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

Good morning and good afternoon, everyone. Welcome to the Anadolu Brubu Holding's First Half 2026 Earnings Conference Call. I'm Mehmet Colakoglu, Investor Relations Director at Anadolu Grubu Holding. We have Mr. Burak Basarir, our CEO and Mr. Onur Cevikel, our CFO, on the call with us as well. As usual, we will first listen to Mr. Basarir for the key highlights of 2026 with first half results and his general overview. And later on, Mr. Cevikel will provide a brief analysis on segmental performance. [Operator Instructions] In addition, in accordance with the decree of the Capital Markets Boar, our financials are reported using the TAS 29 financial reporting in hyperinflation economy standards. Accordingly, the financial figures in this presentation all comparative amounts for previous periods have been adjusted according to the changes in purchasing power of Turkish lira in accordance with TAS 29 and finally expressed in terms of purchasing power Turkish lira as of June 30, 2026. 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 will now turn the call over to Mr. Burak Basarir.

Thank you, Mehmet. Good morning and good afternoon, everyone. Welcome to our first half webcast and conference call. I will start with a high-level snapshot of our performances across 2 slides. First, the key highlights of the first half, 26, then I look at performance across our major sectors. I will then briefly cover our financial results before handing over to Onur for a detailed breakdown of our financials. Before we begin, I want to briefly address the recent regional developments. We see continued pressure on consumer demand and uncertain macroeconomic and geopolitical backdrop and disruption in some of our countries in where we operate due to ongoing war. The U.S. Iron conflict increased uncertainty, obviously, causing higher and more volatile oil prices and inflationary pressures across our markets. consumers, particularly in Turkiye are increasingly rationalizing their shopping habits, making more value-oriented purchasing decisions and increasingly concentrating demand around promotions. We are going through some quite challenging times, supported by our diversified geographic footprint and balanced product portfolio, we have continued to deliver resilient consolidated performance despite these headwinds. And succeeded in growing our top line by 4.1% and EBITDA by 10.7% in the first half of 26. Let me now move on to a safe chart of our first half results. As you know, we continue to record top line and the bottom line and also EBITDA growth in the first half despite macro challenges and geopolitical uncertainties and weaker consumer demand, particularly in the second quarter of the year. Our flexible resilient business model, geographic and sector diversification played a key role in revenue and EBITDA growth, particularly driven by strong performance in Central Asia region. Despite margin pressures in certain areas, we protected and improved our consolidated EBITDA margin in the first half, driven by cost discipline and quality growth while the second quarter of 206 was more challenging with consumers changing value and promotions in Turkey especially. On a consolidated level, our financials are progressing in line with our expectations. Yet we have lowered our domestic beer and Anadolu is user guidance due to the first half 2Q results. and a challenging outlook. These 2 businesses make up less than 10% of our consolidated revenue. Focus on disciplined balance sheet management and strong free cash flow generation continues as we have reduced our consolidated net debt to EBITDA ratio from 1.5x in second quarter of 25 to 1.1x in the second quarter while recording a significant improvement in the free cash across all of our core business lines. As always, we are committed to advancing our strategic growth ambitions in the second half of the year to make sure meaningful progress towards our Vision 2025 goals. -- which the same focus, discipline and agility. We move on to Slide 4 and then talk about the CCIR soft drinks business. Despite the continued macro and geopolitical volatility -- we've recorded strong results, thanks to the resilience of our business model and the strength of our diversified geographic footprint. We recorded 9.8% volume growth in the second quarter and 8.5% volume growth in the first half on top of a solid 8% growth in the 2025. International operations continue to be the key growth engine with particularly strong performance in Pakistan and Central Asia. We recorded 18.2% volume growth in Central Asia in the first half and Pakistan volumes grew by 8.8% in the same period. Pakistan was a key growth driver during the first half, supported by a more competitive market positioning, successful new product launches and continued strong commercial execution. On a consolidated basis, we've also recorded a robust margin expansion, thanks to disciplined revenue growth management and continued portfolio mix improvement and effective cost management. The improvements in channel package and product mix all strengthened our portfolio mix and supported margin expansion. As always, we focus on our QGA quality growth algorithm turn in robust volume growth into value creation across the P&L and converting that value into strong cash generation. More favorable funding mix, supported by a higher share of borrowings in lower interest rates markets and a bit lower total interest expenses also supported our bottom line. On the beer side, with nodules, the transformation of the FS family, which we started in April of this year, with new packaging, taste quality continues with the new portfolio rolled out across Turkiye business. We believe there is considerable room to expand consumer penetration and attracting consumers to our portfolio. Having said that, the challenging consumer environment in Turkiye is inflows in the beer market and obvious impact on the pace of our rollout and adoption. We face a particularly high comparison base following the strong domestic beer market performance recorded last year. Also prolonged erosion in consumer purchasing power continue to weigh on the demand. That said, we started to see encouraging signs in the month of June. On the international businesses, are progressing in line with our expectations, and we are seeing positive volume growth and margin outlook in the CIS region. Also, our focus on expanding into new geographies, broadening our portfolio countries with agreements in Uzbekistan and also in China. We have also recently concluded the acquisition process of Mercan Raki with our beer business under our beer business. On the retail side with Migros, we continue to grow our retail business, while consumers are increasingly making more value-oriented purchases and concentrating demand around promotions. The positive contribution in our in-store efficiency investment continues in the first half. We have seen some of these gains offset by intensified promotions, higher employment costs and lower contribution of seasonal stores. So in a way, in efficiency investments are defending us against very challenging macro backdrop and weak consumer spending environment. As such, adjusted EBITDA margin remained broadly stable in the first half, while free cash improved on a year-on-year basis. The encouraging momentum we have seen in July has reinforced our guidance in achieving of our full year guidance for our Retail segment. Online operations continue to expand as well. The contribution of online channels total sales reached to 23.1% in the second quarter of the year. up from 20.7% last year, excluding tobacco alcoholic beverages. On the Auto segments -- in Auto segment as you know, the Turkish auto market has been going through difficult years with high interest rates, high base of last year's rising oil prices, geopolitical uncertainties and lower gold prices that are possibly having negative rate effect on the consumers. With regard to our business lines in Auto segment, Çelik Motor, our KIA Distribution business and also Garant car rental business has been outperforming the market, growing volumes and recording positive results in the first half of the year. Anadolu [indiscernible] domestic business, on the other hand, has been negatively impacted by overall weakness in the domestic market. turning us more cautious for rest of the year and reinvesting -- revisiting our guidance for the full year. Integration of Sam Auto, which is the acquisition of our Uzbekistan also continues in line with our plans and is already making positive EBITDA contribution to our full year results as well as well as the first half. And we are super optimistic about our Uzbekistan acquisition of issues. Let me move on to Slide 5. Well, I would like to present first half results both with and without TAS 29 inflation accounting. Looking at the first half with TAS 29, revenues increased by 4.1%, while EBITDA increased by 10.7%, excluding the impact of TAS 29 inflation in first half -- revenues increased by 37.4% and EBITDA rose by 43.4%. For the bottom line, on top of solid EBITDA growth, lower financial expenses, higher monitary gains and reduced losses from -- our joint ventures accounted for under equity pickup method resulted in more than doubling our bottom line in the first half of the year. Then we move on to Slide 6. Our segmental breakdown reflects the breadth of our portfolio. As you can see, the retail is the largest contributor at 57% of our total revenues, followed by soft drink at 29%, Auto 8% and the beer business at 7%. In terms of EBITDA, on the other hand, so trends led by 64% and and followed by retail at 29% and beer at 6%. Collectively, these 3 core segments core 3 businesses account approximately 98% of our total EBITDA for the first half million -- the charts illustrate our geographic diversification as well. In the first half of '26, international revenue benefited from stronger volume growth in both beer business and soft drinks business. with international volumes outpacing domestic volumes, primarily driven by strong [indiscernible] laser performance. On the other hand, the share of international EBITDA was only slightly higher to resilient performance of Turkish lira and rebound in domestic soft drinks margins. As such, the share of international revenues was 21.1% of total sales and 56.4% of EBITDA in the first half of the year. With that, let me hand over to Onur for the detailed financial. Thank you.

Thank you very much, Burak. Good morning, and good afternoon, ladies and gentlemen. Welcome to our first half 2026 financial results call. It is always a great pleasure to talk to you. As usual, I will briefly go through the segments and the financial review on segments and talk about balance sheet metrics. Starting with the soft drink segment. Our total sales volume reached up to 93 million unit with a strong growth of 8.5% in first half 2026. Pakistan, Uzbekistan and Kazakhstan were the main contributor to growth as well as the 2 was TRY 123.6 7.9AS29lation accounting standards. Excluding TAS 29 standards, the growth reached up to 4.4% EBITDA for the segment was recorded at TRY [indiscernible] 24.2% growth for the period. The improvement in profitability was mostly attributable to profitable revenue growth management, portfolio mix improvement, strong operational execution and cost management. Net income was recorded at TRY 13,895 million for the period. On the top of strong operational performance, better working capital management and lower financial expenses helped us improve our net profitability. Without TAS 29 adjustments, the increase in net profitability was at 18.1%. The free cash flow generation for the period was at TRY 2.3 billion compared to a negative TRY 7.4 billion in the prior year, which made us particularly happy. Continuing with the beer segment, -- our sales volume for the first half 2026 was at 5.9 million hectoliters with a decline of 8.6% base of prior year pressure on consumer purchasing power, softer tourism and the FS family transformation impacted the volumes in Turkey, which was the main reason for the decline. Net sales revenue for the first half 2026 was at TRY 29,460 million with a decline of 6.9%, in line with the volume decline. EBITDA, on the other hand, was recorded at TRY 277 million with a decline of 36.6%. While international beer operations profitability was resilient, Turkey operations profitability was under pressure due to both volume decline and FS relaunch. Net income for the Group has recorded TRY 342 million for the first half of [indiscernible]. Continuing with [indiscernible] Migros has reached 3,830 stores with an increase of 147 stores. Online store reached 257 stores with an increase of over 1,000 stores in the first half of 2026. Net sales for first half 2026 has reached to TRY 129 million with a growth of -- excluding the effects of inflationary accounting, the growth has reached to 37.7% compared to the same period of last year. This growth in a subdued demand environment was reached through strong execution, prioritizing consumer value and increased contribution from online sales. EBITDA, on the other hand, was recorded at TRY 10,967 million with a decline of 6.8% in first half 2, higher promotional activities, increased personnel cost and lower seasonal store contributions were main pressures on profitability. We were able to offset these pressures by optimized energy cost, tax cost and electronic investments that lowered our operating expenses. Without the inflationary accounting adjustments, our EBITDA has reached to TRY 16,899 million with a growth of 27%. Net income from in first half 2026 was recorded at TRY 101 -- having free cash flow as a major priority item across the group, we are again particularly happy to generate a strong free cash flow of TRY 5.8 billion in first half 2026. Talking about the Automotive segment. As mentioned by B, our net sales for Automotive segment has reached to TRY 334 million in the first half 2026 with a decline of 5.6%. Excluding the CAS 29 inflationary impacts, our sales volume were at TRY 31,660 million with a growth of 25.1%. Strong, increasing competition, high interest rates vehicle consumer power, mix optimization and limited price adjustments has kept the financials of the segment under pressure. EBITDA for the first half 2026 was a negative TRY 12 million. Excluding the TAS 29 impact, our EBITDA was at TRY 2,509 million with a growth of 10.4%. Net income for the segment was at a loss of TRY 1,131 million in first half 2023. It's worth to mention that our first international operation for the segment, -- so in Uzbekistan has already started to make a positive contribution to our results and its integration continues in line with our plans. Talking about the Energy and Industry segment, our net sales for the segment was recorded at TRY 3,877 million with an increase of 9.7% in first half 2026. Excluding the IAS 29 impact, this growth was at a strong 53.5%. The strong performance of B was one of the main contributors. Strong growth in order intake and improvement in shipment realizations were the main reasons for the performance EBITDA for the segment was recorded at TRY 347 million with a decline of 5.5% -- excluding the inflationary accounting effect, EBITDA was at TRY 65 million with a strong growth of 61%. Net loss for the period was at TRY 1,045 million, mostly due to deferred tax impact. And continuing with the balance sheet management. Our net debt-to-EBITDA ratio was at 1.15 level, showing a solid improvement over the first half of 2025. Back then, this ratio was at 1.5x despite the headwinds through the years between 2019 and 2026, our net debt-to-EBITDA ratio kept on improving. Back in 2019, net debt-to-EBITDA ratio was at 2.1x whereas we are now at 1.1x despite the deconsolidation of Russian operations. This improvement in indebtedness was mostly achieved through positive free cash flow generation, tight balance sheet management, proactive risk management and asset optimization. Our total consolidated net debt was at TRY 97.5 billion in first half 2026, which corresponds to TRY 1,836 million. Excluding IFRS 16 effects, our net debt is at TRY 549 million, which corresponds to TRY 1,035 million. major priorities, our free cash flow generation in first half 2026 was at a negative TRY 5,896 million, which shows a significant improvement compared to prior years 2025 first half year negative TRY 19,867 million. And finally, talking about our financial priorities. Our financial priorities as we have shared with you at the beginning of the year remains broadly unchanged being tight balance sheet management, commitment to positive free cash flow generation, profitability and efficiency improvements, working capital management, proactive risk management and obviously, making sure that we have the right leveraging both in terms of maturities as well as cost. I would like to hand over to Burak, for his closing remarks.

Okay. Thank you, Onur. As we approach the finance, let me highlight a few priorities for the remainder of 2026 and beyond. We will continue to manage our business proactively through inflationary pressures and broader economic challenges, maintaining close watch on our consumers across all of our -- in the first half, we continue to grow our business despite a number of major challenges, as you know. Our operational and financial priorities are clearly defined and consistently communicated at the both holding and subsidiary levels. Financial discipline is embedded in every stage of our decision-making. We made moderate changes to our guidance, mostly due to a softer domestic environment. But overall, our outlook for 2026 remains broadly in line with our initial plans at the beginning of the year. Free cash flow generation, effective assets utilization and vigorous balance sheet management will remain our core KPIs. Moving on to Slide 16. And finally, our key priorities, we will continue to strengthen our core business while selectively force expansion into new sectors and geographies, in line with our Vision 2035. Quality growth at the scale remains a center priority for all of our decisions. Sustainability will continue to guide how we build better features for our people, communities and the planet. We will also advance the digitalization of our operations at all of our group companies. Financial discipline remains a core pillar and we will continue investing in our people, empowering diverse future-rated talent to support our long-term ambitions. I would like to once again thank you for all of you, and we appreciate your continued interest in Anadolu Group and our companies. And now I think you'll be ready to take your questions. [Operator Instructions] I guess no questions [indiscernible]. So thanks all for joining our webcast and hopefully see you on next time next year. Thanks a lot.

Thank you. Thanks very much.