Earnings Call Transcript - AEBZY 2026-11-04

Asli Demirad, Head of Investor Relations

Good morning, everyone.

Asli Demirad, Head of Investor Relations

Ladies and gentlemen, welcome to Anodola FSS 9M 2026 Financial Results Conference School and webcast. I'm Asus Demirat. I'm together with our presenters today, our CEO and CFO. The first part of today's call will be in listen-only mode. Afterwards, we will open the floor for a Q&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&A session begins to ensure we have enough time to review and address them. Unless explicitly stated otherwise, all information disclosed in this presentation are presented in accordance with TAS 29. Just to remind you, this conference call 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 ground to Mr. Onuraltürk on the role of the CEO.

Onur Alturk, CEO

Thank you, Asri. Good morning and good afternoon, everyone, and welcome to Anadol F.S.'s 9 months to 2026 results conference call. At Anadol F.S., while our international operations continue to build on their strong momentum and remain the key road driver of the business, consumer demand in Turkey remained weak across both beer and soft drinks. So, we faced a more challenging operating environment in third quarter, which is typically the strongest season of the year. Even under these conditions, we achieved to deliver a solid 7% volume growth, reaching 33 million hectolitres on a low-FS consolidated basis. This performance was mainly driven by our soft drinks and international beer operations. Despite the solid volume growth, revenue per hectare came under pressure due to our affordability-focused approach in soft-drinks operations and relatively higher discounting levels in 2KB operations. So, consolidated net revenue remained broadly flat, reaching 89 billion TL in the quarter. On the profitability slides, weaker gross profitability remained the key advent. Lower volumes and reduced operating leverage in Türkiye view operations, together with ongoing cost inflation across both business lines, weighed on profitability. As a result, consolidated EBITDA declined to 17 billion TL, while the profitability margin contracted by 361 basis points. In third quarter, cash generation, on the other hand, improved meaningfully in both our business segments. Free cash flow reached 16.5 billion TL on a consolidated basis, representing a 35% increase versus last year, supported by contributions from both business lines. This strong cash generation, together with our disciplined balance sheet management, allow us to maintain a healthy net depth-to-abit-to-air ratio of 0.9 times. As previously announced, with the toll-filling agreement in second quarter, production in Uzbekistan officially started in September, marking another important step in strengthening our international footprint. Finally, with the peak summer season now behind us and a greater visibility on full-year trends, we revised our full-year 26 guidance to reflect the latest operating developments across our markets. I will provide more details on these revisions later in the presentation. As I said, Turkish beer business continued to operate under significant pressure during the third quarter. Nevertheless, our international operations once again demonstrated their resilience and remained the key performance driver for the beer group. As a result, beer group volume reached 3.7 million hectoliters in the third quarter, representing a decline of 5.6% year-on-year basis. While Türkiye volumes declined by 14%, international beer volumes increased by 2% year-on-year to 2.1 million hectoliters, delivering another quarter of growth. More importantly, excluding the impact of the export business that was restructured in Georgia, international beer volumes grew by 6%. As a consumer preference continues to shift across markets, our broad brand portfolio allows us to participate in various price segments and consumption occasions supporting both growth and market share development. At the same time, targeted commercial initiatives across our key markets continue to deliver tangible results. Overall, the continued momentum of the international operations once again helped partially offset the challenges in Turkey and reinforced the importance of our geographically diversified business model. Let me now turn to our 2KB operations, where the challenging operating environment that we have been discussing since the beginning of the year continues to persist and become even more pronounced during third quarters. As we highlighted in the previous quarters, the ongoing erosion in consumers' purchasing power has continued to limit discretionary spending and increase price sensitivity across the markets. In addition, softer tourism activity and lower hotel occupancy rates added further pressure on the Horeca channel during the quarter. Against this backdrop, our volumes declined by 14% year-on-year to 1.6 million hectoliters, significantly below our initial expectations, of course. We saw some improvements in the volume trends during July. Which helped limit the overall decline for the quarter and provided an encouraging signal regarding the consumer activity. Unfortunately, this improvement proved temporary. August marked the weakest monthly performance we have seen in more than a decade, followed by an exceptionally weak September, highlighting the persistent pressure on consumer demand. Let me now provide some color on the performance of our international beer operations, which continues to be a key contributor to beer group performance and demonstrated resilience across our markets. In Kazakhstan, we delivered another solid co-actor, recording mid-single-digit volume growth, marking our sixth consecutive quarter of expansion and reaching a record. Record market share of 51.1% during the quarter. This performance once again allowed us to outperform the market and further strengthening our leadership position in Kazakhstan. We are particularly encouraged by the strong consumer response to our recent innovations, hazy, and the limited edition launches like Miller Lime. Their meaningful contribution to volume growth reinforces our confidence in the innovation-led growth strategy and demonstrates our ability to continuously evolve the portfolio in line with consumer preferences. Combined with strong commercial execution and continued premiumization efforts, these initiatives supported both volume growth and further expansion of our premium segment, strengthening the quality of growth. In Georgia, volumes remained under pressure due to the export business restructuring in Russia, as mentioned before, as well as temporary logistical changes affecting export operations. However, solid domestic demand helping to offset part of these headwinds. As a result, reported volumes declined by low 20s while excluding the restructuring. In fact, the volume decline... It was limited to low single digits. During the quarter, we continued to advance our colonization agenda through new packaging launches for Ta'atik and Stella Artois, while further strengthening our positions in the catch segment. In Moldova, volume performance rebounded during the quarter and returned to growth. Our affordability-focused strategy continued to support volume performance, while we further strengthen our premium portfolio through the successful launch of Starimandic. The consumer response to the brand has been very encouraging, giving us the confidence in its long-term potential. To build on this success, we launched Starimandic in Cannes. Packaging form in third quarter, which we believe will further support volume growth and strength in the quality of our growth going forward. Turning to our soft drinks business, our soft drink business diversified footprint once again. Proved its strength in the third quarter, with robust international growth, more than offsetting the softer market conditions in Turkey. Consolative volumes increased by 8%, supported by 13% growth in our international operations. While consumer purchasing power pressures continued to weigh on demand in Turkey, resulting in a slight volume decline of around 1%, our revenue growth management and mixed optimization initiatives continued to support performance across the portfolio. International operations growth was outstanding, building on an already strong base from last year. Pakistan and Uzbekistan remained the key growth drivers, delivering volume growth of 24% and 20% respectively, while Kazakhstan maintained positive momentum and URAC remained broadly stable. With the overview of our operating performance, let me now hand over to Yasemin, who will take you through our financial results in more detail.

Yasemin Chay Rezmez, CFO

Thank you, Honor. Good morning and good afternoon, everyone. As Honour has already covered and also its financial performance, I will focus on providing further information about Beer Group's financial results for the third quarter and the first nine months of the year. Starting with revenue, Beer Group's nested declined by 5.1% year-on-year to 19.3 billion TL in the third quarter. As in the previous quarter, our financial performance reflected varying dynamics between our Türkiye and international operations. While our international business continues to deliver solid growth, the significantly weaker volume performance in Turkey remains the main factor weighing our own top line. In Turkey, the sales revenue declined by 14.5% to 10.7 billion TL, primarily reflecting the 14.3% contraction in sales volumes. Although the price increase implemented in July, together with a more favorable product mix with a shift to more premium products, as well as lower sales of low-price products, provided some support to revenue per hectare performance, however, these were not sufficient to compensate for substantial declining volume. Furthermore, we maintain a high level of response to support consumer affordability in an increase in the changing demand environment. This inevitably puts additional pressure on net revenue generation, particularly during traditionally our most important quarter of the year. Turning to our international operations, revenue increased by a strong 10.4% year-on-year to 8.5 billion TL, once again demonstrating the resilience of our geographically diversified business. Kazakhstan remained the strongest contributor to this performance, supported by disciplined pricing, effective revenue growth management, and continued premiumization. Revenue productivity increased by approximately 20% Turkish returns, also benefiting from appreciation of Kazakhstan. Moldova also contributed positively to international revenue growth, while Georgia's performance continued to reflect the impact of the ongoing export business restructuring. As a result, Beer group revenue for the first nine months of the year reached to 50.4 billion TL, representing a 6.2% decline year-on-year. Moving to gross profitability, beer group gross profit declined by 10.8% to 9 billion TL in the third quarter, with a gross margin contracting by approximately 300 bips to 46.7%. The primary reason of this contraction was our turkey operations, significantly lower volumes resulted in a high fixed cost impact per hectoliter, while ongoing input cost inflation added further pressure to a unit cost. Our international operations continue to demonstrate relatively resilient gross profitability, particularly across the CES markets. However, higher energy prices led to some gross margins by the issue in international operations. Consequently, beer groups' gross profits for the first nine months amounted to 22.5 billion TIA with a gross margin of 44.6%. Coming to EBITDA, we have recorded 3.5 billion TL in EBITDA before non-recurring items in the third quarter, representing a 21% year-on-year decline. The EBITDA margin stood at 18.3%, corresponding to a contraction of approximately 370 BIPs. As discussed earlier, the main driver of this iteration was the pressure on gross productivity, particularly in Turkey, where the high-volume contractions reduced our ability to absorb fixed costs. On the operating expense side, we maintained our disciplined approach to expense management across our operations. In fact, absolute operating expenses declined year-on-year in both Turkey and our international operations. However, despite these efforts, via group operating expense as a percentage of revenue increased from 36% to 37.5%, primarily due to weaker revenues. In Turkey, lower volume and reduced operating leverage resulted in a significant increase in operating expenses as a percentage of revenue, although we had a quite sizable expense control measures. Our international operations continue to deliver positive results from cost split and operational efficiency. In Kazakhstan in particular, lower selling and marketing expenses together with reduced GNA expenses relative to revenue, supported an improvement in the operating expense as a purchase of revenue. This performance had partially offset the profitable pressure in Turkey, although it was not sufficient to fully compensate. Consequently, beer group EBITDA in the nine months amounted to 5.9 billion TL, with an EBITDA margin of approximately 12%, representing a contraction of 306 EBITDA compared to the same period of last year. Turning to pre-cash flow, we recorded a significant year-on-year improvement during third quarter, despite the pressure on operating profitability. We recorded pre-cash flow amounted to TL negative 276 million TL, compared with a negative 1.7 billion TL in the third quarter of the previous year. This improvement was primarily driven by a more disciplined working capital management, lower interest payments, and contained capital expenditure. These foster developments have mitigated the impact of weaker EBITDA on cash generation, and it's a proof of our continued focus on protective liquidity and maintaining financial discipline. For the first nine months of the year, Virgo Free cash flow improved to negative 4.1 billion TL, compared with a negative 7.1 billion TL in the same period of the previous year. We remain committed to our discipline working capital management, prudent capital expenditure, and operational efficiency, despite the given challenging operating environment in Turkey. Before moving to our balance sheet and the risk management, let me briefly touch upon our financial performance, excluding the impact of TS-29. Excluding the impact of inflation accounting, we group sales revenue increased by 23.3% year-on-year to 50 billion TL in the first nine months of the year. This growth was supported by the strong revenue performance of our international operations. Discipline pricing actions and positive impact of currency movements, particularly in Kazakhstan. On the same basis, our gross profit margins stood at 5.3%, representing a contraction of 287 BIPs compared to the previous year. A BTI margin, excluding TS29, was 18% for the first nine months, corresponding to a contraction of 375 basis points year-on-year. This reflects the same primary operating dynamics discussed earlier, particularly the impact of weaker domestic volumes and lower operating leverage, partially indicated by the strong contribution of our international operations. Finally, beer group net income, excluding the impact of TS-29, amounted to 762 million TL for the first nine months. Turning to cash and debt management, as of end of September, beer group gross debt stood at approximately 45.7 billion TL, while cash and cash equivalents amounted to 11.2 billion TL, resulting in a net debt position of 34.4 billion TL. Looking at our leverage ratios, excluding the impact of TS-79, we were glad that the EBITDA increased to 3.3 compared to 2.4 at the end of September last year. This increase was primarily driven by weaker operating profitability, particularly in Turkey, rather than an increase in our absolute debt position, which showed almost no change compared to last year. Including the impact of TS-29, beer group leverage ratio was reported at 5.1. On the other hand, at the consolidated AndolFS level, our net activity ratio improved to 0.9 compared to 1.3 a year ago, excluding TS-29. The ratio remained at 0.9, including the impact of the inflation accounting. While the increase in beer group leverage reflects a challenging economic environment, our focus remains on improving cash generation, maintaining financial discipline, and preserving a prudent and strong liquid deposition. Against the environment of ongoing cost and volatiles market conditions, we continue to prioritize our visibility over our cost base. We now have 100% visibility for aluminium for 2026 and 38% for 2027. For FX exposure, 100% hedge rate is being sustained. We remain focused on optimizing our working capital position, controlling capital expansion, and improving our liquidity. With that, let me hand over to Onur to walk you through our updated guidance.

Onur Alturk, CEO

Yasaran, thank you. So, let me briefly touch on the updates to our outlook. Let me start with the beer group. The key change reflects a weaker than anticipated performance in Turkey during the third quarter, as already mentioned in the presentations. Given the challenging consumption environment and lower than expected volume performance, we have revised our Turkey beer volume expectations downwards and now anticipate a high single-digit volume decline for the full year. Which, in turn, led us to lower our beer group volume guidance from a low single-digit decline to a mid-single-digit decline. Softer volume performance is limited to operating leverage benefits we had expected. Accordingly, we now expect a BTA margin contraction of 250 basis points, including IIS-29 effects, and 200 basis points on a pre-IIS-29 basis. Turning to soft drinks operations, following the summer season, international operations have continued to outperform our initial expectations, while Turkey's volume performance is expected to remain broadly flat. Stronger than anticipated momentum across our international soft drinks operations is now expected to deliver low teens' volume growth. Supported by this performance, we have revised our consolidated soft links volume guidance to high single digit growth. We also expect net revenue per unit case, including the impact of IAS 29, to decline by low single digits in our soft link operations. Reflecting the software NSR net status revenue per unit case outlook in our software operations, we have revised and let us reported net revenue per incubator guidance to a low single digits decline. I think that concludes my part as well.

Asli Demirad, Head of Investor Relations

Thank you, Oliver. We have a couple of questions on the floor. Let me start with Antonio's question. Can you provide more colour on volume decline in Turkey? Was there an impact from product remand or was it only weak consumption? Why was Turkey consumption so weak? Was it domestic or tourism or both?

Onur Alturk, CEO

Thank you for the question. I think we have touched upon this subject during the presentation, but let me elaborate more on what has been said so far. Turkey actually started the year in a more challenging environment than understated. The consumer demand remains significantly below our expectations throughout the first half especially. But despite this encouraging volume growth seen in June and July, the volume performance in Turkey weakened significantly in August and September. Actually, we have high hopes for the summer season. With June and July, we observed year-on-year volume growth, but then this week, August and September, was disappointing for us. And that resulted in double-digit decline during the whole period. The main drivers were the continued pressure on consumers' purchasing power that we have been outside so far, and definitely weaker than expected tourism season. It should be highlighted as well, and both affected the total consumption. But on the other hand, if you look at the brighter side, in the premium segments, brands such as Corona, Stella, Amsterdam continue to perform well and support our criminalization strategy. Actually, these Upper mainstream and premium segment was the only segment that was growing, especially in traditional trade channels. Since we have a very competitive portfolio on this part, I think we might have a chance on there. But overall, while the market conditions remain challenging, I think we should remain focused on strengthening our portfolio, especially on the premium side, executing our brands effectively, 100% perfect execution in the field, And positioning the business to capitalize on an eventual recovery in consumer demands. I think that's what we can say on a shelf for two cases.

Asli Demirad, Head of Investor Relations

There is one follow-up regarding Turkey volumes. Let's continue with that. Does the weak first quarter Turkey volumes mean you will have to resort to aggressive pricing actions in 4Q to clear inventories?

Onur Alturk, CEO

You mean for the last quarter, I guess? Actually, we already increased our prices for a part of our portfolio in October. That incremental price increase had been realized last month for some brands. It wasn't applied across the board to whole portfolio because of the affordability concerns, but we already did. And for the next year's price up, now the team is working on, again, the portfolio and affordability and all other macros.

Asli Demirad, Head of Investor Relations

There's a question about refinancing. How are you looking to address refinancing? And there are a couple of similar questions regarding free cash flow generation. So, what's your plan to return to positive free cash flow generation? Or should we read the fully break-even expectation for variable free cash flow as no longer achievable? So, Yasemin, I just want to start with you.

Yasemin Chay Rezmez, CFO

The measures we have implemented across the business have materially mitigated these headwinds and significantly improved our cash flow generation. Based on the current operating environment and our nine-month performance, We may close the year with a negative free cash flow position, but not very far from break even. This would still represent a significant year-on-year improvement and reflects the effectiveness of the actions we have taken through the year.

Asli Demirad, Head of Investor Relations

Thank you. So, one question comes, two questions come from Eran Arjish. Thank you for the presentation. Could you give us a sense of fixed versus variable cost split in Turkey and international beer business? Roughly, what share of cost of Kursom and OPEX is fixed? The 9M26 beer group EBITDA margin is already down about 3.5 percentage points year-on-year. The new full-year guidance of 2.5 percentage points contraction therefore implies roughly Margin improvement in the fourth quarter. What drives that improvement? Pricing, cost savings, OPEC savings, or a lower base? How did Turkey evolve and strand in October? Are we seeing anything that supports this recovery?

Yasemin Chay Rezmez, CFO

Okay, let me start with the fixed cost, the weight of the fixed cost in the COX and OPEX. In the bill group, fixed cost accounts for the 51% of the COX and OPEX, but this ratio is close to 55% in Turkey, while the share of fixed cost is the lowest in Kazakhstan. With the fixed cost, and also maybe more information about the content of the fixed cost, This includes the personal depreciation and the commercial expense at the highest portion. Regarding the second question, as you know, the primary reason behind the emerging pressure we experienced during the first nine months of the year was the weak sales volume. ...performance of our Turkey operations. While revisiting our guidance, we took into account the improvement in October performance compared to August and September in Turkey, which lead us to reassess our fourth quarter expectations. With a stronger October performance and relatively better performance in November and December, we do not anticipate the same level of volume contraction in Turkey for the fourth quarter as we saw in the first nine months of the year. At the same time, we continue to monitor consumer demand closely and aware of the demand's instability. Even if November and December performance in Turkey turnouts broadly in line with the performance levels recorded during the first nine months, Considering our international operations' profitability contributing to a consolidated result, our bid-gravity margin would be affected of around 40 basis points, and, of course, a more resilient trading environment in Turkey during the remainder of the year could help us to meet our revised guidance. Thank you.

Asli Demirad, Head of Investor Relations

Thank you, Yalsama. On the way, this question is for you. How have the volume traded so far in 4Q for Turkey and international? Actually, Turkey is a bit more critical there, because international is still doing well in the post-war tish. Would you like to make any comments?

Onur Alturk, CEO

Well, thank you again. I mean, we have emphasized Turkey's market. Situation a little bit, but in October, still we were observing a decline in volumes, but not that deep as we experienced in the third quarter. So that might seem a little bit positive on this one, but still it's a decline. We don't see any growth yet. On the international markets, we see single digits growth or flattish volumes, but with our PRGM actions and portfolio and with the product and channel mixes, we are now, we can be leveraging our financials in a very positive way. On the Turkish market, again, we will be expecting... There are declines for the remainder of the year in November and December, but they might be not as deep as third quarter.

Asli Demirad, Head of Investor Relations

Thank you. Thank you very much. The questions, we have already answered all the questions that are on the floor. If you would like to ask your questions, you can write them down. Otherwise, we may conclude our presentation for today. Maybe wait for 30 minutes if there are any questions. There is one from Angele.

Angele, Analyst

What's the plan for the bond refinancing? What's the plan for the expected CCI dividend? Typically, it's upstream to Anadolu Group, but it will be retained at the Anadolu FH level. I think that's, I mean, that should be a question. I think Ansheli is trying to ask if it will be staying at the very group level rather than distributing to the Honorable Group and the other shareholders.

Asli Demirad, Head of Investor Relations

Hey, maybe we can start with the financing.

Yasemin Chay Rezmez, CFO

Regarding the refinancing, yes, we are planning to refinance our existing euro bond. So, we started to do the studies and the preparations. Actually, our plan to tap the market in the first quarter, I mean, at the beginning of the next year to tap the market. Regarding the dividend, yeah. So, while our board makes dividend decision, they take into consideration not only distributable profit, but also net debt, EBITDA, and free cash flow generation. While we seek to balance all of these factors, reaching a healthy leverage profile and having a strong liquidity, remain our primary focus. Therefore, any decision regarding dividend distributions will be assessed in line of these priorities. If needed, we are prepared to take the necessary actions in line with these priorities.

Asli Demirad, Head of Investor Relations

Thank you. I think we answered Anjali's question as well. There is a question about Russia, if there is any update on the status of Russia, and are there any ongoing discussions and developments regarding a potential recovery of the control?

Onur Alturk, CEO

Actually, there is no news, no new news, let's say, from Russia, so we are still trying to get back to control of the business, but other than that, there is no flash news or new news about Russian markets.

Asli Demirad, Head of Investor Relations

Thank you, everyone. Let me see. There seems no more questions on the floor,

Asli Demirad, Head of Investor Relations

so thank you everyone for joining. Hope to meet you again with our Fosquarty results.