James Archibold - Director of IR
William Carey - Chairman, President and CEO
Chris Biedermann - CFO
Doug Lane - Jeffries & Company
Sebastian Greece - WestLB Mellon
Natasha Zagvozdina - Renaissance Capital
Central European Distribution Corporation (CEDC) Q1 2009 Earnings Call May 6, 2009 8:00 AM ET
Good day and welcome to the CEDC first quarter 2009 Earnings Call. (Operator Instructions). At this time for opening remarks and introductions, I'd like to turn the conference over to the Director of Investor Relations, Mr. James Archibold. Please go ahead, sir.
Thank you. I'd like to welcome everyone today to CEDC's first quarter 2009 earnings conference call. Joining me this morning are William Carey, our President, CEO and Chairman of CEDC and Chris Biedermann, our Chief Financial Officer.
Please note that the contents of this call contain time sensitive information that is accurate only as of the date of the live broadcast May 6, 2009. The online replay will be available shortly after the conclusion of the call. You may also view a copy of yesterday's press release 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 Reform Act of 1995.
Without limiting the foregoing discussions, the forecast 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 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 yesterday and the Form 10-Q 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?
Thank you, Jim. I'd like to welcome everyone to our first quarter earnings call. I'll just give you a little bit itinerary, what we're going to discuss today. As usual go over a little bit about the economic data in Poland and Russia, go over a bit about the market trends, what's happening in the marketplace in Poland and Russia.
I will take you through the P&L, down to operating profit; turn it over to Chris Biedermann, CFO, who will take you through the cash flow, balance sheet and the interest expense and financial lines. Then I will take it over and talk a little bit about the Russian Alcohol Group, the impact that we announced last week, little bit more of the numbers behind that transaction and then give you a general outlook, kind of what we see moving out for the rest of the year.
So first off, of course most of you probably know a lot of this data but just give a quick rundown of kind of where the economic data sits today within the countries we operate. We first look at Poland.
Looking at Poland with about a 1% GDP growth expected for 2009. Inflation is running around 3% targeted for 2009. 2010 is looking to reduce to about 1% its current projections. Unemployment has moved up from 9% at year end to about 11% today. It's been sort of stagnant the last two months. Interest rates have come down accordingly. Interest rates since December '08 have moved down from 5% to 3.75%, which is certainly helping our interest expense locally.
Also as you know January and February saw a quite large including December a currency devaluation. Where we saw the zloty lose 32% from a year ago. It stabilized since the beginning of March and has actually appreciated since that time and is currently today running around 3.3 and as you know, our guidance is built off 3.3 to 3.5 guidance on the currency so we're currently running at the low end of the guidance, which certainly is good.
If we look a little bit at Russia. Currently there's different estimate out in the marketplace, but GDP is looking around minus 4% to minus 6% depending on what analysts you read. Next year is projected at around 4% growth, 3.5% to 4% growth, but again depends on which projections you read.
Inflation has been coming down a bit. It's around 11% to 13%. It's projected next year to reduce to about 10%. Unemployment is currently at 10.1%, projected for the end of '09 around 11%.
The interest rates that the government started to reduce interest rates recently, they've gone down from 13% to 12.5% and they're expecting probably another 100 more basis points here in the next two or three months, because interest rates are too high in Russia, the government is starting to reduce the interest rates.
The currency as our previous projections, we have 34 to 36 ruble-dollar exchange rate in our currency projections. Currently we're trading around 32.85 today, which again is at the low end, even below our range of currency, which will be quite conservative and leaving our guidance intact. And kind of seeing where that currency moves over the next three, four, five months.
Many of the analysts in Russia have put out guidance that as oil moves up $65, $70 in the fall, year-end, most expectations are around a 31 ruble exchange rate. But again, this is only estimates and the zloty most analysts are expecting that the zloty is still about 10% undervalued and most are putting a true value of the zloty of three to one on the dollar and four to one on the Euro, which is about a 10% appreciation from where we are today but again, these are estimates.
If you look at market trends a little bit, if you look at the vodka market trend in Poland for the first quarter, as discussed a little bit on the year end conference call we saw with the excise increase, there was quite a bit of stock brought in December, which obviously helped our numbers in December, but it hurt our shipments in the first quarter.
We saw around the total shipments in the marketplace were down about 10% from all producers. We were only down a couple percent. Our brands did better than the marketplace and even though the market was trading down as we discussed before, down from premium, sub-premium, down to main stream and economy.
Our number one premium brand actually had a 4% increase in shipments for the quarter, which we were quite surprised at and I think that goes a lot to show that when we re-launched the brand last year in the fall, we saw quite good response still on the performance of the Bols brand. Generally the overall marketplace was pretty much in line with our expectations.
The spirit pricing has remained low. Nothing's really changed much since the last few months. It hasn't gone up, hasn't gone down. It's still about 20%, 30% lower than a year ago, so we're showing favorable spirit price, which is certainly helping our margins locally.
Also discussed in November and more on the March earnings call, we've been doing much more deeper analysis look at a lot of our low hanging, low margin, low value products in our distribution chain and we've made concerted effort to reduce our overall logistic expense, as well as reduce a lot of the low end product mix that we weren't really making much profit out of. The first quarter we had an impact of about $17 million. At the same time, we took quite a bit of SG&A expense out associated with that business.
I think going forward, probably tomorrow around $10 million to $15 million for the rest of this year per quarter reduction in sales in our distribution business, which is not again affecting much of the bottom line, but giving us a better overall mix with margins improving. These numbers have already been factored in our year end guidance.
Just to take a look at our Polish operations. Our operating profit percentage was up a full percentage point and that's kind of for the reasons, I mentioned already on the mix, the mix change, the Bols increase, a spirit pricing, but overall we saw nice percentage increase in our overall Polish business.
Again the consumer really hasn't been any change in the consumer. We still see a bit of a trade down with the consumer. The key account, discounters, large international key accounts, discounters are still outperforming the market, which we are very nice positioned in, but overall, we think that as GDP stabilizes, it starts to pick up, that the trade down will stop, but generally we are seeing the trade down pretty much with mainstream increasing, economy stabilized, not decreasing any more, premium market decreasing in the top premium [here from the line of the] absolute business down the most.
If we look at Russia, it's a very similar pattern to Poland. We have started the year again with large stocks. Russia typically had larger stocks than Poland on average and the end of the year was no different. This led to shipments decline in the marketplace of 12% to 15% comparing to 10% in Poland and again that’s the reason most of the stock diminished by the end of the quarter and that's across vodka and imports and that's the same in Poland. We have seen the stock levels diminish by quarter end. So, we started Q2 with a nice business.
Spirit pricing also has come down quite a bit in January, about 15% to 20% down on spirit pricing. That's also helped the overall margins in Russia. We are seeing the overall consumer market relatively flat. The same in Poland with the shipments down, but the consumer market flat, but the same trend, the consumer market again trading down a bit from your premium, sub-premium, two mainstream and economy.
Again, key accounts growing faster than the wholesale and traditional trade business, the small stores. The key accounts we are seeing 20%, 30% growth in Russia. That's your international and large Russia retail and your wholesale business is down about 5% to 10%, which gives an overall flat market.
Generally what we see in the consolidation, that's taking place, I will get into a little bit later on the sales on our brands. On the consolidation, we still see consolidation taking place. Our market share is growing still. I think, we grew in the first quarter 1% to around 21% total market share. We are still targeting 30%, 35% market share in three years with our combined vodka business.
Still the weaker players are struggling in Russia. As you are aware, number of our key competitors went out of business last fall and we are using that opportunity to gain market share. Also that, with marketing being restricted above the line advertising in Russia, we have $100 million trade marketing budget in Russia, that we are putting to good use, getting more visibility, driving market share, getting the right penetration of our brands and that's again, continue to build brand equity and take market share. So, overall we are quite excited on the development in Russia and with the signing Russian Alcohol, which are good to look at later. It's a great platform for us to really move faster with.
If we look at the P&L, starting at the revenue line, what we saw in the quarter, as you know it's a hard quarter to compare because of the currency movement. We saw 32% currency movement to compare to the first quarter of the year before and that's coupled also with $17 million decline of this low end distribution business that we took out in the first quarter.
We also saw growth in imports, which we saw double-digit growth in our import business, which is a bit of a surprise from our side. We didn't expect such high growth. We were expecting more low single-digit, but we saw across the Whitehall business and the Polish business. We saw most of our key brands we had double-digit growth in Poland and Russia.
The vodka brands, which were slightly down as I was saying on the shipments, still below with the market was down but we were down single-digits, a low single-digits and that again, was mainly from the stock build from the excise, because there was too much stock in the marketplace from yearend.
We also had quite nice surprise on the export side. We saw the launch of the Zubrowka brand in France in February. We saw very nice results in Zubrowka launch. We also saw Parliament continue very good performance in Germany, where Parliament is the third best seller in vodka. Overall we had about a 25%, 30% growth in the export business, which is quite favorable especially with the weaker Zloty, which helped the overall margins in the export business grow.
If we look at the margins, we had a quite accretive margin impact from various factors, from 21% to 28% margin increase, gross margin, that's mainly due from the fact that with the distribution decline of the $17 million we took out of the distribution business, the weight of the higher margin import, export and the branded vodka business had a better weight and of course with the lower spirit pricing, and that led to the push of the 21% to 28% jump in gross margins, which we are quite pleased with.
If you look at the SG&A, I think what's first to highlight on the SG&A is one can remember on the quarterly split. That the first quarter is our weakest quarter in sales and a highest percentage of SG&A and the fourth quarter is our strongest quarter of sales and our lowest SG&A, as a percentage of sales.
Now with the contribution of Russia, which the Russian weight in the overall sales mix, Russia is even more weighted in the fourth quarter than the Polish business, which sort of accentuates that point as well.
But overall we in Poland, we saw a 3% rise in like-for-like currency. In dollars we were down about 29% in SG&A because of the drop of the currency. And the full cost of the benefit of the headcount reduction that we did in the first quarter really won't be coming out until the second quarter on a full quarter basis. So you'll see a much better result on that number in the second quarter.
In Russia, that was mainly impacted by the consolidation of Parliament for a full quarter and Whitehall for a full quarter, which was not in for the year before. So generally the same trends have occurred in both markets. You have low wage inflation general costs are coming in lower than inflation and the headcount reduction that we've done in Parliament, Poland and Hungary really won't show up again until the second quarter because of the reduction that we made in the first quarter
If we look at the operating profit, what this translates to; we had a nice operating profit percentage growth from 8.1% to 9.3%. And again, remembering that this is our weakest margin quarter and we're still in line for full year guidance number, which with the impact of the -- including Russian alcohol that we will achieve over 15% operating profit.
So again, taking a first quarter, 9.3% is not really relevant. Looking at the full year, we're still on target for a over 15% operating profit. The Russian Alcohol Group which will be adding about 100 to 150 basis points accretion to the 13%, 13.5% that we would have in the standalone business, which is quite a bit over 2008 as well.
I'll now turn it over to Chris Biedermann and he'll take you through some of the other line items below the operating profit. Chris?
Thanks, Bill. Looking at our P&L below operating profits, and a quick look at interest expense; Interest expense for the quarter is $11.7 million which is actually very similar, and same as prior years ,even with the higher debt levels from our ’08 acquisition and the reason for this is the lower underlying LIBOR and VIBOR rates.
As Bill mentioned here, VIBOR for example has come down from 6% to 3.75%. Also included in interest expense is the adoption of a new accounting standard, APB 14, which required us to calculate an additional non-cash interest expense for our convertible notes. The impact of this during the first quarter was about $964,000, which is included in the $11.7 million.
Also in our comparatives for the prior year, they have also been adjusted to reflect the retroactive application of this standard, which would have been about $300,000 last year.
In terms of financial expense for the quarter again we had a negative impact from the translation of our dollar and Euro liabilities, both in our consolidated other financial expense and included in the equity earnings from RAG and the Whitehall- Moet Hennessey joint venture.
As discussed in other calls, this is driven by the movements in zloty and Ruble against US dollar and Euro. As mentioned earlier we've seen quite a big devaluation. However, since the quarter end we've seen a significant appreciation of these currencies against the zloty and the ruble. For example, for the USD zloty we've gone from 354 to 329. The euro we've gone from 470 to 429 and ruble we’ve gone from 3380 to 3290.
So looking down on a comparable basis, our net income was $9.8 million for the quarter or about 21% per fully diluted share on a comparable basis, which was generally ahead of consensus. This compares to $12.1 million in '08 or $0.29 per fully diluted share. The reason for this is driven by all the factors we've discussed earlier.
The main difference between our comparable net income and our GAAP net income is primarily the FX impact, as well as the adjustment APB 14 reflecting the additional non-cash interest accrual, which was not in prior years and a complete reconciliation is available at the end of our press release.
Some highlights of our balance sheet. First, in terms of liquidity, as of the end of the quarter we had about $64 million of cash on our balance sheet, which is greater than the total of our short-term bank facilities drawn at $50 million and since year end we have renegotiated the majority of our short-term working capital facilities and extended the maturities to 2010 as beyond. We don’t see any issues with the remaining 50 million as well.
Our cash payments for 2009 are approximately $17.75 million due to RAG, the majority of which we already paid off in April. Approximately $35 million is due to Parliament RAG, finally close those commitments with the acquisitions last year.
We expect to fully fund these commitments with cash flow from operations. Looking at our cash flow from operations for Q1 it was $1.2 million as compared to $49.4 million last year and the difference is primarily driven by the timing of excise tax. In '07 shipments went earlier in the quarter and therefore excise payments were still paid in that quarter while in '08 the sales took place later in the quarter due to the excise increase, thus resulting in larger cash out related to the timing of excise and VAT in Q1 ’09.
This impact was about $40 million for the quarter. Our other cash flow items however still remain strong including accounts receivable collections. As such, as stated in our press release we're still targeting full year cash flow from operations of about $80 million to $100 million.
Our net debt at the quarter end was about $744 million and on our trailing 12 month EBITDA was about $207 million. So that puts us about 3.7 on a pro forma basis including the Whitehall Q1, we have got 3.6. Our EBITDA interest coverage was 3.31. This compares to our covenants and our senior notes of 2.25. So still quite a bit of head room there. This is not include any EBITDA from RAG. Which is currently on equity method, however, it will be consolidated from Q2.
We expect the full year EBITDA of the RAG business to in the $90 million to $100 million range and currently RAG has a net debt of about $150 million. Thus this net debt to EBITDA is less than two times, we will bring up on a consolidated basis down to 3.3, 3.4 range.
I will not turn it back over to Bill to provide a further overview of our planned activities.
Thanks, Chris. If we turn our attention to the RAG transaction that we announced last week; we signed a deal with Lion Capital last week. Just to give you some highlights of the business, which a little bit we went over last week. We had 20% growth in the quarter, the first quarter which was well above market considering those shipments in the market were down 12% to 15%.
Russian Alcohol Group not only grew 20%, but they also reduced their inventory in the marketplace, which obviously translated quite a bit of market share gains that they were able to achieve within the quarter. They also had $40 million of operating cash flow gain in the first quarter, which was again very stellar, of picking up receivables coming in from the third and fourth quarter of 2008.
Also that we are targeting now that we signed a deal with Lion Capital, we are both well aligned, because before their main intention was to drive EBITDA within the business, today they're more in line in making sure of driving shareholder value through having ownership in the CEDC shares and having a locked price on the Russian Alcohol transaction.
Through this we can both move together now on faster synergies between our companies in Russia, mainly Parliament and Russian Alcohol Group and we believe there's $30 million to $40 million of synergies that we can move faster with mainly coming from sales and operating leverage, including headcount reductions.
What this means on the impact of the consolidation moving into the second quarter with the consolidation of this business. As I said earlier, the gross margins should improve about 400 to 450 basis points for the full year, going from a 28% to about a 33% gross margin for the total business, and the operating margin improvement of about 100 to 150 basis points, accretion to over 15% operating margin.
Lion has been doing a lot of work on streamlining the business. We're very pleased working with Lion and the Russian Alcohol management team. Over the last five months, they've reduced headcount from 4,000 to 3,200 not impacting the sales personal. Also, they closed one production plant and they also are starting to work on getting much better 017-0.10 in terms on logistics, with one of the largest logistic companies, [Ruskin Logistics] in Russia, as well as other SG&A, key SG&A items which should start to see some benefit in Q2.
So overall, we're quite pleased with the overall transaction we were able to do with Lion in terms of structuring the eventual payments and really the work that Lion's doing within the business and certainly the continued strong performance in the business. Even when we look at April, we're still seeing the business growing over 10% in April as well. So, continued strong, continued underlying fundamental growth in a market that is probably flat in terms of consumption.
If we look at the overall outlook, the first quarter was a very difficult quarter that is behind us. We had a number of things to work with, the excise payments or the excise increase at December year end, we had the stock of the inventory, we had GDP decreasing in these countries, we had the currency rapid depreciation in January and February, and there was a lot of things that we were able to work through.
I think we produced a pretty strong quarter, because the stocks that are normalized, currencies have strengthened over the last month helping import margins, excise increases have been accepted in the marketplace to the consumer. So generally we're probably looking at Q2 as a normal trend moving forward. Our vodka brands that had low single-digit or had slightly negative growth in shipments in the first quarter, we're still projecting low single-digit growth of our key vodka brands.
We still see a lot of opportunity in consolidation in Russia. The synergies have pushed ahead with, and numerous import agreements we've signed over the last three months, including the Gallo and Borco agreement or the Gallo agreement that we'll be starting with Parliament next month. Borco, which we started selling last week to Parliament. We signed with Campari for their portfolio in Hungary, which we started last month. We have signed with DeKuyper and Jose Cuervo in Russia, which should be starting to the Whitehall Company starting this summer, and still talking to a lot of regional and international suppliers for representation in our key markets with the primary emphasis on the Russian market.
Looking at guidance, we have reconfirmed our guidance of $1.55 billion to $1.68 billion including Russian Alcohol Group with an EPS of $2.40 to $2.65 EPS. And again, that's at currency rates of 330 to 350 for the zloty and 34 to 36 for the ruble. So all-in-all, we are quite pleased to have a solid quarter and certainly seeing things improve as we move into the second quarter.
I'll now open the call to questions. Thank you.
(Operator Instructions). We'll go first to Doug Lane with Jeffries & Company.
Doug Lane - Jeffries & Company
Bill, can you update us on initiatives that you're undertaking with Gallo, try to give us some perspective on timing and how big you think that can be?
The Gallo business that we were planning to start last fall as you remember from previous calls, but because of the ruble devaluation we kind of had to wait until it stabilized, which it has. So we have proceeded now with Gallo to go ahead and get started in Russia with the wine business.
We are doing a couple of hundred thousand cases of some key products from Constellation. Of course, they've been there for a while, but Gallo is quite aggressive and that Constellation business is going through Whitehall. I think that Gallo views us as a great opportunity to be one of their major markets in Europe over three to five years and we're doing about 700,000 cases in Poland and I think that they view Russia as a bigger market than Poland, Doug.
Doug Lane - Jeffries & Company
What about on the other side, with Gallo such a huge force in the US and already got an initiative with Zubrowka,, but what about the opportunity of the US as an export market for some of your brands and also an update on how is Zubrowka doing?
On the Zubrowka front, we have settled our trademark issue we had with one of the importers. We settled that a few weeks ago. So, we will be looking to now be able to certainly push that much, much faster now. Now that we have this trademark issue settled. We've been doing a lot of private label work, Doug, a lot of third party bottling.
We just signed a deal with (inaudible). We will be bottling their ultimate vodka in Poland. A number of other agreements, we signed in the last three to six months. We're seeing big, big movement in terms of the bulk spirit, third party bottling, private label work that we do for other US importers.
In terms of our own brands, besides Zubrowka also on the Green Mark side, we have been in discussion with the Gallo team that we would like to take on the Green Mark brand in the US. As you know, they've been very active in progressing with their brandy. They launched a new Amsterdam gin. I think they are working on (inaudible) currency and next year they would like to do something in the vodka sector.
We're quite pleased that they would entertain taking a brand like Green Mark, which is the largest Russian vodka brand. It's the second biggest vodka brand in the world. Green Mark is a nice name. They view nice packaging. So, we're quite excited to be able to work with Gallo for the export of potential Green Mark next year.
Our next question will come from [Sebastian Greece] with WestLB Mellon.
Sebastian Greece - WestLB Mellon
Three questions, if I may. Firstly, Chris, on the working capital development in Q1, to what extent has the deterioration been due to the shipment potential, maybe could you elaborate a little bit on what were the key drivers of the deterioration versus last year? That's my first question.
Well, I think if you look at the cash flow statement and you look at our movement in assets and liabilities, highlights there the main things. If you look at, you'll see quite strong cash in from the receivables side, $109 million versus $71 million the prior year.
I think we see the biggest difference in terms of the cash out of the other two liabilities and payables, were with 67 cash out this quarter versus 10 last year and that's really driven again by the excise and VAT payments timing as we talked about earlier. The other working capital measures are roughly in line with prior year.
Sebastian Greece - WestLB Mellon
Okay, excise VAT issue. Secondly, just to double check, did I understand correctly you are targeting an EBITDA margin of 15% for the full year? Sorry, an EBIT margin.
Yes, we're targeting an operating profit margin of 15 plus percent with the consolidation of the Russian Alcohol business, which is adding about 100 to 150 basis points additional to our current model.
Sebastian Greece - WestLB Mellon
Okay, very good and finally, could you comment on the bad debt development, have there been any meaningful changes recently?
Yes, if you look at the bad debt, we are seeing bad debts in the marketplace. I mean, we have seen bad debts over the last 15 years. We haven't seen anything that material to impact our business model. Certainly there has been with the consolidation and some of the liquidity issues in Russia. There's no doubt. We have bad debts in Russia.
I think we're still targeting this year of about $10 million budgeted for bad debt expense in Russia, which is about 1% of total revenue including Russian Alcohol Group, but we haven't seen any major deterioration in that sector.
We'll go next to (inaudible) with Morgan Stanley.
Just one question, can you talk about your vodka brands in Poland and what initiatives you have planned for them, what you've been doing recently and what you have planned for the rest of the year?
When we bought the two distilleries back in 2005, we made an initiative to streamline and not to streamline, but to repackage our five key vodka brands. We have done the Bols brand last year. We did the Soplica brand two years ago. We did the Zubrowka brand two years ago.
This year we just did the [Polish] vodka, which we just started with this month in terms of launching the new package of Polish, which is our fifth best selling vodka brand and the biggest vodka brand we have Absolwent, we are starting with that in June of a re-launch of a new package of Absolwent, which we’re also targeting, we think we can get about 1, 1.5 points market share with the potential re-launch would be Absolwent, vodka brand. (inaudible) vodka brand Royal in Hungary, we also did a restyling and packaging of that as well, which they just launched last month with a campaign in Hungary with Royal, which is the leading Vodka brand in Hungary.
In terms of Absolwent, will that be -- will you introduce any sort of new line extensions or new flavors or is that essentially re-launching the brand image?
Yeah, that's re-launching the brand image with the new packaging and a new campaign, yes.
Got it. Thanks very much.
Our next will come from the Natasha Zagvozdina with Renaissance Capital.
Natasha Zagvozdina - Renaissance Capital
I have a couple of questions to actually make sure that I got the information right. Bill, you said the size of your trade marketing budget in Russia was something that I missed. Could you give us this number again? And can you be more specific as to what exactly you will be trying to achieve with Parliament and what are the marketing budget concerns the Russian Alcohol Group as well.
The trade marketing budget, I mentioned the $100 million, includes Parliament and Russian Alcohol Group. The split is about 80% Russian Alcohol Group, about 20% Parliament. Again, as you're well aware that only print is allowed in Russia in terms of above the line media.
The rest -- the bulk of the money will be spent in in-store merchandising, POS materials, brand promotions, on the local level as well as the key account level and because most of our competitors are scaling back marketing or even gone out of business, again, we're able to leverage this in the marketplace to go to the large and small, medium sized retailers and drive more visibility, Natasha, behind the brands.
Natasha Zagvozdina - Renaissance Capital
Also, on the guidance given for the operating cash flow, because when you are talking about writing an EPS guidance, I understand that the consolidated including RAG is starting from the second quarter of this year, correct? But when you are talking about $80 million to $100 million in operating cash flow, does that include or exclude RAG consolidation?
Yes, that -- go ahead.
That does includes, that's what we are looking at as a consolidated basis.
Natasha Zagvozdina - Renaissance Capital
On a consolidated basis?
Let me just add. Yes, pretty much all guidance we're giving on a going forward analysis is on a consolidated basis.
Mr. Archibold, there appears to be no further questions at this time. I'd like to turn the conference back over to you for any additional or closing remarks.
Thank you. We would like to thank everyone for joining us today and we look forward to speaking to you again next quarter. Thank you.
This does conclude today's conference. We thank you for your participation. You may now disconnect.
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