Deutsche Brauerei Essay

The agenda attached (EXHIIBT 1) became the focus of Ms. Greta Schweitzer’s concentration for the next 24 hours. She relied on her team from her EMBA class in Frankfurt to assist her with the recommendations she would need to address this board tomorrow morning. Upon initial analysis, it became obvious that DB was in trouble with respect to the Ukraine market, much less the proposed capital expansion. Several items alarmed the team when we read the statements from both Lukas Schweitzer and Oleg Pinchuk. The sales and marketing manager has an obviously different approach than that which made DB successful in the past. Oleg Pinchuk has extended credit to its â€Å"distributors† which is causing a rise in sales and accordingly an increase in his salary (as it is based on sales). This needs to be corrected; given such a volatile environment and this firm’s recent history, a person in his position should earn a salary based on accounts receivable collections, rather than sales. Perhaps then, his discretion would be more restrictive with respect to extension of credit. Furthermore, if the distributors are in fact expanding and enhancing their stores by purchasing new equipment and restocking inventories, then obviously they have the cash to pay DB for their outstanding invoices. This raises considerable questions regarding the prudence of â€Å"trade-credit extensions† and compensation packages offered Mr. Pinchuk, and accordingly, we recommend his termination. A new salary structure and job description delineating required results can be negotiated with Mr. Pinchuk’s replacement. When considering adopting the budget for 2001, we must consider the proposed expansion and investments in new plant and equipment (warehouse and distribution center). With the overuse of short term debt and a borrowing rate over 2% higher than the government rate, it will be impossible to finance this capital expansion. We cannot recommend approval of the budget in its current form. There is not enough cash being collected, too much inventory carried on behalf of the distributors, too much risky short term debt and too many capital improvements budgeted to justify this expansion. Without actually collecting cash from the receivables, we do not recommend declaring any additional dividends, as indicated in the budget. Historically, declared and paid dividends were right at or below $2,000 (in thousands of Euros) and the proposed budget increases those to well over $3,200. We recommend restricting dividends declared to what was done in the past, without any increase. Once collections are received and with the change in marketing, credit policies, and inventory control, the company would be in a better financial position to pay additional dividends. As a matter of final note, we strongly urge the Board of Directors of DB to consider the short term effects of expanding into a new market economy. The Ukraine is just transitioning into becoming a market economy (experiencing supply and demand that guides the allocation of resources). Such a transition is politically and socially difficult for businesses because of rising inflation, unemployment, and economic uncertainty. We have serious questions about the vitality of DB and whether it can survive until the long term benefits of this transition are realized.