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

Good morning and good afternoon, everyone, and welcome to the Anadolu Grubu Holding's 2024 Earnings Conference Call. My name is Kerimcan Uzun, IR Manager here at Anadolu Grubu Holding. On the call with me are Mr. Burak Basarir, our CEO; and Mr. Onur Çevikel, our CFO. As usual, we will first listen to Mr. Basarir for the key highlights of 2024 and his general overview. And later on, Mr. Çevikel will provide a brief analysis on segmental performance. [Operator Instructions] There will be a Q&A session at the end of our presentation, where we will go over these written questions. In addition, in accordance with the decree of the Capital Markets Board, our financials are reported using TAS 29 financial reporting in hyperinflationary economies. Accordingly, the financial figures in this presentation and all comparative amounts for previous periods have been adjusted according to the changes in purchasing power of the Turkish lira in accordance with TAS 21 (sic) [ TAS 29 ], and are finally expressed in terms of the purchasing power of the Turkish lira as of December 31, 2024. However, certain items from our financials are also presented without inflation adjustment for information purposes. These unaudited figures are clearly identified as such. And with that, I'll now turn the call over to Mr. Burak Basarir.

Well, thank you, Kerimcan, and welcome to our company, our group. So it is his first conference call, and I wish him success in his new role. And good morning and good afternoon to everyone on the call. Welcome to our 2024 full year webcast and conference call. I want to briefly give you an overview of our performance in the following 2 slides. To start with, 2024 was again a year in which we faced many challenges, including persistent inflationary pressures, weaker consumer confidence across multiple markets and geopolitical uncertainties. Despite all of these challenges, we maintained our top line EBITDA growth and healthy balance sheet structure in 2024, driven by our proactive management approach, strict balance sheet management and diversified portfolio. On our margins, for 2024 full year, we have recorded solid gross margin across our core business lines, driven by improved product mix, effective cost management, favorable raw material prices, relatively stronger Turkish lira and economies of scale. EBITDA growth, on the other hand, fell below gross margin growth in 2024, partially due to higher operating expenses. Despite increase in operating expenses, we still recorded a solid 10% EBITDA growth in 2024. Again, positive top line growth and solid gross margin were behind this solid EBITDA performance. As always, it is worth mentioning here that our flexible and resilient business models, geographic and sectoral diversification, efficiency and cost-oriented structure have once again supported our results in 2024. Also, our key focus is in the defensive FMCG category, which makes up more than 90% of our revenue, and a delevered balance sheet puts us in a sound position for a potentially weaker consumer demand environment with tight financial conditions. Our product portfolio in FMCG is small-ticket items, and overall, our businesses are relatively less cyclical during the economic downturns. Besides our core FMCG business lines, the Auto segment was naturally affected by increasing competitive conditions following last year's strong performance. Accordingly, we have seen relatively weaker financials in the Auto segment in 2024 compared to 2023, which we'll discuss in more detail in the coming slides. The Auto segment remains a small part of our business, with less than 10% share in our total revenues. Also, before we go into the details, let me briefly touch base on the situation in Russia. As you know, a presidential decree was issued back on December 30, 2024, has placed Anadolu Efes' operations in Russia under an external temporary management. We are closely monitoring the situation, and we'll keep you updated when the developments occur on Russia front. Let me move on to Slide 4, and let me briefly touch base on our core businesses. On Beer, with an exceptional performance from the start of the year, the Beer group's consolidated volume grew quarterly and closed 2024 with an impressive 8.4% volume growth. The gross margin also improved in 2024 on solid top line growth and economies of scale, while higher OpEx resulted in a lower EBITDA margin versus last year. We continue to focus on delivering long-term sustainable value to our shareholders through an optimized portfolio and operational excellence and also financial discipline. We also continue exploring new opportunities to enhance our portfolio and expand our presence across different categories, strengthening our position in existing and new markets. On the Soft Drinks, volumes were under pressure in most of our markets in 2024, yet we saw gradual volume recovery in the last quarter of the year. Our focus on remaining affordable winning at point of sale and strengthening the quality of our portfolio helped us against volume pressures in 2024. Effective cost management, driven by favorable sugar and other raw material prices, and relatively stronger Turkish lira significantly improved the gross margin performance in Türkiye and our consolidated gross margin. On the other hand, higher OpEx resulted in a flattish consolidated EBITDA margin. We will continue to focus on quality mix management, volume growth, disciplined daily execution and dynamic pricing to remain affordable to consumers across all of our markets. For 2025, in line with our principle to invest ahead of the demand and demonstrate our belief in the long-term potential of our markets, our 2 new plants in Iraq and Azerbaijan, and also an upgraded Namangan plant in Uzbekistan will be operational in 2025. On Migros, solid sales growth continued in 2024, a competitive pricing strategy increased customer traffic in online and physical stores, and new store openings supported our top line growth in 2024. We have managed to gain market share for 10 consecutive quarters in both FMCG and modern FMCG, driven by increased consumer traffic and real basket growth. The focus on balance sheet and financial discipline specific to free cash flow continues. As a result, Migros remains in net cash position and dividend payers -- player in the retail sector. On Auto segment, the increased competition and normalization in supply and demand dynamics impacted our financials. Revenue and EBITDA were down in 2024, but the Auto segment remains a small part of our business. As I said, it holds about less than 10% within the share of the EBITDA. Let me move on to Slide 5 and on the financial results. We have grown our top line by 4% in 2024, led by Retail and Beer segments. Excluding IAS 29 revenues, which was up by 60%, EBITDA for 2024 was up by 10%, driven preliminary by the Retail segment. Excluding IAS 29, EBITDA was up by 54.8% in 2024. Looking at our bottom line, the net income in 2024 at a combined level was TRY 26.7 billion versus TRY 71.1 billion of 2023. At the parent consolidated level, net income was TRY 5.2 billion in 2024 compared to TRY 28.4 billion of last year. Let me give you the reasons behind the change in the net income in 2024 versus 2023. The first main reason for decline is relatively lower monetary gain in 2024 compared to last year. Additionally, increase in interest rates in Türkiye, higher financing costs, strong Turkish lira and the financial performance of our joint ventures accounted for through the equity pick-up method have contributed to the decrease in the net income for 2024. Excluding the impact of these joint ventures and IAS 29, the consolidated net income for 2024 has grown by 8.4% on a year-on-year basis, reaching to TRY 24.4 billion. Looking at the balance sheet, our net debt EBITDA is at 0.5x at the end of 2024 on a proactive balance sheet management versus 0.6x at the end of 2023. Again, worth underlining, excluding the effect of IAS 29, our net debt-to-EBITDA ratio, which has risen to 3.6x in back in 2019, decreased to 0.4x by the end of 2024, which is a significant achievement on the holding side. On the Slide 6, we present our financials with and without IAS 29 implementation to ensure comparability with the previous year. As discussed in the previous slides, on a consolidated basis, IAS 29, we have recorded 4% revenue and 10.6% EBITDA growth. Without the implications of IAS 29, we have recorded a 60.3% revenue growth and 54.8% EBITDA growth in 2024. Let me move on to the Slide 7, which shows our segmental sales, EBITDA breakdown and our international exposure. Retail had the highest revenue share with 52%, followed by the Soft Drink segment share of 24% and Beers of 16%. In EBITDA, Soft Drinks made the highest contribution, 44%, while Beer and Retail constituted 25% and 28% of our EBITDA, respectively. As you can see, our 3 primary operations, Beer, Soft Drinks and Retail, account for 97% of our EBITDA. The charts on the right-hand side show our international exposures. 25.7% of our consolidated sales revenues were from international operations in 2023. This portion slightly decreased to 25.3% in 2024 due to strong retail top line performance and relatively strong TL, offset by the very strong performance of our international Beer business. The share of international EBITDA declined from 61.4% in 2023 to 49.3% in 2024 due to improved margins in domestic Soft Drinks operations and Retail segment. The share of international net income increased from 21% to 65.4% in 2024. The increase in the share of international net income is mainly driven by lower monetary gains, which impacts the domestic part of our business. Now let me turn on to Onur for the financial deep dive. Thank you.

Thank you very much, Burak bey, and good morning and good afternoon, ladies and gentlemen. It's a pleasure to host you in AG Group financial year 2024 results call today. As usual, I will briefly go through the financial performance of our segments, and we'll start with the Beer group. We are happy to announce that we have reached 38.7 million hectoliters of sales volume in financial year 2024, with a very strong growth of 8.4%. This growth has been fueled mostly by our international operations. The growth for the international operations was reported to be 9.7%. Our Turkey operations, on the other hand, also had growth, with a 2.3% growth, which was in line with our expectations. Net revenue for the financial year 2024 has reached to TRY 92,180 million, with a strong growth of 10.1% compared with the same period of the prior year. The net sales, without TAS 29 inflation accounting, was TRY 90,239.7 million, with a strong growth of almost 63%. Volume growth, price management, revenue growth management and mix were the main contributors to the growth. Continue with profitability, EBITDA for the financial year 2024 was at TRY 14,224 million, with a decline of 7.7% compared with the same period of the prior year. On the other hand, excluding the inflationary accounting adjustments, EBITDA was recorded at TRY 16,553 million, with a growth of 41.6%. Profitability in the financial year 2024 were a little bit under pressure due to increased operating, transportation and trade marketing expenses, especially in international operations as well as due to inflationary accounting by the mismatch between the inflation rate and the devaluation against TL in the currencies of the countries that we operate. Beer group net profit for the year 2024 was at TRY 7,315 million, with a decline of 58.8%. On the other hand, excluding inflation accounting, net income was recorded at TRY 6,087 million, with a strong increase of 67.1%. Finally, we were able to generate positive free cash flow of TRY 6,134 million in the Beer operations in 2024, that makes us particularly happy. Continuing with the Soft Drink segment. As mentioned by Burak bey, our total sales volume for our CCI operations were 1,501 million unit case in 2024, with a decline of 2.2%. Turkey, Iraq, Azerbaijan were growing, whereas Pakistan, Kazakhstan and Uzbekistan markets were mostly under pressure. Net sales revenue was at TRY 137,683 million, with a decline of 5.6%. Excluding TAS 29 impacts, our net sales revenue reached to TRY 129,809 million, with a growth of almost 43%. Even though pricing and revenue growth management contributed positively, the mismatch between inflation and devaluation in the currencies that we operate negatively impacted the revenue. EBITDA, on the other hand, for CCI, was at TRY 25,347 million, with a slight decline of 3.2%. Excluding TAS 29 impact, EBITDA was at TRY 25,754 million, with a growth of 36%. Profitability was mostly under pressure by volumes, purchase power decline in the countries that we operate and partly increase in some of the expenses. Net profit for the segment was at TRY 14,813 million, and excluding IAS 29 impact, net profit was at TRY 9,345 million. Finally, CCI continues to have a healthy net debt-to-EBITDA ratio, which is around 1x in 2024. I would like to continue with our Migros segment. We continued our successful performance in Migros for the year 2024. The number of stores reached to 3,621 stores, with an increase of 258 stores. Stores serving the online segment has reached to 1,422, with an increase of 329 stores. We also managed to gain market share, both in total FMCG and modern FMCG market retail sector, driven by increased customer traffic and the real basket growth. Our net sales for the financial year 2024 was at TRY 293,780 million, with a growth of 12.1%. Without TAS 29, inflation accounting adjustments, revenues were recorded at TRY 258,743 million, with a strong growth of 77.6%. Our EBITDA has reached to TRY 15,796 million in financial year '24, with a very strong growth of 248.2%. Strong gross profit was able to compensate the pressures due to high personnel costs, especially in the first half of the year. Positive impact of the imputed interest rate on EBITDA was also a major contributor. Excluding TAS 29 accounting, EBITDA was recorded at TRY 23,817 million, with a strong growth of 145%. Net income for financial year 2024 was at TRY 6,340 million, with a decline of almost 50%. The decline is mostly attributable to the effect of inflationary accounting lowering the monetary gain compared with the prior year. Net income was recorded at TRY 5,694 million, excluding the impact of TAS 29 inflationary accounting, which is almost flattish with a 3.6% decline compared with the same period of the prior year. As you know, cash flow management is a clear priority for our group. We are particularly happy to report the net cash position of TRY 21,300 million for our Migros operations, excluding the IFRS 16 applications. So continuing with the Automotive segment. I think it's important to remember the extraordinary performance that the segment had in '23, which this extraordinary performance is being cycled right now. Obviously, the performance of the segment was affected due to increasing competition. And thanks to the regulatory changes, the competition has been even severe and normalization of the demand in the local automotive market. Accordingly, our net sales was recorded at TRY 45,075 million, with a decline of 15.6% compared with the prior year. Excluding TAS 29 inflationary accounting impact, net sales for the segment was at TRY 39,569 million, with a growth of 31.6%. EBITDA, on the other hand, was recorded at TRY 1,363 million, and excluding TAS 29 inflationary accounting impact, EBITDA was recorded at TRY 4,045 million, with a decline of 11.8%. Net profit was at TRY 125 million for 2024. Excluding TAS 29 impacts, net income was at TRY 1,933 million. Continuing with Agri, Energy and Industry segment, our net sales for the period was at TRY 5,355 million, with a 5.2% increase. Excluding TAS 29 inflationary accounting adjustments, net sales was at TRY 4,794 million, with a relatively strong growth of 64%. EBITDA for the segment was at TRY 763 million, with a decline of 7%. Excluding the inflationary accounting impacts, EBITDA was at TRY 935 million, with an increase of 26%. Net income for the segment was TRY 565 million for the year. So coming to the balance sheet management. As you well know, balance sheet management and deleveraging is a clear priority for us for the last years. Our net debt-to-EBITDA ratio was at 0.54x by the end of financial year '24. Throughout the years, we have reached significant improvement in indebtedness ratios, thanks to the commitment to the free cash flow generation, balance sheet management, proactive risk management and asset optimization. Our total consolidated debt is TRY 31,350 million, which is around 6% less than the same period of prior year. The euro terms, consolidated net debt is around EUR 853 million. We are particularly happy with the healthy net debt-to-EBITDA ratio for the consolidated group and significant improvement through the years. Our net debt to EBITDA without TAS 29 adjustment back in 2008 had reached up to 3.6x, whereas we ended up 2024 with a healthy 0.4x, with a strong proven track record of positive free cash flow generation. Our total free cash flow generation, which is another priority for the whole group, was at TRY 18,500 million for 2024. So finally, talking about our financial priorities. Well, our main financial priorities for 2025 has not changed significantly compared with 2024, and they are to have a proactive balance sheet management, to make sure that we continue having the track record of generating positive free cash flow, making sure that we make the necessary efficiency improvements and also improve our profitability, proactive risk management and deleveraging and debt optimization. So this concludes my presentation. I would like to hand over the word to Burak bey.

Well, thank you, Onur. There are a couple of points I would like to underline for 2024. We will continue proactively managing our business through the inflationary headwinds and various economic challenges. We are also closely monitoring the consumer environment in Türkiye, which is still experiencing tighter financial conditions despite rate cuts in the last months. We continue to expand our business with top line growth, and our balance sheet remains solid despite the many crisis we have experienced in the last 3 years. Our priorities are clearly defined and effectively communicated at the holding and subsidiary levels. We continue to focus on financial discipline in every decision we make in the process. The key performance items are obviously free cash flow generation, increasing capacity utilization, deleveraging the balance sheet and the tight balance sheet management. So on the Slide 17, let me underline the key focus areas going forward as always. We will be prioritizing creating value for all of our stakeholders. We will continue to focus on quality growth. Sustainability goals will be crucial as always. We will continue to drive the digitalization of our enterprise. Financial discipline, again, will be a key focus area. At the same time, we will continue to invest in our people. So thank you for joining the call, and let me open the floor for your questions. Thank you.

[Operator Instructions] We have a question from [indiscernible] from [indiscernible]. I'll read the question. Can you give an update on Togg and outlook for Adel in '25?

Well, I mean -- thank you very much for the question. As you know, Togg is a joint venture that we have with our partners, and we have 23% shareholding in Togg. Last year sales numbers were around 30,000 in Togg. So I mean, the outlook for the Togg is, Togg is being a pioneer in the Turkish market with the production of an electrical device, which is on the road for the last almost 12 to 18 months. And we are happy to be partners in Togg. Going forward, we do think that the performance in Togg will be increasingly going in the positive direction. And the dynamics that we see in the electrical car market, we do think that positive development will be coming on, on Togg, in the coming years. So talking about Adel, Adel is our stationery business, which we are proud to be partners with. And we do think that in the coming years as well, Adel will be a part of our business. And we do think that its positive dynamics in the -- that we have seen in the recent years after the recovery from the pandemic will be continuing in the future years. However, having said this, 2025, given the economic conditions in Turkey and spending in Turkey, some of the volumes might be under pressure for our stationery business. However, we do see a good prospect in the long run in the sector. Thank you very much.

So there are no further questions at the moment. Thank you for joining us today. We look forward to meeting you in the next quarter. Goodbye.

Thank you very much for joining.