AG Anadolu Grubu Holding A.S. (AGHOL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Anadolu Grubu Holding Full Year 2019 Results Conference Call and Webcast. I now hand over to Burak Berki. Sir, please go ahead.

Thank you. Hello, everybody. This is Burak Berki, IR Manager at Anadolu Grubu Holding. Welcome to our 2019 Full Year Financial Results Webcast and Conference Call. Thank you for joining us today. I have with me Mr. Hursit Zorlu, our CEO; and Mr. Onur Çevikel, our CFO. We will first listen to Mr. Zorlu for the key highlights of 2019 and a general overview. And later on, Mr. Çevikel will provide brief analysis on segmental operational performance. Before we start, I would like to remind you about some points regarding financials for a better comparison with last year results. Beer group 2018 figures include ABI Russia and ABI Ukraine effects starting from January 1. All figures in the presentation exclude IFRS 16 effect. Throughout this presentation, we will be focusing on consolidated pro forma results of Anadolu Grubu Holding, meaning figures taking into consideration Migros as fully consolidated for 12 months. Without further ado, I'll leave the floor to Mr. Hursit Zorlu. Thank you.

Thank you, Burak. Good morning, and good afternoon to everyone. Once again, welcome to our full year 2019 webcast and conference call. Despite the rapid changes in macro balances, 2019 was a year in which, as Anadolu Group, we made significant progress and maintained our growth. We adhere to our consumer focus, closely following the consumer and customer sentiment along largely variable conditions and continued our operations with a prudent and effective risk management approach. In general, we can say that we are benefiting from being a holding company, which has a deep focus on fast-moving consumer goods. In the first slide, I would like to provide a brief overview of the major developments of the year. Beer operations made a substantial contribution to our results. This robust performance is mainly linked with the positive momentum in International Beer operations. In Russia and Ukraine, our beer operations outperformed the market, while extracting synergies ahead of targets. In Russia and Ukraine, we became head-to-head #1 position. In Soft Drinks operations, quality growth algorithm maintained in the third consecutive year. Our operations continued to grow and maintain market share in majority of the markets. Core business performed well as the Soft Drinks category continued to grow with increasing share of IC packages. In Migros, while market share gains in both total and modern FMCG continued during 2019, digital transformation is integrated to all business processes in order to assure sustainable growth. On the Automotive side, increased focus on export markets of our commercial vehicle producer, Anadolu Isuzu, continued in 2019 as it was the case back in 2018. This has also positive effects on profitability. Now I am moving into our financial results of full year 2019. Our top line growth was very strong. We reached low 20s growth in revenues. Our consolidated sales was up by 21.5% to TRY 51.7 billion, with a strong contribution of beer, Migros and our Coca-Cola operations. Our operational profitability outpaced revenue growth by a wide margin. EBITDA surged by 28.1% to TRY 6 billion, with an EBITDA margin improvements of 60 basis points to 11.5% due to the substantial contribution again from beer, Migros and Soft Drinks as well. We have recorded a net income of TRY 644 million in full year 2019 compared to the net loss of TRY 1.2 billion in 2018. Bottom line improvement is attributable to improving operational profitability, relatively more stable TL and one-off gain of TRY 862 million recorded related to the consolidation scope change in Migros. Excluding one-off gains, net loss would have been TRY 218 million in 2019. Our net debt-to-EBITDA ratio was down by 90 basis points to 1.9x as of full year 2019 end, thanks to precautious taking through efficient financial risk management strategies in all our businesses. We have sticked to strong free cash flow generation priority in 2019. Free cash flow generation was, in fact, across the board, and we have reached TRY 3.5 billion in 2019. The next slide, Slide 4, shows our segmental sales, EBITDA breakdown and our international exposures. Migros had the highest share in revenues at 45% followed by Soft Drinks segment share of 24% and beer share of 21%. In EBITDA, Soft Drinks had the highest contribution by 38%. Beer and Migros constituted 28% and 26% of EBITDA, respectively. As you can see, our 3 main operations, beer, Coca-Cola and Migros, collectively accounted over 90% of our consolidated revenues and EBITDA. Chart on the right-hand side shows our international exposures. While 30.2% of our consolidated sales are from abroad in 2018, this portion increased to 30.8% in 2019. On the other hand, increase in the share of EBITDA is much more apparent. 42.7% of our EBITDA is from international sales in 2019. These increases may be perceived as a good indicator of our focus in international markets, and we can confidently say we are a geographically diversified group. Ladies and gentlemen, now I would like to hand over to Onur, who will give you overview regarding the performance of our segments.

Thank you very much, Hursit bay. Good morning, and good afternoon, ladies and gentlemen. We are very happy to welcome you to our financial year 2019 results conference call. As Mr. Zorlu has gone through the major business developments, I will take you through our consolidated financial statements and then talk a bit of details on our segments' performance. Our total consolidated revenue for the financial year 2019 was TRY 51,699 million, which constitutes a strong growth of 22%, which is supported by our beer segment as well as by Migros and Soft Drinks mainly. Our full year EBITDA, excluding the IFRS 16 impact for better comparison purposes, has reached TRY 5,951 million with a strong growth of 28%. Finally, our consolidated net income was TRY 644 million for the financial year 2019. And let me remind you, that this number includes one-off noncash gains of TRY 862 million related to the consolidation scope change of Migros. Excluding one-off gains, the net loss would have been TRY 218 million, which also represents a significant improvement compared with a net loss of TRY 1,217 million in 2018. Going to briefly our segment performances. As usual, I would like to start with the beer segment. Our total beer sales volume was recorded to be 36.2 million hectoliters, which indicates a 5.9% increase compared with the same period of financial year 2018. This increase is mostly attributable to our strong performance in International Beer operations, as mentioned by Hursit bay. Our Turkish Beer operation volumes were at 5.4 million hectoliters, 5.2% lower than the same period of 2018. Net revenues were reported to be at TRY 2,255 million, up by 20.6%, and EBITDA was at TLR 358.9 million in our Turkish beer operations. In our International Beer operations, we are happy to announce market leadership in every international operation. Our volumes grew by 8.1%, reaching up to 30.8 million hectoliters in financial year 2019. Our Russian and Ukrainian businesses contributed positively to our volume growth. Despite flattish markets, we were able to outperform the market, which led us to market share growth as well. Our revenues grew by 32.2%, reaching up to TRY 8,765.2 million for our International Beer operations, and our EBITDA was at TRY 1,402.5 million, with a significant growth of 84%. Finally, our consolidated beer group results. Our total volumes were at 36.2 million hectoliters, with a strong 5.9% growth in 2019. Our net revenues were at TRY 11,069 million with a 29.6% growth, and our EBITDA BNRI was recorded to be at TRY 1,705.6 million, with 52.4% growth. Our EBITDA BNRI was at 15.4%, EBITDA BNRI margin was at 15.4% with a 230 basis points improvement in 2019. And for most priority guidance, free cash flow generation of beer segment was strong with TRY 1,294 million. With the help of the financial discipline maintained, we managed to register a net debt-to-EBITDA ratio of 0.9x for our beer segment. Next, we are going to be talking about our Soft Drinks segment, shortly. Our consolidated volume was up by a slight 0.1%, reaching to 1,316 million unit sales. On the other hand, our net sales revenue was recorded to be TRY 12,245 million with a strong growth of 15.23% compared with the same period of the prior year. Our consolidated EBITDA was TRY 2,283 million, which constitutes a strong growth of 19%, and our EBITDA margin was 18.6% with a margin improvement. Finally, our consolidated net income for consolidated CCI was TRY 966, with a significant improvement compared to prior year. Talking about Soft Drinks Turkey operations. The performance was better than expectations, despite weak consumer confidence throughout the year and adverse weather conditions in the high season. Our volume in Turkey was 662 million unit case with a 1.8% growth compared with prior year. Our net sales in Turkey was TRY 5,756 million with a strong 22.7% growth. Our EBITDA, excluding other income and expense, was TRY 1,012 million, with a strong growth of 44.8%, and we had an EBITDA, excluding other income expense margin of 17.6%, with almost 270 basis points margin improvement. Going to our international business, our volumes were at 654 million unit case, with a slight decline of 1.5%, most attributable to Pakistan and Turkmenistan operations. Despite the pressures, we were able to record a net revenue of TRY 6,493 million with a 9% growth compared to the prior year. Our EBITDA was at TRY 1,217 million with a growth of 4%, and our EBITDA margin was at 18.8%. Finally, our free cash flow in CCI was a record high of TRY 1,079.4 million in 2019, and our net debt-to-EBITDA was at 1.1x, with a significant improvement compared to prior year. Moving on to Migros. We finished a successful year for Migros with market share gains, both in total FMCG as well as modern FMCG. Our stores reached up to 2,198 by the year-end 2019, with 137 new store openings. Our net sales was TRY 23,191 million, which indicated a strong growth of 24% in 2019. Our EBITDA, on the other hand, grew by 25.7%, reaching up to TRY 1,531 million. With the help of good operating performance, asset divestitures as well as good balance sheet management, net debt-to-EBITDA successfully decreased to 1.3x from 2.3x a year ago, which made us particularly happy. Moving on to our Automotive business. As mentioned by Hursit bay, Anadolu Isuzu completed a successful year, reaching up to TRY 1,423 million of net revenues and TRY 149 million of EBITDA. Anadolu Isuzu was able to reach these successful figures despite the significant headwinds in Turkey where market significantly contracted. Our export business helped compensate the softness in the Turkish market. A very strong free cash flow generation of [ TRY 220.8 million ], which indicates an improvement of TRY 321 million compared with prior year, and a net debt-to-EBITDA of 2.4x, which also indicates a very significant improvement compared to 7.5x in 2018, are the results of good and solid balance sheet management and good financial discipline. Çelik Motor continued to optimize its portfolio. And in the year, with a freight size of 8,600 cars in 2019, hence, continuous deleveraging strategy. Consolidated net sales of our Automotive segment was TRY 4,163 million and EBITDA generation more than TRY 427 million. Talking a little bit about our so-called Retail business segment. Stationary business remained under pressure due to headwinds in the Turkish market. With all remedy actions, our net sales was at TRY 347 million, with an EBITDA of TRY 70 million. We managed to be in the positive free cash flow territory in 2019 with a free cash flow generation of TRY 21.7 million despite the headwinds. Let's turn to Other side, had a successful year with net revenues reaching up to TRY 994 million with a 29% growth and EBITDA reaching to TRY 43 million with a 53% growth. As you know, we classify in our unit real estate companies as well as holding and with the Other category, and in this category, our revenues were TRY 628 million with a 65% increase due to deliveries of AND Pastel residential project and an EBITDA of TRY 29 million with a 48% increase in the Other segment. And little bit talking about balance sheet management and the deleveraging initiatives, which has been one of our major priorities from the beginning of the year. We are particularly happy to reach a record high free cash flow generation of TRY 3.5 billion for the consolidated Anadolu Group. This achievement was the result of positive contribution of almost all businesses, with the initiatives of tight balance sheet management, strict financial discipline, ideal asset management, proactively managing our risks and exposures and many other initiatives. As a consequence, we were able to reach to a healthy net debt-to-EBITDA of 1.9x for the consolidated Anadolu Group. Let me remind you that this ratio was at 2.8x by the end of 2018. We were able to improve our net debt-to-EBITDA ratio across all our segments in 2019. Finally, our net debt was TRY 11.2 billion by the end of the year on a consolidated basis. Going forward, in 2020, we have identified our financial priorities as tight balance sheet management, profitability and efficiency improvements, obviously, free cash flow generation being one of the priorities, proactive risk management and as a result, deleveraging our consolidated indebtedness. Well, this concludes my presentation. I would like to hand over back to Mr. Zorlu for his closing remarks.

Thank you, Onur. Coming to the last slide of our presentation, there are a couple of points I want to underline for 2019. Our results indicate that we have successfully achieved strong operational performance, coupled with profitable growth. Our operational and financial priorities are defined and disciplined. We are focused on strong free cash flow generation, with very tight balance sheet management, and we will also be continuing to manage our risk proactively going further. Ladies and gentlemen, thank you for listening to us. And now we will be glad to answer your questions. Thank you.

[Operator Instructions] We already have a question from [ Mohammed Ullekh from Strategy Portfolio Management ].

Hello. Firstly, congratulations for the performance in your major businesses. I have one question for you guys. What will be your strategy about AND Kozyatagi building and it's -- in our opinion, on sustainable debt level, will there be a capital increase in this company as well?

In general, in 2019, looking to the stand-alone holding net debt level, we put capital to Çelik Motor and we put capital to the real estate. So furthermore, we are not planning any capital increases in our subsidiaries, I can say.

[Operator Instructions] Well, it seems that we have no further questions by phone. So sir, dear speakers, you can -- we can switch to the written Q&A.

We have a question from the web. Could you please explain in more detail the dynamics change of the net debt at the holding levels?

Yes. Thank you very much. Actually, the change in the debt in the holding level is mostly attributable to the capital increases that we had, as mentioned by Hursit bay, that happened on the Çelik Motor side as well as our real estate business. So basically, this was a shift between the companies and their holding level to the capital increase that we had.

And we have another question from web. Could you please tell us about your role in Turkey's Automotive JV group? What is the current situation in the project? How much capital do you need to allocate into this project in the next couple of years? How do you plan to finance this project?

Thank you, Burak. Turkey's, Automobile project is a consortium, as you know, between 5 shareholders and also top, which is, we have around exactly, 19% share. So each shareholder, each 5 shareholder has the same shareholding and the 5 -- belongs to the Chamber of Commerce. The project is a project of building Turkey's first electrical car. So -- and the project -- or the cars will be in the market at the end of 2022. And the total, let's say, project cost in general, I can say that is around EUR 1.6 billion. Nearly, 1/3 is the capital. So we will be, let's say, in a position to put 19% of that capital in the coming years.

It seems that we have a question by phone from [ Bhanu Derin ] [Operator Instructions] It seems that we have a problem with [ Bhanu Derin ]. [Operator Instructions] Well, it seems that we have no further questions. So thank you very much for attending this event. Ladies and gentlemen, this concludes today's webcast call. Thank you for your participation. You may now disconnect.