Ladies and gentlemen, welcome to Anadolu Efes First Half '23 Financial Results Conference Call and Webcast. Our presenters today, Mr. Can Çaka, the CEO, and Mr. Gökçe Yanaşmayan, the CFO. 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. For those who would like to ask questions, please write your questions before the Q&A session. Just to remind you, this conference call is being recorded and the link will be online. Now, I'm leaving the ground to Mr. Can Çaka, Anadolu Efes CEO. Sir?
Thank you, Aslı. Hi, everyone. Welcome. I'd like to welcome you all to our second quarter conference call. As you're following since the start of the year, our performance, especially in the beer group, has been quite good, quite strong, and obviously outpacing our expectations at the beginning of the year. We observed an improved momentum versus the first quarter as well, especially driven by Türkiye, Kazakhstan, and Georgia. Despite last year, we had a very high base in terms of our EBITDA margin with the price increases we have taken over the board, but especially in Russia. We managed to increase our margins in the quarter as well, increasing our record level.
Obviously, that has been supported by the strong top-line growth and also the favorable cost environment in the quarter, especially for the international beer operations, supported the margin improvement through the quarter. I'm very happy. This marks the sixth consecutive quarter where we were able to expand our margins on the beer group side, and that's obviously a big pleasure for me. Our strong momentum was not limited with operational profitability. Also, we were able to have significant improvement in our balance, management, and cash flow generation, and we have high-- we have now again pushed to new limits on these points as well.
With the very solid results we achieved in first quarter, as we discussed from the very beginning of the year, we had very cautious expectations for guidance for the year. As we see the first half performance strong, we are revising our full year expectations on the beer group, and that has been translated on the Anadolu Efes consolidated results as well. Going to the volumes, obviously, our beer group volume performance significantly improved compared to first quarter, and we were able to grow our volumes during the quarter more than 5%. Again, as I emphasized, this was ahead of our expectations at the beginning of the year. As I mentioned, the growth is mainly attributable to Türkiye beer volumes, which grew more than 20% in the second quarter.
We also see improvement in Russian beer volumes versus the first quarter, and especially last quarter of the last year. The decline in the beer, overall beer market is lower in the quarter compared to the previous quarters and similarly reflected to our volumes. As we have now Ukraine operational, with two breweries, that is also supporting the volume growth. Overall, for the international operations, we have recorded a low single-digit growth through, through the quarter. Specifically for Russia, Russian beer market, as I noted a few minutes ago, showed some recovery versus last year's same quarter. Obviously, last year was a low base for the second quarter, as the happenings in the region started in the...
Impacted the, the, the quarter very heavily, and also we had overall, the market had supply chain constraints. Also, we are seeing the pricing environment being highly pressured from the market players and also the trade members as well. This is supporting the affordability and supporting the market in that perspective. Specifically, we see the markets like many global markets, we see both the premium and value segments growing in Russia as well. That is obviously value segment more on the affordable side, and obviously, the premium segment is a general beer market trend as we see across the board.
On the other hand, when we look at our volumes, our volumes were down versus last year, and basically, again, this is the performance of the decline as a percentage is lower versus the first quarter and the previous quarters of the last quarters of last year. That's partly related to the very high base. I mean, we have taken significant market share in the first two quarters, first half of last year, so that was a high base for us. When we look at the second quarter specifically, that's linked to that, but overall, despite the high base, having a limited volume, the client is better than our expectations.
Obviously, when we look at the top line, I mean, with the pricing carryover, with the price increases that we had last year, had a significant carryover impact for the first 2 quarters. This year, we are seeing a positive impact. Obviously, this was actually normalize as we had this carryover effect separating in the second half. Obviously, we have lots of initiatives, lots of execution and better relationship with the trade as well, and that will be supportive, and that was supportive for our volumes through the first half. We believe that's going to be supportive for the remaining of the year. We also, when we look at the non-alcohol beer segment, we also see that our performance was ahead of the market overall.
When we look at the other countries in the region, Kazakhstan volume improved versus first quarter, grew by low to mid-single digit. In second quarter, we continued to gain market share in Kazakhstan. That is obviously positive. Another strong market for us is Georgia. It's with more than 10% growth registered to, that is going strongly on the mainstream and premium side as well. When we look at the Moldova, that's that's the most the market that has the most challenges. I mean, we had the highest highest inflation in the region, in Moldova, that has been impacting the consumers' disposable income. Also we see the total population decline in the country with the macroeconomic challenges.
That's why we see the market declining in Moldova. We are also losing some market share because of the affordable issues. Overall, our CIS volume grew by low single digits on average during the quarter, continued our performance in that perspective. Türkiye obviously deserves a couple of words. We had the strong momentum continuing in the second quarter. Obviously, the affordable pricing environment in the market is supporting this, but also, now, higher number of foreign residents in the country, Ramadan coming 10 days earlier, strong tourism, also supporting the market volumes. Again, this is a very strong growth we have registered in Türkiye. On top of the market growth, our volume performance was also very strong, over 20%.
We have also... That is more importantly, the growth was supported or coming from the off-trade channel, which is, which is, that's obviously consumer offtake, and that's very, very important going forward. We believe our diversion of affordable offerings also helped our volume performance in the period. That is that's the continuing trend in the market. A few words on soft drinks as well. I'm sure most of you have followed the, the, the conference call our colleagues had yesterday. Just a remark, consolidated sales volumes declined slightly, less than 9% in the second quarter, with soft volumes in Türkiye and Pakistan.
The volumes in Türkiye declined, by slightly higher than 9%, mainly due to cycling it to 2 quarters of strong growth high base, and we see higher impact of inflationary environment on demand on the soft drink side as the price increases, that is supporting the top line and bottom line as well. In international operations, there was 8.6% decline due to mainly Pakistan. In Pakistan, in Pakistan, the decline was around high 20s range, and that's mainly driven by the macro headwinds, as well as sudden increase in the excise tax, that's returning as higher price increase.
In Central Asia, Uzbekistan continued to be the fastest-growing operation, proving the, the acquisition and geographical expansion as being a very right step for the CCI operations. Now our CCI registering more than 25% growth in second quarter. A couple of numbers before I leave the ground to Gökçe for more details. Our revenues grew on a consolidated basis, more than 63% in first half to reaching to more than TL 62 billion range.
In certain markets, we were able to take pricing, and overall, we also, across the board, we enjoyed the carryover impact of the prices, price increases of last year, and the growth was also supported by year-on-year higher FX translation impact, which is the international operations, translated back into TL, for the reporting purposes. In beer group, a superior gross profitability performance, and therefore in the EBITDA performance, was delivered with strong support from international brewing, international beer operations. Although OpEx to sales ratio was higher, soft drink gross margin was impacted, as I mentioned, high inflationary environments were. But it was mitigated by tight OpEx management on the soft drink side.
On top of the strong base, our consolidated net income increased to TL 3.3 billion in first half, mainly due to high profitability EBIT, as well as valuation gain of around slightly less than TL 700 million, recorded from Anadolu Etap consolidation into our accounts. It was another period where we were able to generate a high cash flow for our operations. When we look at the free cash flow generations, that was supported by both business lines and the main source of obviously, the support mainly driven by the high profitability and very strict CapEx spending through the first half.
That was slightly less in the second impact of the lower CapEx will be less in the second half as we need to plan for the next year and even longer horizon, given the extending lead time in terms of machinery and equipment. Still, with the operational profitability, we will be able to continue our deliver our expectations. As a result, our net debt-to-EBITDA ratio was parallel to what we had at the end of first quarter, lower than 1 time. That's very healthy for on a consolidated basis. Now, I'll leave the ground to Gökçe for much more details.
Thank you, Can. Good morning. Good afternoon, everyone. Welcome to our conference call for first half results. Following another strong quarter, I'm happy to provide you more flavor about beer results for the second quarter. Beer group sales revenue was up by 49% to TL 14.6 billion in the second quarter, which represents an increase of 29%, actually, FX-neutral basis. International beer operations sales revenue grew by 38%, reached TL 10.9 billion. Here, Can also mentioned, carryover effect of pricing from last year still continues in the second quarter. Hence, revenue per hectoliter increase is still very strong in international beer, is around 39%. Again, as Can also noted, that this has to get normalized in the second half of the year as the highest price increase were implemented in the second quarter last year.
Türkiye beer sales revenue grew by 95% to TL 3.6 billion, again, supported by a very strong growth of revenue per hectoliter of 61%, together with volume uplift of 21% almost. Good numbers in top line, good growth. Group gross profit was also up by 68% to TL 7 billion. Similar to first quarter, actually, here we have a very solid profit and expansion in gross profit margin by 555 basis points. Thanks to mainly international beer, driven again by this pricing, together with cost escalation being slightly better than our expectations. In the following slide, on the left upper side of the slide, you see net revenue in the second quarter, increasing more than cost of goods sold, which leads to the expansion of gross profit I just mentioned.
Just a reminder, % on the chart represent FX-neutral growth. You see also here, again, increase in OpEx is slightly higher than revenue, but in last year, in second quarter, actually, we had a very low base due to low selling and marketing expenses, especially in Russia. Yet together with a positive impact from conversion, beer group EBITDA grew significantly to TL 3.4 billion in second quarter, and with a quite high margin of 23.4%, actually. This came with a high base of last year and represented an expansion of 317 bps in EBITDA margin. Typically, following a weak first quarter in terms of cash generation, we see strong second quarter this year as well, and this is very comparable to last year numbers, as you see again.
Free cash flow was supported by higher operational profitability. Here we see negative number in working capital, which comes from actually a lower conversion impact of working capital in Russia, as ruble also weakened this year. All in all, cash generation was recorded at TL 5.1 billion in second. Next slide. Cash and debt management, actually, here things are more or less in line with our internal policies. By the end of Q2, 46% of cash we hold was hard currency denominated in beer group and 53% in Anadolu Efes consolidated. Net debt-to-EBITDA ratios are at a very healthy zone, 4.8 times for Anadolu Efes consolidated and 0.4 times for beer group. Next on risk management, briefly, not much has changed here.
I can say that from the commodities we can hedge, we had almost completely hedged our aluminum for 2023 already, and we have started to hedge for 2024 exposure, and currently we are around 38% of our coverage. From FX exposure point of view as well, our P&L was, for this year, well covered. For next year, we are about to start also hedging our FX. Basically, this concludes my presentation. I will give word back to Can. Thank you.
... sorry, I forgot to turn my microphone on. , let me, let me repeat. We've been very cautious at the beginning of the year, with the pricing environment, with the inflationary environment in every other market. We've been discussing at the end of first quarter as well, that we would be revisiting our year-end guidance by the end of first half. In that perspective, seeing the very strong first half results, we are revising upwards, especially on the Beer group, our year-end expectation. Still, we are cautious for the rest of the year, but we see various ups and downs, and there is a low base impacts for the second half of the year.
We expect our power performance with respect to the markets in every other market to continue. We have full confidence to revisit our and re-revise our full year guidance. Accordingly, we improve our beer volume to a growth expectation versus an initial decline expectation. Now, with the strong momentum we see in Türkiye beer and less pressure, especially in Russia, we see a low single-digit growth for the year end. Therefore, on a consolidated basis, we now expect our volumes to grow by mid-single-digits. Again, this was low-mid to mid-single-digits at the beginning of the year. We improve our beer revenue growth expectation to low 20s on FX-neutral basis as a result of the improved volume.
Obviously, on a consolidated basis, we expect our revenue to grow by high 30s on an FX-neutral basis again. This was low 30s at the beginning of the year. In terms of Beer group EBITDA margin outlook, despite we had record level of margin expansion last year, extraordinary strong performance in that line, we have cautious position at the beginning of the year. We were expecting the margins to decline, normalize to some extent, but now it's very limited now on the pay basis decline. Likewise, our consolidated EBITDA margin is expected to be expected to decline more or less in the same range. I guess this is it for the time being.
Thank you for your interest, and, if there are any questions, we would love to answer your questions.
Thank you very much, . We have a couple of questions. Let me start with the first one. Can you provide an update on your Russian dividend? Can you provide an update on the progress with regards to Russian JV acquisition? Does news of Russian nationals being prioritized in any acquisition in Russia change your thinking at all? How have discussions with ratings agencies progressed? Your outlook is negative by S&P. You are still on watch negative by Fitch. When can you expect your rating to be normalized?
I can take this.
Thank you, Gökçe.
With dividend, actually, we have, you know, we have understood that these processes are overlapping with the deal finalization. Basically, our first focus is to finalize our deal and to, to, to be able to apply to that, and then we'll go for the dividend. There, there is a prioritization there, and we want to make sure that the deal process is finalized first. I think that's, to a certain extent, answered the question about the, the progress of the deal as well. Deal as well is progressing. We are still in active discussion and trying to finalize the details of our agreement.
Obviously, after the recent developments in Russia, we are being cautious and, and trying to also understand what's happening and making sure that we do take the right steps, our intention is still to finalize the deal and to, to, to apply for Türkiye's approval for that. When it comes to the rating agencies, we have basically... You know, the good news there, actually, is that, you know, our rating was downgraded with reasons out of our company performance, I think, which is a good news. We are obviously committed to take our ratings back, we have constant touch with, with S&P and Fitch, reviews, meetings with them. Actually, I can't obviously tell about the timing.
That's something that they would know, but, our performance are strong, and we are willing to take our rating back as soon as the situation allows us.
Thank you, Gökçe. Can you confirm how much cash you have at EBI Netherlands level and the % of foreign currency cash?
I can also give.
... answer to that, around 50% of our beer group cash is, is in, cash.
There is a question about the ABI deal, but you already answered, so I'm not going to repeat it. A question comes from Erkan Edincik: How is the third quarter performing in both domestic and international markets? Are you able to reflect cost increases in selling prices? Is there a possibility of an increase in profit margins in the third quarter? He continues with a question of: Could you provide information about the competitive conditions in Russia? Is there any update on the complete acquisition of assets there? The same question. , maybe you take or-
Thank you. Thank you, Aslı. Let me try to respond to this. I mean, obviously, with respect to update about Russian JV development, Gökçe already made provided the details. When we look at the volume performance, like I was trying to pinpoint during the presentation, for when we look at the international markets, we would be having a lower base impact going forward in the second half with volumes mainly driven, mainly, we have seen in the international markets, volume decline in the second half of last year, driven by Russia, but also with the higher price points and the higher price increases across the board. In that perspective, we see second half as a lower comparable in terms of volume, obviously, going forward. Turkey is different on that perspective.
In the second half of the year, you would remember last year, we were able to grow volumes with our offerings and, let's say, making, expanding the portfolio with more affordable offerings as well. That also helped the market grow in Türkiye. Which has been supported by a very strong tourism impact. Therefore, in Türkiye, we will have a higher comparable in the second half of the year, pay, because of these main drivers. The two pieces of the equation would, our portfolio, international and Türkiye, have different comparables. That's again, we reflect all this into our year-end guidance in that perspective.
You see flattish volume for the time being, and we are giving a guidance for the full year as low single-digit volume growth. Therefore, we expect to see volume growth continuing in the second half. In terms of cost increases, as we discussed at the end of last year as well, 2022 was heavily impacted with very high commodity prices. Current commodity cycle is supportive, but we were seeing a higher inflation, let's say, carryover higher inflation impact moving into 2023, higher energy prices and the higher secondary raw materials in that perspective. We see, in that sense, in the first half, we have seen, let's say, better than our expectations in the pressure side. That is, that is positive, and currently, we see that continuing as well.
That's also reflected into our margin guidance going forward. Overall, we don't see a major issue in terms of reflecting or covering the... or we have already implemented the price increases that are necessary to execute our year-end expectations. We are properly going forward. We're trying to make sure that we don't lose the, let's say, competitiveness in terms of pricing. We see value segments growing in every other market, and value offerings are usually significantly less than our fair market share across the board. That's why we're very cautious to make sure we reflect compete, and we respond to the competition in that perspective. Let's link this to Russia.
In terms of pricing environment, we see, the, again, similar to what I'm trying to describe right now, the pricing environment with lots of promotion for, from the, all players, I would say, and, let's say, lower than inflation price, meaning that is driven by the competition, that is driven by the, let's say, trying to make the LD products more affordable and more, compare- that is driven by more from the competition side. We see the pricing environment tough. Good news is we have, we had significant carryover impact for first half. Second half, that will be balanced, but again, with the volume performance, we believe, current, not currently, we are in good track for reaching out to reaching to our year-end targets. I believe that covers all aspects of the question.
Thank you, . Another question: Could you provide cash position in Russia and Ukraine? Could you share the contribution of Russia and Ukraine to the total EBIT, EBITDA in first half, how it changed compared to first quarter of 2022? Could you provide maturity schedule of loans in Turkish beer operations, and how you plan to handle short-term maturities?
Aslı, let me take that. Cash position in Russia is quite strong, actually. We are quite cash positive there. Currently, may I again give percentages, around 50% are acquire total cash of beer group is in Russia and Ukraine together. That represents more or less one-fourth of another way, but is all consolidated cash positions. Co-contribution to EBITDA is, again, for Russia and Ukraine together in beer group, we can say that it's around 65%, yes, and that's very similar to last year's actually levels. In Anadolu Efes, it's again, one-fourth of our is generated in Russia and Ukraine together, you can say. The Turkish loans, yes, they are of short nature, probably on the average, close to 6 months or so.
We accept that there are difficulties in Turkish market currently about refinancing. Therefore, in the second half of the year, we, we may choose to close some of them and refinance some of those, depending on the availability and the cost of those loans.
Thank you. Another question comes from Ece Mandacıoğlu. Congratulations on strong results. Could you comment on USD ruble performance and its effect on your business overall, including price actions? Have you observed a major change in competition in Russia following the change in controlling costs?
if you like, I can take the.
, go ahead. You're good. Sure you have.
We, we obviously we are working on, on potential impact of ruble depreciation currently happening in Russia, and it is quite volatile, so the numbers as we work, you know, they change. I will be able to give a better, you know, flavor of the impact of this change once we finalize our budget process towards the end of the year, but there will be some impact that we, we will probably need to pass some of that through price actions for next year, though. For 2023, as I told, we are fully hedged, actually, so that doesn't have any impact.
. another question from Orhan V. : Do you think the volumes in Russia came higher because the overall consumption is higher than expected, or you stole market share from the competitors?
Good question. I mean, as I tried to explain, the market performance was better than our expectations, the market is performing better. I would say, despite a very high base of, my high market share, we had last year, our performance also is better than our initial expectations. I wouldn't say our current market share is higher than what at last year, but only we are very much focusing on value share, as we discussed in prior calls as well. In that perspective, we see, our, value share is, is, is reasonably in line with our expectations.
Thank you. Can you provide more color on postponed payments and your free cash flow output comments for 2023?
Maybe I can just, without a detail, tell that there, there are certain payments that we have to do on JV level of Russia and Ukraine, which were depending on the cash repatriation from Russia. That's why they are being postponed.
The last question, is actually a similar one. Is my understanding correct that no dividends or other distributions from Russia took place since 2022? Is it due to difficulties with obtaining permits? Could you please discuss which countries, apart from Russia and Ukraine, paid dividends in first half to the holding company beer segment?
Yes, we, we haven't received any dividends since 2022. That's correct understanding. As I tried to explain, it's a process which overlaps quite a lot with the deal closing process. Therefore, again, we, we want to focus on deal closing before we go for the. Besides Russia and Ukraine, actually, all our operations are some sort of dividend or loan repayment. There is a cash flow, actually, from our operations.
Thank you very much. This concludes all the questions. Maybe we can also conclude the conference call as well. Thank you for joining and listening.
Thank you, all. Thank you, Aslı.
Thank you!