Darwin Brewery (DB) expects more profit growth this year, helped by markedly low
ID: 2427567 • Letter: D
Question
Darwin Brewery (DB) expects more profit growth this year, helped by markedly lower malt costs, after a 5.25% increase in full year net profit of $9.5M. The Darwin-based, unlisted company’s performance was driven by a 29.25% increase in interstate sales. Total revenue rose from $84.3M to $102.5M in the year to June 30. Its national sales volumes rose 16.9% in an overall domestic market that slipped 1% over the year, as Australia’s third largest brewer continued to outpoint its larger rivals.
Managing director Tony Stark said sales in the first half of this financial year were about 20% ahead of the previous first half. He said DB was benefiting from lower malt costs, as barley prices dropped from about $695 a tonne in 2010-11 to about $520 a tonne this financial year. “The very high price of barley took more than $2M of our bottom line,” Dr. Stark said. “It was a very encouraging result in the circumstances and this year’s result should be quite a bit better.”
The strong growth in sales beyond its Darwin base where sales grew 10.5% had resulted largely from the 75% investment in the Premium Brands joint venture with American Beverage Distributors, which began trading in March 2010 and had enhanced national distribution.
Higher export sales, up 14.2%, had been gain in Britain, the United States and New Zealand, although they accounted for only about 2% of the total revenue.
However, DB did not have everything its own way, with its business in home brewing kits suffering a 12.8% fall in sales volumes as Foster’s CUB and Lion Nathan entered the mature market.
Dr. Stark said the home-brew market had been in ‘gradual decline’ since the mid-2000s but still accounted for about 20% of revenue. “The entry of Lion Nathan in 2010 and then CUB last year did hurt us but we’re holding our own,” he said.
Required:
a) Why do you think counting profits ignores the social impacts of a corporation’s products? (5 marks)
b) How would a brewery company account for the social costs created by alcohol abuse? (5 marks )
c) Should a brewery company account for the social costs created by alcohol abuse? (5 marks )
d) Would GDP be positively or negatively affected by costs that arise from alcohol abuse? (Such cost might include those that arise from alcohol-related accidents, alcohol-related crime and so forth)?
Explanation / Answer
1. Accounting for profits mainly describes the financial profit or losses during the year in the corporation. It does not include the social impact as the impact cannot be quantified and it does not directly affect the profitability of the corporation. The point that the company's image is adversely affected is a different issue.
2. Alcohol consumption can have adverse social and economic effects on the individual drinker, the drinker’s immediate environment and society as a whole. Indeed, individuals other than the drinker can be affected, for example, by traffic accidents or violence. It has an impact on society as a whole in terms of resources required for criminal justice, health care and other social institutions.
Social and economic costs cover the negative economic impacts of alcohol consumption on the material welfare of the society as a whole.They comprise both direct costs - the value of goods and services delivered to address the harmful effects of alcohol, and indirect costs - the value of personal productive services that are not delivered as a consequence of drinking.
In industrialized countries, estimates of social and economic costs of alcohol use can reach several percent of the Gross Domestic Product (GDP), ranging for instance from 1.1% in Canada to 5-6% in the case of Italy.
Estimates of social and economic costs can help:
Estimating the costs of the impact of alcohol on the material welfare of society is often difficult and requires estimates of the social costs of treatment, prevention, research, law enforcement, lost productivity and some measure of years and quality of life lost.
3. Morally and ethically speaking, companies should account for the social costs as alcohol leads to the following expenses:
4. If such costs are accounted for, it will lead to a heavy fall in GDP of the country as the nmber of alcohol crimes and accidents aare on the rise and if these expenses are added in the Balance of Trade (BOT), then it will elad to a serious deficit,
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