers expand globally, we are supporting this growth regionally from our facilities around the world.
In 2012 we developed a new Technical Innovation Center in China, launched a new CreateIT® and sensory center in Mexico, and completed significant renovations of our flavor labs in the U.S. and U.K.
In Europe, we are leveraging our local strengths in a new pan-European design that improves our impact at retail, while driving economies of scale and speed to market.
We are accelerating our innovation and have set a goal for new products launched in the past three years to exceed 10% of sales by 2015. This compares to a range of 8% to 10% since 2007.
In our consumer business, this stepped up activity is already underway with the launch of approximately 200 new products in 2011, followed by approximately 250 in 2012. Our global strategy team has identified local product successes that have global appeal such as Recipe Inspirations®, gourmet recipe mixes and grinders, as well as grilling marinades and seasoning blends. We are also innovating to drive sales of our regional leaders. Frozen Zatarain’s® items, launched in 2011 and expanded in 2012, now account for nearly 25% of this brand’s sales. In France, we expanded our Ducros® brand of spices, herbs and seasonings with 31 new items. Our line of authentic recipe mixes helped grow our 2012 sales of Hispanic products in the U.S. to nearly $110 million.
Our industrial business has achieved new product results in line with our higher goal, and we have a robust pipeline of innovation. Increasingly, industrial customers are turning to McCormick, with our foundation in spices and herbs and proprietary development processes, to improve the health profile of their products by using natural ingredients. As evidence of this, more than 30% of our 2012 new product briefs for industrial customers had some healthy attribute.
We are achieving about one third of our sales growth from acquisitions. We have established an enviable track record of acquiring profitable businesses in both developed and emerging markets. This success is based on our diligent assessment process, disciplined financial criteria, thorough integration planning and clear leadership responsibility. During 2012, we effectively integrated three acquisitions completed in 2011.
Through our consumer websites and communications, employee wellness programs and public education events, we are promoting healthy nutrition and lifestyles.
We offer hundreds of salt-free and reduced sodium items. Our great-tasting, lower-sodium versions of Lawry’s® seasoning mixes are now part of the U.S. school lunch program, as these products meet the new dietary requirements set by the U.S. Department of Agriculture.
Also in 2012, we announced an agreement to acquire Wuhan Asia Pacific Condiment, which is a leader of bouillon products in the central region of China. This acquisition is complementary to the products we currently sell in China and our strong presence in the coastal regions of the country. Once completed, we expect this acquisition to increase our sales in China by more than 60%. We have a solid pipeline of other acquisition opportunities, many of which are located in emerging markets that offer strong growth opportunities.
While McCormick has a long history of success, we recognize the need to remain agile and anticipate the needs of our customers and consumers. As described earlier in this letter, we are adapting our products, geographic footprint and organization to address the needs of our leading customers and more globally connected consumers. In the realm of flavor, our thought-leadership is evident in our Flavor Forecast®, which predicts areas of increased consumer interest—the connection of food and health, for example, or the pairing of global ingredients in new ways. Another example of forward thinking is the increased alignment between our sustainability strategy and our business objectives. Our work now centers on four priorities:
From 2005 to 2009, we reduced water usage, electricity, solid waste and greenhouse gas emissions from 17% to 26% on a per unit basis. By 2015 we expect to achieve further reductions of at least 5%.
I want to recognize the efforts of McCormick employees, who are the key ingredient in our success. Employees in locations around the world are united by a passion for flavor and driving our results. We are proud of our Multiple Management philosophy, established in 1932, which is the foundation of our culture. Our 13 local Multiple Management Boards, three regional Boards and global Board are the embodiment of this philosophy and demonstrate our spirit of inclusion. McCormick’s global high performance organization further leverages the power of our people by recognizing the importance of teamwork and increased employee engagement and empowerment.
McCormick’s Board of Directors and leadership team are directing our strategy and setting our course for growth. Retiring from our Board is Jim Brady, who has served as a director since 1998 and chaired our Audit Committee since 1999. We sincerely appreciate his contributions and service.
In 2012, we were pleased to have Jacques Tapiero, Senior Vice President and President, Emerging Markets for Eli Lilly and Company, join our Board of Directors.
Thanks to each of our shareholders for your support and trust. We appreciate your confidence in our continued ability to grow the value of your investment in McCormick.
McCormick is partnering with the Help MADA organization in a vanilla growing area of Madagascar. The program provides free rice to families with children who attend school. We also funded the construction of a local medical clinic and the replanting of de-forested areas.
A C.P. McCormick award is one way that we recognize the accomplishments of employees throughout the organization.
