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Central European Distribution Corp. (CEDC)

Q3 2009 Earnings Call

November 4, 2009 8:30 pm ET


James Archbold - Director of IR

Bill Carey - Chairman, President and CEO

Chris Biedermann - CFO


Douglas Lane - Jefferies & Company

Richard Baldwin - Gartmore Investment Management

Daniel Wakerly - Morgan Stanley

Margaret Kalvar - Harding Loevner

Andrzej Knigawka - ING Financial Markets



Good day and welcome to the CEDC Third Quarter Earnings Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. James Archbold. Please go ahead, sir.

James Archbold

I'd like to welcome everyone today to CEDC's third quarter 2009 earnings conference call. Joining me this morning are William Carey, our President, CEO and Chairman; and Chris Biedermann, our Chief Financial Officer. Please note that the contents of this call contains time sensitive information that is accurate only as of the date of the live broadcast, November 4, 2009. The online replay will be available shortly after the conclusion of the call. You may also view a copy of yesterday's press release on our website.

Please also note that the statements made during this conference call, other than those related to historical information, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing discussions, the forecasts, estimates, targets, schedules, plans, beliefs, expectations and the like are intended to identify forward-looking statements. These forward-looking statements, which are based on management's current beliefs and assumptions and current information known to management, involve known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements are contained in the press release issued yesterday, November 3, 2009 and in the Form 10-Q to be filed with the Securities and Exchange Commission. CEDC is under no duty and undertakes no obligation to update any forward-looking statements made in this call.

With that, I'll turn the call over to William Carey, our President and Chief Executive Officer. Bill?

Bill Carey

I'm going to welcome everyone to our third quarter earnings call. It was a very eventful quarter we had. As you know, we did a lot of work on buying out a number of our Russian minorities. We completed during the quarter the buy out of another 6% of the Russian Alcohol Group as well as Parliament. That was at the beginning of the quarter as well as the Parliament, 15% remaining minority interest, which we bought out.

In the end of the quarter, what we saw was the economies slowly improve in Poland and Russia. We saw currency strengthen a bit coming off the second quarter, and again, our cost of goods remained in pretty good shape in terms of our raw spirits remaining at yearly lows heading into the end of the quarter and really for the full quarter as well. Overall, it was a pretty good quarter from an overall company performance.

First, we'll get into a little bit of the economics behind what we're seeing in the marketplace, and then we'll get a little bit into the P&L as our usual way of working. I'll turn it over to Chris Biedermann, our CFO. He will take you through a bit of the balance sheet, what we see on different operating measures as well, and then I'll take you through a bit of the outlook, what we see in the marketplace and some other dynamics that have happened, which we think are positive for the business as well.

First off, a little bit of the economics behind what's happening in our key economies. We'll talk about Poland and Russia. What we're seeing out of Poland is that pretty steady GDP growth, around 1%. Government expecting next year and analysts expecting next year about 1.5%, 2% growth next year for Poland.

If we look at Russia, what we're seeing was that third quarter was the first quarter of positive growth that they've had coming off of the second quarter. They are looking at probably a 3% to 4% growth coming into the fourth quarter; and next year, most analysts are putting it anywhere from 2% to 4% growth for the GDP in Russia. Again, that's coming off the lows this year of around 8%, which will be the reduction. 7%, 8% will be the average this year reduction.

So we think it's pretty meaningful because you got to remember where that consumer came from last fall. It went from a plus 7% down to a minus 10% practically overnight. So pretty major shift for that Russian economy, which we think is slowly coming out with more positive GDP growth. Again, in the first half, we think we'll get some better comps as well coming out of our business as well.

We look at inflation coming down in both of our key markets. Poland has come down from around 4.5% to 3%, while Russia has come off significantly down to around 9%, 9.5%. If you take out some of that energy increase out of that number, you're really underlying, that place is really around 5%. So, again, we think that next year projections are keeping under 10% in Russia. Poland is thinking they can keep around this 3%, 3.5% rate. We'll wait and see, but again, this is fairly favorable.

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