Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi : 2. Quarter 2023 Consolidated Financial Results

ANADOLU EFES

CONFERENCE CALL TO DISCUSS ANADOLU EFES 1H2023 RESULTS

Company: Anadolu Efes

Date: 09.08.2023

Participants:

• Aslı Demirel, Head of Investor Relations
• Can Çaka, Beer Group President & Anadolu Efes Chief Executive Officer
• Mr. Gökçe Yanaşmayan, Chief Financial Officer

Aslı Demirel:

Ladies and gentlemen, welcome to Anadolu Efes' 1H23 Financial Results Conference Call and Webcast. Our presenters today, Mr. Can Çaka; the CEO and Mr. Gökçe Yanaşmayan, the CFO.

All participants will be in a listen-only mode. Following the first part of this call, there will be a Q&A session where you will be able to write-down your questions on the question box of your web screen. For those who would like to ask questions, please write your questions before the Q&A session.

Just to remind you, this conference call is being recorded and the link will be online.

Now, I'm leaving the ground to Mr. Can Çaka, Anadolu Efes CEO. Sir?

Can Çaka:

Thank you Aslı. Hi, Everyone. Welcome. I would like to welcome you all to our second quarter conference call. As you're following, since the start of the year, our performance especially in the beer group has been quite good, quite strong and obviously outpacing our expectations at the beginning of the year. So, we observed an improved momentum versus the first quarter as well especially driven by Türkiye, Kazakhstan and Georgia. Despite last year we had a very high base in terms of high EBITDA margin with the price increases we have taken over the board especially in Russia. We've managed to increase our margins in the quarter as well increasing our record level, obviously that has been supported by the strong topline growth and also the favorable cost environment in the quarter,

especially for the international beer operations supported the margin improvement through the quarter.

So I'm very happy. This marks the sixth consecutive quarter where we were able to expand our margins on the Beer Group side and that's obviously a big pleasure for me. Our strong momentum was not limited with operational profitability. Also we were able to have significant improvement in our balance sheet management and cash flow generation and we have now again pushed new limits on these bonds as well.

So with the very solid results we achieved in the first quarter as we discussed from the very beginning of the year, we had very cautious expectations for guidance for the year as we see the first half performance soon, we are revising our full year expectations on the Beer Group and that has been translated on the Anadolu Efes consolidated results as well.

Going to the volumes obviously, our Beer Group volume performance significantly improved compared to first quarter and we were able to grow our volumes during the quarter more than 5% and again, as I emphasized this was a head of our expectations at the beginning of the year. As I mentioned, the growth is mainly attributable to Türkiye Beer volumes which grew more than 20% in the second quarter. We also see improvement in Russian beer volumes versus the first quarter and especially last quarter of last year. So the decline in the overall beer market is lower in the quarter compared to the previous quarters and similarly reflected to our volumes, and as we have now Ukraine operational with two breweries, that is also supporting the volume growth and overall for the international operations we have recorded a low single-digit growth through the quarter.

Specifically for Russia, Russian beer market as I noted a few minutes ago, showed some recovery versus last year's same quarter, and obviously last year it was a low base for the second quarter as the happenings in the region impacted the quarter very heavily and also we had overall the market had supply chain constraints. Also we are seeing the pricing environment being higher with the pressure from the market players and also the trade members as well. So this is supporting the affordability and supporting the market in that perspective.

Specifically, we see the markets like many global markets, we see both the premium and value segments growing in Russia as well, that is obviously value segment more on the affordable side and obviously the premium segment is a general beer market trend as we see across the board.

And on the other hand, when we look at our volumes, our volumes were down versus last year. And basically, again this is the performance or the decline as a percentage is lower versus the first quarter and the previous quarters of the last quarters of last year and that's partly related to the very high base and we have taken significant market share in the first two quarters, first half of last year. So that was a high base for us, when we look at the second quarter specifically, that's linked to that. But overall despite the high base having a, let's say, limited volume decline is better than our expectations and obviously when we look at the topline and with the pricing carry over with the price increases that we had last year, had a significant carry over impact. For the first two quarters of this year, we are seeing positive impact. Obviously this would partially normalize as we have this carry over effect that is normalizing in the second half, but obviously we have lots of initiatives, lots of execution and better relationship with the trade as well and that was supportive for our volumes through the first half and we believe that's going to be supportive for the remaining of the year and also, when we look at the non- alcoholic beer segment we also see that our performance was ahead of the market overall.

When we look at the other countries in the region, Kazakhstan volume improved versus first quarter grew by low to mid single digit in second quarter, we continue to gain market share in Kazakhstan. That is obviously positive and another strong market for us is Georgia with more than 10% growth registered and that is going strongly on the mainstream and premium side as well.

And when we look at the Moldova that's the market that has the most challenges. I mean, we had the highest inflation in Moldova and that has been impacting the consumers disposable income. And also, we see the total population decline in the country with the macroeconomic challenges. That's why we see the market declining in Moldova, but we are also losing some market share because of the affordability issues. But overall, our CIS volume grew by low single-digits on average during the quarter. So continued our performance in that perspective.

Türkiye obviously deserves a couple of words. We had the strong momentum continuing in the second quarter, obviously the affordable pricing environment in the market is supporting this, but also now higher number of foreign residents in the country. Ramadan coming 10 days earlier, strong tourism and also supporting the market volumes, but again this is a very strong growth we have registered in Turkey and on top of the market growth our volume performance was also very strong over 20% and we have also and that is more importantly the growth was supported or coming from the off-trade channel which is that's obviously consumer offtake and that's very important going forward.

And we believe our divers and affordable offerings also helped our volume performance in the period, that's the continuing trend in the market. Few words on soft drinks as well. I'm sure most of you have followed the conference call our colleagues said, like yesterday obviously just a remark, consolidated sales volumes declined slightly less than 9% in the second quarter with soft volumes in Türkiye and Pakistan. The volumes in Türkiye declined by slightly higher than 9% mainly due to cycling a two quarters of strong growth, high base and we see higher impact of inflationary environment on demand on the soft drink side as the price increases that is supporting the topline and bottom line as well.

In international operations, there was 8.6% decline due to mainly Pakistan and in Pakistan the decline was around high twenties range, and that's mainly driven by the macro headwinds, as well as sudden increase in the excise tax that's returning as higher price increase and Central Asia, Uzbekistan continued to be the fastest growing operation proving the acquisition and geographical expansion as being a very right step for the CCI operations and now CCI registering more than 25% growth in the second quarter.

And couple of numbers before I leave the ground to Gökçe for more details, our revenues grew on a consolidated basis more than 63% in the first half reaching to more than TRY62 billion range. In certain markets, we were able to take pricing and overall we also across the board we enjoyed the carry over impact of the price increases of last year and the growth was also supported by year-on-year higher FX translation impact, which is the international operations translated back into TRY for the reporting purposes.

In Beer Group, it has grew gross profitability performance. And therefore EBITDA performance was delivered with strong support from international brewing, international beer operations and although OpEx to sales ratio was higher, soft drinks gross margin was impacted, as I mentioned, high inflationary environment, but it was mitigated by tight OPEX management on the soft drink side and on top of the strong base, our consolidated net income increased to TRY3.3 billion in first half, mainly due to high

profitability EBIT as well as revaluation gain of around slightly less than TRY700 million recorded from Anadolu Etap's consolidation into our accounts. It was another period, where we were able to generate high free cash flow and for our operations when you look at the free cash flow generations, that was supported by both business lines and main source of obviously the support mainly driven by the higher profitability and very strict CAPEX spending to the first half.

That would slightly less in the second impact of the lower CAPEX will be less in the second half as we need to plan for next year and even longer horizon given the extending lead time in terms of machine and equipment, but still with the operational profitability will be able to continue deliver our expectations and as a result, our net debt to EBITDA ratio was parallel to what we had at the end of first quarter, lower than one times that's very healthy on a consolidated basis.

Now I'll leave the ground to Gokce for much more details.

Gökçe Yanaşmayan

Thank you, Can. Good morning, good afternoon, everyone. Welcome to our conference call for first half results. Following another strong quarter, I'm happy to provide you more flavor about the results we're seeing. Beer Group sales revenue was up by 49% to TRY14.6 billion in second quarter, it represents an increase of 29% with FX-neutral basis.

International beer operations sales, revenue grew by 38%, reached TRY10.9 billion and Can also mentioned carry over effect of pricing from last year, still continues to in the second quarter hence revenue per hectoliter increase is still very strong in International beer is around 39%. But again, as Can also noted that this has to get normalize in the second half of the year as the highest price increase, implemented in second quarter last year.

Türkiye beer sales revenue grew by 95% to TRY3.6 billion, again supported by a very strong growth of revenue per hectoliter of 61% and together with volume uplift of 21%. Beer Group gross profit was also up by 68% to TRY7 billion. And similar to first quarter actually, here we have a very solid profit and expansion in gross profit margin by 555bps and thanks to main international beer and driven again by this pricing to get together with the cost escalation being slightly better than our expectations. In the following slide on the left upper side of slide you see net revenue in the second quarter increasing more than the cost of goods sold, which is the expansion of gross profit I just mentioned. And just a reminder, the percentages on the chart represents the FX-neutral growth and you see also here again increase in OPEX is slightly higher than revenue but in last year in second quarter, actually we had a very low base due to low selling and marketing expenses due to frozen expenses in Russia.

Yet, together with positive impacts from conversion, Beer Group EBITDA grew significantly to TRY3.4 billion in second quarter, and with a quite high margin of 23.4% and this came with a high base of last year and represented the expansion of 317 bps in EBITDA margin.

Typically, following a weak first quarter in terms of cash generation, we see a strong second quarter this year as well. And this is very comparable to last year numbers as we see again, free cash flow was supported by higher operational profitability. Here we see negative number in working capital which comes from actually lower conversion impact of working capital in Russia as the ruble also weakened this year.

But all in all, cash generation was reported at TRY5.1 billion in second quarter.

Next slide. And cash and debt management actually here things are more or less in line with our internal policies, at the end of Q2, 46% of cash we hold was hard currency denominated in Beer Group and 53% in Anadolu Efes Consolidated. Net debt to EBITDA ratios are at very healthy zone, 0.8 times for Anadolu Efes Consolidated and 0.4 times for Beer Group.

And then next on risk management briefly, not much has changed here, I can say that from the commodities, we can hedge. We had almost completely hedged our aluminum for 2023 already and we have started to hedge for 2024 exposure and currently we are at around 38% of our coverage and from FX exposure point of view as well, our P&L was for this year well covered, for next year, we will start also hedging Barley. So basically this concludes my presentation. I will give word back to Can. Thank you.

Can Çaka

We've been very cautious at the beginning of the year, with the pricing environment, with the inflationary environment in every other market. We've been discussing at the end of first quarter as well that we will be revisiting our year-end guidance by the end of first half.

So in that perspective, seeing the very strong first half results, we are revising upwards, especially on the Beer Group, our year-end expectations. Still, we are cautious for the rest of the year, but we see various ups and downs and various impacts for the second half of the year. And we expect our performance with respect to the markets in every other market to continue and we have full confidence to revisit and revise our full year guidance.

And accordingly we improve our beer volume to a growth expectation versus an initial decline expectation with the strong momentum we've seen Türkiye beer and less pressure especially in Russia, we see low single-digit growth for the year-end. Therefore, on a consolidated basis, we now expect our volumes to grow by mid single digits. Again this was low to mid single digits at the beginning of the year.

We improve our Beer revenue growth expectation to low twenties on FX-neutral basis as a result of the improved volume. Obviously on a consolidated basis, we expect our revenue to grow by high thirties on FX-neutral basis, again, and this was low thirties at the beginning of the year in terms of Beer Group EBITDA margin outlook, despite we had record level of margin expansion last year, extraordinary strong performance in that line, we have cautious position at the beginning of the year. We were expecting margins to decline and normalize to some extent, but now it's very limited now on the basis decline and be likewise our consolidated EBITDA margin is expected to decline more or less in the same range and I guess this is it for the time being. Thank you for your interest and if there are any questions, we would love to answer your questions.

Questions And Answers

Aslı Kılıç Demirel

Thank you very much Can. We have couple of questions. Let me start with the first one, can you provide an update on your Russian dividends. Can you provide an update on the progress with regards to