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

Ladies and gentlemen, welcome to Kofola's Third Quarter '23 Results Conference Call. You will now hear a recorded presentation of Kofola Group CFO, Mr. Martin Pisklak.

Dear investors, Martin Pisklak speaking. Please let me comment on the third quarter results. Kofola Group continues in a very solid results. However, volumes sold dropped down by 9% in the third quarter of 2023. Our EBITDA increased by more than 20%. Our year-to-date EBITDA totaled CZK 1,137 million, and our EBITDA for the last 12 months exceeded CZK 1.3 billion. Our net debt-to-EBITDA ratio decreased below 2x EBITDA. Generally speaking, we have no negative surprises so far. This is the main difference compared to last 3 years. Our current EBITDA margin is slightly above 16%. This is still more than 1 percentage point behind our profitability margins in 2019. We experienced also very dynamic M&A development. Last month, we announced acquisition of apple orchard in Czech Republic and coffee plantations in Colombia. Today, we announced acquisition of Pivovary CZ Group, a significant player on the Czech beer market. Beer is #1 category in the Retail and HoReCa channels. It's the traditional Czech industry. That's why we would like to expand to the new segment and diversify our portfolio. We believe that brands Holba, Zubr, Litovel have a great potential for the future, not only in Czech Republic but also export wise. Kofola Group should be a majority shareholder with the management control rights. That's why brewery business will be fully consolidated into our P&L and balance sheet. Closing of this transaction is expected in the first quarter of 2024. Thank you for your attention.

Ladies and gentlemen, now it's time for your questions. [Operator Instructions] We have first question from Mr. Petr Bartek. Yes, we can. Yes, we can hear you here.

I would first ask 2 things regarding the quarterly figures, and then I would also have a few questions to the acquisition of Pivovary CZ. So in terms of the quarterly figures or rather the outlook for this and next year. Do you already see some pressure on prices? And maybe in the Retail segment, if you can comment on what you see maybe on the side of our competitors? And how is actually your market share developing in the Czech Republic, in Slovakia, in Slovenia and in Croatia? In the last few quarters, we don't have much data on that. So if you could elaborate on that. And -- so with the outlook for the next year, what impact do you expect from the higher VAT on soft drinks in the Czech Republic? And what impact do you expect from the increased electricity distribution costs in the Czech Republic? And if you can also comment on the [indiscernible] development and what do you see for the next year? That's for the results.

Okay. Thank you for your questions. Let's start from the beginning. So outlook 2023. As we announced, we expect to have like full year EBITDA on the level of CZK 1.250 billion. We already see that the prices on the market are decreasing. We also like decrease the market or some prices are already during the summer. I would say that this was a natural reaction also of the competitors. So once the situation is like more clear on the market with the cost and so on. So we are able to promote our products more intensively and that's why the prices are materially decreasing in the Retail. Unfortunately, I cannot comment precisely on the market share data because I do not have this data available at the moment. However, generally speaking, we do not see any bigger changes on the market so far from the information we have. So we assume that the market shares are remaining stable compared to the previous periods. And regarding 2024, to be honest, we do not expect like that it should be a very significant drop in the volumes on the beverage market in 2024, partly because of the fact that it's already again recovered a bit like compared to the rest of the year or the beginning of the year. And also the material prices are decreasing. So most probably, it will be like a combination of the increasing VAT, some decrease on -- of raw materials. On the other hand, electricity is increasing. Also personnel expenses will increase as well. But the overall effect shouldn't be like significant onto volumes, that's what we are believe in and that's also the value, which we are like at the moment, like seeing or feeling from the market. Regarding the electricity prices for 2024, we already like hedge the prices from approximately 50%, like for next year in the group. We did it over this like a few months ago. So we believe that we have like good prices fixed for 2024. Regarding the PET, we see we see quite a significant decrease of the prices approximately from EUR 1,400 per tonne to approximately EUR 1,000 per tonne. We already also like fixed partly the volumes, which we need for 2024. So I believe that we are like prepared in the PET -- in case of PET. In the case of sugar or sweeteners. Sweeteners in general, we see also a decrease of the prices as the prices begin in 2023, somewhere around EUR 1,000 per tonne of the sugar. So now we are like -- now we see the prices for 2024, like slightly above EUR 800 per tonne. Again, we already fixed the majority of our like needs for 2024 for this like lower prices. Also the [ ISA ] sugar prices are decreasing more significantly compared to the [indiscernible] because the decrease is approximately from EUR 700 per tonne to slightly below EUR 500 per tonne. And again, we already contracted majority of the volumes we need for 2024. So overall, we believe that because of the increase in VAT, it will be, again, some like issues or like more complicated market situation, which we have to solve. On the other hand, like we are optimistic for 2023, and we believe that right we can manage the year with a grow and in a positive way.

Mr. Bartek, do you have an additional question or is it okay, did he answers for you?

Sorry, I was muted. Yes, maybe one more question to the outlook. The implied Q4 EBITDA is only about CZK 100 million, so relatively low. What's the reason for that? Is it just because you are cautious here? Or do you expect some more administrative expenses, may be?

We are quite conservative in our outlook. If you had in the last quarter of 2022, we would come to a much better result than we announced. On the other hand, the true is that last year, we had a very significant like cost cutting in area of marketing and segment cost in the end of the year. And this year, we are investing heavily to the market. So there will be definitely increased marketing and sales promotion costs in the last quarter. And that's maybe the main reason, which we see. The result we see really like somewhere CZK 1.25 billion. If I should say, if this is like conservative, yes, this is, maybe it will be latter. I believe definitely it will be not closer than this number.

And regarding the acquisition of Pivovary CZ. First, if you have a guidance for this year for 2023 also for this group to be acquired. I see that volumes should be probably up if I read your press release. And what would be the dividend policy of Kofola after the acquisition? And what would be the leverage target for, let's say, year-end '24?

Okay. So let's start with the guidance. At the moment, I cannot disclose much more than we already published. So the sales numbers for 2022 of the Pivovary CZ Group are approximately CZK 1.3 billion. EBITDA approximately CZK 250 million. There are no significant changes in the profitability of the company in 2023 but I cannot comment more on the numbers. We do not expect that we'll change significantly our dividend policy after this acquisition. So we stay at our dividend guidance, which we -- dividend policy, which we published some time ago is valid. And definitely, we will keep this policy to pay out approximately CZK 300 million each year. And regarding the target leverage. Well, in case that -- even in case that the acquisition would be closed in December, what we do not expect. We expect the due to the [indiscernible], we will come to the closing in the beginning of 2024. But even the closing will occur in December and expected net debt-to-EBITDA ratio will be safely below 3x EBITDA for the Kofola Group. So we are not overleveraging or we are keeping the leverage on the very reasonable levels, I would say, even with this acquisition.

And if you can talk a little bit about the business of Pivovary CZ, I would be interested in the share of on-trade and off-trade volumes in the split. And how do you, specifically on-trade segment, has developed over the last few years? If you can comment on that. And in terms of exports, if there are some immediate export deals in the pipeline, maybe? And also what will be the impact from the higher VAT on draught beer on them, if they already have any feeling about it?

Regarding the business, so Pivovary CZ Group are #5 on the Czech beer market with approximate market share of slightly below 5 percentage points. So definitely, it's one of the most significant players after the international breweries and Czech national brewery, Budvar. Pivovary CZ Group are a strong player, mainly in the Central European, Central Moravian region, which is very good for us because also Kofola is much more stronger in the Moravian part of Czech Republic compared to the Bohemian part of Czech Republic. So in this situation, we can like see that we have a lot of same customers in the region and that's something we can benefit from in the future. Definitely, the brewery business, it's, let's say, very conservative and stable one. So we cannot accept -- we cannot expect that we will double the market share within the next 3 years or whatsoever. It's a very traditional business with conservative customers, which are used to drink their brand of the beer, like for years and most probably, they will also continuing this. Approximately 1/3 of the -- or 30% of the brewery sales at the moment are going for the export, which is a very promising number. They are exporting to very wide number of the countries across the world, mainly in the Europe, I can name in Sweden, Poland but also like Germany and other countries. Where we see the potential, of course, is that at the moment, we are not very strong in the countries where we are strong. So for example, Slovakia, Slovenia, Croatia, that's the countries where we are present and we are playing significant role on the market. So we hope that we can help also breweries in this market and the export potential is great because Czech beer still means a lot in the beer segment in the Europe. The positive thing is also that the breweries are debt free and are well invested. You're satisfied with our [indiscernible], what we saw in the breweries like very modern like equipment, they are keeping the traditional value of the producing the beer. So like production-wise, they're very strong and very well prepared.

I was actually asking also about the share of Retail and HoReCa businesses.

Yes, I do not have these numbers in at the moment, so I cannot disclose now.

And when you talk about the well-invested base, what's the capital requirements of this business [indiscernible]?

Well, it depends how much you would like to invest. But so far, what we see with like the -- if I compare, for example, CapEx, EBITDA ratio. So in the past, it was lower compared to Kofola. So it really depends on how much you would like to invest. And beer technology is very traditional and [indiscernible] a few for tens of the years. So that may be the situation where we are now. So there is certainly not like some huge need for some new investment or CapEx investment like in the close future.

[Operator Instructions] There are no more questions. This concludes today's conference call. Thank you for all your participation. Recording of today's call will be available on our Web page. You may now disconnect. Thank you, and goodbye.