Chief Executive’s review
We focus on four strategic priorities relating, respectively, to our global spread of businesses, our brand portfolios within each market, the performance of our local operations and the possibilities inherent in our global scale. Key performance indicators monitor our progress in each case.
Our strategic priorities
Key Performance Indicators
Creating a balanced and attractive global spread of businesses
Our geographical spread of operations enables us to capture growth in total volumes in the developing markets, and value growth as consumers around the world trade upwards from economy to mainstream and from mainstream to premium brands.
Organic larger volume growth
Group revenue growth
Developing strong, relevant brand portfolios in the local market
Our aim is to develop an attractive brand portfolio that meets consumers’ needs in each of our markets. In many markets, because the growth is fastest at the top end, we’ve been focusing on our local premium brands, such as Cusqueña in Peru.
Growth in Peruvian premium brand Cusqueña volumes
Growth in premium volume in our Latin American business
Constantly raising the performance of local businesses
Good operational performance has always been an SABMiller strength. While operational standards are already high we are continually striving to push them higher, as evidenced by growing EBITA on an organic, constant currency basis.
EBITA margin was impacted by rising input costs which exceeded group revenue growth and cost efficiencies.
Group EBITA margin
Leveraging our global scale
We are leveraging our global scale to grow the business. Our business platform enables us, for example, to distribute our international premium brands and build our regional brands. In addition we are using our scale to transfer skills, methods and our operational performance and efficiency.
Group revenue CAGR for the last three years
International growth of Peroni Nastro Azzurro volumes
Our performance in a difficult year underlines the continuing relevance and success of our four strategic priorities.
The first, the creation of a balanced and attractive spread of businesses which now extends across 75 countries on six continents, has served us well in that not all markets have suffered from the economic crisis at the same time or to the same extent. And not only are we widely spread, we’re deeply rooted: in more than 80% of the countries where we have a brewing presence, our businesses are number one or number two in the market.
Our business portfolio gives us good representation in emerging markets where beer growth rates are projected to outstrip the global average of 3%*. There are sound reasons for these forecasts.
With populations still growing, the demographics in developing countries are in our favour. Disposable incomes are likely to keep rising and consumers continue to shift from informal or home-brewed alcohol, which represents some 50% of global consumption, to commercially produced alcohol. As beer is the most affordable, and moderate, commercial alternative to local, subsistence alcohol, it tends to be the first choice over higher priced spirits and is therefore gaining share within the total alcohol market. Indeed, if Africa’s per capita consumption of commercial beer were to match that of South Africa, the African beer market would be nine times bigger than it is today.
While our global weighting towards emerging markets offers strong potential for the medium term, we also benefit from our bias in the developed world towards markets where there’s opportunity to increase our share in terms of value. One example is the USA which is the world’s biggest profit pool for the beer industry.
After building a global portfolio of businesses, our second strategic priority is to develop strong, relevant brand portfolios within each market. With over 200 brands at our disposal, our ability to cover all price points and consumer needs from economy to premium beers, allows us to benefit whichever way the market moves. As consumers in recent years have aspired to move up the price scale, we’ve met their demand for local and international premium brands. But we also benefit from our strong presence in the mainstream segment where SABMiller brands are typically number one or two in the market. The mainstream segment is generally where the greatest profits lie and we’ve invested heavily in recent years to build and maintain our leadership there.
In Poland, for example, we’ve built the regional Tyskie brand into the country’s leading, national, mainstream beer and the most profitable brand in the country. In Romania, we’ve carefully nurtured the strong local heritage of Timisoreana to lead the mainstream there. In South Africa, we’ve upgraded the image of the entire mainstream category by introducing 430 million restyled returnable bottles to the benefit of brands such as Castle and Hansa Pilsener. With these and other investments outlined in the Operations review, we’re rejuvenating our mainstream offerings around the world.
Nor are we neglecting the economy segment. In Africa, we’re increasing the use of locally grown crops such as sorghum and cassava to produce affordable brands along the lines of the highly successful Eagle. In so doing, we’re both capturing the trend from home-brewed beers to more aspirational commercial brands and providing economic opportunities for local farmers. In the quest for affordability, we’re also introducing smaller bottle sizes, as with the Aguila brand in Colombia, and making draught beers more available in countries such as Mozambique and Botswana.
Our investments over many years are proving their value in the powerful equity that many of our local brands now enjoy. In countries such as Poland, Romania, Peru, the UK and Uganda, we’ve been able to increase prices and still gain market share.
Maintaining full brand portfolios in so many different markets is not easy and we believe we have an industry-leading capability in this area. That said, we still have more to learn. Through the framework and processes set out in the SABMiller Marketing Way and now being rolled out across the group, we’re continuing to identify the tastes and preferences of consumer segments and to align our portfolios with the growth opportunities in each market.
Priority number three is to keep raising the operational performance of our local businesses. This is an area of focus for our local management and has helped SABMiller to maintain its position as a low-cost operator. As a consequence, we have not felt it necessary in the recent past to launch large-scale, one-off, cost-cutting programmes.
Nevertheless, given the economic challenges, we’re looking hard at all our costs with a view to making further incremental cuts to meet local circumstances. We’re re-examining all capital expenditure and applying stringent criteria that reflect the risks and opportunities in each country. We have also restructured a number of our businesses, particularly in Latin America and Europe. In Poland, for example, one depot and two packaging lines at the recently acquired Browar Belgia have been closed and 100 job losses announced. In the Czech Republic, we are shedding 150 jobs to improve productivity.
In North America, the integration of MillerCoors’ business processes and systems will streamline costs and make for faster decision making. The project to have every Coors and Miller brand produced at all breweries across the combined network is also proceeding well with more than 60% of the planned production relocations completed in the financial year. Through these and other projects, the company expects to realise US$128 million in synergies by 30 June 2009, exceeding its original goal of US$50 million for the first 12 months of operations. The overall target, well within reach, is a per annum saving of US$500 million by the third year of operation.
As well as restructuring and saving costs, we’re honing our skills in dealing with the retail trade – another discipline where we believe we can differentiate ourselves from the competition and gain competitive advantage. As the retail sector evolves and becomes more complex and demanding, we’re developing new and better ways to get the right products to the right outlets down the right channels – and doing so from an advantageous position, thanks to the strength of our brands among our consumers.
Here again, the SABMiller Marketing Way and other global initiatives are improving our performance and helping to spread best practice across the group. Our success in Ecuador (see Latin America) shows how we’ve raised the game by rethinking our distribution strategy and effectively implementing a new model.
The fourth of our strategic priorities is to gain maximum value from our global scale by efficiently transferring skills and proven ways of working throughout the organisation. Among other projects, we’re examining best practice in respect of back office processes, and looking to reduce costs through shared services. The process is already under way at the regional level and we intend to implement it globally in due course. We’re also moving towards a more centralised procurement function to make our sourcing and supply chain more efficient.
While the application of these four strategic priorities has delivered excellent financial results over the last few years, we continue to refine them as circumstances change. We have, for example, been working on a series of initiatives to sharpen our focus and capabilities in the commercial area and will roll these out in the coming year.
*Compound annual growth rates as forecast by Plato Logic, January 2009.