Central European Distribution's CEO Discusses Q1 2011 Results - Earnings Call Transcript

May. 6.11 | About: Central European (CEDC)

Central European Distribution (NASDAQ:CEDC)

Q1 2011 Earnings Call

May 05, 2011 8:30 am ET

Executives

William Carey - Chairman, Chief Executive Officer and President

James Archbold - Vice President, Director of Investor Relations and Secretary

Christopher Biedermann - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

Victor Dima - BofA Merrill Lynch

Yulia Gerasimova - Goldman Sachs Group Inc.

Brady Martin - Citigroup Inc

Douglas Lane - Jefferies & Company, Inc.

Matthew Webb - JP Morgan Chase & Co

Edward Mundy - Nomura Securities Co. Ltd.

Julien Martin - BofA Merrill Lynch

Andrzej Knigawka - ING Groep N.V.

Daniel Wakerly - Morgan Stanley

Operator

Good day, and welcome to the CEDC First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd 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 2011 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 5, 2011. The online replay will be available shortly after the conclusion of the call. You may also view a copy of yesterday's press release and a presentation for today's call 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 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 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 our 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?

William Carey

Thank you, Jim. I want to welcome everyone to our Q1 conference call. This call will be a little bit different than the past as we put out our presentation, which hopefully many of you had the chance to read. I will just cover off through the presentation before obviously that we would speak and then obviously after the call, open up to any questions.

And in turn, we hope the presentation adds some color and some more transparency behind some of the movements in terms of volumes and values and some of the more interesting points on the market outlook and so forth. So I certainly hope that adds some overall transparency to what was previously put out.

And first, I'll just cover the basic economies. Russia and Poland seem to be trending along pretty well. Both countries raised rates recently, around a quarter point. The current recent inflation moves. Currency just have remained pretty strong, one on the back of the weak dollar and its strong oil price. Overall, unemployment seems fairly stable. So overall, both market seem fairly stable with the overall consumer.

Now first again, on Page 3, on the highlights of Poland. Generally, what we're seeing out of Poland is due to the timing of Easter, which is quite big in Poland. Easter and Christmas are very big holidays here where certainly spirits and wine are consumed in larger quantities. And this year was a shift from March to April, and that was really the only difference in terms of seasonality between the 2 quarters.

[indiscernible] a strong continued success of our Biala brand, which was doing extremely well in the trade where you're almost up to 5% market share. We're still on track for a 7%, 8% market share with Biala coming into the end of the year. Our total market share is still at 24%. We're still targeting for year end around 26% total market share and that's coming from overall growth again led by Biala, and certainly imports and exports continue to perform well. The imports were up I think 8% or 9% which we'll get to on the next slide.

Also the wholesale channel, in which, we worked very hard, I'll try to bring up the wholesale channel has increased in a positive channel mix for us, moving from 19% to 23%.

The overall vodka market was rather weak in quarter of 6.4% down according to Nielsen data in the first quarter. We're expecting a little better market data because of the Easter effect, I think had impact on that because again March, was last year's Easter. So what we are looking at, our April results in Poland when we were up over 40% in volume. So certainly, I think some of that has Easter, but overall, certainly that should skew a bit the second quarter that should certainly turnaround the overall market.

Spirit pricing has remained fairly stable after increasing the first couple weeks of January, actually we've seen some improvement over the last couple of weeks. We're looking at our import representation for the company because of the growth over the last couple of years, our import portfolio, it is representing today around 31% on our gross margin in Poland. So it's becoming a quite part of our overall business, the White and Brown Spirits business.

On the next page, you have some of the highlights in volume and value. What we like with the investment as you know with the overinvestment let's say in the Q4 of Biala, that was stopped at the end of December, and what we're seeing in the pricing today is that the brand is still doing extremely well price in the upper main stream price point. It's about 4% to 5% higher price point than the market leader, de Luxe [Czysta de Luxe] , which is [indiscernible] the stock company owned by Oaktree. And we think it's a great position to be in when you're sitting above the market leader and growing faster. So we think that we're very well-positioned to really capture real increase opportunity moving into the rest of this year.

And I think that when we look at the overall volume and value number, yes, there has been increased spirit price. There has been also a higher marketing expenses in the overall investments this year. But generally speaking, as we move out of that in Q2, Q3 and into Q4, we're seeing the value will substantially improve in terms of the overall volume, but for the next couple of quarters, value will be lower than volume, but like I said, the volume pick-up is quite terrific. We're up over 40% in April in volume, so we're pretty bullish on the overall situation coming out of Poland. But [indiscernible] is yes, it does come out with lower EBIT percentage, but we're pretty bullish at kind of where we sit at the company today with overall spirit portfolio.

Looking at what's happening to some of the competition. Generally, most of you saw the volume interest behind the stock company that was put up for sale by its owner Oaktree. I didn't seem there was a valuation compromise between the interested parties and the owner, and it looks like either they will keep as they are or I guess they are looking at doing an IPO possibly on the Warsaw Exchange, but definitely what we see in the marketplace is the company is losing a bit. Pernod, our other competitor with the Bravo portfolio here with their imports, we don't see overly active business behind their overall market portfolio, and so this still going through some of the bankruptcy proceedings, has been growing a bit with its Krupnik brand mainly through discounters.

So overall, we're pretty I can say bullish on what's happening in the overall Polish market.

If we turn our attention to the next page on the highlights for Russia. I think certainly that we are very pleased that on our license, our main license out of Topaz, which is our main production unit in Russia, we've received our license yesterday. So we were extremely pleased with that. There's been a lot of hard work by the team to get all of our licenses. We have now received all of our wholesale licenses in Russia, and we just have really a Whitehall yet to come, which is due for the next couple of months. But overall, the market's improving on the licensing front. People are getting licenses easier. There will be understanding in the marketplace. So I think overall, we're not seeing those, as written here we don't see any really major problem identified other than going through the license reissuing with the wholesalers currently, which is still going on at the quite a high level, which will continue through the second quarter, which means as written that we need to reduce our shipments and others as well. As you see the goals of that data, which is production data, that the overall decline in shipments was around 24% in the quarter. The actual Nielsen data showing a 2.3% decline in retail sales but the main difference of these 2 numbers is coming from the de-stocking and in the wholesale trade. So for us, seeing 16% down in our overall shipments of vodka, we don't view that as certainly out of line of where the market is. I think for us to protect our bad debt exposure with these wholesalers going through rely with some periods is certainly important for us to maintain a proper exposure of receivable exposure in the trade.

Most of you already know that the majority of the Russian market is still a wholesaler. It's still 65% to 70%, still goes through wholesalers. So that's why the wholesale channel also plays a very important role because also that even though you have key account sales, many people don't sell direct to our key accounts. Many people have outside full service in regions that go through their wholesaler companies into various key account subsidiaries in terms of underlying regions. So even though that you, that is the key account sale still a lot of it does go through the wholesale channel. So it's important that these wholesalers get back to relicenses, which we think looks fairly positive here to be closed out by the -- probably towards the end of the second quarter.

On the next page, in terms of spirit pricing, again as we've seen, saw similar to Poland that the jump in the first couple of weeks of January, we try to offset that with price increases in March, which we're able to do, but we have seen some reduction recently the last couple of weeks, some are to Poland. On the negative front, on COGS, we have seen transport prices increase mainly at the back of the higher energy costs. Really that have started, that we've seen more in the second quarter. It's not that significant, but it is a negative drag on the overall COGS.

Also in the first quarter, we're able to buy out 100% of our Whitehall Group, which we have talked about before, which was and also that we sold the 50% stake of the joint venture that we had in Russia with Moët Hennessy. So today, we have 100% of the Whitehall Group, which is a major importer of wines and spirits, as well as we do a bulk of a significant part of Moët Hennessy business as well, which still flows through our group. So it's still a very integrated relationship there.

And the focus of all these is the Whitehall Group as it's consolidated from February. And also that we're seeing in Russia that export is still doing significantly above budget, mainly led by Ukraine, which we opened our office back in April '10. And I think we're on track this year, already 20% above plan. And we're probably getting close to 1 million cases of Green Mark in the market this year, which is already, will be close to 5% and 6% market share and this is a profitable business. It's not as profitable as Russia, Ukraine, but this is a possible business and we're quite pleased by only in the second year already getting up 5% to 6% market share for the third largest vodka market in the world starting from literally 0.

And also the Baltics continue to do well, in term of Green Mark. We're the market-leading brand in countries like the Baltics, Kazakhstan, which remains very large exports markets for us as well.

On the next page, if we look at the volumes, as I've mentioned our shipments in vodka were down 16%, which was not out of line at the market. Imports were up 19%, which is mainly the Whitehall business is the most of that Import business. We do have a little bit of drag, but mostly that's Whitehall, so that continues a strong trend of whites and brown spirits coming back very strong in Russia.

And then the RTD business, the Bravo business, which had the license issue of about 45 days, which was cleared up at the beginning of April. And we had a record month in April as it got its license back early in April and had a record sales in April, so we show a very good Q2. I think the number already in April, which is far above the number for the quarter of Q1.

I'll turn it over to Chris Biedermann, and he'll take you through some the financials behind the numbers in Q1.

Christopher Biedermann

Thanks, Bill. Just over to Slide 9, the consolidated P&L. In terms of net sales revenue I think Bill pretty much outlined the dynamic impact in net sales. Looking then down to gross profits. You see the gross profit margins were impacted primarily by higher COGS in the spirits from last year, as well as the increased market investment as we discussed as well in our earlier call. However, moving into the quarter 2 and beyond as we begin to use the effect of the operating leverage and the higher volumes come through Q2 and Poland and in Q3 in Russia, we expect the margins there to normalize in the mid-40% range again in the second quarter.

And in the next slide, I'll walk through a bit on what factors are impacting there. In terms of operating expenses, if you take out the increase due to the Whitehall acquisition, which you can see as well in the next page, generally, OpEx was generally flat. We had some cost pressures primarily in terms of transport and fuel costs and salary increases which offset a bit by headcount reductions, but overall, it was flat. Again, that number is generally going to stay roughly stable as we go through the period in the future where the volumes pick up, the impact of the operating will flow through, therefore, operating expenses as a percent of sales will decline and [indiscernible] obviously drive up the higher operating income as we move in. So again, the key takeout there for us is expect operating leverage going forward in future periods.

Page 10 is generally pretty self-explanatory. Again, I think it clearly highlights out the walk from '10, '11 through laying out where the spirit impacted the volume impact and as well as the mix in marketing impact. Again, a key thing is volume pick-up in Q2, and Q4 will result in improvements in the gross and operating margins as impacted by the operating leverage. Again I think generally a point there is self-explanatory.

Moving on Page 11 in terms of cash flow. I think we have strong period of cash flow this quarter. With $84 million of operating cash flow, driven primarily with our focus in accounts receivables. We move our financing structure a bit away from bank financing and accelerated some of the receivable collections through a factoring and predominantly what's entirely non-recourse factoring, and as provided in the benefit around $38 million in the quarter. Although we're quite pleased in terms of how the operating cash flow went for the quarter.

In terms of investing activity there, you see the net number of $41 million and that's probably made up of the $16 million we discussed through the Whitehall going out to [indiscernible] RAG, as well as we have 17 million units from the sales of joint venture and we acquire as we want $17 million of cash in the balance sheet. So that gets us the net $41 million number of cash after investing activities and financing activities based through repayment of some short-term debt at the Whitehall Group.

I think it's worth noting, a quick note in terms of the factoring, again if we look at the factoring net-net is a cheaper financing for us. It is a local financing that it is about the second note covenants, so we view this as a much better alternative than the local bank finance we had. And again, it's overall cheaper than financing works.

On Page 12, quick look with the pro forma EBIT and leverage, I think again the main point is getting back to the comfort of operating leverage. These numbers will move up once again as the normal third, and fourth quarter as we cycle off of [indiscernible] but we will begin to get an improved EBITDA, which will quickly drive down the overall net debt to EBITDA leverages. So the key is going to be this operating leverage getting into these last two quarters of the year.

Let's our way to financials, and then I'll turn it back to Bill who will give a bit of the outlook for the remainder of the year.

William Carey

Yes, I think there is one other point to note on the balance sheet, on the inventory levels that they're a bit higher than we typically work with. That's mainly because of the relicensing in Russia, we kept a bit in the toll rate to the anticipation any type of let's say crisis that could be, could come up, we have not needed that, and we will now aggressively look to reduce inventory levels now that we have all pretty much all our key licenses in Russia. So that will see a rapid reduction in those inventory levels as we move forward into the next 2 to 3 months.

I think when you look at our outlook on Page 14. First off, on the volume and value, again, we're expecting a strong double-digit growth. Well it's been a higher than we previously estimated again led by Biala Import and our Export business. Like I said value to growth to follow a lower rate of the volume into the fourth quarter when we cycle off a 2010 over investment in terms of comparison basis. But generally, we're quite pleased, like I said before, on the overall dynamics and what we're heading as a company here in terms of our business model in Poland, in terms of the gaining back profitable market share and getting back to position that we used to enjoy closer to 30% and the immediate terms in terms of overall market share.

We've had a lot of new product developments, and I think we didn't have enough in the past and as highlighted here, we're doing a new bottle restyling, so please we've got some new Jamuca [ph] Flavors on the back of our family of Jabusca [ph] , We're introducing a new range of new flavors in the second quarter as well. So there's various activities we do, fourth companies into next year, another NPD development in terms of strong developing calendar, of our business next year. So overall, that I think that we're in a pretty good situation on channel mix, product mix, volume over the next 18, 20 months.

We're also seeing strong export to accelerate the second half of this year, again led by some of our key markets of our U.K., France, U.S. in terms of we have a lot new contracts signing in the U.S. with independent contractors buying from us. So we're quite pleased on the Polish outlook.

In terms of Russia, again, there's been -- through the second quarter, generally, that the market is going to remain fairly soft for us mainly even the fact that we will not restock distributors until they get licenses and that's going to continue that process through the second quarter. Certainly, the second quarter will be big improvement over for Q1, but still we're not going to cycle off a full quarter for us really until the third quarter in terms of our Vodka business.

The imports are less affected as we work with less wholesalers and more with the key accounts, but generally speaking is that I think as we get into a normalized quarter in Q3 and not having to cycle off a heat wave potentially this year, and you'll see a significant pick-up in volume and value not only from this respect, but also from a lot of new product launches. You'll see from a new product development calendar below on Page 15, it's quite robust from really from May through September, so all that's going to cycle in a bit in Q2, but into to Q3 and Q4 mostly. So again there is no surprise in Q1, and we don't see any so far in Q2. So we're pretty much in line with what we're predicting on our internal model.

Spirit price again remains fairly stable. We've had price increases also coming in line with January with excise increase, March also with the spirit prices. In January, we took that opportunity to increase prices in March, and we again have another price increase in the fall. And from what I understand from other analysts, that's pretty much in line with what our competitors are doing also in terms of price increases in the marketplace.

If we look at Whitehall Company that we took over in February, working with Moët Hennessy, we're still the major partner for them in the marketplace, and I think overall, that we is still see a strong growth behind white and brown spirits, and I think it's other international spirit company see the same trends in Russia. So I think we're pretty pleased on where the next couple of years going can to go with the overall white and brown spirit portfolio in Russia.

In terms of the competition, the consolidation, generally, what we're seeing in Russia the government has been very active of reducing some of the small players in terms of producers, wholesalers and I think that's going to continue here through the next 3, 4 months until the markets going to come down to a much smaller number of players, smaller number of brands and that should drive overall a lot of the consolidation, organic consolidation. So I think that we're in a pretty good position to benefit from this, but like I said before, that on the last call, back in March that we have to be more aggressive in looking at developing faster share gains for us than we certainly realized in the last couple of years. The competition is strong. It's not as strong as Poland, but it's still strong. Synergy, spirit these are all strong companies that we compete with, but certainly, the opportunity for foreign product players to capture a large share here is quite significant. So for us, we're again quite bullish over the medium term, but we got to be more aggressive on getting out and getting in front of the consumer with restyling new products because the consumer is expecting change, not only in Poland and Russia, I think across many parts of the world today. The consumer is looking for new products, looking for changes and just can't remain, we may be used to restyling a product every 5 years. Now it's every 2 to 3 years. And that's sort of the change we're seeing in the marketplace.

And with that comes from a bigger cost base in terms of marketing expense, trade marketing expense. And that's some of the reasons as we recall over the last call why we took down our guidance this year was to put to mark that's been in the market place this year with some of these new product developments, and especially Green Mark, our biggest brand we're quite pleased in terms of the developments and seen what we have launched in July of this year. What we will launch in July of this year is a major project for us, and know those of you worry that this could be another Biala in Poland, no. This is going to be a normal launch, but again factored in our overall guidance in terms of the spend behind this launch.

So again, much like Poland we're pretty bullish on what we see on the outlook, Russia, but we need to get through this licensing period, so we get to a normalized business model.

So I think, generally to summarize that first quarter was certainly, is never our strongest quarter, but certainly was in line with our guidance. I think most of the markets or analyst as well, most of their expectations, and as Chris was saying that people need to recognize that our models are built on operating leverage with a huge part of our costs, of being fixed cost is about driving higher sales revenue through fixed cost infrastructure. That's always why the first quarter versus the fourth quarter is so much different in terms of the underlying profitability where it ramps up significantly in the fourth quarter and the first quarter being the weakest quarter of sales. You'll get the opposite effect. So it's really, what we're looking at Q2, Q3, Q4 a substantial pick-up quarter-on-quarter in terms of revenue base, which translate to a much stronger operating margin quarter-by-quarter.

And I think we've started the quarter with some headwinds, certainly from the short-term bank debt which we have solved, I think, very effectively. A few weeks ago, there was some a lot of questions on our relicensing in Russia which I think we again solved very favorably. And I think on the amount of NPD we got coming out of Poland and Russia here in the next 3, 4 months, I think we're looking in pretty good shape. And I think we’re getting quite substantial operating leverage already coming in Q2, but much greater in Q3, Q4. So for these reasons, we are quite confident of where we are in our business track and for these reasons that's why we are reiterating and reconfirming, our guidance expectation this year, $880 million to $1.08 billion in terms of the top line and $1.05 to $1.25 on EPS guidance.

So I'll now open the call for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Daniel Wakerly, Morgan Stanley.

Daniel Wakerly - Morgan Stanley

Bill, my first question is on the debt factoring. Given that you're only getting a very attractive rate there of 95.7%. Is that something you could have done earlier? I'm just wondering if there's any hidden sort of cost of doing this because it seems like quite an attractive thing to have done and I wonder why you haven't done it sooner.

Christopher Biedermann

Daniel, [indiscernible] includes everything the insurance the number of pieces included in there. We started looking in last year, it just took a bit of in place. We did a tender counterparty. So yes, probably earlier, but again it wasn't the biggest priority earlier in the year, but we got in place in Q1 I think fairly eliminated an issue we had out there.

William Carey

I think Daniel that we didn't look at it so closely. As Chris said we started looking at it in the fall, the reason look before the fall was really the fact that we were getting a short-term interest rate at about 100, I think, to 140 basis points above LIBOR, so there was no cost benefit to have it. And then when the banks jumped our interest rates up to 307 points with the issue in Q4, then we've said, well of course we're going to take all in about towards 150 basis points. So...

Daniel Wakerly - Morgan Stanley

Is there a potential limit or I mean is there is this. . .

William Carey

It's at it's about $90 million, $95 million.

Daniel Wakerly - Morgan Stanley

$90 million to $95 million, okay. I don't mean to nitpick, on Easter, don't you sell your products in Poland, don't you sell your products at least a few weeks in advance of them actually being on the shelves? I'm just you're sort of implying that it's quite short-term period. What's the normal period between your sale and the customers?

William Carey

You're right. Typically even if Easter falls at the beginning of April, you still sell in March. But because this year Easter fell like almost on the 23rd or something and that key account and retailers and wholesalers were not buying in until probably around the 7th of April, roughly. But you didn't see any buying in March because it was too far before 23rd, I think.

Daniel Wakerly - Morgan Stanley

It really is up 2 to 3 weeks before that's the key period before that it's not.

William Carey

Yes, I mean Christmas, earlier maybe because it's a much bigger season. Easter is a bump, but I think there was an Easter effect and then, of course, I think we did well as well in the quarter. I mean in a month, I mean for us it was a nice surprise seeing plus 40% volume.

Daniel Wakerly - Morgan Stanley

I think the final question is on I'm sure you saw

Synergy's press release that they have 15% volume growth. Will you help us, give us some color, I'm not asking you to give us on their performance but why do you think some other people have been able to grow faster, especially given the sort of de-stocking effect that our industry faces?

William Carey

I think, generally, Synergy is doing pretty well in the market, but I think also the distribution model is different than ours, that they do a lot of their trades in their own trade houses, their wholesaler network is much smaller than ours. And where we will provide working with wholesalers which is probably more cost-effective, but in this environment, they don't really have to go through that big of wholesale trade, so they don't really have this sort of probably de-stocking issue, but we have to look at our own model and for us it's we have to protect where we think and risk of working with wholesalers and making sure we protect any downside of some of these people we work with not getting licenses, but and we're not, I don't think we're out of the line in the market.

Daniel Wakerly - Morgan Stanley

I understood. So the wholesaling, the difference in the set distribution model has a big effect as I understand?

William Carey

I think the biggest effect of that business. I think they're doing well, but I think that certainly the biggest impact.

Daniel Wakerly - Morgan Stanley

Okay. And so just tack on one more. In terms of your pricing of Green Mark and its positioning within the market. How has that evolved in the first quarter versus fourth quarter of last year?

William Carey

I mean obviously we had the issue in December with the discounting from the, with the excise issue we had, excise tax issue, and certainly the Green Mark price point was certainly lower in December than in the past. And in Q1, it has a return to a more normal periods. We took a price increase in January but the excise, we took another one in March. And like I said, we'll have one more this year as well, which I think is consistent to what others are saying, other competitors are saying. So and they will not be that type of discounting going on this year as we saw what happened in December with the excise tax issue.

Daniel Wakerly - Morgan Stanley

Understood. So the price increase in January was just to recover the excise and then there's another one in March which benefits you, so as I understand correctly, what was the magnitude of the pricing?

William Carey

The one in March was offsetting the big increase you saw in the first 3 weeks of January of spirit pricing. And then probably a little bit more on both of those, we try to touch on both of those. But generally speaking, you should see consistency in terms of volume and down you saw in the first quarter, it was about 10% difference of vodka. A 10% improvement. So that should be in our actually a bit more as we move into some more price increases through the rest of the year.

Daniel Wakerly - Morgan Stanley

So to be clear that sort of when we compare sort of the end of March with the beginning of the quarter, the average improvement in your -- the improvement in your average price, a combination of price and mix is about 10% in Russia.

William Carey

Yes.

Daniel Wakerly - Morgan Stanley

And what's the equivalent number in Poland?

Christopher Biedermann

Poland we were down because of the additional spend that we're putting through our portfolio to be more active in turning around the problems we had here. Until the Q4, we get to a normalized situation and then of course the overspending there you didn't have that this year, so then that could turn to a positive base.

Operator

And our next question comes from Matthew Webb of JPMorgan.

Matthew Webb - JP Morgan Chase & Co

Three questions please. First just a follow-up on that last discussion about your price and mix. I'm just wondering, is it possible to roughly split that 10%-plus price mix improvement now between price and mix? Is it mainly price or is it actually, do you actually see a better mix improvement as well as in margin?

William Carey

Mainly price.

Matthew Webb - JP Morgan Chase & Co

Mainly price. I mean how do you think your mix is? Do you think it is posted for or like the demand pressure ...

Christopher Biedermann

It's slightly negative in Russia.

Matthew Webb - JP Morgan Chase & Co

And then the second one is on the decision to sell out of the joint venture of Hennessy given that's a part of your business, and I think you're very enthusiastic about I just wondered what sort of drove the decision-making there. I appreciate you still got a relationship with them, but it just seems maybe an odd part of your business to touch the pull back a bit from.

Christopher Biedermann

Having the joint venture relationship also inhibited us importing other products. Having quite strong barrier for us importing other products. So for us we saw the potential medium term is certainly more interesting of doing what we need to do as a company than keeping a joint venture where you didn't really have much control of the operating costs in that joint venture, it didn't really give you a lot of profitability coming out in terms of equity earnings. So we just felt for the market that we've invested in Russia a lot of money and we don't want to really have strings attached.

Matthew Webb - JP Morgan Chase & Co

Got it. Got it. That was very clear. Thanks. And then just a final question, just a point of clarification. On Page 15, you talk about in the second half of the year in Russia the license issue to subside. Let me be clear, you mean reverse. In other words, you think that there will be a stocking up again of the wholesale? Or do you mean that actually that the issue will just not to be an issue either way in the second half?

William Carey

No, I think the majority of wholesalers and producers are going through the relicensing, I think, through June, July. There's still a few strugglers left in the third quarter. But generally, most people are going through their licensing through June. So our point was that this issue will subside, meaning that, yes, it will be a normalized situation with those wholesalers remaining, that will be a normalized situation. We'll work on normal stock levels.

Matthew Webb - JP Morgan Chase & Co

So in other words, if we're moving back to normal stock levels in the course of the second half, that will require the wholesalers to stock back up again.

William Carey

Correct.

Matthew Webb - JP Morgan Chase & Co

So some of the negative issues in the first half you're sort of expecting to reverse in the second half. But maybe, by the way, you've worded that maybe not until the fourth quarter. Is that fair?

William Carey

No, no, no. Third quarter for sure. That issue will all be restocked at normal levels by Q3.

Matthew Webb - JP Morgan Chase & Co

Got it. Okay. That's great. Thanks very much.

Operator

And our next question comes from Edward Mundy, Nomura.

Edward Mundy - Nomura Securities Co. Ltd.

A couple of questions from me. First of all, you mentioned in your press release that you're strengthening the overall management team to target profitable market share gains. Can you perhaps elaborate on that because there's nothing in the presentation on that.

William Carey

Yes, I mean, I understand the sensitivity, of course. But no, that we are in the last stages here of hiring a COO in Russia with a strong operational background, so we should have that complete here in the very, very soon future. We're also looking at some other positions in Russia. Those are management positions to strengthen in terms of getting a more of a stronger commercial team there, looking at trade and marketing and overall sales. So for us, it's also at Whitehall the same in terms of getting a stronger commercial unit. But for us it's really improving the overall commercial effort and at the same time, in Russia, on the operational side.

Edward Mundy - Nomura Securities Co. Ltd.

And then do you have a sense as to when those positions will be filled?

William Carey

Yes, we're looking to fill those probably at least by the third quarter.

Edward Mundy - Nomura Securities Co. Ltd.

Okay. The second question I had, and sorry to labor the previous points that Matthew brought up. It's really on this restocking. I mean, if we go back to the year-end presentation, you indicated that inventory that was going down to 1 to 2 weeks. Then they're getting back up to 4 to 5 weeks. And my question really was what risk is that inventory levels don't get back up to 4 to 5 weeks by you didn't get the restocking? And b, what is the risk of it slipping beyond June, and therefore, your backloaded P&L gets pushed back to Q4?

William Carey

No, like I said that I think 90% of people are getting -- go through the relicensing here in June. A few -- like I said, a few stragglers in the third quarter. There won't be any moving to fourth quarter and for us, we have contractual obligations with our wholesalers for 4 to 5 weeks. So for us, that's what we've traditionally worked on, that's what our contract is and that's the credit date we give them on the back of that. So if you ask, did we take away credit days when they reduced? No, we left the credit days for them. But for them, also, not having inventory also is beneficial for them going into relicensing because they also don't want to be hung out that they got to pay for this as well. So generally speaking is that we don't see any risk that wholesalers are not going to go back because they are contractual obligations.

Edward Mundy - Nomura Securities Co. Ltd.

Great. And just while we're on the industry relicensing issue for 2011, I mean, are there many -- are there any examples you can point to so far of the number of small producers and small wholesalers who are not meeting the standards and are not getting back into the market?

William Carey

Yes, there's been a lot of small wholesalers or small producers that have not been granted their licenses. Some of their own choice on their own because they want to get out of the business and others that -- they didn't meet the technical regulations set out by the government. So us, we haven't seen a big impact on anything from our side yet because we work with 140 wholesalers and most of those being the bigger players in the marketplace. There's over 600 in total. So the estimation that we hear in the marketplace is that probably it's going to end up around 300 to 350 less after this whole process is finished this year. And I think, like I said, we'll know pretty clearly by July where things sit. And as of our 140, we're estimating probably we'll lose anywhere from 5 to 8 of our 140.

Edward Mundy - Nomura Securities Co. Ltd.

Got it. And just one final question, on the price mix evolution in Poland, it sounds like the high marketing investment that we're seeing in Q4 2010 and Q1 2011 is going to continue into Q2 and Q3 as you get your market share back up. Is that negative price mix? Is that negative 13%? Is that going to accelerate into Q2 and Q3, or is it going to decelerate or stay at the same level?

William Carey

It should stay at similar levels and go to a positive number in Q4.

Edward Mundy - Nomura Securities Co. Ltd.

Okay. So on that basis, assuming the volumes pick up in Q2 and Q3, your revenue from Poland will also be positive?

William Carey

Yes.

Operator

We'll take our next question from Brady Martin, Citi.

Brady Martin - Citigroup Inc

First question is on Bravo. Can you remind us exactly what happened to delay the licensing in Bravo? Also, you mentioned your main facility, your main business that needs to be relicensed to the end of the year is just Whitehall Group. And do you anticipate any problems there or potential repeat of what happened with Bravo? That's the first question.

William Carey

No, I think Bravo, it was technical in nature, something from the 1950s that they were not in compliance with and it took them about 2 months to go through the process again. And they fixed it and got the relicensing -- and got relicensed, but it's more of a technical in nature. In terms of Whitehall, no. The Whitehall is going through the process now. We haven't heard or seen anything that would limit us not getting any license there, no.

Brady Martin - Citigroup Inc

And is Whitehall the only other entity you have that has to be relicensed this year?

William Carey

We also have the Tula factory in June in Moscow, and some of the Whitehall subsidiaries out in the regions.

Brady Martin - Citigroup Inc

Second question is on the sale of the Moët Hennessy JV. Can you just maybe, Chris, explain the P&L impact, the cash flow impact that we're going to see this year and whether that's factored into guidance...

Christopher Biedermann

Yes, it is factored in our guidance. And generally, what we're saying is it was an equity investment. So we're losing the equity earnings purely from the JV. At the same time, as part of the agreement during the 3-year transition period, we're getting a basically a fixed annual, call it, fee for continuing to support them and with selling their product with about $5 million a year. So we've always moved equity earnings down below often to the EBIT line. So generally, it's generally neutral from an EPS perspective, and yet we will continue to cooperate with them. So we will continue to sell their products through our distribution networks particularly in the regions, and in addition to that, we'll be getting this fee that wasn't there before and it is obviously factored into our guidance.

Brady Martin - Citigroup Inc

Okay. That's all for me.

Operator

We'll move onto Doug Lane with Jefferies.

Douglas Lane - Jefferies & Company, Inc.

Bill and Chris, can you talk about the Biala launch in Poland and whether you're hitting your consolidated market share, targets, if you will? In other words, is the cannibalization about as expected at least to date?

William Carey

Yes, I think the cannibalization is still quite high. The brand is -- as I said back in I think in early March, it's very difficult that, with the brand that was growing as fast as Biala is growing, to estimate for the full year number for this. And what we've seen there, it's still far outpacing our initial projections at the beginning of the year. We're up quite a bit in terms of looking at LE rest of the year numbers. It is cannibalized about the same rate from our other brands. We're seeing as it moves up now from 4% to 5% or probably at the 6% or 7%, probably what we're estimating is the cannibalization rate will be slightly lower. And I mean, there was a big investment made in November/December, and there is increased investment issue behind the overall portfolio, behind the overall market strategy, but the brand was never discounted. The brand was always trading at a very decent price in the market even during the launch. So we're quite pleased by overall development of this brand, and it's giving us a nice push in the marketplace to get the stronger leverage with these wholesalers, retailers to continue to gain back some share here. But we wanted profitable share just not at any cost, but it was necessary to make this test jump in November/December to change overall volume profile. And I think with over 40% growth in April, that wasn't just Easter. That was, I think, a strong month for us. So we're quite pleased that I think that where things are going. But it does come at a higher investment, and that is the reason we have taken down our EBIT percentage this year because of the -- to be more active in the market and eventually, hopefully, get back to leadership position here.

Douglas Lane - Jefferies & Company, Inc.

Sure. And I think you have mentioned in your commentary that the goal is to end the year around a 26% share in Poland?

William Carey

Yes.

Douglas Lane - Jefferies & Company, Inc.

Okay. And how about the competition in Poland? Has there been any change with stock going to a sale process and now potentially an IPO process? Has that changed the behavior in the market place at all?

William Carey

Yes, we've seen them pulling back in the last month or so, some from the investments in the marketplace. What we're hearing in the key accounts there's been some decreased investments. We're hearing the same in the traditional trade. Also, I think that they've reduced the on-premise sales force recently, so it seems like they're cutting back some of the expenditures in the marketplace. I don't know what's behind that. You'd have to speak to them, but they are probably looking, I don't know, either staying as they are or do a IPO in Poland. So I think overall, we will continue with our strategy, and I think that as -- if stock doesn't go public, we think that's only a good thing because it's going to be -- because they've got to be sitting in front of you guys asking questions. So we think that's a good thing.

Douglas Lane - Jefferies & Company, Inc.

Okay. And lastly, there's a lot of noise in Russia with this whole licensing issue that we talked about. But can we focus on consumption, that down 2% in Nielsen. Is that showing any kind of improvement from recent trends? Do you think that consumption is getting better just in the overall market in Russia? How would you just gauge the overall market conditions from a consumer standpoint?

William Carey

I think it's pretty much in line. I think we had estimated -- if you remember at the beginning of the year, we'd estimated somewhere, I think, down a couple percent for the market. So it's pretty much in line with what -- that we've estimated at the beginning of the year. There's nothing really surprising there.

Douglas Lane - Jefferies & Company, Inc.

Is it steady-state or is it improving or...

William Carey

It's generally steady.

Operator

We'll take our next question from Andrzej Knigawka, ING.

Andrzej Knigawka - ING Groep N.V.

Bill and Chris, I have a question on Biala in Poland. Biala Is being offered only in -- it is not being offered in discounters as far as I understand. Is this your strategy to avoid cannibalization with Absolwent? Or would you see Biala entering discounters such as Biedronka or Lido [ph] later during the cycle?

William Carey

Well, I think for the first couple of years, our model is to work with discounters but on in and out approach. We have done some 1 liter in and out work so far, and that will continue for the rest of the year from in and out promotions on the 1 liter side. But certainly, that we'd like to build a healthy brand in the marketplace, certainly, for the first couple of years.

Andrzej Knigawka - ING Groep N.V.

Right. But the other question is...

William Carey

Outside of necessarily that channel.

Andrzej Knigawka - ING Groep N.V.

Got it. And the other question I got is on grain output recovery in Russia. There are some comments recently from FAO and other sources about huge grain output recovery in Russia this year and potentially in Ukraine and harvesting is constant. If harvest is really good, and we know it was very poor last year, after what period of time do you see impact on your overall spirit prices from potentially lower grain prices? Is it like 2 quarters or 3 quarters? What is the time like here?

William Carey

Generally, it's quite quick and as you know, grain price is very cyclical. And with the higher prices, farmers have planted a lot of new products here, not only in Poland, in Russia, also in U.S. And what happens is that, generally, the expectation this year is for a good harvest in Poland and Russia. So our -- certainly predictions is that the grain pricing and spirit pricing will come down quite significantly in the second half of the year or the last, say, 4 to 5 months. But again, we didn't factor that in our model. Maybe in the past we would have, but we try to be more conservative on that spirit pricing this year on our guidance and taking the number that we felt beginning of the year as our full year estimate. But we do expect it to come down probably the last 4 to 5 months. If there is a good harvest, it should come down. In the past, we've seen it come down starting at sometime in early fall.

Andrzej Knigawka - ING Groep N.V.

Right. And the last question I have is on this factoring agreement for CLC [ph] in Poland. You mentioned the accelerated receivables collection. I understand that had quite a deal, quite a bit with free cash flow generation in the quarter. Can you just explain what -- how does that work? What is the difference from the old model and how -- do you pay a special company to collect faster your receivables or how does that work?

Christopher Biedermann

Well, actually, we work with a bank here, which you're maybe familiar with. But basically, we effectively sell at a slight discount our receivables to the bank and receive cash immediately for that receivable. And then it's up to the bank to collect it from the customers. So if we normally have, say, 30-day cut [ph], for example, turns, we would get the cash on Day 1. And the bank has effectively finance those 30 days, and the bank owns the receivables, so it's securities receivable which it has bought. As I mentioned, most of the factor is nonrecourse, which means that even in the event ultimately the customer doesn't pay, the bank would be then effectively left with the uncollected receivable and we would keep the cash. A small more portion of it is recourse debt [indiscernible], but we rather to get a very good deal on this with probably a nonrecourse factoring.

Andrzej Knigawka - ING Groep N.V.

Right. And the impact was so large because you started it at the beginning of the year?

Christopher Biedermann

Actually, later this quarter. But basically all the sales in May rather than waiting for normal receivable cycle of whatever x days, you would get the cash immediately upon the sale of the product.

William Carey

And this is -- and just remember, Andrzej, this is including excise, yes?

Christopher Biedermann

So yes, your excise payment now is coming after your cash in the customer.

William Carey

Because the number you see is including excise, and you see our net sales revenue, which is excluding excise. So it looks large, but excise is very large. And for us having an all-in cost of 5.7%, which is LIBOR, which as you know is 4-point-something, plus a small margin of interest expense plus some fees. As Chris said, I mean, an all-in price of 5.7% is quite attractive considering we were paying 8% for our short-term debt.

Andrzej Knigawka - ING Groep N.V.

Right. No, that's a benefit. And the final one is in terms of your CapEx, how much did you left for the rest of the year in terms of maintenance CapEx? And are there any payments still outstanding for any of the investments that you've done in the past that will take cash away for the rest of the year?

William Carey

I think in the Polmos Bialystok agreement, on the privatization agreement, the 10-year agreement we had with the state on the buying that distillery, it was a PLN 77.5 million investment. I think when the Q comes out, you will see that we've invested PLN 76.5 million, but we still have very small amount yet to go. And I think that on the other CapEx, it's pretty much there's nothing -- we still have -- we targeted for the year, I think, around $12 million.

Christopher Biedermann

$12 million. And if you see, Q1 is quite low CapEx spend. So we're still in line with the projects [ph]. And as you know, no material [indiscernible] $500,000 of our CapEx for the first quarter.

Andrzej Knigawka - ING Groep N.V.

Right. That's good.

Operator

We'll take our next question from Yulia Gerasimova from GS [Goldman Sachs].

Yulia Gerasimova - Goldman Sachs Group Inc.

I have several questions. Firstly, you have reiterated your guidance on sales and EPS. I'm just wondering what the stability will be, that we should really work extremely hard to improve your profitability in the following quarters. And for me it looks [indiscernible] like the main factors of how you expect to improve your margins in the following quarters? That's the first question.

Christopher Biedermann

Yes, it comes down -- as I mentioned earlier [indiscernible] comes down to the key of our businesses, which is the operating leverage. As I mentioned, our SG&A base is relatively safe [indiscernible] safe on the variables. So as we get the top line uplift, Q2 and I think Q3 and Q4 in Russia, that incremental margin is really going to flow primarily right down in the EBIT line, and that the key to our businesses is operating leverage.

William Carey

I mean, when you look at the Russia alone, you're looking at Q4 almost tripled the sales of Q1. And as Chris said, then flows from there is a substantial operating leverage behind that as well. So it just gives you a flavor of what the value move from Q1 to Q4.

Yulia Gerasimova - Goldman Sachs Group Inc.

And one thing that I'm worrying about in the Russia, just we saw this significant [indiscernible] effects on Biala launch in Poland. Like, does it mean that we might see some, like, similar trends when you're going to launch new brands in Russia? Will we see significant investments, market investments, this is the first thing and the second, cannibalization effect to your other portfolio in Russia?

William Carey

Yes, I think to your first point, no. I said that the launch budget that we have set out for the different products we have are all factored in the budget. You will not see the same Biala issue that you saw in the fourth quarter. And yes, there might be some cannibalization from the brand that we're putting out, Talka, which we're launching in June/July. It will be priced between Green Mark and Zhuravli. So there might be some cannibalization of Green Mark. But for us, we don't mind because it is moving up the price per liter slightly, up to Green Mark to Talka. So for us, any trade up is a good thing.

Yulia Gerasimova - Goldman Sachs Group Inc.

What will be if the new brand will take some things from Zhuravli, which is like more luxury brand, and of course, it will like immediately lift up your sales mix and margins I think. What were you thinking...

William Carey

Yes, I think it might take some sales from Talka but -- I mean, from Zhuravli. But Zhuravli is selling about 20% of Green Mark. So the effect is you're probably not going to see the same effect of -- that would have from Zhuravli because the potential to take from Green Mark would be much higher weighted just because it's that much more bigger brand. And certainly that, that we will try to move that consumer up from Green Mark.

Yulia Gerasimova - Goldman Sachs Group Inc.

And just the final about the Biala brand. So as I -- did I understand right that the whole investment is already made? And so in the next quarter 3, we'll likely see the, like, the positive effects from the investments you've made in the fourth quarter 2010 and first quarter 2011, right?

William Carey

Yes, we are -- the major investments and the big launch budget plus the additional spend that we made in the fourth quarter was finished in the fourth quarter. But we are still spending on the comparison basis last year more this year than last year, and that's why you're seeing some value decline versus volume. And that will start to move positive in the fourth quarter as we move into a quarter where you have an over investment last year into a normalized situation this year. But I think that's -- the added investment is driving some of the volume gains. But I think that like we said earlier, that our strategy this year is to move into a bigger investment model, which has driven down the EBIT percentage. And we'll start to flow through to a better value, and starting in the fourth quarter, you should see a kind of continuing move from value improvement over volume. But still through the second and third quarter, there will be a negative comparable to the first quarter comparable value decline from volume.

Yulia Gerasimova - Goldman Sachs Group Inc.

And just wondering why this particular launch of the Biala brand, like, have so much -- so significant negative effect on the margins, significant, like, cannibalization effect? Why this particular, like, launch? Just wondering why.

William Carey

You're talking about last year?

Yulia Gerasimova - Goldman Sachs Group Inc.

And just, by the way, just Biala launch. Of course, you made, like, a lot of new launches and new brands during your history. And just we have never seen the, like, such a significant, I think, like this impact from the new launch. So just why is this with this Biala this time?

William Carey

Yes, I think that we've explained that on previous calls and so forth, so we'll be happy to explain that may be offline. But generally speaking, for us it was a critical brand for us at a key seasonal time for us. And it was really our future of moving a brand into possibly in the future being a #1 brand in the marketplace, and we didn't have a brand that we felt that potential in the past. And we thought it was critical to change -- just change our business model, and within that was the launch of this brand and it's proving that, certainly, that it is a -- was a successful strategy.

Yulia Gerasimova - Goldman Sachs Group Inc.

Okay. Thanks so much. And just very brief my final question. Could you please tell me how much was the sales of Whitehall Group in the first quarter and also the operating profit from the Whitehall Group in the first quarter?

William Carey

Yes, we don't break out separate on the company level.

Christopher Biedermann

If you look at our presentation slides, you'll get a little information on the Whitehall Group that's put out in the Wall.

Yulia Gerasimova - Goldman Sachs Group Inc.

Okay. That's all for me.

Operator

We'll take our next question from Victor Dima, Bank of America.

Victor Dima - BofA Merrill Lynch

Bill and Chris, you're planning to launch three new brands this year in Russia and to restyle three other brands. I know that you mentioned that all the expenses are already in the budget in the guidance that you've given for this year. But could you please give more color how much it's going to cost you, what's the budget for the three new launches and three restylings? And you also mentioned that you're going to put a brand in the mainstream. Are you going to put it next to Green Mark? What's the reasoning for that and why are you doing that?

William Carey

I think, generally, that -- I can't give you the sense of the brands. These are market sensitive information, but it is factored in our budgets expense. In terms of the mainstream brand, I think that for us, expect putting something -- it will be below Green Mark coming out in the -- because there are certain price points you need to meet in Russia. And certainly, mainstream is widening, and mainstream category is widening in Russia. Economy will be declining and mainstream will be widening as its base, and you need a more mainstream portfolio to compete more aggressively on shop state and the visibility with the wider portfolio. And for us, it's just widening the portfolio is what's capturing price points that will become more and more interesting for the consumer as the major category continues to widen its reach.

Victor Dima - BofA Merrill Lynch

What do you expect in terms of excise increase for the next year from the government?

William Carey

Yes, I think -- I mean, there has been a lot of rhetoric out on the excise or tax increase in Russia. As in standard fashion, the Finance Ministry puts out there draconian estimates, and then Prime Minister comes out and takes his normal approach that it's only going to drive black market. It doesn't make any sense, and I think that for us is that we're probably estimating -- the current budget is 10% annual. And I think that at the end of the day, much like last year, there was a lot of talk and it ended up as a 10% and we think probably next year at a probably end up probably around the 10% level again.

Victor Dima - BofA Merrill Lynch

Do you think if, say, if the taxes -- if taxation will grow more than 10%, say, 20%, 30% as discussed, do you think he's going to put more focus on the premium brands, sort of more premium brands? So markets will be revolving and sort of average price will be changing?

William Carey

I can't really say in Russia because it's pretty hypothetical. Typically, in the past in Poland when we have high excise tax in Poland, what happened was the economy sector declined. You had brands take more share but at less margin. So you actually grew quite dramatically your top line, but at slightly less margins, and smaller brands died out faster. It's generally what we saw here in Poland when there was a high excise. And then black market picked up substantially.

Victor Dima - BofA Merrill Lynch

In Poland?

William Carey

Yes, and that's why the government reduced the excise in '02, and you saw the black market go from 40% to 10%, practically overnight when it did a 30% excise reduction.

Victor Dima - BofA Merrill Lynch

I see. Okay. Understood. And just a quick follow-up question. Just how big you see these three new brands being in Russia next year based on the percentage of your portfolio? How significant they should be?

William Carey

The new products this year that we estimated that our core brands would be up around 4% this year, and new brands will take about 2% of the growth this year. And certainly into next year, that number will be much larger as an overall percentage because you got to annualize 12-month calendar base of coming into a full year sales number. So certainly -- it will play a much bigger role next year.

Victor Dima - BofA Merrill Lynch

Okay. Understood. That's it for me.

Operator

And our next question comes from Julien Martin, Bank of America.

Julien Martin - BofA Merrill Lynch

Just one follow-up question on the destocking effect in Russia. I was wondering, in terms of the overall brands present in Russia total market, how much would you say is sold via Synergy business model, i.e. without distribution wholesalers and how much is sold via wholesaler?

William Carey

Yes, I don't know their exact number. But I think it's closer to around 80% they sell through their trade house, but I think you'd be better to check with them that number. I think it's somewhere around 80% through their own trade houses.

Julien Martin - BofA Merrill Lynch

Yes, no, my question was more on the total market, the split between the guys selling directly and the guys selling through wholesalers.

William Carey

Yes, I mean, generally, the market is around 60%, or 65% to 70% is the wholesaler trade and the other part being the key accounts.

Julien Martin - BofA Merrill Lynch

Okay. Well, yes, but you said key accounts sometimes you need to go through the wholesalers, right?

William Carey

That was five years [ph]. Other release is yes.

Julien Martin - BofA Merrill Lynch

Yes, I mean, my point was whether there would be a risk that in the meantime, when the destocking effect happens in Q1 and Q2, companies like Synergy is filling up the space with the key accounts or even like with traditional retail and that it will be some kind of a struggle to regain that space in the third quarter or fourth quarter?

William Carey

Yes, I haven't seen that in the marketplace, so I cannot discount that, but I have not seen that in the market. As of yet, no.

Julien Martin - BofA Merrill Lynch

Okay. My second question is on the price of the sale of the LVMH joint venture. I mean, you disclosed it $40 million cash outflow for your investment activities in the first quarter. Can you give the split -- adding your comments on the presentation, can you give the split back again between the cash inflow from the sale of the joint venture and the cash outflows?

Christopher Biedermann

It's $16 million out for Whitehall [indiscernible] last piece of RAG. $17 million in from the joint venture, and there was a acquired cash of $17 million. So 2x $17 million...

William Carey

Acquired $17 million from the Whitehall consolidation.

Julien Martin - BofA Merrill Lynch

So $34 million inflow?

William Carey

Yes.

Julien Martin - BofA Merrill Lynch

Okay, okay. Understood. And my third question is on the repayment of the term loan for the bank facility and the factoring. So I guess you're now happy with the factoring and facility and you're not looking for other term loan or overdraft facilities elsewhere in the market?

William Carey

Correct.

Julien Martin - BofA Merrill Lynch

Okay. That's it for me.

Operator

And at this time, I'd like to turn the conference over to Mr. James Archbold.

James Archbold

Thank you. We'd like to thank everyone for joining us today, and we look forward to speaking with you again next quarter. Thank you.

Operator

This does concludes today's conference. Thank you for your participation. You may now disconnect.

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