EBRD strengthens the Czech Republic’s brewing industry

By Lucia Sconosciuto

A total of €32 million in loans and €2 million equity investment from the EBRD helped transform the fortunes of a leading Czech malt exporter, Sladovny Soufflet, and boost the country’s brewing industry.

In the Czech Republic investing in ‘malting’, the process of preparing barley to produce malt for brewers, is about much more than the country’s agribusiness. It is an investment in its cultural heritage.

The ancient recipe for beer has no secret ingredients: just water, malt, hops and yeast. What gives beer its taste is the quality of the malt used to produce it and the way it is processed.

In the Czech Republic, the practice of growing malting barley and brewing it dates back to the 10th century. With its unique bitter and dry taste, Czech beer is enjoyed worldwide.

“After the Velvet Revolution there was an open door for incredible opportunities in this segment and we seized it,” explained Pavel Kryl, Financial Director of Sladovny Soufflet Czech Republic A.S.

His company, the largest malt exporter in the country, was established in 2000, ten years into the restructuring of the sector that transformed state-owned malt houses into independent businesses.

This evolution presented critical management and financing challenges for many. The privatisation of the largest Czech malting company, Obchodni Sladovny (OS), and its flawed financial restructuring plan ended in bankruptcy.

Likewise, top-notch German technology, proximity to barley suppliers in Moravia region and easy access to transport could not shield the Moravska Sladovna Kromeriz (MSK) malting plant from failure, just a couple of years after starting operations.

In order to rescue both companies in 2001, Sladovny Soufflet, a subsidiary of the world’s third largest malt producer - Soufflet Group of France - decided to buy the majority share of OS and MSK’s malting facilities and equipment.

The support of the EBRD was fundamental to both transactions. The Bank provided Sladovny Soufflet with a €14 million loan for the acquisition and financing of working capital of OS’s six malting plants.

Sladovny Soufflet also benefitted from a €8 million EBRD loan and a €2 million equity investment to acquire MSK’s plant.

MSK’s imposing facility includes a steeping building, six germination rooms, two huge kilns, silos and transport infrastructure. To increase the energy efficiency of the kilns, following the recommendations of an energy audit funded by the Central European Initiative in 2004, the EBRD also provided additional financing of €10 million.

“The operation resulted in an increased annual capacity of 20,000 tonnes of malt (to 100,000 tonnes) and led to a 17 per cent savings in gas and 13 per cent in electricity use per tonne of malt,” said Vladimir Sadic, EBRD Principal Banker leading the project.

Modern malting technology goes hand in hand with the timeless tradition of growing barley. Sladovny Soufflet’s best barley supplier, Rostenice a.s., is just few kilometres away from the Kromeriz plant.

Vítězslav Navratil, the company’s director, is a pragmatic farmer who manages 8,000 hectares of land and 130 employees. He is eager for innovation. After patenting a new sowing machine, he is now investing in biogas to produce energy from animals’ waste.

“Close cooperation with all our suppliers is key to our success: our agronomists help them improve raw material, farming techniques as well as storage infrastructure,” said Mr Kryl.

This guarantees high-quality malt and secures sales for local farmers who participate in the value chain with big market players.

The connection to global industries is of enormous benefit to Czech malt producers. It helped Sladovny Soufflet, for example, weather the financial storm.

“Four years ago the demand fell by 15 per cent,” said Mr Kryl. “Now, thanks to our strong sales to international clients such as Heineken and Carlsberg, sales are back at pre-crisis level.”

The company allocates 70 per cent of its product to exports. “But we also supply many local microbreweries that produce local brands: after all, beer is our national drink!” he added.

*The Czech Republic “graduated” from EBRD operations at the end of 2007.