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Dear Fellow Shareholder:
Fiscal 2007 was a year of excellent progress and strong shareholder
returns for the H.J. Heinz Company with virtually every global business
unit contributing to our success.
I believe this is a superb time to be a Heinz shareholder. As we
embark on Fiscal 2008, our brands are healthy and growing, our
people are motivated and engaged, and our global innovation
pipeline is full of consumer-validated new products.
Heinz is well-positioned for consistent growth in sales and profits as
we continue to develop innovative, healthy, great tasting, and
convenient foods across our core categories and geographies
where we have leading brands and strong infrastructure.
Exceeding Our Targets
Last year I shared with you our two-year Superior Value and Growth Plan. I am pleased to report that through the first year of our Plan, we have met or exceeded virtually all of our key financial and operational targets.
During Fiscal 2007, the North America Consumer Products and the Australia and New Zealand businesses sustained their healthy momentum; Heinz Europe returned to profitable growth; and our businesses in emerging markets
continued to grow sales and profit
at double-digit rates, driven by a flurry
of new products, packaging improvements,
and expanded distribution.
We also made great progress in productivity during Fiscal
2007, which helped to offset more than $180 million in
commodity-related cost inflation. The global food industry
is experiencing significant increases in commodity costs as
a result of increased demand for raw materials and the
spike in oil prices. We are working diligently to overcome
this pressure while preserving the unique consumer value
propositions offered by Heinz products.
During Fiscal 2007, we reinvested heavily in our brands,
with a nearly $65 million increase in consumer marketing
and a 19% increase in research and development. We
expect marketing investment to increase by approximately
$100 million – or about 40% – over the two years through
Fiscal 2008 to support our great brands and new
product launches.
Heinz also continues to be a very effective cash generator,
with $878 million in operating free cash flow (cash from
operations, less capital expenditures, plus proceeds from
disposals of property, plant and equipment) in Fiscal 2007.
 Heinz has had a long history of returning cash to shareholders.
On May 30, 2007, the Board of Directors voted to
increase the dividend by 8.6% to an annual rate of $1.52
per share. With this increase the Heinz dividend has
increased by approximately 27% since the beginning of
Fiscal 2007. We also made net repurchases of $501 million
worth of Heinz shares in Fiscal 2007, and we anticipate an
additional $500 million of net repurchases in Fiscal 2008.
The Company enters Fiscal 2008 with significant momentum,
and we are confident that we will complete year two of
the Superior Value and Growth Plan on or ahead of our
key targets.
Making Health & Wellness an Advantage
From the very beginning, Heinz has been “The Pure Foods
Company,” selling natural, healthy foods. Ever since Henry
Heinz began selling the excess produce from his mother’s
garden, superior taste, quality, and nutrition have been
Heinz hallmarks.
The trust that consumers have invested in the Heinz brand
is undoubtedly our greatest global asset, and we have
worked to build that same level of consumer trust in our
other leading brands.
The majority of Heinz’s brand portfolio is based on healthy
ingredients, like nutrient-rich tomatoes, potatoes, and
beans. We are, in fact, the world’s largest producer of
lycopene-rich tomato products.
The Company possesses unparalleled tomato knowledge,
including the capability of tracing 90% of the tomatoes
we utilize back to the fields in which they were grown.
Our unmatched tomato expertise resides in the Heinz
Seed Company in Stockton, California, which maintains
the world’s largest commercial database of conventionallybred
hybrid tomato seeds for processing. Our experts are
developing new varieties that are sweeter, naturally pest
resistant, and which can thrive in the world’s different
climates and soils.
Additionally, a significant component of the Heinz brand
portfolio in North America, the U.K., Continental Europe,
Australia, and New Zealand is in healthy, reduced-calorie
meals, soups, and desserts under the Weight Watchers®
Smart Ones® and Weight Watchers® from Heinz® brands.
As we respond to increased consumer desire for a
healthier lifestyle, we have launched reduced salt, sugar,
and fat varieties of many of our leading products, including
Heinz® Tomato Ketchup and Heinz® Baked Beans in the
U.K., Canada, Australia, and New Zealand. We have also
introduced organic varieties of our infant foods, Classico®
sauces, Heinz ketchup, and both Heinz Beans and
Heinz® Cream of Tomato soup in the U.K. Significantly,
we expect our Ore-Ida® brand to be totally trans fat-free
in Fiscal 2008.
To accelerate our progress in Fiscal 2008, and ensure
that health and wellness continues to be a major growth
platform for Heinz, I recently appointed Dave Moran,
President and CEO of Heinz North America, to lead a
Heinz Global Health & Wellness Task Force.
Leveraging Global Capabilities
Our healthy momentum also reflects our focus on sharing
the best new product and business ideas across our
global business units.
While our leaders run their businesses according to local
consumer tastes and conditions, we are equipping our
people with common processes and systems to foster
innovation and drive continuous productivity improvement.
Our rollout of SAP enterprise resource planning
software continued in Fiscal 2007 with a very successful
introduction in the U.K. We are implementing common
processes on SAP in our European Frozen and Polish
businesses in Fiscal 2008, and will continue to introduce
SAP across the globe at an accelerated rate.
With the goal of building best-in-class capabilities
in purchasing, manufacturing, and logistics, we
have established a Heinz Global Supply Chain
Task Force led by Scott O’Hara, President and
CEO of Heinz Europe.
This initiative is designed to capture further savings
from our six billion dollar global supply chain,
further improve capital efficiency, enhance our customer service and continuous improvement
culture, and leverage our supply chain for product
and packaging innovation. This task force will
benchmark best practices, both inside and outside
of Heinz, and implement common measurements
and processes throughout the business.
Recognizing the increased trend toward globalization
in the food industry, we recently established
a third task force on global customers under
the direction of Chris Warmoth, Senior Vice
President of Heinz Asia. This group will work to
ensure that we are meeting our customers’ needs
in both existing and new markets where Heinz has
an already-established presence.
We are several years ahead of our U.S.-based
peer group in many emerging markets and will
continue to build on our first-mover advantage.
Our RICIP markets (Russia, India, China, Indonesia,
and Poland), along with Latin America, delivered
about 10% of our sales, and 30% of our sales
growth in Fiscal 2007. These markets, with expanding
consumer classes, are a bridge to the future
and are a unique strategic strength for Heinz.
Delivering Results in Fiscal 2008 and Beyond
I am pleased to report that your Board of
Directors is working together productively and
collaboratively and was fully engaged in the
oversight of our achievements in Fiscal 2007.
The Board has set challenging goals for Fiscal
2008 and will hold management accountable
for delivering results.
None of the good things happening at today’s
Heinz would be possible without the more than
33,000 dedicated Heinz employees around the
world, a sampling of whom are highlighted in the
following pages. I would stack our people against
anybody in the food industry. We are providing
them with new opportunities to grow and expand
their leadership capabilities, while continuing to
attract superior new talent.
As this company’s owners, you can rest assured
that talent is considered a competitive advantage
at Heinz and that we are all fully committed
to sustaining our healthy sales and profit momentum
in Fiscal 2008 and beyond. Thank you for your
continued support.
William R. Johnson
Chairman, President and
Chief Executive Officer
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