Free The Financial Situation Deutsche Brauerei Essay Sample
Deutsche Brauerei is a German brewing company that has been in the Schweitzer family now for 12 generations since its founding in 1737. It produces two varieties of beer, the light and the dark beer, which are brands for which it won numerous quality awards with intriguing consistency over the years. It actually makes skyrocketing profits every year, with its sales reaching 92.1 million Euros and the profits going up to 2.9 million Euros in the year ended 2000. In addition to its extensive size and large capacity of production, the recent modern equipment in the company has even higher potential to increase its production enormously, over and above the capacity it had in 1994 when it had modern equipment that produced up to 1.2 million hectoliters of brew annually after the previous equipment was razed down by a fire in the same year.
Later on, Deutsche Brauerei expanded into Ukraine following the projected prospective of a new market for its high quality beer that had gained popularity all over Europe. This marked the source of the indebtedness of Deutsche Brauerei that still burdens the company till today, despite its enormous profits. It is the Russian debt crisis of 1998 that was so devastating to Deutsche Brauerei following the consequent wave of massive privatizations and market reforms imposed by the Ukrainian government that led to the incredible depreciation of the Ukrainian hryvna by approximately 50 per cent against the Deutsch mark within a span of three months. As a result of the depreciation described above, there followed even lower revenue, decreased profits and devaluation of assets when they were translated into Deutsch marks.
However, since the Schweitzers were meant to be brewers and not marketers or finance people, the owners of the company concentrated on restoring the high production of the company instead of strategizing to bring out of the dreaded financial crisis. Thus, they have all along kept borrowing money from the bank to cover its production, maintenance and marketing costs with no regard for the financial implications or the poor status of the market. For instance, the budget for 2001 called for investments of 7 million Euros for a new plant and its equipment whole the 2002 expenses included 6.8 million Euros for a warehouse and distribution center in Ukraine. It is this concentration on maintaining the production capacity of the company through heavy loans from the bank with no appropriate strategy to restore it from the effects of the 1998 financial crisis that has kept Deutsche Brauerei under heavy chronic indebtedness over the years. This is because for Deutsche Brauerei to operate so profitably over the volume of its break-even, it needs to borrow very aggressively.