Report of SABMiller Plc
(a) Overview of Operations
SABMiller plc is a holding company, which has brewing and beverage interests across six continents (SABMiller Plc Annual Report, 2013). The main business of the company - together with its subsidiaries - is to manufacture, distribute and sell beverages (Sonne, Koons and Lower, 2011). The company is the second-largest brewer after AB InBev, measured in terms of volumes. Its products occupy position one or two of the beer market across the world (Clark, 2014). Besides brewing, the company has also entered into strategic partnerships with Castle, Efes, CRE and the Coca-Cola Company. SABMiller Plc is one of the world’s largest bottlers of Coca Cola products (SABMiller Plc, 2014). The company has also a strategic investment in hotels and gaming. SABMiller plc is listed on the London Stock Exchange and Johannesburg Stock Exchange. The company has over 200 beer brands and more than 70, 000 employees working in over 75 countries across the world. Some of its common international brands include Pilsner, Urquell, Miller Genuine Draft, Peroni Nastro Azzurro and Grolsch (SABMiller Plc, 2014). Local brands include Aguila, Castle, Snow, Miller Lite, Victoria Bitter and Tyskie. The company has presence in Europe, Latin America, Africa, North America, Asian Pacific and South Africa.
Although the company is headquartered in London, it has no production plants in the United Kingdom. The company originated in South Africa in 1875. In the post apartheid era, the company embarked on an expansion program, mainly through acquisition of local companies both in developed and emerging countries.
(b) Industry
Beer is one of the largest consumer goods worldwide (McCaig, 2013; 2). It is one of the most consumed alcoholic beverage and the third most popular drink after water and tea. It is estimated that people started consuming bear as early as 5000 years ago (Jain, 2010; McCaig, 2013). In 2013 the global market for beer was approximately $514 billion (SABMiller Plc Annual Report, 2013; 5). The market is expected to maintain a steady growth reaching $607.8 billion (SABMiller Plc Annual Report, 2013; 5). In this global value AB InBev commands 18.3 percent of the global market share followed closely by SABMiller Plc at 9.8 per cent. Heineken is third at 8.8 percent and Carlsberg fourth at 5.6 percent (SABMiller Plc Annual Report, 2013; The Editorial Board, 2014). The basic ingredients of beer are water, starch like malted barley, sorghum and millet, yeast, and hops – but the combination may vary in different regions.
(c) Strategy and Assessment
(i) SWOT analysis
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Strengths (i) A Strong portfolio of brands (ii) Over 150 local brands (iii) International presence in over 75 countries across 6 continents (iv) Strong sales and distribution network (v) Lite beer taste (vi) Environmentally conscious (vii) Compete in volumes compared to other brands (viii) Conform to government rules in operating countries (ix) Draft taste in bottles and cans (x) A huge workforce totalling to over 70, 000 world wide (xi) Diversification to carbonated soft drinks |
Weaknesses (i) Battling perception of low quality (ii) Has no dark beer line (iii) Decline of brand identity over time due to inconsistent advertising (iv) Products not so strongly differentiated (v) Mass production affect assurance of quality (vi) Taste are assumed to be inferior compared to other brands such as Budweiser (vii) Allocate small budget for advertisement compared to market leader- AB InBev (viii) Use of preservatives is a concern to consumers
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Opportunities (i) Online marketing (ii) Emerging markets in both developed and developing countries (iii) Acquisitions of small brewers (iv) Ability to raise advertising budget
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Threats (i) Fierce competition (ii) Strict regulation of food and beverage industry (iii) Lower priced import a and local products (iv) Prone to sin tax (v) Pressure for healthy products (vi) Competition from other beverages like fruit juices (vii) Increased cost of acquisitions |
The SWOT analysis shows that the company has a lot of potentials. One of its greatest strength is its popular brands (Raice and Evans, 2014). In beer industry, brand identity is crucial. The company’s brand-driven growth is an indication of strong economic franchise (Kimberley, 2014). Furthermore, the concept of international and local brands is an indication of the company’s ability to produce products that take into account the taste and preferences of local consumers. Global presence also adds up to the strengths of SABMiller (Devine, 2011). This means that the company is in a better position to exploit the emerging markets.
At the same time, the company has few weaknesses that it needs to look at if it is going to maintain an upward growth. The company need to counter the perception that its brands are of low quality compared to competitor’s brands. At the same time, the company is challenged with the issue of affordability in developing countries where a low level of income is a reality (Peter, 2011). The shrink in beer and industry also means low growth potentials.
Nonetheless, the company has a myriad of opportunities that it can utilise to sustain upward economic growth. The wide penetration of internet is creating a platform where the company can continue to strengthen its brands (Euronomitor International 2010). In addition, the firm has opportunity to expand beer’s appeal in more markets by using styles and flavours that attract more consumers. The emerging markets also expand the company’s growth opportunities. The company’s strategic partnership with the Coca Cola Company, CRE, Castle and many more is a platform for growth.
In terms of threats, the company operate in an industry that has already matured (IBISWorld 2014). The maturity in beverage industry means low prospect for growth. At the same time, the company is operating at a time when consumers are shifting their loyalty to soft drinks like fruit juices. The shift to soft drinks is motivated by health concerns. Health practitioners have for a long time argued that excessive consumption of alcohol is harmful to consumer’s health. Due to this problem, under other related social problems, beer industry is heavily regulated by the government. The latest figure also shows that there is weak demand of the company’s products in China and Australia (Evans, 2014). Since SABMiller products are accounted in dollar currency, the company is faced with the threat of currency fluctuations especially in central Europe and Africa.
(i) Balanced Scorecard Analysis
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The following points can be drawn from the above scorecard:
(i) Financials
Despite some challenges in the beer and beverage industry, the firm has managed to maintain the second position of the world largest brewer and still maintain superior long term revenue and profit growth. To sustain the long term growth, the firm aims to create a balanced and attractive global spread of business. This aim will be aptly achieved by developing strong, relevant brand portfolios that win in local market (Kimberley, 2014). Emphasis of local brands will raise the firm profitability.
(ii) Business processes
To increase profitability, the firm will have to create efficiency from a global scale. One way through which the firm can achieve efficiency is by creating a global business services function that consolidates many of its back office and specialist functions in three centres around the world (SABMiller Plc Annual Report, 2013). Secondly, the firm need to optimise its supply chain.
(iii) Customer
Beer is always passionately local. The firm need to expand its global brand portfolio to benefit from the emerging market. Pricing and affordability is crucial in increasing sales in developing nations.
(iv) Learning and growth
The firm currently employs more than 70 000 employees. The company recognise that its employees are its most valuable assets. The company has a knowledge-management programme that seeks to improve employees’ collaboration. Continued training and development coupled with targeted talent acquisition is going to enhance productivity and efficiency.
(a) Management Team
SABMiller Plc has a complex organisation with a complex organisational structure. At the top apex of the structure, the company is run by a CEO who is also a member of the board. The top leadership of the organisation also include the chairman of the board, the vice chairman of the board and 11 directors. In its broadest form, the company relies on location departmentalisation to organise its activities.
Location departmentalisation is a logical structure for a company that manufactures localised products (Smit 2007). It fits well with the organisations’ strategy of becoming “a global brewer built on local insights” (Clark, 2014; 5). For SABMiller, each department in the segmented market is expected to design products that are competitive in the local market. The understanding of this organisational structure is that each regional is culturally different and has to be approached differently. Like Smit et al (2007; 201) observes, such a structure leaves the area managers with the necessary autonomy to adjust to local business environments.
(b) Summary
SABMiller is the second largest brewer after AB InBev. In most of the markets that the company sells, its products are either position one or two in terms of popularity. The company commands 9.8 per cent of the global beer market, with a total beverage volume of 318mhl. SABMiller Plc has group net revenue of 27 billion dollars. Most of the company’s revenue now comes from the developing economies. Basing on the SWOT analysis and the balanced scorecard carried above, the company has promising prospects for growth. Although the company is faced by myriad of challenges, its strengths and opportunities outweigh its weaknesses and the possible threats. The company management is well structured to exploit its opportunities and deal with the rising challenges. Local departmentalisation structure of the company makes the company “a global brewer built on local insights” (SABMiller Plc, 2014). The company has also entered into strategic partnerships with Castel, Efes CRE, and the Coca-Cola Company. In the coming years, the company strategy for growth will have to focus on expanding beer’s appeal in mature markets as well as taking the advantage of the emerging markets.
Task 2: SABMiller Financial Performance
For past five years, SABMiller plc have grown group revenue base, both on an organic basis and by acquisition (SABMiller Plc Annual Report, 2013). In 2013, the company’s group revenue increased by 10% to US$34, 487million, up from US$31,388 million in 2012. In the same year, the volume of beer produced by 6% up to 242 million hectolitres up from 229 million hectolitres in year 2012. Reported earnings before interest, tax, amortisation and exceptional items (EBITA) grew by 14% to US$6,421 million up from US$5,634 million. However, the profit before tax fell by 16% from US$5,603 million in 2012 to US$4,712 million in 2013. The basic earnings per share decreased by 23% compared to 2012. The company shares had reached a price-to-earnings ratio of 24 by the end of 2013.That notwithstanding, the Company’s board approved a divided of 101 US cents per share for the year, which represent an increase of 11% compared to year 2012.
The company has a healthy balance sheet. The company reduced its gross debt from US$18,607 in 2012 to US$ 17,872 in 2013 (SABMiller Plc Annual Report, 2013; 43). This gross debts comprised borrowing together with the fair value of derivative assets or liabilities held to manage interest rate and foreign currency risk of borrowing (SABMiller Plc Annual Report, 2013;43). In the same year, the company total assets increased to US$56,294 million from the previous years’ US$55,928. Like the Jamie Wilson observed, the strong financial structure gives the company adequate resources to “facilitate ongoing business along with medium term flexibility to invest in appropriate growth opportunities and manage the balance sheet” (SABMiller Plc Annual Report, 2013; 43).
In the year ending March 31 2013, SABMiller had a current ratio of 0.67. This figure indicates that the company may have slight challenges in meeting its current obligations, but since its prospect are good, its liquidity is a critical problem. The profit margin rose to 18.6% in 2013 from 17.9% in 2012. The company’s gearing ratio as at 31 March 2013 was 57.2%, which was a decrease from 68.6% as at 31 March 2012 (Plc Annual Report, 2013; 6, 41). The return on capital employed (ROCE) was 9.79%. In terms of share trade, the company is registered both at the London Stock Exchange (LSE) and Johannesburg Stock Exchange (JSE). In the year ending 31st March 2014, SABMiller share price recorded a high of £3,509.50 and a low of £2,348.50. The yield for the stock was 33.10%. In the FTSE 100, the share price gained by 9.14%.
Looking at the balance sheet and all these ratios, the company is doing well in its financials. Although it had a high debt, its profit and promising prospect for growth placed the company a better position to achieve its objectives. Like the Acting Chairman, John Manser observed, the financial year ending 2013 was another year of “strong financial performance” (SABMiller Plc Annual Report, 2013 p.6). In the words Jamie Wilson, the company’s Chief Financial Officer remarked while presenting the results, the company had a strong financial structure that gave it “adequate resources to facilitate ongoing business along with medium-term flexibility to invest in appropriate growth opportunities and manage the balance sheet” (SABMiller Plc Annual Report, 2013 p.41). However, going forward, the company need to address the challenge of currency fluctuation that affected the company revue growth by five percentage points. The currency effect was due to the weakening of the central European currencies and the South African Rand against the dollar.
TASK 3: Commercial Performance of Bresslings LLP
1. Strengths and Weaknesses
Strengths
- It has a long history meaning that it can benefits from experience and client loyalty
- Has gained reputation for commercial litigation and commercial property meaning that clients are assured of their quality services, and thus the firm can sustain a premium charge.
- Successive mergers have not only widened the firm clientele base but also but also its partners and non-partners
- An established mechanisms for cross-referrals
- Having an established premises reduces the firm fixed costs
Weaknesses
- Sometimes mergers may create fault lines. Disagreement among merging firms can affect performance.
2. Rules analysis
(a) Realisation
Bresslings are expensive commercial firm to instruct compared to other medium sized firms. The firm charges £480 per hour for a partner’s time, £260 per hour for non-partners and £130 per hour for other non-qualified fee-earners. This however is comparable to their major competitors and considerably lower than the city firms. Charging more increases the profitability of the firm and also cements the reputation of quality services.
There is a common perception that quality services are expensive. Breslings therefore should retain the expensive charge to safeguard its reputation. Its clients are willing to pay more for the quality services. Though the revenue has fallen by “£0.5 million to £23 million and at the same time the profit per partner decreased, Bresslings should not contemplate increasing its charges to recoup the falling profits since the fall in profit is attributable to the economic recession which has already shown signs of recovering. Being a big firm means that the company can absorb the slight decline. As the economy recovers, the firm’s profits are likely to increase. More importantly, the firm cannot increase the charge since it is already expensive. Increasing the charge would give its competitors leverage.
(a) Utilisation
Bresslings has set low billing targets to its fee earners. At 1000 hours per year for partners, 1,400 hours for qualified non-partners and 1,200 hours for non-qualified fee earners, Bressligns will recoup less profit from each fee earner. The low target may also affect the speed in which work is done, thereby compromising efficiency.
However, given that the billing targets are set at a time when the firm is receiving less work due to the unfavourable economic climate, the low target may be justifiable with the prospect of raising it once the economy improves. However, when the firm raises the billing targets, it will have to raise its wages, which are slightly lower than “similar sized commercial firms”. The low target may also be in line with the firm’s reputation of quality services and special care to clients. Overworking the fee earners may translate to low quality services which may injure the firm’s reputation. The bonus for non-partners is a nice strategy to encourage them to exceed their targets. This approach has two advantages: one, non-partners bring more profit than partners and two, qualified non-partners will maintain the firm’s reputation of quality services as compared to the non-qualified fee earners.
(b) Leverage
At 5 partners for every 8 non-partners, the ratio is too heavy. This might be a problem for the firm at a time when its wages are less than other comparable firms and at a time when profit per partner has fallen from £230,000 per partner to £185,000 in two years. This might be even a bigger problem at a time when workload is decreasing to unfavourable economic climate. Partners’ high expectation of profit will also continue to affect the firm’s revenue. At that ratio, the firm is almost losing control to partners.
(c) Expenses
Bresslings fixed premises helps to keep expenses at a minimum. However, the premises that the firm has rented to house the additional partners and staff from Weston loud will increase its expenses.
(d) Speed
Though Bresslings has low billing targets, the bonus given to qualified non-partners may help in raising the billing targets and consequently the firm’s profitability. The firm has not been efficient in chasing bills. Although chasing bills aggressively may antagonise clients, the firm has to adopt a tougher policy to ensure that established clients honour their promises to pay.
(b) Conclusion
The firm should leverage on longstanding reputation of quality services and established mechanism of cross-referrals to win more clients and enhance its revenue growth. The firm should also stick to its decision not to expand to foreign countries until the economic climate recovers.
To improve profitability, the firm should ask its partners to consider the option of lowering their profit expectations. It should also go ahead with its decision to out-source some of its secretarial and other support staff to free up space. This will help reduce renting expenses but also enhance the quality of service.
List of References
Ascher, B. (2012) Global Beer: The Road to Monopoly. New York: The American Antitrust Institute
Calin, D (2011) Performance against targets – SABMiller Sustainability Assessment Matrix. London: The KPI Institute
Clark, A (2014) Forward looking Statements. Avialble at: http://www.sabmiller.com/docs/default-source/investor-documents/presentations/2014/bernstein-39-s-strategic-decisions-conference-presentation-2014.pdf?sfvrsn=8> (Accessed on Nov, 25, 2014)
Devine, A (2011) Committing to environmental sustainability in the beer sector: A brands perspective. London: SABMiller PLC
Esterl, M (2014) Heineken Rebuffs SABMiller Overture. The Wall Street Journal http://online.wsj.com/articles/heineken-rebuffs-sabmiller-overture-1410736024 (accessed on Nov. 19, 2014)
Euronomitor International (2010) Strategies for Growth in an Increasingly Consolidated Beer Market. London: Euronomitor International.
European Commission (2010) Global brewer strongly committed to sustainable development. Brussels: European Commission.
Evans, P. (2014) SABMiller is hit by Weak Demand in China and Australia. The Wall Street Journal [Online] http://online.wsj.com/articles/sabmiller-hit-by-weak-demand-in-china-and-australia-1413268674 (Accessed on Nov. 19, 2014)
Ferguson, D (2009) Measuring Business value and Sustainability Performance. London: European Academy of Business in Society
Griffin, J.J & Weber, J (2006) Industry Social Analysis: Examining the Beer Industry. Business Society Vol. 45(4); 413-440
IBISWorld (2014) Global Beer Manufacturing Market Research Report. London: IBISWorld
Jain, S.C. (2010) Global Competitiveness in the Beer industry: A Case Study. Research Paper No. 8. Food Marketing Policy Centre.
Kaplan, R.S & Norton, D.P. (2007) Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review July Issue
Kimberley, N (2014) SABMiller Strategy Presentation 2014. New York: Consumer Analyst Group
McCaig, R (2013) Consolidation in the World Brewing Industry. Toronto: Canadian Malting barley Technical Centre
Michael, C (2009) New brewery Threatens SABMiller on its Home Turf. Wall Street journal- Eastern Edition Vol. 253 (146)
Peter, W. (2011) SABMiller Taps Ethiopia’s ‘holy Water’. Wall Street journal –Eastern Edition Vol. 257 (10); 1-8
Raice, S & Evans, P (2014) AB InBev seeking finance for SABMiller deal. MarketWatch http://www.marketwatch.com/story/ab-inbev-seeking-finance-for-sabmiller-deal-2014-09-15 (Accessed on Nov. 19, 2014)
SABMiller (2013) Our Sustainability Assessment Matrix (SAM). http://www.sabmiller.com/sustainability/reporting/sam-reporting-tool (Accessed on Nov. 19, 2014)
SABMiller Plc (2014) < http://www.sabmiller.com/> (Accessed on Nov. 19, 2014)
SabMiller plc (2014) Investor Relations: Quarterly divisional seminar series. [Online] http://www.sabmiller.com/docs/default-source/investor-documents/presentations/2014/quarterly-seminar-series-sabmiller-europe-2014.pdf?sfvrsn=6 (Accessed on Nov. 19, 2014)
Smit, PJ et al (2007) Management Principles: A Contemporary Edition for Africa. London: Juta and company
Sonne, P, Koons, C & Lower, G (2011) SABMiller Turns Hostile on Foster’s. Wall Street journal Eastern Edition Vol. 258(41); 3
The Editorial Board (2014) Monopolizing Beer. The New York Times < http://www.nytimes.com/2014/10/08/opinion/monopolizing-beer.html?_r=0> (Accessed on Nov. 19, 2014)
Ratings
