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A Beverage Pick in Eastern Europe

Michael Breen

Mike Breen: You're a small-cap manager, and you mentioned there were actually some opportunities that dropped back into your lap with the market cataclysm last year, with folks shedding so much of their value. We were discussing an interesting firm, Central European Distribution.

Maybe you can explain how that firm fell back into your area and let us know about its appeal.

Frank Sustersic: Sure. One of the emerging growth markets really got hammered a lot last year. The U.S. market had a really bad downturn, but the markets in Eastern Europe and Russia all had even worse downturns.

Breen: This firm is a beverage firm in this area?

Sustersic: They're a distributor and beverage distillery manufacturer. They manufacture primarily vodka in Poland. Then earlier last year, it was bad luck in their timing, but they purchased two operations in Russia. This was right before the major collapse in late '08.

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The transactions were repriced. There were concerns about the balance sheet, actually, but they negotiated again the transaction price. Now with the resurgence of the price of oil--Russia has an economy that's really heavily based on the commodity markets--those markets have stabilized.

We're looking at really attractive growth rates once they're normalized, so the valuation became very attractive, and we repurchased the security early this year.

The consumption is still being impacted by the downturn, but the company is doing a great job of rationalizing the cost structure of all these companies that they've purchased over the past six to nine months.

In the long term, they've done a fantastic job in Poland, and I trust they'll do the same in Russia.

Breen: OK. Well, thank you very much for your time.

Sustersic: Sure.

Breen: I appreciate it.