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Central European Distribution (CEDC)

Q4 2010 Earnings Call

March 01, 2011 8:00 am ET

Executives

William Carey - Chairman, Chief Executive Officer and President

James Archbold - Vice President, Director of Investor Relations and Secretary

Christopher Biedermann - Chief Financial Officer, Principal Accounting Officer and Vice President

Presentation

Operator

Good day, everyone, and welcome to the CEDC Fourth Quarter and Full Year 2010 Earnings Conference Call. [Operator Instructions] 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.

James Archbold

Thank you. I'd like to welcome everyone today to CEDC's Fourth Quarter and Full Year 2010 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 content of this call contains time-sensitive information that is accurate only as of the date of the live broadcast, March 1, 2011. The online replay will be available shortly after the conclusion of the call. You may also view a copy of today's press release on our website.

Please also note that 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 and 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 today and the 2010 Form 10-K 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?

William Carey

Thank you, Jim. Welcome, everyone, to the fourth quarter 2010 and full year earnings call. I'll just start off and sort of give you an overview from the earnings that were reported today for 2010. The comp that we're looking at is an overview for Poland and Russia. And then, I'll get into a bit the -- have the fundamentals in Q4 as well as outlook for 2011. And Chris will also be discussing the balance sheet, our working capital ratios and the cash flow.

To start off with, 2010 was certainly a disappointing year for us as management and certainly for the company, and the fourth quarter, unfortunately, was not any exception. For the entire year, some of the situations that happened were unplanned events out of our control and some were execution-related.

In mid-November, we sat down and really took a hard look at our business. We did a overall strategic review at where we're going in our key markets in terms of key objectives of growing a faster top line with our core portfolio and our new product development that we have coming out this year.

We recognized the need to grow the faster top line to increase the possible market share, which will enable us to have better operating leverage with the asset base that we carry today. One of the biggest benefits we have is the capacity that we have with the sales force and our production capacity. And we're not utilizing that to the effect needed [ph] because of the slowness in the top line. We decided that the increased investment, primarily in Poland, to drive market share and faster top line growth is really paramount to where we want to go as a company.

Unfortunately, in the fourth quarter, it had negative profitability implications. This large investment was needed to make a step jump at our key markets, especially Poland. The turnaround that we have started in the fourth quarter with substantial increased investments that we made in the last half of Q4 and overall change of business model, which you're clearly seeing with 2011 projections, represent more top line growth and, obviously, lower EBIT percentages in Poland.

We believe, for the medium term, that brand health, brand equity and operating leverage is really necessary to do what we need to do as a company and management, and we're determined to achieve this. Some of you may say maybe we should have done this a year ago. Maybe you're right. Some of you might say that it's a really big cost that we're implementing, but as we believe management is the right decision to take, and we're only going to look ahead.

And yes, it does come at the expense of EBIT margins in Poland, but we're actually increasing our EBIT margins in Russia where 75% of the business is today. As we look at our strategic review, it was necessary to get back on our previous market share certainly coming out of Poland. Market share loss in Poland was accelerating over the last two years and even got steeper in the last few months of August through October. And really, we could not let that continue.

One was the launch of our Zubrówka Biala, which we did in November, which was a tremendous success. And even with the January data we're seeing out of Nielsen is really doing fantastic in overall market depletions, and it'll be our biggest selling brand in our company for 2011, and we truly believe that this probably will be the biggest brand coming out of Poland in the near future.

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