Student

DEUTSCHE BRAUEREI

B.B.Chakrabarti IIM Calcutta August 2005

The Agenda for the January, 2001 Meeting of BOD

 Approval

budget

of the 2001 financial

 Declaration  Adoption

of the quarterly dividend

of a compensation scheme for Oleg Pinchuk

Deutsche Brauerei (DB)

 Entirely

owned by 16 uncles, aunts and cousins in the Schweitzer family  Year 2000: Sales=€ 92.1 mn, Profits= € 2.9 mn.  Founded in 1737  Produces High Quality Beer

Expansion into Ukraine

 Expanded

into Ukraine in 1998 due to surplus capacity  Ukrainian currency ‘Hryvna’ depreciated by around 50% against DM within 3 months following Russian debt crisis in 1998.  DB overcame the lowering effect by increased volume.

Expansion into Ukraine

 By

early 2001 Ukraine accounted for 28% of DB’s sales.  DB’s volume growth over the past 3 years was primarily due to Ukrainian sales.  DB marketed beer in Germany through a network of independent distributors, who purchased beer from DB and sold to the retail distribution chain. Marketing in Ukraine was different.

Views of Uncle on Oleg Pinchuk

 Quite

pleased with Oleg.  Oleg organized 5 distributorships, 211 customer accounts and warehousing arrangements in Ukraine in 30 months on a small budget(!).  He really produces results(!).

Views of Uncle on Oleg Pinchuk

 Current

earnings: € 81,440 (Base salary-€40,000 and incentive of 0.5% on annual sales increase in Ukraine.  Proposal is to increase base salary to €48,000 and incentive payment to 0.6% of the annual sales increase in Ukraine.

Views of Uncle on New Investments

 If

present growth continues, unused productive capacity will be exhausted by late 2001.  2001 budget - € 7 mn investment in plant and equipment.  Proposed investment in 2002 as suggested by Oleg - € 6.8 mn. in warehouse and distribution center in Ukraine.

Views of Uncle on Dividends

 Increase

in dividends for this quarter to a total of € 698,000, one-fourth of...