deustche case 11
TRANSCRIPT
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Deutsche
Brauerei
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Company Background
Ukraine Market Expansion
Sales and Marketing
Strategies Issues
Recommendations
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Name says it all
GERMAN BREWERY
Family owned since 1737 Located close to Munich
Produces two varieties of award
winning beer Greta Schweitzers recent
appointment to the board of directors
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Capacity 1.2 million hectoliters per year
equipment acquired in 1994 to replace
equipment destroyed in a fire German Market
an independent distributor networksupplies retail customers with inventory
purchased from Deutsche
Ukraine Market same type of distributor network, but
Deutsche holds substantial part of theinventory
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1998 - the Shweitzers decide toexpand into Ukraine market: Excess Capacity in Germany
recent dissolution of the USSR
1995 1996 Ukrainian governmentmarket reform and privatization
Larger population (52 million) Strategic location within Central and
Eastern Europe
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2000 Performance Oleg Pinchuk, sales and marketing
manager, hired in 1998 1.173 million
hectoliters sold in Germany and Ukraine close to capacity
Sales and Profit: approximately EUR92.1million and EUR2.9 million respectively
Ukraine customers account for 28% ofsales by early 2001
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Initially plan was to use thesame distribution structure
Pinchuks strategy in Ukraine distributorships
Relaxed credit terms from 2%,10net 40 to 2%,10 net 80
Plans to extend to net 90 days(with 2% allowance for bad debt)
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Pinchuk also suggests: Give opportunity to those
entrepreneurs turned away by banks
EUR7 million investment for new plantand equipment in 2001
EUR6.8 million investment forwarehouse and distribution center inUkraine in 2002
Increase inventories held by Deutschefor Ukraine distributors
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Financial Plan
Stock Dividend Declaration
New Compensation Plan for OlegPinchuk
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Current Financials 1.173 million hectoliters sold in Germany
and Ukraine
Sales and Profit: approximately EUR92.1million and EUR2.9 million respectively
Ukraine customers account for 28% ofsales by early 2001
Note: Capacity available at entry, noadditional capital invested
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Actual Sal
$0
$20,000
$40,000
$60,000
$80,000
$100,000
1997 1998 1999 2000
(in
1,
000's)
Sales: German
Sales: Ukraine
Total Sales
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Pinchuks formula for determiningthe required marginal investment(aka investment in accounts
receivable)
IAR = (VC/Sales) x Change in AR
Projected Return on MarginalInvestment 123% in 2001
132% in 2002
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Pinchuks Analysis re: Return onInvestment Assumes fixed costs have been covered
ROI = After-tax Profit/IAR
Additional investment in fixed assets Increase in Ukraine inventories
Allowance for bad debt
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Deutsche BrauereiReturn on Investment Projections (in 1,000s)
Pinchuk Revised
2001 2002 2001 2002
Sales 37479 48722 37479 48722
Change in Sales 11631 11244 11631 11244
Variable costs (7752) (7494) (7752) (7494)
Contribution on Marginal Sales 3879 3750 3879 3750
Taxes on Marginal Contribution (1358) 1312 (1358) (1312)
Marginal After-tax Profit 2521 2437 2521 2437
Variable Costs/Sales 67% 67% 67% 67%
Change in Accounts Receivable 3074 2772 3074 2772
proposed investment in fixed assets n/a n/a (7000) (6800)
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Proposed quartlery EUR698,000 (2.8million for 2001 (projected))
Traditional 75% dividend payout
Rapid sales growth does not alwayspay off in terms of more profits ordividends
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2000 compensation EUR81,440:
Base Salary EUR40,040
plus EUR41,440 (.5% on sales increase
over 1999)
5 distributorships, 211 customeraccounts on small budget and
increasing sales Proposed Increase:
Base Salary EUR48,000
Plus .6% of annual sales increase in
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Financial Plan
Slow down Ukraine expansion
Sales growth rate is increasing faster
than Asset growth (see RatioAnalysis)
Capacity available in 1998 but hascaught up quickly
Avoid borrowing due to increasingdebt/equity and debt/total capital(see Ratio Analysis)
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Reduce dividend and retain more of theearnings to avoid borrowing
Pinchuks focus should be redirected to
collections (tighten credit to Ukrainedistributors), profits and efficient use ofassets
Increase Pinchuks base salary New base salary EUR44,000 plus bonus
of 1.5% of net earnings
Focus on profit instead of sales
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