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Central European Distribution (CEDC)

Q3 2011 Earnings Call

November 04, 2011 8:30 am ET

Executives

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

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

William V. Carey - Chairman, Chief Executive Officer and President

Analysts

Julien Martin - BofA Merrill Lynch, Research Division

Nicola Davies

Daniel Wakerly - Morgan Stanley, Research Division

Edward Mundy - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

Good day, everyone, and welcome to the CEDC Third Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to 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 Third Quarter 2011 Earnings Conference Call. Joining me this morning are William Carey, President, CEO, and Chairman of CEDC; and Chris Biedermann, 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, November 4, 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 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 today and on 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.

We also ask that today, questions are limited to 3 per person. With that, I'll turn the call over to William Carey, our President and Chief Executive Officer. Bill?

William V. Carey

Thank you, Jim. Welcome, everyone, to our quarter 3 call. First off, we'll be going through Poland, Russia highlights for Q3. Then, we will be going into financials, which Chris Biedermann will lead you through, and I'll take you through the outlook of Q4, and then open up to calls. And I'll be reading off and reviewing over the presentation that's on our webpage. So those of you who want to dial it up, please go ahead. Because I'll be running through the presentation that's on the webpage filed this morning.

So on Page 3, the Q3 highlights for Poland. It wasn't big news for overall business in Poland, in terms of what we expected to what we came up with. In terms of actual results, our volume growth was about 18% compared to third quarter '10, and we had double-digit volume growth in all of our key sectors, domestic vodka, led still by the strong growth of Biala, where we didn't have our new product last year. Also, the imports continued double-digit growth and our exports had a much higher growth, led by a number of new markets that we've opened up over the last 12 months.

Overall, the vodka market was certainly down more than we anticipated beginning of the year, where we thought more 1% to 2%. We're seeing the market down approximately 5% to 6%, which Nielsen's putting out in volume compared to third quarter 2010, and we anticipate that probably to continue through Q4.

We had a couple of successful launches of our new flavor, Jezowka, meeting volume expectations. This is going after the product, main product in the market -- that's in the market from stock spirits. And we anticipate that distribution gains to continue in this product over the next 12 months.

We also relaunched one of our core mainstream brands that sits above our Zubrowka product, Soplica, with a new bottle, a new packaging, which we're seeing results much better than estimated. We're seeing a key to gallons for example that were up 80%, just like-for-like sales without promotions, but we're seeing much better offtake from the consumer than our previous package that we had out.

We're seeing still positive channel mix with increasing weight of wholesalers, which is also good news. And as I mentioned in the last quarter call, I think we'll continue to see that progressing into 2012 as well. We also completed an in-depth study of our traditional trade performance, which I'll get into in a moment.

We turn to Page 4. You can see our 3 sectors there broken out, where we had growth of 16% on vodka; 12%, imports; 55%, exports; and a value growth of 7%, which was still lower than the overall volume growth. But as we'll get into Q4, that will be reversing as we move into Q4. That's our relationship between volume and value.

We also saw spirit pricing higher in Q3 than forecasted, by 3% to 5%. And also compared to plans, we had a negative FX on our imports versus exports in terms of a negative FX on our mix between imports and exports. But we firmly believe that as exports continue to progress, that eventually, we anticipate or certainly hope that we'll be closer to the export number where we have a natural hedge, because we exported hard currency and we imported hard currency. So those numbers come closer to matching, we will have a natural hedge there. We wouldn't have this issue of moving forward once that export number would become closer to imports.

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