Turkey: Anadolu Efes beer sales increased 16% 1H 2006

Anadolu Efes Biracılık ve Malt Sanayii A. (Anadolu Efes) released September 01 its consolidated financial results as of and for the period ended 30 June 2006.

Anadolu Efes, listed in the Istanbul Stock Exchange (AEFES.IS), is the operational entity under which the Turkey beer operations are managed, as well as the holding entity of Efes Beverage Group’s interests in Coca-Cola bottling and international brewing businesses.

The Efes Beverage Group is composed of Anadolu Efes and its subsidiaries that produce and market beer, malt and soft drinks across a geography including Turkey, Russia, the CIS countries, Southeast Europe and the Middle East. The Group currently operates in 10 countries with 15 breweries, 6 malteries and 12 Coca-Cola bottling facilities and has an annual brewing capacity of around 32 million hectoliters, malting capacity of 236,500 tons and Coca-Cola bottling capacity of 535 million unit cases per year.

In 1H2006 the total sales volume growth (including beer and soft drinks) that effects Anadolu Efes’ consolidated net sales revenues is realized as 67%. Within this sales volume increase, beer sales volume increased by 19%, while soft drink sales volume increased by 358%(as this reflects 100% of Efes Invest sales volumes in 1H2005 results, whereas in 1H2006 it includes 51% of CCI’s total sales volumes including the sales volume of Efes Invest.

The total beer sales volume figure for 1H2006 includes the sales volume of Krasny Vostok Brewing Group (“KV Group”) in Russia, which EBI acquired in late February 2006. On an organic basis (excluding the impact of the KV Group), the sales volume increased by 9% in 1H2006 over the comparable period of previous year.

Anadolu Efes total soft drink operations’ sales volume including both the Turkish and international Coca Cola operations increased by 17% on a proforma basis. Excluding the sales volume of the Coca-Cola Bottling Company of Jordan, which Efes Invest acquired in December 2005, the total sales volume growth on an organic basis was 13%.

The significant volume increases in both lines of our business is mainly driven by the robust demand in all Anadolu Efes operating markets. On the beer side, the strong volume growth in the second quarter of the year more than offset the unfavorable impact of the severe weather conditions in the operating markets in the first quarter of 2006.

Net sales revenues in 1H2006 increased by 65% over the comparable period of previous year, reaching YTL1.232 million. Although each line of business recorded top line growth in 1H2006, a substantial part of the increase in net sales revenue is mainly attributable to the proportionate consolidation of CCI (including Efes Invest) in 1H2006 versus in 1H2005 equity pick-up consolidation of CCI and full consolidation of Efes Invest under Anadolu Efes. In order to provide a better basis for comparison, on a proforma basis assuming CCI (including Efes Invest) is proportionately consolidated under Anadolu Efes for both 1H2005 and 1H2006, the increase in net sales revenues in 1H2006 is calculated as 22% on a proforma basis in 1H2005.

In 1H2006, consolidated Gross Profit increased to 604.7 million YTL, by growing 51% over 1H2005, delivering a margin increase to 49%. The increase can be attributed to the effective cost management and economies of scale in Anadolu Efes’ operations.

Profit from Operations increased by 55% and 37% on actual and proforma basis, respectively.

Our consolidated COP in 1H2006 increased to YTL308.3 million, indicating a growth of 47% over the comparable period of previous year. On a proforma basis, the increase was 25%. Anadolu Efes was able to maintain its COP margin in 1H2006 compared to 1H2005, despite a higher proportion of lower margin businesses versus its higher margin Turkey beer operations in its consolidated results.

Consolidated net profit increased by 6% to YTL109.6 million in 1H2006 from YTL103.8 million in 1H2005.

Although both Turkey and international beer operations delivered strong net profit growth in 1H2006, the consolidated net profit increase was held back due to the net loss recorded at CCI level, as a result of the foreign exchange losses occured in the second quarter due to the devaluation of YTL against foreign currencies in Turkey.

As of 30.06.2006 Anadolu Efes had a consolidated net debt position of YTL1.132 million vs. YTL168.3 million as of 31.12.2005. The increase is mainly attributable to the US$500 million Bridge Facility executed by EBI in February 2006, in order to finance the purchase of the KV Group and certain minority shares in Moscow Efes Brewery (“MEB”) in Russia. The bridge loan is going to be refinanced by means of a US$500 million longer term syndication loan, which EBI will collectively source with Anadolu Efes, and of which Anadolu Efes will utilize US$200 million portion.

Turkey beer results

Although our Turkey beer operations’ sales volume was adversely affected by the long and severe winter in the first quarter, domestic sales volume growth accelerated in the second quarter, delivering a 2% growth at the end of 1H2006 over the first 6 months period of previous year and total domestic sales volume reached 3.4 million hectoliters.

Including the export volume, which grew by 11% reaching 0.3 million hectoliters, the total sales volume of our Turkey beer operations was 3%, increasing to 3.7 million hectoliters in 1H2006.

Net Sales Revenue increased to YTL433.5 million in 1H2006, up by 14% from YTL378.6 million in 1H2005. In addition to the volume growth, the net sales revenue is also impacted by the price increases in 1H2006, in line with our general strategy to increase our prices parallel to the inflation. Our average net sales price in 1H2006 increased to 1.18 YTL/liter from 1.06 YTL/liter in 1H2005.

The effective management of the cost base, combined with the increased sales prices resulted in the improvement of both the Gross Profit and Profit from Operations. Gross Profit in 1H2006 increased by 20% over the comparable period of previous year by reaching YTL280.9 million with gross margin up to 65% in 1H2006 from 62% in 1H2005. Profit from Operations was up 36% with a margin of 33% in 1H2006.

Operating income margin was up to 34% from 33%, albeit primarily foreign exchange losses incurred (14.8 million YTL), due to impact of increased F/X rate on the foreign currency based borrowings of the Turkey beer operations.

COP grew by 21% to YTL174.9 million in 1H2006, delivering a COP margin of 40%, up from 38% in 1H2005.

In 1H2006 Turkey beer operations delivered a net income of YTL128.1 million, an increase of 31% over the comparable period of previous year. In addition to the positive operating performance, the increase in Net Profit was also favorably impacted by the reduction of corporate tax rate to 20% from 30%.

As of 30.06.2006 Turkey beer operations was at a net debt position of YTL56.0 million.

International beer results (Efes Breweries International)

Anadolu Efes brewing operations in Commonwealth of Independent States (“CIS”), Eastern Europe and the Balkans are managed by Efes Breweries International N.V. (“EBI”), a 70% subsidiary of Anadolu Efes, incorporated in the Netherlands and listed on the London Stock Exchange (IOB: EBID).

EBI’s consolidated sales volume in 1H2006 reached 5.5 million hectoliters by growing 33% y-o-y. Excluding the sales volume of the Krasny Vostok Brewing Group (“KV Group”), which EBI acquired in February 2006, organic volume growth was realized at 14%, driven by robust demand in EBI’s operating markets.

EBI’s top line growth improved by a significant 32% in 1H2006 compared to the same period of previous year and reached US$292.1 million. Excluding the impact of the KV Group, the organic revenue growth was 18%, which outpaced the organic sales volume growth. The increase is mainly due to local currency price increases through effective pricing policy in spite of unfavorable brand mix impact due to increased volume of economy brands.

EBI reported a 37% increase in its Gross Profit in 1H2006 compared to the same period of previous year by reaching US$140.4 million, with an enhanced gross profit margin of 48%. Although inclusion of the KV Group into EBI’s operations results in a larger portion of economy brands in EBI’s operation that unfavorably impacts the average price of EBI, it also enables EBI to offset the impact through a lower cost base and economies of scale.

EBI maintained its operating expenses as a percentage of net sales revenue leading to improved operating profitability in 1H2006. In 1H2006 EBI posted a 44% increase in its EBITDA compared to previous year and reached US$54.4 million. EBI’s EBITDA margin increased to 19% versus 17% in 1H2005.

As a result of the US$500 million bridge facility sourced by EBI in February 2006, interest expenses significantly increased in 1H2006. However this increase was offset to a great extent by the foreign exchange gains in the period. The foreign exchange gain is fully attributable to the depreciation of USD (EBI’s reporting currency) versus Euro and major local currencies where EBI operates. Minority interests also decreased significantly in 1H2006 versus 1H2005 due to acquisition of certain minority shareholding and the change in the accounting of the put-option relating to EBI’s operating subsidiary in Russia. As a result, EBI’s net income increased to US$12.5 million in 1H2006 from a net loss of US$2.2 million in 1H2005.

EBI’s net debt as of 30.06.2006 was US$544 million. This increase in the level of net debt is primarily the result of the bridge loan facility sourced earlier in the year in order to finance the Krasny Vostok acquisition and minority buy-out in Russia.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .