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Central European Distribution (CEDC)

Q4 2011 Earnings Call

February 29, 2012 8:00 am ET

Executives

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

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

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

Analysts

Karen Eltrich - Goldman Sachs Group Inc., Research Division

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

Julien Martin - BofA Merrill Lynch, Research Division

Unknown Analyst

Victoria Petrova - Crédit Suisse AG, Research Division

Brady Martin - Citigroup Inc, Research Division

Mark Olson - RBS Research

Ankur Agarwal

Steve Trusa

Nicola Davies

Presentation

Operator

Good day, and welcome to the CEDC Fourth Quarter and Full Year 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 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 Fourth Quarter and Full Year 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, February 29, 2012. 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 our 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, 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 2011 Form 10-K 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 V. Carey

Thank you, Jim, and welcome, everyone, to our Q4 and full year earnings call. I'll be taking you through the Polish and Russian market for the quarter 4. I'll turn over to Chris Biedermann who will take you through the financials for Q4, and I'll give an outlook for 2012. To get started [ph], we also filed our webpage a presentation, about 30 pages. So that's what we'll be going over for this presentation here today, if you could follow through that presentation.

Moving to Page 3 on that presentation, Q4 Highlights Poland. Pretty much, Poland was as forecasted. We were up about 10% in volume, 12% in value. It was the first time in the year that we did highlight previously that we anticipated to have a higher revenue number growth than volume growth. The overall vodka market was down approximately 3% in volume compared to a year before, which is pretty much in line with what we predicted, around 1% to 3% reduced consumption, and yet a number of positive things for the quarter. We had a positive channel mix with increasing weight of our wholesaler trade, which is our most profitable channel.

We relaunched our Soplica full range, including flavors, which is up 27%. This is a -- and the brand has continued to really do well in the January, February. We're quite encouraged by the results that we're seeing from our relaunch of Soplica. We put into export structure in light that we took over the Whitehall Group last year and the Kauffman Vodka, Green Mark, Parliament, Zubrówka. We have an increasing global export portfolio, so we put in new export structure in place in the fourth quarter.

And the one certain negative that we did see on earnings was certainly the weaker zloty, unpredicted, which impacted not only the consolidation results but also impacted our imports -- our import business as we do import in the hard currency. So we were scrambling with suppliers to try to make sure that we've maintained a decent profitability on that import portfolio. It was very difficult and the zloty was moving down quite rapidly through the fourth quarter and through the first 2 weeks of January. And as you know, it certainly rebounded quite strongly over the last 6 weeks.

Also that -- if you remember last year, we had the Biala launch back in the fourth, quarter where we spent a lot of money on that launch. Certainly, that's been a money well spent. We had Biala which grew to 6% market share that we saw currently at the end of the year, and I think we predicted 5% over 3 years that we could reach market share with this product. So we're very encouraged. We're already having 6% share of Biala in our overall business from our just first year of full year sales.

If you could turn the page to Page 4 and breakdown of some of the categories that we -- as you see, export jumped out, turning export growth of 42%. The FX had a negative 12%, which offset the volume growth of -- or value growth of 12% in local currency. So you had a flat dollar growth, but the exports continue to perform well and also the beer decrease that was -- as written, a large promo a year ago which was not repeated this year. But pretty much we're in line with plan.

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