Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi (AEBZY) Q2 2024 Earnings Name Transcript

Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi (OTCPK:AEBZY) Q2 2024 Earnings Convention Name August 21, 2024 9:30 AM ET

Firm Members

Asli Kilic Demirel – IR
Onur Alturk – CEO
Gokce Yanasmayan – CFO

Convention Name Members

Asli Kilic Demirel

Girls and gents, welcome to Anadolu Efes’ First Half 2024 Monetary Outcomes Convention Name and Webcast. My title is Asli Demirel, and I’m Investor Relations and Threat Administration Director of Anadolu Efes. Our presenters as we speak Mr. Onur Alturk, the CEO; and Mr. Gokce Yanasmayan, the CFO. All individuals can be in a listen-only mode throughout the first a part of this name.

Following this, there can be a Q&A session the place you’ll be able to submit your questions utilizing the query field in your net display. If in case you have questions, we kindly ask you to write down them down earlier than the Q&A session begins. This may permit us to evaluate and handle them.

Except explicitly acknowledged in any other case, all monetary info disclosed on this presentation are offered in accordance with inflationary accounting. Simply to remind you, this convention name is being recorded and the hyperlink can be out there on-line. Earlier than we begin, I might kindly request you to seek advice from our notes in our presentation concerning forward-looking statements.

Now I am leaving the bottom to Mr. Onur Alturk, Anadolu Efes’ CEO. Sir?

Onur Alturk

Asli, thanks. Good morning and good afternoon everybody and welcome to Anadolu Efes 2024 first half operational and monetary outcomes convention name. We’re delighted to announce one other quarter of stable quantity momentum and strong development, reaching a high-single digit improve in our Beer Group. This outstanding development is additional highlighted by a low-single digit rise in our consolidated volumes.

Regardless of the difficult macroeconomic setting and risky price panorama. But, we succeeded in delivering a stable growth in gross profitability margin, which was supported by in fact, robust quantity efficiency and income development administration initiatives, together with pricing, deal with high quality combine and premium combine and efficient low cost managements.

On high of our robust high line outcomes, by strict administration of operational bills, we have been capable of file a flat EBITDA margin. Final however not least, our strong monetary self-discipline is clearly mirrored in our consolidated internet debt-to-EBITDA ratio, which stood at a formidable and wholesome stage of 0.8 occasions as of June 30, 2024 and comfortably inside our focused leverage ratio vary.

And moreover, we’ve achieved a internet money place within the Beer Group. Relating to second quarter within the second quarter of ’24, our beer volumes advised by — surged by, sorry, 7.1% with robust performances in Turkiye and adopted by Russia and Moldova in fact driving this development.

And Turkiye beer quantity rose by 2.8% whereas our worldwide beer quantity noticed a formidable development of 8.2% and Russia maintained its momentum from first quarter with volumes rising within the low teenagers, proving continued energy and CIS international locations, nonetheless, confronted challenges which I’ll come to particulars and with volumes declining by mid-single digits on common. Ukraine, alternatively, had a profitable quarter as properly, primarily supported by final 12 months’s low base and recovering shopper demand.

And once we come to Russia, let me talk about Russia in additional element. The beer trade continued its development momentum with mid to high-single-digit development within the first half. The robust market development may be attributed to a notable shift from different alcoholic drinks to beers. And naturally new product improvements of our firm and substantial market investments. We outperformed the trade by registering a low teenagers development in second quarter, which enabled us strengthen our place within the premium and core segments whereas additionally gaining in fact shares within the non-alcoholic beer section.

Apart from quantity development, we additionally sustained market management on each worth and quantity foundation whereas gaining share in each metrics. And Stary Melnik iz Bochonka and, Stella Artois, Essa, and Hoegaarden have been profitable manufacturers on this quarter, marking robust performances.

Relating to CIS and Turkiye. Tuning to our CIS operations, Moldova registered mid-teens development and our quantity supported by industrial growth because of elevated spending habits of customers in addition to increasing shopper base. And distinction, sadly we noticed softer efficiency in Kazakhstan and Georgia. Our Kazakhstan volumes suffered from weak industrial dynamics and a few pure disasters that the nation has confronted like floods, earthquakes that affected the nation throughout the second quarter and Georgia volumes have been adversely affected by manufacturing bottlenecks.

However once we have a look at total CIS efficiency, our CIS quantity down mid-single-digit within the common. Talking of Turkiye constructing on a really excessive base from final 12 months 2023 in addition to a stable efficiency in first quarter. Turkiye sustained robust quantity efficiency registered at 2.8% development and really it is exceeding our expectations. Quantity was supported by elevated gross sales in HoReCa, within the resort channels and the favorable tourism season, regardless of working in a excessive inflationary setting. We noticed a lower in shopper buying.

After we have a look at our delicate drinks, let’s temporary evaluate on this one too. Within the second quarter of the 12 months, CCI’s consolidated volumes elevated by 0.7% and due to the contribution of Turkiye, Iraq and Azerbaijan. Turkiye quantity was up by 1.8%. Efficient commerce promotions, lively shopper advertising and marketing together with UEFA Euro Cup activations have pushed this development.

Worldwide volumes demonstrated a modest restoration, posting a 0.1% improve, which marks an enchancment in comparison with the earlier quarter. Iraq and Azerbaijan continued to ship robust outcomes with 15.1% and 11.5% development respectively. In Pakistan, whereas volumes declined by 5.1% year-over-year. This nonetheless represents an enchancment in quantity efficiency when in comparison with the earlier 4 quarters.

Kazakhstan skilled a ten.2% decline in volumes, primarily as a result of causes that I discussed for beer as properly, however decrease shopper confidence, the return of the overseas customers to their residence international locations and excessive comparability base from the earlier 12 months. Now let’s transfer on to our operational outcomes. Truly, we delivered robust leads to high line figures in addition to backside line all through the quarter regardless of our efforts for efficient pricing technique, a deal with favorable combine addressing worth era and naturally tight low cost administration.

The adversarial impacts on high line primarily got here from the implementation of TAS29 due to the mismatch between the inflation charges and the devaluation appreciation of reporting currencies in worldwide operations in opposition to the Turkish lira. The rise in Anadolu Efes’ high line with out the influence of TAS29 could be 65% development. With robust gross profitability and strict management of working bills, there was vital EBITDA contribution from Turkiye operations in each beer and delicate drink companies. Nevertheless, the EBITDA margin was pressurized primarily as a result of vital improve on uncooked materials prices and transportation bills in Russia.

Our consolidated internet revenue was recorded on the TRY3.9 billion elevated curiosity bills together with a better share of Turkish lira borrowing and vital FX losses from money holdings had an adversarial impact and led to a decline versus the identical quarter of final 12 months. Nevertheless, these impacts have been partially mitigated by deferred tax revenue ensuing from the implementation of TAS29.

Free money circulate era was flattish regardless of decrease operational profitability, which was supported by prudent capital expenditures and strict working capital administration with enchancment in payables efficiency. Consequently, as I discussed to start with, the consolidated internet debt-to-EBITDA ratio remained at a wholesome stage at 0.8 occasions, highlighting our robust monetary place.

And now our CFO, Gokce will give particulars on the monetary metrics. Gokce?

Gokce Yanasmayan

Thanks, Onur. Good morning. Good afternoon to everybody taking part our convention name as we speak. Onur simply summed up the consolidated outcomes of Anadolu Efes, so I want to go into extra element concerning the Beer Group outcomes. So, consolidated income for the Beer Group within the second quarter of 2024 was TRY23.6 billion, down 2.8% from the identical interval of the earlier 12 months. The income generated from worldwide beer operations fell by 6.8% throughout the interval, regardless of stable quantity efficiency.

Onur simply defined this, however let me repeat as a result of that is essential. Merely that is principally as a result of the truth that inflation in Turkiye outpaced the depreciation of Turkish lira relative to the currencies utilized in worldwide operations reporting. Underneath IAS29 final 12 months, financials translated in Turkish lira and are being listed with inflation charge.

And when depreciation of Turkish lira is lower than the inflation, this naturally creates a decline in present 12 months financials in comparison with the final 12 months, even when native foreign money financials are identical as final 12 months. So within the second quarter, Turkiye’s beer operations generated TRY6.7 billion in gross sales income, 9.4% rise and in first half of the 12 months, Beer Group’s income elevated by 1.6% to TRY41.1 billion.

And within the second quarter 2024, Beer Group’s gross revenue decreased by 3.6% to TRY10.9 (ph) billion with a 39 bps dilution within the gross revenue margin to achieve 46.2% (ph). Whereas worldwide beer operations noticed a decline within the second quarter, Turkiye’s beer operations noticed an increase within the margins. This decline in worldwide enterprise was primarily attributable to pricing difficulties in Russia regardless of appreciable price inflation tied to overseas alternate linked uncooked supplies. So consequently, the Beer Group’s first half gross revenue was recorded at TRY18.1 billion with a flat margin of 43.9%. Subsequent slide, please.

Slide quantity 14, sure. Within the second quarter 2024, Beer Group’s EBITDA dropped by 19.5% to TRY4.4 billion with a 384 bps margin contraction from the identical quarter the 12 months earlier than. The EBITDA margin of Turkiye beer operation elevated, although within the second quarter and persevering with the development from the earlier quarter. Nevertheless, due to growing transportation prices in Russia, worldwide beer operations confronted larger working bills. This, together with decrease gross profitability resulted in a lower within the EBITDA margin.

Consequently, Beer Group’s first half 2024 EBITDA was reported at TRY5.5 billion with 418 bps declined in margin. And Beer Group’s free money circulate grew barely from TRY7.2 billion to TRY7.4 billion within the second quarter. Higher working capital administration and a average improve in capital expenditure led to an enchancment in money circulate regardless of decreased working profitability and elevated curiosity expense. I’ve to notice that as of June 30, 2024, the Beer Group has a internet money place of TRY91.8 million as a result of first half’s strong money era.

So subsequent slide, please. Slide 16. Yet another. Sure. I noticed already, I feel referred to a disclaimer, however let me repeat. Anadolu Efes’ monetary statements are ready in accordance with TAS29 and the Commonplace. That is the usual for monetary reporting in hyperinflationary economies. Consequently, all info, monetary info disclosed on this name and in our earnings launch are in full confirmative at TAS29. Nevertheless, monetary info offered on this slide significantly excludes the influence of TAS29 and is offered solely for evaluation functions.

So these figures will not be aligned to Anadolu Efes’ financials and haven’t undergone an unbiased audit. So, excluding the influence of TAS29, Beer Group income was TRY41.1 billion with a development of 74%. Once more, excluding the influence of TAS29, EBITDA elevated by 45% within the first half to TRY6.8 billion and once more with out the inflation influence, Beer Group internet revenue was reported as TRY3.2 billion for the primary half.

So subsequent slide, please. About money and debt administration. Once more, on the finish of first half, we had 57% of our money in exhausting foreign money denominated in Beer Group and 60% in whole consolidated Anadolu Efes, which is just about in keeping with our earlier expertise. After which our internet debt EBIT ratio is sort of low for Anadolu Efes 0.8 occasions. And for the Beer Group, as we’re within the internet money place, it is beneath zero.

Subsequent slide, please. And the next slide is on the chance administration. So simply let me present you key figures right here concerning hedges. We’ve round 89% protection in aluminum publicity for the 12 months of 2024 and we began to hedge for ’25. So the overall protection in the intervening time is 28%. And for the FX publicity for the 12 months 2024, we’re totally lined in Russia and 94% of our publicity in Turkiye. So mainly that ends my a part of the presentation right here.

And I am handing over to Onur. Thanks.

Onur Alturk

Gokce, thanks. So really, as we’ve highlighted in our presentation, our first half outcomes have proven resilience throughout each enterprise traces, significantly within the Beer Group. And reflecting on the efficiency of the primary six months and contemplating potential future challenges, we’ve determined to revise our steering for each the Beer Group and CCI. For the Beer Group, we’ve made an upward adjustment to our high line figures, though we preserve our cautious stance concerning the draw back danger of EBITDA margin.

Alternatively, for CCI we’re making some downward revisions as a result of decrease buying energy expectations and cautious shopper sentiments. So let me summarize as follows. We enhance our beer quantity development barely expectation to mid-single-digit development with excellent momentum achieved in Russia and Turkiye beer operations. Alternatively, our delicate drilling operations are revising volumes to flat or to low-single-digit development as a result of extended sensitivities in Center East and anticipated decline in buying energy.

Due to this fact, on consolidated foundation, we now count on our volumes to develop by low-single-digits which was low to mid-single-digits development beforehand. And following this one, we enhance our beer income development expectation from low 20s to low 30s on a hard and fast impartial foundation because of improved quantity steering. In the meantime, as a result of softer quantity efficiency and slower pricing executions, we now count on our delicate drinks operations income to develop by low 30s on a hard and fast impartial foundation which was low 40s development beforehand.

And eventually, whereas our consolidated profitability expectations stay principally the identical, the continued operational challenges current a danger our delicate drink consolidated EBITDA margin which was beforehand anticipated to stay flat, is now anticipated to both barely decline or stay flat. So this ends our presentation really. So thanks for curiosity and endurance. We admire your attendance.

Now, Asli, I feel we’re able to take questions.

Query-and-Reply Session

A – Asli Kilic Demirel

Sure, Onur. Thanks very a lot. There are already a few questions, so let me begin with the primary one. It is concerning the method in Russia. Are you able to give an replace on the Russian JV acquisition? What does the rejection of the transaction by Russian authorities imply? There are some extra questions on Russia. Perhaps I learn all of them, after which the solutions may be given by you and Gokce, if that is okay.

Onur Alturk

Positive, go forward.

Asli Kilic Demirel

Are you able to disclose what % of, share of your Beer Group money is held in Russia? And may you present an replace once you count on to repatriate dividends from Russia?

Onur Alturk

I feel there are many Russia questions, so far as I perceive. Truly, I’m — we’re unable to offer any additional particulars past what has already been disclosed on this matter. And the present construction of the deal, as you already know, didn’t obtain essential approvals. So what I can say is barely now, if there are any new developments on this regard, they are going to be duly introduced to public. I feel there are extra Russian questions, however as well as, what I can say is within the interim interval, the enterprise will proceed to function as standard beneath the administration of Anadolu Efes. And the monetary elements, I suppose Gokce.

Gokce Yanasmayan

Perhaps I can take the — I feel the query was about EBITDA and money share of Russia. So in EBITDA, Russia’s share is round 60% to 65% of Beer Group and barely lower than 20% in our consolidated financials. So that is concerning the EBITDA and with the precise money. We do not need to go into the main points of this query, however at the moment we’ve round TRY820 million money in Beer Group as of June. And Russia’s share is sort of much like final intervals that we have been giving examples.

Asli Kilic Demirel

Thanks. What’s the share of Russia operations in Beer Group, EBITDA and money balances?

Gokce Yanasmayan

That I answered.

Asli Kilic Demirel

Sure, there are. Okay.

Onur Alturk

Asli, I feel there may be query about Russia’s efficiency and the explanations.

Asli Kilic Demirel

Precisely.

Onur Alturk

I’ll take this one. Russia is acknowledged to be holding properly regardless of sanctions with respect to shopper consumption. What are your remarks on demand, value challenges, competitors, product and channel combine? I feel this was a very good one. Let’s summarize the operation outlook in Russia. We’ve some studies and we’ve three really sources of Russia’s beer markets. So we’re witnessing an upward development within the trade and second quarter retains on like this one. After all, first quarter was once more a stable development.

So the shipments knowledge present improve round 9% market development. Nissan (ph) knowledge additionally exhibits round 6%. The Rosstat knowledge appears a bit of bit extra, nearly 10% year-to-date on year-on-year outcomes. So once you have a look at the typical of those three assets, it is round 8% market development. And really we’re outperforming the trade and we’re gaining market share each in quantity and worth.

And naturally the source of the expansion, as within the query is principally supported by improve of consumption, inner consumption and naturally the efficiency of the worldwide and premium manufacturers like Budweiser’s double-digit development, Stella Artois once more double-digit development Hoegaarden and double-digit development, Esta double-digit development, Spaten as properly.

So additionally as asking the query that the drivers behind this market development, beer market development is principally as a result of shopper shifts that we observe from wine, RTD able to drinks and vodka to beer. And in addition indulgence classes development as a result of unpredictable social setting results and improvements. After all, and our groups advertising and marketing funding, our wealthy portfolio in Russian enterprise helps us so much on this method.

Asli Kilic Demirel

Thanks very a lot, Onur. There’s a query about William Grant & Sons collaboration. My query, it comes from Artembe. My query concerning William Grant & Sons, any progress on operations and impacts on ’24 financials? Thanks prematurely.

Onur Alturk

Thanks for the great query. Truly, William Grant & Sons operation began in Turkiye nearly three weeks in the past. So we have been coping with provide within the first quarter. So it is too early to say something to touch upon this one. However for the three weeks we’re distributing William Grant & Sons, as you may additionally know as Anadolu Efes Turkiye. We’ve an settlement between William Grant & Sons, this is without doubt one of the largest scotch distillery all over the world to distribute and to advertising and marketing their merchandise. And we distributed primarily within the C class.

Glenfiddich, Monkey Shoulder and Grants, each in key accounts, chains and naturally in on commerce and off commerce channels and in addition one of the premium gin manufacturers Hendrick’s additionally we began to distribute however nothing — not solely these classes. Additionally we are going to distribute vodka and tequila as properly. So it is constructing on and the impacts on ’24 financials that was requested.

So far as I can see we predict low-single-digits within the income for this 12 months in fact, however we’ve to consider and that is simply going to take six months. However in upcoming years we’re seeing an enormous potential because the class development of whiskey and gin, natural development in Turkiye’s Ankara (ph) round 30% for the final 5 years. So we predict exponential development on this class.

Asli Kilic Demirel

Thanks very a lot. Taking into consideration macro difficulties Turkish customers are going through and what are your latest consumption developments in Turkiye? Do you see any shifts between alcoholic beverage selections? Are you able to enlighten us?

Onur Alturk

Nicely, thanks for the query. Truly our class in Turkiye is resilient. I feel first quarter and second quarter high line development, particularly the amount development and that I’ve to emphasise that quantity development is an important factor in an inflationary setting. So we’re betting on quantity development and naturally efficient pricing. However our class appears to be resilient in first half at the least. And once we have a look at our third quarter, I feel in our earlier convention calls we talked about that we have been anticipating an excellent tourism assist which we gained really.

So tourism helps us so much. Alternatively, though we revised our expectations for the remaining for the 12 months to go, nonetheless, we’re observing some early indicators of buying energy issues of Turkish customers, particularly within the on commerce channel. These are all indicators and after tourism season we are able to consider these indicators higher. But once more, the portfolio of Anadolu Efes appears to be enough for all types of shopper calls for.

So I’m anticipating — really what we noticed concerning the shifts from different alcoholic beverage classes, wine appears to be struggling and in addition with excessive costs of absolute costs of spirits. Truly, till now it helped us to develop the class — beer class. So once more, I’m optimistic for the remainder of the 12 months. However I’m in a cautious sense. After all, that is simply due to the buying energy that comes from our pocket cash evaluation. But once more, we predict to be stable within the upcoming months of the 12 months.

Asli Kilic Demirel

Thanks very a lot, Onur. Truly, there may be another query about Turkiye, nevertheless it’s already partly answered, are you able to discuss anticipated pricing and profitability for Turkiye enterprise within the second half of the 12 months? Something if you want so as to add, it is greater than welcome.

Onur Alturk

Nicely, as we’re all acquainted, we’re growing our costs in Turkiye at the least 2 occasions a 12 months due to the tax. After we have a look at Turkiye operation, as I acknowledged earlier than, our quantity has exceeded expectations. It nearly achieved 3% development. After we have a look at the pricing that’s asking the query. We began the 12 months with 35% improve. As you’ll be able to simply keep in mind, in January and in July we’ve taken one other nearly 18% improve following the second excise improve, in fact. And just lately we additionally carried out an intermediate improve concentrating on chosen merchandise within the premium section. It was round starting from, as an instance, let me provide you with an interval, it was 5% to 11%. So efficient pricing, as I discussed, is our — in our agenda and income administration actions are in plan.

And we’re additionally evaluating because the — due to the dynamics of macros and every little thing, we’re getting value will increase and our costs combine administration by way of channel and product each month. So however till now, 35% improve in January and 17.7%, nearly 18% improve, two months in the past. So that is the Turkish markets. However once more, I am optimistic due to the resort channel, due to the HoReCa channel, due to the tourism area performances. But once more, alternatively, we’re fastidiously observing customers’ confidence index buying energy.

Asli Kilic Demirel

Thanks very a lot, Onur. There are too many repeating questions, subsequently, I am not studying them. Something —

Onur Alturk

Are they Russia questions? Asli, the repeating ones?

Asli Kilic Demirel

Sure, there are too many repeating in Russia questions which you already answered, subsequently, I am not studying them as soon as once more.

Onur Alturk

Perhaps there are newcomers, however simply — simply allow us to repeat that once more. Truly, now we’re unable to offer any additional particulars past what has already been disclosed till now, the present construction of the deal didn’t obtain any essential approvals. If there are any new developments on this regard, they are going to be duly introduced to the general public instantly. However for now, that is all I can say.

Asli Kilic Demirel

Thanks very a lot. There appears to be no extra questions aside from what we’ve already answered, but when there are any unanswered ones, you’ll be able to instantly attain us by e mail. So, I feel we are able to finish the decision proper now. Thanks.

Gokce Yanasmayan

Thanks.

Onur Alturk

Thanks very a lot.