Management Report 2013
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SABMiller plc Management Report
Contents What’s Inside
Overview Financial and opera onal highlights of year thus far, an overview of the group and a descrip on of our business ac vi es
3 4 6
Performance Highlights What we do Group at a glance
Business Review Statements from our CEO and execu ve directors, an overview of our markets, strategy, our business model, the way we manage risk, how our opera ons performed and our approach to sustainable development and people
8 11 12 14 16
Chief Execu ve’s report Four strategic priori es CFO’s report Sustainability report Opera ons review 16 La n America 18 Asia Pacific 20 Africa 22 North America 24 Europe
Situa on Analysis An analysis of the company’s current situa on and business environment using standard internal and external analysis frameworks
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28 29
External Analysis 26 PESTEL 26 Five Forces Internal Analysis 27 SWOT 27 VRINE Analysis 28 Value Chain Mergers & acquisi ons meline Compe ve landscape
Business Strategies Proposed business strategies suppor ng the current corporate strategies
30 32 34
New Product Development Strategy Premiumisa on Strategy Diversifica on Strategy
Financial Forecasts Three-year growth projec ons
35
Three-year financial data
Shareholder Informa on References and group details
36 36
References Group 6/F informa on
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SABMiller plc Management Report
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Performance Highlights* Driving strong results in developing markets
Lager volumes
EBITA
+5%
+12%
2013: USD 35,155m 2012: USD 31,388m
2013: 240m hectolitres 2012: 229m hectolitres
2013: USD 6,479m 2012: USD 5,634m
Net debt
Adjusted EPS
Free cash flow
+2%
+16%
-37%
2013: USD 18,308m 2012: USD 17,862m
2013: 249.1 US cents 2012: 214.8 US cents
2013: USD 1,918m 2012: USD 3,048m
Business Review
+12%
*Expected figures by end of FY 2013.
Overview
Group revenue
Situa on Analysis Business Strategies Financial Forecasts Shareholder Informa on
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SABMiller plc Management Report
Five minute read Our business in brief SABMiller is one of the world’s leading brewers with more than 200 beer brands and some 70,000 employees in over 75 countries. We also have growing businesses in so drinks and we are one of the world’s largest bo lers of Coca-Cola products. Our strategic direc on Our vision • To be the most admired company in the global beer industry Our mission • To own and nurture local and interna onal brands that are the first choice of the consumer
SABMiller has become a global leader by doing business locally, pursuing opera onal excellence and offering high-quality products backed by innova on and a commitment to sustainability. Our success is built on a clear strategic direc on, a shared vision and mission and a common set of values.
Our values • Our people are our enduring advantage • Accountability is clear and personal • We work and win in teams • We understand and respect our customers and consumers • Our reputa on is indivisible Our strategic priori es • Crea ng a balanced and a rac ve global spread of businesses • Developing strong, relevant brand por olios that win in the local market • Constantly raising the profitability of local businesses, sustainably • Leveraging our skills and global scale
Our brands and businesses Local brands Typically brewed and consumed in the same community, beer is an inherently local business. At SABMiller we respect and nurture the history and heritage of local brands and give our businesses considerable freedom to meet local needs. We’re also innovators – be it new, affordable brands made from locally grown ingredients, cra beers for the aficionado or the concept of the ‘local premium’ for consumers aspiring to affordable luxury.
At the heart of our business is a passion for producing quality beers. In crea ng and building our brands, we draw on deep insights into local culture and consumers and seek to win with products that tap into local preferences. Our focus on local businesses with tailored brand por olios makes us, we believe, the most local of the global brewers.
Global brands Our four global brands have their own dis nct provenance and characteris cs. They comprise the stylishly Italian Peroni Nastro Azzurro; the world’s original golden beer, the Czech-brewed Pilsner Urquell; the Northern European Grolsch; and the embodiment of American urban cool, Miller Genuine Dra .
SABMiller plc Management Report
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Overview Situa on Analysis
• EBITA margin increased by 40 basis points (bps) to 18.4% • Foster’s integra on proceeding well • Acquisi on of Kingway Brewery Holdings in China finalised Business Strategies
We delivered another year of strong financial results. Successful development of our brand por olios and intensified sales execu on, together with rising consumer spending, drove strong performance in most of our developing markets.
Opera onal highlights • Reported EBITA grew 12%, with organic, constant currency EBITA growth of 8%: –– La n America EBITA grew by 15% as a result of volume growth, pricing and mix –– Europe EBITA increased by 5% due to lower volumes, adverse mix and increased raw material costs –– Strong pricing and favourable mix increased North America EBITA by 16% despite lower volumes –– Volume growth, strong pricing and mix drove Africa’s EBITA growth of 42% –– Asia Pacific EBITA grew by 8% with good growth in both China and India
Business Review
Our expected performance in 2013
Total lager volumes grew 5% totalling 240 million hectolitres. Reported group revenue rose by 12% to USD35,155m.
How we create value
Inclusive growth We believe we create best value for our shareholders by also bringing value to the communi es in which we operate. Because our business is not separate from society but embedded within it, the success of SABMiller is inextricably linked to the wellbeing of the wider community. So along with crea ng jobs and paying taxes, we seek to s mulate local enterprise, to support economic development, to collaborate with governments and others on shared challenges and to help tackle the effects of alcohol abuse – all essen al underpinnings of our ongoing licence to trade.
Shareholder Informa on
We concentrate on building brands and businesses and make acquisi ons only where they have the poten al to add value.
Financial Forecasts
We create long-term value by establishing leading posi ons in key markets; by inves ng in, and building, a rac ve brands and brand por olios; and by taking a local approach to running our businesses, based on effec ve opera ng processes.
The strategy in ac on Building value depends on being in the right markets, both highgrowth, emerging economies and profitable, mature markets. It means having the right brand por olio – one that spans a range of consumer segments, drinking occasions and price points. It also calls for value-crea ng partnerships and an opera ng process that supports local accountability and facilitates the sharing of best prac ce.
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SABMiller plc Management Report
Group at a glance Our opera ons around the world Expanding from our roots in Africa, we’ve built leading posi ons in all regions of the world in both emerging and developed markets. Last year our businesses sold 229 million hectolitres of lager, over 90% of which was sold in markets in which we’re the number one or number two brewer.
La n America
Asia Pacific
Africa
32%
6%
35%
Projected contribu on to group EBITA 2013
Projected contribu on to group EBITA 2013
Projected contribu on to group EBITA 2013
17 breweries 14 bo ling plants 26,933 employees
23 breweries 2 bo ling plants 3,804 employees
39 breweries 25 bo ling plants 25,535 employees
•
•
CR Snow, our partnership with China Resources Enterprise, Limited, is the largest brewer in China.
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•
With the acquisi on of Foster’s in December 2011, we have a major business in Australia. CUB only contributed to our results from midDecember 2011.
Our brewing and beverage opera ons in Africa cover 16 countries. A further 21 are covered through a strategic alliance with the Castel group and we also have an associated undertaking in Zimbabwe.
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In most of these countries we are the number one brewer by market share.
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We bo le so drinks for The Coca-Cola Company in 20 of our African markets (in alliance with Castel in 14 of these markets).
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We have hotel and gaming interests in Tsogo Sun Holdings Ltd, the largest hotel and gaming group in South Africa.
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Regional office: Johannesburg, South Africa.
Our primary brewing and beverage opera ons cover six countries across South and Central America (Colombia, Ecuador, El Salvador, Honduras, Panama, and Peru).
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In each of these countries, we are the number one brewer by market share.
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We are also the third largest brewer in Argen na.
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•
We bo le so drinks for The Coca-Cola Company in El Salvador and Honduras, and for Pepsico Interna onal in Panama.
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We are the second largest brewer in India.
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We have an opera on in Vietnam and we export to various markets including South Korea and Cambodia.
Regional office: Bogotá, Colombia •
Regional office: Hong Kong
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Overview
13%
14%
Situa on Analysis
Europe
Business Review
North America
Projected contribu on to group EBITA 2013
•
MillerCoors is a joint venture with Molson Coors Brewing Company, formed in 2008 by bringing together the US and Puerto Rican opera ons of both groups.
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Our primary brewing opera ons cover 8 countries – the Czech Republic, Hungary, Italy, Poland, Romania, Slovakia, Spain (Canary Islands) and the Netherlands.
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Headquartered in Chicago, MillerCoors is the second largest brewer in the USA, with 29% of the beer market.
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In the majority of these countries, we are the number one or two brewer by market share.
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Our wholly owned Miller Brewing Interna onal business is based in Milwaukee, USA and exports our brands to Canada and Mexico and throughout the Americas.
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A further 16 countries including Russia, Turkey and Ukraine are covered in a strategic alliance with Anadolu Efes through either brewing, so drinks or export opera ons.
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Regional office: Chicago, USA.
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We export significant volumes to a further 8 European markets, of which the largest are the UK and Germany.
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Regional office: Zug, Switzerland.
Shareholder Informa on
17 breweries 14,095 employees Financial Forecasts
8 breweries 8,812 employees
Business Strategies
Projected contribu on to group EBITA 2013
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SABMiller plc Management Report
Chief Execu ve’s review Consistent strategy delivers growth
Luminita Iancu, Chief Execu ve
D
espite an increasingly compe ve global environment, our company is expected to have another strong performance for 2013, building on the good earnings growth achieved in the first half of the year. Our expanding global presence, especially in key areas in developing regions, offers us new challenges and the possibility to see new advantages.
Based on our vast experience accumulated over the years and our knowledge-empowered team, we are op mis c that we can design our future ac ons in the best way to deliver interes ng and a rac ve products to our consumers and add more value to our shareholders. For the current financial year, our growth can be a ributed to the con nuous global development of our brands and on rising consumer confidence in emerging markets. Our strong presence and in developing countries provided the counterweight for the lagging sales in mature markets of Europe and North America, boos ng overall global growth despite the difficult economic situa on. At the Group level, we achieved at the end of the first half of the current financial year an increase of revenue by 11.4 % with a strong contribu on from organic growth. Reported EBITA experienced an increase of 17.5% primarily based on 9.4 % organic growth at constant currency level. The rise in barley and malt prices and higher level of fuel cost are the main challenging issues of our procurement system. Through effec ve marke ng efforts and product innova on, we remain confident that by 31 March 2013, our company will show another robust performance.
OUR VISION Our focused strategy based on four key ac ons: • Crea ng a balanced and a rac ve global spread of businesses • Developing strong, relevant brand por olios that win in the local market • Constantly raising the profitability of local businesses, sustainably • Leveraging our skills and global scale con nues to present indisputable proof that our business is based on a strong and long-term commitment with a high capacity to adapt our unique concepts to different economic landscapes. In this report, I would like to highlight that our performance is based on our belief that: • • •
we grow by crea ng strong partnerships being in the right place with the right products can bring value to our business having the appropriate opera ons system, we are able to respond to customer demand
Beer consump on is realized in a social context, so being close to our consumers and understanding their expecta ons are considered key factors in our company.
76% Propor on of group EBITA from developing or emerging economies
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Chief Execu ve’s review con nued
KEY STEPS IN OUR PLANS
This contract offers us access to a rac ve regional markets in China and also enhances CR Snow’s compe ve posi on. The poten al value of Kingway could be seen in the next 2-3 years a er the integra on plan is completed.
It is also important to men on that the first implementa on of the ERP Project was completed and tested in Poland. I would also like to highlight the progress achieved in our project to realize a centralized treasury opera ons system.
One of our most recent programs, Global Talent Model, was launched in 2012 and is currently in line with the corporate HR plan. The program involves top 200 cri cal roles and “future leaders” who demonstrate a great poten al for our company. RESEARCH & DEVELOPMENT ARE ON OUR LIST The investment in low-energy boiling technology and the ini a ve of crea ng a brewing research facility in UK in 2011 are examples of how our company understands the importance of innova on and con nuing development. This facility was designed to achieve improvements in water and energy efficiency. SUSTAINABILITY Our global facili es are embracing the aim of opera ng in a more sustainable way. Each of our facili es employs professionals oriented on safety, health and environment and engaged in a con nuous ac vity of finding ways to reduce waste and emissions, minimize the use of water in beer produc on, to improve the recycling systems and ensure the health of our employees.
Shareholder Informa on
OUR CAPABILITY PROGRAMMES: ON THE RIGHT WAY Our procurement system con nues to deliver benefits and the proof of this progress is the fact that our net opera ng results are developing as expected.
OUR HUMAN RESOURCES PROGRAMMES I would like to highlight a few of our main programmes designed to assure and enhance our workforce performance: • Safety, health and well-being programs • The advancement of women in the company • Transparent measurement systems • Promo ng talents • Regular educa on on alcohol responsibility
Financial Forecasts
AcquisiƟon of Kingway Brewery (China) In February 2013, we acquired through our partner in China CR Snow, Kingway Brewery Holdings, a deal of approximately USD864m. We see this as an important transac on with a new posi ve perspec ve in the long-run.
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Business Strategies
The integra on programme in Australia remains ahead of schedule with respect to both synergy delivery and capability build. It is important to men on the progress realized by the flagship brand VICTORIA BITTER, which has recently experienced modest growth a er a long period, benefi ng from the brand restora on programme and improved retail engagement.
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Our approach regarding our workforce of being a flexible, fair and equitable employer is the founda on of our success.
Situa on Analysis
AcquisiƟon/ IntegraƟon of Foster’s (Australia) This was one of our big steps with a great future impact on our posi on in the industry. Even if the integra on plan of our Australian business Pacific Beverages into CUB (Carlton and United Breweries- the Australian company of Foster’s) has been already completed, our work here is s ll con nuing. In Australia, we will embark on other new and challenging plans such as increasing efficiency, developing new distribu on channels, reevalua ng our brand posi oning; all of which with the aim of boos ng profitable growth.
”
OUR TEAM With regard to our People, SABMiller currently employs about 70,000 people across six con nents. Our team is characterized by cultural differences and diversity in its backgrounds. By inves ng in our people and empowering them through con nuous skill development programs, we aim to create a performing and successful team.
Business Review
Based on our thinking framework Marke ng Way, we are able to iden fy consumers preferences in local markets and to be er fit our product range to specific growth market opportuni es.
Overview
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Our model of leading local flagship brands, innova on and expanding premium assortments is working. We con nue to invest in capacity, systems and capability.
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SABMiller plc Management Report
Chief Execu ve’s review con nued
OPERATIONS In Africa, plans of inves ng heavily to grow capacity in order to stay ahead of the demand across this con nent are ongoing. Our investment of USD80m in a new brewery in our Ugandan subsidiary, NILE BREWERIES (NBL) which has doubled the design capacity to 3.6m hectolitres demonstrated our commitment to further inves ng in Africa. This project has been recently accomplished in MBARARA, western Uganda, the fastest-growing regional beer market and has been chosen as the op mum loca on with the aim to meet the increasing local demand. Regarding the project of expansion our brand CHIBUKU into 10 countries across the con nent, we remain confident that following our investment of USD16m by the end of this financial year, we can expect the achievement or exceed a total of half a million hectolitres. This expansion of our CHIBUKU opera ons demonstrates our con nuing interest in an affordable strategy and product innova on. By offering an affordable beer for lower income consumers across Africa, we can decrease the role of unsafe and informal alcohol market by shrinking its share as much as possible. Other produc on capaci es are in the final stage and should be ready to start in Nigeria and Zambia. In Peru and South Sudan, we are currently inves ng in some extensions of our produc on lines. The con nued investment in packaging innova on remains a key driver in some markets such as La n America, Africa and East-Europe. Adap ng our products to local demand is the way we want to respond to our consumers. TOWARDS ZERO-WASTE OPERATIONS The increasing cost of raw materials, or in some cases the scarcity (water), the growth in global popula on and economies – which led to a important increase in the amount of waste sent to landfill – are the key drivers for SABMiller in our con nuous waste reduc on program. In the brewing process, most waste by-products are recyclable or reusable to some extent. Reducing the amount of waste is also a way of saving money and reducing the environmental impact. The company is con nuing to invest in research about how to reduce, to reuse and recycle the waste in our produc on.
HOW WE SEE THE FUTURE In light of recent global trends and challenging economic environment – e.g. the decline of beer consump on in richer na ons and increasing in wine consump on or other spirits, the openness of new geographical areas to global businesses, the increase in income disposal of consumers in emerging markets – we remain confident that our strategic direc ons are created to con nuously strength our posi on in this industry.
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SABMiller Company will con nue to make strategic investments in different new regions with the aim to create a balanced and a rac ve global spread of our business.
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We will also embark on a new stages of our journey which aim to con nuously create and adapt our brand por olio to local consump on behavior. Offering the right products, in the right markets and with the appropriate range of prices is how we want to be successful. But our achievements will depend on new and innova ve ideas. Remaining confident of our plans to step up profitability through organic growth in fast-growing markets of Africa, China and India, or developing areas of La n America and EastEuropean countries, we will tackle also the most difficult issues that confront our teams from western Europe and North America. We experience a challenging me and for this reason, it is very important for the Board and our management team to work closely together in order to see our plans through. As a sign of our confidence in our future today, we are proposing three strategies designed by our execu ve team with the aim of strengthening our posi on in developing geographies, of stepping up profitability and free cash flow through organic growth, and of driving new market penetra on. We believe that it is important to realize a balance between our investments in premium levels and affordable products, as well as in new products or long-term projects. To be flexible and responsive to our local markets are the key driving forces in our ac on. Our first strategy, Non-alcoholic Beer, is a medium-term project designed to expand our current por olio by developing new products and focusing on growth areas such as the Middle East and North Africa.
The second short-medium term strategy aims to capitalize on economic development in emerging markets by rebranding or developing premium level products. Our third strategy is intended to be a long-term project with the aim to create an addi onal revenue stream on wine growth opportuni es in emerging markets, especially in Africa. Luminita Iancu Chief Execu ve
SABMiller plc Management Report
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Four strategic priori es Guiding our progress, driving our growth
Global presence
Developing strong, relevant brand por olios that win in the local market
Acquisi on of local brands
Kingway acquisi on
China
Foster’s integra on
Australia
Diversifica on
Winery
South Africa
Non-alcoholic beer and malts
Middle East (Turkey, Iran)
Cider project
North America
Cra beer project
Europe
Premium beer re-branding
La n America (Peru), Asia Pacific (China)
Na onal barley industry project
Zambia
Water Futures
Peru
Alcohol responsibility training
Worldwide
HIV/AIDS training
Africa
Global Talent Model
Worldwide
European Management Development Programme (EMDP)
UK
Product por olio expansion
Premiumisa on Local sustainable focus with opera onal eďŹƒciency
Constantly raising the profitability of local businesses, sustainably Ten Priori es Programme
70,000 strong workforce
Leveraging our skills and global scale Global learning strategy
Financial Forecasts
Region
Business Strategies
Projects
Situa on Analysis
Global company, local brands
Crea ng a balanced and a rac ve global spread of businesses
Strategies
Business Review
Key Competences Strategic Priori es
Overview
Our four strategic priori es define how SABMiller will achieve its overall financial goal. While they naturally evolve and their rela ve importance changes in line with market condi ons, these priori es con nue to guide our short, medium and long-term growth.
Shareholder Informa on
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SABMiller plc Management Report
Chief Financial Officer’s review Another stong performance
Sunny Thok, CFO
Source : London Stock Exchange website
240
229
11
12
13
Group Revenue (USDm)
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12
35,155
10
31,388
09
28,311
•
13
EBITA (USDm)
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12
6,479
10
5,634
4,381
09
5,044
4,129
EBITA Company is expected to deliver strong financial performance at the end of the current year with EBITA growth of 8% on an organic, constant currency basis, with all beverage divisions except for Europe contribu ng marginally to the increase. Expected EBITA is USD6,479m (including the impact of acquisi ons) at a growth rate of 15% compared with the prior year. Cost of goods sold for the year is expected to increase by approximately 3% over the prior year, on a constant currency per hectoliter basis with a slightly higher increase in the cost of raw material.
218
•
10
26,350
•
Group revenue up 12% to USD35,155m EBITA of USD6,479m, an increase of 12% EBITA margin of 18.4%, 40 bps higher than the prior year Free cash flow declined by USD1,130m to USD1,918m Expected adjusted EPS to be up by 16% to 249.1 US cents per share. Expected Net debt to be USD18,308m, an increase of USD446m from prior year
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• • •
Revenue Group revenue is expected to be USD35,155m by March 2013. This will represent an increase of 12% (8% on an organic, constant currency basis) driven by higher volumes, focused price increase and favorable brand mix. Acquisi ons have posi vely impacted the group revenue and expected growth rate is 5%.
09
25,302
Financial highlights
Volume The company’s volume growth for the year ending March 2013 is expected to be 240 million hectolitres, growth of 5% over the prior year. Acquisi ons of Fosters and Kingway breweries have had posi ve impact on volume growth.
Group Volume (m hl)
210
The Company is expected to deliver strong financial performance at the end of the current year with EBITA growth of 8% on an organic, constant currency basis.
Share Price The share price of SABMiller has appreciated by over 126% ll date since April 2012, owing to its history of strong financial performance and successful strategic mergers and acquisi ons. The latest acquisi on—brewery business Kingway Brewery Holdings Limited in China for a total cash considera on of USD 864m, has had a posi ve impact on the share price in the month of February 2013.
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SABMiller plc Management Report
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Chief Financial Officer’s review con nued
EBITA Contribu on
Overview
Dividends The company’s 5-year average dividend growth rate has been 12.72%. It has posi vely influenced the share price and shareholder confidence by providing steady cash flow in the form of dividend and has kept the outlook of investors posi ve (CANACCORD Genuity Limited, 2013).
6 32 35
Business Review
Credit Ra ngs The Standard & Poor’s ra ngs service has rated the company’s bonds as follows:
14 13
Foreign Long Term - BBB+ (posi ve outlook): Signifies that in the long term the company has adequate capacity to meet financial commitments, but is subjec ve to adverse economic condi ons.
Latin America Europe North America Asia Pacific
EBITA Margin (%)
12
13
Monitoring and managing the risks we face Principal risk Compe
on
Context
Mi ga on • Proven integra on processes, procedures and prac ces are applied to ensure delivery of expected returns. • Develop non-tradi onal capabili es to enter and grow profitably in new markets.
Change in consumer preferences
Consumer tastes and behaviors are constantly evolving, and at an increasingly rapid rate
• Con nued enhancement of the SABMiller Marke ng Way which sets out the best-prac ce approach for our commercial processes. • Ongoing evalua on of our brand por olios in every market to ensure that they target current and future opportuni es for profitable growth.
Currency fluctua ons
Company has a global presence and thus foreign exchange remains one of the principal risks
• Use of Forward exchange contracts and Forwards Exchange swaps
Interest rates
Increasing interest rates have an exponen al impact on the company’s debts
• Borrow (directly or synthe cally) principally in floa ng rates, reflec ng the view that Floa ng rates are generally lower than fixed rates in the medium term to mi gate the Interest rate increase risk
Shareholder Informa on
The company faces s ff compe on from some of these large brewers namely: Heineken, Anheuser-Busch InBev and Carlsberg.
Financial Forecasts
Principal risks
Business Strategies
11
18.43
10
17.95
16.63
09
17.82
16
Capital Expenditure Capital expenditure is expected to be USD1,885m in 2013, a rise of USD246m due to increased produc on capaci es, par cularly in Africa. Also, new breweries are currently being constructed in Nigeria, Uganda and Zambia and there has been capacity expansion in Peru and South Sudan. The company has acquired Kingway Brewery Holdings Limited in China at a total cash considera on of USD864m on the 5th February 2013. Capital expenditure of approximately USD2,100m is expected in the next financial year.
Situa on Analysis
Africa
Foreign Short Term - A- (posi ve outlook): Signifies that in the short term the company has strong capacity to meet financial commitments, but somewhat suscep ble to adverse economic condi ons and changes in circumstances.
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SABMiller plc Management Report
Sustainability report Genera ng inclusive growth
Mia Orcullo, Corporate Affairs
Guided by the Global Repor ng Ini a ve recommenda ons, SABMiller’s 2013 direct economic value crea on from its sustainable development ac vi es is expected to amount to USD25,945m from USD23,921m of the previous year. This makes a significant contribu on to livelihoods around the world where SABMiller is present.
At the global level however, special focus is given to three areas that SABMiller considers most relevant to the business: alcohol responsibility, water, and enterprise development in their value chain.
To make a fair assessment of and to provide an expert view on the company’s repor ng prac ces, SABMiller has commissioned Corporate Ci zenship, a global corporate responsibility consultancy. This shows SABMiller’s commitment to mee ng its sustainability goals. Water Conserva on SABMiller has extensive programmes in place that aim to improve water and energy efficiency and reduce waste in its breweries. This year the company’s water ra o – the amount of water required to produce a hectolitre of lager – decreased from 4.0 hl/hl in 2012 to 3.8 hl/hl, a 5% improvement.
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12
3.8
We have in the past five years, con nually ini ated and implemented programs aimed at achieving sustainability goals of our Ten Priori es, SABMiller’s approach on how to focus our efforts and resources. The Ten Priori es also provide a strong framework, offering clarity to our local opera ons and demonstra ng our commitment to shareholders and other stakeholders on issues material to our business.
10
4.0
ne of SABMiller’s four strategic priori es is ‘Constantly raising the profitability of local businesses, sustainably’. Sustainable development is therefore integral to the way SABMiller does business.
4.2
O
In 2013, the average score expected to be achieved by SABMiller across all priori es is 3.5, an increase over the 2012 score of 3.2. Group average scores increased across all 10 priori es, with a par cularly strong improvement on discouraging irresponsible drinking, where the score increased by almost 20%, from 3.5 to 4.2.
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4.3
Twice a year, the company measures its progress using the Sustainability Assessment Matrix (SAM). Performance is assessed against five levels of performance, from a minimum standard (level one) to leading edge (level five), and is reviewed by both regional and group CARACs.
4.5
The group corporate accountability and risk assurance commi ee (CARAC), a sub-commi ee of the SABMiller plc board, is responsible for overseeing progress against the company’s 10 sustainable development priori es.
Water to lager ra o (hl water/ hl lager)
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SABMiller plc Management Report
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Sustainability report con nued Legal issues
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In the USA, MillerCoors is working with The Nature Conservancy to safeguard the watershed and improve habitats in the barley-growing Silver Creek Valley in Idaho.
Sustainable development group average scorecard 2013
Financial Forecasts
Stairway level assessment criteria
Expected total taxes borne and collected by the group in 2013
Business Strategies
Research and Development SABMiller is ac vely involved in research and development opera ons for enhancing exis ng products as well as innova ng new beverages. The company principally focuses on key areas such as brewing, flavor stability, raw materials, packaging materials and energy and water saving. It also involves in development of novel packaging, processes and manufacturing technologies.
$10.5bn
Situa on Analysis
In Peru, Through the Water Futures partnership we work with NGOs such as WWF and The Nature Conservancy to protect the watersheds on which our businesses depend. This year through our local Water Futures partnership in Peru, we started a series of studies to examine the water resources available in the basins that supply each of Backus’ breweries.
Legal Issues In its most recent report, OECD head Angel Guria has called a crackdown on tax avoidance by mul na onals. The G20 have been urged to modernize their tax systems to combat avoidance, which was undermining the ability of the governments to recover from the financial crisis. This issue is par cularly relevant for SABMiller because the company has been accused of tax avoidance by an advocacy group in 2010. Aside from avoiding GBP20m of taxes in Africa and India every year, the organisa on also objected to the company’s use of tax haven places, procurement services via a Mauri us-based subsidiary, and payment of management fees. These recent issues might increase government scru ny on the company’s opera ons both in London and in other countries where SABMiller is present, and increase risk of li ga on and penal es.
As part of our Ten Priori es, SABMiller is commi ed to Transparency. Tax within the group operates within a strong governance process. We seek to be fully transparent in our tax returns and disclosures to revenue authori es. In 2013, total taxes borne and collected by the group is expected to amount to USD10,528m from USD9,400m the previous year, an increase of 12%
Business Review
In Uganda, for example, Nile Breweries Ltd has reduced its water consump on from eight hectolitres of water per hectolitre of lager produced in 2006 to 4.7 hectolitres today.
In May 2011, the company announced that it has commissioned a GBP3m global brewing research facility in No ngham, with the aim of pioneering new developments in the science of brewing. In associa on with No ngham University’s School of Biosciences, the company focuses on new technologies and processes that enhance beer quality and shelf life, whilst improving the sustainability of brewing. In 2013, the company’s R&D expenses will reach USD8m. We believe our focused R&D opera ons offer us a compe ve edge over our peers.
Overview
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Across our opera ons, we aim to become 25% more water-efficient by 2015.
Shareholder Informa on
16
SABMiller plc Management Report
Opera ons review La n America
Emily Alberico, Managing Director
Regional Overview
12
8,086
11
7,158
10
6,335
09
5,905
We bo le so drinks for the Coca-Cola Company in El Salvador and Honduras and for Pepsico Interna onal in Panama. We operate 17 breweries throughout the region, 14 bo ling plants, and employ approximately 26,933 people.
Revenue (USDm)
5,495
Our brewing and beverage opera ons in La n America span 7 countries including Colombia, Ecuador, El Salvador, Honduras, Panama, Peru, and Argen na. We hold primary market share in all of these markets, except Argen na, where we hold the number 3 posi on a er acquiring CASA Isenbeck in 2010.
13
The La n American region accounts for 13% of global beer consump on and 21% of EBITA. The market benefits from high pricing power and high profitability due to oligopolis c nature of markets within the region. The dominant brewer typically enjoys very strong pricing power, economies of scale in branding, manufacturing, distribu on and overhead absorp on.
The La n American market con nues to offer significant growth poten al and profitability opportuni es as an emerging market with growing economies and increasing consumer disposable incomes.
Financial summary Revenue (USDm) EBITA (USDm) EBITA margin (%) Lager volume (m hl)
2013 8,086 2,140 26.5 43.5
2012 7,158 1,865 26.1 41.6
% 13 15 5
Strategic focus areas •
•
• • •
Drive strong top-line growth by expanding consumer occasions and entering adjacent categories Increase share of alcohol and capitalise on differen ated and expanded brand and package por olios Op mise and extend distribu on network and sales reach Protect our licence to trade and business sustainability Pursue opera onal excellence and efficiency in our businesses, op mising resources and costs
Financial Overview La n America is expected to deliver another strong performance for fiscal year 2013. Group revenue is expected to increase 13% from USD7,158m in 2012 to USD8,086m for 2013. EBITA is forecasted to increase 15% from USD1,865m and a margin of 26.1% in 2012 to USD2,140m and a margin of 26.5% for fiscal 2013, reflec ng a margin increase of 40 basis points. Lager volumes are expected to increase 5% while so drink volumes will see an increase of 4%. Strong volume and EBITA growth is a result of the affordability of key lager brands, building differen ated brand por olios and expanding the premium segment. Addi onally, the growth in the region was driven by combina on of volume growth, selec ve price increases and improved overall mix. Increased commodity costs were partly offset by improved manufacturing efficiencies and con nued distribu on gains, as ongoing fixed cost produc vity improvements are made. We will con nue to focus on organic growth within the region. This market represents the largest contribu on to overall EBITA and revenue for the group.
Cusqueña Origin: Peru www.cusquena.com.pe Cusqueña is Peru’s premium beer and is brewed with malt, yeast and hops of the highest quality. It retains the mystery and magic of its origin in Cusco and is specially made for those consumers who value the best brands.
SABMiller plc Management Report
17
Opera ons review con nued La n America
We are involved in a mul tude of sustainability ini a ves throughout La n America. For example, the water reclama on programme adopted in Colombia has resulted in a number of innova ve ways to reuse the brewery’s water
The La n American market is highly consolidated with one or two brewers domina ng in the majority of countries. ABInBev is La n America’s leading brewer, holding the #1 posi on in the largest market of Brazil, which accounts for half of the region’s volume, as well as the top spot in Argen na, followed by SABMiller and then Heineken. These Big 3 global brewers combined account for 88% of the La n American beer profit pool. Heineken’s stake in the market is a result of their acquisi on of FEMSA/ CCU a er outbidding SABMiller. Kirin entered the market in 2011 by acquiring the #2 brewer in Brazil, Schincariol, however ABInBev and SABMiller are the largest brewers in La n America by far.
88% Market share of the Big 3 global brewers in La n America
Shareholder Informa on
Sustainable Development
on
Financial Forecasts
In Honduras, SABMiller has 96% beer market share, 58% so drinks market share with1 brewery and 1 bo ling plant with subsidiary Cervecería Hondureña S.A. There are 4 Honduran brands including: Barena, Imperial, Port Royal, and SlavaVida. Lager volumes for 2013 are expected to rise 10% due to a boost in premium brands. The super premium category saw healthy growth with Miller Lite doubling its volumes. Overall alcohol market share con nues to
SABMiller entered the Argen na market in 2010 by acquiring Cervecería Argen na SA Isenbeck from Warteiner, the 3rd largest brewer in the region. The company holds 3% market share with 1 brewery, and the brands Isenbeck, Warsteinek and Miller Genuine Dra . The region has seen healthy volume growth of mainstream brand Isenbeck. The integra on and upgrading of SABMiller’s capabili es in Argen na con nues to progress since acquisi on.
Compe
Business Strategies
In El Salvador, SABMiller occupies 89% beer market share and 47% of so drinks market with 1 brewery and 2 bo ling plants with subsidiary Industrias La Constancia S.A. There are 6 Salvadoran brands: Barena, Golden Light, Pilsener, Pilsener Lite, Regia Extra, and Suprema. The focus on affordable bulk pack in the region as well as widened trade coverage has resulted in double digit volume growth. Our flagship brand, Pilsener and local premium brand Suprema con nue to see healthy volume growth. Consequently, overall alcohol market share has increased. So drink volumes are expected to grow 7% a ributed greatly from success of mul serve packs, and the con nued success of the non-alcoholic malt brand Ac malta.
Peru is the 2nd strongest market in our La n American por olio, where we hold 93% beer market share, operate 5 breweries and 2 bo ling plants through subsidiary Unión de Cervecerías Peruanas Backus y Johnston S.A.A. Peru boasts a mul tude of brands including: Arequipena, Cristal, Cusquena, Cusquena Malta, Pilsen Callao, Pilsen Polar, Pilsen Trujillo, and San Juan. The region will finish with another strong year driven by healthy economic growth. The area also benefited from selec ve price increases taken in December 2012 as well as expanded trade and fridge coverage. The premium por olios performance from 2012, with volume growth of 22%, has con nued into 2013, which we intend to capitalize on going forward. The so drinks category con nues to see volume growth, as the non-alcoholic malt brand, Mal n Power, benefited from campaigns highligh ng its nutri onal a ributes. Capital investments made to increase capacity and support future expansion in Peruvian subsidiary Backus, will further enable growth prospects for this country in the future.
Situa on Analysis
SABMiller enjoys the #1 posi on in Ecuador with 97% share of the beer market, opera ng 2 breweries and 2 bo ling plants through acquisi on of Cervecería Nacional CN S.A. There are 4 brands in the region: Club Premium Lager, Conquer, Dorada, and Pilsener. Ecuador con nues to see a growth in share of the overall alcohol market. Lager volume growth of 7% is expected in 2013 driven by con nued expansion of the direct service model and improved product availability of cold beer at point of sale as well as con nuing expansion of presence in fes vals and events. The upper mainstream offering and local premium are seeing con nued growth.
SABMiller has 67% beer market share in Panama with 1 brewery and 2 bo ling plants with Cervecería Nacional, S.A.The 2 brands of Panama are Atlas and Balboa. Lager volume growth con nues in 2013 due to the notable performance of global premium brands Miller Lite and MGD. Mainstream brands Atlas and Balboa benefited from investment behind new campaigns and improved in-outlet execu on.
waste. Through the Water Futures partnership SABMiller works with NGOs to protect watersheds on which business depends, not only for SABMiller but the local community. Addi onally, in 2008 Bavaria in Colombia ini ated its Grain Project to explore how it could be er support local suppliers of mal ng barley to help ensure a sustainable long-term supply and increase levels of rural employment and economic development. An important aspect of sustainability for SABMiller is growing and working with local economies as beer is innately a local business.
Business Review
Colombia reflects SABMiller’s largest market in the La n American region. We hold the #1 posi on from the acquisi on of Bavaria S.A., with 99% market share, opera ng 6 breweries and 5 bo ling plants. There are 6 brands in the region: Aguila, Aguila Light, Club Colombia, Poker, Costena, and Pilsen. Lager volumes are expected to grow 7% reflec ng healthy consumer spending and a result of selec ve price increases as well as mix. The light beer category has seen con nued growth with Aguila Light performing par cularly well. Premium brands con nue to grow with the local premium brand franchise, Club Colombia.
increase, reaching historic highs. So drinks volumes are expected to grow 8%, while the juices and tea categories introduced in 2011 con nue to grow.
Overview
Country Opera ons Overview
18
SABMiller plc Management Report
Opera ons review Asia Pacific
Sandeep Nadubedi, Managing Dir.
Regional Overview
Revenue (USDm) 5,241
3,510
1,565
1,741
2,026
SABMiller entered the Asian market by a joint venture in China with China Resources Enterprise Ltd. The opera on is called China Resources Snow Breweries (CR Snow) a priva za on arm of the government of the People’s Republic of China. Later on they expanded their opera ons in India by acquiring Narang breweries in 2000. In 2011 the company has further boosted its global presence with the acquisi on of Foster’s Group, and became the leading brewer in the Australian beer market. Currently SABMiller has its manufacturing opera ons in 4 countries (China, India, Australia & Vietnam) in Asia Pacific region & exports to Korea , Fiji & New Zealand. In APAC region, it’s all about volume business with thin profit margin.
09
10
11
12
13
Financial Overview
In February 2013, we acquired Kingway’s brewery business for USD864m. The partners see clear economies of scale in the deal and and we foresee a strengthening of CR Snow’s posi on in Guangdong.
Financial summary Revenue (USDm) EBITA (USDm) EBITA margin (%) Lager volume (m hl)
2013 5,241 419 8.0 75.5
2012 3,510 321 9.0 58.1
% 49 8 30
The acquisi on of Foster’s and higher profits in China and India has resulted in an increase in reported EBITA in Asia Pacific by 31% (7% on an organic, constant currency basis). Lager volumes are expected to increase by 5% on an organic basis, with reported volumes higher by 8%. EBITA will grow by 30.6% with good growth in both China and India (5% lager volume growth). In Australia, lager volumes are projected to go down 8 % on a pro forma basis including the impact of two fewer trading days and the termina on of some licensed brands from our por olio. EBITA also will decline as a result of the lower volumes and increased commercial investment. On a pro forma basis, CUB full year lager volumes in Australia will be 4% below the prior year, largely due to subdued consumer sen ment. EBITA also will decline on a pro forma basis as a result of the lower volumes and increased commercial investment.
Strategic focus areas •
•
•
•
Integrate the Foster’s acquisi on and deliver the commercial and opera onal targets Further build market leadership in China and enhance profitability by concentra ng more on premium brands Pursue market liberaliza on in India and focus investment on growth and profitability in selected states. Concentrate more on branding & marke ng ac vi es Introduce new range of non-alcoholic beer brands with some energizing variants in all markets.
Country Opera ons Overview In China, our CR Snow joint venture has succeeded in crea ng the country’s first na onal beer brand by concentra ng resources behind a single brand. It decided 10 years ago to make its Snow brand the country’s number one brand by volume by 2006 and to achieve na onal scale by 2011. In 2011, sales volumes by CR Snow passed 100 million hectoliters. Today, Snow is the biggest brand by volume, not just in China, but in the world. Overall, CR Snow con nued to expand its market
Snow Brave the World Origin: China www.snowbeer.com.cn A bright, clean-drinking, well balanced beer, yellow-green in colour with a white head and a lacy ‘cling’ on the glass, Snow Brave the World exemplifies the proud, adventurous spirit of modern China.
SABMiller plc Management Report
19
Opera ons review con nued Asia Pacific
From Vietnam, SABMiller exports to various markets including South Korea, Singapore and Cambodia.
on
Asia’s USD258bn beer market is growing twice as fast as the rest of the world, leading to rising compe on and expecta ons of more industry deals in the region. Asia is the final fron er for the world’s top brewers, and there is plenty of room to grow. Only a quarter of market share is dominated by interna onal brands. Current market condi on is all about volume business with thin profit margins. Strong compe tors for SABMiller are United Breweries, InBev and Anheuser-Busch, Tsingtao Brewery Co. and Beijing Yanjing Brewery Co.
$258bn Asia’s beer market size
Shareholder Informa on
The alcoholic beverage industry in India operates under a very complex regulatory environment which is the biggest challenge. In addi on
SABMiller entered the high-growth Vietnam beer market in 2006 through a joint venture with Vinamilk, subsequently purchasing 100% of the joint venture in March 2009. A greenfield brewery was built in 2007, with the launch of Zorok beer as our mainstream entry later that year. During the 2012 financial year Czech beer, Gambrinus was introduced as a premium brand and Peroni Nastro Azzurro as a super-premium brand in support of our strategy to focus on higher margin brands.Lager volumes in Vietnam were below the prior year, but revenue increased reflec ng a focus on higher margin brands, channels and geographies.
Compe
Financial Forecasts
Knock Out and Foster’s witnessed growth of 17% and 5% respec vely in volumes. In India, volumes grew by 23%. Con nued strong growth in Andhra Pradesh, cycling trading restric ons in the state through to the end of August, was assisted by double digit growth achieved in the important states ofPunjab, Maharashtra, Rajasthan, Orissa, West Bengal and U ar Pradesh. Growth was more muted in the other key states of Karnataka and Haryana with slower market growth compared with the prior period.
The integra on programme is progressing well, with synergy delivery and capability build running ahead of schedule. The sale of Foster’s interests in its Fijian beverage opera ons, Foster’s Group Pacific Limited, to Coca-Cola Ama l Ltd (CCA) was completed on 7 September and Foster’s so drinks assets were also sold to CCA on 28 September. There was no gain or loss on either disposal. With effect from 1 October, our associate distribu on business in Dubai previously reported as part of Australia has been transferred to our Europe division.
SABMiller ini ated steps with farmers to provide them access to good quality seeds, agronomical advice and training to enhance the quality of the crops. Farmers are also provided informa on on proper irriga on, fer lizer usage and harves ng. The programme has improved barley yield by 20% to 25% and be er price realiza on to farmers as they sell directly to your company avoiding the intermediaries. Be er yield coupled with preferen al price translate into real income hike for farmers.
Business Strategies
SABmiller also launched a first of its kind innova on, Thermo chroma c labels for the Knock Out brand. The label will change colour when the beer reaches the op mum temperature for a great drinking experience, as well as enabling consumers to confirm that the beer he is buying is cold.
Foster’s Group was acquired by SABMiller plc in December 2011 providing exposure to Australia’s strong economic growth prospects, a leading posi on in the stable and profitable Australian beer industry. Foster’s dominates the Australian beer market, with a volume share of around 45% and ownership of seven of the top 10 beer brands. Australia’s beer market offers rela vely high margins, par cularly compared to some emerging beer markets where SABMiller is a leading player.
SABMiller con nues to lay emphasis on sustainable development throughout Asia Pacific. We con nued to see improvement in our water usage and energy consump on levels. Water usage stood at 4.4 hl / hl against Group’s global standard of 4.66 hl / hl while energy usage was at 202.3 MJ / hl against Group’s global standard of 204.5 MJ / hl.
Situa on Analysis
SABMiller India is the subsidiary of SABmiller plc & is the second-largest brewer in India, employing over 2,900 people and with a market share of 24%. The company operates 11 breweries, including the largest in India in Andhra Pradesh which has a capacity of 1.5 million hectoliters. In 2012, SABMiller India’s lager volumes grew 3% and market share increases were achieved in key high-margin states. There are 6 brands in total in India (Hayward’s 5000, foster’s , Royal challenge, Knock out, Hayward’s Black, Peroni).
SABMiller entered Australia with Coca Cola Ama l by forming Pacific Beverages Pty Ltd, a joint venture to market, sell and distribute Peroni Nastro Azzurro, Pilsner Urquell, and Miller Genuine Dra in Australia in 2006.The venture also agrees to sell and distribute the por olio of global premium spirits distributor Maxxium.
Sustainable Development
Business Review
In February 2013, SABMiller acquired Kingway’s brewery business for a total cash considera on of CNY 5.38 billion (USD 864m). Kingway’s business comprises seven breweries in China and has total annual produc on capacity of 14.5 million hectoliters. In 2011, Kingway sold 9.3m hectoliters of beer. The partners see clear economies of scale in the deal and a strengthening of CR Snow’s posi on in Guangdong.
to restric ons on adver sing, distribu on infrastructure and retailing, varied tax structures, controlled pricing and licensing make opera ons more complex, consequently leading to higher costs, though providing entry barriers for new entrants as well.
Overview
share although organic growth was affected by heavy and prolonged rains that affected certain key provinces. Good market share increases were delivered in Anhui, Zhejiang, Jiangsu, Tianjin, Liaoning, Guizhou, Shanghai and Heilongjiang, although market share was lost in Sichuan. In China, there are 83 breweries in opera on with 22% market share and currently there are 7 brands. With a per capita consump on of 36 litres, China is one of the largest beer consuming na ons in the world.
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SABMiller plc Management Report
Opera ons review Africa
11
12
11,250
10
9,988
09
8,852
6,522
SABMiller is a 39.7% shareholder in the Tsogo Sun Group, which is listed on the Johannesburg Stock Exchange.
Revenue (USDm)
7,493
SABMiller is Africa’s largest brewers with brewing interests and distribu on agreements across 16 countries (including South Africa) and a strategic alliance with the Castle group in 21 countries across the con nent. SABMiller is also the largest bo lers of Coca-Cola products. The company has 39 brewery and 25 bo ling plants across the con nent and over 25,000 employees.
Sonny Iduh, Managing Director
13
Business Overview Within Africa, South Africa is the largest beer market, accoun ng for over 25% of the region’s volume, net revenue and profit. This is mainly driven by the advanced economic development of South Africa versus the rest of Africa. Other key markets are Nigeria, Angola, Cameroon, Democra c Republic of Congo (DRC), Kenya and Tanzania, Ethiopia, Uganda, Congo and Mozambique.
Across Africa, we’re developing a new genera on of affordable brands to cater for the aspira ons of lowincome consumers in emerging markets.
Across the con nent, we’re developing a new genera on of affordable brands to cater for the aspira ons of low-income consumers in emerging markets. These are typically made from locally grown raw materials and offer a safe, quality alterna ve to informal and illicit beers and spirits. Total revenue for the con nent’s business is expected to grow to USD 10,250m in 2013, an increase of 22% compared to 2012 (USD9,988m).
Financial summary Revenue (USDm) EBITA (USDm) EBITA margin (%) Lager volume (m hl)
2013 10,250 3,917 34.8 47.7
2012 9,988 2,766 20.2 44.2
% 22 42 8
Strategic focus areas For emerging markets • Drive growth through full brand por olios, wider price ranges and expansion into adjacent categories • Further develop sales and distribu on to enhance our outlet presence and extend our geographic coverage • Mi gate high imported input costs through innova on and local supply chains For mature markets • Leverage scale to drive produc vity and reinvest savings in market-facing ac vi es • Engage the compe on in all alcohol categories
The business is also likely to grow in volume with the following breakdown: Lager 50,414 hectolitres So drinks 33,970 hectolitres Alcoholic beverages 7,830 hectolitres
14% 8% 7%
EBITA contribu on from the region will be 35% driven by the successful rejuvena on of Castle Lite and Castle Milk Stout ed to the 2013 Africa Cup of Na ons, and effec ve sourcing of raw material locally with the introduc on of Impala (Cassava beer). Country Opera ons Review Our opera on in Botswana is through the Kgalagadi Breweries Ltd and Botswana Breweries Ltd, both enjoy well in excess of 90% of their respec ve markets for lager and tradi onal beer. The combined businesses employ 1,000 people throughout the country. They operate
Nile Special Origin: Uganda www.nilebreweries.com The flagship brand of Nile Breweries for over 50 years and an eight mes Gold award and three mes Grand Gold winner at the Brussels-based Monde Selec on Interna onal, Nile Special has been trusted over the genera ons for its sa sfying full-bodied character and consistency.
SABMiller plc Management Report
21
Opera ons review con nued Africa
In Angola, Castel is the dominant player by far, accoun ng for 80% volume share and SAB is a distant number two, with approximately 4% market share in Angola on propor onal basis (9% on a consolidated basis). SAB’s opera ons in Angola going forward will be combined with Castel’s opera ons and managed by Castel. Sustainable Development We have developed the SAB (Pty) Ltd Tavern Interven on Programme (TIP) which is run in partnership with Men for Development in South Africa (MEDSA). The programme takes par cipants through structured modules covering Responsible Alcohol Consump on,
As well as managing water within our own opera ons and value chains, we take an ac ve role in shaping the water debate. Through our Water Futures partnership, we share learnings and promote be er watershed management.
25% South Africa’s share of the region’s volume, net revenue and profit
Shareholder Informa on
Lager volumes in Uganda grew year-on-year
Nigeria had approximately 13% of the popula on and the most populated in the con nent, analyst projects that the country will have the highest GDP by 2017 in Africa. We acquired the consolidated breweries with 3 breweries in 2010 and commissioned a new factory in Onitsha with the inten on develop and distribute VFM brand. Heineken is the dominant player, through Nigerian Breweries (54% stake) and Consolidated Breweries (51% stake). We have less than 4% share of beer market and an es mated beer consump on of 19 litres per capita.
We have developed a global framework to address local water issues. Through the ‘5Rs’, each of our breweries in Africa focus on issues upstream, downstream and within their opera ons.
Financial Forecasts
Despite cycling a strong compara ve, lager volumes in Tanzania grew by 15% during 2012 a ributable to the successful mainstream brand renova ons of Safari and Kilimanjaro, as well as strong premium segment growth driven by Castle Lite. We have about 73% share of beer market and not represented in the so drinks market. It is es mated that beer consump on is 9 litres per capita.
Our so drinks division is South Africa’s leading producer of products for The Coca-Cola Company. We have hotel and gaming interests through our associate Tsogo Sun Holdings Ltd, the largest hotel and gaming group in South Africa. We have over 90% share of beer market and over 72% of share of so drinks with an es mated beer consump on of 60 litres per capita. Although we dominate the market, Brandhouse (a JV between Heineken, Diageo and Namibian Breweries) has volume share and is now stabilized around 10%.
Increasingly our approach is extending into local communi es as we build on the success of our internal programmes. We constantly monitor the prevalence in each of the countries where we operate.
Business Strategies
In 2011, our business in Mozambique launched Impala, the first-ever commercial beer made from cassava. With the government recognising the economic benefits and reducing the excise on Impala, more low-income consumers will be able to make the transi on from home brews to commercial beer. We have about 80% share of beer market and not represented in the so drinks market. Analysts es mated beer consump on to be in the range of litres per capita.
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It is the largest market for SABMiller in terms of revenue, volume and profit and also exports brands for distribu on across Namibia.
Situa on Analysis
Our Lesotho business, Malu Mountain Brewery, recently reinvigorated its Malu Premium Lager to counter new, premium compe on arriving from South Africa. Trading on the brand’s local heritage, the business developed a ‘pride in origins’ posi oning along with new packaging and a na onal promo on celebra ng Lesotho’s best-known loca ons. Having outstripped all volume forecasts, the product now has a premium market share of over 70% and is one of the most profitable brands in the brewery’s por olio. We have over 90% share of beer market and over 95% of share of so drinks with an es mated beer consump on of 17 litres per capita.
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The South African Breweries (Pty) Ltd. (SAB) is South Africa’s leading producer and distributor of lager and so drinks.
HIV/Aids, Gender-based Violence and Children’s Rights and Parental Responsibili es. Our HIV/Aids programmes mainly focus on those countries where the prevalence of HIV/Aids is high, i.e. more than 5% – a list that includes South Africa, Swaziland, Botswana, Lesotho, Zambia, Mozambique, Uganda, Malawi and Tanzania. We seek to provide educa on and awareness training for all our employees, spouses and their dependants.
Business Review
Accra Brewery in Ghana became a subsidiary of SABMiller in 1997. Today, ABL produces both alcoholic and non-alcoholic beverages. Vol c is the market leader in bo led water produc on in Ghana with an 85% share of the mineral water market. Our share of total beer market is es mated to be 38% and beer consump on is at 7 litres per capita. Diageo is currently the leading brewer in this market.
by 19% supported by an enhanced distribu on network into western Uganda, rigorous intrade execu on and a strong mainstream and affordable por olio. We have about 56% share of beer market and an es mated beer consump on of 10 litres per capita.
Overview
four tradi onal beer breweries, a lager brewery, a sparkling so drinks produc on plant and six sales and distribu on depots. It is es mated that our share of total beer market is 82%, share of total so drinks market 98% and share of total formal sorghum market 99% and beer consump on per capita is 23 litres. Brandhouse is our compe tor in the market with less than 10% 0f the market share.
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SABMiller plc Management Report
Opera ons review North America
Susie Huang, Managing Director
Regional Overview The North America segment includes the group’s 58% share in MillerCoors and 100% of Miller Brewing Interna onal. MillerCoors is a joint venture with Molson Coors Brewing Company, formed in 2008 by bringing together the US and Puerto Rican opera ons of both groups.
5,227
5,228
5,223
5,250
5,191
MillerCoors is the second largest brewer in the USA, with 29% of the beer market. The wholly owned Miller Brewing Interna onal business is based in Milwaukee, USA and exports to Canada and Mexico and throughout the Americas.
Revenue (USDm)
09
10
11
12
13
Financial Overview SABMiller North America is the second largest brewer in the USA, occupying 29% of the local beer market, contribu ng 14.4% to group EBITA margin in 2012. North America is expected to deliver steady performance for fiscal year 2013.
MillerCoors’ Tenth and Blake division will con nue to see growth driven par cularly by the con nued success of Blue Moon and Leinenkugel’s and their seasonal variants, together with Peroni Nastro Azzurro.
Financial summary Revenue (USDm) EBITA (USDm) EBITA margin (%) Lager volume (m hl)
2013 5,191 869 16.7 40.9
2012 5,250 756 14.4 41.3
% 1 16 -1
Revenue and Volume is expected to decrease about 1% from USD5,250m to USD5,191m and from 41,346 to 40,933 (hl 000) from year 2012 to 2013 as economic pressures con nued to affect key consumer groups. The predicted EBITA increase is mainly a result of revenue growth from pricing and favourable brand mix along with cost savings partly offset by higher raw material and distribu on costs and investment in systems. MillerCoors’ Tenth and Blake division will con nue to see growth driven par cularly by the con nued success of Blue Moon and Leinenkugel’s and their seasonal variants, together with Peroni Nastro Azzurro. The below premium segment is expected to go down, as consumers con nue to trade up to other segments.
Blue Moon Origin: USA www.bluemoonbrewingco.com
Country Opera ons Overview Strategic focus areas • Win in premium lights with strengthened posi oning of Coors Light, Miller Lite and Miller 64 • Through Tenth and Blake Brewing Company extend and grow MillerCoors’ import and cra por olio • Create value through strong revenue management • Create leading capability and superior growth in retail sales • Support the three- er distribu on system to drive effec veness and value
The US beer market is mature, growing at a CAGR of 3% over 2006-2012 and reaching USD61.1 billion at the end of 2012. Imports account for 31% of the market, with Mexico, the Netherlands and Canada the most important trade partners. Turnover of local producers stands at USD28.9 billion in 2012, up 21% on 2006. Export volume more than doubled over 2006-2012, s mula ng local producers. In this highly concentrated industry, the largest companies generate 77% of total turnover. The industry outlook is dependent on shi s in consumer structure and the development of new flavours.
Blue Moon Belgian White is an ar ully cra ed beer, with a cloudy white, opaque appearance. Brewed in the Belgian style it has a refreshing, medium-bodied, unfiltered wheat ale taste spiced with fresh coriander and orange peel crea ng a unique experience and an uncommonly smooth finish.
SABMiller plc Management Report
23
Opera ons review con nued North America
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Overall demand for beer remains weak, but cra beers con nue to show healthy growth.
Shareholder Informa on
Yuengling Brewery is an American company focusing on premium lager produc on. Its products are generally posi oned as highquality alterna ves to domes c standard lager, but they are not considered as being as rich or flavorsome as domes c cra beers. The company’s flagship brand, Yuengling Tradi onal Lager, ranked second only to Michelob Ultra in
Financial Forecasts
Boston Beer, a cra brewer, engages in the produc on and sale of alcohol beverages. The company produces malt beverages and hard cider at company-owned breweries and under contract arrangements at other brewery loca ons. The company has a strong presence in both dark beers and lagers, with the company’s flagship brand Samuel Adams Boston Lager. The company sells its products primarily in the US and employs over 840 people. It is listed on NYSE and reported net sales of beer in 2011 of US$0.5 billion.
Molson Canada was named one of Canada‟s top 10 marketers by Marke ng Magazine. To grow its presence in the cra beer segment, the company announced in 2011 the crea on of the Six Pints stand-alone brewery division, largely based on the previously acquired cra beer makers Creemore Springs and Granville Island Brewing. The decision to create a standalone division that will be responsible for its own product development, pricing and distribu on in large part reflects the a empt to overcome o en mes nega ve percep ons associated with cra breweries and brands being operated by large corpora ons.
SABMiller USA’s market share
Business Strategies
Anheuser-Busch InBev is the largest global brewer by volume, engaged in producing, marke ng, distribu ng and selling a por olio of approximately 200 beer brands. The company operates in seven regions: North America, La n America North, La n America South, Western Europe, Central & Eastern Europe, Asia Pacific and Global Export & Holding Companies. The company employs about 114,000 people. As of December 2012, the company operated 13 beverage plants in the US and controlled 48% of the local market.
Laba Brewing remained the top brand by domina ng three main categories of beer. The Alexander Keith brand led pale ale lager with an overwhelming 62% of volume sales in Canada. Laba ’s standard brands combined to make up 52% of domes c standard lager sales. The manufacturer‟s brands also have a strong presence in economy lager sales with 42% volume share.
29%
Situa on Analysis
Compe on USA The largest six companies, generated just 77% of total industry turnover, further indica ng the high concentra on within industry. The largest three industry players are:
Canada Beer sales in Canada con nue to be dominated by Laba Brewing and Molson Canada (including Molson Coors and Modelo Molson divisions).
Business Review
”
Unit prices of beer in Canada con nue to rise but frequent promo on ac vity mi gates the extent of price increases. Laba Brewing and Molson Canada retain their leadership together, accoun ng for over 79% share of beer sales in Canada. Value sales are expected to grow at a CAGR of 1% in constant terms over the forecast period, whilst volume sales will decline marginally
domes c premium lager, despite its more limited regional distribu on. Following the comple on of a second brewery in Po sville, and an acquisi on in Tampa Bay (Florida), the company’s products can be found in 14 states along the eastern seaboard;
Overview
Beer in Canada has been a mature category for some me.
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SABMiller plc Management Report
Opera ons review Europe
Hiroshi Hirai, Managing Director
Regional Overview
Revenue (USDm)
5,482
5,537
10
5,394
09
5,577
6,145
Our primary brewing opera ons cover eight countries - the Czech Republic, Hungary, Italy, Poland, Romania, Slovakia, Spain (Canary Islands) and the Netherlands. In the majority of these countries, we are the number one or two brewer by market share. A further 16 countries including Russia, Turkey and Ukraine are covered in a strategic alliance with Anadolu Efes through either brewing, so drinks or export opera ons. We export significant volumes to a further 8 European markets, of which the largest are the UK and Germany.
11
12
13
The European region sold 45,000 hl of beer in 2013 which account for 19% of SABMiller’s total. In terms of revenue, it was USD5,537m, EBITA USD961m, respec vely in 2013. Financial Overview
Beer markets con nued to be affected by consumer downtrading and industry focus on economy brands and packs. Despite this, SABMiller Europe achieved stable sales in 2013.
Financial summary Revenue (USDm) EBITA (USDm) EBITA margin (%) Lager volume (m hl)
2013 5,536 878 15.9 44.4
2012 5,482 836 15.3 43.9
% 1 5 1
Strategic focus areas •
•
•
•
Drive superior organic revenue growth and margin expansion through growing perceived category benefits and value per serving Structure and shape the category by driving our full brand por olios in growth segments in key markets through innova ve 360 degree marke ng programmes Con nue to drive differen a on through innova ng in product, packaging and dispense systems Design for scale, cost advantage and focus
Beer markets con nued to be affected by consumer downtrading and industry focus on economy brands and packs. European region achieved stable sales in 2013. Revenue grew from USD5,482m (2012) to USD 5,532m (2013), a growth of 1%. The European region is the second largest contributor to SABMiller. Country Opera ons Overview Poland is the largest market for SABMiller Europe. In 2012, we sold 13,480m hl lager beer down by 4% from previous year impacted by compe tor price reduc ons and promo onal ac vi es along with planned destocking of wholesaler inventories. The beer market has been increasingly characterised by downtrading together with con nued development of the modern trade, especially discounters, resul ng in growth of the economy segment. In this environment, our economy brand Wojak has performed well and gained market share. However, key mainstream brands and the premium segment have been nega vely affected. In Poland market, our market share is 37% and main brands are TYSKIE, ZUBR and LECH. Czech Republic is the second largest market for SABMiller. In 2012, we sold 6,928m hl lager beer. With a full brand por olio, Plzeňský Prazdroj enjoys a leading market posi on in a mature beer market with a per capita consump on amongst the highest in the world. Our premium brand, Pilsner Urquell, is exported to more than 50 countries around the world while Gambrinus is the leading mainstream brand with 20% market share. Our market share in Czech is 46%.
Grolsch Origin: Netherlands www.grolsch.com Grolsch has a dis nc ve, bold and hoppy taste developed through almost four centuries of cra ed brewing tradi on. It owes its superb quality to the selec on of the finest ingredients and its unique double fermenta on brewing process.
SABMiller plc Management Report
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Opera ons review con nued Europe
Compe
Sustainable Development In 2012, SABMiller undertook a “Building a talent pipeline” ini a ve. To achieve our growth strategies we need our leaders to have the skills, behaviours and passion to drive value through their teams.
”
Shareholder Informa on
In partnership with Ashridge Business School, we design the programme around a different theme each year. This year the theme was ‘Impact’, whether personal, team or organisa onal. As part of the learning experience, par cipants are given real business problems to address, enabling them to make their own impact through on-the-job learning. The programme is delivering results. We have seen an increase in the confidence, performance and impact of those involved and 25% of the par cipants in 2010 were promoted within one year, taking new knowledge and innova ve thinking into the business in their new roles.
Financial Forecasts
“
Business Strategies
Central and Eastern Europe accounts for 14% of global beer consump on, but only 10% of EBITA. Beer volumes have grown rapidly over the last decade, fuelled by strong economic development. However, as is the case in Western Europe, most local markets are strongly compe ve (albeit retailer power is much lower), leading to low pricing power and rela vely low margins by global standards. These have been compounded by recent specific market issues related to duty and raw materials in the region’s biggest market, Russia.
Market share of the top 3 European beer companies
Situa on Analysis
Western Europe accounts for 15% of global beer consump on, but only 12% of EBITA. Beer volumes have declined over the last decade as a result of nega ve demographic trends and lower per capita consump on. Markets are more o en than not fragmented and compe ve, leading to overall lower margins by global standards, despite rela vely high selling prices. However, many of the region’s brewers are undertaking significant cost-cu ng programs.
52%
Business Review
The European beer market is fairly concentrated, with the top three players holding 52.1% of the total market volume. The market leaders own a variety of recognized brands and operate in various segments of the market, which is possible due to the ease of increase in produc on capacity once a company is established. There is a high degree of product differen a on in the market, as there are many varie es of beer, such as ales, stouts, low/no alcohol, standard and premium lager, and specialty beer.
Miller Brands markets, sells and distributes our interna onal premium beers in the UK and Ireland. During 2012 the con nued growth of Peroni Nastro Azzurro through expansion in on-premise channels has resulted in lager volume growth of 8%. This was achieved despite a decline in the beer market and lower MGD volumes as distribu on was refocused on key regions. EBITA grew strongly supported by good revenue per hl growth in the on-premise channel.
We developed our European Management Development Programme (EMDP) to develop a talent pipeline by preparing our most talented current and future managers for their next challenges.
on
Overview
SABMiller sold 4,500m hl lager beer in Romania for 2012. Ursus Breweries has three breweries in Brasov, Buzau and Timisoara and a mini produc on unit in Cluj. During 2012, lager volumes declined by 8% in a market in which consumers have downtraded. This emphasis on the economy segment and bulk packs has involved heavy discoun ng and led to adverse brand and pack mix. Our performance was also impacted by planned wholesaler destocking in the second half of the year. In Romania market, our market share is 26% and main brands are URSUS, Timisoreana and Ciucas.
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SABMiller plc Management Report
Situa on Analysis External Environment PESTEL Analysis of the Beer Industry Poli cal Factors •
•
•
•
The poli cal stability in a country could have a crucial influence on businesses and especially on big investments such as big capacity brewers (e.g. the Botswana case) Regula ons and quality laws are different all over the world, and some mes could influence the produc on on a large scale (esp. China). Ban and restric on on alcohol adver sing (e.g. Czech Republic where the government introduced a blanket ban on all spirits) Most economies face an increase in taxes for alcohol
Economical Factors •
•
• •
Social Factors
The slow economic growth of mature markets (Europe and US) influences the evolu on of beer market The rise in costs of fuel, energy, aluminum and other raw materials affects the profitability in this industry The skill level of workforce is important for beer business management For global players, vola lity of exchange rates, devalua on of so currencies, high level of infla on in some countries (especially on emerging markets) should be considered.
•
•
•
•
Consumers are more health conscious. The lifestyle in developing countries has changed due to an increase in disposable income, and this has led to an increase in beer consump on Demographic and cultural aspects (e.g. younger popula on in emerging regions spend more me in coffee shops and pubs) Football and other sports events affects consumer behavior and is very important in beer consump on Beer makers can be affected by the new trend in consump on, for instance the growing preference for wines or spirits
Porter’s Five Forces Power of Suppliers - LOW
Power of Buyers - MID to HIGH
The main raw materials in the beer industry are malted grain and bo les (or barrels). Brewers tradi onally buy the raw materials directly from producers or from third-party mal ngs. There are beer makers which own their mal ng house, determing a weak supplier power. S ll, hop growers can find alterna ves for their products such as spirits producers (for dis lla on) or animal feed purposes. The quality of raw materials is determinant in this business, so overall, the suppliers’ power in this industry could be considered quite low.
The most important buyers of beer makers are supermarket chains with a strong power and ability to nego ate. Also, the level of switching cost for these kinds of buyers is low. The bigger players in the beer industry are capable of offering a wide range of products with different tastes and prices. We can consider a high level of buyers’ power, although, in specific countries or regions, it could be moderate due to fewer product offerings (Vietnam, Africa, La n America). The demand of regular beer is inelas c (-0.7) but the premium beer is elas c.
Power of Subs tutes - MID The power of subs tutes can be considered moderate, but is growing due to increasing consciousness of people about healthy habits. Individuals are more interested in low calorie products and also tend to prefer nonalcoholic beverages. It is important to men on the increasing demand of wine, due to the perceived health benefits of this beverage.
The beer industry is characterized by a high level of compe veness. From the total beer market volume, approximately 47% is held by four major players: Anheuser Busch Inbev, SABMiller, Heineken and Carlsberg. In order to differen ate their products from those of the compe tors, the main players in this industry invest a lot in marke ng and in product innova on. This contributes to a high fixed costs (due to the maintenance of a high level of product quality, strong distribu on channels, etc). The strong bargaining power of buyers (e.g. big supermarkets chains) can lead to high pressure on price levels. All these factors determine a strong rivalry in the beer industry.
For a 4million barrel capacity brewery, the minimum investment is approximately USD250m. A significant amount of capital is required to buy all the machineries for the plant, raw materials, storage facili es etc. If we also consider the s rict government regula ons, barriers for new entrants can be very high. To achieve large scale produc on, a new business needs a lot of experience with building strong distribu on channels, high investment in produc on lines, and marke ng campaigns. It is very hard to compete with exis ng brands that are already popular among the consumers. The entrance in this industry could be risky because there are li le alterna ves uses for a brewery. For small businesses like micro-breweries, the barriers to entry can be considered a moderate one. In the last decade, this industry has witnessed a lot of exits and plenty of new entrants from micro-breweries, especially in the US and Africa.
Rivalry of Compe tors - HIGH
Threat of New Entrants - MID to HIGH
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Situa on Analysis con nued Key Business Capabili es
•
•
•
•
•
•
•
Weather condi ons could affect beer consump on (e.g. La n America in 2006, China in 2012) Increasing awareness about water consump on; most big players are engaged in special programs for wateruse reduc on Increasing awareness of reduc on in carbon emissions should be considered for the future management of this business Recycling systems of packaging and other materials used in beer produc on is a substan al financial investment
Legal Factors •
•
•
The workforce laws and regula ons differ from country to country, and this could be an influencing factor in the management of globally opera ng beer makers Local laws could affect takeover a empts and may develop legal complica ons to a business Laws and regula ons regarding mergers and acquisi ons, and compe on regula ons as a whole should be considered as an extremely important influencing factor for a globally opera ng beer producer
Strengths • Strong corporate sustainability efforts • Global presence • Por olio of interna onal and local brands • Most diversified beer company • Implementa on of corporate best prac ces • Uses global exper se to grow local brands • Worldwide alliances
Weaknesses • “Lacks controlling shareholders” - easy to pick apart by compe tors if they can afford it • No breweries in Germany and the UK which are the first and the second largest market in EU • Lack of presence in Brazil, Japan
Opportuni es • Economic downturn posi ve effect on consumer behavior: Many drinkers were indulging in premium beers as a “treat or reward” during the difficult economic mes • Drinking age bracket is growing • Ban on spirits in Czech Republic • Con nued growth in emerging markets • Partnerships with local brands
Threats • Tax avoidance allega ons in Europe & Africa • Possibility of takeover from AB InBev • Tax laws on alcohol • Beer industry consolida on • Increasing cost of raw materials & fuel • Limits on alcohol adver sing (Africa, India) • US & Europe economic downturn • Nega ve health percep on of beer
VRINE Analysis RARITY: Bases of value crea on that are rare • The capacity of SABMiller to operate and to easily deal in challenging environments could be consider rare. Their experience in South Africa market, during the apartheid regime enabled them to enter on new and different markets, organizing an aggressive growth strategy in order to increase their global market share. IMITABILITY: Aspects of value crea on that are difficult to imitate • The experience gained by SABMiller South Africa shaped the further
evolu on of the interna onal company. It was developed in a unique corporate culture with a special capacity to approach new and emerging markets. This unique capacity of learning from historical experience is less imitable. NON-SUBSTITUTABILITY: Aspects of the value chain which are not vulnerable to subs tu on • The unique capability of SABMiller to apply global exper se and local knowledge to manage brands is less vulnerable to subs tu on.
Shareholder Informa on
VALUE: Significant ac vi es that meet customers’ needs • Being in the right markets, having the right por olio: The company operates in a range of markets with different characteris cs - price ladders approach and market segmenta on maximise profitability from different markets • Building the right partnerships by crea ng successful rela onships with their partners and crea ng the right opera ng process • Sharing best prac ce and implemen ng measurement procedures (KPIs) to ensure con nuous improvements
Financial Forecasts
External
Harmful
Business Strategies
Internal
Helpful
Situa on Analysis
SWOT Analysis
Business Review
•
Investments in R&D, automa on technology are influencing factors of produc vity in the beer industry Due to new technology, new packaging can be easily adopted in the beverage industry The high level of technology provides the beer producers with the capacity to manage a developed and complex distribu on network An advanced technology offers high level of flexibility; companies could introduce a variety of products with different flavors
Environmental Factors
Overview
Technological Factors
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SABMiller plc Management Report
Situa on Analysis con nued Internal Value Chain Analysis
Support Ac vi es
Infrastructure: IT system, general management, finance and accoun ng The IT management is centralised, company has a USD100m contract for 8 years with HP (BLAD System Products), star ng with 2010 Technology and development: “Its global brewing technical team has developed innova ve technology which drama cally reduces the energy input required in the boiling process”. The company invested in a low-energy boiling technology and “is commi ed to reduce its fossil fuel emmissions by 50 % per litre of beer by 2020 and its water use by 25% per litre of beer by 2015, compared to 2008 levels”(SABMiller, 2013). Human resources: Also improved with the Trinity Program. The project of implemen ng Accenture’s Supply Chain Academy at SABMiller La n America could be considered a real success. Through this project the company was able to offer “specific kowledge and skill gaps in a wide range of supply chain roles accros La n American opera ons” (The employees were involved in a series of courses for “specific areas including procurement, planning, inventory management, logis cs, manufacturing and customer service).
Primary Ac vi es
Procurement: The implementa on of Trinity Procurement (2012), a global procurement organisa on, with headquarters in Switzerland, and four regional offices in Johannesburg (SA), Miami (USA), Baar (Switzerland) and Melbourne (Australia). Responsible for acquisi on of: brewing materials, packaging, capital equipment, marke ng materials and business services (SABMiller, 2013). Inbound logis cs The company has long term contracts with its suppliers (usually with local communi es) for raw materials in order to ensure consistency in their produc on ac vity
Opera ons The ability to develop low cost produc on facili es capable of producing consistent product anywhere in the world Well developed raw material prac ces that leverage deep industry knowledge and economies of scale. The company has developed an interna onal reputa on for “opera onal excellence” known as the “SABMiller Way.”
Outbound logis cs The company con nuously invests in order “to op mise their distribu on network for a maximum efficiency.” “Ra onalising distribu on centres, consolida ng a fragmented distribu on network, introducing and standardising performance incen ves for distributors” are only some of the main aspects of their logis c ac vity (SABMiller, 2013).
Service The company has a collabora ve approach regarding the rela onships with its customers, because “working together with them will yield results”.
Marke ng & Sales Sales programmes locally designed in strong rela onship with local partners. The ability to nurture and grow brands that consumers want is one of the most important assets of SABMiller.
“BEER” (Building Execu on Excellence at Retail). The management team view is to realize “an improved customer rela onship model, centred on mutually beneficial solu ons for brand-led growth.”
Four global brands, 200 local brands The company developed a global approach to digital marke ng ac vity for worlwide brands (Marke ng Week, 2011).
Industry Consolida on Trend Mergers & Acquisi ons Crea on of SABMiller following the purchase of Miller Brewing Company
Primary lis ng on the London Stock Exchange
Pacific Beverages JV with Coca-Cola Ama l formed in Australia
El Salvador, Honduras, Strategic alliance with Castel Group in Africa
Belgium Interbrew and Brazilian Ambev merger, forming InBev
Carlsberg and Orkla merger, Carlsberg acquisi on of Kronenbourg
Anheuser-Busch acquisi on of Harbin in China
Heineken acquisi on of Brau AG
India
South America
Italy
Global growth
2007
2006
2005
2004
2003
2002
2001
2000
1999
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SABMiller plc Management Report
Compe
29
ve Landscape
he global top 4 brewers (AB InBev, SABMiller, Heineken and Carlsberg) collec vely account for 45% of volume, 48% of revenue and 59% of EBITA, on a propor onate basis.
EBITA (%)
Global Presence
Anheuser-Busch InBev
18
29 N. America, La n America, Europe, APAC
SABMiller
12
15
Heineken
9
Carlsberg
6
% Total of beer market
N. America, La n America, Europe, APAC, Africa
10 Western Europe, Africa, Middle East 5 Europe
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Business Review
Anheuser-Busch InBev is the largest global brewer by volume, engaged in producing, marke ng, distribu ng and selling a por olio of approximately 200 beer brands and employs about 114,000 people. The company also produces and distributes so drinks, par cularly in La n America. The group has best-in-class margins, benefi ng from scale, top-cost management and favorable market structures in the Americas.
Volume (%)
Company
Overview
T
59 2012
Situa on Analysis
Heineken has a more balanced geographic mix of mature/emerging markets, owning, marke ng and selling more than 250 brands and employing around 70,000 people. However, the group is s ll heavily dependent upon low-growth, lowermargin Western Europe. In addi on, the group has leading posi ons in many African markets, where it benefits from strong pricing power and superior margins.
Business Strategies
Carlsberg primarily operates in Europe, which accounts for 90% of its beer profits. The Carlsberg beer por olio includes more than 500 brands and employs 41,000 people. In Eastern Europe, Carlsberg is largely concentrated in Russia, where Bal ka enjoys close to 40% market share. Given the scale of the Russian beer market, the group has high margins in Eastern Europe. In contrast, Carlsberg has rela vely low margins in Western Europe, where markets are a lot more compe ve.
Financial Forecasts
Ukraine, Southern Sudan, Acquisi on of Royal Grolsch N.V., Crea on of MillerCoors JV in USA and Puerto Rico
SABMiller forms strategic alliance with Anadolu Efes
Argen na
Proposed acquisi on of Distell Group in Africa
Shareholder Informa on
Anheuser-Busch and InBev merger
AB-InBev a empts to buy Grupo Modelo
Acquisi on of Kingway Brewery in China
Acquisi on of Foster’s Group in Australia Acquisi on of remaining shares in Poland
2014
2013
2012
2011
2010
2009
2008
AB-InBev SABMiller Carlsberg Heineken
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SABMiller plc Management Report
Business Strategies Product Por olio Expansion Strategy: Non-alcoholic beer & malts
$25m To introduce a non-alcoholic beer brand in the Middle East region
2.3m hl $460m For Board Approval USD 25m for introducing non-alcoholic beer brand called SHARAF (Honor) and Malts as a pilot project in alliance with Anadolu Efes in Middle East region i.e. Iran & Turkey. Alloca on of funds: • Building a new produc on line in one of Anadolu Efes’ facili es: USD 15 million • Se ng up opera ons: USD 5 million • R&D / Marke ng / Legal: USD 5 million Strategy Objec ves • To expand our current product por olio by developing new products and focusing on growth areas such as the Middle East and North Africa • To enhance profitability by capitalizing on emerging market economic growth and increasing consumer disposable income Expected Outcome/Growth We expect to produce 2.3million hl of the product and generate USD460m of revenue in 3 years. Ra onale In the Middle East, nonalcoholic beer has been showing strong growth in recent years. Although it remains a niche category, accoun ng only for 1% of global beer volumes (2011), the nonalcoholic beer category is forecasted to show the most dynamic growth within beer, with a 7% volume CAGR over 2011-2016, thanks to the growing popularity of non-alcoholic beer in Middle East and Africa due to religious proscrip on of alcoholic drinks (Passport, 2012). This could offer growth poten al for SABMiller. Due to the religious ban of alcoholic drinks,
Middle East and Africa is the world’s most important market for nonalcoholic beer. In 2011, volumes grew by 15% in the region, to exceed 1.3 billion litres. Heineken leads the category with a 25% volume share in the region, but its volumes are concentrated mainly in Nigeria. However, Iran is expected to post the strongest growth in nonalcoholic beer, with a 24% volume CAGR (Passport, 2012), accoun ng for two thirds of the region’s total actual volume growth over 2011-2016; the country is expected to overtake Nigeria by 2013 in terms of volume. The ban on alcoholic drinks con nues to be in force in Saudi Arabia due to Sharia law. Therefore, nonalcoholic beer remains the only product available. Youth con nued to be the largest consumer group for nonalcoholic beer. However, the product also started to a ract female consumers, par cularly flavoured nonalcoholic beer. With Iran posi oned at the conserva ve end of the religious spectrum, the fact that it features prominently in the top slots in terms of per capita consump on, size and growth of low/ nonalcohol beer should come as no surprise. Nonalcohol beer is set to post further strong growth (18% CAGR, 2010-2015) driven by Iran, which is expected to post a 33% CAGR over the same period. The recent alliance with Anadolu Efes has also given SABMiller access to Turkey, Russia, CIS,
Expected outcome in terms of volume and revenue in the next 3 years
Timeline • Year 1: Iran & Turkey (including 3-6 month pilot in one city in each country) • Year 2: The rest of Middle East • Year 3: North Africa
Corporate Strategy Focus Area Alignment • Crea ng a balanced and a rac ve global spread of businesses • Developing strong, relevant brand por olios that win in the local market with a brand presence
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Business Strategies con nued Non-alcoholic beer & malts
Risks • Brand (SABMiller) associa on with alcohol can be a deterrent with respect to Muslims beliefs • Other health and energy drinks in the market • Non acceptance of new brands ini ally, requires more me to build trust in the consumers • Compe on from Exis ng old local players
OperaƟons Opera ons and distribu on channels are designed with the exper se of Anadolu Efes in the region
Situa on Analysis
Implementa on (Year 1) ProducƟon Facility We propose se ng up a dedicated produc on line in exis ng produc on capacity of Anadolu Efes. The total cost of this pilot project will be taken up by SABMiller. Anadolu Efes is compensated on cost plus 5% of revenue basis on this project.
Framework Support • Strength: Strength of strategic alliances • Opportuni es: Increase in disposable income in emerging markets
Business Review
MarkeƟng and Legal • Develop non-alcoholic beer brand and seek cer fica on from religious authori es i.e. Halal. • Create a new subsidiary to handle the marke ng and selling of the product in considera on of religious sensibili es (i.e. Muslims do not want to patronize products of companies that are known to manufacture alcoholic beer).
Overview
and Central Asia. Anadolu is already distribu ng SABMiller’s beer brands in the region and has a strong market presence. With our closer es with the Turkish brewer, SABMiller might be able to compete more effec vely against its compe tors in the region for nonalcoholic beer products. Moreover, by taking advantage of Anadolu’s wide distribu on network, SABMiller can push its other nonalcoholic beer products.
Business Strategies Financial Forecasts Shareholder Informa on
Anadolu Efes’ Presence in the Middle East (• alcoholic
• nonalcoholic)
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SABMiller plc Management Report
Business Strategies Premiumisa on Strategy
$15m For premiumisa on efforts in emerging markets, beginning with La n America and China
12% 3% For Board Approval USD15 million for premiumisa on efforts in emerging markets beginning with La n America and China. Funds are specifically for rebranding and marke ng related ini a ves. Alloca on of funds: • La n America: USD 10 million • China: USD 5 million Strategy Objec ves To enhance profit margins by capitalizing on emerging market economic growth and increasing consumer disposable income. •
•
La n America: Revitalize the Cusqueña premium brand and expand throughout the region China: Exploit premium growth through our joint venture with CR Snow and recent increase in capacity through our acquisi on of Kingway and enhance overall profit margins
Expected Outcome/Growth • La n America: 12% growth forecast in revenue from the premium segment • China: 3% growth forecast in revenue from the premium segment
Ra onale Emerging markets are expected to con nue to drive global beer volume growth over 20112016, while mature markets are predicted to remain sluggish. In value terms however, developed markets remain important due to their higher margins, but as premiumisa on con nues, emerging markets are expected to gain share in value terms as consumer’s
disposable income increases encouraging consumers to trade up to more premium products. Premium lager products are expected to post the strongest growth with a 3% volume CAGR over the period, mainly thanks to growing premiumisa on in Asia Pacific and La n America (Passport, 2012). In terms of premium lager volumes, La n America is expected to show significant growth. The region’s economic development is expected to con nue to fuel consump on growth, and consumers with greater disposable income will be able to trade up to more premium products. SABMiller’s key market, Peru, is set to grow at a 12% CAGR over 2011-2016 in premium lager, more than twice the growth of standard lager, and its share of total beer volumes is expected to increase from 10% in 2011, to reach 14% by 2016. Addi onally, there has been strong performance in premium brands in Panama as well as Honduras. The opportunity to grow premium in our exis ng markets of opera on offers significant poten al for exponen al organic growth. (Passport, 2012) With a 5% volume CAGR (+14 billion litres) over 2011-2016, China will remain the key growth driver of global beer volumes, and in addi on to the strong volume growth, there is an opportunity for us to improve our margins as well, as growing wealth allows consumers to trade up from the dominant economy lager. Although premium and standard lager accounted
Expected outcome in terms of revenue growth in La n America and China, respec vely
Timeline • Year 1: La n America & China (including 3-6 month pilot in one city in each region) • Year 2: Ini ate premiumisa on efforts in Africa as well as start tes ng premiumisa on ini a ves in other regions (ex. Australia, India) • Year 3: Roll out premiumisa on in iden fied regions
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Business Strategies con nued Premiumisa on Strategy
Implementa on (Year 1) In La n America, the focus will be on rebranding efforts to revitalize the Cusqueña local premium brand and its variants. The Peruvian Cusqueña brand will be expanded throughout our La n American markets to capitalize on economic growth in the region and the trend of consumers trading up to more premium offerings.
Source: (Passport, 2012)
There is significant opportunity in La n America to u lize and focus on events and fes vals to further promote the Cusqueña premium brand and persuade consumers to drink beer on more occasions.
Business Strategies
In China, we will capitalize on our joint venture with CR Snow to promote local premium brand ‘Snow’ which is posi oned for the premium sector of the market. This will enable us to achieve higher margins in a notoriously low margin region. We will u lize the increased capacity obtained as a result of the Kingway acquisi on to reach new markets. This will involve marke ng and adver sing efforts.
Framework Support • Strength: Global presence and por olio of products • Opportuni es: Con nued growth in emerging markets; capitalise on economic development
Situa on Analysis
Marke ng will include TV adver sing, billboards and in-store marke ng materials to enhance the point of sale. Addi onally, repackaging ini a ves will be implemented, including change in label as well as diverse size offerings and new bo le design.
Business Review
Corporate Strategy Focus Area Alignment • Constantly raising the profitability of local businesses, sustainably • Developing strong, relevant brand por olios that win in the local market with a brand presence
Overview
for only 16% of total beer volumes in 2011, they are expected to outperform the market with a 15% and 13% volume CAGR respec vely over 2011-2016, offering value growth.
Financial Forecasts Shareholder Informa on
Realized growth from 2006-2011 (Passport, 2012)
34
SABMiller plc Management Report
Business Strategies Diversifica on Strategy: Winery
$1.5bn Diversifica on into wine produc on and distribu on through acquisi on of 53% stake in Distell Group
$1,756m Expected outcome in terms of revenue in the first year
For Board Approval We propose to diversify into wine produc on / distribu on through acquisi on of 53% stake in Distell Group with a valua on of USD1.5bn. Strategy Objec ves This long term strategy will: • Expand our business por olio • Explore new opportuni es • Increase our dominance and leadership within the con nent Expected Outcome/Growth Revenue projec ons in the next 3 years a er acquisi on are as follows: • 2014: USD1,756m • 2015: USD2,108m • 2016: USD2,597m Ra onale The wine industry has con nued to witness growth and looking to the future, the industry is set for 10 years of solid, yet modest growth. In 2013, the industry is forecast to see 25% growth, followed by a year-on-year growth level of 22%. The South African market wine is currently evaluated to be worth an es mated USD4.7B (Nielsen, 2013). This trend is as a result of a growing middle class leading to a change in consumer preference and taste. Consumers’ growing health awareness is also a factor. Marke ng intelligence reports also show that our distributors’ stocks of wine are increasing at an average of 3.7% every quarter. Distell Key Stats (Past 5 years average) Revenue (2013) USD1.464B Volume increase 10.7% Revenue increase 21.1%
Revenue growth Opera ng profit EBITA
17.9% 19.0% 31.2%
Implementa on (Year 1) Finance • To be financed by a coali on of 5 banks with a payment plan of 5 installments in 24 months • To raise funds through stock market (Private and public placement) within 3 months of the deal as the good news will hopefully keep stock price up OperaƟons • To keep Distell running with the current facili es and management structure with changes to few strategic office (Finance, Legal etc) • Integrate sales and distribu on of Distell’s 38 brands of s ll wines and sparkling wines with our current network • Distell’s top three wine sellers in South Africa are Paarle Perle, Autumn Harvest Crackling and Drostdy-Hof. JC Le Roux and Sedgewicks Old Brown Sherry MarkeƟng Create a marke ng theme / campaign that appeal to our target and deliver our proposi on. This will not increase the marke ng budget of the business as it will fit to the exis ng budget / plan using our scale and partnership with relevant media pla orms.
Timeline • Year 1: Evalua on of market research report/ Ini ate acquisi on talks • Year 2: Acquisi on/ Start integra on • Year 3: Integra on
Corporate Strategy Focus Area Alignment • Crea ng a balanced and a rac ve global spread of business • This effort will add another stream of income into the group business por olio and consolidate our leadership in the region Framework Support • Opportunity: Affluent and middle class growing preference for wine • Socio-cultural PESTEL: Consumers are more health conscious • Crea ng Value VRINE: Being in the right markets with the right por olio
SABMiller plc Management Report
35
Business Strategies con nued Diversifica on Strategy: Winery
Overview
Sales According to www.sawis.co.za, 2012 wine produc on volume was in the region of 17,200 hectolitres with a revenue of USD3.24 billion. Distell group has a wide network of distributors in over 100 countries and synergy with our sales force and distribu on network will ensure availability in key markets.
Business Review Situa on Analysis
Risks Vineyards in South Africa were ini ally planted at a density of about 3,000 vines per acre. This increased the yield but it also increased the risk of epidemics that could wipe out vast areas of planta ons. Later on, planters focused more on high yielding varie es of grapes than on quality varie es. Scien fic methods of planta on and bio-technology rela ng to plants of high quality could be explored.
Financial Forecasts 3-year projec ons 256
264
14
15
16
Annual growth rate 2013: 5% 2014: 3% 2015: 3% 2016: 3%
Annual growth rate 2013: 12% 2014: 10% 2015: 12% 2016: 14%
Financial Forecasts
Revenue (USDm)
16
16
EBITA (USDm) Annual growth rate 2013: 15% 2014: 12% 2015: 13% 2016: 14%
Shareholder Informa on
9,348
15
49,375
15
8,200
14
43,311
13
14
7,257
6,479
EBITA The EBITA of the company is expected to decline marginally in 2014 due to integra on and restructuring costs and the high fluctua ons in the foreign currency markets, which will have nega ve impact on the company. However the company with its strategies and economies of scale expects to increase the EBITA in the future.
38,671
13
Volume (m hl)
Business Strategies
248
13
35,155
Revenue The Beer market is expected to grow at a rate of 12% approximately YOY and SABMiller with its strategic capabili es and infrastructure will be able to grow at the same average rate of 12%. Also, the company will be able to tap the synergy gains to increase its revenue from the acquisi ons of Fosters and Kingway breweries.
240
Volume SABMiller is well posi oned in emerging markets for strong and sustainable growth and thus we expect the volumes to grow at an average rate of 3% YOY. Also, the last acquisi ons of Fosters and Kingway breweries will play a key role in achieving the targets.
Shareholder informa on References & Group info
Bowers, S. & Treanor, J., 2012. SABMiller controversially elevates chairman to chief execu ve. [Online] Available at: h p://www.guardian.co.uk/ business/2012/apr/23/sabmiller-chairman-chiefexecu ve [Accessed 10 February 2013]. CANACCORD Genuity Limited, 2013. SABMiller Company Flash UK Analyst Report, London: CANACCORD Genuity Limited. Colen, L. & Swinnen, J., 2011. Beer drinking na ons: The determinants of Global Beer Consump on (American Associa on Paper). [Online] Available at: h p://notonesquareinch.wordpress. com/2011/04/15/10-facts-on-worldwide-beerconsump on/ [Accessed 14 February 2013]. Euromonitor, 2012. Beer In Canada. [Online] Available at: h p://www.euromonitor.com/beerin-canada/report [Accessed 28 January 2013]. Euromonitor, 2012. Beer In USA. [Online] Available at: h p://www.euromonitor.com/beerin-usa-isic-1553/report [Accessed 28 January 2013]. Global Data, 2013. SABMiller plc - Financial and Strategic Analysis Review, s.l.: Global Data. Inman, P., 2013. The Guardian. [Online] Available at: h p://www.guardian.co.uk/ business/2013/feb/12/oecd-crackdown-taxavoidance-mul na onals?INTCMP=ILCNETT XT3487 [Accessed 14 February 2013].
Passport, 2012. Global Prospects for Beer Companies, London: Euromonitor Interna onal. Passport, 2012. SABMiller PLC In Beer (WORLD), London: Euromonitor Interna onal. SABMiller, 2011. Product Por olio Policy Shared with WHO. [Online] Available at: h p://www.sabmiller.com/files/ pdf/product_pro olio_policy_public.pdf [Accessed 17 February 2013]. SABMiller, 2012. Annual Report, London: SABMiller plc. SABMiller, 2012. SABMiller Fact Pack. [Online] Available at: h p://www.ingeniousdesign. co.uk/_beta/sabmiller/flipbook/sabmiller.pdf [Accessed 20 January 2013]. SABMiller, 2013. About Us - La n America. [Online] Available at: h p://www.sabmiller.com/index. asp?pageid=634#ref_la namerica [Accessed 20 January 2013]. S rling, T., Chow, J. & Thain, N., 2012. The Bernstein Global Beer Guide, s.l.: Bernstein Black Book. Webb, Q., 2013. SABMiller me? AB InBev setback may hasten last round of beer M&A. [Online] Available at: h p://www.businessstandard.com/ar cle/opinion/sabmillerme-113020200048_1.html [Accessed 12 February 2013].
Group Informa on Boardroom Ac vity Group 6/F Luminita Iancu Sunny Thok Mia Orcullo Emily Alberico Sandeep Nadubedi Sonny Iduh Susie Huang Hiroshi Hirai Chris Lyons Non-execu ve Chair Barbara Dennis Non-execu ve director
Peter Allen Module Leader Alan Ross Consultant Charlo e White Boardroom Coordinator
ORCULLO 2013 Š