Anadolu Efes Biracilik ve Malt Sanayii A.S. (BIST:AEFES) Q1 2026 Earnings Call

0:01 Ladies and gentlemen, welcome to Anadolu Efes First Quarter twenty twenty six Financial Results Conference Call and Webcast. I'm Aspu Efes Birack, and together with our presenters today, our CEO, Mr. Umer Altsuk and our CFO, Ms. Nyarthamante Efes Birack. The first part of today's call will be in listen only mode. Afterwards, we will open the floor for a Q and A session. You may submit your questions at any time using the question box on your screen. However, we kindly encourage you to do so before the Q and A begins to ensure you have enough time to review and address it. Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance PAS 29.

0:53 Just to remind you, this is being recorded, and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward looking statements. Now I'm leaving the branch to Anadolu Efes Anadolu Efes Birack Thank you, and good afternoon, everyone, and welcome to Anadolu Efes' first quarter twenty twenty six operational and financial results conference call. We started the year in a challenging operating environment, which was further heightened by geopolitical tensions in The Middle East, elevated petroleum prices and ongoing inflationary pressures. Against this backdrop, our first quarter performance reflected a mixed set of results across all our operations.

1:41 Despite the challenges, we delivered a solid 5% volume growth, reaching 26,000,000 hectoliters on an unbalanced consolidated basis. This performance was mainly driven by our soft drink and international beer operations. Again, on a consolidated basis, we delivered a solid top line performance with the increase of 8%, which is higher than the volume growth. This performance was supported not only by solid volumes, but also by better revenue quality, driven by timely pricing actions and more favorable portfolio mix and disciplined discounts management. This also supports our EBITDA, the NRI margin, which was recorded at 13.6% with a strong margin expansion of four thirty three bps.

2:30 Alongside the improvements in gross profit, similar to the previous quarter, we maintained a disciplined approach by OpEx managements, which continued to support our profitability. This was especially important in our beer operations, where strict cost discipline helped us to limit the impact of softer top line performance. Free cash flow was negative as anticipated, mainly due to the seasonal buildup in working However, we delivered a significant year on year improvement, where we benefited from improved working capital, lower interest payments and some CapEx phasings. Importantly, this improvement was visible across both of our business lines. As a result, our consolidated net debt to EBITDA, DNI ratios stood at 1.3 times at the end of the quarter.

3:24 I'm also very pleased to share that in April, we signed a agreement in Uzbekistan, an initiative we have been working on for quite some time as a part of our broader growth agenda in Central Asia. Throughout this agreement, we are taking an important step in our localization strategy with the aim of improving product availability, expanding our reach and building scale over time. We see Uzbekistan as an attractive market with one of the fastest growing economies in Central Asia and relatively low beer consumption per cap offering meaningful long term potential. Now let me walk you through the key drivers behind the performance of the first quarter. Moving to our beer group performance, we had a slow start to the year than we expected in domestic market, which was partly compensated by the international beer operations.

4:18 Consolidated beer volume was recorded at 2,100,000 hectoliters in the first quarter of twenty twenty six, corresponding to a 9.6% decline year on year. In Turkey, beer volumes were pressured by several factors in line with the beer market performance, which contributed by double digits. On the other hand, international beer volumes stood at 1,300,000 hectoliters with a limited decline of 1.6 year on year. It is also important to note that excluding the impact of the restructuring of export business in Georgia, our international beer volume would have grown by 3.2% in the first quarter. So while the beer groups started the year on a softer note overall, the volume performance of our international operations was strong, particularly when we adjusted the restructuring impacts in Georgia.

5:13 Starting with Turkey, our volumes declined 20% in quarter one twenty twenty six. Beer market also declined in the period. The main driver behind the market decline was visible shift in consumer behavior towards savings as persistent inflationary pressures continued to weigh on discretionary spending. Moreover, unfavorable weather conditions and softer demand during Ramadan were down volumes. In fact, the number of rainy days, which is one of the key indicators we closely monitor, nearly doubled compared to the same period last year. In addition to these factors, we also saw the temporary pressures on our volumes as we intentionally reduced inventory levels in the fields ahead of the Efes family uplift project.

5:59 This was a deliberate action and short term effects aimed at ensuring a healthier transition to the renewed Efes family portfolio. I would also like to touch upon what the uplift project means for us and why we see it as an important step in strengthening our core brand proposition. Efes has been at the heart of our journey since 1969. For more than five decades, we have continuously invested in the brand, listen to our consumers and evolve the product in line with changing expectations while keeping the same excitement that brought Efes to the shelves on day one. With the new Efes family, we are now taking this journey into a new era. This is not only a packaging change, it's a bold and comprehensive transformation of the Efes proposition.

6:48 Developed through nearly 1.5 of dedicated work, the project brings a modernized packaging design with stronger shelf impact, a clearer portfolio architecture, enhanced service standards, and improved liquid quality, following extensive testing and expert input. The process was also validated through comprehensive consumer research, ensuring that the relaunch is fully aligned with the evolving consumer expectations. It is still very early, but the initial consumer response has been very positive, and this gives us strong confidence as we continue to strengthen FS for the future. Taking a closer look at our international beer operations, we had a more positive picture overall with different dynamics across our markets.

7:41 Starting with Kazakhstan, volumes grew by low single digits in first quarter of twenty twenty six, marking the fourth consecutive quarter of growth. This is important because despite the Ramadan pressures on volumes and pricing adjustments made, we issued to sustain growing momentum. The key drivers of the growth was premiumization and our continued focus on the keg segments, similar to the previous quarters. So despite some seasonal pressure, Kazakhstan delivered another quarter of growth. In Georgia, total beer volumes were down by mid teens in the first quarter of twenty twenty six. However, excluding the impact of the export business restructuring in Russia, volumes were actually up by low 20s. This was mainly supported by the expansion of our presence in the modern trade channel, following the addition of new modern trade customers to our Efes brand network as well as the continued strong momentum in the CSD business.

8:38 In other words, while the structuring continues to weigh on reported volumes, the core business remained healthy. In Moldova, volumes increased by low to mid single digits in the first quarter of twenty twenty six. The key driver of growth was our well balanced brand portfolio, supported by successful launches in 2025, which enhanced our coverage across consumer segments and price tiers. Overall, Moldova continued to deliver steady and balanced growth despite cycling a strong base from first quarter of twenty twenty five, which makes the performance even more encouraging. Let's move to the soft drinks operations performance. We had a positive start to the year with consolidated volumes increase in first quarter of twenty twenty six and positive contributions across both domestic and international operations.

9:28 The strongest growth came from Central Asia, while Turkey and Pakistan also delivered resilient performances. So overall, volume performance was supported by different markets at the same time. In Turkey, volumes increased by 1.4%, cycling a very strong base of 8.4% growth from last year. This performance came despite our deliberate choice to optimize sales in the weather category in the water category as we continue to shift our focus towards higher value categories and improve the overall value mix of the business. On the international side, volume sustained its growth momentum with nearly 10% growth, mainly supported by Central Asia. Kazakhstan and Uzbekistan delivered growth of eleven percent and forty one percent, respectively, while Iraq declined of 1.8%, impacted by severe political and economic stress.

10:22 On the other hand, Pakistan grew slightly by 0.2%, showing resilient performance following a high base of 17% growth in the same period last year. Now let me hand over to Yasmin for her in-depth comments for financials. Thank Anadolu. Good morning and good afternoon, everyone. As Anadolu covered as usual the consolidated results of Andolu Efes, let me now walk you through the deal with financial results for the first quarter and then walk you through the cash flow, the impact of hyperinflation accounting and finally, our balance sheet and risk management dynamics. B group sales revenue declined by 8.4% to TRY 9,400,000,000 on a reported basis. The same decline is a result of mainly due to the volume decline in Turkey, even if our local revenues in international operations grew above inflation.

11:15 At gross profit level, it declined by 18.4% to $3,400,000,000 UPL, corresponding to gross margin of 35.9% with a four forty basis point margin contraction. This margin pressure was mainly driven by ample labor operating leverage in Turkey and high input costs, particularly in the Maus and the Grazing Kazakhstan. At the bottom line, the Beer Group reported a net loss of $327,000,000 compared to net income in the same period of prior year. The year on year swing is largely explained by non recurring income from the net income activities recorded in first quarter of twenty twenty five following a change in scope of the consultation operation operations.

12:05 Excluding these effects and PS29, the underlying net result is broadly in line with operational performance as is shown at page 15 as well. Coming to EBITDA, EBITDA came in at negative $761,000,000 here, corresponds to an EBITDA margin of minus 8.1, with a 190 basis points margin contraction year on year. While declining gross profit was reflected in EBITDA, EBITDA margin contraction remained more negative than the gross margin decline, with the impact of operating margins and improving OpEx to sales ratio across yearbook.

12:52 On the cash flow side, yearbook free cash flow improved meaningfully by 26.5% year on year. Despite the earnings pressure, this improvement was driven by mainly tighter ROCE capital management and also CapEx discipline and lower interest payments. The first quarter represents the weakest cash generation period for the beer business, and we expect progressive normalization as volume recovers through the rest of the year. Improving free cash flow generation remains our top priority for 2026 and going forward. I would like to briefly share the impact of PS29. I'm a hyperinflation accountant on our financial results. For analysis purposes, if you look at the numbers excluding PS29 effects, underlying operational performance is materially stronger at consolidated levels as also shown in the previous slide.

13:48 On PS29, excluded basis of year group level, revenue would have been billion with 22% increase year on year compared to TRY9.4 billion with 8% decline year on year under PS39. EBITDA remained positive on a non PS29 basis. Accordingly, EBITDA would have been million compared to negative million as reported. In terms of the cash and debt management, as of end of March twenty twenty six, consolidated net debt to EBITDA stood at 1.3. At the peer group level, net debt to EBITDA was before today 4.6, while excluding PSMA nine, it was 3.6.

14:41 From the balance sheet perspective, gross debt at year group level stands at approximately USD 1,000,000,000, with average maturity of 1,600,000,000, while 64% of our growth rate is in our currency. Our cash position is US0.2 billion dollars with 56% held in uncertainty and 39% in euro uncertainty. On risk management side, for 2026, we have already hedged 72% of our aluminum exposure work in and CAX. In Turkey, 86% of our FX exposure has been hedged. That's basically the end of my presentation. Now I will hand it back for the Q and A. Thank you.

15:28 Thank you, Jastema. There is one question already on the floor, so let me summarize. Do you see any improvements in April trends after the rebrand branded products reached sales, Jose? Thank you for the question. Let's rephrase the question. The rebranded products, let me clear the air around our new products, maybe. Over the years, Efes has gone through many packaging changes and liquid improvements. Most of them were evolutionary steps, but this is because of the reason we just put our consumers in the heart of our business. And now today, our consumers expect a more comprehensive transformation from Efes, both inside and outside the bottle, While also expecting the brand to stay through its spirit, this is exactly what we are aiming to do with Efes family.

16:26 We have upgraded the liquids, we have modernized the packaging, strengthened shelf visibility, we have improved the serving standards, and we have simplified the portfolio architecture while preserving the emotional bonds, heritage and authenticity. Launch was in the April 22, so it's very fresh and it's very new. Our distribution is still limited. Our expectations are so high. The early indicators are very positive. And on the blind consumer tests before the launch, we observed and we were rated as the best laggard all around. So yes, we have very positive indicators, early indicators, but it is still too early to talk about the full scope.

17:15 I think summer period and summer season will give you a good idea about the new product's performance. Thank you very much. Another question comes from Anadolu. Thanks for the presentation. Given the 20% year on year volume decline in two kV in first quarters, What's your visibility on the second quarter recovery? Does the week start creating a downside risk to the full year guidance? Also, pricing appears soft. Are there any pricing actions being considered in the near term? Yes. Thank you again for the question. Despite the headwinds and Ramadan impacts, I think the business remains resilient in terms of OpEx managements.

18:05 We were able to protect our profitability through disciplined OpEx management and mainly supported by savings in sales and marketing expenses. As a result, we're able to achieve EBITDA margin almost less. Looking ahead, we are taking a more cautious view for the remainder of the year as performance in the first four months has become in below our initial expectations. We do not want to make any changes to our guidance yet. Given the seasonality of our business, we believe we need to see at least the second quarter performance before having a clearer view of the full year. The first quarter is typically our lowest volume quarter and therefore, does not necessarily set the tone for the rest of the year. Moreover, we expect the Efes family launch to support our performance in the upcoming periods. For now, we are maintaining our guidance of slight volume growth for 2Q operations, while recognizing that this guidance currently reflects a more optimistic view, and we will be following up quite closely.

19:12 Thank you. Another question comes from Anadolu Efes Birack. The one of the organized retails that sells alcohol, Carcupusa was a group that does not sell alcohol. Are these kind of changes that you closely monitor? Can these losses be compensated through the sales in traditional channels? Thank you for the question. Actually, we have been working on this project quite some time. So we have a proximity analysis of every carpool point of sales in traditional trades. And the total carpool coverage was as single digits.

20:02 So we just have the proximity analysis and in every carpool point of sales in the same street. So we have 200 meters, 500 meters kind of proximity analysis. And we also we already compensated and we have the plans to call compensation our loss that will be coming from the carpool point of sales. Both with the other modern trade customers and traditional trade customers. Mhmm. Thank you. Have you already seen any cost increases on the packaging side, for example, in glass or aluminum? Because we don't know. As we all know, we are hedged in aluminum.

20:49 Compared to previous years, we are based on the hedging measures in terms of the aluminum. And accordingly, of course, there's an increase in the aluminum price in the market, but we are using the hedging mechanism. In terms of the glasses, so we made our purchasing in 'thirteen. We already made most of the year. For the rest of the year, we didn't see any price increase yet. Thank you. Do you have a year end net debt to EBITDA target for two kbo operations based on IAS 29 numbers? We don't disclose net debt to EBITDA targets for Turkey, but we rather disclose, I mean, we rather give the number for beer group. It was around 2.8 times when we closed the year 2025.

21:42 And, Njalsimah, maybe you would like to give a color for 2026, which will be staying flat versus even we expect some improvement? Yes, there could be some improvements, but currently it's too early to share any better numbers. So within that context, we are still keeping our target for 2026. So with IAS '29, of course, it will be higher than 3.5 times. However, without IAS 29 numbers, the numbers in any case, in any even worst case scenario, it will not be reaching even three times, so it will be below 2.8 times, which was last year.

22:46 I don't see any more questions on the floor. If you have any questions, we would like you to write down your questions on the question box. There seems no more questions. Okay. So, questions? Thank you for all for participating.