SABMiller addresses cost base
Targets a 10% cut in operational costs by 2020
SABMiller is promising investors that it will double its annual production cost savings. It is now targeting savings of $1,050 million by financial year-end March 2020 – compared to the original $500 million target that was announced in May 2014.
For shareholders on the fence regarding a possible offer from AB InBev, it’s undoubtedly a timely pledge intended to demonstrate that existing management can extract value from the company as effectively as the Belgians might be able to achieve.
In a statement issues on Friday, SABMiller chief executive Alan Clark noted that costs will be saved in eliminating duplication in markets, increasing expertise and scale in procurement, and standardising common processes.
“Our recent trading statement highlighted our accelerating growth in the second quarter,” said Clark. “The measures we are announcing today are a continuation of our existing cost saving programme.”
The cost and efficiency programme covers SABMiller’s supply chain, which comprises procurement, manufacturing and distribution. The company places its total addressable cost base at $10 billion, the figure for the year ended March 2014.
The total addressable cost base excludes capital expenditure and depreciation.
The original target, which was issued in 2014, targeted annual ‘run rate’ cost savings of $500m by the end of March 2018.
SABMiller says 70% of the additional savings will be derived from procurement with the remaining 30% from manufacturing and distribution. Over the period it will increase the spend accounted for by its specialist procurement team to 90% compared to 46% for year end March ’14 and 69% for year end March ‘15.
As for production and distribution there will be a greater insistence on best in class benchmarks and standardised processes.
The first year of the cost saving programme has achieved results – according to SABMiller, savings of $221 million were realised by YE March 2015.