Presented by Audrey-Inès Keou

Choukri Boutaina

DEUTSCHE BRAUEREI

AgendaCompany OverviewExpansion to Ukraine

Marketing StrategyFinancial Plan for 2001 and 2002

Case IssueFinancial Plan ApprovalDividend DeclarationCompensation Plan

Company Overview

Deutsche Brauerei was founded in 1737 by the Schweitzer family in Germany

Deutsche Brauerei produces 2 quality varieties of beer: Dark and Light

Expansion to UkraineIn 1998, the company expands to Ukraine because of :

Excess production capacity in GermanyLarge PopulationStrategic location within central and Eastern europe

Easy entry opportunitiesBy 2001, Ukrainian consumers accounted for 28% of DB’s Sales

Marketing Strategy in Ukraine

The Beer-distribution in Ukraine was nonexistent and the terms applied in Germany couldn’t be beared by the distributors in Ukraine

The sales manager extended credits to Ukrainian distributors and relaxed payment deadlines to 80 days instead of 40 days as applied in Germany

Marketing Strategy in Ukraine

The sales manager also forecasts a 2% bad debts for 2001 and 2002 and projects to relax further the payment deadline to 90 days

His marketing strategy also involves carrying in the compnay’s books a large part of the distributors’ inventories

Deutsche Brauerei’s Sales

Case IssueThe financial plan approval

The actual profitability of the companyThe reliance of the company on debt financing

The dividend declarationThe company traditionally aims a 75% dividend payout to

please the retired shareholdersThe general manager proposes an increase to 698 000

euros for the 1st quarter of 2001Compensation plan approval for the sales and

marketing managerHe was paid a base salary of 82 344 and an incentive

payment calculated as 0..5% of annual sales increaseThe genral manager is now thinking about increasing his

salary to 48 500 with 0.6% incentive payment

Analysis of the financial plan

ROI= Marginal after-tax profit contribution Required Marginal Investment

Assumptions made by the sales manager:The marginal after-tax profit contribution is the

profits earned on incremental sales each yearThe required marginal investment is the

company’s investment in receivables (cash outlay for the product in the AR)

Investment in AR = (Variable Costs/ Sales) *

Change in AR

Analysis of the financial planRecommendations:

When computing the ROI, the manager should have considered the investment in inventories and in fixed assets since they are bearing the handling cost of the inventories for their distributors and planning to invest in a warehouse for this purpose.

Also, the analysis should include the allowance for doubtful account of more than 2% as forecasted by the manager due to the risk in the distribution industry in Ukraine

Analysis of the financial plan

Analysis of the Dividend Declaration

Rather than relying on bank borrowings, DB should retain more earnings :

To cover their borrowings To finance eventually any projected investment

Analysis of the Compensation plan

The general manager proposed to raise the sales and marketing manager’s base and incentive salary because he thought the latter was improving the profitability of the company

However, the analysis shows that the marketing strategy adopted in Ukraine was actually harming the financial health of the company

It seems like the sales manager implemented a strategy increasing sales to actually benefit from incentive payments

Our Recommendations Tighten credit policy towards the Ukrainian

distributors. This will reduce sales and increase liquidity of the company

Cut dividend payout to at least 50% in order to be able to cover their debts and partially finance any expansion

Stop capital expansion in Ukraine. The eastern market appears to be very risky

No salary raise for the sales manager. He contributed more in damaging the financial heath pf the company than increasing its profitability