Page 8 - AB INBEV 2018 Model Answer 2

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constrain our ability to raise finance for future growth. This is particularly troublesome as the financial
gearing (D/E) of our closest rival –Heineken, is 84.59% (46% using D/D+E) and that of the brewery
sector (industry) average is 53.34% (35% using D/D+E): https://www.investing.com/equities/heineken-

ratios.

Recommendation: Maintain the current financial targets but over the next 5 years, the over-arching

focus of our group financial strategy should be to gradually reduce financial gearing (book and market
value) towards our pre-SABMiller acquisition levels, or at least, to match that of Heineken, if not
average industry levels.

Justification: We must reduce any drag our high financial gearing may pose on our share price
and investor confidence, especially during the next 2 years, during which we must confront the

challenge of extracting the cost and revenue synergies of the deal. Reducing gearing will further
increase our capacity to raise finance to effectively compete against Heineken and other rivals.

Actions: Announce a change in dividend policy from the current pay-out ratio model, to a constant
growth model. This should reduce the excessive dividend growth of 332% in 2019, down to 10%;

the amount saved should be used to pay down debt. As long as 10% DPS growth is maintained,
citeris paribus, this action should not have any adverse effect on share price –indeed it could

boost our share price and strengthen our market value gearing. Speed-up the disposal of assets
agreed for disposal as a precondition for the deal -and use the proceeds to pay down debt. Review
integration plans in order to speed-up cost and revenue synergies. The Board should fast track

the implementation of all the other recommendations in this report (e.g. own-ecommerce solution,
strengthen distribution channel in China, performance-based pay in Nigeria).

rd
3 Priority: Human Capital Management Strategy (In Nigeria)

This issue is strategic threat and a weakness in our SWOT. Updated market forecasts now show we
are likely to lose market share in Nigeria, to our new number 1 rival –Heineken. Per the original
forecast, by year 3 (being next year, 2019), our market share was projected at 23% (against
SABMiller’s 5% and Heineken’s 45%). The updated forecast shows only 11% (even after combining

with SABMiller’s), whilst Heineken’s has jumped-up to 59%. The Heineken threat in Nigeria is real:
and it appears linked to weaknesses in our human capital strategy, leading to loss of critical skills
(Brewery Process Engineers (BPEs) and Sales Representatives (SRS) in that country. Let’s analyse
this carefully:

Labour turnover: SABMiller has the highest turnover (12%) compared to Heineken (8%). SABMiller
is struggling to retain critical skills (especially BPE and SRS) who may be crucial in sustaining

Developed by The CharterQuest Institute for 'The CFO Case Study Competition 2018'
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