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

Ladies and gentlemen, welcome to Kofola's Third Quarter of 2024 Results Conference Call. You will now hear a recording presented by the Group CFO, Martin Pisklák, with a summary of the group's results. This will be followed by business insights from Czechoslovakia and Adriatic presented by country CEOs, Daniel Burys and Marián Šefcovic. Finally, you will hear a recording describing current performance of new segment Beers & Ciders, commented by the CFO of the Breweries, Martin Rosypal.

Dear investors, Martin Pisklák speaking. Third quarter is the most important one especially due to the summer season. I'm very happy that all of our segment reported very strong growth of revenues and also very solid EBITDA development. Consolidated EBITDA for the third quarter increased by more than CZK 180 million, which means increased by more than 33%. EBITDA for first 9 months exceeded CZK 1.6 billion, and EBITDA for the last 12 months, exceeding CZK 1.7 billion. We believe that full year EBITDA will reach CZK 1.8 billion. I am very happy that a very significant part of this growth is related to organic business growth of Kofola Group, and the volumes sold in the main segments are higher by more than 7%. New acquisitions are performing well. The macroeconomic situation is very stabilized. We also keep the leverage of the group on very healthy levels. My colleagues will now comment on the individual segments. Thank you for your attention.

Dear Kofola friends, here is Daniel speaking. I'm responsible for Czech and Slovak soft drink activities. Let me briefly comment top season. As I reported during last call, we can enjoy positive market development in both countries. We managed successfully top season with 13% growth of revenues. Dynamics was similar through all channels. In combination with cost discipline, it represents year-to-date EBITDA, CZK 957 million, plus 15% compared to last year. September floods in Krnov had limited impact to Q3 results. We were able to redistribute products from other locations. Q4 expectations. All production capacities in Krnov are already in full operation. October was more affected by limited Krnov of production because of unique product shortage. Fortunately, October is generally one of weakest month, and we are ready to catch Q4 targets in last 2 months. And now 3 key messages for 2025. We plan to launch innovative own juice brand, and we signed distribution contract with Sri Lankan brand Dilmah for iced tea category. We agreed with [ Royal ] company that Kofola will not continue in distribution contract, neutral EBITDA impact. We expect market drop in Slovakia due to approved sugar tax, negative EBITDA impact. We expect a stabilized cost structure and decreased price of sugar, positive EBITDA impact. The bottom line, 2025 will be a very interesting year again. Thank you for your attention, and drink Kofola. Daniel.

Hello, everyone. This is Marián Šefcovic, CEO of Adriatic, speaking. In the third quarter of 2024, the Adriatic region saw strong sales in all markets, with revenue up by 14% compared to last year. The success was the result of significantly better market performance, supported by efficiency logistics and the longer tourist season, which lasted until September due to a warm and sunny weather. Slovenia had a 9% increase. Croatia experienced an impressive 18% growth, and our export markets grew by 14%. We are particularly pleased with the double-digit revenue increase in Croatia. Additionally, EBITDA improved significantly by 20% from the same quarter last year. Looking ahead, we are focused on the sustainability growth in the Adriatic region, with promising results expected for October. This year, we successfully helped open-day events in Slovenia and Croatia, which were well attended. In September, for the fifth year in a row, we continue our tree planting campaign. This year, we invited businesses partners and other companies to make their team building activities green by supporting tree planting with drones, which helped reforest hard-to-reach areas. Thank you, Marián.

Dear investors, this is Martin Rosypal speaking, Finance Director of the beer segment. I'm pleased to provide an update on our third quarter and year-to-date results within our division, which has been part of the Kofola Group since mid-March. In the third quarter, our breweries achieved approximately 7% revenue growth, driven by strong performance in both the Czech and export markets. All brands and packaging formats surpassed last year's results. The overall performance remained solid despite the floods in late September, affecting key regions where we have a strong presence. October revenues were slightly impacted by the flood, but the off-season nature of this period has helped to minimize the effect on EBITDA, and we are already seeing a return to normal levels in November. On a year-to-date basis, our EBITDA was of CZK 274 million and grew by about 9% compared to last year despite limited sales prices increases this year that did not fully offset rising costs, particularly in labor and energy. The excellent quality of our beers has once again been confirmed by awards in tasting competitions. ZUBR Gold won first place in its light draft beer category in the Czech beer, Ceské pivo competition. Litovel [ black ] lemon was third among the nonalcoholic flavored beers category. Looking ahead, we are confident that the third quarter results will reinforce our strong position, ensuring a successful close to the year. Thank you for your attention, and I wish you a great day.

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

Bystrický from Ceská sporitelna. I have a few questions, please. First one, what's your optimum leverage target? And do you consider a substantial dividend per share increase in the light of current strong results? And can you buy minorities in Pivovary CZ? And would you consider such step is possible?

Thank you for your questions. Like, the optimum leverage in case that we are not doing some like kind of bigger acquisition would stay like around 2x EBITDA. So basically, now, we are on the -- for me now, we are under like optimum of leverage. The dividend payout will be considered on the general meeting as we see that the profitability of the company is increasing. So -- also, the cash flow is improving very significantly. And in case that we do not have any like strong project with higher returns, so I would expect that the shareholders will tend to pay our dividends. But at the moment, still is a valid dividend policy, which we published. So the dividend should be around CZK 300 million. However, let's see on the general meeting how the shareholders will vote in the end. And in terms of minorities in breweries, we have, I would say, like the standard shareholder agreement. Of course, there is a possibility somehow to come to bigger share in the future. But at the moment, we do not plan to increase the share in breweries.

And I have a few more questions, if I can continue.

Yes, of course.

What's your merger and acquisition strategy in terms of products and regions in the next few quarters and/or years? And do you plan to strengthen the market share in Croatia or Adriatic region, please?

Adriatic region is, I would say, the -- a region where we see the biggest potential for the acquisition growth in the upcoming years. That's for sure. In general, the M&A policy or basically the acquisition policy remain -- or the strategy remains the same. So we are -- geographically wise, we are like considering countries which are up to approximately Czech Republic size in terms of the inhabitants, so let's say, 10 million to 12 million inhabitants. It's some kind of a limit, which we have. The reason is very simple. We see that the smaller countries can be much better managed by us. In the past, we were very active in Poland with a big company, but like -- in the end of the day, we did not succeed, and we had to dispose this company with huge losses, and we simply see that, at the moment, we do not have management capability sort of like strategies, how to manage really like big markets Germany, France, Great Britain or countries like this. So we are like looking rather on the smaller countries. Ex-Yugoslavian countries typically are the perfect fit for this but also the Baltic countries, and we can also consider, for example, Austria. And in terms of individual segments where we are looking, we are still like searching nonalcoholic beverages, and that's the main focus which we have at the moment. Breweries, to be honest, like we have like the Czech breweries. The Czech breweries has very like strong name, or the Czech beer is very good trademark in the rest of the Europe with a huge export potential. That's something what breweries in other countries cannot offer. So at the moment, with the breweries, if so, we would stay in Czech Republic, most probably.

Perfect. I would continue, if I can. Why would you -- did not increase revenue guidance and did not lower the percentage CapEx guidance after such strong summer season or summer results, let's say? Do you see a slowdown in consumer appetite in the fourth quarter?

I would not say that there is a slowdown of consumer appetite. Basically the EBITDA is a function of typically 2 trends. First one is the revenue one, and the second one is cost plan. And what we see actually now on the market is that October was a bit weaker in terms of revenues. So we, like for the conservative reasons, did not review the revenue guidance up. On the other hand, as we see the projections for the EBITDA, now we are like quite sure that really CZK 1.8 billion is a very realistic target, which we have at the moment. So that's why we like increased the EBITDA target. And in terms of CapExes, still, there is a lot of projects which are like starting at the moment. Typically, it's like very hard to assess the right percentage because of cutoff date in the end of the year. A lot of projects can be postponed and start in January. But on the other hand, a lot of projects can start already in December. So also the percentage of CapEx to EBITDA remains the same in the guidance. And we believe that it's also a very realistic expectation.

Perfect. And the last one, if I can. Can you disclose the hedged price for sugar for the next year?

Hedged price for sugar. We do not like using some standard like financial tools for hedged price of the sugar. We are using long-term contract or long-term -- we are using annual contracts with the suppliers. At the moment, what we see on the market is that the sugar price for next year should be around EUR 500 per tonne.

So the next question is from Mr. Raska.

Can I ask you on the current situation in the distribution channels after floods especially in gastro segment in your customer base in gastro in Central Moravia? Do you see any strong decline in deliveries into gastro after floods? Or do you see any significant declines in your customer base in gastro in the regions, which were damaged by the floods?

Okay. Basically, not. Altogether, approximately higher tens of our customers -- I mean higher tens of restaurants or pubs were like affected by the floods in the Central Moravian region, and this number is not significant for the overall sales to HoReCa channel. So at the moment, we do not see any like significant trends which would like be trend for the last quarter.

So the next question is from [ Mr. Karasek ].

Congratulations to great results across the board. For technical reasons, I joined a little bit later and heard something that you raised the EBITDA target. Is that correct?

Yes, that's correct. The current EBITDA target is CZK 1.8 billion.

CZK 1.8 billion, all right, which will basically assume that the Q4 EBITDA would be lower than Q1 EBITDA, right?

Yes.

Okay, which is even before the integration of Pivovary and the vending business. Correct?

Yes.

Okay. Second question, if I may. What's your current best thinking about 2025?

2025. We will provide you with the guidance for 2025 in the mid of February, together with the preliminary results of 2024. But typically, as you can like study the guidances which we gave in the past, typically, we are planning like the growing budgets for the company. So I would not expect any like decreasing outlook for 2025.

Okay, sure. And the last one, if I may. It's on coffee. What's your thinking on the coffee? I mean how is the coffee done since the acquisition, I think, a few years ago? And what's your aspiration or ambition for the coffee?

Well, we are satisfied with our acquisition of the coffee brands. At the moment, we are like operating 2 major coffee brands, which is Café Reserva and caffè Trepallini. Typically, the coffee market in Czech Republic is very fragmented. So in Czech Republic, there is not like one significant player, which would have more than, for example, 10% market share. So it's about a lot of smaller players. And I think that we are playing a very nice role, and the coffee is a significant part of the Fresh & Herbs profitability.

Okay. In terms of the availability of your coffee, how much do you think you could scale up the coffee distribution given your Kofola brand strength in HoReCa channel? Do you know what's the availability of coffee versus Kofola? Sorry for the detailed question, but it's kind of interesting to see...

Of course, we are like -- go ahead, please.

Yes. So I just wanted to understand where are you with distribution of the coffee compared to Kofola in HoReCa and how fast you could scale up given your strong presence in Kofola with the coffee.

So basically, there is a huge space for the coffee for the Kofola customers because -- I do not have the percentage point exactly, but definitely it's in a huge minority, the coffee. The reason or the -- or basically, why it's not like pushed more is that the coffee business, it's very like CapEx intensive. Basically, the business, it's typically done in the way that either you have a contract with your coffee provider. And your coffee provider, it's either renting you or you are like buying from him the coffee machine, which is typically a very expensive one. Let's say, CZK 100,000 can be typically the price. And that's why if you would like to have some new customer, you should provide him or -- provide him with this coffee machine. And imagine, if you should buy, I don't know, 20,000 coffee machine, each one for CZK 100,000, these are quite significant investments. So that's why basically we cannot expect that we will basically roll out our coffee brands to all Kofola customers in 1 or 2 years. It's a long-term process. And there's the reason also that the sales team for the coffee business is completely different to the rest of the Kofola portfolio. Like, the sales reps of Kofola typically are communicating to our customers that, for example, we have something new, we have a new segment, we have coffee, we have tea, we have beer and so on and so on. But then the sales activity is performed by the individual teams of breweries or the coffee teams. So there are some synergies, but basically, it really needs some time to roll out everything to all the customers.

Next question is from [ Mr. Kubic ]. [ Mr. Kubic ], we cannot hear you. Can you please repeat the question? [ Mr. Karasek ], do you have another question? Or can you please lower your hand icon? Thank you. [Operator Instructions] As there are no more questions, this concludes today's conference call. Thank you for your participation. A recording of today's call will be available on our web page. You may now disconnect. Thank you, and have a good day.