Central European Distribution (CEDC)

Q1 2012 Earnings Call

May 10, 2012 8:00 am ET


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


Karen Eltrich - Goldman Sachs Group Inc., Research Division

Julien Martin - BofA Merrill Lynch, Research Division

Unknown Analyst

Kurt Knuppel - Nightscape Capital

Natasha Zagvozdina - Renaissance Capital, Research Division

Daniel Wakerly - Morgan Stanley, Research Division

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

Andrzej Knigawka - ING Groep N.V., Research Division

Andrzej Kasperek - UniCredit Research



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Good day, everyone, and welcome to the CEDC First Quarter 2012 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 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 of 2012 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 10, 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 find the presentation for today's call on our website at www.cedc.com.

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 the 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 our 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 V. Carey

Thank you, Jim. I welcome everyone to our Q1 earnings call. First off, we'll be going over on the presentation as filed on our website. We'll be going over Poland Q1 results, Russia Q1 results, a bit about our other markets, and then we'll get into the financials surrounding Q1. And then we'll get to the outlook for the rest of the year, how we see Poland, Russia and a few of our other markets and open up the call for questions.

So starting off on Page 3 of the presentation, Q1 overview for Poland. We had a good quarter for Poland. We're up about 7% in our domestic volume growth and up 15% in value. As you recall, the first 3 quarters last year, domestic volume was higher than the domestic value. And the last 2 quarters, as explained on our last few calls, that certainly today, value -- our value growth is certainly more than our volume growth. So we're seeing that continuing through our performance as you should see that continuing out through the rest of the year. But the overall vodka market was down 1% to 2%. It was no surprise, really, for the overall vodka market as compared to the last year.

Spirit prices have remained stable. There's this little chart that we'll come to later on spirit prices. Exports continue strong growth, 17% in volume terms, even more in value. And again, we've been working on our mix, client mix, product mix, new product launches that we've made in the flavor category and working on the small sizes, which are more profitable, the 0.2 and the 0.1 size. So overall, that's had a very positive contribution to our earnings in Q1.

If you turn to the next page, we get into the different sectors. As you can see, 7% growth at the top, it's of vodka, which was 18% in value. And that's a big increase in value, 18%. Again, that was mainly driven from the mix, of SKU mix, client mix, pricing and product mix. The growth was mainly led by Biala, which as you know we launched about 18 months ago in November '10 and also Soplica, which we have restyled. Soplica was up close to 80% growth, and our flavors that we launched are over 100% growth rate. So -- and flavors are much more popular than clear, and the flavor category is growing in Poland, which now accounts for over 20% of the total vodka market.

Also, what stands out was the large growth of our brown spirit portfolio. We've done a lot of work with Grant and the Jim Beam brands to really push hard. And with their investments, the brown spirits, which is still growing quite dramatically in Poland -- Poland is now in the top 20 largest brown spirit markets in the world, and it's growing at around 20%, 25% annual. So we're doing a lot of work to really push our strong brown spirit portfolio, Grant, Jim Beam, Metaxa as well as our other brown spirits that we represent here in Poland.

If you turn to the next page, if you look at the spirit pricing in Poland. As you see, we had the big increase in 2010. And then since 2010 and the first quarter, really, the January '11 was the last time we've really seen a large spirit move. We're currently pricing now in May around PLN 2.75 to PLN 2.80, so pretty much in line with what we saw in the second quarter. So really, no surprise here and really no earnings hits for 2012 compared to 2011 in terms of spirit pricing.

Next page is showing our market share in Poland. Again, it's a pretty similar chart to what we showed previously. We still have around 24% share. The big loser, as you see in the market, has been Pernod, and that's mainly as they, I think, are focused more on their import portfolio and a little bit less on their overall vodka portfolio. And of course, coming out of Stock, the market leader, a bit of share taken from us and Sobieski.

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