Ladies and gentlemen, welcome to Anadolu Efes 9M 2023 Financial Results Conference Call and Webcast. Our presenters today, Mr. Can Çaka, the CEO, and Mr. Gökçe Yanaşmayan, the Chief People and Culture Officer. All participants will be in a listen only mode. Following the first part of this call, there will be a Q&A session where you will be able to write down your questions on the question box of your web screen during the presentation. 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'm leaving the ground to Can Çaka, Anadolu Efes , sir.
Thank you, Aslı, Hi, everyone. As usual, a warm welcome to all of you. And again, as usual, another strong quarter with results beyond our expectations for the Q3. That is giving us a lot of confidence going forward. And obviously, obtaining these remarkable results, it's truly gratifying, especially during the year, which we celebrate the hundredth anniversary of our Turkish Republic. We have witnessed an outstanding performance in our key financial figures during this critical quarter for our business, and that's obviously indicating our ability to excel even in such challenging times where our consumers are under pressure of high inflationary environment. Notably, our EBITDA before non-recurring items, the margin has expanded even as we were comparing against a very high, a record level of high profitability of last year.
And this is obviously linked to our continuous focus on efficiency and profitability driven by our revenue growth initiatives. For the Beer Group, this is the seventh consecutive quarter of margin growth, highlighting our consistent efforts to improve our performance. Our improved EBIT combined with our disciplined CapEx management strategy and strong cash generation is the testament to our commitment to financial discipline while we continue to invest in our brands, in our talent, and our infrastructure. That is also a very satisfying, creating an underlying growth for future. In light of these impressive results achieved so far, we have decided to elevate our guidance second time this year, reinforcing our strong confidence in meeting the set of objectives or even overachieving the objectives for us.
In the Q3, our beer, beer volume surged by almost 8%, outpacing the already strong performance we achieved in the Q2. While recording solid growth, growth rates in our key markets, notably in Russia and Turkey, our international beer volume has seen an impressive, almost a 9% increase, with Russia holding the reins and also, Ukraine being operative, through the season as well. Russian beer volumes exceeded our expectations and demonstrated a strong improvement versus previous quarters by growing low- to mid-single digits. Ukraine volume has improved compared to the previous year, while the volume obviously remained below the levels of 2021. We are actively working on optimizing our performance in the market as well.
On the other hand, despite the exceptionally high base from the previous year, Turkey continued its impressive momentum and has recorded a 5% increase in volume through the quarter. More specifically, in Russia, the beer market remained relatively stable compared to the previous year. The stability of our beer market being flattish, even growing at the end of the quarter, underpinned by overall favorable and affordable price levels versus last year. For our operations in Russia, we achieved an approximate 4% growth in the volume side, and the growth is attributable to our well-balanced pricing strategy, effective execution of our portfolio, and obviously, our sales strategy, as well as also supported by the innovative product launches.
Obviously, I mean, last year we had a low, low base, especially in September, I would say. We sustained the value on a value basis, our market leadership with a significant lead. While volume leadership has been under pressure, obviously affected from low-level price levels by our competitors. Additionally, as a part of our product diversification strategy, expanding into new beer categories, as you might remember, we have launched the energy drink category at the beginning of the year, which. And in this category also, we have recorded a robust growth and our new brand, Volt, entered the top ten energy drinks in quarter three very recently following the launch.
Moreover, on the non-alcoholic beer segment category is growing as well, and we expect continuing gradual growth, while also the industry outperformed the beer market on the non-alc segment. Overall, CIS, Kazakhstan and Georgia had softer Q3 performances as a result of our focus on value generation, and especially high prices putting pressure on overall market, I would say. Moldova was more or less in that mood from the beginning of the year, although the line is slowing down, especially in the season, H2 of the quarter. Overall, our CIS volume down with single digit, but again, a strong revenue growth management initiatives we are taking there is supporting the overall financial performance and our revenue growth, and obviously, we are gaining market share also overall in the region.
Speaking of Turkey, obviously, we are very proud with what we are achieving here. The market performance also is supportive for our performance, despite we had a very high strong base from last year and the challenging environment, especially driven more with the high inflationary environment, putting pressure on the consumer side. Again, well, despite all this and a very high base of last year, Turkey beer volume increased by another 5%, marking the eighth consecutive quarter for the growth side. And this obviously strong performance, we well will be attributing the performance to our strong portfolio strategies, our effective pricing and revenue growth management strategies, and that is also supported by the strong tourism activity throughout the season.
Again, a very, very brief touch upon our soft drinks business. CCI's consolidated volume has seen a solid 3% growth, driven by outstanding performance in Turkey, where the volumes were surging by another 12%. This growth can be attributable to the effective marketing campaigns and favorable weather conditions, and also the tourism positively affecting. However, on the other side, international volume was under pressure, declining 2.5%, mainly driven by Pakistan, which has faced a significant drop due to the challenging macroeconomic conditions through the period.
On the positive side of the token is obviously Central Asia, where our business soft drink segment recorded a high single-digit growth, while Middle East was also recorded reporting another mid-teens growth. And a few words on the general financials. Revenues grew by more than 67% in Q3 to almost 50 billion TL, and both business segments have substantial contributions to this growth. Apart from the favorable foreign currency conversion impact, strong demand and effective pricing strategies contributed to the growth, and we still have very strong growth rates on every other line on a constant currency basis. For the beer group, effective revenue growth management strategies and tight cost management led us to reach a strong expansion in gross profitability performance.
Similarly, CCI's gross margin is improved remarkably, thanks to the disciplined cost management and timely pricing actions there as well. On top of a strong base, our consolidated net income recorded a remarkable increase to TRY 4.7 million in Q3, which is mainly driven by strong operational profitability and FX gains realized from hard- currency cash balances . In the Q3, Anadolu Efes free cash flow generation was almost tripled compared to a year ago. Strong free cash flow generation was contributed by both segments, and it was supported by effective working capital management, together with the better operational performance. As a result, our consolidated net debt to EBITDA ratio continued to improve this quarter as well, and reaching to a 0.5x of EBITDA. Now Gökçe will take us through more details of this very strong financial performance.
Thank you, Can. Good morning. Good afternoon. Welcome to our conference call regarding the Q3 2023 results. I would as well like to start with celebrating the 100th anniversary of our Republic, and it's a great pleasure to be able to announce that Anadolu Efes has once again produced an outstanding performance actually. Let me discuss beer results a bit in more detail. The Q3, in the Q3, 2023, beer group sales revenue increased by 44% to reach TRY 17.7 billion. This translates to an FX- neutral growth rate of an impressive 31%, actually. And revenue from international beer operations was also up by 30% and was at TRY 12.8 billion. Especially the Russian beer operations profited from volume growth in Q3, together with pricing carrying over from the previous year.
Though, the international beer operations revenue increase was relatively slower this period because of the ruble's year-on-year depreciation. On the other hand, Turkey beer sales revenue demonstrated an impressive 97% increase during the quarter, thanks to price hikes at the beginning of July and volume growth we see. And overall, beer group's revenue increased significantly to TRY 41.4 billion in nine months, 2023, with an increase of 52%. Beer group gross profit grew ahead of revenues by 61% to TRY 9 billion in Q3, and accordingly, gross profit margin expanded by 536 basis points to 50.6%. All operations witnessed an improvement in gross profit margin, with the exception of a slight decline in Russia, and the improvement was thanks to strict cost control measures, efficient use of commodity and currency hedging, and effective revenue growth strategies.
Beer Group gross profit reached TRY 19.9 billion in nine months, with year-on-year margin improvement of 524 basis points. So let me explain more about the EBITDA and free cash flow in the slide that follows. The expansion of gross profit I just described is a result of net sales in the Q3, growing more than cost of goods sold, and you can see that on the left top side of the slide. OpEx growth was slightly greater than revenue growth because the Q3 of last year had relatively low selling and marketing expenses, particularly in Russia. However, Beer Group EBITDA increased by 60% to TRY 4.7 billion in the Q3. Consequently, nine months EBITDA increased by 75% to TRY 9.4 billion, with a 308 basis points improvement in margin.
Beer Group's free cash flow generation in Q3 2023 was TRY 3.2 billion, which is a considerable increase from the TRY 740 million generated in last year. The international beer operations, which have demonstrated an increase in operational profitability and improved working capital, are largely accountable for this growth in free cash flow. So the following slides talks about cash and debt management. By the end of Q3, we had 42% of our cash in hard currency denominated in Beer Group, and 51% of our cash in consolidated Anadolu Efes, which is consistent with our internal policy and practice. And at the end of Q3, again, we look at exceptionally good leverage ratios. It's 0.5x for Anadolu Efes and 0.2x for Beer Group. So the following slide, again, is now on risk management.
To update and remind key beer group hedge figures, we had already talked about how well we are covered for 2023 from both aluminum and FX perspectives. And we began also hedging for exposure to 2024, and as of right now, we have about 54% coverage in aluminum exposure of Turkey and CIS countries, and 43% FX coverage for Turkey exposure. So I'm ending my presentation here and give word back to Can. Thank you.
Thank you, Gökçe. As we discussed earlier, results for the nine months have shown significant strength in both business lines, with a particular focus on the beer group. These results are better than what we initially expected and increased our optimism for the rest of the year. As a result, we are revising our guidance again, and accordingly, we have observed an acceleration in volume growth in Turkey and Russia, and we anticipate our volume performance to exceed our expectations for the rest of the year as well. Based on this, we improve beer volume increase expectation to low to mid-single digit from a low single digit volume growth level. With that volume growth, we anticipate the consolidated net sales revenue to grow at the upper end of the high thirties range on an FX-neutral basis.
Likewise, total beer revenue is forecasted to grow by mid- to high-20s on an FX- neutral basis. It was an upward revision from our previous forecast of low-20s growth, again, on an FX-neutral basis. More importantly, in such difficult times of volatility and uncertainty, we make another improvement in our profitability margin expectations. Despite the cycling a very high base of last year, we now expect the consolidated EBITDA margin to remain flattish rather than declining by around 100 basis points. And, well, similarly, on the beer group side, EBITDA margin, we expect the margins to be flattish for the beer group instead of a, again, 100 basis points decline, thanks to the strong top-line growth and modest increase versus the expectation in terms of the cost of goods produced and sold in, on a hectoliter basis.
Again, thank you very much for joining us for this conference call and for your interest. As usual, we would be ready to answer any questions if you have, while expecting there would be any, there wouldn't be any questions at all.
There are some questions.
Really?
Let me start with the first one from Antonio Luis Gomez. Can you confirm how much cash was held in Russia at the quarter end and currently? The second one is, can you provide an update on ABI JV acquisition? Third one, what are you doing to address your rating from Fitch Ratings?
Let me start with the cash bit. The cash in Russia is approximately 60% of our Beer Group's cash, I can say. And regarding the JV deal acquisition, I think we have made a huge progress, and we are trying to finalize all the negotiations and documentation to be able to ready for closing or for going for approval process, actually. And for the time being, I think I can say that there's a good progress in that end. And if I come to the third bit of the question, which is the credit ratings and negative watch, actually, that I think links to question number two. Credit agencies are also trying to see the end result of the deal, how it's going to be finalized. That's why in order to correct this negative watch, actually, we are working on the deal and finalizing it as quick as possible.
Thank you. The next questions, coming from Melis Pocar. Can you enlighten us about the current beer environment, beer market environment in Russia, taking into account some international brewers exit? Can you name the exact competitors? How is the consumer demand price margin environment? What are the cons and, pros and cons of the new era? The second one, regarding recent news flow from Russia's expected investment is for friendly countries, including Turkey, what are your opinions about possible concrete developments on your side? Can you... How can you benefit from this? And what's your medium-term and long-term beer group EBITDA margin guidance?
Let me start with the markets, overall market condition and demand. Obviously, you would recall probably last year this time, we were talking about the markets, changes in the market, changes in the demand, the pressure on the consumer, the demand perspective, starting especially from September onwards last year. And you would recall again, last quarter, last year, the last quarter was almost as a double-digit decline in overall market, which continued in the first quarter. And you would probably recall in our earlier calls, we were talking about, you know, that was, let's say, a very high base in the first half and the lower base in the H2, especially starting September onwards.
Therefore, the market reacted or the market developed as we were anticipating, and in that perspective, we have seen the market declining in the Q1 , less in the Q2, and we see the Q3 even positive market development, overall demand development. That is mainly driven by, again, much more stability with respect to prices versus last year. Last year, due to various reasons, we were required to increase prices because of ruble devaluation, because of the supply side of the equation, so on, so forth. With all these, actually, now we see a better, from the consumer perspective, better pricing situation, and that is supporting the demand side of the equation, despite the still ruble devaluing versus the level it had last year.
So overall, the market becoming, let's say, stable-ish, and we'll see the Q4. But again, let's remind that last year, the Q4 is a low base in that perspective. And overall, from the competitive point of view, I mean, the same businesses are the same competitors in that perspective. I wouldn't say there's a total change as of today. There's not much of a change versus last year. The shareholders and the... I mean, change, but I would say the overall competitive environment is very similar. I mean, for the last couple of years, you would remember, we are constantly talking about a value oriented approach rather than a volume-oriented approach, a very balanced view in that perspective. Therefore, we have taken the price leadership.
We have been less aggressive, I would say, in terms of promotions, so on, so forth. But we see the market becoming more, let's say, competitive in that pricing perspective, more discounts, more pricing competition from the pricing point of view. But again, as I tried to mention in the call. Maybe I was very quick to pass that. We keep a strong lead on our value leadership, which is the key success for us, and I'm very happy we have a very strong team on the ground, which deals with all these challenges very, very positively, very professionally in terms of all perspectives. So it's a very well-balanced position for the time being going forward, so I'm very happy with our competitive position within the market.
Obviously, I mean, we're very much focused on execution. We are very much focused on our strategy. We're very much focused on balanced portfolio, balanced revenue growth management initiatives that we have. Again, as I mentioned, we have a very strong team on the ground doing what they're doing very well, what they are doing, how they are executing and reaching out to our consumers. A strong portfolio, as we discussed, many times in the last couple of years. So in that perspective, we have a strong business on the ground. I'm not worried about competition. I'm not that worried about any, let's say, adding more emphasis on any ease for the investments from the friendly countries. We are focused on what we are doing, and that's, that's the basis for me.
Two questions come from Nikki. With both Russia and Turkey showing volume growth of 4.45%, which region is responsible for overall volume growth coming as high as 70%?
Actually, the answer is Ukraine. Basically, last year's Q3 of Ukraine was very weak, obviously. So anything that we said there is quite incremental to our Beer Group volume this year.
Given the delay in closing the transaction with AB InBev, would it not be prudent to upstream Russian 2022 dividends?
Yeah, I think we had already told that we had prioritized the closing the deal and getting the necessary approvals for the deal over the dividend upstream in 2022. And currently, it seems like yes, we may have to skip this stream to do that for next year.
Can you give some color on international market beer prices?
International market beer prices. Well, I mean, let me overall, I mean, it's, it's, again, give you the flavor, the overall. I think that's valid for across all markets, especially internationally, where we see a much larger segment of the beer market being value segment. And you would recall, I was mentioning about this many calls. Our focus is on in our brands, the power of our brands, and we are very much focused on the mainstream across the board. We are very much focused on revenue growth management initiatives, especially strengthening our premium portfolio. And usually in every other market, our market share in the value segment and discount segment is below, significantly below our fair share.
And, we see in every other market, the competition, competing on in terms of price, competing in terms of, value and, discount segment, I would say. And we are responding to that by investing into our brand portfolio, by investing our, power of brands for, for... I mean, since I'm back into the business for the last five years, strengthening our relationship with our consumers and making sure that our main, leading brands are the most powerful brands, the most, the brands that has the highest relevance to our consumers across the board. So in that perspective, we see more or less the similar, market environment.
Obviously, that has to be also in further, let's say, increase in the fact that, you know, there is significant—there was a significant increase in the inflation, especially at end of last year and earlier this year. And that inflation impacted also—I mean, we have taken in every other market, without any hesitation, we have taken the price leadership, increased our prices properly in line with our strategies. And it, across the board, we see our competition taking less price increases. So that is the overall market sentiment. But again, we are very happy in every other market. In terms of value share, we are very strong, gaining in that perspective.
Thank you, Can. Next three questions are for Yakup. Could you disclose the contribution of Russia and Ukraine to EBITDA of beer division in Q3? What's the amount of cash in Ukraine? And what's the amount of short-term loans of beers Turkey Turkey division, and how do you plan to address it?
Okay, the first one, the Russia and Ukraine is, I think, slightly lower than 60%. I would say 55% to 60% this year. This rate has come down a bit, and the amount of cash in Ukraine is very minimal compared to what we have in Beer Group, actually. So it's 1% to 2%, maybe, not more than that. And the short-term loans in Turkey, basically, at the end of Q3, I think we had around $170 million of loans. Together, this is net debt, properly, to give you the numbers, 'cause we have loans a bit more, but cash also in hand. And some of them will be rolled.
Actually, we have this year diversified our financing, actually, and went for Turkish lira, financing, basically with corporate loans, and some of them are rolled over already, and some will be rolled, and some probably we will be closing not to get the burden of high interest rates too much.
Thank you. We don't have any more questions waiting on the line, so if you would like, we can conclude the call.
All right. Thank you. Again, thanks for the questions, interest, and participation. Thank you all. Hope to see you at the end of the year.
Thank you.