Deutsche Brauerei Case

Deutsche Brauerei

Gregory Hall April 1, 2009

Executive Summary

Deutsche Brauerei is a brewing company that makes its own beer and sells it in Germany and the Ukraine. The company is very profitable with consistent net earnings that equal 4% of sales and a sizable dividend payout each year totaling 2-3% of sales. The firm is able to maximize shareholder wealth while still retaining enough earnings to support its growth.

On the other hand, Deutsche Brauerei is continuing to grow faster and faster like a train dashing from Germany into the Ukraine. The business in Ukraine is booming but this is creating a problem for the company because they find themselves stretching credit terms to maintain business. At this point in the world economy GDP is contracting. We know after the fact that 2000-2001 was a global recession that resulted in a shrinking market place. The brewery might be getting itself in trouble by offering 90-day credit terms because it may never be able to recover the funds.

Three issues are raised at the end of the case as well; all of which I will consider when talking about the issues at Deutsche Brauerei. The new board member (Greta) finds herself concerned about the financial plan for future growth, the compensation for the star businessman of the company (Oleg Pinchuk) who has accounted for all of the growth in the Ukraine, and the dividend declarations. All of which are valid issues at the company but after looking at the financial numbers I would raise a few more questions at the board meeting.

Problem

There is a lot going on at Deutsche Brauerei that tells me the company is heading in the right direction. It just became a multinational firm by growing from Germany and into Ukraine. Sales in Ukraine account for 47% of the growth in the company and allow it to be open to new markets all over Europe; as word spreads about the quality product. However, a few financial decisions need to be looked at and concerns need to be raised.

Firstly, I will address the issues in the case. Dividends are quit high as stated in the executive summary at 2-3% of sales. An even striking number puts dividends at 3/4ths of the profit made at the brewery. However, this money is supporting the owners and family members of this family oriented company. I do not see this as a particular problem in this case because changing the payout would only temporarily solve their debt problem and take away from the company's goal of taking care if its owners. Next, the compensation for Oleg Pinchuk is a huge issue at the firm. He made an extraordinary amount of money last year and deserves the .1% raise (.1%*increase of sales in Ukraine) that will come to him. It is not detrimental to firm's finances and he is vital to firm's success in Ukraine. He is the only one who knows and has made contacts for sales in the country, which