DEUTSCHE BRAUEREI

Presented by Audrey-Inès
Keou
Choukri
Boutaina
Agenda
Company Overview
Expansion to Ukraine
Marketing Strategy
Financial Plan for 2001 and 2002
Case Issue
Financial Plan Approval
Dividend Declaration
Compensation 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 Ukraine
In 1998, the company expands to
Ukraine because of :
Excess production capacity in Germany
Large Population
Strategic location within central and
Eastern europe
Easy 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 Issue
The financial plan approval
The actual profitability of the company
The reliance of the company on debt financing
The dividend declaration
The company traditionally aims a 75% dividend payout to
please the retired shareholders
The general manager proposes an increase to 698 000
euros for the 1st quarter of 2001
Compensation plan approval for the sales and
marketing manager
He 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 year
The 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
plan
Recommendations:
 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