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

Hello, everybody. This is Mehmet Kozlu, IR Director at Anadolu Grubu Holding. Welcome to our 2021 Financial Results Team Conference Call. Thank you for joining us today. I have here 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 the year and his general overview. And then later on, Mr. Çevikel will provide brief analysis on segmental performance. I'd like to remind you that this is a Team slide event, meaning that you will be in listen-only mode for the entire session, yet we'll be more than happy to answer your written questions at the end of our presentation. So I will leave the floor now to Mr. Hursit Zorlu. Thank you.

Thank you, Mehmet. Good morning and good afternoon to everyone. Once again, welcome to our 2021 full year webcast and conference call. Before starting, I have to say that we are very closely following the developments between Russia and Ukraine, where our company has beer operations. As always, our first priority is to ensure the safety of our employees. All possible percussions have been taken in this regard. In addition, all the measures have been taken to ensure the safe over production facilities and infrastructure in Ukraine. In Ukraine, we have 3 breweries and we temporarily stopped production. Ukraine makes up around just 2% of our consolidated revenues and 1% of EBITDA for Anadolu Grubu Holding. In our Russian operation, our production and sales activities continue. We will be closely following the developments in the coming days. Just moving to our business. As you know, we are quite a diversified holding with operations in 8 sectors and in 19 countries. This balanced breakdown among different geographies and business coupled with successful operational performance among our companies have supported our financials again in 2021, where we have recorded a solid 33% top line growth and again, 33% in EBITDA growth. We are also watching recent positive developments in COVID, and we are benefiting from removable of restrictions, increased mobility and gradual normalization. Also happy to see that some of our business that were most negatively impacted from COVID are recovering as well. As export markets are opening up and restaurants business is back, I'm glad to see positive results on automotive and QSR business as well. Another important topic is obviously supply side bottleneck and inflationary pressures that were visible throughout the year, which have prompted us to a bit more cautious on our margins in beer and soft drink for this year. And of course, Uzbekistan. First, we acquired Coca-Cola bottlers Uzbekistan majority stake through privatization and later the minority stake from the Coca-Cola Company, reaching 100% ownership. We started integration immediately and achieved significant progress to date. Now briefly touching on our core business slide. On beer, we had another strong performance where we have managed to grow our volumes by 4.7% in 2021. We had fourth consecutive year of growth in Russia. We also had a solid top line growth in the Beer segment, 41%. Some pressure from input cost, but still on the overall healthy margins and a very strong free cash flow. Especially, our recent focus on Premium segment, nonalcohol and flavored categories is paying off, and we continue to gain market share in Russia. Also, CIS beer again, a very strong performance with double-digit volume growth. On soft drinks, strong volume growth across all countries. We have recorded double-digit volume growth both in Turkey and international countries. And another year with solid free cash flow with strong profitability combined with tight balance sheet management. And also, through our Uzbekistan acquisition, we further strengthening our position in Central Asia. On Migros, solid growth in online business continues Strong online shopping demand and our investments in digitalization paid off and supported the top line growth. Migros continued with deleveraging and the company is now in net cash position, excluding IFRS 16 FX and also has no short FX position. Also, the bottom line is now in black as years of deleveraging are finally paying off. So our core businesses, beer, soft drink and Migros, despite many challenges have again done a very good job, and we have completed 2021 on a solid footing on the back of our balance, geographical and sectoral breakdown and successful operational performance. Now moving on to our financial results of 2021. As I mentioned, we have managed to grow our top line by 33% in 2021, driven primarily by Soft Drink segment, which has recorded a solid 52% growth in this period. Our balanced operation in different geographies and sectors also caution the negative impact of COVID-19, and we have seen contribution from all segments. In the Automotive segment, essentially Anadolu Isuzu, KIA and Anadolu Motor have also performed exceptionally well in 2021. Consolidated EBITDA was up by 33% year-on-year in 2021, again soft drinks taking the lead. Our Energy and Industrial segment has seen also EBITDA increase from TRY 276 million in 2020 to TRY 433 million in 2021, playing a positive role in our margins on the back of strong performance of McDonald's and our energy business in Georgia. Looking at our bottom line, net income attributable to parent in 2021 was a solid TRY 1.3 billion. Stripping out the one-offs, the sale of AND Anadolu Gayrimenkul, Migros, Macedonia operations, the sale of Moov shares and Migros provision, bottom line was still at [ TRY 707 million ] in 2021 compared to TRY 351 million loss in 2022. This comes on the back of our very successful operational performance of our companies but also driven by our proactive balance sheet management, lower short FX position, decline in leverage ratios, focused use of derivatives and lira financing. Through these measures, despite the sharp depreciation in TL throughout the year, we have managed to record a significantly better net income versus last year. Free cash flow is also a key focus area for us. We have generated TRY 6.7 billion free cash flow on strong operations, prudent CapEx, working capital discipline. Likewise, we have managed to keep healthy leverage ratio levels despite TL depreciation. Net debt-to-EBITDA at the end of 2021 was 1.6x. 3 years ago, at the end of 2018, net debt-to-EBITDA was 3.1x. At the end of 2019, net debt-to-EBITDA was 2.1x. And at the end of last year, it was 1.5x. While it looks a little higher this year, this was due to Uzbekistan acquisition. If we had not done the acquisition, net debt-to-EBITDA will have been as low as 1.3x. So clearly, we remain on the right path to bring our leverage ratios lower despite fluctuations in TL. Slide 5 shows our consolidated results in graphics, which I have mentioned earlier. On a consolidated basis in 2021, as we just discussed 33% revenue growth, third quarter top line growth was even a little higher, mostly driven by FX moves and inflation. EBITDA for the full year, moving broadly in line with top line growth in 2021. While it's still behind top line growth in fourth quarter as increasing commodity prices begin to put pressure on margins. And the bottom line, again, we see a substantial turnaround here. This slide shows our segmental sales, EBITDA breakdown and our international exposures. Migros had a higher share in revenues at 44%, followed by Soft Drinks segment share of 27% and beer share of 21%. In EBITDA, Soft Drinks had the highest contribution with 42%. Migros and beer was at 28% and 21% EBITDA, respectively. As you can see, our 3 main operations, beer, soft drink and Migros account for around 90% of our EBITDA and revenue. Chart on the right-hand side shows our international exposures. While nearly 30% of our consolidated sales revenues were from abroad in 2020, this portion increased to 33.3% in 2021. Thanks to strong soft drinks international performance and moves in currency. On the other hand, the share of international EBITDA increased from 41.3% in 2020 to 46.8% in 2021 on the back of strong performance in international soft drink business and again, FX. These charts here nicely shows our balanced geographical and sectoral breakdown as well as our focus in international markets and our diversification across the region. 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. Ladies and gentlemen, good morning, and good afternoon. Welcome to Anadolu Financial Year 2021 Results Conference Call. As always, I will briefly take you through our segment performances and -- as usual, I will start with the Beer segment. Our total net sales revenue for Beer Group was registered to be at TRY 17,368 million in 2021 with a strong growth of 41%. Our volume growth on the other side was at 4.7% with a volume of 37.9 million hectoliters in 2021, which shows that our revenue growth was well ahead of our volume growth. Our EBITDA has reached to TRY 2,357 million in 2021 with a strong growth of 20% compared to the same period of prior year. Despite significant devaluation for TL, net income for Beer Group was at TRY 280 million, and the strong free cash flow generation was at TRY 1.8 billion. Going to our Soft Drinks segment, 2021 financial year has been quite a successful year for our Soft Drinks operations. Our volumes in our Soft Drinks operations grew by a strong 16.2%, reaching up to 1,376 million unit case in 2021. All the operations positively contributed to this growth. Our net sales have reached TRY 21,920 million in 2021, and registered a very strong growth of 52%. Despite the challenging macro environment and inflationary pressures, we are happy to achieve such a growth in our Soft Drinks segment. In 2021, CCI registered TRY 2,271 million net profit with a significant growth of 84% compared to the same period in 2020. One of our major priorities, free cash flow was registered to be TRY 2,154 million on the back of solid profitability, prudent CapEx management, tight working capital management and balance sheet management. Moving on to our Migros operations. Our number of stores has reached to 2,565 with the opening of 307 new stores in 2021. Online service stores numbers has also increased to 867 stores, which had the sales growth on the online side. Online share in total sales has reached around 15%. Our net sales revenue was at [ TRY 36,272 million ] with a strong growth of 26% and EBITDA was at TRY 3,055 million with a growth of 22.2% in 2021 with a margin of 8.4%, which shows a 40 basis points improvement compared to the prior year. If we look at EBITDA growth, excluding IFRS 16 impact, the growth in EBITDA is a strong 43.5%. Our net income was at TRY 359 million in 2021, which particularly makes us happy. Let me remind you that provision of competition board penalty is also included in this number. Finally, Migros has closed all of its FX exposure in 2021, and its net debt-to-EBITDA ratio is at 0.8x in 2021. Excluding IFRS 16, Migros was able to close the year in a net cash position. Continuing with our Automotive segment, we finished a successful year in Automotive segment and all issues of key operations and Anadolu Motor had exceptionally good performances and our car rental segment successfully completed the change in its business model after optimizing its fleet. Our net sales in this segment was [ TRY 6.091 billion ] with a 6% growth compared with the prior year. Excluding the business model change in Çelik Motor, this increase was 48.5%. The outstanding performance of Anadolu Isuzu, key operations and Anadolu Motor were the main drivers of the successful growth. EBITDA for our automotive business was at TRY 560 million, which shows a decline of around 8%. However, when we exclude the reorganized car rental business, our EBITDA was TRY 492 million, with a strong growth of 87.8%. So we registered a strong net income of TRY 529 million in 2021, and our net debt-to-EBITDA was a very low level of [ 0.65 ] at the end of 2021. Let me also remind you that we also had completed the sales of 75% of shares of all the rental business move Moov to Getir Perakende and therefore, USD 23.4 million in 2021. Moving on with Energy and Industrial segment, our net sales was at TRY 2,175 million with a strong growth of 21% in 2021. Strong performance of McDonald's business and opening back of the schools are the main positive contributors. EBITDA for the Energy and Industrial segment was at [ TRY 423 million ] with a strong growth of 57%. We also registered a net income of TRY 66 million in 2021, in this segment, cycling a loss of TRY 356 million back in 2020. Let me also remind you that we have completed the sales of shares of [indiscernible] which also helped us lower our net debt-to-EBITDA to 4.1x compared to 7.1x of the prior year. Continuing with our financial priorities and deleveraging, as all of you value members, we had identified deleveraging and strong free cash flow generation is a major priority back in the last 3 years. 2021 was another successful year that we were able to move in the right direction in terms of deleveraging. Our net debt-to-EBITDA, excluding the Uzbekistan acquisition was at 1.3x in 2021 on consolidated level. This represents a significant improvement compared to 3.1x of 2018 and 2.1x of 2019 and 1.5x of 2020 despite the headwinds. Strong operational performance, positive free cash flow generation, tight balance sheet management, use of risk mitigation tools and hedges, either asset sales across all our operations were the main drivers of deleveraging. Our net debt was at EUR 1.2 billion despite the cash outflow for Uzbekistan acquisition in 2021. This also constitutes a significant decline from EUR 2.9 billion back in at the end of 2018. This significant decline was reached despite the significant headwinds, including the significantly [ vehicle TL ] in the recent years. Using the proactive hedging instruments and local financing tools helped us decrease our [indiscernible] exposure in the recent years, especially in our holding company as well as Migros. And finally, talking about our financial priorities. Our financial priorities mostly remains unchanged in 2022, which are tight balance sheet management, including the working capital management, profitability and efficiency improvements, strong positive free cash flow generation, proactive risk management and deleveraging are the main financial priorities. With this, I will conclude my presentation for today, and I will hand over to Hursit for his closing remarks.

Thank you, Onur. Coming to the last 2 slides of our presentation. There are a couple of points I want to underline for 2022 and onwards. As I mentioned before, we are closely monitoring the recent developments in Russia and Ukraine, and our priority is always to ensure the safety of our employees. Despite many challenges, we maintain our key focus on consumer and change in trends within the FMCG sector, as lockdowns and increasing online shopping opened many new opportunities for the players in the sector. Our 2021 results indicate that we have recorded solid top line and EBITDA performance despite COVID-19 restrictions, which obviously had negative impact on many of the sectors we operate. Also, free cash flow, proactive balance sheet management and lowering our FX risk have been our key focus, which have resulted in leverage levels that remain low and bottom line that's less vulnerable to sudden moves in FX. Looking ahead, we will continue with our consumer-centric approach in our businesses. Digitalization and innovation will remain our key focus and we aim to be a pioneer in all the segments we operate. A key area ongoing forward will also be sustainability. Free cash flow will be at the top line of our financial priorities. Also, at the same time, we will focus on balancing potential new growth opportunities on our core segments, with the need to have a strong balance sheet that meets many uncertainties. Ladies and gentlemen, thank you all for listening to us. And now we will be glad to answer your written questions. Thank you.

[Operator Instructions] Okay. There have been no questions at this moment in time. So that ends our conference call today, and I hope to see you at our next live event. Thank you, and bye-bye.

Thank you. Bye-bye.

Thank you very much. Bye-bye.