Anadolu Efes Birack Ord

Ladies and gentlemen, welcome to Anadolu Efes' third quarter 2025 financial results conference call and webcast. Our presenters today, our CEO Mr. Onur Alturk and our CFO Mr. Gökçe Yanaşmayan. The first part of this 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 adequate time to review and address them. unless explicitly stated otherwise, all financial 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. Omer Alçuk, Anadolu FSCU.

Good morning and good afternoon everyone and welcome to the Lefes third quarter 2025 conference call. Thank you for joining us today. As you may recall, due to the continued uncertainties around our operations in Russia, we have classified these operations as financial investments on our balance sheet at the beginning of the year. And accordingly, they are no longer consolidated in our income statement until there is more clarity. However, we separately disclose the financial results of these operations in our earnings releases for the last two quarters. And starting from quarter three, we decided to stop providing separate disclosure for Russia. And this is primarily because of the information flow has not been as stable, as consistent as before. We will reassess this approach as the situation evolves. And looking at the third quarter, it was mixed set of results where the profitability was solid. However, the volume momentum came with its own set of challenges. Even so, our broad market presence and agile execution helped us to preserve overall stability as growth in several markets balanced softer demands in others. So, we maintained our growth trajectory from the second quarter with consolidated volumes reaching 31 million hectolitres, up by 7% on a pro forma basis compared to the same quarter last year. The volume growth was driven by our soft drinks operations, particularly supported by robust performance in international operations, while beer group volume performance was softer, mainly impacted by domestic markets. Strong volumes supported top-line growth, but the revenue per hectolitre was pressurized due to the ongoing focus on affordability and increased discount rates. On top of strong top-line results, through gross profit improvement and strict management of operational expenses, we are able to record an expansion in EBITDA margin. Additionally, we successfully generated positive cash flow amounting at TL 9.4 billion, which was mainly driven by strong operational profitability. As of September 13th, 2025, our consolidated net debt to EBITDA ratios to that level of 1.5 times. As we shared before, as part of our vision 2035, one of the key pillars of our growth strategy was geographical and categorical expansion. In this regard, I'm truly pleased to share two important milestones today we achieved during the quarter. Firstly, we have recently started the distribution of Mercan Rakı Spirit in the final days of October, while the discussions regarding the acquisition of 60% of the company are still ongoing. And secondly, we have signed a licensing agreement with Salyan Food Products, which will enable us to produce, sell, distribute and marketing of EFES and EFES Draft brands in Azerbaijan. Turning to beer group performance, during the third quarter, our consolidated beer volumes declined by around 5% year-on-year on a pro forma basis. This was mainly driven by a slowdown in Turkey, where volumes were down by 8.4%. In our international beer operations, volumes were down low single digits on average. As expected, Moldova reflected a slowdown following last year's high base. Georgia was temporarily affected by export-related businesses. On the positive side, Kazakhstan delivered solid growth, supported by a strong portfolio execution. And Ukraine also contributed positively by growing low single digits thanks to ongoing recovery and a low comparison base. Let me discuss Turkey in more detail. The volume declined by 8.4% in the third quarter. And as mentioned earlier, this was mainly driven by affordability pressures stemming from persistent inflation and weakening of consumer purchasing power. In the second half of the year, the absence of mid-year minimum wage adjustments further deepened the pressure on consumer purchasing power and making its impact increasingly evident in the markets. In addition, the price adjustments we implemented in early July had a temporary impact on demand. while the slowdown in tourism also weighed on overall volumes, particularly in on-trade and Horeca channels. This quarter marked a period of strengthening our portfolio, ensuring it remains well aligned with the customer expectations and market trends. We launched Jupiter 0.0, non-alcbeer in Turkish markets. which marks an important step in expanding our product range. Although it's very early and it's very small, we expect these launches to be a new strategic pillar for growth for the future. And about our CIS operations, starting with Kazakhstan, we delivered low single-digit volume growth, supported by strong brand activations and robust export performance. Our premium segment continued to perform well. driven by effective brand activations like strategic pricing and new can designs, that further enhanced brand visibility in the markets. And during the quarter, in line with our CAG focus, draft focus, we also launched successfully the Pegas brand SKU. In Georgia, volumes declined by low to mid single digits, in line with expectations, actually, mainly due to the restructuring of our export business, which had no impact on profitability right now. An additional introduction of Levanboro Oktoberfest Limited Edition helped us to maintain our market presence and customer engagement. In Moldova, volumes contracted in low single digits as expected, reflecting last year's high base. Moreover, year-on-year volume decline was affected from capitalization impacts. Let's briefly review our softening operations too. In the second quarter of the year, CECI's consolidated volumes increased by 8.9%, driven by positive contributions of all international markets. Turkey's volume declined by 1.7%, mainly impacted by weakening consumer purchasing power and deteriorating weather conditions during September, whereas international volumes demonstrated a remarkable growth, costing a 16.1% increase mainly supported by Central Asia and Iraq. And in Pakistan, volumes increased by 0.7% year over year, despite severe floods and ongoing political sensitivities. Kazakhstan and Uzbekistan delivered robust growth with 24.2% and 36.5% growth respectively. And lastly, Iraq volumes up by 7.8%, marking 10th consecutive quarter of growth. When we move on to our operational results, in the third quarter, we continued our solid volume generation on a consolidation basis, although effective portfolio management and price adjustments made in certain markets helped to ease the impact of discounting and affordability focus, and revenue productivity decreased by 3%. With improved gross profitability margin and limited increase in operating expenses, EBITDA increased around 8%, As a result, margin also expanded, which was supported with contribution from international operations in both beer and soft drinks businesses. And our consolidated net income was recorded around 5 billion TL. Although operational profitability remained solid, higher financial expense and lower monetary gains weighed on earnings in the third quarter. Beer Group delivered a year-on-year decline in earnings as a result of higher financial expense and softer operational profitability amid challenging environments. Following a softer Q2 performance, we delivered strong free cash flow generation at the consolidated level, driven by our soft drink business. On top of the strong operational profitability, we benefited from improving working capital, lower capex spending and tax expenses compared to the same period of last year. In the current environment, as I emphasized in our previous conference calls as well, there is no doubt that strengthening free cash flow remains a top business priority, of course, in our group. And Gökçe will share more details about this. And consequently, our consolidated net debt to EBITDA ratio stood at level of 1.5 times as of September 30, 2025. And now Gökçe will give details on financial metrics. Gökçe, please.

Thank you, Onur. Good morning, good afternoon to everyone. Onur covered, as usual, another FSS consolidated results. So I will provide an update on the BIR Group's performance for the third quarter. But before I start again, I want to remind once more that these close figures in my presentation are on a pro forma basis, meaning that they exclude the financial results of Russian operations as of January 1st, 2024 to ensure comparability. So in the third quarter, beer group sales revenue declined by 6.9% on a pro forma basis to 15.7 billion TL. Even if volume performance and revenue in local currencies were high, international beer operations sales revenue was recorded at 5.9 billion TL with a 4.5% decline. Like previous quarters, the decline in sales revenue was driven by TAS-29 implementation as inflation in Turkey exceeded the depreciation of Turkish Lira against local currencies of international beer operations. So excluding TAS-29, international beer operations revenue was up 24% on a pro forma basis, again reaching 6.7 billion TL. And Türkiye Beer Operations generated a revenue of 9.6 billion in the third quarter, representing an 8.7% decline. Despite price adjustments during the quarter, revenue per hectolitre decreased due to lower volumes alongside more controlled yet still elevated discount level in line with the market dynamics we have in the country. Thus, on a pro forma basis, beer group revenue decreased 5.3%, to 41.4 billion TL in nine months of 2025. And beer group gross profit declined 11.1% on a pro forma basis again to 7.8 billion TL in the third quarter, and that came with a margin contraction of 236 pips. Though gross profit margin remains at a remarkably good level of close to 50% still, The decline in the gross margin stems from softer volume performance and higher COX per hectolitre, driven by increased material costs across our operations and higher hedge levels in packaging costs, especially in this period of the year for Turkey. So in the next slide, I'm going to present the EBITDA. So with an EBITDA of 3.4 billion TL, beer group had a 22% margin in third quarter, indicating only a 57 bps decrease. The decline in the top line performance and gross profit in the group beer group was actually partially limited through disciplined operating expense management this quarter, particularly in Turkey operations. On the international front, CIS region on average continues to deliver about 30% margin performance, However, profitability was moderated in this period due to high base of last year. Consequently, beer group EBITDA in nine months was 6.4 billion TL with a 15.4% margin. Again, in the third quarter, beer group generated unfortunately a negative free cash flow of 1.3 billion TL. Softer profitability that we mentioned together with a temporary deterioration in working capital and lower monetary gain collectively weighted on cash generation, despite an absolute reduction in capital expenditures year on year. And next slide, please. so for again information purpose i'm going to show you the financial statements without excluding the impact of tas 29 however i have to again say that another office financial statements are prepared in accordance with tas and the standard for financial reporting hyperinflationary economies and the numbers that you are seeing here are just presented for analysis purposes And excluding the impact of TIS29, beer group revenue was 40.5 billion TL with a growth of 27%. And again, excluding the impact of TIS29, beer group EBITDA would increase by 21% to 8.8 billion TL and net income was reported as 1.8 billion TL excluding the CTA impact coming from the scope change in consolidation of Russian operation. About cash and debt management, so as of September 30, 2025, we had 63% of our cash in hard currency denominated in the beer group and 61% in the consolidated and the OFS level, which is pretty much in line with our previous practices. And the net debt ratio for the period was 1.7 times

for another way of S and 3.9 times for beer group.

And about the risk management, so the key figures to update them, actually no new news for 2025, we are almost done with the year. As for 2026, we have already started hedging aluminium and 16% of our exposure of next year, sorry, 14% of our exposure of next year for Turkey and CIS countries have already been hedged. and for the effects of next year actually as usual practice we are going to start hedging towards the end of the year for next year so that basically ends my part of the presentation and i hand over to honor thank you uh also let's let's check the q a do we have any questions on this one

There are a couple of questions from Evgenia. Let me start with the first one. Thank you for the presentation. Could you please provide more colour on Azerbaijan? When will you start production sales in the country? What are the potential sales volumes and EBITDA contribution and also CAPEX? Let me address this to Onur Bey and then there are a few questions more then I'll address them to Gokce Bey.

Let's briefly discuss Azerbaijan. Azerbaijan is a promising market actually and CCI already has a strong footprint in the markets. Population is around 10 million with per capita beer consumption is around again 7 liters. And in quarter 3-25, a license agreement was signed with Salyan Food Products in Azerbaijan for the production, sales, distribution and marketing of EFES and EFES draft brands. So we already started production of EFES in Azerbaijan. We see it as a strategic step expanding our regional operational footprint. And of course, we want to strengthen our local presence in the market. No capex is used for that because it's a third-party manufacturing. And if we see more potential in the markets, there will be an M&A. So we are evaluating this. And also, let me mention a little bit about Uzbekistan, just like because these are the two potential markets for us. And Uzbekistan is even more promising market where, again, CCI already has a strong footprint. and the population is around 36 million and adding up one million every year and the per capita consumption is around 12 liters so that's a more favorable tax environment is expected in 26 it used to be three times compared to the local ones now it's 2.5 and at the end of 26 we are expecting to equal the equalization of local and import tax. So if the gap is fully closed, there will be a huge potential and imports from Kazakhstan has already started in July. Our legal entity and onsite team has been established in Uzbekistan. And our business development team is closely analyzing the market dinings and potential opportunities like totaling. And we are so close to start totaling in Uzbekistan as well. And again, we are chasing many opportunities with very small investments in this country as well. But the reward seems to be, I mean, very promising in these two geographies.

The next question from Zhenya, could you please also provide more color on the working capital move at the beer group level and what are the initiatives you undertake to improve it?

Sure, I mean overall as Onuraytin mentioned in his presentation, one of the Key focus for us is the cash flow generation on the beer group side and to turn our free cash flow generation into positive in the coming year. And very important component of that is working capital, one of the important components of that. and on the group level we can say that our working capital on average is mid single digit however there are certain countries hitting double digit numbers some countries close to zero so on the average we end up with mid single digit and for those who have double digit or higher working capital we have started a clear focus project this year and very clearly working on targets for next year to improve the numbers and at the same time where we want to focus in every other country that we have these high numbers. Therefore, that's especially critical for Turkey because this working capital financing requirement is being financed with high interest rates. So all the efforts are focused now, especially in Turkey, to decrease this number and the interest payment of next year.

Thank you very much.

Another question is regarding 2026, about the B group output for volumes and profitability. It's a bit early to comment on this, so let's postpone this.

Yes, we are at the beginning of our budgeting cycle now, I mean, and we are changing the numbers very frequently as the assumptions are changing. So we would prefer to give better color towards the end of the year or next year, beginning of next year.

Exactly. But there is a question from Hanzade Gökçebey. Do you expect cost pressure in Turkey after rising food inflation, which may impact wheat and barley prices due to weather conditions? Or have you hedged this cost?

I think I can give a very very general you know color here. Maybe just to help you think about it. And recently our post base were you know, acting very in line with the inflation in the country. Therefore, for next year to come, initial expectations, again, I mean, we have to work on them towards the end of the year more precisely. Initial indications show currently slow decline as inflation will decline in the country. So that gets reflected into COGS per hectolitre as well for the next year.

Another question from Elman Bey. Can you give more information about Turkey's gross margin and the BTA margin in the third quarter?

Well, I mean, very roughly we can say that the numbers are in the gross profit in the range of 50s, let's say, and EBITDA margins in the third quarter are 20s, we can say so. And those numbers in gross profit margin level, we've seen more contraction as we have discussed in the presentations. but that had been compensated to a great extent with OPEX management. Therefore, the contraction in EBITDA is less than 100 basis points overall.

Thank you very much. There seems to be no more questions. Let me remind once again. If there are any questions, we can wait a few seconds.

And if there are none, we can close down the session. OK, there seems to be no more questions. Thank you everyone for joining. Thank you.