Kofola CeskoSlovensko a.s. (KOFOL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Kofola's 2021 Second Quarter Results Conference Call. You will now hear a recorded presentation of Janis Samaras, Group CEO; followed by a summary of the group's results presented by Group CFO, Martin Pisklak; and business insights from CzechoSlovakia and the Adriatic presented by country CEOs, Daniel Burys and Marian Sefcovic.

Dear investors, this is Janis speaking. My colleagues will talk about our excellent business results in the second quarter of 2021. I want to speak about our related sustainability project. I am very proud of name, Cirkulka. We are constantly looking for ways to reduce our carbon footprint, produce as little waste as possible and be as local as possible. After launching 100% rPET bottles, we are now coming up with the concept of easy-to-carry returnable glass bottles to retail. Practically, the entire range of our products for gastronomy already uses returnable packaging. We have experience with them, and we are now ready to expand this into stores. We have been working on the project for more than 2 years, and we have done everything to ensure that the returnable bottle system would help to extend the life of the packaging and minimize waste. Our plan is to launch our new bottles and innovative trades for Kofola, Vinea and Rajec during the beginning of the next year. This project demonstrates that we work on innovation of our entire business model, and I am very happy for it. If you are interested, you can find more information on our website. Now I will pass to my colleagues. Thank you for your attention. Goodbye.

Dear investors, Martin Pisklak speaking. I am very glad that I can introduce our excellent second quarter results. In the second quarter, our group revenues increased by more than 20%. Our group EBITDA is higher by almost CZK 150 million. And our EBITDA margin was over 21%. That's why our also half yearly results very strong. Both revenues and EBITDA are significantly above the 2020 results. Net debt-to-EBITDA ratio decreased to 3.3, and the cash position of the group also stabilized. It also seems that these positive trends are continuing in the third quarter. Compared to prior year, group revenues increased by 25% in June, 1% in July and 5% in August. Because of this, we improved our expected EBITDA result for full 2021. Full year EBITDA should finish in the range between CZK 1.080 billion to CZK 1.150 billion. I would also like to draw your attention to our nonfinancial part of our presentation. You can see our latest efforts to put sustainability into practice, including the latest project, Cirkulka. Dear investors, thank you very much for your attention. And now I handling my word to my colleagues from individual business segments.

Good morning, dear investors. Here is Daniel, Kofola CzechoSlovakia soft drink division. Let me briefly comment Q2 and top season highlights. Q2, it's easy, more than 20% growth of sales and 33% EBITDA. Why? HoReCa reopening in similar dates as last year, but consumers returned back immediately without COVID stress. Only limited HoReCa outlets stayed closed. June weather had also significant impact. Positive sentiment of wholesalers and retailers before holiday season. But we had also negative trends. Declining retail market share in Czech Republic, we lost 1.5%. Main reason is drop of flavored water category, especially Korunní brand. Our goal for Czech retail is 20% market share. We had logistic problems in June, July. Season was so demanding that we were not able to supply consumers on time in both distribution channels. in fact, this problem of whole industry is just a small apology. We have to improve process for next season. And now top season comment. If you look on June, July, August together, it was a very successful season, even though weather in August was cold and rainy. We broke CZK 600 million sales each month, and we grew 9% compared to last year. Negative effect was inflation situation in economy. We have to cover higher costs, and we had to start pay full price increasing procedure. Thanks to these 3 months, we erased lockdown losses, and we have positive forecast for year-to-go period. Thanks for your attention, Daniel.

Hello, Marian Sefcovic, commenting the results of Adriatic region in first half of this year. First 6 months of 2021 were very successful for Adriatic. After a slow start in Q1, due to the closed HoReCa segment in both countries, we have started the season very well with good sales performance in our main season. The Adriatic region has finished 6 months with the sales performance above 2020 by 10% due to the excellent sales in Q1 with the opening of HoReCa and the start of the tourist season in Croatia. July and August results are also above 2020 with double-digit growth in both countries. However, year-to-date August, we are above 2020 by more than 15% and on target for this year. In Croatia, we finished June with better sales versus 2019, which was the pre-COVID times; and also August, due to the good tourist season, is about 2019 sales volume and almost plus 60% about 2020, which shows that we are on the right track. Slovenia has shown a steady performance in all segments of drinks in 2021. Our main season has been very successful so far in both countries with the results above our expectations. Q1 2021 sales performance were below 2020 by 8% due to the closed HoReCa, but sales in Q2 are above last year by 25%. First half of the year in Slovenia revenue are above 2020 by 5%; Croatia with excellent sales above last year by 17%. EBITDA 6 months 2021 in Adriatic region has more than doubled versus last year. The price of raw material are similar to last year, but are increasing in the summer months with a small negative impact, especially for PET material. We also concluded several innovations and modalities in the region; launch of 100% rPET product in Slovenia and Croatia for still water; and we are actively developing the new packaging for the rest of portfolio and decreasing amount on materials used for packaging; extending Pepsi portfolio with launch of Gatorade sports drink; launch of Oraketa [ 400 grams ] for retail and a very successful launch of new flavor of Oraketa, Lemongrass, which has become a new summer hit in Slovenia. We are very active in innovative digital platform, enjoy the digitalized menus and payments, covering more than 1,000 outlets in both countries. In May, we have started important business cooperation in Slovenia with the most renowned Slovenia's soft drinks producer, Fructal, that [ enrich ] our HoReCa portfolio with high quality of fruit juices. We have started a new sustainability project in Slovenia to support local community in [indiscernible]. Thank you very much.

[Operator Instructions] We have a first question from Mr. Pavel Ryska.

Just first of all, to make sure that you can hear me. I'm not sure.

Yes, we can.

Okay. Good. Congratulations on the very good results for the second quarter of this year. I have 3 questions. First of all, if you could please reiterate the rate of growth of revenues that Mr. Pisklak mentioned at the beginning of the presentation, in the third quarter, that means so far in July and in August. Second, I was wondering, you mentioned that the summer season overall is looking very good so far. But the weather in Central Europe was very mixed. August was, at least from my subjective point of view, very, very weak. So if you could maybe comment on how you coped with this situation? How you managed to even increase sales given that weather wasn't really summer-like? And finally, the cost of sales in the second quarter were up some 15% year-on-year. So if you could comment if this is a number that we could count on for the coming quarters, for the third and fourth quarter, if the cost of inputs should increase at the same pace or if you're expecting this to be different?

Okay. Thank you very much for your question. The first question regarding the revenues during the season. The chart is visible also in the presentation. So in June, the revenues were higher by 25%; in July by 1%; and in August by 5%. The second question, how we were able to report such a good result is basically that we really prepared all the activities exclusively for the season. We were waiting till the HoReCa opening, and our focus was simply driven only on the seasonal months and we were able to utilize this. So we were well prepared, and that's the secret of the success basically. The last question regarding the material prices. Yes, the truth is that the inputs for the raw materials are increasing. During the conference call after the first quarter, we announced that we expect that the sugar price should increase by 10% to 15%, and the PET price should increase by 15% to 25% in 2021. The current trends are basically that the sugar is very close to 15% price increase. On the other hand, PET is on the lower range of the interval and it's also close to 15%. So basically, the material prices are increasing, and we expect that the material prices should increase also in the following quarters. The inflation trend is very visible on the market, and we should count with this effect in our forecasts. And as also Daniel Burys mentioned in his part of presentation, that's why we are very strongly considering price increase in the rest of the year.

Next question is from Mr. [ Mathias Karu ].

Congrats on your second quarter results. Can you comment your second half projections as well? Can you give any guidance for the full year in terms of revenue, EBITDA?

Okay. Thank you very much for your questions. We are giving guidance on the EBITDA level. So we are not publishing guidance on the revenues. But the range for EBITDA for the full year 2021 is in between of CZK 1.080 billion to CZK 1.150 billion.

Next question is from Mr. Petr Bartek.

Can you hear me?

Yes.

So congratulations to the great result. Maybe just also to the guidance. If I calculate it, like, [indiscernible], I get to full year results of CZK 1.2 billion or more if we expect revenue increase in Q3 of around 2%, 3%, 4%. So at first sight, it looks a little bit cautious. So I wonder -- the outlook for the second half of the year. So I wonder whether you had some delayed OpEx' from the first half of -- or if there is any other impact? And the second question is what cost pressures do you see in transportation and in wages? If you can give us some flavor, if it's stable or you're seeing increasing pressures?

Thank you very much for your question. Regarding the full year EBITDA, yes, the truth is that if you look on our cumulative EBITDA for the last 12 months, we are actually on the higher range of the interval, which we published for the guidance. So I mean that the EBITDA is CZK 1.150 billion approximately. But as I said, the increase of material prices, it's now fastening, and it's slightly delayed compared to our original expectation. So that's why we are counting with higher material price increase in the second half of the year. And this will affect EBITDA significantly. That's why we are like staying in the interval, which we basically published. Regarding the transportation costs, there is a lack of transportation capacity in the market. That's why all the producers, not only in beverage industry but also in the other, have really problems to get the trucks, which can deliver their goods to the customers. And that's, of course, increasing the prices a bit. I really believe that this was just the question of the season where the majority of the producers are delivering the top volumes to the market. And now in the autumn and winter months, the situation should stabilize. So I do not expect any additional price increases. The price for the transportation should stabilize on the spring -- back to spring levels basically. And regarding the wages, yes, because of the general inflation situation in Czech Republic, we also see the pressure on the wage increase. So we will react. And for the next year, definitely, we should increase the wages and salaries. The percentage rate of the increase, I will not comment at the moment.

Maybe one additional question. You had a relatively high increase in administrative costs in Q2. If you can comment on this? And whether it will continue in the second half?

Just a moment. I will look into precise numbers. Basically, if I'm reviewing, the increase in administrative costs is related to recognized provision for the employee bonuses for 2021. We did not recognize this provision for the successful year, basically in the first quarter, because of the lockdowns and weak performance. Now the second quarter was strong. So we recognized the provision, and this should not repeat in the following quarters because the provision is already recognized. So it was basically just a question of this quarter.

So there is not any material increase in number of FTEs or anything like that?

No, no, no. We are still close to 2,000 employees in the group, and this number is stable.

Mr. Pavel Ryska, please, do you have an additional question?

No, no, I do not have. Maybe I just touched something wrongly on the screen.

[Operator Instructions] Now we have question from Mr. [ Peter Truswell ].

Maybe you can comment on the development of financial costs going forward. So I can see that the second quarter level was some CZK 20 million higher than previous quarters. So maybe you can elaborate on that? What could we expect going forward?

Okay. Thank you very much for your question. If I look on the numbers, like the finance income and costs, basically includes 2 major categories. First one are interest rates, which are slightly increasing. We have a significant part of our debt with a hedged interest rate. So at the moment, we are benefiting from the hedge. On the other hand, the majority of the movement in this P&L item is caused by the foreign exchange differences. In the previous year -- in 2020, in the first half of the year, the exchange rate between Czech crown and euro changed a lot. Corona was -- Czech crown was significantly weaker compared to this year. And basically, this makes the difference, the calculation of the balance sheet items denominated in euro currency.

Mr. Petr Bartek, do you have an additional question, please?

No, I don't.

[Operator Instructions] Mr. [ Mathias Karu ], do you have any additional question, please?

No, I don't have any further questions.

Thank you. There are no more questions. This concludes today's conference call. Thank you all for your participation. You may now disconnect. Goodbye.