Ladies and gentlemen, welcome to Anadolu Efes last quarter 2022 financial results conference call and webcast. My name is Asli Demiral. I'm the head of Investor Relations of Anadolu Efes. 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 during the presentation. For those who would like to ask questions, please write your questions before the Q&A session because it takes some time for us to see them on the screen. 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 Mr. Can Çaka, Anadolu Efes CEO. Sir.
Thank you, Asli. Hi, everyone. Good afternoon to all, and welcome to our full year results call. Unfortunately, again, I mean, we are going to talk about the beginnings of these very sad events that happened earlier in February in Turkey. We had a devastating earthquake at the beginning of the month, centered in the southeastern provinces of Turkey, affecting more than 10 cities and millions of our citizens.
Obviously, I would like to start with expressing my sincere condolences to the ones who lost their families, relatives, and to see a rapid recovery for the ones who were injured. That is a big catastrophic event where we can't expect, unfortunately, rapid recovery. However, I'm sure the solidarity of the country will heal the wounds in time.
Without any question, as soon as we heard about the unfortunate news, our priority has been the health and safety of our employees, business partners, team members, and their relatives in the region. In this context, I guess, I mean, the only thing that relieves us as of today, all of our team members, I would say, in a larger context, are all safe.
Obviously, we have lost also beloved ones, our relatives to some extent. Since then, we've been working in coordination with local municipalities, with NGOs, in order to provide social aid for the region and trying to relieve the ease in the region in this regard.
Again, I mean, we're very sorry with what's happening and what has happened, and I'm sure we will, as a country, will overcome this very tough period of time. Coming back to our results, let me take you to our presentation. We will try to be short, as short as possible and to leave spare time for the Q&A session.
As usual, we would like to start with a, you know, a wider scope. I mean, let's say our compounded average growth rates for the last 5 years. As you see, our volume growth was in the range of 4%, very significantly higher revenue growth, 44%, and the EBITDA growth even overachieving the growth in revenue growth, supporting our value generation emphasis.
Obviously, we have also a very strong free cash flow generation, which grew more than 35% annually in the last 5 years. Next page, please. Okay. For specifically for the year 2022, as we discussed in our prior calls, where we had a very strong set of results, and that has been also complete, let's say, further strengthened in the fourth quarter. With the exception of Ukraine, we were able to either sustain our market shares or even strengthen, increase our market shares while we continue to hold leadership in every other market.
More importantly, in a year where we were constantly talking about inflation, one of the most problem, let's say most, the concerns around for every other business, every other macroeconomy, obviously that inflation was translating into a strong COGS increase as well. The emphasis on our side was to be able to price our beers in and without impacting the demand.
We were able to expand our revenue per hectoliter. That is obviously driven by our emphasis on pricing initiatives, but also the revenue growth initiatives that we have taken with respect to the discount management, channel management, and also product profitability management as well. I believe we have further ensure our success here.
Together with our focus on the cost side and on the OPEX side, we have been able to achieve the highest level of EBITDA margin of the last decade in 2022. That's again strongly supported with the strong top line growth and also the various risk management mechanisms, including the hedges and everything, and also our dedication to stick to our financial policy, including very smart standing approach.
As a result of our high, record high profitability, our free cash flow generation reached a level of 6 billion TL. Obviously, there is kind of a, let's say, certain payables that has been planned in the year but not realized. There's a, let's say, switch from 23 to 22 here.
That's why we should look at this on a nominal basis. Gökçe will take you on that one. Still, it was a very, very strong free cash flow generation, which led to our leverage ratio going at around 0.7 times.
I'm also very happy to announce that in line with our commitment to maximize shareholder value, our board of directors also proposed a dividend in the amount of 1.2 billion TL, taking into consideration the cash flow generation and the low indebtedness level. Going into the top volume growth lines, I mean, on a consolidated basis, our sales volumes declined by 2% in the last quarter as guided. On a full year basis, the volumes were up by a strong 6%, excluding the impact of Ukraine.
Looking at the numbers, organic growth basis also where we exclude the Uzbekistan, let's say, volumes. The volume performance was very strong at 5% level. When we look at the beer volumes on the next slide, actually, specifically, beer volumes were 10% below last year.
However, it was totally due to the due to Ukraine. If we exclude the impact of Ukraine, the volumes were flattish throughout the year. Next page. Okay. As you may remember from our previous calls, Russian beer market had a very strong start to the year, registering the growth in the first half, while we were also talking about the high base and consumer confidence and expectations with respect to the decline in the second quarter the second half.
We have seen that trend realizing through the year. Again, on a full year basis, we are talking about a flattish volume for the market. Obviously, we have also observed a demand polarization. I mean, that's happening everywhere across the board, actually. Basically we see the economy segment and also the premium segments growing rather than the main streams. That's very usual under the current circumstances.
When we look at our volume performance is below the market, but due to our conscious decision in terms of having a volume and value balance strategy that we've been focusing for the last couple of years, and also the falling purchasing power of our consumers, falling consumer confidence and inflation, that's also linked to the inflation in the country, affecting our volumes, especially in the second half.
Also we were covering also a higher base for the second half. Some of our brands, and especially we are very happy with our the largest local brands, Sedna, Nikis, Bochonka growing strongly with a couple of other brands in our portfolio.
More importantly, when we look at a full year basis, we were able to keep gain market share, and that's also driven by the pre-premium gains in the premium segment, and that's value share around 30% in the country. Looking at to Kazakhstan and Moldova.
Moldova economy was severely affected with the situation in the region, and Moldova has one of the highest inflationary environment in the region also. It has further impact on the consumer, let's say affordability for the consumers. That's why we have volumes were in a declining phase, especially in the second half. However, we are gaining market share in the market, so that is a positive point.
Again, we are seeing our premium and super premium brands growing. That's important. Our market share is at the top, when we compare, again, look at the historical high level. Kazakhstan has our volumes grew by low to mid-single digits, and we also increased our market share, and we are also improving in our position in non-alcoholic beyond beer segments as well.
Our largest, let's say, brand, mainstream brand in the market has increased its market share on the positive side. Looking into Georgia and Turkey. Starting with Georgia, beer market grew mid single digit along with the market macroeconomic recovery, an increased number of visitors to the country from the region.
We continue to have the increasing our market share in the country. Again, our market share reached to high record high level, and also on the soft drinks side in the country we have achieved growth and double-digit growth compared to last year. Looking at Turkey made a very good, very strong start to the year.
Recorded a very high growth rate in the first half as we discussed, partly due to the low base of last year. We continued with this superior performance in the second and third quarter of the year, thanks to obviously good tourism season in the country, but also our new launch in the country of our Prevan brand. At the same time, export volumes grew and they contributed as well.
Thus, Turkey beer operations had one of the most successful years and reached a sales volume grow of around 5.7 million hectoliters with a growth of almost 16%. Sales volumes exceeded pre-pandemic levels despite the decline in the consumer confidence index in the country and the inflationary environment.
The strong performance achieved with Prevan brand, together with the strong growth in the Efes Malt and Efes Özel Seri brands played an important role for this extraordinary success of Anadolu Efes Turkey beer operations.
A few words on the soft drink side. CCI's consolidated sales volume increased by also around 15%. While that was predominantly driven by the international growth on the international operations where the growth was more than 23% on a reported basis.
Sales volumes into Turkey grew by around slightly less than 3% despite the high inflationary environment and pressuring disposable incomes. Sparkling category showed a flattish performance while stills registered a growth in the range of almost 13%-14%. International operations growth came from all regions except Iraq and Jordan, and in specifically in Pakistan the growth rate was around 13%.
Uzbekistan was contributing to the growth inorganically but with also the strong growth the company achieved in the country. Finally, before leaving the ground to Gokce for further details, a couple of words on top line figures. Revenue growth was around 130%, reaching to 9.5 billion TRY with higher volumes and pricing initiatives and revenue growth management initiatives.
I need to underline that excluding the impact of the FX translation, the growth was still at a very high level of 57% on a constant currency basis. EBITDA growth was ahead of the top line growth. That makes us very proud and realize that around 148% with a margin of 19.2% and with a margin expansion of 137 basis points.
This was primarily due to the superior performance by our international beer operations. We delivered a TRY 2.4 billion net income compared to TRY 1.1 billion a year ago. A significant increase despite the fact that the net financial expenses were up year-on-year basis. With the profitability, with the improvement we were able to overcome that and increase our bottom line.
We recorded an all-time high level of free cash flow generation at around TRY 6.1 billion, thanks to strong operational profitability as well as the deferred payments in the international beer operations. As a result, we closed the year with consolidated net debt to EBITDA ratio of 0.7 times. I leave the ground to Gökçe for further details.
Thank you, Can. Good morning. Good afternoon, everyone. Before I start, I would also like to express my deepest condolences to everyone who lost loved ones in the earthquake. Very difficult to describe our feelings, I have no doubt that we will recover from this devastating earthquake working all together in collaboration and in solidarity.
Can has already provided a full year perspective for Anadolu Efes consolidated financials together with beer group results. I intend to focus more on fourth quarter results of beer group. Beer group sales revenue grew by 80% to TRY 9.7 billion in fourth quarter. The increase in FX-Neutral basis was also strong, 16%. International beer operation sales revenue reached TRY 7.8 billion.
Taking into account the declining sales volume of international beer in fourth quarter, actually this represents 126% increase in our revenues per hectoliter. In constant currency terms it's 27% increase. This was thanks to strong pricing, premiumization, and higher Turkish lira conversion impact.
Turkiye beer sales volume as well outperformed the expectations and grew successful by 10% in fourth quarter. Benefiting from this increase as well as pricing, sales revenue performance was very strong and increased by 101% while revenue per hectoliter growth was also very good at 84%. Going down to gross profit level, beer group gross profits also successfully extended and ahead of the revenues, growing by 99% despite high escalations in cost of goods sold and volatility we faced.
This means actually a margin expansion of almost 400 basis points in fourth quarter. As Can also mentioned earlier in the meeting, effective use of Efes and commodity hedges supported our margins. Let me give you more details on EBITDA and free cash flow in the following slide.
The numbers you see on EBITDA graphs are on a constant currency basis, so that we can clearly demonstrate emerging impact on our financials. In fourth quarter, we talked about revenues growing ahead of cost of goods sold, like actually the rest of the year. However, the increase in operational expenses are above revenue growth this quarter, which is unlike the rest of the year actually. This is mainly due to postponed commercial spending to the last quarter.
In any case, EBITDA grew by 100% to TRY 1.9 billion, with a margin expansion of 200 basis points. EBITDA margin in fourth quarter was 20.1%. Despite positive contribution from profits, we see a negative swing on cash generation in the fourth quarter. This was already expected due to calendarization of some capital expenditures and payables into the last quarter, together with early procurement of certain raw materials.
Another major factor or impact here was the negative conversion of working capital as TL remained pretty stable in the last quarter and ruble weakened. We reached a record high level of TRY 3.7 billion in full year 2022. Again, as Can earlier mentioned, I have to note here that we are significantly above our guidance as we have postponed some payments in Russia.
If we had paid this in 2022, we would be looking at a free cash flow generation in line with our guidance, somewhere in the range of last year's numbers. Moving to the cash and debt management on the next slide. Here I would like to underline that by the end of the year, more than 40% of cash we hold was hard currency denominated in beer group and 54% in Anadolu Efes consolidated.
These are lower than our historical averages, as we had a successful cash generation in Russia this year, and we were yet to convert rubles in hard currencies by year-end. As of today, I can update the numbers and tell that we have reached more than 60% in group already and close to 70% in Anadolu Efes.
Net debt to EBITDA is the indicator we are looking at when it comes to debt management, and this was 0.7 times for Anadolu Efes and 1 time for the beer group, so even lower than our long-term guidance that we use. We've seen actually a very significant improvement versus last year, as 2022 was a successful year in terms of cash generation.
About risk management. While there are certain commodities that we can hedge, and aluminum is one of them, so far we have hedged 80% of our exposure for 2023. We can also have price visibility for barley procurement. There also we have reached 70%. FX hedges is another tool that we use to protect our bottom line.
There, 27% of our cost of goods sold and OPEX are FX denominated, and these are mainly coming from Russia and Türkiye. In Russia, we are fully hedged, and in Türkiye we have hedged more than 90% of our exposure. Actually, this concludes my presentation. I'm giving words back to Can.
Thank you. Thank you, Gökçe. Okay. We have slightly slower pace of change of slides, which I still see there is management page on the screen. Okay. It seems it is with us. Now you see the strategic core priorities page, which is good. I'm not going to go in details. I mean, obviously our strategic priorities didn't change.
Obviously, I mean, sustainability is one of the key additions, and that's a very important area that we focus on, and that's an accelerating and supporting factor for our future success. When we are talking about future of the business, we are talking about people, we are talking about our winning portfolio, our brands. We are talking about the operational excellence, and also we are talking about the growth for our business. Those...
That is the meaning of this strategic core priorities. Obviously, our financial discipline, digitalization, which we can also mention among the operational excellence as part of the accelerators and keep priorities as well, together with the sustainability, as I mentioned at the very beginning. Let's move into the 2023 expectations guidance.
Obviously, needless to mention, 2022 has been a great achievement, although the year started with a lot of challenges. Obviously, this year also is another year starting with challenges. We got used to this now, and we are confident enough to have another year of success for our operations. Obviously, macroeconomic developments, geopolitical tensions, currency volatilities, the impact of earthquake, will be the primary concerns.
Therefore, we have a cautious stance, and our expectations probably will be hopefully revised upwards through the year as we see the progress. At the same time, we need to also note that 2022 has been extraordinary in terms of profitability, and especially we are noting that given the current competitive environment, current pricing environment, our, let's say, margins and our position was a little bit overshooting when we look at 2022.
We expect to see some sort of certain normalization in that perspective as well. Overall, beer volume is expected to decline by low single digits throughout 2023. That's as I tried to explain in different contexts.
I mean, given the high inflationary rate, consumer confidence levels, we expect a certain pressure in terms of the total beer market, let's say, position. In that perspective, obviously we will continue to strive to gain market share in every other market.
Again, given the expectation with respect to the overall market, we expect our volume to decline on a low single-digit level. When we look at the soft drinks side of the equation, we see mid-to-high single digits volume growth on the soft drinks side. Obviously we'll continue in terms of revenue growth management initiatives in both business lines and our consolidated net sales revenue is expected to grow by low 30s on an FX-Neutral basis.
Where our beer revenues are expected to grow by high teens on an FX-Neutral basis and the expected growth from soft drinks is high forties to low fifties, again on an FX-Neutral basis. Our consolidated EBITDA margin is expected to decline around 100 to 200 basis points impacted by the increased cost pressure and lower top line volumes, ex-I would say, and expected to be ahead of our pricing.
Our CapEx to sales ratio will be stable at the normalized levels of high single digits. We can expect a lower level of free cash flow generation in 2023 versus 2022 due to the cost on payments, as I mentioned. There's especially in international beer operations, so that would have higher cash outflows for two and three.
Thank you again for joining us and for your patience, and we are ready, and we'll be happy to answer your questions.
At the moment, there are no questions at the queue. We just wait for a few minutes. We will give some chance for people to write down their questions. There is a question from Daniel from Barclays.
Thank you for the presentation on Russia. Could I please ask how much cash is in Russia? Do you have visibility on your ability to upstream cash? Has there been any progress on AB InBev divestment transaction? Could you give an indication of what % of Russian revenues are attributable to international AB InBev brands such as Stella Artois compared to Russian, domestic Russian brands?
Right. I mean, let me give a little bit color on the negotiations with ABI, and Gökçe can help me for the rest. Obviously, first of all, so on continuing, I mean, obviously, we are operating in a very complex environment, and it's given the current necessities, this has been triggered by the events happening in the region.
Therefore, it is a progress with a lot of complexities. That's why it has taken longer than expected. There's a good level of progress, so we continue on the negotiations and working around the, let's say, the details of a potential deal. That's what we can say as of today.
With respect to, you know, the cash flow, generation and our capability to, let's say, distribute dividend, I would take it as distributing dividends from Russia. With last year that has been new legislation came into force.
When you need to distribute dividends, you require. Businesses are required to have an approval from the committee. We made our application to the committee with respect to the distributing dividends, for the profit that we have generated for 2022. That's an ongoing discussion, we have provided the necessary documentation, so on and so forth.
I'm positive that that would be a positive response from that because, as of today, we believe that there shouldn't be any limitations with respect to doing distribution from Russia, and I think that's, that should be continuing going forward.
I think regarding the cash we have in Russia, the second question we have also together with Ukraine, it's being asked end of the year. We can say that, you know, between 35%-40% of our cash in the beer group is in these two countries, actually. International brands such as Stella actually is low single to mid-single digits in our revenue share, I can say.
Maybe, for the last part of the second question, what was Russia and Ukraine contribution to group's EBITDA?
EBITDA-wise also we can say that 65%-70% together.
Can you please update us on conversion of rubles to US dollars? Again, another question from repatriation.
There is no problems of converting rubles into the dollars. As I told, I mean, we have already converted them earlier this year.
Thank you. Can you please provide more color on phasing of payables in international beer? This has already been answered. Can you also discuss pricing environment in Russia, Turkey, Kazakhstan for beer business in 2023 to date and expectations for the year?
Well, I mean, let's put Turkey and Kazakhstan first. Obviously, as discussed, the COGS or the inflationary environment is continuing, and there's a reflection of that inflationary environment to the cost bases. Basically, last year, the cost increases were driven by the commodity increases.
Although these few commodities are below the historical high levels of last year, we are still see higher cost base coming from the energy that is linked to also the packaging, secondary packaging, and also the inflation overall reflecting into the cost base. We still cost environment going higher. That's why we have planned to plan to have higher than inflation cost price increases in every other country.
For Turkey and Kazakhstan, Turkey and Kazakhstan specifically, Georgia and Moldova are not that different as well. We have already taken the very first steps and increased prices early December or early January. We have increased our prices in line with our plans. I don't see much of an issue in any of the operating countries with respect to pricing.
I would say actually the year started very well. We have seen a reasonable continuation of the trends in the first quarter of last year. At the first month of the year, obviously, February was kind of, let's say, as we discussed at the beginning, was impacted the earthquake in Turkey.
Russia is a little different, I would say, because the last year was totally a different environment. We have increased our pricing, given all these volatilities, all this based on the happenings. In the second half of the year, actually we've seen, let's say a lot of discounting and promotional activities from the competition, and especially RUB strengthening against USD also creating an opportunity for that reason.
That's why pricing environments today is a little bit tougher compared to the rest of the portfolio. That is why one of the reason why we are guiding for a margin dilution. We expect a lower pricing environment in Russia, specifically this year. That's mainly driven by the competition.
We'll follow the competitive reaction and will be able to, I think, we would need to align our pricing to the competition because already we are over-indexed. That is good for the value, but again, you cannot continue to deliver, continue to have the same sort of progress in a very short period of time. I would say this year is a little bit more digestion in that perspective. That is the reason of the margin dilution and, let's say a tougher pricing environment in Russia.
There are two questions, but I think, Can Çaka, you already answered. One of them was margin decline, why there is a margin decline?
I did.
Yes. Why there is a volume decline in the guidance. You already answered. There's a question to Gökçe Yanaşmayan . Can you please confirm that a fixed cost under COGS have been mostly hedged? Would this mean no major cost pressure in case of TL depreciation throughout the year? Or is currency hedging level higher than the current TL USD?
No. I can confirm. Yes, I can confirm that we are protected, not in the COGS. Also, we take into account when we calculate our exposure operational expenses too. 91%, almost fully we are covered, and our average hedge rate is lower than current levels of TL risk.
Mm-hmm. Mm-hmm. Thank you. Last one at the moment. What are your expectations regarding the significant increase in taxes on alcohol to finance government's expenditure on earthquake rebuilding?
That's a very difficult question. As of today, it's very difficult to answer on our side. One thing known is the government will be in need of more tax revenues. How they are going to relocate this is unknown today, so it is very difficult for me to make any comment on that.
Last question is: What is the EBITDA contribution of just Russia?
This year it was practically the same as Ukraine was not an EBITDA contributor. We can say for Russia as well, a range of 65-70 would be a number we can use.
Okay. Those are the questions. We don't have any more, so thank you for everyone for joining.
Thank you.
Thank you.