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Central European Distribution (CEDC)

Q1 2011 Earnings Call

May 05, 2011 8:30 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

Analysts

Victor Dima - BofA Merrill Lynch

Yulia Gerasimova - Goldman Sachs Group Inc.

Brady Martin - Citigroup Inc

Douglas Lane - Jefferies & Company, Inc.

Matthew Webb - JP Morgan Chase & Co

Edward Mundy - Nomura Securities Co. Ltd.

Julien Martin - BofA Merrill Lynch

Andrzej Knigawka - ING Groep N.V.

Daniel Wakerly - Morgan Stanley

Presentation

Operator

Good day, and welcome to the CEDC First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to the Director of Investor Relations, Mr. James Archbold. Please go ahead, sir.

James Archbold

Thank you. I'd like to welcome everyone today to CEDC's First Quarter 2011 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, May 5, 2011. The online replay will be available shortly after the conclusion of the call. You may also view a copy of yesterday's press release and a presentation for today's call 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 yesterday and our 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?

William Carey

Thank you, Jim. I want to welcome everyone to our Q1 conference call. This call will be a little bit different than the past as we put out our presentation, which hopefully many of you had the chance to read. I will just cover off through the presentation before obviously that we would speak and then obviously after the call, open up to any questions.

And in turn, we hope the presentation adds some color and some more transparency behind some of the movements in terms of volumes and values and some of the more interesting points on the market outlook and so forth. So I certainly hope that adds some overall transparency to what was previously put out.

And first, I'll just cover the basic economies. Russia and Poland seem to be trending along pretty well. Both countries raised rates recently, around a quarter point. The current recent inflation moves. Currency just have remained pretty strong, one on the back of the weak dollar and its strong oil price. Overall, unemployment seems fairly stable. So overall, both market seem fairly stable with the overall consumer.

Now first again, on Page 3, on the highlights of Poland. Generally, what we're seeing out of Poland is due to the timing of Easter, which is quite big in Poland. Easter and Christmas are very big holidays here where certainly spirits and wine are consumed in larger quantities. And this year was a shift from March to April, and that was really the only difference in terms of seasonality between the 2 quarters.

[indiscernible] a strong continued success of our Biala brand, which was doing extremely well in the trade where you're almost up to 5% market share. We're still on track for a 7%, 8% market share with Biala coming into the end of the year. Our total market share is still at 24%. We're still targeting for year end around 26% total market share and that's coming from overall growth again led by Biala, and certainly imports and exports continue to perform well. The imports were up I think 8% or 9% which we'll get to on the next slide.

Also the wholesale channel, in which, we worked very hard, I'll try to bring up the wholesale channel has increased in a positive channel mix for us, moving from 19% to 23%.

The overall vodka market was rather weak in quarter of 6.4% down according to Nielsen data in the first quarter. We're expecting a little better market data because of the Easter effect, I think had impact on that because again March, was last year's Easter. So what we are looking at, our April results in Poland when we were up over 40% in volume. So certainly, I think some of that has Easter, but overall, certainly that should skew a bit the second quarter that should certainly turnaround the overall market.

Spirit pricing has remained fairly stable after increasing the first couple weeks of January, actually we've seen some improvement over the last couple of weeks. We're looking at our import representation for the company because of the growth over the last couple of years, our import portfolio, it is representing today around 31% on our gross margin in Poland. So it's becoming a quite part of our overall business, the White and Brown Spirits business.

On the next page, you have some of the highlights in volume and value. What we like with the investment as you know with the overinvestment let's say in the Q4 of Biala, that was stopped at the end of December, and what we're seeing in the pricing today is that the brand is still doing extremely well price in the upper main stream price point. It's about 4% to 5% higher price point than the market leader, de Luxe [Czysta de Luxe] , which is [indiscernible] the stock company owned by Oaktree. And we think it's a great position to be in when you're sitting above the market leader and growing faster. So we think that we're very well-positioned to really capture real increase opportunity moving into the rest of this year.

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