Deutsche Brauerei

Deutsche Brauerei

The Deutsche Brauerei case study focuses on the financing of the expansion of its beer to the Ukrainian market. The purpose of this project is to forecast the company's adoption of a financial plan for 2001, future dividends and employee compensation for Oleg Pinchuk, a sales and marketing manager of the company.

Credit Policy: Account Receivable

Deutsche's managers are interested in Ukraine because of the country's relatively larger population of 52 million and its strategic location within Central and Eastern Europe. To expand to Ukraine, Pinchuk has to go there to set up distributorships from willing entrepreneurs with no capital. However, as the percent of account receivable in the Ukraine market increase quickly from EUR 424 million in 1998 to EUR 6,168 million in 2000 (exhibit2_balance sheet). We plan to re-do the credit policy of account receivable as to tighten the terms of day in receivable for Ukraine's distributors from 2% 10 net 80 to 2%10, net 45. The 80 receivable days term or the plan of 90 days are too long and too risky for the company's monetary liquid in order to get cash back to run the business and pay back debt plus interest in timely manner. And a longer period of receivable days is not fair to our loyal distributors in Germany. Fewer receivable days can also protect our company from bad transactions; failed distributors, and currency risk. We expand 5 more days from our original 40-day collection to the Ukraine market because it takes more time for new distributors to transfer funds to our company's account. Besides, the highest days' sale outstanding in Ukraine's distributors is only 39.5 in 2000, closely equivalent to 40. The extra 5 days is enough time for Ukraine to transfer money because they don't use bank account. On the other side, by lowering account receivable term, we face a lower revenue volume from the Ukraine market and will not make our Ukraine's distributors happy. With a new credit policy, our company would have more cash in hand to pay off short-term debt and lower the risk of company.

The Investment on Plants and Equipment in Germany in 2001 and the Warehouse in Ukraine in 2002

The operating equipment is capable of producing 1.2 million hectoliters of beer per year while the selling volume in 2000 is around 1.173 million hectoliters. With the expansion in sales in Germany as well as new the Ukrainian market in next 5 years, our company will face the shortage in the beer supply, compared to the market's demand. In 1999, the sale growth rate is 22.2% compared to 6.0% growth rate in assets, and in 2000, the number is 12.6% compared to 4.5% (exhibit3). These growth rates mean our company is under capacity of production. With new plant and equipment, we are able to control and provide enough beer to customers, and it can generate more revenue and make our customers satisfied. Therefore, investing in new plant and equipment in 2001 is needed.

Financially, with the growth in sale volume in both domestic and abroad markets, our forecast total sale shows that we generate EUR 105.7 million in 2001 and EUR 119 million in 2002 (exhibit2_income statement). These total sales exceed the estimated break even volume revenue of EUR 77 million in 2001 (exhibit5) and EUR 78 million in 2002 (exhibit6), which already include the investing of fixed cost of using the EUR 7 million new plants and equipment. We plan to use the new equipment and plant in 10 years.