Case Summary——Deutsche Brauerei

Case Summary——Deutsche Brauerei

Deutsche Brauerei——the Germany beer producer——is enjoying the success of entering Ukraine market with meeting nearly no resistance. Although Russian’s debt crisis results in depreciation in hryvna by 125% in 3 months, the increasing sales volume contributed by the sudden hit

covers the loss. They believe that Ukraine is such a potential market that it is worth more investment. But it can be a high-return as well as a high-risk investment because of significant currency devaluation.

Lukas judges the situation based on his former experience of brewery production technology. Keeping on the current growth course, he knows that they will exhaust their existing unused productive capacity by late 2001. And the belief on Pinchuk help him gain more confidence when they make the decision. However, he neglects the effects on financial performance caused by the investment.

If their profit relies on exporting to a country with high risk of currency devaluation, they have to pay more attention and maybe place more cash to manage and avoid the risk.

Apart from this , Pinchuk seems a little arrogant. He does not include all factors which may influence the expedition. So as the incentive program, it encourages the venture action regardless of the true scenarios. Enlarging the credit sales amount to the Ukraine retailers who are in low credit status contributes to shortage of cash and a higher rate of doubtable accounts. This may be the reason why they have a rapid sales growth and they earn a substantial profit while they still have to borrow money from bank.

The generous cash dividends also lead to a decreasing total cash flow from year to year. It is hard to do any change because the company is owned by the Schweitzers and nearly half of the family lives depend on the dividends. Just like you could not rob the money from your relatives, so you cannot criticize the distribution policy.

Now the happy atmosphere penetrates the entire...