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Central European Distribution Corp. Message Board

  • inquirerg inquirerg Dec 1, 2012 4:33 PM Flag

    IngredientsNetwork foreign-currency-gains-boost-cedc

    Even if it's an old article, it has interesting info about Kaufman

    Foreign currency gains boost CEDC
    14 May 2012

    Polish vodka manufacturer Central European Distribution Corp has reported an increase in first-quarter profits after the firm benefited from foreign currency gains.



    CEDC earned $62.5 million in the quarter, up from $1.1 million during the same period last year. The company posted foreign exchange gains of $98 million.



    However, revenue slipped 4% from $336.1 million to $324 million. Taking into consideration restructuring and other costs, the firm registered a loss of 29 cents per share compared to a loss of 24 cents per share a year earlier.



    "We have also made numerous changes over the last twenty four months in our other businesses spread across Central/Eastern Europe, which have all started to deliver improved performance over the last few quarters," said William Carey, CEDC's president and chief executive.



    "These changes incorporate not only management changes but new product development and route to market improvements, and we would expect our current changes in Russia to also show marked improvements in our operating performance."



    Mark Kaufman, CEDC’s second largest shareholder used the results to underline his support for the deal between CEDC and vodka maker Russian Standard. Announced last month, Russian Standard will take a 28% stake in CEDC to help the company pay off mounting debts.



    "I believe the financing transaction is an important step toward addressing the issues facing CEDC," he said.

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    • And from the street:
      Another name to avoid is yet another good business gone bad via debt. I'm talking about Central European Distribution (CEDC_), a leading spirits company in Poland and Russia. In fact, CEDC has a No. 1 or No. 2 market share in most of its categories. The company also has $1.3 billion in short-term and long-term debt against $800 million in tangible assets. From a high over $30 back in 2007, shares trade for less than $3.

      When you bet on a company that has excessive debt, you are praying for a miracle. Yes, miracles sometimes happen. At the peak of the financial crisis in 2008, shares of retailer Bon-Ton Stores (BONT_) plunged from over $20 the prior year to nearly $1. Within a manner of months, the Federal Reserve began supplying credit to the economy, Bon-Ton was able to refinance is debt, and shares surged to over $15. Volatility like this attracts some to leverage. Bon-Ton's shares have since fallen back to $7, but the company remains highly levered.

      In certain businesses, what appears to be an abnormal amount of debt may make sense. Overall, however, you can have a winning investment portfolio over the long run by simply eliminating the big wipeouts and staying away from excessively indebted businesses.

      • 2 Replies to inquirerg
      • Shorts have definitely been right so far, but who's going to be right going forward. Shorts are predicting bankruptcy due to the debt load you describe but European analysts predict Tariko will still go through with the refinancing deal, though likely at a lower price.

        The Board really deserves the blame for this fiasco. They talk about protecting shareholders but they have let this company fall into complete disarray under their watch.

        - They sat back and watched Carey start the destruction with stupid move after stupid move.

        - They implemented a poison pill when Kaufman started to acquire shares. Of course they claim this was to protect the shareholders. In reality, they were just protecting their butts.

        - They did a deal with Tariko which should have saved the company but they agreed to a clause that allows him to back out because the accounting error was larger than projected. The Tariko agreement should never have had such an escape clause - give him more shares if the accounting error was worse than projected - but don't allow him to back out, especially after they had given him operational control over Russia, the largest part of their business.

        - And now, instead of putting together a new deal, they engage in a public disputes with their two largest shareholders.

      • Shorts have definitely been right so far, but who's going to be right going forward. Shorts are predicting bankruptcy due to the debt load you describe but European analysts predict Tariko will still go through with the refinancing deal, though likely at a lower price.

        The Board really deserves the blame for this fiasco. They talk about protecting shareholders but they have let this company fall into complete disarray under their watch.

        - They sat back and watched Carey start the destruction with stupid move after stupid move.

        - They implemented a poison pill when Kaufman started to acquire shares. Of course they claim this was to protect the shareholders. In reality, they were just protecting their butts.

        - They did a deal with Tariko which should have saved the company but they agreed to a clause that allows him to back out because the accounting error was larger than projected. The Tariko agreement should never have had such an escape clause - give him more shares if the accounting error was worse than projected - but don't allow him to back out, especially after they had given him operational control over Russia, the largest part of their business.

        - And now, instead of putting together a new deal, they engage in a public disputes with their two largest shareholders.