Earnings call transcript: Anadolu Efes reports revenue miss in Q4 2024

Anadolu Efes Malt, a leading beverage company with a market capitalization of $2.83 billion, reported its financial results for the fourth quarter of 2024, revealing a significant revenue miss. The company generated 50.9 billion USD in revenue, falling short of the forecasted 57.04 billion USD. Following the announcement, the company’s stock price decreased by 1.02%, closing at 176.2 USD. InvestingPro analysis shows the company maintains a strong financial health score of 3.21 (rated as "GREAT"), suggesting resilient fundamentals despite the revenue shortfall.

Key Takeaways

• Anadolu Efes reported a revenue shortfall of approximately 6.14 billion USD.
• The beer group sales revenue rose by 12.3%, reaching 17.9 billion Turkish lira.
• Gross profit margin improved by 107 basis points to 45.9%.
• The company faces challenges in its international soft drinks segment, with notable declines in Pakistan and Uzbekistan.
• Ongoing uncertainties in the Russian market, which contributes significantly to revenues.

Company Performance

Anadolu Efes demonstrated resilience in its beer segment, with sales revenue increasing by 12.3% to 17.9 billion Turkish lira. The company’s gross profit margin also saw an improvement, expanding by 107 basis points to 45.9%. However, the overall performance was overshadowed by a substantial revenue miss, highlighting potential operational or market challenges.

Financial Highlights

• Revenue: 50.9 billion USD, missing the forecast of 57.04 billion USD.
• Beer group sales revenue: 17.9 billion Turkish lira, a 12.3% increase.
• Gross profit margin: 45.9%, up by 107 basis points.
• EBITDA: 14.2 billion Turkish lira with a 15.4% margin.

Market Reaction

The stock price of Anadolu Efes Malt fell by 1.02% to 176.2 USD following the earnings announcement. This decline reflects investor concern over the revenue miss and ongoing geopolitical uncertainties. Trading at a P/E ratio of 8.75, InvestingPro data indicates the stock is currently undervalued based on its Fair Value model. With a beta of 0.69, the stock has shown lower volatility compared to the broader market. The company has demonstrated its commitment to shareholder returns by maintaining dividend payments for 10 consecutive years.

Outlook & Guidance

Looking forward, Anadolu Efes plans to focus on expanding its presence in the CIS market, targeting countries like Azerbaijan, Uzbekistan, and Belarus. The company aims to enhance operational efficiency and expects momentum in Turkey post-Ramadan. High single-digit capital expenditures are planned for the BIL Group, excluding Russia. InvestingPro forecasts indicate strong revenue growth potential of 44% for FY2024, with analysts maintaining a bullish consensus. For deeper insights into Anadolu Efes’s growth prospects and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Onur Alcik stated, "2024 has been a year of navigating a dynamic operational environment while maintaining our resilience and focus on sustainable growth." He emphasized the company’s commitment to enhancing operational efficiency and optimizing resource allocation to protect free cash flow.

Risks and Challenges

• The significant revenue miss raises concerns about market demand and operational efficiency.
• Geopolitical uncertainties, particularly in Russia, pose risks to revenue stability.
• Declines in the international soft drinks market, especially in Pakistan and Uzbekistan, could impact future growth.
• The company’s reliance on the Russian market, which accounts for 22% of revenues, adds to the risk profile.

Q&A

During the earnings call, analysts expressed concerns about the ongoing uncertainties in Russia and the company’s strategy to address these challenges. The management highlighted their focus on improving operational efficiency and expanding into new markets to mitigate risks.

Full transcript - Anadolu Efes Biracilik ve Malt Sanayi AS (AEFES) Q4 2024:

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Ladies and gentlemen, welcome to Anadol FS Full Year twenty twenty four Financial Results Conference Call and Webcast. My name is Asli Demir. I’m the Investor Relations and Risk Management Director of Anadol EFS. Our presenters today, Mr. Onur Alcik, the CEO, and Mr.

Gokcey and Asmian, the CFO. All participants will be in a listen only mode during the first part of this call. Following this, there will be a Q and A session where you can submit your questions using the question box on the web screen. If you have questions, we kindly ask you to write them down before the Q and A session begins. Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance with the inflation accounting.

Just to remind you, this conference call is being recorded and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward looking statements. Now, I am leaving the ground to Mr. Onur Altuk, Onur Olaf’s CEO.

Onur Alcik, CEO, Anadol FS: Also, thank you. Good morning and good afternoon, everyone, and welcome to Anur Olaf’s full year twenty twenty four operational and financial results conference call. For 2024, it has been a year of navigating a dynamic operational environment while maintaining our resilience and focus on sustainable growth. And let me take you through some of the key highlights of our performance. So we delivered consolidated volume growth of 0.9% in full year ’twenty four and strengthening our leadership position by leveraging brand strength and portfolio excellence.

Through a well balanced and diverse product mix, we have not only sustained but further strengthened our market’s position. Our strategic pricing efforts and cost efficiency measures contributed to solid gross profitability. While the operating environment remains challenging in 2024, our ability to drive profitable growth has been a key highlight. However, the impact of our strong gross profitability was partially offset at the EBITDA level due to higher OpEx per hectoliter. As of end, as the end of twenty twenty four, our consolidated net debt to EBITDA ratio remained below one times in line with 2023.

We successfully closed the BR group this quarter. Finally, I’m also pleased to announce our dividend proposal of TRY 1.27 per share, which is a testament of our commitment to delivering value to our shareholders. Looking into details of beer operations, 2024 has been another year of strong momentum in our beer operations actually marking seven consecutive quarters of growth. Consolidate beer volume grew by 9.9% in the last quarter of the year and eight point four percent in 2024, reflecting our consistent strong performance across all periods of this year. This solid momentum has been driven by our solid portfolio strength, of course.

While Turkey beer volume increased by 2%, three % sorry, 2.3%. Our international beer volume grew by 9.7%. Russia continued its strong performance and registered low teens growth. On the other hand, CIS countries recorded a decline in total volumes by low single digits, mainly impacted by softer volumes in Kazakhstan. When we look at our Russian business, Russian beer operations delivered strong growth throughout 2024 with low teens growth in both fourth quarter and the full year.

I want to emphasize that this performance was achieved despite capacity constraints and a highly competitive environment driven by strong market demands. Our growth was driven by several key factors like increased consumer interest as more people return to their home countries, innovative new product offerings, rising household incomes and shift from spirits to beer category. Additionally, higher disposable income further increased demand for premium, craft and mainstream beer choices, leading to profitable growth across all segments and categories except the value segments. We have successfully maintained our market leadership in both volume and value share. Strymoni Gizbochenko continued to drive volume growth, further strengthening its position as the number one beer brand in Russia.

Moving on to Kazakhstan, as in previous quarters, volume declines in the fourth quarter as well. However, the decline was much more limited this time compared to earlier in the year. Kazakhstan’s challenge during the year were mainly due to severe floods in the first half of the year and rising cost of living in the country, all of which put pressure on consumer demands. Additionally, the return of Russian citizens to their home countries also impacted the number of consumers. Despite these challenges, our platforms outpaced the markets across all channels and our market share reached 48%.

Furthermore, we introduced several new products, including Boucheria Braga can for modern trade, Sibilski Medved for KEGG and Braga unfiltered KEGG for Pegas and Geot channels. Moving on to Georgia. In 2024, Georgia’s beer market grew by low single digits supported by several key factors like economic expansion, increased tourism and major sport events and all contributed to the market’s overall growth. We reinforced our leadership by increasing our market share in Georgia as well. To strengthen our portfolio, we launched a selection of new products, including BEX, Tati Kraft Line and Alco Murao, providing a diverse range of consumer preferences.

Additionally, our local brands, Nataktari and Carva, delivered strong performance, further driving our growth in the markets. When we move to Moldova, where we had another strong year in 2024, Moldova beer market grew by low teens in 2024. We outpaced the market delivering double digit growth supported by favorable pricing environment and portfolio diversification. At FS Moldova, we actually remained committed to investing in our brands as well with a strong focus on both core and premium segments. Through strategic marketing campaigns, impactful brand activations and continuous product innovation, we strengthened our connection with our consumers.

2024 has been a year of growth and expansion with successful new product launches that further solidified only Test market leadership. These launches includes Hopfunkra Goldbeer, Test Blanche Keck and Radler Mango and our local champion, Kishanar brand remained Moldova’s strongest brands. Turning to our business in Turkey, in 2024, Turkey maintained strong momentum delivering 2.3% growth in full year 2024 with total volume reaching more than 6,000,000 hectolitres. While we faced a high base from last year and ongoing inflationary pressures in the markets, our highly diversified portfolio enabled us to effectively navigate these challenges and address all consumer segments. One of our most exciting initiatives this year was expanding our business into spirits and launch of FS House, our kraft line in December.

To meet the growing interest in the Kraft beers and make the already popular FSG liquorice draft beers more accessible to our consumers, we introduced FS House brands with four extensions including NAPA, Rai IPA and Weisenberg variants. Let us briefly provide some color on soft drinks operations as well. In 2024, our soft drinks business faced a challenging operating environment while consolidated volume grew by 7.3% in the last quarter, it declined by 2.2% in the full year picture. In Turkey, volumes increased slightly by 0.1% in full year 2024 despite the persistent inflationary environment and ongoing geopolitical challenges. However, thanks to successful execution of marketing plans, timely consumer activations and effective pricing strategies, performance improved in the last quarter compared to the beginning of the year.

International volumes declined by 3.6% in 2024 with mixed performance across key markets. While Iraq and Azerbaijan maintained strong momentum, Pakistan saw 14.2% decline largely due to macroeconomic events impacting consumer demands. Uzbekistan experienced a 3.8% decline as the markets cycled the highways from previous year and faced weakening purchasing power. And finally, let’s move on to our financial results. We delivered a flat top line performance in our office in the last quarter.

There was an increase in beer group top line, yet soft drinks operations saw a decline primarily due to local currency price increases in major international markets, lagging behind inflation index rates. Strong volume performance combined with economies of scale led to robust gross profitability. Benefiting from modest increases in marketing expenses, strong gross profitability translated to solid EBITDA performance. However, net income was impacted by higher deferred tax expenses and lower monetary gains compared to the previous year. On the cash flow side, higher CapEx in CCI and increased interest expenses along with monetary losses led to a decline in free cash flow.

Despite this, our consolidated net debt to EBITDA remained at a healthy level of 0.6 times. Now our CFO, Gokshi, will take you through the financial metrics in more detail.

Gokcey, CFO, Anadol FS: Thank you, Onur. Good morning. Good afternoon, everyone participating in our conference call. Onur summarized another FSS consolidated results. So I want to talk about the BI Group results in more depth.

In the fourth quarter, the beer group sales revenue grew by 12.3% to reach 17,900,000,000.0 Turkish lira. International beer operations produced 12,800,000,000.0 Turkish Lira sales revenue, which indicates a 13.5% increase. And this was primarily driven by Russia’s and Georgia’s performance. In the meantime, TurkeyAP operation as well generated 5,100,000,000.0 Turkish lira which shows a growth of 8.8%. With the implementation of effective pricing strategies, net revenue per hectoliter continued to rise.

Consequently, beer group’s revenue increased by more than 10% to NED 92,800,000,000.0 in full year 2024 financials. Again, in the fourth quarters, BIL group’s gross profit increased by 35.1% to 8,400,000,000 with a seven ninety four bps expansion in the gross margin to reach 47%. This margin expansion was supported both by Turkiye and international beer operations thanks to solid top line growth. Therefore, the beer group’s full year 2024 gross profit was recorded at 42,300,000,000.0 Turkish lira with a margin expansion of 107 bps reaching to 45.9% gross profit margin. In the next slides, in fourth quarter again beer group said beer increased by 37.1% to 2,200,000,000.

EBITDA margin was 12.3 with an expansion of two twenty bps versus last year. And again, this expansion was basically a reflection of strong top line growth coupled with operating expenses growing less than the sales revenue almost across all operating countries. As a result, the beer group’s full year 2024 EBITDA was reported at 14,200,000,000.0 Turkish lira with a margin of 15.4%. Net loss in the fourth quarter was primarily driven by significantly declining monetary gains in this quarter. And the Beer Group generated a cash flow, positive cash flow of 6,100,000,000.0 yen indicating a decline of 14.5%.

Primarily this was because of lower operational profits and negative impact coming from working capital while there was a decline in the CapEx to net sales ratio. However, as of the year end, the Beer Group achieved a net cash position of 1,500,000,000.0 TL. Next slide, please. Here again, with the disclaimer first, another OFS financial statements are prepared in accordance with TAS 29, the standard for financial reporting in hyperinflationary economies. As a result, all the financial information disclosed on this call and in our earning release are in full confirmative with TIS 29.

However, this slide is presented only for analysis purposes and the figures that you see here are not aligned with our financials and have not undergone an independent audit. Having said this, excluding the impact of TIS twenty nine, beer group revenue was 90,200,000,000.0 Turkish lira with a growth of 63%. And again, excluding the impact of TAS twenty nine, EBITDA increased by 42% to 16,500,000,000.0 Turkish lira. And Beer Group net income was reported as 6,100,000,000.0 Turkish lira for the full year financials. Next slide, please.

Yes. And the cash and debt management as of 12/31/2024, we had 61% of our cash in hard currency in 57% of cash in hard currency again overall Anadu FS. And net debt ratio for Anadu FS was 0.6 times and we kept having a negative number for the Beer Group as we were in net cash position. And about risk management, key figures. Basically, we have had 59% of twenty twenty five exposures of Turkey and CIS for the aluminum.

And regarding the effects, our coverage for Turkish lira is around 40% at the moment but we keep hedging this and intend to reach 100% very soon. So basically this concludes my part of the presentation. I’m handing over to Onos.

Onur Alcik, CEO, Anadol FS: So we can move on to Q and A session. If there are any questions, let’s try to answer them.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Sure. There are a couple of questions regarding Russia, but let me ask a more general question. What is the current situation in Russia?

Onur Alcik, CEO, Anadol FS: There are a few questions about Russia. So let’s try to summarize what’s the situation right in Russia. And just to remember, on the last day of last year, a decree was published, degree number three zero one was published on Grandin’s website stating that the operations of the ADIMBFS JV company in Russia had been transferred to the temporary external management of GKV Mesta, a company, a Russian company. Following the decree, we quickly made a public announcement. And actually since then, there have been no significant updates beyond what was stated in our official announcements.

Therefore, we are actually unable to provide further comments beyond what has already been disclosed. However, what we can say is that all parties involved in this process are working together towards achieving a greater clarity on the situation going forward. And also there are a few questions again, the consolidation or deconsolidation of Russia from our financials. I mean, the following developments, let me say that the group’s management determined that as of December, control over the mentioned operations was effectively held by the group under TFRs 10 and according to the relevant subsidiaries continued to be consolidated in the financial statements as of December. Furthermore, maybe to give a brief, let’s say, outlook about ’25, the financial reporting implications of the situation are being monitored right now.

And from the period beginning 01/01/2025, different assessments may be made if the current conditions persist. So this is a brief summary about Russian business.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: There are some questions about the balance sheet and free cash flow side of the business. So this question to you, Gokce. What has happened to the cash and what is the cash level at Russia? And what is the share of Russia in total EBITDA? And yes, these are the questions.

Gokcey, CFO, Anadol FS: Thank you, Asif, for the question. So let me start to speak to our recent published reports in our Capital Markets requirements reports. So there the total share of Russia within the Anadoa FS assets are 22 or 21% and net revenue 22%. And this number would be for the BIL group fifty four percent for both.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Thank you. Onurvek, could you please provide any color what’s your expectations for Turkey sales growth and margins?

Onur Alcik, CEO, Anadol FS: This has been a challenging year for Turkey but still we kept our momentum in 2024 as I mentioned in the presentation. The start of the year, we had a good start there in 2025, but still since we increased our prices at the beginning of this year in February, a small slowdown that we observed. But personally, I’m expecting great momentum after Ramadan during the Bahrain period to the busy summer vacation periods. I think the overall momentum will come.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Thank you. I’m seeing repeating questions regarding Russia. One is, what steps are being taken to address and

Onur Alcik, CEO, Anadol FS: Case flow pressure. So let’s actually give another summary about this one. Actually, our company focused on strategic initiatives aimed at expanding into new markets. So this is 25 growth mindset. Let me summarize in this one.

So we will try to enhance operational efficiency and optimizing resource allocation, of course, to prevent the pressures on our free cash flow. Sustainable video creation, of course, will remain a core priority and we are committed to reaching new consumer segments, investing high growth potential products like spirit business in ’twenty four. I mean, looking ahead, 2025 will be an important year as we expand our market reach through several planned projects. And these projects are mainly covering CIS countries. So we are trying to increase our footprint in these geographies, in countries like Azerbaijan, Uzbekistan and Belarus.

So we will be evaluating our chances in these countries and we are analyzing the beer market potential in these countries as well. But meanwhile, since these are the midterm initiatives, so we have tightened our zero waste budgeting process and foreseeing a freeze and release strategy for our OpEx and CapEx spending. And also, we are tightening preapproval policies for discretionary expenses to ensure cost efficiency in our operations in all of our operations, let’s say. And to improve liquidity, we are privatizing cash flow enhancements in the BIL group, of course, excluding Russia right now by increasing funding flows from international operations, which will help reduce financing costs in Turkey. And additionally, contingency and scenario planning is underway across all geographies right now.

The aim is strengthening our cash flow generation through top line growth and a stricter expenditure controls. Also PRG initiatives will be very important for 2025 and pricing will be important to support our top line growth. And all of these with proactive measures, our company aims to mitigate financial risks, of course, enhance operational resilience and support our sustainable business performance in the face of this uncertainty. So this is a brief summary.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: What how much are you expecting to spend in capital expenditures in Diehl Group excluding Russia in 2025? What’s the proportion of this maintenance and discretionary CapEx?

Gokcey, CFO, Anadol FS: Well, I think deal group excluding Russia is high single digit close to but high single digit I can say. And most of it is may comes from maintenance slight portion of that this year is around certain capacity related CapEx we have.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: What is the current situation in Ukraine volume wise?

Onur Alcik, CEO, Anadol FS: Let’s give a brief update about Ukraine then. Despite an initial industry slowdown, actually, Ukraine’s volume growth has outpaced the markets. While cautious remain regarding operations in Ukraine, the overall results are promising. The primary aim of let’s say primary aim for Ukraine is to be self sufficient covering its day to day cost through its generated revenue without the need for additional investments. So this is the aim for our business in Ukraine.

And consumer demand has continued to show stability and contributing to a gradual improvement in performance supported by low comparison base, let’s say. In 2024, the company succeeded in becoming the fastest growing player in the market. So I think that concludes and that summarizes our Ukrainian business.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Thank you, Yonarbay. In 2024, was Russian EBITDA margin higher than the BIL group average?

Gokcey, CFO, Anadol FS: No. Actually, Russia is lower than the BIL group average only on January.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: There is a confirmation message. Can you confirm that Russia makes up 22% of consolidated revenues and 54% of VE Group revenues?

Gokcey, CFO, Anadol FS: I can confirm that.

Asli Demir, Investor Relations and Risk Management Director, Anadol EFS: Thank you. How much cash is held in Netherlands? What’s the minimum level would you like to have

Gokcey, CFO, Anadol FS: there? Well, around 50,000,000, slightly more than that I think we have currently in Netherlands and this is a level that we feel comfortable.

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