P&G Announces Plan to Restore Competitiveness and Growth

The Procter & Gamble Company today announced the next step in its plan to improve the company’s competitiveness and revitalize long-term growth. This new program is an expansion and acceleration of P&G’s existing Organization 2005 restructuring program, and is necessary to deliver the company’s long-term financial goals.

P&G said it will streamline its cost structure by further reducing overhead costs and by extending plans to reduce manufacturing costs. The company expects savings from this aspect of the program to be approximately $600-700 million after-tax annually by fiscal year 2003/04. These savings are incremental to the original Organization 2005 program.

The company will accomplish this by reducing its staffing by about 9,600 jobs worldwide, or 9% of P&G’s workforce. About 40% will be in the U.S. and about 60% outside the U.S. Two-thirds of the reductions will come from non-manufacturing roles across all levels in the company; one-third will come from manufacturing projects. Manufacturing reductions will include both plant closures and further consolidation of production modules. The company will also complete the remaining 7,800 separations that were part of the company’s Organization 2005 restructuring announced in 1999. Separations from the new program combined with remaining separations from the Organization 2005 program total 17,400.

“This program is right for the long-term health of our business and is the next step in our plan to restore long-term growth. It’s one element of a three-part growth plan to focus on big brands and big opportunities, consistently deliver superior consumer value, and create a more cost-competitive, productive organization,” said A.G. Lafley, president and chief executive of P&G.

“P&G people are the foundation of our success, and that makes this announcement very difficult. Wherever feasible, we will manage these reductions through normal attrition, reduced hiring and voluntary means that are consistent with our principles and values, and which keep our organization strong and competitive.”

The reduction in staff will begin immediately in the U.S. with a voluntary separation program open to all eligible U.S.-based, non-plant employees. Outside the U.S., work is still underway to define the impact and implementation plan on a country-by-country basis. The company anticipates some reductions will have to be made through involuntary separations, but it intends to minimize that number.

Although plans are not finalized, the company expects total costs of the program to be approximately $1.4 billion after-tax, with the bulk of those costs to be incurred in fiscal year 2001/02. The company expects incremental savings from this program to build to approximately $600-700 million after-tax annually by fiscal year 2003/04.

The company also is continuing to review its businesses and new investments with the goal of more tightly focusing on its core businesses. While no decisions have been reached, the company believes it could incur additional restructuring costs as a result of this strategic review. Based on the nature of the choices being explored, it is possible that additional costs, primarily non-cash, could be as much as $400 to $800 million after tax. The company is still finalizing plans and implementation timing, but expects a decision before the end of the fiscal year (June 30, 2001).

“The cost benefits of strengthened competitiveness and improved productivity are significant, but this is not just a cost-cutting program. No one ever cost-saves their way to sustainable growth,” said Mr. Lafley. “We will invest these savings in getting our consumer value and pricing right, continuing to invest in innovation on core businesses and the most promising new businesses, and continuing to provide strong marketing and sales support for our brands. All of these actions are necessary to deliver P&G’s long-term financial goals.”

“We are announcing this new program before plans are fully finalized because we now know enough to get started with the voluntary separation program in the U.S.,” Mr. Lafley said.