Page 7 - AB INBEV 2018 Model Answer 2

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work activities into our main systems (SAP, Sales Force CRM etc.). We must ensure any decision we
make on our innovation strategy side takes into account the necessary training and support needed
by their employees, to ensure they can operate the new systems.

Step 4: Negotiation: The appraisal system can be used to offer rewards and incentives for adapting
to the new culture and performing successfully under it. We could consider offering their executives,

an initial incentive to stay within the company as their knowledge of the Africa market will be key to
our success on the continent.

Step 5: Co-optation: If some of the executives continue to resist the changes, they could be co-opted
into a change management team to explain the changes to the employees of SABMiller. This will make
it harder for them to continue resisting!

Step 6: Coercion: Ultimately, if the executives remain unwilling to adapt, they should be removed
from the business as quickly as possible; to prevent any discontent from spreading amongst staff.

nd
2 Priority: Deal Funding Strategy & Group Financial Performance

This issue is a strategic weakness in our SWOT. Rapid changes in the business environment and
major shifts in our overall risk and focus, may mean our current 5-year financial strategy may be

outdated –at least in terms of the risk and return expectations of our investors. We need first to
determine if we will meet our 2018 and 2019 financial targets: 1) Grow Dividends Per Share (DPS)
by 10%; 2) Deliver Total Shareholder Returns (TSR) of 14%; and 3) Keep gearing (Debt/debt + equity)
below 40%. Based on this determination, the Board needs to decide as to what changes, if any, are
needed to better align our group financial strategy to our new 5-year strategy:

We summarise below projected financial performance results (detailed calculations in Appendix 4):
2018 2019
Group Financial Performance Objectives Target Projected Target Projected
1 Grow Dividends Per Share (DPS) year-on-year by 10% 10% 37% 10% 332%
2 Deliver Total Shareholder Returns (TSR) year-on-year by 14% 14% 27% 14% 19%
3 1) Keep gearing (Debt/debt + equity) below 40% (Book Value) 40% 61% 40% 60%
2) Keep gearing (Debt/debt + equity) below 40% (Market Value) 40% 39% 40% 51%

Per the above, we should comfortably meet 2 of 3 of our targets this 2018 and 2019. That is for growing
DPS by 10% year-on-year (projected 37% for 2018 and 332% for 2019) and for TSR of 14% (projected
27% for 2018 and 19% for 2019). For gearing by Book Value, we will fail in both years (61% against

40% for 2018 and 60% against 40% for 2019). If we consider gearing by Market Value, we should
meet our 2018 target (39% against 40%), but fail in 2019 (51% against 40%). Whilst all this is entirely
based on projected data, it reveals the large debt finance used to finance the SABMiller deal, although
the better option as we previously recommended, will significantly worsen our financial gearing and
Developed by The CharterQuest Institute for 'The CFO Case Study Competition 2018'
www.charterquest.co.za | Email: thecfo@charterquest.co.za