SUN CAMPAIGN ALMS FOP FURTHER COST REDUCTION

May 15, 1995
Sun Co. has embarked on a program to further cut costs. The new campaign, planned in the wake of $200 million/year in reductions already in place, will check every facet of the company's operations in a search for more ways to trim costs. The goal is a change in cost structure and better performance against competition that has changed dramatically in Sun's refining and marketing stronghold, the U.S. East Coast.

Sun Co. has embarked on a program to further cut costs.

The new campaign, planned in the wake of $200 million/year in reductions already in place, will check every facet of the company's operations in a search for more ways to trim costs.

The goal is a change in cost structure and better performance against competition that has changed dramatically in Sun's refining and marketing stronghold, the U.S. East Coast.

CUTTING COSTS

Sun's current reduction in costs breaks out as $100 million/year through a 1992 restructuring program and $100 million/year through changes in the way the company buys goods and services.

Noting those savings, Sun Chairman and Chief Executive Officer Robert H. Campbell told the annual shareholders meeting, "Not only do we intend to take our normal cost consciousness to a new level of achievement, but we are now involved in reexamining how and why we do everything in the corporation.

"We will be looking to make some work go away. We will be looking to simplify everything we do internally. And we will be looking to outsource some of our functions.

"That means that where there is an obvious savings-near term and long term-by doing certain work outside the company, we will take advantage of that option."

Campbell said a business strategy, adopted in 1992, was designed to:

  • Invest in value-added businesses "because that's where margins and profits are most promising."

  • Eliminate nonstrategic, non-performing assets.

  • Reduce exposure to weak refining margins.

  • Reduce cost structure.

The company reported a minus $7 million in operating income for first quarter 1995 vs. a positive $34 million in operating income for the same period of 1994. Blaming weak refining margins for this year's loss, Campbell called the performance disappointing and unsatisfactory but temporary.

CHANGING COMPETITION

Campbell outlined the changing competitive climate Sun faces.

Before the company's 1988 spinoff of its U.S. exploration and production business, he said, "we viewed our peer companies as those similarly structured-large corporations we are all familiar with such as ARCO, Amoco, and Mobil. More recently, we looked to a different grouping of peer companies we felt were closer to our mix-Ashland, Unocal, Phillips, and so forth.

"But today, when we look around us here on the East Coast of the U.S., the face of our competition has once again changed. In the Northeast world of refining, Exxon, ARCO, and Chevron are gone. And Mobil and British Petroleum seem less interested in operating their Northeast plants.

"We still face major integrated oil companies in the marketplace, but in addition we are competing against radically different independent companies such as Tosco, Irving, Coastal, and Clark, along with the very large refining operations of Norway, South America, Saudi Arabia, and others."

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