Deutsche Brauerei Gregory Hall

Executive Summary Deutsche Brauerei is a bre i!g compa!y that ma"es its o ! beer a!# sells it i! Germa!y a!# the $"rai!e% &he compa!y is very pro'itable ith co!siste!t !et ear!i!gs that e(ual )* o' sales a!# a si+able #ivi#e!# payout each year totali!g 2,-* o' sales% &he 'irm is able to maximi+e sharehol#er ealth hile still retai!i!g e!ough ear!i!gs to support its gro th% .! the other ha!#, Deutsche Brauerei is co!ti!ui!g to gro 'aster a!# 'aster li"e a trai! #ashi!g 'rom Germa!y i!to the $"rai!e% &he busi!ess i! $"rai!e is boomi!g but this is creati!g a problem 'or the compa!y because they 'i!# themselves stretchi!g cre#it terms to mai!tai! busi!ess% At this poi!t i! the orl# eco!omy GD/ is co!tracti!g% 0e "!o a'ter the 'act that 2000,2001 as a global recessio! that resulte# i! a shri!"i!g mar"et place% &he bre ery might be getti!g itsel' i! trouble by o''eri!g 90,#ay cre#it terms because it may !ever be able to recover the 'u!#s% &hree issues are raise# at the e!# o' the case as ell1 all o' hich 2 ill co!si#er he! tal"i!g about the issues at Deutsche Brauerei% &he !e boar# member 3Greta4 'i!#s hersel' co!cer!e# about the 'i!a!cial pla! 'or 'uture gro th, the compe!satio! 'or the star busi!essma! o' the compa!y 3.leg /i!chu"4 ho has accou!te# 'or all o' the gro th i! the $"rai!e, a!# the #ivi#e!# #eclaratio!s% All o' hich are vali# issues at the compa!y but a'ter loo"i!g at the 'i!a!cial !umbers 2 oul# raise a 'e more (uestio!s at the boar# meeti!g%

April 1, 2009

/roblem &here is a lot goi!g o! at Deutsche Brauerei that tells me the compa!y is hea#i!g i! the right #irectio!% 2t 5ust became a multi!atio!al 'irm by gro i!g 'rom Germa!y a!# i!to $"rai!e% Sales i! $"rai!e accou!t 'or )6* o' the gro th i! the compa!y a!# allo it to be ope! to !e mar"ets all over Europe1 as or# sprea#s about the (uality pro#uct% Ho ever, a 'e 'i!a!cial #ecisio!s !ee# to be loo"e# at a!# co!cer!s !ee# to be raise#% 7irstly, 2 ill a##ress the issues i! the case% Divi#e!#s are (uit high as state# i! the executive summary at 2,-* o' sales% A! eve! stri"i!g !umber puts #ivi#e!#s at -8)ths o' the pro'it ma#e at the bre ery% Ho ever, this mo!ey is supporti!g the o !ers a!# 'amily members o' this 'amily orie!te# compa!y% 2 #o !ot see this as a particular problem i! this case because cha!gi!g the payout oul# o!ly temporarily solve their #ebt problem a!# ta"e a ay 'rom the compa!y9s goal o' ta"i!g care i' its o !ers% :ext, the compe!satio! 'or .leg /i!chu" is a huge issue at the 'irm% He ma#e a! extraor#i!ary amou!t o' mo!ey last year a!# #eserves the %1* raise 3%1*;i!crease o' sales i! $"rai!e4 that ill come to him% 2t is !ot #etrime!tal to 'irm9s 'i!a!ces a!# he is vital to 'irm9s success i! $"rai!e% He is the o!ly o!e ho "!o s a!# has ma#e co!tacts 'or sales i! the cou!try, hich ma"es him i!#ispe!sable at this poi!t% &he last problem i!volvi!g the 'uture 'i!a!cial pla! !ee#s a little more #iscussio!% As state# i! the case 2001 calls 'or 6 millio! euros i!veste# i! //E a!# a!other < millio! euros i! 2002% &he #ebt at Deutsche Brauerei is alrea#y risi!g a!# somethi!g !ee#s to be #o!e so the 'irm #oes !ot over leverage itsel'%

A!alysis As state# i! the problem there are ma!y issues at Deutsche Brauerei but o!ly o!e ca! be cha!ge at the curre!t time% Debt gro th !ee#s to be mi!imi+e# a!# eve! #ecli!e# i! the 'uture 'i!a!cial pla!% 0e u!#ersta!# that the compa!y !ee#s to gro i! or#er to complete its sales ob5ectives a!# co!ti!ue to survive i! the competitive beer bre i!g i!#ustry% &here'ore, 2 propose a solutio! that cuts #ebt, e!courages stro!g gro th, a!# re#uci!g the outla!#ish cre#it terms that are curre!tly bei!g o''ere# i! $"rai!e% Si!ce the $"rai!e mar"et is gro i!g a!# the problems are relatively !e , this is here the atte!tio! shoul# be give! o! the 'i!a!cial stateme!ts% Some o' the pote!tial solutio!s are a result o' eye,poppi!g problems o! the 'i!a!cial stateme!ts% /ro#uctio! costs have i!crease# 'rom =2 to <0 as a perce!tage o' sales, i!ve!tories have i!crease# some, accou!t receivables have rise! 'rom 0 to 10* i! o!ly = years, a!# ba!" borro i!gs have go!e up 'rom =* to 1>* as a 'igure o' sales% 2 propose that a slight combi!atio! o' cha!ges ca! be ma#e to solve the 1-* i!crease i! #ebt borro i!gs so that the bre ery ca! i!vest i! !e pla!t a!# e(uipme!t i! 2000 a!# 2001% /ro#uctio! costs ca! be re#uce#, i!ve!tories seem to be o"ay i' they #o !ot co!ti!ue to go higher, a!# accou!ts receivables !ee# to be claime#% 2' pro#uctio! costs are #ecrease# #o ! to ==* the! retai!e# ear!i!gs e(ual more tha! )%2 millio! euros i! 2001 as appose# to the 9-1 thousa!# euros previously 'orecaste#% 2! 2002, retai!e# ear!i!gs e(ual over 6 millio! euros i! co!trast to the 1 millio! 'orecaste#% &his gai! is huge i' all else remai!s the same a!# the compa!y oul# have !o problem i!vesti!g a!# payi!g o'' a risi!g #ebt% A##itio!ally, i' accou!t receivables are retrieve# the! this mo!ey ca! be a##e# to cash o! the bala!ce sheet% &his gai! is !ot as substa!tial but ill still help improve the 'i!a!cial ratios a!# li(ui#ity o' the compa!y overall%

?ecomme!#atio! A'ter ru!!i!g the !umbers the "ey issue 'or Deutsche Brauerei shoul# be re#uci!g pro#uctio! costs a!# "eepi!g all else the same i!clu#i!g pay 'or top employees a!# curre!t #ivi#e!# payouts% &he compa!y oul# the! have the cash to gro ithout havi!g to borro a!#

be able to pay o'' its existi!g #ebts% 2 believe the compa!y ca! "eep the costs #o ! especially over time, as it becomes a mature competitor i! the i!#ustry% &ypically, their processes shoul# become more e''icie!t over time so "eepi!g costs #o ! to ==* is !ot u!reaso!able% 2! co!clusio!, i' the bre ery ca! re#uce costs tha! it ca! co!ti!ue its gro th pla! a!# co!ti!ue to be pro'itable%