Graham Mackay Chief Executive SABMiller

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Graham MackayChief Executive SABMiller

• GIBS University PresentationMonday 25 October
  2004

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SABMiller today
Europe 8 countries 18 breweries
USA 8 breweries 1 country
Asia 32 breweries 2 countries
Central America 2 breweries 2 countries
Africa 14 breweries 29 countries (17 countries
jointly with Castel)
Markets where SABMiller has brewing operations
South Africa 7 breweries
Excludes 10 breweries in India Excludes 29
sorghum breweries
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SABMiller drivers of future profit growth
Leading positions in large emerging
markets International premium brands
Earnings growth
Turnaround of Miller
Strong domestic operations in growth markets
T I M E H O R I Z O N S
Today
Illustrative
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SAB transformation 1995 to 2002 South African
conglomerate to international beer beverage
company
Turnover
1995
2002
South AfricaBeer
Manufacturing
ComplementaryBeverages
Hotels
South AfricaBeer
Central America
InternationalBeer
ComplementaryBeverages
Retail Hotels
EuropeBeer
Africa Asia Beer
1995 2002
Beer volume (m HL) 35 70
Global brewers ranking 6 4
Market capitalisation ( bn) 8.0 6.0
US ZAR 3.6 10.5
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SAB applied a clearly defined acquisition
strategy and a distinctive business model
A shared model of how to create value
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Supported by strong capabilities

• Management talent and broad based culture (South
  African)
• World class manufacturing and operational skills
• Performance management culture
• Efficient brand portfolio management
• MA and post merger integration expertise

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2002-2004 further business reshaping
Acquisitions of Miller and Peroni
Turnover
2002
2004
ComplementaryBeverages
ComplementaryBeverages
Hotels
Hotels
South AfricaBeer
South AfricaBeer
Central America
Central America
EuropeBeer
North America Beer
EuropeBeer
Africa Asia Beer
Africa AsiaBeer
2002 2004
Beer volume (m HL) 70 138
Global brewers ranking 4 3
Market capitalisation ( bn) 6.0 14.0 16.3
US ZAR 10.5 6.4
Including Altria non-voting convertible shares Including Altria non-voting convertible shares Including Altria non-voting convertible shares
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Overall scale and portfolio balance shifted
Different model of value creationRequired
capabilities different
TRADITIONAL MODEL MILLER AND PERONI
Market type Emerging Developed and mature
Growth potential Good volume growth Value growth more than volume growth
Nature of turnaround task Difficult environments privatisation weak economies / govts ineffective competition first mover advantage volume growth expectation Sophisticated countries turnaround in face of strong industry competition contested markets value growth proposition
Acquisition cost Reasonable Full
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Acquisition of Miller Brewing CompanyFirst major
developed market acquisition

• USA Worlds largest profit pool
• Diversified currency and emerging market risk
• Miller potential to establish as strong no. 2
• Market concerned about
• Consumer marketing skills
• Ability to work with US distribution system
• History of decline at Miller

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Miller application of our turnaround skills

• Systematically analysed the problem asked the
  right questions
• Applied knowledge and expertise of the beer
  business
• Launched holistic turnaround programme structured
  within four strategic thrusts

Brand-building and portfolio shaping Insight on consumer choice patterns New Miller trademark identity Able challenger marketing strategy
Sales and distribution Quantity and quality of sales force Local market plans and analytical tools A new, productive relationship with distributors
Costs and productivity Cut costs to reinvest in brands, assets, people World Class Manufacturing
Organisation capability Realigned structure to match strategy Performance management, new talent recruitment
Most importantly, reinvigorated the culture
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Driving transformational culturechange through 3
key processes
1. Performance management

• Translate strategies into goals
• Drive execution at speed

2. Organisation alignment

• Change the organisation to ensure strategic
  capabilities

3. Talent capacity management

• Get the right skills and talent for today
• Build a pipe-line of talent for key positions

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1. Performance managementThe pattern prior to
acquisition
2000 55 of managers received excellent or
superior ratings 2001 61 of managers received
excellent or superior ratings
Target Performance
Actual Performance
Reward

• Targets not taken seriously rewards for
  completing activities
• No correlation business performance, individual
  performance and reward
• No consequence for under-performance

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ImplementationKey features themes

• Top-down goal setting rigorous alignment
  process
• Deliberate management against goals intensity
  passion
• Goal adjustment as required speed and agility
• Tough performance reviews no satisfactory
  underperformance
• Performance directly linked to pay
  differentiated consequence
• Strong support from 60 champions

Two years of rigorous implementation a good
foundation, a shift in culture felt
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2. Organisation alignment
Strategy B
Strategy A
Structures Roles Resourcing Skills Processes Syste
ms
Structures Roles Resourcing Skills Processes Syste
ms
A change in strategy requires a change in the
organisations capability
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3. Talent capacity management

• Extensive recruitment and selective training, to
• Get top caliber people in key jobs
• Build a talent pipe-line of cover
• Impact on rate of change
• Actual for F04 (full year) 19
• Actual for F05 to date (5 months) 24 469
  people

Defined as external appointments internal
promotions internal transfers
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The challenge of global leadership

• The beer industry is at a defining moment in its
  evolution
• We have emerged as one of the leaders of the
  consolidation process
• To retain our leadership position we must review
• Our existing models and drivers of growth
• Our skills and modus operandi
• What changes are required to maintain our
  leadership position?

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Could our enablers to date inhibit change?
ENABLER TO DATE Local strategies and strong
decentralisation Focus on local brands and
mainstream Infusion of SAB practice, expertise,
process and culture SAB sole source of global
talent Limited corporate centre Issues and
stakeholders managed locally
POSSIBLE INHIBITORS Failure to grasp matrix
management Ability to capture value from premium
drift Slowness in growing the talent pool
globally and over reliance on SAB as a
source Reluctance to adopt / leverage
synergies Failure to manage global reputation
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How are we addressing this?
Applying local optimisation as the sole criteria
for decision-making
Stop (let go)
Defaulting to local solutions for marginal gain
over standard solutions
Reluctance to build and exploit best-practice and
shared resource
Emphasis on winning the competitive battles
locally
Continue (keep)
Focus on operational excellence in all aspects of
business
Devolved authority and Performance Management as
an enabler
Grow value of brands portfolios, including
international worthmore
Start (embrace)
Actively developing local and global talent
Systems, processes and structures to help
leverage Group assets and skills
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Focus of future efforts and capabilities

• Developing a balanced portfolio of businesses, in
  high growth emerging markets and selected high
  value developed markets
• Capturing maximum share of value through complete
  and differentiated brand portfolios in each
  market
• Focus on winning at the point of purchase
• Leveraging our scale to compete efficiently in
  and across markets
• Managing and enhancing our reputation amongst
  all stakeholders
• Building our people, organisation and capacity

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Building our people, organisation and capacity

• Embracing global talent, particularly those with
  top-line capabilities
• Continuing to build strong and cohesive
  management teams in local markets
• Developing world class marketing, customer
  management and execution capabilities
• Leveraging our global talent pool through
  Strategic People Resourcing
• Institutionalising Best Operating Practices and
  SAB Ways
• Training and general management development
  programme

Historically high relianceon recruiting,
developingand exporting strongSouth African
talent Beer division alumni are increasingly
thinly spread!
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Summary

• SABMiller has transformed itself from a South
  African conglomerate into a successful global
  beer company
• However, we recognise need to drive further
  change
• Sources of future value growth changing
• The competition
• The scale and profile of our business
• As a result, we are
• Developing new capabilities to complement our
  traditional skills
• Activating a series of initiatives to reshape the
  company

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