heineken cost for revenue · by leveraging scale and centralising activities we ... growth of...
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HEINEKEN Cost for Revenue
London, 12 November 2014
Alberto Toni Senior Director Finance Region Western Europe
Wiggert Deelen Senior Director Supply Chain
Region Western Europe
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Agenda Cost for Revenue
Driving ‘Cost for Revenue’ Focus areas to extract cost
Reinvesting to grow the top-line Delivering tangible results
Supply Chain
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Western Europe has a proven track record of delivering cost savings
43%
Western Europe Share of HEINEKEN Cost Savings 2006-14HY
Western Europe Other
Western Europe Contribution to HEINEKEN Cost Saving Programmes 2006-14HY
€734m Includes Brewery Closures
10 (including 1 maltery)
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These savings have led to solid profit improvements despite a challenging top-line
Source: Group metrics based on reported consolidated financial information.
603
853
2005 2013
Western Europe Group Beer Volume (mhl)
Western Europe Group Operating Profit (Beia) (€m)
Organic CAGR +3.2%
Organic CAGR -3.6%
2005
2013
Western Europe Group Revenue (€m)
Organic CAGR -1.1%
2005 2013
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Market pressures
Challenging macro-economics
Channel mix trend
Deflationary pricing
Value growth
Increased margins
Category growth
Market share growth
Improved price/mix
Sustainable profit growth needs to come from the top and bottom line
Cost for Revenue Strategy
Invest in commercial initiatives
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Cost management as a core competency to drive the top-line
From Cost Programmes To Cost for Revenue
Start and finish
Reacting to a situation
All cost areas in scope
Primary objective is bottom line
Permanent governance
Proactive and continuous
Discriminate, good cost/bad cost concept
Primary objective is both top and bottom line
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Agenda Cost for Revenue
Driving ‘Cost for Revenue’
Focus areas to extract cost Reinvesting to grow the top-line
Delivering tangible results Supply Chain
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We have two clear focus areas from which to extract costs
Cost of goods sold & logistics Support functions
Improve Gross Margin
Align % of Revenue to global benchmarks
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COGS and Logistics savings of c.€80m in 2014
Wholesale
Product Related Procurement
Supply Chain
Consumer Value Engineering Non Product Related Procurement
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... and a further c.€20m savings from reduction in Support Function costs
Other Support
IT
HR
Non Product Related Procurement
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By leveraging scale and centralising activities we are able to aggressively reduce our Support cost base
GBS
Global Procurement
Finance Shared Services
Global IT Services
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Global IT Services have reduced IT running costs by c.25% in 3 years
Global Procurement
Finance Shared Services
Global IT Services
GBS
% of Western Europe IT Running Cost
Infrastructure Support
Application Support
Voice
51%
35%
9%
100%
5% Other
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HEINEKEN Global Procurement a key enabler of Western Europe cost savings in 2014*
* All numbers are exclusive of commodity spend and related non negotiated savings
Product Related
Non Product Related
94% covered by central contracts
1/3 of Western Europe purchases
2/3 of total 2014 Western Europe procurement savings
75% covered by central contracts or governance
2/3 of Western Europe purchases
1/3 of total 2014 Western Europe procurement savings
910 projects across the region
Global Procurement
Finance Shared Services
Global IT Services
GBS
FACILITY MANAGEMENT
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Targeting 30% lower transactional finance costs by 2019
Global Procurement
Finance Shared Services
Global IT Services
GBS
Global Shared Services
Business Performance Management
Record to Report
Purchase to Pay
Order to Cash
Scope A near-shore captive Shared Services Centre
HGSS Krakow (Poland) c.700 employees
Benefits
Quality & Value Cost Efficiency Control & Compliance
25% reduction
in cost per invoice
40% increase in productivity
in invoice processing
Europe
Leveraging the global scale of 24 operating companies across Europe
9 Western Europe countries in scope
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Agenda Cost for Revenue
Driving ‘Cost for Revenue’ Focus areas to extract cost
Reinvesting to grow the top-line Delivering tangible results
Supply Chain
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+3% increase in draught beer outlets in 2014
YTD September
Heineken® Extra Cold investment +50% in 2014
Full year estimate
Marketing & Selling (beia) spend +14% in 2014
YTD September
Re-investing in top-line initiatives to grow value
Marketing Investment Driving Availability Commercial Assets
Premiumisation Innovation Commercial Capability
100% Western Europe countries applying EOE methodology
YTD September
Global brands investment +25% in 2014
Full year estimate
Radler investment +100% in 2014
Full year estimate
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Marketing investments have increased whilst efficiency KPIs have also improved
Source: Consolidated financial information, internal estimates.
Marketing & Selling (beia) Spend
+14% Sept YTD 2014 vs 2013
62% 69% 70%
38% 31% 30%
2010 2013 2014F
Consumer Facing Spend Non Consumer Facing Spend
Efficiency improvements
Growth of consumer facing media, including digital
Focus on brand visibility in outlet
Lower agency and production costs
Convert customer investments to consumer facing
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Agenda Cost for Revenue
Driving ‘Cost for Revenue’ Focus areas to extract cost
Reinvesting to grow the top-line
Delivering tangible results Supply Chain
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We have delivered material results in 2014
Source: Consolidated financial information before non recurring items.
Gross Margin (% of Revenue)
+60bps Sept YTD 2014 vs 2013
Support Costs (% of Revenue)
-50bps Sept YTD 2014 vs 2013
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Consistent application of our ‘Cost for Revenue’ approach will enable sustainable growth
Sustainable Growth
Scale Space for
investment
Build Brand Equity Price Leverage
Extract cost Bottom line driven margin improvement
More revenue and volume
Reinvest in commercial initiatives
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Agenda Supply Chain
Transformation Plan Priorities
Summary
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Unlocking value in HEINEKEN’s supply chain
Support Innovation
Deliver Best in Class Customer Service
Drive the Cost Agenda
The supply chain has to be all things to all people
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Supply Chain Transformation Plan
Kick-Off in 2011 Current Activity
Scaling Supply Chain Functions
Regionally aligning Priorities, core processes & capabilities
Silo’ed Goals Nine independent Operating
Companies within Western Europe Region
Integrated Supply Chains
Unlocking cross-functional synergies
Demand-Driven & Value Creating Network
End2End Integrated Business Model
Supplier Customer
Future Plans
From silo approach to integrated business model
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Agenda
Transformation Plan
Priorities Summary
Supply Chain
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Supply Chain priorities
*Total Productive Management
Support Innovation
Deliver Best in Class Customer Service
Drive the Cost Agenda
Increase our Innovation Capacity & Speed to Market
Become the Supplier
of Choice
Design Products for Value
Drive TPM* and Economies
of Skill
Optimise Network & Footprint
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Increase our innovation capacity & speed to market Managing Supply Chain as an enabler for growth
Process Speed
to Market
Agility Variety
30% Faster
32% More SKU’s
Ramp Up to 8 x Forecast
In place across the region
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Become the supplier of choice
Interview
Experiences with retailer ASDA
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Delivering excellence in customer service
Advantage Survey Ranking Results (HEINEKEN position vs Other FMCG)
Source: 2010-2014 Advantage Survey ranking results
Improved customer rankings across the region
Country 2010 Rank
2011 Rank
2012 Rank
2013 Rank
2014 Rank
United Kingdom 10 7 3 2 1
Netherlands 2 2 2 2 3
Ireland 18 3 4
Belgium 2 3 4 5 3
Italy 6 8 5 6 3
Spain 8 15 13 11 2
France 20 10 1 8 3
HEINEKEN Brewery Warehouse
Retailer DC HEINEKEN DC
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Design products for value Enabling Cost for Revenue
Premium
Speciality
Mainstream Economy
Labeling
Embossing
Colour
Weight
Consumer value engineering
Design to value approach
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Drive TPM and Economies of Skill
We are effectively connecting our best experts to accelerate performance improvement
TPM: Total Productive Management YTD: September 2014
Continuous improvement at scale
2011 2012 2013 2014YTD
Production Productivity
2011 2012 2013 2014YTD
Combined Energy
Production Productivity MAT
Prediction, based on previous 24mths performance
Combined Energy MAT
Prediction, based on previous 24mths performance
CAGR=3.1% CAGR=-3.5%
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Network & footprint optimisation
Efficiency, flexibility and local presence
> 2.5m HL 1 – 2.5m HL < 1m HL
Production capacity
27 Breweries and Cideries: Efficiency from scale and proximity Flexibility from lower capacity
locations with brand heritage
We have closed or sold 20 breweries and malting plants in Western Europe since 2000
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Network & footprint optimisation
Sophisticated simulation tool supporting a forward looking network design
Model • Regional supplier to customer cost model with actual data at SKU level • Volume allocation optimisation within current constraints • Fast recalculation of network cost for future scenario’s
Results • €6 million savings September YTD 2014 • +270 bps improvement in capacity utilisation • Strategic capex allocation
Overview of transportation flows within Western Europe. Green points are demand points; Stars reflect the breweries. Other spheres represent suppliers/co-packers/ co-fillers.
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Solid delivery across the business
Year to date: September 2014
Transforming the Supply Chain towards End2End excellence, with very good results so far
HEINEKEN Golden Triangle
Revenue
Operating Profit Margin
Return on Net Assets
Business Value Indicators Supply Chain Levers (YTD ‘14 vs YTD LY)
Top-line Growth
32% more SKUs
30% Time to Market reduction
+5% point increase of Perfect Customer Orders
Strong Advantage Survey Retailer satisfaction scores
Return on Sales 60bps reduction in COGS/LOGS vs Revenue
Return On Net Assets
7% Inventory Reduction
+270bps improvement in capacity utilisation
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Summary
Strong track record of delivery in supporting business priorities
Leveraging the unique footprint for further optimisation
Supply Chain at HEINEKEN is undergoing the transformation towards an End2End Integrated Business Model
Expanding best in class practices globally
Demand-Driven & Value Creating Network
End2End Integrated Business Model
Supplier Customer
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Q&A Cost for Revenue