Ladies and gentlemen, welcome to Anadolu Efes' third quarter 2021 financial results conference call and webcast. My name is Aslı Demirel. 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 listen-only mode. Following the first part of this call, there will be a Q&A session, and 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 our 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 handing the floor to Mr. Can Çaka, Anadolu Efes CEO. Sir.
Thank you, Aslı. Good afternoon to all. You know, we've been continuously talking about the COVID for the last couple of quarters. However, I mean, obviously this summer we have seen across the board ease restrictions and increased mobility and that helped us throughout the quarter, and we managed to deliver another strong volume performance in this, the biggest quarter for our business. We had remarkable performances on both business segments and volumes at Beer Group operations where we have recorded solid growth while soft drink business also continued its strong volume growth momentum that was both domestically and internationally. On the Beer Group side, the volume growth was mainly supported by the growth on the International segment.
July specifically was an exceptional month for us, and we have in Russia recorded one of the highest ever monthly sales. Similarly on the soft drinks, we have seen historical numbers for Turkish domestic operations. With the increased mobility, we have also seen increased number of COVID cases afterwards, so that has impacted for the second half of the quarter in all respects. Thanks to our almost 24% increase in terms of revenue per hectoliters on a consolidated basis, we had also added on top of the volume growth, and we had very solid revenue growth.
Our value focus, obviously, that has been proven with the price increases which were implemented through the year and our big focus on profitable revenue growth management initiatives yielded this very strong growth on our revenue on top of the volume growth. On the other hand, the challenges continues. Obviously, the rising commodity and raw material prices, starting from this quarter, we have seen the impact, the effect on our financials. Thanks to hedges in place, the impact has been limited, but the current levels of commodities and raw materials unfortunately keeps us awake for the next year, especially. We already started to fix some of our exposure for next year and Gökçe will take you through this in his part.
On top of that, we have started to implement price increases in all of our operations, especially on the beer group during quarter four, in order to mitigate such impacts and also being ready for next year's planning and implementations in order to ensure there's a smooth transition for the new price levels to cover these cost pressures. In order to overcome this pressure on the gross profitability, we also had continued our tight OpEx management, especially on our international operations, despite cycling at already a very low level. You would remember last year through the peak of the pandemic, we were discussing about very tight OpEx management and this is becoming a kind of a trend, continuing trend for us.
Specifically on Turkey, we continued to invest in marketing on, in terms of our relaunch of our flagship brand. That has a slight impact, but still we continue to be very cautious on our OpEx management here in Turkey as well. That result helped us in generation of quite high free cash flow through the quarters as well, and predominantly due to the international beer operations at CCI, and where we have an outstanding performance on both in terms of the working capital and also prudent CapEx management that supported the free cash flow generation. The strong performance in free cash flow generation will persist for the year end. However, the current working capital levels are expected to be normalized slightly in the last quarters of the year.
Therefore, we will see some normalization in this strong free cash flow generation for the rest of the year in line with our guidance. Going on to the next slide. As you can see on this slide, we already had a sound performance in the first half, especially on the beer group and on the Efes level. All metrics were above last year. In the third quarter, we managed to keep the same pace, except with the impact of the commodity prices that I mentioned a little bit earlier, and that had an impact on the gross profitability which filtered through the EBITDA performance.
Group free cash flow was slightly below last year as well in the third quarter. However, beer group free cash flow generation. However, as you see, for the first nine months, we are strongly ahead of last year, and this has been the pacing of our working capital with respect to different quarters and also our low CapEx pace. Consolidated sales volumes were up by 9% and reached to 36 million hectoliters in the third quarter. Similarly for the beer group, volume was 4% higher, reaching to 11 million hectoliters. Revenues grew by 35%.
If we exclude the impact of the FX translation, the increase was still strong, around 22%, leading our top line to close to TRY 12 billion backed by the price increases, premiumization, and proactive revenue growth management actions. Contribution of the beer group reached to 42% with TRY 5 billion contribution and then 33% growth. Consolidated EBITDA was 13% above last year, yielding close to 4 percentage points declining margins, mainly driven by the decline on the gross profitability level. All in all, I mean, we have seen, as I mentioned, certain challenges.
We are seeing increased number of COVID cases, but still, that is putting slight pressure on the mobility and that is especially for Turkey reflecting into lower tourism activity. Also, specifically in Turkey, wildfires in southern provinces and flood in the northern part of the country during early August again put pressure on Turkish business. The commodity price increases, we are seeing the impacts. However, despite all these challenges, we are seeing a very strong performance with 39% revenue growth and 33% profitability growth with almost 50% free cash flow generation. More details on the beer group now.
As noted, our beer group volumes continued its growing trend and increased by 4.4% in the third quarter of the year. International beer operations volume were even higher, expanded by more than 6%, supported by our performance specifically in Russia and Georgia to some extent. Russia had a remarkable performance despite the high base of last year. There was no tourism outside of the country. In July, due to the extraordinary high temperature recorded in the country, our volumes, as I mentioned, have hit its record levels. We are keeping our focus on our premiumization strategy, focusing on the growth of our premium and super premium brands, such as mainly Bomonti and Stella Artois.
We saw the strongest sales growth through this quarter. Non-alcoholic beer is also an added focus area for us, and we have seen more than 40% growth compared to last year. We see specifically for the non-alcoholic beer, we also benefited from the online delivery services. We are also increasing our partnership with some brands in order to increase the penetration of our non-alcoholic offerings. We had also further cooperations with the on-trade chains, and those are all contributing back to our business. We are growing non-alcoholic beverages. Also we have big adjacencies to beer. That's where we are growing in those categories as well.
Specifically for international operations, where we have seen we have posted decline, specifically in Ukraine, mainly driven by the higher price increases versus the competition. Our volumes also affected by the unfavorable weather conditions in the country. However, we are similar to Russia and Moldova. International operations, we are trying to develop our brand portfolio by adding different alternatives, including non-al, the beer adjacencies and our premiumization focus and adding new flavors so on and so forth, and growing our business case. However, as I mentioned, pricing higher, our pricing higher than competition and deep discounting from competition impacted our volumes specifically.
Our volumes in Kazakhstan and Moldova were up by mid-single digits and in Georgia specifically grew more than two or almost 30%. We managed to improve our volumes in all these countries with new product developments, real launches of mainstream brands and increasing our, let's say, focus on execution and increasing our touchpoints with our consumers on route to market. We also observed a solid increase in our on-trade volumes in Turkey right after the release of the restrictions starting from July onwards. However, as I mentioned, August was impacted with the sad events in Turkey, forest fires and then lower tourism, so on, so forth. Starting from the second half of the year.
Despite the quarter, especially the beginning of the quarter was strong, we have seen, let's say slower volumes in the second quarter of the second half of the quarter. Therefore, our volumes were down by around 5% versus last year. Another area we are focusing is our craftsmanship culture. We've been, as I've tried to mention about different countries, we're trying to expand our offerings and our reach to our consumers with the flavored beers, with different specialty beers, with seasonal beers and also very recently, the most recent example is our gluten-free beer offering in Turkey. All these new offerings are adding to our portfolio, adding to our volumes, adding to our, let's say, profitability.
In that perspective, we have taken the innovative leadership in every other country, expanding our portfolio, nicely and profitably. As usual, a couple of words on the soft drinks, which is growing fantastically. As a result, similarly, eased restrictions and increased mobility helped our business segment and CCI's consolidated sales volume extended very strongly and grew by more than 11%. In Turkey, volume growth was around 15% as a result of the focus and segmented market campaigns, effective promotions obviously, and seasonal offerings on the soft drink segment as well, and the high penetration on the e-commerce which is growing fast in Turkey especially, it's helping. More importantly, sparkling beverages recorded a growth by around 13% and Coca-Cola brand itself growing over 13%.
Still category increased by 21%, especially supported by strong ice tea and energy drink performances. Water category was up by 18%, especially thanks to the increased share of the small packs. International operations grew by 9% and specifically in Pakistan, despite the price increases during the quarter, we've seen the volume performance around 8% and continues with this growth on top of the price increases with better execution and increased penetration. CIS grew by more than around 20% in the third quarter. All CIS markets on the soft drink side also delivered double digit and a high single digit volume growth, except for Turkmenistan and Middle East, we have seen a decline at 5% cycling at high base of last year.
Going to the last page, basically we discussed around the performance in the prior pages. This is the kind of let's say summary. Let me touch base with the bottom line we haven't discussed. We recorded a net income around TRY 556 million in third quarter, bringing our net income level to 1 almost 3 billion TRY range. The year-on-year financial expenses were higher. You see there was a one-off negative impact coming from CCI regarding non-cash provision for spare part amortization hitting the bottom line. However, thanks to the high operational profitability as well as gains from again the sale of land in the CCI level, our net income increased more than 20%.
Similarly, for the free cash flow generation, we have recorded more than almost TRY 4.3 billion cash generation in the first nine months. That is TRY 1.4 billion higher than what we have generated throughout the first nine months of last year. That increase was supported equally by both our beer and soft drink segments. As I had mentioned, that would partly be normalized into the third quarter. Again, that's a very strong performance. Now I will hand over to Gökçe for further details on our performance. Thank you.
Thank you, Can. Good morning and good afternoon, everyone. I'm going to take you through the financial results. Actually, I'm quite happy that we are reporting another successful quarter. If we start with beer business, this is the third quarter in a row in 2021. Beer Group reports growth in volume and in both top and bottom line. As Can was also saying earlier, we've seen strong volume growth in our international beer business, especially remarkable volume performance in Russia and Georgia in third quarter versus last year. Beer Group sales revenue was again substantially ahead of volume and grew by 32.5% in third quarter versus last year. On a constant currency basis, increased by almost 17%. Besides growth in volume, price increases across the board and favorable product mix supported solidly our top line.
As a result, Beer Group sales revenue in nine months 2021 reached TRY 12 billion with a year-on-year increase of 31.3%. The pressure on the gross profit in third quarter due to raw material and commodity price increases has started to impact Beer Group EBITDA and margins too. The good news though, despite cost pressure, EBITDA grew by 5.1% in third quarter, thanks to successful revenue growth management as well as savings in especially international operations OpEx. Beer Group cash flow was almost parallel to last year's high base, and in nine months, free cash flow reached TRY 1.5 billion, significantly above last year. I'm going to give more details on EBITDA and free cash flow in the following slide.
When we come to Anadolu Efes consolidated financials, CCI continues to contribute significantly to bottom line and top line performance in third quarter too. Consequently, consolidated net sales revenue was up by 34.9% in third quarter and by 39.4% in nine months. Consolidated EBITDA grew by 12.8% and by 32.3% respectively in third quarter and in nine months, while free cash generation is well above last year and reached TRY 4.2 billion . I believe EBITDA and free cash flow bridge is on slide 11, make it easier to show impacts that I was talking about on our beer group results for third quarter.
If I summarize again, what you see in the EBITDA bridge is a strong revenue management resulted by a combination of factors like volume growth, price increases, and favorable product mix. Also a very successful OpEx management we see the increase in OpEx is notably lower compared to revenue growth. Worth mentioning here that this comes over a very low OpEx levels of 2020. The main challenge actually is cost of sales growing ahead of revenues. Again, to remind, this is due to rising commodity and raw material prices. I'm going to show you in a while the details of commodity hedges, which has helped us to partially limit the impact. The other line that you see in EBITDA bridge mainly refers to currency translation. All in all, we achieved to grow last year's high base EBITDA in third quarter.
Free cash flow, like EBITDA, had a high base in 2020 as a result of significant improvements in working capital, as well as very prudent CapEx spending. In 2021, though, in line with our planning, we spend more CapEx, which naturally has a negative impact on our free cash flow. However, strict working capital management, specifically in Russia, continues to contribute positively. As an additional note, I have to say that cash cycle days in all operating countries improved versus last year. Working capital to sales ratio is at record low levels across the board. In addition to working capital changes, incremental EBITDA generated is also positively impacting. Overall, we are successfully landing close to high level of last year and generate TRY 435 million in third quarter.
Now, if you look at the balance sheet on the beer group side, we are at 1.7x net debt to EBITDA and Anadolu Efes at 4x-8x multiples. We are looking at a very healthy set of numbers. You may remember from our previous call or announcements, we had issued a new bond of $500 million to refinance our existing bond maturing in November 2022. With this extension of our existing Eurobond maturity for another seven years, our average debt maturity now is 4.31 years. Eurobonds remain as the only FX debt exposure in our balance sheets. When it comes to cash, our policy is to hold the majority of our cash in hard currencies. Consequently, as of end of September, we hold above 80% of our cash in hard currency.
When it comes to risk management, from commodity hedging point of view, we are hedged by 100% for the aluminum for 2021. However, we've gone intentionally a bit slower for 2022 hedging as commodity prices were hitting record levels, high levels for the last 10 years or so. Currently, we are close to 30% for next year. PET again hedged 100% for 2021, 76% for 2022. Last but not least, from FX hedging point of view, I would say that we have hedged currently almost 50% of our exposure of 2022 in Turkey. This concludes my presentation. I will give word back to Can, and thank you.
Thank you, Gökçe. With respect to the EBITDA guidance for our outlook, we are revising our guidance for Anadolu Efes. Obviously, that has been on the upgrade in the soft drinks, given the strong business momentum year to date, and also due to the inclusion of Uzbekistan, the soft drinks consolidated results will be affected by a couple of percentage points at volume and revenue levels, while there will be a slight dilution on EBITDA margin. We make no changes in our Beer Group expectations, especially on the top line. However, we are a bit cautious on meeting our profitability margin guidance, considering the upward price trends in the global commodity markets and raw material prices together with the higher inflationary environment we are seeing.
As I try to explain, we are trying to mitigate all this by earlier price increases through the quarter and we'll see the impact. Accordingly, we now expect our consolidated volumes to grow by mid- to high-single digits% and revenues to grow by high teens to low twenties% in the FX neutral basis. We still expect the delivery of strong free cash flow, yet we expect some normalization compared to the fantastic nine months numbers, like I would say. This concludes our presentation, and we will be very happy to answer your questions if there would be any. As Aslı just mentioned, you can write down your questions. Thank you all for participating to the conference call.
We have already two questions at the moment. Let me read both of them. How much of the negative TRY 532 million in cost of sales was related to raw material increases? The second one is, have you increased prices in Russia during the third quarter? If so, how much?
Maybe I can start with the first part. Almost 2/3 of our increase, we can say that it is attributable to raw material increases.
We have already made a price increase in August in Russia, and as I mentioned, in all beer operations, we have started to have price increases in September and October and November in different cases. In Russia, specifically, after the price increase at the beginning of January, now in August, we have increased slightly more than 5% price in Russia.
There is another question from Hanzade. Thank you for the presentation. I have three questions. How much margin headwind do you expect in Q4 and 2022 from rising commodity and raw material prices? The second one is, after strong cash generation from working capital, do you still see room to generate cash from working capital in 2022? Can you please comment around recent demand trends, particularly in Russia?
Gökçe, would you
Yeah, I can tell that.
Margin pressure side.
Well, Q4, we expect similar or slightly better to Q3, maybe. With the price increases that we are putting in place, our expectation would be slightly better but similar to Q3 margins.
Thank you. Aslı, what was the second question?
Uh-
You started, you say one question, but it comes with three questions.
I mean, the second one was related to cash generation after strong cash generation from working capital.
Uh-
Do you still see room to generate cash from working capital? Yes.
Yeah, well, I mean, specific for the beer operations, I mean, obviously we have reduced our working capital significantly so throughout last year, and this year we have generated cash from our working capital. That's a very valid observation that at these levels it would be much difficult to raise further cash. Please keep in mind that now our working capital is negative, so as our balance sheet expands, the working capital will still be, because it's negative, on the negative territory, will be constantly impacting the free cash flow generation as it expands. With respect to the demand side, I mean, we are seeing similar trends in every other markets, so I would say shortly.
Let me remind, if you have any questions, please write down your questions on the box at the right of your screen. Yes, we have one more. Do you have an estimate of what the negative effect from raw material increases will be in 2022? More specifically, how much will COGS per hectoliters increase?
Well, let me jump in, Gökçe. Obviously, when you look at the major raw materials, the barley, malt, packaging, they make two quarters of our total cost, and also on the overheads we have energy, so on, so forth. They are linked to global prices, they are linked to commodity prices. We are, we are all seeing significant increases there. In that perspective, I mean, like, our teams are working in terms of the planning for next year. Obviously, there are two ways to mitigate this. One is pricing, and the second, further OPEX management and reducing our operating expense margins, I mean, operating expense as a percentage of our revenues. This is how to mitigate.
Our, let's say, purpose is to mitigate almost all. This is work in progress. In the meantime also, we see different fluctuations in the commodity prices. We will be in a better position at the beginning of the year to give more clarity on this. Our willingness, our aspiration is to cover all the impact on our platforms.
If you have any questions, please write down your questions on the right part of your screen, please.
All right. Last bets on board.
Yes, we have.
Thank you all.
We have one more.
Really?
Do you plan to take more increases in Russia after the August one in coming months to cover cost inflation?
Well, specifically, but basically, let me reflect for all countries. Obviously, at the beginning of the year, we will, depending on the further development and additional, because we haven't taken all the price that is required to cover the tax and cost of changes or reflections for 2022. In that perspective, we would. We are planning at, our plans for 2022 would cover additional price increases by the beginning of the year. Specifically for Russia, let's be honest here. It is very, very competitive market. We have seen very high pressure in terms of competition, in terms of promotions and discounts, as we have discussed in the last couple of quarters.
In that perspective, although we are the market leader, we cannot just simply disregard the rest of the market. We have taken a strong price increase, as I noted earlier, at the beginning of August, and we need to make sure that our competitors are rationally following our price increases in that perspective. We are monitoring that very closely. We have seen the competition increasing prices, but unfortunately that is not in the magnitude that we have. In that perspective, further price increases would require such a gap to be closed.
However, given, I mean, that I'm sure all the players would be quite rational in terms of keeping the value for our business and in that perspective, with the condition that is, that the gap on pricing is closed, we will be considering further price increases.
There are actually no more questions at the moment, so we can close this, I guess.
Thank you, Aslı. Thank you all for joining. I hope to see you at the end of the year.
Thank you.
Thank you for joining.