Deutshe Brauerei Case

1283 Words6 Pages
Executive Summary While Deutsche Brauerei seems to have had almost overnight success in Ukraine, financial statements show that this success has been purely cosmetic. Using lax credit terms, Oleg Pinchuk has been able to report rapid sales growth yet seems unlikely to collect on some of the accounts. The focus on sales has masked the fact the Deutsche Brauerei is not very profitable and has been experiencing an increase in costs. Because of this, the company’s value is actually declining. To rectify this situation, Deutsche Brauerei needs to focus on increasing profitability by cutting costs and reducing dividends. Problem The current tasks facing the board of directors are approving the budget for 2001, declaring the quarterly dividend and adopting a compensation scheme for Oleg Pinchuk. Before deciding any of this, the board must address some issues the company seems to be having. For one, if the company is operating as profitable as Oleg says, then why are they borrowing so aggressively? The board also needs to determine if this rapid sales growth in Ukraine actually translates into higher profits or dividends. Analysis When looking at the financial information provided by Oleg Pinchuk, Deutsche Brauerei seems to be in relatively good financial standings. Sales have been increasing modestly in Germany since 1997 and are projected to continue this trend into 2007. In 1998, the brewery began its expansion into Ukraine. In 2000, Ukrainian sales grew 47% and were project to grow 45% and 30% the following two years. Oleg projected total sales to grow 13% in 2002. Despite these positive increases in sales growth, I found some of the data disconcerting. First, I noticed that production costs and expenses were increasing relative to sales. In 1997, production costs were 52% of sales and have been steadily climbing. Costs are expected to be up to 60% in 2002.
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