Who can play poker with an exposed hand? The Contract Register Act poses a threat for Budweiser Budvar
Budweiser Budvar has evaluated the functioning of the so-called Contract Register Act in a trial mode. The experience so far after 7 months confirms that the impact of this Act will cause harm to the business and financial areas as well as negatively affecting the corporation’s economic activity after 1st July 2017. The existing financial stability of the company is thus fundamentally undermined Ing. Petr Žáček, the Economic Director entrusted with the management of Budweiser Budvar informed the MPs of the Constitutional and Legal Committee of the Chamber of Deputies about the current situation today. Mr. Žáček also appealed to the MPs not to harm Budweiser Budvar by their decision. Despite that, the Constitutional and Legal Committee has not commented on the exemption of Budweiser Budvar yet and recommend returning the Act with all amendments for a second reading.
Budweiser Budvar has evaluated the functioning of the so-called Contract Register Act and its impact on the corporation’s economic activity. After 7 months of the Act’s functioning, the corporation made more than 500 documents public in the Contract Register. Although the Act has only been effective in trial mode (i.e. without penalties) and the brewery has therefore been not obliged to disclose commercially sensitive contracts, a negative impact can clearly be already seen. It will fully surface after 1st July 2017 when the major sanction comes into effect - i.e. the cancellation of any undisclosed contract from the very beginning. Budweiser Budvar has been doing business in a fast moving segment of goods, where the speed is of a crucial importance, as customers cannot wait until one or other contract has been drawn up and made public. In a highly competitive environment of FMCG (Fast Moving Consumer Goods), it is essentially dangerous for Budweiser Budvar to reveal to the competitors its contracts with customers and suppliers, as it will cause major problems for the brewery.
Ing. Petr Žáček, the Economic Director entrusted with the management of Budweiser Budvar informed the MPs of the Constitutional and Legal Committee at a public hearing about the current situation today. “Our concerns are being fully confirmed in practice as well. If we are in the scope of the Contract Register Act, the so far profitable economic activity of our corporation will be at risk. Therefore, I asked the MPs to vote for the exemption of Budweiser Budvar from the contract register," says Petr Žáček. Budweiser Budvar has never drawn a penny of subsidies on public funds; on the contrary, it is a sole payer and the purpose of its existence is to create profit. In the last three years, the brewery has paid CZK 1,300 million of profit and a further estimated 1,200 million in taxes and fees in the national budget. “The Contract Register is going to reduce the national budget revenues, and given the worst scenario, it will completely stop them. I therefore believe that the common sense and personal courage will prevail and the MPs will eventually vote for an exception for us,” points out Petr Žáček. One of the main goals of Budweiser Budvar’s business activities is profit, which the brewery has been achieving for many years; one of the reasons being that it is unpredictable for its competition as well as fast. Making all contracts public will result in the brewery losing these basic benefits. For many years, Budweiser Budvar has been successfully fighting for the Budweiser Budvar brand in dozens of countries worldwide and the defence has been very effective so far. “Let me use a historical parallel: when once a town or fortress were unconquerable, it usually took someone from the inside to open the gate. The MPs hold the key to Budvar in their hands and naturally, it is up to them whether they open the gate defended for several generations wide open for our competitors,” adds Petr Žáček.
Budweiser Budvar's economic activities are already under extensive control, which the Government exercises by means of more than 20 legal regulations and furthermore, a continual monitoring by the Czech Ministry of Agriculture, the Supervisory Board and other state agencies constantly takes place. The Supervisory Board has auxiliary monitoring committees for the audit and the corporation development strategy at its disposal. The founder of the corporation has through its management bodies access to corporate databases, all contracts, tenders and corporation documents. “The government certainly has enough control mechanisms, which have a much broader reach than the Contract Register with one difference - they do not jeopardize our business,” concludes Petr Žáček.
Regrettably, the Constitutional and Legal Committee has not commented on the exemption of Budweiser Budvar from the scope of the Contract Register Act today, recommending returning the Act with all amendments for a second reading.
Some risks of the Contract Register for Budweiser Budvar:
- Disclosure of commercially strategic information that does not belong to a business secret - the Act does not protect the know-how almost at all and unfortunately the interpretation of what is a business secret and what no longer is, is interpreted by every court differently
- Fundamental limitations of doing business abroad (last year Budweiser Budvar exported more than 60% of its production) - its trading partners without exceptions disagree with making any information about the cooperation public and they would rather not enter into such a “public” contract at all - the brewery will lose its market
- The purchase of ingredients, materials and services will be more expensive - the suppliers will on principle require their list prices, which will result in Budvar losing favourable business conditions accomplished over the years
- Through the documents obligatorily made public, the competitors can indirectly even get to the data, which imperil the intellectual property of the corporation (especially trademarks) and it will no doubt be exploited by a long-time rival Anheuser-Busch InBev.
These and other factors will bring a sales slump, a loss of some foreign territories, a loss of some trademarks and an increase in costs, which will result in a decline of economic results and in extreme cases even in a fall into book loss.