As I reflect on fiscal 2005, two developments stand out. First, we significantly improved our ability to grow our business over the long-term. We enhanced our already strong portfolio of brands with increased marketing support and investment in product innovation, both key sources of competitive advantage in our sector. Second, we experienced a changed business environment, driven by an unusually rapid rise in some of our basic costs—steel, energy, logistics and transportation—which affected our bottom line. This inflationary environment put pressure on most consumer packaged goods companies. It also demonstrated the strength of Del Monte Foods. In particular, our brand equity allowed us to take pricing actions across our portfolio to help offset the impact of rising costs. We also continued to generate strong cash flow, which we used to fund our fiscal 2006 stock repurchase, pay down debt and invest in the future.

Our ability to address these cost issues and continue to build for the future has strengthened our conviction that the future of Del Monte Foods is bright. First and foremost, the people of Del Monte Foods are successfully addressing the challenges we face. Throughout the year, we have continued to build the quality of our organization at virtually every level, developing the skills and capabilities required to take advantage of our many opportunities. In addition, we refined our strategic direction to further ensure we are well-positioned to take advantage of several “macro” trends that are changing the way American families and their pets eat. We addressed these trends in the opening pages of this report.

A renewed emphasis on health and wellness—as evidenced in part by the new Dietary Guidelines for Americans announced earlier this year—is fueling demand for healthy foods, including nutritious fruits and vegetables, our stock in trade for more than a century. The desire to eat well has also generated consumer interest in lean sources of protein, and our StarKist tuna products offer a convenient, flavorful way to incorporate a healthy protein into meals. Busy schedules and active lifestyles make convenience in terms of food preparation and portability even more important, and product innovations from Del Monte Foods make it easier than ever for consumers to prepare healthy, delicious meals quickly—and to take great-tasting foods and snacks with them. Moreover, pets are playing an ever more integral part in the lives of families. The number of pets in American households is growing, along with the amount owners spend on them, and our extensive line of pet foods and snacks benefits from these trends.
Three Key Assets

Each of these dynamics meshes well with the proven strengths of Del Monte Foods: our well-known and trusted brands, our ability to create innovative products and our strong presence across the U.S. market in the “center store,” a pivotal location for American food retailing. These assets represent the foundation of Del Monte Foods. Each of them contributed to our progress in 2005, and each will play a vital role in our future.

Brand Strength: The strength of our portfolio of brands is an obvious factor in our success. Many of our brands are American icons: Del Monte fruits, vegetables and tomatoes; StarKist tuna; and Kibbles ’n Bits, 9Lives and Pup-Peroni pet foods and snacks. Some 80% of our revenues come from branded products, approximately 65% of sales are derived from brands that are #1 in their markets, and our products can be found in nine out of ten American households. Powerful brands resonate with consumers, which can generate the kind of pricing power that was critically important in an environment like 2005. In addition, powerful brands and strong merchandising can drive consumers to the center store of retailers.

Product Innovation: Brands also enable us to introduce new product innovations, an aspect of our business where we have been particularly successful. In fact, approximately 17% of our net sales in 2005 came from products that did not exist before fiscal 2000. We focus our innovation efforts on three key consumer needs: health, taste and convenience. Our Carb Clever fruit products, for example, are lower in sugar than many packaged fruits, making them attractive to families looking for healthy snacks for their children and to low-carb dieters. Our pet products, such as Kibbles ’n Bits Homestyle and Meaty Bone Chew-lotta snacks, are tasty and nutritious; both did well during the year. Convenience is paramount for today’s busy lifestyles, as the success of our StarKist line of tuna pouch products demonstrates. We recently began shipping our newest tuna product, StarKist Tuna Fillets.

Our ability to innovate is the result of our investment in research and development as well as our strong marketing capability, which helps us define profitable opportunities and then successfully introduce products that address them. We are hard at work, for example, on new products we believe offer tremendous opportunities in a health- and quality-conscious market. In fiscal 2006, we will introduce Del Monte organic tomatoes as well as Del Monte Garden Select tomatoes, a premium product that is packaged in glass and more convenient to use than fresh tomatoes.

Center Store Strength: We have a solid presence in every major retail channel in the United States, including the major grocery chains, warehouse and mass merchandisers and pet specialty stores. Center store strength is a key element of our “Go-to-Market Platform,” which refers to the relationships and distribution capabilities necessary to get both existing and new products into all channels and in front of consumers. Our relationships with our retail customers are based on great brands and products, great service and great initiatives designed to make everyone successful. For example, in fiscal 2005, we launched a major merchandising effort for the second year in a row: “Big Night In,” which celebrates the entire family (including pets) and encourages them to enjoy a healthy dinner together at home. “Big Night In” features in-store displays and promotional activities designed to showcase our food and pet product brands and drive consumer traffic to the center store. It’s a great example of how our brands resonate with American families and how we work with our customers to help them connect with consumers. Also in fiscal 2005, we enhanced our ability to serve retail customers by improving our supply chain and operational capabilities and continuing our strong emphasis on customer service. Service levels (the combination of product availability and on-time delivery) reached outstanding levels during the year.
Five Key Imperatives

Our conviction in the power and importance of brands has been a constant at Del Monte Foods, and we believe our biggest opportunity going forward is to grow our branded business in the U.S. retail market. In June 2005, we announced “Project Brand,” a refinement of our strategic initiatives targeted to tap that powerful opportunity. Broadly speaking, the objective of Project Brand is to build on our brands and sound fundamentals to improve our future, to enhance our ability to grow and to address the margin issues we currently face in an escalating cost environment. The effort includes five key imperatives we are pursuing as we head into fiscal 2006:

Leverage Brands and Innovation: We will seek to leverage our assets—our portfolio of brands, our proven capacity for innovation and our center store strength—to increase our presence in existing and adjacent categories. For example, market research tells us that the Del Monte brand has significant potential to go beyond our traditional product segments, particularly into more growth-oriented and higher-margin opportunities.

Assess Our Portfolio: We have begun to review our existing portfolio with the goal of reevaluating businesses that we believe do not meet our branded strategy or provide potential for gross margin improvement. We also plan to simplify our product line by eliminating some low margin, low volume products over the next two years. We expect these steps will improve our inventory management, reduce supply chain costs and simplify our overall business.

Streamline Assets and Costs: In a business like ours, it is imperative to focus on costs even as we look for opportunities for growth. With Project Brand, we plan to align our asset base to support our brand-driven strategy, create supply chain flexibility and reduce costs. Attacking costs vigilantly helps generate improved gross margins and will be critically important in fiscal 2006, given the significant cost pressures we believe we will continue to face in steel, energy, logistics and transportation; in the aggregate, these expenses represent 40% of our total cost structure. We were also active on this front throughout fiscal 2005. For example, we signed an agreement with a leading logistics company to outsource much of our trucking and shipping requirements, which we expect will improve our efficiency in this area. We made good progress at driving costs out of our supply chain and consolidated several distribution centers. We also began to use the Internet to enable suppliers to bid on services we need; the increased competition helped us lower some of our costs during the year. We plan to be even more aggressive on the cost challenge in fiscal 2006.

Evaluate Acquisitions: Successfully acquiring relevant businesses has been a cornerstone of our strategy for many years, most notably with the 2002 acquisition of several businesses that more than doubled our revenues and gave us a strong foothold in several high-growth segments. We continue to look for acquisition opportunities that align well with our strategic vision and our financial requirements. At the core of our acquisition philosophy is the belief that the Del Monte platform has the potential to add value to U.S. brands. Of course, we may also divest businesses or assets that do not meet our sharpened portfolio or asset requirements.

Build Financial Flexibility: Strong cash flow in the past few years has enabled Del Monte Foods to reduce debt levels; since the 2002 acquisition, we have repaid $494 million in debt as of the end of fiscal 2005 (a portion of this debt reduction is due to seasonal factors). In fiscal 2005, the Company generated cash flow of $202 million and completed a major refinancing initiative, reducing the interest rate spread on our bank debt and replacing approximately $300 million of 9.25% high yield bonds. We expect this move to reduce our fiscal 2006 interest expense by approximately $9 million and increase our financial flexibility. The strength of our cash flow and our balance sheet helps ensure our ability to invest in our growth, both organic and acquisition-driven, and to return cash to stockholders. In June 2005, we announced and executed a $125 million stock repurchase program, an effort that underscores our confidence in our long-term opportunities and provides an avenue to return value to stockholders.
Performance and Outlook

As I noted at the beginning of this letter, our financial performance in fiscal 2005 was certainly impaired by the extraordinary increases in several key elements of our cost structure. Our view is that these basic costs will probably continue to rise in fiscal 2006 before we see a return to more traditional cost increases in the future. Nonetheless, we are pleased by the top-line growth we generated during the year: total revenues of $3.18 billion represented an increase of 1.6% over the prior year (or 3.6% on a comparable 52-week basis), and compared favorably to overall industry growth rates. The combination of pricing actions and cost reductions helped mitigate margin erosion; I am especially proud of the efforts our people made on the cost reduction challenges in 2005.

We believe the outlook for Del Monte Foods is a very promising one. Our strengths are many and substantial, and they should prove particularly valuable to us as emerging trends—the desire for healthful eating, the importance of convenience, and increased spending on pet foods and snacks—generate opportunities for growth. And we have the people—the combination of experience, skills and commitment—to take advantage of those opportunities and grow our business.

I offer my heartfelt thanks to the employees of Del Monte Foods for their dedication, hard work and creativity in 2005 and to our partners for their efforts that are critical to our continued success. The ultimate measure of success for a company is how it turns opportunities into results. That requires using our assets, strengths and capabilities to execute our strategy and deliver returns to stockholders. Rest assured that we are hard at work to fulfill that critical mission, and I look forward to reporting on our progress in the quarters and years ahead.

Richard G. Wolford

Chairman of the Board,
President and Chief Executive Officer