Page 9 - MCOM MODEL ANSWER 1

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Recommendation

The board should apply a combination of negotiations, cash and debt to settle the fine.

Justification:
The fine is still too punitive and could strain us into financial distress. MCOM Nakolia should be

a major employer in that country and the government will not want to see its demise as it will
also reflect badly on the country's ratings as an investment destination (See Mendelow
Stakeholder analysis -Appendix4). Cash is the least complex to raise (pecking order theory)

followed by debt and equity holders are unlikely to take up a rights issue.

Actions:
 Set aside maximum of S$7,826m from cash and cash-equivalents

 Work with Sidoms to fast track disposal of assets held for sale
 Negotiate with banks to raise debt up to a maximum of S$20,012m and ideally in Nakolia
 Abort the court proceedings against NTRA in Nakolia

 Ask the government of Sadimba to negotiate with the government of Nakolia on our behalf

 Fast track process of retrieving over S$15,018 (S$4210 + 45,800 + 5,008) held up in Ilania
 Reassess the effectiveness of the group's regulatory risk management programme.

2nd Priority: Shared Services Center (SSC) and transforming our operating model.

Efforts to reform our operating model led us to rationalise our supply chain from 2012 saving us
S$6,599m, 13.4% (6599/49,470) of our 2014 operating profit. To build on this, we implemented

an SSC in Sadimba. The decision is not being received well in our markets across Africa given
concerns that it leads to job cuts in Nakolia and creates jobs here in Sadimba and that we have
abandoned our Corporate Social Responsibility (CSR) commitment to these countries. Calls for

boycott of our products have been voiced but we have not yet seen any impact on our business.
We need to quantify the savings thus far as requested by our shareholders but also re-assess
the SSC decision.

Advantages of an SSC:

 Cost control & reduction: It allows the routine/number crunching support functions such as
procurement, finance, IT, payroll etc. to realise economies of scale resulting in headcount

reduction, improving earnings. Appendix 6 shows a $120m payroll saving from a 400
headcount reduction in Nakolia and 200 from other businesses. It also lowers other
operating costs through reduction in premises, consolidation of our key systems, economies

of bulk purchasing, etc. The same appendix also shows a saving of S$6,599m as tabled to
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