CEDC Roadshow Presentation
CEDC Company Presentation March 2011
Forward Looking Statements This presentation contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including. Forward looking statements are based on our knowledge of facts as of the date hereof and involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of CEDC to be materially different from any future results, performance or achievements expressed or implied by our forward looking statements. Investors are cautioned that forward looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. CEDC undertakes no obligation to publicly update or revise any forward looking statements or to make any other forward looking statements, whether as a result of new information, future events or otherwise. Investors are referred to CEDC’s Form 10-K for the fiscal year ended December 31, 2010, and to the full discussion therein of risks and uncertainties (including statements made under the captions “Item 1A. Risks Relating to Our Business”), forward looking statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included therein and similar information in other documents filed by CEDC with the Securities and Exchange Commission.
1
Q4 Issues and 2011 Outlook
POLAND
2
Key Issues Faced in 4th Quarter in Poland • Market share drop from 28% in the beginning of 2008 to the lowest point in November 2010 of 20.2% • Zubrowka Biala launch (November 15th – December 31st) sold 2 ½ times more than we had projected but at a loss for each liter sold (program was effective from November 15th 2010 to December 31st 2010) • Product Mix impact was negative as Biala cannibalized existing portfolio and Biala had negative contribution • Overall vodka market was down 7% • Spirit costs increase negatively impacted margins
3
Poland Market Share Development
4
Zubrowka Biala Launch
Actual sales greater than planned, however due to promotional pricing and trade marketing activities at launch, we incurred a net loss on every sale per liter Sales of Zubrowka Biala took volume from other CEDC brands Post launch, starting from 2011, normal pricing and margins without promotional pricing and extra trade marketing activities. 5
Spirit Cost
Spirit price (PLN per Liter of 100% spirit)
• Global commodity inflation and poor summer harvest have driven up grain prices leading to higher spirit costs • Spirit is the largest element of COGS for vodka
6
Other Factors • Currency – PLN 4% weaker than budget • Added investment behind all our vodka brands • Doubled our sales force to increase presence in traditional trade to drive better channel mix • Increased trade marketing spend
7
Poland 2011 Assumptions •
CEDC vodka growth 10% to 12% in volume
•
Overall vodka market decline of 5% to 6%
•
Exports growth of 20%
•
Imports growth of 5% to 8%
•
Grow CEDC market share from 22% to 26%-27%
•
Positive currency impact
•
Higher spirit pricing by 2% (hit to gross margins)
•
Neutral product Mix
•
Price increase 1.5%
8
Poland 2011 New Product Development • New Product Development • Introduce range of new flavors in 2nd quarter • New Soplica bottle and re-styling (June/July) • New line of Zubrowka flavors
9
Q4 Issues and 2011 Outlook
RUSSIA
10
Main Developments in 4th Quarter in Russia • Total Market flat • Total CEDC volumes up 8% • Full year market share gain of apx. 0.4% • Whitehall +7% in volume and +3% in value • Currency impact • Negative product mix • Excise stamp (production) issue • Currency was negative 4% • Spirit pricing increase
11
Russia – Production Issue •
Stamp issue driven by reconciliation of old stamps issued in the past, until this issue was resolved no new stamps were issued which ultimately impacted our ability to produce for two weeks. • • • •
Extra Trade marketing spend for Key Accounts and Wholesale trade Additional transport costs Overtime costs Product mix was not what we had modeled as we were not able to mix as starting inventory was practically zero
• Total costs approximately $30-$35 million
12
Market Share in Russia Gosstat Nielsen
13
Spirit Cost
Spirit price (RUR per Liter of 100% spirit)
• Global commodity inflation and poor summer harvest have driven up grain prices leading to higher spirit costs • Spirit is the largest element of COGS for vodka
14
RUSSIA 2011 ASSUMPTIONS • CEDC vodka +6% in volume (4% core brand and 2% new brands) • Exports +30% in volume terms • Overall vodka market Flat to -2% • CEDC market share growth of 0.5% to 0.8% • Positive
Negative
• • • • •
Spirit pricing Inflation transport/staff Recent Key Account consolidation
Volume Currency – 5% to 6% Operating leverage Better product mix Operating profit +40%
15
WHITEHALL • Whitehall • Consolidated from 7 February 2011 • Expected revenue of $170-$190 million • Expected operating profit of approximately $32 million
16
RUSSIA New Product Development • New Product Development • Restyling Green Mark • June / July launch of new brand positioned between Green Mark and Zhuravli • May / June launch of new economy brand
17
Russia – Industry Re-Licensing 2011 • 90% of the alcohol market (production and distribution of spirits, including certain CEDC subsidiaries) must go through a round of relicensing in 2011 (new licensees will be valid for 5 years) • We believe the government’s main aim is to reduce the number of small producers and small wholesalers who do not meet industry standards • Our expectation is that most wholesalers will reduce stocks (to one to two weeks inventory) in the 1st and 2nd quarter of 2011 and restock to contractual levels (four to five weeks inventory) in the 3rd quarter of 2011, when most re-licensing will be finished
18
FULL YEAR 2011 GUIDANCE
19
2011 GUIDANCE
• Net Sales $880-$1,080 million
• Fully diluted earnings per share $1.05-$1.25
20
FINANCIALS
21
Q4 Walk Target
Stamp
Q4-2010
Issue 1
Volume 2
Biala
Market
Launch
Investment
FX
Spirit
Actual Q4-2010 Q3-2010
Other
Sales Poland Russia Hungary
Operating Income Poland Russia Hungary Corp Options
89,453 190,090 12,653 292,196
18,191 70,333 2,531 (1,250) (750) 89,055
(5,367)
(9,790)
(3,520)
(3,578) (7,604)
(415) (5,782)
(9,790)
(3,520)
(11,182)
-
(2,684)
(9,790)
(3,520) (1,670)
(728) (2,813)
(3,268) (3,610)
(33,548) (33,548)
(35,322)
(35,322)
(2,684)
(9,790)
(5,190)
(3,541)
(6,878)
-
0 (0) 0 0
67,198 148,938 12,238 228,374
(1,237) (1,411) 111
0 0 0
(3,036) 25,507 2,642
941 21 (1,575)
(1) 0 (0)
(310) (729) 24,075
Notes: (1) Stamp Issue in Russia includes impact of lower sales, adverse mix, higher market investment and SG&A over-runs (2) Volume impact for Russia included together with Stamp Issue 2010 operating income presented on a comparable basis. For a complete reconciliation of comparable operating and comparable net income to operating income and net income respectively, under US GAAP please see the back of this presentation, beginning on page 32.
22
Segment Split Segment Split 2010 Sales Poland Russia Hungary
Operating Income Poland Russia Hungary Corp Options
Operating Income % Poland Russia Hungary
2010 1
2011 2
Comp 220,411 460,605 30,521 711,537
with WHG 220,411 646,412 30,521 897,344
Guidance 250,439 698,414 32,099 980,952
2010 37,161 92,201 5,442
2010 37,161 107,799 5,442
2011 49,052 163,500 5,183
(3,711) (3,206) 127,887
(3,711) (3,206) 143,485
(4,405) (2,700) 210,630
2010 16.86% 20.02% 17.83% 17.97%
2010 16.86% 16.68% 17.83% 15.99%
2011 19.59% 23.41% 16.15% 21.47%
See following page for a complete walk from 2010 to 2011 (1) Operating Income presented on a comparable basis. For reconciliation to US GAAP please see the back of this presentation (2) 2010 including Whitehall sales and operating income as set forth in Note 9 to our 2010 consolidated financial statements.
23
Sales/Operating Income Walk 2010 Actual to 2011 Guidance Sales
Operating
711,537
Income 127,887
Q4 One-Off Items Adjusted 2010 Exchange Rate Impact WHG consolidation 2011 Volume Impact
711,537 36,535 170,000 54,696
27,112 154,999 8,768 32,000 25,707
Price/Mix/Mkt Investment 2 Spirit Pricing Guidance 2011
8,184 980,952
7,066 (17,911) 210,630
Actual 2010 1
Notes: (1) Includes cost of Russian production issue (excluding volume impact) and cost of Zubrowka Biala Launch in 2010 (2) improved top line price and mix offset with higher trade marketing expense (trade marketing primarily booked as reduction to net sales revenue)
2010 operating income presented on a comparable basis. For a complete reconciliation of comparable operating and comparable net income to operating income and net income respectively, under US GAAP please see the back of this presentation, beginning on page 32.
24
Actual 2010 GAAP Operating Income
(23,592)
Impairment Charge Acuistion related costs Change in Accting Methodology Restructuring costs
131,849 1,550 7,111 10,969
Comparable Operating Income
127,887
Depreciation and Amortization 1 Comparable EBITDA Whitehall Operating Income 2 Whitehall Depreciation Whitehall non-recurring 3 Normalized EBITDA (with WHG) 4 Distribution Co Dividends Other cash adjustments Covenant EBITDA 5 Net Debt PF EBITDA Covenant EBITDA
16,947 144,834 15,598 1,427 5,252 167,111 7,642 7,803
Normalized EBITDA
(1) See Consolidated Statement of Cash Flows included in 2010 Consolidated Financial Statements (2) See Note 9 in our 2010 Consolidated Financial Statements (3) Includes cost incurred of prior company management prior to change of control to CEDC, completed in February 2011. These costs will not be incurred for the full year in 2011. (4) Normalized EBITDA excludes nonrecurring items from 2010 and includes consolidation of Whitehall for 2010 results as if fully consolidated (5) Covenant EBITDA, includes other cash adjustments permitted under the covenant definitions
182,556 1,173,793 7.02 6.43
25
2011 EBITDA Guidance and Pro-Forma Leverage
EPS Guidance Net Income Pre-Tax Income Operating Income Depreciation and Amortization EBITDA Net Debt 12/31/2010
Guidance Range 2,011 2,011 2011 2011 1.05 1.25 75,075 89,375 93,844 111,719 200,844 218,719 18,000 18,000 218,844 236,719 1,173,793
1,173,793
•
Extrapolated EBITDA targets for 2011 based upon guidance provided of $1.05 to $1.25 per fully diluted share
•
For 2011 translates into leverage target of 4.90 to 5.30 net debt/EBITDA
26
Cash Flow Forecast 2011 EPS basis
1.05
1.25
218,844
236,719
(107,000) (20,000) (15,000) 76,844
(107,000) (26,400) (18,600) 84,719
(12,000)
(12,000)
64,844
72,719
(73,500)
(73,500)
Change in Net Debt
(8,656)
(781)
Debt Amortization
(10,526)
(10,526)
Change in Cash
(19,182)
(11,307)
EBITDA Range Less: Interest Expense Less: Change in Working Capital Less: Cash taxes Operating Cash Flow Forecast CAPEX Free Cash Flow WHG and RAG payments
•
Range of cash flow implied by guidance range provided
•
Free Cash Flow calculated as Operating Cash Flow forecast less forecasted capital expenditures
•
Change in net debt an cash does not factor in potential impact of exchange rate movements
27
OTHER
28
Change of Auditor •
During late summer 2010, the CEDC Audit Committee decided to run a tender process for the auditor
•
All Big-4 firms were invited to present an offer for a 3 year audit (including PwC)
•
Following extensive review of all offers the Audit Committee on December 9th, 2010, Ernst & Young was selected as the auditor for the next three years
•
Decision was primarily driven by price offered as the audit committee believed all four firms could deliver similar quality of audit
•
PwC completed the year end audit for 2010 with no issues and no disagreements with management
•
A clean opinion was issued
•
Additionally on March 2nd, 2011 an 8K was filed with a letter from PwC to the SEC confirming that there were no disagreements with CEDC Management 29
Bank Covenants •
During the 4th quarter of 2010, CEDC refinanced a number of existing bank facilities in Poland with a new agreement with two banks (acting together)
•
The new bank agreement contained a similar set of covenants as the old agreements they were replacing
•
The total debt provided by this bank financing was a term facility for apx. $43 million (payable over 4 years) and a over-draft facility (not currently utilized) for apx. $41 million
•
This facility represents apx. 3.5% of all outstanding debt of CEDC
•
Following 2010 results, the Company negotiated a waiver for Q4-2010 and a higher base for Q1-2011
•
The company believes it will either resolve the remaining covenants with the banks (Citibank/WBK) or find alternative financing within the next 60-90 days
30
Impairment Charge • Due to the continued decline in market share of certain CEDC brands in Poland over the last two years, primarily Absolwent combined with the expected cannibalization of this brand from the new Zubrowka Biala, the company determined the Fair Market Value of the capitalized brands in Poland were impaired as an accounting matter • As such the Company took a $132 million impairment charge against trademarks in Poland • Based upon the analysis performed and the anticipated results for 2011 and beyond, no further impairment charges were deemed necessary (including Russia)
31
GAAP TO COMPARABLE RECONCILIATION - 2010 Sales Excise taxes Net Sales Cost of goods sold Gross Profit
GAAP
A
B
Q4-10 PT D
FX
APB 14
$1,573,702 (862,165) 711,537 383,671
D C Acquisition related RAG Adjustments costs and FV adjustments
E
F
G
H
I
Comparable
Restructuring Costs
Cost associated with debt refinancing
WHG Adjustments
Change in provisioning method
Other Adjustments
Q4-10 PT D
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
$1,573,702 (862,165) 711,537 383,671
327,866
0
0
0
0
0
0
0
0
0
219,609
327,866 46.08% 199,979
Operating expenses Impairment charge
131,849
0 0
0 0
(500) (131,849)
0 0
(10,969) 0
0 0
(1,050) 0
(7,111) 0
0 0
Operating Income
(23,592)
0
0
132,349
0
10,969
0
1,050
7,111
0
-3.32%
Non operating income / (expense), net Interest (expense), net Other financial (expense), net Other non operating income / (expense), net Income / (loss) before taxes, equity in net income from unconsolidated investments Income tax expense Equity in net earnings of affiliates Net income / (loss) from continuing operations Discontinued operations Income / (loss) from operations of distribution business (including impairment charge of $28.2 million in 9 months ended September 30, 2010) Income tax (expense) Income / (loss) on discontinued operations Net income /(loss) Net income / (loss) from continuing operations per share of common stock, basic Net income / (loss) from discontinued operations per share of common stock, basic Net income / (loss) from continuing operations per share of common stock, diluted Net income / (loss) from discontinued operations per share of common stock, diluted
0
127,887 17.97%
(104,866) 6,773 (13,572)
0 (5,871) 0
4,097 0 0
0 0 0
0 0 2,000
0 0 825
0 0 17,990
0 0 0
0 0 0
0 0 (7,642)
(100,769) 902 (399)
(135,257) 28,114 14,254 (92,889)
(5,871)
4,097
132,349
2,000
11,794
17,990
1,050
7,111
(7,642)
27,621
1,123 692 (4,056)
(1,434) 0 2,663
(26,470) 0 105,879
(380) 0 1,620
(2,254) 0 9,540
(3,418) 0 14,572
(210) 985 1,825
(1,351) 0 5,760
1,452 0 (6,190)
(4,829) 15,931 38,723
(11,815)
0
0
0
0
0
0
0
0
0
(11,815)
37 (11,778)
0
0
0
0
0
0
0
0
37 (11,778)
($104,667)
($4,056)
$2,663
$105,879
$1,620
$9,540
$1,825
$5,760
($6,190)
$14,572
$26,945
($1.33)
$0.55
($0.17)
($0.17)
($1.33)
$0.55
($0.17)
($0.17)
70,058 70,274
-19%
-35%
-20%
-19%
-19%
-19%
-20%
-19%
-19%
70,056 70,274
32
GAAP TO COMPARABLE RECONCILIATION
33
GAAP TO COMPARABLE RECONCILIATION – Q4 2010 GAAP
A
Q4-10
FX
Sale s
$515,442
Excise taxes
(287,068)
Ne t Sale s
228,374
Cost of goods sold
140,430
Gross Profit
B
87,944
C Acquisition related costs and FV adjustments
APB 14
D
E
Disposal Costs
Restructuring Costs
H
G
H
Comparable
WHG Adjustments
Change in provisioning method
Other Adjustments
Q4-10
$0
$0
$0
$0
$0
$0
$0
$0
0
0
0
0
0
0
0
0
(287,068)
75,240
Impairment charge
131,849
O pe rating Income
(119,145)
228,374
140,430 0
0
0
0
0
0
0
0
38.51% Operating expenses
$515,442
87,944
38.51% (3,210)
(1,050)
(7,111)
63,869
(131,849) 0
0
131,849
0 0
3,210
1,050
7,111
0
-52.17%
24,075
10.54%
Non operating income / (expense), net Interest income / (expense), net Other financial income / (expense), net Amortization of deferred charges Other non operating income / (expense), net Income / (loss) be fore taxe s, e quity in ne t income from unconsolidate d inve stme nts Income tax benefit / (expense) Equity in net earnings of affiliates Ne t income / (loss) from continuing ope rations Discontinue d ope rations Income from operations of distribution business Income tax (expense) Loss on discontinue d ope rations Ne t income /(loss) Ne t income / (loss) from continuing ope rations pe r share of common stock, basic Ne t income / (loss) from discontinue d ope rations pe r share of common stock, basic Ne t income / (loss) from continuing ope rations pe r share of common stock, dilute d Ne t income / (loss) from discontinue d ope rations pe r share of common stock, dilute d
(26,594) 1,786
1,041
(25,553)
(1,786)
0
0
0
(1,729)
(145,682) 30,389 12,091 ($103,202)
2,000
(1,786) 352
1,041 (364)
131,849 (26,370)
2,000 (380)
271
3,210 (610)
(1,140) ($2,574)
1,050 (210)
7,111
0
(1,351)
0
985 $677
$105,479
$1,620
$2,600
$1,825
(1,207) 1,456
11,936 $5,760
$0
$12,185
0 0
0 0
$0
$0
($103,202)
($2,574)
$677
$105,479
$1,620
$2,600
$1,825
$5,760
$0
$12,185
($1.46)
$0.17
$0.00
$0.00
($1.46)
$0.17
$0.00
$0.00
34
GAAP TO COMPARABLE RECONCILIATION
35
Forward Looking Statements This presentation contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including. Forward looking statements are based on our knowledge of facts as of the date hereof and involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of CEDC to be materially different from any future results, performance or achievements expressed or implied by our forward looking statements. Investors are cautioned that forward looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. CEDC undertakes no obligation to publicly update or revise any forward looking statements or to make any other forward looking statements, whether as a result of new information, future events or otherwise. Investors are referred to CEDC’s Form 10-K for the fiscal year ended December 31, 2010, and to the full discussion therein of risks and uncertainties (including statements made under the captions “Item 1A. Risks Relating to Our Business”), forward looking statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included therein and similar information in other documents filed by CEDC with the Securities and Exchange Commission.
1
Q4 Issues and 2011 Outlook
POLAND
2
Key Issues Faced in 4th Quarter in Poland • Market share drop from 28% in the beginning of 2008 to the lowest point in November 2010 of 20.2% • Zubrowka Biala launch (November 15th – December 31st) sold 2 ½ times more than we had projected but at a loss for each liter sold (program was effective from November 15th 2010 to December 31st 2010) • Product Mix impact was negative as Biala cannibalized existing portfolio and Biala had negative contribution • Overall vodka market was down 7% • Spirit costs increase negatively impacted margins
3
Poland Market Share Development
4
Zubrowka Biala Launch
Actual sales greater than planned, however due to promotional pricing and trade marketing activities at launch, we incurred a net loss on every sale per liter Sales of Zubrowka Biala took volume from other CEDC brands Post launch, starting from 2011, normal pricing and margins without promotional pricing and extra trade marketing activities. 5
Spirit Cost
Spirit price (PLN per Liter of 100% spirit)
• Global commodity inflation and poor summer harvest have driven up grain prices leading to higher spirit costs • Spirit is the largest element of COGS for vodka
6
Other Factors • Currency – PLN 4% weaker than budget • Added investment behind all our vodka brands • Doubled our sales force to increase presence in traditional trade to drive better channel mix • Increased trade marketing spend
7
Poland 2011 Assumptions •
CEDC vodka growth 10% to 12% in volume
•
Overall vodka market decline of 5% to 6%
•
Exports growth of 20%
•
Imports growth of 5% to 8%
•
Grow CEDC market share from 22% to 26%-27%
•
Positive currency impact
•
Higher spirit pricing by 2% (hit to gross margins)
•
Neutral product Mix
•
Price increase 1.5%
8
Poland 2011 New Product Development • New Product Development • Introduce range of new flavors in 2nd quarter • New Soplica bottle and re-styling (June/July) • New line of Zubrowka flavors
9
Q4 Issues and 2011 Outlook
RUSSIA
10
Main Developments in 4th Quarter in Russia • Total Market flat • Total CEDC volumes up 8% • Full year market share gain of apx. 0.4% • Whitehall +7% in volume and +3% in value • Currency impact • Negative product mix • Excise stamp (production) issue • Currency was negative 4% • Spirit pricing increase
11
Russia – Production Issue •
Stamp issue driven by reconciliation of old stamps issued in the past, until this issue was resolved no new stamps were issued which ultimately impacted our ability to produce for two weeks. • • • •
Extra Trade marketing spend for Key Accounts and Wholesale trade Additional transport costs Overtime costs Product mix was not what we had modeled as we were not able to mix as starting inventory was practically zero
• Total costs approximately $30-$35 million
12
Market Share in Russia Gosstat Nielsen
13
Spirit Cost
Spirit price (RUR per Liter of 100% spirit)
• Global commodity inflation and poor summer harvest have driven up grain prices leading to higher spirit costs • Spirit is the largest element of COGS for vodka
14
RUSSIA 2011 ASSUMPTIONS • CEDC vodka +6% in volume (4% core brand and 2% new brands) • Exports +30% in volume terms • Overall vodka market Flat to -2% • CEDC market share growth of 0.5% to 0.8% • Positive
Negative
• • • • •
Spirit pricing Inflation transport/staff Recent Key Account consolidation
Volume Currency – 5% to 6% Operating leverage Better product mix Operating profit +40%
15
WHITEHALL • Whitehall • Consolidated from 7 February 2011 • Expected revenue of $170-$190 million • Expected operating profit of approximately $32 million
16
RUSSIA New Product Development • New Product Development • Restyling Green Mark • June / July launch of new brand positioned between Green Mark and Zhuravli • May / June launch of new economy brand
17
Russia – Industry Re-Licensing 2011 • 90% of the alcohol market (production and distribution of spirits, including certain CEDC subsidiaries) must go through a round of relicensing in 2011 (new licensees will be valid for 5 years) • We believe the government’s main aim is to reduce the number of small producers and small wholesalers who do not meet industry standards • Our expectation is that most wholesalers will reduce stocks (to one to two weeks inventory) in the 1st and 2nd quarter of 2011 and restock to contractual levels (four to five weeks inventory) in the 3rd quarter of 2011, when most re-licensing will be finished
18
FULL YEAR 2011 GUIDANCE
19
2011 GUIDANCE
• Net Sales $880-$1,080 million
• Fully diluted earnings per share $1.05-$1.25
20
FINANCIALS
21
Q4 Walk Target
Stamp
Q4-2010
Issue 1
Volume 2
Biala
Market
Launch
Investment
FX
Spirit
Actual Q4-2010 Q3-2010
Other
Sales Poland Russia Hungary
Operating Income Poland Russia Hungary Corp Options
89,453 190,090 12,653 292,196
18,191 70,333 2,531 (1,250) (750) 89,055
(5,367)
(9,790)
(3,520)
(3,578) (7,604)
(415) (5,782)
(9,790)
(3,520)
(11,182)
-
(2,684)
(9,790)
(3,520) (1,670)
(728) (2,813)
(3,268) (3,610)
(33,548) (33,548)
(35,322)
(35,322)
(2,684)
(9,790)
(5,190)
(3,541)
(6,878)
-
0 (0) 0 0
67,198 148,938 12,238 228,374
(1,237) (1,411) 111
0 0 0
(3,036) 25,507 2,642
941 21 (1,575)
(1) 0 (0)
(310) (729) 24,075
Notes: (1) Stamp Issue in Russia includes impact of lower sales, adverse mix, higher market investment and SG&A over-runs (2) Volume impact for Russia included together with Stamp Issue 2010 operating income presented on a comparable basis. For a complete reconciliation of comparable operating and comparable net income to operating income and net income respectively, under US GAAP please see the back of this presentation, beginning on page 32.
22
Segment Split Segment Split 2010 Sales Poland Russia Hungary
Operating Income Poland Russia Hungary Corp Options
Operating Income % Poland Russia Hungary
2010 1
2011 2
Comp 220,411 460,605 30,521 711,537
with WHG 220,411 646,412 30,521 897,344
Guidance 250,439 698,414 32,099 980,952
2010 37,161 92,201 5,442
2010 37,161 107,799 5,442
2011 49,052 163,500 5,183
(3,711) (3,206) 127,887
(3,711) (3,206) 143,485
(4,405) (2,700) 210,630
2010 16.86% 20.02% 17.83% 17.97%
2010 16.86% 16.68% 17.83% 15.99%
2011 19.59% 23.41% 16.15% 21.47%
See following page for a complete walk from 2010 to 2011 (1) Operating Income presented on a comparable basis. For reconciliation to US GAAP please see the back of this presentation (2) 2010 including Whitehall sales and operating income as set forth in Note 9 to our 2010 consolidated financial statements.
23
Sales/Operating Income Walk 2010 Actual to 2011 Guidance Sales
Operating
711,537
Income 127,887
Q4 One-Off Items Adjusted 2010 Exchange Rate Impact WHG consolidation 2011 Volume Impact
711,537 36,535 170,000 54,696
27,112 154,999 8,768 32,000 25,707
Price/Mix/Mkt Investment 2 Spirit Pricing Guidance 2011
8,184 980,952
7,066 (17,911) 210,630
Actual 2010 1
Notes: (1) Includes cost of Russian production issue (excluding volume impact) and cost of Zubrowka Biala Launch in 2010 (2) improved top line price and mix offset with higher trade marketing expense (trade marketing primarily booked as reduction to net sales revenue)
2010 operating income presented on a comparable basis. For a complete reconciliation of comparable operating and comparable net income to operating income and net income respectively, under US GAAP please see the back of this presentation, beginning on page 32.
24
Actual 2010 GAAP Operating Income
(23,592)
Impairment Charge Acuistion related costs Change in Accting Methodology Restructuring costs
131,849 1,550 7,111 10,969
Comparable Operating Income
127,887
Depreciation and Amortization 1 Comparable EBITDA Whitehall Operating Income 2 Whitehall Depreciation Whitehall non-recurring 3 Normalized EBITDA (with WHG) 4 Distribution Co Dividends Other cash adjustments Covenant EBITDA 5 Net Debt PF EBITDA Covenant EBITDA
16,947 144,834 15,598 1,427 5,252 167,111 7,642 7,803
Normalized EBITDA
(1) See Consolidated Statement of Cash Flows included in 2010 Consolidated Financial Statements (2) See Note 9 in our 2010 Consolidated Financial Statements (3) Includes cost incurred of prior company management prior to change of control to CEDC, completed in February 2011. These costs will not be incurred for the full year in 2011. (4) Normalized EBITDA excludes nonrecurring items from 2010 and includes consolidation of Whitehall for 2010 results as if fully consolidated (5) Covenant EBITDA, includes other cash adjustments permitted under the covenant definitions
182,556 1,173,793 7.02 6.43
25
2011 EBITDA Guidance and Pro-Forma Leverage
EPS Guidance Net Income Pre-Tax Income Operating Income Depreciation and Amortization EBITDA Net Debt 12/31/2010
Guidance Range 2,011 2,011 2011 2011 1.05 1.25 75,075 89,375 93,844 111,719 200,844 218,719 18,000 18,000 218,844 236,719 1,173,793
1,173,793
•
Extrapolated EBITDA targets for 2011 based upon guidance provided of $1.05 to $1.25 per fully diluted share
•
For 2011 translates into leverage target of 4.90 to 5.30 net debt/EBITDA
26
Cash Flow Forecast 2011 EPS basis
1.05
1.25
218,844
236,719
(107,000) (20,000) (15,000) 76,844
(107,000) (26,400) (18,600) 84,719
(12,000)
(12,000)
64,844
72,719
(73,500)
(73,500)
Change in Net Debt
(8,656)
(781)
Debt Amortization
(10,526)
(10,526)
Change in Cash
(19,182)
(11,307)
EBITDA Range Less: Interest Expense Less: Change in Working Capital Less: Cash taxes Operating Cash Flow Forecast CAPEX Free Cash Flow WHG and RAG payments
•
Range of cash flow implied by guidance range provided
•
Free Cash Flow calculated as Operating Cash Flow forecast less forecasted capital expenditures
•
Change in net debt an cash does not factor in potential impact of exchange rate movements
27
OTHER
28
Change of Auditor •
During late summer 2010, the CEDC Audit Committee decided to run a tender process for the auditor
•
All Big-4 firms were invited to present an offer for a 3 year audit (including PwC)
•
Following extensive review of all offers the Audit Committee on December 9th, 2010, Ernst & Young was selected as the auditor for the next three years
•
Decision was primarily driven by price offered as the audit committee believed all four firms could deliver similar quality of audit
•
PwC completed the year end audit for 2010 with no issues and no disagreements with management
•
A clean opinion was issued
•
Additionally on March 2nd, 2011 an 8K was filed with a letter from PwC to the SEC confirming that there were no disagreements with CEDC Management 29
Bank Covenants •
During the 4th quarter of 2010, CEDC refinanced a number of existing bank facilities in Poland with a new agreement with two banks (acting together)
•
The new bank agreement contained a similar set of covenants as the old agreements they were replacing
•
The total debt provided by this bank financing was a term facility for apx. $43 million (payable over 4 years) and a over-draft facility (not currently utilized) for apx. $41 million
•
This facility represents apx. 3.5% of all outstanding debt of CEDC
•
Following 2010 results, the Company negotiated a waiver for Q4-2010 and a higher base for Q1-2011
•
The company believes it will either resolve the remaining covenants with the banks (Citibank/WBK) or find alternative financing within the next 60-90 days
30
Impairment Charge • Due to the continued decline in market share of certain CEDC brands in Poland over the last two years, primarily Absolwent combined with the expected cannibalization of this brand from the new Zubrowka Biala, the company determined the Fair Market Value of the capitalized brands in Poland were impaired as an accounting matter • As such the Company took a $132 million impairment charge against trademarks in Poland • Based upon the analysis performed and the anticipated results for 2011 and beyond, no further impairment charges were deemed necessary (including Russia)
31
GAAP TO COMPARABLE RECONCILIATION - 2010 Sales Excise taxes Net Sales Cost of goods sold Gross Profit
GAAP
A
B
Q4-10 PT D
FX
APB 14
$1,573,702 (862,165) 711,537 383,671
D C Acquisition related RAG Adjustments costs and FV adjustments
E
F
G
H
I
Comparable
Restructuring Costs
Cost associated with debt refinancing
WHG Adjustments
Change in provisioning method
Other Adjustments
Q4-10 PT D
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
$1,573,702 (862,165) 711,537 383,671
327,866
0
0
0
0
0
0
0
0
0
219,609
327,866 46.08% 199,979
Operating expenses Impairment charge
131,849
0 0
0 0
(500) (131,849)
0 0
(10,969) 0
0 0
(1,050) 0
(7,111) 0
0 0
Operating Income
(23,592)
0
0
132,349
0
10,969
0
1,050
7,111
0
-3.32%
Non operating income / (expense), net Interest (expense), net Other financial (expense), net Other non operating income / (expense), net Income / (loss) before taxes, equity in net income from unconsolidated investments Income tax expense Equity in net earnings of affiliates Net income / (loss) from continuing operations Discontinued operations Income / (loss) from operations of distribution business (including impairment charge of $28.2 million in 9 months ended September 30, 2010) Income tax (expense) Income / (loss) on discontinued operations Net income /(loss) Net income / (loss) from continuing operations per share of common stock, basic Net income / (loss) from discontinued operations per share of common stock, basic Net income / (loss) from continuing operations per share of common stock, diluted Net income / (loss) from discontinued operations per share of common stock, diluted
0
127,887 17.97%
(104,866) 6,773 (13,572)
0 (5,871) 0
4,097 0 0
0 0 0
0 0 2,000
0 0 825
0 0 17,990
0 0 0
0 0 0
0 0 (7,642)
(100,769) 902 (399)
(135,257) 28,114 14,254 (92,889)
(5,871)
4,097
132,349
2,000
11,794
17,990
1,050
7,111
(7,642)
27,621
1,123 692 (4,056)
(1,434) 0 2,663
(26,470) 0 105,879
(380) 0 1,620
(2,254) 0 9,540
(3,418) 0 14,572
(210) 985 1,825
(1,351) 0 5,760
1,452 0 (6,190)
(4,829) 15,931 38,723
(11,815)
0
0
0
0
0
0
0
0
0
(11,815)
37 (11,778)
0
0
0
0
0
0
0
0
37 (11,778)
($104,667)
($4,056)
$2,663
$105,879
$1,620
$9,540
$1,825
$5,760
($6,190)
$14,572
$26,945
($1.33)
$0.55
($0.17)
($0.17)
($1.33)
$0.55
($0.17)
($0.17)
70,058 70,274
-19%
-35%
-20%
-19%
-19%
-19%
-20%
-19%
-19%
70,056 70,274
32
GAAP TO COMPARABLE RECONCILIATION
33
GAAP TO COMPARABLE RECONCILIATION – Q4 2010 GAAP
A
Q4-10
FX
Sale s
$515,442
Excise taxes
(287,068)
Ne t Sale s
228,374
Cost of goods sold
140,430
Gross Profit
B
87,944
C Acquisition related costs and FV adjustments
APB 14
D
E
Disposal Costs
Restructuring Costs
H
G
H
Comparable
WHG Adjustments
Change in provisioning method
Other Adjustments
Q4-10
$0
$0
$0
$0
$0
$0
$0
$0
0
0
0
0
0
0
0
0
(287,068)
75,240
Impairment charge
131,849
O pe rating Income
(119,145)
228,374
140,430 0
0
0
0
0
0
0
0
38.51% Operating expenses
$515,442
87,944
38.51% (3,210)
(1,050)
(7,111)
63,869
(131,849) 0
0
131,849
0 0
3,210
1,050
7,111
0
-52.17%
24,075
10.54%
Non operating income / (expense), net Interest income / (expense), net Other financial income / (expense), net Amortization of deferred charges Other non operating income / (expense), net Income / (loss) be fore taxe s, e quity in ne t income from unconsolidate d inve stme nts Income tax benefit / (expense) Equity in net earnings of affiliates Ne t income / (loss) from continuing ope rations Discontinue d ope rations Income from operations of distribution business Income tax (expense) Loss on discontinue d ope rations Ne t income /(loss) Ne t income / (loss) from continuing ope rations pe r share of common stock, basic Ne t income / (loss) from discontinue d ope rations pe r share of common stock, basic Ne t income / (loss) from continuing ope rations pe r share of common stock, dilute d Ne t income / (loss) from discontinue d ope rations pe r share of common stock, dilute d
(26,594) 1,786
1,041
(25,553)
(1,786)
0
0
0
(1,729)
(145,682) 30,389 12,091 ($103,202)
2,000
(1,786) 352
1,041 (364)
131,849 (26,370)
2,000 (380)
271
3,210 (610)
(1,140) ($2,574)
1,050 (210)
7,111
0
(1,351)
0
985 $677
$105,479
$1,620
$2,600
$1,825
(1,207) 1,456
11,936 $5,760
$0
$12,185
0 0
0 0
$0
$0
($103,202)
($2,574)
$677
$105,479
$1,620
$2,600
$1,825
$5,760
$0
$12,185
($1.46)
$0.17
$0.00
$0.00
($1.46)
$0.17
$0.00
$0.00
34
GAAP TO COMPARABLE RECONCILIATION
35
