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

Ladies and gentlemen, welcome to Kofola's 2021 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 Pisklák and business insights from CzechoSlovakia and the Adriatic presented by country CEOs, Daniel Burys and Marian Sefcovic.

Dear investors, commenting on our results in the annual report for the last 2 years has felt more like a lecture on the historical events of the last century. There is a lot going on. What was true a month ago is different today. A few weeks ago, the world seemed to be returning to normal after the pandemic years. Even our sales in the first quarter of 2022 were back to 2019 levels. But then came the news from Ukraine and the world changed again. The Russia-Ukraine conflict is something that haunts me. I experienced it very personally perhaps because my parents, my grandparents and our entire Greek family went through similar horrors of fratricidal war more than 70 years ago. It's like it's occurring somewhere in my genes now. The civil war in Greece disrupted society and I can now say with hindsight that it took 2 or 3 generations for the old wounds to heal. For decades, there are terrorist relationships, broken family ties and scars on the soul of the whole country. I imagine that families caught up in the war in Ukraine will now have to experience something similar or try not to give into emotions. It's difficult. The media is influencing us, people are dying and emotions are heightened by the uncertainty of future developments. The aftermath of all wars is long, and the recovery from them is difficult, but let us try not to lose faith to overcome fear, not to succumb to despair, apathy and excitement. Let us try to keep our emotions in Czech and cultivate the good in ourselves and in those around us because everyone's personal attitude and disposition is always the most important thing for overcoming difficult times. I am very happy to say that the year 2021 has been, as we expected. Revenues grew by 7.5% and EBITDA exceeded CZK 1.1 billion. At the end of the year, we signed an agreement to buy a 1/3 stake in General Plastic, a Slovak PET bottle recycler, and we are now awaiting approval from the competition authorities. This is another important element in our sustainable business. These days, you can see our new product in the shops. Drinks in a returnable 1 liter glass bottle, our Cirkulka project. Consumers can buy Kofola, Vinea or Rajec in more environmentally friendly packaging. Finally, I would like to thank everyone who helped us succeed in 2021. Our consumers, customers, suppliers and mainly all our employees. 2022 will not be an easier due to the macroeconomic situation. But I firmly believe that together, we will once again bring it into a successful conclusion. I will now hand over to my colleagues who will comment on the results for the group, the CzechoSlovakia and the Adriatic region. Thank you for your attention. Jannis.

Dear investors, Martin Pisklák speaking. I am pleased to present Kofola Group 2021 results. Our revenues increased by 7.5 percentage points. That's almost by CZK 0.5 billion. Consolidated EBITDA increased by 10% and totaled CZK 1.128 billion. These are very satisfactory and promising results. All of our three business segments were growing. That's a very important fact. Also leverage decreased significantly. Our net debt represents 3.1x EBITDA multiple. In 2021, our key success factors were especially strong brands, good planning and cost discipline. We would like to continue in current trends also in 2022. We follow very closely macroeconomical situation, especially our impact on purchasing power of our consumers. For 2022, we said the EBITDA ranged from CZK 1.80 billion to CZK 1.2 billion. We would like to decrease our net debt-to-EBITDA ratio below 3x. We also plan to follow our dividend policy from previous years. Thank you very much for your attention.

Dear investors, here is Daniel speaking. I'm responsible for Kofola soft drinks business in Czech and Slovak Republic. I'm happy I can confirm 2021 excellent performance. In Q4, we grew 19%, especially thanks to recovering Czech HoReCa and on-the-go segment. HoReCa in Slovakia was destroyed by COVID restrictions. Very successful was Christmas Kofola promotion. And the retail increased in Q4, 6% compared to last year. Full year picture was very positive, too. We achieved sales CZK 4.8 billion with more than 6% growth. On-the-go segment is trigger of success, plus 16%. Retail and on-premise was on 2020 level, retail plus 1% and HoReCa minus 2%. Don't forget that HoReCa was closed more than 5 months. Market position. Small negative correction is visible in retail Czech market share due to Ondrášovka-Korunní merger. Sales strategy. We focused on margin. HoReCa market position is on historical records in both countries again. Let me briefly comment also 2022 Q1 performance. We successfully realized selling price increase, and we have to announce additional price increase in these days due to unexpected level of inflation. In spite of high inflation and Ukraine war, consumption in Q1 was growing. Our sales were more than 30% above last year and 5% above 2019, which is unbelievable. Only on-premise formats, HoReCa, is recovering after COVID slower year. We are on 89% of 2019. And we don't expect full HoReCa performance before 2025. We expect very interesting and demanding top season. We are ready, keep our strategy and be smart and flexible. Thank you for your attention. Daniel.

Hello. This is Marian Sefcovic speaking, the CEO of Radenska Adriatic. Year 2021 in Adriatic region has been very successful. We have started the year in lockdown and lower sales by almost 10%, but due to the strong summer tourist season and our excellent sales strategy and execution, we have achieved overall growth of 12.6% for the whole year. We are proud to announce that sales in our main season in Croatia exceeded the year 2019. In the main season, we have seen growth plus 40% in Croatia and about 10% in Slovenia. And we have also achieved great results on our main export markets as Italy, Kosovo and Bosnia and Herzegovina. Due to above described, the EBITDA for the Adriatic region increased year-on-year by almost 35%. We have expanded portfolio of our distributed brands, including fruit juices, Fructal in Slovenia and sparkle wines of Radgonske Gorice in Croatia. At the end of the year, our Trepallini coffee has become our core main Adriatic portfolio. We have also developed our instant drink, Oraketa, increase in sales 25% versus compared to 2020 and continue with the digital project Enjoi for digitalization in the HoReCa channel. We are continuing with our commitment of lowering sugar content in our drinks and our effort for a more sustainable economy as supported by our company for planting trees in Croatia and Slovenia. Project with the local community in Radanci, Lokalno je obetavno and platform Mnichovo Hradište through which we communicate with our consumer sustainable topics. Radenska has been privileged as being the official water in Slovenia House Export 2020 in Dubai and has won a silver award in the category of natural carbonated mineral waters in The Fine Waters International Water Tasting Competition Best Awards 2021. Oraketa has been awarded with Slovenia's trusted brand award as well as receiving other awards. Thank you very much.

Ladies and gentlemen, now it's time for your questions. [Operator Instructions] We have a first question from Mr. Dmitri Vlasov.

Congratulations on good 2021 results. I have a couple of questions. The first one on your revenue guidance. So you're guiding 11% of revenue growth. Could you maybe provide some extra color and break down this guidance? What part is related to volumes increase? And what part is related to prices increase? That's the first question.

Thank you very much for your question. Our guidance is 11%. It's splitted approximately 7% for the price effect and 4% for the volume effect.

The other question is regarding the inflation. Just basically, how confident are you about the pass inflation, especially in the retail segments where you have lower pricing power comparison to HoReCa?

In general, it's not a problem to pass inflation to the end consumers. The only issue with this price increase is the fact that the purchasing power of the consumers is decreasing because of the inflation and this can affect the volumes in the future. So far, we do not see decreasing volumes in the market and everything is running smoothly. People are still buying our products and volumes are increasing. But with the high numbers in inflationary, we expected in the second half of the year or during the next winter, there will be pressure on the volumes for sure because of the lower purchasing power of our consumers.

Just a couple of questions about the costs. I know you booked cost for the first half of 2022, if I'm correct. And any update on the second half of 2022?

Can you please repeat the beginning of the question?

Yes. From your last conference call, I heard that your suppliers basically booked the prices for you for the first half of 2022. And I was wondering if there is any update about the second half of 2022.

Yes. There is not too much update. Still, we are working with the prices we received for the first quarter -- first half of the year, sorry.

Okay. Maybe you could share some of your thoughts about the -- what type of cost increase you expect for the packaging in sweeteners cost lines for this year, if possible?

Yes. In general, in 2022, we expect the price increase of sweeteners approximately 25% and approximately the same will be with the PET and PET design for the pet bottles.

Okay. And maybe also the similar question on your marketing and admin costs for this year. And also, the other follow-up question is, do you expect to make any cost savings, maybe internal costs for this year as well?

No. The fixed costs are still on the level to which we decreased them during the COVID in 2020 and 2021. All new marketing and administration projects are basically very planned in very detail, depending on the current situation on the market. So basically, we are in the position that our costs are restructured from the COVID years, and we are still keeping this low level of fixed costs in administration and marketing. And we are like investing, for example, more in marketing, but this is really done very specifically given the market situation, and we study each case separately if we should do risk or not.

Okay. Maybe if I may, a couple more questions about your market share dynamics, which you shared in your presentation for 2021. Maybe just curious if you could provide some color about some little market share decline in Czech Republic and Slovakia for retail, please?

Retail. Okay, please let me open the presentation. Yes. We decreased a bit in retail in both countries. In Slovakia, we are still strong #1. The decrease was visible. However, the decrease was visible also by the other competitors, which basically means that the smaller competitors or private labels were gaining on the market. In the Czech Republic, the decrease in market share was basically driven by the fact that we -- a bit Ondrášovka and Korunní, our latest acquisition, we focused more on the margin and we did not push the sales so much. So basically, we work with lower volumes and value sold, but we do more profitable margin for us.

Okay. Makes sense. And maybe do you think those trends will continue in the future, especially in the Czech Republic?

In the Czech Republic, in general, we can expect that if the purchasing power of the consumers will decrease. So they will tend to buy cheaper products, which are typically private labels, for example. So I think that we can expect that there will be some switch out of consumption from branded products to private labels. On the other hand, we also see that the strong brands are keeping their market shares in very like stable way. And Kofola and our other brands are very strong in the individual categories. So I believe that we are able to keep our current market shares in a stable way.

Okay. Makes sense. I will let other participants ask questions, and maybe I'll have a couple of follow-ups later.

Thank you, Dimitri. Now we have a question from Mr. Pavel Ryska.

Just to check, can you hear me at the moment?

Yes.

Yes.

Okay. And also thank you Jannis for the nice intro that he gave at the beginning. I just had one question regarding HoReCa. You said that you do not expect the segment to fully recover before 2025, if I heard it right. So I'm just wondering, now the situation in HoReCa, is it weaker in comparison to the pre-COVID times because the restaurants are overall emptier, there are less people and they consume less? Or is it that there is a lower number of restaurants that you work with, which of these is it basically?

Yes. Most probably, it's a combination of these two trends. The first is, as Daniel said, HoReCa is currently approximately on 89% or 90% of 2019. And this is driven by the fact that for us, in the beginning of the year, there were still some restrictions for the nonvaccinated people in the HoReCa segment. So these people are like missing in the outlets. And the second thing is that a lot of outlets orders learn to -- or change their restaurants from the full year operations to seasonal operations. And during the fourth and the first quarter, they are keeping the restaurants closed or in very limited operations, for example, only for the weekends. And they have full operations during the spring and summer because they realize that basically they can earn the same money as before in this mode. So -- and this effect also decreasing the consumption because simply there are opportunities missing on the market than for the consumers as the restaurants are closed during the winter.

Okay. I see. I think that pretty much answers it.

[Operator Instructions] And we have a new question from Mr. Dimitri Vlasov.

Just last question for me, please. Just about your Fresh & Herbs segment. What do you expect for this segment performance to be in 2022, especially for the Hugo?

Especially Hugo is increasing their sales. In the last month, they were approximately also as a HoReCa in Czech Republic and Slovakia on approximately 90% of 2019 daily sales in the restaurants. So that's a very positive trend that people are slowly returning to shopping malls. And also, the other segments in Hugo are growing as bottles and packaged food, and this is basically driven by the fact that people are traveling again after the COVID. So I'm quite positive. Most probably they will not exceed 2019, volume-wise. But for sure, we are getting very close in 2022.

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

No, no, no, I wasn't raising my hand even so...

Okay. So please lower your hand if you have no questions. Thank you. There are no more questions. This concludes today's conference call. Thank you all for your participation. Recording of today's call will be available on our web soon. You may now disconnect. Thank you, and goodbye.