CEDC in high spirits

In 2006, debut number 34 on the WSE turned out to be a special occasion. CEDC became the first American company to list on the Warsaw bourse. It also became the fifth foreign firm to enter the WSE last year and the 11th such entity overall.

The company, which specializes in the production and distribution of spirits, plans to gain zł.220 million from its IPO. Around zł.164 million of this is earmarked for debt repayment, and zł.31 million will go on repaying a loan taken to buy shares in Polmos Białystok (PB). The rest is to be spent on "general corporate purposes," according to William Carey, the president of CEDC.

Withdrawal symptoms

CEDC's entry onto the WSE means that PB's shares will most likely be withdrawn from the bourse. CEDC owns a 69-percent stake in the vodka producer, which makes the renowned Bison-brand Żubrówka vodka as well as Absolwent, the number-one-selling vodka on the market. "It doesn't make sense for us to have mother and daughter companies listed, nor does it make sense for the investor to invest in both the mother and the daughter company," Carey explained.

Experts appreciate this decision. "Situations in which both a mother and daughter company are listed are very unclear. It's hard to tell which one is the source of income," said Jarosław Parczewski, an analyst with Bank BGŻ's brokerage office. "Right now the situation is clarified."

Having two vodka producers in its portfolio - PB and Bols Polska - the company is the spirits-market leader in terms of volume, with approximately 32 percent. But Carey's firm is far from resting on its laurels. "We would like to grow to 50 percent in the next three years," he declared. 

Strong-arm tactics

To achieve this goal the company will attempt to strengthen its distribution arm. It already plans to spend another $128 (zł.368) million on wholesaler acquisitions for 2007. Carey also doesn't exclude acquiring smaller entities, explaining that "there are still brands that need to find a home." He said that CEDC is looking at possible takeovers all the time, and pointed out that in 2007 the Swedish government is planning to privatize V&S - the owner of Polmos Zielona Góra. "There are opportunities on the market," Carey concluded.

But Parczewski pointed out that CEDC might face problems on the road to its goal. He noted that the Office for Competition and Consumer Protection (UOKiK) blocked CEDC's planned acquisition of Polmos Lublin. UOKiK feared that it would have given the company a dominant position on the market. "If UOKiK's policy doesn't change, CEDC will have to grow step by step, by acquiring small companies," Parczewski said.

Brand new plans

Although CEDC's president underlines the importance of acquisitions, the company wants to win market share through the promotion of its brands. Introducing new brands will be a part of its strategy. "Soon we will be launching a new brand - a competitor of Żołšdkowa Gorzka," Carey announced, referring to the flagship Polmos Lublin brand that CEDC failed to acquire.

Parczewski claims that it won't be easy to introduce a new product onto the market, but said "it's a matter of the marketing and promotion budget." He underlined that it won't be a short-term struggle, but rather a year or more before the effects could be seen.

Foreign policy

Exports and foreign markets are other fields that the American debutant plans to sow, hopefully making it the potent regional player its name obliges it to be. Carey said that the company is "looking for opportunities" in the Russian and Ukrainian markets, but refused to give firm dates on any contracts or acquisitions.

"Obviously the Russian spirits market is very large; the Ukrainian market is also larger than the Polish one," Carey said. "We will be happy if half of our EBITDA comes from outside of Poland in five years," he added.  

Currently 97 percent of the company's revenue comes from sales in Poland, with the remaining three from operations in Hungary. Bols is the number-one premium vodka in Hungary. CEDC also exports Soplica and Żubrówka, the latter's main foreign market being France. The UK and Ireland are becoming increasingly important markets for the company.

"Soplica and Graduate [the export version of Absolwent] are finding success there mainly on the back of the Polish population living there," Carey explained. With regards to Żubrówka, Carey underlined that it is a very premium product abroad. "In Poland it is in the mainstream pricing, there it is at the premium pricing level, at the Absolut level," he said.

Scaling up

Foreign sales and expansion abroad are important since the Polish market is not expanding that rapidly. Currently Poles are switching from consuming spirits to wine and beer. Parczewski points out that the only realistic way to make profits on the shrinking market is through scale. "You have to be a large company to fully benefit from the effect of scale," the analyst said. He therefore expects consolidation of the market and the strengthening of the main players to continue.

Carey isn't particularly worried by the changing consumer trends. "Vodka is still 94 percent of the [spirits] market in Poland and that's not changing tomorrow," he claims. He thinks that, on a competitive market, it will be the brands that will make the difference. And he believes he has no reason to worry in this respect. "We feel we have four of the best seven brands in Poland," Carey claimed.

CEO: William V. Carey

Strengths:
-Dominant market player
-Growth potential on export markets

Weaknesses:
-Could face objections from UOKiK
-Polish market expansion is sluggish