Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi ($AEFES)

Ladies and gentlemen, welcome to Anadolu Efes First Quarter 2026 Financial Results Conference Call and Webcast.  I'm together with our presenters today, our CEO, Mr. Onur Alturk, and our CFO, Ms. Yasemen Guven.  [Operator Instructions] Unless explicitly stated otherwise, all financial information disclosed in this presentation is presented in accordance [indiscernible] 29. Just to remind you, this call is being recorded, and the link will be available online. Before we start, I would kindly request that you refer to our note in our presentation regarding forward-looking statements. Now I'm leaving the ground to Onur Alturk. Sir?

And good afternoon, everyone, and welcome to Anadolu Efes First Quarter 2026 Operational and Financial Results Conference Call. We started the year in a challenging operating environment, which was further heightened by geopolitical tensions in the Middle East, elevated petroleum prices, and ongoing inflationary pressures. Against this backdrop, our first quarter performance reflected a mixed set of results across all our operations. Despite the challenges, we delivered a solid 5% volume growth, reaching 26 million hectoliters on the Anadolu Efes consolidated basis. This performance was mainly driven by our soft drink and international beer operations.   Again, on a consolidated basis, we delivered a solid top-line performance with an increase of 8%, which is higher than the volume growth. This performance was supported not only by solid volumes, but also by better revenue quality, driven by timely pricing actions, a more favorable portfolio mix, and disciplined discount management. This also supported our EBITDA NOI margin, which was recorded at 13.6% with a strong margin expansion of 433 bps. Alongside the improvement in gross profit, similar to the previous quarter, we maintained a disciplined approach by OpEx management, which continued to support our profitability. This was especially important in our beer operations, where strict cost discipline helped us to limit the impact of softer top-line performance.   Free cash flow was negative as anticipated, mainly due to the seasonal buildup in working capital. However, we delivered a significant year-on-year improvement where we benefited from improved working capital, lower interest payments, and some CapEx phasing. Importantly, this improvement was visible across both of our business lines. As a result, our consolidated net debt-to-EBITDA PNI ratio stood at 1.3x at the end of the quarter.  I'm also very pleased to share that in April, we signed a tolling agreement in Uzbekistan, an initiative we have been working on for quite some time as part of our broader growth agenda in Central Asia. Throughout this agreement, we are taking an important step in our localization strategy with the aim of improving product availability, expanding our reach, and building scale over time.   We see Uzbekistan as an attractive market with one of the fastest-growing economies in Central Asia and relatively low beer consumption per capita, offering meaningful long-term potential. Now let me walk you through the key drivers behind the performance of the first quarter. Moving to our Beer Group performance. We had a slower start to the year than we expected in the domestic market, which was partly compensated by the international beer operations. Consolidated beer volume was recorded at 2.1 million hectoliters in the first quarter of '26, corresponding to a 9.6% decline year-on-year. In Turkey, beer volumes were pressured by several factors in line with the beer market performance, which contradicted by double digits.   On the other hand, international beer volumes stood at 1.3 million hectoliters with a limited decline of 1.6% year-on-year. It is also important to note that excluding the impact of the restructuring of export business in Georgia, our international beer volume would have grown by 3.2% in the first quarter.  So while the Beer Group started the year on a softer note overall, the volume performance of our international operations was strong, particularly when we adjusted the restructuring impact in Georgia. Starting with Turkey, our volumes declined 20% in quarter 1, '26. The beer market also declined in the period. The main driver behind the market decline was a visible shift in consumer behavior towards savings as persistent inflationary pressures continue to weigh on discretionary spending.   Moreover, unfavorable weather conditions and softer demand during Ramadan weighed on volumes. In fact, the number of trading days, which is one of the key indicators we closely monitor, nearly doubled compared to the same period last year. In addition to these factors, we also saw the temporary pressure on our volumes as we intentionally reduced inventory levels in the field ahead of the Efes family uplift project. This was a deliberate action and short-term effects aimed at ensuring a healthier transition to the renewed Efes family portfolio. I would also like to touch upon what the Efes project means for us and why we see it as an important step in strengthening our core brand proposition.  Efes has been at the heart of our journey since 1969. For more than 5 decades, we have continuously invested in the brand, listened to our consumers, and evolved the product in line with changing expectations while keeping the same excitement that brought Efes to the shelves on day 1.   With the new Efes family, we are now taking this journey into a new era. This is not only a packaging change, but it's also a bold and comprehensive transformation of the Efes proposition. Developed through nearly 1.5 years of dedicated work, the project brings a modernized packaging design with stronger shelf impact, a clearer portfolio architecture, enhanced service standards, and improved liquid quality following extensive testing and expert input. The process was also validated through comprehensive consumer research, ensuring that the relaunch is fully aligned with the evolving consumer expectations. It is still very early, but the initial consumer response has been very positive, and this gives us strong confidence as we continue to strengthen Efes for the future. Taking a closer look at our international beer operations, we had a more positive picture overall with different dynamics across our markets.   Starting with Kazakhstan, volumes grew by low single digits in the first quarter of '26, marking the fourth consecutive quarter of growth. This is important because, despite the Ramadan pressure on volumes and pricing adjustments made, we managed to sustain growing momentum. The key drivers of the growth were premiumization and our continued focus on the cake segment, similar to the previous quarters.  So despite some seasonal pressure, Kazakhstan delivered another quarter of growth.   In Georgia, total beer volumes were down by mid-teens in the first quarter of '26. However, excluding the impact of the export business restructuring in Russia, volumes were actually up by the low 20s. This was mainly supported by the expansion of our presence in the modern trade channel following the addition of new modern trade customers to our FS brand network, as well as the continued strong momentum in the CSD business. In other words, while restructuring continued to weigh on reported volumes, the core business remained healthy.   In Moldova, volumes increased by low to mid-single digits in the first quarter of '26. The key driver of growth was our well-balanced brand portfolio, supported by successful launches in 2025, which enhanced our coverage across consumer segments and price tiers. Overall, Moldova continued to deliver steady and balanced growth despite cycling a strong base from the first quarter of '25, which makes the performance even more encouraging.   Let's move to the soft drinks operations performance. We had a positive start to the year with consolidated volumes increasing in the first quarter of '26 and positive contributions across both domestic and international operations. The strongest growth came from Central Asia, while Turkey and Pakistan also delivered resilient performances. So overall, volume performance was supported by different markets at the same time.   In Turkey, volumes increased by 1.4%, cycling a very strong base of 8.4% growth from last year. This performance came despite our deliberate choice to optimize sales in the water category as we continue to shift our focus towards higher-value categories and improve the overall value mix of the business.   On the international side, volumes sustained their growth momentum with nearly 10% growth, mainly supported by Central Asia. Kazakhstan and Uzbekistan delivered growth of 11% and 41%, respectively, while Iraq declined by 1.8%, impacted by severe political and economic stress. On the other hand, Pakistan grew slightly by 0.2%, showing a resilient performance following a high base of 17% growth in the same period last year. Now, let me hand over to Yasemen for her in-depth comments on financials.

Thank you, Onur. Good morning, and good afternoon, everyone. As Onur covered as usual the consolidated results of Angolapez, let me now walk you through the Beer Group's financial results for the first quarter, and then walk you through the cash flow, the impact of hyperinflation accounting, and finally, our balance sheet and risk management.   Sales revenue declined by 8.4% to TRY 4 billion on a reported basis. The decline is a result mainly due to the volume decline in Turkey; our local revenues in internal operations are above inflation. At the gross profit level, it declined by 18.4% to TRY 3.4 billion, corresponding to a gross margin of 35.9% with a 440 basis point margin contraction. This margin pressure was mainly driven by unfavorable operating leverage in Turkey and high input costs in Kazakhstan.   At the bottom line, the Beer Group reported a net loss of TRY 327 million compared to net income in the same period of the prior year. The year-on-year swing is largely explained by nonrecurring income from investing activities recorded in the first quarter of 2025, following the change in the scope of the consolidation of Russian operations. Excluding these effects and IAS 29, the underlying net result is broadly in line with operational performance, as is shown on Page 15 as well.   Coming to EBITDA. EBITDA came in at negative TRY 761 million, corresponding to an EBITDA margin of minus 8.1%, with a 190 basis points margin contraction year-on-year. While a decline in gross profit was reflected in EBITDA, EBITDA margin contraction remains more limited than the gross margin decline, with the improving OpEx to sales ratio across the Group.   On the cash flow side, Group free cash flow improved meaningfully by 26.5% year-on-year. Despite the earnings pressure, this improvement was mainly driven by tighter working capital management, CapEx discipline, and lower interest payments. The first quarter was the weakest cash generation period for the beer business, and we expect progressive normalization as volume recovers through the rest of the year. Improving free cash flow generation remains our top priority for 2026 and going forward.   I would like to briefly share the impact of TS2 9 and hyperinflation accounting on our financial results if you look at the numbers excluding 29lyalerolidated levels as shown in the previous slide. [Technical Difficulty] [OnS29edvel TRY 9.7 billion with 2% increase year-on-year to TRY 9.4 billion with 8%-on-S29edAS9 basis. Accordingly, EBITDA would have been TRY 21 million compared to negative TRY 71 and manage of March 2026, consolid netbtDA1.3eer Group level, net debt was reported at 4.6ileS93.6. From the balance sheet, gross debt at group level stands at approximately USD 1 billion with average of our gross debt in hard currency position is 39%.]  On the risk management side for 2026, we have already hedged 72% of our aluminum exposure, and 86% of our FX exposure has been hedged. That end of my presentation. Now I will hand it back for the Q&A. Thank you.

Thank you. There is one question already on the floor. So let me summarize. Do you see any improvement in April trends after the rebranded products reached sales?

Thank you for the question. Let's rephrase the question: the rebranded products. Let me clear the air around our new products, maybe. Over the years, FS has gone through many packaging changes and liquid improvements. Most of them were evolutionary steps, but this is because of the reason we just put our consumers at the heart of our business. And now today, our consumers expect a more comprehensive transformation from FS, both inside and outside the bottle, while also expecting the brand to stay through its spirit. This is exactly what we are aiming to do with the FS family.   We have upgraded the liquid. We have modernized the packaging, strengthening shelf visibility. We have improved the serving standards, and we have simplified the portfolio architecture while preserving the emotional bonds, heritage, and authenticity. Launch was on the 22nd of April. So it's very fresh. It's very new. Our distribution is still limited. Our expectations are so high. The early indicators are very positive. And on the blind consumer test before the launch, we observed, and we were rated as the best flagger all around. So yes, we have very positive indicators, early indicators, but it is still too early to talk about the full scope. I think the summer period and the summer season will give you a good idea about the new product's performance.

Thank you very much. Another question is coming. Thanks for the presentation. Given the 20% year-on-year volume decline in Turkey in the first quarter, what's your visibility on the second quarter recovery? Does the weak start create any downside risk to the full-year guidance? Also, pricing appears soft. Are there any pricing actions being considered in the near term?

Yes. Thank you again for the question. Despite the headwinds and Ramadan impact, I think the business remained resilient in terms of OpEx management. We were able to protect our profitability through disciplined OpEx management, mainly supported by savings in sales and marketing expenses. As a result, we're able to achieve an EBITDA margin almost flat.   Looking ahead, we are taking a more cautious view for the remainder of the year as performance in the first 4 months has become below our initial expectations. We did not want to make any changes to our guidance yet. Given the seasonality of our business, we believe we need to see at least the second quarter performance before having a clearer view of the full year.  The first quarter is typically our lowest-volume quarter and, therefore, does not necessarily set the tone for the rest of the year. Moreover, we expect the FS family launch to support our performance in the upcoming period.   For now, we are maintaining our guidance of slight volume growth for 2Q operations, while recognizing that this guidance currently reflects a more optimistic view, and we will be following up quite closely.

Thank you. Another question comes from [indiscernible]. One of the organized retailers that sells alcohol, Cara, was sold to a group that does not sell alcohol. Are these changes that you closely monitor? Can these losses be compensated through sales in traditional channels?

Thank you for the question. Actually, we have been working on this project for quite some time. So we have a proximity analysis of every Carrefour point of sale in traditional trade. And the total car coverage was in the single digits.   So we just have the proximity analysis and in every Carrefour point of sale on the same street. So we have 200 meters, 500 meters proximity analysis, and we have already compensated, and we have the plans for compensation our loss that will be coming from the car point of sales, both with the other modern trade customers and traditional trade customers.

Have you already seen any cost increases on the packaging side, for example, in glass or aluminum

As we all know, we are hedged in aluminum. Compared to the previous year, our mechanism is based on the hedging mechanism in terms of aluminum.  And accordingly, of course, there is an increase in the aluminum price in the market, but we are using the hedging mechanism. In terms of the glasses, we made our purchase in Turkey, we already made most of the year. For the rest of the year, we haven't seen any price increase yet.

Do you have a year-end net debt-to-EBITDA target for Turkey beer operations based on IAS 29 numbers? We don't disclose the net debt-to-EBITDA target for Turkey, but we rather give the number for the Beer Group. It was around 2.8x where we closed the year 2025. And Yasemen, maybe you would like to give a color for 2026, which will be staying flat, versus even we expect some improvement.

Yes. Could be some improvements, but currently too early to share any better numbers.  So within that context, we are still on track for our target for 2026. So, with IAS 29, of course, it will be higher than 3.5x. However, without IAS 29 numbers, the numbers in any case, in any case, in any worst-case scenario, it will not be reaching even 3x.  So, it will be below 2.8x, which was last year.

I don't see any more questions on the floor. [Operator Instructions] It seems there are no more questions. So thank you all for participating.