Deutsche Brauerei
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Transcript of Deutsche Brauerei
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
europeEasy entry opportunities
By 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 increase
The 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