EBRD backing lifts crisis-hit Bulgarian dairy company

By Mike McDonough

Despite the effects of the global financial crisis and a spike in milk prices in Bulgaria, EBRD investment is helping crisis-hit Fama, Bulgaria's third largest dairy producer, recover and flourish.

“We were caught in a perfect storm last year,” Robert Luke, chairman of the board of directors at Bulgarian dairy company Fama, says of 2008. “Everything that could go wrong did go wrong.”

That was the year the cost of milk shot up 50 per cent in the space of a few weeks due to the international food price crisis. At the same time, the global liquidity shortage transformed Fama’s relationship with its creditors almost overnight: banks around the world were suddenly unwilling to continue providing the working capital on which their clients relied.

“Because we were at the start of the recession, dairy companies were unable to pass on the increased cost of milk to consumers,” Mr Luke recalls. “So very significant losses were made throughout the industry.” Only 12 months previously, Spanish-based private equity firm GED Capital Development had bought Fama and started an ambitious turnaround programme. It aimed to build on the family-owned company’s leading position in north-east Bulgaria and transform Fama into a national player with modern and transparent business practices.

Crucial EBRD investment

Despite the big rise in milk prices and the financial and economic crisis, the turnaround is still ongoing and Fama ranks as Bulgaria’s third biggest dairy producer. An EBRD crisis-response investment of up to €5.5 million is aimed at helping the company to continue this process whilst also shoring up its finances in what remains a challenging climate.

“Fama has become a professionally-managed company with best business practices from corporate governance to quality control,” says Sofia-based Associate Banker Borislava Gabrovska from the EBRD.

“They are building strong links with local milk farmers, improving their production facilities, developing their own distribution network and raising the overall industry standards,” adds Anna Mangova, an associate banker in the EBRD’s Agribusiness team. “So this is a very appealing project from a transitional perspective.”

GED purchased Fama through its Eastern Fund II. As the single biggest investor in the fund, the EBRD has established a strong relationship with GED over the last 14 years. Fama is the fund’s first project in Bulgaria, but GED has a good track record of turning around companies in neighbouring Romania. Mr Luke, who is also GED Capital Development’s managing director, remains upbeat about Fama’s long-term future.

A brighter future

“The Bulgarian dairy market is very fragmented, especially when it comes to cheese products,” he says. “But it is virtually impossible for small companies to compete with a well-managed business like Fama that is fully up to western standards.
“That status also means that, when it is time for us to exit, we will be able to sell Fama to a strategic investor.”

In the meantime, Mr Luke is appreciative of the EBRD’s help in steering Fama through its current difficulties.

“In Bulgaria, with regard to this type of problem, the EBRD is the only game in town,” he says. “The Bank’s additionality is absolutely clear and evident to everybody.”